Managing Investor Expectations

Just last week, I found myself in the twin cities of Minneapolis and Saint Paul, Minnesota, not for leisure but for a strategic session that to redefine our approach to investor relations with a private-equity held portfolio company. The historic Concord Exchange played host to our deliberations. According to the house security guard, little did I know, our evening would unfold a lesson in expectations, not from the living, but from the potential "residents" of the Concord House*. Yes, seven ghosts supposedly wandered its halls, a revelation that could send chills down the spine of the bravest souls. Having lived in Salem, Massachusetts, I’m no stranger to eerie tales, but it was this unexpected encounter that got me thinking about the fears that haunt investors and the importance of setting and then making sure to navigate expectations to keep those fears at bay.?

*(Unfortunately, I fact-check after the sleepless night, and learned that the REAL haunted house was at the Griggs Mansion nearby. Not very funny, Mr. Security Guard. ??)

The Specter of Losing Investor Confidence

Rewind 25 years ago, and you’d find me in the corporate world, navigating the choppy waters of investor relations as a controller for a publicly traded entity. Our executive team, ambitious as they were, often set lofty expectations in our earnings calls. On the rare occasions we met these expectations, our stock price barely budged, a silent nod of approval at best. But when we fell short, the market’s retribution was swift and merciless, a tangible sign of evaporating investor confidence. The lesson was clear: overpromising and underdelivering is a surefire way to invite doubt and disillusionment.?

Crafting the Art of Expectation Management

So, how do we set the stage for success without inviting the specters of disappointment? The strategy is threefold:

• Stretch Goals: They’re the horizon we chase, not just for the sake of ambition, but to foster a culture of exceeding our normal limits. These goals drive innovation and push us beyond our comfort zones. However, they’re called ‘stretch’ for a reason; missing them shouldn’t spell disaster but rather, a recalibration of our efforts.
• Management of, and Navigate Expectations: Here lies the heart of our operational excellence. Tethered to incentives, this tier of expectations fuels our day-to-day, ensuring that every rung on the ladder is a step towards our overarching vision.
• Baseline Expectations: This is our promise to the world, the minimum we commit to achieving. Setting this bar too low is akin to sandbagging, while setting it unattainably high is a recipe for disappointment. The key is finding the sweet spot where credibility and ambition meet.

(For more on this concept, please read Chapter 11, Vision to Value, Lost at CEO.)?

A Haunting Lesson in Resilience

For CEOs of public companies, missing expectations is a very real scare to your stock price. Bloomberg shares a research report that companies that missed their earnings had their stock trail the S&P by 5.7% in October 2023. UCLA’s Anderson School of Business went a step further and showed how unrealistic investor expectations caused more injuries in the workplace, a truly horrific result.

To read more for our upcoming Measure Success Podcast guests, including Nicole Kalil , click for the full blog here.