The EQ Journal Blog

The title of this essay is in French because I just didn’t know how to say it politely in English. Last night, I had the privilege of attending the 16th Governor General’s Awards for the Performing Arts honouring outstanding Canadian performers.

The Honourees for 2008 included: famed pianist Anton Kuerti, comic Eugene Levy, dancer and choreographer Brian MacDonald, playwright John Murrell, aboriginal filmographer Alanis Obomsawin, Montreal rocker Michel (Pag) Pagliaro, fundraiser extraordinaire Eric Charman and Kingston band, The Tragically Hip (the 2008 National Arts Centre Award winner).

My beef was that unbelievable performances by Pagliaro and the Hip, cool short videos about each of the award winners (except Eugene Levy but more on that later), a dance by Cyrstal Pite that was one of the greatest performances I have ever witnessed (she has the strength of a man, moves like a hip hop artist on steroids but with much, much more poise and control, illustrates completely new, never before seen choreography, has an unbelievable CV for such a young person, runs her own dance company and is incredibly beautiful as well) and much more, may never be seen again.

Huh, why is that? Well, for one, the CBC decided not to record the show for later rebroadcast due to cutbacks within that organization. But maybe more importantly, because no one was recording it for Veoh, YouTube or whatever.

You know, the only way these outstanding performances could have been kept for posterity would have been if someone (please) had bootlegged in a video camera and uploaded them to the Internet or if the organizers of the event would take on entrenched interests and do it themselves.

But it is almost impossible to do.

A few years ago, I wanted to do a video of a lecture I give—the 25 Steps to Entrepreneurial Success. I thought: “Wouldn’t it be cool to use a few film clips from Hollywood shows that the students might find funny and educational at the same time?” Well, it didn’t take very long to find out that it is impossible to do that even in an entirely non-commercial, educational film.

I wanted to use Ben Affleck’s short speech in the film, Boiler Room, called ABC—Always Be Closing or, as he calls it in the film, Don’t Pitch the B_tch. It’s funny, rude, poignant and, if taken the right way, reinforces the idea that entrepreneurs have to be able to sell—sell their ideas to funders and to employees, sell their products and services to clients and customers, even sell to suppliers (to get supplier credit, for example). If you can’t sell, you can’t be an entrepreneur. (I am not suggesting that you should sell worthless stock to vulnerable people, BTW.)

To get permission to use a film clip, you need the permission of the copyright holder (usually a studio), the producer or producers, the director and each of the actors in the clip (in this clip there is Mr. Affleck and about 15 young men learning to sell). That is a difficult job, no doubt. But it gets worse—you also need to the permission of the person or persons who penned the score (there is music in practically every scene in a Hollywood film) and, wait for it, every musician who played during that clip. You just couldn’t do it. These people would be scattered all over the globe, some of them might be dead and then you would have to find their heirs and assigns and get them to agree too.

Last night, every award winner had a short film done on them except Eugene Levy. Why? I don’t know but I suspect the above may have something to do with it. How about some scenes from his hilarious days with SCTV (Second City TV)? None to be seen, you only got reference to it by Eugene’s introducer, funny man Martin Short. How about something G-rated from American Pie? Nope.

That is why so much of what you see on Veoh and YouTube is bootlegged—there is no legal way to do anything. In my view, the music industry, the film industry, the creative industry, well, they are all crazy.

Long, long before iTunes and Napster (in 1995!), Andres del Castillo (from the band Eight Seconds—Kiss You (When you’re Dangerous)) and I suggested to Dr. Michael Cowpland, when he ran Corel Corporation at its peak, he start a service called the SoundBox. Andres had created a wonderful series of copyright-free music CDs for Corel that creators could use to make all sorts of content. Mike was too busy at the time to take us up on the thought that this could also be an online service and could include other tunes as well but we might have created Napster or iTunes in Canada well before anyone else thought of it.

The Music Industry has decided to sue its customers instead of taking advantage of new media. Surely to Heaven, the industry could have thought of another business model—after all, these are incredibly bright, incredibly well paid executives and the only thing they could come up with is to sue Granny because her 11 year old granddaughter is upstairs illegally downloading tunes for personal use?

En bas to all of them.

The National Arts Centre Orchestra performed last night as well. It’s a very good outfit. They were terrific in support of other performers. Their work with rock-legend Pag was cool. But if you wanted to showcase their work along with Pag to the world, well, you couldn’t do it (legally) for all the reasons I go into above.

