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Why Going Public Could Kill Your Company

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    NEWSLETTERS

    AP

    I’ve had many conversations at 1871 with folks discussing the two kinds of entrepreneurs: those who are in it for the long haul and those who are looking for a payday to walk away from as quickly as possible.

    But, as Andrew Mason can tell you, going public and having a big IPO can backfire on you in many, many ways. Once you’re beholden to a bunch of external people’s reasonable expectations and grumpy requests, you cease to be truly in control of your own company’s destiny. You stop being a leader and start being a compromiser and babysitter in some respects. Sure, your potential for growth is much bigger and is accelerated overall, but there are drawbacks.

    The Wall Street Journal recently did a piece on this and, when discussing tech companies (as most of 1871 houses), the publication found that: 

    In general, post-IPO companies create inventions that are less ambitious and valuable than do firms that remain private, found Shai Bernstein, an assistant finance professor at the Stanford Graduate School of Business. He analyzed patent data from 1,500 U.S. technology firms that either went public, or intended to go public but called off those plans, between 1985 and 2003. In all, he examined nearly 40,000 patents awarded to the companies both before and after their intended IPO date. The two groups were similar in size, age and research spending... An IPO didn’t affect the rate at which a company obtained patents, but Bernstein found that public companies’ subsequent patents were far lower in quality, as measured by how often each patent was cited in other patent applications. 

    I think we get unnecessarily caught up on this word “innovation” to an absurd level — so much so that it ceases to really even mean anything. But if you stop exploring and trying new things and being amenable to new ways of thinking, you’ll be stopped in your tracks. And eventually, if you get so stubborn in your ways or are beholden to a very small number of shareholders, who will have narrower expectations than a larger number of shareholders, you’ll be tested and taken to task far less often.

    A good example right now in the tech sphere is Nintendo. The beloved videogame company has been lagging behind for a long, long time for this very reason. Their hardware seems to exist in another century than the competition — which they bravely tout as a “strategy.” But their software, too, is laughably out of step with what’s going on elsewhere in the marketplace. It’s not that their competitors are innovating more, it’s just that Nintendo is trying less: They are content to churn out game remakes or sequels to games over and over again. Part of that has to do with the culture of a Japanese company and how steeped it is in tradition, but we don’t have that same belief here. We can change quickly and we can keep growing.

    And we should.

    David Wolinsky is a freelance writer and a lifelong Chicagoan. In addition to currently serving as an interviewer-writer for Adult Swim, he's also a comedy-writing instructor for Second City. He was the Chicago city editor for The Onion A.V. Club where he provided in-depth daily coverage of this city's bustling arts/entertainment scene for half a decade. His first career aspirations were to be a game-show host.