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Of Marionettes and Marathons

Blog Savvy

Of Marionettes and Marathons

By: Steve Sadler, CEO, Allegiancy

August 28, 2015

The Currency of Savvy: A blog series from Allegiancy CEO Steve Sadler, featuring practical, provocative thoughts on business, economics, education and government policy. And whatever else is on his mind.


Everyone knows that a marionette is a puppet controlled by wires or strings from above, movements are all proscribed by the unseen puppeteer working behind the scenes. In our story, you are the puppet and fear is the control wire. The puppeteer is unknown, but the puppeteer is relevant only so long as the control wires remain unbroken.

When famed Kenyan runner John Ngugi stepped to the starting line of the 1988 Olympic men’s 5,000-meters final with 14 other competitors, he was a beaten man. According to the experts at least.

Although Ngugi was in the midst of winning five international cross country titles that would earn him the label as one of the greatest runners of all time, his record on the 400-meter track was abysmal. At the 1987 World Track and Field Championships, Ngugi had led for most of the race only to be out kicked in the final sprint to the finish line by no less than 11 other runners.

Ngugi, the experts said, simply lacked the sprinter’s speed at the end of the race to be seriously considered as a champion. So when Ngugi stepped to that starting line in Seoul, he should have been afraid, very afraid, of losing again in a finishing sprint. Interestingly, fear would become his ally.

The Economics of Fear

Writing in The American Journal of Sociology in May 1944, as World War II raged around the world and on the heels of the Great Depression, Kurt Riezler described the social psychology of fear. He wrote, “Man’s fear is fear of something or for something: of illness, loss of money, dishonor; for his health, family, social status.” The more important that ‘something’ is, the more intense the fear.

In today’s American culture, where fear permeates our lives. Some politician or media outlet is always punching the panic button to stir up demons, imagined or real, and to make us afraid. We can’t escape it, no matter how improbable the danger or irrational the source of the fear may be. The one immutable characteristic of all these fears seems to be a cry from the frightened masses that, “Somebody needs to do something.” And that almost always leads to government intervention, regulation and intrusion.

For example, take last summer’s Ebola scare. Millions of Americans were practically deathly afraid of contracting Ebola, even though it was largely confined to three African countries thousands of miles away across the Atlantic Ocean.

A Mississippi principal was actually banned from school after attending a brother’s funeral in South Africa, 3,000 miles away from where the disease was wreaking havoc. Did you know the affected countries are closer to Spain than South Africa? Were any Spaniards or visitors to Spain barred from entering the U.S.? I didn’t think so. Fear is not rational.

Joshua Epstein, an emergency medicine professor and director of the Center for Advanced Modeling at Johns Hopkins University, told the Boston Globe during the American Ebola “crisis” that once a collective anxiety begins, it spreads.

The power of irrational fear puppet control

How is the control wire of fear being used to animate this marionette? Have you been to an airport lately? The tsunami of fear coming out of the 9-11 attacks was powerful enough to get people to agree, or at least acquiesce, to the nationalization of airport security and a TSA regime that forces unwanted searches and delays on every traveler.

Are we safer? Are we less afraid? The Department of Homeland Security now runs all airport security screenings and recent internal ‘tests’ results released in June 2015 revealed TSA failed 95% of the time. So no, we are not safer. But at least “somebody did something!”

Something comes at great cost, and I am not just talking about the bloated TSA budget of $7.4 billion in 2014. Think about the 631,939,829 domestic airline passenger trips, with each and every one required to spend an extra hour at the airport. Let’s figure this at $30 per hour and you are talking about $19 billion each year. And 95 percent of that $26 billion is wasted.

Lawyers make a killing off of instilling fear in their clients, constantly warning of disasters from regulators and litigators if everything is not perfectly documented. You would not believe the legal hoops we have to go through at Allegiancy to satisfy the SEC requirements and mollify FINRA just to raise $30 million in capital through new Reg A+. Never before has it cost so much money in legal fees just to grow.

There is crippling fear in the securities business where regulators act with impunity and routinely levy fines (which regulators get to keep) for inconsequential infractions. Regulatory fear keeps broker dealers and investment professionals on the sidelines, away from new products and opportunities like crowdfunding, Reg A+. They are afraid that the regulators will not like these products, or that the regulators will not understand them, which amounts to the same thing because the investment professionals get hassled and fined either way. So they tell me things like, “We love what you are doing, we are excited about what this could mean for our clients and our country, but we are going to wait and see how things go.”

What happens if everyone decides to wait and see?

Insurance companies thrive on your fears, selling protection against death disease and financial calamity. Pharmaceutical companies revel in fear, they use it to sell you all sorts of stuff. Getting older, fatter, balder? There’s a pill for everything and anything these days.

Government beats the drum like nobody else, selling you on the idea that they can protect you from whatever you fear. With all the new anti-terrorism laws, financial and environmental regulations in this country, surely you feel protected, secure and unafraid. And nobody loses money in bad investments any more (cough, cough … Bernie Madoff. Does it really make anything better, or is it just the puppeteer working the marionette?

The business of fear

It’s big business to keep everyone in line. Did you know our federal government has more than 400 agencies to help stay on top of each and every bad thing that could go wrong in this country? I’m sure it’s because our government needs to protect you from all those bad things that could happen. Riiiiigggghhhhhtttt.

I mean, really, what’s there to be afraid of now that you know our government is handling things with agencies like the Grain Inspection, Packers and Stockyards Administration, or the Committee for the Implementation of Textile Agreements? Surely the very existence of our nation would be in jeopardy without the President’s Council on Integrity and Efficiency.

