Just 10 years ago, it seemed like the business page wasn’t complete without the announcement of an IPO from some hot new company. Many of these were massively successful on their first day.

According to Forbes, one of the biggest IPOs of the 1990s was Priceline.com, of the William Shatner commercials. It didn’t take the intervention of Captain Kirk to beam the company’s IPO into the stratosphere – with an initial price of $16 a share at the start of trading on its first day in March 1999, Priceline.com closed the day at $69.

However, anyone who’s familiar with the stock market over the last 10 years knows what happened to all of those previously hot tech stocks, and knows it happened fast. At the end of 2000, Forbes reported, Priceline.com’s stock was valued at less than $2 a share. The problem with a big splash, it seems, is that too many companies that made one were unprepared to deal with all the little ripples that inevitably followed.

During the 1990s, there were more than 4,500 IPOs offered, and while not all of them were as disastrous as many of the dot-com offerings, it’s still a hazardous pool to wade into if you don’t know what you’re doing. For all the attention placed on flashy press conferences and Super Bowl ads, what failed them in the end was a belief in the IPO as the be-all, end-all of business. Prof. Anjan Thakor of the Olin Business School at Washington University in St. Louis says the reason so many dot-com IPOs crashed and burned was because they were going public for the wrong reasons, and had the wrong expectations going in.

“A lot of companies in the 1990s went public as a way of marketing,” he says. “All of a sudden, you had your name in the [Wall Street] Journal, and you didn’t have to buy a one-page ad.”

If your company is considering taking the public plunge, there are a number of things to consider before jumping in feet-first. Although the lure of a quick windfall of capital can be incredibly tempting, the process is a long and arduous one, and may not even be right for your organization. Fortunately, like most situations in life, taking your company public can be a smooth and relatively painless process if you take to heart the Boy Scout motto and “be prepared.”

Be Ready for Change
Anthony Mancuso is a lawyer specializing in corporate and limited liability company law who has written several books about corporations for Nolo, a provider of legal information. He says that, in his personal experience, an IPO is nothing to take lightly. “I went through one myself, not as a lawyer, but with a company I was involved with, and it’s a lot of work,” he says.

Even though an IPO can be an exciting adventure for your company, Mancuso warns not to let that excitement cloud your judgment. “As a practical matter, I would think you have to take a sober look at all the work involved,” he says.

One of the most common problems newly public companies make is assuming that they will be able to conduct business as usual after the IPO, Mancuso says. Thinking in the short-term can ruin an IPO, as an IPO is a long-haul proposition.

“You really change your company,” Mancuso says. “When you look at it, you’ve sold your company to the public.”

With that sale comes a change in the executive’s role with the company, he adds. No longer will you be “the decider,” to borrow a phrase from the commander-in-chief, but instead you’ll be the employee of your shareholders. Letting go of that private-company role can be a difficult process for many executives.

“It’s a real sea change that many of them don’t see,” Mancuso says. “They just get blinded by the possibility of more capital.”

An example of how ill-prepared executives can be for a life post-IPO is the temptation to make loose talk about the company’s future, he adds. A single stray comment can be repeated often enough to damage a company’s standing on Wall Street, no matter the context or setting in which it was originally uttered. “A lot of CEOs in the small-business context don’t really get that,” Mancuso says. “They’re not used to carefully guarding their speech when they talk about the prospectus for their company.”

Thakor says planning to go public is really something you should do only if your company plans to expand. Short-term results are especially important, he says, because investors and shareholders are going to be looking for signs that the company is going to grow and improve the value of their stock. Also, shareholders are going to expect results much faster than you may have been used to delivering.

“If the organization is not prepared to deliver results on a shorter time frame than they were used to before, that can be a problem,” Thakor says.

Look Before You Leap
If you do decide to make the leap into the public arena, Thakor says, your company should consider what it will mean for its competitiveness. “The first thing you want to do is understand some of the competitive implications,” he says. “What are your plans for that capital?”

Going public can make your company less agile in the marketplace, Thakor warns, because of the added layers of decision-makers that will now be a part of it. Your company will also be subject to higher disclosure requirements due to Sarbanes-Oxley.

Mancuso says an IPO will also take a lot of time away from your company’s head honchos as they travel to make pitches to underwriters.

“They get put out on the road to basically do sales pitches for six months, nine months,” he says. “It’s a lot of flare and drama.”

Attracting an underwriter is essential, but not always necessary these days, Mancuso adds. Most traditional IPOs continue to be done through an underwriter, although Internet auctions are becoming increasingly popular, he says.

Thakor says one strategy for attracting investors that also serves to mitigate some of the risk involved in going public is underpricing the stock at the IPO. He says the threat of litigation is very real, and there are lawyers who watch for companies going public because public companies are more vulnerable, and companies with high stock prices are especially so. This is because if a stock declines after the IPO, it can trigger investigations into the company, Thakor says.

Both Mancuso and Thakor say your company’s IPO will only go as well as the quality of the advice and counsel you bring on board before getting started. “I think you need experienced legal counsel and a tax advisor to help you with this,” Mancuso says. Still, Thakor says the benefits can far outweigh the risks.

“On the plus side, you’ve got the lower cost to capital and more access to capital,” he says.