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investor day

How to Bring Your Next Investor Day From Good to Great

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Investor days can determine whether your company sinks or swims. These events are crucial for communicating big changes, laying out medium-term goals, and answering hard questions from shareholders and analysts. A good or fine investor day does no harm. A great investor day can take you to new heights: it can be a trampoline you can bounce on and a platform to jump off. 

The difference between a boring, good, and great investor day is about how you prepare your story and how you capitalize on what investor days are really about. Read on to hear about how we’ve helped our clients nail investor days over the years.

Investor Days: Opportunities and Challenges

Investor days are invaluable, especially for publicly traded companies. They bring together larger shareholders as well as the sell-side analysts who help make sense of your company’s financial trajectory. While research analysts provide reports on future opportunities and challenges, investor days give company leaders the chance to engage a wider audience in more detail. 

Many companies do investor days once a year, where senior management meets with key investors and analysts to discuss the company’s objectives and strategic priorities for the following years. But investor days can also offer opportunities in the context of a larger event: a merger or acquisition, new corporate leadership, an IPO, or a massive new product announcement (think: new iPhone). These events are especially valuable at moments when there is potential to change the trajectory of the company.

If it isn’t already clear, investor days can be high-stakes. While smaller updates are reported during quarterly calls, investor days are an opportunity to dive deep into your longer-term strategy, show off new technology, and give medium-term financial projections. It’s an opportunity for attendees to ask their hard questions, get answers, and check out the body language of the executives that answer those tough questions.

Executed well, investor days can raise a palpable air of excitement for the future of your company and shift shareholders into the role of allies. Everything hinges on how you tell your story. 

We all know what dull investor days are like: 

  • Presenters read their presentation slides to the audience—or worse, read a script from a podium making little to no eye contact and zero engagement with the audience.
  • The material is absurdly technical for a general and financial-focused audience.
  • C-suite executives give half-answers to hard questions. 
  • Audience members sit there scrolling on their phones. 

In the worst-case scenario, investors can walk away with a bad impression. As we shared in the Harvard Business Review, how leaders speak to investors can make or break a deal. If the executive is dismissive, harsh, rude, or awkward, investors might feel under-appreciated by the company. Charisma alone won’t cut it, and might even give investors the impression that the CEO is overconfident or inauthentic. 

It matters that leaders genuinely connect with their investors, and even more importantly, that there is a coherent narrative. If the narrative doesn’t work, investors might leave with the impression that the CEO doesn’t understand the market. Thankfully, with a bit of forethought, planning and preparation, you can avoid these outcomes and seize the opportunity investor days offer. 

The Real Reason We Have Investor Days

While it might seem like stakeholders go to hear about earnings, projections, and new announcements, the real reason anyone goes to investor days is for the Q&A. It’s a rare chance to be in the same room as the extended executive team. On quarterly calls, it’s typically only sell-side analysts who ask questions, and generally, only a few top executives respond. 

Investors and analysts want to see and hear from those charged with executing your corporate strategy. Beyond hearing your answer, they want to see your body language. You can’t get away with simply reading canned remarks. Your shareholders instead get to see how you think on your feet. This is a huge opportunity to showcase your company with poise, competence, and coherence. 

When we work with clients, we prepare our executives and ensure their presence, their words, and their story serves the purpose of their investor day. Here are a few of our tried-and-true tips:

1. Know Your “Why”

Think about what you want to accomplish at the outset. Why are you holding this event? Whether it’s achieving an outcome, establishing relationships, or communicating numbers, know how you want your audience to feel, think, and act after your event. Let this be your north star as you plan the strategy, the narrative, and the timing.

2. Construct a Consistent Narrative 

These events can get really complicated depending on the industry. Here’s how some of these events go. The CEO gets up, then the strategy person, then five business unit leaders speak about how wonderful their widget is, the CFO closes the day with the financial projections, and then everyone takes questions. By the end of the event, investors are drooling and they’ve lost the thread that leadership really wanted to hit home. 

We want to keep your investors drooling—in a good way! So start with the end in mind. Why should investors invest in your company? You should have an investment thesis based on your strategic narrative, restate it, and ensure every speaker’s points support your thesis.  

3. Prepare for the Q&A

Q&A is the main event for attendees and it deserves your full attention and preparation. Prepare your executives to really listen to the questions and consider what is behind the question. As an example, a question about your R&D number for next year may not just be about the number. It’s also a question of your corporate priorities. Are you reinvesting profits or returning capital to shareholders? There are choices about where you put your cash and why you make those decisions. By preparing for the questions that might come your way, you can understand and respond to what your audience member is really asking.

4. Delivery

It’s not enough to have a great story. Your delivery should also be compelling. Don’t wing it. Build in plenty of time for practicing both as individuals and as a team. At a minimum, we advise our clients to have a table read 6-8 weeks before, dry run 2-3 weeks before, and a dress rehearsal the week of the event. This cadence helps to suss out the flow between presenters and is a great forcing function for individual preparation. 

While this seems obvious, many executives avoid practicing their presentations because it can be vulnerable to practice in front of their colleagues. Not every presenter is a dynamo but with practice, everyone can own their story in their own way to keep an audience engaged and curious. Use the core tenants of storytelling. 

5. Executive Presence

How your leaders show up matters. How they make eye contact, how they talk to investors, and even how they’re seen talking to their team makes a difference in how the world sees your company. You want to make sure the CEO is confident, but not overconfident. And, of course, the words matter too. Narrative development for a financial audience should be different from narrative development for a general audience of investors; perfect this narrative so that it aligns with the overall value proposition for your company.

6. Murder Boards & External Input

It can be helpful to have a third party to walk you through the process of preparing. Whether you have a murder board strategy session or hire an external communications team, it’s crucial to make sure leaders get honest feedback and can answer the hard questions ahead of time. 

The Q&A can be ruthless. Why are you on your fourth CEO in five years? If you’ve missed the last five quarters, why should I believe that you’ll hit your revenue goal this next quarter? Trust us—these questions sting less when you hear them the second time. Plus, being prepared means that you’ll be able to answer these questions with attention to what the question is really about.

Investor Days Matter For Your Firm’s Future

The most important takeaway about investor days is that they are often about much more than meets the eye—ultimately, how you prepare your story and how you engage your audience will determine the outcome of the event. We’ve seen companies on the rocks have incredible investor days that leave shareholders starry-eyed for the future, and we’ve seen companies on a steady incline blow it. The right orientation, attitude, and preparation can make all the difference. 

Investor days can shift the perception of what your shareholders, and your team, believe is possible for the future. If you’re ready to put on your best investor day yet, our bench of seasoned professionals would love to schedule a consultation to discuss how we can help.

Image by wavebreakmedia_micro on Freepik

IPO Roadmap

The IPO Market Won’t be Frozen Forever. Prepare for Your IPO with Audacia’s Roadmap

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After two HOT years for Initial Public Offerings (IPOs), the IPO market was due for a cooling period – and cool it has. “There’s an inverse correlation between market volatility and IPO activity,” said John Tuttle, vice chairman of Intercontinental Exchange’s ICE NYSE Group. The combination of rising interest rates, geopolitics, and shifting investor expectations have had a chilling effect on new listings. 

