30 Seconds of Your Time Could Mean the World to Me

UPDATE: Chevy was so impressed with what all the participants produced, as well as the turnout for the voting, that they did the smart thing and decided to declare us all winners! Thanks to everyone for your support.

I have a small favor to ask that will only take a few seconds of your time, and could really do something amazing for me.

Super-short version for super-busy people:
Please vote for me. No registration – just 2 mouse clicks (Scott Allen, Vote).

Longer version if you have more than just a few seconds:
A couple of weeks ago, I took my son and his best friend on a "mancation" sponsored by Chevrolet (who ever said blogging doesn’t pay?). We had an absolutely fantastic time, the video is at the bottom of this post.

Well, it’s also a contest, and the winner gets a second mancation (with a little more spending money). I’d greatly appreciate your support in the voting. It’ll only take a few seconds of your time, and winning it would mean the world to me. You can vote here. For extra karma points, tell your friends, share it on Facebook & Twitter, blog about it, etc.!

Thanks for your support.

Social Networking for the Equipment Leasing & Finance Industry

Pool Equipment

I just learned that the Equipment Leasing & Finance Foundation has finished their study on “Social Networking for the Equipment Finance Industry 2010“.  The executive summary is available at http://www.leasefoundation.org/IndRsrcs/MO/SocMed10/ ; the full study is $300.  The author is Suzanne E. Henry.

The study shows that B2B social media marketing in the equipment finance industry is still in the nascent stage, with participants waiting for clearer directions and guidance for return on investment and development strategies.  For context, in its report, "B2B Goes Social," marketing agency White Horse reveals that 86 percent of B2B firms are using social media, compared to 82 percent of business-to-consumer (B2C) organizations. However, B2B firms aren’t as active in their social media activity with only 32 percent engaging on a daily basis compared with 52 percent of B2C firms.

The study is a good overview of social media for a B2B executive with little background. The best part of the study are the case studies of:

GE Capital, undoubtedly the largest equipment leasing and finance industry player, which has been exploring and using social media for more than a year. The organization encompasses corporate lending, vendor/dealer financing, core equipment financing, and specialty finance, including GE Commercial Distribution Finance Corporation, which offers inventory financing;

Duncan Aviation, the largest family-owned aircraft support facility in North America, which offers comprehensive service for nearly every make and model of business jets and turbo-props; and

American Express OPEN Forum. American Express OPEN is the leading payment card issuer for small businesses in the United States

For more on the use of social media in the investing industry (at no cost!), see our research.

(Image by billjacobus1 via Flickr)

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Keith Ferrazzi Book Tour: Who’s Got Your Back

I enjoyed going to a kickoff event Tuesday night for Keith Ferrazzi‘s book tour for his new book, Who’s Got Your BackThis is a followup on his earlier bestselling book, Never Eat Alone.  He drew an audience of about 300 at the Grand Hyatt hotel. 

I had read a galley copy of the book prior to the kickoff, and the event was functionally a summary of the ideas in the book.  I definitely agree with the big idea of the book, which is that a major driver of your professional and personal success is a small number of high-quality, tight relationships.  I also agree with Keith that your support group can be more effective if you formalize it and add some structure.  Keith acknowledges that this is hardly a new idea; he’s popularizing the well-known concept of a mastermind group.  I blogged a user’s manual for a mastermind group back in 2005

There are lots of books out there on success and personal development, full of wisdom.  Unfortunately, the great majority of readers look at the books, but don’t implement a single idea.  Keith discusses this problem, and advances what I think is a powerful solution: building a group around you which will hold you to your commitments to change. 

I’m just as guilty of this.  Although I’ve been familiar with the concept of a mastermind group for a long time (at least 2 decades) i have to admit I have not formally structured one around me.  One of my personal commitments for 2009 is to create an active, aggressive, and diligent Mastermind group, and I credit Keith for pushing me on that. 

 

My notes on his talk follow:

—————————————

Let me cut to the chase: a small number of relationships will have a dramatic influence on your career. 

Starts out by doing psychographic profile of audience: asking people to identify as circle, square, triangle, and Z.  (David: I would be amazed if there’s any psychological validity to this exercise.)

I’m so passionate about this because I think these ideas are particularly opportune

4x more people live alone today than in the past-an all time high.

Over 50% of Americans say no one has their back—and a lot of those individuals are married.

Describes our cultural lack of social capital. 

We’re an institutionally lonely ‘group of us’.  We as humans can’t live like that.

Our solution is to hunker down/carry more on our shoulders.  That’s not the answer.

We have developed program that allows you to build your own safety net/community. 

I want this group of individuals to try something new this week. 

You need a minimum of just 1 lifeline relationship. 

Asked who’s in the audience from Greenlight Community; about 25 people stand up.

In a study of high-performing teams, the #1 predictor of success was how much they cared about one another.  If you care about one another, you stop others from taking dumb risks.  Other models: Weight Watchers, AA.  We don’t have to invent anything. 

Certain individuals make you feel good about yourself.  I use Aunt Rose as my model.  I think about what she would do in a room.  Aunt Rose always cared about everybody. 

She was seeking a way to care about people.  She was always so helpful; ‘ can i get you something to drink?”  What if we walked around the world acting like hosts at a party?

These are all tactics that are part of what we call ‘instant intimacy’. 

Your personal success wheel consists of:

– giving back

– spirituality

– physical wellness

– intellectual stimulation

– financial sucess

– prof’l growth

– deep relationships

Exercise: tell a partner you choose your dream, and define your learning goal and performance goal.  And explain what you’re going to do to get there. 

What can you do to prompt people to approach you?