But if you could, I’ll bet we could find a new revenue model that would work just fine…

Why should Google get ALL the money? What if we had a two minute video of Crystal Pite up there on the Internet right now*? What if the SoundBox was where you went for tunes (I admit it, the name sucks)? We could have been Google!

(* Interestingly, Crystal says she misses the fact that, unlike writers say, she will not have any artifacts when her career as a dancer is over. Her performances are, in her words, ephemeral and disappear when she stops performing. But if we go in a new direction taking advantage of new media, she will have lots of artifacts of her work on the Internet: ones that will produce revenue for her too long after her body is no longer capable of the things that she does now.)

Somehow wrap ads in a non intrusive way around your music or videos or photos or power points or web pages, whatever. There will be plenty of money to go around—share it with the artists, the creators, maybe even the viewers…

When you buy a CD, you know that the artists are getting maybe 10 cents to a dollar out of the 20 bucks you fork over. I am sure that creators could do a whole lot better if we torched the middlemen in the deal.

I am hoping to run a national video case study competition for entrepreneurs later on this year. One of the preconditions of entering the competition is that when you upload your videos to our site, you upload on an unlimited creative commons license—it will be completely in the public domain. Professors around the world would then be able to access a video case study library (eventually numbering a few hundred or even thousand video case studies—students these days seem to better relate to and learn from video than purely depending on the written word) and use it to educate their students. Other creators could take snippets of these videos and use them in their own mashups. Whatever they want to do, we will live with it. Unlimited creativity would be encouraged.

Think that is too far out? Well, last night, I heard some great work by Bach, Mendelssohn and other composers. What if their work had never entered the public domain?

To heck with patents, copyright, trademarks and the whole restraint of trade panoply of lawyers and court enforced orders. I am sorry but charging $30 for a lifesaving prescription of drugs in West Africa when generic drug makers can produce the same thing for pennies makes no sense to me. The idea that we are encouraging inventors and creators by giving them monopoly rights on things like drugs, music, films, photos, whatever is baloney in my view.

Ideas should be free.

And don’t tell me that the makers of a drug that ‘cures’ male impotence (and maybe kills you with a heart attack) need patent protection for 17 to 22 years. Come on.

Do you think that creators do things in isolation? Einstein was unimaginably brilliant; the idea that energy and matter are related by the speed of light squared is really strange when you think about it for a few seconds but it is even stranger that someone could figure it out in the first place. But if Einstein hadn’t, there were others who were close and it might have been just a few months longer before someone else would have got it right. We all stand on the shoulders of others who went before us and humanity would be much better off if we recognized this in a new code of law. When you make criminals out of millions of kids, your laws are wrong, just plain worng.

What if the screw cap were not in the public domain? Or the theory of electro-magnetism? Or the founders of the Internet had decided to keep the protocols that run the web, proprietary? The TRILLIONS of dollars of value that the Internet has already created would be diminished and not by a few percentages—it would be incinerated and the world would be a much poorer place, not only in dollar terms but in terms of quality of life.

I would much rather have YouTube or Veoh or GoFish on my TV than the crap that the cable companies and networks serve us—billions of channels by billions of creators. And much more value would get created for everyone; the problem is that the value might get shifted around a bit—from big business to creators and that is what they and their legal teams are afraid of.

Dr. Bruce

This is an anecdote from Jeffrey S. Rosenthal’s excellent book, “Struck by Lightning—the Curious World of Probabilities”.

A Frog Experiment:

Frog with Four Legs
You Yell: “JUMP”
Distance Jumped by Frog
**********************************************

Frog with Two Hind Legs/One Foreleg
You Yell: “JUMP”
Distance Jumped by Frog
*********************************

Frog with Two Hind Legs/No Forelegs
You Yell: “JUMP”
Distance Jumped by Frog
**************

Frog with One Hind Leg
You Yell: “JUMP”
Distance Jumped by Frog
****

Frog with No Legs
You Yell: “JUMP”
Distance Jumped by Frog
-

From the above evidence, you conclude that a frog with no legs is deaf.

This always surprises me—I can’t believe the number of times I read a research study done by reputable scientists and statisticians where the suggested causality seems intuitively suspect to my untrained eye.

Suppose for example, a research study concluded that people who practice yoga live, on average, three years longer than others who don’t do yoga. I would shout: “Hurray” since I do yoga. But is it really true that yoga causes longer life spans or is there something else going on?

Maybe people who do yoga, eat better, get more exercise, tend to not smoke as much or at all, have less stress in their lives (not true in my case BTW), take vitamins or are more aware of other health risks and seek out treatment and prevention more.

