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Thursday, Feb 9, 2023

Veteran Offers a Four-Way Test for Business Success

It has been nearly a decade since selling my discount-brokerage firm, Jack White & Co. I’ve had time to reflect on what it takes to be successful in business, and I keep going back to the fundamentals.

No. 1: Make Integrity Paramount

Integrity is essential to the success of any business. There is an old Irish tradition that any small business would carry the name of the proprietor. This was partly so the customers would know who they were dealing with, but also because when they would walk through the door, customers knew exactly whose reputation was on the line.

I started out in commodities trading, and unless the person on the other end of the trade had complete confidence that I was a man of my word, the deal wouldn’t happen.

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The collapse of companies such as Enron has put renewed emphasis on the need for integrity and transparency in corporate America, and ethics courses are now mandated at most business schools.

At Jack White & Co., our policy from the start was that we would quickly correct any mistake made in handling a trade. For the sake of fairness, we became the first brokerage in the country to record every telephone conversation we had with a client. If we made a mistake, we could play back the tape, and correct the order immediately.

No. 2: Hire Good People

Many business people are afraid to hire someone who is too good because they are afraid of competition. My rule is the opposite: Surround yourself with people who are bright and talented.

For many years, I was lucky to have as our chief operating officer a Stanford University grad and University of Southern California M.B.A. He knew how to put together and motivate a team, much as you would build and motivate a winning sports team.

We were also lucky to have a wonderful pool of talent in La Jolla, where UC San Diego is located.

We were the first discount brokerage to be open 24 hours a day, seven days a week, and many students were glad to work unconventional hours around their class schedules. Most started working for us part time, and many stayed with us after graduation full time because they wanted to be part of a winning team and believed in our commitment to becoming the best in our industry.

Ultimately, our average customer portfolio was more than double the size of our largest competitor’s, and our people made the difference.

No. 3: Do It Differently

My father was in the cattle feeding and meat-packing business.

In the 1940s, facing high feed prices, he imported soybeans from China, squeezed out the oil and kept the soybean meal as an alternative, cheaper high-protein feed supplement for cattle.

From that, I learned the importance of taking the business road less traveled. After an early start as a commodities trader, I saw the value of mutual funds.

But at the time, those funds were exclusively designed to hold stocks.

I came up with the idea of creating a mutual fund that would hold 90 percent in equities, but invest the remaining 10 percent in commodity futures. I called it Comsec Fund (short for Commodities and Securities).

No one had offered anything like it under the Investment Company Act of 1940, which typically defined mutual funds as vehicles for investing in equities.

I had to get Securities and Exchange Commission approval, which came through in 1970.

In its first year, Comsec ranked No. 1 among all mutual funds in percentage gain of its net asset value per share up nearly 22 percent.

No. 4: Accept, Don’t Reject Change

If you reject change, you’ll be looking backward and miss the next big opportunity. Comsec, which I sold in 1970 to an insurance conglomerate, had proved to me that the brokerage industry was missing a lot of opportunity.

I was also convinced that if I was going to create a new company, it should be somewhere more amenable to risk-taking and new ideas. So in 1973, my wife Judy, the kids and I picked up stakes and moved to La Jolla, where Jack White & Co. became the first discount brokerage company on the West Coast.

When the SEC abolished fixed commissions in the brokerage industry in 1975, we had a two-year head-start on most of the other discounters (such as Charles Schwab).

The next two decades were full of change, and full of firsts: first in the nation to offer discount commodity trades; the first no-load mutual fund transactions via stock brokerage accounts; we were the first brokerage to let clients buy and sell mutual funds without transaction fees; and as recently as 1995, Jack White & Co. was among the first to offer real-time trading of mutual funds over the Internet.

Accepting change also means understanding the importance of timing. If you are a trader managing order flows, you don’t need to be brilliant to know that when people are lined up to buy, it’s time to sell.

In the late 1990s, my discount brokerage would have had to raise tens of millions of dollars to invest in electronic trading technology if we wanted to compete in what was rapidly becoming a global marketplace.

But you have to know when to take your profits.

By the time we sold the company in 1998, two years before the stock market bubble burst, Jack White & Co. had 120,000 clients and $12 billion in assets.

And Smart Money magazine dubbed it the best discount brokerage in the United States for three years running.

There are probably more opportunities to build successful businesses today than ever before.

You just have to know where to look and how to follow a few simple rules to get there.

Jack White, a pioneer in the discount brokerage industry, lives in La Jolla.


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