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https://www.eqjournal.org/?paged=39
Posted on
Monday 6 November 2006
Quick, what does URL stand for? Uniform Resource Locator or, for most of us, a web address.
We all think of web addresses as names, descriptions and words like
www.mygreatwebsite.com but really, each domain name resolves to an IP
address that is a bunch of unique numbers.
There are 13 root servers around the globe operated by a number of
private and public entities that underpin the Internet. These root
servers allow each and every URL to resolve to a website, quite reliably
for the most part.
The root servers are under the jurisdiction of ICANN, the Internet
Corporation for Assigned Names and Numbers. ICANN selects Registrars to
manage top level domains (TLDs) like dot-COM (e.g., Verisign manages the
dot-COM), dot-INFO, dot-BIZ, dot-ORG, dot-NAME and so forth and they
also work with national bodies that manage country codes, like CIRA
(Canadian Internet Registry Authority, which manages the dot-CA) and
AuDA (Australia Domain Authority that manages the dot-AU).
Ultimately, control of the Internet rests with the powerful cabinet
level post of the DOC (Department of Communications) in the US. ICANN
and many European countries (and others) have been trying to wrest
control of the Internet away from the DOC for years but the chances of
the DOC relinquishing ultimate control over an incredibly valuable
resource (i.e., the Internet) is zero, in my view.
How DOC Controls the Internet and ICANN
And maybe that is just as well since ICANN has never really found a
way to make its own governance both transparent and equitable.
Governance of international corporations or organizations is very
difficult anyway– which law applies in the case of disputes? How do you
elect the Board of Directors? What type of accountability does the
organization have to its stakeholder groups? Who does ICANN report to–
the UN?
US views of UN control and governance are pretty dim and, probably, justifiably so.
Who elects the BOD of ICANN? Maybe, every domain name holder could
vote or some of the nominees could be selected by the General Assembly
of the UN or the Security Council or what have you. It is an intractable
problem; it’s probaly just as difficult to write the constitution of
ICANN as, say, the Constitution of the US, and maybe even more difficult
because of its international dimension. At least, in the US, the
Supreme Court is unquestionably the ultimate legal arbiter.
Well, back to domain names. There are more than 20 million domains
taken in the dot-COM TLD. That is a lot of good names you won’t be able
to use.
How DNS Works
But still, creative people should be able to come up with cool names.
The University of Ottawa Entrepreneurs Club has one of the worst URLs I
can think of. Try to remember this:
https://www.tecde.ca/tecde_new/tecde.php?content=main
Sheesh.
At a meeting last week with the Club, I suggested they get a shorter,
catchier name. It can’t be in english because it is a bilingual
University and it can’t be in french either because then it will have to
be in both languages in the URL and that defeats the purpose of
simplicity.
So I suggested zool.ca. Zool is a play on words based on the
supernatural entity ‘Zuul’ in the 1984 film, Ghostbusters. It doesn’t
mean anything more and is supposed to conjure up images of unlimited
spaces occupied by entrepreneurs and the mystery of successful
entrepreneurialism. The more mysterious, the more effective the URL
might be for them and it could be a bit of Guerrilla Marketing too for
the Club.
Zool.ca would resolve to:
https://www.tecde.ca/tecde_new/tecde.php?content=main
but would be a bit easier to remember, don’t you think?
@ProfBruce
@Quantum_Entity
ps. we also checked that zool.com (which was unavailable) does not
resolve to some type of inappropriate site (like, say, a porn site). It
doesn’t, so the Club could use Zool.ca if they want to…
Dr Bruce M Firestone, B Eng (Civil), M Eng-Sci, Phd. Founder, Ottawa
Senators; Author, Quantum Entity Trilogy, Entrepreneurs Handbook II;
Executive Director, Exploriem.org; Broker, Century 21 Explorer Realty
Inc; Entrepreneurship Ambassador, Telfer School of Management,
University of Ottawa. 613.566.3436 X 200. bruce.firestone @ century21.ca
Follow Prof Bruce on Twitter @ProfBruce and @Quantum_Entity and read his blogs at www.EQJournal.org and www.dramatispersonae.org.
You can find his works at www.brucemfirestone.com and also at LearnByDoing.ca.
You can engage with him on Facebook via https://www.facebook.com/QuantumEntityTrilogy and https://www.facebook.com/Exploriem as well as via LinkedIn at https://www.linkedin.com/in/profbruce.
His real estate interests are summarized at www.ottawarealestatenews.com and www.thelandstore.org.
YouTube channels include https://www.youtube.com/user/ProfBruce and https://www.youtube.com/user/quantumentitytrilogy.
You can also read the first four chapters of Quantum Entity Trilogy or send it to your friends for free from: https://www.old.dramatispersonae.org/images/QuantumONE_CS_Third_Edition_First_Four_Chapters.pdf
You can read the first two chapters of Entrepreneurs Handbook II or send it to your friends for free: https://www.brucemfirestone.com/wp-content/uploads/2013/03/entrepreneurs-handbook-2013-edited-first-two-chapters-withCovers.pdf
Prof Bruce’s current motto is: “Making Each Day Count”
Prof Bruce @ 3:05 pm
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Rules? There are no rules in entrepreneurship.
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Value Differentiation and ‘Pixie Dust’
The Ideal Machine and Web User Interface: a Q and A
Posted on
Monday 6 November 2006
Q. What is the best machine someone could possibly design?
A. One with no moving parts.
Q. What machine has no moving parts?
A. The sundial.
Q. Therefore, what is the best machine ever designed?
A. The sundial. (Q.E.D.)
Q. What other machines have no moving parts?
A. Stonehenge (it is used for predicting the seasons based on the movement of the stars).
Q. Can you think of others?
A. (DEAR READER: FILL IN A FEW BLANKS HERE PLEASE).
Q. What other machines have, say, just one moving part?
{Hint: It is the single most valuable page on the web.}
A. The google search bar page.
Q. What is the best user interface on the web?
A. The Google search bar page. (Q.E.D.)
Q. Could Google have NOTHING on its web page except the search bar
with no words or anything else and not affect its usability and provide
the optimal user interface?
A. YES. YES. YES.
There, that is my lesson on producing a great User Interface on the web.
Some of the lousiest looking sites on the web work way better than
multi million or billion dollar websites that have way too much stuff on
them.
A writer I admire, James Howard Kunstler, has a crappy website, just like mine, but it works fine for his followers: https://www.kunstler.com/ and https://www.dramatispersonae.org/.
Dr. Bruce
Prof Bruce @ 1:42 pm
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Value Differentiation and ‘Pixie Dust’
Yoga and Injury Reduction on a NHL Team
Posted on
Friday 3 November 2006
Demonstrating your value proposition from your client’s point of view
is a powerful tool in sales and I don’t care if you are selling vacuum
cleaners, architecture services or hockey tickets. Clients and customers
don’t really care what cool technology you are using or incorporating
in your product or service or what, in general terms, it can do. What
they want to know is, what can it (you) do for me? And usually, that
means, what can it (you) do for my bottom line?
Recently, I ran into Yoga Specialist, Heather Moore, at Mountaingoat
Yoga Centre in Kanata. Heather is in her first year of training Ottawa
Senators players who are trying Yoga for the first time and I wanted to
know how it was going. She told me that the European players, especially
her Russian players, were really into it. They were seated at the front
of the class. Some of her North American players tolerated it and some
thought Yoga training is for sissies.
