Six Capitals of Capitalism


Business competitors and their spokesmen have historically used the statistics of undercapitalization to scare you off.

But money is no longer, nor has it ever been, the only kind of capital.

Ironically, of the six capitals of capitalism, the only one you want to limit is financial capital! The more you borrow the deeper you are in debt.

Lack of capital is a problem but borrowing capital is even worse. Better to minimize debt by starting small, thinking big.

Look to family and friends, supporters and colleagues. Not only for cash, but for in-kind services, bartering and investment of human capital.

You and your network of people already possess four of the remaining capitals: human, intangible (knowledge), intellectual and social.

While accountants have largely ignored the value of these capitals, they are beginning to look for ways of measuring them. Because they count.

One report indicates that the market value of organizations has shifted from 80 percent tangible to 82 percent intangible assets

When you understand all the capitals and do an inventory of yourself you will lift your cloak of servitude.

The Myth of Undercapitalization

For years the established business community has enjoyed using statistics to scare off competitive startups by reciting the high rate of failures while others pour oil on the fire, blaming those failures on “undercapitalization.”

You know the mantra: “It takes money to make money.”

Of course it does. But money is no longer, nor has it ever been, the only kind of capital. There are six kinds of capital you need to consider, most of them intangible and all of them critical to your success.

  • Financial Capital
  • Organizational Capital
  • Human Capital
  • Intangible (Knowledge) Capital
  • Intellectual Capital
  • Social Capital

Of these six capitals, the only one you want to limit is financial. You’re not too interested in organizational capital unless you own the organization. And the remainder belong to you, regardless of how you make a living. 

Financial capital is any economic resource measured in terms of money and used to start or maintain a business.

Indeed, the lack of financial capital can be the cause of startup failure.

Conversely, obtaining capital can also be the burden that causes startup failure. That’s the irony of it. The less “financial capital” required to start your business, the more likely it is to succeed.

Why, you ask?

Because most startup entrepreneurs don’t have the money. And so they have to borrow their financial capital and start their businesses in debt. The same way recent college graduates begin their economic journey!

And so, your first challenge is to begin your business by limiting the need for financial capital! That’s the real meaning of “thinking big, starting small.”

Financial institutions are happy to help you limit your financial capital. They don’t want to lend you money! And if they do, they want to handcuff your equity and charge you usury rates.

To avoid the burden of capital you’re forced to start lean and mean. That’s actually a good thing.

The only chance you have of getting a fair shake from the financial community is to obtain what is mislabeled a Small Business (SBA) loan. The truth is the SBA doesn’t actually make the loan. It backs the loan, which helps you avoid risking your personal equity and results in a lower interest rate.

But those loans are limited to $50,000. Therefore, if your business involves high overhead or extensive inventory, it’s not enough and you’ll have to cover the gap even before you get that SBA loan.

Incidentally, if your business is virtual . . . as COWORK Entrepreneurs is . . . startup costs can be minimal. You’ll learn more about that in the Green (Action) Zone.

Oh . . . and forget government grants. The only exception is if you are going to take some of the burden off the government as a non-governmental organization (NGO). In that case you’ll inherit the burden while the government keeps the control.

Try not to look at all this as discouraging. It is a challenge but the bad news encourages you to start your business by limiting your financial burden to only what you absolutely need and at minimum cost.

How to Minimize Debt

Here are just a few ways you can minimize the debt from startup:

  • Begin by approaching friends and family. Their contributions will come with low or no interest rates.
  • If your project includes the common good, you can use online crowdfunding which allows you to market your business idea to people who will donate to help you because they believe in your cause.
  • Sell what you have in order to get what you want. If you have assets you can do without for awhile, sell them and use the cash to kick-start your business.
  • Look for angels. Angels are people who have discretionary money they want to invest in a favorite cause. But beware. If you accept big money from an angel, the angel will tend to want to exercise influence over your decision-making.
  • Home equity loans are often used by startup entrepreneurs. They come with low interest and flexible interest rates. But the risk is personal. If your business fails, you could lose your home through foreclosure. It’s a personal loan and so being a business LLC may not protect you.
  • If you will be accepting credit cards, one source could be a “merchant cash advance” agreement. In this case, the lender automatically collects a certain percentage of credit and debit card sales. Thus, if sales are low, payments are low and vise versa.
  • Bartering might work for you. Someone gives you something you need for startup and in return you pledge repayment with something they need of similar value.

