Soothing investor blues

For Mike McCormick, the forces at work in the investment industry and financial markets in the late 1990s were forming the perfect storm.

An overvalued stock market, a lack of personalized service to clients and the emergence of technology created the ideal environment for a high-tech, high-touch approach to investment services.

McCormick proposed a model in Blue Vase Securities that provided support services to a network of independent broker dealers, victims of the layoffs he anticipated would occur at brokerage firms. When those layoffs did occur, McCormick was ready to help.

But he faced an investment dilemma of his own: How to convince investors to put their own cautious dollars into his venture? With an emphasis on technology and people, he needed cash to build the company’s infrastructure before it could start generating income.

In 1999, Blue Vase generated about $117,000 in revenue; by last year, its revenue was up to $12 million.

Smart Business spoke with McCormick about how he persuaded investors to keep the cash flowing and kept Blue Vase in business.

What is the secret behind Blue Vase’s rapid growth?
We did some preparation before we started the company. There were a few things that we thought were going to happen, and they actually happened.

As an example, we really thought that the market was going to collapse, because in 1998, if you looked at any technical chart, you would have seen that the market … was going straight up in the air.

Common sense and history tell you that it just isn’t going to continue that way.

What was the need for cash at the outset?
One of the reasons I thought we could excel was because we were committed to processing business quickly and paying our financial advisers on time, which is always frustrating for salespeople when they aren’t paid on time.

So we had to invest in the software and the back office system to support several hundred reps before we actually had reps. Before we had any financial advisers, we had to make a significant investment in a … system that would support all the activities of financial advisers.

What was the most challenging part of growing Blue Vase?
For me, raising the money was the most challenging part, partially because we started with nothing. We weren’t a producers group that decided we wanted to start a brokerage firm. We were literally starting from scratch.

I started in a conference room and I didn’t even have a pencil. Everything required some infusion of capital and really, for the first four or five years, that infusion of capital was happening on a regular basis.

How did you keep the capital flowing?
I had a very good partner that was supplying the capital. I had the energy and the strategic plan in my head, but as always, convincing people who have the capital to support your plan requires a great amount of courage on their part.

So when things are growing that rapidly, you really need partners on the capital side of things that are willing to face the risk with you.

How were you able to persuade them?
I’m persuasive and … committed to and believe in what we’re doing. I think it comes through.

I really try to be honest with people. In raising money, as an example, in our private placement, we had to tell them, ‘You may lose everything, but here’s what I want you to do.’

Unlike a lot of businesses that raise money and then go into production or go to do whatever they’re proposing, we spent a couple of years doing what we wanted to do and had that as evidence for our future investors to evaluate.

So what we were saying about the future had some substance for the person to base an investment decision on because of our past accomplishments. Another thing was, we weren’t technology. The technology wasn’t the product, but the technology was the accelerator to help the business processing, to help us reach out into other states.

What did you learn from this fast growth?
The main thing I learned is that everything is not dependent on me. In fact, I also learned that nine times out of 10, I get in the way.

So my best role is to empower [people] and to be clear about what I want. I have to be clear in explaining to people what I expect of them, and aside from that, frequently my role is to trust that they’ll bring a project to fruition.

Ironically, some of this came out of not being able to do some of the things. The technology, for example, is way over my head, and so if I didn’t trust … our operations people, I would be slowing us down.

How to reach: Blue Vase Securities,