Mindbody, a software provider for fitness studios, went public on June 19th, 2015, raising more than $100 million in its IPO. Rick Stollmeyer, the co-founder and CEO, watched--in shock--as the stock plummeted to $11.56 per share (down by more than 17 percent from its IPO price). In the coming weeks, the numbers would continue to decline.
"I was waking up in the middle of the night asking, 'Why the hell did I take this company public?'" the entrepreneur recalls.
Founded in 2000, Mindbody made the Inc. 5000 list of the fastest-growing private companies for seven years in a row (from 2008 to 2014). It makes software that helps fitness and wellness studios manage bills and organize schedules for instructors, and lets members easily sign up for classes.
The company, it's worth noting, had been losing money in recent years: Cash flow rose from negative $8 million in 2013 to negative $18 million in 2014. Still, it was continuing to grow revenue, bringing in $101 million in 2015, up from $70 million in 2014.
Stollmeyer was expecting a better outcome on the first day of public trading. (After all, a number of health firms had seen successful IPOs in recent months. Fitbit, for instance, saw a 48 percent increase on its opening day price.)
While the IPO disaster had its moments of stress and disappointment, the co-founder now sees the entire experience as a success--one that contains valuable lessons for other startups who are mulling an IPO in 2016.
Surround yourself with people who've done it before.
Going public may sound like a great idea for private companies. But it isn't an easy commitment. Many startups valued in the multibillion dollar range decide to raise more capital instead of weathering the public markets.
Mindbody benefited greatly from having employees who were familiar with public markets. The company's current CFO, Brett White, spent 10 years as VP of finance at Oracle after the tech company went public in 1986. Stollmeyer urges entrepreneurs to seek counsel from others.
"You need be around people who've been there and done it," he said. "It's especially important for entrepreneurs to be able to predict their earnings to a high degree of accuracy."
Absorb the losses and move on.
Weeks after the IPO, Stollmeyer decided to buy up $186,000 of his company's stock--at a depressed value of around $9.80 -- in an effort to absorb some of the losses.
"It was ludicrous," he recalls of the stock price, "it was so far below what the company is worth."
He's grateful in many ways, however, that Mindbody was forced to face reality that month. Many companies enjoy something of a honeymoon period once wedded to the public markets, which he views to be negative in the long run.
"What we [the executive team] decided was that the street doesn't get us yet, and this is a call to action to show them what we can do. It energized and focused our team in a really profound way," he added. "Other companies that had gone out may have suffered from an opposite issue, where hubris can step in and there's some early team members who are drunk with net worth."
Focus on your mission, and realize that an IPO is not an exit.
Mindbody's stock has fluctuated over the past year (as of this writing, it's trading at a solid $17.40 per share), and Stollmeyer insists that market swoons have allowed him to refocus on the company's core mission.
"What's kept us grounded is going back to why we exist. We're leveraging technology to improve wellness," he explains. "The idea hasn't changed since the garage. It's been empowered by the IPO."
Stollmeyer wants entrepreneurs to understand that an IPO isn't an exit, but instead, it's "a milestone towards a multiyear vision of growing a business." For Mindbody, going public dramatically increased the audience and awareness.
It's important to put in face time.
Stollmeyer learned many things from his advisors, most important, the value of interacting with investors in person.
"You think of Wall Street as this nameless, faceless thing, but it's not. It's a bunch of very engaged, very intelligent people trying to make smart decisions with money," he said. "It makes a difference to sit across the table from you, and to be able to look you in the eyes, and ask questions."
Keep on growing.
Today, surprisingly, Stollmeyer says his stress levels have declined. As a public company, Mindbody has had an easier time of hiring employees who can "handle their respective roles," he said.
Stollmeyer, whose father owned a light fixture business in Southern California, has always known that entrepreneurs invest their personal resources into private companies. Back in the early 1980s, when his father's business was stuck in a downward cycle, the family finances would take the biggest hit--an experience that made Stollmeyer want to achieve some degree of success and security over his lifetime. (He and his siblings would often come in to his Dad's work throughout the week during the evening, and occasionally on weekends, too.)
Having experienced this, and grown a private company himself, Stollmeyer says he's now happy to be at the helm of a public one, where the investment is less personal in many ways.
"I'm so much more relaxed now than I was four or five years ago, when I felt like I was the octopus trying to keep my hands on everything," he reflects.