How I Survived My IPO

BOSTON (05/31/2000) - There are thousands of internet entrepreneurs who would like to be wearing Phillip Merrick's shoes. Merrick's company, WebMethods Inc., which makes software that facilitates business-to-business e-commerce, launched its initial public offering on Feb. 11, going out at US$35 a share.

Weeks later, the Fairfax, Virginia-based company's stock price shot up to over $300, and the company, which had revenues of $15 million in 1999, at one point had a market capitalization somewhere in the $9 billion range. In March its stock price was trading in the low $230s.

The price has since fallen, along with the price of just about everything Nasdaq-related, but webMethods still represents a financial triumph--at least until Wall Street takes another tumble.

So how did President and CEO Merrick and his 275 employees, all paper-based millionaires post-IPO, celebrate? The heady festivities included clearing out cubes at the company's new headquarters to host a modest, catered party for employees and their families as well as Merrick springing for vanity plates bearing the company's stock symbol, WEBM, for his 5-year-old Honda Accord.

Hang on a dotcom second. If you believe all the hype, this kind of moderation isn't part of the post-IPO era. Among other benefits, a high-flying IPO is supposed to yield instant wealth, showering everyone from top-ranked management to the lowest-level employee with enough options to buy new vacation homes or fancy cars, and maybe even allow them to retire early or fund their own internet startup. The American dream of the digital age may be coming true for a growing number of high-tech workers, but the truth is that most post-IPO companies, even the stars like webMethods, are far from a cushy sanctum for the rich and famous. Rather, with the added scrutiny of Wall Street and investors on financial performance each quarter, post-IPO life is often the same frenetic, nose-to-the-grindstone environment that it was before going public.

And post-IPO, there's more pressure than ever on top management--from the CEO to the CIO--to foster a culture that keeps employees focused on the company's long-term strategic goals and vision instead of the short-term impact of stock price fluctuations on individual portfolios. "The tone has to be set by the executive staff that this isn't important--that you're working as hard as you were before, if not harder," notes Ted Schlein, a general partner at Kleiner, Perkins, Caufield & Byers, a venture capital firm in Menlo Park, California, that has recently funded such dotcom players as used-car marketplace and the web search tool Google. "People think of the IPO as glamorous, but more than anything it's a milestone--a marketing event in today's world. It's up to the executive team to minimize its impact on how the company operates on a daily basis."

WebMethods' Merrick is all too aware of that responsibility. That's why he's made it a top priority among his executives, including his technologists, to set the tone for moderation and prepare employees for life as a public company.

"I have to make sure that everyone understands we have little control over the stock price on a daily basis, but a lot of control over the long term, and that's completely tied up in how we execute," says Merrick. "After the IPO, a companywide e-mail went out listing the top IPOs of all time, and we were on that list. But as someone pointed out, of those 10 companies, eight were currently trading below their first-day closing price." The message, Merrick says, is clear: webMethods has no interest in becoming part of that group.Only time will tell if webMethods will make the cut. More than 50 percent of technology companies trade below their IPO price within two years of going public, according to Alec Ellison, a managing director at Broadview International, a mergers and acquisition investment bank headquartered in Fort Lee, New Jersey. "The IPO is not an end; it's a second startup," Ellison says. "Companies need to continue building the company and organization going forward." That message carries even greater weight given Wall Street's recent moodiness.

Obviously, CIOs are instrumental in that mission. With many of the newly public companies focused on e-commerce, the post-IPO cash infusion is often used to acquire companies or new technologies that can provide a competitive edge.

Technology executives are often one of the principal players helping to decide which companies to acquire or invest in. Access to capital to fund these efforts and deliver on the strategic vision is probably the best news about life post-IPO. WebMethods, for example, raised somewhere on the order of $165 million, and Merrick says that currency will allow it to make acquisitions that would have been extremely difficult to pull off otherwise.

The cash infusion from an IPO also gives technology leaders the flexibility to outsource operational IT functions and assign internal staffers to projects that will help the company deliver a competitive edge--for example, adding personalization and customization capabilities to an e-commerce site or building a multimillion-dollar, integrated ERP and customer relationship management systems.

"The best thing about going public is you get liquidity, which means you can use your stock as a tool to either incentivize employees or acquire companies [or technology]," says Jason McCabe Calacanis, CEO and editor of the Silicon Alley Reporter, a New York City-based publication focusing on internet companies.

And, of course, you can't totally ignore the financial aspect. A lot of companies that venture into the public market bring some financial reward to pre-IPO employees, and often for post-IPO hires who've been lucky or smart enough to negotiate reasonable terms on their options. While these employees might not make an instant fortune, many are assured of a reasonable profit.

