EQ Journal Archive 12

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Pre-selling, Finding New Clients, Keeping Existing Ones

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Large Companies that Suck at Customer Service

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Sell

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Letter to the Editor

Posted on
Saturday 9 July 2011

Dear Bloomberg Businessweek Editor:

Re. your article in Etc. on the Return of the Winnipeg Jets (July 3rd, 2011)

As a 20+ year reader of Businessweek, I enjoyed your recent article
on the return of the Winnipeg Jets to the NHL. I liked Neil Janowitz’
part about: “Winnipeg isn’t the first to have loved and lost a team—only
to love again.” He mentions that Washington lost the Senators in 1960
and then again in 1971 only to recapture a team (the Nationals) in 2005.

I would like to point out that Neil forgot the other Senators—the
NHL’s Ottawa Senators who left the League in 1933 during the Great
Depression only to return as a conditional member (along with the Tampa
Bay Lightning) in December 1990, resuming play in October of 1992.

The successful ‘Bring Back the Senators’ campaign of 1989-1992
restored a team that had gloriously won 9 Stanley Cups, the latest in
1927. The Sens were an original founding member club of the NHL in 1917.

Best regards,

Dr. Bruce M. Firestone, Founder, Ottawa Senators, July 9, 2011.

Postscript 1: Neil also referenced the NFL’s Colts leaving Baltimore
in 1984 and getting the Ravens in 1996 and the Rockies leaving Denver in
1982, replaced by the Rockies (in 1991) and the Avalanche (in 1995). As
well, Minneapolis lost the Lakers in 1960 and the North Stars in 1993
getting the Timberwolves in 1989 and the Wild in 2000.

Postscript 2: The letter was written, in part, because Ottawa always
seems to be an afterthought for national and international media and, in
part, because the Sens have an awesome history.

Prof Bruce @ 10:16 am

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Posted on
Friday 8 July 2011

I heard a rather pathetic story today which underlines just
how bad many large companies have become at (what is now an oxymoron):
customer service.

Here’s how it went:

A deadbeat customer of Virgin Mobile gave Virgin Mobile the cell
number of his ex-roommate, who is a former student of mine. So Virgin
Mobile starts calling the roommate demanding payment even though he has
nothing to do with it. Later, their collection agency puts the roommate
on their call list—twice a day, every day he gets harassed for payment
on an account not his own.

Even though he correctly identifies himself, they refuse to take him off their call rotation now because he is not
on the account which means, citing privacy concerns, they cannot
discuss it with him. Still, they incongruously demand he either make
payment or get the former roommate to call Virgin Mobile even though the
roommate has: a) left the City, b) has no forwarding address and c) no
phone either because, of course, he never made any payments on it…

They are hiding behind the privacy act and, in effect, they are in
cahoots with the deadbeat to shakedown another paying customer. His only
recourse after contacting the CRTC (the Canadian Radio, Television and
Telecommunications Commission regulates cell phone companies in Canada)
is to use call block and phone the police (!) if they somehow get
through to report them for harassment and extortion. Sheesh.

Next time someone calls me asking for money, I’ll just give them Stephen Harper’s number at 24 Sussex Drive.

Compare that to what Zappos.com did with their customer service (see:
Delivering Profitability—A Review of Zappos.com CEO Tony Hsieh’s New
Book, https://www.eqjournal.org/?p=973).
CS is one of their key competitive advantages and a big time
differentiator for them. Who would have thought that Tony could take an
online shoe business, build it into a more than $1 billion in revenue
enterprise and then sell it to Amazon for more than $1 billion? Their
corporate culture did much of the heavy lifting on that.

Prof Bruce

Prof Bruce @ 2:37 pm

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Value Differentiation and ‘Pixie Dust’

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Franchise and Concession

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Payables

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User Experience

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Rent Curves

Posted on
Wednesday 6 July 2011

How Developers can Make More Money and Urban Design can Improve by Exploiting Vertical Rent Curves

It has always amazed me that many developers, those veritable profit
maximizers, don’t understand that neo-urbanist principles* can improve
their returns while at the same time making them better city-builders
and I suppose better corporate citizens. For example, most of them don’t
know that there is a vertical rent curve in most towns and cities as well as a horizontal one.

(* For more on neo urbanism and livable cities, please refer to: https://www.eqjournal.org/?p=2449.)

In its simplest terms, as you go out from a city centre, rents drop
and as you go up at many points within the urban fabric, rents increase.

Moving outwards from a typical city centre, density drops,
opportunity for interaction (jobs, entertainment, education, synergy,…)
decreases and transportation links become less available, and rents drop
accordingly. Meanwhile, people ‘downtown’, whether in offices or
residential condo towers, prefer to be higher up and will pay more for
better views, less noise and pollution and, as my Aussie friends call
it, higher poser value*.

(* Donald Trump is famous for ‘floor inflation’. He claims that the
first few floors of many of his towers, including the Trump Tower in
NYC, are so grandiose and volumetric that he is justified in
re-labeling, say, the 12th floor as the 20th. It also allows him to
charge higher prices since the ’20th’ floor is perceived to be more
valuable than the 12th even if their actual elevations above grade are
the same.)

It is the latter rent curve (the vertical one) that is often poorly understood by industry.

I took a photo this morning (it is July 6, 2011 as I write this) on
my way to work of a pretty ugly apartment tower at the corner of
Iroquois and Carling in Ottawa ON. It is across the street from the
Carlingwood Mall in an improving part of town. It has become quite the
desirable area to live in as more folks in Ottawa have realized that
being closer to work has its advantages*.

(* That includes my wife and I. Recently, we sold our 7-bedroom
suburban home and bought a small condo not far away from the Carlingwood
Mall; it’s close to the Ottawa River and walking distance, for me, to
work.)

Ugly Apartment Building

The first three storeys are used for a parking garage and the podium
facing the street is a blank wall: it quashes street life, denigrates
the area, lowers public safety and is basically a throw away by the
developer in terms of its economic value. It defies almost all the
principles of neo-urbanism and sound city building.

Here’s another look at the whole tower:

Vertical Rent Curve Degenerating at Grade

Now what if the developer had instead used the volume at grade for
front facing, two storey towns or perhaps for office condos or retail
shops with what I call a window-on-the-world (WOW) effect (which is
actually made up of portals overlooking and access to and from street
level)? Would public safety improve? Would the walkable nature of the
City improve? Would the developer make more dough? Would Buyers/Renters
have more options and greater choice? Would the City be made more
lovely? Yes to all these questions…

I superimposed (rather clumsily I admit) some towns on the building:

Towns at Grade

Wouldn’t you rather see a version of this than a blank wall? So message to builder: there’s a renovation in your future.

I drew rent curves for two conditions (see below). The first (in
yellow) shows the notional rent curve for a typical condo or apartment
tower that ignores the potential for street facing uses at grade. All
units are inward facing and rents just drop secularly from penthouse to
grade: the closer the Buyer or Renter gets to grade, the more noise and
pollution they have to put up with, the worse their views are and the
more perceived security risk there is. Hence, they expect and actually
do pay less.

If instead, the developer used street facing townhomes or other built
forms that take advantage of direct access to the public room, you
could achieve higher rents and better urban spaces. If you have a young
family, wouldn’t you rather have a street facing town that you and your
kids can get out of through a front door? Or if you are running your
architecture practice from one of these towns, wouldn’t you rather have
clients come to your own front door? And how nice would it be to have
your own street facing sign for identification and 24/7 promotion…

Here is what that rent curve might look like (in red):

Rent Curves for Two Different Conditions of Built Form

Prof Bruce

Prof Bruce @ 9:53 am

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Differentiated Value

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Home Building

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Investing

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Property Taxes/Municipal Taxes and Fees

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Sprawl

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Traffic and Transportation

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Posted on
Tuesday 5 July 2011

(Tara Hunt, CEO & Co-Founder of Buyosphere
talks about the three attributes all successful entrepreneurs must
have: delusion, desire to change the status quo and sheer utter
audacity. Orignally appeared at TEDxConcordia, Feb 21, 2011)

I am 37 years old and this month marks the first time in my adult
life that I had to call up my landlord and tell him I couldn’t pay my
rent on time. I’m not telling you this for pity and it isn’t a rags to
riches story. I am doing what I love. I am more alive than I’ve ever
felt. And though I’m more broke than I’ve ever been, I’m also happier.

Hello, my name is Tara and I am a startup entrepreneur…

Tara Hunt, Entrepreneur

Let me tell you…that it takes HERCULIAN levels of strength to hold the faith day after day as you travel down an unclear path.

Imagine this. You are an entrepreneur standing in front of a group of
important people, people who hold the power to change your future –
venture capitalists, media, potential employees, and YOU – and you pour
your heart out to them. You present your vision in the best way you know
how to articulate it. Your palms are sweating. Your heart is beating
out of your chest. You are so excited and filled with passion and you
just know they are going to recognize it. They will understand your
vision and want to be part of it. They will want to help you get there.

But then you start noticing them checking their blackberries and
looking bored…their furrowed brows…and you know what is coming. They
proceed to tell you every way in which your business will fail. It’s
been done before, so it will fail. It’s never been done before so it
will fail. There are too many competitors, so it will fail. You come
into those meetings with your heart on your sleeve and the reach across
the table, grab your heart, put it in their teeth and take a big, juicy
bite out of it, hand it back to you and say, “good luck with that.”

And you leave those meetings with two things. Number one, a broken,
bleeding heart and number two, a burning desire to prove to them just
how wrong they are. And you hold onto that second thing, imagining
yourself handing them their hats on a silver platter when they come to
you to beg to be part of your success some day.

But those meetings are the easy ones. At least you know exactly where you stand when you leave them.

The worst meetings go something like this…once again, you are
presenting your vision with passion and this time, the reception is
different. You see a sparkle in their eyes. They are nodding their
heads. They start to ask you deeper questions about your marketing
strategy and technology and you answer these questions like a pro. You
know your business. You know your market. They tell you they want to
follow up! You leave those meetings in a very different mood. You are
giddy. You practically skip back to your office.

You get back to your office all fired up and send that follow up
email, “great to meet with you! Here are those things you asked for!”
finally! Someone who gets it! You want to celebrate! Your business is
going to move forward!

Then a couple of days pass….nothing. Days turn to weeks….still
nothing. Your spidey senses start tingling…well…maybe they got busy?
Perhaps a family emergency? Maybe an illness?

So you send a follow up email, “hey! Just following up to see if you
need anything else from me! If you have any questions, just ask!”

And then comes the reply. It’s vague and flat and sounds nothing like the previous meeting. It goes something like this:

“Tara, thank you for coming in and showing us what you are working
on. We really enjoyed meeting the team and though we like your idea, we
are just going to pass on it right now. Keep in touch!”

Huh? This is the point that you take a drink. Tequila has become my
personal favorite. Take a pass? What? What happened? Where is the love?

It’s as if everyone you meet with is directly or indirectly telling
you that you are chasing a pipedream….that you should just give up.

Give up? Never. Isn’t this what a startup is about? Building
something with unknown results? It’s never certain. We have a great
team, a product that is well on it’s way, a vision, a community of
users, connections, an exciting roadmap….and we believe. All we need are
the resources to get us there and one person to provide that so others
follow….you are breaking my heart!

But you won’t break my spirit.

Entrepreneurs have an unbreakable spirit. We have to. Because we only
have two choices: chasing the dream, this unclear path or going stark
raving mad. Yes, building a product and raising money is difficult, but
spending the rest of your life being haunted by “what if” would be much
harder.

There has been a lot of talk recently about what it takes to be an entrepreneur.

I won’t put any parameters around what is and isn’t an entrepreneur
other than to say that you have to be “all in”. So, if you are building
projects on the side, that is awesome and creative, but it doesn’t make
you an entrepreneur. And I was a consultant for many years and thought I
was an entrepreneur, but I know now that was better defined as
self-employed. When you are all in, you spend every minute of every day
focused on how to survive and make your business successful because you
have to. Whatever it takes to succeed, you get really creative in
finding it.

You go to bed every night and dream about finding it and you wake up
every morning and start planning how to find it. Every morning I wake up
and think, “what are all of the things I didn’t do yesterday to make it
happen that I can do today?” and over my morning coffee, I start to
make a list of all of these things and that list includes things like
“sell everything I own and live in a cardboard box.” Until you put that
on your list, you aren’t all in.

