Owners of private companies often look at CEOs of public companies with a jealous eye. They believe crossing the threshold via an initial public offering IPO is akin to passing through the Pearly Gates. It could be more like opening Pandora's box.

We believe business owners should be very clear about their goals and motivations before going down the IPO path. There are alternative ways to accomplish the objectives of most IPOs.

Why IPO?

Make no mistake; an IPO is a grueling and expensive undertaking with no guarantee of resulting success. Companies go public for reasons including:

• To obtain funding;
• For the owner(s) to gain personal wealth, i.e., as an exit strategy;
• To raise the company s profile, gaining awareness and attention;
• To build a company for the long haul, as opposed to a "flip" in the near term; or
• For ego, to allow the owner(s) to "join the club."

There are viable alternatives, which are less expensive, easier and allow owners to retain more – for all except the final motivation.

Got Funding?

An lPO provides the company with large sums of money that can be used to grow the business. Many owners, however, have the "not invented here" syndrome. They are reluctant to embrace anything not created by their company. They want to build everything from R&D to manufacturing to sales to distribution. Yet, the lesson of business is that companies, seldom excel at more than one competency.

Instead of using IPO funds to create manufacturing, sales or other capabilities, consider outsourcing or finding a strategic partner who excels at what the company needs. If the competency the firm desires isn't t readily available, consider a strategic investor. There are many public companies looking to invest and thereby acquire competencies that compliment theirs. These investors can bring more than cash to the table and have reasons other than pure financial returns for getting involved.

There is an almost endless list of objectives a strategic investor might want or need from a company and vice versa. To understand this, examine your company s strengths and weaknesses in different competencies. Do you have superior products but lack adequate distribution and sales representation? That would suggest you look for a partner with a strong sales force and proven channels of distribution.

Competencies you should evaluate are:

• Products
• Manufacturing
• Processes
• Sales force
• Customers
• Name recognition
• Distribution
• Technology
• Information systems

The perfect partner has strengths to offset your weaknesses and weaknesses to benefit from your strengths. This partner will ask for less of your company, allowing you to retain a larger equity position in the end.

Got Wealth?

Many people see an IPO as the way to achieve personal wealth and exit into retirement. In fact, an IPO is just the start of an exit that can take years to realize.

Liquidity after an IPO is not immediate. Very seldom is the owners (or founders ) stock part of an IPO; that stock is usually "locked up" for months afterward. Occasionally, founders stock is wrapped into a secondary offering. This opportunity is usually limited by the current success of the company and the value of the company s stock from the earlier IPO.

Even then. it looks like the owner is taking money out while asking others to put it in. It begs the question of what is wrong with the company, and suggests that the owner has a better opportunity in mind.

Instead, you might want to consider selling your company to a strategic acquirer. A strategic acquirer can leverage what your company can do in ways that you cannot, and therefore will likely offer a higher value or price for the company.

Another option is a two-phased sale a private equity group (PEG). PEGs invest in companies needing growth capital whose owners desire to take money "off the table." The first investment phase provides partial liquidity for the owner and additional capital to grow the company. The owner remains involved and sells the remaining stock to the PEG or a strategic acquirer later at involved and sells the remaining stock to the PEG or a strategic acquirer later at a higher price per share.

More owners achieve personal wealth through the sale of their business than through an IPO. And, it costs much less than an IPO. The fees for a strategic transaction, including the cost of an investment banker intermediary, accountant and lawyer are a fraction of the cost to complete an IPO. The SEC reporting requirement costs following an IPO are not insignificant and should also be included in any cost comparison.

Got Attention?

While an IPO does lead to enhanced awareness and attention, which can benefit your visibility and marketing, it s a double-edged sword. After an IPO, hundreds or even thousands of shareholders soon become your micromanaging "boss." It is life in a fishbowl with attention focused not only on the good, but also the bad. For this reason, there are many owners of public companies who wish they had not gone public.

Here, too, a good option is a strategic sale or partnership with a public company. Allow the public company to shine its spotlight on your "magic." You get the gain without the hassle or the visibility.

Got Ego? It's hard to argue with ego Owners gain tremendous paper net worth upon executing an IP0, typically right away. But while it looks good on paper, it is neither liquid nor locked in.

History shows that this paper wealth can be fleeting. Remember that founders stock is locked up for a while, yet subject to market conditions. Your company may have no influence over the factors that impact its value (e.g. 9/11). Worse, the media love reporting on big losses of owners paper wealth.

So Why IPO?

There are other ways than an IPO to take the company to the next level. There are other ways to exit and exit with wealth. Only those companies having more than $100 million in revenue, with ongoing needs for vast amounts of capital, and that can benefit from the visibility of being public. should go public.

If you meet those criteria, go for it!

Phillip L. Currie is Managing Partner of Shoreline Partners LLC, a San Diego-based, middle market investment banking firm that handles sales of privately held companies with $10 to $200 million in revenue and acquisitions for public companies. Currie can be reached at 858/587-9800 or via Email.