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.

Either way, he wasn't likely to build much anticipation for IDB Communications Group Inc.'s (#83) offering in 1986. Like any chairman and CEO, Sudikoff wanted to price IDB's shares as high as possible. But he was having a hard time imagining how he could turn satellite-transmission services into a real spine tingler. "The Wall Street community wants to feel good about what it invests in. It wants to be hyped," says Sudikoff, 34. "But ours was a company that was very difficult to explain. Our technology is normally invisible."

Eager for ideas on livening up his road show, Sudikoff could think of only one way to help himself: watch other road shows. He asked his banker to inform him when companies were coming through town. He sat through three or four. "It was valuable to sit in the audience and listen to the way the buy-side people reacted," he says. "They perked up only at certain things. They really weren't interested in a lot of detail."

Sudikoff, on the other hand, didn't miss a nuance. Listen, he told his managers after sitting through one presentation, we've got to get some slides showing figures on the total market for data communications. Not that there was a reliable number -- nor one that was even relevant to IDB's particular segment. "But overall market size was a buzzword, and they wanted to see a number," says Sudikoff. "Especially, they wanted to see a big number."

Sudikoff also learned the value of a gimmick that folksingers have exploited for eternity: audience participation. "I noticed you could sort of lead your audience to do some mathematics," he says. Tell them, for instance, the unit price, the number of units you could sell, and the price growth; then sit back and watch as they reach for their calculators to figure out the upside. "It was better than doing the math for them," he says. "Invariably, one would stand up and say, 'Well, according to those figures, the potential market would be such and such.' Then you say, 'Well, I haven't done the math, but I suppose it would work out that way.' It keeps them interested and entertained."

When he talked about IDB's relationship with The Chicago Tribune -- "I only mentioned identifiable customers," he says -- Sudikoff would trace all the work IDB has done; then let his audience take it a step further. "In the future," he'd say, "we hope to be involved in their other newspapers -- what's the one they own in New York?" Came the reply, " The Daily News." Sound manipulative? "Rapport matters," says Sudikoff.

The more Sudikoff watched, the more he became convinced that the potential investors really wanted the old soft shoe. "Going in, I might have thought I was going to meet a bunch of rich experts on everything," he says. "What you learn is that they know very little about a lot of things. To some extent, you have to be able to reduce what you do to the lowest common denominator."

To do that, Sudikoff's own presentation focused less on the technology and more on its applications. He talks about how the company provided for the transmission of "Monday Night Football" and thousands of baseball games -- "people in the Wall Street community are also the people who pay attention to professional sports," he says. And he never forgot to mention that IDB circuits transmitted former President Ronald Reagan's radio speeches from his ranch. It was an IDB technician, in fact, who cued Reagan to test his microphone, only to have the president make that now-infamous jest about bombing the Russians.

Not that Sudikoff shied away from serious questions. Along with his banker, who is a former trial attorney, Sudikoff reviewed more than 100 questions likely to be asked while he was on the road. The only surprise came overseas, in Edinburgh, when a potential investor, during a discussion of tax reform's effects on IDB, asked whether evangelist Pat Robertson would get the Republican nomination for president.

Hitting Europe first was part of his strategy. Outside the United States it's permissible for companies making IPOs to offer projections -- and who's to stop those numbers from floating back? "I saw it happen. I'd be with the buy siders, and they'd say, 'We talked to people in London who said your market projections are such and such. Can you confirm?' " Of course not. "All you can imply is, Well, if they said it, it must be true."

Sudikoff contends that this is neither cagey nor superficial, but rather in keeping with the atmosphere on Wall Street. "The decision to pitch with bits and bytes instead of Fred and Ginger will hurt your valuation," he says. "Maybe that's sad. But it shouldn't be surprising." The company's stock, he adds, came out and rose uninterruptedly for six months after the road show, and subsequent presentations have buoyed it further. Even as the market was plummeting on the Friday before 1987's Black Monday, IDB's stock rose more than a point, thanks to an appearance Sudikoff made in San Francisco, he claims. "Most investors don't have the time to listen to all the Jeffrey Sudikoffs in great detail," he says. "They watch you; then they go on to the next deal. Mostly, they are betting on jockeys."

