March 27, 2013

The Pre-Pre-IPO Checklist

I recently read this article in Fortune about the 10 requirements for a successful IPO. Go ahead and read it if you’re interested in this topic. I’ll wait.

Most of my readers are CEOs of companies that are a few years away
from even thinking about IPOs. So, I thought I’d give a count-by-count
set of requirements that should get you to the point where you can start acting on the Fortune pre-IPO checklist.

Here we go:

The Pre-Pre IPO Checklist: 10 Requirements for Putting Yourself into Position

1) Hire an Operational CFO

At the early stages of a company, the CFO is the founding CEO’s
co-pilot. What you don’t need in a CFO at this stage is IPO experience.
Instead, what you need is a CFO who is highly operational and has the
prerequesite CPA-centric financial experience.

An operational CFO can help the CEO in many ways. Here are four examples:

  1. Building and assisting the CEO in managing a financial and economic control book
  2. Helping the CEO manage the operating rhythm of the company.
  3. Providing oversight to the sales team’s forecasting accuracy and reporting to the board the CFO’s more prudent forecast.
  4. Helping the CEO manage the board and board meetings.

Once you get to the pre-IPO stage, you may need to augment the
operating CFO with an independent board member who has IPO experience,
or replace the operating CFO with an IPO CFO.

2) Reach Out Proactively to Strategic Partners

Getting to pre-IPO status requires getting to scale. Getting to scale
requires leveraging multiple channel of distribution. Leveraging
multiple channels of distributions requires building strategic
distribution partnerships with larger companies. And that requires
building a comprehensive market map of your competition and your
potential partners. Finally, with that visibility, you should be
regularly reaching out to potential targets that can turn into partners.

The added bonus here is that you will also be building relationships
with potential acquirers. Why would you bother if your plan is to go
after an IPO?  Because the probability of getting to an IPO is pretty
slim. Cover your bases.

3) Leverage a Network of Investment Bankers

Bankers are another channel to utilize to increase the awareness of
your company, and a good source for insights on competition and
strategic partners. Build a list of 3 – 4 investment bankers who know
your market very well. Develop a quarterly update schedule to keep them
up-to-date on your company and your partnership strategy. Suck them dry
for insights on your competition and the strategics.

4) Build Your Senior Management Team

Each stage of a company’s evolution requires a revamp of the senior management team.
At the startup phase, you need a set of young entrepreneurial
masters-of-all-trades. At the expansion stage, you need a set of
functionally experienced executives (e.g. VP of Sales, CFO, etc.) At the
growth stage, you need a set of managers who have experience managing
large teams, and some experience in the transition from a private to a
public company.

5) Update Key Market Influencers

Influencers include analysts, reporters, and bloggers who cover your
market. They are another channel of increasing the awareness of your
company, and a good source for insights on your target segment and your
competition. Build a list of 8-10 influencers and develop a quarterly
update schedule to keep them up-to-date on your company, as well.

6) Make Sure Your Company is Properly Funded at All Times

  • Rule #1: Never run out of money.
  • Rule #2: Always make sure you have the right operational economics and the right level of funding to support your company aspirations.
  • Rule #3: Don’t raise too much money.

7) Build Your Operational Control Book and Manage By It

Startup companies tend to base a lot of management decisions on “gut
feel” and a practical sense of the business. At the expansion stage,
CEOs need to turn their attention to the economic model with which to grow their companies, and the set of key metrics to run the company by.

The control book is the closest thing a business has to the
instrument panel of an airplane. Lots of necessary dials (metrics), with
a handful that are top of mind for the pilot (CEO) and co-pilot (CFO).

8) Start to Build the Predictability of Your Business

In addition to managing by and through a set of key metrics, this is
also the time to start managing with predictability. At the startup
phase, predictability is an illusion. But at the expansion stage, you
should be able to develop more predictability in your operations.

Your development team should adopt a management methodology (e.g. agile)
that holds the team accountable to performance and deliverables. The
sales team should develop a forecasting process that is reliable. The
professional services team should be managing to a target profitability
and billability. And so on. This level of predictability is a precursor
to the much more stringent pre-IPO requirements to come.

9) Ensure that You Have a Board of Directors that Shares Your Aspirations

If you aspire to an IPO, make sure that you have investors who are
aligned with you goals, are in it for the long haul, and can fund you as
needed. Make sure that you have board members who can guide you on your
journey from the early stages to the IPO stage. Recruit board members
who can challenge you, and who are what your next stage of evolution
requires. At some point, you will need to swap out some board members
for ones who have IPO experience.

10) Build a Great Company

Yes, that’s an obvious one. But you would be surprised how many CEOs talk the talk but don’t walk the walk.

Building a great company requires many facets of greatness. You need lofty aspirations that are inspirational
yet achievable. You need a great product that addresses a strong need
or desire. You need a world class operation that scales efficiently. You
need outstanding employees who are passionate about the company. You
need to develop your employees and treat them like your most precious
asset. And you need a great culture that is the envy of your

May the force be with you.

Firas Raouf is a Venture Partner with OpenView Venture Partners.  You may find this post, as well as additional content on OpenView's blog located here.  You can also follow Firas on Twitter (@fraouf) by clicking here