And while the IPO market is quiet – for now – it’s unlikely to remain that way for too long. In fact, many companies are taking this time to assess their readiness to enter the public markets. A great move, if you ask us. The Initial Public Offering (IPO) process is one of the most complicated and demanding events a growing company can go through. You need an IPO roadmap to be ready to deal with investors, auditors, lawyers, investment bankers, and accountants, among others. And then there’s the paperwork…

If you’ve never taken a company public before, you’re probably wondering what lies ahead of you. Never fear, with our IPO Roadmap you’ll be thinking three steps ahead. 

Audacia Strategies’ IPO Roadmap

We’ve talked about this before:  in a 3-part series, I broke down the process into three parts: developing your IPO story, building an IR team, and living with your IPO. Taken together, these three stages make up Audacia Strategies’ IPO Roadmap. Here are the highlights from each part.

1. Developing your IPO story.

Your IPO will include multiple filings that describe your business, your risks, and your opportunities. While you’ll speak with several different financial audiences (e.g., institutional investors, credit rating agencies, sell-side analysts, etc.), it’s important to develop a coherent story. We call this your investment thesis. Learn it, live it, love it. It is the core of your discussions with financial stakeholders and especially investors. Consistency is key.

After you have agreed on the  investment thesis for your business, it’s time to develop a narrative arc that answers the question: “Why buy this stock?” Make sure that you tell your story – not your competitor’s story – and that it goes beyond the numbers. Remember, investors are human. They respond to a real story like anyone else.

If you’re going public, that means you’ve spent some time honing your value proposition. Now is the time to expand upon and refine this message. Explain what makes your company unique? What’s your “why?” Think about where you can connect with investors in an authentic way and lean into that story.

Ideally, your story establishes your credibility and proof points and sets reasonable expectations. Keep the following in mind: your first few earnings announcements following the IPO will be closely watched to see how the company’s performance matches expectations set during the pre-IPO roadshow and how the management team characterized the firm’s performance in its S-1 (i.e., your initial registration statement with the SEC).

2. Building an IR team.

Once you have your investment thesis and narrative, it’s time to get operational. Put together your dream IPO team and make sure your team includes people with investor relations (IR) experience. 

Having a solid investor relations plan will guide your IPO discussions and ease your transition to life as a public company. The most important job? Establishing and building corporate credibility with your stakeholders through transparent and consistent communication.

And yes, there are some tools of the trade you’ll need to run an effective IR program:

  • An IR website: A place for investors, analysts, and the public to see your investment story. This should be easily accessible from your company’s primary website. 
  • An IR platform: A tool to track consensus estimates, trading patterns, analyze your shareholder base, research and target new investors, review ownership trends, etc.
  • Stock surveillance (optional): While not a requirement – it can be pricey – this type of information can be incredibly helpful to understand the ebbs and flows within your shareholder base. It can also be a lifesaver when your CEO sticks their head in your office and says, “what the heck is going on with our stock today?!”

Your IR team will ensure that you don’t stumble out of the blocks and set you on the road to building long-term trust with shareholders.

3. Living with your IPO.

Yes, Virginia, there is life after an IPO. I know it may not seem like it now because you’re so focused on preparing for the IPO that it’s hard to think past next week. But trust me, your future self will be glad you thought about this third and final stage ahead of time.

Don’t get me wrong, going public is an achievement in itself. By all means, take your victory lap. But also realize that having an IPO opens you up to a whole new level of public scrutiny. This is good news, but it means you need to follow through on your public commitments, keep telling your story (even after a 15-hour day of investor discussions), and continue to educate and build your shareholder base.

The key to a successful life after the IPO can be broken down into four simple steps:

  1. Set reasonable expectations.
  2. Tell stakeholders about them.
  3. Execute on those expectations.
  4. Tell stakeholders about that.

When your company goes public, you step into the spotlight. Yes, the stakes are higher during life after the IPO. But it’s nothing you can’t handle. You’ve got this!

Nervous about prepping for your IPO? Audacia Strategies has your back! Contact us to schedule your consultation.

Photo credit: Close Up Of Multi-ethnic Group Working Together Around A Laptop by Flamingo Images from NounProject.com

IPO

The IPO and SPAC Market is Hot. Is Your Firm Ready for the Public Eye?

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2021 has been a record-breaking year for Initial Public Offerings (IPOs). Analysts predict that by December 31, we will have seen roughly 1,000 companies hit the market. As of now, there have been 372 IPOs and 535 SPACs, for a total of 907 companies representing $266 billion in proceeds. 

Among the most notable companies on the upcoming IPO agenda are giants like mobile payment company Stripe, San Francisco-based Instacart, which has more than half the U.S. online grocery delivery market, and Impossible Foods, the maker of plant-based burgers. Others include Databricks, an artificial intelligence company and a Brazilian digital bank, Nubank, backed by Warren Buffett’s Berkshire Hathaway.

With the market this hot, we know that you may be considering joining their ranks and raising capital either through a traditional IPO or a SPAC. And while you can find plenty of IPO checklists and guides, making the process seem deceptively simple, the decision to take your firm public requires careful consideration. So, we thought it might be appropriate to look at some of the questions founders tend to overlook.

Make Sure You Know Your ‘Why’

There are a lot of good reasons to go public, but being the CEO of a public company adds several layers of complexity to your job. So it’s important to make sure you know your ‘why’ and why your ‘why’ makes you unique in your market (AKA your differentiator). This will help you stay grounded throughout the tough moments.

Many firms may think, “I need to raise capital, so I think I’ll take my company public.” Maybe you need access to capital to support planned acquisitions or maybe you want better access to debt and equity markets to carry out your growth plans. That access comes with costs both in flexibility and on the bottomline. Whatever your reason, spend some serious time evaluating it from every angle. A murder board can be a great resource here as well.

Another reason knowing your ‘why’ is important is that you need to be prepared to own the IPO process. Don’t assume that the investment bankers, lawyers, accountants, and consultants you hire will manage the process. Make sure you (and your team) manage the timeline and understand the process. Ask a lot of questions. Avoidable delays may cause you to miss your window in your industry. When you stay in charge of the timeline, you stay in control of the process.

What are SPAC IPOs?

In the past few years, we’ve seen a surge in what’s called a Special Purpose Acquisition Company (SPAC) and these relatively new types of deal are fanning the flames of the IPO market. Also known as a blank check company, SPACs are another way to raise capital.

Not your typical IPO stock, SPACs start out as shell companies that raise money by issuing stock. Then they use the proceeds, combined with bank financing to buy and take privately held companies public. SPACs typically set two-year time limits on completing the acquisition and if the deal doesn’t go through, then investors get their money back.

Although SPACs aren’t new, they have seen a rise in popularity after COVID-19 shut down the IPO market in Q1 of 2020. Prior to 2020, we were seeing about 15 SPACs per quarter. During Q3 of 2020, that number jumped to 82, and it jumped again to 129 the following quarter. In the first quarter of this year, we saw a record of 298 SPACs.

But whether SPACs are a temporary trend or have real staying power is yet to be determined.

3 IPO Tips from an IR Pro

There’s one other point that founders should be aware of when considering whether it’s time to take their company public: it’s all about the investors. Sure, you need to focus on the SEC regulatory requirements and keeping the analysts on your side. But when it comes down to brass tacks, public companies live and die by their investors’ decisions.

