Investors have always known that Snap, Inc.‘s first big test as a public company would be its first financial report. Snapchat’s parent company stepped up for that moment recently, and it’s fair to say it didn’t deliver. Shares of Snap dropped 17.46% on the week, after posting first-quarter results that fell short of expectations.
The recent publicity around Snap Inc highlights a few key lessons for tech companies…
- Tech businesses capable of generating sufficient hype can raise significant amounts of money on a promise of things to come. However, post investment it is essential that you hit your numbers! The plummeting share price (based on poor advertising revenue) and a reduction in the growth rate of users shows how fickle the initial valuation can be, and how quickly sentiment can change.
For any business that raises external finance, the same applies. Investors and funders will invest in the strength of your business plan, the management team and the projected results. Hit your numbers and look after the relationship and it will be a relatively smooth ride. Miss your numbers and/or key milestones and the once relaxed relationship will turn to one of close scrutiny and increasing interference.
What to do?
Make sure your plan is attractive and, more importantly, achievable. Populate your business plan and forecasts with the assumptions you believe in and not ones you think an investor wants to see.
If you have missed your numbers there are things you can do in the short term to make the situation a little better. A couple of tips…
- Communicate early. No one likes surprises and no likes to hear things second hand… especially investors. However, think about the messages carefully and when and how it should be delivered. Poor news, delivered in the wrong way with no action plan is bad news for an investor.
- Work on your assumptions. Your initial business plan will have been built on a set of assumptions. Assess which ones are not working as you thought and develop an action plan to address these areas. Communicating a credible plan will provide investor confidence in you, your team and your abilities.
- Balance Ego with Help. Don’t fall into the trap of thinking you have to fix everything on your own; use your network and the investors to gain experienced insights and explore ways to move your business forward.
For further advice, please contact Graham Dotchin.