She thinks things will go better when they get their own Yoga mats
with their names on it (she admitted that she wasn’t the biggest hockey
fan before and didn’t know all their names). Knowing their names will
mean she can call out recalcitrant players and encourage others.
For my macho readers who don’t know this, Yoga uses your own weight
to improve your flexibility and core strength and, at advanced levels,
is hellishly hard. It makes sure oxygen gets to all parts of the body
and promotes faster healing. It gets stress levels down and, if you
don’t think stress levels are high for professional atheletes, you don’t
know much about sports. How would you like your on-the-job performance
rating done every day and on the front page of your local newspaper too?
More core strength, more flexibility, greater agility, better
balance, faster healing and lower stress levels are sure to be good for
hockey players. They need tremendous levels of dexterity to play in the
National League. They need strength too but not brute strength like NFL
players do. Long lean muscles will beat muscle mass in the NHL.
It turns out that, in all probability, a very small investment in
Yoga training will result in very large benefits for the Sens by
reducing the number of player days lost to injury. Check out the spreadsheet
I did on this which I have uploaded to my server in .xls format so that
you can download it and save it as a spreadsheet and fool around with
it yourself on your PC.
See if you can adapt it for your product or service or create one
like it from scratch. Try to show how one single customer or client
benefits in terms of cold, hard cash by using your products or services…
There are other benefits too for the Sens. For example, if the team
earns more points during the regular season and, as a result, attracts
more fans, revenues will increase. Further, if the team has, say, one
more home playoff game as a result of a stronger, healthier team then
benefits from Yoga training climb astronomically.
And lastly, hockey players are human beings so reduced injury means reduced human suffering, and that is a good thing…
Dr. Bruce
ps. to read more about demonstrating your value proposition and about building solid business models, check out the essay I
did for the University of Ottawa Alumni event at the Toronto Board of
Trade, October 26, 2006. You can see the value proposition I created for
an HR firm in Silicon Valley and one for GradeATechs.com too. There is also one for Gino Rossetti’s architecture firm (creator of the Palace of Auburn Hills and Scotiabank Place). Lastly, there is a blog post on the HR example.
Prof Bruce @ 7:37 am
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Value Differentiation and ‘Pixie Dust’
Posted on
Friday 13 October 2006
Some people (Mr. Spock and many engineers come to mind)
think that the last link in the chain in terms of human evolution is to
become a person whose actions and decisions are determined solely by
logic. The perfect person, in this view, is one who is totally logical.
In my view, this would lead to many wrong decisions and a much poorer
world in every sense of that word.
It is interesting that mathematicians (of all people) have already proven that logic cannot be used to solve all problems.
Kurt Godel demonstrated the limits of formal systems in 1931. Godel’s theorem of incompleteness (SEE WIKIPEDIA ENTRY ON GODEL) states that:
‘For any consistent formal theory that proves basic arithmetical
truths, it is possible to construct an arithmetical statement that is
true 1 but not provable in the theory. That is, any theory capable of
expressing elementary arithmetic cannot be both consistent and
complete.’
My friend Jean-Luc Cooke (an encryption specialist) put this in English for me this way:
‘If you can exactly describe a system using a set of rules, then
there exist statements in that system that are true but cannot be
expressed using the rules of the system. Simply, there exist truths in a
system that the rules cannot explain. Logic alone cannot lead you to
all truths, some truths will defy all proof.’
So at the end of the day, logic can only get you so far and then you
are in a box. I tell my students in both entrepreneurship and
architecture, that every project that humans undertake (including things
like marriage) is fundamentally an act (leap) of faith. Analysis can
help you make more informed decisions but I can tell you that lots of
things work that logic tells you aren’t supposed to.
Our bid for a NHL team for Ottawa was considered impossible but the
people behind the initiative to Bring Back the Senators wanted to
succeed beyond all reason. It didn’t hurt that they were very smart
people and lucky too.
Fred Smith was totally committed, mind and body, to making Fed/Ex
work. But when he started there was no market for overnight package
delivery, none. His first night in business they moved eight packages in
their entire system. But it did eventually work and Fred Smith became a
legendary, if somewhat controversial, figure.
Kevin Rose
wanted digg.com (his new age Internet newspaper) to work; In fact, he
spent his last dollar on it. His girlfriend dumped him because she
wanted to spend that on a down payment for a home. 18 months later,
Kevin (age 29) was on the cover of Business Week and had made $60
million. It shouldn’t have worked. In fact, why didn’t the New York
Times come up with this revolutionary new business model for a newspaper
on the web? Why did they just put their same processes to work on the
Internet and get the same tired result? Because logic will only take you
so far.
An even more important example is the Grameen Bank of Bangladesh.
Founded 30 years ago by Nobel Peace Prize winner (2006) Muhammad Yunus,
the bank broke all the rules of sound banking practices. Logic says it
shouldn’t have worked yet it did. Let me explain.
Muhammad Yunus believed:
1. Other Banks will only lend to people with collateral. To him that
means they only lend to people who don’t need money. Grameen Bank will
only lend to people who do need the money. As a result, they don’t take or ask for any collareral.
2. By not taking any collateral, most Banks believe that loan losses
will be unacceptable. Not so. Grameen Bank has a recovery rate of more
than 97%.
3. The less money you have, the greater poverty you are experiencing
and the greater your need, means you go to the front of the line for a
loan at Grameen Bank.
4. Most banks in Bangladesh (and many other countries too) would not
lend to women because they are not ‘business oriented’. Grameen’s
clients are 94% women and their success rates in starting new
enterprises and taking care of their families is huge just as their
ability to repay their loans to the bank is vast.
5. The borrowers/members/depositors of Grameen Bank are also the
owners so borrowers feel a loyalty to their bank and feel the need to
make sure that their loans are repaid. It is similar in that way to
Co-op banks in Canada, like, for example, the Caisse de Depot et
Pacement, which started in Québec. Caisse members own the bank. It costs
$5 to become a member of the Caisse.
6. When you belong to a co-op like I do (I am a card carrying member
of the Caisse Populaire), they treat you like a real person. They trust
you. They will give you a loan when you need it. They don’t just use
scoring machines (which all other Canadian Banks do) and, if you fail
the machine test, sorry, the loans officer in a major Canadian Chartered
Bank has no flexbility to approve even a $100 loan. Despite the fact that the Caisse still uses a human approach to lending based on trust, their loan loss ratio is less than .5%, significantly lower than most major chartered banks.
7. Grameen Bank has a $400,000,000 USD lending book and over 2
million clients in Bangladesh (that works out to an average loan of just
$200).
8. Muhammad Yunus has correctly identified micro credit as the most
efficient and effective means of lifting people out of poverty by giving
them the means to start a personal business that will sustain the
borrowers and their families. A business has the unique advantage of
producing recurring income. These are not handouts. They are giving
people ‘fishing rods, not fish’.
9. Yunus criticizes development agencies as always doing things like
studying ways to reduce poverty or working indirectly through still
other government or NGO bodies to do things that again are indirect–
like build a dam. He believes as I do that entrepreneuship is the most
efficient user of scare capital and scarce resources; by giving micro
capital directly to the people, he lets them decide how to self organize
to the greatest effect. There are no intermediaries, no ‘wise’
bureacrats telling them what to do. And by the way, making efficient use
of scarce capital and scarce resources also happens to be better for
the environment.