I don’t believe that entrepreneurs can be made. It’s not something
that can be learned. Sure, you can learn how to run a business. You can
learn sales. You can learn operations and coding and everything that
goes on behind the scenes. But what you cannot learn are those
fundamental and innate characteristics that prepare you for the roller
coaster of the unclear path.

These are:

1. Delusion
2. Desire to change the status quo (…that dream…that big idea); and
3. Sheer and utter audacity

And it isn’t enough to have just one or two of these characteristics,
you a need all three of them to prepare you for what you will face as
an entrepreneur. Let me explain…

Delusion is my personal favorite. I come by this particular trait
very naturally. In fact, when I was a kid, I wanted to be a pirate when I
grew up. Of course I had a fallback plan…if that didn’t pan out, I
could be a princess, but it wasn’t my first choice. I had no idea what
swashbuckling entailed, but it sounded like a hella good thing to do day
in and out. So while all of the other kids were dreaming of being
doctors and engineers and lawyers, I was sporting puffy shirts and
singing, “yo ho a pirates life for me!” Thankfully, I eventually found
the web and entrepreneurship and found a whole new outlet for my
swashbuckling.

As you can imagine, it was interesting to be my parents. Perhaps
other entrepreneurial types in the audience had a similar relationship
with theirs. Even though they were trying to encourage me to do what I
wanted to do, I could never quite escape their concerned looks.

My parents and I are wired very differently. Though we share many of
the same characteristics, fundamentally we want very different things
out of life. This has always been tough because it meant we didn’t quite
connect. And being raised in a small town and in a family who saw the
world different than I did meant that I always felt alone…like an
outcast…like there was something “wrong with me.”

Eventually I grew up, left that small town and went far way to
discover that there wasn’t anything wrong with me at all. In fact, I
started to meet hundreds…and eventually thousands…of people who had all
sorts of different perspectives on the world. And when I discovered
this, I started to feel comfortable in my own skin and I began to soar.
Really soar.

Still, there isn’t a day that goes by that I don’t wonder, “What the
hell am I doing?” and those voices enter my head, the ones that say,
“well, Tara has never chosen the easy road.” but the truth is, this
isn’t about an easy road or making it hard for myself. My goals in life
have never been to be comfortable. My goals are very different…to
explore, to question, to live, to learn, to grow and…ultimately, to make
a positive impact in the world. And that requires taking risks and
leaps and making mistakes and taking the unclear path.

What appears to some as instability is merely me getting back on that
path. If I wanted the mortgage and the nice husband and kids and 9to5
job and the RRSPs and everything else that comes from having that “ideal
life”, I would have it by now. But that’s not MY ideal life.

I choose to follow this unclear path and throw my life into
uncertainty, not because I’m a masochistic, but because I’m pursuing a
dream. I don’t like being late on my rent but it doesn’t make me feel
like a big loser or a failure, I know that I’m making the sacrifices I
need to in the near term…I can feel it in my gut. Every day, I’m so
excited about the future that my heart beats out of my ears and I wake
up every day with an exhilarating panic that there aren’t enough hours
in the day to accomplish what I need to to get there.

And where is this road taking me? Well, that’s the craziest part of all…I’m not entirely sure.

However, I was heartened to learn recently that this is a keystone of
being an entrepreneur. A study on a swath of successful entrepreneurs
in INC Magazine found that, though we have lofty goals, like luggage,
these goals may “shift during flight.” it stands to reason that
unpredictable outcomes are bound to happen as one pioneers uncharted
waters. Instead of nailing down a clear goal and barreling towards it,
entrepreneurs ask questions that lead them towards answers.

Did Twitter understand the impact 140 characters would have on the
world? Did they foresee the way it would be used in revolutions? How
about Zynga the company behind games like Farmville? Could have they
predicted their average user would be a 43 year old woman? And Facebook?
In their wildest dreams, could they understand the level of activity
they would enjoy worldwide today? Sure, the entrepreneurs behind these
companies had an inkling…a big idea and a dream of where they could
be…but in their wildest dreams, they couldn’t predict the outcome. Lucky
for all of us, they had enough delusion to follow their crazy dreams
and lucky for them, they had delusional people with money to support
them towards their outcomes.

Which brings me to audacity. That ability to risk it all. The
arrogance of believing in something so strongly that you will drive all
of the people around you completely bonkers. It’s no secret that I am
single…and not for lack of trying. But the truth is that I probably
couldn’t BE in a relationship right now. My company is way less of a
Venture Capital investment risk than Tara Hunt is a boyfriend investment
risk. I’m obsessed with building my business 24/7. I walk around a
ticking time bomb stress ball 99% of the time. My highs are hysterical
and my lows? You don’t want to know. This is the type of roller coaster
that I shouldn’t be involving anyone to join me on emotionally. Even my
dog feels the fallout. And I’m lucky because my son moved out of the
nest last summer and doesn’t see this daily.

But audacity wasn’t only essential to getting ON this roller coaster,
it is also essential for being able to STAY on it. The difficultness,
the arrogance, the impudence – that’s key to the drive to keep going.
It’s behind the perseverance. It’s that thing that helps me get back up
after being rejected over and over and over and over again, brush myself
off and keep on keeping on.

You know that saying about hearing 99 no’s before you get to a yes?
Well that ratio is pretty much accurate. Even the most brilliant,
charming types that could sell a fur coat to a bear experience the same
ratios. They just have amazing audacity.

At the end of the day, entrepreneurs choose an unclear path not
sanctioned by mainstream society. We need to be delusional, audacious
people with big dreams just to carve out a life in a world we don’t
“fit”. Luckily, we have plenty of folk heroes to look up to and say,
“look at her! She was rejected and faced all sorts of opposition, but
she proved them wrong and look where she is now! That’s going to be me
someday!”

And even if we don’t get there it’s that path…the journey that is the
best part of all. We can be knocked down and kicked a hundred times,
but we get back up and try again until we succeed. Because no matter
what, the unclear path is the only one we can gr0k. So, to my fellow
entrepreneurs -the successful, the unsuccessful and those on the journey
– I salute you. Thank you for being delusional, audacious dreamers and
continuing to inspire me.

And in the words of the Apple Think Different campaign (join me please):

“Here is to the crazy ones. The misfits. The troublemakers. The round
pegs in square holes. The ones who see things differently. They’re not
fond of rules. And they have no respect for the status quo. You can
quote them, disagree with them, glorify or vilify them. About the only
thing you can’t do is ignore them. Because they change things. They push
the human race forward. And while some may see them as crazy ones, we
see genius. Because the people who are crazy enough to think they can
change the world are the ones that do.”

Tara Hunt
https://twitter.com/#!/missrogue

Ms. Hunt also wrote a funny and pithy account about lies people tell you before you start a new enterprise. Please see: https://t.co/342yvct. Warning: some vulgarity.

Prof Bruce @ 4:16 pm

Filed under:

How to get NHL teams for Québec City and … Hamilton

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Entrepreneur Skill Set

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Posted on
Saturday 2 July 2011

NHL rules that so frustrated Jim Balsillie’s efforts to
secure a team for Hamilton saved the Sens in Ottawa. Instead of fighting
the system, he might have worked with it for a brand new team. And, oh
by the way, a second team in the Toronto area, could cost $400 million.
BY BRUCE FIRESTONE, FOR THE OTTAWA CITIZEN, ORIGINALLY PUBLISHED OCTOBER 2, 2009

As a member of the last group to successfully found a franchise in
Canada*, I have watched Jim Balsillie’s attempts to land an NHL member
club with great interest. His determined efforts have provoked rage in
some quarters and admiration elsewhere, but with his third attempt to
acquire and move an NHL franchise in ruins, one could question the
effectiveness of his approach.

(* That is until True North Sports and Entertainment re-established the Winnipeg Jets in 2011, Ed.)

Litigation has been a big part of his overall strategy. However, when
you are trying to join a private club, rarely do you want to litigate
your way in. Whether it is a golf and country club, gym or professional
sports club you are trying to become a member of, going to court is
unlikely to win you many friends among the existing membership.

If Balsillie had been successful, I predict he would soon have found a
sub-group of owners that would have allied themselves with him and NHL
insiders would gradually have accommodated themselves to his presence.
Money talks.

But still, if I had been asked by Balsillie’s group for any advice,
litigation is one tool that should have been left in the toolkit. The
NHL is led by two clever and formidable lawyers and they are not afraid
of litigation.

So who actually owns a franchise? Certainly, lawyers for the NHL
would argue that owners “own” their teams subject to the conditions of
their franchise agreements and subject to the bylaws of the NHL
(contained in the NHL’s constitution, known by its Latin name, lex
scripta.)

So a franchise owner has certain rights and obligations. Bankrupt
franchise owners have many fewer rights and, under certain
circumstances, the NHL has the right to revoke a franchise and take
control. But whatever lawyers may argue, ultimate control over the
destiny of any sports league comes from the source of all revenues — the
fans. Again, money talks.

So I would argue that fans actually ‘own’ major professional sports
teams; that the owners and the leagues hold these franchises in trust
for their stakeholders and, in particular, their fans; and that these
franchises should not be moved unless all options have been exhausted
and then exhausted again and, finally, once more.

In the event that a franchise is moved, the intellectual property
(the name, logo, history, awards, banners, video vault, etc) should be
held by the league in trust for a future franchise for that city. And
clear guidelines should be established for the grant of an expansion
franchise to the city so dispossessed, so that some future group will
know exactly what it has to do to re-found the Jets, the Nordiques or,
for that matter, the Coyotes, if they ever do move.

When my group was pursuing an NHL franchise, I was asked by one owner: “Do you want a new one or a used one?”

My preference, indeed the only option we looked at, was a new one —
we wanted an expansion franchise rather than a relocated one. To me,
renaming and re-locating an existing franchise seemed to tarnish the
brand right from the start. The only way to buy and relocate a ‘used’
franchise is by disenfranchising fans somewhere else, hardly an
auspicious way to begin. How do you think Baltimore fans feel to this
day about the NFL’s Colts? Just go to a Ravens game and sit in the end
zone with a Colts jersey on to find out for yourself.

Balsillie wanted to purchase an existing franchise and move it to
Hamilton. If instead, he had sought an expansion franchise for Hamilton
(the course of action more likely to succeed in my view), the fee he
would have paid would have included an infringement payment to any club
that is nearby (i.e., the Maple Leafs and the Sabres). There is plenty
of precedent for this — when the Devils relocated to New Jersey, they
paid infringement fees to the New York Islanders and Rangers, as well as
the Philadelphia Flyers.

Plus, the expansion fee Balsillie would have paid would have been
shared by all teams. Thus, league members would have had a financial
incentive to bring somebody like Balsillie into the club. And the clubs
being infringed upon, Toronto and Buffalo, would have been compensated
for that, and they too would have had some type of financial incentive
to make the whole thing work.

NHL deputy commissioner Bill Daly has argued that the relocation of
any existing NHL club requires a simple majority vote by league members
and that there is no veto by any individual club. This argument is
central to the league’s view that the NHL constitution meets the test of
U.S. anti-trust law and that there is no undue restraint of trade
created by its lex scripta.

Some member clubs might feel that they do, in fact, have a veto. What
they actually have is the right to compensation for infringement of
their territory, but not the right to unilaterally reject such an
infringement. This is an important distinction, a type of fine print
that lawyers love.

When I sat on the NHL’s expansion committee, we heard from two
applicants: Wayne Huizenga for what would become the Florida Panthers
and Michael Eisner and the Disney Company for the Mighty Ducks.

For the Anaheim team, the $50 million expansion franchise fee was
paid as follows: $25 million to the NHL and $25 million (at $5 million
per year for five years) to Bruce McNall and the L.A. Kings, whose
territory was infringed by the Ducks.

The NHL defines the franchise area for a member club from the
boundary of, for example, the Corporation of the City of Ottawa (the old
city not the new city) plus 50 miles. So if someone wanted to establish
a franchise in Gatineau or Red Deer or Hamilton, they should first do a
deal to determine the amount of compensation that the rights holders
being infringed (the Sens, the Oilers and Flames, and the Leafs and
Sabres) would receive.

