Kristi Ross - Entrepreneur Extraordinaire
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Bill: ...This episode features Kristi Ross. Kristi is the co-CEO of tastytrade, which launched in 2011 and recently sold to IG group for a billion dollars. She is an incredible business leader, entrepreneur, and example. I enjoyed talking to her about entrepreneurship, her passion for business, team building, importantly for her resume, she was also CFO of thinkorswim when they sold the TD Ameritrade for $750 million. She has seen a ton of M&A and has participated in deal sizes both small and large. So, I'm incredibly grateful that she said yes to coming on this program. I wanted to feature Kristi because I have followed her and Tom Sosnoff since their thinkorswim days, since thinkorswim is one of the primary platforms that got me into investing, and I have always admired how much their firm takes education seriously, and I've always had fantastic customer service with their firm. So, I feel like that's important to highlight given some of the other firms out there.
As always, none of this is financial advice. All of the information contained in this program is for entertainment purposes only. Please consult your financial advisor before making investment decisions and do your own due diligence. So, Kristi, how you doing today?
Kristi: I'm doing fabulous. Thanks for having me on.
Bill: Thank you for saying yes to coming on. I have followed indirectly your career since the thinkorswim days, got introduced to thinkorswim through Tom. He was doing all kinds of conferences and whatnot in Chicago. I lived in Chicago for a long time. I got introduced to options theory and trading through that, and I've been watching what you all built at tastytrade, and very cool to see a successful exit recently here.
Kristi: Yeah, thank you very much. It was exciting for us, too. [laughs]
Bill: I can imagine. Do you want to give people a little bit of your background, so we can frame the conversation a little bit for people?
Kristi: Sure. Happy to. So, I have been in and around the trading and brokerage industry for about three decades. I have been through over 40 mergers, acquisitions, capital raises, and startups in my career. For the last 20 years, about 20 years I should say, I have been pretty much with the same team, Tom Sosnoff, and Scott Sheridan, and "Woody" Ma. Like you've referred to thinkorswim and now, within tastytrade and tastyworks.
So, my background actually has been in accounting and finance. Like I said, always around the trading and brokerage industry. Let's say, the CFO side of the business and then with tastytrade, Tom and I are co-CEOs of the overall ecosystem and now, IG, North America. So, I prefer the strategic aspect of being a CEO versus a CFO, but I totally get the numbers and how it all works. So, I think, that's you know, it's helpful in the seat I am in today.
Bill: I really like when I listen to you talk how enthusiastic you are about entrepreneurship and encouraging people to take risks, and jump headfirst into whatever they're going into, and I've noticed, you speak very warmly about your father in encouraging discussions. Do you want to tell people a little bit about how you grew up and having a dad encouraging you to test ideas with him?
Kristi: Yeah. Oh, boy, you're going way back. You're going way back, Bill.
[laughter]
Bill: I like to frame who you are first, and then we'll go forward.
Kristi: Okay, perfect. Yeah. So, I grew up in Wisconsin. Yes, I'm a cheese head. Yes, I'm a Packer fan, all of those wonderful things. I grew up in a household where my parents, not only allowed me to have a seat at the table, allowed the open discussion for challenges. You know, nobody talks about race, and religion, and all of that in politics.
And yet, at a young age, I could have that kind of conversation with my dad. I think that what he did is, inadvertently, whether he meant to do it or not, it made me feel like, I have a voice. There is worth in what I have to say. So, I look back at my career, and I say, "Well, in retrospect, I really do credit that at an early age to my ability and feeling that my opinion matters, and I have something to say, and I should make sure I say it, and that it should be an open dialogue." So, he set the stage for me early on of my expectations. So, my expectations were up here, Bill.
[laughter]
Bill: Well, you've exceeded them. So, it's good to set high bars and then jump over them.
Kristi: Yeah.
Bill: Something that I find amazing about your story is, you're what? You're 24, 25? I don't know if you were 24 when you applied for the job or whatever. But how do you get the guts to apply for a CFO job at 24 years old or 25 years old?
Kristi: Yeah. I love that you brought that up because it is one of my favorite stories is, when I worked in public accounting right out of college, and I know myself well enough, now, I look back, and I love to dive in and try new things, and then, figure them out, and then, by the third year, I generally get bored. But I had the opportunity as I am working with different clients, hearing, there was an opportunity for a CFO position, and I love change and learning. I need to be in an environment where I learned. So, I just literally raised my hand, I'm like, "Ah, I'll do it." [laughs] But I didn't necessarily feel like, "Oh, my God, I'm the best qualified CFO for that position."
But it was more about, I know and I have confidence that I can figure it out and I did. I ran out, bought the desktop book on how to be a CFO or all the different things CFOs need to know, and I bought the CEO book, because I knew I was going to be reporting to a CEO, and said all the right things, and had all the right energy around what I wanted to do, and what I wanted to accomplish, and how I would add value to the team, and I got the job, which was great. So, it wasn't that I was necessarily confident about taking on a CFO role as much as I was confident that I could come in and I could figure it out, and at some point add value.
Bill: Yeah. How big was the firm that you were dealing with?
Kristi: Yeah, so, that 6,000 employees, but that is deceptive. Because it was ultimately a staffing. It was a staffing company at the time. So, it was, when you looked at our payroll, it's over 6,000 employees. But in reality, it is a fairly small company with less than 50 employees internally.
Bill: That's incredible, though, to have the guts to raise your hand, and then, to be able to sell yourself in the meeting. I guess, my question to you is, where does that kind of confidence come from do you think?
