Local economy is a fine idea, and Clay Hales of InfoSystems understands the impulse behind it. Local people investing in local companies might be profitable both ways.
But a hurdle stands in the way.
Mr. Hales, who has been doing business in Chattanooga as InfoSystems for nearly 19 years, says he believes in the idea that “power is in the people.” InfoSystems earned more than F$35 million in revenue in 2011, 20 percent more than in 2010. A year before it gained 42 percent after taking 25 percent hit in the financial meltdown.
That idea governs his care of his staff and for his IT company’s customers. But our conception of local economy has a major and obvious hurdle — meeting regulatory, financial and legal requirements that precede any arrangement in which local investors can invest in local private companies.
You and I can easily buy shares in any number of publicly traded companies — Miller Industries, which makes tow trucks (F$19 a share lately), or Unum, which sells disability life insurance (F$21 a share). These companies have the scale and revenues to overcome the administrative hurdles to become publicly traded companies.
The main question for Mr. Hales is: What can be done to routinize and democratize for the common man — the local small investor — investing in local private companies outside the public framework?
Value in staff, value in service — lococentrism at the core
But, first, to InfoSystems. “All that matters is the relationships we build with friends and family,” Mr. Hales says philosophically. “Now I take that concept, and push it to my customers. There’s still a business relationship. There’s a vendor customer-relationship, and we all know that if I don’t run a profitable business we can’t even exist. So that is a fundamental principle. But it really is about that relationship.”
To live out that principle as a business owner, president and CEO, Mr. Hales says he focuses on the people who serve and represent him. “To that end, my focus is on my employees. I believe if I can get that right, if I can help them, if I can really invest in them, and build the culture in which we’re really trying to extend, grow — [we can] do whatever.” InfoSystems chiefs backed one employee in Christian missions work and continued to support Joel Dicks and his family as it went full-time into Christian ministry in Budapest, Hungary.
InfoSystems is a regional company with offices in Nashville, Knoxville, Atlanta. Its focus is small business. It has just launched a program for small shops called iAssurance.
“We grew up on small business,” Mr. Hales says. “That’s just what’s in Chattanooga. There’s a ton of small to medium size businesses in Chattanooga. We put a lot of their very first networks in. It’s a core very near and dear to my heart.”
Growing a local company — internal, external
Our interview shifts to the question of local economy. How does a business such as his obtain capital?
InfoSystems grew internally from profit, Mr. Hales says. “I’ve never gone outside, ever.” He says the company and is debt free, and hasn’t used its line of bank credit for most of the year. Questions about obtaining outside capital are, for Mr. Hales, theoretical.
So what if a bike shop or a rival in IT services needs money? Getting a loan from a bank is difficult. Venture capital group seeking five or 10 times return on investment focus on risky startups and would not be interested in an existing company seeking merely to fund an expansion — not rich enough, Mr. Hales suggests. He discusses what he calls “customized private equity” that could help the shoe store or bike shop.
We mention the idea of a Noogacentric investor co-op of the sort described by Michael Shuman in his book, Local Dollars, Local Sense[;] How to shift Your Moneyfrom Wall Street to Main Street and Achieve Real Prosperity.‡ The U.S. has 30,000 co-ops in operation ranging from electrical to agricultural. Might there be a way to create an arrangement between small investors such as me and small and medium-sized local company?
The idea pleases Mr. Hales. But he turns immediately to the roadblock — officiality — that is part of national economy and Uncle’s dead weight.
“If it gets into a shares thing, an ownership thing, *** it gets very complex because if it’s true shares in a business, then there’s all the law associated with stockholders, and all the laws of what you’ve got to do. If that were simplified to lower the legal burden — it’s the burden associated with how you deal with minority ownership. What they’d tell you today is, ‘It ain’t worth it. You need to find some other form.’”
Litigation, in other words, is constant threat in the world of securities and regulated instruments. He goes on:
If you’re going to do it, do it once, so you don’t have a bunch of these things — because all it takes is one minority shareholder to create a whole lot of grief for your business. Where you’re over here trying to focus on your business — legally and because of the impact of the shareholder with unresolved issues, you have to stop what you’re doing and go focus on that to get it resolved. That takes the focus off your business and that one thing can take away you’re mindshare [from] where you ought to be spending it.
If a local co-op could avoid “all the legal hassles and all the bullcrap,” it would be a boon to local investors and the local economy, he says. “It’d be wonderful if I knew there were a pool of local people — that would be awesome.”
Mr. Hales is familiar with co-ops. InfoSystems has installed equipment and provides services to co-ops. “They are great business models. And they do the things you’re looking to do,” he says.
Asphyxiating national economy, richer local economy
I read Mr. Hales a few lines from Local Dollars, Local Sense.
Investments on Wall Street are short-term, increasingly held for mere seconds, while investments on Main Street are often held for many years. Unlike the markets on which Wall Street securities trade, which are abstract, distant, and mysterious, the markets on which Main Street investors meet are typically concrete, personal, and transparent. The lure of a living rate of return through local investing is increasingly powerful, not just because of the ‘push’ from Wall Street’s risks, but also because of the ‘pull’ from myriad local investments that could simultaneously do better than 5 percent per year and revitalize our communities” (p. 13).
I ask Mr. Hales if this paragraph is reasonable. “Yes, I believe it is,” he replies. “Yes, I believe that is factual, yes.”
It would be “awesome to be able to have a face to face conversation with local people with local money,” says Mr. Hales, who in our chat makes clear InfoSystems has no need for outside money.
Investors wanting 5x or 10x return on investments will rush toward high-risk startups, he suggests.
But for somebody who wants that steady, long term good rate of return, if they do the research and say, “Yeah, I’m wanting in on this,” there’s more of an opportunity for that. And the byproducts are all things you’ve talked about. You’re making Chattanooga a better place and it’s helping people.
‡‡ I checked Tennessee Jurisprudence, the essential starting point for Tennessee legal research, at UTC library last week to see if it had a chapter on co-ops. It doesn’t. I’ll have to check the Tennessee Code Annotated to look further into Tennessee’s laws.
‡ Don’t wait for my review of Mr. Shuman’s book, Local Dollars, Local Sense, F$17.95, before getting your own copy. David Smotherman (423-413-8999) at Winder Binder Gallery & Bookstore on the Northshore has a copy waiting for you to review and purchase. When you drop by to pick up the book, make sure you give yourself time to wander the stacks. Tell him I sent you.