You have a great idea and you think you’re ready to go to market. Now what? Congrats, you’ve just entered into the most exciting time of the process. This is where real-time problem solving comes into play, and you’ll soon find that there are tricks of the trade that you can effectively call on—and then there are other events you never could have anticipated.

For us, launching with 38 firms was far fewer than the 75 to 100 we had wanted. But we soon discovered there was a positive aspect, as 38 is a very manageable number, and we needed every one of them to count and trade every match they got. We focused on on-boarding each firm and designing a launch program that would give them a positive and uniform experience and maximize our chances for success. We called it the Navigator Program. We sent an expert—a navigator—into each firm to assist with the launch. We trained these navigators (MBA students we hired) on how to use the system and whom to call if there was a problem. We gave each a cell phone with pre-programmed numbers for support so we could reach and coordinate with everyone. Then, we sent them throughout the country, placing one at each firm, to help with the first three days of trading on our new Liquidnet platform. For all the support the Navigator Program was supposed to provide, it was mostly a marketing tool.

The program worked as hoped. At each firm, a navigator sat in the trading room, answered all the traders’ questions, and solved any problems that arose. Most importantly, with the Liquidnet representative present, our new system stayed top of mind. With someone sitting beside a trader, it created excitement on the desk when a match appeared on our system as opposed to confusion, apathy, or fear of the new thing. Excitement led to the desire to trade on this new platform, and we were there to ensure that every match was acted upon and generated as much volume and revenue as we could in the first few days of our launch. There were a few technology glitches, and we encountered some bugs, which we expected and solved pretty quickly.

We had all taken bets on what we expected our first day’s volume to be. Some said 10 million, some said 40 million, and others yet predicted 100 million. We ended the first day of trading with 4 million shares. Nobody—NOBODY—had said as little as 4 million shares. It was extremely disappointing.

But, in the scheme of things, 4 million was still a successful launch, and though not close to our Super Bowl bets—which were based on gut-level excitement and enthusiasm, not mathematics— 4 million was in line with our business plan. We broke even at 2 million shares, so at 4 million we were profitable on day one of our launch. The 4 million shares also reset our expectations for what to expect going forward: our daily volume would be something greater than zero and less than ridiculous.

We launched on a Wednesday and the plan was for each navigator to stay with a firm for the first three days of trading. I spent the first few days flying to various cities around the country visiting some of our largest clients. The first day of our launch, which I spent in Kansas City, had been frustrating with what I saw as a lackluster amount of shares traded, but what happened next was epic both for the volume we traded and the notoriety we received. I was in Texas, where I was treated like a rock star. I walked into our client’s office and everyone was buzzing about Liquidnet.

It was only noon in New York, but I soon learned we had already done 12 million shares. Then the head trader asked me, “Did you see what happened with ITG?” Investment Technology Group (ITG) was our only competitor at the time. They had a different model and had launched 14 years earlier.

“No, I didn’t,” I said. “I’m just off of the plane.”

While I didn’t know what happened with ITG, I did know all about ITG. It had pioneered “static crossing,” which meant that ITG would pick a point in time, maybe on the hour, and ask clients to put what they wanted to buy and sell into the pool at that time. ITG was trading millions of shares every day. That was because they were the only player in the crossing space. Now, the trader in Texas was explaining to me that he had just seen an analyst on TV telling everyone to sell or short ITG. “Liquidnet is going to put them out of business,” the analyst said on camera.

Wow. I couldn’t have planted a story like that. I was shocked. And I also didn’t think it was possible that we could put anyone out of business in our first week of trading. But now, an analyst I had never met understood that, unlike ITG, Liquidnet offered a real-time continuous crossing platform. And with that, we totally trumped their model. Everyone watching seemed to get it, too. ITG’s stock dropped 8 points during the day and closed that day down 5 points, or about 15 percent.¹ Everybody was talking about Liquidnet. There was a huge buzz all up and down Wall Street. A start-up would give anything for that kind of press and certainly opt for that kind of press over revenue any day. It gave us instant credibility that could have taken us years to build.

It was so exciting to be on the client’s trading floor and see what was happening with our service. Every time there was a match the computer emitted a splashing sound and everyone ran over to watch. The navigator made sure the trader knew what to do and that the stock was traded. It was so amazing, so seamless; it was magical.

We did 17 million shares on our second day of trading. We were euphoric. On the third day, a Friday, we did 10 million shares. I returned to New York and to a big party that we had only planned on Thursday when we hit 17 million shares. We hosted the event on the upper level of a dive bar where the ceiling was falling down. You should have seen this place! But no one cared; we had drinks and music and lots to celebrate.

