Introduction
Initial Public Offerings (IPOs) are becoming the favored way of growth, credibility and entry to capital markets among small and medium enterprises (SMEs) in India. Yet, most promoters start the IPO process with full spirit and poor preparation, especially in marketing and communication tactics. The gap between a successful IPO and a failed listing can be narrowly reduced to the extent to which an SME sells itself to investors and is able to control its brand story in this crucial period.
To MSMEs that want to go public, the key to success may lie in knowing how to avoid the most common marketing traps and the result may be a well-subscribed offering that grows at a faster pace and an under-subscribed disaster that cuts credibility and burns resources.
Inability to create Pre-IPO Investor Awareness
Among the worst mistakes that promoters of the SMEs commit is viewing marketing as a secondary issue- something that they should only initiate when the regulatory approvals are near. At this stage, it is too late, and even investors are not aware of it. Good pre-IPO marketing will be the key to generating the market momentum to list successfully.
Most of the SMEs initiate their marketing campaigns only on the official IPO window which normally takes 3-5 days. This does not give enough time to inform investors about the company and its value proposition and expansion possibilities. Retail and institutional investors do not have a point of reference to make informed decisions regarding their investment without prior brand awareness.1.jpg.
It has been found that strategic pre-IPO marketing activities are very effective in boosting investor interest and IPO results. The companies investing in creating investor awareness prior to the formal launch usually have high subscription rates and post-listing performances. The advertising, thought leadership articles, industry awards, and media coverage are pre-IPO activities that form a narrative base on which an IPO campaign is built.
What to Do: Conduct an organized pre-IPO marketing campaign 6-12 months prior to the planned listing by conducting investor education programs, webinars, and industry conferences. Establish the presence of the company in the media. Make the company a leader in the industry by having the executives speak at conferences and emphasize the competitive advantages and distinct positioning in the market at the outset.
Imaginary Valuation and Lack of Reality between Communication and Reality
Most promoters of SMEs enter the IPO process with high valuation, which may be premised on wishful thinking, and not on financial analysis or peer benchmarking. In case the real valuation is lower than projected, the marketing message of the company, which might have been established based on the elevated price, becomes less plausible to investors.
Promoters occasionally place value on aspirational growth targets and not on existing fundamentals. This poses a risky disconnection: the marketing story is that it will grow by X percent, get premium multiples or dominate the market, but the financials do not substantiate these assertions. This gap is immediately spotted by investors, especially institutional investors and seasoned retail investors, and they lose confidence.
Excessive promises in an IPO marketing program can produce two results: either the IPO is grossly undersubscribed due to a lack of investor confidence, or the IPO is successfully subscribed and the stock performs poorly after the listing when the market expectation is not fulfilled. Both options hurt the company’s reputation, and its subsequent capital raise will be hard.
Alternative: Have an independent, professional evaluation of the value that is founded on similar company analysis, financial projections, and peer benchmarking. Make sure that all marketing statements are based on audited financial statements and achievable growth projections. Present investor projections on the conservative side; promise less and deliver more after listing.
Ineffective Investor Communication and Absence of Effective Messaging
Poor and vague communication in the IPO process is a silent killer of subscription rates and post-listing performance. A lot of SME promoters find it difficult to position their business value proposition in a manner that would be appealing to their potential investors, especially those who are institutional investors and get hundreds of investment pitches per year.
In many cases, SME founders believe that investors will be aware of their business model, market opportunity, and competitive advantages as much as they are. As a matter of fact, investors require crystal-clear communication that will swiftly explain why this company is worth their money. The use of vague words, excessive use of technical terminologies, and lack of organization in presentations confuse the investor and decrease their interest. Also, most of the SMEs do not generally respond preemptively to investor questions; questions regarding the depth of management, scalability, competitiveness, and execution risk.
Communication is a very important indicator of company quality and reliability. Studies of SME IPO performance have always indicated that firms that establish effective, transparent, and well-coordinated communication strategies can be able to get higher subscription rates and improve their post-IPO performance. Bad communication, on the other hand, usually results in low subscription, bad pricing, and a bad reputation.
Alternative: Prepare a clear and brief investment thesis and be able to state it in 2-3 minutes. Develop investor-friendly and easy-to-understand presentations, which articulate the business model, market opportunity, and competitive advantages based on data and case studies. Practice the investor pitch by rehearsing and foreseeing questions and concerns of the investors, and address them in the marketing materials and roadshow presentations.