To that end, here are four tips from Managing Director of Investor Relations and Financial Transformation, Mike Pici:

1. Get your house in order.

There’s no reason to be in a hurry to go public. In fact, we’re seeing trends go in the opposite direction. Whereas a startup receiving a healthy stream of venture capital might have once gone public in four years, today the process might take eight years or more. Companies are waiting longer and growing larger before they go public. 

This is a positive trend because it is hard to course correct when you’re being publicly held to the results. So make certain your house, both financial and non-financial, is in order before going public.

2. Be prepared to show a track record of growth.

If you’re thinking like an investor, then you know that investors aren’t just looking for positive cash flow or past success. They’re also looking for evidence of future growth. The amount of revenue is not as important as showing healthy growth quarter over quarter. To this end, we recommend that you show a minimum of 1-2 quarters of growth before filing for your IPO.

3. Consider whether the firm can withstand the amount of stress going public will create.

You’ve likely faced obstacles in the growth of your business. And you should be proud of how you were able to face and overcome those obstacles. But if you believe overcoming adversity qualifies you to take your company public, you would do well to talk to other founders who have gone through the process.

You need to know what you’re walking into before you sit down at the table. The stress of going public is a particular type of challenge and while most founders will only do it once in the lifetime of their businesses, remember that you’ll be working with experts who have done hundreds of deals. Make sure you and your management team are up to the task.

Your IPO Roadmap:

Once you have decided to take your firm public, you’ll need a plan. At Audacia Strategies, we work with our clients through every stage of the IPO process. Here is a preview, which we call our IPO Roadmap:

Part 1: Developing your IPO story 

Although you’ll have multiple filings that describe your business, your risks, and your opportunities, you’ll also want to develop an overarching narrative to share with diverse audiences. Now is the time to refine your value proposition, establish credibility and proof points, set your guidance strategy, and set up internal processes to establish consistent communications.

Part 2: Building an Investor Relations (IR) program

A successful initial public offering requires syncing up several moving parts. If doing a product launch feels like playing “Twinkle Twinkle Little Star,” an IPO feels like playing “Beethoven’s 9th.” Of course, to play a symphony, you need an orchestra. For your successful IPO, that means building an IR program. You can schedule a consultation with our Managing Director of IR, Mike Pici, here.

Part 3: Navigating life after IPO

Once you’ve successfully taken your firm public, it’s time to follow through on the commitments you’ve made and deliver against those proof points. Remember the IPO is really just the beginning of your journey.

If you’re ready to start your IPO journey, contact us today to discuss your needs. Our team is ready to develop a transformational strategy that works for you.

Photo credit: Team of two women analyzing charts and diagrams by Jacob Lund Photography from NounProject.com

Corporate Communications

Cut the Crap: Putting the Humanity Back into Corporate Communications

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Maybe it’s all the election coverage or the fact that I haven’t been in the same room with anyone outside of my immediate family in almost nine months, but my tolerance for corporate-speak is hitting the floor. And I don’t think it’s just me.

If there ever was a time to get human, it’s now. What does this mean? In the simplest terms, it means cutting to the chase with our corporate communications and messaging. Your audience is clamoring to feel seen and heard. So why not give them what they want?

Take a look at my best tips for putting the humanity back into your corporate communications.

1. Think Like a Reporter

Whether you’re working on a value proposition (i.e., what makes you unique in your market?) or a restructuring message to share with investors, strip away all the complexity and find simple language. 

One way to do this is to think like a reporter. Journalists are trained to give the who, what, where, when, and how of a story in the first sentence or two when reporting on a story. Replicate this tactic by getting your marketing and communications teams together (or go outside of these departments for a different perspective) to brainstorm: 

  • the what, 
  • the why, and 
  • the what’s next.

Whatever you think of James Carville’s politics, he is a master communicator and strategist. During Bill Clinton’s 1992 campaign, Carville knew exactly how to drill down and develop core messages that were simple, memorable, and meaningful. Carville used his most famous quip, “it’s the economy stupid,” along with “change vs. more of the same” and “don’t forget health care” to anchor messaging throughout the campaign. The election results speak for themselves.

2. Dump the Buzzwords

As one health reporter brilliantly puts the point in this Atlantic article, “if there’s anything corporate America has a knack for, it’s inventing new, positive words that polish up old, negative ones.” These buzzwords do more than whitewash or paper over the stuff we don’t want to talk about, though. They also obscure your message and make your organization seem less authentic.

In this time when everyone is distracted by a global pandemic, an unusual Presidential transition, and how both could affect their future, it’s more important than ever to dump the “disrupting,” the “pivoting,” and the “growth hacking.” 

Your employees and customers don’t have time for this. They want you to give them information they can act on. If you confuse them with jargon or industry terminology, they will ignore you. So cut the crap.

3. Get Vulnerable

What can you do instead of resorting to the safety of buzzwords? Get vulnerable. Be careful here, though, getting the tone right takes a lot of nuanced thinking. And I’m NOT suggesting that you manufacture adversity. But if you’ve faced a genuine struggle that has made you rethink how you do business, it may be the time to share the new ‘why’ behind your ‘what’.  

You can make sure to stay within critical communication guardrails by letting your organization’s authentic voice be your guide:

  1. Pay attention to the voice of your leadership team and use it to steer messaging.
  2. Make sure your corporate communications reflect your company culture.
  3. Take a step back and consider the big picture whenever communicating with the media, your audience, and other stakeholders. 

4. Step Away from the Webinars

In relation to considering the language and the tone of your corporate communications, you’ll also want to think about the method of delivery. I’m not a speaking coach (though I am happy to hand out referrals to great teams), but I find the formality of webinars often results in participants feeling totally disconnected.

For this reason, we have been recommending that clients step away from webinars in favor of less formal interviews, discussions, roundtables, open mic Q&A, etc. While it may make sense to give a short written statement or update to kick off an investor meeting, listening to written remarks being read for any longer than 10-minute intervals is probably too much to ask from those on the other side of the camera.

Regardless of the format, to ensure that you are connecting with your audience, spend some time practicing your delivery. In fact, if you can spare the time, put more time into practicing your delivery than you do writing up your remarks. 

Why? This world of virtual meetings we all inhabit makes it harder to feel a genuine connection. If you’re the kind of speaker who draws on the energy of your audience, then this is even more true for you. Ask these questions as you prepare for your next town hall meeting:

  • Would my grandparent understand what I’m saying?
  • Have I removed all the jargon?
  • Have I included smart visuals that are easy for my audience to understand almost immediately?
  • Do I have a story or narrative to share?

Above all, be mindful of the ways in which your customers, your employees, and your investors are more distracted than they’ve ever been. When your communications cut to the chase and avoid the corporate-speak, your audience will feel seen and heard.

With these tips under your belt, you’ll be ready to send a clear message with your corporate communications. Is it time for your organization to get human? Contact us and let’s talk! 

Photo credit: Transgender woman leading meeting by Noun Project from Noun Project

crisis communications

COVID-19 and Your Response: 5 Lessons From Our Crisis Communications Playbook

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I hope you are reading this post from a place of health and safety. In these uncertain times, we’re all feeling anxious and wondering how to communicate (or even whether to communicate) with stakeholders. By now, we’ve all heard the news about businesses around the world shutting their doors, volatile markets, social distancing, and flattening the curve. 

The threat from the new Coronavirus is really three threats in one: the threat of the disease spreading, the threat from a looming oil price war, and the threat of a global recession. While no one can claim to have all of the answers right now, it’s fair to say that investors, clients, and your team are expecting you to keep the lines of communication open.