The book was conceived as a professional development tool, but I’m coming to the conclusion that the lifeline relationships are most important in your most intimate relationships.  The book should be an instruction manual for newlyweds.

Most of your friends lie to you.  You tell them to.  I want you to stop supercharging feedback.  People think that if someone gives you feedback you have to do something with it.  Feedback is just data.  You should want as much as possible of it. 

You need to know exactly what is holding you back.  Even if they’re wrong,  i want to know, so i can manage around it. 

 

Now I have 10-20 people i can call on as my lifeline relationships. 

 

This requires you to take more risks. 

Identify the glass ceilings you’ve created in your life.  The only thing holding you back is you.  Only you can fix your problems. 

 

A lot of people who read ‘never eat alone‘ are schmoozers.  They didn’t get the real message: it’s not about measuring the size of your database. 

The very things we want to hold back from people, they suffer from too.  Get over yourself; you’re not unique.

What you just did was courageous.  I’m cool if you say,
‘i’m not going to share my vulnerabilities, because i’m scared’.  but don’t say, ‘it’s weak to share my vulnerabilities.’  That’s just wrong.

——————

NEXT STEPS

 

Learning Goal: what you need to learn this week.

– Ask who can help you with that learning goal?

– Pick 1 habit to kick

– Pick 1 Accountability Partner for the week

– Call 1 person for a long slow dinner.

Peter Thiel, Paypal co-founder, on How New Technologies Thwart Government and Promote Freedom

I enjoyed tonight’s talk by Peter Thiel at NYC Junto, on “How New Technologies Thwart Government and Promote Freedom”. Junto is a libertarian-focused discussion group organized by Victor Niederhoffer. I’ve been following Peter’s writing for a while, since we overlap directly in our interests in investing and in online networks. Peter is President of Clarium Capital Management, an investor in both LinkedIn and Facebook, and was co-founder and former CEO of Paypal.

Peter started with two questions:

1) Let’s assume libertarian view is correct. Why aren’t more people libertarian?

2) What do we do about it? How do we make the world more libertarian?

Answers to question 1

– maybe libertarianism is not in peoples’ interest

– lack of education

– [Cf. Bryan Caplan’s book, The Myth of The Rational Voter]

Answers to question 2

When Peter was an undergrad, he might say:

– Education

– Go door to door

– Convince people to vote for candidates

But as he got older, he saw this is very hard to do.

(highlight of the evening: Victor Niederhoffer’s toddler son wanders around Peter’s legs at this point)

An IQ test for libertarians: ask them how optimistic they are. The more pessimistic they are, the smarter they are.

One solution: move control of money from the government to individuals. But you cant do this via plebiscite. If there was a form of money that government couldn’t measure or track, you’d have a powerful alternative. This insight was genesis of Paypal in late 1990s.

In mid 90s, several companies were creating alternative currencies: Cybercash, Digicash, etc. All of the initial attempts were going out of business. Money has a network-like aspect. How do you create a new currency when no one else is using it?

All these efforts had run aground against this rock. So Paypal started by leveraging against existing systems: credit cards, checks. Send money to anyone with an email address. Started with 24 employees at Paypal. Preloaded accounts with $10. Started to spread. We grew at 5-7% compounded daily.

Einstein, “Compound interest is so miraculous it could only be created by G-d”.

Initial theory was very idealistic. In reality we ran up against many obstacles, the first of which were customers. Massive amounts of emails/customer service inquiries.

Spring/summer 2000: discovered bad people are out there. Whole wave of fraud, including Russian mobsters, tried to exploit Paypal. Someone threatened Peter’s mother unless PayPal unfroze his account. Then that person ended up shot dead.

Found dystopian website in Former Soviet Union: “Carders World”. A carder is someone who steals financial information on people. This was a marketplace for personal financial information. They had a manifesto saying that they were going to take down the capitalist system. Paypal information was there.

2001 period: next obstacle was government. Initial Paypal strategy was to ignore government regulations—’we are not a bank’; ‘ none of these laws apply to us’. If we rolled this out quickly enough, the government couldn’t stop us. “If you have a world where everyone is a criminal, you have to change the law.”

Visa/Mastercard tried to come up with rules to prohibit Paypal from using their service. Government was even slower. Radical technological change must be fast.

In 2001/02, when company went public, things really hit the wall. The person investigating their S-1 thought that his job was to stop companies from going public. “He was demoted in government, which is a really extraordinary thing to happen.”

Businessweek article said that state of Louisiana hadn’t quite signed off on this. SEC investigator told Paypal management that state of Louisiana was going to shut this down. So in middle of roadshow, Peter had to track down government regulators in Louisana and convince them that Louisana did not want to get reputation as a particularly backward place. “So within 2 days, we managed to get that stopped. At the time we had 100,000 Louisana users.”

“We are now in 100 countries. 3rd largest payment brand after Visa/Mastercard in the world. “

How successful were we? Paypal currency is still denominated in national currencies. If you only have one form of currency, you’re beholden to the issuer of that currency. Our initial vision inspired in part by Argentinean economic turmoil. If you can force competition between governments, you’ll have stabler currencies.

Early 1980s: high inflation rates all over the world. Since then, it’s gone down almost everywhere. Forms and symbols can persist well after the substance is gone, e.g., Queen’s face is still on UK currency. Technology has been a very powerful force for decentralizing things.

1960s Time magazine cover: picture of 1 big computer that could run the world. Cf. Hal 2001. Computers as a force for centralization is a classic image. In the 90s, power shifted to individuals.

Famous early example: Soros distributing fax machines throughout Eastern bloc.

