Thursday, November 29, 2007
Tuesday, November 27, 2007
As we ramp up our sales team (we've doubled it in the last 90 days), I’ve spent the last few months in New York interviewing candidates. The intensity with which the good candidates ask questions about the executive team has reminded me of how much employees, as well as investors, pay attention to management.
Our headquarters are just one exit up Hwy 101 from Oracle, and the recent notice given to Larry Ellison’s stock sales made me wonder about all his actions that are now public because of the Web. Whether it’s coverage of his non-Oracle investments or his lodging of complaints in the sporting world the Web provides a shocking, transparent mechanism for creating both insight and accountability around management. Truer than ever is the old adage about assuming that anything you say or do (or blog) could wind up on page 1 of the newspaper - so don't do anything you don't want to see there!
Monday, November 26, 2007
The recent articles highlighting the anti-trust scrutiny by the EU of the pending merger of Thomson and Reuters have uncovered tremendous opportunities for growth and change in the investment research technology space. Here is some sub-text worth watching as the merger unfolds:
- Putting the bullseye on Bloomberg: From the beginning, it has been apparent that TF-Reuters were coming together to target Bloomberg’s desktop market share. The main speculation has been focused on how Bloomberg will react to a pending attack on its core business, but an under reported aspect of the story is that many opportunities will be created for the smaller niche players in the market. While the big players are preoccupied with one another, hungry nimble companies in the space could seize the opportunity and gain traction in their core areas of expertise. Firms that can deliver interesting and innovative solutions, especially in those areas of weakness by either the new TF-Reuters offering or Bloomberg, could easily make waves.
- A ramp up by platforms in the “second tier”: Similar to the very small niche players, “second tier” platforms like Capital IQ, FactSet and Factiva could capitalize on the channel noise above them to gain market share with material expansions of their offerings. The pending Dow Jones–News Corp merger makes the Factiva story especially compelling, as it is unclear about the direction Rupert Murdoch intends to take that service despite the tremendous amount of content under the News Corp umbrella. More so than at any time in recent history, this tier of services appears to have a real opportunity to expand their reach.
- Anticipated divesting by TF-Reuters to comply with anti-trust concerns: One of the most obvious questions that arose after the announcement was regarding how the merged entity was going to manage the duplication of services between Thomson and Reuters (news desks, earnings estimates, trading platforms, etc.). As the two firms look to comply with anti-trust regulations both here and abroad, divesting of duplicative or non-core entities is increasingly likely (as Thomson recently has done with its TradeWeb platform). Because both Thomson and Reuters have such large, established footprints in the investment research technology space, sales or spinoffs of select business units could significantly alter the competitive landscape.
- Additional consolidation in the industry: There is a distinct possibility that all of the activity mentioned above could also lead to the large players (likely suspects are Bloomberg, DJ-News Corp, S&P, TF-Reuters, and Xinhua Finance going on a “land grab” -- buying the best of remaining firms available in the marketplace as a way to become the most robust platforms available. It is also feasible that new major players could enter the scene via merger of smaller firms. In the end, it wouldn’t take much, maybe one or two transactions, to start a domino effect across the industry.
Of course, all of the conjecture above is going to largely depend on the economy and the health of the institutional investment industry as a whole. Regulatory, economic, and geo-political factors could all play a part in how Thomson, Reuters, Bloomberg, and the rest of the industry adapts to the pending changes. Nonetheless, it is safe to say that the upcoming Thomson-Reuters merger brings with it a pivotal era in the investment research technology industry. Stay tuned!
Guest author: David Frankel, VP Business Development FirstRain
Monday, November 19, 2007
A friend sent me an interesting analogy for FirstRain today: The British recently found a submerged WW2 fighter - an American P38 Lightning - that crashed on a beach in Wales during the war. The plane had crashed during a training exercise in 1942 after running out of gas and the pilot was safe, walked away and left the plane on the beach in perfect condition.
The plane had been stripped of its guns and in the records it was reported as “recovered” but clearly it was not. It sat on a public beach in the west of England for more than 65 years, slowly being covered with sand and unnoticed by the beach going public. Unusual conditions surfaced the plane and TIGHAR (a historic aircraft recovery group) are now protecting it and figuring out how to salvage the vintage wreck.
This recovered P38 will probably be worth a great deal, both materially and sentimentally. But it was hidden and only the unusual movement of sand revealed it. The same can be said for many examples of obscure information about people and companies that exist but are very hard to find without a shifting of the sands.
