by Victoria Duff

 This article was originally published in The Productivity Institute (PI) Newsletter

Whether your company is private or public, you need to establish an investor relations plan.  If your company is private, if you have any investors you need to have a strategy for keeping them informed.  Furthermore, a good investor relations plan will form a framework for attracting new investors or new money from your existing investors.  If your company is trading on a public exchange, you need formal investor relations activities to protect and grow the market capitalization of your company.

There are two kinds of investor relations campaigns:

• Those that cheapen the image and perceived value of the company.
• Those that establish an image of transparency and trust, enlisting shareholder support through a carefully managed sense of community, and thereby enhancing the perception of the company’s value.

The best way to cheapen the image of a company is to conduct the typical ‘pump-and-dump’ campaign of email blasts and rapid fire press releases that hype unimportant developments.  Just as it is inadvisable to lie down with dogs lest you arise with fleas, it is also important to carefully select the providers and styles of investor relations. 

Above all, good investor relations is not marketing – it is education.  Even if your company is private, good investor communications prevent problems.  There should never be an instance of hype.  There should never be a promise of great market gains in the near future.  There should never be hints given or secrets leaked to a few because that causes short-term speculative buying and selling, and it also gives rise to an aura of insider manipulation.  Success follows sticking to a well-crafted set of talking points.

Shareholder distrust is the first cause of problems.  The best way to limit problems is to involve the shareholders, analysts and institutional buy-side in a dialog about the company.  This does not mean indulging in selective disclosure because it is a practice that, no matter how well-intentioned, usually results in serious problems with rampant rumors that eventually lead to shareholder distrust.  A dialog means that the company treats investors as allies not enemies.  The easiest way to turn an ally into an enemy is through secrecy and dissembling, so the best way to keep the trust of an ally is through openness and candor.  Applying this knowledge to investor relations, the lesson is for the company to travel the middle road, announcing bad news as well as good news and making the top management available in a public forum, at least Quarterly, to answer questions from shareholders and the institutional buy-side.

Poor earnings, lawsuits and other bad news about a company can often be overcome by a strong investor community that firmly believes in the intrinsic value of a company and the eventual financial payoff. 

In planning an investor relations campaign, it is important to consider historically proven factors:

• Investors want more information that allows them to build a ‘total image’ of the company.  This includes:
  o Greater detail in financials.
  o Direct dialog with company management.
• Analysis of what the broad range of institutional buyers are seeking in their investments and a campaign to identify specific institutional buyers, understand their needs and expectations, and influence their perceptions of the company is valuable.
• Analyze the company’s most appropriate industry identification (R&D? Pharmaceuticals?  Healthcare?) with respect to its investment marketplace valuation.
• Direct communications from top management to investors adds to the perceived image of truthfulness and quality.  The best way to do this is through conference calls and Webinars.  It is never a good idea to have the Chairman or CEO available to talk with shareholders that call in to the company with questions. 
• The best way to deal with a crisis is to not let a crisis happen.  That means company communications should include bad news as well as good news.
• Any appearance of selective disclosure, concealment of negative news, or any perceived lack of ethics are the surest ways to leap from a potential problem to an actual one
• Organized message – talking points and party line.  No conflicting information points.

Victoria Duff, founder of Southern California-based aBusinessPlan.com, is a widely acclaimed start-up facilitator, enterprise analyst, strategic advisor, venture finance catalyst, investor liaison, author, and speaker.  Her depth of experience lends itself well to efficiently providing solutions to over a decade of happy repeat clients.  Her advisory practice can be found at:  www.aBusinessPlan.com  Ms. Duff is available on a retainer or project basis vduff@abusinessplan.com .

by Victoria Duff

   This article was originally published in The Productivity Institute (PI) Newsletter

Start-ups through mid-size ventures are beginning to see increased interest by venture investors as signs of approaching improvements in the economy are beginning to appear in monthly economic reports. 

One thing that will improve your likelihood of receiving investment is being able to demonstrate that you are prepared to safeguard your investors’ money.  This involves appointing a Cash Manager and setting up a professional-quality Cash Management Policy.

One of the key components of Cash Management is the Prudent Man Rule.  This is a guideline that asks “What would a prudent man do in this situation?”  There is rarely an argument over how this rule is applied because the archetypal Prudent Man is always concerned with safety of principal.  This means that the Cash Manager should not be day-trading equities or options, should not be investing operational cash out 30-years, and should not be plunking the entire corporate fund into a single investment.  So if you are the Cash Manager, always remember that if anything happens in the economy or in your company that raises the concerns of your investors, your cash investments will come under scrutiny first and the more conservative they are the better.