If everyone becomes a currency dealer thru Paypal, it changes the world.

So much has changed. For example in 1971: it was illegal to own gold and other currencies in the US. 1971 Treasury Secretary said, “It’s our money—we can print as much as we want and it’s the rest of the world’s problem”. You can’t imagine Hank Paulson saying something similar today.

Power is shifting ineluctably away. Will technology continue to be a force for decentralization?

Why did 1960s vision of centralized computer not happen?

Peoples’ ability to process information is flat, but the amount of information has gone up dramatically. So the only solution is decentralization. This is also why Moscow can’t set the price of potatoes in Vladivostock.

You may be able to approximate information processing to a problem solveable in polynomial time—and then you have AI, and the 1960s vision of a centralized computer processing everything.

By 2050, we could have thousands of different countries. We have 10-20 years to push as hard and far as we can in direction of more liberty.

Q: How do you prevent Paypal from being used as electronic hawalla—form of terrorist financing?

A: We have protections in place—abide by Patriot Act.

2002: first year number of printed checks in US went down.

Q: question about Second Life and inflation

Q: question about goldmoney.com

A: The problem with gold is that when you really need it, it’s not there. In 1933 the government confiscated all the gold bullion in the US.

Q; How do you promote libertarianism?

A: When I was young I tried to reduce the demand side (demand for regulation), but then I saw it was much too hard. So now I focus on the supply side. If I expand the supply side (e.g., more options for currencies), I reduce the amount of government in the system.

I want to promote change without being obliged to go through an election or plebiscite.

Governments are losing power to inflate because of technology. The risks are now tilted to deflation, not inflation. A deflationary environment is hard to invest in, because you can’t just lever up and pay things off in cheaper dollars. Private equity and real estate are bad ideas in a deflationary environment. Donald Trump’s argument is that you should be short dollars by going long real estate, is disastrous.

Q: How does Facebook promote libertarianism?

A: Facebook will be the dominant next media company . Since the old media companies are non-libertarian, this in itself is good.

Hedge funds are a way to bet against stupidity of governments.

Q: Could you comment on US visa policies and their impact on competitiveness.

He commented that once a tipping point happens, it’s impossible to go back. Once the camel’s back is broken, it can’t be healed. Right now the marginal tax rate in NY is ~50%. In London it’s 0%. So it’s compelling for a hedge fund to set up shop in London, not NY.

There’s a definite shifting of centers of quality overseas. It’s happening faster in finance than in technology, but it is happening. (Audience member mentioned that Microsoft is setting up research centers in Canada and elsewhere specifically because they cant bring the researchers they hire into the US.)

Ecademy Success Story from a Reader

I got a very nice private message on Ecademy this week from a reader — always rewarding to hear that what you’re doing is making a difference in people’s businesses:

Reposted with permission

Hi Scott!

Just wanted to write and say hello. I’ve read just about everything you’ve written at About.com and I’ve read your blog a few times as well. Actually, your work convinced me to sign up for Ecademy. I lurked around Ecademy for about a week before I uploaded a profile and actually began networking. After a few days of connecting with people I upgraded my membership to PowerNetworker status so I could utilize more of the tools. Honestly, I was only going to *try* Ecademy for a few months.

Well, I’ve been a member now for less than one month and I’ve gained new clients and great feedback as well. I’m impressed! Online networking is a lot of fun and I’m communicating with people all over the world.

Thanks for sharing great information!

Kind Regards,

Michelle McCray
*Swell Creative – Graphic Design Arts + Marketing Communications

If you’re on Ecademy already, or if you decide to join, be sure to stop by Michelle’s profile and say “hi”.

Nerd Guru Reviews The Virtual Handshake

HP.com Chief Architect Pete Johnson, who I met here in Austin a couple of months ago, has posted a review of The Virtual Handshake on his blog (also made the front page of TechDispenser).

Pete was particularly taken with our “7 Keys to a Powerful Network” framework, which triggered one of those ah-hah moments for him:

This is all covered in the first two chapters of the book, but I spend a lot of time on it here because it not only provides a framework for the other chapters, but when I applied this analysis on my own career it had a pretty profound effect on me. What I realized was that I had a bigger network than I thought I did, despite never actively “networking” per se. However, I had pretty pitiful diversity outside my employer of the last 14 years.

You can see more of my thoughts on networking for nerds over at Linked Intelligence.

Blog Comment Signatures Can Boost Your Traffic

This week, Jason Alba is doing a series of posts about his blogging secrets. This is a great guide for how to effectively build relationships and your personal brand with your blog.

One of the tips that came up in the comments on his Day 1 post was the matter of using a signature in your post when you leave comments on other people’s blogs. Typically, if you leave your name and URL in the comment posting form, it ends up linking your name to your site, e.g., Scott Allen points to TheVirtualHandshake.com (or LinkedIntelligence.com or Entrepreneurs.About.com, depending on the context). However, that’s a) usually at the top of your comment – people don’t scroll back up once they’ve read your comment, and b) it’s non-obvious that it actually links to your blog.

Jason explains, as well as sharing his hesitation about using comment signatures:

ALso along these lines, I have since started to leave a new signature:

Jason Alba
CEO – JibberJobber.com
.. self-serve job security ..

I’ve been trying it out, and with different tag lines. Putting a URL in the comments makes it really easy for readers to just click over to my website, and the tagline makes people curious.

Sometimes I’ve hesitated before putting the signature on the comment, especially when no one else is, but I figure it’s better to risk than pass up the chance, and if someone says they don’t like that then I’ll make note of it and leave the signature off for later comments.