Thursday, November 15, 2007
I found a great article in the Atlantic that analyzes the stories newspapers put on their front pages versus the list of "Most Emailed articles" -- and what that says about what consumers want, and where media is going. If you are in the information access business it's worth reading.
This is an ever increasing pattern that we see on the business side too. People just don't want to be fed the mass marketed messages any more. They want their news delivery systems to either feed them unique stories, or only send them stories that are truly interesting to them.
"What unites the most emailed list... is uniqueness. These stories, as they say in marketing, offer a "value add," something that's not available on the vaguely Soviet-seeming syndication-fed news pages of AOL, Yahoo, or Google. The real value now lies in non-commodifiable virtues like deep reporting, strong narrative, distinct point of view, and sharp analysis, which even in the blogger area (or especially in the blogger era) is available only piecemeal."
Wednesday, November 14, 2007
The departure of Charles Prince from Citigroup and Stan O’Neal from Merrill has started me wondering about the bigger risk-tolerance picture. To understand it better I looked at a quick cross-section of results in FirstRain, and was struck by how rapidly this shakeup has accelerated, from the occasional blogger highlighting an exception to the risk binge to weekly predictions of the meltdown (A Prescient Call on the Merrill Meltdown) to a daily deluge of coverage in the last few weeks.
In context, the significant moves by Citi Citi Buys Credit-Focused Hedge Fund make me wonder how the risky decision process works in such high stress situations.
Most reassuring is that many banks seem to be doing just fine so far including Deutsche Bank Deutsche Bank's Net Rises 31% and Lazard Lazard's Net Triples Amid Record Results; but, what I think nobody knows so far is when the other shoe can be safely considered dropped, both for Merrill and other big players like Citi where For Citi, Stakes Get Higher
Tuesday, November 13, 2007
For a sitting CEO of any company there are good days and bad days. Days when everything is going swimmingly and days when you just can't see how to get to the very faint light at the end of the tunnel. And many times friends have said to me "I don't know how you stay so positive all the time" or words to that effect.
Well, Geronimo! Last Friday's Wall Street Journal gave me an explanation: that it is all about how my brain is wired. The article quotes sources and studies which say that "At its core, the brain is built for optimism.... Far from deforming our view of the future, this penchant for life's silver lining shapes our decisions about family, health, work and finances in surprisingly prudent ways".
I am in the fortunate position that (so long as I have had a decent amount of sleep) my glass is usually half full - I am optimistic about the future and if you present me with a problem I enjoy the sheer process of solving it. When I was younger I used to think I was just too dumb to know the difference, but now as I (gingerly) approach 50 I can see that it is a characteristic I bring to the role of CEO to navigate rocky and smooth waters.
But even I, with my optimistic nature, do understand the need for moderation in this as in all things. For as the article says
"Optimism is a little like red wine.... In moderation, it is good for you; but no one would suggest you drink two bottles a day."
As a lover of fine California pinots I would add "well maybe not every day...."
The tumult in the financial markets is leading to an interesting side-bar around Bank of America’s Investment Bank. BofA continues to deny it but, with the CEO Ken Lewis having had “all the fun” he wants, everyone (including the league tables guys are getting into the rumor mill. As far as $675 million projects go, this seems like a big unwind to contemplate so soon, but with this coming in the context of the September departure of the CIO and more recent departure of the head of structured products, it’s going to be a tough turnaround.
Monday, November 12, 2007
Two fascinating examples of the advantages, and pitfalls of CEOs going online in internet forums.
First Jonathan Schwartz - the CEO of Sun Microsystems. His blog is famous and voraciously read by our users. Meaty, good content, and giving insight to how he sees his industry.
Now - cut to his blog posting on Nov 8, 2007 - 3 days after Sun's earnings call. Jon comments on the quarter and how he feels about it and, for the most part the data is the same. However, it is not identical - and that's where the learning is.
Examples of color and information in the blog and not on the earnings call:
- that blades sales in the X64 product line were about $40M
- that the volume systems business only grew 3% so the total systems business grew only 0.5%
- and at a softer level, but just as interesting, that Sun really doesn't know why the US growth is so anaemic. On the conference call they initially said there was strength in financial services, then in the Q&A John talks about slowing in financial services due to the subprime markets. And then again there is an inconclusive mixed message on the blog.
Clearly the Sun legal team did a good job ensuring that most of the information was the same - but as is always the case when executives speak in any forum, in person or online, there is information for the investor to glean. As blogs expand these discrepancies will grow and investors will be able to read between the lines as a result.