Is that a tolerable restraint of trade? I don’t know but it seems
reasonable to me. If you had just paid $50 million for a franchise in
the 1990s (or $140 million or $212 million or whatever the going rate is
today*), you probably would expect to be able to generate revenues
without undue interference within your defined territory and, if such
interference happened, then you would expect to be compensated.

(True North paid $170 million for the Atlanta Thrashers of which $60
million was a relocation fee shared equally by all member clubs, Ed.)

I know that when the modern-era Sens were re-established in the
1990-1992 period, we did a deal with the Canadiens to trade mid-week
broadcast rights — Montreal could broadcast their games into
Ottawa-Gatineau (where they had a lot of dedicated fans) and we could do
the same in Montreal. Initially, this was a deal highly in favour of
the Canadiens but the Sens have been seen in Montreal for 17 years and
have a following there now. Plus there is the fact that Montreal is a
bigger market than Ottawa so it probably balances out today. No money
has ever changed hands.

The same deal was offered to T.O. but the offer was declined by the
Leafs. In fact, the Maple Leafs threatened to broadcast their mid-week
games into Ottawa without prior agreement with the Sens right up until
the first day of their first season in 1992-1993. I told them that this
was going to be the greatest day in the modern history of the Ottawa
Senators up to that point in time because, if they infringed on the Sens
territory without our permission, all their broadcast revenues could be
forfeit under lex scripta to the Sens. The Leafs wisely did the right
thing and did not broadcast into Sens’ territory without a prior
agreement on compensation, which has never been reached.

And this comes to the crux of things. The Leafs are the wealthiest,
most widely followed franchise in the NHL. There is no point in
bellyaching about it if you are a fan of any other NHL team. Toronto
fans are terrific — they love their team even if it hasn’t won a thing
since 1967.

Their local broadcast rights are probably worth more than $40 million
per year today and they don’t want to share this revenue stream with
anyone else. So Balsillie, or some future bidder to locate a franchise
in Hamilton, should, in my view, make a deal for compensation with both
the Leafs and the Sabres. And they need to make that deal before
they deal with the NHL — as the Mighty Ducks did. Leagues are very
reluctant to impose a second, third or fourth franchise in a
metropolitan area without prior agreement on the amount of compensation
those teams being infringed on would receive.

For the Maple Leafs, it just comes down to money but for teams like
Ottawa, the Sens would be hard pressed to survive if they did not have
some type of control over their own territory.
Indeed there is no doubt that the Sens would not have survived to this
day without the intervention of Gary Bettman during the run-up to and in
the bankruptcy of the team here in Ottawa. He went to bat for the team
many times during the era preceding the ownership of Eugene Melnyk.

Jets and Nordiques fans may ask where was Bettman during their last
days? But Ottawa fans should recognize what he did for this team.

When the Sens were admitted to the league, the team’s NHL payroll
(including its minor league affiliate) was around $6.5 million
(Canadian) per year. John Ziegler, then president of the NHL (and soon
to be replaced by commissioner Gary Bettman) told us to expect player
salary increases of about 10 per cent per annum.

Instead, salaries in Ottawa soared to more than $42 million (U.S.)
and the Canadian dollar shrank from around 90 cents when the franchise
was granted to just 64 cents. Ottawa’s payroll growth during this period
was an astounding 33.5 per cent per year; the enterprise was not
sustainable. Nor were the Jets and the Nordiques — a major adjustment
was inevitable.

The Commish had nothing to do with this realignment of currencies
and, whatever else Bettman may have done to madden Canadian NHL fans, he
cannot be blamed for this.

The NHL is probably an effective monopoly, as are most major
professional sports leagues. Is that bad? Well, experience shows that
rival leagues tend to cause player salaries to grow even faster, and
that is not good for smaller-market teams like Ottawa.

The arguments made in Judge Redfield T. Baum’s courtroom in Phoenix
included raising the spectre of pro sports being a monopoly and engaging
in restraint of trade. In my view, Judge Baum wisely refused to allow
Bankruptcy Court to write new anti-trust law which, in effect, would
have freed pro sports teams from their local obligations (to their
creditors, to their landlords, to their fans and sponsors) and made
franchises much more mobile — just starve them of capital, bankrupt them
and, whoosh, off you go.

This is not the right direction for any league or its fans.

Having said all of this, I am in favour of having more NHL teams in
Canada — this would be good for hockey fans, for revenue-sharing with
the players, and for the league itself. What I am not in favour of is
relocating existing teams.

If the Carolina Hurricanes can be successful in Raleigh (by, in part,
winning the Stanley Cup and icing competitive teams), the NHL can
probably be successful pretty much anywhere.

I believe the league should set out clear criteria for the return of
the Winnipeg Jets and the Quebec Nordiques regarding arena size and
calibre (minimum of 18,500 seats); season tickets sold (minimum of
12,000); suites sold (minimum of 60 suites); and an expansion franchise
payment.

This will allow new ownership groups to coalesce in those places and to build definitive plans for the return of the NHL.

With Hamilton, the matter is more complex. The above criteria are
still required but there is the matter of infringement payments to the
Leafs and Sabres. Certainly, the Leafs are not going to accept a
McNall-like payment plan over time. But a deal featuring a large portion
of television rights could work.

Whatever happens next, future bidders for NHL franchises should do it in concert with the league, and their future partners.

Prof Bruce

(Bruce Firestone is entrepreneur-in-residence at the Telfer School of
Management, University of Ottawa, and a real estate and mortgage
broker. He founded the modern-day Ottawa Senators and is Executive
Director of Exploriem.org.)

Postscript:

I think a buyer could acquire a franchise in Hamilton for a net cash
cost of just $2,700 (i.e., practically nothing) by capitalizing their
revenue streams and putting a reasonable amount of debt in place while
still leaving themselves with enough room to operate the franchise. Plus
each NHL team would get $10 million while Buffalo would net $30m and
TO, $90m.

Here’s how I would bootstrap a Hamilton expansion club that might cost $300 million PLUS another $100 million for an infringement fee:

Category Capital

Franchise Fee $300,000,000.00
Infringement Fee $100,000,000.00
Total $400,000,000.00

Naming Rights ($44,181,663.33)
Arena Management ($30,000,000.00)
F&B
Product Rights
Parking Rights
Pouring Rights ($12,272,684.26)
Local TV Rights ($114,543,907.64)
Suite Leases ($39,141,750.07)
Club Seat Licenses ($13,979,196.45)
Advertising, Signage and Sponsorship ($33,550,071.49)
Total ($287,669,273.25)
Debt ($112,328,000.00)
Net Franchise Cost (Cash) $2,726.75

To understand how I did this, you have to download the spreadsheet (in .xls format) from our server: https://www.eqjournal.org/HAMILTONFranchiseCost.xls.

Postscript 2:

In October of 2009, I built a NHL franchise fee calculator using historical data. You can also download this spreadsheet from: https://www.eqjournal.org/NHLExpansionFeesd.xls.

My model predicted NHL expansion fees of: $101 million for 2010, $114
million for 2015 and $127 million for 2020. This is a far cry from the
$170 million actually paid by True North in 2011 but I feel a little
better if you subtract a $60 million relocation fee to get a franchise
fee of $110 million.

Still, I redid the model using the latest data from the Winnipeg acquisition. You can download that spreadsheet too: https://www.eqjournal.org/NHLExpansionFeesd-july-2011.xls.
This gives us predictions for 2015 of $136 million and for 2020, $152
million which are obviously results biased by earlier years of
‘artificially’ low franchise pricing.

What it all comes down to is this: the NHL is a member’s only club
and they can and do make up the ‘rules’ as they go along which means,
you can’t really predict what they are going to do.

Entrepreneurs won’t be shocked by this because they already know that there are no rules… in a knife fight*.

(* I am paraphrasing Robert LeRoy Parker, aka Butch Cassidy from the film of the same name.)

Prof Bruce @ 7:50 pm

Bootstrap Entrepreneurs– Case Studies

Filed under:

Bootstrap Capital

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Competition

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Franchise and Concession

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Litigation

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Political Economy

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Thought Experiment

2 Comments

Negative Cost Marketing

Posted on
Saturday 2 July 2011

Negative Cost Marketing (NCM) is all about getting other
people to pay some or all of your marketing costs, in effect, turning
your marketing function from a cost centre into a profit centre.

NCM is a specific form of Guerrilla Marketing*. The 1964 Tribute Band
(Beatles) does this with an ingenious promotion during concerts. They
encourage their audience to get out their cell phones to call a friend
to let them listen to their next tune.

(* More on Guerrilla Marketing Basics: https://www.eqjournal.org/?p=643.)

I estimated that their cost for reaching out to 31,500 people during a
typical year for them is a negative $6 million. (For more info, see:
1964 The Tribute Band and Guerrilla Marketing, https://www.eqjournal.org/?p=383.)

Disney is doing something similar with their 22 ESL (English as a
Second Language) schools in China. Essentially, Chinese parents are paying
Disney to market Disney products and services (e.g., Shanghai Disney
Resort opens in about five years) to their kids. No doubt they are also
learning some English along the way too.

Disney does not break out results for Disney English in China but they do say it’s profitable (Bloomberg BW, June 19, 2011).

Another example closer to home is the manner in which Tony Greco and
Greco Lean and Fit Centres use their charitable foundation (The
Foundation to Fight Obesity in Children) as a stalking horse* for their
fitness centres.

(* For more on stalking horse marketing, please see: https://www.eqjournal.org/?p=1541.)

Involvement in the Foundation by kids and their parents to fight
childhood obesity almost certainly leads to more adult participation in
Greco fitness programs—either by the kids when they grow up or by their
parents dealing with fitness issues themselves. The amount of earned
media Tony receives for his Foundation is remarkable.

The Foundation has its own BOD, financial statements and fundraising
objectives. It operates separately from Tony’s for-profit Lean and Fit
Centres yet it undoubtedly raises Tony’s profile and serves a broader
marketing purpose at no cost to Lean and Fit.

I have always been amazed at how many people today are prepared to
wear advertising. Whether they are sporting Under Armor, Calvin Klein or
their favourite sports team’s apparel, people are essentially paying
these for-profit businesses for the privilege of advertising their
brands.

There are places where you can look for people, groups or
corporations willing to pay some of your marketing costs: you just need
to identify those who have a special affinity for your products and
services or those whose clients benefit from using your products or
services.

Charities and not-for-profits know how to exploit these
relationships. They are learning to sell to their partners not so much
on the basis of CSR (Corporate Social Responsibility) but on hard-headed
concepts like, by supporting our cause, you will drive more customers
to your locations…

One of the local charities I am very fond of is Christie Lake Kids
who do wonderful things for children in deep distress. It costs about
$900 to send a kid to Christie Lake Camp for ten days and all but $20 of
this is funded by partners. (20 bucks is all the kids, their parent,
parents or guardian can afford to contribute.)

How would it be if we could find a local retail partner that would
donate 1 cent from every dollar of sales for, say, a two week period
every year to fund kids going to camp? Do you think the retail partner
would benefit from a sales surge in this annual fortnight-long
promotion? I do.

So while the cost of marketing for CLK is negative, the cost to the
retail partner might also be negative (that is the 1% of sales going to
CLK might be offset by the margin on the increase in sales during the
period of the promotion). So we might be able to combine Negative Cost
Marketing (for CLK) with Negative Cost Selling (by CLK to its retail
partner), a happy condition wouldn’t you agree?

(For more on Negative Cost Selling, please refer to: https://www.eqjournal.org/?p=732, https://www.eqjournal.org/?p=713 and https://www.eqjournal.org/?p=482.)

Apple has leveraged its brand marketing efforts with both types of
NCM: people with an affinity for Apple products are unpaid brand
ambassadors and businesses that exist within the Apple ecosystem like,
say, their app developer community, do much of the heavy lifting when it
comes to selling, for example, the iPhone.

Facebook also uses some NCM although I am not sure if it is by
accident, design or discovery. Zynga (maker of the Farmville game among
others), which filed for an IPO this month, exists almost entirely
within the Facebook community and serves to hugely increase user
engagement with the FB platform, a type of marketing that FB probably
could not achieve on its own.

