The risks of an IPO for a strong brand

But what should you look out for as a relatively new brand? What are the risks to your brand, and how can you prevent them? Laurens Hoekstra, Chief Strategy Officer at VIM Group and member of the advisory board at GoFastForward, sets out the main risks and shares his tips for avoiding them.

Your brand as a strategic tool for growth

As a young company it is crucial to understand how you can use the brand as a strategic tool for further growth. In start-ups and scale-ups the brand is directly linked to the founders as individuals and sits close to the authenticity of the organisation. Start-ups therefore often emerge from a need in the founders’ own world of experience. Responding to problems, flexibility, innovating fast, hiring people who fit you, the look and feel of the company, the story, the purpose – it all adds up. Step by step a strong brand is built, one that is unconsciously used as the starting point for action throughout the organisation. And that is exactly the power of strong brands and the reason so many start-ups succeed.

“As a young company it is crucial to understand how you can use the brand as a strategic tool for further growth”

The risks of an IPO for a start-up or scale-up

But what if the company keeps growing in employees and customers and continues to grow financially? What if an IPO is even on the cards? A successful brand that used to sit so close to its founders suddenly runs the risk of losing the ingredients of its success.

The share price may turn out lower than expected, as with Fastned. But it can also happen that a planned IPO ultimately does not go ahead, as was the case with LeasePlan. That too can have an enormous impact on the brand, especially because employees – your most important brand ambassadors – experience disappointment.

Think also of the strong Ajax brand, which was under pressure for a long time because of its stock market listing. In short, an IPO carries quite a few risks for a young brand. To name a few:

• Loss of agility
  The once small and flexible organisation slowly starts behaving like a corporate: more structure, silos and sluggishness in decision-making because the share price dominates. The risk is that work becomes less efficient and that the company responds more slowly to change. It loses speed and, in time, relevance.

• The attention of the owner-directors shifts
  Because the actual ‘brand owners’ change, the company loses its strength. A new field of tension arises among shareholders.

• The brand is no longer used as a strategic tool
  The brand loses focus; after an IPO, attention and short-term financial results often take centre stage. That damages the brand in the long run.

• A falling share price has a direct impact on the brand
  When the market value of a brand falls (as we are seeing with Fastned), this immediately has a considerable impact on the brand and therefore on brand equity and reputation. An IPO thus makes the strength of a brand a good deal more vulnerable and less stable.

What can you do to avoid these risks?

If you want to avoid these risks as a start-up or scale-up, you will have to pay attention to what is highly valuable and comes under pressure during an IPO: your brand. A few tips:

• Designate the brand as a strategic tool for achieving the business objectives
  The brand is not something for the marketing & communications department. It is not just a logo and a few rules about the use of colour. Put the brand where it belongs: close to the strategy of the organisation. Our Brand Performance Study shows that organisations which use the brand as the starting point for everything they do deliver better (brand) performance.

• Value the brand financially as part of shareholder value
  It is important to keep seeing the brand as a valuable business asset and to start treating it as one. Make the value of your brand visible – preferably on the organisation’s balance sheet – and keep track of how your brand is performing, for example with a Brand Dashboard.

• Pay attention to organising your brand properly
  Now that your organisation has grown, it is important to set up your brand processes carefully, just as you would in the supply chain of your core business. This benefits the coherence of your brand and leads to better brand performance.

• Hold on to your purpose: the reason the organisation started in the first place
  For growing organisations it is important to pause regularly to reflect on your purpose and to keep holding on to the brand values you started with. That way you prevent a proliferation of services and products that do not fit your brand, and you also make sure consumers understand what you stand for and that your ‘story’ stays authentic.

• Translate your purpose into the strategic, tactical and operational management of the company
  Your brand has to resonate throughout the organisation and fit the way the business is run, even as the company grows. So keep thinking carefully about how you shape your services, for example, and how you treat employees. Draw up a concrete roadmap describing how you intend to approach this and to keep doing it.

An IPO as a catalyst for brand value

Taking a start-up or scale-up public brings many risks, but – if you handle it well – also many opportunities.

“Do not let the risks discourage you; turn them into opportunities by paying enough attention to your brand”

After all, an IPO can also act as a catalyst for faster growth and shareholder value. Take Adyen, a good example of a young brand that has held its ground well and where going public led to an enormous increase in the value of the company. So do not let the risks discourage you; turn them into opportunities by paying enough attention to your brand.