Cash Managers become heroes when their investments are so conservative that they are unaffected by financial crises, not because they made a great trade that resulted in windfall profits.  Venture investors are not impressed by investment profits because a company should be making its profits through its business dealings, not through its cash management operations.

The following Cash Management Policy is representative of basic principles found in use in major corporations:

Purpose
The purpose of this policy is to set forth cash management procedures that
• Outline investment quality requirements adequate to ensure maximum safety of principal
• Provide adequate liquidity for operational needs

Bank Relationships
Corporate cash management banking relationships shall be limited to the highest rated Money Center and Super-Regional commercial banks, provided they are FDIC insured.

Investment Goal
The goal of cash management activities is to maintain cash positions in lowest risk investments that pay market rate interest.  Company cash and prudent reserve is not to be invested in risk securities or traded for profit.

Approved Investments
Investment instruments approved for use shall be
• Full faith and credit obligations of the U.S. Government
• AAA rated Municipal securities
• AAA rated Corporate securities
• Money market funds invested in the above listed securities
• Repurchase agreements with approved institutions, collateralized by full faith and credit obligations of the U.S. Government

Approved Maturities
• Cash shall be invested in the most liquid investments available
• Excess cash or money earmarked for specific future needs may be invested in longer maturities, according to the Prudent Man Rule and with the approval of __________

Operational Funds
Operational Cash shall be deposited in Corporate Checking Accounts that
• Daily sweep excess cash into appropriate Money Market Funds
• Otherwise, Cash Manager shall maintain no more than $20,000 overnight cash to meet unexpected cash needs
• In cases where Cash Manager anticipates a possible need for more than $20,000 cash available, permission shall be obtained from _______________________

Prudent Man Rule
Cash management operations shall be governed by the Prudent Man Rule.

Special Permissions
In the unlikely case when the above policies are inadequate or imprudent, Cash Manager shall obtain authority to alter these policies by special permission from ______________

Victoria Duff, founder of Southern California-based aBusinessPlan.com, is a widely acclaimed start-up facilitator, enterprise analyst, strategic advisor, venture finance catalyst, investor liaison, author, and speaker.  Her depth of experience lends itself well to efficiently providing solutions to over a decade of happy repeat clients.  Her advisory practice can be found at:  www.aBusinessPlan.com  Ms. Duff is available on a retainer or project basis vduff@abusinessplan.com .

by Victoria Duff

   This article was originaly published in The Productivity Institute Newsletter

Experienced business professionals will tell you that a recession is the best time to start a new business.  Your competition is cutting back spending or going out of business altogether, while your overhead is small and your message is new and fresh.  Opportunities abound to pick up customers that have seen their usual vendors go out of business or cut personnel and services in an attempt to stay alive.  You can also find good employees among those who have been laid off in your industry.

With all this opportunity, life for the new entrepreneur should be a walk down Easy Street, but it is not.  Most start-ups have one vital problem in common: a very small budget.  Funding a start-up is even more difficult during a slow economy because even your family and best friends are not willing to give you what may be the very money they need to keep their own lives together.

First Mistake – Foolish Thrift
It is times like this that many new entrepreneurs make their biggest mistakes in hope of saving money.  When professional experience and contacts makes the difference between costly judgment errors and accurate planning, many entrepreneurs will choose to cut corners by attempting to develop and implement their business ideas all by themselves.  This may be the pioneer way, but many pioneers got lost in the woods and eaten by bears.

It is a well-documented fact that entrepreneurs who go through an extensive business planning process dramatically increase their chances of a successful business launch and profitable operations.  When statistics show that over half of all business start-ups fail in the first year, and half of the survivors will fail in their second year of operations, it makes no sense for an entrepreneur to avoid careful planning and development.  In fact, it usually costs much less to hire a professional to advise and assist than it does to make that first costly mistake. 

A professional start-up consultant can quickly guide you through structuring a strong business model.  He or she can plan a strategic build-out of revenue streams that are geared to bring money into your venture, so you don’t need to go looking for further investment just as growing expenses threaten to destroy your company.  A start-up consultant also knows the work and reputations of other service providers you might need such as website developers, attorneys, accountants, and can help you identify potential joint ventures, which can make the difference between success and failure.  Start-up consultants also know many investors and what they want to see in a potential venture investment.

Second Mistake – Limited Vantage Point
When the economy begins to slow, many entrepreneurs freeze like deer in the headlights just at the time when they should be sitting down to plan how they can best deploy their assets to take advantage of opportunities that arise as their competition fails.

