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An Interview with Pete Claussen:
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We begin with Mr. Claussen talking about some common problems associated with starting a small business...
There are a couple of fears that you have about starting a business. The first one is “Where do I get the money?” It’s a universal problem. There are very few people who have a lot of money to start their own business.
And the second one is all the regulations that you have to deal with. “Is there some place I can go to find out all the stuff I have to file with everybody to keep out of trouble?”
People think they can figure everything else out if they can just get those two things taken care of. I think probably everybody starts with some of those two worries.
Well, the first one is fairly easy. It turns out that people get paid to lend you money! And so all you have to do is find them. And the reason a lot of people have trouble starting their business is that they don’t try to find the lenders. They go to their in-laws, their friends, their family to get the money – the capital they need to start their business; and they have trouble getting the money. When in fact, there’s a lot of money available through commercial sources. So I think that’s one thing that definitely is not well-understood by entrepreneurs.
The second thing – all the regulations – is also easy to fix. Just go to a lawyer! He’ll tell you what all of that stuff is. For him, it isn’t hard. Let him deal with it!
That was actually one of the questions I was going to ask you – because you’re an attorney yourself, right? Do you think that’s a big part of your success? Having that background?
Um, no. Lawyers typically make terrible businessmen because they’re trained to see risks, and the lawyer’s job is to tell their clients, “No, you shouldn’t do that because of this risk, or you shouldn’t do that because of that risk.” So the lawyer’s approach to everything is “don’t take any risks.” Well, if you don’t take any risks, you aren’t going to get anywhere. So one of the things you have to learn is to be able to tell your lawyer “no and thanks.”
Intellectually, I guess it was good. It was because of being a lawyer that I came to understand financing and other things. So temporarily, it was good. But you really have to unlearn a lot of legal training to be a good businessman.
If you look around, there are a lot of lawyers in town who became business people, but they made it pretty clear: either they never went into a practice, or they made an abrupt departure.
For example, Bob Talbot who owns Holrob is a lawyer. But I would definitely not recommend going to law school to be a businessman.
So do you have any favorite small businesses – mom and pop businesses – here in Knoxville?
Sure. Steamboat.
Steamboat?
Yes. Steamboat is great!
I heard there’s also a big yacht coming to town for tours...
It is. It’s here. But you know where Steamboat is. It’s a little place out on Central.
Oh! Steamboat sandwiches! Yeah, it is great food.
But if you look around at people who started out as a small business, and that you admire a whole lot, Bob Talbot has done really well. He started out remodeling some places, and I don’t know how he ranks numerically, but he’s a really large developer now.
And Jim Haslem. You know, he built Pilot Oil from scratch.
Right. Well, one of the things that I wanted to touch on in our conversation was that I get the feeling one of the secrets of your own success is focusing on something that you’re really interested in.
Well, I was always interested in trains, but I was never one of the fanatical rail fans. I wasn’t involved in any clubs or anything. I had a magazine subscription, and had a passing interest, but I never really was able to put that together with the business side. I hadn’t really thought about the business side.
Then there was an article in one of my train magazines about box cars. That people are private owners of box cars. That you can go out and buy one and be a private owner of one and lease it to somebody. And that got me to thinking.
Because you know, people think of the railroad business as having a high financial barrier to entry. And it really does. I mean, you can’t afford to go out there and build a new one. But this article made me realize that there are ways to get into the railroad business on a small scale.
Then about the same time that article came out, I was working for TVA, and TVA got asked to buy up a defunct railroad in Western Tennessee. There were 4 counties that it ran through. It was going to be abandoned. And I got assigned to that project. So I got to understand that. And I thought to myself, “Maybe this is something that I could do one day.”
I didn’t get into it to make a lot of money. That wasn’t the purpose. I was just tired of being a lawyer. Lawyers deal with problems all day long. Entrepreneurs deal with opportunities. You probably have enough problems without dealing with somebody else’s too. I knew I’d have a better attitude when I’d wake up in the morning and deal with opportunities all day instead of other people’s problems.
Another thing I've noticed is that you seem to have a real sense of responsibility to the community. Is that something that you’d care to talk about?
I think Linda and I both feel that you should support the community. It’s been really good to us and you try to respond. There are some people here that have done a superb job of giving back to the community and were good examples.
I was just at a dinner this week, and there are 96 people in Knoxville who give over $10,000 a year to United Way. So Knoxville is a more generous community than lots of others. It’s easy to do when you’re not the only guy who does things like that; and it’s something you do for your own satisfaction.
I guess there are some disadvantages to it, too. You’re on everybody’s list, so you have to learn how to say “no.”
I saw the article in Metro Pulse where they interviewed you about building a train to the Smokies, and you said that it isn’t easy, nor is it likely to be profitable, to build a new train.
No, it’s not. Especially one that’s going to haul passengers. You have a train from the coal mines of Corbin, Kentucky to Rome Georgia – to a power plant there. It’s probably about 350 miles. And the railroad is going to get about $150,000 in revenue from that.
