An IPO is a means, not an end. Entrepreneurs can't help obsessing about the event itself, but more important is what comes after.
Jacqueline Kelley makes that point routinely when she counsels aspiring public-company CEOs in her role as Americas IPO leader at Ernst & Young. As part of Inc.'s inaugural Founders 40 package on fast-growing, entrepreneurial public companies, Kelley recently spoke with me about preparing for your post-private life.
How can a founder-CEO tell if he or she will make a good leader for a public company?
An IPO is ultimately a financing event. If CEOs focus too much on the IPO itself and being a public company, then they probably have lost sight of what they're doing, which is growing an amazing company. If you've got the passion, the vision and you've shown that you can build teams and continue to drive growth, then you will absolutely have the right skillsets to be a public-company CEO.
How far in advance should you start preparing to go public?
I will ask very seasoned CEOs--those who have done IPOs more than once--"When did you start preparing to be a public company?" And they will say, "On day one." For those for whom an IPO all of a sudden came into the landscape, we like to get them working on the changes they'll need to make 18-to-24 months in advance.
There are benefits to moving some of those things into your culture over a slower period of time. But we have success stories on all sides of this, whether they start that process from day one or 18-to 24-months in advance or six-to-12 months in advance.
What big things should you be doing?
Making sure you have the right board of directors, including people who have experience on the boards of public companies. You need breadth and depth of industry experience, an understanding of high-growth companies, and connections to help your company grow. You will also want members of the management team who have worked at a public company before. Make sure you are hiring for the future: not a management team that is going to get you to the IPO but executives who will be leaders of the company five years after the IPO.
Also, over a dozen different advisors typically come in to support a newly listed company: stock exchanges, investment banks, auditors, lawyers, people to help you with compensation and benefits and how you do your filing.... Those advisors should be engaged early so when you are a newly listed company you don't have to figure this all out.
The growth rate for companies two years post-IPO is almost double their growth rate in the two years prior to the IPO. So having the right people, processes and infrastructure to support you in that growth cycle is really important.
I assume most CEOs know generally what to expect during the IPO. What surprises them afterward?
What often surprises them is how their communications change. If you are a CEO who keeps everything very close to the vest, oftentimes you find, "Oh my gosh! I have to share so much information with people! Everybody knows everything or they have figured it out before I have even tell them!" Or the opposite happens.
If you are a CEO who used to hold weekly management meetings and was very forthright with your executive team, now you may have to start pulling back on some of that. There is a broader group of shareholders: your management team, your board, your customers, vendors. New shareholders are going to want a lot of your time. Analysts will call with questions. You need a strategy to communicate with each of those groups of people.
There's so much excitement and momentum leading up to an IPO. How do you maintain that afterwards?
It's a lot like sports. If you focus on winning the Stanley Cup and then you win the Stanley Cup, how do you go in and do your job the next day? Again, you have to look at the IPO as one step on a long journey. If you make decisions that focus not on 12, 18, or 24 months from now but on five years from now, then that momentum will continue. Yes, for the moment everyone is looking at how successful was your IPO on that IPO date. But they'll be asking the same question--"How successful was that IPO?"--in two or three years. And that's what is important.
What should a CEO do in the first 100 days after going public?
What you don't want to do is not deliver on the promises that you made for your first and second quarters. You have to have accurate forecasting. Make sure to hit your numbers out of the gate. Then make sure the team is focused not only on the short-term but also on the long-term goals. We hear stories of teams that start looking at the stock prices on day one. Some are going to be seeing some significant financial benefits coming. So motivate them to think about the long-term positive behaviors.
What else should CEOs consider when contemplating going public?
It's important to think about your strategic options. We had a CEO and a CFO come in to spend the day with us; they had been getting a lot of pressure from their investors to go public. Where we came out at the end was that an IPO may be right for them, but there were some really great things they needed to do first--potentially diversify their business, do an acquisition. We came back with an action plan where maybe an IPO was still a goal, but a little later on their timeline.
There are so many options for how you finance growth at your company. Markets may be very exciting today. But that doesn't mean you have to jump on that bandwagon right now.