Nice to Know We’ve Still Got Whuffie

TheVirtualHandshake400 It’s year-end, and that means it’s time for the annual flood of top 10 lists. Imagine my surprise (and delight) when I saw that The Virtual Handshake had made honorable mention (just outside the top 10 – looks like about #16 if he listed them in order) on Chris Tomkins’ Best Social Media Books of 2009. Chris’ methodology was simple:

Since many of us (yes, I know you are out there) are still looking for the best book on social media.as well as those last minute gift ideas, I wanted to publish the results of a study that I held via my friends and social media connections on Linkedin and Facebook.  I polled over 5,000 people and simply asked “What’s the best book on social media out there.”

Now here’s what I found both fascinating and, frankly, a bit pride-inducing: every other title on the list came out in 2008-2009. The Virtual Handshake came out in 2005!

When we wrote it, we very deliberately set out to write a book that would be timeless, not something with a 2-year shelf life. Considering how rapidly the social media space is changing, that’s a significant challenge.

Consider this. when we finished the manuscript, the term “social media” didn’t exist. “Web 2.0” was just barely coming into use at the time the book came out. We called the activity “online networking” and the technology “social software”. Twitter didn’t exist. Facebook had just opened to the general public, much to the chagrin of its college-student membership. LinkedIn had about 3 million members (it now has over 50 million).

And yet, almost five years later, The Virtual Handshake is still considered by some to be one of the best books on social media. While we don’t even mention Twitter and Facebook is only mentioned once, it’s as timely and relevant now as it was in 2005 – perhaps even more so.

Why?

Because we focused on the human element, not the technology. Trends come and go, and technology just keeps coming and coming and coming. But the core elements of human relationships and interpersonal communication remain largely unchanged. The ways in which you build strong relationships online aren’t really much different from how you do so in person. Twitter etiquette in 2010 hasn’t changed significantly from Usenet netiquette in 1990. Ben Franklin’s advice on recommendations is as timely now as it was when he wrote it in 1777.

So if you’re into social media and you haven’t yet read The Virtual Handshake, I invite you to do so.for free. You can read it online or download it for free, and you can even get the paperback for free, thanks to our long-time sponsor, Landslide. And, of course, you can still order it at Amazon and other online bookstores.

And whether you’ve just read it or had it for a while, we’d always love to hear from you about how you’ve applied what you’ve learned from it in your business. The hundreds of such messages we’ve received over the years have perhaps been our greatest satisfaction. We wrote this book to make a difference in people’s lives, and it’s always nice to hear when we’ve succeeded at that. Feel free to leave a comment below or send us an email and tell us your virtual handshake experience.

Free Pass for 2009 Sales & Marketing Symposium: Winning Customers in the Era of Social Media

I look forward to attending Liminal Group’s 2009 Sales & Marketing Symposium, a half-day morning taking place next Wednesday, March 25, 2009 from 9am to 12pm, at Asia Society, 725 Park, NY. I have one complimentary pass provided by Liminal Group —if you’d like it, write in the comments (preferred) or mail me to indicate why you would benefit from a free pass.”

Date: Wednesday, March 25, 2009
Time: 8:00am – 12:00pm EST
Location: Asia Society
725 Park Avenue
New York, NY 10021

Speakers:

Penelope Trunk, author, Brazen Careerist: The New Rules for Success .

Paul Greenberg, author, CRM at the Speed of Light: Essential Customer Strategies for the 21st Century, President, The 56 Group, LLC; founding partner of CRM training company, BPT Partners, LLC. At the end of 2007, he was the #1 non-vendor influencer, by InsideCRM in their annual “25 Most Influential CRM People” announcement. He was also named one of the most influential CRM leaders in 2008 by CRM Magazine.

David van Toor, General Manager for Sage’s CRM group.

New York Events: Best Practices of Venture Capitalists in Identifying Investment Opportunities

I’m starting to release the findings from the large research study I’ve been leading on “Best Practices of Venture Capitalists and Private Equity Firms in Identifying Private Company Investment Opportunities”. My colleagues from Evalueserve and I have interviewed over 100 venture capitalists and private equity investors for this study.

I have two speaking engagements coming up in New York where I’ll be discussing our findings. I hope that you can attend! Of course, I welcome feedback/discussion.

