Posted by: Nancy | April 1, 2010

Defying conventional wisdom

I had the opportunity to listen to a conversation between Joe Ratterman, president and CEO of BATS Exchange, and Crosby Kemper III, director of the Kansas City Public Library.

BATS stands for Better Alternative Trading System. It’s a registered securities exchange that started up about 4 1/2 years ago in Lenexa, a Kansas City area suburb. The exchange competes directly with the New York Stock Exchange (NYSE) and Nasdaq (which used to be an acronym that used to stand for National Association of Securities Dealers Automated Quotation).

BATS was founded to increase competition in the market. It’s succeeded. BATS is the third-largest exchange in the world. BATS now accounts for about 10 to 11 percent of the trading volume, while the Giant NYSE has about 11 to 12 percent.

All from a humble Midwestern location — NOT Wall Street.

Ratterman, soft-spoken and precise, carefully laid out the company’s amazing story:

  • Speed is the differentiator. Trades are executed in millionths of a second, incomprehensible speeds. The human eye can register a 250,000/1,000,000th of a second, these trades occur faster than that, he said.
  • Customers are broker/dealers, and include all the big names: Morgan Stanley, Goldman Sach, Credit Suisse, eTrade, Deutche Bank, etc.
  • BATS is on a path to achieve 18 to 20 percent market share in the next several years.

He gave an overview of the company strategy (Go big or go home), investment approach (Venture capital? No thanks), marketing approach (big customers are equity partners who draw other big customers), and growth opportunities (options market, Europe, maybe Asia).

Then he spoke about their hiring strategy, and I nearly fell out of my chair.

“We never recruit outside Kansas City,” he said.

An extraordinarily successful company that willfully, purposefully, hires only local talent?

I’ve lived here for about 25 years, and that’s the first time I’d ever heard a CEO or any corporate executive break with the conventional wisdom: The best talent comes from the coasts, you can’t get smart people here. I can’t tell you how many smart people believe that you just can’t get smart people to live in the Midwest, and how many others believe that to be successful, you have be in the center of action — Silicon Valley for technology innovation, New York for marketing, Wall Street for finance.

BATS slayed that convention. Ratterman gave some insight to the company’s hiring approach:

  • Hires have to fit with the company’s ethic and, first and foremost, be willing to do the right thing.
  • The company looks for “deep discipline”, deep expertise in the selected field, whether it’s accounting or hardware or communication.
  • Passion for the markets is required. An example: a software engineer makes a point of reading SEC filings and competitors’ press releases. Not for his job, but for his passion. He cares about the markets and wants to know everything he can.
  • The hiring process is strenuous and can take up to 15 interviews. And every interviewer, from the receptionist to the hiring manager, peers, and leadership has to give an unqualified two thumbs up on a candidate before they’ll hire. Any hesitation from any one, and they’ll pass. “We spend a lot of time not hiring the wrong people,” Ratterman said.

The process pays off. Ratterman notes that all of the original 13 employees are still there.

“The best and brightest like to be around the best and brightest,” he noted. “The people who are here like to stay here.”

Ratterman said BATS has brought in some employees who had a compelling reason, a need, to be here, and he admits they’ll entertain a candidate who wants to be here. But they don’t seek them out.

A lesson might be: You can find good talent, if you’re willing to look for it. Note that it’s not just hiring a recruiter with East or West Coast connections — you have invest the time to be sure that your next hire is the right one.  Like the BATS approach.

A second lesson might be a bit more subtle. Candidates have got to WANT to work at BATS to get in there. They’re not hiring just for a “job,” they’re hiring for the long term, for those who can help the BATS team — already at the top of their game — go on to the next level. Depth of knowledge, passion for the business, willingness to do the right thing wins out.

BATS is proving that it pays off to be unconventional, in more ways that one.

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