EQ Journal Archive 18

By Bruce Firestone | Uncategorized

May 14


         Personal Discount Rates        

   Posted on
       Sunday 10 October 2010  

A U-Shaped Curve?

Personal discount rates, PDRs are known to peak early in adult life
and then decline with age. Over the years, I have regularly tested my
students and can say with some confidence that their PDRs are around 22%
at 22 years of age.

Basically, what that means is that if you ask them for a loan of
$1,000, they can’t bear to part with their money unless you offer them
some atrociously high interest rate like 22% p.a. So unless you are
willing to give them $1,220 in 12 months in return for borrowing their
$1,000 today, fuhgeddaboudit.

By the time people are middle aged, their PDRs have dropped to single
digits. In N.A. in 2010, if you offer a 44 year-old a 4.4% p.a. coupon
on their savings, they’ll likely grab it with both hands.

But what happens when people approach old age. Do PDRs continue to fall, stabilize or even rise?

I recently decided to test this after a discussion I had with one of
my clients who is in his 80s. He is close to selling his property for
$12 million, half in cash, half as a Seller Take Back mortgage due in
six years. Other than buying a new truck, Bill (not his real name) told
me it would have no impact on his life. If instead we had sold it when
he was 70, he and his wife would still have been healthy enough to enjoy
the money, take a few trips, party with their friends and family, what
have you.

Here is the non-scientific poll I ran:

If you had a choice between $2 million in cash at 70 or $10 million in cash at 80, which would you choose?

Out of the 21 people who took the poll (aged from 22 to 59), 18 would opt for the $2 million at 70, three for $10 million at 80.

This implies that for the 85.7% of people who prefer $2 million at
70, their PDRs are at least 17.46% p.a., an astonishingly high PDR.

Is it possible that towards the end of our lives, our PDRs return to
what they were or even exceed what they were when we were young adults?

I asked the three who opted for $10 million at 80 why they chose that
option. All of them chose that for the same reason—they were thinking
not for themselves but about their children and grandchildren—they
wanted to pass on more to their inheritors and were less concerned with
their own welfare. I also noticed that these three shared one other
characteristic—they are all entrepreneurs. This suggested that they may
consider themselves invulnerable—entrepreneurs often think they will
live forever and that their mental abilities will remain undiminished so
other motivations may have factored in to their decisions.

For the majority, I believe that three motivations were at work. Personal discount ates were going up with age because:

1. They fear death;
2. They believe the utility of money will decrease because they may become ill or infirm;
3. They think that by age 80, the money will have lost its utility,
first because they don’t want to be bothered with the fuss and muss of
‘another’ $10 million (i.e., having to take care of it) and second
because, by then, they do not want to take any risks even in terms of
accepting ‘free’ money.

If it is true that PDRs don’t peak in youth and secularly decline
from there but instead form a U-shaped curve, this could have policy
implications such as:

A. As people age into their 70s and 80s and beyond, financial
planners and investors who want access to assets and savings held by
these people will have to come up with compelling reasons for them to
invest, meaning much higher rates of return will need to be on offer to
induce people at this age to forgo current consumption for future
B. Elders who want to become more liquid should do so at an earlier stage of life—in their 60s and 70s not 80s or 90s;
C. It becomes harder to overcome resistance to change as people age.

I have seen the latter up close and personal. An elder client of mine
has a well-located warehouse that has been partly vacant for many
years. Its market value is about $1.85 million but he won’t sell it at
that price because: i. he does not want to deal with the taxes he would
have to pay on the sale price, ii. he does not have an alternative
investment that is as attractive as simply holding onto to this one
(i.e., its annual capital appreciation alone due to its superior
location is more than he could make elsewhere), iii. he has long since
depreciated the asset to zero so any cashflow he makes from it is a
‘bonus’, and iv. he doesn’t need any more money.

Offers above FMV (Fair Market Value) as high as $2.5 million (about
30% above market) have been rebuffed. So his PDR must be much higher
than would have been suspected under classic economic models many of
which assume PDRs decrease secularly with age*.

(* However, we can find support for the conclusions presented here in
Eric Christensen’s work published in the Journal of Forensic Economics,
Volume 12, No. 3, Fall 1999. Christensen found that net discount rates
decreased as education increased and age decreased.)

At the same time, he won’t renovate the place so that the balance of
the building can be leased. Again, his PDR is so high that he refuses to
make the investment necessary to bring the building up to modern spec.
So the local economy is caught with an asset that is underutilized and
likely to remain so for some time. This may make sense from the
individual’s point of view but it’s not good for society.

I recently ran into another example of this—an elder with a portfolio
of industrial buildings was offered $175,000 per year in a triple net
lease for 20 years—for rooftop solar installations. The solar power
company would install, at their cost and at their risk, photovoltaic
cells on his rooftops which, other than supporting HVAC units and pigeon
poop, do nothing.

Despite having all the necessary approvals and insurance, the deal is
likely to be rejected because the owner ‘can’t be bothered’, is risk
averse (perhaps something would damage one of his roofs), $175,000 per
year in ‘found’ money is not going to materially affect his lifestyle
and $3.5 million over 20 years (which is a lot of money) but, frankly,
he isn’t looking that far down the road. Finally, the owner has become
‘other directed’ which means commercial transactions have lost interest
for him.

Again, it may make sense from the individual’s POV, but this is not
good for society. As a whole, society doesn’t want to be in a position
where huge swaths of corporate and real estate assets are in the hands
of persons in their 80s, 90s and 100s (the latter is the fastest growing
age cohort in percentage terms in developed nations) if those assets
are going to be significantly underutilized and mismanaged.

It would make sense for elders to sell them earlier in life or to put trusted management in place to nurture them and us.

Prof Bruce


Rising discount rates as we approach old age may also explain why
some of us are choosing to start old age security payments sooner (at
age 60 to 62) despite the fact that waiting just a few years (to age 65)
can result in a significant increase in monthly payments.

     Prof Bruce @ 8:20 am

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        Filed under:

Cap Rate


Development Economics and Entrepreneurship


Future Vision and Technology






Livable Cities and Neo-Urbanism


Political Economy


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         How to Get Sponsors For Practically Anything        

   Posted on
       Friday 8 October 2010  

How to Find Launch Clients
Useful Co-opetition
Strategic Investors
Social Norms v Commercial Ones

For entrepreneurs and intrapreneurs working with NGOs,
Not-For-Profits and Charities, getting sponsors is always top of mind.
But I have found that you can get sponsors for practically anything.
When I worked with the NHL’s Ottawa Senators, a (hopefully) for-profit
business, we obviously spent a lot of time and effort on this. But less
high profile businesses should also be looking at this not only as a
source of potential new revenues but also as an opportunity to co-brand
with other organizations for the benefit of both.

You can read more about sponsorship efforts by the Sens at: https://www.eqjournalblog.com/?p=400. I also cover off sponsorship initiatives for a new type of golf club and REALTOR services.

It turns out that organizations prefer being called ‘sponsors’ or
‘partners’ rather than ‘advertisers’. It’s like Disney World where
employees are not employees, they are cast members and customers are not
customers, they are guests. What you call someone or something

(* When we were campaigning to Bring Back the Ottawa Senators, we
called the new building we wanted to construct to house our new
expansion franchise, the ‘Palladium’. When you name something, it takes
on a life of its own. Tolkein’s Middle Earth Elves understood this.
Names are important.

In Ottawa’s Official Plan (the document that controls the shape that
the City will take in future years), MCFs (Major Community Facilities)
are called ‘Palladiums’; this has become a class of land use of its own.
Although the stadium is now called Scotiabank Place, the street that
runs past it is called Palladium Drive so the name should live on for
quite some time but perhaps not as long as Ents live, which is several
thousand years.)

I have often wondered why we don’t see more co-branding. If I was
selling high end cars, I might co-brand with a top fashion house and an
exclusive watch maker: sell all three brands at one time, share
advertising costs (whoops, sponsorship costs) and leverage one brand off
the other two. Perhaps people who buy those watches will like the suits
or dresses and people who like the cars will also like the watches.

(I should also refer you to an earlier article I wrote: “Who Pays Whom” that will shed a bit more light on a related issue: https://www.eqjournalblog.com/?p=1481.)

Question: So why do corporations and individuals sponsor any organization or an event in the first place?

Answer: In part, because of their internal values and, in
part, because they want to enhance their own goals. In this essay, we
will address the latter motivation.

People are highly motivated by two emotions – fear and greed.
Organizations may sponsor an event, say, because they fear, if they
don’t, one of their competitors will. This happens a lot with categories
like telecommunications. If Bell hears that Telus is trying to ‘horn
in’ on their sponsorship of, say, Opera Lyra, they’ll redouble their
efforts. The old saying is: “Treat them mean and keep them keen.” Nothing like a little competition (and fear) to up sponsorship involvement.

What about greed? To appeal to their greed, you have to know and
understand your target sponsor’s business almost as well as they do.
This is similar to negative cost selling whereby you are able to show a
potential client that some combination of the benefits you create for
them and reduced costs outweighs the cost of buying your product or
service. (More on this concept at: https://www.eqjournalblog.com/?p=732.)

Launch Clients and Co-opetitors

Finding launch clients for practically anything is very similar to
finding sponsors: you follow the value chain in both directions.

First, you look at who benefits from your new product or service.
Second, you look at your supply chain and ask: should the people I buy
from also buy from me? When I ran the Ottawa Senators, I would ask: “Is this guy who is fixing our plumbing, a season ticket holder? If not, let’s find another plumber.”

Your accounts payable is a great source of potential launch clients
and a possible source of launch capital* as well. Suppliers will often
provide you with interest-free loans to buy their products and can
sometimes be induced to go beyond that and invest in your new
enterprise. They do this because, if you are successful, they have
helped create another customer for themselves.

(* For more on how to self-capitalize/bootstrap your enterprise, please refer to: https://www.eqjournalblog.com/?p=1162.)

In any event, your bookkeeper/accountant and his or her list of AP can be and should be part of your sales team.

There is another direction you can go in to look for launch clients.
You can look for strategic partners and co-opetitors*. This is like the
TV series, LOST, first they went back in time, then they went forwards
in time and, in their last season, they went sideways (to an alternate reality).

(* Co-opetition is when you sometimes compete with your competitors
and sometimes co-operate with them, thus, they become ‘co-opetitors’.
For example, REALTORS compete for listings and buyers but co-operate
through their online MLS system where all (or most) listings are
deposited. They typically will share commissions 50/50 when one is a
listing agent, representing the Seller, and the other is a buying agent,
representing the Buyer.)

So you can slip ‘sideways’ to look for people who have a strategic interest in your success and these people may also be competitiors.

If you have a solution for failed windows (the vacuum seals often
fail in less than 15 years), perhaps you would look for investment and
first orders from commercial building owners. But you might also go to
window wall manufacturers even though you are potentially cutting into
their sales of replacement windows. They might see that it is in their
best interests to also offer a cheaper solution to their clients (i.e.,
building owners). They could be investors in your business but they
could also be clients since they could become resellers of your service.
They would now be able to offer, in addition to, replacement windows, a
cheaper, faster, less disruptive alternative (resealing windows or
allowing condensation to escape through newly installed air valves.)  

For example, the owner of a PODS franchise I know is looking at investing in
https://www.frogbox.com/, a
business that markets reusable plastic moving boxes. These are a
replacement for (mostly) throw-away cardboard boxes and could, at least
in theory, cut into the demand for PODS. But the owner of the PODS
business is a forward-thinking kind of guy and feels he might as well
benefit from this potential new entrant in his marketplace; it is coming
anyway. This is a strategic move for him in his marketplace.

In the sports business, arenas and stadiums may be operated by
another team’s arms-length management company: another form of

To look for co-opetitors, ask the question: “What is the nearest substitute for the product or service we offer?”
For repaired windows, it is obviously new ones. For a new home, it is
an existing one and for a new single family home, it may be a townhome.
For one type of fast food, it is a different type of fast food.

Home builders often compete and co-operate. They know that if a Buyer
doesn’t happen to like a competitor’s home they might walk across the
street and buy one of theirs and vice versa. They know that a Buyer of a
townhome from a competitor might one day trade up to a single family
home they build and that, as people age, they might trade down too.

Petrol companies, fast food, homebuilders, even tech firms often
benefit from this type of competitive synergy. Marketing efforts by one
benefit all firms in the marketplace as someone who samples the wares of
company ‘X’ is likely to look at competitive products as well.

When IBM came into the marketplace with its first PC in the early
1980s, Apple stood to benefit as the overall market for PCs took off
even if their market share dropped. This is just as true for
Blackberry-maker RIM today as Apple emerged as a key competitor with its
iPhone series. Of course, you have to be able to keep up with your
competition or you will cease to exist.

Now here is an equation for you to think about. In a co-opetitive marketplace, you could see demand increase by 50%, viz:

.667 + .667 = 2.0


Well, suppose that 1/3 of your potential clients prefer another type
of product, say, the brick homes built by a competitor. And further
suppose that 1/3 of their potential clients prefer the stucco homes that
you build. In the current market, you are both losing 1/3 of the
visitors to your sales offices to other alternatives elsewhere in the
City. But if you decide to co-locate in a new real estate project where
your sales centres will be right across the street from each other, then
the 1/3 of customers you might have lost and the 1/3 they might have
lost might now be retained (obviously, you would not capture them all as
if you lived in a closed system but, at least, you both now have the
opportunity to try top retain them whereas before they were just going

So Demand (DD) has increased from time 1 to time 2, viz:

DD(1) = .667 + .667 = 1.334, customers lost = .333 + .333 = .666,
DD(2) = .667 + .667 + .333 + .333 = 2.0.

So the overall market share of these two builders has increased by
50%; a remarkable, real world example of synergy between erstwhile
competitors. Co-opetition is a powerful force.

Back to Sponsorship… So What are Sponsors Looking For?

An upcoming event at the Telfer School of Management (planned for
March 2011) will be a conference on CSR, Corporate Social
Responsibility. A group of students organizing this event came to me
asking: “How do we get sponsors?”

Well, we need to ask and answer a series of questions to help them develop a strategy.

1. What do these students have that potential sponsors want? Basically, what do they have to trade?


• Access to Telfer and top students

2. Why do sponsors want access to students?


• Recruit them.
• Sell them cars.
• Sell them insurance.
• Sell them credit cards.
• Sell them mortgages.
• Sell them REALTOR services.
• Sell them furniture.
• Sell them legal services.
• Sell them accounting services
• Basically, sell them all the things that new graduates are going to need within the first five to seven years > university.

3. Who sells cars, insurance, credit cards, mortgages, REALTOR services, furniture, legal services, accounting services, etc?

• Answer this and you have your list of potential sponsors.

4. So let’s say they approach a Bank to sponsor the CSR Conference, what should they say?


• Well, what they shouldn’t say is: “Give us money because we’re
poor but nice students plus CSR is a good cause. And, oh, we have a
great website that we can add your logo to.”
• They should, instead, follow the French dictum: “Suivez l’argent.” Here is a model of how this all might work:

Getting Sponsors: A Model

As an example, a Bank sponsor might be allowed to set up a booth to
recruit students and to issue credit cards 1 week < the conference
and 1 week > the conference in the Telfer School of Management
(perhaps in the lobby of the Desmarais Building, a valuable location to a
potential sponsor). With every credit card applied for or issued, the
students might also get a free, co-branded Bank/CSR t-shirt, creating
yet more leverage for the sponsor and the conference organizers.

5. If the Bank sponsor gave the CSR Conference, say, $2,500 as a sponsorship fee, what is their ROI and is that even important?


• Yes, whether they make it evident or not, the Bank is expecting a Return on Investment, ROI.
• To recruit a single top notch student might cost $15,000 and up through conventional recruiting tools and procedures.
• That recruit could add to the Bank’s top and bottom lines. Let’s guess
$14,000 in his/her 1st year, $35,000 in years 2, 3, and 4 and they stay
for four years.
• Credit cards are one of the most profitable Bank lines. It is also one of the most competitive.
• So if we just look at recruiting and credit cards (forgetting about
Bank insurance and mortgages as well as investment services for now), we

ROI = -2,500 + 15,000 + 25,000 + 35,000 + 35,000 +35,000 + N*V,

Where N = # of credit cards sold to students during the sponsorship deal,


V = the capitalized value of each credit card issued.

• We are assuming that the Bank recruits just one student
• As you can see, ROI is likely to be highly positive.

