The Dark Side

Some common fears of private companies who go public.

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Will your worst fears about going public come true? Inc. 100 CEOs address what your advisers won't talk about

Nobody wants to talk about what it's really like. For a reason. Few entrepreneurial dreams are as seductive as the one about taking your company public. It promises riches and fame (or at least operating capital and marketplace recognition), not to mention the satisfactions of a mission accomplished.

But then there's the dark side.

What happens after the underwriter has held the closing dinner, after the road show has made its final stop, after investors have, you hope, oversubscribed? There you are, having crossed onto alien turf without a guide. You're public. Suddenly you're being interrogated by pointy-headed strangers, hemmed in by unfamiliar rules, cut off from opportunities you once took for granted. Your company is harder to recognize, and so are the threats to it. The feared result? You'll be out of control. Even if you're still the boss, the company you loved will be gone.

The fears are not farfetched -- just check the business pages. Post a bad quarter, and Wall Street crawls all over you; post a couple more, and your own board crawls all over you. Takeover artists woo your shareholders if your stock price sinks (dragging your net worth down with it), and lawyers woo them if there's a misstep in your press releases. You fight back, of course, but all those arcane rules are dictating what you can say, when you can sell, whom you can talk to. And just when you think the trouble is dodged, some analyst gets hold of that confidential memo about the possibility of a $400,000 write-down. "I feel like a squirrel in a carousel," says George Archuleta, chief executive of Vitalink Communications Corp., public since 1988. "I just keep running."

Of course, a successful offering can still be the best way to raise a lot of capital. The benefits of going public are obvious and real. But so, unfortunately, are the consequences you're afraid of. Consider this: though more than half of the Inc. 100's chief executives planned on going public from day one and should have been prepared for its effects, quite a few were surprised when their biggest fears came true. Their discoveries haven't prompted a flight from publicly traded life. But they have led the CEOs in the following pages to shout back across the gulf that separates private from public and describe the reality of the other side. They knew being public would be different, but like witnesses at a trial, they didn't grasp the power of the oath until they took the stand.

Below, testimony about the fears of managing in public -- from CEOs who remember what being private was like.

I Won't Be an Entrepreneur Anymore
John Schinas doesn't want sympathy. But the president and CEO of Digi International Inc. (#10), a maker of data-communications equipment, does mourn the freedom he once had. "You can move on a lot of hunches when you are a private company," he explains. "Not that I regret being successful, but going public has put some constraints on us."

It didn't take long for Schinas to get the message. Within a month or two of going public last October, he approached his lawyers about an acquisition he had in mind. Hold everything, said the lawyers. The IPO prospectus doesn't provide a description of the proposed acquisition; you can't use the offering's proceeds to pursue it. "When you think you've got a good deal, and you can't make it," says Schinas, "it's frustrating."

For more than three months after the offering, Schinas's lawyers discouraged him from taking any action that had not been fully disclosed in the prospectus. Make any surprise moves with that money you've just raised, they warned, and it'll look like you misled investors about your plans. The likely result: class-action suits aplenty. "Who knows what opportunities came and went during that quiet time?" says Schinas. "As they came up, our lawyers would say, 'You can't consider those things at this time. " Even now Schinas shelves new-product ideas almost as quickly as he comes up with them. "We discuss them at board meetings, then we put them on the back burner. Otherwise, shareholders would think we were reckless with their money," he says. "We take a lot more into consideration." Monthly board meetings have stretched from three-hour bull sessions to "deeper talks" lasting at least five hours.

If Schinas sounds like a man who'd be happier to appear on the Inc. 500 -- our ranking of the fastest-growing private companies -- he explains that going public was less the fulfillment of a personal dream than the consequence of a necessary vow. "There wasn't much choice for me, since I promised I would make my original shareholders liquid in three years," says the 52-year-old. "I wouldn't advise companies to go public unless they absolutely need the money, and that is the only way to raise it."

Still, he finds the level of accountability "much harder to deal with" than he expected. When he approached board members about needing more space, for instance, they questioned him intently about his proposal to buy a building that they felt was inappropriate for the company's needs. Eventually they encouraged him to lease space rather than end up, as so many fast growers do, in the real-estate business. "Forget about buying a lot of extras," says Schinas. "You get exactly what you need."

Not that he's complaining. "It's much easier to run a private company," he admits. "But we are where we are. There's no use thinking about it."

I'll Embarrass Myself on the Road Show
Here were his two choices, as Jeffrey Sudikoff saw them: come across as bland, or completely confuse everyone.

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