
Startups ‘are staying private way too long’ says Marc Benioff - hugs
https://techcrunch.com/2019/10/03/startups-are-staying-private-way-too-long-says-salesforce-founder-marc-benioff/
======
yumraj
I remember the YC startup school at De Anza many years ago, when Andrew Mason,
of Groupon, was one of the guest speakers and he basically said that the worst
mistake he made was going public.[0]

And basically what had happened was that post IPO Groupon's accounting
irregularities, which were earlier hidden, became public and the company fell
from grace.

Same thing happened recently with WeWork and there have been numerous other
companies.

Basically, while private, startups are able to engage in practices that don't
survive under public scrutiny. No wonder startups, especially ones on shaky
foundation, are remaining private longer.

[0] [https://genius.com/Andrew-mason-andrew-mason-at-startup-
scho...](https://genius.com/Andrew-mason-andrew-mason-at-startup-school-
sv-2014-annotated)

~~~
countryqt30
So Groupon's CEO mistake was that other people DISCOVERED his fraudulent
activities? That's a great learning LMAO. It sounds very much he hasn't
learned a thing.

~~~
nostrademons
He also railed against companies with unsustainable business models. And
someone asked him why he went public, if going public was the worst thing he
ever did. His reply was that because of how Groupon was financed, it was
basically forced to go public.

It was very odd. I got the sense that he got frustrated with all his business
ideas failing, ran with the one business idea that actually could succeed
(which was basically a pyramid scheme dressed up as marketing), but never
really got comfortable in his own head with running a pyramid scheme, so all
sorts of psychological defense mechanisms come out when he talks about it. His
other actions (like introducing Progressive Equity [1], and his subsequent
startups Detour and Descript having legit if less successful business models)
also suggest this.

[1] [https://medium.com/detour-dot-com/introducing-progressive-
eq...](https://medium.com/detour-dot-com/introducing-progressive-
equity-f424a51ee3a4)

~~~
anongraddebt
My accounting professor used Groupon as an example of a company that was aware
it's business model was unsustainable. Basically, their domestic churn is
remarkably high because businesses realize after a couple campaigns on Groupon
that they're actually losing money. So, Groupon decides to tap international
markets. This does nothing to reduce churn, so it's just a matter of how long
it takes before they run out of new businesses to bring into the fold.

------
mikhailfranco
Palantir, 16 years and counting ...

[https://en.wikipedia.org/wiki/Palantir_Technologies](https://en.wikipedia.org/wiki/Palantir_Technologies)

What is the life expectancy of a unicorn anyway?

~~~
siruncledrew
Valve (maker of Steam) is another company that has been private since 1996.

~~~
brmgb
But Valve never was a startup. It was entierely self-funded by Newell and
Harrington who had become rich after working from Microsoft.

Benioff remarks about governance don't really apply to Valve because even if
Valve was poorly managed it would pretty much be Newell misusing its own
money.

~~~
iamasoftwaredev
> because even if Valve was poorly managed

based on their culture deck it doesn't seem great.

Purely from the standpoint of maximizing value I mean.

------
zyang
Let me rephrase this: private equity is extracting too much value out of early
stage companies and left nothing for the public market.

~~~
jwm4
Private equity funds do not invest in early stage companies; perhaps you mean
venture capital funds?

Otoh, VC's can't really "extract value" ; they can only sell share to the
public or to other VC's.

~~~
CPLX
Venture capital is a form of private equity.

We are, in fact, conversing on a website owned by a private equity firm.

------
jedberg
There are a lot of disadvantages to going public and very few advantages. Most
companies these days don't need the money because private money is willing to
pour billions in, and it's pretty cheap to run a company now if you're just
software.

That's pretty much the only advantage, other than liquidity for early
employees, which most companies don't really seem to care about, since many of
the early employees have left by the IPO, and the ones that are sticking
around for their payout are probably just coasting anyway.

But the disadvantages are numerous. You have to tell your competitors about
your profit and loss. You have to hire a bunch of auditors to make sure you
follow all the SEC regulations. You can't do any long term bets because the
market will skewer you and make it hard to hire. Your every action is up for
public scrutiny. Your valuation is no longer flexible when you want to make
acquisitions with stock.

~~~
scurvy
> You have to hire a bunch of auditors to make sure you follow all the SEC
> regulations

Following the law is just so onerous and painful.

Sunlight is a wonderful antiseptic.

