You are a startup founder launching your product, or you have raised capital, or you plan to do so soon. An IPO is your end goal. You are looking at incumbents that trade on the public markets and you follow the news about the hot startups that plan to go public soon. You may envy their success or be inspired by their journey, and you double down your efforts. There is conviction that they must be super successful and pretty much they should have checked all the boxes by now. But is it so?

We, at Marathon VC, believe that the entrepreneurial journey never gets easier–it’s just the scale of the problems that changes. Believe it or not, the reasons that keep you up at night are largely the same, whether you just raised seed money or received proceeds from your IPO. The same lingering questions include hiring the best talent available, creating a culture that allows you to continually innovate, scaling your business, improving unit economics, competing effectively and establishing a strong brand.

We indicatively analyzed the IPO filings from the SEC S-1 forms of seven tech public offerings to make this case: Cloudera (2017), Okta (2017), Newrelic (2014), Box (2014), Hortonworks (2014), ModelN (2013), and Salesforce (2003). All these companies provide enterprise software and most of them either charge or plan to switch to a subscription billing model.

In any S-1 document, there is an extended section called “risk factors,” the Dark Side of any public company. This is the section reminding you that even the mightiest company is, after all, another company comprised of people like you and me. You will be surprised to read that pretty often these risk factors are quite similar to those you have identified in your very own startup as early as the pre-seed stage; in reality, what differs is the scale of the problems. This section serves as a disclaimer for IPO investors, while another part illustrates the pitfalls lying ahead. A more careful look unveils deeper malfunctions in the company’s operations and structure, many of which have their roots in the genes a founder transferred to the company’s DNA.

So what are public companies afraid of?

Talent Acquisition & Retention

Every single company examined notes a constant struggle to attract and retain great talent.

“If we cannot maintain our corporate culture as we grow, we could lose the innovation, teamwork, passion, and focus on execution that we believe contribute to our success, and our business may be harmed.” –Newrelic

“In addition, we expect our operating expenses to increase in the future as we, among other things: …hire senior executives and members of our senior management team;”, “Because competition for our target employees is intense, we may not be able to attract and retain the highly skilled employees we need to support our planned growth.” –Salesforce

Bringing in the brightest people looks easy when you can provide seven-digit salaries. Still, in many cases, people do not get the space to put their talents in action and have a meaningful impact on the company. More importantly, at this stage, new hires may be more motivated by their compensation and prospects of career advancement instead of solving a problem and changing a market. This is the downfall of every large corporation. As a startup founder, this is your edge.

Product

Defects and disruptions on the core platform, reliance on third party applications, user privacy and use of open source technologies can make or break any company whether it is a startup or public company.

“Real or perceived errors, failures, vulnerabilities or bugs in our products, including deployment complexity, could harm our business and results of operations.” –Okta

“The competitive position of the Hortonworks Data Platform depends in part on its ability to operate with third-party products and services, including those of our partners, and, if we are not successful in maintaining and expanding the compatibility of the Hortonworks Data Platform with such products and services, our business will suffer.” –Hortonworks

“Because users are able to configure our platform to collect and store personal information of their employees and end-users, privacy concerns could result in additional cost and liability to us or inhibit sales of our products.” –Newrelic

“Our services contain open source software, and we license some of our software through open source projects, which may pose particular risks to our proprietary software, products, and services in a manner that could have a negative impact on our business.” –Box

Many large corporations are losing their product innovation edge over time. The maker culture is often replaced by layers of management or corporate career builders, and even customers may be slower in adoption. On top of that, product or pricing experimentation requires extra courage since executives have to weigh in the reactions of Wall Street. Make sure to take full advantage of the flexibility that early stage offers you and build a product for the future. The present belongs to incumbents; the future can be yours.

Sales & pricing

Sales are the bloodline for any company at any stage. Getting to an IPO means that things get serious. The increased scrutiny of the public markets means that sales execution is the top priority. But isn’t it the same even if you started today?

