After decades of dedication, successes and failures, you may find yourself on the stock exchange trading floor celebrating your company going public. This can be a dream come true, but what is often overlooked is what happens following the ceremonious opening bell.
Preparing for an IPO takes an immense amount of financial and business planning. For those who expect to benefit, whether as an owner or a key employee, an IPO also requires significant emotional preparation. Thoughtful and proactive communication and a willingness to dig deep and redefine who you are is key.
Prepare for an Emotional Rollercoaster
“Going through an IPO with a company you put your all into to help build can be an emotional rollercoaster,” explains Jill Shipley, Senior Managing Director of Family Culture, Impact and Governance for Cresset. “Add in the expectation of an influx of newfound wealth and you may find yourself facing an identity crisis.”
Shipley says the first step in preparing for an IPO is to take a deep breath, decompress and do some serious reflecting. She suggests to keep perspective and remember that paper wealth does not always equate to actual dollars as the share price will fluctuate. It can also take time to access the financial rewards due to lock-up periods. It can be tempting to want to splurge and start spending right away, but it is important to reflect, develop a plan to diversify and protect the wealth, and wait until you have the dollars in hand.
“An IPO is a huge deal. You need to think about how this will change your reality,” she says.
She adds that the spectrum of emotions a person going through an IPO will feel are normal. However, acknowledging those emotions doesn’t lessen their potential impact. She gives the example of the owner of a successful commercial real estate business who felt remorse and loss after the company that had been in his family for three generations went public. Having been raised during the Great Depression with a scarcity mentality, he simply was not prepared or comfortable with the idea of “being rich”. He didn’t know how to accept it and identify with it. He also grieved the loss of the legacy of the family business, realizing that his children and grandchildren would likely not work in the business as he had.
“Letting go can be hard for founders, owners, leaders and even key employees. Prepare for that feeling of loss. It can be a lot like a child leaving the nest. It may be the right thing at the right time, but feels bittersweet. Take the time to process those emotions,” Shipley says.
Finally, Shipley stresses that you don’t need to go through this emotional journey alone. While some people may be unable to relate and can only see your “golden ticket”, try to lean on friends and peers who have gone through the IPO process. They can offer advice and be supportive throughout it.
“You may be surprised by how generous people can be with their time. Don’t hesitate to reach out to others who have gone through a similar experience – even if you do not already know them,” she says.
Once you’ve taken the time to process your emotions, how and when do you share the news with your loved ones, friends, and employees that your company will be going public? More importantly, how do you help them get prepared for the impact of the news as well as the wealth?
Consider this cautionary tale.
An executive of a successful family business made the decision to sell the business, but he kept that decision to himself. His immediate family did not even know. His son, who was a senior in college at the time, was confronted by his girlfriend and roommate when they read about the sale in the news, asking what was going to change now that he was “rich”. He didn’t know anything about it and had no idea how to respond. His girlfriend even wanted to know how this would affect their relationship. He was furious about being put in this situation.
Shipley shares that example to stress the importance of communicating early on with those likely to be impacted by an IPO. “Be thoughtful about who you tell. There are rules to be followed from a business and regulatory standpoint,” Shipley explains. “Before you start talking to anyone, investigate what you are allowed to say, with whom, and when.”
That said, she advises not to wait until the news has been shared publically. Those closest to you should hear the news from you, and have time to mentally and emotionally prepare for how their world could change.
To accomplish that, Shipley advises those expecting to experience an IPO to make a list of all of the stakeholders in their lives who could be impacted, and to think broadly. Think about parents, siblings, children, employees, board members, friends, and more. Think strategically about how and when to share the news with them, and what their reactions might be.
Beyond sharing that the IPO is likely and the news could spread, also talk about the impact and prepare those close to you for how to respond to questions. People could ask, ‘Are you going to still work? Are you going to move? What are you going to do with all of that money?’ Or say, ‘Must be nice!’ or, ‘I have a great investment or business for you!’ Be prepared for questions and sideways comments. Include your inner circle in thinking through how to handle those types of comments and questions.
Define What’s Next
Even when everyone who needs to know has been appropriately informed about the IPO, there are still a lot of conversations that need to happen. The best place to start is to gather those closest to you and family members together to have a discussion about your values and vision for the future.
“Take the time to dive deep and talk about what you want your lives to look like going forward. Make sure everyone is at the table, including children. Involving them makes a world of difference,” Shipley explains. “Explore what it took to get to where you are. Celebrate that. Set expectations of what a healthy lifestyle looks like. In other words, enjoy the fruits of your labor, but don’t lose yourself, who you are. You should refine your purpose, and reestablish your heritage and identity. Wealth can feel very, very empty without a sense of purpose about who you are outside of the money.”
She also recommends developing a governance plan for how decisions will be made regarding the wealth, and to include all of the generations who should have a voice and a stake in establishing the legacy.
Finally, she strongly advises not to avoid talking about sensitive issues when it comes to money. “Money can be an awkward thing to talk about, and it can be tough for people to get over that hump. But you need to talk about it. It shouldn’t be taboo,” she says.
What happens if you don’t have those conversations? The consequences can be dire. Research has shown that more than 70 percent of wealth is lost by the third generation. Why? Not because of poor investments or financial planning. It’s overwhelmingly because of a lack of communication and not establishing consistent values among family members.
“After all the hard work of helping to build a company and achieving the success of an IPO, what a shame it is for a family to squander that wealth or for it to ruin their relationships,” Shipley says. “The good news is it doesn’t have to be that way. For those who take the time to process their emotions, communicate effectively and define values and legacy going forward, the wealth – and the impact of that wealth – can last.”