Why IPO?

Per SEC rule, a company is obligated to go public once it exceeds 500-shareholder limit.
But other than for this reason, why do companies decide to go public and offer its shares?
What are the benefits of going public? of doing IPO?

1. ACCESS TO NEW CAPITAL - Primary benefit of IPO is that it is the cheapest way to raise large pools of capital. That is the main reason why firms go public. Companies get to the point in their life cycle where they need to raise large amounts of capital to grow and if you are a company that wants to raise upwards of 100 million dollars, the cheapest way to do that is go to the public markets. Why is public market the cheapest avenue to raise money? In the public market, a typical investor is well diversified. Thus, they only have to be compensated for bearing market risk, not for unique risk. Cost of capital, or return required by investor, is lowest when a firm is public as opposed to private because firm is selling to broad, diffuse group of potential owners.

2. ACCESS TO FUTURE CAPITAL - Beyond its initial public offering, the firm might be in a position in the future where it might need to do second or third offering of its stocks so that it can grow further. Statistics have shown that roughly 1/3 of US firms go back to equity markets within 5 years.

3. INSIDERS CASH OUT - There comes a point in the life-cycle of the company when Venture capitalists and other early investors, having invested for a long time or close to or beyond its investment horizon, are looking to cash out and IPO provides a mechanism through which they can cash out.

Some non-essential reasons why some firms go public:

4. GET ON THE "Radar Screen" OF POTENTIAL ACQUIRERS

5. IN ORDER TO USE STOCK AS CURRENCY FOR MAKING ACQUISITIONS

6. HIGHER PROFILE 

David Kelley, IDEO

David Kelley, IDEO

David Kelley talks about "creative confidence" in this famous TED video. 

His point, in essence, is that creativity is not the domain of only a chosen few. 

Most people think that they aren't the creative type and shy away from tasks they deem requiring creativity because they fear that they can't do something creative. But he argues that, through a series of small successes of creative experience, people can transform themselves into the people who have the "creative confidence."  

It might not be accurate to say and it might be misleading to say that people can transform into a creative type because saying so suggests that people are not creative in the first place but can become creative through Kelley's process. 

Kelley's point is that people are naturally creative but they lose the "creative confidence" to be creative, somewhere along their life, most probably during early childhood. So it would be more accurate to say that people need to regain the "creative confidence" that they have lost than to say that people can change to have the "creative confidence".

How does one lose the "creative confidence?" Kelley gives an example of 3rd grader Brian. 3rd grader Brian was making a horse out of the clay and one of the girls who was nearby commented, "that's terrible. that doesn't look anything like a horse." and that discouraged Brian to make a horse ever again.

I had a fresh perspective on this issue because of my recent Junior Achievement(JA) volunteer activity. I taught 2nd graders as a JA volunteer and I was struck by how these 2nd graders were willing to raise their hands in every single opportunity they could get. When I posed a question or asked for a volunteer, all 24 hands of 24 students in the class would go up, wanting to participate and wanting to give his or her answer. I noticed that these kids weren't afraid to give a wrong answer and they weren't afraid to fail. I would say that these kids still have a "creative confidence." I talked to other JA volunteers who taught 4th and 5th graders and their willingness to raise hand or participate in class were quite different, more subdued. I think it's safe for me to conclude that some of these kids have lost their "creative confidence" as they advanced to 4th and 5th grade.

I presume that more of these kids will lose the "creative confidence" as they grow older. They will get more bruises and get hurt over the course of their lives by not-very-thoughtful people who hurt them with their words, put them down, and says things like “that’s terrible" or "that's stupid idea.” This is a sad reality and we need people to grow up with "creative confidence" somehow intact. 

Accomplishing this is a tall order for society and if accomplished, our workforce would have more people with "creative confidence" and would be better off as a result. In the meantime, intermediary solution for companies is to recognize that employees in your workplace are naturally creative and set up a corporate culture to help them regain their creativity and unleash their creativity.