We call the above approach: Negative Cost Selling. Basically, what you are telling each sponsor: “The cost of your sponsorship will be more than offset by the benefits it generates and we can quantify this for you.”
The benefits are made up of either higher marginal revenues or lower
marginal costs or some combination of the two. It is your job to show
that the benefits are greater than the costs. Be specific.

If you go into each sponsor presentation equipped with this type of approach, your success rate is bound to improve.

Strategic Investors

These are people who invest in your new enterprise because it is
strategically important for them to do so or because they do it for
social reasons instead of commercial ones.

I recently advised Angella Goran who is working to get JOK Wear off
the ground (a line of women’s and men’s sports wear that uses
bamboo-based natural fibres that don’t retain odours) to go after
strategic partners* rather than Angel investors or VCs. The former are
far more likely to act faster than the latter and ask for a lot less.
They usually don’t want any equity either. Perhaps Angella can do a deal
with a large chain store to give her a pre-order of $2 million with 10%
($200k) cash down and the balance on delivery. Then maybe she can
factor her receivable for cash giving her access to a significant amount
of funding up front.

(* For more about Strategic Investors, please see: https://www.eqjournal.org/?p=2406.)

Why would the chain do this? A) Because they like her product, B)
they like and trust her and C) they might ask for a 2-year exclusivity
agreement– to keep it out of the hands of one or more of their

This is what AT&T did with Apple and the original iPhone: they
gave Apple an unbelievable deal including access to a portion of their
subscribers’ CMRR (Committed Recurring Monthly Revenues) in return for
an exclusive period, mainly to keep the iPhone from Verizon.

Apple did it again with the iPad, asking companies to pay $10 million just to be featured at the launch.

If it is OK for a hugely profitable company like Apple to engage
strategic investors, it’s OK for startups and the rest of us too.

Notice that in return for the strategic investment (in the form of a
pre-order) Angella gives up no equity, takes on no debt, has no monthly
repayments and still gets access to capital. Of course, she has to
deliver on her promises (to deliver) which is where trust comes into

Another form of strategic investing is via social norms– where people
would refer to give you the money rather than lend it to you or invest
it for a return. If you ask a $550 per hour lawyer to do some pro bono
work for a worthy client, they might very well agree. But if you offer
them $80 per hour for the same thing, they might tell you off in a huff.
This is the difference between commercial and social norms. (For more
on this, please see: https://www.eqjournal.org/?p=2527.)

There is a wonderful site that epitomizes this that you can visit at: https://www.kickstarter.com/.
You can put your project on their site and raise money from people who
want to see the project go forward and are willing to contribute
financially to that. In return they get, nothing (!) at least in terms
of Rate of Return.

If you are launching, say, a children’s book and need some startup
cash, maybe the donors (parents) will get a thank you postcard, a
calendar, fridge magnets, an autographed copy of the book, a producer
credit, a pack of ten copies, a personal author appearance and photo
session in return for various-sized contributions. (See: Twig the Fairy
Storybook project, https://www.kickstarter.com/projects/twigthefairy/twig-the-fairy-storybook?ref=category).

Launching a Children’s Book?

Bloomberg Businessweek (Oct. 30, 2011) report that anywhere from 39%
to 58% of the projects placed on Kickstarter.com reached their crowd
funding objectives: https://www.eqjournal.org/kickstarter-vc-bbw-oct-2011.pdf. The projects do not draw down any of the funding until all the funding has been committed to try to reduce the failure rate.

There are hundreds of ways to bootstrap* your new enterprise and the
Internet has made things much more interesting, accessible and wondrous.


* For more on bootstrapping your way please see: https://www.eqjournal.org/?p=1162.


Christie Lake Kids, an Ottawa-based charity that helps children
referred in to its programs at age 9 by Social Agencies or the Police,
is one of my favourite charities. I have suggested to them that they may
be able to offer a national or regional chain of stores a strong value
proposition based on a co-branding approach, which goes something like

Feedback Loop: Suivez L’Argent

The question is: could CLK show a national chain that their volume
and bottom line will increase by more than the cost of their sponsorship
during, say, a two week period during which a percentage of sales go to
CLK? Is the fact that a percentage of sales goes to benefit the kids
during that period enough to drive more customers to their stores? Of
course, CLK would have to show that the increase in sales did not just
cannibalize sales that they would otherwise have had at other times of
the year. CLK might also be able to show that the chain’s association
with the charity brings not only immediate higher volumes and better
bottom line but also new lifetime, customers who might not have
otherwise thought to shop there.

Both organizations could benefit from this co-branding effort – CLK
could get a sizeable, recurring new revenue stream and the national
chain ups its CSR status and its sales.

     Prof Bruce @ 8:55 am

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Business Models




Launch Clients


Negative Cost Value Proposition






Social Marketing




         Set Your Goals        

   Posted on
       Wednesday 6 October 2010  

How did we win a NHL franchise (the Ottawa Senators) v. Seattle, Portland, Hamilton, Milwaukee, Tampa, St. Petersburg, Houston?

-Only 21 voters and President of NHL
-Political “Bring Back the Senators” Campaign (theme song, Tom Petty’s ‘Don’t Back Down’)
-Person to person, F2F meetings with all members of the BOG (except one)
-Sell Ottawa and us to the NHL
-15,000 PRNs (Priority Registration Numbers) sold at $25 each for a franchise that does not yet exist
-500 Corporate Sponsors at $500 each and 32 Original Corporate Partners at $15,000 each
-600 acres purchased for $7.2 million
-Gine Rossetti-designed, state of the art arena (the Palladium, now Scotiabank Place)
-Execute and out-execute the competition both locally and internationally
-120 people in Palm Beach Dec. 1990 including Ottawa Fire Department Marching Band
-Bumper stickers (taxis, hotels, airport) “Bring Back the Senators”
-Hard work
-Last thing they saw before making their decision?  

Bruce’s Happy Face

Brucie’s Big Adventure

Night before: “You will never, ever, ever get a franchise in… Ottawa”

-Keep working
-Unanimous vote 21-0
-3 weeks later, a surprising phone
call … a test.

They don’t give franchises to a city, they give it to a person they trust.

Prof Bruce

     Prof Bruce @ 3:23 pm

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Pre-selling, Finding New Clients, Keeping Existing Ones


Rules? There are no rules in entrepreneurship.




Value Differentiation and ‘Pixie Dust’


Value Proposition


         Nine Things that You Can Do for the First Time        

   Posted on
       Saturday 2 October 2010  

In Recorded History Because of the Internet

In an earlier article (https://www.eqjournalblog.com/?p=684),
I wrote that there are five things that the Internet can do for
business models in the 21st Century that were never possible before (and
I have added more since) including:

1. Create custom outputs from standard inputs Unlike
Henry Ford who said you can have whatever color of car you want so long
as it is black, the Internet allows an enterprise to give you a nearly
unlimited choice by combining standard inputs into a myriad of
customized products or services. Every experience with an
Internet-mediated entity can be wildly varied.

Mass Customize Products and Services

-For 10,000 years humans have been trading on this planet but they’ve been trapped between choices:

a. Artisans (Suits of Armour/Consultants)
b. Mass producers (Henry Ford and the Model T)

-The Internet is the most important new invention of the last 40 years
-It is where electrification was at same stage, basically, it’s a teenager.
-Now can create enterprises that can mass customize their products and services.

Example: the Virtual Home Builder

-Tried in 2000 to get home builders to do this.
-Very conservative industry.
-Put lots available and designs online in a physics engine together w/ all options/finishes/lots/designs.
-Allow everyone to use physics engine.
-Can get virtually infinite customization from standard inputs.
-Go online: choose lot, design, fit-up, finishes (carpet, tile, kitchen cabinets, lighting package, plumbing fixtures, etc.)
-Put cash register online too.
-Consumer can see what granite or concrete counter tops add to cost.
-Can fool around for 30+ hours.
-Then hit “submit” button.
-Homebuilders fear putting prices online – their competitors might find out!
-Ever heard of “Secret Shoppers?”
-Put CPM (schedules) online: let customers see where their home is at
and let suppliers see too when they’re needed for Footing and
Foundation, framing, roofing, windows, electrical, plumbing, insulation,
dry wall, paint, carpet, cabinets,…
-As more options are available, more users will visit the site, as more
users visit the site, more suppliers come onboard and you have a
virtuous cycle

Best Homes 4 U: Virtuous Cycle/Network Effects

-Now “Best Homes 4 U” is enjoying network effects.
-Suddenly, the flow of cash could reverse direction w/ suppliers becoming advertisers and sponsors.
-Allow lawyers access for e-closings.
-Allow lenders access for e-funding.
-Now if your WS attracts 10,000s of visitors, you can get your suppliers
and your suppliers’ suppliers to pay for ads so more people will buy
higher-end products (chandeliers, beveled mirrors, granite, counter
tops, home theatre,…)
-More options => more people => more options => more people…
-In a virtuous, self-reinforcing cycle (Google and Facebook are also an examples of Network Effects.)
-30+ hours in Design Centre with clients can become just 60 minutes.
-Imagine the productivity increase for homebuilder sales staff, lawyers,
mortgage lenders, the GC, the foreman (Worst problem? Homebuyer
questions about when this or that happens..), suppliers, trades, subs, …
-Also, customer satisfaction increases since:
a. they get EXACTLY what they want,
b. they feel they had a hand-in its creation (like Aunt Jemima Pancake Mix: just add eggs and milk).

The folks who bring you this pancake mix famously had an erroneous
insight years ago—they thought that by adding powdered eggs and milk to
their mix and eliminating the instructions “Just add eggs and milk”,
they could save the busy consumer time and sell more product.

It turned out that homemakers liked adding ‘real’ eggs and milk:
first, they thought it was healthier that powdered eggs and milk and,
second, they wanted to be involved in ‘making’ their kids’ breakfasts.

For most kids, you are what you do for them. By taking this away, sales went down not up.

Best Homes 4 U, by involving the consumer in the design of their own
home, are catering to a deep seated need in humans to ‘buy-in’.

2. Reverse out the work to clients and suppliers (Get the Business Model Right, https://www.eqjournalblog.com/?p=1626).
For example, if you run a Spa, you can allow your clients to pick and
choose amongst your services to tailor each visit to their individual
preferences. Since they are doing all the work of customizing their next
visit, you don’t care if they change their minds repeatedly before
hitting the ‘submit’ button.

Or how about the way Facebook went about rolling out its service in
other languages. They introduced a translation tool that allowed, for
example, some of their 2.8 million Spanish speaking users (as of January
2008) to translate the 300,000 or so FB words and phrases in just four
weeks. 1,500 users participated and then the wider community voted on
which words and phrases best suited the site. So not only did FB reverse
out the work to its community, they also used the wisdom of the crowd
to edit the site. It took 2,000 German-speaking people just two weeks to
translate the site; the French version involved 4,000 people and took
just two days. The cost to FB to translate its service into a new
language is approximately zero and the time required to do so is a
fraction of what it would take if they did it themselves. (Source: ‘The
Facebook Effect’ by David Kirkpatrick, Simon and Schuster, NY, 2010.)

Another example:

-GradeATechs.com reverses out the work to its suppliers and clients.
-match making is key.
-GASnet is the “brain” of the biz, its back end system (matches techies
to clients, contract billing, orders, supplies, software, hardware.)

Grade A Techs Business Model

3. Embed your enterprise in a networked business ecosystem
made up of your clients, your suppliers and yourself plus your clients’
clients and suppliers’ suppliers (https://www.eqjournalblog.com/?p=581).
To show you how it works, ask the question: “Who are the clients of a
Spa’s clients?” Since most of their clients are women, the clients of
the Spa’s clients are likely to be men. And what do men want? They want
to purchase gift certificates from the Spa.

– Spa client on mine sold $250,000 their first year.
-1-year to redeem.
-$80,000 not redeemed 46 weeks later.
-$60,000 never redeemed.
-Money for nothing!
– You can only see/discover these relationships by examining the ecosystem in which your enterprise exists.

-Walmart has for a long time understood this about its business.  
They integrate their suppliers into their network so that their
suppliers can drop ship basketballs to their Nashville stores and ice
skates to Ottawa.

-Who are the spas suppliers?
massage therapists/facials/dieticians/yoga instructors.
-Who are the suppliers to their suppliers?
-Cutting tools, hair and makeup products, massage oils, jewelry, perfumes, etc.
-Can the direction of money reverse instead of from them to their suppliers or suppliers’ suppliers?
-If they buy enough volume, their suppliers will pay them volume bonuses at year-end.
-Plus send their suppliers (formerly called employees) on course and on junkets.
-Your customers pay you, right?
-Maybe there are times when you might pay them.
-Would you pay a local celebrity to come to your Spa and promote her experience to her followers?
-Sure, you would.

4. Match making—directly connecting your clients to your suppliers making service industries scalable for the first time ever (https://www.old.dramatispersonae.org/TheInternetIsEatingAHoleInTheGlobalEconomy.htm).
Again returning to our example of the Spa, their employees could be
treated not as employees but as suppliers. In that way, if a client
wants to have a manicure, pedicure, massage and hair colouring, the
Internet allows you to create a back end system that matches them up
much as eHarmony.com or PlentyOfFish.com do.

5. Mass communicate planet-wide through social media and other Internet tools at almost no cost*. (https://www.old.dramatispersonae.org/EntrepreneurialistCulture/FutureVision.htm).
What is interesting is that some of these communication tools which are
free to use like social media powerhouses Twitter and Facebook produce a
powerful, newish form of communication– the viral message. It’s newish
(as opposed to new) because the chain letter permitted something similar
in RL (Real Life). But it’s powerful. If someone ‘Likes’ your website
or status update using Facebook’s toolkit, that goes into their News
Feed and everyone who has been friended by them sees it too. If they
also decide to ‘Like’ it, it goes viral. Twitter provides a bit of this
as well with its ‘Retweets’ but I think FB may have the edge here.

If you are not already on Twitter, why not? See: Twitter Nation, https://www.eqjournalblog.com/?p=2080 for why you should be using this free tool.

6. Crowd sourcing (using the Internet as intermediary) means
relying on the wisdom of the crowd to, for example, pick and vote on
stories for Digg.com or t-shirt designs for Threadless.com (https://www.eqjournalblog.com/?p=1541).

-Threadless.com: their community uses a voting system to select winning designs for Tees submitted by independent artists.
-Extensive social comment on whole process.
-More recently, other companies such as Dell and Alpargatas use (and pay to use).
-Threadless’ voting system and community now used to select winning entries for the design of PC covers and sandals.

-Here is Threadless’ Biz Model, Circa 2010

-Threadless.com is reversing out the work to suppliers (for the
design of their Tees) and to customers (to select which products will be
put into production).
-It is also harnessing the wisdom of the crowd (through their voting system).
-It is also treating their biz model as a platform.
-Even some of their supply costs (for design services) could turn into
negative costs if artists pay them to feature their work on

-In the modern economy, the answer to the question of ‘Who pays whom?’ isn’t always obvious.
-Should a cable company pay ABC because ABC has content, shows like Diane Sawyer and Primetime News?
-Or should ABC pay the cable company because it has the feed and access into millions of homes?

-Steve Jobs understood the importance of this before he launched the iPhone.
-He insisted that AT&T give him a share of its subscriber revenues– never before granted.
-He used Apple’s brand to leverage unprecedented concessions from AT&T.
-AT&T feared losing exclusivity to Verizon.
-Jobs told AT&T he ‘might’ give them a share of app revenues.
-So he revolutionized yet another industry’s biz model.
-Cell phone manufacturers went from selling a ’shrink wrapped’ gadget
for a one-time payment in a brutally competitive market that was racing
to the bottom to an industry with multiple sources of revenues, some of
which are recurring: the holy grail of techdom.
-Imagine how much harder Steve Jobs and Apple would have to work and how
much lower their productivity as measured in revenue per employee would
be without recurring revenues from iPhone app sales and revenues,
advertising revenues on their mobile platform, downloads of paid content
from iTunes and a share of their carriers’ subscriber fees in addition
to revenues from the sale of the gadget itself?
-From a simple question and a tweaking of their business model flowed
great benefits. The harder they work, the more money they make and, in
Apple’s case, this relationship has become geometric. (I estimated that
Apple’s return on the iPhone is an incredible 288% p.a. See: https://www.eqjournalblog.com/?p=1714.)

-Business models are powerful weapons in the fight for market share and profitability.
-Intricating the Internet into your Business Models is crucial too.
-Just as important for Intrapreneurs/NGOs/Charities/Non-Profits as for Entrepreneurs.
-Apple can execute.
-Don’t be a One Sigma enterprise: https://www.eqjournalblog.com/?p=938.

