Mid-Game

Because it's not over, folks! The process of building a company and reaping the rewards of our collective efforts is something I look at more and more as an ongoing brutal winnowing process. Three quarters of all start-up companies fail within the first two years. Only about one in ten thousand companies reaches the stage of making a public offering. And, yes, most public companies languish in the ranks of the NASDAQ Bid & Ask tables where we've taken up residence, rather than becoming the shooting stars who are perceived as the movers and shakers of the industry.

There's a phrase politicians use that I detest. I translate it as ``we don't have any idea what the hell to do about this, and things aren't going to get any better''. The phrase is ``redouble our efforts''. I think that this phrase is only used by people who have never in their lives ever doubled their efforts in the first place. I assume that everybody in the founding group of this company is currently working flat-out. What we need to do is continue this, at a sustainable pace, through the next stage in the company's development.

The public offering purchased effective immortality for the company. We now have over ten million dollars in the bank. This means that if our sales went to zero, we could survive for over a year, without any cut-backs or layoffs at our present expenditure level. Given the retrenchments we would make in should such a dire and unlikely (though certainly not unprecedented) scenario eventuate, we could cut back to the core group and spend five or ten years figuring out what to do next (and defending ourselves against shareholder suits). Hell, we could pay a reasonable group reasonable salaries just from the interest on the cash we raised in the offering.

To put the company's liquidity into perspective, I'm sure you remember when we all ponied up our $1 per share to buy Autodesk stock, accompanied by my incessant bleating about how we could run it to the moon. Well, adjusting for the two stock splits we've done, that dollar per share works out to six and two thirds cents per current share, $0.06666. Now today, the company has on the order of $2 in cash for each of those shares. So if we all went home and divvied up the pie tomorrow, we would have a gain of over 3000% on our initial investment, or 1000% per year. Not too shabby.

Please bear with me while I do a reverse presentation of these numbers. While the way Wall Street adjusts for stock splits is absolutely correct, people who buy an asset become attached to the price they paid for it (and much investor psychology derives from this). So rather than adjusting the historical numbers for splits, let's look at our performance assuming we never split the stock.

All right, on April 29, 1982 we sold some stock for $1 per share. We issued some options to people who contributed at $1 per share in May '83. By the time we got to the next round of options, it was all we could do to beat the price down to $2.70 per share in November 1983. Then things really started to cook. The next time we had to name a price was August 1984, when we had to move it to $7.50 (and remember that during this entire period we were doing everything we could to justify as low a price as possible, so that we could issue options as worthwhile as possible to the recipients). The next time we played ``pin the number on the stock'' was April 1985, and by then it had jumped to $10.50. There's nothing like a public offering to move the stock price to the ``industry multiple'', and ours sure did. The public offering sold on June 28, 1985 for a price of $165 per share! And last week the stock traded as high as $210 per share. Doesn't that seem different from the quotes you see in the paper?

Does anybody wish he had bought less?

You know, it's really fun writing some self-congratulatory prose after so many ``crisis letters'' and exhortations to exertion. Just so it doesn't become a habit....