But Pete Johnson reassured him, sharing the success he had after learning the tip from The Virtual Handshake:

As I learned from Scott Allen (and am writing about later in the week), the post signature is huge. On one techie site in particular, I got 10x more traffic when I went from this:

—Pete
http://nerdguru.net

to this:

Pete Johnson
HP.com Chief Architect
Personal Blog: http://nerdguru.net

The second one even got me an unsolicited email from the editor wanting to know if I wanted to write a case study based on HP’s web architecture, an opportunity I wouldn’t have dreamed of otherwise.

This is a great example of co-opting a brand. “Nerdguru” isn’t a household name, but HP.com sure is. Pete is able to leverage his position to build his personal brand.

But what if you don’t have a big-name brand to co-opt? Even a simple signature can serve you well. Which is more likely to get your attention and make you click?

Scott Allen
LinkedIntelligence.com

or

Scott Allen
Linked Intelligence – Home of 80+ Smart Ways to Use LinkedIn

Or how about:

Scott Allen
TheVirtualHandshake.com

or

Scott Allen
Coauthor, The Virtual Handshake: Opening Doors and Closing Deals Online

*Sigh*

I need to remember to follow my own advice! 🙂

Virtual Handshake Reader Shares E-mail Success Story

I received a message today from a reader of The Virtual Handshake who had a success with one of the techniques presented in the book:

One thing that caught my attention in The Virtual Handshake is when you told the story about the gentleman who didn’t know the person’s email address who he wanted to email. It turned out that the person had all those email addresses, and they were all directed to one email. The executive saw the person’s commitment, and long story short the emailed got what he was looking for.

This recently happened to me. ( inspired by the book) I was trying to get a message to a non-profit org that I thought I could help. I sent an email to the founder of the organization, HR@theorg, and info@theorg. It turned out he got all three emails. He appreciated my enthusiasm. Now I am in!!! I appreciate the great idea.

Benjamin B. Rosenzweig
Detroit Financial Group
O- 248-324-9333
BRosenzweig@finsvcs.com

You know, I always love hearing stories like this. Actually, Benjamin was kind of surprised when I wrote back right away and asked him if I could post it on the blog. I told him, though, that while I hear stories like this all the time, few people take the time to spell it out in enough detail to be usable. So there’s a little PR lesson for you – everyone loves being appreciated. Take the time to write to someone and tell your story of how their product or service made a difference in your life or business and you may earn yourself a little free publicity as well.

The State of Independent Research, at NY Society of Security Analysts

Nitron Advisors’ COO, Scott Lichtman, took detailed notes on last Thursday’s panel on “The State of Independent Research” at the New York Society of Security Analysts. It was a well-attended event that covered questions ranging from how independent research firms are capturing value through new delivery models to the impact of Elliot Spitzer’s global research settlement and prospects for research jobs on the buy-side and sell-side.
NYSSA notes that, ‘These are the opinions of speakers at NYSSA’s Career Chat on Independent Research and do not necessarily reflect the opinions of NYSSA or its members. NYSSA does not endorse or promote any of the opinions or products mentioned.’

SPEAKERS
Eric Alexander, President, Institutional Services, Wall Street Access
Michael W. Mayhew, Founder and CEO, Integrity Research Associates, LLC
Paul Spillane, President and CEO, Soleil Securities Group, Inc.
David Teten, CEO, Nitron Advisors
David Weild IV, President and CEO, The National Research Exchange
CHAIR: Richard G. Lipstein, Boyden Global Executive Search

BIOGRAPHIES

Eric Alexander is president, institutional services, for Wall Street Access, which offers research and execution to hedge funds and money managers. He is responsible for strategic development of the firm’s research offering, including coverage of mergers and acquisitions, energy, healthcare, and special situations. Previously, he served as director of marketing, and was instrumental in forging strategic relationships that helped the firm grow over the next decade. Prior to joining Wall Street Access, Alexander was a vice president with the public relations firm Burson Marsteller, where his clients included AT&T and American Express.

Michael W. Mayhew is founder and CEO of Integrity Research Associates, LLC, a ratings, analysis, and consulting firm for the equity research industry. Prior to founding his firm, he was CEO and president of Garban Information Systems, the financial information division of Garban/United News & Media. Previously, he was director of strategic planning and business development for Standard & Poor’s Financial Information Services Group. Mayhew has been quoted widely by various newswires, newspapers, and industry magazines, including Reuters, Investment Dealers Digest, Institutional Investor Magazine, Bloomberg News, Forbes, The Wall Street Journal, The New York Times, Financial Times, and Business Week. He is a member of the Board of Directors of Investorside, the nonprofit trade organization for the independent research community, and chairs a committee of the board to establish best practices for the research industry.

Paul Spillane, president and CEO of Soleil Securities Group, Inc., has been in the securities industry for over 25 years. He started his career at Goldman Sachs. where he worked in fixed income, foreign exchange, commodities, futures, and options products. He then moved to Deutsche Bank, serving as managing director and head of global market sales for the Americas. Spillane subsequently transferred to global equities as a senior member of the executive team responsible for building the global equities businesses. Most recently, he was responsible for establishing Deutsche Bank’s Global Relationship Management program.

David Teten is CEO of Nitron Advisors, a unique research firm that provides hedge funds, private equity funds, venture capital funds, and law firms with direct access to a global network of carefully selected frontline industry executives, scientists, academics, and consultants. David also is the coauthor of The Virtual Handshake: Opening Doors and Closing Deals Online, the first business book describing how to take full advantage of blogs, social network sites, online networks, and other “social software. ” He runs TheVirtualHandshake.com, a resource site and blog, and co-writes a monthly column for FastCompany.com. Teten was CEO of an executive recruiting firm that he sold to Accolo, and CEO of GoldNames, an investment bank focusing on serving the internet domain name asset class. He has worked with Bear Stearns’ Investment Banking division as a member of their technology/defense mergers and acquisitions team, and was a strategy consultant with Mars & Co.