Kristi: First of all, I'm highly competitive, Bill. [laughs] That's just my wiring by nature. I played sports my whole life. I was the youngest of four. So, you start to look at that landscape, and there's a jockey in for position. When you want to do something, you got to make sure you sell it. So, I would attribute part of that just to my wiring and my competitive nature. But I think, it's also about that risk reward. I think that risk aspect growing up, having the liberty to take risks and try new things, and again, back to having a voice, it is something that paves the way for building confidence.
Bill: Yeah. It's an amazing story and it's very, very cool that not only did you throw your hat in the ring, but then you capitalized on the opportunity and to see where you're at now. It's really amazing. I don't know how else to describe it. So, how did you leapfrog then into the trading industry?
Kristi: Mm-hmm. I'll back up to one, but the first job I took out of college, which was in public accounting. A majority of the clients I worked on were traders. In fairness, the first time I stepped on to that trading floor, I was like, "Oh, my God, this is the place where I need to be. Like, my energy level matches what is happening here in the financial markets." So, I'll say, sort of put a pin in that like, "Hey, this is where I know I eventually want to get to at some point."
When I did jump off to be that CFO, it wasn't for a trading firm. It was for this staffing firm. But it gave me the foundation, ultimately, for being able to catapult into my next couple of steps. What I did after again, three years, I came in, was CFO, learned a lot, made a bunch of changes, got a little bored, needed to do something bigger. So, I actually went out and I started my own practice, going back to working with traders.
Again, I loved, I experienced what I was craving is back in that energy level. Before you know it, I had the opportunity with one of my trading clients to go internal and be the CFO there. So, I did just that again, and flipped back into it. Working with the traders, I was a CFO for the second largest stock specialist firm on the Chicago Stock Exchange floor. We went through a number of mergers and ended up merging with a company called Automated Trading Desk, and listen, it was like everything I loved. It sort of checked the boxes in every way, shape, and form, and even loved the team I was with.
But after a while, listen, it just biologically, married, having small kids, having to travel a lot was tough. And I needed to make some sort of change and I didn't want to give up my career. I often tell my children now, if I stayed home with them, [laughs] I probably would have driven them nuts as a stay-at-home mom.
Bill: They'll be like, "Mom is too intense."
Kristi: Yeah, mom is too intense, you don't want her here. But anyway, it was a scenario where I needed to make a change, and that is when I met Tom, and I still remember sitting across from him. I remember telling him, he had just raised capital from TCV, Technology Crossover Ventures, and he was like, "We need a CFO. I don't really know what I'm looking for." [laughs] I said, "Okay." I said, "I understand." The VC ultimately wants to, they either want the company to go public, or be bought by a public company, or something to happen. I said, "Listen, I can come in, I can prepare you for that and not to do all that, but I'm going to tell you right now, I'm probably going to get bored in two years if there's not enough going on, but I'll commit to this two-year period." Well, 20 years later, I mean-
[laughter]
Kristi: -that a lot going on and we've had a lot of fun over those couple of decades.
Bill: Something that I don't know if people that are new to tastytrade or tastyworks may not understand like back in the thinkorswim days, y'all were at the forefront of direct-to-consumer financial media and the 24-hour education process. I have a complicated relationship with trading. But for y'all, I wouldn't be doing what I'm doing. I no longer trade. I'm more of an investor now. I am incredibly grateful for the options education that I got from thinkorswim. Well, my cousin-in-law is the person who committed suicide from Robinhood in last July.
Kristi: Oh, I'm sorry, Bill. I didn't [crosstalk] realize that.
Bill: Yeah, it was not good. The reason that I am grateful that you said yes is what I've always really respected about how you have gone about your business from the outside is the amount of customer service that your organizations have. When I've dealt with your organizations, I can get somebody on the phone in a second, maybe, three rings, but it's always a live person that would walk me through the risk of a trade, how to work with the software, all that stuff and the amount of education that you lead with. So, even if I have this feeling about trading, that is a little uneasy at times, I really respect how you do what you do. So, thank you for going about it that way.
Kristi: Yeah, absolutely. You highlight something so important around not only education and content support, but it is about being able to pick up the phone and have access to anyone and email the CEOs. Tom answers customer emails, I answer customer emails, Scott answers customer emails. We are 100% accessible, because listen that's why we're here. It's all about empowering that self-directed investor and making sure they have the information they need and that they feel comfortable jumping into trade.
So, I'll back up all the way to thinkorswim, so even prior to tastytrade and you're spot on we even back then we focused on education and empowerment through information. We ended up doing a deal back in 2007 with Investools which was a financial education firm. We really wanted to marry that education with the brokerage. So, they got education as well as the technology and tools to help that self-directed investor make better decisions. I'll say on their own, but with this amazing accessible support system around them.
I'll give you one piece of sort of inside baseball in the way that we structured the company and we do this today at tastytrade and tastyworks. But we also did this all the way back at thinkorswim because this is our philosophy. When you look at how you compensate even all the way down to compensating your people on what we call the Trade Desk. But it's really customer support. Even down to how we compensate them and measure them, we don't give them a quota of time or number of calls they have to make every day, we don't limit the time they can be on a call, we don't give them things to upsell, none of those things. We say you're there for the customer and you spend as much time as that customer wants on the phone, via email, via chat, whatever they need to feel like they got the information they need to go about their trading or whatever it may be.
So, I think, that that's really important because if you walk into any other brokerage firm, and you start to analyze who's dealing with the customers, what are they doing, what are they saying, how are they compensated, it's a whole different approach compared to how we do it.
Bill: Yeah, I mean, I will personalize this and say, I believe that if my cousin was trading on your firm, he would still be alive. The reason is he wrote three emails and none of them came back and he died thinking that he had a huge obligation and he didn't owe a penny. I know for a fact that somebody would have picked up the phone with you guys, because I have experienced it over and over and over again.