Soon to be public companies are always worried about user acquisition streams, sales motion, the cost of sales, time to close deals, product stickiness, international expansion, renewal automation, increasing ASP by offering more SKUs or tapping more teams within the same account. These are the questions that you better straighten out much earlier. Going public is not going to solve them magically.

“Our business depends on our customers renewing their subscriptions and purchasing additional licenses or subscriptions from us. Any material decline in our Dollar-Based Retention Rate would harm our future results of operations.”, “introduce our platform to new markets outside of the United States;” –Okta

“As more of our sales efforts are targeted at larger enterprise customers, our sales cycle may become more time-consuming and expensive, potentially diverting resources and harming our business.” –Salesforce

“The timing of upfront recognition of sales commission expense relative to the deferred recognition of our revenues;” –ModelN

“Our sales cycles can be long and unpredictable, particularly with respect to large subscriptions, and our sales efforts require considerable time and expense;“  –Cloudera

“We are building a direct enterprise sales and support operation in order to better market to and support these larger organizations, which represent a growing portion of our revenue.”, “our business depends on our customers purchasing additional subscriptions and products from us and renewing their subscriptions;” –NewRelic

“Our business depends substantially on customers renewing their subscriptions with us and expanding their use of our services. Any decline in our customer renewals or failure to convince our customers to broaden their use of our services would harm our future operating results.” –Box

“We have limited experience with respect to determining the optimal prices for our products.” –Newrelic

When you start, you may have a rosier picture of sales, but actually, every time, sales are hard. Sales need people and support, sales cost money, sales are not always repeatable, sales people need training. Studying S1s will reveal all the right questions you need to answer.

Competition

The state of your market at any given time and where you fit in can make a huge difference. Optimizing your pricing and setting the bar for your customers is a really difficult problem not only to your startup but to larger companies too.

“We face intense competition and could lose market share to our competitors”  –Cloudera

“The market for cloud-based Enterprise Content Collaboration services is fragmented, rapidly evolving and highly competitive, with relatively low barriers to entry for certain applications and services…. Some of our principal competitors offer their products or services at a lower price, which has resulted in pricing pressures on our business…. In addition, pricing pressures and increased competition generally could result in reduced sales, lower margins, losses or the failure of our services to achieve or maintain widespread market acceptance, any of which could harm our business.” –Box

If there is no competition, there is no market to sell to. Startups are scared of competition but what should scare you most should be ignorance about the problem you are solving.

Brand awareness

Last but not least, creating a strong brand is probably the distinction between a company designed to last five years and one meant to last many more. Salesforce went public in 2003 and as you can see brand awareness was a top priority from the very beginning.

“Our ability to build brand awareness in a highly competitive market.”  – Salesforce

“We offer a limited version of our service to users free of charge in order to promote additional usage, brand and product awareness, and adoption.” –Box

“We believe that developing and maintaining awareness of our brand in a cost-effective manner is critical to achieving widespread acceptance of our existing and future products and is an important element in attracting new customers. Furthermore, we believe that the importance of brand recognition will increase as competition in our market increases.” –Okta

Branding is hard. You should always reflect on how to build and improve your brand and your brand awareness. Every little touch is branding. How your salespeople talk to customers, the efficiency and speed of support, the turnaround time for fixing a bug. Sometimes larger companies lose their mojo as they add more people who not fully align with the culture. Maintaining a sense of urgency will keep your team on their toes and have a direct effect on your branding efforts.

The list could go on indefinitely…

You might feel that the comparison is odd. How can a company with $300M in the bank compare with my fledgling startup that has 3 months runway? Don’t forget for a moment how many large companies have gone south. Sure, it takes more time for a well-capitalized company to disappear but in the end of the day, all companies need to innovate, sell & maintain or evolve a culture.

The public market provides no assurances. Success and failure are constant and interchangeable. IPO is a huge milestone, however, the end-game is relative to the management’s ambitions and ability to execute.

Shiny suited (or hooded) CEOs have the same nightmares as you. Either at 2, 20, 200 or 2000 employees, you will be consumed by the same burning questions. But always remember it’s easier to steer the ship and fix what’s wrong when it is still small! S1s are a great source of most questions you need to answer at any stage of your company.