It's well known to seasoned investors that you can learn a lot from the unspoken messages a CEO gives out. I have one customer - a large mutual fund manager - who invested in a portfolio company when the CEO was not smoking, and sold when the CEO was smoking. Smoking was a proxy for stress - and the strategy worked well for many years.
But not everyone will be allowed to give the markets the new style of information channel. In contrast to Sun's leading edge blogging strategy, Whole Foods now bans it's execs from participating on line - as reported by the WSJ. I guess if you get burned because your CEO is posting anonymously online a new policy is probably required!
Friday, November 9, 2007
Fundfire reports on a study, run by Greenwich Associates, that finds that finds that while "quantitative information like performance and risk management are still important, the qualitative factors are far more compelling in the due diligence process".
Fascinating for an industry where the results are so measurable and it's the amount of money you produce, and so make, that counts.
“We asked the portfolio managers what they perceive to be important in the process of evaluating them,” says Greenwich consultant Andrew Klebanow. “The managers…have their own point of view about what they believe manager research teams should focus on to effectively evaluate them as asset managers.”
The main finding: the qualitative factors – a firm’s investment philosophy, its trading practices, its ownership structure, its people – are more important than performance, risk and other quantitative factors. The study found 75% of managers feel the qualitative factors are “extremely important” in the evaluation process. Quantitative factors were called “extremely important’ by 51% of respondents, indicating that performance is not the most important.
When we discuss FirstRain with potential customers we discuss it in the context of their research process. The old salts, and the young turks, who produce consistently high results have a rigorous research process where a rich variety of sources of information is essential and they cannot tolerate missing insight on their markets and companies. As a result a service which discovers information and then detects patterns in the information significantly enhances their process.
"“At the end of the day, performance is the end result of the processes,” Klebanow says."
Thursday, November 8, 2007
I found myself giving a press interview this morning about leadership style and was reminded of one of my core beliefs: that diversity in senior management teams makes good business sense.
Diversity is often cited as "the right thing" for soft reasons but in my experience getting the diversity right leads to better decisions in significantly less time. When I use the term diversity in my business I mean all the usual (gender, race etc.) but just as importantly personal style, approach, thinking processes and experience. I've been on uniform exec staffs (except for me) and I've watched companies where the exec team are all the same (and golfing buddies) and those structures have major blind spots.
If you have a major decision, or really any decision, to make there are two things that factor into the quality of the decision in a small company: how fast can you make the decision and do you make the right decision?
When you bring very diverse points of view and experiences together - and you do it in a culture of trust (see my prior post on the efficiency of trust) - you get to the right decision much more quickly. As a team you can look at a problem from many angles, debate the pros and cons of the possible outcomes and have a much higher probability that you are not missing something. It's the last point that is where the improvement comes in. While it might take a little longer in the moment to get all the data out the chances of making the best decision the first time substantially improve.
The challenge is to the leader of the team. Leading a group of very different people through strategy discussions or a contentious operational discussion can be messy and exhausting. You have to make sure everyone participates - which means calling people on non-participation in the moment; you have to require direct and honest expression of opinions; and you have to have zero tolerance for posturing and politics. Sounds easy right? Well, it's not but when you get it right and get both diversity and a great culture in the room there is no problem you can't solve.
Wednesday, November 7, 2007
A friend sent me today's Wall Street Journal article For CEOs, Off-Duty Isn't an Option with the note "I thought of you". It's true, anyone who's worked around me for a while sees the decisions that I have to make around time and knows that when the company needs me I have to be there.
This is not because of a Victorian belief that hard work is good (while my loving parents tried to brainwash me on this it didn't take) or a machismo competition about who can work hardest (that used to drive me crazy when I was working my way up since I believe in results first). It's much more pragmatic than that.
The CEO is ultimately responsible for the health of the company. The buck truly stops with you. As a result, the livelihoods of all your employees rest with you. Their paychecks, health insurance, mortgages and college fees depend on the company being healthy and growing.
And, when the company is going through an intense time, be it a crisis or a significant change the CEO needs to be physically present to work through the issues; listen, watch and sense what the real issues are, not just the issues being discussed. That's why being on the phone is not enough in times of crisis or in an intense negotiation - you just miss the nuances of the situation.
