Transforming Resources into Assets

Resources are flecks of gold shimmering in the creek bed. Assets are blocks of gold stacked in a pyramid. Entrepreneurship is the transformation of resources into assets. 1

Let’s imagine that I inherited five one-acre parcels of land: one acre of land near Midland, Texas, another acre near Jackson Hole, Wyoming, a third acre in Brooklyn, New York, a fourth acre near Clarksdale, Mississippi, and a fifth acre in Palo Alto, California. In all five cases, the land is vacant: no improvements or buildings of any kind are present on the sites. Thanks to my wealthy deceased benefactor, I have received some valuable assets, to be sure. But if I do nothing with these assets, they are effectively bequeathed liabilities to me: I may have to pay property taxes on the land, and I may have to insure them to prevent people from suing me if they slip on a patch of ice or step on a rusty nail. So even though I received the land for “free,” it comes with strings attached.

Now let’s assume I have no other assets of any kind, so I can’t afford to pay even the basic maintenance on my properties. I must attempt to sell all or part of my five-acre inheritance. I will attempt to exchange my fixed assets (real estate) for liquid assets (cash money) in order to obtain working capital for me to live or to reinvest into my remaining properties.

So (since I do not possess a real estate license), I approach one or more real estate agents to assist me with listing the properties. These agents will help me determine an appropriate asking price for each property based upon historical data about comparable properties within a defined market. Where each property is located within its given market—on a busy thoroughfare or in a less-than desirable neighborhood—will make a reasonably big impact on the property’s valuation. The real estate agent will help me attempt to obtain a market valuation for my real estate assets based upon information gleaned from the sale of similar assets. Each square foot of physical space is a relative commodity within its specific geography. I cannot affect whether my land is priced nearer to $1 per square foot or $1,000 per square foot; the base price-range is set by the market for similar local assets.

I meet with my real estate advisors, and we determine the asking price for my one-acre plots of land. The values, like the locations themselves, are all over the map. For 43,560 square feet of land in my five locales, I receive valuations from $4,000 to $40 million dollars. Within the bounds of each parcel is some vegetation (grassy or weedy), some dirt (loamy or rocky), and the rights to the breathable air (of varying quality) above the ground. In fact, if I could photoshop each parcel out of its immediate context, the only difference from site to site would be the slope of the land, the temperature and humidity of the air, the leaf patterns and density of the plant-life, and the color and quality of the soil.

What gives my assets their respective and wildly different asset values is rarely a product of the assets themselves. Rather, valuation is a function of proximity to resources, and it is those resources that imbue property with value. I might even argue that the intrinsic value of the assets themselves is a product of the resources embedded within the properties.

The real estate agents sing, “Location. Location. Location!” in a conference call chorus, but they’re confusing the symptom for the disease. Location in real estate is a proxy for proximity to resources: how much money can my property generate at its highest and best use? My land may be close to transportation infrastructure, hordes of potential tenants, coveted recreational activities, high-paying jobs, prestigious social networks, or whatever resources (or lack thereof) hold sway in a given area.

If I were to drill an oil well in Palo Alto, open a white water rafting company in Clarksdale, plant cotton in Jackson Hole, start a social photo-sharing company in Midland, or cut timber in Brooklyn, my ventures would surely fail as a result of a misalignment of resources and geography. Moreover, I have compromised each locale’s existing resources and made them effectively valueless. If, therefore, my aim is to transform valueless resources into valuable assets, I must align my properties’ intrinsic and extrinsic resources with the nuanced geographies of the surrounding markets.

And here I leave our heuristic real estate metaphor, because the phenomenon I’m describing is broader than land transactions. A key question I might ask of not only places, but also of people and things, is: what are the prime resources here? I’m not talking about a cynical philosophizing of the Capital One Viking-slogan, “What’s in your wallet?” Instead, this question is the first step in a meticulous exercise of cataloguing raw materials (resources) that may be imbued with value and transformed into refined goods (assets).

