Right out of the gate, I want to clarify an important point.
I would rather walk down a dark alley at midnight in the worst part of town with $100 bills hanging out of my pocket, than invest in the stock market. In other words, my money is safer in the dark alley than it is in the markets.
With its promise of great wealth and its equally devastating disappointments, a phrase that was used in describing Robert Sobel’s expose “The Big Board: A History of the New York Stock Market,” the markets have always been a world of contrasting realities and conflicting moralities.
You have to look no further than the pages of this blog for examples of how going public has had a negative impact on both a service provider’s clients as well as the everyday investor.
Here are a couple of specific examples.
The Myth of Ariba
In what many consider to be a controversial article titled The Myth of Ariba, a former executive for the company said the following; “Ariba was a real company with a real product that got swept up in its own hype, with unfortunate consequences,” and that “Ariba was basically a fraud . . . creating [the impression that Ariba was constructing a global marketplace]. . . even though this was seen as being “a rather impossible task.”
According to the article and related book, they “went through the motions” of building this marketplace because “the stock was the only thing that mattered. A valuable stock gave Ariba currency it could use to buy other companies.” In the end, “Ariba started out very much as a real company, but was actually blindsided by the Internet boom.”
Oracle: The Numbers Don’t Add Up
The origins of my disenchantment with Oracle go all the back to the vendor’s early days, when Larry Ellison was forced to lay off approximately 10 percent of the company’s workforce due to questionable accounting practices.
The practices to which I am referring centered around upper management encouraging Oracle sales representatives to push customers to buy “the largest amount of software all at once” without actually paying the full pop. The company’s finance people then claimed these future sales in the then present quarter. Problems arose when said revenues failed to materialize, leading the company to restate its earning on two separate occasions.
Not surprisingly, this led to a class-action lawsuit that was ultimately settled out of court. Even though Ellison later admitted that “Oracle had made an incredible business mistake,” for me the die was cast as it demonstrated his inability to look beyond the here and now.
So What About Coupa?
Back on November 11th, 2015, I wrote a post titled If Coupa goes public, will it ruin the company?
My short answer to the above question was yes . . . with a qualification.
You can read that post for the specific details as to the reasons for my position.
However, with yesterday’s announcement that Coupa has filed the preliminary paperwork to take the company public by way of a $75 million IPO, the purpose of this post is to help you to avoid getting caught up in the usual analyst speak and blogger assessments.
In the new age of the commoditized cloud – where technological differences between one provider and the next are becoming increasingly indistinguishable, it is the people behind the company that matter the most. In particular, those in positions of leadership.
With Coupa, the person on the hot seat in terms of whether this will be a good thing or not, is CEO Rob Bernshteyn.
Image Credit: Screenshot
I have been covering Coupa since 2009 – you can read all of the articles by simply typing Coupa in the search box.
In a Jun 25th, 2009 segment of the PI Window on Business Show (Emerging Giants: The New Titans of the SaaS World), I interviewed Rob along with the executives from a number of up and coming – at least at the time – service providers.
It was an interesting interview, and one that I would encourage you to listen to, as it will give you an idea as to Rob’s view of the business and market back then, as compared to his view today.
It is through recognizing the similarities and the differences that you will find the answer as to whether or not this IPO is good or potentially bad, for Coupa’s customers – both existing and prospective.
So, what do you think? Is the Coupa IPO a good thing or a bad thing, and for whom?
Share your thoughts in the comment section below or – as some of you prefer, send me an e-mail directly. As always, I will treat them as confidential if so indicated.
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Procurement Insights 
Bertrand Maltaverne (@bmaltaverne)
September 10, 2016
For me, the takeaway from your article and the one from McKinsey ( http://www.mckinsey.com/industries/high-tech/our-insights/anatomy-of-a-unicorn-why-tech-start-ups-are-staying-private ) is that there are two distinct phases pre / post-IPO each driven by different things.
Pre-IPO, venture capitalists, and investors are more looking at the potential of the business. In the case of Coupa and of other platforms (not necessarily in Procurement), they look at the network that the app / technology could capture. The valuation is on that basis. The business model / monetization is less important. This is why profitability is less critical; many technology companies have been valued very very high even without a product. So, the primary focus pre-IPO is growth, growth, growth… Hence, the high expenditures in sales and marketing.