Kristi: It is absolutely heartbreaking. I don't know all the context around everything that happened. But it is absolutely heartbreaking to hear something like that. Because it also sounds like it was also a technology issue, right? So, you have all of those components, everything together, and then lack of support or whatever. Again, I don't want to speak on-- [crosstalk]
Bill: Yeah. I'm not putting words in your mouth. I'm just telling you from my perspective, what happened as he said, "I think, I owe this money and there was no customer support response." Part of what I was so upset about is that, this kid needed help and there was that business model at that time was not around help. I think, when something moves as volatile and quickly as options, like I said, what I've always appreciated about y'all is, I think that you ask for the responsibility to be a brokerage or an education platform, whichever path you're taking at the time, and then, you treat that with the responsibility it deserved. So, I respect how you go about your business.
Kristi: Yeah, I appreciate that. Now, we are all about empowering individuals through information and access. Not just access to the markets, access to education and support in all of those things.
Bill: How did you come up with the idea? I know that tastytrade and tastyworks are completely separate from thinkorswim, but there's a similar ethos. So, what was sort of the seed that germinated the ethos that said, "Okay, we're going to lead with education first and be like an alternative media company." The playbook rhymes, I think, you're only getting better and better as I watch.
Kristi: Yeah, I agree. So, oh, backup to sort of the, let's call it the incubation of the date idea and I have to 100% give credit to Tom because that's our agreement. [laughs] Our [crosstalk] agreement is--
Bill: That he gets all the credit.
Kristi: No, he's a fabulous, fabulous visionary and we're good partners all around, but he is absolutely a phenomenal visionary. We are all traders ourselves, though, Bill. I think that's an important thing for me to point out because when you look at the top three reasons why startups fail, the number one is, there's no customer need. Well, we are the customer ourself. So, we understood the need. We saw the whitespace that was there. Part of it was around, you know, financial media. So, we didn't know anything about financial media. So, we totally took a risk in starting tastytrade and I'll talk about that in a minute a little bit.
But when you looked at and I'm not dissing on CNBC or anything, but even when you looked at CNBC and you said, "Okay, great. I'm watching the news, what's happening in the financial markets?" The big question would always come back is, "Okay, great, but what can I do in my own portfolio and how do I do that?"
Bill: Yeah.
Kristi: And so part of what we teach, and what we talk about, and what our messages is teaching the self-direct investor how to be strategic and probabilistic in the way that they approach trading. So, it's not just directional of whether the stock is going to go up or down, you actually have the ability to make money even though you're wrong on direction. So, it's more about being strategic and you can define your risk. You said it before about options being risky. Well, we teach a number of different ways where you can define your risk on order entry. Really super important because I think some people miss that. They just think options are much riskier. When in reality, you can actually define your risk versus when you're just jumping in with just buying stock and using a lot of your capital upfront.
But back to the point of us understanding there's this whitespace, you watch financial media and it's definitely not fun and I talk about that a lot. You marry finance and fun and that is literally like an oxymoron. But we wanted to make finance more fun, make trading more fun, more engaging, and also more actionable. So, teaching a logical mechanical approach to investing that really, truly is more quantitative and probabilistic by using options is really powerful. It puts a lot more control if you will in the investor's hands on trade entry.
Anyway, so, we jump off to start tastytrade and taking a big risk not knowing anything about media, but again, confidence to figure it out. We jumped in, we rented an old Hip Hop studio, and literally rented it down to the dishes, Bill, like, we don't know if this concept is going to work.
Bill: [laughs]
Kristi: So, it was kind of fun and actually started out was going to do a Squawk Box, so, no video and then realized when we looked at the stats around video, and you had for as many ridiculous amount of hours that were being uploaded every minute into YouTube. We're like, "Hmm, we might need to go buy some cameras." But we had hired a bunch of Second City comedians to come in and say, "Okay, we can ultimately teach some funny people [laughs] about finance and you can't really teach finance people to be funny."
But what we found by listening to our customers, by having that two-way conversation with customers and access to us, we realized, they really wanted more finance with just sort of a flare of fun. So, it was understanding and perfecting the product if you will for the customer in the end. But in short order, within just a few short years, we realized, we really want to control the customer experience, not only from education and engagement, but all the way through is really hard. We were throwing basically customers over the fence to brokerage firms front doorsteps, but we couldn't control what happens, whether they get in the door or how they make their way through the customer journey after they get in the door. So, we made the decision to jump back into launching a brokerage. So, we launched tastyworks in 2017. So, we launched tastytrade in 2011, launched tastyworks in 2017, hold Scott Sheridan out of retirement to come in and run the brokerage.
We're again, brought the band back together and it's been fun. It's been another decade, and like you said earlier, I'm not going to say sold out, we sold [laughs] but we are all in on making this work and taking tastyworks global with the IG group, which is a global company today in 17 different countries.
Bill: So, a couple of things. One, your comment on how you teach defined risk. I do want to close the loop on that. When I dealt with thinkorswim, and actually, I got introduced to you via Investools, all the encouragement was trade really small and trade credit spreads. Don't go big and have debit and all this risk. When I talked to Tom in a conversation that is lost forever, because I was COVID stupid.
Kristi: [laughs]
Bill: I asked him, "Why do you like credit spreads so much to have them articulate it?" What he said to me, I really liked. He said, "I like to make the other person be right and I like to have the probabilities on my side in addition." So, I definitely agree with what you're saying and how you've encouraged people. Two, so, you started tastytrade without the brokerage, is that because at the time you were under a non-compete?
Kristi: It's a good question. So, there was a non-compete. But that wasn't why-- [crosstalk]
Bill: So, for people that don’t know. Sorry, just to take one step back. TD Ameritrade acquired thinkorswim in 2009?
