If you’ve ever taken a business to IPO you’ll know that its never as simple as it looks. An IPO is a long journey for many businesses, especially those that have emerged from informal cultures or developing markets. I’ve been working with a Saudi business for the past two-and-a-half years to help them get in the kind of shape you need to be to go to market. In fact they have been pursuing their mission for over three years and that’s usually the kind of time you’d expect to take.
Ernst and Young published a paper a while back, which outlined the process and in their polite way underlined to anybody thinking of heading down the IPO route, that if you think you are going to pull it off in a few months you are probably not sufficiently clued up to go to IPO anyway.
There are basically three parts to an IPO pitch, which is much the same as any business/marketing strategy. Firstly there’s a load of financial stuff to sort out before you can really get to grips with a project like this. You have to have all your numbers in a row, loans consolidated, financial processes in place and accounting compliant with legislation in the country where you are going to market.
Then you need to get people and processes in place for every function in the business. Its not enough just to have folks working away in departments doing things their own way, even if they are doing just fine. You have to document every process, which, in itself can be a major project. You’ll probably need a process engineer to help you describe the processes you use and design any that are missing in every department. They have to be formatted with flow-charts and filed in a manual. You also have to have your executive team in place, which often proves to be one of the biggest challenges. A recent EY survey highlighted that once the financial stuff is out of the way, people came top but one in the list of things that influence investors most. This means having director-level experts in the main areas of your business – marketing, logistics, production, operations and finance for example.
The third thing that you need to focus on is strategy. It’s top of that list of investor influences and its probably a large part of your submission document. This is where we marketers make our biggest contribution to the IPO process. These days business and marketing strategies are synonymous. Investors need to know what you will do with the cash they are injecting and that you are ready with the innovations and initiatives that in three or five years time will result in their slice of the action being worth more than when they bought it.
An IPO often proves to be the push businesses need to focus. If you aren’t intimate with your market, have clear objectives and have a clearly defined strategy you’ll struggle to attract investors, especially in an IPO where the equity on offer to investors won’t give them much influence. This is marketing #101 of course. Quantifying your hard and soft resources – identifying the opportunities – defining how you are going to exploit them. And strategy, of course, starts with your brand. You need to prove to investors that you know exactly who you are and what opportunities that gives you. My Brand Discovery programme has proven just the device I have needed in these cases because it doesn’t just help businesses define eleven coordinates of their brand, but introduces a clear process that applies to pretty well everything they do thereafter including the all-important innovation.
An IPO is something that you simply can’t cut corners with. I’ve seen a number of businesses who think the answer is to squeeze their business dry in an attempt to impress prospective investors for the usual three years prior to an IPO. They hold back on investment, go for short-term gains by cutting prices or quality and if their preparations go smoothly and they keep to their timeline (which is often not the case) they just about manage to drag a dead horse across the finishing line. What happens then, of course, is that the business crashes and investors are left with a stark choice – invest further to fix the accumulated problems or accept the loss. Its all a bit like buying a used car in fact! If you take this short-term approach and fail to keep to your deadline your business will die before you get across the line, you won’t get your IPO and you’ll have to find investors some other way to pay for the remedial work your three years of squeezing have necessitated. Alternatively, of course, you could just shut up shop!
Actually the used car analogy goes further in that. If you buy from an established dealer there are some inherent or at least inferred guarantees. In the case of an IPO of course the “dealer” is the bank that manages things for you and because their reputation is on the line, they’ll conduct due diligence that will make a drug-squad strip search feel like the start of a beautiful relationship. So, if you survive this scrutiny you’ll probably be OK when you make your submission to the authorities.
The point to bear in mind with this is that your IPO submission is nothing more than the kind of good marketing strategy document that every business should have anyway, so if you don’t have one the first question you have to ask yourself is “Am I really ready for an IPO anyway?” However it might be a good idea to put your strategy together as though you were going to IPO anyway. As I said, its only what any good business should have.
June 9, 2014