Logic said the Grameen Bank wouldn’t work, but it did. Thank God. (An
example of how micro lending works is provided at the end of this
post.)
Oh, by the way, I forgot to mention, Grameen makes a profit, every year.
(October 13th, 2006 was a great day for entrepreneurs and
entrepreneur educators everywhere: Muhammad Yunus won the Noble Peace
Prize that day. It was an indirect recognition by the Nobel Committee no
less, that support for entrepreneurs and entrepreneurship is one of the
keys to economic takeoff.)
Let’s look at another example from the world of mathematics. There is
no known algorithm that will generate all prime numbers. Hence, we can
use prime numbers as the basis for encryption systems.
But how do we know that the largest prime number yet found isn’t the last one in the series? How do we disprove that?
By using the exclusionary principle.
Let us assume that we do in fact have ALL the prime numbers there
are, that there aren’t anymore. But we also know that if multiply all
the prime numbers there are and then add 1, we will get another prime
number (a number which can only be divided by itself and 1). Therefore,
we couldn’t have had all the prime numbers in the first place and thus
there can’t be a limit on the number of primes that we can find. That
is, there is no possibility that the largest prime number we can find is
in fact the largest possible.
Now we cannot generate an algorithm that will generate all prime
numbers and there is no apparent pattern, at least not one the greatest
mathematicians that have ever lived or anyone else for that matter have
been able to detect.
So although we can’t generate an algorithm that will produce all the
prime numbers and we can’t deduce a pattern in the series of primes, we
do know by logical inference that there is no limit to how many there
are.
There is no known means of logically inferring primes (i.e.,
generating them), so you cannot find primes by an act of logic and
therefore the only thing you are left with, if it isn’t logic is that it
is an act of faith. Q.E.D.
Even more simply, who could have guessed that energy and matter are
related through the speed of light squared? What type of thinking can
get you there? Some of it is clearly right brain, logical thinking and
some of it is left brain thinking—a leap of faith.
Many of Einstein’s findings could not be proved experimentally for decades after he postulated them…
So if you want to innovate, be more creative, be a more interesting
person, make fewer mistakes in business and in life, then relying wholly
on logic will unnecessarily limit you and disappoint you and everyone
around you.
Dr. Bruce
Readings: Subsequent to writing this essay, I read three great books
that you can refer to that build on the idea that logic can only take
you so far. They are: Predictably Irrational by Dan Ariely, Blink by Malclom Galdwell and The Black Swan
by Nassim Nicholas Taleb. Gladwell shows how our unconscious mind can
make (good and bad) decisions in less than two seconds from the
scantiest of evidence. Ariely shows how prone we are to acting
irrationally depending on, for example, the power of suggestion.
Finally, Taleb demonstrates that unusual and rare events are actually
much more common than our typical models of probability theory (based on
bell curve distributions) would suggest and that it is irrational to
assume economic systems will behave any better than, say, weather
systems.
Postscript 1: Get a Personal Business for Life
At a minimum, it is my contention that perhaps every man, women and child should have their own Personal Business for life, a PB4L.
It can provide them with real security, something to fall back on when
everything else fails. It was only when India and China unlocked the
power of their entrepreneur class, that their economies really took off.
A PB4L must have the following characteristics: i. it is not a hobby,
ii. it must be low risk, iii. it must be started with less than $15,000
in capital, iv. it must make a profit, v. it must be scaleable, vi. it
must be able to survive the Founder, vii. it must not be hourly based,
per se, i.e., hourly consulting will not do or cutting lawns is not
necessarily a PB4L. Here are a couple of examples from the
entrepreneurship program that I run: qwantz.com and gradeAtechs.com (now much bigger than a PB4L).
Postscript 2: Pre-Conditions for Economic Takeoff by Nations
Walt Rostow established some of the pre-conditions for economic
takeoff in his pioneering work in the 1950s and 1960s. He was fascinated
by the subject. Why did some nation states takeoff while others who
started at about the same level remained stagnant or worse, went
backwards. Argentina had a higher GDP per capita than Canada did at the
end of WWII but was nowhere close by the end of the millennium. Why was
that? Walt said that nations would develop because they had peace, civic
order, good government, decent education and health systems, adequate
infrastructure, access to capital and efficient and free markets. To
this I would add, respect for the sanctity of contracts, high levels of
trust between persons and support for entrepreneurs and
entrepreneurship. Trust is a key component. Governments must trust that
most people will voluntarily pay their taxes; businesses must trust that
their suppliers will supply them on time and that their clients will
actually pay them for the goods and services they provided. Trust me, it
doesn’t matter if you have reams of signed legal contracts; if the
other side doesn’t intend to live up to their obligations, you are in
trouble.
Today, we can also add another pre-condition for economic takeoff from the work of Hernando De Soto: high rates of home ownership. Home equity is the number one source of startup capital for entrepreneurs world-wide.
My guess is that capital for new enterprise startups comes largely
from these sources: 1. home equity, 2. soft capital (loans from family
and friends), 3. supplier credit (30, 60, 90 day terms from suppliers),
4. launch clients (people or businesses that give you an advance on an
order; e.g., the Ottawa Senators sold $22 million in season tickets in
December 1990, 20 months before they began play in the NHL in October
1992), 5. retainers and progress payments (e.g., a client of mine, one
of the top advergaming outfits in the world, gets 30% down upon
execution of each contract and two progress draws of 30% each. Only 10%
remains to be paid on delivery of their online, collaborative games so,
the more they sell, the more cash they have on hand). These sources are
part of what is called self capitalization or bootstrap capital. More Sources of Bootstrap capital.
Capital from Banks, VCs and Governments would probably be the smallest
sources of cash for new enterprises and are obviously not forms of
bootstrap capitalization.
Postscript 3: Micro Capital at Work
Gulbadan Nesa in the village of Bishnurampur received a $90 loan from
the Grameen Bank in 2001 when she was completely destitute. She bought
some egg-laying chickens, which have an interesting characteristic: they
lay eggs every day– it is the start of a sustainable cashflow. She has
since traded up and now is selling construction materials. She is an
entrepreneur; she is self sufficient; she now has her own home; she can
take care of her family. Now, she must also learn that once you have
struggled to build a successful business, you have to hold on to it:
it’s a BUILD AND HOLD stategy.
A friend of mine and successful Ottawa Entrepreneur, Peter Patafie, once told me that his priorities were:
#1 Take of his business.
#2 Take care of his family.
#3 Take care of himself.
When my students asked him about #1 and #2 (Weren’t they in the wrong
order?), he replied with a question of his own: What is the number one
cause of divorce? It turns out to be financial distress. Sure people say
that they fell out of love or what have you, but the real underlying
cause, is bill collectors calling at dinner time and saying: “Mrs.
Smith, when can we expect payment?”
(There really is no such thing as Creditor Proofing yourself
as an entrepreneur but there are a few appropriate steps you that you
can take to protect your family so that even if you fail, hopefully,
your family will still have a place to live and some means of support.)