I'll Be Forced to Live Quarter-to-Quarter
George Archuleta didn't think of his plan for an off-site executive strategy session as risky or grandiose. It was just the kind of exercise that managers of growing companies needed to engage in from time to time. We'll get away for a few days, he figured, and toss around ideas about Vitalink Communications Corp.'s (#78) future.

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."

Competitors, too, panned the prospectus for incriminating nuggets. One of them, delighted to find that one product line represented 70% of the company's revenues, derided Cirrus as a one-product company that wasn't serious about some of its customers. "It created an issue our salespeople had to deal with," says Hackworth with a sigh.

When competitors and customers run out of ammunition, Wall Street analysts are always ready to rearm them. "They are out there digging, and that's something you have to deal with on an ongoing basis," Hackworth says. "We've probably had nearly a dozen reports on the company, and I've absolutely had moments of shock reading them."

The experience has been instructive -- to say the least. "I understand what going public really means," says the 49-year-old. "It doesn't just mean that securities will be held by public shareholders instead of private ones. It means going public with a great deal of information. It's easy to underestimate the amount or detail that will come out."

I'll Become the Target of a Hostile Takeover
On paper, International Broadcasting Corp. (#44) may sound like the ultimate in harmless -- even old-fashioned -- enterprises.

But on Wall Street, even a company that counts the Harlem Globetrotters, the Ice Capades, and several amusement parks among its holdings can become just another undervalued stock. That makes it subject to some hard realities. "Any public company knows that what happened to us is always a possibility, and you have to be prepared," says Thomas K. Scallen, president and CEO. "But when you're trying to build a business, you can't help but resent it."

About a year ago Scallen noticed that IBC's stock was trading heavily. "You watch it, and you think, OK, now what's going on?" recalls Scallen. Soon he was informed that J&T Investors, an Atlanta group, was attempting a takeover of IBC. "The whole thing was just a wonderment," says Scallen, 62.

Huddling with directors and lawyers, Scallen reviewed the offer and decided it was not in the company's interest. Last June, J&T's two principals attended the company's annual meeting. Introducing them from the podium, Scallen asked them to stand. As they did, a process server handed them legal papers. "Why did we do it like that? We're in the entertainment business," notes Scallen, whose suit claims that J&T was misleading in its attempts to buy the company and manipulated the stock price. "We don't think they acted properly." J&T has filed a countersuit against the company, Scallen, and some of his board members.

The stock hasn't been the only thing gyrating wildly. As the takeover proceeded, employees began bouncing off the walls. "The jungle drums are beating, and everyone's worried," Scallen says. " 'What's going to happen to this company?' they want to know. 'What's going to happen to my job?' It's hard on them. What hurts the company is the fear they go through." Worse, they sometimes act on it: one prospective hire said he would come aboard only with a two-year contract.

To calm them, Scallen has made sure everybody has been kept up-to-date. "We kept everybody informed about what was going on and what the board's view was," he says. "Still, it scares the heck out of them. You spend a lot of time and pay lawyers a lot of fees." Because Scallen has taken a company public before, IBC is not as vulnerable as it might have been. The company, for instance, has a supermajority clause in its articles of incorporation; 80% of the shareholders must approve any sale or merger. "As a public company, you have to plan for this," he says. "There are several steps you can take."

But alas, nothing is foolproof. In early March, even as Scallen was awaiting a trial date to be named, he noticed IBC stock was "trading like crazy, so it looks like somebody has the same idea as before." As of midmonth, he reported, "I'm in the waiting stages again. All I can do is wait." Then he sighed, quickly adding, "In a way, it vindicates our judgment about the opportunities we see. I guess it's just part of being public."


"The first time we were listed on NASDAQ was very exciting. I went to a brokerage near my house and plugged in my stock symbol. There it was. I had purposely parked a long way away, and walking back to the car, I just had this big smile on my face. I had been a finance major in college, and I remembered sitting in one of my classes, with long hair, thinking, 'What I want to do someday is have my own public company.' Now, I could sit and calculate how each sixteenth-of-a-point move added another $200,000 to my net worth.

