Excuse this wordy definition – it’s important to get it right in case any fellow accountants are reading… Goodwill is the amount paid for a company above the fair value of its identifiable net assets. In less technical words, it recognises some of the most valuable things a company owns which cannot be neatly counted: trust, reputation, customer loyalty, distinctiveness… brand. The paradox? Goodwill isn’t born on the day of acquisition. It takes years to build. Yet accounting largely treats the investment behind great brand ideas as an expense rather than an asset. Take Apple. How much brand value was created between its founding in 1976 and IPO? How much was lost after Steve Jobs left in 1985? How much regained following his 1997 return, the Think Different campaign and years of product innovation? There’s no accounting answer. And that’s good news. If trust, reputation and distinctiveness could be reduced to a formula, generating brand ideas would simply be an accounting exercise. Perhaps that’s why the safest investments rarely build the strongest brands. The easiest decisions to justify financially may be the least likely to generate the bold brand ideas that create long-term value. Imagine you’re Apple’s Finance Director in 2000. You are asked to sign-off $85m of CapEx to open flagship retail stores. Existing retailers already sell your products. The proposed stores are ludicrously large and filled with blank space—more gallery than shop. The payback period is uncertain and impossible to model. Oh, and you can’t accrue Goodwill. Today, it’s almost impossible to imagine Apple without them—one of the most iconic physical expressions of a brand ever created. The real value lived in the intangibles. In the unordinary ideas.