7. Relational data base allows you to mine your customer (or
supplier) interactions so you can if you are Amazon (for example) ask
questions such as: “Would you like to see what other people who bought
this book (CD, video, etc.) also bought?” Increases average order size and volume of sales. (See again: https://www.eqjournalblog.com/?p=1541).
Google can serve up ads to people who are searching for, say, digital
cameras. Facebook, on the other hand, by mining its d-base, can serve up
digital camera ads to new Moms in New Jersey who have never posted any
photos of their kids.**

-It’s more subtle than you might think.

8. User generated content, a form of reversing out the work
to customers or suppliers, underpins the business models of YouTube.com,
Digg.com, Threadless.com, Facebook, Twitter and many other Web 3.0
enterprises. (See again: https://www.eqjournalblog.com/?p=1541).

9. Network effects are created when, as we saw above, a
virtual homebuilder’s website becomes the go-to place for design options
a client can choose from. As more visitors use the physics
engine of the site to calculate what the costs are for their new home
and all selected options, more suppliers of household goods (kitchen
cabinets, plumbing fixtures, lighting packages, counter tops, tile,
carpet, home theatre, etc.) will want to be on the site (and pay to be
on the site) which will encourage yet more visitors (i.e., prospective
homebuyers) to use it in a virtuous cycle, each reinforcing the other. I
think it might be possible to build a Virtual Homebuilder’s website on
Facebook Pages and have its message go viral there.

The more of these elements that you can incorporate in a new or existing model, the more you are likely to prosper.

To learn more, please refer to The Complete Business Model: https://www.eqjournalblog.com/?p=692.

Prof Bruce

* Interestingly, Arthur C. Clarke predicted in his novel, Childhood’s End,
as far back as 1953 that by the dawn of the 21st Century, ‘long
distance’ charges for communications would be extinct and he was, of
course, right.

** In ‘The Facebook Effect’, David Kirkpatrick points out that
Google’s style of advertising (providing information to people who
already know what they are looking for, at least in general terms) makes
up 20% of all advertising. The rest is brand advertising meant to
target people who have not yet made a buying decision or don’t know what
they are looking for. That is Facebook’s specialty and you can
understand why Kirkpatrick thinks FB will be a huge enterprise.

Postscript: So what does a web 3.0 website look like and do? Well, it
is almost certainly going to incorporate some or all of the above
functionality but, undoubtedly, clever young people are going to invent
new ways of harnessing the Internet that are unimaginable right now.

But one of the things I can tell you is that just because you have
pretty pictures on your site and some advertising agency says it will
give you the latest ‘content management system’, you are not web 3.0.

A local, charity recently received a $25k proposal to ‘reinvent’ its
ws. The proposal really sucked for two reasons: a) the agency pretended
to know stuff they actually have no clue about and b) for $25,000, the
Foundation should get much more value from the project.

My advice was to spend less: just $3,500 with their current developer
to do a few, simple things that would provide much greater benefit to
their stakeholder group including:

1. They already have a YouTube Channel and a Twitter account: integrate these into their current site.
2. Add a free blog from WordPress or someone else, integrate it into the
site and invite stakeholders to submit guest blogs (hey, reverse out
the work, remember).
3. The Foundation likes to do some polling; integrate services like Poll Daddy into their site to accomplish this.
4. Add a store hosted by Shopify (or another outfit) where they can sell
some Foundation merchandise and feature their award winners and their
stuff (for sale) too.
5. Give every one of their award winners an email address for life so
that they can be reached forever using, for example,  
mary.smith@recipient.foundation.org. One day, those people may be donors
and patrons and sponsors giving back to the next generation of award
winners and this is a cheap way to keep track of them. It is also a nice
benefit for the award winners since these awards are rare and
financially lucrative; they will be recognized for life by their email
6. Get their developer to allow sponsors, patrons and donors to be
featured in their newsletters as well as alongside their blog and
YouTube Channel. It will open up opportunities for sponsorship at lower
levels of funding and will give the Foundation some recurring revenue.

This revamp isn’t like putting a human on Mars but it’s a good start
for these folks: practical, doable and much more engaging than having a
content management system, most of which are like wearing a straight
jacket, blindfold and a potato sack at the same time. They allow you to
update your own ws and not rely on a developer to do it for you but only
for repeatable, predictable content. It is the exact opposite of
reversing out the work: you get to do all the work instead. Heaven help
you if you have something that doesn’t fit their pre-developed mould.

Here is a photo of the two principals from the advertising agency who
made the pitch to the Foundation; they look a bit phony to me:

Phony-looking Advertising Agency Principals

You want to build the functionality into your site that you need and
no more. If you’re a household plumber, maybe all you need is a one page
ws with your good looking, smiling face on it plus a telephone number,
fax number and email address together with the list of services you
provide and their associated prices. And you want the site to be totally
transparent to search engines so you don’t need any fancy coding

Less is more.

Here are Bruce’s 10 Steps to a Great Website: https://www.eqjournalblog.com/?p=50.


     Prof Bruce @ 12:14 pm

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         Crowd Sourcing        

   Posted on
       Saturday 25 September 2010  

Stalking Horse Marketing

Jack Nickell and Jacob DeHart started Threadless in 2006 with a
clever business model that is more sophisticated that it might at first

Business models must describe the complete business ecology in which
the enterprise competes. It must include an ‘orthogonal’ marketing
dimension which makes it possible for the new enterprise to acquire
customers and clients in a cost effective manner.

In the case of Threadless, their marketing from Day One has been confined to a limited repertoire including:

1. Some paid ads on Facebook, Digg and Twitter,
2. A voting system that their community uses to select winning designs for Tees submitted by independent artists,
3. Using unpaid models for their Tees drawn from their employees and
consumers, many of whom have friends that blog, Tweet, FB and vote on
the matter,
4. Extensive social comment on the whole process,
5. More recently, other companies such as Dell and Alpargatas use (and
pay to use) Threadless’ voting system and community to select winning
entries for the design of PC covers and sandals.

Here is Threadless’ Biz Model, circa 2010:

The cost for each design they produce is quite low: they pay the
successful, independent artist $2,000. But they test many designs at the
same time by way of their voting system so the cost per design is much
lower than this and, happily, they can be quite sure that designs that
are approved by their customers for production will also likely be
bought by them.

This year, other companies such as Dell and Alpargatas are paying
the company to use their crowd sourcing system to select winning
designs for PC covers and sandals. This obviously helps Dell sell more
computers and Alpargatas sell more shoes but it also helps Threadless:
a) spread the word about what they do and b) turn their crowd sourcing
business model into a platform which can be widely applied to other industries.

Amazon has also successfully transitioned their model to a platform
for other enterprises to use for e-tailing, data warehousing, cloud
computing and much more.

Threadless has not only reversed out design work to their suppliers
(aka, their artist community) but have also managed to reverse out their
marketing to their clients using their voting system and the buzz it
creates through the blogosphere as a kind of stalking horse.

User generated content (in this case, from its suppliers– its
artists– who supply designs) not only underpins the business model of
Threadless.com but also YouTube, Digg, Facebook, Twitter and many other
Web 3.0 enterprises.

This is an efficient and effective, early 21st Century Business
Model. It shows that you can put a ‘marketing engine’ in front of your
business that works, in a highly energetic way, independently of your

Tony Greco and Greco Lean and Fit Centres use their charitable
foundation (The Foundation to Fight Obesity in Children) as a kind of
stalking horse marketing of their fitness centres. Involvement in the
Foundation by kids and their parents to fight childhood obesity is
almost certainly going to lead to adult participation in Greco fitness
programs—either by the kids when they grow up or by their parents
dealing with fitness issues themselves.

The Threadless and Greco examples show how the marketing dimension of
a business can itself be a ‘profit centre’ or, at least, cost neutral.
For Threadless, other companies will pay to use it and their stakeholder
group will do much of their marketing work for free. For Tony Greco,
the amount of earned media he receives for his Foundation is remarkable.

If you are planning on going into marketing as a career or you are
thinking, as an Intrapreneur, of building a new division for an existing
firm or you are an entrepreneur, your job security/your next
promotion/your business success will be mightily enhanced if you can
turn your marketing costs neutral or negative.

Prof Bruce

Postscript: Threadless might even be able to turn part of their supply chain (the design side) into a profit centre.

Artists and corporations might pay them to have their designs
featured and voted upon in a sponsored process much as Digg and Twitter
allow sponsored links and tweets, which, for authenticity sake, are
clearly identified as sponsored links and tweets.

For a budding artist, what is it worth to them to see one of their
designs voted on and (hopefully) chosen by the Threadless audience?
Could be quite a career-booster.

Turning your supply chain into a profit centre?  Harry Houdini would be proud of today’s biz modelers.

Postscript 2: In the above biz model, I show the business in a square
in the middle of the ecosystem and above it, a brain. The brain is a
crucial part of a modern business model. It is the part that matches
customers and suppliers, in this case, to vote on designs. In other
models, the brain matches suppliers and clients as, for example, in a
spa where suppliers are hairstylists, massage therapists, manicurists,
pedicurists etc. Clients can pick out which services they want and which
suppliers they would like to book with and suppliers can book which
clients they want and how busy they would like to be.

In both cases, the model allows the enterprise to reverse out much of the work to their suppliers and customers.

     Prof Bruce @ 3:24 pm

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         Raise National Income by Unleashing the Entrepreneur Class        

   Posted on
       Sunday 19 September 2010  

Hassle Factor Deters Entrepreneurs
Reduce Red Tape as a Pre Condition for Economic Takeoff in Developing Nations

An interesting data set became available from Bloomberg BusinessWeek
(Sept. 5, 2010) showing the number of procedures, number of days and the
fees and legal costs (as a percentage of per capita income) associated
with becoming an entrepreneur in 20 nations. New Zealand and Canada had
the fewest number of procedures (1 each) while Chad and Equatorial
Guinea required the most (19 and 20, respectively). In New Zealand,
entrepreneurs could register and open for business in a single day
(Canada, according to BBW, took 5) while in Haiti and Guinea-Bissau, it
took 195 and 213 days.

The data was strongly suggestive of an inverse relationship between
the hassle factor of becoming an entrepreneur/launching a startup and
national income. It is widely believed that it was the unleashing of
their entrepreneur class that caused the secular growth in both China
and India over the last generation and not subsequent, government-led
5-year plans or ‘Great Leaps Forward’. Yet proof is difficult to come

We added per capita national income statistics from World Bank and UN sources to the BBW data set to obtain this:

Hassle Factor Data Set

We left out the data from Equatorial Guinea because it was difficult
to obtain reliable estimates of its per capita income so 19 data points

Next, we did a series of regression analyses to see which of our
exogenous variables (Number of Procedures/Time Required to Start Up/Fees
and Legal Costs) explained what proportion of the variation in national

The first regression retained all exogenous variables and we obtained:

Hassle Factor Regression Analysis: All Variables

This shows that 72.84% (multiple R value) of the variation in
national per capita income is explained by our three variables. However,
it also shows a positive relationship between the length of time it
takes to launch a new enterprise and per capita income which is counter
intuitive. So we did regressions for per capita income against each
exogenous variable on its own and this gave us multiple R values as

For Number of Procedures: 72.83%
For Number of Days: 52.36%
For Fees and Legal Costs: 46.62%

(The regression analyses for each of these are shown in the ADDENDUM below.)

Interestingly, all but .01% of the difference in national income is
explained by the number of procedures entrepreneurs faced in setting up
new enterprises. In other words, higher fees and costs or even delays
were much less important than the sheer ‘hassle factor’; the more
government procedures ‘in the way’, the lower per capita income is apt
to be.

It is also likely that Number of Procedures and Time to set up a new
business are not independent of each other so we did a further analysis
of per capita income against Number of Procedures and Fees and Legal
Costs leaving out the time variable. The multiple R value was unchanged
at 72.83. So, somewhat surprisingly, per capita income does not appear
to be greatly impacted by the cost of doing business per se.

This implies that it appears to be more important to reduce barriers
to entry than it is to reduce fees and costs. Entrepreneurs would seem
to be able to overcome barriers to entry from higher fees and legal
costs* but not from serial impediments to setting up a new business. If
further study supports this conclusion, then governments could have
considerable scope to change policy: a) to reduce ‘red tape’ and b) to
raise fees. The latter finding should appeal to governments everywhere.

(* Many entrepreneurs report that access to high cost capital is
better than no access. With Returns on Equity for successful
entrepreneurial ventures in Canada and the US ranging from 18% p.a. to
as much as 100% or more, many entrepreneurs feel they can sustain new
enterprises even when started with, say, credit card debt where interest
rates may vary from 12% to 28%.)

It doesn’t take many entrepreneurs to change a city or a nation. In
Ottawa, over the last generation, if you remove Mike Potter, Mike
Cowpland, Terry Matthews, Bruce Firestone, John Doran, Irving Greenberg,
Kris Singhal and a handful of other entrepreneurs, you also remove
Cognos, Corel, Mitel, NewBridge, March Networks, the Ottawa Senators and
Scotiabank Place, Domicile, Minto, Richcraft and scores of other
companies and thousands of jobs.

The analysis shown here strongly suggests an inverse relationship
between the number of procedures an entrepreneur or intrapreneur faces
before he or she opens a business or a new division of an existing
business and national per capita income. Perhaps as much as 72% to 73%
of variability in national income can be explained by this which further
suggests that when governments simplify their procedures and unleash
their entrepreneur classes, a great deal of creative energy is released
and per capita income is likely to rise.

Of course, there are many other pre-conditions for economic takeoff.
Virtually all economic growth since the discovery of agricultural
cultivation has derived from synergy and trading behaviour (based on
comparative advantage) that derives from the proximity inherent in the
development of dense urbanized villages, towns and cities, says Jane
Jacobs. In her view, City-State ecomomies are driving the national and
global economy.

Pre-conditions for economic take-off (to paraphrase Walt Rostow) of
city-states also include: rule of law, wide-spread availability of
education, high speed broadband communications infrastructure, good
government, absence of cronyism, peace and civic order,
meritocracy/upward mobility, mixed-use urban development, access to
capital and public markets, adequate land inventory for growth,
environmental protection, adequate and safe municipal services,
affordable housing, sanctity of contracts and clear title to land,
encouragement of arts and culture, tolerance of diversity, adequate
density in urban development, strong branding and marketing of the
City-State to its residents and visitors, recreation facilities and
quality of life issues, mass people movers, privatization and
commercialization of services where appropriate to de-politicise
decision making and improve efficiency.

But what we have shown here is that tolerance for and encouragement
of entrepreneurship plays a major role in raising standards of life and
mustn’t be forgotten.

Prof Bruce


Number of Procedures

Number of Days

Fees and Legal Costs

Number of Procedures and Fees and Legal Costs

     Prof Bruce @ 7:59 am

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         Who Pays Whom?        

   Posted on
       Saturday 18 September 2010  

In Pursuit of Recurring Revenues: The Holy Grail of Techdom

In the modern economy, the answer to the question of ‘Who pays whom?’ isn’t always obvious.

Should a cable company pay ABC because ABC has the content, shows
like Diane Sawyer and Primetime News, or should ABC pay the cable
company because it has the feed and access into millions of homes?

Steve Jobs figured this out before he launched the iPhone when he
insisted that AT&T give him a share of its subscriber revenues and
he might give them a share of app revenues. With that, he revolutionized
yet another industry’s biz model.

Cell phone manufacturers went from selling a ‘shrink wrapped’ gadget
for a one-time payment in a brutally competitive market that was racing
to the bottom to an industry with multiple sources of revenues, some of
which are recurring: the holy grail of techdom.

Imagine how much harder Steve Jobs and Apple would have to work and
how much lower their productivity as measured in revenue per employee
would be without recurring revenues from iPhone app sales and revenues,
advertising revenues on their mobile platform, downloads of paid content
from iTunes and a share of their carriers’ subscriber fees. From a
simple question and a tweaking of their business model flow great
benefits. The harder they work, the more money they make and, in Apple’s
case, this relationship has become geometric.

(Jobs has created radical change in industry after industry: personal
computing (the Mac), animation (Pixar), music (iPod), cell phones
(iPhone) and now book/newspaper/magazine publishing (iPad) plus perhaps
television and film (Apple TV). It is truly a remarkable record of

You can see why Sam Palmisano (CEO of IBM) has said he spends a great deal of his time tweaking IBM business models.

