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When It’s Time to Double Down — On Yourself

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When It’s Time to Double Down — On Yourself

By: Steve Sadler, CEO, Allegiancy

September 30, 2015

In the first article of this September 2015 issue of The Currency of Savvy, I presented the story of Michelangelo. He was a brilliant mind and an amazingly talented artist, sculptor, writer and architect. Yet he had a contrarian streak.

Observers mistook his approach —as he sat for hours on end and studied a block of marble — for dawdling. The reality was that he was doing important work, in his words, seeing the angel in the marble and preparing to set him free. That block of marble would become the statue of David, one of the most renowned sculptures in the world.

The contrarian streak played out in other ways as Michelangelo redefined art and sculpture, carving his own path through the Renaissance, if you will. Michelangelo lived by a standard that he put succinctly: “The greater danger for most of us lies not in setting our aim too high and falling short; but in setting our aim too low, and achieving our mark.”

Michelangelo was right and we see it every day in this country. It plays out in politics, family life, education, the media and, especially, in business. It’s as if people say, “Aim high? Why?” Because being middle of the road, mediocrity if you will, can be sufficient.

That’s why the contrarian mindset is so, well, contrary. A contrarian opposes or rejects popular opinion and goes against current practice. It’s a zig when everyone else is zagging. It’s a doubling down when everyone else is folding. Truth be told, contrarian is the very definition of Allegiancy.

A contrarian birth

Allegiancy came into being as a contrarian project birthed in the midst of the economic downturn that stretched from 2008 to 2012. Also known as the “Great Recession,” it was a downturn of the most dangerous sort, according to authors Oscar Jorda, Moritz Schularik and Alan Taylor. The three economists wrote a paper published by the Federal Reserve Bank of San Francisco in August titled “Leveraged Bubbles” that can be found here: http://www.frbsf.org/economic-research/files/wp2015-10.pdf

The authors studied bubbles in housing and equity markets in 17 countries over the past 140 years before concluding not all bubbles are alike. Some have enormous costs for the economy, while others blow over. The danger factor is credit, they write.

“When fueled by credit booms, asset price bubbles increase financial crisis risks; upon collapse they tend to be followed by deeper recessions and slower recoveries. Credit-financed housing price bubbles have emerged as a particularly dangerous phenomenon.”

Which is precisely where this country found itself during the recent Great Recession. And precisely when we at Allegiancy invested when others were not. Lots of people were staring at banks. We were too. Except while so many others who stared at the banks were literally doing nothing, we were formulating a plan, in effect taking a page out of Michelangelo’s book.

Lots of people were pulling back and hunkering down in the Great Recession. Some still are, or have only recently started ramping up investing. We were doubling down, betting on ourselves. One of the things we bet big on was technology. It was definitely a contrarian move in 2008-2010.

Innovation matters

In a paper titled “Endongenous Technology Adoption and R&D as Sources of Business Cycle Persistence,” published in August, authors Diego Anzoategui, Diego Comin, Mark Gertler and Joseba Martinez write that one of the casualties of the Great Recession was the incorporation or adoption of new technologies in production.

The authors show how the deteriorating productivity of research and development activities triggered declines in total factor productivity. In basic terms, efficiency has declined as production costs increased. It seems logical as new technologies never came to fruition.

The inclination of business owners during the Great Recession was to cut back on innovation research or effort because there’s not a direct benefit to the company in terms of revenue. But that’s exactly the time to buckle down and devote time, energy and resources to innovation, leading to efficiencies and more business opportunities.

Like what we’ve experienced at Allegiancy with over 400 percent growth in the past year. We embraced technology — made significant investments of time, talent and treasure — and pioneered software innovations to include customized API data interfaces between systems, our own algorithms and a cloud-based integrated proprietary database that’s led to predictive analytics and decision engines that maximize and monetize the Allegiancy management team’s experience and expertise.

Gertler, one of the authors of the paper responded to a question by putting it this way in an email: “Think of R&D and investing in adopting in new technologies like any other form of investment: Something where you spend money today to get a revenue payoff in the future. The incentives to invest in R&D and adoption are thus basically the same as for any kind of investment: How much you invest depends on the discounted prospective earnings from the investment. During the Great Recession and the period of slow recovery, the incentives to invest in R&D and adoption were low, as they were for all forms of investment. As we see the economy pick up we should expect to see the incentives to invest in R&D and adoption increase as well.”

We’re already there. Our contrarian stance has paid off as we are seeing tremendous growth in our commercial real estate asset management business and we are preparing to raise $50 million in a new Reg A+ offering we’ve filed with the SEC. We’ll use the capital to make significant investments in our proprietary technology platform, consummate new acquisitions and expand our employee base — which has tripled in the past year — to handle the expected growth.

To get a good crop, it is important to prepare your fields in advance and plant your seeds before the rains. At Allegiancy, we are beginning to reap the fruit of those contrarian investments, the seeds we sowed when everyone else was just sitting on their hands. Like Michelangelo, we aimed high as we took some time to apprise the situation and then rolled up our sleeves, broke out the carving chisel and went to work building a revolutionary company.

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PLEASE NOTE:

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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