Guy Kawasaki, Enchantment

Art of enchantment. We all want to be enchanting. 

Guy Kawasaki

We want to be enchanting so that we can mesmerize people with our irresistible charms and enchant people with products and services we create. Enchantment is an art and we need this artful skill if we want to be successful in our family life, social life, and in careers. Speaker and author Guy Kawasaki showed this art of enchantment masterfully in his Stanford talk with many funny jokes and illustrative examples. Here are my actionable takeaways to be more enchanting in personal and business contexts. 

1. Achieve likability through your smile. Work on your smile. Improve your smile. Shake hands firmly and with vigor, at least 2~3 seconds.
2. Achieve likability - Dress for a tie. If you are under-dressed for an event or meeting, it might signal you don't really care or that you don't respect others in that event. If you overdress, you are essentially saying, "I am better than you." So dress for a tie. Don't dress to show-off. Don't be too carefree with your wardrobe. Put some thought into it and dress appropriately.
3. Enchant Up: Enchant your boss. This is a critical advice for those working in any sort of organization. When your boss gives you an order, drop everything else and just do it. You might think it is useless, stupid, or even sub-optimal to do what your boss tells you do. But your boss most likely have a good reason. Drop everything and just do it.
4. Enchant your boss part 2 - Prototype & Bad News. If your boss gives you one week to complete a task, bring him or her what you worked on, your prototype, the next day. Get feedback and work to improve your prototype. Also when you have bad news for your boss, deliver bad news early. At the same time, make suggestions to fix that problem or bad news. Your boss will surely be impressed and be enchanted by you.
5. Enchant down: enchanting your staff or those working for you. Provide MAP for those working for you. MAP. Mastery, Autonomy, and Purpose. If you can convince people that "when you work for me, you will acquire new skills, master those skills, and will be provided opportunities to improve yourself", people will follow you. Provide latitudes to be autonomous once you have given the order. And provide a higher purpose, that intrinsic motivation, to work hard and make them understand that their work matters and that they are instrumental in doing good for the world.  
6. Enchant your staff part 2 - Suck it up. Don't ask people to do something you wouldn't do yourself. If you tell your people to fly coach on a plane, you should be willing to fly coach yourself.
7. Trust others. When you trust people, people trust you. Onus is on you to trust first. You can even make trustworthiness as your business or product strategy.
   - Amazon: You can buy book from us and return in 5 days. Even though people can read a book in less than five days and return, Amazon trusts you to do the right thing and you trust them back.
   - Zappos - people trust Zappos because Zappos has trusted you first by paying for shipping both ways.
8. Tell a story. A story that is compelling, memorable, and easy to understand will be more powerful when you launch. Case in point: Pierre Omidyar and eBay. Silicon Valley legend is that Pierre Omidyar started eBay because his girlfriend wanted to sell PEZ dispensers online. Even though this story is not true, the story took on a life of its own and became a legendary story. Don't make up a lie but maybe bending story a little to make it more memorable and compelling might be necessary when you are selling your presentation or your start-up company.
9. Default to yes. When you meet people, always think, "how can I help that person?"
10. Invoke reciprocation.  

Let me share two fabulous stories about power of helping people and reciprocation. First story is about people of Mexico and Ethiopia. Italy invaded Ethiopia in 1935 and people of Mexico sent money to Ethiopia to support them. Almost 50 years later, people of Mexico were in need because of devastating series of earthquakes in Mexico and People of Ethiopia, even though they were in worse situation because of extreme famine and poverty, collected money and sent money to people of Mexico. Second story is about people of New York and Columbia, SC. Right after the civil war, people of Columbia used bucket brigades to fight fires because they didn't have right fire-fighting equipment.  People of New York, including Union soldiers, heard about this and donated money to buy city of Columbia, SC a state-of-the art hose carriage. A boat that was carrying it sank but they raised money to send it again. About 140 years later, after 9/11 struck a city of New York, people of Columbia, SC raised nearly half a million dollar to buy a fire truck for New York because people there pledged that they would come through for New York if it ever needed its help. 

