30 Jun 2016

Failing Fast

My friend, entrepreneur Marc Kramer has started about 20 businesses.  Some have succeeded, others have not.  Among his start-ups,  I asked him if he got signals early on that he had a clunker on his hands, and if so, what the signs were.

Generally, he said, he knew within about 120 days whether or not the concept is going to fly.  Here are some of the sign posts he saw along the way that informed his thinking.

Little word of mouth.  Kramer says word of mouth is the ultimate acid test.  “If consumers are using your product, and are not excited enough and satisfied enough to tell friends, family and colleagues about it, your product or service is unlikely to succeed.” read more

9 Jun 2016

How CEOs Scare Investors

When portfolio managers take a position in a company’s shares, or even think about taking a position, it’s a highly analytical process.  But interpersonal dynamics have an impact too. When a CEO makes an investor’s Spidey sense tingle, it can derail the investor’s interest.  Here’s some ways I’ve seen CEOs get on the wrong side of an investor.

=&0=& Despite prevailing sky-high compensation for CEOs, it still makes investors jumpy.  Among S&P 500 companies, the CEO’s salary has less of an impact. But among small and mid-cap companies the impact is larger.   When a CEO is making $5 million a year, the investor will register a risk that the CEO might be fat, happy and overly motivated to maintain the status quo.

=&1=&  If a company stumbles, and the portfolio manager (and his or her investors) lose, they want the CEO to lose too.  It’s not vindictive, but rather a question of aligning interests. When a vast majority of the CEO’s wealth is tied up in the company’s shares, this alignment is achieved.

=&2=&  Some CEOs spend most of their time talking and meeting with potential investors.  CEO access is a positive, but only to a point.  When CEOs are always selling stock, they’re not managing and investors are attuned to this.  From an IR perspective, it can be far more productive to meet with existing investors and squelch selling at the source than fishing for new investors.

=&3=&  For a non deal roadshow, when there’s a single portfolio manager with a notepad sitting across from 6 company representatives, it’s awkward.  Further, the investor starts asking:  Does the CEO have an outsized ego?  Is the CEO insecure?  Are other company executives afraid to have the CEO talk to investors alone?

=&4=&  Investors can smell a ‘deal guy’ a mile away.  There’s nothing wrong with being transactionally oriented per se, but it establishes a hurdle the CEO must overcome.  Specifically, the investor is left to wonder: is this CEO a steward of long term value or simply the architect of the next transaction?

None of these traits are deal killers per se.  However, what they can do is establish a negative perception that must be overcome, or worse, gets exacerbated over time.

Meeting with investors seems compulsory, but it isn’t.  And it’s rife with risks too.  Remember, the very best investor relations program includes a CEO who sticks to his or her knitting and grows earnings.