Recent conversations on going public have reminded me that some assume taking a company public is inherently, completely good, necessary to being Important in the Industry. Here’s a few reasons why that is not always true, noting that I am not a financial professional.
Posit that the natural course of a successful company is to achieve a monopoly. Oligopoly will do in a pinch, but the ideal scenario for a company is to take all the cookies. This is generally viewed as a bad thing, so societies might pass laws or enact breakups to prevent it.
That needs a government actor, and current theory holds that government is bad. One should create market forces that enable good outcomes via greed and invisible fairy hands. To the degree that theory admits monopolies are bad, public markets seem to be the anti-monopoly agent.
Public markets love growth. Vastly oversimplified, there are two types of investments: safety and growth. Bonds and stocks. Monopoly provides safety, whether through bonds or dividends, but it has no growth. A startup provides growth opportunities, but it is not safe.
As an individual investor or fund, this is all fine. Select the balance of safety and risk that makes sense for your goals, and all will be well. As long as there are opportunities. But, if companies achieve their goals, there will just be a few safe monopolies and no growth.
Now let’s play Sim Captain of Wall Street and manage the balance of safety and growth opportunities. The first lever you might try is merger and acquisition. Encourage the monopolies to buy each other and form massive conglomerates with a few basic shared functions.
The outcome is socially fascinating, in that it appears to have encouraged the growth of functional careers like project management. Abstracting a role across the units of Buy-N-Large is good prep for considering that role as an abstract function for any organization.
However, it’s tough to argue that the resulting conglomerates have become growth investments. Jamming a bunch of unrelated businesses into a holding entity doesn’t increase productivity.
A more cynical lever exists in the tech industry: encourage the monopolies to self-disrupt. If a company jumps in a new direction, one of two things will happen: succeed and produce new growth for themselves, or fail and produce new growth opportunities for other companies.
Once initial investments are recovered, there’s almost no way to lose in encouraging a mature, successful company to try crazy risks.
Looking at this as Sim Company Leader, I don’t see how farming the market to increase growth helps me get monopoly. It’s great to get windfall money and lower interest loans, but I don’t want to lose control. I may not have a choice though: early investors expect their paydays.
What if I could table flip the market though? It would be distracting to the attain monopoly game... but after going public, I might be in a mood to gamble on an acquisition or a new product architecture.
It’s all fun and games until someone loses their job, but this cycle, if it’s real, creates higher opportunity jobs by creating duplicative roles across many smaller companies. Not so many gold watch careers though.