As you can see, helping people and reciprocation is powerful. They are not just ways to enchant people. They make enchantments endure and they will help you make powerful and lasting relationships. Some practical tip Guy gave with regards to invoking reciprocation: when people thank you when you help them, you say, "I know you would do the same for me", acknowledging camaraderie between you two, and allow that person to pay you back in the future. Then you can do more favors for him and let him pay you back again, further enriching your relationships. 

Now, are you ready to enchant people around you?

Dan Beckerman, AEG

What's the day like for a CEO who has to manage a company that owns 11 sports teams, Staples Center, American Airlines Arena, LA Live district, The O2 in London, O2 World in Berlin, live-entertainment company promoting hundreds of concerts and events, and over 100 other different venues and organizations? Well, there is only one man who can answer this question and that man is Mr. Beckerman. Meet Dan Beckerman of AEG.

Dan was named a Chief Executive Officer of Anschutz Entertainment Group about 6~7 weeks ago and he came to UCLA Anderson to talk about his new job, his business, and his story.

Dan Beckerman, CEO of AEG

He was a student here at Anderson about 20 years ago and before that he was a tax accountant at Arthur Andersen. Coming into business school, he wanted to do something different after school and thought about what would be fun and what he really wanted to do. What did he think would be fun and something he really wanted to do? Sports Management. I, as 30-something year old male who loves sports, instantly understood how he could have arrived at such an answer. But how does one get into sports management? Lakers and Clippers recruit NBA players, but they don't certainly recruit MBA students and I do not know any of my classmates who are recruiting for sports teams. Is there certain process you can follow to get into sports teams or sports management?

Dan did not know how to get into sports management either. There was no internet back then, so he went to the bookstore and bought media guides that had names, phone numbers, and mailing addresses of every team, every league, and every sports. He quickly put together a resume so that it looked like he had some sort of sports experience and he wrote letters, more than 500 of them to different teams in different leagues. In those letters, Dan wrote that he really wants to get into sports, that he has a finance background, but he will do anything and whatever those teams can offer him. 

Then, he got rejection letters after rejection letters. He actually brought those rejection letters and showed one to us, one from Washington Bullets. He keeps these letters in his office and having them in his office makes him feel humbled and makes him realize how lucky he is. 

After all the rejection letters, he got one letter that was positive, and it was from Los Angeles Clippers. He interviewed with Clippers about 20 different times and they decided to take a chance on him and let him run Finance department of the Clippers. He took the job even though salary he made was less than what he made in his previous job and what he made in summer internship. His friends thought he was crazy to take the job with such low salary but he felt great about the decision and he reflected that it was the smartest thing he has done in his whole life. If anyone is thinking about making a career decision based on how much salary one can make, I would like to point that person to Dan's story. Ask yourself what you really want to do and be willing to do whatever it takes to do that, even if it takes writing more than 500 letters.

Dan was very happy with Clippers and he could have stayed with Clippers forever, but he met Tim Leiweke who completely hooked him in with his vision of what they can do together in AEG. Not just managing sports teams, but building arenas, and doing lots of different things. And Tim was right. They did million more things than Tim originally promised. They built Staples center, bought more sports teams, got into music business, built soccer stadiums, built arenas in Germany and London. With the owner Philip Anschutz's vision and backings, they helped AEG evolve to a company it is today, with real estate and venues side of the business that generates tons of cash flows and the contents programming side of the business with 11 sports teams and events and concerts that range from Coachella, Stagecoach, to promoting and managing tours of artists such as Rollingstones, Justin Bieber, Taylor Swift, and Bon Jovi. 