Perhaps it isn’t any of these other variables at all—maybe it just happens that people who do yoga have in something in their DNA brought about through evolutionary biology that helps them live longer and all the vitamin supplements in the world and those other things I mentioned above don’t matter at all including practicing yoga.

After all, my mother smoked like a furnace for 50 years and lived a long time (she was from tough Russian stock), so picking the right parents might be more important than anything else you can do. (This is not an argument for smoking—it seems proven beyond any doubt that smoking hugely affects health and longevity and you are far more likely to die a more hideous death than you can imagine if you are a smoker.)

Determining causality in medicine and biology is very tough; even in business, it isn’t easy. I remember reading an article in Business Week on why businesses fail and I thought their conclusions were a bit off. The BW article said that businesses fail because: a) they have too much debt (28%), b) they have inadequate leadership (17%), c) poor planning (14%), d) failure to change (11%), e) inexperienced management (9%) or f) not enough revenue (8%). These six factors were thought to account for 87% of business failures.

But I think the fundamental reason most businesses fail is: f) not enough revenues.

I have never seen a business with buoyant revenues fail; it may change management, get new leaders, pay down debt, find new planners; it might even file for bankruptcy protection because of mismanagement but in all likelihood that business will not be liquidated and it will still be around in a few years time. Businesses today with fast growing revenues will attract financing and terrific leaders and managers—that is where smart people want to be anyway.

That is why I tell my students to focus on getting launch customers, finding more clients, increasing revenues. That is usually the hard part for most businesses whether they are tech startups or what have you. Do the tough stuff and you will probably live to fight another day.

So these other variables are dependent variables not independent variables, at least in my opinion—the independent variable is: not enough revenue, hence, true causality is established.

I enjoyed the 1973 Woody Allen film, Sleeper, about a health food store owner (played by a hapless Woody Allen) who goes into hospital for a routine treatment and ends up being frozen for 200 years. Waking up in 2173, Allen’s character tries to convince the doctors of the day of the benefits of health food; they shake their heads knowingly and say something like: “Imagine those poor ignorant people not recognizing the health benefits of deep fat, steak or cream pies and hot fudge—precisely the opposite of what we now know to be true.” I laughed out loud in the theatre but no one else found it quite so funny but even then I knew that one had to be a bit skeptical about studies based on probabilistic theory and statistics.

Dr. Bruce

“Did you know that 19.3% of all stats are made up on the spot?” Anon.

Or Why You Need to Bring some Entrepreneurial Skills to your JOB and
Become an Intrapreneur

By Dan Cardamore, Former Student and Tech Manager (dan@hld.ca)

A year ago I was interviewing students from an excellent university in
Canada for a software development position. The students ranged from
second year students to fourth year students so there was a large
delta in experience levels since these students would do a decent
amount of co-op work terms during their bachelor degree program.

After reading all their resumes, I realized that none of them had
relevant work experience to what we were doing, most students had
testing experience and we were looking for a developer role. This
isn’t to say that testers aren’t capable of developing software, but
these particular students hadn’t proven that they could in the past.

So, I decided that if we weren’t hiring experience, I’d like to find
someone who would set themselves apart from the crowd by being self
motivated. During ten interviews that we did over the phone, I asked a
very simple question: “Can you give an example of a time when you
were required to do something but decided to go beyond that?” I
would have been happy with anything, related to class work, work
terms, personal projects, anything really. What I ended up with
across the board was silence or a clear misunderstanding of the
question.

In my opinion, self motivated people do very well in their careers; it
is likely more important than any other skill one could have. Maybe the
problem is that most education focuses entire classes on performing
the same tasks as every other student and there really isn’t any reward for
going beyond the minimum requirements set out.

It may be a bit cheesy, but I’d like to end this thought with an
Einstein quote:

“Imagination is more important than knowledge. For knowledge is
limited to all we now know and understand, while imagination embraces
the entire world, and all there ever will be to know and understand.”

The perfect machine is a machine with no moving parts. See if you can solve the riddle of ‘NASA versus the Soviets’. Click on the following link:

State Secret!

Dr. Bruce

This is a thought experiment! Click on these links:

What is the Value of Lunar Real Estate?

