SpongeTech Pump and Dump? Not so Fast

I find it interesting how people can look at a title of a video or blog and decide what the “angle” is without even watching or reading. It is a very judgmental society we live in. Over the last 3 weeks I have been doing video updates on SpongeTech Delivery Systems (OTCBB: SPNG) stock with regard to technical analysis.

But amid all of the promotion and the bashers one thing is very clear to me. SpongeTech has done it right with regard to promotion of their company.

Stay with me for a couple of paragraphs while I set this up…

Since the late 1990s, micro cap companies have, by in large, taken a short-term approach with regard to investor relations and promotion of their stock. The Internet Bubble created an “instant gratification” market. Most micro cap companies do little to promote their own company and products or services (if they have any). They just want to hire someone to do it for them; ideally the entity they retain will do it in a big way for a very small price. But, you get what you pay for…

Running short-term programs has ruined the market for micro cap stocks in many ways over the last few years. One or two day “run, hump and dump” programs leaves traders and investors hung in the stock at higher prices for months, years or forever. The company behind the stock is left right back where they started and the only people that make money in these programs are the promoters (sometimes even they lose) and the really sharp day-traders.

So what did SpongeTech do differently?

SpongeTech management adopted a long-term approach to the development of not only their stock but their products as well. SpongeTech management has displayed no gag reflex with paying IR and promotional entities full price for their services over a long period of time. As most of you recall, SpongeTech has been promoted by many entities for over a year. Even last fall, I was contacted to help out. I was too busy setting up a new biz so I could not participate.

SpongeTech management has gone out of their way and outside the box to promote their business and products. One look at their news headlines over the last year or two makes it clear that they were not just sitting back on their asses waiting for IR entities and promoters to produce results. Key Point Here: Company Management Teams must be passionate about their products/services and their business to be successful for more than a day in the marketplace…

I few months ago, I was speaking to one of the promotional entities for SpongeTech. They explained an interesting strategy which made complete sense to me and one I have advocated for about 4 years now: “We are concentrating on promoting the company and their products first- we believe the stock will follow.”

Wow, what an interesting concept…

I meet and have conferences with lots of CEOs and management teams of micro cap companies. I find that in many cases, they bring a negative attitude about the market, their company’s track record with regard to promotion (it’s the promoter’s fault in every case) and all sorts of other abysmal experiences to the meetings. Sometimes it’s hard to even get started with a meeting due to the negativity tangent that the participants are all too happy to follow.

The main reason for previous failures is the management team is FOCUSED on the COST of IR and promotion. Often times the first question I get after laying out a long-term Investor Relations 2.0 program is: “How much does it cost?”

Another problem with management teams is the fact that they are entirely focused on the performance of their stock as if they have nothing to do with it at all… In any good IR/PR effort, the management team effort accounts for at least 50% of the success or failure of the program- even though their time commitment is far less than that of IR and PR teams.

About SpongeTech’s Program

Pump and dump or not, like them or not, SpongeTech’s efforts have worked. Any time a stock advances on the OTCBB or Pink Sheets and news releases and promotional efforts are involved it is going to get stamped a pump and dump. When the stock eventually takes a breather and corrects, the “heroes” come out of the woodwork to say “I told you so; it’s a pump and dump!”

Here is an itemized list (in no particular order) of what has been effective for SpongeTech; and there are no secrets here:

1. Promoted their company and products first…
2. Committed to a long-term approach to marketing with regard to company, products and the stock.
3. Kept the investing community and their shareholders informed with frequent and SUBSTANTIVE news releases- no fluffy stuff.
4. Some Promotional entities on SpongeTech’s behalf adopted Web 2.0 style marketing and used social media platforms. They tapped into a much bigger audience than the standard routes of email databases, fax lists, company profile pages and other BS stuff that doesn’t work anymore…
5. Marketing teams and promoters appeared to have been paid on time and as contracted by the company (as far as I know).
6. SpongeTech reinvested money raised in the market to continually step up their marketing efforts and actually produce real, actual products. As we have seen over the years, many companies raise money in the market from investors then pay themselves exorbitant salaries, buy cars, houses, yachts and what have you with the money and little or nothing goes back into the business.
7. Formed partnerships with high profile entities that produced a lot of visibility for the company. Also participated in high profile individual’s charities.

Now, you may think I am some sort of cheerleader or “pumper” for SpongeTech… I am not. But, I am certainly using SpongeTech as an example of how to build a business and increase shareholder bases for micro cap companies. SpongeTech has made a lot of noise for a long time now. That is the way that things work- if you make enough noise often enough for long enough, you will eventually attract an audience. You will get new shareholders and your current shareholders will buy more stock; those shareholders will tell other people about their investment.

SpongeTech produces sponges (hi tech sponges, but sponges nevertheless) and has been hugely successful so far. SpongeTech management has been very passionate about their sponges and their company. That is why the program has worked. If they can sell sponges and do what they have done, what if they had some really exciting product or service? Don’t get me wrong, sponges are useful, I use some sort of sponge every day…

How can this be called a pump and dump when it has been going on for over a year? Investors have had more than ample opportunity to buy the stock below a nickel. Volume has been high enough for traders to get in and out of the stock every day. Not so long ago (March of this year) SPNG was a sub-penny stock. There has been an extraordinary opportunity for everyone to make money. Not since GoldSpring, Inc. (OTCBB: GSPG) went from .0005 to over .06 between the summer of 2007 and summer of 2008 has there been an opportunity to make money on a stock as there has been on SpongeTech.

Finally, the object of traders and investors of micro cap companies is to make money. Who cares who the management team is and what their backgrounds are? Why care about what IR and promotional entities were paid? What difference does any of it make? I have found over the last 12 years that the people that seem to care the most about who is doing what and how much they are getting paid are the people that are not making much money themselves doing anything. Whining and complaining do not produce good results. I do not know of many people that are paid well to complain.

It should be the mission of every individual to take things as they present themselves. Look for the opportunity in everything. Regardless of who is involved, how they are doing it or what they are being paid is irrelevant. When we see something like this we should be asking ourselves: “How can I profit from this?”

Tagged as: Hot Penny Stock, Hot Stocks, investor relations 2.0, OTCBB, penny stocks, SPNG, Spongetech, tom allinder, web 2.0