David Weild IV is president and CEO of The National Research Exchange (The NRE), an innovator in products and services that support capital formation. The NRE provides patent-pending analytics and facilities that enable the systematic evaluation and long-term funding of research and related services. Weild served as vice chairman of The NASDAQ Stock Market and spent fourteen years at Prudential Securities, where he served as president of PrudentialSecurities.com, head of corporate finance, head of technology investment banking, and head of equity capital markets. He also chaired Prudential’s Equity New Issues Commitment Committee.

PROGRAM DESCRIPTION
The entire research industry is undergoing a seismic shift that will produce both winners and losers in the coming years. Some of the more innovative research providers will continue to experience growth, while the total number of independent research firms is to expected to fall almost two-thirds by 2009. The need for good research, however, will never go away. Learn the reasons for the coming shakeout and how you can be among the success stories.

Scott Lichtman’s notes:

Richard Lipstein Question: Please describe your business models for independent research.

David Weild IV: We are a utility for Wall Street to get research paid for explicitly, while achieving coverage and liquidity for smaller public firms. Coverage continues to be shed across the industry. Fewer IPOs are symptomatic of this. There were < 200 IPOS in each of last 3 years. Pre-bubble, there were 460 IPOs/year avg. We have 14 patents. David Teten: We provide access to frontline industry experts who can provide deep insight into the companies and industries you are analyzing. There is a circle of economic agents around any company – suppliers, customers, regulatory observers-- who are in an appropriate position to provide fresh information to investors. We provide access to that circle. This means your analysts are drawing conclusions and making the buy/sell recommendations (not us), while you benefit from ready access to unique sources. There are three trends that drive the fast growth of our model: 1) The destruction of credibility of sell-side research. 2) Trend towards more people, including senior executives, who are managing their careers individually, without assuming they are wedded long-term to a given firm. These "corporate alumni’ are an exceptional base of knowledge. 3) A trend towards people having a public, articulated virtual identity, through personal web sites, bios and resumes online, social network sites, and software that is aggregating people’s backgrounds into a chronological whole. I discuss these technologies in more depth in The Virtual Handshake: Opening Doors and Closing Deals Online.

We are actively seeking out consulting firms and individuals who would like to consult through our platform.

Paul Spillane, Soleil Securities. Our goal: Premier aggregator and distributor of intellectual content. We are a registered broker dealer. We have a significant distribution platform, analysts all around the country and an agency trading desk in New York. Covering 320 stocks, 32 analysts, 3-5 alternative products. Analysts work when they want, get paid based on deliverables. Incorporating Fixed income, Commodities, Equities, and commentary on data sources. If you can think of a new idea, you can provide content in our model. We are looking for employees, firms to partner with and new sources of content.

Michael Mayhew: Integrity is the leading provider of information assessment and evaluation on the research industry. We publish research on the industry including a blog, web-based tools, due diligence on 436 research firms. Now adding 60 firms in Europe to the database. We help funds find research to add alpha, and mitigate risk in using research. Very little due diligence is typically done on hiring a research firm, especially compared to investing in a fund or fund-of-funds. We help funds reduce their risk in hiring a research firm.

Eric Alexander: We offer clients an integrated service, including access to a team of leading analysts in M&A, special situations, oil and gas, utilities and agribusiness. We also offer clients access to a proprietary network of healthcare experts. Also have a trading desk – important for clients to gain a full range of service and for us to get paid appropriately. We customize offerings for each client.

Richard Lipstein Question: What are challenges facing independent research firms.

David Teten: Research has a very unusual economic model: You usually get paid well after the service is delivered, you usually don’t know how much you’ll get paid, and neither seller nor the purchaser knows the exact value of the service. The value of research varies enormously from highly negative to many millions of dollars, yet it’s not common to define, let alone track, the metrics to place a value/price on it. Also, declining commissions on a per trade basis are putting pressure on the economic equation.

Michael Mayhew: 2 major trends.
1) Biggest challenge is proving value, day in and day out. The kind of research that could be sold 20 yrs ago has changed. Today folks want trading ideas and proprietary data points. Very large % of research firms have a tough time proving value, and probably shouldn’t be in business.
2) Getting paid is hard, even if you prove value.

David Weild IV: A rough statistic: He took all research analysts, divided by (monthly) trading volume, and got 20,000 shares/analyst. If 50% is program-based, 50% of what’s left is algorithm based, and therefore there’s only 5,000 shares traded to pay each analyst. That’s roughly 250 shares/day. At 5c/share that is not a lot of money to spread around, and 5c is a high figure by current trading standards. The business is fundamentally bankrupt at some level.
Clients want 3 things – 1) access to management, (2) experts, (3) traditional research. People want things that no one else has.

Eric Alexander: A lot of what the industry does is a commodity. Some of the forms of compensation are a thing of the past. It’s much more entrepreneurial now.

Richard Lipstein Question: Buyside firms are decrying the lack of research but cutting back on # of research suppliers. How did we get in this contradictory situation?

David Teten: The buyside is not seeing enough compelling research from the sell-side. However, the number of buyside analysts is way up, which shows a commitment to proprietary sources.

Michael Mayhew: Other trends are happening too. There will be a significant reduction in # of firms getting paid. Firms will separate research fees and execution fees. You may only have 20 firms getting commissions, but hundreds getting research checks.

