It was hardly the way Michael Small would have drawn it up. When Gogo Inc. went public on June 20, 2013, the stock market plunged nearly 400 points due to various economic issues on that day that left investors skittish.
“And sure enough we broke issue price and the negative stories started developing,” says Small, the company’s president and CEO. “We weren’t ready to tell our story in a strong enough fashion. Things we took for granted were being tested, and it took us a while to regroup.”
Gogo allows passengers with Wi-Fi-enabled devices to get online on more than 2,000 Gogo-equipped commercial aircraft and 6,300 business aircraft. The company continues to grow its network of airlines and watched revenue rise to $328.1 million in 2013, up from $223.5 million in 2012.
The company survived that difficult first day as a publicly owned company, and Small is confident it is on an upward trajectory. But the rough start reinforced to Small the importance of having a clear purpose that everyone on your team understands, particularly when you’re doing something like an IPO.
“Getting your story right, particularly if you’re a category creator or developing a new industry such as we are, it’s really important,” Small says. “You’ve been telling yourself your own story for a long time and pursuing it and you get some questioning by the board or existing investors.
“But you’re opening yourself up to a whole new constituency that has no prior background with your story (when you go public). You really don’t know what you’re going to get asked.”
Small was part of a panel discussion at the EY Strategic Growth Forum in Palm Springs, Calif. last November. He spoke about the challenges of going public and the impact it can have on a business.
“There is still something psychological about going public,” Small says. “You’re playing in a major league park now. It’s a bigger stage and it feels different.”
Get your ducks in a row
Gogo went public to bolster the company’s effort to build its global brand and identity.
“We needed not only to be well-capitalized to do that — we raised $187 million in the IPO — but to enhance our credibility with airlines around the world,” Small says. “When I see our press releases come out now, there are Chinese and Japanese characters on the press articles, and I have no idea what they say. But it’s obvious we’re getting picked up around the world, and it does make a big difference.”
The decision to go public should never be made lightly, and you would be wise to gather as much feedback as you can from the people you trust.
“There’s always something to prove and you’re always chasing that and you’ll never get there if you’re waiting for that to be perfect,” Small says. “But ask your bankers, your lawyers, your accountants, your auditors — is this ready for prime time? They’ll tell you if it is, they’ll tell you if it’s not. They take some responsibility in this whole process too. That’s the way to find out if you’re ready or not.”
You also need to work on building your financial team so that you can handle all the duties and responsibilities that come with being a publicly-owned business.
“You need somebody to write the 10-Ks and the (quarterly reports) on staff,” Small says. “Technical accounting — you need some sort of expertise there. The general counsel function can be outsourced, at least as it relates to going public. But you need someone with some securities background. You absolutely want a top-notch firm. Don’t settle for second tier. That will help you every which way. There’s less need after the IPO, but you still need either outsourced or internal counsel.”
Finally, get some people who have been through it before and can help you through the twists and turns that will inevitably crop up.
“You can’t fill every slot,” Small says. “But if you don’t have two or three people who have been through the process before and really know it internally, I think you’re taking a risk. You can fill any particular spot, but you need that critical mass of experience going public.”
Put your best foot forward
Small’s goal is that online connectivity through Gogo on airplanes be as ubiquitous as peanuts and pretzels.
“You won’t be able to operate an aircraft or airline without broadband connectivity to the benefit of the crew, the passengers and aircraft operators,” Small says. “We’ve certainly captured the interest of airline partners around the world and now we have the money and credibility to go global.”
One of the things that taking your company public does is put out there the growth that you are, or are not experiencing.
“We say a bunch of people are using us, but we didn’t really say how many,” Small says of the time before the IPO. “You’re sitting there running Japan Airlines, which is someone we just signed, you have no idea what that really means.
“How are we twisting the numbers? All of a sudden it comes out that it’s a billion-dollar plus company in market cap, and we just did $85 million in revenue last quarter. This is a real business. It makes a real difference.”
The fact that outsiders are watching your numbers and are aware of what you’re doing puts a level of pressure on your team and your business that can be a big positive.
“Great sports teams love to be measured and they check their box score every day,” Small says. “Professions that don’t perform at a high level never want to be measured. So that’s what you have to drive through and put this in the broader context.
“Sometimes you measure ridiculous things that you’re doing. Sometimes the auditors, in my opinion, pick ridiculous things to measure. But fundamentally, you have to get it right in whatever you’re doing.”
When the first few days and weeks of public ownership proved to be challenging, Small had a decision to make about how to react. The bad news was out there and those outsiders were watching to see how Small and his team would respond.
“We knew we had a whole raft of good announcements coming on innovation and stuff like that,” Small says. “There was a whole lot of temptation to rush them early, but we hung in until they were actually in the market instead of announcing that they were coming.
“It was a combination of understanding what the issues were with investors and deciding how disciplined you were going to be about what’s coming next and how articulate you’re going to be about the future of the industry. You can’t just talk about blocking and tackling when you’re creating a new industry.”
Under-promise and over-deliver
Guidance on future earnings is a critical piece to being a publicly-owned business. You need to find the right approach that leaves your existing investors happy about their decision to do business with you and potential investors intrigued about joining the crowd.
“It’s all about exceeding and raising,” Small says. “You want to exceed what you just put out there by some reasonable amount and then be able to raise guidance. But figuring out what you’re going to guide on and what’s reasonably predictable about your business without letting it hamstring you so that you can’t really run your business is definitely an art.
“It has to be reasonably predictable and you have to be able to hit the numbers. It has to be reasonably useful for the investors, and it can’t hamstring you in running the business. If you do miss, it’s usually not pretty. If it’s for a real obvious reason and you can explain it, you can sometimes get out of jail a little bit. But if you do it too often, you’re absolutely dead.”
The growth of a business in a new industry can take time and Gogo still has steps to take along that path. In 2013, the adjusted EBITDA was $8.4 million, down from $9.3 million in 2012 due to increased investment in international expansion. But the company expects that number to jump up to $18 million in 2014.
“At the end of the day we’re selling a story as much as we are today’s numbers,” Small says. “There’s a right way and a wrong way to do things. There’s a certain discipline or scientific method to it. It’s a controlled experiment and when there’s fallout, you improve and make adjustments over time.”
It’s one of those things where you want to move swiftly, but not too fast, and cautiously, but not too deliberately to take your company to where you believe it can go.
“Most of the things you do to go public are the right things to do to grow your business anyway,” Small says. “Keep running your business, know your elevator speech and make sure you have a cadre of internal and external advisors when you actually decide to pull the trigger.”
- Know the story you want to share.
- Always be conscious of your reputation.
- Think before you make promises.
The Small File
Name: Michael Small
Title: President and CEO
Company: Gogo Inc.
Education: Bachelor of arts degree, Colgate University, Hamilton, New York; master’s degree in business administration, University of Chicago Booth School of Business.
Work experience: Small served as CEO and director of Centennial Communications Corp. from 1999 until 2009 and as executive vice president and CFO at 360 Degrees Communications, a regional wireless service provider. He was also president at Lynch Corp., a diversified acquisition-oriented company with operations in telecommunications, manufacturing and transportation services.
The birth of Gogo: In 1991, at a barbecue joint in Denison, Texas, company founder Jimmy Ray sketched onto a paper napkin his visionary idea for a telephone system on aircraft. Gogo became the only company authorized by the Federal Communications Commission and the Federal Aviation Administration to use cellular frequencies for in-flight communication.