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Chapter 11. Views from the Edge—Conversa... > Executive Interview #2: Financial Se...

Executive Interview #2: Financial Services



Founder, President, & CEO: Mr. Jonathan Bentley


LightPort.com, a private company founded in 1997, is the leading Web services vendor in the United States to independent financial advisors and money managers. LightPort has built and now manages Websites for more than 400 firms managing over $125 billion for nearly 165,000 clients. These firms have uploaded to LightPort over 2 million secure client portfolios. The company's online directory of independent financial advisors is the largest on the Web, with searchable listings for more than 14,000 advisors managing over $17 trillion for over 1 million clients.

Plant:Perhaps you could give us an insight into the philosophies behind LightPort.com and your background.
Bentley:The appproximate cause for the company forming was two things coming together in late 1995, early 1996—first, the Netscape IPO, which got everyone's attention in the middle of 1995. August 1995 was one of those watersheds for the investment industry—that was where everybody said, "what is this?" and probably for the first time started seriously thinking about the Internet as a broad, big deal, not just something that academics used to send e-mail.
 Also about that time, having been in the securities industry for a long time—I began as a broker in 1979—I was really losing bearings on how to value securities—equities in particular—using all of the standard Ben Graham, Warren Buffet, value kinds of things that we learned as a part of our training. They are very sensible principles whenever you have normal markets but not when you have the exuberant kinds of things that are going on now, where people seem unusually inclined to extend a lot of faith in the future, wholly unlike typical human fear.
 Things started to break loose about that point. I honestly started to have concerns about how to deliver value in what my primary occupation was, which was securities recommendation, advisory work. At the same time I have always been a bit on the "geeky" side; I have always spent more money than all my friends on the newest and fastest computer and I went through them, one a year it seems like, for a decade.
 So that, in addition to having a liberal arts background—I was a literature major, and also for a while I taught architectural design—there was this "artsy geeky" part of my personality that was magnified by the Web, and right at that time—it was the beginning of 1996—those things converged. I was not sure that I could deliver value in what I had been doing for a decade and a half, and this new thing looked awfully interesting. The first step was the Website I developed for my investment advisory firm; they saw the result and said "gee, this is pretty good." Comparing it against what is out there now, where everything is far beyond my individual design capability, it was nothing outstanding. But at that time, when really everything was so thin and poorly developed, it stood up quite well.
 At any rate, that was where LightPort began. And typical of an entrepreneurial personality, even though we were easily a year early, I had this sense of "we have to hurry, it's too late, we have to hurry up and create this thing." In retrospect it's hard to quantify whether or not it was truly too early because it also allowed us to begin talking to some important strategic relationships that developed that now set us as an old-time player that has been around for a while. Maybe you can't have that if you come to the game later. Starting that early meant "spilling a lot more blood," burning more capital. But having to endure without any customers also toughens you up and makes you listen to the market more carefully. That's the history of how we started.
Plant:Perhaps you could share with us some of your insights as to the core strategic strengths developed and utilized by your company as it has evolved.
Bentley:In terms of what I would consider core or key strategic insights, one is how incredibly important it has been for us to have a narrow vertical focus. From an academic level, I'm sure you have studied this time and time again, but having a constrained vertical space to operate in accelerates two critical efficiencies—the efficiencies of product development and cost economies. When you have a constrained group of potential customers, you can narrow down the range of expectations the market requires and capitalize your product development cost over more iterations. You accelerate learning and development efficiencies. These efficiencies translate into better margins and more pricing flexibility. But that's not Internet business, that's just business, and it applies to the Internet as it does anywhere else.
 The other key efficiency of a tight vertical focus is your branding and reputation. If you have limited dollars, you need the reference point feedback you gain in a vertical space that you can't get in broad spaces. Industry word of mouth is a very important thing. Beside all that was the fact that it was common sense to develop something for a professional that I understood, for an industry that I came out of.
 A vertically constrained space is the only practical option—if you have constraints on capital, you can't throw a ton of money at it—and then by extension the second key point, focal point, for me has been that, to really make this work, you can't go out and build a reputation on your own. You really need to organically integrate your process to existing players in the space. For that reason, early on we targeted the number one and number two providers of brokerage services to money managers and the number one and number two providers of software solutions. We began knocking on their doors and trying to develop contractual relations, and we ended up securing the number one and number two in broker-dealer services, Schwab and Fidelity, and the number one and number two in the software area, Advent and Performance Technologies, which was a subsidiary of Schwab.