Feb. 19, 6:30pm: Israeli Business Forum
1500 Broadway, 12th Floor, New York, NY

Feb. 24, 6:30pm: MIT Enterprise Forum,
100 Park Avenue, 24th Floor, New York, NY

Among the issues I’ll discuss:
– How are you positioning yourself to become a company`s preferred investor?
– In the current tough climate, how can you lower your deal origination costs?
– What does research on deal-origination indicate are the primary sources of deal flow for institutional investors?
– What are you doing to identify companies that might be interested in being approached?
– What are the earmarks of a potential investment opportunity?
– How are you systematically identifying industries/situations in which you may be able to create new companies, rather than find existing companies?
– How do you increase your inflow of useful referrals?
– What is the best way to make warm cold calls?

I have attached the draft slides below:

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.

Evalueserve acquires Nitron Circle of Experts

Evalueserve Ltd.I’m happy to report that Evalueserve has acquired Nitron Advisors. I originally met with some of the senior management at EVS because I was recruiting them to consult for some clients. That conversation led to another conversation, and another, which led to an offer, which led to an acquisition. I plan to continue running Nitron with my partner Scott Lichtman, now with a much larger platform in the emerging markets.

Evalueserve has been a rocket ship of a company, and a perfect fit for our long-term strategy for Nitron. Both our clients and our experts will benefit from this relationship. Clients will get access to the largest knowledge process outsourcing company, with 1,800 people in India, China, and Chile. Experts will see increased consultation volume from a wide range of clients.

We have already launched an Indian expert network, which should be of particular interest to any readers who are investing or doing business in India. We have also launched a Media Source Center, a service to provide a very small number of elite journalists with free access to high quality media sources, for stories related to the emerging markets. If you know any journalists covering the emerging markets, they are welcome to contact us to apply for this service.

More details here:
http://www.circleofexperts.com/nitron-evs-merger.aspx

You can read more about Evalueserve at http://evalueserve.com/ .

UPDATE: For Integrity Research’s comments on the acquisition, see http://integrityresearch.blogdrive.com/archive/826.html .

InfoWorld: Social Media: Overhyped or Under-executed? Strategies for Success.

I hope to see you at this upcoming event:

Sponsor: InfoWorld
Title: Social Media Breakfast: Overhyped or Under-executed? Strategies for Success.
Location: Roosevelt Hotel, New York City
Time: Tuesday, May 15, 2007, 8:00 a.m.-10:00 a.m.

Register for this complimentary event by clicking here: http://www.infoworld.com/3909

Social Media is experiencing phenomenal growth. As a highly effective and efficient way to communicate with Information Technology professionals, IT Peer to Peer Communities are gaining ground quickly. Yet key questions remain on how to best market to this new media.

Topics includes:
* New proprietary research on Social Media trends and technologies
* Hear from expert panelists on Social Media implementation and ROI opportunities
* Testimonials from marketing and advertising executives using Social Communities today

Experts participating in panel discussions:
* Julien Blin, Research Analyst and Social Media Expert, IDC
* Allen Fear, Director of Online Content & Production, InfoWorld
* David Teten, Co-Managing Director, Nitron Circle of Experts; Author, The Virtual Handshake
* Mike Walsh, CEO, Leverage Software
* Additional speakers TBD

By attending the InfoWorld breakfast you will gain expertise in the following topics:
* Tips for developing ads that connect with your target audience
* Measurement techniques and how new tools/metrics are being used to determine ROI
* Ideas on building IT Community loyalty
* Evaluating communications potential and coverage
* Marketing vehicles used to best communicate in an IT Peer to Peer Community.

http://www.infoworld.com/3909

If you would like to invite a colleague to attend this event with you, please forward this email and have them register for a complimentary pass.

Free copies of The Virtual Handshake

The folks at Landslide have figured out a great marketing strategy: If you view a demo of their “sales workstyle management” system, they’ll give you a free copy of The Virtual Handshake–Opening Doors and Closing Deals Online.

Alex Salkever of Inc. wrote in Turning Sales Into Science that Landslide “gives sales staffers what they need, when they need it, to close a deal.” In other words, Landslide provides salespeople more infrastructure, so that they can focus more on selling and less on all of the other activities that distract them from their main job.

Link: Watch a Landslide demo, get a copy of The Virtual Handshake

Scott Allen on Growing Your Business November 27

I’ll be appearing on the Growing Your Business with Fred and Lyna talk radio show on November 27. We’ll be talking about how entrepreneurs can best use social networking and other Web 2.0 sites to grow their business.