In light of this crisis, it makes sense to revisit our previous blog articles about crisis communications and the lessons we learned when cooler heads prevailed. 

1. Stick to your crisis communications strategy.

If you’ve been following this blog, you know how often we discuss developing a crisis communications strategy for moments like these. Hopefully, you have a strategy in place. It may not be adequate, since no one predicted a crisis of this magnitude and we still don’t know how deeply it will cut. Nonetheless, use what you have, evolve as necessary (and it will be necessary), and note the weak points for future work.

Get comfortable with the idea that you’ll be in crisis mode for weeks or months at a minimum. Prepare your team to continue to iterate your strategy as new information becomes available. When you need to keep on walking through the fire, here are some tips:

  1. Focus on transparency and the truth.
  2. Work closely with your team to identify solutions.
  3. Do NOT stop communicating both internally and externally.
  4. Share your 360-degree strategy as it evolves.

2. Make sure to communicate with your internal team.

In addition to falling back on your strategy, focus on communicating with your team. First, approach all internal communications with a sense of empathy. Keep in mind that as concerned as you are about your firm and what this crisis means for future operations, your team is as worried about the firm, their families, and their own livelihoods. They need your strong leadership now more than ever. 

Follow the 5 G’s of walking through fire without getting burned:

  • Get to ground truth: You don’t know all the relevant facts, but be transparent about what you do know. Your team will appreciate you leveling with them, even if the truth is painful to hear.
  • Gather your team: Huddle together (over Zoom, of course) and listen to what your team has to say. Remember, you’re all in this together.
  • Give employees the support they need: Your employees on the frontlines of dealing with customers, clients, or investors during this crisis need to know you have their backs. Answer their questions, give them some talking points, and don’t say anything you wouldn’t want people outside of the firm to hear.
  • Go on the offensive: Now is not the time to hide. Be accessible and proactive in a way that feels authentic to your brand.
  • Grant trust: You’ve trained your team well. Now, trust their instincts and work with them to come up with solutions one challenge at a time.

3. Assess the damage and keep the data close.

The ultimate goal of crisis communication is to control your narrative and provide honest, transparent updates about your organization. Work with those within the firm who can analyze the data and provide you with a clear(er) picture. This way, your communications will be informed by what you know. Once you have a clear picture of the damage, you can tell your story. 

Now is also the time to consider your extended community. Consider every resource you can think of that may help you get through this crisis:

  • Reach out to traditional media outlets: If you have contacts in the news media, and if appropriate, reach out to let them know you are available for a conversation or interview.
  • Talk to your PR team: PR teams are designed to offer language for crisis communications. It may be tempting to be reactive and fire off a tweet storm, but you must resist this urge.
  • Seek legal counsel: Make a point of engaging with those who know your industry and can offer an outside perspective.
  • Identify and speak to key stakeholders: Ensure that your message is consistent and cognizant of what your stakeholders are hearing from public outlets. Be ready to combat any misinformation in a prudent manner.

4. Get through this crisis, yes, but take note of the lessons along the way.

After the economic crisis of 2008, many companies in the financial sector, especially, were motivated to develop crisis communications strategies. Since then, however, many have become complacent and they’re paying the price now.

All we can do is take an honest look at where we are now, hunker down, and get through this crisis. But along the way, make sure you take note of big lessons learned. On the other side of this, you want to be able to take a long hard look at your crisis response and come up with a solid plan for dealing with the next one. Remember, if you don’t figure out how to control the crisis, the crisis will control you.

Consider the following tips for the future:

  • If you’re having supply chain issues, think about how to diversify your supply chain. 
  • If you’re scrambling to help your employees figure out how to work from home, make sure a training program is included in the employee onboarding process.
  • If clients are canceling contracts, consider whether you can add a postponement clause into those contracts.

5. Do NOT over-promise.

When we’re not in crisis mode, we understand one principle of successful business is to under-promise and over-deliver. But during a crisis, we can go into fight or flight mode and in this heightened state of anxiety, it’s all too easy to make promises we can’t keep. Again, you’ll want to avoid this mistake at all costs.

For example, the travel industry has been hit especially hard at this time. But over-promising would only increase anger and anxiety for customers. Here’s a quote from an email from Tucker Moodey, President of Expedia,

“For those traveling now and with upcoming travel bookings, our teams are working around the clock to provide everyone the support they need. We are rapidly increasing the availability of travel advisors, enhancing our self-service options, and developing new automated ways for travelers to better manage their reservations. Our focus is helping travelers with immediate trips, and these improvements will allow all our customers to travel more confidently in the future.”

Notice how this paragraph focuses on what actions Expedia is taking, their strategy, and where their focus is in trying to make things as right as possible for their customers. Were they instead to promise that everything will be fine by the busy summer travel season—a promise they certainly can’t guarantee now—they would likely do more damage to their brand in these already turbulent times.

Our team at Audacia Strategies wishes you, your family, and your firm all the best. We are with you in weathering this period, holding our loved ones close, and looking out for our community. These are tough times and we wish a crisis communications plan weren’t a necessity for so many U.S. businesses and firms. We are here to answer any of your questions about corporate communications and investor relations. Please don’t hesitate to reach out.

Photo credit: langstrup

best communications practices

“Chaos is Our Brand”—Takeaways from an Interview with Katy Herr, CEO of Audacia Strategies

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Friend of Audacia Strategies and CEO of Quantive, Dan Doran, interviewed Katy about the advantages of running an “out-of-house” communications firm, best communications practices during times of transition, investor relations, M&A strategy, Amazon’s acquisition of Whole Foods, and much more.

Here are some of the biggest takeaways and highlights from their in-depth conversation.

1. Don’t Wait to Create a Communications Strategy

Organizations most often look for experts in investor relations and strategic communications during big transitions. For example, a government contractor might decide to take operations in a commercial direction or a firm may contemplate a game-changing merger or acquisition. Whether or not your organization ultimately decides to bring in a firm like Audacia Strategies to help during such a transition, the most important thing you can do is start strategizing early.

Many of our clients contact us when they’re facing one of two situations: times of crisis or times of transformation—hence our unofficial tagline: “chaos is our brand.” This makes a lot of sense, but too often what we find is that if an organization hesitates to develop best communications practices and a communications strategy early enough, things can go off the rails quickly.

Say your board is about to fire your CEO, when someone leaks the news on social media and all hell breaks loose. What do you do now? Dealing with this kind of challenge is never fun, but it is much easier if you have a strategy ready to implement. If you have a plan, you can stabilize the situation quickly and move past the crisis.

So, why look to an outside “hired gun” to help develop a best practice communications strategy?

Here are a few of the benefits of using an outside communications firm like Audacia:

  • An outside set of eyes gives you transaction experience, critical perspective, and unbiased advice when communicating your message to the outside world.
  • An outside firm is in a good position to place your organization in a broader context (i.e., the competitive set, the market, and your financial stakeholders), while you focus on running day-to-day internal operations.
  • An outside firm isn’t influenced by the “groupthink” or silo-ed communications that can be an obstacle to projecting the strongest public image.

