Column: How CEOs of Public Companies Should Think About Their Stock Price
Spencer Rascoff is an entrepreneur and company leader who co-founded Zillow, Hotwire and dot.LA, and who served as Zillow's CEO for a decade. He is currently executive chairman of dot.LA and a board member at Zillow and TripAdvisor. In fall 2019, Spencer was a Visiting Executive Professor at Harvard Business School where he co-taught the "Managing Tech Ventures" course. In 2015, Spencer co-wrote and published his first book, the New York Times' Best Seller "Zillow Talk: Rewriting the Rules of Real Estate." Spencer is the host of "Office Hours," a monthly podcast on dot.LA featuring candid conversations between prominent executives on leadership, diversity and inclusion, and startups.
Congratulations! You've gone public, something to which many founders aspire but few achieve. In addition to the extra wind in your sails from the capital markets and the quarterly scrutiny of your performance (both huge factors to adjust to), you have a third concern: the stock price.
The stock price is a brand new unknown for founders of newly public companies, and (like everything else) no one really gives you a guide on how to do it well. For instance, how do you handle the balance between retaining the stock you own personally to show confidence in the company with your prudent desire to sell some stock and diversify? How do you keep in check your own PR, which can distort your perspective? And perhaps the most important to the health of your company, how do you mitigate the stock price's effects on your company's culture and prevent it from becoming a daily distraction which can impact employee morale and motivation? These are all questions I grappled with in my journey leading Zillow as a public company, and they are questions I receive periodically from CEOs of newly public companies.
1. Preset a Plan To Protect Yourself.
The roles of founder and personal shareholder will inevitably lock horns from time to time, and you need to protect both. My advice is to pre-set a plan for selling stock and creating liquidity for yourself, because every sale you make as CEO will be subject to scrutiny. A programmatic 10b5-1 plan helps you do this, as it allows you to sell a predetermined number of shares at a predetermined time. You don't have to pick and choose a date or price, and you don't have to explain to anyone -- shareholders, hedge fund managers, employees -- why you sold because it's all programmatic.
With a predetermined plan, you still need to decide frequency and quantity. It's nearly impossible to give blanket advice here, because everyone's situations are different. I've always opted to sell small amounts of stock along the way, and even though I've sold plenty of stock at lower prices than today's, I've never regretted a single sale. With a distributed approach, you can't really "mis-sell" at the "wrong" price.
In terms of how much to sell, if you haven't taken much liquidity to date, think in terms of what percentage of your holdings you'd want to sell in a given period of time. For example, a starting point could be aiming to sell 10% of your holdings each year for the first five years post-IPO, then reassessing this approach two or three years in. Taking more liquidity early on puts a premium on building your nest egg, enabling you to let plenty of stock ride in the long term but still putting away potentially life-changing money in the short term.
2. Invest in Objectivity To Keep It Real.
I cannot emphasize enough the importance of an outside advisor to help with personal money management and investment strategy. As a founder, you are the number one believer in your company because you brought it into existence. Of course it can be worth $100 billion someday. Why would you ever sell a single share of such a promising venture?
An outside advisor provides the more conservative end of that spectrum, tempering your unshakable conviction in the reality that most companies don't reach that stratosphere. Neither one of you is absolutely right, but representing both perspectives will land you somewhere in the middle where you're committed enough to the cause but diversified enough to protect yourself.
Please don't think you're immune from this blind spot; even the most cynical and risk-averse founder will believe their own PR and fall victim to it in the absence of objectivity.
3. Don't Let Stock Seep into Your Culture.
For newly public companies, stock is a valuable lever for attracting top talent. But once that talent is in the door, they shouldn't hear about stock anymore, outside compensation statements. Owning and selling stock is their business because they've earned it, just like they've earned their salary. Never give your people, including executives, a hard time for selling stock. Sometimes I hear stories about CEOs berating employees for selling shares, and I think it's one of the most ridiculous and damaging things you can do as a leader. As with everything in your culture, you set the tone for this at the top.
At Zillow, it was taboo (intentionally) to even talk about the stock price; we discouraged focus on the stock among our leadership and employees because it's terribly short-term, and companies that last focus on the long-term. There was, however, a time when I broke my own rule: The year we launched Zillow Offers, a game-changing evolution that expanded Zillow's business from media into hard assets, our stock price plummeted and many newer employees were completely underwater. There was anxiety afoot, and we needed to address it.
At our annual meeting, I showed charts of Amazon's stock price when it launched major innovations like third-party marketplace, Amazon Prime and AWS. In each of these instances, the stock took significant dives: -94%, -56% and -60%, respectively. I then showed Amazon's ascent to current day to make a point we'd made all along: Stocks go up, and stocks go down. Take care of our customers and focus on the long term, and the stock price will take care of itself.
My team and I debated the decision to break precedent and discuss the stock price internally because on the surface talking (at length!) about the stock price went against what we'd ingrained in our culture. But a couple days after our meeting, an employee emailed me with a heartfelt thank you for doing so. He appreciated the message to focus on the long term while recognizing the short-term realities of the stock fluctuation for employees -- in his example, money he and his wife were counting on to pay off student loans. Stock can be life-changing for many of your employees (not just you), and sometimes you need to talk about it.
The final point to this story, and to all of this advice, is that stock is personal. Sometimes you need to change the plan. Sometimes you have to break your own rules. Be strategic, not dogmatic, and you'll find the best path for you and your company as a public founder.
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