The Moon Shot Redux

I would guess that you might be able to colonize the moon using a bit of bootstrap capital! Say, you pre-sold one million lunar condos, each of which cost $10 million and you collected a 50% deposit. This would give you:

Pre-Sold Condos 1,000,000
Price Per Condo $10,000,000.00
Total Pre-Sales $10,000,000,000,000.00
Deposit 50%
Total Deposits $5,000,000,000,000.00

That is, $5 trillion dollars to work with! Not a bad start. If you click on the first link, you can see that I have calculated the value of all Lunar real estate at over $313 trillion dollars (under certain circumstances)…

Dr. Bruce

“Be in trouble for what you do, not for what you don’t do,” Ralph Shaw, Broker, Partners Advantage GMAC Realty, Carleton Place, Ontario. Mr. Shaw is a consumate entrepreneur: you name it, he has tried it. Here is a corollary: “Entrepreneurs would rather ask for forgiveness than beg for permission,” Anon. Yoda also gave the same lesson to a truculent, whiny Luke Skywalker: “Do or Do Not. Never Try.”

Why have former student and really smart techie, Dan Cardamore, current student and really terrific industrial designer, Rob Sawatsky, horror writer Stephen King and University Prof and Broker, Bruce Firestone all given up on their cell phones?

My story is pretty simple really—one day about six months ago my youngest son told me that his cell phone wasn’t fully functional any longer since it had taken a swim in our washing machine in one of the pockets of his jeans courtesy of his Dad putting the jeans in there without checking for cell phones first. Stupid of me.

So I gave him mine.

Haven’t had one since.

My life has improved a lot since then.

First of all, I am not a paramedic, a heart surgeon, a police officer, a fire fighter or even one of those realtors who wants to be able to provide his clients with one hour response time. I am available to my clients six days a week anyway and I try to get back to everyone the same day or, at worst, the next day. If that isn’t good enough, they need to find another realtor or professor.

Now maybe that isn’t the right attitude and, if making money is the number one thing in your life, maybe you should stop reading this essay right now. But first maybe you should hear what Rob Sawatsky has to say.

“Rob here. I’d be happy to comment on the cell phone question. I’ve got one pro and three cons:

Pro - It’s great to have a cell phone so that you can call someone in an emergency or to save yourself some time finding a payphone and the number to call.

Con - Often times, I feel the need to preserve my personal space or escape from people in general. I’ve had the same conversation with anyone about cell phones when they call someone who doesn’t pick up: [friend] “UGH! Why doesn’t so-and-so pick up their cell phone? What’s the point of having one if they don’t pick up?” [me] “What if they don’t want to talk to you?” [friend] “That’s so rude!”

Con - Having a cell phone is like keeping the servants’ bell in your pocket that anyone can ring at any time and interrupt anything you’re doing. If you have it, it’s a waste not to use it, but if you use it people will be interrupting your meals, your conversations, and even your bowel movements. I don’t want to interrupt anyone any more than I want to be interrupted.

Con - The cost of a cell phone (from the vantage point of someone who’s not interested in owning a cell phone, thus has not researched them) is far more than the cost of a traditional land line. I pay $12.50 per month to talk on the phone and I don’t feel the need to pay or talk any more than I do now.

Essentially though, I don’t have one because I don’t need one. Once I need one, I suppose I’ll have to get one.

Hope my opinion is of use to your blog,

Rob a. Sawatsky”

I think Rob’s comment about having a servant’s bell in your pocket is exactly right. That’s the way it feels to me. My Dad, the late Professor O. J. Firestone, was a fine person and someone I had a great deal of respect for. But he was a slave to his office phone. I can’t tell you how many family dinners and conversations were interrupted by that phone and, frankly, I hated it.

It reminds me that we all spend way too much time on urgent but unimportant things and, a lot of that is because of the phone. And, in my view, cell phones make it much worse (and the Blackberry much, much worse. I actually had a Blackberry for three and a half weeks before I told our network guy to take it back and NEVER give me one again. Now my clients wanted five minute response time instead of one hour!)

I realize that I am cheating in a way—I spend so much time with my youngest son that my clients and family have figured out that by calling him on what used to be my cell phone, they can usually get me. Also, if we were closing an important deal (and aren’t all deals important?), I could always borrow one of the eight (!) cell phones I pay for in my famdamily.

But the Zen of it is that:

a) Who wants to be a slave?
b) Do you want to have some time to yourself on occasion?
c) Do you need some uninterrupted time to be creative, to problem solve and to think about the important things in your life—both personal and business?
d) Are you better off doing one thing at a time and doing that one thing really well?
e) Do you want to schedule every minute of your day or do you want to do what you can do well on any given day and no more?

OK, so what does Dan Cardamore have to say about cell phones?