Richard Lipstein Question: Paul, how does one manage a virtual corporation?

Paul Spillane: Everything about the decline in research firms/getting paid is music to our ears. This is the only industry I’ve seen that has no idea of COGS (cost of goods sold). We love a value-driven model. If you can add value, clients will pay you unlimited amounts. So good analysts in their virtual workspace are making 2-3x what they did in a bulge-bracket environment. “We manage by compensation.”

The industry needs to get away from the lack of connection between quality and reward – casual votes on who should get what. We have the same regulatory framework that any registered broker-dealer has, with the analysts being registered 86s or 87s. Our good analysts work “24×7” at times because they love the work and get paid well, and other times take a break.

“It’s an absolutely fantastic time to be an analyst. The bottom is here.” The # of stocks covered by bulge-bracket firms is going lower and lower. The bottom line is here, there will be less people around, but those who are good will be making money. Like Nitron, we only pay an expert when they get a phone call.

Eric Alexander: Research revenues might go from $3.9bn to $3.6bn, but it’s still a big opportunity.

David Weild IV: Wall St research firms are getting smart that they do get paid. Roughly 50-70% of bulge bracket revenues for an offering are for the deal, and 30% is to provide coverage, but the funds aren’t always allocated to that purpose. It seems like Reuters and Thompson want to know who is consuming their research and cut out people who are drinking for free. The tide is turning on getting paid.

Eric Alexander: We are still committed to trading desk model. It’s hard without a desk; it’s integral. The buyside sees their traders as integral to their team and so do we.

AUDIENCE QUESTIONS

Q to Soleil: What does it mean for an analyst to “deliver” value and get paid commensurately?

Paul Spillane: There are many ways to signal how to pay: a voting mechanism, # of visits set up, commissions paid. Clients now are responsible, e.g. Via the UK’s regulations, to say how research is allocated. More hedge funds have a formal voting mechanism due to regulatory requirements. Checks come in with specific analyst names on them to us.

Michael Mayhew: All about producing good research. To one client that’s management access, to another it’s industry expertise, and to another it’s performance recommendations. Issue is that if you produce me-too maintenance research, models that don’t outperform, you have to worry.

Question: What about outsourcing research to India and other places.
Eric Alexander: This question is symptomatic of how much has become commoditized. Reg FD has commoditized information.

Michael Mayhew: Couple years ago, the avg cost of wall st to cover a company was $192K – per company. There was an absolute need to lower that cost, so moving some research oversees made a lot of sense. But value-add of a research firm can’t be outsourced.

David Weild IV: But you can create new value by leveraging offshore resource. It may become a necessity to have competency in offshore inputs.

Paul Spillane: The last mile is where the value is. We get 7 calls/month from Indian firms to provide us with outsourcing. Most of those analysts don’t have 86s/87s and don’t talk to management. Offshores won’t complete with mainline analysts, they will focus on filtering through existing data in more conventional ways, at least for now.
Offshore won’t be a huge threat. We think $8bn will be paid out, over time, in hard research. If you look at outsourcing initiatives in the technology world, JPM outsourced their platform to IBM in a multi-billion deal, but brought it back in-house when the deal expired. We’ll all experiment with it, but when cost goes up for offshore it will lose competitiveness. We used to pay $25K for an associate abroad, now its $50K.

Richard Lipstein: One bulge analyst I know is having increasing quality issues, exacerbated by language barriers, time differences. They didn’t see benefit anymore.

Michael Mayhew: I’m concerned about long term risk. If we outsource associates, when do future senior analysts come from? Are we going to hire the offshore people and bring them here?

David Teten: All of this gloom & doom is great news for Nitron. Offshore people working off same public data further commoditizes publicly available analytics. Basic Yahoo! finance data is free. There are so many hedge funds out there, and they’re all obsessed with chasing alpha, which they can’t do with the same tools as everyone else. (The hedge fund incubators, incidentally, remind me of the dot-com incubators we used to see, which is a sign that there is a surplus of hedge funds. 2006 is the first year when we’re on track to see more hedge funds shut down than open up.)

Audience Question/Observation: In the last few years, lot of great info free on internet has become available in forms of blogs. Incredible corporate-experience types, speaking their minds and providing insights while going after eyeballs. They are getting paid $550K/year monetizing eyeballs (Editor’s note: I know extremely few bloggers earning that type of money!).

Paul Spillane: This industry has to recognize that as a threat. The audience member asking the question has worked in tech – so she’s better able to know where to find quality information. The insights aren’t there for (isolated) associates to make money.

Michael Mayhew: There is a model that’s been developed over a few years, for readily available info: Research that is restricted to small # of clients (and which delivers alpha). Hedge funds will pay lots and lots of money for restricted access, which means 30,40, or 60 clients. Hedges won’t trade off blog content because it’s available to thousands/millions of people. Also, most hedge funds don’t want to say: “if this deal blows up, I’ll tell my manager I got the info free off the internet. ” Give me a break!

David Teten: If I have really good info, am I giving it for free on a blog? Publicly-available information (on a blog, New York Times, etc.) is designed to be relevant to the average person. If you want customized analysis for your portfolio/your situation, then you typically pay the person who produced the analysis that’s broadly relevant. He proves his credibility with his general analysis.

Eric Alexander: Blogs are a threat. Collaborative relationships deliver distinct ideas. You need a talented, experienced analyst with an expert network to find the alpha idea. Blogs don’t work standalone but they are a valuable contribution.