2. Think About Who Your Stakeholders Are

Part and parcel of creating a winning communications strategy is thinking about who your stakeholders really are. Whatever you do, don’t skimp on the stakeholder analysis. Remember that at its core communications is about storytelling. And just as you wouldn’t tell the same story in the same way to your 4-year-old nephew as you would to your 85-year-old grandmother, you wouldn’t tell the story of your company in the same way to different types of stakeholders.

Depending on whether you are a publicly or privately held company, stakeholders could include any or all of the following sets:

  • Employees
  • Financial stakeholders:
    • Public debt holders and ratings agencies
    • Private equity companies and banks
  • Community partners
  • Business partners (non-financial)
  • Strategic partners
  • Customers

3. Understand the Difference Between Marketing and Communications

It’s also important to realize that even if you have an internal marketing department or marketing agency responsible for communicating your message to customers, you may still benefit from enlisting a corporate communications or investor relations firm to help communicate with other stakeholders. We see both marketing and communications as valuable tools for building relationships.

Whereas marketing primarily focuses on telling the story of how your product or service will help your target customers, strategic communications partners can knit together the entirety of the business story to give investors and other stakeholders a comprehensive picture. As experts, we provide you a strategy leveraging communications best practices honed over many transactions, crises, and change events.

We look at how individual aspects of the business including operations, business development, human relations plans, contracts, real estate holdings, etc. fit together to create a holistic picture of value and determine how to communicate that value to each stakeholder segment.

In addition, while many firms have annual strategic planning sessions, often leaders and employees are too busy putting out fires day-to-day to think much about the broader picture. By opening this conversation, we give firms the space to look at the competitive space and customer environment, for instance, and ask big questions about how their market might respond to their actions, how resources should be optimally redirected, and how to keep investors engaged through the transition.

4. Gain Fundamental Communications Building Blocks Regardless of Revenue

At Audacia Strategies, our team has worked to develop best communications practices for companies with billions in revenues and an established shareholder cohort and companies that are pre-revenue looking for their first round of funding. While the scale and scope are different, the communications needs of large and small firms are remarkably similar.

There are some “blocking and tackling” basics that hold when it comes to analysis, building customer relationships, and considering how to communicate your value to the marketplace. These are fundamental whether you’re pitching friends and family or venture capital firms.

Fundamental communications questions to ask:

  • How do we want to talk about this new capability?
  • How do we demonstrate knowledge, understanding, and awareness of the market we’re going into?
  • Are there legal, financial, or cultural requirements that we should keep in mind?

5. M&A Tips and Tricks

When it comes to M&A (mergers and acquisitions), Audacia Strategies can support teams in many different capacities. We work with corporate development teams, in-house financial teams, lawyers, and investment bankers helping them think through the market and storytelling from an M&A perspective. For publicly traded firms, given the disclosure requirements, if you can tell the right story from the beginning, the whole process will be easier.

For example, when murmurs of Amazon working on a deal to acquire Whole Foods first hit the news, a lot of experts were skeptical. Whole Foods was struggling against some PR snafus and people wondered what Amazon really knew about how to manage a grocery store.

But look at what happened? As soon as Amazon acquired Whole Foods for $13.5 billion, Amazon’s market cap went up $14.5 billion. Essentially, the market paid Amazon to acquire Whole Foods. (If you’re curious to read more about Amazon, check out The Everything Store.) So, it’s interesting to see how the market will view M&A. It’s about risk, the ability to manage the risk, and telling the story of how this acquisition fits into your broader business strategy and culture.

Finally, we’ll leave you with some pitfalls and opportunities to consider when it comes to communications during a merger or acquisition:

M&A Pitfalls:

  • Companies that overpay: We have another blog post dedicated to this topic. Suffice to say, if you overpay for an acquisition, it can create credibility issues with your investors, your Board of Directors, your employees…the list goes on. Negotiations can get emotional quickly but consider that the business strategy will have to support the valuation.
  • Cultural fit failure: We’ve seen it happen: a small start-up firm develops an amazing technology and gets bought by a huge firm looking to prove it’s innovative and “hip.” Then, within a year, all the original start up employees are gone. Avoid this kind of cultural disconnect by having an air-tight integration strategy from the beginning. Make sure you are walking your walk, so you can deliver on what you’re promising.

M&A Opportunities:

  • Integration is key: The best M&A success stories are those where the merging leadership teams think about integration all the way along. When companies have a successful communications strategy that includes communicating the big vision well for both internal and external audiences, the proof is in the stakeholders’ response.
  • Customers see opportunities: Ideally, when two companies merge, customers say “this is exactly what I needed.” Rather than seeking out two solutions, for example, the customer gets one-stop-shopping from the new hybrid. It’s your job to help communicate this feeling across your stakeholder groups.
  • Employees see opportunities: And if you can also pull off a merger where employees in both companies see the transformation as good for their own careers, you’ve developed a winning communications strategy. Often employees of the smaller firm may feel anxious about being acquired. But if you can honestly demonstrate opportunities for career mobility, earnings potential, and other benefits of working for a larger company, it will go a long way toward easing transition tensions.

The above is only a sampling of the insights and best communications practices gained from Dan and Katy’s conversation. To watch and listen to the 30-minute interview in its entirety, hop over to GoQuantive.com.

Catch the whole episode here:

For more information about how Audacia Strategies can help you own your message through big bold business changes, check out our one-page business overview. And if you’re new to the Audacia Strategies world, welcome! Please contact us to set up a discovery session so we can start strategizing about your best communications practices now.

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business growth

Does Size Matter? Planning a Successful Transition from a Small to Large Business

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Business growth is always a hot topic. And lately, we’ve been having a lot of conversations with clients and potential clients about how to grow. But what really stands out is that the challenges are not so much about growing per se. They’re more about how to grow smart.

You see, when a small business is absolutely killing it, it runs the risk of outgrowing the (super helpful) “small business” designation. Suddenly, the issues are all about translating what is working well at this level to the next level and the translation is almost never one-to-one. And for businesses that work with federal, state, or local government offices there is even more to think about. It’s not unlike learning to play 3-dimensional chess.  

Yes, there are better and worse ways to move from being a big fish in a small pond to being a small fish in a big pond. So, let’s talk about how to do it well.

Mini Case Study

For instance, consider the following typical business growth scenario:

I’m a federal 8(a) or certified small business in my key market areas and I’ve been so successful that I’m about to graduate from “small business” to “large business” in the eyes of my customers. This is awesome because I’ve figured out my market and I’m on an incredible growth trajectory. BUT—How do I preserve the “special sauce” of being a small business while I grow? How do I maintain my growth trajectory? How should I think about shifting my marketing and sales strategy?

These are tough questions. But the good news is that many successful businesses have survived this kind of transition with flying colors. You can do it too. All it takes is a strong transition strategy.

Oh, and…start early! The surest way to business growth success is giving your team the time and space they need to figure things out. This is just good leadership: giving your team the tools they need to plan for the many aspects of your business that will shift as you move to a bigger playing field.

Big Picture Questions

The following questions will serve you well as you make the transition from a small player to competing on bigger and bigger stages:

1. Where do you want to be?

You’re growing. That’s AWESOME! But what is your vision for success in 1 to 3 years? It might be tempting to plan further out, like 5 or 10 years, but I’m not a huge fan of going beyond 3 years. There’s just so much that can change in your business, the market, the competitive set, technology, etc.

That’s not to say you can’t or shouldn’t have a long term view. But when you sit down to think about your investment strategy and near terms actions, it’s best to keep 90% of it focused within a rolling 3-year timeframe.