How many billions of taxpayer dollars do you think goes to pay for more than 400 government agencies? Or, worse yet, how many billions has the government borrowed from our children and grandchildren to set up agencies to assuage these fears?

How much money does it cost businesses and their customers to hire lawyers, accountants, auditors and whatever else to keep track of all these regulations to ensure they are abiding by obscure rules buried deep in impenetrable government publications? And that’s just at the federal level. We’re not even talking about state and local agencies.

So, rather than cutting through the bureaucratic jungle, regulatory hurdles and land mines and forging ahead — trust me here, I speak from experience — many of our most promising entrepreneurs simply quit. Many retire in the midst of their most productive years, others choose to work for someone else and avoid it entirely. Why even start the race if the only thing you can be sure of is 80 hour work weeks, sleepless nights, lots of hassles and big risks?

Back to the race and the fear of the unknown

Which brings us back to John Ngugi at the starting line in the Seoul Olympics. Two laps into the race he was laboring in dead last, already two seconds behind the leader.

Suddenly, however, Ngugi moved over to lane 2 and practically sprinted. Within 100 meters he was the frontrunner and didn’t slow down. He ran the next two laps in 1 minute, 58 seconds — sub-4-minute mile pace — and surged to a 50-meter lead with two miles to go in the race.

It was a masterful stroke of brilliant courage. He forced the 14 other competitors to make a snap decision: break from the pack and run with Ngugi or stay back and bide their time.

All of them played it safe. They succumbed to their fear. Fear of the unknown. They decided to wait and see. With each passing lap, a new fear crept into their mind: Maybe Ngugi wasn’t going to falter. Could he really run alone so far ahead of the pack after sprinting so hard so early in the race?

The failure of fear

Ultimately, fear breeds failure. Trying something new is scary and innovation is frightening. Take business. If I played it too safe and paid too much attention to the attorneys, regulators and industry experts Allegiancy would not be intensely specialized in an industry of generalists and we would not be experiencing 400 percent growth. We wouldn’t be forging ahead with a Reg A+ offering to raise $30 million. Breaking from the pack is arduous and challenging, and sometimes a little bit scary.

It’s not just my opinion, or gut feeling or attitude on this either. Fear has been well researched and a “key insight that emerged is that the experience of danger follows two pathways in the brain: one conscious and rational, the other unconscious and innate,” according to Dr. Joseph LeDoux. Guess which one is faster and dominates? Effectively, fear has the power to shut down your conscious and rational brain … so there is a chance your decision-making will suffer!

In a 2014 paper titled “Young, Restless and Creative: Openness to Disruption and Creative Innovations” for the Penn Institute for Economic Research, the authors assert that openness to new, unconventional and disruptive ideas has a first-order impact on creative innovations that break new ground in terms of knowledge creation and prosperity.

This idea is captured, according to the paper, on an inscription prominently displayed on the walls of the Facebook headquarters in the Silicon Valley: “Move fast and break things.”

You can’t move fast and break things if you are bound by fear. If you are in business and are afraid of failure, of doing something wrong, of breaking a rule, or of taking a chance, the status quo is for you. Enjoy mediocrity. Have fun playing it safe. Be content living life to a standstill.

That’s not me. Nor is that I want, nor will I allow, Allegiancy to be.

A fear of playing it safe

Playing it safe is a far cry from what the Penn economists write: “…societies and organizations that impose a set of rigidly specified rules, discourage initiative and deviations from established norms, shun or even ostracize rebellious behavior, and do not tolerate those that `move fast and break things’ will significantly lag behind their more open, individualistic or risk-taking counterparts in creative innovations.”

We move fast at Allegiancy. And sometimes, we might break things. We’re not content with the status quo. We want better. More efficiency driven by new analytics and software that we’ve developed. Better investor returns thanks to data driven decision engines and predictive analytics that create strategic and aggressive solutions.

None of that is possible in a culture of fear, where bureaucrats, regulators and attorneys rule the day. As the Penn economists wrote: “Advances can be discouraged or even stopped” if the environment is fear driven.

The safe play is not better. Just ask John Ngugi. The pack lost and, in the final analysis, Ngugi broke their will with toughness, endurance and an approach that challenged the status quo.

On the last lap a furious sprint ensued — for second place. Ngugi ran the year’s fastest time. Fear lost the day for every competitor except Ngugi.

Fear kills. It kills business, it kills innovation and it kills entrepreneurship. Fear can even make you sick. As detailed in the book Its not all in your head, Steven Taylor, Ph.D., notes, “As the body gears up to fight or flee (or to engage in high activity) an imbalance is created when the high activity does not take place….and these things can trigger negative physical consequences and even disease processes.”

Don’t be afraid to move fast and break things. Don’t be afraid to race to the front and leave everyone behind like we’re doing at Allegiancy. Don’t worry about who the puppeteer is, just reach up and cut the wire and take control for yourself.

Will you join us?

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The foregoing does not constitute an offer to sell or a solicitation of an offer to buy securities, and no money or other consideration is being solicited hereby, nor will be accepted. An offer to purchase or a solicitation of an offer to buy the securities can only be made or received and accepted once an offering statement is qualified by the Securities and Exchange Commission as exempt from the registration requirements of the Securities Act of 1933 (the “Act”), as amended, pursuant to Section 3(b)(2) of the Act. Any such offer to purchase securities may be withdrawn or revoked, without obligation or commitment of any kind, at any time before notice of its acceptance given after the qualification date of the offering related thereto, and any indication of interest to purchase securities involves no obligation or commitment of any kind.



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