This doesn’t cost FB a thing.

It doesn’t matter how you get to NCM, by accident, design or discovery. Many things in the field of entrepreneurship are discovered and cannot
be planned or designed in advance which is one reason why entrepreneurs
constantly seem to be able to pull rabbits out of their hats or escape
‘certain’ disaster more often than Flash Gordon.

It is also why you need to actually launch your enterprise, force
yourself out of the nest, rely on using your own wings to fly: you
cannot anticipate, in advance, no matter how carefully you plan matters,
where you will end up in three months, six months or three years. You
can only do it, by doing it.

NCM requires you to ask: “Who benefits from my efforts?” When you
discover that, ask them to pay for part of your marketing program or to
become a sponsor for what you do. Even for-profit businesses can find
sponsors*.

(* Please refer to: How to Get Sponsors for Practically Anything, https://www.eqjournal.org/?p=1649.)

In any event, if you are going into marketing as a career or, as an
intrapreneur/product manager, you are responsible for launching a new
service or building a new division at an existing firm or, as an
entrepreneur, you are launching a new enterprise, your job security/your
next promotion/your business success could be enhanced if you can turn
your marketing costs neutral or, quite possibly, negative.

Prof Bruce

Prof Bruce @ 10:54 am

Filed under:

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Business Models

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Marketing

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Negative Cost Value Proposition

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Product Management

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Entrepreneurship, Economic Development and Sustainability

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Posted on
Saturday 2 July 2011

(From a speech originally given to: Kiwanis Club of Ottawa, Friday September 12, 2003, Fairmont Chateau Laurier Hotel)

Entrepreneurship is more than just a key engine for economic growth;
it is the most efficient means of producing a sustainable community, not
just in Canada but in developing nations as well. Countries that have
city-state economies based on thriving entrepreneur communities are also
likely to: a) be able to adapt more quickly to changing global economic
conditions, b) be more efficient in producing a higher level of output
with fewer inputs, c) almost by definition, be more sustainable.

I always found it strange how some businesspersons feel threatened by
the concept of sustainability and how some environmentalists feel
threatened by entrepreneurs. What I want to show today is that,
fundamentally, the two objectives—producing more with less are not in
contradiction at all. I mean isn’t it kind of obvious that if you can
produce a given number of widgets with fewer inputs (of materials and
energy) that your profits will be higher? And isn’t that good for the
environment and doesn’t that help move the whole economy onto a higher
plane of sustainability?

Now there is that word ‘profit’. Canadian entrepreneurs find it hard
to use that word. They feel the media, labour and environmentalists will
criticize them if they use it; it’s a ‘four’-letter word in our
country. But should it be?

Let’s go back in time for a minute to the time of Adam Smith; the
discoverer of the ‘invisible hand’. He found it incredible that a
nascent free market economy could produce the greatest number of goods
and services for the greatest number and be self-organizing too. How did
this happen?

Well, Adam Smith said that each individual acting in his or her own
self interest, would produce the most goods and services that he or she
could sell thereby employing the greatest number of persons and
resulting in the maximum benefits for society as a whole without really
meaning to. He determined that the invisible hand of the marketplace was
moving these people along and, if left alone to their own devices, this
would produce the greatest utility for society as a whole.

But there is another side to this story—there is a moral underpinning to the operation of free capital markets.

Your first duty to society is to not become a burden on it.

So when we use the term ‘profit’, whether applied to a family or
individual who is producing more income for themselves than they are
consuming (the difference either being put to use as savings or
investment) or an organization or a business that is producing a
surplus, we can be sure that they are meeting this moral test.

Private ownership of a ‘thing’ can be viewed as private stewardship of that thing.

As a former owner of a National Hockey league franchise, I never felt
like I owned it and, frankly, I was always uncomfortable with the
notion that hockey players under contract to the team were like
indentured workers, albeit, highly paid ones, that could be traded like
pork bellies. I always felt that I held the franchise in trust for the
fans and the City.

I remember how counter productive it was when West Carleton Township
Council considered in the 1990s passing rules to control the use of
private woodlots. These woodlots, most of them carefully managed by
private owners, remained in production over a period of time measured in
generations. They carefully harvested product to feed wood stoves, pulp
mills and board production so that they would have an income stream
continuing over many years.

The threat of controls by the local Council caused the exact problem
the Township was trying to avoid—some woodlot owners clear cut their
entire acreage in advance of the new rules becoming law; they feared
they would not be able to realize any income after the rules were
passed. This is so typical of government initiatives—a. governments
often create enormous programs aimed at the whole population of that
industry or sector when they are actually trying to solve a problem that
is caused by a tiny percentage of the population in an industry, b.
hence, they penalize the vast majority of that population without
actually solving the problem, c. they often generate unintended
consequences.

Again, Private Ownership = Private Stewardship.

If you look at the example of the 80 year rule by the proletariat in
the former USSR (actually, it was rule by the nomenclature), you see
that ‘public’ ownership produced the worst ecological consequences for
the Planet—from dumping old nuclear reactors into Lake Baikal to the
Chernobyl meltdowns, Russia faces a set of environmental circumstances
that will take 100,000 years to deal with.

Can you imagine what the mindset has to be to dump contaminated
nuclear waste into Lake Baikal, which is the oldest (25 million years)
and deepest (1,700 m) lake in the world?

“It contains 20% of the world’s total unfrozen freshwater reserve.
Known as the ‘Galapagos of Russia’, its age and isolation have produced
one of the world’s richest and most unusual freshwater faunas, which is
of exceptional value to evolutionary science.” (From UNESCO:
https://whc.unesco.org/sites/754.htm)

If no one owns a ‘thing’, no one seems to care about it. At least,
that is the western view and it certainly seems to be a cross cultural
view with perhaps the exception of a few indigenous peoples who may
nurture nature in a collective way.

When watching Star Trek, TNG, I was always struck by Captain Picard’s
view of the Ferengi as something of a sub species because of their
clearly established commercial avarice. Starfleet and the Federation no
longer felt the need to be guided by the individual pursuit of personal
enrichment—I guess they are something like Commune-ists.

The Invisible Hand of the Ferengis

As someone who has lived in a commune, I can tell you that they are
organized in a hierarchical manner, no matter what they may advertise.
As Orwell said: “Everyone is equal, except some are more equal than others.”

What worries me is how to decide who is more equal than others
without using the scorecard of dollars and achievement—after all, dollars are democrats.
Are we better off with a benevolent dictatorship like Starfleet making
decisions on who gets what rather than using money, which does not
discriminate and is blind to gender, race, religion or any other form of
segregating humans except merit? Perhaps (to paraphrase Sir Winston
Churchill) money, free markets and democracy form the worst possible
system, except for all the others.

Even so-called not-for-profit corporations are required by law
to generate significant reserve funds to tide them over the rough
patches. A ‘reserve’ fund is just a politically correct term for
‘profit’.

What else does a profit allow? Well, it allows the organization (or
family) to invest in more research and development (or education for
example), as well as better technology and technical methods of doing
things, to implement best practices and much more. Profits are not just
so ownership can have nicer cars, boats and other toys.

If anyone has ever worked for a company that loses money, you already
know it’s no fun. When you want to travel somewhere, say to meet a
client or go to a trade show or go to a conference, guess what? You
can’t.

An unemployed fellow I just interviewed the other day for a JOB with a client of mine said it particularly well:

“It’s possible to have money without fun but it’s virtually impossible to have fun without money.”

So, please, make profits in everything you do—including running the
Kiwanis Club of Ottawa so you can do more good works for the community
(don’t just call it that).

Development Economics and Entrepreneurship

I met Walt Rostow when he visited Ottawa in the 1960s and enjoyed
listening to the great man hold forth on his ideas about how to
establish the preconditions for economic takeoff in Developing Nations.
Walt Rostow’s work of the 1950s and 1960s and recent work by Hernando De
Soto and others (I have dared to add in a few suggestions) that what is
needed for economic take-off in DCs today.

Economic Takeoff

Preconditions for economic takeoff include:

1. education
2. health
3. supply of and private ownership of housing (safe, affordable, privately owned)
4. clear title to housing and accurate addressing and surveying
5. tolerance of and legalization of cottage industries
6. tolerance of mixed use neighborhoods where people can work, live, shop, trade, play, entertain all in the same location
7. effective legal system, respect for the rule of law and contracts
8. moderate levels of taxation/avoidance of confiscatory levels of taxation
9. re-integration of black and gray markets (deeding of lands and title in squatter settlements)
10. active capital markets (borrowing circles and financial recycling of savings and investment, home mortgage availability)
11. culture of and support for entrepreneurship and innovation
12. wide spread Internet access and effective communications system
13. sound public infrastructure
14. extensive private ownership of economy
15. respect for human rights
16. protection of private property rights
17. good, honest and transparent government
18. social peace and harmony
19. strong civic institutions
20. civil defense
21. trust, courage, hope and faith.

I added in point # 10 above—the need for a culture of and support for
entrepreneurship and innovation. I have become convinced that this is
an important ingredient to unlocking development potential not only in
DCs but first world countries as well. More on this later.

Respect for the law including contract law is an important
pre-condition. Former President Bill Clinton, when asked to comment on
why it was taking so long for the ‘new’ Russia to be fully accepted into
the community of trading nations, he responded that this would have to
wait until contract law was widely accepted as binding by the people and
institutions of that country. People doing business in Russia in the
1990s needed to carry around briefcases full of USD currency—they
couldn’t rely on Russian banks to ‘give’ back any money they deposited
there.

It’s hard for an economy to takeoff without trust. I have learned as
an entrepreneur that you can have rooms full of legal paper but if the
other side has no respect for a contract, the legalese is generally
pretty useless. Having to go to court to force someone to live up to
their agreement is not only expensive and time consuming, it is soul
destroying too.

Hope and Courage

Another one of the pre-conditions for economic takeoff that I added
above is the need for hope and courage in the population. It takes
courage to start new ventures—one must have faith that things will
somehow work out and hope for the future. I loved the line from the film
Shakespeare in Love about how a play actually all seems to magically come together at the last minute and that how this happens is, well, “It’s a mystery.” The same is true of entrepreneurial activity—how any of these initiatives work out at all, gee, it is a mystery.

I know that most entrepreneurs who have started a successful business
never would have started if they actually knew beforehand: a. how long
it was going to take to become successful, b. how much money would have
to be spent to get there, c. the risks they took to do it, d. how hard
it was, e. how much work it was, and f. how often they were naysayed and
criticized for it. To paraphrase rock singer Bob Seger, if you’re going
to be a serial entrepreneur, sometimes you might say to yourself: “I wish I didn’t know now, what I didn’t know then.”

One day in the mid 1990s, I was walking around the Carleton
University Campus in Ottawa, Canada and I ‘discovered’ a train tunnel
running under Dow’s Lake, which is adjacent to the Campus. Curiosity got
the better of me and I scrambled down the embankment. The foundation
stone circa 1960 was impressive to read.

Later on, a few minutes of research uncovered an interesting
story—Canadian National Railways had needed a new cross-Ottawa line and
the only way that the then Chair of the National Capital Commission
(NCC) would agree to it was if the CNR would bury it under the lake. The
NCC apparently wanted to protect views in the National Capital Region.
Now I realize this is kind of frivolous when compared with the enormous
challenges that DCs are facing but I was struck by the courage it took
on the part of the NCC to take this position. This got me to thinking
about an earlier trip to Calgary, Alberta and the foothills of the Rocky
Mountains.

If you have ever looked at the Rockies from the eastern side and
thought about the idea of running a rail line over those mountains as
Van Horne did beginning in January 1882 and completing the crossing just
three years later in 1885… what courage these people had.

William Van Horne, 1843-1915

While it is true that Government concessions helped Van Horne, it was heroic efforts on his part that made this possible:

“Van Horne worked himself harder than his crews, arranging steamship
service to distribute materials and supplies, seeing to the opening of
stone quarries and three dynamite factories, which supported the
building of the transcontinental. … He managed to continue the building
of the railway when there was no money left for payment (my
italics). He himself went without pay for months. Directors used their
personal fortunes, businessmen advanced credit and supplies and
construction forces went without pay,” North America Railway Hall of
Fame.

