Interview with Cloud9 Technologies’ CEO, Jerry Starr

Just about every entrepreneur would love to disrupt his or her chosen market, run an industry leading organization, enjoy multiple exits and come out of semi-retirement to start a fast growing company on the cutting edge. In fact, most would be happy to cross off just two or three items from that bucket list. But for Gerald “Jerry” Starr, all of those achievements — and several more — have been accomplished. That’s not an accident. His considerable success stems from his knowledge, creativity, work ethic and loyalty. Recently, The FR’s Gregg Schoenberg had the opportunity to sit down with Starr to learn more about his newest financial telecommunications company, Cloud9 Technologies. The company is reimagining how traders communicate with each other, but when you sit down with Starr, you quickly realize that his wisdom is applicable to entrepreneurs in virtually any sector.

FR: Welcome Jerry. Can you provide some perspective of your career prior to Cloud9?

JS: Thank you, Gregg. I have spent my entire career in the financial community, particularly in the trading communications area. In 1980, I started my first company, Tec Turrets, which was acquired by Tie Communications in 1984. My next opportunity was with Bridge Electronics, which created a so-called shout system that banks used to trade currencies. That company was sold to IPC in 1993, which led to my becoming the CEO.

At that point, there was a new economy and old economy. I was an old economy guy who tried to make money every day. I never understood how the new economy worked and decided to take a break until 2002. Then, with a few folks who are at Cloud9 today, we started Lexar. The company did voice-over IP that serviced financial firms in hard to get places in the financial community. We had success there and ultimately sold it in 2006 to Westcom Corporation.

From there, I went into semi-retirement until 2014, when my co-founder, Steve Kammerer, came up with the idea of making private lines used by traders more programmable and easier to use.

FR: That’s truly impressive. As it relates to your latest venture, let’s start with a basic question. Does voice trading have a bright future in a world of hyperconnectivity and machine to machine trading?

JS: Yes, there is still going to be growing demand for voice solutions across all asset classes. I know there are folks out there who say, ‘Hey, voice is going to go away.’ But what we have seen repeatedly is that voice is here to stay.

FR: But, of course, not every asset class is created equal?

JS: Right. Fixed income, currency and commodities are about 80 percent voice and then it kind of goes down from there. But even if you look at certain parts of equities, which may be just 30 percent voice, there is still going to be demand for voice.

FR: What technology serves as the basis for your solution?

JS: Leo Papadopoulos, one of the founders, picked out WebRTC, which is a Google open source technology that is great for real-time voice, messaging and video. It was a new technology at the time and there wasn’t a lot of adoption. Still, we were confident that the technology would become accepted over time.

FR: And how does WebRTC disrupt the turret system that remains a fixture on many trading desks?

JS: In a traditional trading company, a company has a turret system that sits on a trader’s desk and costs around $10,000 per unit. That turret connects to private lines over a point to point system. That means that when a trader at one institution wants to call someone at another institution, they push a button and they know that the person at the other end is going to be there. It doesn’t go through the dial tone network, but if you’re connecting two people over long distance, it’s very expensive and very inefficient. We came up with a cloud-based solution that addresses those problems by eliminating hardware and makes connecting to other traders as easy as connecting to someone via social media. WebRTC also enables users to communicate via the internet, so it eliminates private lines.

FR: When you looked to build this cloud-based alternative, how confident were you that anyone would adopt it?

JS: When we started, we weren’t sure the Tier One banks would be interested. And if they had interest, we wondered if they were far enough along technologically with regard to their acceptance of the cloud. Fortunately, a Tier One bank was willing to take a look at our technology. We went through many, many presentations within the bank, and ultimately that led to a consortium to fund the product.

FR: Given the regulatory climate, how do you go about passing muster from a compliance perspective?

JS: Since we were built on the Amazon Cloud, there is already a baseline of security built in. We built our own redundancy, encryption and recording capabilities on top of that to meet the requirements of Energy and Commodity traders. As we work with Tier One banks, we have continued to build security, compliance and resilience into the system to support their needs.

FR: What are the cost savings associated with going to a cloud-based solution?

JS: We operate with a SaaS-based model instead of one where a customer is charged not only per turret, but also for every telephone line established or moved. Savings are about 50 percent or more. But when you look at the savings, you see not only the savings on that particular instrument, but also in areas like disaster recovery.

FR: How important is disaster recovery to Cloud9’s value proposition?

JS: It’s very important. Historically, the way firms have dealt with disaster recovery is that they’ve actually had separate physical sites with $10,000 instruments — and all the different things that are required to make a trade — in a different location. That’s not only very expensive, but it’s also risky because you have to hope that your disaster recovery site is far enough away so as to avoid being hit by the same disaster. Because we are a cloud-based system, we can ensure that our clients can trade from pretty much anywhere.

FR: In terms of your current customers, what’s the mix like today?

JS: Right now our customer mix is very Energy focused, but once we start rolling out larger banks, I expect it to be in all asset classes.

FR: Speaking of big banks, I saw an entry on your blog discussing that some financial services firms are reluctant to take operations into the cloud. Given the number of high-profile hacks that we’ve been seeing, do you think caution is justified?

