So you’ve been named CEO at a smallcap medical device company – now what?
In the microcap segment of the medtech world there has been an inordinant level of turnover in the top spot. Perhaps it has something to do with valuations. A board has a hard time firing someone (and a general lack of motivation) when the stock price is up. Conversely, when values are down – and they are down – every performance shortfall, personality flaw and missed opportunity of a CEO gets magnified and examined by shareholders and directors alike. The result has been a flock of new CEOs taking the helm at small companies with broken stocks.
For all of you taking the wheel amidst all of the turmoil, a few words of unsolicited advice from the front lines…oh, and congratulations.
First and formost, aim before you begin firing. Pressure will mount soon for you to “get out and tell the story!” But frankly you don’t likely know what the story is yet, let alone what it is going to be in a year. You only get one shot at the NEW CEO grace period. It’s a binary world and in 18 months you will fall into one of two categories: the guy who got it done or the guy who didn’t get it done. So take a deep breath, define your vision, generate your plan to realize it, get buy-in from the board and your team, define doable milestones and schedules and then think about selling the idea to new investors. This is where an experienced and well-connected IR counsel will come in handy. In addition, if you don’t already have one, develop a good relationship with an investment banker or two. As a small company seeking growth, M&A work and/or a financing are likely going to be part of the plan. You’ve got maybe six months of grace period so use it. Seems simple, but many in your position will jump the gun and end up retracting or at least retracing in the first six months hoping nobody notices.
Second, you need to understand why no one has been buying your stock before you can change that environment. Of course each case is different, but here are a few things to think about that may help you determine if your story is ready for the road.
- Will your plan change the company’s trajectory? Remember, no one will buy your stock because you can grow at 10 percent a year and do a bang up job managing and operating the business, especially if it’s a business that has proven itself worthy of wholesale unloading by that same investment community. Smallcap, medical technology-driven companies need to generate growth in excess of 20 percent to get the attention of the Street, so make sure your target markets and strategies indicate such possibilities (or better). Whether it is comnmunicated to the world or not, your strategic plan should include both acquiring and being acquired.
- Are you relevant? If you have an exciting new technology that meets a huge unmet need in medical care, you are the exception and you are good to go – take the orders and count the money. For the rest of you, everything in medicine is changing – healthcare reform, personalized medicine, IT-driven diagnostics and records. Does your technology or service address this disruption? If not, go back to the drawing board, and don’t stop when you think you are on the right track because as progress continues, you will need to be constantly looking to the technology horizon to remain relevent. “…’cause when life looks like easy street, there is danger at you door.” – Grateful Dead
- Is your story simple to understand? Investors, especially institutional investors, are not paid to be creative, so your story and market better be easy to understand and you need to be able to tie it in some way to a well-known and understood stock market success.
- Are you credible? Like it or not, you are asking people to buy you. Your personal demeanor, experience, what you are proposing and promising will play a central role in investors getting involved, so get comfortable with that and don’t diminish that asset by selling too hard, making promises before the plan is fully baked or claiming victory before some evidence of traction in the market is available.
- How are you delivering the message? Press releases, media and roadshows are the standards and will always play an important role in selling the story, but today the avenues of communication are multiplying quickly – social networks, blogs and investor web portals are all becoming important channels for your message. Your board won’t necessarily “get it” just yet, but it’s here and it’s real, so take advantage of it. (After all, this blog somehow made it to your screen, right?).
Finally, be patient. Changing the direction and performance of a company takes time. There is a reason your stock is valued where it is, even if it seems to be unfair. Telling the world you are undervalued is whining, so focus on healing the patient (your company) and the stock price will follow. Good communications and investor outreach will lessen the time it takes for that to happen.
So, best of luck to all of those new CEOs in the segment. To name a few: John McDermott – Endologix, Inc. (Nasdaq:ELGX, http://www.endologix.com), Dave Marver – Cardiac Science Corp. (Nasdaq:CSCX, http://www.cardiacscience.com), Dave Mulder – BIOLASE (Nasdaq:BLTI, http://www.biolase.com), Lou Scafuri – Syneron Medical, Ltd (Nasdaq:ELSO, http://www.syneron.com), Andrew Krakauer – Cantel Medical Corp. (NYSE:CMN, http://www.cantelmedical.com), Dwight Babcock – IsoRay, Inc.* (AMEX:ISR, http://www.isoray.com), Todd Clyde – Digirad (Nasdaq:DRAD, http://www.digirad.com), Frank Martin – NMT Medical (Nasdaq: NMTI, http://www.nmtmedical.com) and Jan Keltjens – AngioDynamics, Inc (Nasdaq:ANGO, http://www.angiodynamics.com)