“I was paying more for it than I liked to and in Canada cell phone plans are terrible, more on that in a sec. I was receiving more calls than making and most of the calls I received were ones I would have preferred not to get (can you work on ‘X’ now, ‘X’ isn’t working can you fix it, etc).

I tend to make plans with friends and family in advance over email rather than last minute trying to track down friends at grocery stores to make plans.

Essentially, it was my company’s leash on me, which I was paying for.

As far as cell phone plans go in Canada, they are terrible compared to the US. I like data, less interested in voice. In Canada data plans are absolutely horrible. There have been many comparisons done of the $59 US AT&T iPhone plan costing Canadians an equivalent $847 with _____ (large Canadian Telecom, Ed.). In addition there is the $6.95 service fee which you pay with all cell phone plans (in some cases that can almost double your cost) and this was to cover the gov’t. tax for air wave frequencies. Well, it turns out that the gov’t. stopped charging carriers for this about a decade ago but the carriers (all of them) still charge the public with this small print disclaimer that you would be charged this extra cost. There is a class action lawsuit against it now.

I’m hoping that Apple will force _____ (large Canadian Telecom, Ed.) to sell a decent data plan rate in Canada like they did in the States and the rest of the world. Or the new cell phone frequency that the gov’t. is selling now will introduce truly competitive carriers.

Dan”

Now I would imagine that Stephen King probably doesn’t like cell phones either—I deduced that from: a) the fact that he doesn’t own one and b) in his new book, CELL, everyone who owns a cell phone have their brains wiped leaving only base human impulses in place while everyone who doesn’t own one escapes this fate…

A friend of mine in construction told me one day: “Look here, Bruce, I don’t own a Blackberry, no sirree Bob, not me. Sheesh, I own something a darn sight better—I got me a Strawberry.”

“What’s that?” I said.

“Well, a Strawberry is this here spiral notepad where I write down everything I gotta do today and all the telephone numbers I got to call with this here pencil. See this pencil—it’ll write even if the temperature is minus 20 and my Strawberry, well, it don’t break and, if it gets a bit wet, I can still use it and, well, you know I never made a million in this here business but I saved six anywho.”

Dr. Bruce

I had an experience recently that suggested to me again that the law and ethics are not the same—ethics is a higher calling and sets a higher standard than the law does, in my view.

I was making a case in front of judge to have a commission paid to the Company I used to work for. For his own reasons, the client decided not to pay the commission owing to the firm despite having agreed to do so in writing. We sued (something I almost never do) both the client (Bill, not his real name) and his lawyer (Shelly, also not her real name).

Shelly hired a lawyer (naturally) to represent her (Ken). Ken argued that Shelly was simply following her client’s lawful instruction not to pay the commission and, therefore, if we had any claim, it was against Bill and not Bill’s lawyer in this transaction. The judge made it clear that he tended to agree with Ken…

Shelly had paid the entire proceeds (less her fee!) to the client and washed her hands of the matter.

My argument went something like this:

“I am an engineer not a lawyer so I am prepared to take Ken’s word for it that Shelly, by following her client’s instructions, was acting in accordance with the law. But you know I have closed both smaller transactions than this and larger ones and I am pretty sure that almost all the lawyers I have dealt with would have said something to me like: ‘Bruce, you signed this Agreement of Purchase and Sale—isn’t that your signature? You contracted to pay a commission and now you have changed your mind. Are you sure you want to do this?’

If I persisted, they would have probably given me two options—a. ‘Well, if you are going to renege on your promise, I am uncomfortable acting further for you in this matter. When you find yourself another lawyer who is willing to complete this transaction on this basis, let me know who they are and we will transfer the funds from our trust account to theirs. And, oh, by the way, we will be sending you our fee for hours on this file to date.’ or b. ‘If you feel you have a legitimate beef with the Realtor, why don’t we come to court with ‘clean hands’ and pay the commission into court and then we can file a counter claim against the realtor for the amount of the Commission plus any damages you feel you have sustained. Of course, litigating the matter might cost you more than simply paying the fee you agreed to but this at least keeps you in good odour with the Court.’

So while Ken says that Shelly has no legal responsibility here, in my opinion, she does have a moral and ethical responsibility to the Broker in question.

It also struck me that we may hold lawyers to a lower standard than we do soldiers.

In a time of war, if your commanding officer gives you an order and you don’t obey, you run a serious risk of court martial and maybe even a sentence of death. But if your CO tells you to go over and torch a village with innocent civilians in it and you do it, history has shown that, while the order may have been ‘lawful’, the international court of law will hold you accountable.

