Mixing and matching tangible and intangible assets

A great story in today's New York Times about the combination of tangible and intangible assets - Controlling Quality: The Hard Road to Building a Brand:

When Craig and Randy Rubin started Hi-Tex Inc. in November 1993, they never intended to open a factory. "Our charter was no bricks and mortar," said Ms. Rubin. The business, in West Bloomfield, Mich., was set up, she added, to be a branding and a technology company.

Now, 12 years later, they have more than $25 million in annual sales, 52 employees and a hard-won appreciation for how much day-to-day control it takes to turn a promising technology into a reliable brand. And, yes, they have a factory.

The story relates how the company had started with a technology and a trade name -- for a fabric that was breathable yet tough, impervious to liquid, stain-resistant and antimicrobial. Production was contracted out. But, at some point, the production process broke down. Deliveries were late and the product failed because a key step in the process was skipped. By losing control of the production process, the owners lost control of the intangibles that made them an early success: quality and reliability

An outside contractor had been fine when producing Crypton was a relatively simple business of running uniform white fabric through a series of coatings. But the company's growth added complexity. The mills' Jacquard fabrics needed pretesting to make sure they could be transformed into Crypton and inspecting to verify that the process worked. Hi-Tex itself was adding new fabrics with different weights, requiring experimentation and separate runs. Besides, if sales kept growing, the business would eventually be too big for a single contractor.

So, they did the unthinkable - they started doing it themselves.

Lesson one: intangibles like brand are only as good as the tangible product behind them.

Lesson two: control of the production process is an important intangible

Lesson three: tangible products (and the production processes behind them) will always remain an important part of the Intangible Economy. Product, brand, design, technology - all are an integral mix.

When anyone tells you we can survive as a service economy (or what I've called a royalty economy) based on our "innovation" alone -- tell them the story of Craig and Randy Rubin.