Most people have heard of an IPO (initial public offering). One could almost consider it the end goal of a lot of fast-growing private companies. An IPO is the ultimate sign that your company has a lot of potential, and others are starting to recognize it and feel the need to get in on the action.
Unfortunately, just knowing what an IPO is, does not make a CEO or anyone else in upper management qualified to lead a publicly traded company. Often times companies will take the plunge only to realize that being a publicly traded company is not quite as fun as it seemed to be. Bob Greifeld, CEO of Nasdaq describes it as 'facing what I like to say is an endless series of quarters.' Suddenly every move you make is being scrutinized by financial geniuses and every mistake you make can have enormous consequences. And so it is important for everyone in upper management to understand how the stock market works.
There are two types of investors investing in the markets, and likely your company. There are fundamental investors who look at your company financials, competitors, the layout of the market, and decide that you can or cannot succeed in the long run. These investors are great because they tend to hold onto the their shares through temporary bad news and keep a long term vision.
The other type of investor uses technical analysis to examine your share price over time and identify patterns that show when the price starts climbing and falling. These investors will dump shares the instant bad news is announced, or anytime the stock looks poised for a weak quarter/year.
Technical analysis is important to understand because upper management may find it frustrating to see the price of their company's shares dropping day after day with no reason. As CEO, your new responsibility is to maximize wealth for the shareholders and you may feel like a failure as the price of shares drops 10 or 15 percent one year without any bad news or slowing in your company's growth.
This is the natural ebb and tide of the markets. Short term investors are pulling in and out, scalping a quick buck and this is driving the price of your shares down or up. It is important to ignore the day to day share price fluctuations of the company you work for or it may drive you mad. As long as your fundamental vision and opportunity has not changed, the price of your company's shares will eventually balance out.
If an IPO is for you, do not rush it. You need to have structures and systems in place to handle all the changes that will come once you are publicly traded, specifically in the accounting and finance departments. Spend the extra cash it may require to get the help of experienced professionals who have done what you are doing multiple times.
Once you feel ready, go for it. Building a company that trades on a major indices is no easy task. Take a moment to revel in your accomplishments.