Obviously, these early investors invest with an IPO in mind as this is when they will get the ROI… So, as McKinsey says, companies are somehow obliged to do (promise) an IPO. The real question is when…
I think McKinsey is also right about the various reasons to go public:
– Because you have (or you think you have) your product right and the monetization that goes with it… This is what they call the step 2.
– Because your investors (external and internal) are impatient to cash in… This is why the IPO is sometimes premature.
In all cases, post-IPO, the focus will move to actual operational performance. It is why companies have to get, as McKinesy says it, the basics right (profitability, cost sensitivity…).
That, in return, explains why some unicorns are not eager to go public. They know they are not ready to endure the consequences (special reference to Jon…). So they wait. Until they figure it out / pivot / get out of cash / decide to go public even if…
In the case of Coupa, I have no clue. As a Procurement pro, I am happy to see the spotlight on Procurement topics. As someone working for a provider, I am also happy to see that Procurement technology can attract attention (being feat. in Techcrunch, raising capital, becoming a unicorn…).
Regarding Coupa and this phenomenon of unicorns / IPO… I think many understand the mechanics, and it explains why so many providers work on a platform model (not from an app store pov but on a marketplace / network pov) focusing on indirect (eProcurement, eInvoicing). This is where the potential market is the largest and, to some extent, easier to address from a “feature” point of view than direct Procurement (industrial / mfg).
piblogger
September 10, 2016
As I wrote in our comment stream on LinkedIn, you always provide an interesting perspective to every discussion.
This being said, my belief is that the IPO business is all a big game that only benefits the insiders. To illustrate my point, have a read of the following Forbes article: http://www.forbes.com/sites/markmcsherry/2013/08/16/70-billion-reasons-for-a-public-company-to-go-private/#3fbf04d82ed0
As for Mckinsey, in one instance they suggest that “being public forces u to get the basics right.” A questionable suggestion in its own right.
In another, they talk about why “dozens of billion-dollar technology start-ups in Silicon Valley and elsewhere are choosing not to go public—and whether the unicorn phenomenon is cyclical or here to stay.”
Organizations like the McKisey’s and the Gartners tend to suck and blow at the same time for their own reasons, and as such, offer little if any meaningful value for the industry in general – this last statement is directed more at Gartner than McKinsey.
Based on my research over the years, and the numerous case studies in which the impact to the end user clients and investors have been assessed, I will reiterate my initial point . . . for the most part, the only ones who ultimately benefit from an IPO (and other service provider “strategies”) are the insiders, and their ancillary players. These ancillary players are usually the analyst firms and bloggers who tend to focus on product analysis as opposed to “people” and “true performance or sustainable outcome” analysis.
In short, and in the emerging commoditized cloud, if you really want to know how good a company is, look at its track record in terms of successful and sustainable client outcomes. Also look at the people behind the company, and assess their vision and their ability to execute.
In short, going public as a means of “getting the basics right” is a formula for disaster, and as such, I would not touch that stock with the proverbial ten foot pole. And if I wouldn’t invest in such a company, I would most certainly not do business with them.
Bertrand Maltaverne (@bmaltaverne)
September 10, 2016
“In short, and in the emerging commoditized cloud, if you really want to know how good a company is, look at its track record in terms of successful and sustainable client outcomes. Also look at the people behind the company, and assess their vision and their ability to execute.”
Agree!
At then end of the day, each (private / public) has its pros and cons. Pros of Public = more transparency, focus on operational efficiency – Pros of Private = focus on “ideas / creativity” before economic considerations, agility…
In both, the one who profit from it are (most of the time) not the users but the owners, investors, shareholders… Users have their say though; I am a believer of the power of the consumers. Consumers can decide to walk out and go see elsewhere. This would, in turn, impact the owners, shareholders…
Be it as consumer or investor, you have to make informed decisions. If you are not capable, keep out (this is 1 reason why I stay away from the stock market…). Informed decisions are based on many sources, including the ones you mention. Sources should also include what other users of the product say. This is where “professional” communities / network are important.
An opinion must be forged on the many voices that exist!
So far, and going back to Procurement / Procurement tech., these networks exist but are not as visible as the other sources (analysts, blogs…). I hope this will change; for the good of all, providers included.
piblogger
September 10, 2016
Very well said Bertrand!