These are just for starters. Do your own research.

I like that bartering idea best! You receive capital — financial or intangible — up front and pledge benefits to the giver later on. Just for incentive!

COWORK Entrepreneurs, for example, will be asking a few co-developers to share human capital during startup with the expectation of receiving in-kind services for their own startups and, at the same time, earn return on investment (ROI) later on. They may also become the company’s management team as contractors. More on that in the Green Zone.

Bottom line: Do everything you can to keep your need for financial capital down by using your other capitals to keep your prospects up. Not undercapitalized, but minimized.

So, what are these other capitals?

Organizational Capital is all the tangible assets as well as proprietary information and process within your startup company that has already been institutionalized or codified, such as databases, policy and procedures, routines, manuals, software applications, research and development, training courses, patents, trademarks and copyrights.

You have already developed some of this through the strategic planning process and more will materialize in the Green Zone where you will develop tactics, policy and procedures, processes and action plans.

As an example, I have already developed and launched the NotMyEconomics online course prior to completing the development of COWORK Entrepreneurs. NME is a major example of developing organizational capital before there is an organization! And, totally funded through donations from friends and family!

Corporations often confuse organizational capital with owning human capital because it often involves:

  • changing the formal and informal social relationships and patterns of activity within the enterprise, or
  • changing the individual mindset to support organizational function, or
  • accumulating information useful in matching workers with organizational goals and objectives.

In other words, they claim it as organizational capital by manipulating it to benefit the company or investing in it to improve human capital.

That’s not owning organizational capital. That’s the organization managing second hand capital!

Organizations claim ownership of human capital but they don’t own workers and so they don’t own human capital. They rent it.

Human Capital is individually owned unless you live in a society where slavery is legal or overlooked. Otherwise, organizations obtain human capital entirely on credit. They make payments (wages) and control output.

Unlike financial capital, the borrower (the organization) sets the value, not the lender (the employee). It’s a buyers’ market and the organization is the buyer. Generally, the organization decides how much a person (his or her human capital) is worth and offers specific wages and benefits according to the buyer’s willingness to pay. Take it or leave it.

Individually, the real owners of human capital (people) have very little leverage. Unions once negotiated on behalf of those who have human capital for rent, but at best that was only one-third of the workforce. Today less than 10 percent of workers is represented by unions and the remaining unions have largely lost their bargaining power.

Since the borrower sets the value, the market worth of human capital at all levels has steadily declined. At the same time, the net worth of these borrowers of human capital have risen by leaps and bounds.

Thus, the economic disparity we are facing.

There is very little chance that this disparity will change unless the game changes. That is to say, unless the owners of human capital (us) get on the right side of the system (them). The only way to do that is to become independent workers, indie entrepreneurs who price ourselves as we see it, own our own work and own our own rules. Take it or leave it.

I described this problem in greater detail in the Red Zone essay, Minimum Wage for All. And I began talking about the indie capitalist as a solution in the Red Zone essay We Are NOT the Market Force.

Incredibly, during the technological and social changes that have occurred over the last several decades, the real value of human capital has risen rapidly while actual compensation has decreased. It should be the other way around. We as individuals should, and unknowingly do, have increasing power to change the way the system works. But we have to learn to recognize our worth, regain faith in ourselves and work independently and collaboratively to make the work-a-day world a better place.

Intangible Capital is, ironically, a term that comes from the field of accounting and covers resources that do not appear on the balance sheet. One report indicates that the market value of organizations has shifted from 80 percent tangible to 82 percent intangible assets.

And we, as the original owners of human capital, are largely in possession of those intangibles.

Regardless, on the corporate balance sheet, human capital is still listed as a liability instead of an asset, even though the vast majority of the companies’ intangible assets are owned by its people, not the company.

Between the absence of intangible assets and the booking of people as liabilities, the modern balance sheet is way out of balance! And the mindsets on both sides of the equation are backward. Most of the assets are owned by the ones they call liabilities (us)!

