Mark Zuckerberg spent Facebook Inc.'s early years trying to keep it cool. But the founder and CEO of the social-networking giant has spent the last 18 months methodically preparing Facebook to look and act more like a blue-chip business.
"There was a period in Microsoft's evolution where they said, we want to put a computer on everyone's desk," said Mr. Zuckerberg in a recent interview. "That's the way that I want to run Facebook...We want to be operating in a way that we're working towards this longer vision of where we think the world should be."
Facebook plans to file early next year with the Securities and Exchange Commission to take the stock public in the second quarter of 2012, according to a person familiar with the matter. The IPO could raise as much as $10 billion at a valuation of more than $100 billion.
The poor IPO debuts this year of Internet companies Groupon Inc. and Zynga Inc. has put new scrutiny on Facebook. Groupon shares are down 12% from their first-day's close, while Zynga fell below its IPO price within minutes.
As hard as it is to reach a public offering, it is even more difficult for young businesses to play head-to-head against tech stalwarts such as Apple Inc. and Microsoft Corp. But interviews with Mr. Zuckerberg and others inside Facebook reveal the eight-year-old company is trying to emulate the influence, staying power, and meticulousness of the biggest technology companies.
Since last year, Facebook executives have been crafting dummy scripts for quarterly earnings calls, addressing imaginary questions from analysts about the company's revenue and profit, people familiar with the matter say. They have even written a top-secret draft of an IPO prospectus, a role traditionally left to bankers.
The company's chief financial officer, David Ebersman, has been professionally auditing Facebook's financial statements each quarter, say people familiar with the matter, and avoiding the accounting approaches that raised questions for Groupon and Zynga.
Although Mr. Ebersman has played tough with Wall Street bankers, telling them he's skeptical about what they can contribute to an IPO, he's also communicated his interest in moving forward with a standard public offering, people familiar with the matter said. Facebook has little interest in taking a page from Google Inc.'s book, which did an electronic auction-style offering.
Even the CEO's trademark Adidas flip-flops are growing up. Mr. Zuckerberg, 27, has upgraded to Brooks running shoes and went so far as to wear a dark blue tie and sports coat when President Obama visited in April—a sartorial move he was once loathe to take for the many bankers, lawyers and CEOs he meets.
The company has both scale and a strong brand, says Lise Buyer, a Silicon Valley-based IPO consultant.
But the big question, says Ms. Buyer, will be Facebook's ability to operate profitability through ups and downs.
Facebook employs 3,000, a number dwarfed by Microsoft's 90,000 and Google's 31,000.
"The missing piece that we haven't seen yet is reliability," she says. "The blue chip stocks are the ones that people talk about belonging in widows and orphans funds. Historically, technology IPOs don't make that list.
Because of its scale, Facebook could be different."
Questions Linger on Madison Avenue
The company still has a ways to go to convince Madison Avenue advertisers. Even today, most of Facebook's ads are for small advertisers, according to data firm comScore Inc. Facebook has yet to prove that it can increase its advertising on such a scale to snag the big brand names who drive billions of dollars to TV, radio and print campaigns.
Facebook is also still plagued by doubts about its commitment to users' privacy, an issue that had dogged it since its earliest days. Despite a landmark settlement with the Federal Trade Commission in which the company agreed to privacy audits for 20 years, questions remain over how it manages the trove of private data it owns.
Facebook's rapid growth—it now has 800 million members—had Wall Street anticipating an IPO more than two years ago. But Mr. Zuckerberg, known for his product vision but impatience with finance, has been reluctant to go public.
People familiar with Mr. Zuckerberg's thinking say he worried about the damage an IPO could do to the company's culture and wants employees focused on making great products, not the stock price, they say.
And if it were up to Mr. Zuckerberg, Facebook would remain private. But a federal rule which forces financial disclosure once a company has more than 500 shareholders ultimately convinced him it was the right step.
Mr. Zuckerberg says he can head off the ill effects of an IPO by assembling a management team tough enough to resist shareholders' short-term desires. "People always talk about the downsides of these things," Mr. Zuckerberg said, referring to IPOs, "and I do think they're real, but the management of the company fundamentally has control over the decisions it makes."
Building a Broader Management Team
Structuring a strong executive team has been Mr. Zuckerberg's most complex challenge, he said. "It was not something I had any experience doing when we were scaling up from a company of 50 people to 100 people to where we are now," he said.
Mr. Zuckerberg has been drawn to tech's blue-chip CEOs from his earliest days in Silicon Valley, when he asked for introductions to CEOs like Intel Corp.'s Paul Otellini and Microsoft's Bill Gates.
Facebook's strategy now reflects more than just Mr. Zuckerberg's thinking. Few early executives remain.
Facebook's founding president, Sean Parker, left the company in 2005. In 2008, co-founder Dustin Moskovitz and Chief Technology Officer Adam D'Angelo left to start companies.
After Mr. Parker's departure, Mr. Zuckerberg took sole responsibility and realized he needed help.
"What Mark was doing was cycling through people until he found the ones who could make it happen," says Facebook board member Marc Andreessen, a partner at the venture capital firm Andreessen Horowitz. "It had to be done. The alternative would have been a much lower quality company."
His top lieutenant is Sheryl Sandberg, who left Google in 2008 to become Facebook's chief operating officer. The 42-year-old created a business model for the company and brought a team of Google ad veterans.
"I think of P&G, these companies that are iconic, that change what they do in the industry and then are around for a really, really long time," said Ms. Sandberg. "We need to be around and thriving when Mark is old."
Mr. Ebersman, 41, has been Facebook's finance chief since 2009, and has taken the lead dealing with Facebook's potential IPO bankers.
The company has also bulked up its legal department, starting with the hiring of chief counsel Ted Ullyot in 2008. Mr. Ullyot, 44, a former associate counsel at AOL Time Warner, also worked as chief of staff to then-attorney-general Alberto Gonzales.
Mr. Ullyot has built the legal department to 45 lawyers from 12, allowing the company to quickly respond to legal challenges ranging from intellectual property to privacy
For his part, Mr. Zuckerberg suggests that "blue chip" doesn't go far enough in defining the role he sees for Facebook.
After being read one definition—that a blue chip is a corporation with a national reputation for quality, reliability and the ability to operate profitably in good times and bad—he said: "I hope our reputation isn't just national."
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