Initial public offering or IPO is a major milestone for a business
Founders pour their time, money and energy into developing viable products, building cohesive teams, creating a corporate culture and, eventually, raising money through an initial public offering (IPO). An IPO is certainly one of, if not the most important milestone of any business that proceeds with it. It can unlock tremendous value for founders and early investors, and makes the blood and tears they had to endure to build a viable business more than worth it.
However, if you’re a Small to Medium sized business, allocating the resources to going public may not be a viable option yet virtually every business can benefit from being a publicly listed company (a book by Jeremy Harbour and Callum Laing does a great job at explaining how through their Agglomeration model). Yet, an IPO can be a disconcerting rollercoaster away from the razzmatazz that the public is presented with. To have a successful IPO, you must know and be well prepared for the unexpected things that could occur. We look at the main ones here.
Don’t Obsess Over What Doesn’t Seem to Be Working
No matter how elaborate your preparations are, there’s no guarantee that your IPO will go strictly according to plan. You’ll run into numerous roadblocks and unexpected turns. That includes people who doubt your ability to deliver on the business long-term plan, negative media attention that casts a cloud on the company’s prospects and investors who cannot quite grasp your business model.
Every founder dreams of an IPO that rolls along hiccup-free. That’s just not realistic even for the most successful IPOs in history. So, while you should put in reasonable effort at making sure everything turns out right, don’t get fixated on the negative. Many IPOs succeed despite numerous setbacks along the way. Just keep at it and stay focused on the end goal.
It Isn’t a One-Day Affair
When Facebook went public, the stock initially performed so badly that some analysts started to refer to the IPO as ‘Faceplant’. This initial poor performance had many skeptical investors questioning the company’s true value proposition. Considering how highly anticipated it was, the early burn was especially disappointing.
It didn’t take too long though for the share price to start appreciating and has continued to do so to date with Facebook’s market cap in excess of $550 billion as of June 30, 2019. The key lesson here is that founders must maintain steadfast confidence in the business’ performance over the long-term, as this is what will ultimately translate to share price growth.
In other words, what happens on day 1, week 1 or month 1 after the IPO, isn’t always necessarily a true reflection of the business’ present value and future potential.
Extract Valuable Knowledge and Insights from the Process
An IPO is hard work. It’s a journey that should start years before the actual public listing just to be sure you don’t miss out on any detail. In fact, IPO planning is a lot like planning a high profile wedding. It’s costly, filled with divergent views and is time-consuming. If you want your IPO to succeed, you have to spare no effort and put in the work. Make it count by seeking to extract as much knowledge and insights of your business in the process.
Remember, you are not doing this just to get the information on the IPO prospectus for the investor’s reading. Instead, it’s practical knowledge that could help your business thrive. Use this opportunity to gain a deeper understanding of your enterprise and industry, as this will help you better define your company’s mission.
Sometimes You Have to Ignore the Market and Think Long-Term
Businesses that we consider highly successful today haven’t always been on an upward growth and profitability trajectory throughout their existence. Companies do hit rough patches that threaten their ability to realize their long-term goals. For entities that are already listed, these rough patches can cause panic among investors and send the share price plummeting to unprecedented lows.
But just because that happens doesn’t mean the business is inevitably doomed to failure. So, sometimes, you have to turn a blind eye on Mr. Market’s antics, think about how your company will stay afloat and take actions (even if temporarily resented by the market) that will help your business succeed over the long-term.
An IPO can have a massive impact on your company’s stakeholders – not just investors but customers and employees too. While many enterprises opt to stay private and hold off on listing, there’s great value to be gained by taking your business public. Management must ensure that the business has a solid, viable strategic vision, can stand the scrutiny of public investors, and has the wherewithal to overcome the challenges of an IPO.