I felt a long time ago that Nortel missed a great opportunity to add
more services (and more stable revenue streams) to their hardware sales
by changing its business model to include operating and maintaining the
complex switches they sold to their clients. After all, who knew these
machines better than NT?

NT leadership focused more on high margin tech sales than the less
glamorous business of fixing and maintaining stuff. Meanwhile IBM and
later HP recognized that by selling more services not only would they
enjoy counter-cyclical revenues streams but they would have a huge leg
up on the next round of hardware sales. By providing outsourcing, they
became trusted advisors to their clients, sat on the ‘same side of the
table’ as their clients and could spec their own equipment to fix or
augment client networks that they now knew better than their own clients

They missed it and now they are dead. It’s a shame for all their
stakeholders including Canada and the blame lies squarely on the
shoulders of their leadership.

In The Complete Business Model (https://www.eqjournalblog.com/?p=692), I show how even with the simplest businesses, asking this question can lead to important changes.

If you operate a spa, say, is it always obvious that clients pay for
treatment? Not at all. What if you paid your clients instead to come to
your spa? Who would that be? Celebrities, obviously.

Having celebrities come to your spa is a sure fire way of: a)
building your brand, b) attracting more paying clients and c) getting
higher prices for your services.

What this shows is that you can think your way to wealth a lot faster than you can work your way there.

Prof Bruce

     Prof Bruce @ 12:19 pm

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         Favorite Chicken Recipe        

   Posted on
       Tuesday 14 September 2010  

When asked to contribute to a cookbook for the Canadian Chicken Marketing Agency, I couldn’t wait to do it because I would have the chance to introduce the wider world to what will surely be known as the greatest chicken recipe ever—as performed by the artiste (and my mother-in-law), Ms. Cora Jane MacMillan.

Cora has been cooking for people since she was a young girl, living
on a farm and feeding a dozen or so (including the helping hands), three
times a day. It was demanding in every way.

More recently, Cora has been taking care of her family and her
children and grandchildren—she is the matriarch of our family and the
glue that binds us.

I hope you enjoy this recipe as much as we do,

Prof Bruce

Savory Stuffed Roast Chicken – Serves Six

1 – Fresh roasting chicken [7 to 8 lbs] 8 – Hamburger buns
2 – Tbsp of olive oil
3 – Tbsp of butter
1 – Medium sized [3” in diameter] cooking onion, finely chopped
4 – Tbsp dried summer savory [do not use poultry seasoning] ½ – Tsp. dry mustard
2 – Tsp. celery salt

Prepare the stuffing –

Tear the hamburger buns into bite sized pieces and place on rimmed
baking sheet. Leave overnight to dry out or place in 200f oven for 60-90

Crumble the dry crumbs in your hands till the size of marbles. Sauté
the finely chopped onion in 1 tbsp of olive oil and 1 tbsp of butter.
Onions should be clear but not brown – add 1 more tbsp of butter.

Place the crumbs in a large bowl and add the onion mixture, dry
mustard and salt and pepper to taste. This should feel slightly moist,
if not add 1 tbsp of water.

Preparing the chicken –

Check the inside of the chicken to be sure it has been well
eviscerated. Rinse well with cold water – dry with paper towel and
lightly salt. Do the same with the neck area.

Heat the oven to 425f

Stuffing the chicken:

Lay the chicken on a clean flat surface on its back with wings tucked
under. Using a one half cup measure, loosely fill the cavity with the
stuffing. Close the cavity opening with skewers. Repeat the procedure
with the neck cavity. Place the chicken, breast-side up, on a wire rack
in the roast pan. Melt remaining tbsp of butter with one tbsp of oil –
rub this over the chicken and sprinkle with celery salt.

Place the lid on the roaster and put in 425f oven.
After one hour reduce the temperature to 325f – remove from oven and baste chicken.

Return to oven and continue roasting, basting once more till thermometer inserted in thigh registers 185f (2 hours approx).

Remove chicken from pan and place on platter, tent with foil for 20 minutes before carving.

     Prof Bruce @ 1:52 pm

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         Concept Planning, Functional Programming & Critical Path Methodology        

   Posted on
       Sunday 12 September 2010  

For Product Managers
The Basics

Steve Jobs at Apple is a minimalist: he believes that the most important things you do are the things you decide not
to do. He is a great believer in design and in perfecting the user
experience. His lodestone is to start a product design from the users’
POV and work backwards. He believes that every point in the supply chain
should have the same design elegance as the end product.

Jobs has built Apple today into the most valuable tech company on the planet (circa 2010) with this philosophy.

(He is also incredibly good at revolutionizing business models; please see: https://www.eqjournalblog.com/?p=1714 and https://www.eqjournalblog.com/?p=692.)

Functional programming and concept planning are part of establishing
what it is that the product (or service) will do and what it won’t do.
Whether you do that by following your own instincts (as Jobs has done)
or through market research or as many architects do by blending form and
functional approaches, you need also to be able to execute expertly.

John Sculley recently called Apple a ‘vertically integrated
advertising agency.’ To do what they do, they need to be able to
control, in a very precise manner, everything from component supply to
manufacturing, distribution, design and delivery at the retail level.

Walmart is incredibly good at this: making sure there are enough
basketballs in Nashville and hockey skates in Ottawa. Their supply chain
management is peerless. They allow their suppliers access to their
intranet so they know when and where their products are needed and can
often ship directly from their manufacturing sites to Walmart stores
avoiding a stay in Walmart distribution centres.

This improves efficiency in their supply chain by: a) reducing double
handling and transportation and warehousing costs, b) lowering
Walmart’s inventory costs, c) reducing Walmart’s cash conversion cycle
(see: https://www.eqjournalblog.com/?p=692),
d) making sure there is little unsatisfied demand at a retail level, a
profitability killer and customer service downer (customers HATE coming
to any store to find ‘Out of Stock’ notices, a huge Ikea problem in past
years), e) reduces inventory returned to suppliers from non sale, f)
makes demand projections on the part of their suppliers more accurate
thereby reducing supplier’s costs and, ultimately, Walmart prices and g)
feeds into an electronic system of inventory control and payment to
suppliers that is highly effective for all parties. This is one of
Walmart’s key competitive advantages and is much harder to duplicate
than it sounds.

In the field of architecture, there has been much ongoing debate
about whether, in design, form follows function or the reverse. From a
developer’s point of view, form must follow function. That is, the
developer will establish the functional program for a new project and
the architect will create a form to suit and fit those requirements. It
seems rather straight forward.

But a great deal of the value of a project comes from the artistry of
its design—perhaps as much as 95%. (See for example: Measuring the
Value of Design and Creativity, https://www.eqjournalblog.com/?p=437.)
So when a developer or, say, an urban planner, tells an architect that
the form must adapt to a specific set of functions and, furthermore,
that the ingress is here, the egress is there, the height is ‘X’, the
setbacks are ‘Y’ and ‘Z’, the materiality is pre-prescribed and so
forth, it doesn’t leave much room for creativity. This is a mistake and
results in urban areas that are made of ‘no-places’ full of boring
boxes, streets with unattractive public rooms and dangerous, windy
canyons, mostly abandoned and pedestrian unfriendly.

Architects know in their bones that buildings which are designed for
one set of uses will often house other uses within their lifetimes so
that while the developer may be more interested in the functional
program (the specific uses for the property) and especially in the
revenue streams that flow from them, the architect must satisfy (at
least) three constituencies—the need for his or her patron (i.e., the
developer) to realize commercial benefits from the development, the
needs and demands of the local community and the architect’s need to
create an enormously complex piece of public art through their design
skills and intellect.

In my experience, architects, being the stubborn and independent
people they are, should listen to all their constituencies then go to a
special place in their mind’s eye and change everything—in order to
create something that looks rather like it grew organically from a seed
in the ground and that it had always existed at that location.

I believe that the best projects actually do both—budget constraints,
site constraints, community demands and the functional program together
with an architect’s art will bound the project and blend both
approaches—form following function and function following form to
produce optimal benefits for all stakeholders.

In real estate, the product management process (from idea stage to the go/no go point) looks something like this:

Idea [Developer] –> Site Search [Developer] –>
Option/Tie Up Site [Developer] –> Functional Program (First Draft)
[Developer] –> Budget (First Iteration) [Developer] –> Site Visit
[Architect] –> Community Input –> Highest and Best Use [Developer,
Architect and Community] –> Initial Concept Plan [Architect] –>
Review by Developer and Community –> Revise Concept Plan [Architect] –> Revise Budget [Developer] –> Market Study and Feasibility
Assessment [Developer] –> Go/No Go [Developer]

It is an iterative process and, like most product management assignments, rather harder than it looks on paper.

For a new technology product or service, the process looks similar:

Idea [Product Champion] –> Search of the Competitive
Landscape [Product Manager] –> Functional Program (First Draft)
[Product Manager and Developer] –> Budget (First Iteration) [Product
Manager] –> Technical Feasibility [Developer] –> Market Study and
Feasibility Assessment [Product Manager and Marketing] –> Initial
Concept Plan [Developer] –> Exposure to and Acquisition of Launch
Clients [Product Manager and Sales] –> Review by Stakeholder Group
–> Revise Concept Plan [Developer] –> Revise Budget [Product
Manager] –> Go/No Go [Product Manager and Senior Management]

Now there are many variations on the above but the basics are
clear—it is an iterative process that, at its very core, is all about
creativity, innovation and differentiation. But there is also a less
obvious imperative—creativity cannot flourish in a vacuum. New products
and services, new buildings and projects are almost universally improved
by exposing them to sunlight i.e., comment.

Here is a simplified product manager model. Note how important it is to get launch client involvement early on in this process:

This is a sometimes frustrating and slow process (especially in real
estate due to the NIMBY phenomenon*) but the result is almost always an
improved design. In tech, as soon as nearly every new product comes into
contact with the marketplace and potential customers, it changes, often
radically, for the better. It is like code making—codes created in
secret are usually easier to break.

(*Many years ago, I was told by a local Councillor, Sheila McKee,
that I could look on the rezoning process (where NIMBY’ites can have a
field day) as either a confrontation with the community or a process of
affirmation for a project by its neighbours. Developers are almost
always better off to see things Sheila’s way: it’s slower (at least in
the beginning) but, in the end, you usually end up with a better

Functional Programming—March 417 Park, an Example

Years ago, we planned a mini-theme park for a 63-acre site in Ottawa,
about eight minutes west of Scotiabank Place (where the modern-day
Ottawa Senators play.) The site was a good one—on an existing major
highway interchange (Highway 417, aka the Queensway and the Highway 49,
aka March Road).

Here is the concept plan for the park which had a working name of ‘March 417’.

March 417 Park: Concept Plan

The park consisted of a 24-acre golf driving range, a 30-acre FEC
(Family Entertainment Centre) and a 9-acre hotel and fast food parcel.
Its functional program and draft budget are as shown below:

Construction Hotel


Rooms 120
Cost per Room $90,000
Total Cost $10,800,000
Banquet Facility/Mtg. Rooms $1,150,000
Spa $1,300,000 $150 per sq. ft.   8666.666667 sq. ft.
Indoor Pool and Waterslide $980,000

Sub-Total $14,230,000
Contingencies $1,707,600 12%
Land $720,000

Total Cost $16,657,600


Room-night $155
Rooms $6,789,000 100% occupancy
$4,752,300 70% occupancy
Spa $190,667 $22 per sq. ft. per annum rent
Banquet Facility/Mtg. Rooms $352,000 $16
F&B Hotel $312,732 1.5 people per room $16
F&B (Mtg. Rooms) $135,575.00 423 people per week $14.50 0.425
Billboard $8,000
Tim Hortons/Wendys $250,000 2 acres $125,000 per acre
Total Revenues $5,751,274
GPM $2,300,509.47 40%


Mortgage $12,493,200 75% 6.25% 20 year am.

Net Operating Income $1,189,086.05

ROE 29% p.a.


Cost $135 per sq. ft.
Area 5,000 sq. ft.
Bldg. cost $675,000
Land $93,750 0.75 acre $125,000 per acre

Total Cost $768,750


Rent $75,000 $15 per sq. ft. per year


Mortgage $576,562.50 75%
($54,423.42) 7.00% 20 yr. am.

Net Operating Income $20,576.58

ROE 11% p.a.


Cost $145 per sq. ft.
Area 3,500 sq. ft.
Bldg. cost $507,500
Land $125,000 1 acre $125,000 per acre

Total Cost $632,500


Rent $84,000 $24 per sq. ft. per year


Mortgage $474,375.00 75%
($44,777.64) 7.00% 20 yr. am.

Net Operating Income $39,222.36

ROE 25% p.a.

Golf Driving Range and Golf Retail Land Cost

Area 18 acres 18 acres
Net Net Net Land Rent $12,500 per acre per year $52,500 per acre
Land Rent $225,000 p.a. $945,000

Days per season 150
Number of golfers 225 per day
Total 33750 per season
Retail Sales $540,000 $16 per capita
Golf Revenues $472,500 $14 per capita
Golf Lessons $121,500 $45 8%
F&B $78,890.63 $5.50 0.425

Total Revenues $1,212,891

Percentage Revenues $60,644.53 5%

Total net revenues $285,644.53 p.a.


Outlet Mall Land Cost

Area 5 acres 5 acres
Net Net Net Land Rent $25,000 per acre per year $52,500
Land Rent $125,000 p.a. $262,500

Total Revenues $15,000,000

Percentage Revenues $150,000.00 1%

Total net revenues $275,000.00 p.a.

Total Cost

FEC $26,656,275
Hotel/Spa/Mtg. Centre/Pool/Waterslide $16,657,600
Tim Hortons/Wendys 0 (land cost included above; subject to land rent)
Office $768,750
Restaurant $632,500
Golf Driving Range and Golf Retail $945,000 (land Rent and percentage rent)
Outlet Mall $262,500 (land Rent and percentage rent)

Grand Total# $45,922,625

# This does not include the cost
of constructing the Tim Hortons/Wendys/
Billboard/Golf Driving Range and
Retail/Outlet Mall which are based
on land rents and percentage rents.

Total Cost for Land

FEC $875,000
Hotel/Fast Food Site $720,000
Office $93,750
Restaurant $125,000
Golf Driving Range and Golf Retail $945,000
Outlet Mall $262,500

Total Paid for Land $3,021,250

To get to this stage required various types of expertise including:

• Visioning (by the ownership);
• Marketing (by a consulting organization);
• Planning (local planning firm);
• Civil Engineering (local engineering firm); and
• Transportation (Consultants from Toronto).

Each specialist shared information relevant to future site
development so that a complete picture of the opportunities and
constraints could be identified.

Before the work was started, the owner gave an overview of his
short-term and long-term goals. The long-term goal was, in brief, the
efficient build-out of the site. Short-term action was aimed at creating
cashflow from the property.

They had identified an immediate need for: more family entertainment
in Ottawa, Canada’s Capital City; more meeting space; more restaurant
facilities; significant merchandising opportunities.


The owner noted how the site was comparable in size to the Byward
Market (+/-55 acres), a mega-successful part of Ottawa—a downtown urban
agglomeration of bars, restaurants, shopping and entertainment hub. This
comparison also made the point that it is important to plan the Park at
roughly the same level of detail – not just in large blocks to create
optimal value.

He then noted that the Park was located away from the downtown core for the following reasons:

transit capacity is lacking in Ottawa’s downtown
horizontal parking is needed.
a major highway is required
land appreciation is expected
few objectors are present

In creating a new development vision, the owner offered a number of
possible additions that could be incorporated into the site, including:

High-end hotel;
Big Box Retail;
Iconic uses such as a media tower, electronic billboards.

In considering these different additions and creating a concept for
the site, it is important to take many elements into account, such as:

Ottawa has no new attractions; it needs new dining and entertainment destinations;
A design book should be used to guide the development in a compatible way;
Green architecture standards should be used for implementation;


The marketing group took the attendees at the planning conference on a
tour of mainly North American ventures that feature a convergence of
retail and entertainment components.


The planner started by stating that overall, policy and regulations
are becoming more flexible and envisage intensification. Where the older
zoning regime tended to isolate and segregate lands and provided little
flexibility for integrating uses, current documents anticipate
something more urban.

Civil Engineering and Transportation

Infrastructure for the March 41, such as the highway interchange,
were already installed by the Province of Ontario and would not have to
be upgraded for the new Park.

Future Additions

The Park was also mooted as a future home for a media tower.