JS: That’s a good question. 60 percent of our engineering time is spent in the area of security and compliance. From the moment a person initiates a call on Cloud9 to the moment it’s over, we encrypt all of the data. For any Tier One bank, that’s the number one issue. I can say that most of those financial institutions — I can’t say all of them — but most of them have accepted the cloud in some form.

FR: You don’t have to sell the benefits of going to the cloud anymore?

JS: That’s correct. But when you’re bringing out a new technology, there are early adopters and then there are the mainstream entities. Right now, there are some Tier One banks that are early adopters of cloud technology; however, there are still a few that are not. You look at several large banks, even ones like Bank of America, and there’s still some caution about moving aggressively to the cloud.

FR: Let’s discuss one of your products. A Cloud9 client has said, “As much as we appreciate Gateway, we can’t wait for the day when we don’t use it.” What did he mean?

JS: Today, probably 80 percent of Energy traders have Cloud9. But 20 percent are still on traditional turrets. Our Gateway product is a segue that brings a line from a traditional system into our system so the two parties can connect, even if both are not on Cloud9.

FR: That means that if everyone in Energy is using Cloud9, then the Gateway solution no longer exists?

JS: Yes, because everyone will be able to connect through Cloud9 and won’t need to worry about interoperability between the old and new technology.

FR: Congratulations on your recent financing. Did you talk to traditional VCs or was a strategic consortium always in the plans?

JS: Thank you. VCs were never a consideration. The reason why we wanted financial institutions was because we wanted their business. They invest and then they also become clients.

FR: One of those backers, Pete Casella of Point72 Ventures, said, “Right now, the purchase of and support of the turret system is about a $1 billion per year industry.” Let’s say you build sizable share of that market. Where would Cloud9 go if you managed to replace most of the turrets out there?

JS: There are several things. Today, there are approximately 220,000 trading positions globally. We want to get our share of that market. On top of that, we’re coming out with a new product called Wavelength, which is an off-the-trading-floor product. The idea here is that, very often, there’s a need for people off the trading floor, such as analysts, researchers, and compliance managers, to speak to people on the trading floor.

FR: Will this be a mobile solution?

JS: It could be mobile or it could be a back office solution. And it basically more than doubles our market. Then you talk about things we could do outside of the trading floor environment. There are some organizations that need highly secure communications that we are in a good position to deliver on.

FR: So a fintech company going outside financial services. Is that what you are saying?

JS: Yes.

FR: When would you anticipate offering these services?

JS: We are evaluating our roadmap as we believe that there is an unmet need for our technology in other industries. And quite candidly, the reason why we started with the financial community is because most of the people in this organization started and grew their careers in the industry.

FR: So let’s return to your consortium of backers for a moment. Now that it’s a reality, is the access and perspective you get a dream scenario for a company like yours?

JS: (Laughs) It’s been a positive experience for us, but managing investors who are also customers can be challenging.

FR: Were you concerned that some of your investors’ competitors would ultimately not want to choose Cloud9?

JS: I don’t think so. Banks do consortiums all the time, and the whole point of the consortium is to build a community. And the people who aren’t in the consortium are still interested in our solutions because Cloud9 can save them money and resolve their disaster recovery problems. In the end, we’re not trying to be competitors with anybody.

FR: But you do have competitors. A company like Green Key for example?

JS: Absolutely, but it drives us to continuously innovate.

FR: So when you are pitching a new opportunity and you lose, why do you lose? Is it an allegiance to an antiquated system or one of the other disruptors out there?

JS: It can be a number of things. Sometimes a bank just wants to wait on the sidelines to see how our technology shakes out, and some institutions aren’t ready to implement cloud-based solutions.

FR: As younger professionals take on positions of responsibility, will that help you?

JS: Yes, very much so. Some people like a physical instrument in front them. It’s a security blanket. I don’t mean it in a bad way — it’s just that it makes them comfortable in their trading. I think the younger generation embraces cloud-based technologies a lot easier than older guys like me.

FR: Fair enough, but doesn’t it come down to who you are selling to within an institution?

JS: It’s interesting. In my market, I used to sell to the voice people. Today, it’s the traders and the business people who want the applications versus the trader voice people. But you still have to go through the trader voice people.

FR: With respect to hiring salespeople, are you looking for different kinds of people today than you would have five years ago?

JS: Yes. Some of our salespeople are former traders and it’s important that they have the ability to think outside of the box. We are changing the landscape of enterprise communications in financial services, and our sales personnel have to be capable of communicating that to our customers.

FR: One last question. I noticed a senior member of your team shared the same family name as you. How does being the CEO and dad work around the Thanksgiving table?

JS: The first thing you do is you make sure that the person doesn’t report to you. And the fact is, Cloud9 is not my company. I own a piece of the company, but there are many other shareholders and she (Dana Starr, Vice President of Professional Services) has to be judged on her merits. As a dad there’s a lot of pressure, but thankfully, she’s doing a great job so far.

FR: Thank you very much, Jerry. I wish you and your team great luck.

JS: Appreciate it. Thank you.

Originally published at www.thefinancialrevolutionist.com on November 11, 2016.