The greatest enemy of an entrepreneur is the inability to step back and see the broad picture because of being so closely involved in the day to day operations of the company.  It often takes a third party coming from an exterior view to point out what the entrepreneur just can’t see from an interior vantage point.  Should you lay off your staff, or hire more sales reps?  Should you move to larger quarters while landlords are lowering rents, or should you sublet part of the space you already have?  Will your vendors remain in business, or should you cultivate back-up relationships?  These are the important questions that govern survival or failure for the established business, and they are questions that wise entrepreneurs hire consultants to investigate.

Third Mistake – Fear of Negotiation
With plenty of skilled consultants available, it seems illogical that entrepreneurs aren’t taking advantage of being able to hire professional help as it is needed.  Unfortunately, while many entrepreneurs are proud of their persuasive abilities, they shy away from negotiating with consultants over fees and services.  Most consultants know how to work within your budget.  However, consultants you would want to work with rarely will work for free.  In fact, that is one of the first lessons that a consultant learns:  Nobody values free work.  So tell the consultant how much money you can spend and ask what the consultant suggests.  Sometimes all you need is an occasional few hours of brainstorming, and most consultants are happy to provide that kind of service.  Remember that consultants are in the business of giving advice, so ask for their advice about how they can provide you with what you need at the price you can afford.

Victoria Duff, founder of Southern California-based aBusinessPlan.com, is a widely acclaimed start-up facilitator, enterprise analyst, strategic advisor, venture finance catalyst, investor liaison, author, and speaker.  Her depth of experience lends itself well to efficiently providing solutions to over a decade of happy repeat clients.  Her advisory practice can be found at:  www.aBusinessPlan.com  Ms. Duff is available on a retainer or project basis vduff@abusinessplan.com .

   by Victoria Duff

     This article was originally published in The Productivity Institute (PI) Newsletter

There comes a time when every executive or entrepreneur realizes that he needs help – the kind of help that nobody in his company can provide.  Usually it is a task that requires specialized expertise and he either doesn’t have the proper skill set or has no time to devote and can’t spare any of his employees for the job.

When you define what you need and hire a well-regarded consultant to fill that need, you not only get the task done properly but you save a lot of money and anguish.  On the other hand, the wrong consultant hired for a vague reason can cause a lot of expensive damage, and waste valuable time.

Define your need
First:  Ask yourself what you want to happen that isn’t happening.  If you are in doubt about the true source of poor performance or cannot decide where change is needed, you might want to ask for a short review and recommendations from the consultant you are considering hiring.  You should expect to pay for this, but it will allow you to evaluate the consultant’s work before committing to an extensive engagement.

Second: Ask some questions.  Asking the right questions of people who are close to the problem will give you an idea where the source of the problem might lie.  A good way to limit consulting costs and increase the likelihood of a successful project is to know exactly what you want the consultant to accomplish and be able to describe that goal during your initial consultation. 

Third: A large national consulting firm is not necessarily your best choice.  You might be better served by an independent consultant who has experience in your industry and who specializes in small or mid-size companies.  Such a consultant usually has experience gained in a large company but can customize her services to suit the needs of your company, while a consultant from a large national firm will most likely present solutions that involve proprietary packaged services offered by that firm. 

Look for skills
Using a consultant referral service is a good way to find a choice of consultants - particularly one that constantly rates consultants; however, it is not necessarily to your advantage to deal with referral services that encourage consultants to bid for jobs based on price.  While you may need to keep costs within budget, your aim is to find a professional with the right set of skills, not simply the lowest price provider.  All good consultants will try to cooperate with you if you tell them your budget.   Do not fall for a sharp sales pitch or the least expensive fees.  Look for consultants that have been pre-vetted by a person or service you can trust.  An outstanding consultant might charge a little more but the added value she brings will prove the bargain.

Never forget you are hiring a professional for his or her skill and experience with subject matter that you may not have mastered.  Let the consultant demonstrate what he knows.  You should not feel as though you need to learn how to do the consultant’s job.  The most important way to assure you will have a good experience hiring a consultant is to look for someone who can display skills.  A promise of great results is merely a sales technique.  What you are looking for is years of work experience that demonstrate mastery of a skill set.  A good consultant should be able to describe his procedures for discovery, how he manages the project, and how he expects to provide your solution.  Such information from a prospective consultant allows you to make an intelligent decision based on facts rather than sales tactics.   

Victoria Duff, founder of Southern California-based aBusinessPlan.com, is a widely acclaimed start-up facilitator, enterprise analyst, strategic advisor, venture finance catalyst, investor liaison, author, and speaker.  Her depth of experience lends itself well to efficiently providing solutions to over a decade of happy repeat clients.  Her advisory practice can be found at:  www.aBusinessPlan.com  Ms. Duff is available on a retainer or project basis vduff@abusinessplan.com .