In a down economy, increasing productivity is one remedy for beating the financial blues. But would you believe intellectual property might be a better cure? Productivity, economists tell us, is about getting more output from the same or less input. We typically measure productivity against labor costs, since down economics means lower demand with less use of bought assets. So what makes for more labor productivity? Theory X managers (always popular in recessions-not!) will tell us that the fear of unemployment will wring the sloth out of otherwise un-motivated workers. Theory Y guys will counter that the human need to better their group (i.e. company workforce) will make solutions that do more with less. This creativity impulse is what makes intellectual property (IP).
So who is right? The answer is probably ‘yes’. Theory X managers use hard times to isolate the slackers and boot them out of business. Since slackers weren’t contributing their fair share of the effort in the first place, eliminating them shows the real output of those survivors who minimize their slacking. And pay the survivors less while you’re at it. Theory Y guys usually have more faith in the company HR to keep slackers out in the first place. If the Y guys are right, then eliminating workforce really puts more work on the survivors on a unit labor basis. So you really have to work smarter and the ‘smart’ usually means creating new IP.
Let’s hope the Y guys are more right. IP is property and property is an asset. Getting money for assets is SOP for financing businesses and managing business finance. But who knew that downsizing in hard times might actually create a property –IP- windfall.
The other thing about down economies is losses or to put it more kindly, negative profits. This drags down investor confidence which lowers equity value. More bad news to be sure but curiously there may be an IP upside to this. Now it helps to know accounting and tax regulations to fully appreciate the next part, but common sense works almost as well so here goes. If a business loses money, you can earn back money or sell at a profit with no taxes until you breakeven. That is US tax policy and it makes common sense because if the IRS taxes you when you are already down, it increases the likelihood that you will go out of business. You will then fire your entire workforce and there will be nothing to tax in the future. The government lives off taxes so killing off taxpayers, financially speaking, is a bad idea. So the government let’s you recoup your business losses which lets you keep your workforce employed and you can live another day when you will indeed pay taxes to the IRS.
So what can you do with your tax losses? Well one thing you can do is sell off some of the IP you made in the hard times or even some of the IP you made when times were good. The profits of IP can be 100% of the sale price so that can quickly use your tax losses and earn quick tax-free gains. But you still need to use the IP so how does that work once you’ve sold it. Simple answer – license it back. FYI the royalties you pay on a license-back are 100% tax deductible. Want to learn how to turn your doom times into boom time? Contact us at Carthage Intellectual Capital Management info@CarthageIC.com. Productivity IP can indeed be very profitable.