I’ll post details on how to listen when the show airs. In the meantime, you might want to check out their archives, including recent shows with Joan Stewart (“The Publicity Hound”), Lee Silber (Self-Promotion for the Creative Person), Denise Michaels (Testosterone-Free Marketing), and more.

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.

Download The Virtual Handshake for free

We finally did it: we have made our new book, The Virtual Handshake: Opening Doors and Closing Deals Online, available for free download. Of course, we encourage you to buy the bound book at your local bookstore. It’s much easier to read that way (and actually cheaper than printing out the whole thing on your printer).

Just as online dating has revolutionized the way singles connect, very similar technologies are revolutionizing the way that businesspeople close deals. We wrote The Virtual Handshake to show you how to sign new customers, meet new business partners, recruit star employees, or even find a new job, all by using online networks. More technically, it’s the first mass-market guide to “social software”: blogs, social network sites, virtual communities, relationship capital management software, contact management software, and so on.

This was not an easy decision; we had a lot of discussions between ourselves and with our publisher, the American Management Association, about this. We were very hesitant to give away 2.5 years of hard work at no cost. The top five reasons we’re doing this are:

1) We’ve gotten rave reviews for the book, but it’s very hard to get people to notice a new book. The Virtual Handshake has received extremely strong reviews in BusinessWeek, Harvard Business School Working Knowledge, countless bloggers, and many other leading publications. It has also been excerpted in CNN.com and FastCompany.com. I just received a great review from Ron Lichty, in the Software Development Forum News:

“It’s not often that you read a book in an area where you have interest and passion and discover authors who both deepen and broaden your thinking. It’s equally rare to find a book that, despite being published, as books are, months after they’re written and more months after they were researched, that nonetheless introduces technologies and applications and services that seem as fresh as if they were posted to a web site yesterday. The Virtual Handshake was that for me.”

We invested far more effort than we probably should have in writing a rigorous book that met our standards, with dozens of case studies, 300 sources, and extensive peer review. Our explicit role models were academics who write for the popular audience (e.g., Bob Cialdini, Deborah Tannen, Robert Putnam, Howard Gardner).

Readers appreciate that; the problem is getting readers to be aware of the book, in a world that publishes 600,000 new books every year. Providing a complimentary ebook is a way to increase trial of the book.

2) Frankly, we make very little money on each book. We earn in the range of 5%-20% of the publisher’s sale price (depending on various factors in the nature of each book sale), and 15% of that goes to the agent, and then Scott takes a chunk of course! In many cases, you as the affiliate marketer earn more on the sale of a book than we will, since you can earn up to 10% of the retail price as an affiliate, with no other parties involved. This is evidence that in the book value chain, the marketer adds more value than the content creator.

If the book becomes a bestseller, we’ll make real money on it. But in the unlikely instance that it does not become a bestseller (grin), then the real value of writing a book is the marketing of my company, Nitron Advisors and our Circle of Experts; of Scott’s consulting/speaking services; my speaking appearances; and anything else we choose to market.

There are also a lot of other ancillary benefits to writing a book, which I won’t discuss here. But to achieve any of these marketing benefits, we just need to get the book in peoples’ hands.

3) Distributing an ebook is particularly appropriate given the subject of our book. Long term, we think that every professional businessperson would benefit by learning from our system. In the short term, the obvious sweet spot of our market are highly computer-literate people who are heavy Internet users. Those are exactly the sort of people who are likely to be highly receptive to a free ebook marketing campaign.

4) Providing free downloads has worked very well for Cluetrain Manifesto, Naked Conversations, Seth Godin, and Cory Doctorow, all of which were significant influences on our book, and all of whom we’d be happy to emulate.

5) Insatiable curiosity. It’s an experiment. If it works, we can recommend it to others. To our knowledge, most of the authors who have tried free ebooks were self-published. AMACOM Books (the American Management Association) is experimenting just as we are.

So, download it now, tell a friend, post a link to http://thevirtualhandshake.com/free-book-download.htm on your blog, etc. Once you’ve read it, we’d greatly appreciate a review on your blog, Amazon, Barnes & Noble, company newsletter, or any other appropriate venue. And of course, we always value your feedback.

Enjoy!