Market Mover

by Robert Greifeld

  Today, Nasdaq’s IPO process is not just an automated auction, as it was in 2012. A Nasdaq IPO auctioneer oversees everything carefully in a high-touch, curated, customer-centric process. It’s a better process, a superior product, and a much-improved experience for our customers. Over time, we won high praise for our new process, and I think it is fair to say that by the end of my tenure, we had largely recovered from any reputational damage we had suffered. In the wake of a crisis, you have to play the media game and go on a PR offensive. But ultimately, the real response is innovation in products and services—talking to the customer and improving your offerings rather than just defending your mistake.

  Follow the Turtle

  I admire turtles. In fact, I keep dozens as pets. Turtles are steady, consistent creatures with hard shells. They’ve been around since the time of the dinosaurs, and they know how to survive. Yes, speed is sometimes critical in business. But speed without a clear and consistent direction can lead you nowhere fast. Sometimes, especially in moments of crisis, you need to move slowly and deliberately, and bank on your thick skin. Turtles know how to do that.

  The Facebook IPO was one of the most difficult moments of my career. But we didn’t panic; we didn’t doubt our fundamental business model. I didn’t doubt my leadership capabilities. We didn’t question the incredible progress Nasdaq had made in the previous years. But neither did we pretend that there weren’t genuine issues to be dealt with. As one of my favorite football coaches, Bill Parcells, likes to say, “You are what your record says you are.” We had a great record pre-Facebook. That blemish didn’t define us, but it was still part of our record, and a spur to the further evolution of the company.

  In a competitive environment, no one has a perfect record. Even when you’re on top of the world, don’t spend too much time patting yourself on the back. It breeds smugness and the wrong kind of satisfaction. While you’re celebrating your success, your competitors are eating your lunch. And always be ready to accept a setback and move on. It’s never enjoyable, but the capacity to take a loss, and respond well, is a critical leadership skill. And as I suggested to Bartiromo in the interview, we became a better company as a result.

  Facebook defined a clear “before” and “after” in my time as CEO. Like a turtle, we put our heads down, worked hard, and slowly, deliberately improved. For all the pain and stress of that spring day in 2012, we didn’t allow it to define us; rather, it motivated us.

  LEADERSHIP LESSONS

  • Take the Heat. Sometimes a leader needs to step up and be the public face of a mistake.

  • Don’t Gloat over Victories or Obsess over Failures. While you’re celebrating your success or licking your wounds, your competitors are eating your lunch.

  • The Right Approach at One Moment Is Not Necessarily the Right Approach at Another Moment. What once was a success strategy can later become a liability.

  • The Best Response to Crisis Is Innovation. Don’t spend too much time defending your mistakes. Talk to your customers directly and improve your products or services.

  Chapter Twelve

  Institutionalizing Innovation

  Nasdaq Makes First Share Trade Using Blockchain Technology

  Telegraph, December 31, 2015

  How do you wake up every day with fresh eyes, ready to pursue change, growth, and innovation? It doesn’t matter what company or what industry you work in; this is an ongoing challenge of leadership. A mantra I would often repeat in the halls of Nasdaq was this: Once you achieve competency, you must battle complacency.

  Ironically, this particular challenge can be easier when times are hard. If competitors are breathing down your neck, it’s not difficult to feel the urgency of change. When the business is under existential threat from market forces, the motivation to improve comes naturally. The imperative to evolve is taken care of, we might say, by selection pressures within the market ecosystem. But once you have achieved a significant level of competency in your business, the internal cultural dynamics shift. Success is undoubtedly a wonderful thing, but it comes with new business realities that good leaders must appreciate. Finding the right mixture of consistency and change, institutional stability and constant improvement, efficiency and innovation, is always a critical goal of enterprise leaders.

  At Nasdaq, my aim was that we should always be reorganizing a little bit every day. Change, I believe, should be part of a healthy organizational culture. Obviously, there are certain times in the life cycle of a company when larger and more dramatic shifts are needed. My early tenure at Nasdaq was one of those times. But change should not be reserved for moments of crisis and increased market pressure. In fact, when I read about companies undergoing massive reorganizations, I think that more often than not it is the result of a miscarriage of leadership. Dramatic, one-off reorgs are really an admission that management hasn’t been doing the hard work of continuously improving the business in little ways, all the time, so now they have to compensate by doing it all at once. Large reorgs are blunt instruments that inevitably cause collateral damage. They are like a massive hammer blow, when a carefully wielded scalpel does the job much more effectively and without the organizational trauma. Indeed, high-functioning organizations are endlessly building on their success; purposefully and actively looking at all the ways that things can be better, smarter, and more efficient; paying attention to their competitors; thinking about the future; and exploring new pathways of innovation.