He said, take care of your business first so you can take care of
your family. It is part of your social responsibility too, in Peter’s
mind. That is, an entrepreneur is pursuing a moral route in life by
following Adam Smith’s Invisible Hand. He or she is, in fact, serving a
moral purpose by first pursuing their self interest because by doing so
they can provide for themselves and their families and NOT BECOME A
BURDEN ON THEIR FELLOW HUMANS OR THE STATE. After this is done, they can
generate a surplus (called a profit) to take better care of their
employees, reinvest in their businesses, provide more and better
products and services to their customers, pay their taxes and give to
the less fortunate.
Prof Bruce @ 4:55 pm
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Rules? There are no rules in entrepreneurship.
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Value Differentiation and ‘Pixie Dust’
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Posted on
Tuesday 10 October 2006
I have given advice over the years to various sales
organizations, NGOs, Not-for-Profits, Charities, what have you. They all
intuitively seem to know that if your organization is not growing, it’s
dying.
But it always amazes me how some of the most basic steps they can
take to increase their sales, their sponsorship dollars, their
donations, etc. are ignored.
When I worked at the Ottawa Senators, we had about 300 signs and rink
boards that we needed to sell every year. If you attend a game at
Scotiabank Place today, you will notice that all rink boards and most
signs are sold in pairs– this is so that everyone in the arena can see
each sponsor but also because it cuts down on the number of sales they
need to make.
Think about it. If you have to sell 300 signs and you sell them in
pairs and for a minimum of three years, you will only need to make 50
sales a year instead of 300. This makes your organization much more
efficient.
The same philosophy is applied to the Ottawa Senators (Charitable)
Foundation and I brought that concept to other charities that I support
like Christie Lake Camp for Kids. The latter’s sponsorship has grown
hugely in the last two years because they are not starting over every
year. So you are not like a baseball player having to start over every
season with 000 home runs…
It is the same for a business. If all your deals are for one year,
you have a growth curve that is essentially flat, year over year. You
need heroic efforts to grow your business and outputs are pretty much in
a linear relationship with inputs (this is a fancy way of saying that
you are basically an hourly wage slave).
If you do three year deals (or, at a minimum, two year deals), you
start to get a positive slope to your revenue curve and maybe even some
non-linearity; i.e., exponential growth.
More money, less effort, sounds right to me.
Dr. Bruce
Prof Bruce @ 2:34 pm
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Pre-selling, Finding New Clients, Keeping Existing Ones
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Rules? There are no rules in entrepreneurship.
HR Professionals– How To Demonstrate their Value Proposition
Posted on
Monday 9 October 2006
HR Professionals have the same problem as Residential
Realtors. How do they demonstrate their value proposition for their
clients?
In the case of Residential Realtors, they face growing competition
from FSBOs (For Sale by Owners) who may feel that they can do the job of
selling their homes almost as well (or better than) a Realtor and not
have to pay a commision on the sale of 4, 5 or even 6%. I believe that
Realtors must do a much better job of explaining their value proposition
or they will continue to lose market share. To read more on this CLICK HERE.
Last night I had dinner with a high powered tech recruiter from San
Francisco and I must say she faces a very similar challenge: How does
she convey her value proposition to her clients, some of whom may feel
that their internal management and staff can do the job just as well and
for less out of pocket cost?
Let’s look at some of the underlying variables:
1. She charges her clients, on average, about $30,000 to place a techie in the $100,000 per annum salary range.
2. However, she is drawing from a large pool of known candidates;
her firm has a lot of information about these people, not just how they
perform in interviews or what their referees say about them. She knows
how they actually perfom on the job.
3. She is saving considerable management and staff time– not having to
wade through 300 resumés from an online job shop or having to interview
perhaps a dozen candidates instead of just two or three.
4. Also, checking references these days and credentials too is not as
simple and direct as it used to be. Privacy legislation can certainly
restrict the amount of information you can glean and what happens if
someone is not totally forthcoming about their credentials? You might
only figure out that someone didn’t actually get an engineering degree
from Stanford after they prove that they are bumbling fools in the job.
5. On average, the techies she recruits stay at their jobs for four
years as opposed to two when internally recruited. This is a big
difference. Employees tend to get more productive over time. Cisco gets
up to $750,000 in annual revenues per employee. For the purposes of this
analysis, I assumed that each tech employee can generate $150,000 in
revenues in his or her first year, increasing by $100,000 per year for
four years before reaching a maximum of $450,000 in their foruth year.
If someone only stays, two years, you not only have the cost of
replacing him or her twice as often, you are also losing the additional
productivity from longer tenured employees.
6. I ignored the cost of a bad hire. Most HR Professionals give a
guarantee of sorts; if the employee does not work out within a certain
period of time, they will replace him or her free or for a reduced cost.
But if you hire your own employee and he or she steals from you (it
might be cash but it could also be code or whatever) or abuses his or
her colleagues, the cost of getting rid of that employee (more
management time, wrongful dismisal action, legal fees, severance pay,
etc.) is considerable.
7. HR professionals usually have a lot more experience recruiting staff
than the typical manager or even internal HR specialist. A decent
residential realtor might do 5 or even 10 transactions a month. The
typical FSBO might do 1 or 2 or at most 3 in a lifetime. The
Realtor sure as heck better be better at doing these transactions and
getting more value for their clients than they can get for themselves.
HR professionals should also be better at their jobs than someone who
does it intermittently and may have a lot of other responsibilities.
Typically, internal HR people do a lot more than recruiting; they are
involved in HR policy development, internal problems that crop up with
individual employees, establishing payscales, doing employee reviews,
becoming part of the negotiating team re. union contracts, morale
boosting initiatives, continuing education programs for staff, staff
training, etc. So outside professionals should be considerably better at
the recruiting end of things… They should be like Terminators, “That is what they do, that’s all they do.” So they should be pretty good at it.
I put all this together on a spreadsheet and uploaded it to my server
in .xls format so you can dowload it to your PC and fool around with
the assumptions yourself. GO GET THE SPREADSHEET.
What the anlysis shows is that for an upfront investment in an HR
Recrutier of $30,000, the company is saving just over $10,000 in
management time– the additional time it would take to recruit
internally. They are saving this amount twice during the four year
period (because the HR Recruiter’s placement stays an average of twice
as long as the internally selected candidate). In addition, the company
is seeing $200,000 in increased revenue in each of Years 3 and 4 because
the longer tenured employee is more productive than the new hire (hired
after the first employee leaves at the two year mark).
The $30,000 investment in the HR Recruiter’s fee has an IRR (Internal
Rate of Return) of 163% p.a. under these assumptions (and, as mentioned
above, we have ignored the costs of a bad hire which would increase
this rate of return further).
Even if we decrease the additional productivity of a longer tenure
employee by half (to $50,000 per year and a maximum output of $300,000
per employee per year), the IRR only drops to 119%. A further decrease
to $25,000 per year and a maximum output of $225,000 decreases the IRR
to 84% p.a.
There are very few investments that a company makes that provide
returns like this. A typical large company project will have a return of
20 to 30% p.a. Returns that are in the 40% range are rare even for VCs
or Vulture money so the HR Professional does have a clear value
proposition to present. It is likely that the value of a HR Recruiter to
a company increases further as they get to know the company better;
they become the HR arm of the company and their track record together is
likely to increase further as their relationship becomes even more
symbiotic. Companies live in complex business eco systems and NOTHING is
more important to a company’s performance than the people they hire.
You can have the greatest assets in the world in any asset class but
if your employees suck, your company’s financial performance will too.