We had been working nonstop for the past 14 months in such a whirlwind—people hardly got up from their desk to go to the bathroom. There had been so many ups and downs, it was a constant emotional roller coaster. Nobody had ever created a navigator program; nobody had ever connected all these firms in one place to trade together; all previous attempts had failed, and everyone said “this would never work.” Up until this point it was a well-known belief that “there’s no way to execute a large block of stock without having a human being in the middle.” We proved them all wrong.

Old Habits Are Hard to Break

We came back from the weekend and expected that our volumes would continue to grow. That didn’t happen.

While the navigators were there for the launch, it was never the plan for them to stay. First, they were MBA students who had to get back to school. Second, they wouldn’t have been allowed to stay on our customers’ trading floors. Getting allowances for them for the three-day launch had been a big coup, but approval to stay indefinitely would have been impossible.

Monday came and, unfortunately, without the navigators, we were no longer top of mind. What’s more, it seemed like over the weekend the traders forgot everything they learned, and when they returned from the weekend they reverted back to what they had always done, picking up the phone and using the brokers they had always used. However easy it was to trade on Liquidnet, it wasn’t as comfortable as doing things just like before. The service was designed to be easy to use—and it was—but it wasn’t yet part of the everyday workflow.

This obviously didn’t bode well for our ability to execute matches, generate revenue, or create value for the company. We saw a dramatic drop-off in the volume right after the launch. Sometimes we did half a million shares the entire day. We only averaged 3 million shares a day for the first year. In fact, in the very early days, matches became so infrequent that we were given two nicknames: “Illiquidnet” and “LiquidNot.”

We weren’t losing money. We had been very careful about our expenses, and 3 million shares a day was about breakeven. Still, I couldn’t stand it. I didn’t understand how it was statistically possible to execute such little volume. Every day I went to our technical people screaming that there must be a bug in the system because there was no way that we could be doing this poorly. I also kicked the salespeople out of the office. I sent them to clients’ offices to remind them of our existence and continue to keep us top of mind, reinforce our value propositions, and help them trade electronically rather than pick up the phone, calling a broker and trading manually.

But nothing was going to change significantly overnight. I had to figure out how to dramatically grow our volume because if we didn’t, we, too, were destined to have a short life span. Not as short as Optimark’s, but we’d ultimately be dead, too.

How to Get the First Customers to Sign: Sell in Groups

One thing we found to be most effective when selling a brand new product or service, signing up new firms, or soliciting input or feedback was to hold frequent meetings where we could pull together prospects, traders from different firms, into one group meeting.

Of course, we got some pushback. There were a few firms that didn’t want to be in the same room as their competitors, but they were in the minority. Most accepted the opportunity to be with their peers and hear what others had to say and how the others responded to the new offering. What everyone had in common as their largest problem was the serious lack of liquidity.

Traders are generally off the clock by 4:30 P.M., so we planned our meetings at the end of their day. We also had a very good lure. At each meeting we provided appetizers, beer, and wine. It was a great way to get the traders to show up and to talk.

The group meeting was appealing for us for a variety of reasons. First, when selling a new product or service, pitching to a group of prospects at one time can bring together both early adopters and pragmatists so you can sell to both constituents simultaneously.

Both research and firsthand experience show that very few want to be the first to sign up for a new product or service, but if people see others nodding enthusiastically, even fewer want to be the second. In a group setting, where people are engaged, and the product or service seems useful and some attendees are nodding along, the early adopters will want to sign up, and the pragmatists will see firsthand that others are interested—yielding a better chance of signing up both.

Second, when soliciting feedback, if you meet one-on-one with a firm or a trader, you only get the perspective of that trader or firm. In a group setting, however, you can get differing opinions but they feed off each other and ultimately move toward a consensus. Importantly, your customers can hear different opinions and buy into the consensus.

We found that the most effective place to host these group meetings was in the office of an existing customer or prospect. Whether implied or explicit, it was an endorsement—like the hosting firm was giving us a seal of approval. It piques the other firms’ interest and desire to participate in the event. In the beginning we ran these group meetings in all the major financial centers. I believe it was part of the secret sauce that helped us sign up the initial 38 firms and certainly the many others that came after the initial launch. It would have been far more difficult and time consuming to do this through one-on-one meetings, and the success rate would have been far lower. Almost always, most of those who attended a group meeting would sign up for our service. Convening in groups became one of our most powerful marketing tools, and we repeated it again and again.

