What’s Your Objective?

Advice for Small and Micro cap Management

Last week I had a frustrating call with a micro cap company. I’ll keep it anonymous, but it’s a high integrity company that likes to underpromise and overdeliver but in doing so gave hard to follow guidance that created mistakes in their limited sell-side research coverage while also creating doubt in the less well researched marginal buyer and seller. The stock traded down 20% that day and more the day after.

They don’t make management books for small public companies and the demonstrated behavior of industry behemoths is counter productive. Industry leaders like Google and Microsoft hold different types of earnings calls that are basically an exercise in opacity. No matter when you read this, Google is “super excited” about multiple opportunities in the immediate future. Microsoft uses longer words and in quick succession to tell you that they’re also well positioned. Both will leave the hard work to the 15 -20 published analysts, to ask follow-on questions, check with industry participants, and update investors on various data points through the quarter to put things in context. Management has many things to worry about, but exposure isn’t one.

For small and micro cap companies, exposure is often a significant concern. From an analyst standpoint there are few industry specialists that also cover small and micro cap companies. Most analysts and investors are generalists and not in the forest much less the weeds. There are fewer write ups, less thorough analysis, fewer conference opportunities, and less ongoing work on industry events. That’s part of the opportunity for the intrepid investor, but also the burden for management teams and one that is unique to the small and micro cap space

Exposure therefore has treated like an opportunity for greatness. Every speaking engagement should be seized and used for more than reporting the day’s news. The topic of each earnings call is earnings or guidance, but the objective of each earnings call should be more than that. It requires that management does extra work to prepare that message. They need to be thinking about the next two to three quarters, their opportunities to speak over that period, and to have an objective for each beyond reporting earnings or giving or revising guidance.

Management teams need to be speaking to the analysts that aren’t in the room. Don’t get bogged down in whether investors are on the call, coming to management’s presentation, or are engaged enough to ask thoughtful questions. You’re not speed dating, you’re on broadcast tv. The point is posterity. The point is the analysts and increasingly AI agents that will comb through transcripts and slide decks to understand your company - almost all with limited previous knowledge.

The best small cap CEO I ever invested in, after he knew the results, would sit down and imagine every possible question an analyst could have about the business’ short term quarterly results and answer those questions in the script. He’d then think about open questions from previous calls, and answer those in the script. He’d then think about a topic that was really exciting in the medium term and talk about that in the script. When he opened the call up fro questions, it was an exercise for his CFO with his interjections limited to cleaning up messaging and ensuring that everyone knew exactly what was meant. He left nothing to chance and controlled everything he could. His objective, every earnings call, was to ensure that the dumbest of investors clearly understood the story and the opportunities in front of the company and was equally aware of the risks that they’d encounter and that he was trying to manage through. At the limited industry conferences he went to, he’d dive deep into a specific opportunity.

He recognized that investors are an unimaginative bunch. That we need to be spoon fed, and so while 2nd quarter earnings might have been the topic, his objective each call went beyond that. The stock price, after he took over, appreciated his efforts, and even “bad earnings” weren’t too poorly received because of his approach. My PM might have flipped me a nickel after their fourth quarter one year - as a joke - because those were the earnings they’d made that year, but under that CEO’s stewardship, we made venture-like returns and he deserved every penny when the company was ultimately bought by a strategic.

Today, I think all of what he did holds and would work well in today’s environment. It does ask a management team to do extra work. While momentum investors might propel the stock to unimaginable heights, fundamental investors get the party started, and we need data that we often do not get if the goal is to fulfill the regulatory requirement. Just like you do with your business, with your investors, have an objective - beyond the obvious - and execute against it.