Media Tower: By Architect Brian Saumure

It had its own functional program, namely:

Media Tower Functional Program

Use Amount Units Floors Area

Retail Space at grade– outward facing or double loaded 10,000 s.f. 1 10000

Lobby 5,000 s.f 1 5000

Retail Space on second level 15,000 s.f. 1 15000

Walk-up feature stairs to second level* 6 2,500 s.f.

Office Space on levels 3 to 4 15,000 s.f. 2 30000

Feature Stair connecting ground to levels 2 and 3** 1

Residential Condos, Apartments, Apartment 15,000 s.f. 3 45000
Hotel, Hotel, Lofts or Co-op on levels 5 to 7

Media Tower– floors 8 to 19 100 100 4 sides 11 440000

Tethered Gas Balloon Nest– 20th floor 1

TGB Office– at grade 400 s.f. 1

TGB bar– 20th floor 4,000 s.f. 1

Observation Deck– 20th Floor 5,000 s.f. 1

Office Elevators 1

Residential Elevators 1

TGB Elevator 1

“Mile High” Running track 1

Parking– below grade 15,000 3 45000

Number of Spaces 45000 300 150

* Royal Bank Pavilion

** Mallorn Centre– vertical street

March 417 Park never got off the ground—it was overtaken by events
not least of which was the opening of the mega-park (called Calypso) in
Limoges (east of Ottawa) and the proposed water park (L’Ottawatta) in
the west end of Ottawa.

Scheduling and Critical Path Methodology

Entrepreneurs and intrapreneurs approach projects very differently
from large, established organizations. In the first sketch show below,
the “European Model”, we show how a real estate project might be planned
out in ultra-cautious Europe.

European Model

In our second sketch, we show how an entrepreneur entering the
development business or an intrapreneur working within an established
firm might ‘crash the program’ by doing many things in parallel.

North American Model

Obviously, the latter is likely to be much faster than the former but
it also carries much higher risk of: non-completion and, perhaps, cost

Whatever way you approach a product or project launch, you will need
to organize and manage not only your own team but often a disparate
group of outside consultants. And that usually requires using
CPM—Critical Path Methodology.

Here are some notes developed by former student, Todd Headon and
myself to help you understand this useful tool. (Note: you can use
Microsoft’s Project Software (which generates .mpp file extensions) or
some excellent free tools you can find on the Internet to assist you
with this. However, we encourage you to persist with this effort and
learn the fundamentals, i.e., the basics of CPM, so you understand it at
its core.)

CPM Notes: Todd Headon/Bruce Firestone Slide 1

CPM Notes: Todd Headon/Bruce Firestone Slide 2

CPM Notes: Todd Headon/Bruce Firestone Slide 3

CPM Notes: Todd Headon/Bruce Firestone Slide 4

CPM Notes: Todd Headon/Bruce Firestone Slide 5

CPM Notes: Todd Headon/Bruce Firestone Slide 6

CPM Notes: Todd Headon/Bruce Firestone Slide 7

Before you begin the backward pass to complete the above flow
chart, you need to know that the the Latest Finish Time (LF) for last
task is exactly equal to the Earliest Finish Time (EF) for the last
task. This is an identity.

CPM Notes: Todd Headon/Bruce Firestone Slide 8

CPM Notes: Todd Headon/Bruce Firestone Slide 9

CPM Notes: Todd Headon/Bruce Firestone Slide 10 or 10

Project Scheduling—Externalities

One of the biggest Design Economics problems is locking down a
project’s schedule, its functional program and design details. I can’t
tell you how many projects are delayed not because the architect and
contractor couldn’t keep to their planned schedule but because the owner
or city changed either the functional program or design detail.

Without locking down the functional program, you have no hope of
completing even a first pass budget and without this you can’t even
begin to consider financing a project.

Functional programming, design detail, working drawings, budgeting,
financing and zoning all often take much longer than actual
construction. So when we do a CPM for a project, special attention must
be paid to these tasks long before you get into the detail of how you
are going to actually build the thing.

The Corel Centre (now SBP) took 60 months to do these things and 22
months to build! Once you have settled on the design, rule # 1 for on
time delivery (and on budget delivery too) of projects is to reduce COs
(Change Orders) to a minimum. In the field, changes kill your budget and
schedule. It is much better to spend more time in the planning stage
than to make in the field changes. Changes on drawings are much cheaper
than changes to reinforced concrete structures.

Numbers are Approximate Only

Palladium/Corel Centre/SBP Case Study: Crashing the Schedule

By using both, a Project Manager/Construction Manager and a GC with a
GMP (Gross Maximum Price), the Development/Architectural team was able
to bring the GC on the same side of the table. Benefits included faster
construction at higher levels of quality.

TCs bid competitively and cost savings* were shared by the Developer, the GC and the PM.

The contingency allowance was used to ensure quality and to cope with contingencies.

Cost savings came from three sources: 1. faster construction, 2. competitively bid subs, 3. innovations in the field**.

Another factor came into play as well: by completing the project
earlier, revenues (and greater revenues) flowed to the Ottawa Senators
and the Building Owners sooner, especially as compared to the much
smaller, city-owned Civic Centre.

Also by completing the building sooner, interim financing costs are reduced.

To gauge these effects of faster construction, see below.

Construction Cost CAD

Land 100 acres $150,000 $15,000,000
Architecture/Engineering $8,500,000
Legal $3,000,000
Infrastructure $40,000,000
Financing Fees $8,000,000
F,F&E $9,000,000
Building, Landscaping, Parking 550,000 s.f $275 $151,250,000

Contingencies $7,500,000

Total $242,250,000

By shaving 8 months off the construction schedule (from 30 months to
22), the Corel Centre enjoyed reduced interim financing costs and higher

Financing Costs Savings

Savings 8 12 10% $16,150,000


Civic Centre $35,000,000

Corel Centre $65,000,000

Increased Revenues $20,000,000.00

Total Savings and Increased Revenues from Crashing the Schedule $36,150,000.00

* Note: the reverse also applies. GCs and PMs may be penalized if projects are late.

** e.g., splitting the building into four quadrants each with their own construction manager and tower crane.

Virtual Home Builder

The Internet is the most important new invention of the last 40
years. It is where electrification was at the same stage, 20 yrs in. It
allows you to create business models for service businesses that are,
for the first time in 10,000 years of recorded history, saleable, in
part, because you can now reverse out the work to customers and

Here are some things the Internet can do for biz models today:

-create custom outputs from standard inputs (e.g. Dell)
-reverse out the work to customers and suppliers (e.g. Reddit.com and Threadless.com)
-match making (e.g. suppliers and customers at the ‘Spa’: manicurists, pedicurists, massage therapists, hairstylists…)
-mass communicate at ~ no cost (Twitter, FB, blog, email, IM, messaging,…)
-crowd sourcing (e.g. Reddit voting on stories/links, Threadless voting on designs)
-relational d-base (e.g. Amazon’s: “See what other people who bought
this book/CD/video/etc also bought?” resulting in increased order size
and overall volume)
-user generated content by customers (and suppliers) (e.g.: YouTube,
Twitter, FB, Reddit & Threadless suppliers: artist community
provides t-shirt designs to be voted on by customers)

For the purposes of this Chapter, I would like to focus on a model
for a Virtual Home Builder. I tried in 2000 to get home builders to do
this but this is a very conservative industry. Here is what I had in

-put lots available and designs online in a physics engine together w/ all options/finishes
-allow everyone and anyone to access and use the physics engine
-clients could go online and choose lot, design, fit up, finishes
(carpet, tile, kitchen cabinets, lighting package, plumbing fixtures,
-put a cash register online too
-consumer is now able to see what granite or concrete counter tops add to cost
-can fool around for 30+ hours—adding cool stuff, taking it out if it proves to expensive, substituting one thing for another
-then hit “submit” button

It turns out that homebuilders fear putting prices online – their
competitors might find out! But have they never heard of “Secret

I also encouraged then to put their CPM (schedules) online: let
customers see where their homes are at and let suppliers see too when
they’re needed for Footing and Foundation, framing, roofing, windows,
dry wall, paint, carpet, cabinets,…

Now an interesting thing may occur: as more options are available
online at ‘Best Homes 4 U’, more users might use the site and then you
have a virtuous cycle something like this:

Best Homes 4 U: Network Effects

Suddenly, Best Homes 4 U is enjoying network effects: as more
products and services become available online for clients to fool around
with, more clients will go online at Best Homes 4 U which then means
that more suppliers (of, say, high end kitchens) will want to be
featured on the site, etc.

Now suppliers to Best Homes 4 U who would normally be paid for
supplying goods and services that go into Best Homes 4 U buildings might
be induced to pay Best Homes 4 U to advertise on or sponsor their
website. This reverses the direction of the flow of cash in the Best
Homes 4 U model and gives you some idea why, in the 21st Century, it is
not always obvious of ‘Who Pays Whom’. Read more on this topic at: https://www.eqjournalblog.com/?p=1481.

But we are not finished with overhauling the business model of Best Homes 4 U. Let’s add:

-Allow lawyers access for e-closings
-Allow lenders access for e-funding
-Now if your WS attracts 10,000s of visitors, you can get your suppliers
and your suppliers’ suppliers to pay for ads so more people will buy
higher-end products (chandeliers, beveled mirrors, granite, counter
tops, home theatre,…)
-more options => more people => more options => more people…  
             -In a virtuous, self-reinforcing cycle (Google is also an
example of this: it’s called Network Effects)
-30+ hours for a salesperson in the Design Centre with clients can become just 60 minutes
-Imagine the productivity increase for homebuilder sales staff, lawyers,
mortgage lenders, the GC, the foreman (Worst problem? Homebuyer
questions about when this or that happens..), suppliers, trades, subs, …

Also, customer satisfaction increases since:

a. they get EXACTLY what they want,
b. they will feel they had a hand-in its creation (like Aunt Jemima Pancake Mix: just add eggs and milk*).

(* The folks who bring you this pancake mix famously had an erroneous
insight years ago—they thought that by adding powdered eggs and milk to
their mix and eliminating the instructions “Just add eggs and milk”,
they could save the busy consumer time and sell more product.

It turned out that homemakers liked adding ‘real’ eggs and milk:
first, they thought it was healthier that powdered eggs and milk and,
second, they wanted to be involved in ‘making’ their kids’ breakfasts.

For most kids, you are what you do for them. By taking this away,
sales went down not up. Best Homes 4 U, by involving the consumer in the
design of their own home are catering to a deep seated need in humans
to ‘buy-in’.

This is a powerful lesson for tech—giving consumers the power to
customize products and services is big business. For example, Dell is
currently using Threadless.com’s platform to allow artists to submit and
prospective customers to select winning designs for laptop covers.)

Here is a complete business model for a Virtual Home Builder. In essence, Best Homes 4 U has become a website operator:

Virtual Home Builder: Complete Business Model

At the core of this model is the physics engine and CPM. The latter
will help the foreman on the job answer the most frustrating question he
or she will get from future homeowners: when will the
be finished?

If they do it right, the CPM will allow the homeowner to check on
this for themselves, allow the suppliers to self-organize (as to when
they need to be on-site to do their work), permit the lawyers to get
ready for an e-closing, to alert the lender when flow of funds for
mortgage financing will be needed and so forth.

Best Homes 4 U can also extend the functionality of their site by
adding— a bidding section where suppliers can bid on sub-contract work
and allowing sub-trades to update the CPM when their tasks are completed
thereby triggering payment, again using EFT.


Functional programming and critical path methodology were good enough
to control more than 300,000 workers and 30 different sites on the
Manhattan project during the war years 1942 to 1945 so it is probably
good enough to assist you with control over the launch of your new
products and services.

Prof Bruce

     Prof Bruce @ 3:05 pm

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   Posted on
       Sunday 12 September 2010  

Standards like, say, a common language, a common currency, a
set of Laws, Internet Protocol, Building Code, Electrical Code, traffic
management, file extensions, fax transmission, temperature, date, time,
distance, weight, volume, accounting, railway gauge, international
trading rules, packaging, container sizes and 18,000 other things
covered by ISO have always made everyone wealthier by reducing
transaction costs, allowing all of us to ‘talk to each other’, reducing
barriers to entry and upping innovation. So why hasn’t the tech industry
got its act together?

What if there was no file extension like .mp3? The nascent digital
music industry would never get off the ground if not for file extension

That’s what standards do. They permit whole industries to be born and
flourish so that we are not trapped in a Universe where ‘more pie for
me means less for you’ and where new options that create new value in
the economy for the benefit of all cannot be developed. If the latter
were true in the modern economy, we would still live in cold caves, ugly
and dead at 40.

Everything that erects walls between us makes us poorer: barriers to
trade and exchange, barriers (in the form of patents, for example) to
the free trade of ideas, barriers created by gated communities of all
sorts, including the real estate kind*.

(* More than half of all new homes in the US in the last 15 years
have been developed in gated communities of one type or another, a
practice not allowed in Ontario. The US will find out that you cannot
have a substantial portion of your populace living in gated communities
with good roads, services, educational institutions and security while
the rest live in a devastated urban blight, like, say, much of the City
of Detroit. The Census Bureau’s 2001 American Housing Survey showed that
by then 7 million households lived behind walls and fences, many more

Walt Disney acquired many of his fine ideas for animated films from
the public domain: Sleeping Beauty and Snow White amongst others. But
today the Disney Company is a leader in pushing the envelope of IP
protection, extending copyright on Mickey Mouse endlessly by lobbying
the US Congress to extend it, for what looks like, from here, forever.

What if Hip Hop Artists and Rappers were never allowed to put out a
remix of old tunes? The world of music would be a poorer place.

We wanted to make a 60 minute, non commercial video using clips from
Hollywood films to demonstrate entrepreneurial concepts like the piece
that Ben Affleck does in ‘Boiler Room’ called ‘Don’t Pitch the B__ch’.
It’s funny, profane and to the point.

But to use it, you need the permission of the film Director, each of
the actors in it, the Producer, the studio, the screenwriter and, the
coup de grâce, every musician and the conductor and composer for all
background music played during the clip. An impossible task.

Hollywood should have a standard laying out what you need to do to
license parts of their films in remixes: huge spurts of economic growth
and creativity would result. As well, a whole new revenue stream would
materialize from ‘thin air’, overnight. A new part of the industry would
be born: film publishing rights. (They should also, of course, have a
separate standard that applies to non-commercial, educational reuses
which would, hopefully, make it free for Profs to use film clips.)

It is no fluke that today the most profitable part of the music
industry is publishing (second is live performances and third, now, is
music sales). It’s because they have made it possible for young people
today to reuse and remix old music and everyone benefits: music
publishers, older artists, younger artists and the listening public. Who
would have believed you could make a rap song using the Archies’ Sugar

(Check it out on YouTube or play it below. Note, none of this would
be possible without my right to freely embed a YouTube video in this
blog or hyperlink to it or DJ OzYBoY’s right to make it in the first
place: https://www.youtube.com/watch?v=_SNJz9D8soM&feature=fvsr.)

It’s creative, fun and would never be possible if the music
publishing industry decided to sue DJ OzYBoY and other new artists into
submission. After all, the US has 5% of the world’s population and 66%
of all its lawyers so, if they train their sights on you, you’re dead.
Just read Tom Wolfe’s ‘Bonfire of the Vanities’ if you want to know what
lawyers can do to your life. It’s legitimately terrible to behold.

They have stupidly been trying to kill the digital music industry by
suing your teen daughters for downloading tunes in your attic, many of
which they already own on CDs they can’t find anymore.

This debate has been around for a long time. Imagine if you had the
only fax machine in the world. Pretty useless wouldn’t you agree? Well,
that happened to us. We had one of the first fax machines in Ottawa but
no one to send anything to. I had to beg our law firm to buy one: a
pretty hefty investment at the time. Our lawyer said: “Why the heck
would we need one of those. Don’t we have couriers for that?”

“But wouldn’t it be great if I could review a document and then send it to you in a minute instead of an hour?”

Or how would it be if everyone had a fax machine but they all had
their own individual standards so you could send but they could never

Why don’t we all use the barter system instead of currency? Because I
am not sure how many sheep a new car is worth and my auto dealer is not
sure how many cars buy a new condo either.

It is amazing to me that different Instant Messenger programs and
Social Media platforms (there are at least 283 of these in current use: https://www.addthis.com/bookmark.php)
can’t speak to each other and why I think that Steve Jobs and Apple, at
the peak of their power and influence right now as I type this, are
sowing the seeds of their downfall by gating off much of the Apple
universe of products and services. It is why I think Google will win the
upcoming war between the two tech titans.