Technology—It Gets Better with Age

We were the first institutional broker to execute trades over the Internet. Other brokers had direct phone lines into their customers’ trading rooms. That meant that the broker paid for a direct line between the broker and the customer. This was only 2001, and it was the way things had long been done in our industry. We thought that the industry was beholden to very old technology and that the Internet had bypassed the entire institutional brokerage industry. We believed the Internet would have and should have a great impact on the industry.

Initially, clients were concerned about security and the safety of their information. After all, this was their most valuable information being sent over the Internet. We eased their fears by educating them about encryption and the protocols for the messaging software we used and how it was coded in a way that couldn’t be hacked. We explained our security measures and precautions in great technical detail, especially to the large companies that were very concerned about security and somewhat resistant to change.

While we got over the security hurdles, we had to get over another, higher hurdle: the Internet itself. We soon discovered—as did our customers—that while direct phone lines rarely went down, the Internet had hiccups, and lots of them. In the beginning every time there was a slight service glitch or a slowdown with an Internet service provider (ISP), our platform would disconnect the users and we had to call every trader and request they log in to the service again. At some points this was occurring five or more times a day. Our five salespeople were spending their days calling our then 70 clients multiple times asking them to log in again. It’s probably not a surprise that some said, “I’m done for the day; I’m not logging in again.”

Nobody left the service, but they would stop logging in for the day. Some put us in a box and didn’t log in for a week or two. That came at a substantial cost. The highest volumes of trading occurred right when the market opened, from 9:30 to 11 A.M., and if we had an outage at that time, the whole day was gone. We’d trade around half a million shares, far less than we needed to break even.

It happened too many times across too many days, over too many weeks. This was all very new to us and as we were the only institutional brokerage firm at the time executing their business solely on the Internet; it was just one of our growing pains. We had to come up with a solution to compensate for the inconsistency of service between the different ISPs. Our solution was relatively simple. Since most interruptions were less than a second, we programmed our software to keep users logged in to our platform and automatically reconnected them behind the scenes. In most cases, the traders never knew there was a disruption. It was a simple solution to an enormously frustrating user experience. Over time, Internet technology improved and became more reliable and more secure so that this issue ultimately resolved itself.

Expect the Unexpected

When we launched, our biggest gating factor to overcome was the concern about the security of our clients’ most valuable information. We therefore put very strict measures in place to protect that data, including using numbers instead of firm names and preventing our salespeople from seeing the symbols of the stocks that were matching. We designed it so that when matches were found, only our members could see which stocks were matched. We were so protective of our customers’ information, knowing it was their biggest concern, that we hired one of the big accounting firms to independently confirm that their information was protected. We went to great lengths because it mattered so much—to succeed, our members had to trust us much more than they trusted any other broker.

When we talked to our prospects, they told us confidently that they would trade every match we found them so naturally we thought that having the system notify the traders that they had a match would be all they needed to transact in our platform. That turned out to be very wrong. We had to continue to adapt to the realities of the business. In order to keep our system top of mind (post the navigators), we started “nudging” clients when they had a match. Basically, this just meant that one of our salespeople called a client and notified them they had a match in the system.

This practice worked well—so well, in fact, that clients started calling us when they had a match and asking us to nudge the other side. Unfortunately, the human component did not have all the safeguards in place that we had put into the technology platform. One of our salespeople received a call from one of our customers—we call our customers “members”—who told her that there was a match, told her the stock symbol, and asked her to call the other side of the trade. Our platform never revealed the stock symbol, and we had told our membership that the salespeople would not be able to see the stocks that were in the system. She called the other side and said, “I have a match for you in “XYZ” stock. They heard the symbol and freaked out. Though she knew the information from the other side—we were very explicit in telling our members that we did not see any symbols—they didn’t believe her. I got on the phone with the member, but they didn’t want to hear from me either. They logged out of the system and stopped trading.

They were our largest client at the time—twice as large as our number 2 customer. Losing their business was a massive blow to our revenue and our morale. I had to fire the salesperson; it was not a malicious mistake, but it was the most egregious error possible, and there had to be some accountability. The misstep cost us a tremendous amount of business; it shattered our growth, our confidence, and took us from being profitable back to breaking even.

The client stopped trading for an entire year. They came back because we continued to grow and they were at a disadvantage to their peers who were finding liquidity in our pool. After several years, we were becoming a more important source of liquidity to our members, and we had earned their trust. We decided we would talk to clients and the advisory board to see if they were comfortable with us knowing the stock symbol and they granted us permission. This was a major milestone for us, as it was a very clear indication that we had earned our members’ trust and enabled their coverage to make more intelligent calls.

