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The Boom-or-Bust Mentality of an IPO

By January 8, 2012Article

Since growth often equated to lower expenses and greater profits in the old days, entrepreneurs were encouraged to grow their company as fast as possible with the ultimate goal of going public and selling stock at an initial public offering (IPO). Many companies have successfully navigated the path from startup to IPO; but for every major success story you read about, there are a hundred more companies that either failed before they could attempt an IPO or that made it to an IPO only to fail shortly afterwards.

One of the most prominent and classic IPO failures was This company went from going from a listing on NASDAQ where its stock peaked at $11 a share, to liquidation in nine months when its stock bottomed out at $0.19 a share. Perhaps could have survived if it had grown slowly. Instead, the company rushed towards an IPO before it was even profitable and burned through millions of dollars on its way to bankruptcy.

The problem isn’t that so many companies fail. The problem is that so many companies fail precisely because they follow a boom-or-bust mentality that steers entrepreneurs into the sole option of an IPO. The truth is that not every company needs to strive for an IPO. For every successful company like Intuit (the publishers of TurboTax and Quicken), there are probably a dozen or more private companies that are making a profit even though most people have never heard of them. A successful IPO may be the greatest validation for success that an entrepreneur can achieve, but it’s not necessarily the only type of success possible.

If you focus on driving your company towards an IPO as the only option, you may never consider that you could make the same amount of money as an IPO, in much less time, by simply selling your company. Given such a boom or bust mentality that only offers a single possibility when starting up a company, it’s no wonder that most startups fail. If you gave 100 people a baseball bat and gave them one chance to swing and hit a home run, most of these people would fail at the same proportion that entrepreneurs fail in taking their companies to an IPO.

Jon B. Fisher served as Bharosa, Inc.’s CEO until its successful acquisition by Oracle Corporation in July 2007. Jon became Oracle’s Vice President Product Management assisting with the release of Oracle Adaptive Access Manager 10g. Jon now serves as an adjunct faculty member at the University of San Francisco’s school of business. Jon’s unconventional 15-year software career, described in detail in Strategic Entrepreneurism. The book, which centers on the idea of designing a company specifically to be acquired by a larger one (rather than to become the next big IPO), offers a guide for ambitious entrepreneurs to help them complete their own successful acquisitions. This article is reprinted from the book with permission.

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