Mr. Jobs is repeating the mistake he made with the Mac in the 1980s
in order to goose near term profits, which he has done unbelievably

Developers now have to write different versions of their apps for
each of Symbian, BB, Apple and Android. Imagine the gains in efficiency
and economic well being if one app could play everywhere?

What if every person on the planet spoke a different language? Be
pretty hard to finish the Tower of Babel or invite a pretty girl out on a

If there were no Tim Berners-Lee and no hypertext circa 1989, there
would be no communication between HTTP clients and servers, no standard
way of communicating using computers and, hence, no Internet, wiping out
a huge part of human wellbeing. It would be a poorer world in every way
without the Internet, wouldn’t you agree?

Of course, Sir Berners-Lee patented his concept and prevented others
from using it without first paying him a royalty for every click, making
him the wealthiest person on the planet. Right? Yeah, in an alternate
universe, thank goodness. All hail, Sir Tim.

Information wants to be free and I prefer the MIT model over the
Harvard one: MIT makes all its courses, case studies, assignments and
research available, free to all over the Internet. They have made a
determination that the ‘delta factor’ that they are really selling is
not their IP but the opportunity to go live into a classroom with their
talented faculty and super bright students, to debate, discuss, question
and learn in much the same way that Socrates and his acolytes did,
circa 400 BC.

“The empires of the future are empires of the mind,” Sir Winston Churchill.

Businesses and business models based on Open Standards will win, I am sure of it.

Prof Bruce

     Prof Bruce @ 7:10 am

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         Why Real Estate is a Unique Asset Class        

   Posted on
       Saturday 11 September 2010  

Real estate has some attributes that are unique to this asset class. Here are ten of them:

1. You can rent real estate to third parties. (Try
that with gold or stocks assuming you are not using exotic financial

2. By renting to a third party you are benefiting
from a ‘Wealth Effect’; every year a renter is paying off part of your
mortgage for you—when you sell that property, the decrease in principal
owing goes into your pocket (assuming that the price you sell for is
more than what you paid for the property plus transaction costs).

3. You receive unearned (and untaxed) rent on self-occupied property after your mortgage is retired.

4. When your city builds infrastructure around you,
when your neighbors improve their properties, when the density and
overall area of the city increases, demand for your property increases
without you having done a thing—as a result your property value benefits
from positive externalities.

5. In many countries, you are allowed to deduct a
non-cash capital cost allowance against income—a significant tax
advantage from holding real estate assets.

6. Real estate generally doesn’t go out of fashion.

7.  Land, unlike, say, ideas, is in fixed supply.
(Many cities are further restricting supply by limiting urban expansion.
Great if you are a sitting owner. Not so great if you are a first time
homebuyer or newly minted entrepreneur.)

8. The amount of real estate consumed per capita has been steadily increasing almost everywhere for a long time.

9. In-migration to urban areas from rural areas is
continuing everywhere as cities benefit from network effects so overall
demand for urban real estate is increasing secularly.

10. Lastly, real estate offers you a unique
opportunity to develop a sustainable business model even if you aren’t a
genius. Real estate develops a ‘concession’ or ‘franchise’ for its
owners because once you own a particular location, axiomatically, no one
else can own at that location.

Everyone knows that real estate is all about LOCATION, LOCATION,
LOCATION but perhaps people don’t realize why that is so crucial. For
you to have a business that will nurture you and your family for a long
period of time, you need to have some type of sustainable competitive advantage.

Imagine how difficult it is to run a company like Apple or how
difficult it is to paint like Rembrandt. Not everyone can be Steve Jobs
or create artworks like Rembrandt Harmenszoon van Rijn. Real estate held
in fee simple (the highest form of title an owner can have) gives you a
franchise forever that tough competitors like Microsoft or Apple or
Google can’t take away from you—IT’S A BUSINESS MODEL FOR DUMMIES!

A friend of mine owns a great site at the corner of Woodroffe and
Carling Avenues in the City of Ottawa. He comes from a tech background
but his chosen personal investment vehicle is real estate. He
and his partner built a new, high concept strip mall (not intended as an
oxymoron) on top of the old foundation of a previous building and,
because of its high traffic location, great visibility and design
features, they get rents that are about 1/3 higher than other nearby
properties. I mean how difficult can it be to own a great location and
have people come up to you, one after the other, to offer you top dollar
for your space, year after year?

Prof Bruce

Postscript: To read more about this, see: If I were King (or Queen) Of Exxon (https://www.eqjournalblog.com/?p=1311) and Why Invest In Real Estate (https://www.eqjournalblog.com/?p=434).

     Prof Bruce @ 10:11 am

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         Democratic Abuse        

   Posted on
       Thursday 9 September 2010  

The Growing Imbalance between City Planners, Developers and Community Activists— Democratic Abuse and Re-Engineering Approvals


Once upon a time, town government or city-state government was based
on the Athenian model of participatory democracy. Citizens and land
owners met with town elders to plan the development of their
communities—who lives where, what type of activities would be next to
each other, where the town markets would be, places of worship,
fortifications, tanneries, milliners, coopers, blacksmiths, artisans,
guild workers, merchants, nobles, and so forth.

Problems between neighbors arose from time to time. “Mary’s goat is
eating my vegetable patch and it should be staked,” says Tom. “He should
fence his garden—my goat, Mabel, needs to be free to forage for food,”
replies Mary.

The town elders would meet with Tom and Mary, hear both sides and
then render a decision (Mary’s goat shall be free to wander—but she
shall pay half the cost of fencing in Tom’s garden).

Speedy resolution of such issues stopped them from festering and
making enemies amongst neighbors. Once you start arguing with your
neighbor, one of you has got to move. Nothing is worse than coming home
from a workday and not being able to look your neighbor in the eye, wave
‘hello’ or stop and have a chat.

It’s worse than this though. Municipalities today rely on 1-800
snitch lines to spot bylaw infractions—neighbors are encouraged to rat
on each other. This is not Greek city-state participatory democracy; it
is Democratic Abuse.

One backyard in Kanata backs onto the Kanata Lakes Golf Course. It is
surrounded by a four foot retaining wall topped by a six foot high
wooden fence. You would need to be 10 and a half feet tall to see in the
rear yard. Yet within three days of erecting a clothesline there, a
bylaw enforcement officer was at the front door with a fine and a
warning. (At that time, clotheslines were not allowed in Kanata—they
were said to detract from property values.)

It was never determined who reported the By-Law infraction but the
clothesline was not removed until the family’s last baby was out of
diapers—the smell of sun dried diapers not to mention the environmental
benefits of not running a clothes dryer six hours a day outweighed the
threat of By-Law fines.

When the West Terrace development around what was then called the
Palladium (now the Corel Centre) was being considered, many meetings
were held with local planners about the concept design.

Along Palladium Drive, nightclubs, cafés, shops and other services
fronting on the street were shown. “But where are the six metre
landscape buffer strips, the double loaded parking aisles, the side yard
requirements?” they asked.

The plan called for a mixed use place—somewhere that people could
shop, work, live and play … a walk about place. But it wasn’t in the
zoning codes so it couldn’t be allowed.

West Terrace now called Kanata West Concept Plan Area

West Terrace—Circa 1989 Mixed Use Plan

Happily, 15 years or so after the original concept was proposed, West
Terrace morphed into the Kanata West Concept Plan involving nearly
2,000 acres of new development around the Corel Centre which embraced
the principles of neo-urbanism and, this time, it was approved.

Kanata West Concept Plan, Circa 2002

Having said this, James Howard Kunstler in his influential works on neo-urbanism (The Geography of Nowhere and Home From Nowhere) recommends that cities ‘burn all their zoning codes.’

Let cities develop organically; let them grow like seeds out of the
ground. The world’s great cities like Paris, London, San Francisco,
Sydney, Tokyo and Toronto all have uses mixed together. It isn’t unusual
to find along a boulevard in Paris a patisserie, a corner store, a
print shop, a legal office, a café, an apartment block, a butcher shop, a
print shop, an internet café, an artist colony, an office building, a
plaza, a small park, town homes, even the occasional magnificent single
family home.

What are the constraints to growth? There are many; the most
significant of which is nimbyitis, government interference and
intervention, bureaucracy growth, special interests, pseudo
environmentalism and democratic abuse together with rule of the mob.
These impose constraints on greenfield projects and constraints on

Democratic Abuse—Some Examples

Carp Water and Sewer

Dr. Roland (Roly) Armitage is a war hero and former Mayor of the
former Township of West Carleton. When the Mayor heard that wells in the
Village of Carp were polluted and could pose a health hazard to the
residents there, he worked with Ontario’s Ministry of the Environment
(MOE) to replace the wells with piped water from the City of Ottawa. To
retrofit the Village of Carp required the ripping up of all the streets
and not only installing piped water but sewer lines as well. Hence, the
Village of Carp, it was proposed, would get piped sewer and water plus
all new roads.

What is a home worth with no access to clean water? Probably, it has a negative value.

The cost of this retrofit was in the order of $35,000 per home but,
fortunately, the Mayor had negotiated an arrangement with the MOE to pay
for 90% of this. Homeowners would pay the balance and, even better for
them, they could elect to pay this in equal installments over ten years
with no interest.

At a public meeting attended by several hundred people, the
arrangement was explained but found wanting by some of the residents of
the Village—they seemed to want 100% of the costs covered by someone
else. After hours of often angry debate, the Mayor banged his (large)
fist down and said: “That’s it, Carp gets water and sewer.” The debate
was over, the work got done and Carp residents have benefited
financially and health-wise for years. But a handful of residents warned
the mayor that they would ‘get him’ and in the next election, they did.
A majority of Carp residents voted against Dr. Armitage and he was

In municipal elections, often less than 30% of eligible voters
actually vote. Thus, a small, dedicated special interest group can wield
a disproportionate power in a Ward. If the Ward has 20,000 residents,
for example, and, say, 40% of them are under 18, then there are 12,000
potential voters. If 30% of those vote and if there are three
candidates, then it is theoretically possible to get elected with 1,201
votes. So a few hundred angry residents can make a huge difference to
the outcome.

That is why in some cities, there are local Councillors that
represent Wards and then there are Councillors who are elected at large
to represent the interests of the whole City and who presumably are not
subject to the influence of special interest groups.

Arrowhead Springs

In 1999, two Carleton University graduates were looking for a site to
start a small amusement park—go-karts, sports games and other
attractions similar to the existing facility in the west end of Ottawa
in Stittsville.

They were encouraged by the former Mayor of Cumberland to look east
for a site since the west end of the City of Ottawa was getting most of
the attention (technology jobs, entertainment facilities (e.g., the
Corel Centre) at that time. They found a 50+ acre site on the Ottawa
River that was affordable and the right size for their proposed
park—Arrowhead Springs.

Best of all, the Official Plan (OP) of the City of Cumberland
permitted just these types of uses even including a specific mention of
“Go-Karts” as a permitted use. However, the local planner indicated that
the Zoning code was not in conformity with the OP and thus a rezoning
would be required.

After briefing City Council and the then current Mayor and all of
their next door neighbours, the two men and their consultants appeared
at a Public Meeting where they were greeted by over 200 angry residents
from a community more than a kilometre away. These people claimed that
the Go-Karts would create undue noise, that the Go-Karts would kill
their children, that the park would create traffic issues and so forth.
They accused Council and the Mayor of immoral behaviour.

The Consultants presented their evidence that local Highway traffic
was many, many times louder than Go-Karts, that Arrowhead Springs could
not possibly be seen from the community more than a kilometre away, that
the traffic volumes represented something like less than half a percent
of the local traffic, etc. Out of three hours of ‘discussion’, less
than 20 minutes was spent on the project.

Even though the OP permitted such uses, the project was essentially
dead. A developer simply can not have hundreds of dedicated, angry
residents opposing a project. If they had forced a vote, there seems
little doubt that Council would have turned them down even though they
are bound by Provincial Statute to have their zoning By-Laws conform to
their Official Plan (not the other way round). The project would have
surely gone to an expensive OMB Hearing and, even if they had won, there
could have been expensive conditions imposed on the project by the
Ontario Municipal Board and, on opening day, they could have faced
picketing by angry people.

This is not the way to start an amusement park. The project was
withdrawn and the lands are now used for five homes on 10 acre lots—a
gross underutilization of a precious community resource—land and there
are still few jobs in that area for teenagers and not enough for them to
do. NIMBY’ism wins again. Now that is Democratic Abuse.

Remember, an appeal to the OMB costs the appellant practically
nothing. Some appellants have come to hearings with no evidence and no
prepatory work and won. One would think that in the British system of
justice, no evidence would automatically mean no case. However, they
simply cross-examine the proponent’s experts and try to pick holes in
their evidence.

The proponent, on the other hand, is held to a much higher standard
and must hire and file expensive reports from consultants—legal,
planning, traffic, soils, archaeological, geo-technical, engineering,
servicing, economic and others. Then these experts must attend the,
often lengthy, hearing and present their evidence and respond to cross
examination. This is a major expense for the proponent. The appellants
need not hire anyone—they may represent themselves. It is an unequal
battle—costly for one side and practically free for the other. Perhaps
the most important ally of appellants is delay; they realize they can
use the appeals process to create undue delay, which can ultimately
defeat many projects by causing such huge increases in costs for
proponents that they drop the project.

The worst of it is that if many of these projects were to actually go
ahead, property values would usually increase. More employment in an
area and more density usually mean that property values go up not down
because demand in that area for housing increases and so do prices.
Thus, the primary fear of most NIMBY activity—that property values will
fall—is false.

99 Town Houses

In 2005, a proposal by Minto to re-zone an old school site from
institutional use to residential use suitable for 99 town homes was
turned down by City of Ottawa Council. Instead, the site was down-zoned
to permit 55 single family homes in the face of heated opposition by
nearby residents. This decision by Council was in not in conformity with
the recommendations of the City’s own staff and will have the
unfortunate (but not rare) effect of the City’s staff supporting the
developer at an OMB Hearing in opposition to its own Council.

Yet the City’s new OP calls for the densification of the city—both
up-zoning development land to permit more housing to be built on the
same amount of land and more development within the existing urban
region. This is a laudable goal.

However, if a dedicated group of concerned citizens show up at a
public meeting, as happened with the Minto proposal, out goes City
policy and in comes the Not-In-My-Back-Yard philosophy.

Densification and Intensification of the City of Ottawa

The City’s new Official Plan (adopted by City Council in 2004 but not
yet having come into full force and effect since there are numerous
objections filed with the OMB that have yet to be dealt with) seeks to
densify and intensify the urban fabric. Essentially, the new OP
identifies a fundamental problem—Ottawa suffers from a density deficit.

For years, City Council and their Staff have viewed developers’ plans
with an eye to increasing public space, increasing park land,
increasing set backs and decreasing the number of residential units or
the built-up area of commercial space. Developers, with a concern for
their bottom line, wanted more density and City Councillors and Staff
felt it was their job to mitigate this.

However, the new OP focuses on the idea that the City might be able
to generate urban spaces that are more interesting, more diversified,
more sustainable and also make best use of a scarce resource—land by
embracing higher densities and greater intensity of use. The latter
refers to the idea that Ottawa not only suffers from a density deficit
but also a lack of streetscapes that reflect a multitude of uses. Why is
it that new suburbs can’t have a corner store that residents could
actually walk to? What prevents new suburbs from having a small office
building inside the community that might provide critical services like
doctors’ offices, legal offices, tax preparation offices (ugh) and so

Everything old is new again—suddenly the idea that mixed use
communities, walk-about types of places that were constructed in the
1930s might be a good idea for cities like Ottawa. And higher density
cities are also less expensive to service with things like sewers, water
mains, public transit (the O-Train!), natural gas, roads, high speed
internet, cable, what have you…

Could it be that developers’ goals and the City’s goals are coming
into alignment? Certainly, the recent condo boom in downtown Ottawa and
the Byward Market and the coming boom in places like Westboro suggest
that this is so.

What about existing residents, how do they feel about densification
and intensification of their neighborhoods? Well, many of them feel
threatened. They are concerned that more density and a mixing together
of commercial and residential uses could lower their property values.
Hence, there can be a strong not-in-my-back-yard reaction to new
proposals in existing urban areas.

