Editor’s note: Mal Mixon, former chairman of Invacare Corporation and a well-known entrepreneur, will regularly share his business advice and experience with Smart Business readers. Ask him a question at [email protected], and your inquiry could be the inspiration for his next column.
Q: What are some of the differences between running a public company and a private one?
A: No. 1. You have tremendous access to capital with a public company. That is really the reason why you would take a private company public. You can get money by selling stock. Private companies often face situations such as lenders tightening up requirements when seeking money. If you want to grow, it’s harder to get money these days than in the past.
No. 2: There is a loss of privacy when you take your company public. With a private company, no one knows anything about your business unless you tell them. But a public company has to expose a lot of detail about itself on a regular basis.
No. 3: Cost. A public company can save money by staying private. There are the cost of stringent Sarbanes-Oxley audits and preparing regular financial information. A listing on the stock exchange costs money and means spending for a PR department. Becoming publicly held really adds a layer of cost.
No. 4: Going public gives you instant liquidity. If you are a private company for 20 years and you have investors, it’s hard for them to get out unless you sell the company.
If you are a public company, your investors can liquefy their holdings whenever they want to. My company Invacare Corporation was private for five years, it went public, and the new status gave all my investors a chance to cash in. Some kept their stock, some sold their stock. That’s always a wonderful thing for an investor in a company.
Q: How do you remain innovative as a public company leader yet balance quarterly earnings and daily stock price pressure?
A: Do what you always have done to be innovative. Don’t spend a lot of unnecessary money trying to reinvent the wheel. Now that you have access to capital and plenty of money, you can acquire a company rather than start one from scratch.
I built my company in Europe and made a number of acquisitions. If I had done it internally, it would’ve taken me forever. Let’s say you want to enter the German market. If you start from scratch, you’re going to have losses, which aren’t deductible in the U.S., versus acquiring a company in Germany that is already successful. It’s already doing what you’re doing and you are geographically expanding without reinventing the wheel.
You seek a balance between short and long-term. If I said you shouldn’t be concerned about short term, it would be a lie. You are. But if there is no short term, there is no long term. Don’t look at the daily stock price. The price reflects the future, not the past. It’s what the market thinks the company is worth down the road.
The market hates two things: surprises and poor results. Once you’re public, you have to have enough courage to believe you can get results — and be honest with the Street.