You Are Not a Public Company

Introduction

Are you modelling your activities after the public companies in the news all the time? You might double check those business assumptions occasionally to be sure they are leading you in the right direction. We need to filter the steady messages that inform our actions to discard those that will take us in directions contrary to our own goals.

One example is the distinction between how publicly traded companies are run and how your privately held firm should be run. Not recognizing those differences can create heartache and confusion. Here are four assumptions you might want to avoid when emulating publicly traded companies.

First Difference

Don’t “use other people’s money.” This refers to the practice of borrowing money from third parties, or raising money through the sale of stock. In the case of a publicly held company (i.e., a company whose stock is sold to the public), this is indeed how things are done. A decision maker at this company will not generally be personally liable for the funds. But in a small privately held company there is no public market for the stock, and many lenders will require a personal guarantee from someone (usually at least the majority shareholder). So it’s not other people’s money, and if your decision turns bad, you will not be able to easily walk away from the obligation. And using “other people’s money” will lower the bar on the decision itself, encouraging you to apply less scrutiny and judgment. Summary: it’s not somebody else’s money, so recognize it as your own, and make spending decisions accordingly.

Second Difference

Don’t assume that there is a market for your company stock. Manage your company as if it will be sold some day, but don’t count on it happening. Managing it that way will make it more institutionalized (and valuable should a deal happen), but small- and medium-sized communications firms are not as marketable as you may think. Though we handle dozens of merger/acquisition/partnership deals a year, only a minority of firms navigate the process successfully. Summary: manage your company as if it will be sold, but do all your retirement planning apart from that assumption.

Third Difference

Don’t chase market share, especially if it means that you’ll be less profitable in the process. There are no substantial economies of scale in service firms like yours, and there is no hope—or discernible benefit—in servicing a larger portion of the market. Sometimes we’ll hear something like this: “Yes, we are asking you to do this for a little less money than normal, but you’ll make it up in volume.” We would ask in return: “Make what up?” If certain work is less profitable, you want less of it, not more of it. Especially considering that any client who keeps you too busy to market is lulling you to sleep in dangerous ways. Summary: profit (and then enjoyment) should be your primary criteria for seeking and accepting work.

Fourth Difference

Don’t believe that you must grow to survive. In the world of public companies, great earnings/dividends are not enough. They must be increasing every quarter or the punishment is swift and sure. But your company should be run to meet your goals, not those of outsiders. Growth doesn’t necessarily bring you more money personally, though it will require you to “do” less and “manage” more. Quit equating growth with health. There is no connection. Growth is a neutral decision that should be made very carefully. Summary: Work hard to grow...or work hard to stay just like you are, but either choice should be intentional and well-founded.

Finally

There are real difference between large public companies and small service firms, and recognizing them will keep you out of a lot of trouble.