Dr. Bruce
Awesome stuff, Kevin. I completely missed Point 3– very strong. Sure,
most managers productivity will suck while they are distracted from
their ‘day jobs’.
BMF
From: Kevin Dee, EagleOnline.com
To: Bruce Firestone
Sent: Sunday, October 22, 2006 9:56 AM
Subject: Re: HR in Silicon Valley
Bruce,
So I finally had a few minutes to sit and digest the cost/benefit analysis. Here are some (disjointed) top of mind thoughts:
1. I love the concept of providing a dollars and cents value proposition.
2. I would question some of the assumptions as they apply in Canadian markets … but I assume your friend knows her market.
(i) Tenure of tech employees is very dependant upon the economy (and
demand), I think that 2 years tenure is probably normal and possible
standard when the economy is not red hot. I think that people are
moving more often, and with the demographic changes that are coming that
will only be exacerbated.
(ii) The “productivity” number that you place on the employees seems
high … I do understand that Cisco may generate $750K per employee in
revenue but is even a Cisco manager going to assume that a tech resource
is going to contribute at that level (and most other companies will be
nowhere close to even the $300K you use)? Conversely if the position is
filled with a less capable candidate, or one that stays for a shorter
time will they look at their contribution as that much different than
the other guy? My experience is that most line managers are pretty
myopic … if they can get a decent body in the job that is good, if not
that is not good.
If the client accepts that a search firm candidate will stay twice as
long as an internally sourced candidate (good luck selling that one)
then you can still show a decent ROI, but most companies will have a
problem with that assumption. The biggest reasons that people come and
go are way beyond the control of a search company, except that it is
search companies that may pull them out.
3. Your calculations are really a comparison between an in-house
solution versus a use of a search firm. That would have to assume that
there are dedicated search people in the client organization. If the
client is using line managers for their hiring process ( which often
happens) then the cost to the client is far greater, because the line
managers are distracted from their “day job” impacting deliverables,
project deadlines etc.
4. I still believe that if the client can get at the same candidate
pool as the search company, and with the tools available today that is
very likely, then the search company is slipping towards a commodity
pricing model. The real value is being able to provide candidates that
the client can’t find, or “headhunt” specific people in a “anonymous”
manner that the actual client could never do without causing problems
for themselves.
5. The type of search that your friend appears to be in is what we
would call mid-tier here in Canada. It is not “executive search”, and
it is not low end “placement”. They fee structure that she commands is
very healthy for that kind of work compared to Canada.
I forwarded your email to a colleague of mine who specialises in
search in Canada and am interested in his take on this. Eagle is also
in the”placement” and “mid-tier” search business and it is our ability
to find the candidates that our client cannot find that is gaining us
business. Even then, clients are balking at paying fees and we only
charge 20% of salary, which appears to be the standard in Canada for
this type of search work.
I do like the concept and I think there are other variables here that
could add to the model … 1. Access to passive candidates; 2. The fact
that search is the “core business” of a search company and NOT of the
client; 3. The ability of the search company to ramp up or down with
the needs of the client; 4. Time to hire … which directly affects
productivity … and which search firms can definitely show numbers that
will impress; 5. Finding, retention, training and productivity of
in-house recruiters … my experience is that they are (in general)
definitely NOT as motivated as recruiters in the staffing industry.
Hope this is useful feedback, it seems to come across a little
negatively but that was not my intention. I will let you know if I get
anything from my colleague, in fact I will copy him on this response.
Cheers
Kevin Dee, CEO
Eagle Professional Resources Inc. (Eagle)
902-170 Laurier Ave. West, Ottawa, ON. K1P 5V5
(613) 234-1810 ext. 3223
“High Altitude Staffing”
VISIT THE EAGLE BLOG @ https://eagleceonews.blogspot.com
Prof Bruce @ 7:37 am
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Why Realtors Should Increase Sale Prices
Posted on
Sunday 8 October 2006
Realtors tend to keep their own homes on the market 10 days
longer than they do for their clients. Now why is that? Could it be that
they want and get a higher price for their own real estate?
What Realtors should be doing, at a minimum, is providing the same
level of service for their clients as they do for themselves, if not
treating their clients better than they would themselves. What is the
right outcome that they should be trying to achieve for their clients?
Should they be trying to maximize prices or optimize them?
I would argue that they should be looking for an optimal outcome. If a
property stays on the market too long, the listing can become stale. If
it is on the market for too short a period, it may not attract wide
enough interest and the sale price may be too low.
I would tend to err on the side of the property being exposed to the
market for less time rather than a longer period because of fears of the
listing becoming stale. But this does not relieve the Realtor of the
fidicuary obligation to his or her client to achieve the optimal price
for their property.
Now if a Realtor’s $300,000 home is on the market for an extra ten
days and, say, three more showings are required to get a 3% increase in
price, that means that the Realtor has received an extra $9,000 for
about three hours of additional work on his or her own home. That works
out to about $3,000 per hour, not bad work if you can get it.
By comparison, if the Realtor does that for your home and he or she
receives half (the listing end) of, say, a 5% commission on the extra
$9,000 and their commission split with their Broker is 80/20, then the
Realtor will receive:
$9,000 x 5% x .5 x .8 or $180.00 for the extra effort which works out to $60 per hour.
Now there is a big difference between $60 per hour and $3,000 and
Realtors are human beings which means they are highly motivated by the
same things that affect everyone– greed and fear. Fearful that if their
clients don’t take the first offer, there may not be another one and
they will get nothing. Greedy to receive $3,000 per hour instead of 60
bucks.
Nevertheless, Realtors have a code of ethics that require them to
place their clients’ interests above their own and they need to redress
this difference in exposure time between their own properties and their
clients’.
There are other reasons for Realtors to want higher prices, not only
in residential markets but in commercial markets as well. Higher prices
for existing homes or existing commercial property encourages new
supply. In Ottawa where I work, there is a shortage of commercial office
and industrial and showroom condos. More and more small and medium
sized enterprises, NGOs, Not-for-profits, charities, etc. want to own
their own real estate. I have written extensively about this. See: Why Invest in Real Estate.
But developers in our area are gun shy about building new office or
industrial condos because selling prices are too low. When we sell these
condos at our real estate company, we want to get higher prices for our
clients and, in a way, it isn’t the worst thing for buyers either.
Think about it for a minute. You can go to practically any small town
in rural Ontario and buy industrial space for very very little. But
wait a minute. One day you may want to sell it and what if there aren’t
any buyers, that would be bad, right? So if a buyer pays a higher price
in a major (for Canada) market like Ottawa than he or she would want to,
and that encourages more supply, and the overall market gets bigger and
the market provides more liquidity not only in terms of eventually
being able to sell the property for more than you paid for it but also
making it easier for you to find and get financing and refinancing, then
higher prices are a good thing for buyers too.
Residential Realtors should stop shaving house prices to get quick
sales not only to serve their clients better but also to fight off the
FSBO (For Sale By Owner) market which is growing by leaps and bounds.
Trust is everything in life. If your clients can’t trust you or your
industry, pretty soon you won’t have any.
