Going public doesn't always go well, and even the biggest brands can stumble when leaping this hurdle. In 2013, for example, Twitter scored huge with the fourth biggest IPO of the year, while social giant Facebook floundered with unexpectedly poor performance on the first day. Even IPOs that break records on day one aren't necessarily success stories, though (it works the other way, too, as the eventual Facebook success shows). CEOs can take action to help hedge bets leading into an IPO. Here are five areas that should be in order before going public.
1. Financial Staff and Departments
Bolstering finance departments with efficient, accurate processes makes any type of major transition easier, and it also removes some of the potential for mistakes that can derail an IPO. Plus, the skills needed once the company goes public sometimes exceed the requirements from before the IPO. In addition to a CFO that can lead the charge during the IPO process, companies also need strong team members in all types of secondary and tertiary positions, from controllers and auditors to day-to-day AP and AR teams.
2. Market Research
One of the biggest mistakes an otherwise successful company can make is to lunge for an IPO when the market just isn't there to support the move. Before CEOs make any type of IPO or M&A move, they should ensure the right research was completed and that they understand it. Yes, the market needs to be right to support the initial IPO, but it's even more important that CEOs can see a path to long-term, successful growth. Some traditionalists say companies should go public when revenues are $100 million, but if that's the full potential of that business, going public may not be the best bet.
Single points of failure can be killers when it comes to IPOs. CEOs should bet on investors doing their own homework, which means they'll ferret out potential weaknesses in the company. A large percentage of revenue coming from one client, reliance on a single person within the brand for success or any process that relies completely on a partnership with another entity are all examples of potential failure points. Well before making a move for an IPO, CEOs should work to diversify revenue streams and suppliers and build redundancies within processes.
4. Corporate Governance
Once a company goes public, corporate governance becomes paramount to success. CEOs need to understand exactly what requirements may come up and decide, along with their board, how to approach governance. The trends swing from high CEO control and involvement to full control by a board or other structure, and choosing a platform to stick to helps the company ensure investors can't strong arm the CEO in the future.
5. Long-Term Plans and Metrics to Measure Them
Finally, investors want to know what the plan is for the future and how CEOs are going to measure potential success. Before an IPO, companies need a solid road map with versions they can present to employees, investors and others.
IPOs aren't an easy way to line CEO or startup owner pockets, but they can be very lucrative for those who approach with the right levels of diligence. By understanding what needs to be done before and IPO and relying on the right support team to get there, CEOs can get through the process with a positive outcome.