Yet along with the good side of post-IPO existence comes the bad. Publicly traded companies--whether they're at the top of their game or struggling to push their stock price back up to IPO levels and above--have to contend with living under the watchful eye of Wall Street, explaining every move and how it relates to the corporate mission. "Everything is public now--we're scrutinized on a daily basis," says Nathan Schulhof, president and CEO of Audiohighway (, a website that delivers free audio, video and entertainment content to consumers. "I get 30 calls from brokers a day when the stock price goes down, telling me what we should be doing. But we've gotten a lot of money to make our dreams come true, so I suppose that's the price you pay."

These so-called suggestions from the investment community can be a real distraction to the core IT mission, according to CIOs in several post-IPO companies. Say Wall Street and investors get fixated on auction technology, for example, because the stocks of players in that arena are on an upswing. Outside pressure from top management to respond to Wall Street's demands means CIOs need to do due diligence and explore the possibilities even if they later determine the technology isn't a fit for the corporate vision. "It's not like investors or the board of directors force something--it's just the general mentality of when the stock isn't performing to try this or try that," notes Bill Weatherwax, Audiohighway's executive director of product development and engineering.

For companies like Audiohighway that are trading below their IPO stock price (referred to as options underwater), there are a number of other challenges, including the issue of hiring and retaining talent, especially hard-to-find IT professionals. With the average lock-in period restricting employees from selling stock from anywhere between six months to one year post-IPO, many companies are finding it difficult to retain employees when competitors are promising a fresh run at a better IPO, and an internet fortune appears to be perched on every corner.

"It's tough because a lot of this is relatively unprecedented--to have so much stock holdings among employees and so much of compensation packages tied to that as well," notes Ken Andersen, managing editor of VentureWire, a daily e-mail newsletter covering the high-tech and venture capital community published by Technologic Partners in New York City. "You have to stress the importance of when times are good, not to get too caught up in the stock price so that inevitably when times are bad you've created feelings that go beyond the value of the stock."

To do that, company leaders need to foster a community spirit, giving employees a feeling of accomplishment and a sense of teamwork that's unconnected to whether the outside world responds positively or negatively to the stock. "If people believe in the mission, and you can make them feel like their contribution is recognized and valued, they're not going to leave," Calacanis says. "Success is defined by the individual--for some, success is having $100 million in the bank; for others, it's going to a job they love."

If you consider today's high standards, most professionals are in search of a dotcom nirvana that encompasses both.

Here's a look at three companies that have been through an IPO and lived to tell about it.


Cyberian Outpost Location Kent, Connecticut. No. of employees More than 200 Nasdaq symbol COOL Date of IPO Aug. 5, 1998 IPO price $18 Stock price as of press time $5 If having an undervalued stock price is a cloud, Bob Bowman, president and CEO of e-tailer Cyberian Outpost, knows how to find a silver lining. Since going public in the summer of 1998, Outpost stock, which went out at $18 a share, climbed to as high as the $40s during the 1998 holiday season and crashed to around $5. But rather than deterring Outpost employees, Bowman says the ups and downs have fostered an all-out desire to achieve.

"Our technical group is a competitive bunch," Bowman says. "When the stock is low, they want it higher and they'll kill themselves to get it there. In a funny way, it's a motivator."

With competition fierce in this category from sites like Inc.,, and others, Outpost can't afford to take its eye off the ball, even for a minute. That's why Bowman, who came onboard last October, believes it's so important to foster a competitive culture by hiring the right people.

Bowman looks for hires who embody two key qualities: integrity and energy. A 50-minute interview will instantly reveal a fit. Says Bowman: "We try to hire people excited about accomplishment, who know that nothing comes easy and who know that you get out of a company what you put into it."

Over the last six months, the Outpost IT group has certainly contributed its share. Outpost, which Bowman admits might have been slightly behind its rivals in technology six months ago, has aggressively pushed forward, adding state-of-the-art e-commerce capabilities such as advanced personalization as well as web-based data warehousing. The latter gives the dotcom the ability to drill into customer buying patterns to deliver a customized shopping experience, serving up special offers based on previous purchases. Outpost has also invested in campaign management and marketing software to target promotions at individual buyers.

Despite the disappointing stock price, having the resources to fund initiatives like these as well as to bring in experienced talent is the biggest benefit of being public, says Dan Bachman, director of business intelligence, who admits, however, that it isn't always easy to find qualified candidates. "Now we have money to do the things we really know are required to move forward," says Bachman. For example, Outpost has purchased Sagent's data warehouse software and now has over 25 data marts in production mode, helping it analyze various types of customer data. "The software lets us be proactive and react to things quicker," Bachman says. "Not many dotcoms have gotten into [this kind of technology]."