Kristi: 2009.
Bill: Yeah, that's right. Tom had said that at that time, you enjoyed joining the team at TD Ameritrade, but maybe wouldn't have sold if you still had control. Is that a fair characterization of what happened?
Kristi: Yeah, I would say so. There were a lot of bitters if you will. There were a lot of companies coming to the doorstep and it was a ripe time for that. We probably would have chosen one of the other partners to do the deal with. But listen, when you get to a certain size and you go through enough mergers, if you don't play your cards right, you lose control of the board and your number of votes. In reality, being a public company at that point, the right choice for a public company, really checking all the boxes was TD Ameritrade.
In fairness, it was a good deal-- It wasn't a good deal. Timing was great for them. When you look at 2009, so, timing was very good for them, and they did tremendous things with the thinkorswim platform from there. But yeah, it is a scenario where we had a number of people that don't listen. Even with IG this year, we had a number of suitors at the door as well. So, it's it is really running through, yes, what is the best for your investors but what's the best for your clients at the end of the day and your employees? You got to really take all of those things into account when you're making these decisions. It's not just about one or the other. You really holistically have to look at the whole package.
Bill: So, you have been through a number of mergers. How did this year compare? Because I'm certain some SPACs were talking to you, I know the strategic sort of won the deal at the end like, what's the level of capital today for a good business selling itself versus what it was in say 2009? Was that any more stressful, any less stressful, how'd that feel?
Kristi: Yeah. Oh, see, you say stressful and I say exciting.
Bill: Okay.
Kristi: I love the deal aspect because of the strategic nature, because of the opportunities, because of the change. All of those things are exciting, because any sort of change means opportunity across the board. So, every deal is different. Every time you walk into the ring, while yes, you can bring your years of expertise and know how you have to go into each deal looking at it uniquely.
Even when I looked at IG group coming in comparison to your exactly right, there were a number of SPACs at the door at the same time. [laughs] They're circling everybody as well as-- [crosstalk]
Bill: Yeah, I could figure that out. [laughs]
Kristi: Yeah. Here, but even that is an important distinction. You look at what occurs after you go through a SPAC. You're running a public company, and Tom and I have talked about this a lot. First of all, we like having control. We like running the company, but do we really want to take our time and have it be consumed with governance and quarterly reporting and, and, and? It's like, we've been there and did that before and we're at a point where we're like, "Is that really what we ultimately want to do? Do we want to keep building all these wonderful things together and take what we have and expand that internationally, and, and, and?"
So, it's a lot of different components that we took into account when we came to the table. I think, the other thing that you don't always think about and I know early on in my career when I was doing a lot of M&A early on you, I remember pulling out actually my very first book on mergers and acquisitions. At the bottom of the list in M&A was, oh, take into account culture. [laughs]
Bill: I was just going to be, I was thinking in my head, I hope she doesn't say culture, because it seems like it should be at the top of the list.
Kristi: Oh, my God, 100%. I'm talking about decades, right?
Bill: Yeah.
Kristi: Today, culture is at the top of our list.
Bill: Yeah.
Kristi: No offense to Investools, but they had a massively different culture than thinkorswim. We lived it and we experienced that firsthand how difficult that was to maneuver. Now, I'll fast forward to today with IG. The absolute beautiful thing that we were able to identify in literally, our very first conversation with June Felix, who's the CEO of IG group was around culture. They clearly, clearly are super laser focused on empowering the self-directed investor.
Everything they do and all the decisions they make are focused on the investor, which is the same for us. That definitely hit the hot button for us on checking the box for us, I should say, on one of the very important items on our list, which yes, is culture at the top. Sometimes, Tom will say, "Oh, culture doesn't matter." But in reality, you step into our world and you'll see culture is like super important to all of us.
Bill: Yeah, I had visited the thinkorswim office and I would say that, back then, there was a tangible sense of culture. The way that interacting with y'all back then was very-- I could just see there was a common threat. As I said, I'm not like an active trader as much. So, I can't speak to currently, but I know who you all are and I'm sure it's the same way today. How do you think about team building? You've got to be one of Chicago's best entrepreneurs or business leaders. What's your secret sauce here? Like, how are you so good at keeping the band together and moving in the same direction?
Kristi: Well, team is certainly important and just human nature that people want to belong to something, people want to be part of something bigger than themselves. When we hire, that's where the process starts. That's where your team building starts. And yes, we want the smartest people, yes, we want all of that. But I promise you as we go through that interview process, attitude is very close to the top. Because if somebody has a can-do positive attitude of, "Hey, I just want to make a difference at the end of the day," they're going to fit in beautifully with our culture.
If you have somebody who has maybe even a little better resume around education experience, if their personality or they have an entitlement attitude or something like that, that's just not going to work, and it's not worth it to sort of, let's say, upset the collaborativeness and fluidness of how we all work together. So, selection of who your team members are matters and attitude. But also, within the organization, what's super important Bill is, making sure that everybody feels like they have an opportunity, and that they have a voice at the table. That is really, really key.
Because if somebody can say what they think and their ideas are valued or at least they feel like, they've been heard, they want to get up the next day, because they feel like they can make a difference. They feel like what they're contributing matters. We say that with everybody across the board within all of our organizations. We built seven companies within our company in the last decade. So, it is something that we strive for and we continue to make sure that that is how people feel that they can come in, they have a voice. So, the team building in that way is what I believe at least one part of what makes it special.
Bill: Yeah, that's cool. I think, the other thing that I've just-- this is not a team building comment, but there seems to be consistency among people at the top of your organization. Like you and Tom, you said, you've been together for a long time, right? I would imagine that you're all comfortable with playing your different roles. Not necessarily I shouldn't say staying in your lane because that's not the right way to frame it. But allowing each other to be good at what each other is good at and then pushing back, you probably know when each other's full of shit for lack of a better term now and you probably tell each other, right?