Low Brand Positioning and Market Differentiation
Most of the SMEs are operating in a saturated market without defining what makes them different or superior to their competitors. This weakness is crucial in an IPO, where investors must know why they should put their money in this company, as opposed to others.
SME marketing teams are usually interested in functional product features, as opposed to strategic differentiation. They tell us what their product does, but do not tell us why their solution is better, why the market requires their solution, or what sustainable competitive advantages they have. This is especially bad with regard to competitors being bigger and well-established companies. In the absence of distinction, the SMEs are pushed to the price-only game, which is a losing game in the capital markets.
Investors would prefer investing in firms with sustainable competitive advantages and defensible market positions. When a company is weakly differentiated, it seems susceptible to competition and will not meet the projected growth targets. This impression has a direct effect on IPO underpricing and after-pricing.
Alternative: Do a thorough competitive analysis to come up with sustainable competitive advantages- technology, brand, customer relationship, operational efficiency. Prepare a clear market positioning statement that will state why your company will be better placed to serve its target market. Authenticate differentiation statements and proprietary technology or exclusive contracts with customer testimonials and market facts.
Failure to address Governance and Compliance Communications
Corporate governance and compliance are perceived by many SMEs as check-box items that are needed to facilitate IPO approval. Nevertheless, good governance is being treated by investors as an important indicator of management quality and stability of the company.
Improvement in governance in SMEs is usually done with the view that the company has to be listed and therefore it has to make the improvement in governance, even though it does not necessarily mean that they believe in good governance. This hesitation manifests itself in the way they communicate with their investors, with governance being largely given minor attention, management quality being shoved aside, and compliance changes being pushed as a grudging compromise as opposed to strategic benefits. Investors see this and doubt whether the management will keep the standards of governance after listing.
Empirical studies of the results of IPO indicate that firms that have a well-developed corporate governance system and have an experienced independent board of directors experience higher subscription rates and improved post-listing performance. The issue of governance is no longer a choice in the eyes of investors; it is an essential part of the quality and reliability of the company.
Alternative: Before the IPO, reinforcement of governance structures is not only necessary to satisfy the listing requirements. Hire seasoned independent directors who have good track records in your industry. Effectively convey governance enhancement and the addition of the management team in IPO marketing documentation. Point out compliance systems, internal controls, and audit processes as competitive advantages.
Selecting the Wrong Merchant Banker and Marketing Partners
Merchant banking support is directly related to the success of an IPO, but most SMEs choose based on price discrimination rather than qualification and experience. This is one of the fatal errors that are not realized until the last minute.
Merchant banker fees are mostly compared by SMEs, and the lowest bidder is chosen without a careful assessment of track records, reputation in the market, relationship with investors, and marketing abilities. A less expensive merchant banker might not have contacts with major institutional investors, might not have experience in your line of industry, or might not be able to conduct professional roadshow marketing. This has a direct effect on subscription rates and post-listing performance.
Your merchant banker is not a regulatory facilitator; he is your main marketing partner and investor relations manager in the IPO. Their reputation, investor base, and marketing implementation have a direct impact on which investors will view your opportunity and how they view your company. A bad merchant banker can seriously restrict the range of your IPO and its potential for success.
What to Do Different: Select merchant bankers on the basis of track record, number, and success rate of SME IPOs, and not the fees alone. Talk to various merchant bankers and learn how they market and reach out to investors. References to other companies that have just issued SME IPOs and evaluate their relations with institutional investors and their marketing capacities.
Conclusion: Excellence in Marketing as a Step to IPO
The most successful IPOs of SMEs have some common features: they have clear positioning in the market, provide effective communication, are professionally executed, and are investor-focused. On the contrary, the failures and underperformances usually lead to one or more of the marketing errors mentioned in this guide.
MSMEs who want to go public should not think of spending money on professional marketing and communications support as an option; it is an indispensable part of IPO success. This investment not only pays dividends in terms of successful listing but also in terms of developing a strong shareholder base, facilitating post-IPO stock performance, and increasing long-term value creation.
The IPO process is transformational for any MSME. These strategic marketing errors and poor branding, investor communication, and market positioning can be avoided by adopting best practices in marketing, and your company is likely to be listed successfully and create a platform to drive its growth faster. Keep in mind: the most ideal IPO is the one you have done your research, know your story top to bottom, and can explain it to investors who have a real belief in your business potential. That success is based on marketing excellence in the process of IPO.
