How Early IPOs Can Turn Customers Into Evangelists

Mental Models, Performance, Business & Entrepreneurship | newsletter.scottdclary.com

Jul 16, 2023

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How Early IPOs Can Turn Customers Into Evangelists

The term Initial Public Offering (IPO) can be divisive. Some entrepreneurs believe taking their company public is the end goal, a milestone that so few actually accomplish.

Early investors dream of the day they can finally cash out some of their stock and land the big payday their patience has granted. Day-one employees often get significantly rewarded for their loyalty.

But it is not an easy process. Taking a company public is a massive undertaking and can be the wrong move for some businesses. It can drag skeletons out of the closet or cause leaders to make rash decisions against their core values.

Take Reddit, for instance. Currently embroiled in several battles with third-party providers (thanks to OpenAI’s admission), its pre-IPO valuation has dropped significantly. They are still on target for the second half of 2023, but things have been anything but smooth.

Catching up on the Reddit story and some of the other IPOs scheduled for this year reminded me of a conversation I had with Crush Capital founder Darren Marble in 2021.

At that point, he was just starting the casting process for a radical new idea — IPO reality television. Going Public would debut in early 2022, following a group of businesses as they went through the entire process.

The show gave a behind-the-scenes look at a complicated world, but the entertainment factor wasn’t its primary goal. Darren’s team wanted to, as he put it, “democratize the IPO” by taking it out of backrooms and into living rooms.

Click-to-Invest

Darren was frustrated with the increasing regularity of direct listings and special purpose acquisition companies (SPACs), which he believed kept the average American in the dark, unable to participate in a massive investment opportunity.

He wanted to create a way for everyday people to jump on upcoming IPOs.

In June of this year, more than a year after season one of Going Public was aired, Crush Capital was granted trademark approval for their “Click-to-Invest” branding. In the press release, co-CEO Todd Goldberg explained their vision:

“When we launched the Going Public series, we set out to create a new category at the intersection of finance and entertainment. But beyond that, we knew there would be an opportunity to create a licensable platform that would appeal to viewers and potential investors around the world.”

This new category isn’t going anywhere. Even as people struggle with a difficult economic period, retail investing is here to stay. One survey found that only 1% of retail traders will sell off this year, while 29% still plan to add more to their portfolios.

In this case, it seems Hamilton may have been mistaken — people do really want to see how the game is played, the art of the trade, and how the sausage gets made. They can now be in the room where it happens.

The Early Bird

But Scott, I can already get involved in IPOs. I own some Uber!

There are IPOs deemed “successful” by the financial media all the time. The stock price skyrockets, the value of the company potentially doubles, and the decision is celebrated.

But rarely, even in the successes, is ROI passed on to the average investor. They’re late to the party, coming in near the top of the ride.

When things don’t go as planned, they’re still the ones holding the bill. In 2019, when Uber went public, it was seen as a relative disaster. The company was, at one point, expected to be the biggest listing of all time at $120 billion, ahead of Facebook’s 2012 $104 billion IPO.

Due to several factors, Uber would come nowhere near that number and instead be dubbed the “worst first-day dollar loss” in history. Shares dropped to around $41, where they remain.

Despite that “failure,” the company still raised $8.1 billion from the offering, meaning early investors were still handed a healthy check. The IPO was too late in the game for the average investor to make any real money.

From Customer to Evangelist

So then, how can that process be democratized? Darren argues that the silicon valley pitches and investment meetings need to be taken to the masses. Allow regular people to get involved.

Industry change is difficult, though, so a business case must be made for both sides.

That’s where the brilliance of this plan really shines through. Allowing your customers to be investors offers them a reason to stick around. They’ll be tied to your brand for longer, resulting in:

Increased lifetime value
Bigger purchases
Improved brand loyalty
Enhanced endorsement

They will no longer be just a regular customer; they’ll be spokespeople, zealots, and evangelists. They’ll tell their friends about the company, show off the product, and proudly act as a marketing agent every chance they can get.

Instead of focusing on an IPO to raise capital, it can be a significant growth strategy.

Enhancing Credibility and Visibility

IPOs serve as a valuable tool for improving a company’s credibility and visibility among investors, customers, and the general public.

By undergoing the rigorous due diligence processes and regulatory compliance requirements associated with going public, a company demonstrates its financial stability, enhancing its reputation in the industry.

This increased recognition and credibility can lead to new clients, business partnerships, and networking opportunities essential for the company’s long-term growth.

Acquisitions Using Publicly Traded Shares

Moreover, IPOs provide companies with currency in the form of publicly traded shares that can be used for strategic acquisitions. With access to public markets, companies can use their stock as a form of currency to acquire other businesses, technologies, or assets, thereby accelerating growth through inorganic means.

Using stock as acquisition currency can make a company more attractive as a potential acquirer, allowing it to target valuable acquisitions and negotiate favorable deals that would be more challenging to obtain using only cash resources.

Attracting and Retaining Talent

Going public can positively impact a company’s ability to attract, retain, and motivate top industry talent. By offering stock-based compensation packages, such as stock options and restricted stock units, IPOs enable companies to incentivize employees and align their interests with those of the shareholders.

This alignment of interests can lead to increased productivity, innovation, and long-term commitment from employees, ultimately resulting in significant growth and value creation for the organization.

The Institution of Public Shareholders

While it may seem like a volatile proposition to put your company value in the hands of millions of people, the public masses actually act like institutional investors. The market is effectively legitimizing a company.

Collective intelligence, the idea that a group of people can produce intellect that individuals cannot, comes into play here. While the mass shifts, it largely remains intact, offering long-term support to a brand.

Those who stay involved become the company’s most valuable customers and offer the stability that can’t be found in private funds.

The fundamental goal of a business is always to make more money than you spend, not just raise venture capital. By going public at the appropriate time, you can provide additional value for your customers that want to get involved — not just a board room of bank accounts.

Final Thoughts

Public offerings aren’t a guarantee. They can be risky investments for people on the outside, watching the market from their home office. But that may be changing with people like Darren.

If you want to listen to the entire podcast, head over to the Success Story YouTube page and check it out. He also gives some advice for up-and-coming entrepreneurs that might be considering an IPO in the future.

If you enjoyed this article, I’d love to hear from you.

Write me at scott@scottdclary.com or tweet at me @ScottDClary and I’ll do my best to get back to everyone!