 So that has done immense things. The Advent relations, probably more than any of the others, allows us to begin with credibility when we talk to a prospect. They appreciate that they are talking to somebody that is allied with a company that they have relied upon for years to run their core information, their portfolio management component. This is mission-critical stuff, and it allows us to start a mile and a half ahead of any unbranded, unaligned competitor that shows up at their door.
Plant:Perhaps you could share with us some of your insights as to the challenges faced by e-commerce strategists going forward.
Bentley:I think the fundamental intellectual problem facing my industry is: how do you automate the process, automate services without losing the human touch? I would bet that it would be as true for many industries, and the more intangible the product offering the more significant this problem is, with financial services being almost purely intangible. This is a core problem; in a sense the Web is the first serious shot in automating human intimacy in some ways, and the whole intimacy-touch thing, which is foundational to the trust that facilitates the delivery of intangible services, is a completely different intellectual challenge from automating a production line for bolts and widgets and automobiles. Or even for Amazon's books.
 All the pathways that people rely on for developing trust in a physical consultation—especially in something as delicate as financial advising, which is so dependent upon comprehension, context, and confidence, something such as giving advice to a client to stay in an equity position—the industry is very far away from figuring that out. It is one thing to throw a lot of charts and financial graphs and historical things onto a Website, but you're probably creating information overload, creating confusion in a lot of cases, or at least false senses of security that will quickly evaporate in more difficult market conditions.
 So the primary challenge that we have is: how can we take this ancient process of delivering advice that still today, the beginning of the twenty-first century, is like it has been for over 50 years: full human interface, talking, meeting face to face or by telephone with periodic paper statements and other physical backup. So the question is how can you take the qualitative elements of what it takes to trust an advisor and deconstruct it and determine what can be effectively automated into this broadband communication channel, and what cannot efficiently be put there. Figuring that out, finding out where those boundaries are and what are the new rules and means for advice is the key element of future success.
Plant:How do you see going forward, the government and political regulatory issues impacting? Is that something that you feel will have a bearing or do you think the laissez-faire, hands-off approach that we have in the U.S. will continue to stimulate the e-commerce environment?
Bentley:My sense is that laissez-faire wins, but it will not be a "layup" and there will be a lot of struggles where we get close to the brink, be that taxation or regulation, but ultimately "bits" and the network are so "quicksilver" fluid that they will flow wherever they have the freest ability to flow. I don't think that ultimately politicians will have the ability to constrain it, so they will back away from tight controls and encourage it through an open market strategy.
Plant:You are clearly a leader within your space in the early partnering mode, partnering with leading companies very early on and successfully. How do you see the partnering relationship changing in the future? Do you think organizations will change partners through looser relationships or do you think it will be a consortium approach? How do you see the landscape there?
Bentley:My belief is that you will have a folding back into traditional or larger businesses—maybe AOL–Time Warner is an example—but once larger, more established companies that have market depth and market share build internal competencies, I think the opportunity for the kind of thing that we have done then "recedes back into the surf." What David Pottruck at Schwab terms "clicks and mortar." Merrill Lynch was late to the game but Merrill has enough depth and enough mass and intelligence that they will figure out how to come to the electronic marketspace.
 I think that there will continue to be plenty of opportunities for companies that are established, like we are, but ultimately I think you have these business opportunity gaps open up, and the Internet may be the most massive one of these in recorded business history, where the technology runs so far ahead of the ability of large businesses to "inculturate" that change. You have an amazing window for new companies to exploit. It stems from the gap between what the technology can do and the slowness of large bureaucratic enterprises to adapt to it. The wider that gap is, the more room there is for the ferment that creates companies like ours. But it is only at these inflection points that these things open up so massively. Once the nature of the new paradigm is known better and the technology gathers more of a stride, I think that the larger companies have an opportunity to exploit what they have, which is the branding and financial depth to come back in and regain share.
Plant:Do you think that the door is slowly closing upon smaller companies coming to the Internet in markets where the giants are awakening? Unless they have a true differentiation?
Bentley:I do think that it is closing, but slowly. The Internet is a watershed change in communications more than technology. Communications has such an overreaching effect on all industries and business processes that human comprehension, business methodologies, and service and structural responses will take years to catch up. And in terms of defining which doors are closing, I think the ability to brand a new business-to-consumer model is already closing; we will not have another Amazon. But in terms of the business-to-business reengineering opportunities that will enable the established brands, I think those opportunities are gaining momentum and the kind of business it represents probably favors smaller, intelligent, fast-moving companies.
Plant:Thank you for sharing your insights.



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