It was a great personal story as well as a great business story. So for those people who are inspired by Dan's career and want to build the next sports or entertainment empire, what can they do? From what I heard from Dan, it does not seem easy. Persistence seems to be a must-have quality because Sports and Entertainment world is very small community and very hard to break into. Also, you would need a game plan. Instead of going to a team and saying that "I just want to be in sports management", if you have a vision of what you want to do and how you can do it in sports management context, go after it in a strategic way and it will make the entry easier and allow you to have an easier conversation and better outcome with sports/entertainment organizations. 

Inflection Point: Thoughts On Our Career

Last week I read a book called “only the paranoid survive” by former Intel Chairman Andy Grove. In this book, Mr. Grove articulates the concept of inflection point and explains how to navigate through one so that a company can come out of it stronger and better on the other side. 

Mathematically speaking, inflection point is a point where slope of the curve changes sign, meaning it’s a point at which a curve stops curving one way and starts curving the other way. As shown to the left, inflection point, in a business context, is a point where profound and massive changes occur, where balance of forces shift from the old ways of doing business and the old ways of competing to the new ways of doing business and competing.

Actions a leader takes in and around that inflection point determines whether the business takes off and reaches new heights or whether the business declines and fades from our memory. Inflection point comes in many forms, be it a competition, a change in regulation, a change in technology, or even a change in a culture. 

An example of such inflection point for Intel was in early 1980s, when Japanese semiconductor companies started bringing in high-quality, low-price memories. Margins kept declining and declining, and Intel was at a crossroads of having to choose between continuing with memory business or focusing on Microprocessors. Through painful introspection and difficult decisions, Intel chose the latter and brilliance of that decision is evident still to this day when we think about how successful of a company Intel is today.

I think you would agree with me when I say that each person, every one of us, is like an individual business, that our career is literally our business, and that we are CEOs of our respective businesses. Just like the CEO of a big company, we will be faced with many inflection points throughout the course of our careers and whether our career path bounces upward or downward through such inflection points will depend on our actions in and around those critical inflection points. My hope in writing this post is that you become aware of what   career inflection points are, become sensitive enough to recognize one when you are confronted with one, and take proper actions to exploit inflection points to your advantage and ultimately have many successive upward bounces in your career inflection curve.

So how do you develop the ability to sense your career inflection point? First and foremost, be alert to changes in your environment and constantly ask questions about their implications. Be alert to changes in your organization. Let’s say there are rumors about reorganization. What does that mean for your career? Should you try to join a team that's newly being formed? Let’s say new employee with same skill set as yours just joined the company. Does your boss need two people with same skill sets? Can that new employee do the job better than you do? Let’s say your direct supervisor is not presenting any vision for your team. Should you jump the ship and join another team or leader with clear vision? These are valid questions to ask when such changes occur in your organizations or in your company.

Also be alert to changes going on in the world at large that are relevant to the business you work for. You must open up your mind to outside views. Read the newspapers. Attend industry conference. Network with people in other companies. You may hear about impending changes that may be relevant to your career. Listen to chatters from colleagues and friends. Let’s say that you read in the newspaper that there’s new super robot capable of writing software on its own or capable of doing your job. What would you do to prepare for the arrival of that robot? Let’s say there is a new wave of internet innovations and new technologies. How would those innovations and technologies change the way you and your team work?

Maybe you are in the right industry but you are in the company that’s in decline. Should you change the company to advance your career? Again, asking these questions about your career in the context of larger world is important to do. 

Lastly, Imagine and Experiment. Picture yourself in different roles, Read about these roles. Talk to people who are in them. Experiment your speaking skills and leadership skills in a variety of settings. Maybe you find out you have a real talent for managerial or PR positions and that could lead you to a different career trajectory. Maybe you can ask your boss to give you different assignment, which can lead you to a different career path. Through imagining and experimenting, you might find your true passion and a whole new career.

So in conclusion, my action points for you are three-fold: 
1) Be aware of career inflection points b/c they are sure to come in your career. 
2) Be alert to changes in your environment, in your industry, in the world at large. 
3) Imagine and Experiment in new roles and skills. 
I urge you to get in front of these career inflection points and change with them and I wish you much success on your career journey.