Innovation is circumscribed by the availability of resources, and most resource constraints or surpluses are products of physical geography. In the United States, Houston is the hub of the oil and gas industry; New York is the hub of the financial industry; Chicago is the hub of the commodities industry; Silicon Valley is the hub of the technology industry; Hollywood is the hub of the entertainment industry. How each city (or region) became a hub for its particular industry is rooted in geography, both physical and cultural. Some of the connections between a hub and an industry are obvious—Houston for oil and Chicago for grain—and others are less-obvious. Seattle, for example, is not situated at the crossroads of the global coffee trade, but the incessant cold rain of the Pacific Northwest makes coffee an essential, quasi-religious ritual there. The physical climate and the cultural importance of coffee-drinking (i.e., massive consumer demand) made Seattle a natural epicenter for the growth of the American coffee industry.

Returning to our previous question, what would you list as the prime resources of your region, your business or organization, or yourself as an individual? For my hometown of Mountain Home, Arkansas, I like to say that the prime resources are rivers, rocks, and retirees. Some locals might argue that big blue lakes should be on my list (even though that would mess up my neat list of r-words), but this is an example—as the word “prime” would indicate—of factoring resources down until they are irreducible. In my local example, then, the reason we have big blue lakes is because we first had rivers that were dammed into lakes. The concrete dams were made with locally-quarried limestone, a sedimentary rock that also gives the lakes a clear blue hue. I factor the lakes into rivers and rocks. Likewise, the cultural phenomenon of an influx of retirees is tied to the lakes and rivers, but the relationship there is one of correlation, not causality. There are a number of historical and geographic reasons why residents of the southwest Chicago suburbs began moving to the Arkansas Ozarks in the 1960s (could have to do with a fourth “r”), but for this exercise, the key issue I want to explicate regards the core resources of a particular geography.

Now imagine that you are an entrepreneur who buys into my tripartite statement about rivers, rocks, and retirees; what businesses should you engage in? Based upon that simple formulation, you might reason that businesses with a first- or second-degree relationship to those resources would thrive. First-order businesses could include water companies, hydroelectric power plants, gristmills, quarries, stone yards, assisted living centers, nursing homes, and funeral parlors. Following on the heels of these elemental ideas are the molecular, second-order businesses. These might include fishing resorts, boat manufacturers, catfish restaurants, concrete plants, lime kilns, stonemasons, cedar mills, home improvement and garden centers, golf courses, churches, pharmacies and surgery centers, banks and investment advisors, bingo and bridge clubs, and so on. That’s not to say that a screen printer or an Indian restaurant or an educational software company or a shoe repair shop couldn’t do well here; I’m simply trying to demonstrate how resources define a particular market. The principle here is that any business, when conducted with excellence, stands a greater chance of success when it has a strong connection to the prime resources of its locale.

The same is true for individuals. When I know my gifts and skills and advantages and fluencies and proclivities—and if I am not deluded in my self-assessment—then I have assembled the building blocks of a productive career and a balanced life. Entrepreneurs are not just business-starters; they are makers of new things and improvers of old things. In whatever the domain, the mark of entrepreneurship is recognizing your resources and transforming them into assets. And then doing it all over again.

  1. Banks do the opposite: one of their primary businesses is dissecting assets into their constituent resources.
About Ben Ponder, Editor-at-Large

Ben Ponder, PhD, is Editor-at-Large at Media Rostra. Ben has received decorative pieces of paper conferring upon him an unnamed set of “rights and privileges accorded thereto” from the University of Arkansas, Regent College, and Northwestern University (where he was a Presidential Fellow). He studied (in alphabetical order) architecture, classics, communication, history, political science, rhetoric, and theology. He is the author of American Independence: From Common Sense to the Declaration (“Sizzling.” – TMZ) and the co-editor of Making the Case: Advocacy and Judgment in Public Argument (“Six-pack abs-olutely great!” – US Weekly). Ben is currently an executive in the educational software industry. He and his organic wife, Amy, live with their four free-range kids in a farmhouse Ben designed and built. His personal site on the Interweb is benponder.com, and he can be reached on Twitter @ponderben.