So, where do you want to be? Start there and work backward.

2. Who are you? What do you want to be known for?

And as for your special sauce, this is a great time to get clear about it. Keep in mind sometimes what we think is our special sauce isn’t really that special to our customers and partners. This means talk to your clients, your business partners, your employees…ask almost anyone you can think of what makes your business really unique. Ask them to get specific.

Also, steer clear of boilerplate marketing speak and boring platitudes. For example, way too many businesses say, “our people are our differentiator.” But the fact that EVERYONE says this means it’s not true. No business worth their salt is going out there and hiring unqualified people. It should go without saying that you’re hiring the best and brightest that you can get your hands on!

So, what is it about what you do with your team that makes you unique? For your customers, it could be that you always return their calls quickly. Or that you have a process for onboarding that allows them to hit the ground running. For your investors, maybe you’re offering the chance to expand their portfolios in a particular direction.

3. What do we need to get there?

Are there gaps in talent, technology, or process that you will need to fill in the next few years? Have you thought about all the ways that business growth will require your team members to step up their games? Are you prepared to support leadership as they learn how their jobs and relationships will change?

One of the key aspects of a successful transition is being open to seeing shortcomings and accepting where creative solutions are needed. If you aren’t actively seeking constructive criticism along this journey, you are asking to be blindsided. So, start assembling that team of rivals and ask them to be brutally honest.

Think About What the Future Looks Like

One of the best pieces of business advice I’ve heard is “dress for the job you want.” This is another way to say put yourself in the mindset of where you want to be. When a business is transitioning to become a bigger and (hopefully) better version of itself, the same principle applies.

Here are some ways to put yourself and your team in the mindset of where you want to be:

Identify your audience: Now that you’re moving up, your customer set may change. You may be working with new clients who have larger budgets (and expectations that go along with those big numbers). Even your current customers’ perceptions will likely shift as you graduate from small business to large business. Identify their priorities and tailor your sales and marketing approach to their needs.

Shift your competitive set: As you grow, your competitors change too. This is particularly true when moving from a small business that benefits from set-aside budgets and contracts to a large business that is competing in a full and open market.

As you think about your new competitive set, take a good hard look at:

  • Your competitors’ current client lists, testimonials, reviews.
  • How they characterize and position their service and product offerings?
  • How they market themselves (e.g., website, public statements, corporate overview, social media, thought leadership pieces, etc.).

You aren’t doing any of this because you want to copy or steal their ideas. But to stand out from the crowd, you need to know what your crowd looks like. It’s also good to assess what your clients are used to seeing and hearing so that you can stand apart while communicating in the language they understand.

Also, consider the following:

  • Define success carefully. Consider the ideal goal, but also what, at a minimum, will count as a win. Be generous.
  • Do your market research. Don’t skimp on this step! Rushing into a big change without doing the right research sets everyone up for failure.
  • Understand your strengths and weaknesses. Transformation affects every level of your organization. Make sure you identify leaders early in the process and give them what they need to execute their specific missions. Also, look for any gaps in communication across departments. Strategize about how to create more cooperation.

Consider your proof points: Always keep in mind that business growth is an indication that what you’re doing is working. It can feel overwhelming in the process, but if you stick to what you know, that can really help you feel more grounded. Refer back to your track record of solid performance and great results whenever necessary. Also, work with your team to establish reasonable proof points to help you assess your growth roadmap going forward.

Be yourself: Finally, it can be easy to forget who you are in this process of reinventing yourself. So remember to continually reevaluate your messaging. Make sure all of your communications reflect your company’s credibility, self-worth, and core values.

If you are asking some of these questions about business growth or anticipate moving from a small to larger business in the future, my team and I would love to help with the transition. Contact us to schedule your consultation and find out more about how we enable your transformation.

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M&A issues

What No One Talks About in M&A: Culture Integration and How to Deal With It

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We’ve talked about M&A before—the pros, the cons, where deals can go off the rails—but now let’s talk about what happens after the deal is closed. What comes next and what M&A issues come up?

Once your deal closes and the dust settles, it’s time for the real work to begin: integration. With any luck, you’ve already done some focused thinking about integrating the two firms. You’ve looked at M&A issues such as aligning billing systems, benefits plans, compensation strategies, etc. and you have strategies for each.

But what about culture? What’s your strategy for culture integration? If your reaction here is anything like, “A strategy for culture integration? Oh, the department heads will handle all of that,” you will probably want to keep reading.

Love and M&A Integration

M&A deals that work well are actually a lot like happy marriages. Yes, there will be some upfront work to do on both sides. But once you’ve skipped down the aisle after saying “I do,” you begin a new phase with its own set of challenges. This is the work of meshing together two lives into a cohesive, long term, happy union.

An M&A transaction can be a bit like courtship (ah, and you thought chivalry was dead): You date around for a bit, decide that you’ve found “the one,” get engaged, and then, you throw a heckuva wedding. And when you wake up after the honeymoon, reality sinks in…the thoughts start flying.

  • Thought Bubble #1: For better or for worse…wait, you didn’t tell me about that billing issue!
  • Thought Bubble #2: For richer or for poorer…what happened to the sales pipeline we reviewed?
  • Thought Bubble #3: ‘Til death do us part…why are all the employees leaving?

And as with any new marriage, there are logistical M&A issues that no one really considers before they sign on the dotted line:

  • How are we going to celebrate holidays? (Is everyone onboard and motivated by how we recognize and celebrate success?)
  • How should we handle joint finances? (Do both parts of this new mixed organization share the same fiscal priorities?)
  • How often do I have to see your family and friends? (What’s our customer relationship strategy?)

I’m not suggesting that the key to successful M&A integration is scheduling time for employees to do a bunch of trust falls and escape room activities. What I’m suggesting is that you consider how culture impacts any business transaction in the same way you consider how to maximize earning potential for shareholders.

Lessons from a Culture Integration Fail

Early on in my career, I worked for a multi-billion dollar firm. With much fanfare, we acquired a smaller firm that was highly respected and well-known in the industry for its creativity in “getting things done” for customers.

Within a year of acquiring the firm, the larger company had overlayed all of their big company processes and requirements onto the smaller firm—squashing the very flexibility and creativity for which they had been known (and for which we had acquired them!). Unsurprisingly, half of the employees were gone within 2 years…as were the customers.

While it’s easy to see the internal (e.g., from the employees’ perspective) impact of cultural M&A issues, we don’t often think about the external (e.g., from the customers’ perspective) impact. However, culture certainly does impact customer experience and this is especially true after a merger. For a case study in how NOT to complete a successful integration, check out the Starwood / Marriott merger. Yikes!

The hard lesson learned here: The reality is that human challenges are often harder to smooth over than system challenges. If you don’t anticipate the cultural challenges, it doesn’t matter how prepared you are on the business side. So, how do savvy M&A dealmakers address the human side?

1. Start early.

By early, I mean during due diligence. Yes, cultural fit is a deal maker or breaker! The very things that make an acquisition target attractive may also be the most fundamental to their culture…and the most different from your organization’s current culture.

Make sure that someone on your team is putting together a culture strategy prior to the close of the transaction. At a minimum, this strategy should include:

  • Key metrics for competitive landscape, demographic, and market trends to discuss with leadership.
  • Outlines for any necessary cultural change initiatives (Tip: stick with no more than 2 major change initiatives during the first year).
  • Ideas for creating employee buy-in and a sense of community.

