It’s IPO season. Since June, more than 20 companies have filed S-1s. This includes seven companies filing in one day, on August 24, which is unprecedented. With dozens of CEOs planning to take their companies public, how do we know which ones will pop and which will flop?
In his 2012 book The Founder’s Dilemma, Harvard Business School professor Noam Wasserman famously pointed out that 65% of companies that fail, do so over “people issues” as opposed to core business issues. So, as Wall Street analysts pour over the filing documents and make their recommendations based solely on their evaluations of past and projected financial data, we often ask ourselves, “Who is evaluating the CEO?”
During our combined 40 years coaching top executives of private companies through their IPOs, we’ve noticed five key traits of CEOs who succeed not just in taking their companies public, but in building substantial long-term shareholder value.
They have “people vision”
In the Venture Capital world, startup founders are lauded if they have a clear “product vision.” But it is the leaders who have “people vision” that are able to build organizations that scale. Contrary to folklore, Steve Jobs wasn’t only the product visionary at Apple; he was the talent visionary, constantly recruiting and developing the best and brightest engineers and designers. At the end of the day, investors should not just be asking themselves, “Does this CEO have a clear idea about her product roadmap?” but also, “Does this CEO have the ability to attract, develop, and empower a talent pool that will be able to execute on that product roadmap?”
They build great boards
Great CEOs surround themselves with people they can learn from and who will hold them accountable. In the era of “Founder Royalty,” we’ve seen a number of companies sink into controversy and poor performance at the hands of a CEO who was accountable to no one. The best CEOs recruit board members who will push them and shape them. They hold themselves and their companies to the highest level of ethics and governance, and rely on a world-class board to get them there.
They are introverted and humble
Flashy, extroverted leaders may build name recognition and brands, but more Introverted leaders build value. That has always been our experience, and it was confirmed in a 2019 study that showed the firms of more extroverted CEOs’ firms had 3.30% lower returns than the average, whereas the returns of more introverted leaders beat the average by 5.43%. Jim Collins’ research in Good to Great pointed out the same. He found that the companies that outperform the market are led by CEOs who “are often self-effacing, quiet, reserved, and even shy.”
They are most likely not the founder
Diving deeper into Wasserman’s research referenced above, we see that only 25% of CEOs who take companies public are the Founder. And if the Founder remains at the helm through IPO, they have most often hired a seasoned Executive Team to support them and fill in for their blindspots. While it’s not impossible for the founding team to take the company straight through to an IPO (and we’re proud a number of our clients have done so to great success), investors should be aware that it’s the outlier case.
They focus on sustainable values
CEOs that successfully take their companies public have built strong cultures with clear values that will sustain the company as it goes public. Phil Fernandez, former CEO and founder of Marketo, was successful in building a “customer focused” culture that was critical in the success of Marketo as it became a public and ultimately a private company. The infamous “Marketo Nation” was so deeply embedded into the culture that no change in leadership or growth in company size could diminish its importance.
At the end of the day, no one can predict with certainty which IPOs will succeed, but it behooves investors to look beyond the numbers and dig into the qualities of the leaders at the helm. Because even the fastest racec
Edward Sullivan and John Baird are respectively the CEO and Chairman of Velocity Group, a leading executive coaching firm with operations in New York, San Francisco, Los Angeles, and London. They are also authors of the upcoming book The Power of Insight, which will be released by Harper Collins in 2021.