Tuesday, 15 July 2014
Billy's Twenty-seventh Law: Public Corporations are really different from Private Corporations
I was at an event for a small public ‘start-up’ corporation. The company went public using a ‘reverse takeover’ where a public corporation which has no assets (often former mining exploration companies) and is repurposed for another business. My world is the private corporation, when business owners risk their own money and reputation in order to start and operate a business. This company, which actually has a product, has different needs and goals than the more typical start-ups.
This was a lavish event. It was held at a four star hotel. As we entered, we were offered a choice of red wine, white wine or Champaign. There was entertainment and then the CEO made some announcements regarding the bright future for this company
In a private start-up, all of the focus surrounds revenue, expenses and cash flow. This means there is an emphasis on marketing, on the plan to produce the product or provide the service, control costs, and get paid. In the public world the same conditions apply, however; there is the added dimension of the shareholders.
Whereas in the private domain, profit and cash flow are the goals, in the public world it is also about the share price. Although profits affect share price, the profit is not the only determining factor in setting the share price. If it were, every stock would have the same price to earnings ratio. Share price is a function of psychology and reality. If a stock has a seemingly bright future, share prices trade higher. If profits are up and sales are down or are stagnant, the share price often drops.
A great deal of business training and the majority of the business press address the needs of the public corporation. That is great, until we take lessons from the public domain and apply them to the private business world. SME owners and managers must translate advice and observations provided with a public corporate bias and translate that into the SME world. As an owner of and SME, your primary job is to protect the enterprise. This protects you, your employees, your customers and your suppliers. In the public world, it is to protect the shareholder. The board of directors has a fiduciary responsibility to the shareholders of the public corporation.
There are many skills, techniques and principles that are good business practice for firm, public or private. Understand the different perspectives and you will better understand the ways in which you can run a better business. By the way…the canapés were wonderful, but I am still not as comfortable in that world as I am in the world of the SME.