2. Know thyself.

What is your vision for the joint culture? What changes after the deal? What stays the same?

Keep in mind that this doesn’t have to be all or nothing. There are no rules that say that everyone must conform to a single culture or that culture is immutable. In fact, allowing room for the culture to adapt is crucial for long-term viability.

Why are these firms merging? What is valued in each and how can we take the best pieces of our cultures and bring them together respectfully?

3. Focus on building credibility.

In most cases, there is a fairly steep learning curve that happens after a merger. Like moving from dating to marriage, we need to adapt to daily life and its new rhythms. How can we put in place mechanisms to better understand each other? How do we establish trust?

Remember that credibility is earned, not given. When a large firm acquires a smaller firm (especially if the smaller firm was once a competitor), there can be some apprehension. It’s important to warn employees of the large firm that taking a victory lap is not appropriate.

Past is not prologue. So the acquiring firm should look to create the right environment to nurture a bright future and bring the new acquisition into the fold. This will require transparency in sharing plans, following through, listening when challenges are raised, and addressing the concerns of everyone.

This is a key building block for #4.

4. Communicate.

Communicate early and often. Key leadership (ideally those with credibility) should share the aspirations for the combined entity in a clear, straightforward manner and acknowledge that integration won’t be easy. When talking about challenges, be specific. Show everyone that you are committed to making this work and addressing all M&A issues together.

Employees need to know what’s changing, why, when, and what will happen, both in the overall big picture, as well as on a day-to-day basis. They need to understand what the merger means for them and what the new expectations will be.

Communicating is about way more than printing off new motivational posters with the company’s core values and firing off a few “rah-rah” emails. (GAH!!) Cultural integration requires a change management focus, leadership commitment, transparency, a willingness to listen (and integrate) feedback, and continued communication via as many channels as possible…even when you think you’re done, you’re not. Keep going. Like a marriage, you’re in this for the long haul.

Preparing for a big M&A deal in 2019? Check out our guide for working with a Communications Specialist.

The team at Audacia Strategies is ready to stand shoulder-to-shoulder with you as you make a smooth integration, both in terms of systems and culture. Contact us to learn more about how we can enable your transformation and help you avoid serious M&A issues!

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business goals

3 Big Investments We’re Doubling-Down On in 2019

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January is a good month to take stock—or so my Marie Kondo-loving friends tell me. It really is a great time in the business cycle to think back over the past year, to consider what worked and what could have gone better, and to make business goals for the year ahead.

Here at Audacia Strategies, I’m feeling so much clarity around what types of organizations we serve and where we can add the most value for our clients. Now we can focus on thinking strategically about how to double-down on our biggest investments and accomplishments to bring even more value for our clients going forward.

Here’s a small window into our business goals for the coming year:

The Big 3 for Audacia in 2018

1. We became certified as a women-owned enterprise (WBE): It took the better part of the year to get the paperwork completed, filed, and to receive our certifications (one of our major 2018 business goals). But we are now officially a Woman-Owned Small Business or WOSB (in the eyes of the Federal Government). We are also nationally certified by the Women’s Business Enterprise National Council (WBENC) and received our CBE certification in D.C. We’ll receive additional state-level certifications soon.

Big InvestmentsThese certifications position Audacia to better support clients’ supplier diversity objectives, engage directly with federal, state, and local government initiatives, and support larger-scale projects with diverse financing requirements. Being woman-owned certified also gives us the opportunity to reach a broader audience. We are proud to participate in programs that support and encourage women to own businesses in industries where women have been historically underrepresented.

2. We helped our clients win new business: This is some of the most rewarding and satisfying work we do at Audacia. When our hard work and collaboration results in clients winning new business, there’s no doubt we’re delivering at a high level. This kind of feedback reaffirms that our systems and procedures are working.

For example:

  • We helped an EdTech client land 8 new clients in 9 months by reviewing the market and competitive landscape to develop their product launch strategy, message development, and activate an ongoing marketing strategy.
  • We helped a growing government contractor develop a message architecture and segmented stakeholder messaging strategy to leverage their government expertise to expand into adjacent commercial markets. As a result, they have already inked a strategic alignment contract with a major commercial provider in their space and are in discussions with others.
  • We prepared an established government contractor to attend their first investor conference in their 15-year history. Our team worked to develop investor messaging, (i.e., strategic rationale, value proposition, and investment case development) and an investor presentation for the firm. We trained leaders in Reg FD requirements and presentation delivery. And we equipped key executives to handle “live fire” investor Q&A.

3. We helped our clients get recognized for their innovation: Bringing an innovative product or service to market carries certain inherent risks. But having a strong team behind you to brainstorm ideas, challenge assumptions, and provide an additional perspective can mitigate these risks.

For example:

  • We developed the messaging strategy for an innovative nonprofit in the higher education space. Our client was highlighted as a key innovator in higher education by the U.S. Department of Education.
  • We supported the successful CEO transition of a 55-year old government contractor and the strategy to support the subsequent transformational realignment to more closely align the business with its strategic markets. The firm has achieved higher internal employee engagement and is ready to bring their refreshed message to current and new clients.

Looking Ahead to Our 2019 Business Goals

1. We will forge ahead with additional state-level certifications: This is key as Audacia looks to better support our clients as they, in turn, support their clients. Think: transformational systems implementations. This is not a new business area for us, but these certifications provide a new way for us to enable successful business transformations at all levels.

2. We will continue to support our clients biggest transformational moments/goals/ideas: In 2018 we had the opportunity to support c-suite transitions, mergers and acquisitions, new product launches, and new investor relations strategies. We also expanded and cultivated our network of business partnerships, so that in working with Audacia, our clients gain access to even more strategic resources. We’re going to continue that work in 2019 as we look to help even more companies get the biggest bang for their transformation buck.

3. We will show leadership in promoting corporate responsibility and effective crisis management: Now more than ever, our analyses show investors and stakeholders care about demonstrated success in corporate responsibility. It’s often difficult for firms to evaluate their own cultures and even more difficult to implement change without an outsider’s perspective. If this isn’t on the radar of your leadership, let’s get going and get you on track! This is of special interest for organizations eyeing mergers and acquisitions. Making a strong case in terms of the numbers, may not be enough for investors these days. We’re staying ahead of the game, bringing new service offerings in this area in 2019.

How are you looking to grow and transform in the new year? What big accomplishments and investments from 2018 are you doubling-down on? What business goals do you hope to achieve in 2019?

If Audacia can support you in your business goals, let’s find time to talk about your needs. Your first step is scheduling a 30-minute introductory call with yours truly. Let’s make your 2019 truly transformational!

Photo credit: Cathy Yeulet

influencing business valuation

Could Your Business Be the Next Apple or Amazon? 5 Key Factors Influencing Business Valuation (Part 2 in our series on Business Valuation)

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This is the second part of our series on business valuation. Before you dive in here on influencing business valuation, make sure to check out part one where we dig deep into types of valuation.

In our previous post, we discussed some of the complications involved in determining the value of publicly traded and privately owned businesses. And we want to emphasize that while from the outside it can seem like big corporations are dealing in Monopoly money—business valuation is not (completely) based on concrete, objective measures—strategic investors and private equity buyers do follow some standard assessment practices.