But if you run a passenger train for 350 miles, you wouldn’t get a 10th of that revenue. And besides relatively low revenue, you have to pay somebody to clean the cars, take the tickets, haul the baggage – there’s just a whole lot more expense for hauling people than for hauling freight.
Plus, you’re hauling your freight in that case on a railroad that already exists. There would have to be a major capital outlay for building a new train to the Smokies.
And aside from all that – nobody would ride it. Nobody from Indiana is going to get out of their car at Smokies Stadium and get on a train to Pigeon Forge and then have to carry all their bags to the motel, and then not be able to go anywhere because they don’t have a car. It’s just not going to happen.
And in regard to the other common idea – to have a train from the airport to downtown – how many busses run from downtown to the airport? None. If you can’t support one bus – one lousy bus – how can you ever support a train?
But there will be a slow drift of people who will be interested in that from now ‘till the end of time. They’ll commission studies, and there’s nothing wrong with that, because it gives the people who study something to do.
A hundred years from now, maybe.
What do you think the differences would be 100 years from now? Population density, or…?
Yeah, you can look out the window now at I-40, and you realize that truck traffic is going up 1,000 trucks a day per year. So if there’s 12,000 trucks a day now, next year there will be 13,000, and the next 14,000, plus additional cars. And the solution of continuing to make the interstate wider starts to get very expensive and impractical.
So there’s got to be some other kind of system at some point. What that will be, I don’t know. But I suspect it will be rail-oriented. But for that to happen, things will have to change.
A lot of people commute to Washington D.C. on a train, because if they try to drive to work the interstates are so clogged up they can’t get to work on time. I hope that isn’t what happens around here. But usually, your life has to get miserable before a train will come in and be a solution.
Thankfully we’re not there yet.
No. But that would be your normal sequence.
Back to Mom and Pop businesses, do you have any favorite memories of your business as a Mom and Pop?
Well, the first railroad we bought was in Mississippi, and the closing was in New York. It was on New Year’s Eve. We’d been working there for two or three days trying to get everything done, and we’d finally finished. And so before I left, I brought all the kids and Linda up to the Apple – the big Apple. Then on the way home, we were flying out, and got to see all the fireworks below us, because it was midnight. And I thought, “Well that was a pretty good way to get started.”
But the growth has been steady since then. There wasn’t a huge jump until 1999 when we sold off one of our railroads. And that was sort of a milestone. It changed what you were doing from buying to selling. Of course we do both now, but before it had just been buying and managing them.
And it’s an interesting story, because railroading is a capital-intensive business. How do you get into a capital intensive business without any capital? That was a challenge.
But like I said, there are people out there who get paid to loan you money. And the one thing that I’ve told my kids over and over – the one rule in life that everybody needs to observe is to have credibility. If you have credibility, then people believe in you. The banker, if you have credibility, then he will believe you when you tell him that you will pay the money back. That’s all he cares about. And if you don’t have credibility, he won’t lend you the money.
For me, how does a guy who’s a lawyer for TVA get credit as a railroad executive? Well there was another railroad – well first of all, I started consulting and working with the shortline railroad that operated with TVA. Then after that, there was another similar situation in middle Tennessee where I organized the company that operated the railroad for the counties that owned it. And at that point, I had a card that said that I was the President of that railroad. Well, it makes it a lot easier to walk into a bank and say, “Hello, I’m Pete Claussen and I’m the President of this railroad, and I know of another opportunity that I want to talk with you about.
If you say, “Hello, I’m Pete Claussen, and I’m the best guy in the world, would you loan me some money, they throw you out! It’s the credibility difference.
I had a conversation with Congressman Duncan a few weeks ago, and I asked him what he thought the good opportunities for growth in East Tennessee were. He said he thought real estate development is a good area right now. Is there any other industry that you think is poised for growth in the Knoxville area?
Well, there are a lot of high-tech opportunities here. And there are industries here – businesses that have spun off from Oak Ridge. And there’s no reason that that would stop. In fact there are a lot of new initiatives in Oak Ridge, technology and products that are in need of being developed. So that’s one.
Another is that Knoxville is well positioned to be a transport hub for the population centers of the Eastern U.S. All the interstates converge here. So if you have something that you want to produce and sell, it’s pretty centrally located to do that – especially if it has transportation as a significant cost. That’s why you see so many businesses up and down I-81, because you can get to the New York market quickly. And we can get to Chicago quickly, too. I think we can capitalize more on that.
Memphis set itself up as a distribution center. Knoxville has just as much going for it, maybe more, than Memphis does.
Mr. Claussen, I know you’re busy. Is there any last comment you’d like to make? Anything related to Knoxville business?
Well, just as a business man – the advice to a businessman – especially to a budding businessman – that is to always tell the truth. Nothing will get you in trouble faster than to lie. And you lose your credibility. No fudging. And it’s hard, because spin has become a way of life, and you can get caught up in that.
So that’s it. That’s my advice.
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