From the Nuremberg trials to the Mai Lai massacre to the Abu Ghraib prison scandal, experience shows us that the I-was-just-following-orders excuse doesn’t hold much water. Nor, in my view, should it.

What about your immortal soul (if you believe in such a thing) or the dignity of human life?

Lawyers tell you that: ‘Old consideration is no consideration.’ They tell a funny story to demonstrate the point—you are walking along the bank of a river and you see a man drowning. You immediately go over and pull him out. He is profusely grateful and promises you a reward of $1,000. “Gee,” you say, “that’s great. Here’s my address!”

A few weeks go by and you haven’t received the 1,000 bucks so you give him a call. “Ah shucks, I didn’t really mean what I said. Sorry, but I am not sending you the 1,000 dollars.”

Furious, you go see a lawyer. Your lawyer tells you, you have no legal claim! Why? Not because it was a verbal agreement (verbal agreements often have the power of contractual law except in the case of real estate transactions which, at least in Ontario, MUST be in writing.) You have no legal claim because you pulled him out of the river (provided the service) before being offered any compensation. The compensation was for nothing—you had already provided the service. A contract consists of offer, acceptance and consideration. You essentially had none of these.

But surely we would all agree that you have a moral right to your reward and he has an ethical duty to pay you.

But your lawyer will tell you: “Next time if you see him drowning, ask him if he will give you $1,000 if you pull him out of the river (offer).” If he says: “Yes (acceptance)” then yank him out and wait for your consideration in the mail ($1,000).

Now that might make sense to a lawyer but it sure doesn’t make sense to me.

Now everyone, makes mistakes but the difference is between errors of omission (I’m sorry, I don’t have the $1,000 to give you—I just lost my job and my home…) versus errors of commission (Tough, I am wealthy and alive (thanks to you!) but I just don’t want to give you the dough and you don’t have any legal claim anyway—too bad, so sad.)

Now lawyers will argue that ethics means different things to different people. This is called situational ethics. I get this. In some cultures, it may be OK to deceive someone if that provides you with an advantage in negotiations (just so long as you don’t get caught in a lie and suffer embarrassment from that.) In other cultures, it may be OK to take something that doesn’t belong to you because your culture has the view that property should be community property and not individually owned.

So a lawyer will argue that common law is an appropriate basis on which to make sound judgments—based as it is on precedent. But within most societies, most people have a pretty good grasp of what is ethical and what isn’t, and if they believe in a Higher Power or have a strong value system, those standards tend not to be relative—they don’t change because you forgot to ask for a thousand dollars before you risked your own life to save another’s with no thought of personal gain, the true Good Samaritan.

Dr. Bruce

(Epilogue: They did settle the matter and an offer to pay the Company was made and the offer was accepted.)

(Post Script: I also raised the argument that, if they had planned not to pay the commission, why didn’t they tell the Brokerage this before the transaction was completed? At least, that would have given the Broker an opportunity to ask the Buyer to compensate them instead of receiving no value for the work they did.)

(Post Post Script: It also occurred to me that the Seller had done very well in the transaction—he had received a price that could be demonstrated to have been as high or higher than the direct comparables…)

March 17, 2008

I hear a lot of talk about social enterprise, not-for-profits, NGOs (Non Governmental Organizations), charities, foundations, housing co-ops, farm equipment co-ops, credit unions, social startups*, social capital and now, from 2006 Nobel Peace Prize Winner, Muhammad Yunus (Founder of the Grameen Bank and pioneer in the field of micro lending), social business (Business Week, March 10th, 2008).

(* Social startups don’t really belong in this group. Social startups may include social enterprises but they also include for-profit businesses that happen to use social media (for example, blogging, social networks, etc.) to attract customers and to get started…)

Dr. Yunus defines a social business in his new book Creating a World without Poverty: Social Business and the Future of Capitalism. Dr. Yunus states that a social business is one that is created to further a social goal. He emphasizes that these enterprises need to be efficient and be run like businesses but they do not need to provide a return on investment to their owners or investors. I would argue that all of these social endeavours need to have a business model, be efficient and make a profit.

Profit is not a dirty word—profits allow an enterprise to sustain itself by investing in new technology, training of its staff and furthering its goals in many, many ways. In the social field, terms that might better serve are ‘surplus’ and ‘reserve funds’ rather than ‘profit’ and ‘retained earnings’ but I believe that they are just as important for social initiatives as for for-profit businesses.