"That lasted about a day. Then everything else took hold. Last August we started working to do a bigger offering. By October three underwriters were ready to do a secondary, and my wife and son and I decided, 'Let's take a half day on Friday and go to Aspen and relax a little bit.' We were listening to the news when the market started plunging. I called my underwriter. 'It's brutal,' he said. On Monday our stock went down half a point. I got the calculator out and figured my net worth had just dropped almost $1.5 million in a day. I was pretty down.

"I got over it. This was only a minicrash. I think it must be very depressing to see your $6 million go to $2 million in a week's time, which I know happened to a lot of people. When you're succeeding as a public company, you feel like you're living the American dream. But if you can't learn to live with the swings, they will drive you nuts. "

-- Bruce Milliken, CEO, Random Access Inc. (#15), Denver

What's the downside to being public?
According to Inc. CEOs who answered the question, the most troubling consequences are:

Cost in time and money of dealing with Wall Street 42%and shareholders.

Emphasis on short-term results, plus ever-increasing 30expectations.

Everyone knows your business; you can't keep secrets 22from competitors.

Life in a fishbowl; constant outside criticism. 19

(Total is higher than 100% due to multiple answers.)


"When I told people I planned to take my 37 pawnshops public, they told me I was crazy. They just kind of snickered.

"I know pawnshops have a bad reputation left over from the Depression, so we made sure our merchandise was well displayed, our stores departmentalized, brightly lit, and clean. We had nice signs and good locations. Our managers wore ties and were clean shaven. Until we got the company profitable, we didn't have time to work on polishing our image any more than that. Right before we went public, we started working on the image. We don't have a PR staff and we never needed one.

"I just told my story. I let people know we had nothing to hide. With the media, you get one person interested and it's like an avalanche. An investment banker who had seen our prospectus called and said, 'You've got a lot of nerve taking pawnshops public.' And Forbes ran a blurb expressing disbelief about our IPO and called it 'Profit from Misery.' Our chief financial officer, Clifton Morris, wrote to the magazine saying, 'Don't have contempt prior to investigation.' The magazine printed the letter and later wrote something very positive.

"Soon it seemed like every time I picked up the phone, someone would say, 'I never heard of a pawnshop going public before.' So I'd invite them to come take a look. In our first two years as a public company, we were written up in Fortune, Newsweek, Esquire, and Business Week, and we were on the three major networks and CNN. They come down here and they see we're not guys with garters around our arms and eyeshades. It's a contagious situation.

"Now, some newspaper or TV station calls us every quarter. The publicity has been distracting, but it has helped in our quest to overcome that negative image. We've taken the time to properly explain things and make our point. That's why I've taken the time to talk to you today. "

-- Jack Daugherty, CEO, Cash America Investments Inc.

(#79), Fort Worth

What are the benefits of being public?
According to Inc. respondents:

Enhanced credibility with customers, suppliers, 54%banks, and so forth.

More visibility. 29

Increased options for future financing. 28

Better employee morale and productivity. 18

Improved attractiveness to recruits 18

(Total is higher than 100% due to multiple answers.)


"We went public with 101 employees, and we made 11 millionaires. There are more than 30 now. The first few weeks, people ran around and looked at each other and said, 'He's a millionaire.' Then the whole thing passed. Every once in a while some new hire will come in thinking the founders are made of gold. Then they see that nobody here is driving a Rolls-Royce. We got back to work pretty quickly.

"Every year we motivate by layering in additional stock options for those who have taken on additional responsibilities and made larger contributions, but people are motivated by other things as well. They like hearing about the company in the press or at somebody's dinner table. Employees come up to me and say, 'My father-in-law read about us in the top 10 so-and-so.' And opportunity gets people excited. We move a lot of people around. Our vice-president of manufacturing recently became head of Asian operations. That opens up new things for him and new opportunities back here.

"Of course, we have lost some people. One of our early guys went off to become a college professor; one woman became ill and decided to leave work and enjoy the rest of her life. The thought of leaving and lying on the beach comes to my mind, but it doesn't stay long. I believed in this market when there was no market; keeping myself excited is the easiest thing in the world. "

-- William Gibson, CEO, Digital Microwave Corp.

