For the CEO of a public company, Archuleta was taking a lot for granted -- much more than he realized. Before he even got around to packing his bags for the March meeting, Vitalink's stock price had started to creep downward, from $20 per share to $18 to $15 and finally to $12. As adjudged by Wall Street, sales for the first quarter of calendar 1990 were roughly $1 million behind expectations. One by one, the chartists ordered their followers to sell their stock in Vitalink, which makes and markets data-communications products. That mentality developed its own momentum, speeding the decline into a downward spiral.
"It's such a knee-jerk reaction," says Archuleta. "It's mind-boggling." One thing was clear, though: Archuleta and his managers couldn't go on their retreat. With much regret, he postponed the planning meeting -- a graphic illustration of how they had all become prisoners of the market's myopia. "We needed to get everybody working on getting some business in the door," he says. "You have to try to produce the best numbers you can. It's unfair."
Not that the 57-year-old Archuleta is naïve. Before going public in 1988, he had been warned about the constant pressure to nudge the stock price northward. "I thought I'd have to make presentations periodically and take a few calls from investors," he says. "I guess I knew what the game would be. But it's a lot worse than I thought."
Being public, Archuleta says, not only has changed the atmosphere in which the company operates, but also has reshaped the company itself. "You actually make decisions differently," he says. In developing products, for instance, Archuleta has had to change his priorities, focusing on those that maximize quarter-to-quarter sales growth. Reluctantly, he has needed to forgo -- or delay -- products that he felt held strategic importance or rounded out Vitalink's identity. "The more strategic ones lose out to the big-margin producers," he says glumly. "You can't build your company as well as you'd like."
That's partly because Archuleta has to spend so much time dealing with shareholders. "Being public has a major impact on the CEO's time," he says. "Day-to-day operations suffer from my not being here. I don't accomplish a lot of the things I want to." No sooner has one quarter wound down than calls start trickling in about the next one. One day Archuleta returned to his office to find a pile of phone messages 61 deep, mostly from stockholders and analysts. How are things looking? What kind of quarter is this shaping up to be? During a ragged quarter, such as the first quarter of 1990, the voices on the phone can get ugly. "I need to speak to your CEO right away, or there won't be any switchboard or any company," one caller yelled. "I'll flush this company down the drain."
Archuleta still finds it hard to take. "When they start losing money, they get panicky," he says. "Until you deal with it, you don't realize how serious it all is."
Or how time-consuming. On a recent night Archuleta toiled until midnight, faxing information to shareholders. During his days as CEO of a private company, he took up to 30 vacation days. In 1989 he snuck away for 4 days. He gets to work at 6:00 a.m., leaves at 6:00 p.m., and spends his hour commute on the phone with shareholders. "Being public is exhausting," he says. "It consumes you."
Not that he ever had much choice about it. As a venture-backed company, Vitalink was born knowing what it would be when it grew up. Archuleta certainly doesn't begrudge the $44 million the company has raised. But he does resent having to kibosh his already-limited long-range planning efforts when the stock goes down $5. "I'm sitting on all sorts of strategic decisions, and that's unfair to me," he complains. "Those of us who build companies want to build solid long-term companies. Here, you've got a growth curve you've got to satisfy."
My Prospectus Will Be Used Against Me
Michael Hackworth was livid. "Wait just a second," he ordered his attorneys. "You mean we have to tell them that, too?"
Only a month away from shuttling Cirrus Logic Inc.'s (#4) prospectus off to the printer, the president and CEO was reviewing the information the company, which makes integrated circuits, would have to release. "Do we really have to tell the world who our major accounts are?" he asked. Yes, they nodded. "And we're required to let them know what percentage of sales each product line represents?" Uh-huh. He flipped to another page. "Why are we giving away our long-term strategy?" he cried. Silence. "Forget it. I can't go through with this."
In the midst of the ensuing confrontation -- "It's like opening up your family's checkbook to everybody" -- his lawyers suggested that Hackworth read other prospectuses. In browsing through them, he admits, "I saw that was just the way it was."
Not that his fears were unfounded. Two hours after finishing his road show in San Francisco, for instance, he got a call from one of his customers. "We need to talk about your margins and our margins," the customer demanded. And that was just the first of many "emotional conversations," Hackworth reports. Customers, he discovered, didn't cotton to the notion that a supplier's profitability should be higher than theirs. Some brought it up in half jest. Negotiating a price for a part, they might mutter, "Gee, you guys are so profitable, you can afford to take some percentage points off." Hackworth's counterargument: "It's irrelevant. The profitability of a customer is determined by the conditions of the marketplace. The supplier's margins have to do with how competitive it is against other solutions."
