“Beauty is only skin deep, but ugly goes all the way down.” – Milton BerleI make it a point to limit my observations to what I know from experience. That’s because I am skeptical of theory. Not that I dislike abstractions. On the contrary, I’m a sucker for them. And that’s precisely why I distrust them. Because I’ve lost a lot of money chasing ideas that made a lot of sense – in theory.That said, I am going to briefly discuss a theoretical point. It was made in the cover story of Target Marketing by Robert McKim (CEO of M/S Database Marketing in LA). After I explain his position and tell you why I disagree with it, I’ll try to say something helpful. Please bear with me for a few paragraphs.

Mr. McKim argues that “knowledge-based” businesses (like his) are penalized when it comes to measuring productivity. The traditional measurements for productivity – revenues or unit production – don’t apply to the new Internet businesses, because they don’t put a price tag on knowledge. And since knowledge is a primary asset of knowledge-based businesses, they don’t get the bottom-line credit they deserve when it comes to the balance sheet.

A Key Difference . . .

I remember learning about productivity in ninth grade. The teacher made an effort to distinguish between productive work and the other kind. Productive work was digging a hole. Unproductive work was pushing against a rock that doesn’t move.

Knowledge is a very valuable thing. In business it is a currency that can be traded for power. The specific product and marketing know-how a business acquires is what allows it to outperform its competitors.

Knowledge-based businesses are technical, and technical businesses rely heavily on knowledge. But that doesn’t mean the knowledge they have should be listed as an asset. The problem with valuing knowledge is one of measurement and obsolescence.

How Do You Determine The Value Of A Particular Piece Of Knowledge?

I know, for example, that contacting sales prospects as soon as possible is a very important factor in most direct-selling situations. But how valuable is it in any given situation? I couldn’t say, because there are dozens of other equally important factors that come into play. It is impossible to measure the value of any one in isolation of the others. And it is impossible to run a tab on all factors, because (a) you can’t know all of them and (b) their importance is always changing.

Likewise, the value of knowledge is not permanent. A state-of-the-art data base technique can become obsolete in 24 hours. It happens all the time.

So What Counts?

Useful knowledge sooner or later results in increased revenues or profits. (This is a tautology. I am establishing a premise: In business, useful is that which produces sales or profits, reduces costs, etc.). And so it seems to me that it is perfectly OK for the value of knowledge to go uncounted until its effect can be measured in dollars.

The real issue here, for me, is the argument itself. Why would you want to want to put knowledge on the balance sheet?

I can think of a few reasons, none of them good. We live in a very strange economic environment, where businesses are no longer valued for their productivity or profits. Everything is market share and potentiality. And the old tools of measurement have been discarded.

At the end of every fiscal year, incentive-based executives busy themselves with projects that will produce better profit-and-loss statements. Some of this activity is very good – putting into place sales programs that have been postponed. But much of it is ultimately unproductive – bringing forward next year’s income.

You Can Quote Me

Looking good on paper (or in theory) is like having your face lifted. At a glance, you appear younger. But on closer scrutiny, you lose twice: You’re still old ­– and you’re vain to boot.

[Ed. Note: Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]

Mark Morgan Ford

Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Wealth Builders Club. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.

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