Realtors have a lot to contribute and should be able to fend off
FSBOs. They know the markets; they know the comparables; they know the
forms; they are expert negotiators; they have access to mls.ca and
mls.com, powerful real estate portals. The average FSBO seller might do
one or two or at most three transactions in a lifetime. A decent Realtor
should do five a month so, by golly, they had better be better at it…
In a way FSBOs are paying a commission even when they don’t use a
Realtor. The Buyer knows that there is no commission payable so they
usually start with a top line price that is 5% below the asking price
anyway. So FSBOs are doing all the work and paying a “commission” and
not getting any of the benefits of the industry. (They may pay a few
points in any event since Buyers often aren’t comfortable representing
themselves and get a Realtor involved to represent them. The Buyer Rep
then asks for and usually receives something from the FSBO.)
I have seen sophisticated business people represent themselves in
commercial real estate transactions and make a hash of things. In one
transaction, a Seller declined to pay a commission to the Realtor and
specifically asked that the Realtor not represent him, only the Buyer.
The Buyer was happy with this arrangement and agreed to pay the
Realtor’s commission. The Realtor, upon presenting the Offer of Purchase
and Sale, asked the Seller three times if he wanted to have his own representation– either a Realtor or lawyer. Each time he declined.
The Seller signed back the Offer which required vacant possession of
his building despite the fact that the Seller wanted to remain in the
building for another three years. The Buyer obvioulsy wanted vacant
possession. This cost the Seller $180,000 later on to renegotiate the
deal.
A very successful real estate lawyer I know critized this industry–
he said that Realtors have an avocation not a career; the industry, in
his mind, was not professional. “What professional would drive a
‘client’ around for days, using his gas and his time and then, if no
transaction resulted, get nothing for it?” This kind of stung and
will stick with me forever. But maybe he is right? Why should Realtors
do market analyses and provide comparables for free? Why should they
tour clients around for nothing? There is nothing that says Realtors
can’t charge for their expertise and time, if they want to. They can
always give clients a credit for this work if a transaction does result
in a commission but, as my wife has told me, “If you want people to respect you, first you have to respect yourself.”
I realize I am biased now that I am a licensed Realtor (having had my
license for a little over a year to date) but the industry does have a
lot to offer its clients. What it needs to do is to explain its value
proposition better (a lot better), earn and receive respect for the work
they do and make sure that it is serving its clients needs above all
else.
Prof Bruce @ 10:22 am
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Rules? There are no rules in entrepreneurship.
and
Posted on
Sunday 8 October 2006
Getting Started
Remember a few things:
1. The key to most successful theses is in writing down your hypothesis: What question do you want to answer?
2. Make it very specific and focused. The worst question: What is the
purpose of Life? (I actually tried to anwer that! If you are interested:
click here.)
A better question for a thesis would be: What is the differentiated
value in Kevin Rose’s business model for new age, e-newspaper,
www.digg.com? (I tried to answer this one too; if you are interested,
see pp. 1, 4 and 5 of this University of Ottawa Speech I gave at the School of Management’s 2006 Homecoming. The full transcript of the speech is also available ).
3. Once you know the question, lay out how you are going to answer the
hypothesis in terms of: a) readings and research you need to do, b) data
collection required, c) methodology needed for any experiments you want
to run or analysis you need to do.
4. This is basically the scientific method applied to thesis writing.
My thesis supervisor (Professor Max Neutze) scared the heck out of
me. He was brilliant and very demanding. A few days after I got to the
ANU (Australian National University) to begin work as a Research Scholar
and PhD student, he called me into his office. He asked me what I
thought of my recently completed Masters thesis. I was quite proud of
it—it was a novel application of dynamic, mixed integer programming
models to a large problem of optimization of waste disposal origins and
destinations in Sydney. The condition of waste disposal (both liquid and
solid) in Sydney at the time (circa the mid 1970s) was abominable with
gangsters spilling toxic liquid wastes in deserted canyons at night and
over 40 tips (landfill sites) polluting the city everywhere.
We solved the optimization problem and shut down the worst sites. I
thought the thesis was marvelous. Max told me: “So, if you write your
PhD like you did your Masters, you will not be successful here…”
For the next year, whenever I saw Max coming down a hallway, I found a
reason to duck into a classroom or turn around and find something else
to occupy myself with.
The next time Max spoke to me he said: “Bruce, remember this—the
first million words are the toughest.” What he meant by that was that
writing is like anything else—the more you practice, the better you get
and it’s true.
When I finished the first draft of my PhD, Max edited every word, all
450 pages of it. He was a master writer and he made me a much better
writer. After I successfully completed my PhD, I looked back at my
Masters Thesis and, you know what, Max was right.
Professor Neutze has passed away now but I owe him a debt of
gratitude. I adore writing and would do much more if I didn’t have to
spend 90% of my time earning a living…
Finishing
Another piece of advice about thesis writing—set up your chapter list
and then plow through the whole thing. Don’t edit anything. Don’t try
to write the perfect introduction or the perfect paragraph. Just keep on
writing, no matter how crappy the stuff is. It will get better and when
you are done the whole enchilada, you can go back and work on the rough
parts.
To write a really good thesis, you need to focus. You can’t write it
an hour here and an hour there. It will probably be pretty choppy and
you will, in all likelihood, miss out on the incredible creative
impulses that flow from a near total focus on your thesis.
After three years of research, I essentially wrote my PhD thesis in
eight weeks—I lived alone away from my family during that time. I got up
at 6:00 am, seven days a week, ate breakfast and was in the office by
7:15 am. I worked with only two tea beaks until 9:00 pm. In Canberra,
circa the early 1980s, there was no place to eat at 9 pm. The city was
like the Twilight Zone, completely deserted. But there was one French
fry truck and every night I stopped there and ordered the same thing—a
real Aussie burger: bun, meat patty, beet root, egg, bacon, lettuce and
tomato. I took to my lonely apartment, wolfed it down, slept for eight
hours and went back at it again. By the third week, I was in a special
place—totally zoned in on the work and, as a result, the thesis turned
out alright.
Discovery
Alcohol and drugs don’t make you more creative. Fresh air, exercise and enough sleep along with a vast focus on your topic do.
Lastly, be prepared to change direction as serendipitous things
happen on the way to the end of the thesis. Remember some of the
greatest work (e.g., the discovery of penicillin) came about because of
unexpected events. Be open to new possibilities.
Dr. Bruce M. Firestone, B.Eng.(Civil), M.Eng.-Sci., PhD.
Prof Bruce @ 9:09 am
Filed under:
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What’s More Important? Good Execution or the Next Big Idea?
Posted on
Tuesday 15 August 2006
If you ask me, the big idea is LESS important than good
execution which obviously includes staff training. Most of my students
think that the big, NEVER BEFORE TRIED, idea is more important but there
are lots of companies that do very well with good execution of fairly
mundane things.
I am pretty sure that the only thing that is in infinite supply is
ideas; numbers, for example, represent an idea and they are infinite.
There are probably more than 25 million smart Americans in their
basements at any one time trying to come up with the next bid idea
(like, say, Google). They are generating a huge volume of new ideas;
that tends to suggest, in economic terms, a surplus of ideas while the
skills to implement them are in much shorter supply and, hence, the
latter will generally attract a higher price.
The market for new ideas, such as it is, tends to put a low price on
them (just try to sell your BIG IDEA at a business model stage and you
will see: a) how hard it is to do that and b) just how little you will
get for it). Obviously, a startup that combines some type of innovation
with good execution is better off than one with just sound execution.
