Why do some founders not survive during and after IPO?

Every founder’s dream is to build their company to “GLORY”. To some, ‘glory’ means bringing in the big guns from private equity while to others it is simply, going public through raising an IPO. From humble beginnings working from a garage or tiny little space as an office or from a basement and having to sleep in the back of their car or some of them being completely homeless, these founders have been tested on their way to royalty.

Despite challenges they faced in their early days, most of them would attest how running operations was easier at that time (despite limited resources) compared to full blown operations when the company attain unicorn status. They dream of becoming a Bill Gates, a Jeff Bezos or even a Zuckerberg, but eventually they realize, it’s not all a bed of roses.

Unicorn is a name given to a startup company that has a current valuation worth more than $1 billion. Example of Well-Known Unicorns include Airbnb, Uber, DiDi Chuxing, Beyond Meat, Grab etc.

As a company expands, it seeks to raise capital to finance its operations. While some opt to remain private through the Private Equity route, others decide to go public through raising an Initial Public Offering (IPO).

Initial public offering is the process by which a private company can go public by sale of its stocks to general public. It could be a new, young company or an old company which decides to be listed on an exchange and hence goes public.

Companies can raise equity capital with the help of an IPO by issuing new shares to the public or the existing shareholders can sell their shares to the public without raising any fresh capital.

– The Economic Times, India Times.

During and after the IPO transmission, founders experience a shift in Management and operations. Some tend to adjust well and some fail to surivive after IPOs and are then forced to step down from their CEOs titles roles and leave the company. Real life cases can be taken from Adam Neumann of WeWork, Travis Kalanik of Uber who have proved that it is not an easy job to run a billion dollar business.

So why do some founders fail to survive the transition to become a public company?

Most founders fail to survive as CEOs when the company turns public, due to the pressure that emanates from the shareholders who demand active returns and good quarterly earnings. Wall Street and Media put a lot of pressure in these unicorns to have good results each quarter and have good financial books that will satisfy these activists shareholders other than those who seek long term returns.

Some CEOs end up getting fired, as a result of poor management skills that do not live up to the standards acceptable by shareholders or management. Uber’s Travis Kalanick was releaved of his duties when issues that are against management etiquettes such as Mistreatment of drivers, Sexual misconduct allegations, Shot gun management style, unwillingness to listen, spying on passengers, stealing peers information and so many more. Adam Neumann found himself being ousted by the board when he made questionable investments which favored him other than the company causing conflict of interests, mistreating employees, using company jets for his personal rendezvous and entertainment.

One can argue maybe these founders were just visionaries, who could sweet talk you into the idea of their businesses but did not possess the acumen to run such companies. They could sell you the dream, talk you into putting millions of dollars into the companies but they were not management material. 

Elizabeth Holmes, the founder of Theranos is the poster child for such personality. At a young age of 19, she dropped out of Stanford University to start blood-testing startup Theranos, and built it into a $9 billion company. She styled herself as a female version of Steve Jobs, with that deep voice, that assured investors and the public that her technology and device could test a number of conditions using a small sample of blood (a drop or two). Her resume, as a Stanford drop out fell in line with other successful drop outs stories like Steve Jobs, Mark Zuckerberg, Bill Gates, Larry Ellison, which almost makes you draw a conclusion that dropping out equate being successful, which is not the case.

Her story was perfect, fitting “Technology Fairytales”, until the castle came crashing down, when she was ousted as CEO. Her company, Theranos, was then shut down by Wall Street Journal Investigation exposè, that shed a light on unproven technology, massive wire fraud and dubious business practices. Till date, her trial is still ongoing, and if convicted will face upto 20 years in prison.

However, firing a founder can be a mistake, probably one that can cost you, a potential future. History can attest to this, when Steve Jobs was fired from his own company, Apple, in 1985. Steve then, having publicly humiliated regrouped and went back to work launching NeXT and later on Pixar Animation, for which the former was acquired by Apple and the latter acquired by Disney. He was later on brought back by Apple in 1996, which was struggling at that time, revamped it and created the cash cow that it is to date. That is one of greatest comeback and turnaround in history that companies have ever seen.

Truth is, there is no exact answer. The sure thing is, the pressure is overwhelming, pressure to grow the business from rags to riches, pressure to scale up, pressure to seek funding, pressure to raise IPO, the proxy season is gruelling, pressure from the media, pressure from stock indices performances that tests what you are really made of, and for lack of a better sentence “Separate the Men, from the boys”. Some survive the trials and emerge amazing business heads in the process, while some just cannot. Honestly, some individuals are just more of visionaries or innovators other than businessmen, and to be successful in retaining control of your company, one needs to master both in order to cement his or her own legacy as one of the greats to ever do it.