Courage, hope and leadership. These are preconditions needed for
entrepreneurial success. Van Horne had them in abundance. Do you know
the story of how King Clancy got the original MLG (Maple Leaf Gardens)
built in the Great Depression of the 1930s? He had no money. But he had
vision and guts. He offered out of work ironworkers and other skilled
trades people ‘scrip’. If the building was successful, Clancy would
redeem their scrip for cash but only after the building was open and
producing cash.

Maple Leaf Gardens Built by a ‘King’

Well thousands of construction workers bought in to the King’s dream
and the result was a fine new home for the Toronto Maple Leafs and a
building that earned the nickname, the ‘Carlton Street Cashbox’. All of
the scrip was redeemed btw.

There are things that governments can do as well as or even
better than the private sector. They may not be as good as the private
sector at the doing of a thing but they can provide the right
conditions or environment for it to be accomplished. To my mind, this is
the true mission of government—providing for the right conditions to
allow the private sector to achieve desired social, economic and
environmental goals.

Micro Entrepreneurship and Development Economics

I read an interesting article in the Globe and Mail (by Luke Harding
of the Guardian News Service, February 10, 2003) about micro
entrepreneurship in Kalmandhai, India.

There, slum dwellers erected two latrines—one for men and one for
women and a third for children only. Charging just one cent per use,
they built a profitable business using just $900 USD in capital advanced
to them by UK based WaterAid.

Latrine: We Can Do Better Than This

Who would have thought that you could make a successful business out
of a latrine but this is apparently what the women of this village did. I
was intrigued so I sat down and did a spreadsheet on it this morning
and here is what I conjectured:

Sanitation Improvement
Village of Kalmandhai, India
With assistance from WaterAid, UK

Cost of Construction of New Latrine

Men’s $450
Women’s $450
Children $0
Total $900 USD

Revenues

Per Use $0.01 USD

Daily Use
Men 300
Women 375
Children 400 (free)

Total Use 1,075
Total Paid Use 675
Total Daily Revenue $6.75 USD
Annual Revenue $2,463.75 USD

Expenses

Maintenance $90
Night Watchman $450
Cleaning Staff 3 $1,350
Net Revenues $573.75

Return on Investment 64% p.a.*

(* Assumes the $900 from WaterAid is a loan not a grant and must be repaid; otherwise, the ROI is infinite.)

Other Revenue Sources

Herb Garden with Gourds Use of excrement as fertilizer
New Shower Block 6 cents USD per use
Purchase of red worms from State of Kerala Making Compost for sale
Money Lending (Banking) To women in Neighboring Communities other revenue generating Latrines

Wow, a (possible) 64% p.a. rate of return on this investment is
impressive. Just as importantly, there are huge health benefits that
accrue to these people from proper disposal of human wastes. Plus they
have generated additional activity including:

a. The construction of a shower block (and more fees);
b. The use of their ‘product’ in their herb garden (for self use and third party sales);
c. Startup of a composting business;
d. Money lending to women in other villages to start similar enterprises.

Think about the number of jobs they have also created—from a latrine!

So micro-Enterprise Loan Funds focus on helping low-income people
start their own businesses. Using a peer-lending model, each borrower is
paired with other borrowers who are starting their own businesses.
Together the loan recipients are responsible for each group member’s
loan and collectively benefit from education and technical assistance
provided by the micro-enterprise fund. Many organizations around the
world have created banks and loan funds based on this model.

“Give a human a fishing rod, not a fish,” Anon.

Property Rights, Human Rights and Economic Development

In Canada at the beginning of the 1980s, then Prime Minister Pierre
Trudeau wanted to entrench property rights in the Canadian Constitution
in the Charter of Human Rights. He was vigorously opposed in this by
most, if not all, of the Provincial Premiers. Why? Because they felt
entrenching such rights would or could encroach on Provincial authority
of eminent domain- the ability to expropriate land, regulate land use,
pass rules and regulations concerning mineral extraction, set
environmental standards and so on.

I always found it interesting the Province of Ontario, for example,
banned billboards along major highways in Ontario (the 400 series roads)
because they were considered a dangerous distraction for drivers and
visual pollution (i.e., ugly) and then they turned around and gave a
monopoly to an American-controlled company with the ugly name of TODS
(Tourism Oriented Destination Signage). TODS has monopoly rights for all
signage along 400 series highways within 400 metres. This was a huge
one-time shift in value from landowners along 400 series roads to TODS.
In my view, it was expropriation without compensation and if the
Canadian Charter of Rights had included protection of property rights, I
am sure someone could have successfully challenged this.

Mr. Trudeau felt, I believe, that property rights are also
fundamental to human rights; that unless people are protected from
unreasonable infringement of their property rights, there can be no real
personal freedoms. If governments can grab your land, take your
business, well, it isn’t a big step to taking away your personal freedom
or even your life.

Property rights are also fundamental to economic development. To this
day, most startups are, one way or another, financed with home or other
building and land equity. If an entrepreneur owns a home, he or she
will pledge it for startup capital from a bank. If Mom or Dad or rich
Uncle Buck is helping out, their homes or other personal property is
probably somewhere in the loop as collateral.

In many developing countries, they either don’t have a sophisticated
and extensive enough banking system to bring mortgages to the masses or
they discourage private ownership of property. In Mexico, one of the
goals of President Vincente Fox is to bring the financial system into
line with North American standards so that home ownership becomes an
attainable goal for the middle classes. Even if they have 50% or even
75% cash equity, people still find it hard to get a home mortgage in
Mexico today.

This is a big problem because there is a huge amount of capital tied
up in land and buildings that can’t be leveraged in support of
entrepreneurial ventures; this locked-in capital affects developing
countries to a great extent.

Government policies often exacerbate the problem. Even micro amounts
of capital available from vacant or agricultural land mortgages can make
a big difference to a peasant economy or developing economy.

In Egypt, it is against the constitution to place buildings on
agricultural land. By one count, there are 4,000,000 illegal structures
on such land in Cairo alone. So there is no possibility of placing a
mortgage on such ‘non existent’ buildings. This locked in capital used
in the entrepreneurial economy would help start, well, up to 4,000,000
new businesses.

HUMAN RIGHTS AND ECONOMIC DEVELOPMENT = FUNCTION (Property Rights)

Should Every Man, Woman and Child on the Planet Have a Personal Business for Life?

Putting Your Stamp on Something

I have become increasingly certain that people in the 21st Century
are going to need what I can only call a Personal Business. It seems to
me that there are so many changes in the local, national and global
economy going on and so many things can and do go wrong, that it might
not be a bad idea after all to have a fallback position.

I have been stressing to my students how important it is for them to
have a Personal Web Site for life—a place where they can collect their
personal IP over their lifetimes and careers and one day, maybe, they
could even find a way to make money from it too—while they are ‘lying on
a beach’.

But something else has struck me recently—just how many people have
little sideline hobbies, gadgets, gizmos … micro businesses really that
make a bit of money. It also struck me that this could be a highly
useful thing to have.
Let me give you an example. I recently met with Richard Rutkowski who is
a candidate to replace retiring Kanata Councillor Alex Munter on Ottawa
City Council. Richard is a former City of Kanata Councillor.

Richard is an intriguing person—he is confident, a good marketer, a
good promoter and a sure handed politician—prepared to make the time
investment in being a City Councillor (which is a 24/7 J.O.B.).

I asked Richard what he does between political jobs and, sure enough,
he hauls out this cute little magazine called The Best of Kanata. Now
this is really low tech—businesses advertise in it, so that is one
revenue stream for Richard. It costs about $600 for a half page and
there are lots of pages. Then, people buy these things for 20 bucks and
in the back of the magazine, there is a ‘member’s card’, the size of a
credit card, which entitles them to 10% off at all stores and services
featured in the book.

When I did a Google search, the only mention I got was: https://www.ncf.ca/gcuc/food.html

So, Richard hasn’t even bothered with a web site. (The Kanata Food Cupboard sells the book for 20 bucks and keeps 10).

Well, this is a pretty simple business and folks advertise in it like
crazy because they like Richard and it works for them and it is pretty
inexpensive. Richard sells 5,000 copies of the thing, so you can pretty
easily figure out for yourself its economics.

There have got to be a zillion of these kinds of ideas. Do you know
what I told Richard: “NEVER, NEVER sell this thing—it is like a
sinecure, a franchise, a license, a concession … it is your ‘pixie dust’
forever.”

It is low tech and low intensity to manage this particular micro
business and it is a kind of concession because it is so local, so
focused and Richard is so well known locally that everyone who is anyone
in the ‘urban village’ that is Kanata is going to be in it.

So while I have told you to create businesses through
entrepreneurship that will provide you with more value than if you just
had a J.O.B., maybe there is a subtler message here that I could provide
you. Maybe, we should each have one micro business that we hang onto
for life—that never gets shared with anyone, no partners, never is
pledged to a Bank for a loan and, thus, something that we can fall back
on in troubled times.

Maybe StreetPaddleTennis.com will be that for my 14-year-old son, Matthew, who knows?

It would be pretty cool if every man, woman and child on the planet
each had a Personal Business (PB) that stayed with us throughout our
lives and, if things get messed up, well, we have (as my father would
say): “a fallback position” or “an iron reserve”. My father lived
through two World Wars and he really understood the need for both.

I was thinking that a number of the students in Entreprenurialist
Culture (one of the courses I teach at Carleton University) in 2003
already have this type of thing going on. I mean if those ladies in
India can make a go of it by turning a $900 investment in a latrine into
a thriving micro business for goodness sake, all these talented,
educated and very privileged students of mine ought to be able to do it
too.

Politics, Media and Business Form an Identity

When I got the courage up to first ask my future wife, Dawn, out on a
date, she said: ‘no’. Being a somewhat persistent individual, I asked:
‘Why?’

Dawn MacMillan Firestone said ‘No’

She told me that she ‘didn’t want to date a business man’. ‘Why not?’
I asked. ‘Because business is dirty and, at the top level, business,
media and politics are all the same and I am apolitical.’

I suggested that we downsize from dinner to just meeting for drinks
and I would prove to her that she was wrong. So we met, fell in love and
have five children together. But years later, I called Dawn at work and
told her, she was right; at the uppermost reaches of business, there is
an unholy alliance between the media, politics and big business. So now
I write on the board for my students this equation:

P = M = B,

where P stands for Politics, M for Media and B for Big Business. Frankly, large political, media and business interests don’t want you, the entrepreneur, to succeed.

What I had realized is that most national economies are controlled by
a handful of families or a few hundred at most. And they like their
oligopolies and their positions of power and are highly motivated to
keep both. As entrepreneurs, we often run into these entrenched
positions and that is why so many entrepreneurs live by the credo that:

“It is better to ask for forgiveness than it is to beg for permission.”

Centralized Control Over Media Including the Internet Promotes Political and Big Business Agendas

Wilderness Tours

I was speaking to Joe Kowalski, Founder of Wilderness Tours (WT),
last weekend when he and his wife Sue took Dawn and I and some of our
kids rafting down the Ottawa River. I asked him how he founded WT, some
30 years ago.

Joe (in stern) Calmly Takes the Raft Gently Down the Stream

I was particularly interested in how he started because he was the
first to recognize the power of the white water on the Ottawa River and
because there was no regulatory regime in place at that time (in the
1970s). Today, if an entrepreneur wanted to start a rafting company, he
or she would have a terrific number of bureaucratic hurdles to overcome
(not to mention intense competition from well-established WT and other
rafting companies on the Ottawa). So a startup today on the River would
face significant up front costs and significant time delays—presenting a
formidable barrier to entry.

Joe told me that he started on the Ottawa with ‘no money’ plus two
rafts and he just started—he was a river guide and he hired a summer
student from back home (Joe hails from Pennsylvania) and they just set
up shop. He didn’t ask anyone for permission. He just put the rafts in
and took them out and enough folks came that he carried on … for 30
years. Wilderness Tours is now a world-class rafting and kayak
destination resort; check out www.wildernesstours.com.

If he had asked for permission from, say, the local Council, this
would have started a process that might easily have brought in the
Provincial Governments of both Ontario and Québec (the Ottawa is the
boundary between these two Provinces) as well as the Federal Government,
which is in charge of navigable waterways.

