Each day thousands of IROs at small-cap companies ask themselves the same questions: Why does our stock price suck? The company is operating efficiently but the stock is underperforming. How can we raise our profile and not spend a fortune? Why does it seem so easy for other companies and so difficult for ours?
Small caps face challenges their bigger peers don’t share: getting noticed by the investment community; getting their story into the media; and achieving these goals on an annual IR budget that’s equivalent to what larger companies spend on taxis.
There are 21,000 public companies in North America, each with its own recipe for success. To rise above the crowd, a company needs a communications strategy that makes sure that shareholder value is recognized.
There are three fundamental audiences a company must reach: the financial media, investment professionals and retail investors. Let’s look at the media first.
Journalists can be a jaded bunch at the best of times – and they’re hard to impress. The key to getting media attention (other than going bankrupt, of course) is to focus on what is unique and innovative about your company. Maybe you have a new technology (the better mousetrap) or you’ve developed a novel approach to managing an old technology (better cheese for an old mousetrap). Make sure they get financial information through quarterly and annual reports, and make sure you tell them about significant developments that affect the company. The key word is significant – don’t bore them with the latest board appointments.
What about the professionals? Reaching them is the toughest challenge of all. To get on institutions’ radar screens, you need liquidity. They also want to know there are analysts following the stock. But this is a vicious circle: You can’t attract institutions without liquidity and you can’t attract analysts without institutions. One way to attract analysts is to have underwriters raise all your rounds of capital. Even if your next round is raised by former investors, have the investment bank place additional securities with their institutions, giving their analysts a reason to write about your company. And make sure the firm gives you help setting up a roadshow with their institutions even after the financing is completed.
Last, but by no means least, there’s the retail investor. One of the biggest mistakes companies make is ignoring the retail investor. They are the greatest assets for small-cap companies. They make decisions more quickly than professionals, provide more daily liquidity and help to spread the good news to others. Unfortunately the retail investor is also the most expensive investor to win. To build a retail shareholder base you need an organized plan with a proper budget. There are three phases: attraction, conversion and maximization.
Attraction is the process of creating awareness, for example through building online awareness. Conversion involves changing the investor to a shareholder through a systematic information strategy. This includes developing the right key messages, following up inquiries and giving presentations at different conferences. Finally, maximization is the strategy of helping current shareholders tell others about your company. Reward shareholders for telling others about your company. Send them a small sample of your product or an educational product that helps them manage their portfolio. Investors want to feel they are a part of the company’s success and growth.
To reach the three audiences I’ve just outlined – media, investment professionals and retail investors – the CEO and senior management are critical. They have to be involved and they have to give their IR manager the budget and tools to do the job. In the end everyone will be rewarded. The shareholders will be happy, every employee’s stock option will have more value, and your efforts to raise money and make acquisitions will come with less dilution.
Marcus New is the founder of Stockgroup.com, a supplier of online IR products to small-cap companies, and is also publisher of the independent news service smallcapcenter.com.