Kristi: We absolutely do. [laughs]
Bill: Yeah.
Kristi: That's the beauty of the culture, too. It's not ultra-corporate. Here, there's a lot of authenticity brought to the table with our employees among ourselves, as well as with our customers. We're real. [laughs] We are bringing literally our whole selves to work and we are going to call BS when BS is happening, and we'll laugh about it. It's not a personal thing, it's not anything. But that's the beauty of it, too, with having that kind of relationship. But the other thing you said, too, is staying in your own lane, that's a hard thing to do, especially, when you're co-CEOs but it's-- [crosstalk]
Bill: I knew that, that was the wrong way to frame what I was trying to say.
Kristi: Yeah, I know.
Bill: It knew, it was not correct when it was coming out of my mouth. So, I apologize.
Kristi: No, no, no. We say that sometimes and we laugh, too, because we don't always do that. But I think, the important thing that you did highlight there is, the four of us together, when you look around the table that we know where our blind spots are and the other one fills it. That's I think more to your point, we are the right team. I referred to earlier, the top few reasons why startups fail. One of them is you have the wrong team around you. For us, what we all bring to the table is, I think is incredible. When you find the right team, when you find that you gel well together and you make each other better, Tom and I challenge each other every day. That's a good thing.
Again, my competitive nature, but it is it's we're making each other better and I think, that's important. It's not just the call it the textbook CEO guideline that we follow. It's complete opposite probably.
Bill: Yeah, no, I'd imagine. Did I see it, correct that, you're involved in 1871?
Kristi: Yeah, I'm on the board and also the executive committee or executive board as well.
Bill: Do you want to tell people what that is? Because something that I admire about you is, you built this media business right to help your own business. But then what you've done with that media platform is you highlight entrepreneurs, and you really leaned into encouraging other people to be entrepreneurs. So, I vaguely know about 1871. I don't know enough of the specifics, but I know that it's a really interesting concept that people should hear about.
Kristi: Oh, yes. And actually, thanks for that opportunity. Right around the time that we started tastytrade, 1871 was getting off the ground as well. J. B. Pritzker, now, our Illinois Governor, he was one of the founders, one of the key founders of 1871, and previously, called Chicago Entrepreneurial Center, but 1871 is an innovation hub that has been ranked number one globally, and it is a center of excellence where it is bringing together not only the tech community, the universities with talent coming in large organizations, it is bringing in these entrepreneurs and providing not only let's call it, education and support, but also all of the different aspects that they need, whether it's capital, so, bringing in the VCs.
Providing them and surrounding them with not only a physical space, which I know with COVID has flipped it on its head. But a physical space to make connections and it literally just bumping into someone you wouldn't normally see. So, it really is this innovation hub of connectivity for entrepreneurs and support for entrepreneurs. Again, being ranked number one globally is pretty impressive and I'm a big fan of the current CEO, Betsy Ziegler, who was head of innovation at Northwestern University and a big fan of the prior CEO, Howard Tullman, who has been an amazing entrepreneur and friend of tastytrade as well. Even prior to that, Kevin Willer, who has been a fabulous person within the Google ecosystem and served as the first CEO of 1871.
But my bigger point on that is within Chicago, it really was this beautiful spark to help elevate Chicago's tech community and entrepreneurial community. So, being involved in that is important to us, important to me to make sure that I'm also supporting that and helping anyway I can. Because being entrepreneurs ourselves, we are part of that community, and also want to make sure we're supporting that next generation. If you don't mind, I'll throw in there one other thing that we do at tastytrade to support entrepreneurs is, even though, all of our programming is about the financial markets, and trading, and a lot of education and strategies, we do have one show called Bootstrapping in America, and I cohost that show, and it is such a fun part of my day. It's even like one of my favorite parts of the day because I get to talk to CEOs and founders. It's about a half an hour, and I interview them about their story, about the ups-downs of entrepreneurship, and successes and failures.
And every single day, I feel like, I learn something new or I validate something that I have already experienced. So, being able to have that dialogue and interaction with all of these fabulous entrepreneurs has been really, really fun for me. And on top of that, even VCs, like I'll have VCs on and sort of hear the other side of the story-
Bill: Oh, that's cool. That's fun.
Kristi: -in what they're looking-- Yeah. So, when we do these interviews, it really is about sort of exposing and sharing information very much like it is. Now, we're empowering entrepreneurs, but on our everyday, tastytrade, we're empowering self-directed investors. It really is about empowerment through education and information. Anyway, so, being on the board of 1871, it just sort of is at the core of what I do and what I believe, and I'm a big lover of Chicago and supporting Chicago. So, anything we can do to elevate the city and show what amazing talent and companies that we have here, I always want to be a part of that.
Bill: Yeah. I don't know. I don't think that people that aren't Chicagoans which I left last year. I apologize for leaving Chicago, but also the weather in Florida is very nice. I will be back. But like, I don't know, there's just something about being a Chicagoan and it's like deepened my identity, and I just want Chicago to win. It's been so nice to see you guys be really successful, and Chicago's tech scene to come out, and establish itself as a real player, and the coast may laugh at that, but Chicago will teach him in the end.
Kristi: It is a totally different mindset on the coasts, on both coasts, right? One thing I'd like to say about Chicago is, we all sort of have this Midwest mindset. Everybody puts their head down, works really hard, and doesn't take the opportunity necessarily to pick it up and market themselves. One of the things that Penny Pritzker has done, as well as Chris Gladwin, one of my favorite entrepreneurs here in Chicago, who sold his business to IBM for $1.3 billion. He and Penny locked arms to create an organization called P33.
