At the best, however, the auction and tender method above described is not applicable to the great majority of corporations which are not sufficiently well known or well established to secure offers to buy their shares and bonds by the simple process of stating that given securities are for sale. They must go out looking for prospective buyers and must carry on an active campaign for the purpose of disposing of their securities. To determine the amount and nature of the securities to be offered belongs to the field of financing proper; what methods should be adopted in disposing of these securities directly to investors is primarily a selling problem. This problem as applied to the sale of securities can be analyzed as follows:

* See report on "Regulation of Public Service Companies in Great Britain," prepared by Robert H. Whitten, Librarian-Statistician, Public Service Commission, State of New York, First District, Published by the Commission, New York City, 1914.

1. How to obtain the names of prospective buyers.

2. How to approach these prospective buyers in a suitable and attractive manner.

3. How to arouse their interest.

4. How to secure their confidence.

5. How to create a desire on their part to purchase the securities that are being sold.

6. How to secure a favorable decision and consummate the sale.

It is necessary here only to present a few remarks as to the application of the principles of salesmanship to this problem of disposing of securities.

The first method of securing the names of prospective buyers, which occurs to many organizers or managers of small corporations, is advertising or extensive circularizing. This method, however, has proved itself almost worthless for sound, legitimate enterprises, although it is extensively used by unsound enterprises. First of all, the very fact that swindling promoters of alleged oil companies, mining companies, and the like have used this method so largely is almost a decisive argument against it. It has become - perhaps unfortunately - so closely associated with fraud that any offer of stocks or bonds that is made through advertising and circularizing is at once looked upon with suspicion by most conservative men. A more fundamental objection is that the method is bound to be expensive. It is not likely that any securities, unless they should be the securities of companies already widely and favorably known, could be sold by advertising and circularizing at an expense of less than 25 to 40% of their offered price, which is entirely too high for a legitimate enterprise. The selling expense ought not to exceed 5 to 10%.

The plan may be modified to the extent of circularizing only selected lists made up, for example, of the customers or probable customers of the enterprise. If the list is carefully selected, and the circularizing carried on in a dignified and effective manner, this method may sometimes prove inexpensive and successful. The remarks in a preceding section as to the advisability of securing capital from customers and employees support this view. It must be borne in mind, however, that there is grave danger here of arousing the suspicion that the corporation is financially embarrassed or at any rate is not sufficiently well financed to provide funds for proper development.

The third and ordinarily the best method of finding prospective buyers for securities of small corporations is through personal inquiries. It may seem at first glance that this statement is in contradiction to the customary practice in marketing commodities. "Experience has long ago proved," it may be argued, "that making personal inquiries is a slow and highly expensive method of locating prospective buyers for automobiles, for real estate, and for many other high-priced commodities. At any rate it should be supplemented and supported by advertising, circularizing, and other cheaper methods. Why should not the same principle apply to the sale of blocks of securities?"

The answer to this natural inquiry is that the element of confidence in the management of an enterprise is a vastly more important factor in effecting the sale of stocks and bonds than it is in effecting the sale of a tangible commodity. The purchaser of a security does not terminate the transaction when he pays over his money and receives his certificate or his bond. He is just beginning at this point his relations with the corporation and its management. If he is wary, therefore - and the majority of people with capital to invest are wary - he will not part with his capital until he feels well assured of the honesty and competence of the management of the enterprise. When the corporation is well-established and well-known, or when the offer comes to him through a banking house of high standing, or when he is personally acquainted with the managers, the necessary feeling of confidence is quickly established. If none of these favoring conditions exist, however, the best substitute is to approach the prospective buyer with a personal introduction or recommendation which tends to establish confidence.

Here we have the basic reason for the unquestionable fact that only through the personal influence and activities of the responsible officers or of trusted representatives can the securities of a small corporation be successfully sold to the general public. For this reason the expense of finding prospective purchasers through such impersonal methods as advertising or circularizing is in almost every case prohibitive.

The organizer or manager of a small corporation which needs capital may as well make up his mind at once that he is the man who should find the capital and that he should work through his acquaintances and through the respected business men of his community or of his line of business. He may be greatly surprised, frequently, to find how quickly and easily he can locate capital, the existence of which he had not previously suspected.