Paul Spillane: Most investors have an overload of info. We have a product to grade blog: Collective Intellect. Using AI to sort through hundreds of millions of blogs a day to rate for accuracy. This product is on desks of some of the largest prop trading desks in the world. It can be a CYA, but you can’t sort through all the available info and it becomes more productive.

Audience observation: Great bloggers are identified and filtered by word of mouth. Experienced people don’t read every single blog.

Paul Spillane: But imagine if you can also grade them all. We’re excited about the prospects.

David Weild IV: In my west coast conversations, a lot of funds are using expert networks. One guy I spoke with was a well respected 1990s internet analyst. Widely followed. He said that one key problem with Wall St research is deteriorated quality. Because of Reg FD, executives are uncomfortable with sharing corporate info. Sourcing of independent experts has become very important. One guy is using expert networks to do due diligence on potential portfolio co’s. Won’t replace need for direct access.

Audience Question: What’s the career opportunity and income oppty for sell-side analysts. Do you see migration to buyside? What about buy/sellside relative compensation?

Eric Alexander: It’s important to be part of an organization with a regulatory structure, so the analyst can focus on the work. There’s an opportunity to be more entrepreneurial these days. Locked in salaries and guarantees are much less available.

Richard Lipstein: The top of the Internet bubble skewed compensation and demand for analysts. Comp for internet analysts gone down significantly. They used to be able to make 7-8 figures. Compensation has bottomed out because of disappearance of guarantees and extreme salaries. Not easy for sell-side analyst to move to the buyside because they’re viewed as a salesperson. However, hedge funds hire more sellsiders, young ones, than mutual funds.

It’s worth noting that a typical analyst will make more than 98% of the US population rather than 99.9% in the past.

Paul Spillane: You summed it up perfectly. It’s not easy to move to the buyside. But everyone is still paying people 6-7 figures. A lot of doctors, lawyers, fireman who don’t get paid that – who arguably provide critical value to society.

David Teten: I saw a talk by a prominent person in the research industry, who said, “If you meet an analyst that’s been on sellside for more than 5 yrs, they’re not good at picking stocks, because if they were, they’d get a job on the buy-side.”

There is increasingly a disaggregation of analyst’s responsibilities. Management access is highly valued by the buy-side–but that’s a concierge service firms like ours (Nitron) do more effectively than generalist research firms.

Richard Lipstein Question: The typical independent research firm is much smaller than bulge bracket dept. There have been problems, eg Overstock.com took a research firm to court for allegedly being part of a plan to devalue and short sell the stock. How can small firm deal with intimidation of big corporation, particularly when issuing negative research?

Paul Spillane: Associate yourselves with a firm with strong compliance. Reputation of your employer is important to focus on when you are an analyst. Unless you commit fraud, you are in a good position to make clear statements – your opinion is your opinion. One analyst whose opinion dropped a stock 50% (is rumored to have) received death threats – from a retail firm!

Richard Lipstein: I think it’s more an issue of small research firms can’t cover legal costs to defend themselves.

Paul Spillane: Agencies like SEC, NASDAQ won’t allow that intimidation…and the First Amendment.

Eric Alexander: Be clear who the customer is. It’s not the company covered, it’s the investor.

Paul Spillane: WSJ or NYT would love to ‘defend’ the small guy with strong opinion. The court of public opinion doesn’t cost much. And it’s great PR.

David Teten: Most of time, the analyst is doing right thing. Owen Lamont research showed that, the more a corporation fights a critical analyst, the more likely it is later on that the analyst is correct. Jeff Skilling said “They’re on to us,” in response to a certain piece of independent research. That’s a great ad for independent research! (As Jim Chanos pointed out in a recent talk).

Audience Question: Given internet bubble, do you see another shakeout?

David Weild IV: There’s a rationalization, but other models are flourishing. The big shoe that dropped wasn’t the bubble, it was decimalization in 2001. That cuts 95% of the commission flow. The internet brought direct transaction models and commission compression – commission went from $350 avg to 5 bucks.

David Teten: Creative destruction is a benefit, not a bug, of capitalism. Net net, people are making a lot of money in finance. The industry is always evolving, companies change, people move around, but the quality people do just fine.

Michael Mayhew: For sell side research, unbundling will have a big impact. When asst mgr has ability to select research and broker independently, that will really impact someone like Goldman Sachs. If they charge 4c/sh, how much is for research and how much will get they for this

Question: What’s the track record of Spitzer agreement to channel $s to indie firms?

Eric Alexander: Some large firms got huge funds channeled to them. We’re not in that space at all. I’m hopeful this is over soon, it hasn’t been effective at all.

David Teten: Spitzer uses lawsuits effectively for gubernatorial campaigns, but not necessarily in the pursuit of justice.

Someone asked a panel I participated on earlier this year “where should I invest, as a retail investor?” Look, you as a retail investor have the worst information and the worst prices. You’re much better off hiring a professional, by putting your money in a mutual fund, hedge fund, or hiring a Financial Advisor.

Spitzer agreement was a solution in search of a problem. The retail investor will almost inevitably have inferior returns to the professional, because of the nature of the industry.

Richard Lipstein: The Wall St. Journal said ‘you can’t legislate against greed’.

David Weild IV: I’ve talked to many of the NASD regulators. All agreed that the Spitzer agreement has been an “absolute disaster”. Jack Coffee, of Columbia, on their board, calls it a new form of government. It has created a level of paralysis – 3 years left, and firms are afraid to innovate. Every bulge bracket says behind close doors won’t pony up again. It hasn’t expanded coverage to new names. It was a grand experiment that failed. “This is a drug.” Has failed to expand coverae.

