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Trading Technology

03:05 PM
Ken Barnes
Ken Barnes
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Why it Pays to Be Purchase Order Driven

Traders frequently build fintech businesses out of the tools they've built to solve their own challenges, but before investing in product design and creation, consider a purchase order.

Ken Barnes, Options IT
Ken Barnes, Options IT

When is a tool a product and how do you know? Perhaps tool isn’t the right word but then I don’t know of a single word which captures what I’m referring to, and that’s this: something you build (not buy) to solve your own particular challenge. To scratch your own itch, if you will.

The topic comes to mind on the back of a recent meeting with a customer I’ve known for several years. He’s an engineer turned high frequency trader and one of the more colorful, high energy guys that make the high performance niche of the industry an enjoyable patch to roam in- always pushing the limits of technology, increasingly in hardware. When we first met perhaps 8 years back it was a millisecond discussion, but of course the unit of measure had now moved to nanoseconds. (if you’re looking for 10G port replication in 2 nanos with no jitter, drop me a line and I’ll put you in touch.)

In the millisecond days I’d been fortunate enough to have joined Wombat- a right team right place right time story if there ever was one. In our case we’d taken a tool (an OPRA feed handler) built to scratch the itch of a consulting customer and turned it into a product line that grew to a $30+ million software business in 4 years –followed by a circa 8x revenue exit that would help fuel the ambitions (and valuation estimates!) of entrepreneurs and investors in the sector for years to come. So it’s of little surprise to so frequently encounter trading practitioners with ambitions of building a business out of the platforms they’ve built to ply their trade.

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Look- it CAN be done, and there are many examples in our industry - Thesys was spawned directly from Tradeworx, McKay from the minds of traders at Ronin and BNP, are but two examples. But at the risk of stating the obvious, the road from itch scratching tool to revenue bearing product is a perilous one not to be taken lightly. Less obvious is the matter of divining when and how to take the risk on making that journey, so allow me to offer a fundamental recommendation which may alight the way: be “purchase order” driven.

Few people who have not walked in a product vendor’s shoes understand the vastness of friction between buyers and seller which makes making a sale so difficult no matter how brilliant the concept or value of the end product. Identifying the target audience, conveying your value, building the necessary trust in your ability to deliver, delivering and supporting a fully functioning product, setting the right price, framing an adequate contract… all of these challenges separate you from success and pose a factor of unpredictability in your business plan.

So before investing countless amounts of energy and investment in product design and creation, take a minimum viable product approach and focus on the “P.O.” that will prove you can meet all of the challenges above. Making your first sale is a humbling yet incredibly enlightening process, which forces you to apply the discipline necessary to have any degree of success and strips away distraction. And, a signed purchase order offers a degree of validation that simply cannot be equaled (certainly not by the temptations of analyst observations and market statistics which litter the pages of innumerable business plan casualties).

Mind you, the P.O. driven process is not merely a tool to be employed at launch. It’s a discipline to be used continually in the everyday operation of the business. The business of trading technology is one brimming with creative people, and inspiring ideas-the vast majority of which of course are simply not viable, be they new businesses or simply new features. And while there is always a place for taking risk and building for the long term, letting a signed purchase order be the ultimate arbiter of your decision making will save you and your investors from wasting your precious time and capital. Until you’re willing and able to go get that proof, you might be better off just scratching that itch.

Ken Barnes is the SVP of Corporate Development for Options.

In this capacity Mr. Barnes is a principal and member of the executive management team with responsibility for development of the firm’s product development and strategic company initiatives. After having spent a dozen years in business development, product marketing and trading facilitation roles in the capital markets technology industry, Mr. Barnes joined Wombat in 2005. As head of Business & Planning, he helped the company quintuple revenue in three years and launch the company’s high performance middleware division, positioning it for a $225 million acquisition by NYSE in 2008. Mr. Barnes managed NYSE Technology's Infrastructure business in the US, leading the turnaround of SFTI and the launch of the Mahwah colocation facility in 2009, and subsequently launching the company's Capital Markets Community Platform.

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