Fred Smith, when he started Fed/Ex, brought the hub and spoke system to
the overnight package delivery business, essentially creating that
industry.
Before that, it was thought to be an impossible challenge—if you had
60 cities as both origins and destinations in the network that meant
3,600 overnight flights, an obvious impossibility. If you had instead
five hub airports within easy trucking distance, you could get by with
25 overnight flights…
However, most successful startups do not create new industries or are
not necessarily first movers. Google wasn’t the first search engine;
however, they did bring significant innovation to the table including:
neutral search rankings, search rankings that reflected traffic loads on
and links to a site, paid search links and auctioning off of paid
search links. GradeAStudent.com, now GradeATechs.com, was not the first
at home computer repair service but their execution was good and they
used a back end system (GASnet) to automate their appointments and their
billing systems.
I have felt for a long time that VCs are heading in the wrong
direction; they should NOT fund startups. Rather, they should wait until
startups have proven themselves in the marketplace. It’s kind of like
watching for tall shoots in a field of grass. Those are the ones they
should fund. It’s better for VCs, better for the national economy and,
interestingly, better for startups too.
It’s better for VCs because they will fund more winners and fewer
losers and generate better returns for their investors. This, in turn,
will attract more capital to the industry which is good for innovation
overall. It’s better for the national economy since careful rationing of
scarce capital will provide higher overall growth rates. And finally,
it’s better for startups, in my opinion, to focus on: a) building a
sound business model, b) self (bootstrap) capitalization, c) using smart
(guerrilla) marketing to capture customers inexpensively and d)
generating real cashflow from real clients and customers. The founders
of these businesses will find it much faster and much less frustrating
to find customers first rather than spending nine months or more hoping
to attract VC funding or going after government grants. They will also
get help from clients in other ways such as designing the final product
or service. It’s like a war plan—as soon as your contemplated business
model comes into contact with customers, it will change; they will force
changes that YOU CAN NOT PLAN FOR.
Finally, the founders of these businesses will get to keep more of
the equity in their businesses if they do a deal with a VC firm later
when their business is more mature and, frankly, they are more mature.
Nothing gives you more leverage in negotiations with VCs than the fact
that you have enough cashflow to fund the business without them.
Dr. Bruce M. Firestone, B.Eng.(Civil), M.Eng.-Sci., PhD.
Prof Bruce @ 9:49 am
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Props to KFC—Great Guerrilla Marketing
Posted on
Tuesday 18 April 2006
You have to give credit to KFC for some terrific Guerrilla
Marketing. I realize that GM is all about ‘substituting brains for
money’ in the marketing wars but KFC used brains AND money in this.
To tackle households that are zapping their ads using TiVO or their
DVRs, KFC ran an ad with a hidden message that could only be deciphered
if you play it back in slow mo. If you could figure it out, you could
then go to KFC’s website and get a coupon for a free sandwich. The
traffic on their site went up by 40%. (BusinessWeek, April 17, 2006).
So they got people to watch their commercial (over and over again),
boosted traffic on their website AND in their stores. I still think this
example meets the test of what is (and is not) GM since you could look
at it this way: How much money would they have had to spend in
conventional marketing to get this kind of boost in terms of CPM
(thousand pairs of eyeballs on their marketing message) and customers in
their stores?
Dr. Bruce
April 18, 2006
Prof Bruce @ 1:17 pm
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Rules? There are no rules in entrepreneurship.
Exceptions to the Rule Make Bad Law
Posted on
Sunday 16 April 2006
Quick, what do Walkerton, the sponsorship scandal, Enron,
Sarbanes Oxley and the Accountability Act have in common? They all are
either causes of bad laws going on the books or bad laws themselves.
I am often asked what new rules an organization should bring in to
control bad behaviour. In reality, this is often a dereliction of
managerial duty. You can’t really control bad behaviour with new rules.
Recently, an account executive with the (now defunct) Ottawa Renegades
pleaded guilty to theft of season ticket money. The amount stolen was
around $33,000 although no one is really sure. Anyone with access to a
ticket spitter could do it—simply print out a bunch of tickets and sell
them for cash.
Now why don’t more people do that? Well, first, there are checks and
balances in most of these systems and you are likely to get caught…
eventually. So it’s a pretty dumb thing to do. Then there is the fear of
getting caught and the fear of punishment and the resulting publicity
that ruins your reputation and your career and, basically, your life.
But the real reason people don’t do it, is that most folks are honest,
most of the time.
Civilization would absolutely disintegrate if that were not true.
There is no way you can have a police officer looking over everyone’s
shoulder all the time so we rely on self-policing. Given human instincts
for violence and greed, it is a wonder that there isn’t more crime.
But when crimes do occur—whether that is some low level official
falsifying water tests and killing innocent people or high level
executives cooking the books to keep themselves in stock options—that is
the wrong time to create new laws to address such behaviour. That is
because you usually can’t control this type of behaviour with rules
because these people either don’t think that rules should apply to them
or don’t think they will get caught. So any number of rules is unlikely
to curb these types of behaviors.
The falsified water tests in Walkerton were done by someone lacking
proper training and in an environment where drinking on the job and
other risky behaviors were tolerated. If someone is willing to use
whiteout to conveniently place a ‘0’ on an e-coli test then new rules
and more inspectors working for the Ministry of the Environment are
unlikely to stop that. But it requires a lot of new public funding.
Draconian rules brought in by Sarbanes Oxley to redress accounting
fraud in the US are driving public companies to go private and new IPOs
to list on the London Stock Exchange’s Alternative Investment Market
(AIM). This can’t be good for the US economy; but it is good for
accounting firms, law firms and private equity firms in the US and
terrific for AIM too.
The Law of Unintended Consequences is a perverse and pernicious force
in life, especially when it comes to government action. Governments
typically react in knee jerk fashion to the latest pressure group and
want to be seen to be doing something. One of Canada’s recent Prime
Ministers was famous for doing nothing (M. Jean Chrétien comes to mind)
and the media mocked his ‘don’t-worry- be-happy’ shtick. But the best
governments do their best when they do the least and probably M.
Chrétien understood this.
Last week, I dealt with a plan examiner in a small town near Ottawa.
She had found that a renovation project by one of my clients (adding a
three-season sun room on a sona tube foundation to an existing home) was
.3 metres (one foot) inside the required side yard setback. Now in many
larger cities, staff are afraid of using their judgment to provide
clients (yes, a renovator is a customer and should be treated like one
by the city) with any leeway whatsoever. Consequently, most staff would
require a minor variance application, which could cost several thousand
dollars and delay the project by weeks if not months. Instead, this
examiner asked the builder to come into the city office, stroke out 3
metres and replace it with 2.7 metres, initial the change and be done
with it. She just used common sense.
There is a lesson in this for all enterprises—pushing down decision
making into the rank and file—democratizing it so to speak, will vastly
improve efficiency and customer service levels when it is combined with
staff training. MBNA Bank is famous for this; telephone their call
centre and you will find you are talking to a decision maker not some
factotum robotically trained to parrot the company FAQ. They can and do
make decisions—they can extend credit or not, raise interest rates or
lower them and many other things besides.
Now when you do this, you take risks that some dunderhead will misuse
his or her new power—maybe that MBNA tele-centre employee will lower
interest rates for all her friends’ credit cards, but so what? That is
what management is for—finding and getting rid of this type of behaviour
not penalizing everyone else and retarding the company’s overall
efficiency and degrading the level of customer service.
