Are you on the “buy” side or “sell” side of innovation?

The recent economic turmoil has started me thinking about being on the “buy” side and the “sell” side of innovation. Almost any industry has a “buy” side and a “sell” side — but the term is really a staple of the financial services industry. Get two investment professionals into a room, and they’ll inevitably start discussing whether they’re on the “buy” side or the “sell” side.

For anyone who has never been in a banker hangout in a town like New York, the terms may be a bit inscrutable. Doesn’t everybody in the financial markets, to a certain extent, “buy” and “sell”? Well, not exactly. Mention “buy” side and “sell” side, and two very distinct images come up. The “buy” side wears conservative clothing and boring ties, takes fewer risks, and clocks out by 6 pm. The “sell” side wears flashy Euro-cut suits and $150 ties from Hermes, thrives on risk, and clocks out at midnight. (If the distinction is still not clear, check out this career survival guide from TheVault.com that discusses the “buy” side and “sell” side.)

The “buy” side includes asset managers and mutual fund managers and portfolio managers — people who literally “buy” investments for their clientele. These people are typically not all that flashy and their pay is typically a function of two variables — the size of assets under management and the performance of those assets. They have incentives to grow their assets under management, and the easiest way they can do that is by putting together a great track record. Once investors see that the “buy” side manager has put together a great history of returns, the money starts flowing in. The only problem is that, as the asset base gets too big, it becomes harder and harder to know where to put your money (i.e. investing $100 is a lot easier than investing $100 million)

On the other hand, the “sell” side includes investment bankers — people who create, package up and then “sell” products to the “buy” side. Investment bankers might take a company public, and then “sell” shares in that IPO to a retail investor base. Or they might “sell” a bond offering to a group of institutional investors. The important distinction is that these bankers make money by constantly pitching companies and investment products to the “buy” side. They make money on commissions and spreads — so they have an incentive to keep the wheels of capitalism greased by constantly coming up with new ideas and concepts. They have to be proactive, constantly looking for cool new ideas. Interested in investing in Russia? Heh, heh, have we got the instrument for you! Looking for a little exposure to the clean energy sector? Wait just a second and we’ll come up with something for you! Looking to juice your investment returns? Take a look at our new exotic mortgage derivatives — we promise they won’t blow up after 18 months!

So… are you on the “buy” side or “sell” side of innovation? Are you the manager looking for some creative ideas to boost your business? Or are you the innovation consultant looking to sell-in your ideas to top managment?

During boom times, there’s no place better to be than the “sell” side. During an economic downturn, however, the “buy” side gains the advantage. That’s when they get the privilege of canceling meetings, ignoring phone calls, and haggling over prices. Why? Because they can. For people on the “sell” side of innovation, though, that’s an opportunity. Only the best, most creative folks continue to make money.

[image: The Boiler Room]