However, the accountants are working on it. They have identified four main categories of intangibles to be quantified:

  • Human Capital – This includes all the talent, competencies and experience of employees and managers. It’s the intangible capital that “goes home at night.”
  • Relationship Capital includes all key external relationships that drive business, with customers, suppliers, partners, outsourcing and financing partners, to name a few. This kind of capital also includes organizational brand and reputation. Due to the growing importance of networks in organizational structures, this is also sometimes called network capital.
  • Structural Capital includes all information that stays behind when your employees go home at the end of the day. Accountants call it “knowledge.” I don’t, of course. It is knowledge that has been converted to information and stored in a database. There is significant structural capital in today’s organizations including recorded information, processes, software and intellectual property (intellectual assets that have been transferred from the human brain).
  • Strategic Capital is a category that is not always included in academic definitions of information capital. It includes all the knowledge and information you have about your market and the business model that you have adopted to connect with market needs. The driving force behind strategic capital is purpose. Culture and purpose are the glue that holds the rest of intellectual capital together and both the individual and the company need to be in sync. One way or another. I prefer my way!

Intellectual (Knowledge) Capital is often confused with intellectual property.

The origin of intellectual capital is in the domain of human intelligence. It’s bound only by a person’s mental capacity. It becomes intellectual property when it is captured, recorded and claimed through documentation. The document is the property, not the intelligence. That has been captured, but not owned.

You cannot claim human intelligence as intellectual property. It is forever yours, regardless of the outcome of lawsuits. You know what you know and you can’t stop knowing it. What the company has is the misbegotten legal power to prevent you from using it once they’ve taken it from you!

The law is wrong.

That’s a key part of the economic injustice we keep talking about.

Therefore, when you work for an employer, you are engaged in a battle of ownership whether you know it or not. This is what I discovered during my knowledge management (KM) days and what innovators and inventors discover when their ideas get trademarked by their employers.

Even though knowledge is originally owned by the employee, the employers want to control it, not just manage it. And so, KM has became a process of capturing and claiming  an individual’s knowledge instead of creating a safe environment where people can share their knowledge freely and receive a direct and fair benefit from it.

If only employers could understand that this legal injustice is keeping them from accessing the bulk of the available intellectual capital. Workers won’t give it up if the company is going to confiscate it without benefit to the worker. They keep it to themselves. You know the old saying: “Knowledge is power.” I say “Hidden knowledge is tragic!”

Social Capital, the newest of the recognized capitals, gets a variety of definitions depending on who’s defining it for both substantive and ideological reasons.

Once again the arguments are over who owns it.

The facts, however, are clear. Social capital is about the value of social networks, bonding similar people and bridging between diverse people using the norms of reciprocity. Corporations want to lasso it into the common ground of corporate culture and, therefore, control it as organizational capital. But it is inherently personal and the tug of war goes on.

While capitalism in general is viewed as anti-social, the backlash is beginning to lead mega corporations to worry about socially responsiblity. Whether anti-social mega corps are capable of changing their behavior is highly questionable.

I’m not a believer, but if they change, it will be ever so slowly. You, on the other hand, as an indie entrepreneur, are agile and motivated. And it’s in your genes. You have the advantage!

Shedding the Cloak of Servitude

Now that you know the many capitals of capitalism you have the opportunity to do the inventory of yourself you’ve never done before. You’ll discover your strategic advantages. It will lift your cloak of servitude.

When you think about it, you will see that you are quite a package!

Special Announcement

You haven’t reached the end of strategic thinking — it’s never ending — but you have reached the end of the thinking zone, the Yellow Zone. It’s time to put all you’ve learned and discovered to work. Follow me to the doing zone, the Green Zone.

When you get there you’ll begin the heavy lifting by taking the final step toward becoming an indie entrepreneur. Then you’ll take the lead in developing financial, business, marketing and tactical plans that will be unique to your business. From that point on it will no longer be a “class project.” It will be your project.

I’m excited about it! See you there!

Please share.

Please move on to the next essay in the Green Zone
Certified Indie Entrepreneur Plus


Not My EconomicsSix Capitals of Capitalism