The whole purpose of P33 is to elevate Chicago and make sure that Chicago is known as one of the top tier tech cities. So, they asked me to co-chair a capital in Finance Committee, which I did in the beginning of this as well. They really got all the right players around the table, because this is important. It really came down to about marketing Chicago and what we have here being centrally located, and there're so many pluses besides just the cost of living. I can't change the weather, Bill, but we're trying, we're trying.
Bill: [laughs] Well, the weather keeps everybody that's weak out.
Kristi: [laughs]
Bill: If the weather was perfect, Chicago would be way too busy.
Kristi: There you go, there you go. [laughs] I've never heard that, but I love that place.
Bill: It really is a fantastic place. Oh, yeah, it just keeps the weak people away. That's fine. And you know what like-- [crosstalk]
Kristi: [laughs] I'm using that by the way, I am using that from now on. [laughs]
Bill: Please do. I think, the weather is part of why Chicago's restaurant scene is so darn good. I mean you got to be indoors a lot in the winter.
Kristi: Why not eat?
Bill: That's right. That's what I'm saying. Yes.
Kristi: [laughs]
Bill: Certainly, when I was younger, I spent a little too many times at bars but whatever, I had a good time.
Kristi: Here you go.
Bill: Yeah. It's been really cool to see that the city develop. I'm sad about some of the crime that I hear about, but West Loop is just awesome now, and if you're young, and you listen to this, I highly encourage you to put Chicago on your list of cities to consider because there's nothing better than summertime shy.
Kristi: Yeah, I agree. I love the West Loop. We have three offices in the West Loop. Our studios are there. So, Bill, when you come through, you got to come through our studio for sure.
Bill: Oh, I'd love to see it. Yeah. Are you still in the Japanese building at all or no?
Kristi: So, no, that was thinkorswim.
Bill: Yeah, I just didn't know if you kept the space or not. Oh, so, they took it.
Kristi: Yeah, no, no. When we sold it to that is TD Ameritrade. So, we are really in the heart of the West Loop. Our brokerage firm, tastyworks, is in the Google building-
Bill: Oh, very cool.
Kristi: -on Fulton. Yeah. And then, our-- [crosstalk]
Bill: That's like a sick place to work.
Kristi: Yeah, it is I mean- [crosstalk]
Bill: You have the best restaurants like right outside your door.
Kristi: -right there. It's literally between our studio on [unintelligible [00:45:21] and tastyworks on Fulton. We have Randolph, which is just one of the best like foodie streets in Chicago. It's perfect.
Bill: Yeah, that's cool. Young people, if you're enthusiastic and want to help Kristi, you should apply because that is a very cool place to work.
Kristi: Yeah, it's fun.
Bill: That's awesome. You know, I was reading a story yesterday and I was hoping that maybe you could help me, because you're inside the industry and I don't really fully understand payment for order flow. I mean, I know what it is, I know what I read about it but as someone that deals with the business model, do you think it's been a net positive for the industry? How does it impact the consumer at the end of the day? Like, these are questions that as I'm reading about it. I just don't have the internal knowledge to be able to close my question.
Kristi: Mm-hmm. Sure. No, that's okay. So, payment for order flow has been around, I'll just say, forever, for the time that I've been in this industry. It really is, it is beneficial in the end for the end customer. It really is. It is something that it removes and allows for brokerage firms to charge less to the customer up front. Now, there is a market making component. That's how you not for us, we as a broker, we are not market makers. We send ours to the liquidity providers. Yes, while we get a fee, an exact fee that we disclose, that is something, that is better to get the fee from the liquidity providers than having to charge the end customer.
So, there is a massive argument going on now, but it's also been going on Bill for decades, that payment for order flow may go away. But if it goes away, brokers still at the end of the day need to take care of the costs and the risk that they take on. So, the money has to come from somewhere. Ultimately, what I would hate to see is that flipping back over to the end customer. Now, so, I could go into it much deeper because there's a lot of different arguments that you have heard-- [crosstalk]
Bill: Do you mind like it-- [crosstalk] Is it okay to talk about it a little bit? Because I'd love to like have an informed conversation about it. Because I read the surface level stuff and I think, I kind of understand it, but I know that there's deeper issues. So, the extent you're willing to talk about it, I'd love to.
Kristi: Yeah, I'm happy to. You just want me to continue? [laughs]
Bill: Yeah, like, wherever you were like, I could go in deeper. Like what's something that you think about as you're thinking about the issues.
Kristi: Yeah. When you have Gary Gensler and having this being a hot topic for him, when you have a number of people sitting around the table that don't really know or understand the dynamics of payment for order flow, you start to get a misconception of what it is. Ultimately, if what our goal is at the end of the day is to make sure that the customer gets, let's just say, the best deal in a sense, right? Meaning, they're not charged fully upfront in commissions or reducing the ability to have access to the markets without burdening them with these costs upfront.
Now, someone could argue that, "Hey, they're taking part of the spread and they're giving it back to the broker." So, in reality, you're taking that back from the customer, right? Well, in reality, you have to have best bid or offer. So, there's still guidelines that need to be followed at the end of the day when filling an order, and then, on top of that, the expectation of the broker to the liquidity provider is that, they price improve for the end customer. So, you start to piece all of these together and in the end, as long as, the reporting is there, transparency is really, really important, Bill. This is something that we believe in. It's at our core. It's everything we do every single day. That's the same around payment for order flow.