When we established the Ottawa Senators Foundation to do good works in the community, we wanted to be efficient and effective. To be efficient meant to us that we would distribute all of the funds that were raised in any given year net of whatever was need to run the organization. The goal for social enterprises should be to consume no more than 20% of its revenues in admin, staffing and other costs with 80% or more ‘going out the door’ in the form of serving its constituency.

But we never apologized that we wanted top notch staff to run the Foundation and that they would be fairly compensated. So whenever the Foundation holds a fundraiser or stages an event, the Foundation distributes the net proceeds—that is, what is left after paying for all expenses and contributing something back to the Foundation for its running costs. To be effective, the Foundation needs to have great people and they need to be retained…

So I would argue that social businesses should aim to make a profit (surplus) and have some retained earnings (reserves) and operate efficiently and have a business model and market itself effectively (guerrilla marketing) and use as much self financing as possible (bootstrap capital) and use the Internet to provide the organization with a boost—to become more scaleable, to reverse out the work as much as possible to its eco system (clients it serves and suppliers in its network) and to mass customize its products for its clientele. These are all themes that I teach in the field of entrepreneurship and I believe they apply just as much in the social sector, however it is defined.

Some of my students are working on the idea of forming a non share capital co-op to purchase and then loan out to its members cool, but expensive sports equipment like kayaks, canoes, windsurfers and so forth.

What is a non share capital co-op? The best way to explain it might be to look at another example I was involved in—Blue Heron Co-op* in Kanata, Ontario, the first co-op to be built in Ontario in more than ten years.

(* Blue Heron Co-Op Homes, 750 March Road, Kanata, ON K2K 0A4, Canada (613) 254-7492)

I believe that God only helps those that help themselves so instead of waiting for Godot (I mean the Ontario Government to bring back social housing subsidies, a hopeless occupation), we took matters into our own hands.

If it costs $150,000 to build a two bedroom townhouse then you need 25% equity before you can get most commercial lenders to lend you the money to build something—that means we needed around $37,500 in equity.

So how did we source that? Well here is the spreadsheet we were looking at (the numbers have been updated to reflect 2008 construction costs and the fact that the GST is now 5% instead of 7%):

Cost to Build $150,000 2-Bedroom Townhouse
Equity Needed $37,500 25%
Construction Loan $112,500 75%

How to Find the Equity?

Equity Needed $37,500
Land Cost per Unit $15,000
Development Charges per Unit $10,000
Building Permit $3,000 2%
PST and GST $22,413.79 13% 8% 5%
Federal Subsidy per Unit $10,000.00
Total Equity Available $60,414

You can see from the table that the total potential equity available was over $60,000 if all the sources come through!

What we needed was:

• Free land!
• The City of Ottawa agree to rebate to the Co-op all development charges and building permits (but remember they still get realty taxes from the completed project, so the City does make money on the project).
• The Provincial Government to rebate the PST on construction materials (but the Province still makes money from the income tax paid by all the workers employed in building and running the co-op).
• The Feds to agree to rebate the GST on materials and on the trades.
• Access to the Federal subsidy for affordable housing (Alex Munter, former Kanata Councillor, was helpful with this).

I helped a bit in getting ‘free land’. I wasn’t exactly free though. St. John’s Anglican Church was intending to sell a beautiful 4 acre site on March Road in Kanata for $135,000 to help refurbish the rectory and to build a new hall where the local Beaver, Cub and Scouts could use, where the Sunday School could expand and where a special (private) school for talented kids who were having trouble in the mainstream school system could be run.

I suggested the St. John’s vestry and the presiding Minister, David Cluny, that instead of selling the lands for a below market price and a one time event, they follow the example of the Holy Roman Catholic Church and lease it instead. The Catholic Church is one the largest landowners in the world and they know that if they lease the land, they will have a revenues stream for 65 years, 75 years or 99 years and then afterwards, they still own it!

So a long term lease was entered into by the co-op: for 80 units, say, at $50 per month for the land lease, this works out to around $50,000 per year for St. John’s and over say 99 years (even if there is no inflation clause, which there was) it’s about $5 million (a bit more than the $135,000 that they were thinking of selling the land for). Depending on how inflation behaves in this century, the revenue windfall could be much more.

But from the Co-op’s POV (point of view), this amounts to free land because they don’t have to find a million or so dollars to buy another site for their project and the land rent is a small part of their operating costs and it serves two social purposes—getting the co-op off the ground and helping the Church do good works!

I attach the media release announcing the commencement of construction below—and you can see that the Co-op did in fact raise more $2.4 million out of the $10.9 million they need for the project—almost the 25% goal they were shooting for.

