External market pressures -- how the stock market is doing in general -- also became a new influence for companies going public. Martin Culver, cofounder and CEO of Fresh Choice Inc. (#55), a restaurant chain that had its offering last December, says that the so-called window of when investors are interested in buying stocks was closed when his company began considering an offering. "We didn't have to have the money right then to continue to grow -- we still had some expansion capital from our venture rounds -- so we thought, Let's give it a year, watch and see what the market does, and take the right opportunity."
For him as a company manager, that meant being ready to drop what he was doing to prepare the offering when the timing was best -- not from his perspective, but from a market perspective. "We asked our lawyers how far down the line we could prepare, if we could sort of get it out of the way and wait for the opportunity. But you really can't do that because most everything you put together expires in a fairly short time. In the prospectus you disclose everything about what could happen to your business, and with a fast-growing company, if you did it and waited eight months, you'd have to go back and redo it. So you pick a window and go for it very quickly."
Responding to the market also means disclosing to the market, and plans that were formerly internal become conspicuous statements to the external world. Cirrus Logic CEO Hackworth, echoing many CEOs, says the public disclosures made going public a tough decision, because they allowed competitors access to information "we consider proprietary." Others were concerned that their financial information would serve as a magnet, showing the world and potential competitors how much money can be made in their businesses.
What's more, satisfying the demands of the outsiders is engulfing. Once the IPO process was under way, Synopsys's Jones says, "the intensity with which we dealt with our lawyer and underwriters and other constituencies was much harder than what I had faced previously," when he helped take another company public.
Not only are the forces of those expanded constituencies terrifically strong during the IPO process; they continue to get played out to varying degrees post-IPO. The "public" watches and reacts to everything from acquisitions to product development, and constantly looms overhead, brutally unforgiving of volatility. Gensia Pharmaceuticals is facing a suit filed by shareholders who say the company failed to disclose information about the efficacy and testing of one of its drugs during 1992. Diagnostek Inc. (#52) was hit with a shareholder suit after an aborted merger, proving that stockholders can be more merciless than either customers or competitors. Diagnostek CEO Nunzio DeSantis offers this advice to CEOs considering an IPO: "Don't do it."
Although DeSantis is almost alone in giving that advice, other CEOs -- such as Artisoft's Schoof, whose company has been public since 1991 -- underscore the need to proceed with caution. "It gets back to the introspection thing: there's more time being spent on telling the company story, the financial story, telling where we've been as opposed to where we're going. The public wants to know, and they need to know, but it does get in the way of forging new territory." What's most frustrating for him, he says, is the continual external examination and reevaluation of the company that quarterly reporting brings on; he thinks filings should be required only every six months. "We're competing in global markets with companies that have annual or six-month requirements, and we're at a tremendous disadvantage. They can focus on the long term. I can recall saying during the road show that we wanted to keep a long-term focus, but the reality is that the board gets beat up by the investors, and a quarterly focus creeps in. It's no one's fault per se, other than the rules and regs that govern those issues." In retrospect, he says, he might have waited until the company was more mature before subjecting it -- and himself -- to the pressures of going public.
On the flip side, some CEOs surprise even themselves by taking those pressures in stride. Fresh Choice's Culver, at least in the handful of months since his company became public, has not seen his job as CEO change significantly. He takes calls from analysts, has spent more time doing public speaking, and hosts visits about once a month from representatives from the institutional investors. All in all, though, he says he's been surprised to find his responsibilities as CEO of a public company less time-consuming and distracting than he'd been warned and that his focus has not shifted from what really counts: the customer. "The people who have visited, and who call, are very interested in how our customers are being treated. I can only assume that's for real. Now, our financial results have been good to this point, and the assumption is that if we continue to execute well, the stock will continue to do well. But it seems that our investors truly are customer oriented," a pleasant relief.
Between Culver and Schoof is Synopsys's Jones, whose sentiment is probably the most common among Inc. 100 CEOs. "You have to always keep your priorities straight, and if push came to shove, I'd be in front of a customer before a banker or an analyst any day. On certain planes those bankers and analysts are knowledgeable; on other ones they're shallow. But they are a legitimate constituency and principal stakeholders in your success. You need to service them, just as you do major customers."
FOR THE RECORD
What will your newly hired CFO need to know before helping you go public? Here's a list
There is a voluminous amount of stuff a company needs to dig up to show its history and ongoing operations before making a public offering. "We prepared maybe three feet of documentation," says John Gannon, the chief financial officer of Powersoft Corp., which went public this past February.