I believe children do understand if you talk to them about why you're being away when you have to. When I took Simplex public I was physically absent from my family for 4 weeks, and mentally probably for 3 months before that. I used an analogy for my kids of a farmer growing an orange tree. I need fertilizer to grow my tree (cash for my company) and so I was selling the oranges in the future as a means to get fertilizer. And, as a result, I would be able to grow a much stronger orange tree - or in the real world a place of better jobs for people like me who also have kids to house and feed. My kids could still tell you that story today.
The WSJ article is right. If you want to be a CEO today you have to be willing to do what it takes and be there when your company needs you. No excuses. And if you don't want to sign up to that don't become a CEO.
Tuesday, November 6, 2007
I recently saw Kara Swisher’s post over at All Things Digital and it reinforced how much management really matters.
For a growing company like FirstRain, getting the right management team in place is key to moving quickly through iterations to learn from the market and so to be able to build the right products and business model.
Poor Yahoo is going through major management disruption -- at all levels not just the C-level --and it is a reminder that for large companies, management turnover is both a key signal to investors and a drag on turnarounds until you get the new management team in place and working well together.
We track management changes for our customers - detecting arrivals, departures and other fascinating behaviors (yet to be announced) to give our customers insight into what's really going on with a management team below what they tell you.
Monday, November 5, 2007
I live in silicon valley and tend to use the word "guy" or "guys" as a genderless reference to someone or a group of someones. "Come on guys let's get behind this" type phases come out of my mouth and my team has become used to them all being guys whether they are actually girls or guys.
But today, since it is November 5th I ended up reflecting on where the term "guy" referring to a man comes from.
Today is Guy Fawkes day. It's a holiday in England, one where you build bonfires, roast chestnuts and set off fire works. As a child you make a "guy" by stuffing old clothes with straw and leaves and then burn the guy on top of the bonfire. Pagan and dark indeed - and the origins of the celebration are dark - but it is the origination of the use of the word to refer to a man.
Guido Fawkes was an original terrorist who, on November 5th 1605 plotted, with a group of co-conspirators, to blow up the Houses of Parliament. Their goal was to bring Catholic rule back to England, after a long period of peaceful Protestant rule under Elizabeth. Fawkes had the job of setting the gunpowder and as a result of a betrayal was revealed to the authorities. He was caught, tortured and hung (but not drawn and quartered because he jumped of the scaffold thus breaking his neck).
He was also the original attempted suicide bomber as he is said to have said he would have "blown him up, house, himself, and all" if he had been able. And it was all about religion and the who's in power as a result of religion. Some things have not changed.
And even more evidence that some things never change... is a posting on Wired today Suicide Bombing Makes Sick Sense in Halo 3 - how and why an editor uses suicide tactics when playing.
How tragic that when we read the news, or even the popular news on Reddit, so little has changed 402 years later.
Update: Subsequent to this post I saw the well written view in harpers.org on the parallels with today's counter terrorism.
Thursday, November 1, 2007
When people ask whether FirstRain is contributing to the semantic web (which some of my more plugged in friends do) I have to first ask what they mean.
There seem to be several definitions and misperceptions out there. The Holy Grail is clearly a web where machines can discover and use content to infer new information without human intervention. But how we achieve this is where the misunderstandings arise. There are many techniques—from author-added, in-document markup to computer-extracted, database archived metadata—and each one will probably contribute to the final goal in the end.
The most commonly discussed idea is to encourage authors to add “semantic markup” to their HTML. This which would allow computers to crawl pages and understand context; for instance, that obscure numbers are actually temperatures or words are actually cities. This solution seems most popular among a fastidious minority. More realistically, tools can be built to allow motivated volunteers to create markup which overlays existing pages. This solution, although distributed, is still unlikely to track many valuable new documents.
From another perspective, special sites have been developed to store structured information and distribute the labor of database maintenance among volunteers (e.g. metaweb.com) wikipedia-like. Even more ingeniously, software could be written which automatically parses existing pages and extracts information, allowing one to find and consume the data as desired (e.g. Powerset.com). This might allow for automatic population of those previously mentioned databases of knowledge, avoiding the armies of human volunteers and supporting the extraction of data in almost real time; but, this raises questions about the data’s quality and the differences between human and machine fallibility.
So, where does FirstRain fit into this? We specialize in identifying the subtle qualities of new information, like relevance, obscurity, and investment value which have real meaning to our market. We’re firmly part of the next generation of tools which leverage combinations of textual information, semantic markup, and semantic database resources to sift through newly published data and deliver relevant results to our users.