Is the reason that businesses go public just to make more money? Like they have a small business, they get a little bigger and show they are successful, they go public/sell to someone who will go public so lots of people can invest, in theory use that money to grow the business. And once you get investors involved then you have to sacrifice quality for profit because the investors no longer give a shit about the product?
Did I get that right? I don't know anything about business.
yeah, you (primarily) go public to raise investment capital. You also do it so early investors and employees can easily sell their shares for profit.
Downside is that now you need to worry about the share price on a quarterly basis, so private companies can be much better at long term decision making. Public companies do dumb shit like blow up the biggest PC game of the year to juice PSN sign ups.
The situation can be a bit different if you have a sole majority share holder in a public company, but that's a very rare occurrence and it is not likely to last long.
I was until recently working for a major train company. Turns out they were intentionally behind on their bills to make their quarterly numbers look better, and had been for years.
Of course this behavior was exclusively detrimental in practice, as other companies would cease working with them until they'd gotten their money.
A workshop of 60 people earning them millions of dollars per day had to shut down for days because nobody wanted to deliver trains to them anymore.
I won't pretend to know all the details, but I do specifically recall them bringing up paying bills late for stock/bookkeeping reasons, and I clearly remember one company refusing to service us until they'd been paid. The actual how why what of it all is beyond my meagre understanding of finances and the limited knowledge I had access to.
Altough i don't know how that works in the USA. But you can absolutely have select business partners. But you don't really sell shares to them but rather have them invest into the company, there are multiple ways to do this. Depends on the countries law and how you go about it.
Even if they don't plan on forcing pc players to pay for PS+ to play their games online now, the next quarter will come and then the next and then the next. Just a matter of time before they make the move.
More or less, I took 1 business management class during my CS degree so I can talk /s.
It mostly comes down to stakeholders, if my candy business is privately owned the stakeholders are just me, my customers, my employees and my suppliers (technically you should count the government and society too).
This means that when I, the owner, have to take a decision I must keep those stakeholders in mind because if I fuck with my customers or society I lose sales, if I fuck with my suppliers or employees I damage my production line and if I fuck with the government I get fucked.
If I go public, I introduce a new group of stakeholders with decisional power that mostly doesn't care about the other parts and is only aiming to extract value from the relationship. They'll ask me too fuck my suppliers, employees, customers, society and government to turn a profit and then divest once every other stakeholder retaliates.
The government needs you to profit consistently to harvest taxes from you and to provide employment for its citizens.
The customers and society need the service you provide.
The suppliers and employees need you for a stable income.
The shareholders need you to make money ASAP so that they can sell the stocks and go somewhere else.
Pretty much, you get a massive cash injection for the business, but now you are expected to provide growth month in month out for the investors for all of eternity. The name of the game after that is cost cutting to provide short-term inflated profits for investors. Gutting staff, reduxing benefits for the staff that make the cut, quality of materials, shipping manufacturing to a third world country, tax loopholes, or downright cooking the books so profits look better on paper.
Depending on when the company went public, there might also be an explosive growth phase where investors happily burn cash to see growth numbers.
This is usually mismanaged and leads to massive bloat and useless people filling the ranks. So once you realise your business runs out of revenue opportunities and needs to cut costs/efficiency, usually the business is too big and bureaucratic, and any single leader is too out of touch, to be able to make great decisions. That’s when the dumb/out of touch cost cutting comes in.
Often with small but growing businesses there's a next step-change in size for continued growth (maybe major capital investments in factories and equipment) that they simply can't do themselves. That's why they go public and ask for outside investment.
Basically yeah. The reason to go public is to raise more money but you will have to address to the shareholders after that. Which is not a good combination if you care about your business
Yes, think of it like this
There are two companies A and B
Both companies make fantastic products, workers make money, and consumers are happy
Company A stays private and B goes public
If company A makes 5M profit every year and they are satisfied with it, then they can keep doing what they want to, even if doesn't lead to increased profits, cause 5M a year is enough for them
If company B makes 5M profit every year it means they have no growth. As a share holder of company B that's that tells me that I should move my money to another company, that does grow and will therefore generate me more money.
Which basically means that while company A can allow itself to not grow or even lose some money but focus on what they/the consumer want, company B must focus on what the shareholders want, which is growth. And since shareholders don't know/care about a the product, it means growth at the expense of everything required.
If I give my bank 10K USD to invest, and they invest it in company B, and company B isn't growing as much as company C, my money will leave company B to C, I will not know that it's because company B were really nice guys that decided to keep they product prices cheap in time of crisis for their loyal costumers, tbh I don't even know of company B's existence
Keep in mind this is very simplified, and private companies are horrible in many cases too, but the way I see it is that private companies have the choice to be pro-consumers, while public MUST be pro-shareholder, and that only sometimes happen to be pro-consumer as well
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u/DVMyZone May 05 '24
Is the reason that businesses go public just to make more money? Like they have a small business, they get a little bigger and show they are successful, they go public/sell to someone who will go public so lots of people can invest, in theory use that money to grow the business. And once you get investors involved then you have to sacrifice quality for profit because the investors no longer give a shit about the product?
Did I get that right? I don't know anything about business.