You could always make things more transparent for the customer for the industry. But there are reporting requirements today that are out there. I don't think everybody really is glued in or plugged into the 606, or 605 reports or any of those. But if you are, you start to say, "Oh, okay, hold on. At least, I have a window into what's happening here." So, I'll leave it at that. But it is a hot topic. It's always been a hot topic. But what I think the danger is and actually, Larry Tabb did an awesome job explaining and walking through this is, "If you pull this lever, what's going to happen over on the other side?" Like, I'm not sure that everybody fully understands that if they tried to make a statement by making a change or restrictions on certain payment for order flow, how that's going to affect the end customer, even though in the end, that's what who they're trying to protect?
So, I think, again, these conversations have been going on for decades, and do I think there's going to be a massive, massive change? Well, if there is a change, I'm all for and always will be for more transparency. Anything ultimately to help the customer in that.
Bill: Yeah. It's been an issue that I have struggled with, because my first instinct is, as an investor, I have heard that and I believe firmly that overtrading leads to poor results. However, when I was talking to Tom, he mentioned something about like, "Nobody trade stocks anymore, they're capital inefficient." Then, I started to think about that and I was like, "Okay, well, what's he really saying?" And then, I was thinking about, "Okay, let's say that I don't have a large account or whatever and I go to trade options because I get a more capital efficient instrument." And then, I started thinking about, "Okay, well, has payment for order flow actually been a net benefit to those people?"
I have found myself being a lot less convinced that I know the answer to this question and I think, the only thing that I know for sure is that, payment for order flow is a boogeyman that is not really well understood and easy to attack. But I don't know what the world looks like without it to your point, right? Like, we're charging everybody $5 a trade or something, that really hurts the lower dollar value accounts. That's regressive. So, in my head, I don't know where the world would go. So, that's why I was curious.
Kristi: Yeah, I've never heard it referred to as the boogeyman, but it's a fair. [laughs] I like that label, but it is funny.
Bill: Because it's like esoteric concept that is easy to attack.
Kristi: Right. If you don't fully understand it, that's exactly right. But you're right. The second, once you change that positioning of it or you remove it completely, it doesn't just magically go away. Then, all you're doing is you're widening the funnel for these market makers to make more money. Really? And then, somehow, the broker that's covering a lot of the risk, and the operations, and all of that, they need to make it up somehow. You're spot on. You can't pull something away without understanding whether you're pulling the floor out from another section, what else is going to fall or what else is going to change as a result of it? So, I agree. But you mentioned something else, which was interesting. Because you said, I just want to pull this out for a second because you said, you believe that like active trading or somebody overtrading is bad.
Bill: In investing, I think that, it's a different-- I know somebody that trades oil TASS like traded sediment. And that's what he does. I've watched Tom make money on TV or on the computer. So, I want to separate the Buffett style theory of investing in trading. I almost view them as separate strategies within the market.
Kristi: Yeah. Definitely different approaches to trading, investing, whichever word you want to use. His is more investing. While we talk about investing, self-directed investing, it really is. It's trading, it is active investing, and so, while we actually have a different philosophy, ours is trade small, and trade off, and it's not a churning thing in any way, shape, or form. It is a learning and practicing small. And we of course have our commission structures aligned with that or our fee structure aligned with that. So, somebody who's trading a one lot or decides to trade a 10 lot or whatever, it's only scalable according to what the size is. We encourage small to stay small, and trade often only from a learning perspective, not a churn perspective or anything like that.
Anything you want to be good at, Bill, like I told you, I'm super competitive and would have been an athlete my whole life. Like, I'll call myself an athlete. [laughs] But it is something that, if you want to get good at something, you're going to practice and you're going to feel better about it. The more you do it, the more comfortable you get, you understand more. If I'm going to go trade once a year, I'm going to miss the opportunity to really understand. I am all about doing and I learned by doing is so powerful. There's an aspect of that. If you do it in the right context with the right information in the right support system, and you do it in a fashion where you keep your risks small by staying small, it's a powerful learning approach.
If you're doing it with the options, again, you can define your risk on trade entry. So, it's the whole package we're talking about. Going out and taking the Warren Buffett approach of taking a lot of capital, which not a lot of people have to invest in and pay for stock up front, yes, it's a totally different approach and it's a passive approach, where yes, I'm an active investor for sure. Do I have some passive investments? Absolutely. I'm an angel investor myself investing in a number of different companies. But I'll tell you, I like it way more when I can be on the board, and have an impact, and actually have an active say, in what happens versus completely being passive. It's hard for me to be a passive investor. You're really relying on somebody else to take that ball and make you money.
Bill: Well, I'll tell you, what I have appreciated about having a podcast, and being able to talk to people, and you specifically, and my conversation with Tom is, I came in to this podcast less dumb than I was when it started. But probably, a year before the podcast, certainly a year and a half, I had like all these beliefs that I held and I was certainly right. And now, I realized that, maybe, there are different ways of doing things in the world that maybe like there isn't some right way and a wrong way or whatever. To your point, I've spent a lot of time because I think of Buffett a lot. He has this speech out there that he says, "I'd have 50% of my net worth my best idea."
I just think of how potentially dangerous that message is in the wrong hands because the idea of having 50% of somebody's net worth in a passive idea, because they heard Buffett say, "He would do it" is like a great way to explode your entire account. Back when I was younger, and I didn't really understand how great he was, and I didn't really understand all the nuance of how he thinks, and I didn't really understand how other parts of his life are de-risked, I could have seen myself getting in a ton of trouble taking that idea literally. I have really appreciated the COVID discussion that is tabled and this one, because you guys have really shifted my brain on how I think about it, and I will stop rambling after this one thing.
But I think with the prevalence of options and the prevalence of crypto, it means a lot to me that you said, yes, to coming on the program because I really want to highlight you as a firm that I think goes about it the right way. So, to the extent that some of my listeners may be interested in learning about that, I fully endorse you guys and that's just how I feel about it, and it comes from your ethos of teaching, learning, and being there for people. I think, it's a really admirable thing you do.
