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Empowering Management

Most US microcap success stories were first turnaround stories. Let me explain. In most cases a private company’s management team is approached about going public from a consultant, investment banker, etc. These people will make money from taking the company public either by way of advising fees, financing fees,

Most US microcap success stories were first turnaround stories. Let me explain. In most cases a private company’s management team is approached about going public from a consultant, investment banker, etc. These people will make money from taking the company public either by way of advising fees, financing fees, or owning a piece of the public shell that the company will be merged with. Management teams are persuaded with the promises of growth capital and a liquid currency. In most cases the company is only able to raise a fraction of the money promised, and the consultants, investment banks, etc leave the company for the next deal. This undercapitalized public company is now left to figure it out on their own. Put a simpler way, they were thrown into the deep end of a pool without knowing how to swim. Many companies drown. This is why there is such a high failure rate in the microcap space. The ones that do figure it out, that bootstrap their businesses, that don’t dilute shareholders while turning around their companies…these few companies become microcap success stories.

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This past October we had our first conference. We put the 70 best investors we could find in a room with the 13 best companies we could find. Most of the companies were high growth, profitable companies. All 13 companies that presented were success stories, but they were first turnaround stories. Some of the companies were on bankruptcy’s doorstep just a few years earlier.  Their management teams turned the companies around and many of their stocks had rebounded 200%, 1,000%, even 10,000% in just a few years. In my opening remarks at the conference, I made it a point to say every company in that room should be celebrated. Digging your way out of a hole isn’t easy. Microcap success stories are as rare as the dodo bird.

That morning I also asked the following question to the management teams of these companies, all of which built an amazing amount of shareholder value over the previous few years:

How many times has an investor said thank you?

You could have heard a pin drop. Crickets. I wasn’t surprised, and it’s something I truly believe needs to change. If we as shareholders are going to nitpick every little thing a management does wrong, we have an obligation to let them know when they do the big things right.

I don’t know why we investors put a different set of relational rules on our interaction with management teams. I’m guilty of this as well. When it comes to our normal relationships with friends or family we wouldn’t think twice about giving sincere appreciation. We know it builds people up and makes them stronger, but for some reason we rarely give sincere appreciation towards a CEO or management team. Maybe it’s because we feel doing so makes us look weak, or by doing so we’ll give the CEO a reason to take it easy and not work as hard. As if it might go to their head in a negative way. We sometimes think this way even though 100% of our experiences receiving compliments tell us differently. When someone says, “Ian I think you did a great job on XYZ”. It makes me want to work harder, not less. After I receive a compliment, I know someone is watching and more importantly I know someone cares. It makes me want to work even harder because I don’t want to let them down.

A couple years ago I started sending hand written cards over the Holidays to the CEO’s of the companies I’m invested in. I’m only invested in 5-7 companies so it doesn’t take that much time. In each card I tell each CEO that I know their job being a CEO of a public company is a thankless job. It’s not a job I, or any sane person would want. I then give sincere appreciation for the work they do day in and day out, for being “All in” like most of them are, and for the sacrifices they make. I write these cards first and foremost because I mean it. I know these CEO’s rarely if ever get a Thank You. Nine times out of ten the only time they hear from investors is when someone is complaining. I also know that I’m probably the only investor that personalizes a card to them, and it’s worth 10x more than any gift I could have sent. But even more important is I know they will work 10x harder after receiving that card because they won’t want to let me down.

The key to success isn’t getting everything you can out of everyone you meet. It’s about adding value to everyone you meet. This includes management teams. We investors, myself included, need to remember that robots do not run companies, people do. In most cases management has much more on the line than we do. When you are invested in a great company that is managed properly, don’t be afraid to tell management you appreciate them. It might be the first time they’ve ever received a compliment from a shareholder. I guarantee that they will remember it forever. What I’ve found is when you compliment great people, it empowers them to be even greater. In addition, if you want a great relationship with management, show value back to them. Being a great investor is much more than finding great companies early, it’s also about being a better investor to the companies we already own.

Happy Holidays to our Members and Readership. You are appreciated.

We look forward to seeing many of you at our upcoming MicroCap Leadership Summit.

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MicroCapClub is an exclusive forum for experienced microcap investors focused on microcap companies (sub $500m market cap) trading on United States, Canadian, European, and Australian markets. MicroCapClub was created to be a platform for experienced microcap investors to share and discuss stock ideas. Since 2011, our members have profiled 1000+ microcap companies. Investors can join our community by applying to become a member or subscribing to gain instant view only access. MicroCapClub’s mission is to foster the highest quality microcap investor Community, produce Educational content for investors, and promote better Leadership in the microcap arena. For more information, visit http://microcapclub.com and https://microcapclub.com/summit/

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