(#2), San Jose, Calif.

Has the IPO and your experience as CEO of a public company made you a better manager?
Eighty percent of Inc. respondents think so for various reasons, the most common among them being:

* "I'm more disciplined, efficient, and focused."

* "I have more financial savvy."

* "I'm a better communicator."

* "I'm more analytical and consider more perspectives when making decisions, and I take more time."


"We were within a couple of weeks of filing when the stock market crashed. I was visiting customers and one of them said, 'Hey, did you know the stock market dropped 500 points?' It was, to say the least, disconcerting. It took about three nanoseconds to decide that we ought to pull out. I had announced our plan to go public a month before at a company meeting. 'Why would we not go public?' someone had asked. I told them, 'The only thing that could really change our plans would be if the stock market crashed or if Britain invaded Iran.'

"Back at the company on Black Monday you could feel the emotional deflation. The press made the average consumer very nervous. Employees kept asking, 'What does this mean to me personally? How does this affect the company? Should I take all of my money out of the bank?' Very quickly, I started reading about the Crash of 1929, so I could explain what was happening -- to employees and to myself. I talked to a couple of economists. I talked to an investment banker who is also a Rhodes scholar. Everybody was at a loss to explain it; consumer confidence is a very complex thing. As I started to get an understanding, I made company presentations. We had meetings every Friday morning.

"I put in place some data-collection mechanisms to find out if our business was going to slow down. I asked our senior salespeople to talk with our customers' sales managers. Are any capital-spending programs being deferred? they asked. Any canceled? There was nothing, absolutely no effect.

"I thought it might take a year for us to finally go public. But the investment bankers called in mid-January, just three months after the crash, and they said the time might be right. "Come give us a presentation," I said. "I don't want to do anything stupid." The slight downside was that the IPO would be priced lower, but the tremendous upside was that when people buy low and sell high, they feel positive. And there was nobody competing for investors' time; during our road show we could ask for a four-hour lunch and they'd all come.

"We were the first high-tech company to go public after the crash. It was an exhilarating time. The companies that went public afterward should be sending us a check for opening it up to them. "

-- Robert Cohn, CEO, Octel Communications Corp.

(#54), Milpitas, Calif.

Is there companywide fallout from the IPO process?
Yes, said 77% of Inc. respondents. Their most frequently mentioned comments:

* "Long days, emotional roller coaster."

* "Motivating for employees and CEO."

* "Employees enjoy climate of IPO and public arena."

* "Physically and emotionally very draining."


"We raised money twice, first in May 1986, then in August 1987. Raising public money is much smoother the second time around. I'll bet it'll get even easier if we go for a third.

"The first time, investors are enamored of the sizzle; they get to believe you are heading for the moon. The second time you attract a different kind of investor, a professional, sophisticated investor who deals with larger sums of money. They are mostly interested in forecasting and in your growth pattern. I could tell that the people who saw me the first time were thinking, Who is this huckster? I was a loose cannon and I was firing rapidly. The attorney used to pound me over the head and say, 'No projections.'

"By the time we went back, though, we were a public company with fiduciary responsibilities. The investors figured that if I said I needed the money for an acquisition, they could believe me. And we didn't get distracted by the process. The first time, our business really suffered during our appeal to the public. When we finally got the money, we weren't sure what direction to head in. We had spent so much time trying to be good children that we actually constrained the growth of the business.

"I know now I could have been much more aggressive on the first offering. I went around hat in hand. I was unsure of myself, and I was overly impressed with the ability of these investment bankers to write a check and instantly change your life. The thing about going public is nobody is doing you a favor. Not the underwriters, not the investors. Everybody needs to do these deals. "

-- Jason Bacher, CEO, AutoInfo Inc.

(#38), Maywood, N.J.

Any tips for IPO-bound CEOs based on your experience?
Advice from Inc. respondents:

* Before going public, run your company as if it already is.

* Make sure your have a management team capable of taking over operations for six months.

* Tell your company's story simply and honestly; be totally up-front.

* Don't go public until your business is mature enough to produce consistent quarterly results.

* Evaluate a potential IPO as you would any other financing option; don't overglamorize it; look beyond liquidity.