Bachman, who's been at Outpost since February 1998, sees little change in the culture since the pre-IPO days. When he first came to Outpost--fresh off a grueling database marketing post at a newly public catalog company where the stock never took off--Bachman was struck by the aggressiveness, yet strong camaraderie among employees. "I saw a young, bright group of people, not heavy on business experience, but who were very aggressive and willing to try things out," says the 50-year-old Bachman, who adds that he's the old one in the crew.

"There wasn't politics, there wasn't a set way to do things, it was a team-oriented atmosphere."

Even with its depressed stock, Bachman says that team spirit is still very much alive. There are no official offices, and people keep shuffling around as the company continues to outgrow its space. While it's not uncommon for employees to work weekends, Bachman says the demands are not onerous, and often, the extracurricular work hours are fun. For the Super Bowl, for example, Outpost functioned as the back-end order processing site for, which bought ad time, and over 100 employees volunteered to help answer the phones, including CEO Bowman. "We ended up having a party and quite a good time," Bachman says.

It's this kind of atmosphere that has made Bachman enjoy going to work again.

And he's confident that all the hard work will eventually be reflected in Outpost's stock price, showering him and his peers with the financial return they feel they deserve. Says Bachman: "Everyone has the same goal--we enjoy what we're doing, we have a lot of opportunity building the business, and the ultimate goal will be to pull it off so that the stock goes up and everyone makes out."


VerticalNet Location Horsham, Pennsylvania. No. of employees around 1,000 Nasdaq symbol VERT Date of IPO Feb. 10, 1999 IPO price $16 Stock price as of press time $51 What do you get when you cross a collection of the most unglamorous, industrial websites with an all-American Philadelphia suburb? One of the hottest internet IPO success stories that's been able to stay grounded despite its phenomenal growth.

VerticalNet owns 55 (and growing) web-based trading communities, from to, each delivering specialized content and business-to-business e-commerce services to partners in a particular vertical segment. The firm went public in February 1999 at $16 a share. Shortly before Wall Street hit the skids, it was trading in the vicinity of $148 after a stock split. The 150 or so employees at the time of the IPO were all millionaires--at least on paper--and most of the 1,000 people currently employed in the Horsham, Pennsylvania, upstart can expect a more-than-healthy return on their options even now, with the stock trading at a respectable $51. Yet it's the seemingly mundane nature of what VerticalNet does and the shield of its geography that's helped CEO Mark Walsh and his team keep the company driving toward its mission to be a key global player in the burgeoning business-to-business marketplace without getting completely sidetracked by Wall Street.

"Being unsexy helped us," says Walsh. "And given that we're not in Silicon Valley or Silicon Alley where there's a plethora of dotcom startups and options envy, there's not the same potential of losing focus."

The challenge of keeping a post-IPO company fixed on its long-term business goals in spite of the distractions of Wall Street, the media and the competition is a common refrain among the leaders of publicly traded dotcoms.

And VerticalNet appears to be right on course. Using its war chest of $65 million raised during its IPO, combined with other venture capital money and a $100 million cash infusion from Microsoft, the company has embarked on an acquisition binge that Walsh says will yield $1 billion in revenues and put it in the black in 2000, up from the $20.7 million in sales inked in 1999 with no profit. "Having money is one of the key differentiators of business-to-business websites," notes Walsh. "You have to have cash available to pay for what it takes to grow quickly."

So far, VerticalNet has used its reserves to buy numerous vertical communities, including NECX Global Electronics Exchange, a marketplace for the electronics industry, as well as technology companies like Tradeum, a San Francisco maker of a Java-based platform for building online marketplaces. And with all the media hype surrounding its success, VerticalNet is constantly inundated with new business proposals from startups looking to strike that next deal.

Screening the deals often falls into the lap of Dean Sivley, VerticalNet's senior vice president of product development and e-commerce. He says the ever-increasing volume of calls from potential partners--now up to five or six a day--has definitely hampered his ability to keep focused. "When you're pre-IPO, you're totally intent on what you're trying to do--there's not a lot of room for other things," he explains. "Now, it's a challenge to keep up with checking all this stuff out and trying to sort through what's important."

Other issues resulting from VerticalNet's rapid-fire growth are how to prioritize and manage IT projects, Sivley says. To help introduce process into the IT organization the company brought in Microsoft's Solutions Framework.

"People were hurting being here until midnight every night and on weekends," he explains. With no formal release schedules and a set of constantly changing requirements, the development process has been slightly chaotic both before and after the IPO, Sivley says. The Microsoft software helped to rein it in by providing structure and process. Some of the core projects Sivley's teams are pursuing are storefronts, e-commerce centers as well as lead generation and lead management tools.