  This was the kind of organization I wanted Nasdaq to be as we moved into the second decade of the new millennium. Up till then, the industry-wide move to electronic markets, internal culture changes, SEC rule changes, a spate of transformative acquisitions, and the great recession had combined to provide a naturally shifting landscape that kept us all on our toes. But now we were entering smoother waters. The financial crisis was a few years in our rearview mirror, and while the economy was still recovering, the markets were generally healthy or moving in that direction. Nasdaq was beginning to reap the benefits of good strategic decisions made in the previous business cycle, and as the economy improved, we started to feel the wind at our backs. That’s not to say everything was easy; we were continually pressed by circumstance.

  In some respects, in fact, the financial crisis and the ensuing struggles in the economy had just temporarily obscured the success story that Nasdaq had built over the previous decade. The investments we had made and the strategic acquisitions we had pulled off, including the purchase of OMX, positioned us well to ride the emerging economic tailwinds. It can be difficult to know who is strategically well positioned when an economic downturn is depressing everyone’s prospects. But as things picked up in the broader economy, our fundamental strength was beginning to show.

  There were, of course, plenty of moments of drama in those years—the Flash Crash, Hurricane Sandy, new acquisitions, changing markets. Each of them presented challenges that our team had to rally and respond to. But none compromised the fundamental trajectory of well-functioning markets, expanding business opportunities, growing revenues, and a successful equities franchise. Quarter after quarter passed with larger profits, good margins, and a stock price headed up. Little by little, the IPO market was recovering from the downturn. We continued to win new listings, bringing new tech companies into the fold even as we convinced older technology franchises to switch and join the Nasdaq family.

  Our team was also maturing and flourishing. By 2013, Nasdaq had a new Corporate Communications Chief and a new CIO, and our young executives were growing into highly effective leaders. Many of the OMX team had not only adapted to Nasdaq’s culture but embraced it enthusiastically and enhanced it. Their abilities boosted Nasdaq’s talent pool significantly.

  This was a time in which billions of dollars poured into biotech companies and their IPOs, in some cases raising money for promising drugs that were many years away from passing key trials, gaining regulatory approval, and making it to market. Such long-term time horizons are an
important function of public markets—to provide that belief and long runway that allow time for a medical breakthrough (and business plan) to come to market. As I watched immunotherapy startups gather investors and capital for their moonshot efforts to improve cancer treatment, I was especially proud of the role Nasdaq played in helping them.

  Building a Technology Franchise

  In my previous incarnation as an entrepreneur, I had always loved software businesses with recurring revenue. That was what we had built at ASC, and I truly think it’s one of the best business models out there. At Nasdaq, in addition to our transactions business, I worked to build our software and services franchise. This was enabled by the purchase of OMX and their exchange technology business. As emerging markets grew stronger, demand was growing all around the world for customized solutions to power market exchanges. Over time, we expanded on the basic order-matching technology of the business and built or acquired significant new functionality.

  The 2010 Flash Crash, and subsequent issues, had taught us a number of things about the new world of electronic markets. As markets became more automated, it became more important that the inputs into those massive order-matching engines were carefully reviewed on the front and the back ends of the trade to avoid potential pitfalls. Knight Capital had provided a dramatic example of what can go wrong without that careful analysis, when a software glitch cost them several hundred million dollars of errant trades, forcing their sale to Getco in late 2012.

  The existential fear of such disasters helped drive interest in our new suite of tools and spurred us to make them more robust. We developed new surveillance technologies, adding a level of heightened security to our exchange offerings and expanding the reach of our market. We initiated development efforts to integrate machine learning, AI, and big data into Nasdaq’s suite of products. Electronic markets were not going away; quite the opposite. But now that they’d been around a few years, and some of their dangers and downsides had been revealed, I wanted Nasdaq to be the best at providing much-needed security and protections. By 2013, our market technology business served over seventy exchanges, clearinghouses, and depositories in fifty countries. It generated nearly $200 million in revenue and was growing quickly.

  Consistent, recurring revenue is always a boon for a business, and it protects against the highs and lows of onetime sales or individual deals. As a public company, of course, every quarter you have to disclose your financials. In that sense, running a public company is an endless series of quarters. Many are concerned today that such short reporting periods incentivize companies to focus on short-term returns at the expense of long-term strategic thinking. There is no doubt that as a leader of a public company, one has to quickly adapt to the unique rhythm of quarterly reporting. But in my case, it didn’t constrain my focus. In fact, knowing I was going to have to constantly report earnings every quarter helped me concentrate on the longer-term trend line of our earnings. It made me less concerned about the specifics of any single quarter and more concerned about the direction we were headed in.

  “Worry about the trend line, not the slope,” I would tell my team. Real change takes time. I was always much more concerned about ensuring that change was happening, that we were really moving forward, than I was about the speed at which we were moving. Too often, change is a mirage. The most important thing is to make sure it is real. When you can actually measure organizational change over time, then you know it’s happening. The same applies to any kind of change process: losing weight, becoming a faster runner, learning a new skill. Measurable, consistent results, however small, give everyone confidence. Then you can worry less about exactly how fast it’s going from day to day or month to month, or quarter to quarter.

  I never wanted us to deliver something unnatural in any given quarter. If we were straining too hard to make our numbers, it was a bad sign. It would only compromise the future. Are we improving? Are we headed in a positive direction? Is our competitive standing strong and improving, relative to the market? Are we meeting our customer needs? Those were the more critical issues to pay attention to.

