Should Anyone Go Public Anymore?
The short answer is probably not.
First, it’s a distraction – plain and simple.
Second, you end up focusing your time and attention on the wrong things. Too many people twist and turn management into thinking about a series of metrics which are both short term and often misleading. When you’re public, people spend their lives building models and forecasts that they believe give them some proprietary insight into how you will perform down the road. Those models are built around economic assumptions. So when you’re public, far too many analysts and investors spend their time dwelling on every little operational metric as if it has a profound affect on your future. The inherent problem with this logic is that its absurd. When you’re a relatively small public company (revenues less than $1 billion), your business is prone to fluctuate quarter to quarter not because of a change in your economic model, but because external forces that are often short term. For example, a large customer might delay an order, or you might win a big new piece of business at a low margin, or maybe someone paid you late, etc. Just like a small plane flying in turbulent air, each of these factors can disrupt your finances and distort your short term performance. Yet just like a small plane flying in turbulent air, as you keep flying, the air often smoothes out. Since investors do not have insight into the real micro-level details that are affecting your financial performance, they are forced to guess, and extrapolate, and assume. And you know what happens when you assume (the ass out of u and me thing).
Third, visibility is often a disadvantage. People say that going public can be a branding event, but it also shines a magnifying glass on your internal operations. Once you are big enough to go public, you basically have credibility in the eyes of your customers. Yet once you are public, those same customers have insight into facets of your business that you would naturally prefer to keep private – i.e. your margins, your sales, your customers, your growth…
Fourth, you end hiring people you don’t need and spending money on stuff you don’t want. Need one say more than Sarbannes Oxley…
Fifth, short sellers. There is nothing more absurd to me on the entire planet than the idea of short selling. The entire practice should be outlawed and those that short companies should be locked in jail and their souls should be condemned. I mean, come on. How can anyone take pride is betting money that someone will fail. And the stakes have become so high in this perverse sport, that many short sellers actually do stuff designed to hurt the companies they have shorted. They plant false articles (i.e. the Barron’s article written about me in early 2007). They file frivolous lawsuits. They post absurd comments on chat boards. They call customers and say bad things. They leak inaccurate information to market. They actually spend their time (lots and lots of it) trying to make the stock of the company they have shorted go down and guess what – there is absolutely nothing a company can do about it accept shut up and perform, and take some comfort in the fact that thank god most people see through the b.s.
So why go public? Why did we do it twice (InnerWorkings and Echo) and why would I probably do it again even though I think I’ve just made a pretty compelling argument to run the other way. The answer is simple, and pure, and wonderfully capitalistic—money. And not for the VC’s or the early angel investors who either have money or have options, but money for the masses – for the hundreds or thousands of people who kill themselves every day to make the company just a little bit better.
There is simply no better tool on the planet than the U.S. stock market to get shareholders maximum value and maximum liquidity, and so despite all of the misery, net net, it still is probably worth it.
-Eric Lefkofsky