~~~
reilly3000
It IS painful. Today's laws reflect the misdeeds of the last 100 years.
Compliance is incredibly expensive and slows down everything. I don't think
its a bad thing at all, but most people don't understand the scope of the
legal burden of being a public company. As a private citizen, I have a legal
obligation to not murder people. As a public company, analogously, one would
have to file a report every few months detailing how many people you didn't
murder. Please indulge my terrible analogy.

I'm with Mr. Benioff on the point that private companies can harbor a lot of
decay, while over-concentrating wealth. However, data shows that small-firm
IPOs are simply not very profitable, and acquisition can be much more
attractive:
[https://www.sec.gov/info/smallbus/acsec/acsec-090712-ritter-...](https://www.sec.gov/info/smallbus/acsec/acsec-090712-ritter-
slides.pdf)

~~~
scurvy
I work at a publicly traded company and deal with compliance and audit teams
on a regular basis. It's not the end of the world. It's not overly costly.
It's a good check and balance to ensure things are on the up and up.

As companies get larger, the risk for fraud and misdeeds increases. Kickbacks,
payoffs, etc. Compliance and auditors are a good thing. Trust but verify.

------
pyromine
Admittedly I don't particularly follow Marc Benioff and / or Salesforce in the
news much, but is his advocacy for privacy laws generally considered be an
attempt towards regulatory capture?

Relevant quote: “We need a national privacy law,” he said. “Otherwise you’re
going to get a patchwork of privacy laws. We have to get our privacy and data
locked down so we know where we’re going. [Regulators] need to be stepping in
now and they should be working hard to make those changes.”

~~~
kube-system
If anyone, a large actor like Salesforce would be _more_ equipped to handle a
patchwork of laws than smaller competitors. A patchwork of laws is a pain in
the ass for large companies, but it’s a barrier to entry for small ones.

------
powerslacker
> “And if your orientation is just about making money, I don’t think you’re
> going to hang out very long as a CEO or a founder of a company.”

If you're a competent CEO, don't expect to be a CEO for very long...what a
time to be alive.

~~~
rchaud
"Competent CEO" and "making money" aren't the same thing. Hewlett Packard has
had numerous CEOs that just slashed jobs en masse to make the bottom line look
better. Nokia's CEO slashed jobs as well, took up with Microsoft, and now the
company exists as a burned out shell of its former self, selling boring
telecom and software IP like Blackberry and Ericsson. The then-CEO Stephen
Elop is long gone with a nice golden parachute.

CEOs are supposed to be there for the long haul and drive real vision for the
product. They're not supposed to be emergency stopgaps parachuted in to calm
everyone's tempers because the last guy screwed up one too many times.

------
rdlecler1
Startups stay private because the regulatory burden of being public is so
great. Want to change behavior? Change incentives. It’s simple math.

------
sib
Or, rephrased, "They become really expensive for me to acquire and add to my
crappy pile of product spaghetti in a monopolistic fashion! It would be much
better if they went public when the were still cheap."

~~~
dwoozle
Huh? It is much cheaper to buy a company before it IPOs. That’s why you see
things like Cisco acquiring AppDynamics five days before its scheduled IPO.

~~~
sib
It's much easier to buy a public company than a private one (in a "hostile" or
undesired situation), so if a company becomes public at a lower valuation,
it's cheaper for Salesforce to acquire them and eliminate the competition.

------
jklm
It'll be interesting to see how this'll affect startups down the line. If
employees aren't cashing out in a reasonable amount of time (or at all), will
the majority of startups suffer a brain drain of top talent? Will startups
need to come up with a new way of compensation beyond just equity?

~~~
koreth1
I think that's already happening to some degree, though it's not a "new way"
exactly. Totally anecdotal, of course, but based on watching people move
between jobs in my professional circle, it seems like experienced people are
no longer willing to take nearly as much of a salary cut for the sake of
equity as they used to. A startup that doesn't offer competitive salary _and_
equity will have a pretty tough time hiring the most in-demand employees.

~~~
mdorazio
On the flip side, it seems there's still an endless pool of less-experienced
people who are chomping at the bit to work at startups. There's a reason
startups recruit primarily people in their 20s.

------
iamasoftwaredev
Well when you have

\- Founders getting to take cash out earlier

\- employees with golden handcuffs that could last forever

\- Questionable to outright illegal behavior being completely okay in the
private market

\- Insane levels of founder control

\- massive VC firms willing to pump in enough late money to take pressure off
earlier VCs

Then why go public? Especially if a lot of companies seemingly can't survive
the IPO completely intact. Just look at WeWork

------
undefined3840
Eh. I don’t think it’s a good idea for a startup still going through rapid
change (whether releasing new product lines, entering new markets, testing new
pricing) to go public, since as soon as you do it’s hard to be “experimental.”

There are, however, private companies whose business models have largely
stabilized like Airbnb and Stripe that I agree should’ve gone public already.