What can developers do about that? Certainly, one way to deal with
NIMBY concerns is to educate folks—meeting with them and explaining the
proposal in detail tends to work well. It is a process of education. It
doesn’t hurt to point out that one of the most pleasant places in all of
Ottawa to live (the Glebe) has things like: gas stations, corner
stores, offices, shops, metal bashing places (auto body repair), granny
flats, rooming houses, in-home apartments, etc and property values there
have gone nowhere but up for the last 80 years. In fact, million dollar
homes stand next to ‘cottages’; student inhabited homes are close to
executive homes owned by sharp legal minds (i.e., lawyers) … And yet no
one seems to mind.

The Greeks said it best—everything in moderation. The reason density
is so feared is not just a concern that property values may fall but
there is a cultural memory of ghettoes in places like New York City
(and, yes, Ottawa too) dating back to the 19th Century and the beginning
and middle of the 20th—places full of disease, slum landlords, crime,
poverty, lack of sun, lack of parks, lack of schools, lack of proper

That is not something City of Ottawa citizens need to be concerned
with at this stage. Before the City was amalgamated, Glen Shortliffe
said something like this to the media: ‘I have lived in Tokyo, Sao
Paulo, New York… and let me tell you, Ottawa is no mega city.’ How
true—Ottawa is still just a big town—11 municipalities came together and
the total population is only about 785,000 spread out over a huge
geographical area. Not one minute south of Arnprior and you are already
in the City of Ottawa!

Developers, the City and residents need to work together to find the
right balance. At this time, the City needs to address the density
deficit and bring back a better type of urban design that allows people
to work, shop, live and entertain themselves within their own
neighborhoods. It’s better for their physical health (the average
American walks just 350 yards a day and Canadians aren’t much better),
better for the environment, better for the fiscal budget of the City and
better for developers’ bottom lines too.

Challenges Ahead

There are many challenges ahead for our city-states. It should be
clear from this discussion today that city-states are pretty important
to the economic and socio-political future of nation-states.

Let’s have a look at some of the biggest challenges ahead.


When systems become too large and too complex, they have a tendency
to break down. Even before the events of September 11th, 2001, the hub
and spoke system of US airlines was becoming too complex and was
operating too close to capacity. It became inherently unstable and could
be easily disrupted.

Cities must operate within the limits of complexity of large systems.
The diagram below shows what happens as systems become larger.

Complexity Can Lead to Failure

As the number of components increases, complexity probably increase
linearly. After a certain threshold complexity increases non linearly.
Entrepreneurs can successfully operate in the range from n(1) to n(2).
As the number of components increases, however, and complexity
accelerates, you need large bureaucracies and a great deal of system and
process to be able to cope.

Entrepreneurs often assume that they can scale up their enterprise
with more of the same seat-of-the-pants management style (Mitel’s SX
2000 comes to mind). This is not so.

NASA’s moon shot and the early years of the US nuclear missile
program are examples of this. Critical Path Scheduling techniques were
invented to assist the latter, which was mind bogglingly complex.

Once you get beyond what one person or a very small group can hold in
their minds, you get into a no go realm, where catastrophic failure can

Calcutta comes to mind.


Wherever large groups of people congregate, there is the possibility of terrorism.

There may be pressure to disperse activities—downtowns may suffer,
suburbs may flourish. There will be a tendency to build at lower
densities and lower building heights.

There is no doubt that dispersed populations are harder to hit with
conventional or biological weapons. It would be too bad if we can’t
build great cities which require density to achieve the kinds of synergy
that we talked about above.


Cities are a key to environmental protection. By putting people in
vertical cities, there is a chance to control their emissions.

The emptying out of the capital city of Cambodia by the Khmer Rouge
showed what happens when more than two million people are loosed on the
countryside. Every woodland is destroyed and countries that deforest
themselves are economically ruined.


Cities need energy to work, clean, dependable energy. This is probably the biggest challenge ahead for cities.

Languages change very rapidly and there is no way to reliable
communicate with people who may live here 500 or 5,000 years from now.
It is an intractable problem so it is very difficult to store nuclear
wastes for 100,000 years in a safe manner—people have short attention
spans. Energy solutions are needed that don’t require this kind of
persistent attention. Energy that doesn’t cause climate change either is
also required.


City-building is an exercise in optimism. The NIMBY crowd hate
change—they are motivated by fear and greed: fear of change and greedy
to protect their property values.

Dennis Miller defined an environmentalist as someone who has a cabin
in the woods and a developer as someone who would like to have a cabin
in the woods.

Anytime you freeze the city’s boundaries and resist change you get
the bubble economy of Japan circa the 1980s. You limit the creativity of
folks and damage your economy.

Private property rights and a financial system of unlocking real
capital values underpins our city-state economies and are the best
sources of protection for the environment. The former Soviet Union was
one of the worst environmental offenders and third world economies have
no way of placing home and land mortgages which is the primary source of
entrepreneurial micro capital.

Political Structure

In Canada, there are only two levels of government under the BNA
Act—federal and provincial. Municipal governments are wholly creatures
of the provinces and have no independent constitutional existence.

Their sources of finance are largely tied to property taxes which limits their scope of action.
Public Transport

Without light rail or subways, cities will suffer. Cities can’t
finance these pieces of infrastructure and they don’t push high enough
densities to make them work properly.

Democratic abuse is rampant at the local level—politicians are afraid
to make decisions because a very small number of upset voters can
change election results since so few people bother to vote in municipal

Zoning Codes

James Howard Kunstler said if you want to build Livable Cities like
your parents and grandparents did, you first have to burn your zoning

Urban design is too important to leave to urban planners.


Many cities and towns are involved in the process of re-engineering
the way they serve their clients and their residents. Their efforts are
directed at:

Making sure that their staff are working smarter not necessarily harder;
Making sure that they are able to give their clients, service levels
that are comparable to the ‘best of breed’ for cities or towns of
comparable size or cities and towns that are in competition with them;

Making sure that they are making wise use of ratepayer taxes.

Essentially then, these re-engineering efforts have three stakeholder
groups—a) city staff and city contractors who actually do the city’s
work, b) clients such as homebuilders, home renovators, developers,
persons who require services (everything from getting a dog license to
collecting their garbage or paying their property tax bills) and c)
ratepayers. The idea behind re-engineering city processes is not to make
city staff or city contractors somehow work harder but to assist them
in working smarter.

To that end, it is incumbent on City Managers and City Councillors to
take the view that the fundamental way the City works needs to be
looked at from time to time—no business or institution can remain
unchanged over long periods of time. Every organization needs to
overhaul the way it does things—it isn’t good enough to simply say: ‘Can
we work more hours doing the same things over and over again?’ Instead,
re-engineering means we have to ask three important questions for
everything we do as an organization:

Are our existing systems or processes the best way to fulfill our goals and objectives?
Are our goals and objectives the right ones for us at this time?

Is there another way to fulfill our goals and objectives?

Re-engineering is one way for cities to escape the trap imposed on
them by limits on how fast they can in crease their revenues and how
well they can contain rising costs. The old responses—cutting services,
reducing service levels, raising taxes, trying to get staff to work
longer hours—are often self-defeating leading to city decay and negative

Building Permits

The issuance of building permits is an important job for cities and
towns. It leads to an increase in the town’s or city’s assessment base.
It is important to understand that increases in property tax revenues
for towns and cities derive from increases in both the tax rate and the
assessment base. What this means is that even if a city can’t increase
its tax rate (because of opposition from its residents and businesses or
because the city would then become uncompetitive with neighboring towns
or other cities with which it competes), its property tax revenues will
grow if its assessment base grows because of new construction.

Consequently, timely issuance of building permits is a key mission objective for cities and towns.

Building permits are the economic backbone of any city or town. Being
able to process these efficiently and effectively is important in terms
of providing competitive service levels to clients (builders and
renovators) while at the same time making sure that public and private
safety are ensured.

But the building permit process is probably one of the areas that
cities and towns could best look at to streamline and re-engineer.

Let’s ask the three questions for the City of Ottawa.

Are our existing systems or processes the best way to fulfill our
goals and objectives? From a macro point of view, the City of Ottawa has
seen its building permit applications grow from $1.2 billion per annum
to $2 billion in the last decade but staffing levels remain essentially
flat. That means that two things can happen—either staff have to work
harder and longer to maintain the same service levels of a decade ago or
wait times have to increase. Evidence suggests that wait times for
building permits have greatly increased in the City of Ottawa—a simple
permit for a medium sized home can now take 12 weeks to as much as 20+
weeks in some areas of the City. Staff are stressed and beleaguered by
their clients; economic growth is curtailed; competitor cities and towns
like Arnprior, Brockville and Carleton Place are reaping the benefits
by having both lower costs and faster turn around times; the City’s
property assessment base (and hence its property tax revenues) are not
growing as fast as they should.

Are our goals and objectives the right ones for us at this time?
Well, we still need to ensure public and private safety levels so the
building permit review and issuance per se is not going to go away. So
we need to see if we can re-engineer the process.
Is there another way to fulfill our goals and objectives? Maybe there is. Read on …

An Alternative

Rather than asking City staff to work longer hours or to somehow work
faster, or simply throwing more money and resources at doing more of
the same (i.e., hiring more staff or upgrading computer systems, say)
maybe we should be looking at redesigning how we approach building
permit issuance?

One of the ideas that comes to mind is to stream building permit
applications. Does a building permit application for a residential
addition really have to go through the same process as a major
commercial project? Do we really need 45 copies of those plans and 45
separate approvals too? Probably not.

So this suggests that we might have three different queues for building permit applications:

a)     one for large, complex projects;
b)     one for small, straight forward projects and other projects;
c)     one for highly rated builders.

The first service channel would use the existing permitting
system—all the myriad government agency review and approvals would have
to proceed.

The second service channel would have its own dedicated staff who
would effectively be helpers for relatively unsophisticated applicants
(largely homeowners)—they would be part of a more effective process of
getting approvals by being involved earlier in the process, by becoming
consultants, if you will, to clients.

The third service channel requires a bit more explanation. Does it
make sense to require home builders who construct a lot of homes to
apply for 300, 1000, 1,500, whatever number of building permits and go
through the same process as the smaller home builder who completes 5 or
10 homes a year. Is the 300th building permit for their tract houses
really that much different than the 50th?

Perhaps it would make sense to take these permits out of the system
entirely? Why not allow home builders with a high rating to self
certify? Their Architects and Engineers are covered by Errors and
Omissions Insurance in any event. Let their Architects and Engineers
certify and sign and issue their own building permits. Taking 1,000s of
permits out of the system—now that is re-engineering in a big way.

Builders would be rated by the City and if they somehow abused this
privilege, their rating would drop and they would have to go back in the
queue along with the small builders and wait their turn—a heck of a
punishment in terms of its economic impact on their organization. They
would think twice before doing anything that would negatively affect
their rating.

The City would still have inspectors do their job on all projects and
the high rated home builders would still be required to pay for this
and their building permits.

Ontario currently allows Registered Code Agents (RCA) to be employed
by cities in the Province to review building permit applications.
Engineers and architects should be encouraged to take the required
courses and add the RCA designation to their credentials and become
Certified Building Officials. This would be a great additional service
(and fee) for their clients and speed up the building permit process—and
nothing has a greater impact on the real estate industry than time.

Australia has gone further and privatized building permit issuance.
Markham (Ontario) has started rating builders on the completeness of
their building permit applications. How can cities expect that their
clients to get better if there is no feedback from the city?

Think about the Internet auction site, EBay, for a minute. Someone in
Ottawa can purchase classic Barbie Dolls for their child from a vendor
in California, pay for it using their credit card or Pay Pal account,
and have a very high degree of confidence that they will actually
receive the purchased goods from someone they have never met and never
will meet.

EBay achieves this level of trust in their community through their
rating system—buyers rate sellers and vice versa. Cities need to embrace
these kinds of feedback systems to improve through the use of
calibrated measurements not only their performance but all those they
deal with—municipal clients and suppliers alike.

It wasn’t that long ago that cities felt that they should provide all
the services themselves; for example, they used to pick up garbage with
city workers. What many cities have found is that they are going at
setting public policy, good at regulating quality and service levels but
bad at operating or maintaining or constructing things. What
re-engineering suggests is that we all should focus on what we do best
and the ‘doing of things’ may not be what a city is best at; so they
should stop doing ‘it’.

This is just one example of re-engineering but imagine what the results could be:

* faster service times for large, complex projects because 1,000s of
conventional permits have effectively been removed from the system;
* lower costs for high rated builders and much faster building permit
issuance, the latter probably being more important to their economic
well being than the former—time is everything in the construction
* less confrontation between stakeholders, less stress on staff and
higher levels of service for all including small builders and the home
renovator, for example;
* the City of Ottawa better able to compete with surrounding municipalities and international competitors too.

Conclusion and Recommendations

How can the imbalance between local concerns and development of the City be redressed?

Here are a few recommendations for consideration:

Education. It is essential that developers and City staff as
well as City Council educate the public about the benefits of
densification and intensification, not only to the City as a whole but
to the local area. Residents need to know that their property values go
up not down when their neighborhoods become denser and more of a mixed
use community (i.e., more intense) as well because demand for their
housing increases.

Evidence. Appellants should be required to present expert
evidence to City Council and Committees of Council, failing which they
should not be permitted to appeal Council decisions. Simply stating that
they are opposed to a project because of hearsay, rumor, innuendo,
anger, frustration, guess work, concern, etc. should not be enough to
either halt a project or appeal it.

Bond. Appellants should be required to post a refundable
bond upon launch of an appeal. If their appeal is found frivolous and
made only for the purpose of delay, and costs are awarded to the
proponent, they would forfeit all or part of their bond.

At Large Councillors. Currently, only the Mayor is elected
by a City-wide vote. In the next realignment of the Ward system,
consideration should be given to electing some Councillors at Large.
This would reduce the influence of special interest groups and diminish
their ability to threaten ward Councillors at the next election.

Timelines and Consultants. The Province has established
timelines for planning processes through the Planning Act. These
timelines are often frustrated by a call, either by the City or by
Appellants, for further study and reports. The City itself hires an
inordinate number of consultants, often because City staff either do not
have the time to do the work, do not wish to do it or because they do
not wish to take responsibility for controversial issues. The City
should adhere to these timelines, take responsibility for
decision-making using common sense, reduce funds expended on consultants
and not require proponents to undertake frivolous studies.

Negative Property Taxes. If Appellants can demonstrate that
their property values are actually negatively affected, it is possible
to redress this through SAZs (Special Assessment Zones) whereby the
proponent’s property taxes are increased and the increase is
redistributed to adjacent properties. This is revenue neutral to the
City but will cause adjacent property values to increase since they now
pay less realty tax.

Re-engineering. The example of re-engineering of the
Building Permit Process should also be applied to rezonings and official
plan amendments. Not only should minor variances and severances be sent
to the City’s Committee of Adjustment (COA) or Land Division Committee
but minor rezonings and even minor OPs should be sent there as well. The
COA is more like old fashioned town meetings where neighbours can get
together in expedited proceedings in front of experienced, local
personages to resolve matters. A greatly expanded role for the Committee
of Adjustment would reduce costs for all, result in faster decision
making, allow our cities to develop in a more organic way and be fairer
to all parties.

Copyright. Bruce Firestone, Ottawa, Canada. November 2005.


It was the summer of 1999 and the new millennium was on the horizon.
Arrow Head Springs was set to revolutionize the amusement/entertainment
market in Ottawa/Gatineau.  It was designed to be a park where people
do things, as opposed to most other entertainment in Ottawa that has
things being done to people.  The park was to incorporate many seasonal
activities.  The main attractions to the site included several mini-golf
courses with various themes (family, recreational, “pro”), a go-kart
track similar in style to many found in the US market with longer
tracks, faster cars and many additional track features not found in this
area (bridges, overpasses, underpasses, etc), a large bumper boat pond
with dozens of boats including several double riders, interactive and
instructional nature trails winding through the site with several themes
(palaeontology walks, local geography trails, history of the Ottawa
River, etc).  Also onsite we were to have several tenants who were to
cohabitate the site including a flagship building for Little Ray’s
Reptile Adventure (LRRA) that would have complemented the site.  The
site was also to have had a snack bar with refreshments for the guests.

This project was undertaken by Manchester Development Corporation
(MDC) with the key players being Dr Bruce Firestone, Fred Carmosino and
myself.  We understood the need for family-oriented activities in Ottawa
and more importantly in the city’s east.  This project was to be a
destination location in and would be a draw for the entire Ottawa region
and beyond.

