Thursday, January 12, 2006

On taking companies public

I thought this rule of thumb was quite interesting. (HIStalk is read religiously in my industry. That's a sort of blog influence that doesn't show up in the newspapers.):
An Exclusive Interview with Jon Phillips, Managing Director of Healthcare Growth Partners (HIStalk)

It seems that going public makes small companies worse once they fall into the never-ending quarterly earnings cycle.

The objective of most companies is either to be sold or go public. Sometimes a company is happy just to make money and not grow, but not often. The pressures increase exponentially on a publicly traded company. Even just trying to go public makes you so focused on financial results that you lose sight of the strategy.

To go public, you need to be a $50 million company. If you’re a $20 million company, you might go out and make acquisitions just to get bigger, even though they don’t follow the strategy. Sometimes companies cut back on services or support just to pretty themselves up for a sale.

My standard advice for companies is to run the business as if you’ll be running it independently with no extra capital and no buyer. Then, if something good happens, you can always build on that. You don’t try to position the business for sale or for an investment and then find you’ve got an asset without much worth. Focus on the business. The rest of that stuff will come.

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