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Thursday, December 19, 2002

Where To Focus IR Resources In A Down Market

by  Wayne  Jenkins 

The past three years have seen the dot com boom go bust, the onset of an economic recession and a series of high profile accounting scandals. This has resulted in widespread investor disillusionment, increased regulatory action, declining analyst credibility, and an intense scrutiny of corporate governance practices. It has been a difficult time for all public companies, but especially for the smallest companies that trade on NASDAQ's Small Cap Market and OTC Bulletin Board.

These "microcap" companies are often in the development stage, have little or no revenues and are a long way from profitability. Their continued survival depends upon the availability of capital. However, there has been a marked downturn in available funding, especially for the smallest publicly traded companies.

Meanwhile, the cost of remaining a public company continues to escalate. D&O insurance premiums have risen sharply, and a listing on the upcoming BBX exchange will cost companies is estimated at over $100,000 per year to maintain.

Company executives have responded by cutting expenses to conserve cash and seeking alternative sources of capital. Many of these alternatives are linked to equities which have been beaten down to record lows in both price and liquidity. No one wants to see their company destroyed due to a poorly planned financing, but the list of options is getting shorter by the day.

Almost any public company executive or investor relations (IR) consultant will agree that investor sentiment is at record lows. Companies may be tempted to slash their budgets to help improve their bottom line, but this is a misguided strategy. A company's ability to raise capital is closely tied to its share price and liquidity. These can be improved and maintained through an effective IR program. Below are three suggestions for how to make your company's IR program as effective as possible during this difficult period.

Focus on the Basics

Given the current background of scandal and investor mistrust, microcap companies may have one inherent advantage: their simplicity. Smaller companies are usually focused on a handful of products and services. Their business plans are simple compared to larger corporations, and their accounting is much more transparent. In the current environment, investors may be more likely to appreciate a simple, but strong, story.

Companies should make the most of their IR resources by developing a clear strategy that maximizes the value of basic IR tools. Use press releases, fact sheets and slide presentations to clearly explain a company's value proposition. Describe what makes your company unique. Focus on revenues and sales trends. If your company is not yet profitable, describe management's plan to get there and how long it will take.

Identify your company's strongest points and then highlight them at every opportunity. If your management team has the experience and vision needed to move your company up to the next level, let investors know. If your company has intellectual property that raises barriers to the competition, make sure investors recognize that advantage. If you have a high profile customer, ask them to provide a testimonial regarding your products.