Know what business you are in….
In 1987 the stock market crashed. As the market was falling, investors had little or no access to the plummeting prices and, as a result, lost billions of dollars. Because of this limited access, two years later the SEC directed that investors should be given more direct access to the market opening the door to a new industry. Over the next six years AllTech Financial and Block Trading opened offices in Montvale New Jersey and Houston Texas allowing investors direct access to the stock market and a new industry of day-trading was born.
In 1994, sensing an opportunity, Betsy and I started a day-trading business along with two other partners in Wichita Kansas. At the time we felt that well trained investors could make money on stock price fluctuations. In addition, the brokerage firm would make money on facilitating the information and trades. Our initial strategy focused on using existing information tools but adding intensive training on how investor could act like a stock trader. We also focused on expanding and opening trading floors across the country from Greenwich Connecticut to Nashville Tennessee to Denver Colorado.
After a couple years of expansion and creating a training course, we were one of the largest day-trading firms in the country. But our asset was our customers and they were free to trade anywhere. We discovered that we had spent the first several years thinking we were in the stock trading business. However, we were really in the information business.
Our traders were not the asset, it was the information technology and programs that delivered day-trading information and execution to the customers. All this time and we really did not understand the core of our business. Once we understood the core of the business we merged with another firm (Protrader Securities) and designed the industry leading software tools to allow investors access to meaningful market information.
This basic template became the trading platform behind firms like Instanet, eSchwab and eTrade. In 2001 Protrader Securities sold its software to Instanet for $150 million dollars – all for the software and nothing for the traders or the facilities! We found that the investors and the brokerage locations were not our asset…it was all about the software that our traders used. When growing a business it is essential to understand what parts of your business have value.
Sometimes the business you think you are in is not really the business you are in!
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