Sound Advice for Unprofitable (LED) Start-ups
According to a recent article by Nickey Friedman of Motley Fool, “It’s important for companies, especially those that aren’t yet profitable, to get a good handle on their short-term future and communicate it properly”. This is especially true if you don’t have a proven track record of performance. And that covers many of the newer entrants to the lighting market – whichever side of the pond they come from.
In the article, Friedman takes a look at Revolution Lighting Technologies (NASDAQ: RVLT ) and compares the company from a numbers point of view to Hubbell (NYSE: HUB-B ). I am sure that most of you from within the lighting industry would immediately cry out that the comparison is unfair and unrealistic. Hubbell are a huge company with a long history, many brands and significant market share in the lighting market. Revolution on the other hand were founded in 1991 and began by manufacturing products for landscape, signs, pools and spas. It wasn’t until 2000 that they began expanding their product development efforts into the emerging technology of Light Emitting Diode (LED) lighting systems.
But most investors don’t come from the lighting industry. They don’t know how to compare ‘apples with apples’. They look at sales projections, earnings before interest, taxes, depreciation, and amortization. They look at how much money is needed to feed the innovation pipeline. They know that LEDs are hot; that its a game-changing technology that will revolutionize our industry. They see the big growth projections and they are attracted by the numbers. But they don’t know how to pick the winners. They don’t know how to evaluate the technology.
It is our job to educate these investors so that they are better informed to make smart choices. We can best do that by making statements and claims that are realistic and credible. As Friedman pointed out “If management has such a poor handle a mere six weeks into the future, how can investors rely on its forecasts three years into the future?”
Investors love consistency & reliability; even if you haven’t been trading long, deliver what you promise. Don’t promise version 2 & 3 of your product and then fail to meet each and every deadline. No matter what the technical problems you encountered, you’ve lost your credibility. If your management team overpromises and underdelivers, your investors will quickly look elsewhere.
Help them to understand which part of the market you are focusing on – a lightbulb is not just a lightbulb anymore. You have to manage their expectations so that the big numbers that seduced them are brought into perspective – relative to your business.
And a final piece of advice; stop with the marketing jargon – investors see right through it. The classic ‘we are the leading lighting company in the area of LED technology’ is used by so many companies that don’t even have a blip on the market share tables, that its a joke. What it actually signals is that you are trying to jump on the technology bandwagon and dupe investors; that you don’t have something more substantial to say about yourselves; that you don’t even know what market you are in.
Written by Julie Allen.