Still, business valuation remains a contentious issue and as a result, many potential sellers approach negotiations with assumptions, rather than knowledge about specific value drivers supporting a realistic assessment of their business’s worth. Since assuming is always inferior to knowing, especially during the negotiation process, it’s worth considering internal and external factors influencing business valuation.

Whether you’re thinking about selling your business in the near future, interested in keeping value drivers on your radar as you grow your business, or looking to get into the investment game yourself, there are key factors influencing business valuation to keep in mind. In addition, CEO Katy Herr will be speaking with our friends at Quantive to get their expert perspective on this timely topic. Check back for a link to the podcast where Katy and the Quantive team will dig deeper into influencing business valuation and transferring value in M&A. In the meantime, here’s a primer.

A Quick Recap

Before we look at the specifics influencing business valuation, let’s remember why this is an important question to ask. Recall that there are a couple ways to assess the value of a publicly traded company:

1. Market Capitalization (cost of a company in “real money”):

  • Market cap = stock price x number of outstanding shares

Following Apple’s ascent into 13-digit territory last month, Amazon’s total market value surpassed $1 trillion last week. Both of these valuations are based on the simple formula above.

2. Enterprise Value (cost to acquire a company):

  • Enterprise value = a corporation’s market cap + preferred stock + outstanding debt – cash (and cash equivalents) found on the balance sheet

This is the formula a buyer might use to determine what would be a fair offer to acquire a publicly traded company.

Now, investors don’t use these formulas when looking at the opportunity or degree of risk involved in acquiring privately held companies simply because they don’t usually have access to this information. Private companies aren’t required to report earnings, stock or share prices, outstanding debt, or cash in the bank. However, as a business owner, you do have access to this information and you could provide it to interested investors or buyers. In fact, strategically releasing this information will likely give you a leg up on influencing business valuation.

What’s really important to understand for our purposes is both types of business valuation, but especially market cap, rely on expectations. So let’s talk about factors influencing business valuation.

Buyers look at the following factors when deciding which valuation multiple to apply to their assessment of your business’s ability to generate income and cash flow. Here is what you can do to put yourself in the best possible bargaining position:

1. Maintain Clean Records

If you aren’t doing this for your own peace of mind and other business benefits, it’s crucial for you to get your books and records in order well (years, ideally) before you start looking for investors or buyers. At a minimum, you will want to keep personal and business expenses separate. Having professionally managed books and a solid financial audit is a smart investment if you are seriously hoping to sell one day. This will also help you understand where you are today so you can target your growth goals and mitigate business risks influencing business valuation. So, do your homework here.

Keeping clean records is the first step toward running a profitable business. But records means more than financials. Make sure all important documentation is well-organized and would make sense to interested parties outside of your inner circle.

Important documentation includes:

  • Financials (balance sheets, expenses, tax returns, credit card statements, bank statements)
  • Audits, regulations, and licensing records
  • Recent legal due diligence reviews
  • Written systems and processes, including employee handbooks and manuals
  • Key employee agreements and noncompetes
  • Customer records
  • Written and assignable customer agreements
  • Written contingency plans for emergencies and other potential disruptions to cash flow
  • Key equipment maintenance records

2. Highlight Positive Trends

Investors want to know when they can hope to see a return on their investment, of course. This means showing a projection of positive, predictable profits is ideal. But if your business is new, this might not be a realistic benchmark.

Typically, analysts and investors will look at the most recent 3-5 years of past performance and 2-3 years of projections in determining value. Be sure to point to factors within your control, such as personnel management and smart cost-cutting maneuvers, as well as external factors, such as industry dips and seasonal declines, to tell a complete story.

It’s also crucial to point out other positive trends influencing business valuation that make your business attractive:

  • Revenue growth rate
  • Consistent gross margins trending upward
  • Higher than average industry operating margins
  • History of achieving financial projections
  • Strong, sustainable, predictable cash flow
  • Consistent history of profitability
  • Solid pipeline of new business and demonstrated ability to convert

3. Be Open to Change

One of the big external factors to consider is how the business will respond to inevitable market adjustments and changes in the industry. With technology and automation bringing about rapid changes in most industries, businesses that show an ability to evolve are most likely to maximize profits and sustain additional growth while keeping operational expenses low.

For companies involved in the production of a product, evaluating your strengths and weaknesses is crucial. Can you increase efficiency, product quality, profitability, or customer satisfaction by outsourcing certain aspects of your supply chain? Should you seek out strategic partners in particular areas?

4. Make the Business Less Reliant on Key Personnel

What would happen if the CEO decided to retire, seek out another career opportunity, or take an extended vacation? If your answer is that the company would not skip a beat, then you are on the right track. Companies that rely on owners who spend a lot of time working “in” the business are susceptible to lower valuations. By contrast, those who can set up reliable processes and trusted management to serve clients can walk away leaving a new individual to run the business.

Bob Moskal at Quantive shared this example:

We worked with a facilities maintenance company to recommend and implement a host of improvements to make their business transferable. For example, we recommended they digitize their record keeping, make their financials useful for running the business not just for tax returns, and transition customer accounts to account managers so that a potential new owner could see that the company could run with the same level of success without the departing owner. Previously, this business would have been heavily discounted or not sold at all. It’s now positioned for growth and a more attractive acquisition target.  

Additionally, the following factors make a business easier for a buyer to take over and manage successfully:

  • A strong, recognizable brand identity
  • For product-centric businesses: a clear supply chain; equipment upgrades to modern, productive equipment; systems in place for identifying and implementing new technology
  • For service-centric businesses: system protocols that have been tested; an established, clear succession chain; well-documented job descriptions and processes for sharing institutional knowledge

5. Be Able to Show Large Market Potential

In one sense, how a business has performed in the past matters less to investors than the potential for future growth. Past performance is only as good as what it tells us about future projections. Many buyers focus on turning around businesses in industries where they have been successful in the past or businesses where they have key contacts who could help increase future profitability.

Because so much depends upon the expectations of individual investors, it pays to focus on factors that will likely influence the market potential:

  • Multiple, strong sales distribution channels
  • Multiple revenue streams
  • A strong industry market share
  • A written and up-to-date business plan
  • Proprietary products or technology

Because all of the above five factors influencing business valuation depend on expectations, the best you can do as a seller is lay your cards on the table in a way that puts your company in the best light. This means putting yourself in the shoes of your investors and considering carefully what would make this offer most attractive.

Finally, if you’re really hoping to get top dollar for your business when you are ready to sell, experts say it’s all about doing the pre-sale prep. Again, according to Bob Moskal, business owners will want to start with due diligence a couple years ahead of time, so they have plenty of time to take steps to correct any “skeletons in the closet” ahead of negotiating a sale.

Also, Bob recommends knowing what your company is worth before starting the process, “we’ve often seen a seller shy away when he starts actual retirement planning late in the game and realizes the value falls short. A good financial planner can help here.” You can hear more of Katy’s conversation with Bob about influencing business valuation when they sit down to record a podcast later this month. We’ll add the link when it’s available. Stay tuned!

At Audacia Strategies, we specialize in putting together communications strategies that helps our clients meet their goals. We’ll be the voice of reason as you figure out how to highlight the key value drivers and tell the story of your current (and future!) success. Our team is all about managing expectations. Contact us to schedule a consultation.

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