They would have formed a study group; they would have studied the
issue for at least a year. They would hold public hearings. Potential
competitors would have been tipped off. Outfitters in other places would
learn of Joe’s plans. Existing tour operators (e.g., canoe places, say)
would object.

Joe would have had to hire a lawyer. Tens of thousands of dollars and
two years later, Joe would have quit and Jean Chrétien could not have
proved that he was still youthful enough to lead the GOC and the Liberal
party through a third majority government by staging a photo
opportunity in a WT raft on the 25th Anniversary of WT. Oh yes,
thousands of person-years of employment would never have been created
either.

Federicos Gondolas

Compare this with the experience of Darcy McRae, who started a
Gondola business on the Rideau Canal (www.Gondolas.ca). Darcy, a
Carleton University Sprott School of Business grad (2001), bought
himself a beautiful, hand crafted, wooden $85,000 Gondola from
California.

He launched in September 2002 in the scenic and historic Rideau
Canal. There is something about Gondolas and Canals that just go
together wouldn’t you agree?

He docked at the Dow’s Lake Pavilion and it was something to see—my
wife Dawn and I were eating one evening that fall in the Westin Hotel in
downtown Ottawa at Daly’s Restaurant. It just happens to overlook the
Canal.

It was around 10 p.m. and we saw this ghostly shape gracefully move
through the mist to dock at the National Arts Centre—Darcy had earlier
in the evening taken a couple from a restaurant further up the Canal to
the NAC for a show and was coming by to pick them up. What a romantic
way to spend an evening, n’est-ce pas?

Darcy on Mooney’s Bay, Ottawa in 2003

Well, in Ottawa we have another level of Government that is a state
unto itself—it is called the National Capital Commission (the NCC). What
do you think the NCC did?

They sent an armed RCMP officer in full body armor to give Darcy a
cease-and-desist order that not only banned him from the Canal but also
forced the management of the NCC-controlled Dow’s Lake Pavilion where
Darcy was docking his boat to renege on his contract.

Darcy was left with no clients, no berth and his life savings and his
investors’ money were in jeopardy. Interestingly, the berth next to
Darcy’s was occupied by a boat that provided charters on the Canal but
somehow, rather mysteriously, that was O.K. with the NCC. The reason for
banning Darcy? The NCC had earlier given a monopoly to a major tour
operator whose boats hold 150 personas each. There are no Gondolas on
the Rideau Canal. Thanks, NCC.

Oh yes, Darcy was also banned from the Rideau Canoe Club, the Casino
du Lac Leamy and just about everywhere else he tried to put in. Finally,
in June of 2003, Denis Giacobbi and his family (from
www.fitnessleaders.com and www.fitbug.com) were kind enough to allow
Darcy to use their dock on Mooney’s Bay.

Darcy continues to be harassed by Government representatives to this day. P = M = B.

Ottawa Business News

When OBN was started by yours truly in the mid 1980s, we wanted to
break into the newspaper market which was then totally dominated by one
newspaper, the Ottawa Citizen. Advertising rates reflected that
newspaper’s dominant position and we thought that OBN would provide a
useful B2B advertising vehicle and it was a way to bring the maturing
business community together.

We wanted to drop paper boxes on every street corner. These are
amazing devices—they just sit there and advertise your product 24/7 and
they don’t cost very much.

We then faced the question: ‘Do you ask for permission first?’

Our answer was ‘no’. If we ask for permission to drop paper boxes on
the sidewalks of the City, the City will convene a study group. They
will hire a consultant. The Study Group will be made up of
representatives of the established media (e.g., the Citizen folks, the
billboard people, etc.). It is not in their interest to allow paper
boxes since that is a leg up for startups like OBN. And they have the
perfect political cover—paper boxes are ‘visual pollution’.

So what we did was send around a young fellow in a costume (thanks,
Duncan MacDonald) to put quarters in expired meters to save folks from
the dreaded Green Hornets and their parking tickets. (By the way, after
we did this, Ottawa City Council passed a bylaw making this illegal.
They were afraid that their parking ticket revenues would decrease if
this became a habit. So now, in Ottawa, you are only allowed to put
money in your own meter.)

This was the first time anyone had tried this PR stunt and it got
OBN’s mascot a lot of good media coverage. That was our political cover.

Then we just dropped a couple of hundred paper boxes all over Ottawa.

Of course, the reaction was to get us to cease-and-desist but we made
two effective arguments: 1. this was a freedom of the press issue; 2.
the City should license paper boxes (we suggested $25 per year per paper
box). Rather than ban them, the City should make money from them by
‘regulating’ them.

This is quite persuasive because politicians love power and they know
that power comes from money. In fact, let’s add that to our Dawn
equation P = M = B = $.

The end result is that there are a ton of paper boxes in Ottawa now
from all major and many minor publications, providing greater levels of
convenience for readers.

A Lesson for Entrepreneurs

Established enterprises don’t want you to succeed. Even very large
countries tend to be controlled by a relative handful of political,
media and business interests. One of the keys to their continued power
is the ability to create concessions for themselves—newspaper
monopolies, cable empires, television licenses, for example, are all
tightly controlled and doled out according to arcane rules that hugely
favour the incumbents.

One of the keys to long term business success is control over some
type of factor of production. If you want your business model to be
sustainable, you need some type of ‘pixie dust’, some type of long term
competitive advantage. You need to be able to execute well but you also
need to have ‘access’—to capital, to boat launch facilities, to City
sidewalks, whatever.

Again, it is better to ask for forgiveness (sometimes) than to ask
for permission. The caveat is that, like so many things in the field of
entrepreneurship, this is a gray area and one has to be careful about
legal liabilities (another closed system, I am afraid).

But nevertheless, great businesses have come about because people
like Joe Kowalski and Darcy McRae have faced down entrenched interests
so there is hope that you can too.

Teamwork in the 10th Millennium BC

Another secret to making entrepreneurial endeavors work is teamwork.
According to Jane Jacobs all human economic development stems from the
development of villages, towns and cities. Think about that for a
minute. What is so special about cities, towns and villages?

Well, it’s by proximate cohabitation that we learn about each others
strengths and weaknesses and learn to share and divide tasks according
to individual skill sets.

Many people have the view: “More pie for you means less for me.”

The folks fighting a couple of years ago on Canada’s East Coast at
Burnt Church over lobster quotas clearly believe this old economy saw
and, maybe they are right.

But it is possible that they aren’t.

Economic growth derives from a multiplying of options, from
specialization, from comparative advantage, from the development of
standards and, in the new economy, from network effects,
disintermediation and scalability.

Now let us go back in time to the land of Ugh, Nnn and Zll.

The Local Economy of Ugh and Nnn

In the land before time, the family of Ugh lived by themselves in the
savannas. Ugh was an expert antelope hunter providing his family with
four antelopes a month. His carving skills, however, were poor,
producing only one set of flint knives per month. A mile away, the
family of Nnn is hungrier- Nnn is a good flint knife producer, producing
three sets of flint knives per month but only bagging one antelope.

The families of Ugh and Nnn decide to colocate to form a village, at
first, for the protection of both. By colocating and forming the first
primitive village, they also open up the possibility of observing each
other and cooperating and trading between the families.

Ugh Carrying Spear, Nnn Looking for Flint Material

The result is that after a few months, they decide that Nnn will
concentrate on producing flint knives and Ugh will focus on hunting. The
GDP of the two families before the colocation is five antelopes and
four sets of flint knives. After colocation and specialization, the GDP
has increased to seven antelopes and six sets of flint knives each
month. This represents a phenomenal increase in the well being of the
two families. So much so that this first village is producing goods
surplus (profits again) to their needs. This sets up the possibility of
trading with a third family, the family of Zll, who are expert in
producing textiles (animal skins) resulting in a further substantial
increase in value for the emerging regional economy.

This simple example demonstrates why the ‘more pie for me’ doesn’t
necessarily mean less for you. You will note too that this primitive
economy works because information about Ugh’s hunting prowess is flowing
from Ugh to Nnn and information about Nnn’s skill with flint knives is
flowing from Nnn to Ugh. What this means is that it is the beginning of
an information economy and it shows how improved communications even in
the 10th Millennium BC causes economic growth through the multiplication
of options and opportunities. Afterall, it was after 1994′s
introduction of the Mosaic Browser turned the PC into a mass
communications tool that productivity took off and the long promised
payoff from huge investments in computers finally arrived.

People need people like no other animal on the planet—we are uniquely
codependent on each other. Skill sharing is the most fundamental reason
for the improvement in the human condition. What we seem to be missing
in many of our communities is the feeling of belonging to the ‘tribe’;
that feeling of belonging to ‘Team Ottawa’ or ‘Team New York’. We get
that feeling during times of great stress like the September 11th, 2001
bombings of the World Trade Center Towers.

I have given a lot of thought about how to engender more of this type
of fellowship in our cities and towns. It is about more than just
feeling good about yourself and your team. It’s about improving living
conditions and productivity too. Sports teams, festivals, artist
colonies, the performing arts, entrepreneurs, researchers, all those
people involved in creative pursuits seem to add to the feeling of
belonging which leads to higher team spirits. People working in teams
can create far more than the individual working alone.

City-State Creativity + Productivity = FUNCTION (City-State Team Spirit)

City-State Team Spirit = FUNCTION (Bohemian Index)

Bohemian Index = FUNCTION (Festivals + Performing Arts + Universities + Entrepreneurs + Researchers + Artists + Sports Teams)

For example, the Tulip Festival of Ottawa celebrated its 50th
anniversary in 2002 by creating five-foot high tulips (partly in answer
to the wildly popular Toronto Moose). Cities and towns all over vie to
have the biggest something-or-other: hockey stick or whatever.

Some towns have big slogans like Biggar, Alberta: “New York is big, but this is Biggar.” (Just a little bit better than Ottawa’s former $200,000 slogan: “Technically Beautiful“, don’t you think?)

People are always talking about limits but ideas aren’t limited. They
are for all intents and purposes infinite. Maybe it is the only thing
that is infinite. There are no limits to human ingenuity. But you need a
great team to make these ideas actually work for you.

FIVE STEPS IN THE ENTREPENEURIAL PROCESS

Step 1 Generate Idea
Step 2 Apply Ingenuity
Step 3 Have Courage
Step 4 Form Team
Step 5 Execute Well

Fed/Ex Example

Let’s look at what Fred Smith did when he put together Fed/Ex:

Step 1 (Generate Idea): Overnight parcel delivery

Step 2 (Apply Ingenuity): Instead of flying individual routes amongst
50 US cities (an impossibility since this would generate 2,500
overnight flights, i.e., 50 x 50 permutations), use the ‘hub and spoke
system’ to bring parcels into major nodes and then long haul flights
take packages into regional centres for further distribution.

Step 3 (Have Courage): The first night, Fed/Ex had five packages to
be delivered, that’s right five. After tremendous investment and huge
risk taking by Fred Smith to get the system set up, it tuned out no one
knew that they need overnight parcel delivery. Fred was way ahead of the
marketplace and his customers.

Fred Smith Has Guts

Not a comfortable place to be. He needed a lot of courage and hope
(some would say blind faith) that his gamble would work. (At the end of
the day btw, every business decision is an article of faith in my view.
We do a lot of analysis to try to make informed decisions but we still
need to use human judgment to make wise choices.)

Step 4 (Form Team): Fred Smith’s team is amazing; they are loyal,
committed people. Ever talk to a Fed/Ex driver? They are amazingly
upbeat and they feel they are part of something bigger than themselves.

I always find it sad that so many middle aged people like me seem to
have had their best days back in High school or College. When you ask
them ‘why’, they almost always talk about their experience on a
team—coming back from an impossible deficit to win a house league
tournament… And this is the highlight of their lives? Well the
underlying reason is that they felt they were part of something bigger
than themselves. We somehow need to bring this feeling into our daily
lives as adults too.

Step 5 (Execute Well): I don’t care how great your idea is or how
ingenious you are, if you can’t execute well (generate sales, control
costs and deliver value to your clients and customers in the process),
you’re sunk. Obviously, Fed/Ex can do this on a year to year, decade to
decade basis. And BTW the three most important tasks in this step are
SELL, SELL, SELL. Startups with real customers and real cashflow will
attract financing, not the other way round.