  Quarterly numbers should reflect the organic progress of the business. There is a lot of pressure in the markets to have a huge success each quarter, which will boost the near-term stock price, but good CEOs avoid getting caught up in that loser’s game. Recurring revenue and the software and services business helped Nasdaq operate on more consistent terms.

  In addition to market technology, the other new business line we built around recurring revenue was Corporate Solutions. The ever-complexifying rules and reporting requirements necessary to list on the public markets created a new business opportunity to assist companies in meeting the regulatory demands. This was a natural extension of Nasdaq’s expertise. We built Investor Relations websites for companies; offered a press release distribution business; developed a suite of tools for Investor Relations teams; and bought a company called Directors Desk, which helped provide software to administer Board-level meetings with easy-to-use and secure applications. Running exchanges for equities trading in the United States and Europe was still our bread and butter, but little by little, Nasdaq was becoming a larger and broader company.

  The Gift Council

  Nasdaq expanded through acquisition, but we also grew through internal development and innovation. From day one, I had instituted a high degree of fiscal discipline at Nasdaq, what I called a weigh-measure-and-count organizational culture, and I made sure everyone bought into that way of thinking, from my executive team to the troops on the ground. But even as I saw the success of that approach, I also knew I needed to balance the cost-conscious culture with an emphasis on longer-term innovation. Nasdaq ran lean and we ran efficiently. But efficiency and innovation are not generally in the same operational family. They are distant cousins at best, feuding rivals at worst. How to make both feel comfortable under the same roof? Indeed, we needed to find ways to institutionalize an innovative mind-set without compromising our operational mojo.

  In order to achieve this, I decided to take a page out of John Chambers’s playbook and create a space for innovation that was decoupled from people’s regular operational budgets. At Cisco, Chambers set up internal business councils to evaluate new business ideas. I sat through a presentation about Cisco’s approach and loved it. So I did something similar at Nasdaq, adapting it for our context. We called it the Gift Council, and it basically functioned like an investment committee at a VC firm. Individuals would present to the council on interesting, innovative opportunities, and if an idea was deemed promising and approved for funding, the money Nasdaq invested in that project would not count against the budget in the operational area of the individual who had proposed it. In exchange, the Gift Council required that that person give up some sovereignty over the project and submit to it being closely tracked by the council through its startup-like phase.

  That may sound simple, but for a large company wedded to fiscal discipline, it was like trying to engage another side of the brain. The metrics for Gift Council projects had to be entirely different from our normal operational metrics; otherwise, the fiscal discipline of our culture would eat those nascent projects alive before they could show their true potential. We hoped that this approach would provide a way to be respectful of short-term fiscal discipline and cost control while still priming the pump of longer-term innovation.

  Some companies create an entirely separate research-and-development structure to nurture new initiatives. On the upside, this can solve the problem of creativity being killed by the thresher of financial discipline, but it has its own built-in problems. Even if you successfully create a highly innovative operation, it’s easy for it to become organizationally bureaucratic itself and cut off from the rest of the business. The famous Xerox PARC, the R&D arm of Xerox, was a highly creative organization and the fount of many world-changing ideas (like the laser printer and the graphical user interface), most of which were never taken advantage of by Xerox! With
the Gift Council, I was trying to have the best of both worlds, providing a place for business units to protect and nurture innovative ideas while keeping them close to the business and subject to the right kind of discipline and oversight. By the end of 2012, new business ideas that were nurtured under the auspices of the Gift Council had generated $134 million in revenue. And that number was growing quickly.

  One of the most interesting projects to emerge from the Gift Council was an initiative called Nasdaq Private Markets (NPM). The development of NPM is a unique story of how Silicon Valley, venture capital, cryptocurrency, and Nasdaq all came together in a happy marriage.

  Blockchain and the Rise of the Unicorns

  As the economy recovered after the financial crisis, Silicon Valley led the way. By the end of the 2000s, Nasdaq’s favorite business corridor was thriving as never before, and money was pouring into the coffers of venture capitalists looking to provide growth capital to the next great startup. It was a boom that resembled in intensity and scale the boom of the late nineties, but the funding model was entirely different. At the beginning of the internet era, it had largely been Nasdaq’s marketplace providing public funding to hundreds of early-stage startups, most of whom had few alternative sources of capital. Venture capital provided seed funding in the range of maybe $5 or $10 million, but beyond that, companies needed the public markets. In a sense, we were the primary game in town if you needed significant amounts of money. But by the end of the 2000s, the game had changed dramatically. Billions of dollars were flowing into venture capital, and young companies didn’t need to tap the public markets until much later in their evolution. Moreover, regulatory changes and the demands of being a publicly traded company further incentivized growing companies to remain private for longer. Startups postponed their IPOs and raised additional capital, even as they grew into companies worth hundreds of millions, and in some cases well over $1 billion. The number of these so-called unicorns (private startups exceeding billion-dollar valuations) was growing every year.