I’ve been toying with the notion that business, for certain, and possibly life in general is all about asset transformation. Basically, taking one or more assets and transforming them into other assets. We transform our skills and time into money by means of a job. We transform our charm and other personal characteristics into friendships by means of social engagements. Google transforms the audience it develops from web searches into money by means of providing space for advertising. It goes on and on.
The key elements of an asset transformation include the source assets, the resulting assets and the process of transformation. It’s really interesting how well this maps onto the basic planning pattern; Step 1 – Figure out what you want, Step 2 – Figure out what you have that’s relevant, Step 3 – Figure out how to get from what you have to what you want. All planning has these elements though when performed out of sequence it often results in poor planning.
Within this are also the notions of growth and consumption. Consumption is probably the easiest to think about. If you have a fixed, finite asset and you apply a process that consumes that asset in the transformation to another asset then eventually you run out of the supplying asset. Sometimes this ok or at least necessary. Consider the asset of time as it relates to your life. Until we reach Kurzweil’s singularity it’s fixed and finite for each of us. Efficiency, of course, is all about how much resulting assets you can get from the supplying assets. Lots of people have opinions about how to make life more efficient.
If that’s a little to abstract, just think about the gas in your gas tank. It’s an asset you use to get from point A to point B by means of a car. Eventually it runs low or out and you have to get more by transforming the asset of cash into the asset of gas by means of a service station.
Growth is more interesting. It seems like there might be at least two types; feedback growth and forward growth. Feedback growth occurs when a supplying asset is also a resulting asset. It doesn’t necessarily need to grow. Catalysts for example aren’t consumed by a process but are assets necessary for the process and are effectively products of those processes. Systems with network externalities do grow based on feedback, these do need to work in concert with other assets that are consumed. For example, social networks grow as a function of the number of participants, but this is at the expense of the pool of people who are not part of the social network yet. When that runs dry the process stops.
Forward growth may be just feedback with a longer loop. For example, when you are young opportunities (an asset) are relatively few, but one of those opportunities is to get a good education. Having a good education provides you with many more opportunities that you had otherwise many of which aren’t further education but also weren’t available before you got your education.
The notions of investment and profit apply to these growth modes as well.
If you were to say that this is just another way of looking at dynamic systems, then you’d be right. The relabeling though, seems to help me to identify opportunities that might be hidden. It’s certainly interesting to look at business opportunities through this lens.