The resources a company needs to focus energy on strategy include money and time; being public is effectively a tax on both resources as senior management is forced to focus on compliance with public reporting requirements and financial resources are devoted to attorneys and accountants.
At the same time that earnings are pressured by costs of being public, the public markets are focusing on quarterly results. The public markets, not without good reason, are so focused on quarterly results that a company can report solid profits and still see its stock tank if the results were not as good as expected. This short term focus puts pressure on management to defer long-term expense investments for the sake of the current quarter's profits, ultimately hurting the company's long-term prospects.
As companies grow in scale, from tens of millions in revenue to hundreds of millions, the availability of resources for managing the public compliance burden tends to grow, mitigating the challenges to strategic thinking on that count. That said, the focus on the current quarter does not go away as a company grows--in fact it increases--meaning that from the standpoint of developing and executing strategy, being public will always create pressure that can hurt.
Comment Preview