Kristi: I appreciate that a lot, Bill. I really do. It is something that if people want to learn about options, we have a whole learn center. It's all free. You can go into tastytrade.com, go to the learn center, it's right in the top nav. There's a bunch of videos and education pieces actually that you can take quizzes. Make sure you really understand the concepts, and then, you can go in and watch the shows and really see how it's applied in live markets. It really is about understanding not only the concepts, but then, how that gets applied, and what could happen in understanding, let's say, the doing and I appreciate you highlighting it in that way. Because that is what we're all about. It's all about empowerment through information, and an action and trying to keep it fun along the way.
Bill: Yeah. Well, and the other thing is, your software is very-- There's analytics involved in it, there's people that can talk through the analytics, there is paper position sizing. It's very robust and the support system is real. On the other end of the spectrum, there's confetti on a mobile phone. I lean far towards the way that you do things. So, again, thank you.
Kristi: Thank you so much.
Bill: Back to entrepreneurship, if you don't mind with our remaining time, I hear you talk about your kids and how you like them to take chances. If there's a parent out there that wants their kid to have the entrepreneurial spirit and they're looking to you to coach them up on how to do it, like, what do you do in your own home to get your children to get out there, and take risk, and fall, and get back up, and all that?
Kristi: Yeah. So, one of the things that I would do, because I work a lot. So, any chance and opportunity that I get to deliver a life lesson or one of those mom moments where you want to make sure, you're doing your job as a parent, teaching, and encouraging them to learn, and take risks, and all of this. Every time I would sort of find that opportunity and spit it out, they'd be like, "Okay, mom, I got my life lesson for the day."
Bill: [laughs]
Kristi: It's pretty funny. But then, when my first one went off to college, so, I have two in college, and I have one still in high school here at home. But as each one went off to college, I literally put a book together, you know, you got those blank books, and I filled in one page at a time of a life lesson, and things that they should pay attention to, and things that they should at least have an open mind about. My number one is just be nice.
Bill: Yeah.
Kristi: My number two is, take risks. So, there's a wide spectrum of what I try to instill in them every day. But I also try to be an example because actions speak louder than words. It's something that I think, what I do versus what I say it, I don't want there to be a disconnect between the two, but they do tend to listen, and pay more attention to what you do. But I try to always put those into words. So, it marries up. [laughs]
Bill: Yeah.
Kristi: It's funny, though, too, because listen, everybody has frustrating days, and they might see that side of it. But when they actually talk to me about it, I'm like, "But I love what I do." They get to see the full spectrum, they don't just get to see what I want them to see. I want them to see the whole spectrum. So, when they walk out into the real world, they understand what they're up against. Anyway, so, I look for every opportunity I can to share and shape those life lessons. As a parent, you can always do better, but I try to take every opportunity I can.
Bill: Do you think that they taught other people or do you think they're like, "You know, my mom's a bigger badass than your mom is?"
Kristi: [laughs]
Bill: Or, do you think they don't do that?
Kristi: When they were little, I had one of my daughters say to me like over breakfast. She goes, "Mom, you know, Maya's mom stays home, why can't you? Like, she's a better mom," right?
[laughter]
Kristi: That's why I kept saying, "I don't think you want me to be home." [laughs]
Bill: I mean, what was that like to hear? Is that a conversation that you've had like, look, for you to be and I don't know how to say it, so, I'm just going to say it and I hope you receive it in a way that I mean it. To be a woman that has entered the trading industry and to have as much success as you've had, it's just like incredibly admirable. I'm sure when you entered, it was like, what, 99 to one, men to women. You just like crushed it. So, what a role model for your daughters to have.
Kristi: Well, I appreciate you. I appreciate you saying that. I think, one of the things with being in financial services, and technology, and in all of that, I know my competitive nature has helped with that as well. Again, my three kids are three daughters. So, I do hope that there is an example that I am sharing with them that literally, not only can they do anything they want, but it doesn't matter who's around the table. It's how you react to that table interaction. So, listen, I could probably create my own podcast over time talking about all the unique situations that I have been in. [laughs]
Bill: Yeah.
Kristi: But it's how we react to those situations. You diffuse it with humor, you diffuse it with-- You make sure those awkward moments get diffused, so that it doesn't become an issue, or awkwardness, or sets you apart from everybody else. Instead of you know, we're all humans. We just got to figure out the right way to interact. Listen, I'm hands down. Men and women are wired differently. That's just, biologically, what we are.
Bill: I'm aware of this issue.
[laughter]
Kristi: Are you?
Bill: Yes. I think, my wife is, too. She lives with four boys.
Kristi: [laughs]
Bill: I was going to say men, but I'm objectively, a boy also.
Kristi: Oh, that's cute. I love that. I love that. But there's the best of both worlds. There's a beauty in both sides and even better of the combination. That's why I look at even, Tom and I as co-CEOs. The combination of us is way better than one standalone. So, it really exemplifies the way that I view the world in, you know, men and women are wired differently, but the combination of them is just electric. I mean, it really is and can be incredible, if you capitalize on what both brings to the table?
Bill: Yeah, I like the way you said that. If you're okay with it, I think, I'm going to wrap up on that point because I think, it's a great place to wrap up. I just in researching you and doing the background, I find your energy infectious, I have huge admiration for how much you do for entrepreneurs, and I'm a fan of your career. So, to the extent that matters, thank you for being out there, being public, and doing what you do, and thank you for saying yes to coming on the show.
Kristi: That is awesome. Thanks so much for having me, Bill. I really appreciate it.
[music]