It's this ability to invest in what it takes to get the job done that Walsh insists is the best part of being public. What's the worst part? "The unbelievable attention on short-term goals," he says. "I have to make sure that everyone understands that VerticalNet gets a new report card every 90 days [when quarterly reports come out]. There's no equity on past report cards."

There's also the incredible attention now that VerticalNet is the hottest thing going in Horsham. "We have to be careful what we say, even to each other. We have to be careful where we leave business plans because even the Xerox repairman owns stock," Walsh says. "We used to be just a scrappy upstart, now we have to walk, dress and behave the part."


Audiohighway Location Cupertino, California. No. of employees around 80 Nasdaq symbol AHWY Date of IPO Dec. 17, 1998 IPO price $6.50 Stock price as of press time $3 There's a story Nathan Schulhof likes to tell Audiohighway employees as a sort of parable about the qualities and values he thinks are critical to succeed in the internet age. As a struggling law student in San Francisco during the '70s, Schulholf frequented a cheap eats called The Haven. For two years, he'd slide his tray over a 3-foot-long stained-glass light, where he'd stop and decide whether to go for half of a tuna sandwich at lunch and have money left over for dinner or do a noontime pig-out and sacrifice the next meal. Years later, as a thriving entrepreneur, Schulhof went to check out a beach house he'd just purchased in Stinson Beach, California. Much to his surprise, he saw the same light as part of the house decor. The owner, who turned out to be the former proprietor of The Haven, sold Schulhof the light, which now serves as the Audiohighway CEO's main source of inspiration. "In the worst of times, I look at it and I know that if the vision is right, you can persevere--you just have to stay on it," says Schulhof.

As the head of a public dotcom that's currently trading below its IPO stock price, Schulhof has certainly put that philosophy to the test. Audiohighway, a 6-year-old company, now entirely web-based, offers free audio, video and entertainment content to consumers as well as other services such as news and voice mail. The company, which was started with $7 million in seed funds that Schulhof raised from 150 friends and family members, went public in December 1998, months after an initial IPO slated for August the same year was scrapped mid-roadshow because of a huge stock market slide. Audiohighway's stock went out at $6.50 a share, was as high as $38 around the first quarter of last year, and now has fallen to $3.

With most of his employees' options underwater, Schulhof and his executive team face the tough job of pushing forward with the company's vision--to be a global entertainment site--while keeping employees motivated and challenged. "Managing expectations of our workforce and attracting and maintaining employees is the key thing on our plate," says Greg Sutyak, Audiohighway's CFO. "What we're finding is a double-edged sword--with the stock low, there's tremendous room for growth, but it's easy for other companies to pick off employees because there's not a lot holding people here other than their job and wanting to work in a particular segment of the industry."

Recruiting IT professionals is particularly tough. "When our staff sees people all around with more valuable options, they start thinking, 'Why am I working Saturdays, why am I doing this?'" says Bill Weatherwax, executive director of product development and engineering, who joined Audiohighway this January.

Weatherwax, who left another internet startup shortly before it went public, uses his own situation as part of the sales pitch. With the stock price under or hovering around where it was at the IPO, Weatherwax plays up the opportunity to join a public company at a place that's almost like being there on Day 1.

On a personal level, being a technology manager in a post-IPO firm lets Weatherwax tackle more strategic issues like team building, keeping projects on track and creating a technology culture instead of the down-and-dirty programming role IT plays in pre-IPO days when the primary goal is getting product out the door. With technology at the center of most projects, Weatherwax admits to feeling stretched at times. "I'm constantly being brought in to provide technical perspective on ideas, which can take you away from your core focus--which for us now is an e-commerce redesign," he says.

Culture is critical at Audiohighway, and Schulhof is a big fan of team building, job development and perks to keep employees happy and sheltered from the ups and downs of Wall Street. Schulhof has regular meetings with employees, pays competitive salaries and full health care for entire families and sponsors regular community events like Team Building night. The last one was held in March 2000, when the company took over Emile's restaurant in San Jose, California, for cooking lessons and dinner with its chef. Yet Schulhof has been around long enough to know that even the best benefits can't completely make up for Audiohighway's sagging stock price. "Sure, the stock price pisses me off, but I don't focus on it," he says. "I know in my heart that if we stick to the company's goals and get the projected results, the stock will take care of itself. I'm a pit bull, and I won't give up until we finish the job."

Had an interesting post-IPO experience? Let Senior Writer Meg Mitchell know at Freelance writer Beth Stackpole can be reached at

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