AHS was to be situated on a 50-acre parcel of land on Hwy 174 (Old
Hwy 17)/Tran Canada Highway) at the far-eastern edge of the former
Region of Ottawa Carleton in the Township of Cumberland.  This route is
the scenic eastern access to the Nation’s Capital from Montreal (only
150 kms east).  After extensive research this site was chosen for a
number of reasons.  First, it was important to have a water feature
and/or water access to the site in order to expand with future
recreation-tourism activities.  This site was the largest privately held
parcel with water frontage on any of the local waterways (Rideau and
Ottawa Rivers).  Because of Ottawa’s stature as the Nation’s Capital,
much of the waterfront is owned or controlled by the National Capital
Commission or the Federal Government who prefer to run roadways along
the water than to properly develop them to a higher and better use.  The
balance of the waterfront has already been developed through the years
for non-congruent waterfront communities with private access and
ownership.  We viewed the rivers as great community assets and this
project would have provided a quasi-public access to the river frontage
for recreational purposes.  

Another reason for choosing this location was the demographics of
this area.  The eastern portion of the City is essentially a bedroom
community for the federal public service.  There are several key reasons
why this is important.  This area has the highest per capita disposable
income in the region.  Also, much of this population is families with
children.  When this project was proposed (and to this day), the area is
underserved with family-oriented activities.  It became clear to us
however, why that is the case.

The former Region of Ottawa Carleton Official Plan identified this
site as a location that fit the description of the uses we were
intending.  In fact, the OP designation included references to mini-golf
and go-karts as potential uses for the site.  The Vendor had earlier
attempted to have a subdivision approved on this site.  His application
had been rejected based on the lack of good quality drinking water.  The
existing zoning was residential.  In order to have the project approved
for our use, it required an amendment to the zoning by-law.  Before
commencing the technical process, we solicited the feedback of the local
political players.

The local MPP at the time was former long-time mayor of Cumberland
Township, Brian Coburn.  For many years preceding our project, Mr Coburn
had encouraged Mr Firestone to bring some of his development projects
to the eastern portion of the Region.  It was obvious to Mr Coburn that
his constituency needed more complimentary uses for the large
residential community.  Mr. Coburn was very much in favour of our
project and believed it would be a major asset for his riding and that
the Official Plan had intended a project of this nature for the site.  
He recommended that we also speak with the mayor at the time, Jerry
Lalonde.  Mr. Lalonde was a long-time councillor for this Township and
an area businessman with a large horse ranch just a few kilometres south
of the proposed site location.  Being an area businessman and a local
politician, Mr Lalonde saw AHS as a great opportunity to give his area a
more positive reputation than simply a bedroom community.  Mr.
Carmosino, Mr. Firestone and I met Mayor Lalonde at his ranch and
presented the concept of the project to him.  His response was mixed.  
As an area entrepreneur, he believed the project to be viable and
exciting.  As a local political figure, he had a few reservations about
the sentiment of the area residents.  Immediately adjacent to the site
on the west is a small incongruous middle to low-income community of
early 1980s homes: LeVillage Boise.  Mr Lalonde recommended that we do
our due diligence and speak to the residents of this community and
present our concept plan to them.  He believed that any opposition to
this project would likely originate there.  This was outside of the
requirements for public consultation as set out in the Planning Act but
we understood the importance and took his advice.  It took one week of
evenings but Mr Carmosino and I went door-to-door to every home and
spoke with the residents and presented our concept plan to them.  Many
of the residents had similar concerns regarding noise and trespassing.  
These concerns were easily overcome with changes to the proposal that
included significant natural buffering and a fenced perimeter.  Many of
the residents with young children (approx 70%) saw the project as a
potential part-time seasonal employer for their children and as such saw
great value in having the project there.  In an attempt to meet all
challenges and opposition head-on in advance, we took it upon ourselves
to meet and greet the residents immediately across the highway.  There
were a few scattered homes and the overwhelming majority saw our project
as a welcome neighbour.  They were not very concerned with noise as
they were accustomed to the significant traffic flow on the highway
primarily from large transport trucks that use the old two-lane highway
as a short cut to Montreal and points east.  Upon completion of this
work, we were convinced that there would be very little to no opposition
from our neighbours, as they had appreciated our open and up-front
manner for presenting the project.  We expected them to follow our
project with interest through the planning process to ensure that it
evolved as promised.

At this point, we met with the local planning staff.  The director of
planning for the eastern portion of the former region was Steve
Cunliffe.  Mr Cunliffe had been involved in the planning department at
the City of Cumberland for a number of years and was very familiar with
the eastern portion of the Region.  His reception to our proposed
project was the expected response from a career bureaucrat.  Provided
that the technical aspects of the project met with those in place, he
had no objections.  He did however mention the Not In My Back Yard
(NIMBY) factor and warned us to be prepared for the area residents.  He
was impressed with the amount of work we had already completed in that
area however.

From that point on, we were directed to deal directly with the head
of planning for the City of Cumberland, Karen Currie.  Ms Currie had a
level of enthusiasm for our project that is rarely seen in a bureaucrat
and particularly in a planner.  Ms Currie’s enthusiasm may have been
derived from a couple of sources.  As a parent living in the east end of
the Region, she saw the value this project would have on the quality of
life of area residents, herself included.  The vision of AHS also
assisted her in resolving a challenge she and the by-law staff were
experiencing with a resident the City of Cumberland.  Once she saw our
concept she mentioned to us that she had a great accessory use for our
site and likely a tenant who would be interested in co-habitating with
us.  The people she was referring to were Paul and Sheri Goulet, the
passionate couple behind Little Ray’s Reptile Adventure (LRRA).  At that
time, the Goulet’s were operating their unique reptile and insectarium
out of the basement of their home in an urban area of Cumberland.  The
great majority of their business at the time was in transporting these
reptiles, including Burmese Pythons, crocodiles and many other exotic
reptiles, to local schools, fairs and residences for children’s birthday
parties.  They had no intention of continuing their operation in their
home and Ms Currie and the by-law enforcement staff had no interest in
allowing them to remain there.  The Goulets had yet to find a proper
setting for their permanent location and the by-law staff had no
interest in evicting the reptiles from the home because they really had
no intention of taking the reptiles in their custody.  The Goulets were
very interested in our project as they saw the potential of being part
of a project of this size and we were excited as their participation
added an off-season use for our site that would dramatically improve our
cash flows and provide good diversification of activities on the site.
While the inclusion of LRRA to our site was not a condition for
approval, Ms Currie did appreciate the efforts we were making to
incorporate them.  She also saw the technical value of this project as
the highest and best use for the site under the OP designation.  We then
were passed to Chris Brouwer who was a planner with the City of
Cumberland for a number of years.  With instruction from Ms Currie, Mr
Brouwer was set to facilitate our journey through the rezoning and site
plan approval process.  In spite of being a resident of the Region’s
west end, as a father of two Mr Brouwer saw the value of the project and
the need it would fulfill in the Region.

With the approval in principal of the key local political players in
place and the support of the planning staff to facilitate us through the
process, we undertook to complete the necessary due diligence including
soil and transportation engineering studies as well as a more detailed
site plan in order to proceed with the formal public consultation
portion of the process.  Our initial public consultation was held at a
local hockey arena in a meeting room.  Mr Carmosino and I attended this
meeting with a large-scale, colour site plan of the project as well as
several of the technical studies we had prepared.  Also in attendance
were a number of our technical consultants and our designer along with
Paul Goulet.  Notice of the public meeting was sent to any and all
residences within 2 kilometres of the site.  Several residents of the Le
Village Boise came out to the meeting to monitor our progress and
ensure that we were sticking to our original plan.  They were not
disappointed.  Also in attendance was a small group of residents from a
community approximately two kilometres to the south of our site called
Cumberland Estates.  These people had some valid and pertinent questions
in particular regarding noise from the go-karts and traffic impact on
area streets.  Mr. Carmosino and I, along with the planning staff and
our technical consultants handled those questions and concerns.  These
responses, although technically accurate and correct, did not appear to
be recognized by this group.  It was only after several minutes of their
questioning did it become apparent as to what was occurring.  We were
being ambushed.

It was clear that this group had no interest in seeing this project
continue on to completion and no amount of rational, technical argument
could be made to distract them.  This meeting marked a significant point
in the timeline of the project.  When questioned as to what particular
reason they had for not seeing the project continue a resident responded
to me that it was nothing personal against us, in fact he found us very
cordial and professional.  It was nothing against the concept of the
project, in fact he found it to be very well thought out and it
satisfied a great need in the community and that it should be built just
“not in my backyard.”  There it was, at last the one objection we could
not overcome with technical reports, market studies or even the
explicit wording of the Official Plan that called for this use to be on
this site long before Cumberland Estates existed.  We had encountered
the dreaded “Not In My Backyard” syndrome (NIMBY).

Before proceeding any further, it is important to first clearly
identify these people in order to provide some context.  During our
preparation of the proposal, we had travelled extensively in the area to
better learn who our neighbours would be and who would have an interest
in the project.  We had travelled as far as Cumberland Estates and
there we found a subdivision of large, custom homes which was situated
on a hill overlooking the highway, the Ottawa River and our site
approximately two kilometres away.  We discounted this development as a
point of concern because of its distance from our site as the main
concern was the sound of the go-karts (calculated to be a fraction of
the decibel levels created by the transport trucks on the highway!).  
The residents of this subdivision were for the most part a very similar
group in that they were typically all in their late 30s or early 40s and
had families.  Many of them were public servants while a few were
professionals.  As with almost any situation in life, a leader can be
born from a void and for a need.  In this case, the leader of this group
was a vocal and vociferous stay at home mom, Mallory Anderson (not her
real name).  Ms Anderson’s complete skill set was never truly identified
however her passion and focus, if applied in the proper manner, could
no doubt be used to solve any of the various challenges that face the
World today.  Instead, Ms Anderson chose to focus her energies on our
project and its defeat.  In comparison to our neighbours in Le Village
Boise, the residents of Cumberland Estates were seen to be better off
financially and their yards were a sharp shade of green with pristine
cut lawns while homes in Le Village Boise certainly showed their age and
were for the most part not well kept.  Image was more important to some
than others.  The view of the residents in the Estates was that having a
project such as AHS in the community would have a negative impact on
the value of their lands.  They believed that homogeneity is the spice
of life.  Notwithstanding these views, we resolved to soldier on in our
aim to build this much-needed project.

Given the results of the public consultation and the new information
that we had received, we prepared to meet the challenge where it
mattered most: in the Council Chambers.  It was obvious that no matter
the technical merit of our project, it would require the support of the
Cumberland Council to get approval.  At the end of the day it would be
the politicians who would be responsible for approving the zoning by-law
amendment.  Mr Carmosino and I spent the next period of time lobbying
the local councillors for their support with the technical merit and
value-added arguments for the project.  While we were endeavouring to
complete the lobbying process, our opponents had taken a very different
direction in their approach.  They went to the media with tales of a
“Disney-Style Theme Park” being proposed for their backyard.  In its
typical lazy fashion, the local media continued to fan the flames of
dissent by presenting the story as a battle of the big developer vs. the
locals in an unwanted project of inappropriate scale.  There on the
dinner-hour news we would see Ms Anderson spewing her vitriolic babble
about the “roar” of the go-karts and what they would do to her quality
of life.  She also warned that there would be a breakout at LRRA and
that the reptiles would escape resulting in untold turmoil and tragedy.

While the confidence of staff had changed slightly over the following
weeks, their report to council for the rezoning proposal was favourable
and they endorsed the application and recommended that council do the
same.  Through our lobbying, we discovered that the majority of
councillors saw the objections as frivolous and petty and that the
technical merit of our proposal outweighed the emotional arguments
against.  The matter would go to council on September 27, 1999.

That night we arrived at the Council Chambers with every member of
the staff of MDC in attendance except for Mr Firestone (given his past
experiences, his presence at public meetings rarely brings out the best
in others).  The Council Chambers soon filled with over 50 angry
residents led by the “Queen NIMBY”, Ms Anderson.  When Council reached
our application on the agenda they asked for comments from the floor.  
What took place at this time was truly a depiction of how cold,
uncalculated and ignorant a group of human beings can be.  One after
another, many of these highly educated residents stood and made
passionate pleas against the approval of the project on grounds ranging
from the danger that go-karts provide to its users to the “hundreds” of
people who would surely be killed in traffic accidents while accessing
our site from the highway.  This continued for the next 2.5 hrs.  It
went on so long and the arguments were so illogical that one of the
residents from Le Village Boise who came out to see what was all the
fuss left half-way through and before leaving expressed to us his
disappointment with the narrow vision of those residents.  
Unfortunately, when time did come for us to make our statements to
Council, they appeared weary and exhausted, as did staff.  We made brief
statements to them and the few hardcore opponents who remained.  
Council voted to defer their decision.  We had been publicly lynched.

Following the meeting, we gathered for a brief meeting and agreed to
spend the overnight pondering our position and our strategy.  On one
hand, Council could vote down our proposal and we could challenge it at
the Ontario Municipal Board (OMB) level.  A costly and time-consuming
process but would likely side in our favour.  On the other had, Council
could vote to support our proposal and the NIMBYs could take us to the
OMB to continue their fight to the bitter end.  We would likely receive
approval in either case but the process just became much longer and
dramatically more expensive for a group of bootstrap entrepreneurs.

The morning of September 28th we met and discussed the above options.
 Despite being the targets of the anger and hostility of the previous
evening, we were confident that if looked at objectively (the role of
the OMB) we would eventually get approval.  The male ego in our minds
stated that we should summon our own convictions and beliefs and fight
this project to the end because it was the right thing to do.  While
that was indeed a strong argument, it was the experience of Dr Firestone
that reminded us that this project was for the community.  He stated,
“Zoning amendments require the support of the neighbours.  While it is
not always possible to have everyone agree to a project, it is a
desirable goal.”  We agreed and later that day we sent a letter to Mr
Brouwer withdrawing our application.  AHS was dead.

While it was a devastating blow to us personally and financially, it
was ultimately a blow to the entire community.  Today, just over 4 years
later, this site remains undeveloped.  Approval has been granted for
five 10-acre residential lots.  That water access to the river will
likely be lost to private hands forever.  This site remains a void in
the community that does nothing to increase property values; in fact it
effectively decreases them because of the massive gap it leaves.  NIMBYs
do not see this.  They have their “victory”.  They also have a void in
their community (geographically and socially) and continue to rely on
the rest of the City to provide them with recreation and entertainment

The stupidity and hypocrisy that mobilized dozens to oppose our
project and then celebrate its defeat can only be properly understood
through the following anecdote.  It was just after the Council meeting
and our subsequent application withdrawal that Mr Firestone was at a
dance class for one of his daughters at a facility in Kanata.  In the
waiting area where the parents sat while the children practiced, Mr
Firestone was submerged in a local newspaper reading about the defeat of
AHS when another father, Maurice (not his real name), spoke up in an
attempt to gain Mr Firestone’s support and said “I was at that meeting.
It was great, we yelled and shouted and made sure that they wouldn’t
build that project in our community!”  Mr Firestone kept his association
out of the discussion and he asked “Maurice don’t you live in
Cumberland?”  Maurice answered yes, to which Mr Firestone inquired as to
how long it takes Maurice to travel to Kanata for these dance lessons.
Maurice replied: “Almost one hour each way.  Twice a week that’s about
four hours a week for her to take dance lessons!”  Mr Firestone asked
why Maurice would drive all the way from Cumberland to Kanata for dance
lessons.  “There’s nothing for kids to do in the east end” he stated,
“Kanata gets everything!”

The defeat of Arrow Head Springs is an example of NIMBY syndrome at
its strongest.  The reality is that those who were in opposition to the
project were rejecting a better quality of life for their families and
the generations to come after them.  This is of course not how the NIMBY
sees this situation.  They believe that it is better to have no
development as opposed to development they do not fully understand the
value of.  Satirist Dennis Miller once stated that “A developer is
someone who wants to build a home in the woods.  An environmentalist is
someone who already owns a house in the woods.”  In this case, the
parallels to NIMBY are remarkable.  Going forward, the challenge will no
doubt be to push on in our development and our culture but we must have
the strength and budget the energy required to drag the reluctant
NIMBYs forward for their own good.

Copyright. Matt Nesrallah, Ottawa, Canada. October 2003

     Prof Bruce @ 6:38 am

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Bruce is an entrepreneur/real estate broker/developer/coach/urban guru/keynote speaker/Sens founder/novelist/columnist/peerless husband/dad.