Company insightArgumentFounders and companiesActivism and governanceDeals and M&A
Refuse quarterly guidance, keep control, and tell investors they are betting on the team
Larry Page, Sergey Brin · Google's 2004 IPO founders' letter, "An Owner's Manual" · 2004
The idea
Google's 2004 founders' letter is the founding text on three things later technology IPOs copied. The founders refused traditional earnings guidance, comparing short-term targets to a dieter weighing himself every half hour. They adopted a dual-class structure that kept control with themselves and told investors plainly that buying the shares was a bet on the team. And they committed to funding high-risk projects, crediting 20 percent time with products that became large businesses. Whether or not one agrees, the letter is where the founder-control debate starts, and reading it is the way to argue either side with the original in hand.
A founder-controlled company should say what control is for and what investors give up; the 2004 letter is the template for saying it plainly.
When it works
IPO process questions, governance debates about dual-class shares, and any founder letter that cites this one.
When it may fail
The letter's promises were made by founders of a company that then grew for twenty years; the structure protects bad founders as well as good ones, which is the activists' reply.
How to use it
When a company goes public with founder control, compare its letter with this one: does it say what the control is for and what it will decline to do? A letter that borrows the structure without the commitments is the weaker case.
Where it came from
Letter Google's 2004 IPO founders' letter, "An Owner's Manual" · Larry Page and Sergey Brin
What the source says. The founders refuse traditional earnings guidance, adopt a dual-class structure that keeps control with them while telling investors they are betting on the team, commit to high-risk projects and 20 percent time, and chose an auction-based IPO.
Competing perspectives
Argues against
An activist turns bidder when the public market has not workedA take-private proposal is a complete case: the public record that failed, the price, the premium, the financing and the timetable, in that order.
Connected ideas
Says something similar
Given a choice between flattering earnings and future cash flows, take the cash flowsTell investors in advance that you will optimise long-term cash flows over reported earnings, then do it, so the market can price the choice rather than be surprised by it.
Concepts
Put it to work on L3VLUP
More like this
- Company insightGrowth and business modelsLetter located
Forgo the revenue you could capture if the platform grows more by letting others earn it
A platform that lets others earn on it grows faster than one that captures every dollar; the forgone revenue is the investment.
From Shopify's 2015 IPO letter from Tobi Lütke · Tobi Lütke
- ObservationLeadershipLetter
The world pulls every company towards typical, and staying distinctive has a price
Being distinctive is not a state but a cost paid continuously; stop paying it and the drift to typical begins.
From Amazon's 2020 letter to shareowners, Jeff Bezos's last as chief executive · Jeff Bezos
- Case studyDeals and M&AFilm
A management buyout puts the seller on both sides of the table
In a management buyout the insider is the buyer, so the board's job is to make the market, not take the offer.
From Barbarians at the Gate · 1993
- TechniqueValuationLetter located
A sum of the parts shows what a take-private bid is paying nothing for
Value each part a bidder is acquiring; what the bid leaves at zero is the argument against it.
From Southeastern Asset Management's letter to the Dell board (February 2013) · Mason Hawkins and Staley Cates