~~~
mikeg8
Curious why you think they should have gone public? What advantages does an
IPO offer these stable businesses? Is it a belief that _all_ stable business
at a certain scale have a obligation to enter public markets? Genuinely
curious

~~~
undefined3840
You need to provide liquidity to your shareholders at some point, so yes.
Investors and employees have been waiting 10 years to cash out. They helped
build the business and deserve to be rewarded at a certain point. A decade is
stretching it IMO.

~~~
mikeg8
The old fashioned way shareholders would receive liquidity was through
distributed earnings aka profit sharing; this is still a viable option.
Employees receive a salary and shoulder little risk relative to
shareholders/investors so I'm not sure I agree they "deserve" to be rewarded
in the same way.

~~~
toomuchtodo
So you’ve given me compensation (equity stake) that I can’t sell, ever,
effectively making it worthless. Borderline fraud. If I want cash flow, give
me liquidity and I’ll go buy a public dividend fund.

My time is worth more risk wise then some investors bottomless pit of fund
dollars (cough SoftBank cough).

~~~
mikeg8
I agree with you, though. I think employees _want_ stock options without
understanding their drawbacks and limitations. Receiving stock options sounds
sexy and is motivated by social factors that may not be as beneficial now as
they were several decades ago. But employees need to take personal
responsibility for the offers they accept and if they feel under valued, they
can leave at any time. I would personally opt for the cash flow route as well.

~~~
toomuchtodo
I think that stock options (and the eventual shares realized through option
exercise) are a legitimate method for a cash constrained startup to offer
deferred comp to early employees (as well as meaningful ongoing ownership in
the business if done properly), but that additional government regulation is
required to tip the power balance away from the employer/option grantor. I
don’t disagree with social factors, but I think even today employees want
upside exposure you can only obtain with options (or other equity
instruments). Hustle has a cost.

If you want to issue options, no right of first refusal. You have to allow the
transfer of your shares on a secondary market for accredited investors. You
have to provide a cap table to all shareholders, as well as dilution and
preferred share info. You have to hand over a 409A valuation annually to all
shareholders.

You don’t have to go to the public markets, but you also don’t get to treat
common shareholders (usually employees granted ISOs) as second class citizens.
If private markets are the new public markets, we still regulate the private
markets, just a bit less so.

</soapbox>

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rdlecler1
>“I really strongly believe that capitalism as we know it is dead… that we’re
going to see a new kind of capitalism and that new kind of capitalism that’s
going to emerge is not the Milton Friedman capitalism that’s just about making
money,” said Benioff. “And if your orientation is just about making money, I
don’t think you’re going to hang out very long as a CEO or a founder of a
company.”

This is like simple minded Darwinism where nature is red in tooth and claw.
That perspective was not very good at explaining more complex behavior like
altruism. All compatible in a neo Darwinian model. Simple minded capitalism is
no different but who really believes in simple minded capitalism? This is a
strawman.

------
rolltiide
Overfitting at its finest

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charles_f
> I think in a lot of private companies these days, we’re seeing governance
> issues all over the place,”

But not with public companies?

It's an opinion, I'd ask for some data.

I personally don't think the public market cares much about things like
privacy and governance. If it were, Facebook would have neither investors nor
users. Same goes for so many others.

He then goes into talking about salesforce going public as if it were an
exampl. But definitely privacy and governance are not the same for b2b and
b2c.

I have been with two startups that got public way too quick, when half of what
you're doing is for PR effects in preparing to bring new investors, you forget
about the customer. One of them is dead, the other survived after being bought
out by a private equity firm. Going public is such a burden for the
representation aspect of it that expecting _this_ to br a regulatory practice
is delusional. (imo)

~~~
traek
> I personally don't think the public market cares much about things like
> privacy and governance. If it were, Facebook would have neither investors
> nor users. Same goes for so many others.

This is a silly take. Data privacy is a completely separate issue from
corporate governance, and by most analysts who cover it Facebook is considered
a particularly well-governed company.

~~~
jwm4
A company whose founder/CEO is the only person who can remove him(self) is
well governed?

~~~
vmurthy
The way analysts are probably looking at it: Governance in the letter of
laws/regulations : We'll give it a B- , invest and make $$

They are probably smart/cynical enough to know that governance in the spirit
of laws/regulations is an F