The audience member asked what are usage statistics for the independent research that had to be posted. 5% of retail hits are on the indie research, the rest is from the main provider. The only success from the agreement is focusing people on the problem – Wall St research has greater integrity today.

Teten: There is one pressing, highly important public policy goal that the Spitzer settlement achieved: Spitzer won the primary.

Question: Comment on future consolidation in independent research firms. Is pace likely to quicken? A panelist said there are over 400 firms today.

Michael Mayhew: 450 firms in N. America. We certainly believe in consolidation but not across the board. Restricted providers will do quite well. Fundamental data-based research will consolidate. My partner has argued that research is frankly a lifestyle business for many. If you have a dozen clients paying $100K each, you can have a nice business for a few analysts. I suspect the number therefore will be unusually high, but fundamental traditional research will find it increasingly difficult to get paid.

David Teten: Consolidation per se doesn’t concern us. I would be worried if the overall pie shrinking dramatically. But to my knowledge, expert networks are the fastest growing sector in the research business. Consolidation means we buy or get bought, and there are worse things that can happen.

Eric Alexander: For full disclosure, my business partner in the audience asked the consolidation question. The alternative to a lifestyle approach to making some money in research is being part of collaborative effort. When someone like Monsanto wants to do a deal, they can turn to one of our deal specialists.

Richard Lipstein Question: What about the idea of a corporate rollup, e.g. how Eric Alexander got Foresight.

Eric Alexander: That wasn’t an acquisition but a subset of analysts were attracted to our platform.

David Weild IV: Question for Michael–What # of firms have > 5m revenues?

Michael Mayhew: Quite small, < 10% of 450. Lot of folks with $1m revenue. Some consolidation when firms go out of business, other when firms get bought. Question: Going back to the value of research, how is the way investment firms are compensated linked to value? In an unbundled world, mutual funds are asset-based profit-makers, not performance based, so they should worry less about costs. Hedge funds are compensated by assets and performance, so they are looking for research value. Would mutuals prefer bundled research? Michael Mayhew: The audience member asks analysts how they judge good research. They say, "I’ll know it when I see it." This means, many buy-side people don’t know what makes good research to them. That only has a chance of working if they get research for free, use it, then decide later on if they liked it, but its still subjective. David Teten: There are 3 reasons why hedge funds are desirable clients. They have a lot of money compared to cash/overhead requirements, they don't usually have an easy way to measure the value of your unique product (compared with tools available to measure ROI if you are selling, e.g., bottled water to them), and they are paying with soft dollars, i.e., other peoples' money. I have problems with how soft dollars are used when applied too broadly, but the system works to the benefit of research firms. Eric Alexander: It’s a lot harder for a research firm to penetrate/develop business with large mutual fund. "I’m sitting with a fire hose of info" says one large-fund portfolio manager. They need barriers to access, not more info. Question: What are new models on how to pay for research: Is it arbitrary or still predominantly through trades? Paul Spillane: 85-90% is still via soft dollar. It will take a lot longer to wean off than anyone thinks. If a large mutual fund company wanted to separate costs, it could be 3% of their management fee. For a smaller firm, its entire management fee could be allocated to research cost. Richard Lipstein Question: Last question. For someone looking to get in the research business, what does this business mean for the up-and-coming professional? Eric Alexander: Paul Spillane and I say same thing. Be good, and be entrepreneurial. If you have been a salesperson, bone up on analytics. If you are an analyst, participate in selling. Michael Mayhew: Ample opportunities for good and great analysts. A lot of analysts have spun off with high expectations. Paul Spillane: If you love it and are passionate about it, there’s never been a better time. If you don’t love it, join a bulge bracket firm. You get real motivated when you wake up thinking "how am I going to make money for my family?" David Teten: Be focused to add value. There is a story, true I believe, of one analyst making over 2 million covering one stock (McDonald's). Pick a domain you can own, then become the recognized expert in that domain. David Weild IV: 1) Being a research analyst is a wonderful thing, whether starting independent and or bulge bracket. You learn a real discipline in a dynamic market (securities). You can switch to private equity or corporate side. It’s a great training ground. I’d like my kid to do this. 2) Just to mention separately, this is anniversary of 9/11. There is a wonderful organization on that was on 60 Minutes called Tuesday’s Children, which provides services to kids who lost parents. Helps them get through college. Annual event at Cipriani’s 9/27. They placed kids on take-your-child-to-work day. I’m on the board of directors. Please consider supporting them.

Online Match-Making with Virtual Dates

Users of online dating sites often struggle to find love because the sites themselves make it more difficult than it needs to be. To the rescue: Virtual Dates, an online ice-breaker from Jeana Frost of Boston University, Michael Norton of HBS, and Dan Ariely of MIT.

More: http://hbswk.hbs.edu/item/5478.html

Their advice about online dating (which also applies to winning business online):

“Remove yourself as much as possible and don’t invest your ego in one particular date,” Frost offers. “Remember that it’s very easy to get carried away and imbue a profile with overly favorable qualities. My advice is to try to stay calm and resist being invested in one person until you’ve actually gotten to know them. Avoid long e-mail correspondences because they tend to heighten expectations.”

“It also takes resilience to go on a lot of dates and spend time actually arranging to meet rather than spending hours a week just searching. The people who go on a lot of dates are the people who find someone. In some sense it’s a numbers game.”

New users especially should keep in mind that online dating is not in the end so fundamentally different from regular dating, adds Norton. You try to find people, you try to meet them. “It’s the people who think it will be quite different from their regular experiences who end up being the most disappointed …. In online dating, the same sorts of people who are online are also out there offline. It can help you sort, but ultimately it takes work, effort, and a little luck.”