Selling your Company vs IPO | Doug Mellinger

And the thing that always amazes me, as I think back upon those days, and I think back at all the companies that I've started and all the companies that I've seen start, it actually is quite absurd that any company actually gets off the ground. Because when I got my first contract and I did $79,000, I started in August of 1989, and that year, from August to December, I did $79,000 in business. The fact that anyone would give me a contract It was crazy. I had no business. I took the money and I went out and basically found somebody to help me solve the problem. As you guys are thinking about getting these companies off the ground, think about where are those first dollars going to come from? Hopefully you get client dollars versus having to get investment dollars. I know a lot of people will go out and get those VC dollars, and those are great. I'll talk a little bit more about that. The more that you can get customer dollars, if that's at all possible, it gives you a lot less dilution because that's basically free money. It's money that you're earning to then do the business. That company went on a tear. We did $79,000 first year, we did $470-something thousand second year, we then did $2.5 million, then $5 million, then $7 million, then $13 million, then $20 million, then $50 million, then $85 million, and basically went on a growth spree that brought me to $100 million in 8.5 years. It was an amazing ride. We were the second American company to open up in India to do offshore development back in 1989, which was just absolutely unheard of back then. When I went to American corporations to say, I've solved the problem, because they were telling me they want to make these transitions to these new platforms, but they didn't want to spend a huge amount of money. I said, okay, fine. I figured out how to— a way to do it. TIAA-CREF was the first company we did it with. We did a mainframe to AS/400 conversion in Pune in India. When I went to them, they looked at me cross-eyed and basically said, I think we need to call security and put you into a straitjacket. Because you can't do this in India. What are you talking about? Today it's taken for granted what can be done in India and other parts of the world, but back then it was absolutely unheard of. That was the first basically industry that I helped get off the ground. It was an amazing experience, but the one thing I'll tell you, because I've done it now a couple of times helping to start industries, it's incredibly hard. It takes so much more time and energy and resources when you're doing something that hasn't been done before. It just makes so much logical sense when you're doing these new businesses that many of you are probably coming up with, and you say to yourself, this is just a no-brainer. Look at the problems that I'm solving. What you just have to realize is you get it, but most everyone else doesn't. Change is incredibly painful for people. If you're selling to corporations, risk— when somebody hears something new, even though logically it makes a lot of sense, what you have to understand on the other side is what they're hearing is, this is a potential career-ender for me. if I get it wrong. You're doing the right thing, but they're looking at it as a potential risk that could literally cause them to lose their job. The safer thing to do, you might have heard in the past people would say, well, it was always safe to hire IBM, even if it wasn't the right decision, because you can't get fired for hiring them. That's One of the things that as an entrepreneur, as I've started these various companies, it's probably the biggest single frustration that I've had is looking at somebody and saying, why are you not getting it? Sometimes you just want to grab people and shake them because you're just looking at them and they're just blankly looking back at you and you know that you're giving them the right decision. What does that translate to? You've probably heard people say things take twice as long and twice as much. This is one of the primary reasons. It's really hard to get these things off the ground. PRT went public. I would tell you that I made a huge mistake in going public. I had 3 offers to sell the company within the 3 months leading up to the IPO. My gut told me that I should sell. And everybody around me convinced me that I was making the biggest mistake of my life if I just sold the company. Now, at the time, the offer that I had was literally for $175 million in cash to sell the company. That's it? And people were telling me that I was crazy to take that kind of an offer. And the IPO was going to be so much higher, and And being a public company CEO was great and my bank was Smith Barney and they, back then, they don't get to do this these days, they used to bring us on these boondoggles to Pebble Beach, was the one I went to, and all these public company CEOs were there and they're telling me how great it was and you do these secondaries and you get liquid and you've got this currency to do acquisitions and they're telling me all the most wonderful things about going public. And so I went through the process, and I don't have enough time to give you all the gory details of it, but it was an amazing experience. And then at some point later on, Y2K happened. You guys might have heard. And it just cut half the industry's revenue, literally overnight, just about. And so we hit a major bump in the road, and we only grew, I think it was 117% year over year. But the analysts wanted us to grow 128%, and we literally lost half our market cap in one trade. And I got an email from somebody that morning as I was getting ready for my earnings phone call to basically announce this, and I basically went to the bathroom, threw up, because I was just so sick at the feeling of only growing 117%. But literally, basically failing because I didn't meet analysts' expectations. Well, at the peak, we were worth $450, $470 million, but what people didn't tell me is that as the entrepreneur, CEO, chairman, you can't sell a share. Nobody wants you to sell one share. Everyone else is happy to trade here and there, but they— if the stock drops, people expect you to buy more, not sell. And so I rode it up and rode it down, and then we had a problem with the currency crisis in Korea, and then we had a Russian debt crisis, and literally on things that had nothing to do with me, stock went up and down and it was all over the place. And there was one amazing entrepreneur who I had mentioned as one of those young entrepreneurs who sent me a note and said basically, welcome to the club. Because you actually, as a public CEO, at best can control 1/3 of your destiny. You can control what your company does. And that, none of— all of us know you can't truly control that. What you can control is what people are like you doing. What you can't control is what's happening in China. You can't control what's happening in Iraq or any other part of the world. Those literally have about 2/3 of the impact of public stocks. Some friends of mine developed 3 letters that we put together that whenever friends of ours are talking about doing something crazy like going public, we always use the words or the letters STO. STF. STF. The letters STF stand for sell the fucker. What I've come to fully realize, and the question I've asked many people who have sold their companies or had companies that they were considering, was how long would it take you to rebuild what you have today if you had Huge amounts of money in the bank, the bank of experience that you have, the contacts that you've made, and all the resources at your disposal. It's typically a fraction of the time. I ask myself, what took me 8.5 years, how quickly could I have rebuilt that? Probably no more than 2 years. I've come to conclude that there's really nothing bad about actually making money and selling something, getting the capital, and having that F-you capital so you can do whatever you want to do, whether it's start another company or invest or whatever. And so I'm a big believer in monetizing. A lot of people go into these businesses, and I did, thinking of it, it's your baby. I actually don't think entrepreneurs, and this is something I've learned from The PE experience. I think I was all wrong when I thought of my company as a baby.