I learned a lesson that would repeat throughout my career: you simply cannot plan for everything. There will be an unknown number of unknowns and you have to expect a certain number of extremely hard knocks. People will take you down a few pegs, or there will be hits to the business through no fault of your own. You won’t know where, when, or what it’s going to be, just that they will happen. You can’t let them derail you. You can be depressed for a bit, but you have to go back to work.

Things You Don’t Learn in Business School

On September 11, 2001, we were in a management meeting when someone from member services barged in and said, “I just want you to know that a plane crashed into one of the World Trade Towers.”

“Please call our members that work in that tower and make sure everyone is okay,” I said. “And please close the door behind you.” We all figured it was terrible but an accident. We went back to the meeting, but then, when the second plane hit, we obviously knew something very bad was happening.

From that moment on, everyone in our office huddled around the big TVs. One of the guys who had been with us from the beginning was unable to reach his father, who worked in one of the towers. He was freaking out. Everyone was a mess. Obviously, trading stopped. No one had anything to do but worry.

This is one of those things they do not teach in school or tell you about in a management book. What was I supposed to do? Do I send everyone home? Do I keep them at work? What’s the safest place for them? What’s the right thing to do?

We all stayed in the office until we gained more clarity. One of our guys who had been in one of the towers during the attack visiting a member walked into the office. He was completely covered in soot. He was in shock, dazed, and traumatized by what he had witnessed.

At that point all transportation into and out of the city had been stopped, and smoke covered the island of Manhattan. We arranged for everyone to get home. Once we knew our employees were safe I started walking home, right in the middle of Seventh Avenue, the only time I’ve ever seen the streets without cars. F-16s were buzzing overhead. It was completely surreal.

There was a conference held that morning at Windows on the World, the restaurant at the top of the North Trade Center Tower. I had been invited to speak. Generally, I accept those invitations, but this time, I had declined. One person who did speak at the conference was the former head of sales for Merrin Financial. He died that day.

We were all in shock and not thinking much about the business in the months that followed 9/11. Over the next three months, things were slow. Trading all over the world was affected.

We also realized that we, like almost everyone on Wall Street, were utterly unprepared for a disaster. For many financial service firms, 9/11 was a wakeup call that terrorism could happen in the United States, and we had to think about what to do from a business perspective. Everyone started focusing on business continuity procedures. We had never before thought about what would happen if our building went down or became inaccessible. We were in the world’s major financial center and very few firms had disaster recovery or backup plans in place. Like the Y2K-readiness drill that had consumed virtually all companies in every industry the year before the new millennium, business continuity and disaster recovery quickly became a huge and immediate exercise and expense at every financial service firm.

In order to be prepared for this new reality, we had to have a separate physical site from which we could operate in case of a disaster somewhere nearby, but in a different state, with duplicate servers set up with all the applications, connected in real time and backed up. The site had to be ready for immediate use, though the hope was that we would never have to use it. It was an expensive insurance policy. It cost millions—a huge investment for a small firm like ours, which had just launched a little over six months before.

Our first year in business was a struggle. We ran into things we never could have planned for. We didn’t reach the volumes we anticipated, and then suddenly there were massive additional expenses and a slowdown in global markets. We had a good product and we were up and running, but we did not have nearly the volume necessary to make us meaningful and important to our customers. We would not be missed if we went out of business. We had to do something big and meaningful because slow growth or no growth meant a slow death. We had to grow and we had to grow fast.

Membership Has Its Privileges

We survived that first year because we had been extremely mindful of our costs, so our breakeven was low. We were actually making a bit of money starting the first quarter after our launch.

We were modestly successful where everyone else had failed because we kept our expenses low, our system was intuitive and fit within our members’ existing workflow, and we solved the major problem of creating a critical mass of liquidity in a short enough period of time to keep people’s interest. The seamless integration with their order management systems enabled our system to do most of the work for the traders. One elevator pitch was, “Sit back, relax, you don’t have to do a thing. We will let you know when we have found you the liquidity you’re looking for.” We made it all an upside for them and eliminated the frustration of constantly entering orders and getting little in return. With Liquidnet, they didn’t enter anything, everything was automatic—they just had a little chicklet on their screen—which would pop up and create a splash noise when we found them a match.

We did grow organically over time as we added more clients and our liquidity pool grew. We relied on early adopters, those people within each firm who liked technology and weren’t afraid to try new things. But we weren’t growing nearly fast enough to become a meaningful solution to our customer’s liquidity problems.

