Investors like businesses with fewer assets

A recent study from the Harvard Business Review shows that investors today prefer companies with fewer physical assets. That is not great for the boating industry.

HBR looked at the 2015 S&P 1500 Index, a mix of small-, medium- and large-cap stocks, and separated the index based on industry sector. Then, HBR examined each industry’s average percentage of physical assets (land, buildings, vehicles, etc.) that companies own compared to other assets. HBR also looked at each industry’s average revenue multiple, measuring how highly (or not) companies are valued in relation to their revenue.

What HBR found was that the industries with the the highest multiples were those with the fewest physical assets.

“Suddenly, in the digital age, the physical assets that the big industrial companies have acquired are becoming more and more burdensome. Inventory depreciates and must be moved around. When geographic needs change, land is difficult to acquire or offload. And equipment must be maintained in a world that is becoming virtual and augmented by technology (VR and AR). In some cases, these assets are preventing companies from adapting, and weighing them down. It’s the corporate equivalent of having a closet full of old VHS tapes and CD cases.
The traditional asset-heavy corporations that used to be at the top of everybody’s most-admired lists are starting to look old-fashioned, slow-moving, and inflexible — particularly to investors.”

This is not great news for anyone looking to court investors to buy their boat business as a means of an exit strategy. If your investors aren’t already in the boating industry and understand the value of the experiences these physical assets bring customers, it will likely be harder to make the sales pitch.

The best thing you can do is invest in technology in as many places within the business as possible, to reduce physical assets in plausible segments of an inventory-rich industry. Whether this means our method for scheduling boat rentals, lead tracking, what have you – go digital in as many ways as you can.

Leave a Reply

Your email address will not be published. Required fields are marked *