A large telecommunications firm with tens of thousands of employees
sent out a memo to staff that they couldn’t use their telephones for
personal calls (no more checking whether Suzie got home from school OK
on Company time!) or their PC-based calendars for personal appointments.
How dumb is that? Try keeping a business calendar and a separate
personal one too. There is no way—you’ll either miss business
appointments or personal ones. So some things can’t help but be a mix of
personal and business interests.
Some Banks won’t let their employees have access to the Internet lest
they be tempted to surf the Internet for personal purposes. Not having
access to the Meta mind of the Net (Google) and personal productivity
tools is a ridiculous reaction to abuse of the Net by a few stupid
employees.
Where is management in all of this? Got some problem employees on
your accounting team? Someone stealing from your business? Someone
playing video games on their PCs all day long or going to adult sites?
Someone falsifying health data? You already know who they are. Everyone
in the organization knows who they are. Just fire them! Don’t penalize
the 99.99% of honest employees by creating new layers of bureaucracy
that won’t work on the dishonest .01% anyway.
Dr. Bruce
(April 16, 2006)
Prof Bruce @ 2:17 pm
Filed under:
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Rules? There are no rules in entrepreneurship.
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Land Prices Indicate Land Shortages
Posted on
Sunday 26 March 2006
Does the City of Ottawa have a land shortage? The City’s new
Official Plan (OP) suggests that the City is well served with
sufficient urban-designated lands but prices in the marketplace suggest
otherwise.
How does one actually judge the adequacy of supply? Ontario’s
Planning Act requires municipalities in their OPs to have an adequate
supply of urban lands so that land markets remain in balance. The
objective is to make sure that, for example, land prices for residential
purposes don’t skyrocket and with it, new home prices. This makes
political sense since, after all, landowners tend to vote in both
provincial and municipal elections.
On the other hand, one could make the argument that higher land
prices could result, all else being equal, in greater density of
development as developers respond to the price signal by making better
use of a scarce resource—land. For this to apply, municipalities must
not act in a way that prevents developers from moving to higher
densities by passing restrictive by-laws such as requiring large
setbacks, unrealistic amounts of open space, banning higher density
forms of housing, overly restricting height limits and so forth.
Like so many public policy decisions, there are apparently (at least)
two competing forces at work—1) supplying more land to keep prices from
spiraling out of control versus 2) restricting land supplies so
densities increase.
Trying to find a balance is not easy but, perhaps, these are not
necessarily competing objectives. Think about this for a moment—if by
allowing a city to expand outwards, the result is, prima facie, a lower
density, why is New York City so much denser at its core than, say,
Ottawa? The fact is that people who live at the urban fringe are not
necessarily the same people who choose to live at the city’s centre and
vice versa. Isn’t the urban condition about giving people more options?
Thus, overly restrictive policies to discourage the city from
expanding could produce the worst of both worlds—a lower density at the
city centre and higher home prices everywhere.
In the 1980s, Kanata had a situation where virtually all the
industrial land was controlled by one developer who put the price of
those lands up to $150,000 per acre; this was while competing
jurisdictions like Nepean were charging $60,000 per acre for its
industrial lands on Colonnade Road. Not surprisingly, Colonnade Road
developed much more quickly than the Kanata North Business Park. But the
impact on Kanata was even more pronounced—competing developers who
wanted to bring lands into the urban area for industrial development
were told ‘no’ because the take up of land was so small. N, the number
of years of land supply was:
N = I/n,
where ‘I’ is the total inventory of (industrial) land and ‘n’ is the area of land developed in the previous year.
At the low point of the market, ‘I’ was about 400 acres and ‘n’ was
less than 2.5 acres which meant that Kanata had a land supply of more
than 150 years; an obviously spurious conclusion given that Nepean was
seeing a take-up of industrial land inventory of more than ten times
that amount. This situation lasted until Kanata itself had to break the
monopoly by bringing on its (largely unsuccessful) South Business Park
to compete and the bankruptcy of the developer due to its foray into an
unrelated field (US-based mass merchandising).
Estimates of years supply can swing wildly from year to year and even
three or five year moving averages can disguise the real underlying
trends whether those are caused by distortions in the marketplace due to
monopoly, oligopoly, downturns in the market, changes in interest
rates, whatever… So a planning rationale based on years supply could
lead to wrong conclusions. Nevertheless, this is still the predominate
way municipalities go about deciding whether they have designated enough
urban lands for all uses in their OPs.
Municipalities might be better served by using prices to alert them
to pending land shortages. Prices are still the most efficient signals
ever devised to indicate the state of a market. They tend to subsume all
other information.
Land prices in Ottawa are increasing rapidly and that tends to
indicate a shortage. Raw land (at the urban fringe) prices have
increased significantly in the last four years. Bulk lands available for
development were trading at $50,000 to $60,000 per acre in Kanata four
years ago and now those same lands would trade north of $100,000 per
acre and trades north of $150,000 per acre in the Orleans area could
soon be commonplace.
Lands just beyond the urban boundary that were trading in the $8,000
to $16,000 per acre range four years ago are now be trading in the
$16,000 to $27,000 per acre range. The City of Ottawa has inadvertently
encouraged this price bubble by introducing a wrinkle in their new
OP—land within 1,000 metres of the urban boundary can not be used for
rural lots (0.8 hectare lots that are served by private services; i.e.,
well and septic systems) yet they are not allowed to be designated for
urban uses. This, in effect, appears to expropriate the development
rights of the affected landowners without compensation but the perverse
effect has been to increase the value of those lands.
Development land in the near core area (say, along Carling Avenue)
has seen prices increase to $20 to $35 per square foot and land for
commercial or condo development in the core (including the Byward
Market, Lower Town and Centre Town) have increased to $15 to $20 per
square foot of FSI (Floor Space Index). So for land with a FSI of 5.0,
expect to pay up to $100 per square foot and for land with a FSI of 8.0,
you might pay $160 per square foot (if you can find it that is).
The City has other conflicting goals—it has allowed the conversion of
industrial lands to residential lands on the basis of: a) an apparent
lack of demand for industrial land, b) an increase in demand for
residential land, c) a shortage of land available for residential
development and d) a public policy goal of more diverse and intense use
of lands so that residential uses can be cheek-to-jowl with industrial
uses. The recent approval of a proposed large scale residential
development on Colonnade Road is an example of this.
Prices for industrial lands are also rapidly increasing. The
Hawthorne Industrial area has seen prices reach the $150,000 to $200,000
for well-located sites and some lands may trade above $200,000 per
acre. The City could one day rue the conversion of industrial lands to
residential purposes because: a) industrial lands produce a fiscal
surplus for the City’s coffers, b) a shortage of industrial lands may
result, c) it takes a long time to approve a new industrial sub-division
and d) residents placed post hoc in existing industrial neighborhoods
have a way of coming to resent the pre-existing condition of industrial
development there.
Land prices are volatile and tend to be the first into a recession
and the last out. Even during a boom period, there are lots of
exceptions. One can still find a bargain here and there. But generally
it makes for bad public policy to base it on the exceptions rather than
the rule.
Dr. Bruce
Prof Bruce @ 10:28 am
Filed under:
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Livable Cities and Neo-Urbanism
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