I find it peculiar that researchers spend so much time analyzing why
businesses fail. I can tell you from experience that almost all business
failures ultimately can be traced back to a failure to generate
sufficient revenues. If your revenues are buoyant, your business will go
on, maybe without you at the helm for other reasons (such as failure to
control costs), but it will go on.

Ottawa Senators Example

Let’s look at an example where I have some direct personal knowledge
of the steps we took to secure a National League franchise for Ottawa.

Step 1 (Generate Idea): Driving down the Queensway in 1987 wondering
what I could do next, I asked myself what does Toronto have that we
don’t? (Ottawans constantly compare themselves to big brother
Torontonians). Ah, back came the answer: “They have a NHL team and we don’t.”

Step 2 (Apply Ingenuity): To clip the wings of any other potential
bidders arising locally, we secretly bought 600 acres of land for a new
arena, rezoned it, sold 15,000 PRNs (Priority Registration Numbers,
basically giving people the right to buy season tickets in the then
non-existent franchise), signed 500 corporate sponsors and 31 original
corporate sponsors to help us in our campaign to BRING BACK THE SENATORS
(a team that had played in the NHL until 1934 when they transferred to
St Louis because of the deepening Depression).

Step 3 (Have Courage): The local media wrote a story the night before
we won the franchise that there wasn’t much hope for success for our
bid.

Step 4 (Form Team): We had a superb group of young, talented and extremely dedicated executives, all trained by me. THEY WOULD’T BACK DOWN.

Step 5 (Execute Well): The campaign was tightly focused on the only
people who mattered—the 21 voters (Members of the Board of Governors and
owners of the NHL Member Clubs) and the President of the League too.

It took a great team of unimaginably dedicated people to BRING BACK THE SENATORS.

I still remember an Ottawa Citizen headline a few days before we got
the Ottawa Senators franchise: “And the winners are … Seattle,
Milwaukee.” That hurt.

Of course, it was Ottawa and Tampa.

The night before we won the franchise, one of the voters (i.e., a
member of the Board of Governors) told me (at a NHL dinner thrown for
the nine bidders) with his face just centimeters from mine: “You’ll
never, ever get a franchise for Ottawa.”

I can remember Norm Green, then Owner of the Minnesota North Stars,
coming over to my table and asking: “What’s wrong.” “Nothing,” I said.
“Well, get that smucky look off your face, kid, and get out there and
hustle.”

Good advice. Lydia Leeder, in Ottawa, on hearing that comment from
her spouse, Cyril later that night said: “You can’t stop now! It’s just
like the Canada/Russia series of 1972. Canadians never quit. Everyone is
running to their radios every half hour for an update … We’re counting
on you.” Now that’s pressure!

We did just that and in fact the last thing the Board of Governors
saw before they shut the door to consider the matter the next day at
8:00 am was my nose and the faces of my whole team.

We never stopped.

At about noon that day, the pressure was enormous and frankly getting
to me; so I went for a run along the beach (this was Palm Beach in
December- actually December 6, 1990). I returned at about ten to one and
saw some of my team members waving frantically to me. “What’s up,” I
asked. “The NHL has asked all bidders to be in their suites at one for
an announcement,” said Connie Cochran. “What announcement?” “They didn’t
say.”

Without a shower, I changed into a suit. At one, NHL security took us
down to the basement of the Breakers Hotel, a huge antique of a hotel.
Next to rotting garbage and standing under dripping pipes, I turned to
my colleagues to say: “Fellows. This doesn’t look too good. You have
done everything that you could do. I am proud of you. If we have lost,
we are going to thank the NHL for allowing us to join this process, we
are going to congratulate the winners and then we’re going to have a
press conference to announce- ‘we’ll be back’.”

Then NHL security took us up to the meeting room. Marcel Aubut (of
the Quebec Nordiques) gave Randy Sexton, a big hug: “Felicitation, mon
ami,” he said. We thought he was congratulating us on a good try!

When I went up to the front of the room and sat next to John Ziegler,
I saw the words: ‘The NHL is proud to welcome, as conditional Members
under the Plan of Sixth expansion, the cities of Ottawa … and Tampa.” It
was a magic moment.

Winners never quit and quitters never win.

(Footnote: After collecting myself for a few minutes, I asked Mr.
Ziegler what the final vote was and he told me with a nonchalant shrug: “It was unanimous, 21 to 0.”
About six weeks later, I did call the Governor who had told us that we
would never, ever get a franchise. He told me that his comment was part
of a plan by a few Governors. They told each bidder the same thing; it
was a character test designed to see how each bidder would react. Two of
the bidders stormed out; they weren’t successful. Only two bidders got
up the next day to continue lobbying until the last possible second—Phil
Esposito (leader of the Tampa group) and us.)

The Ottawa Senators formally returned to the National Hockey League
on October 8, 1992 after a 58-year absence; it was another great day for
Ottawa. I was at ice level at the old Ottawa Civic Centre when the team
was introduced. The people in that arena applauded those players—they
gave them a standing ovation—for six minutes. I realized that they
weren’t really applauding the players, they were applauding themselves.
This City came of age that day—there was a feeling that ‘we did it, we
did it together’. It was that special feeling that only comes from being
part of something greater than ourselves. Professional sports can do
that. But surely, we can add more days like that. It is a challenge for
you to take up. Carpe diem.

Let me leave you with a quote on the role of hope in human affairs,
which frankly does not get enough attention. Human beings need to have
hope to live.

“Most of the important things in the world have been accomplished
by people who have kept on trying when there seemed no hope at all,” Dale Carnegie.

Prof Bruce

Prof Bruce @ 1:03 am

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Posted on
Monday 27 June 2011

(Urban Workshop and Hacker Studio Surfaces in Ottawa… then goes back underground)
(Guest Article by Janak Alford, M. Arch.)

Have you ever thought that lurking just below the surface might be
another way of working, of using technology or living in the city that
nobody has thought of yet? If you live in the Glebe or, in fact,
anywhere in Ottawa, then you have a brand-new reason to think that.
This last week saw the opening of prototypeD, an ‘Urban Workshop /
Modifacture Studio’ in a basement studio located at 601 Bank Street,
Ottawa, Canada.

prototypeD welcomes hobbyists, professionals, students,
entrepreneurs, techies, hackers and artists wanting to explore new
avenues of creativity through hacking technology.

For those who feel a little nervous about becoming a ‘hacker’,
prototypeD founder Janak Alford, a Master of Architecture grad,
explains: “Hacking has had a bit of a rocky past, but has evolved a long
way since it started 50 years ago at MIT. Those radical thinkers
invented a new way of looking at technology which has indeed been used
for a variety of purposes, including less-than-legal ventures, but it is
also the thinking that has given rise to much of computer science, the
Internet and social networking. Hacking is a mindset, a way of thinking
about technology, ability and resources that can radically redefine how
we work and live. Hacking finds new potential in every kind of
situation or device. We firmly believe this mindset will be at the
forefront of a new economic and urban model in the next few years.”

Listen to

internet radio

with

FirestoneClarkReport

on Blog Talk Radio

Dominic Coballe from Deckster and Janak Alford from PrototypeD.org on FirestoneClarkReport.org Internet Radio Show: https://www.blogtalkradio.com/firestoneclarkreport/2011/12/21/student-entrepreneurs-speak-about-lessons-learned

Prof Bruce with Dom Coballe, Jennifer Jane Clark & Janak Alford, December 2011.

This mindset has growing influence—the rise of the ‘maker’ movement
is witness to that. The Economist believes self-guided manufacturing
technology “will change the world.” (https://www.economist.com/node/18114327)

Alford, whose thesis at Carleton University ‘hacked’ the tools of
architectural design, sees this workshop as an opportunity to gain
access to new tools, resources and to network with creative individuals
within the city. With an eye to technology, prototypeD is open on a
membership basis to Ottawa’s creative class—people who might have no
other way to access such high tech tools as CNC (Computer Numeric
Controlled) machines, 3D inkjet printers, laser engravers, high-speed
processing computers, or the space to pursue their artistic or creative
goals.

Prof Bruce’s Internet DNA ‘Hacked’ by Janak Alford’s Katalogos and eNome.ca

Three businesses: Modifactured (machines and digital installations),
Sangria Studio (textile and fashion design) and AMarcynuk Design
(architectural aeroponic green design and installation) already operate
out of the new urban workshop. The first publication from the workshop,
Urban Hacker: Body Art, is available for purchase on Blurb.com (https://www.blurb.com/bookstore/detail/2272791).

prototypeD is welcoming new members now and will hold an official
open-house and demonstration in September 2011. Looking for more on
this initiative? Please visit: https://prototypeD.org.

Janak Alford, Founder. June 2011.

Prof Bruce @ 9:02 am

Filed under:

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and

and

Future Vision and Technology

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and

Gadgets and Gizmos

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Personal Business for Life, PB4L

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Urban Design

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Writing, Research and Experimentation

2 Comments

Ownership Distorts Value

Posted on
Saturday 25 June 2011

Ownership of a thing increases its value in the mind of an
owner. I see this all the time in real estate but it applies in other
sectors as well.

Thinking of selling your enterprise? When people are coming to this
decision, they begin to think of all the work they did to create it in
the first place and all the special features they added to their
products and services. They expect others to value their work as much as
they do but, in fact, most buyers are simply looking at it as a
financial transaction, at least until they own it in turn.

Here is an excerpt from Dan Ariely’s book, Predictably Irrational,
(Harper Perennial 2010) describing how one homeowner sees her house:

Ownership Distorts Value

To me, one of the most important roles a REALTOR can play is as a
market maker. In part, s/he has to talk each homeowner (BTW this is just
as true of supposedly hardheaded business people and commercial
transactions) down from the ledge. Many home renovations have no value
or a negative value in the marketplace.

If you add an in-ground swimming pool and award-winning landscaped
backyard, for example, the next owner may see that as a money-sucking,
danger to the neighborhood and decide to fill it in at significant cost.
Hence, it’s value in the markeplace is negative while to you, it holds
priceless memories of your kids when they were little frolicking there
to the admiring oohs and aahs of your envious neighbors.

There is another force at work here too: fear of loss. Most humans
have a greater fear of loss than desire for gain so every sale of every
item of value conjures up this spectre.

REALTORS are not taught to be market makers. In fact, in Ontario,
their RECO (Real Estate Council of Ontario) code of ethics suggests
that, when they are in multiple representation (representing both Buyer
and Seller), they act ‘impartially’ and neither suggest the maximum
price the Buyer would be willing to pay nor the minimum price the Seller
would accept.

This is not the role of a market maker and, in fact, will lead to
inefficient markets because too many Sellers will act against their own
best interests. The REALTOR declining to participate in the too’ing and
fro’ing, cut and thrust, stab and parry of most negotiations is acting
as a mailbox for both parties instead.

Having said this, REALTORS can and should stay onside with
recommendations by their regulator; a useful way to do that is never to
suggest maximums or minimums anyway, just focus on finding common ground
in the middle while addressing the Seller’s fear of loss.

You can do this by helping them focus on what the alternate uses for
the money that they generate through this transaction might be. For a
couple selling their 7-bedroom matrimonial home after the nest is empty,
you might help them purchase a less expensive condominium with a more
congenial lifestyle and lower property taxes plus an opportunity to use
the balance of the proceeds to fund more travel and their retirement as
well.

For business owners, the calculus is pretty much the same. You have to get them to focus on alternatives.

The reasons you might consider being a market maker is not because
you will do more transactions and make more money but because you will
provide a higher level of service for your clients.

Many clients cannot see the cliff edge they are heading towards.
Human beings will happily cruise towards disaster thinking: ‘Nothing bad
can happen, I’m obeying all the speed limits’ as a sinkhole looms
ahead.

This is one of the reasons why humans have trouble maintaining
crucial infrastructure over long periods of time. First, they lose their
concentration. Second, they see what they expect to see. And third,
they can’t see the forest for the trees: all the valves are registering
‘nominal’ while coolant is leaking out the bottom of the reactor onto
the control room floor.

