The 100-Day Makeover
A close-up look at the changes a company had to make before it could go public.
What's the difference between the company you run now and the one you'll take public?
Imagine for a moment you're Bing Yeh. You've spent six years building up this wildly successful little semiconductor company, Silicon Storage Technology Inc. The products are based largely on your clever engineering ideas, and you're the one who's bringing in the bulk of the business and managing the outsourcing deals in the Far East. It's your show.
But now someone else -- everyone else, it seems -- is telling you how to run your business. Deepen your management team, you're urged. Broaden that board of directors to include outsiders. And do something about that primitive accounting system you're using. You nod as you carry out such commands, because, well, you have to admit that the financial records have not been well organized. But still you have your doubts about where all of this is leading. Catching you gazing distractedly out of the window during yet another marathon meeting, a colleague will later claim, "I could tell he was sensing that his company was becoming a different kind of company."
It was indeed. In mid-1995 Silicon Storage Technology (SST), which had posted all of $4 million in revenues the year before, was on its way to going public.
Bing Yeh, who had come to this country from Taiwan two decades earlier with just $20 in his pocket, had read widely about the process before deciding that SST would take the public plunge. He knew only too well the stories, or at least the part of them that always gets told: the preopening jitters, the swarm of press and analysts, the sudden accumulation of unimaginable paper wealth. But what he didn't know was what exactly SST would have to endure between deciding to go public in July 1995 and that opening bell on November 22. The journey is different for every company, save for one aspect: the invading army of accountants, lawyers, valuation consultants, and underwriters whose mission becomes to excavate every filing cabinet, looking for blunt answers to some very sharp questions.
They act with only one goal in mind, and they will not stop until they've achieved it: the makeover. For some companies, getting ready for prime time can mean dumping treasured members of management, junking juicy perks, and subduing marginal personality traits. (See "Now Let's Talk About You," [Article link].) But for many, like SST, it's just the tremendous pressure of making so many changes so fast -- from improving incoherent record keeping to scripting a solid company biography -- that leaves them wondering, for a time, why they ever wanted to go public in the first place.
At SST, which is based in Sunnyvale, Calif., that unavoidable sense of vertigo was heightened by an intimidating fact: Yeh, who is 44, wanted to go public in about half the time an initial public offering typically takes. He had perfectly good reasons. For one, the market for technology stocks was hotter than July. For another, Yeh worried about the fallout from the company's $5.3-million joint venture with Quantum Corp., a nearby disk-drive maker. By the terms of their deal, Quantum could soon end up owning a 25% chunk of SST at a very cheap price. Furthermore, rival SanDisk Corp. had already begun planning a public offering.
Having made the decision to speed the process up, Yeh worried mainly about what kind of reception SST would get on Wall Street. Nobody had heard of it, after all. And the company's skimpy financial track record wasn't likely to impress that starchy crowd: May was the first month that little snowdrops of earnings had begun to peep through. "The concern," says Yeh, "was whether the third quarter would be a good number." It was worth worrying about, to be sure.
But once the maestros of makeover took their places, Bing Yeh would have more pressing matters to deal with.
* * *If Yeh was unusually concerned about losing control over shaping SST, it may have been because he just about gave away his first product. Back in 1974, when he was a physics graduate student at National Taiwan University, Yeh and some friends, while subcontracting for another company, devised an electronic toll-taking system for the price of $125. Then they watched as the company turned around and sold the technology for about $10,000. Per customer.
Since then, Yeh, who held a series of engineering jobs in Silicon Valley, had wanted to start another business. But he found it was nearly impossible to raise money from anyone but venture capitalists, who demanded harsh terms. In 1989 he finally established SST with a partner, Ching Jenq. Six months later they filed early patents for a technology they called Superflash. But after their first misguided product push -- credit-card-size plug-in cards that added memory to computers -- they parted ways. By 1992 Yeh had decided that SST would devote its 10 employees and risk its $700,000 revenue stream (resulting from technology-licensing deals) to memory components. Two years later, in December 1994, publicity about the new Windows 95 operating system fired the imagination of the industry's engineers: they saw that the Superflash technology had the potential to enable Windows 95 to work smoothly in just about every IBM-compatible personal computer. Yeh then set about selling some of Taiwan's top motherboard makers on the chip.
By early 1995, SST's overseas production lines -- the company contracts out its chip making to facilities in Japan, Taiwan, and Singapore -- were roaring to life. "You could see that SST had a solution. Now the growth was very certain, and the investment risk was substantially reduced," says James Davidson, managing director at Hambrecht & Quist LLC, the San Francisco underwriter that had long been flirting with SST. Years earlier Mel Phelps, Hambrecht & Quist's advising director, had heard about the company and, upon visiting, found himself meeting a former colleague; he had once worked with Yeh. Phelps alerted Hambrecht & Quest's principals. "We were very interested that SST had a technology advantage," says principal Kenneth Hao. "When companies like that start to spike upward, they really go."