At Merrin Financial we involved customers through our advisory boards. I saw this as a powerful tool, but now we wanted to take it a few steps further. Liquidnet was a unique offering new to Wall Street, and we provided software, technology, and connectivity to an exclusive community. But all the liquidity and exclusivity meant nothing if no one used it. Our members had the problem and in our model they were also the solution. They provided the liquidity, and the more they took advantage of that liquidity and executed the matches, the more actionable and useful our solution would become.

I knew we had to enlist each trader to own the problem and be part of the solution. The more ownership each took in solving their liquidity problem, the better the chance of our success. In essence, we were operating the country club for them, but there had to be some rules to ensure that everyone had a uniformly positive experience. We were the only company on Wall Street that opted to refer to every customer as a “member” from the very beginning, but it made sense. Think about the difference in the level of commitment one feels when you’re a customer versus a member of something. As a member, there’s a sense of ownership and a greater sense of commitment.

It couldn’t just be words, though. We created advisory boards and held roundtables where we solicited their input for member protocols and ideas for new features, and discussed topical issues about our industry. We asked them for their ideas and suggestions. We also asked them to be references for us and to talk to those not yet signed up.

We didn’t suggest they do that to be nice to us; we motivated them to take ownership of their success. The platform would be successful only if more firms joined and more traders used it. They understood and they spoke to their friends, their colleagues, and their competitors, mostly unsolicited by us, because they understood it was in their own self-interest to get them into the community and build this liquidity pool. “All of the other ventures failed,” they said to other traders, “but here’s one that’s working.” Their feeling of ownership and participation helped fuel the viral nature of our business and it was a huge part of our success—but not all of it.

Grow Quickly or Die

In the start-up world, slow growth is no different than no growth. It is still death, just slower. We needed a strategy to greatly accelerate our growth. We came up with the idea of setting a metric that required users to commit to trade a certain percentage of matches we found them, which we referred to as the Positive Action Rate. The reason our members signed up was to find liquidity and trade blocks. We were presenting them with more and more matches, but the usage differed dramatically among firms and among traders at the same firms. We had to create a better user experience across our member base, and we had to increase our revenue. What if we set an expectation across the community of at least trying to execute a certain percentage of the matches that the system found them? What would happen if we asked everyone to commit to a 25 percent Positive Action Rate (execute one out of every four matches provided)? We believed, and our advisory board agreed, that if we were going to set that expectation, there had to be some consequence if certain members or traders did not achieve it. The solution was simple: if they couldn’t or wouldn’t trade 25 percent of the matches, they would be creating more harm than good and we would ask them to leave the community.

We went to the board of directors and elicited their opinion for the idea. They didn’t think that highly of it. “Why would your clients care about your threat?” they asked. “It’s not as if they’re going to miss you. You’re only trading 3 million shares a day.”

We knew our advisory board, made up of enthusiastic users of our service, felt differently. They were all in favor of it. They knew it would make our pool more actionable, which is what they had signed up for. With that understanding, we had confidence to go to our community of members. We explained, “Look, we created the software and the community, but the benefit of the platform is really based on how often you use it—on how often you take advantage of the liquidity. So, if a member wants to trade and you just sit there, you’re not helping improve the trading community, you’re hurting it.” We told them that in order to make this platform successful, we are asking everyone in the community to commit to try to execute 25 percent of the matches they received with us.

A few said, “Screw you, I’ll trade with you when I want and I won’t when I don’t.”

We had about 75 firms signed up at this point and we needed them, but only if they used the service. For the first time we started kicking people off if they couldn’t commit to the terms agreed by the advisory board and the vast majority of our members. What happened from there was pretty dramatic. Everyone knew the community needed to be more active to ensure the success of the platform, and those that remained wanted to be good citizens. They took the Positive Action Rate seriously and our volume doubled in three weeks. With those results, the members were happier and so were we.

It worked so well that we very quickly went back to our advisory board and asked if they thought it would be too much to ask the community to trade one out of every two matches. Again, they were really into it.

The result: much happier members and exponential growth. It was the hockey stick growth trajectory we needed. The Positive Action Rate strategy was not in our original business plan, but businesses never go according to plan. New plans and strategies have to be devised in the heat of business as they do in the heat of battle. This strategy was bold and risky and absolutely necessary to our success. We began to hit records every week and then every month. And nobody thought the company could do anything but continue on this path. But, of course, in life and in business, what goes up can certainly come down.