Real estate, tech, energy, commodities, retail,… markets are
cyclical. Economists have a bad habit of seeing an upward (or downward)
trending line and extrapolating from that endlessly. Life doesn’t work
that way. At the peak of your career or your firm’s market value, you
won’t see the fact that your competitors are getting ready to eat your
lunch.

Which means that you should sell (or change jobs) before you
get to the peak. While your value is still increasing or markets are
still trending higher, it’s time to sell. If you wait until the moment
you reach the top of the market because you want to extract all
the value*, by the time you get there, market psychology will have
changed and you will ride the price curve down far, far beyond your
worst expectations.

(* I have never really understood a Seller’s desire to take all the value in a transaction. If you leave nothing
on the table for the other side, why would anyone ever buy anything? I
would rather do 15 good transactions than 3 great ones. What you are
trying to do is optimize not maximize or as Dan Shapiro (The Power of
Nice) puts it: “In deal making, try for WIN-win. Big win for you, little
win for the other side.”)

Why should you sell before you reach the peak of the market? Because: a) you cannot predict the exact market peak anyway and b) your
psychology will not have changed when you get there but the market’s
will have. So you will resist the new reality until you reach a crisis
point: the Bank is foreclosing, you have lost your job, your key
employees have left, you are too old and younger people are trying to
take advantage of you*, your trusted counselor has retired.

(* Elder abuse is widespread. I see it in my work more often than I
care to remember. Elders get yelled at, bullied and worse, often by
family members wanting to take control of and strip out their assets.
The only way to prevent this is to find at least one completely
trusted individual, hopefully a family member, and give him or her
power of attorney over your affairs while you are still of sound mind or
body. Government, police, social agencies, your lawyer or accountant
cannot protect you in my opinion.)

In any event, don’t fall in love with your possessions. At some
point, you may find that you have stopped owning them and, in fact, they
have started owning you. Kris Kristofferson wrote: “Freedom’s just
another word for nothin left to lose.” You are not taking them with you
anyway when you leave this life. So sell before you have to and retire
before you want to retire.

Prof Bruce

Prof Bruce @ 7:25 am

Filed under:

Affordable Housing

and

Asymmetric Information

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Sell

2 Comments

Russian Dachnik Movement

Posted on
Sunday 19 June 2011

Introduction

The Russian Dacha and the Dachnik movement have been around for more
than 100 years and the home garden for more than 1,000. The Dacha is
typically a one-room cottage perched on one hectare of land—large enough
to grow fruits and vegetables to support a single family via intense,
mostly manual labour.

One-room Russian Dacha

35 million Dachniks (which is another word for ‘gardener’) saved the
people of Russia—during 80 years of Communist rule, they produced more
than half of the nation’s agricultural output. The productivity of their
land was far higher than the industrial farms organized as massive
collectives under Stalin.

The Dachnik movement is an exportable model of a sustainable form of
agriculture—localized, (mostly) organic and built on an economic model
of social norms rather than market norms (see: Dan Ariely’s Predictably
Irrational, Harper Perennial, 2010 for an in-depth discussion of these
norms.)

Social norms in this context mean that Dachniks help each other or
trade with each other without money exchange. Ariely shows that, in a
gift economy, many people will willingly work harder than if
they are paid. Lawyers asked to work legal aid cases, for example, won’t
do any for a discounted wage of, say, $30 per hour but willingly line
up to perform work on a pure volunteer basis.

So Dachniks needing extra labour for a short period, another shovel,
advice on a weed or pest infestation can expect to get help for
nothing—or, at least, no monetary exchange. Of course, their neighbours
will anticipate the same consideration in return one day.

In addition to being more self-reliant, enjoying the company provided
by a community of like-minded people and eating food of known
provenance, Dachniks also benefit from Japanese-style forest bathing or shinrin-yoku.

The Japanese believe and the evidence suggests that humans regularly
exposed to the scent and sight of trees and plants have improved
health—both mental and physical. For more about forest therapy refer to:
https://search.japantimes.co.jp/cgi-bin/nn20080502f1.html.

Imagine the effects on Dachniks who spend an average of 17 hours each week during the season working their gardens*.

(* See: THE SOCIOECONOMIC AND CULTURAL SIGNIFICANCE OF FOOD GARDENING IN THE VLADIMIR REGION OF RUSSIA by Leonid Sharashkin.)

Dr. Sharashkin also reports:

“Russia has 18.8 million acres of family gardens, which produce US$14
billion worth of products per year, equivalent to over 50% of Russia’s
agricultural output, or 2.3% of the country’s GDP (Rosstat 2007b). The
United States, on the other hand, have 27.6 million acres of lawn, which
produce a US$30 billion per year lawn care industry (Bormann, Balmori,
and Geballe 2001).”

There are also more than 17,000 golf courses in the US and, if the
average golf course uses 135 acres, then another 2.3 million acres are
eaten up by golf. If you add the lawn care industry* to golf care, you
have 30 million acres devouring water, chemicals, pesticides,
insecticides, fungicides and fertilizer and producing … nothing.

(* for an alternative to the traditional lawn, please read: Natural Gardens, https://www.eqjournal.org/?p=328.)

Dachniks Come to Ontario

I have a client who wants to introduce the Dachnik movement to
Ontario. He had an interesting time trying to explain to OMAFRA (Ontario
Ministry of Agriculture and Food and Rural Affairs) what the concept
means.

Their basic idea was to buy 300 acres of derelict farmland. In
Eastern Ontario, there are more lands that grow weeds than useful
product so there is plenty to choose from.

Dacha with Home Garden
By Randy Smith: https://transitionlummiisland.com/dachnik

The optimal situation for a Dachnik is to have their plot within an
hour of where they live full time so that access on weekdays is possible
during the crucial growing and harvesting seasons. In Eastern Ontario,
no problemo—there is plenty of some of the world’s least expensive
farmland within an hour of most cities and towns. Land can be $1,500 CAD
per acre or less. And the area is famously home to thousands of lakes,
streams and rivers. Water is everywhere and available in all seasons
from surface water bodies, huge underground reservoirs (via drilled
wells) and from the Heavens as well.

The problem isn’t availability in Ontario of land or water, it is
regulatory. OMAFRA defines agriculture and farming as if they were
exclusively industrial combines—only massive industrial and
chemical-based farming operations are recognized as ‘farmers’. As such,
they have access to subsidized diesel, to cheaper inputs (seeds and
fertilizer), to free labs for soil analysis, to no cost advice on weed
or pest infestations, to marketing boards as well as other forms of
market and price supports including income subsidies and they have
significantly lower property taxes as well.

OMAFRA describes the Dachnik movement as a bunch of ‘gardeners’, a
pejorative term to OMAFRA. Gardeners do not have access to any of
OMAFRA’s services or other forms of support which puts Dachniks behind
the eight ball. If you allow your competition to start at the 80-metre
mark in a 100-metre race while you start at 0, you can not possibly win.
For example, 59-year old Prof Bruce can beat Usain Bolt in London in
2012, as long as I start at 80-metres. I know because I have timed it.

Conclusion

For Dachniks, the problem is compounded—try explaining to your local
municipality or township or county, that on 300 acres you plan on
sharing the land with more than 100 other families, each with their own
cabin or Dacha! What’s wrong you might ask, Dear Reader, with having
your own one-room cabin on your own one hectare of land where you can
take shelter in inclement weather or, as a tired Dachnik after a long
day at the office and a few hours of manual labour in your garden plus
an hour or two of companionable company around a camp fire with fellow
Dachniks drinking a bit of vodka while playing your balalaika, you
decide to sleep overnight there?

Russian Playing His Balalaika

What’s wrong is that it breaks practically every zoning code ever
invented and it is impossible, IMPOSSIBLE, to get such a thing approved
in Ontario and, I suspect, pretty much everywhere else in North America.

NIMBYs (Not In My Backyard folks*) will oppose it because of fear and
greed. They will be fearful because they will suspect that Dachniks are
a different kind of people. People fear the unknown. They will be
greedy because they will say that the proposed land use will crater
their property values.

(* For more on how NIMBY’ism subverts the democratic process, refer to: https://www.eqjournal.org/?p=1323.)

‘Environmentalists’ will oppose it too; they will say the proposed use will increase traffic and noise.

Planners and zoners will also oppose it but they will be more subtle.
They won’t say ‘no’; instead they will ask for expensive and lengthy
studies and processes (such as a full sub-division plan and application)
in the hope that either delay or bankruptcy of the proponent will kill
the idea.

In fact, their fears are baseless. Small towns in Ontario and in much
of Canada suffered horribly in the downturn of 2008 and 2009. It’s one
thing to have a cushy job with the GOC (Government of Canada) in a
well-to-do place like Ottawa, quite another thing to struggle to make a
living in Cornwall, Prescott or Hawkesbury.

Dachniks and their movement will certainly increase rural property
values. The average Canadian family spends about $17 per week on fruits
and vegetables or about $884 per year (Stats Canada, Food Expenditure in
Canada, 2001). If that is all they produce on their Dacha plots and if
their cost of production is a third of that, then their labour and
profit yield a NOI of $592 per year. With a 9-cap (capitalization rate),
this gives a land value of $2,660 per acre. If each cabin is worth
$12,000 and has a contributory value of 50%, then each one hectare plot
has a total value of $12,580 which works out to just over $5,000 per
acre.

I suspect that these micro farms will actually trade for much more
than $12,580 each. Some of these properties when intensively hand farmed
will actually produce much more than the measly $884 I used above. One
micro farm I know near Aspen, Colorado produces over $120,000 USD worth
of product on just over 10 acres.

Now they have the advantage of being close to a very wealthy enclave
filled to the gunwales with people who will pay high prices for locally
grown, organic produce. Their farm gate marketing is further boosted by
their home delivery service.

If you use $12,000 per acre as a measure of the value of their
output, each micro farm would be worth more than $95,000 (about $38,500
per acre).

These micro farms would, in any event, be worth more than just their
economic value. The social value (everything from hanging out with
congenial friends to improved health from forest bathing) would factor
in to the value that each plot would actually trade for.

By bringing hundreds and perhaps thousands of would-be Dachniks out
of the cities and into nearby rural areas, small towns would immediately
feel positive effects and spin-offs. Economic activity and property
values would increase and jobs would be created not to mention that
employment and opportunity for young people would multiply and at least
give rural communities a chance to hold on to their most valuable
resource: their kids.

I suspect that the only way to actually build such a community in
Ontario and places with a regulatory framework much like ours would be
to do it using another Japanese technique called Nemawashi, which means
‘preparing the way for an idea’.

You would have to do it stealthily: a little bit at a time. You would
be like an iceberg since most of what you would be doing would be
somehow invisible because it is below the waterline.

I can reliably predict that if some group were to successfully
establish (by stealth, no doubt) a farm made up of a 100-family
community of micro farmers that the next Minister of Agriculture and
Food would one day visit and proclaim this as the future of farming in
Ontario. Politicians love to run to the front of an already-formed
parade as long as it has been proven safe to do so.

Nevertheless, if you want something done in Ontario and in Canada,
you have to start at the top. There is no practical way to get a
bureaucracy (any bureaucracy) to implement change. Without Ministerial
approval and backing, there is no way to get micro farms approved as
‘farms’ with all the benefits that will flow from that change.

But energy gulping, environment destroying golf courses and manicured lawns, sure, you bet, bring them on!

Prof Bruce

Postscript 1: Cabin-in-the-Woods built by Prof Bruce and his kids, exclusively via Nemawashi:

Postscript 2:

Russian Dacha Land Value: Case 1

Fruits and Vegetable Spending $17 per week 52 $12,000 2.471 acres
33% costs
$3,960.00 costs
$8,040.00 labour and profit
9 cap
$89,333.33
$12,000 Cabin
50% economic contribution of cabin
$95,333.33
$38,580.87 per acre land and cabin
$36,152.70 per acre land only

Russian Dacha Land Value: Case 2

Prof Bruce @ 7:53 am

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Environmentalism

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Ethics

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Human Resources

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NIMBY

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Political Economy

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Productivity

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Writing, Research and Experimentation

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Thought Experiment

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Urban Design

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Work/Life Balance

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6 Comments

Product Managers and Decoy Pricing

Posted on
Saturday 18 June 2011

Prof Bruce @ 7:53 am