The corporate governance of the co-op is based on the housing cooperative movement which began in 18th and 19th Century England and France and was a reaction to the appalling living conditions at the time for most people who were being ‘consumed’ by the Industrial Revolution.

A non share capital co-op means that no one owns the Incorporated entity*. The Corporation is run by a BOD (Board of Directors) who are elected by the people who occupy the units. As long as you occupy the unit, you get a vote, Once you move away, your vote goes to the next occupant of that unit. You pay a fee to occupy the unit and you have all rights to that unit as long as you pay your fees.

(* To this day, humans have not found any better way to form sustainable organizations that the incorporated company. The City of Ottawa is not its full name—it is the Corporation of the City of Ottawa. Except for “other-directed” organizations like the Emperor of Japan, the House of Windsor, the Anglican Church, the Holy Roman Catholic Church, the longest lived organizations are corporations, even private ones like the Hudson’s Bay Company, now approaching 340 years of age (it was incorporated on the 2nd day of May in 1670).

You are not really a tenant because you have an ownership interest in the co-op in the form of security of tenure and a vote in its governance and its finances. You just don’t get any equity lift, if the units become more valuable—that stays with the co-op for the next generation of members.

Because you are a member of the co-op and you have the benefits discussed above, you have the same feeling of a proprietary interest in the property and co-ops tens to be very well run and maintained and vandalism tends to less of a problem than other forms of tenant-occupied premises.

Now you may not get the equity lift from belonging to, say, a share capital co-op (much used in NYC where some of the swankiest addresses are equity co-ops occupied by film stars, Wall Street investment bankers, even John Lennon lived in one) but you will probably have lower occupancy costs. In Kanata, you can get a 2-bedroom apartment for around $1,275 a month from a private landlord while the co-op would be around $780. If you invested the difference of $495 per month at 5% and if you stayed in the co-op for ten years, you would have: $76,865 after ten years, not bad. Of course, you have to have the extra funds to invest in the first place, the discipline to invest them and the fortitude not to spend your savings on flat panel high def TVs, cool trips to Patagonia and a new car every two years!

But I believe in the co-op movement—I belong to one. I am a paying member of the Caisse Populaire, a credit union based in Québec. My membership cost me $5 and I get dividends every year based on: a) how my Caisse has done, b) how much savings I have invested there, c) how much borrowing I do. And guess what, the Caisse has one of the lowest loan loss rates when compared to major lending institutions in Canada. You know why? Because people are treated as people at the Caisse; they don’t use Toronto-based scoring machines and Beacon credit scores created by non-human systems at credit reporting firms like Equifax and Trans Union. They look you in the eye and trust you. They lend to people who need money which Canadian Banks do NOT do (they lend to people who don’t need money; i.e., the rich with lots of collateral). In fact, at Grameen Bank, they lend money to the people who most need it! They get top priority and the Grameen Bank also has very low loan losses.

Dr. Bruce

ADDENDUM—BLUE HERON COOP MEDIA RELEASE:
Affordable Housing Project in Ottawa Begins Construction
For Immediate Release
October 28, 2005

OTTAWA – The Government of Canada, the Government of Ontario, and the City of Ottawa held a time capsule ceremony today to mark the start of construction on a project that will create 83 units of affordable housing in Ottawa under the Canada-Ontario Affordable Housing Program.

The announcement was made today by the Honourable Joe Fontana, Minister of Labour and Housing, the Honourable John Gerretsen, Minister of Municipal Affairs and Housing, and Councillor Peggy Feltmate, Ward 4 – Kanata, on behalf of Ottawa Mayor Bob Chiarelli.

“Affordable housing is a priority for the Government of Canada”, said Minister Fontana. “We are pleased to be working with our provincial and municipal partners to assist citizens of Ottawa in need to access quality affordable housing.”

“The McGuinty government is committed to ensuring that lower income residents of Ontario have access to safe and affordable housing,” said Minister Gerretsen. “This project represents a significant step in achieving that goal by addressing the need for more affordable housing in Ottawa. By investing in affordable housing, we are strengthening our communities.”

The $10.9 million project, including $2.4 million from the Canada-Ontario Affordable Housing Program, will provide 25 townhomes and 58 apartments at 750 March Road in the City of Ottawa. The project is sponsored by Blue Heron Co-operative Homes Incorporated, and the units will be occupied by families and single people with lower incomes.

“The original vision for Kanata was a community with housing for people from all walks of life,” said Councillor Feltmate. “The Blue Heron Co-op helps maintain the Kanata vision.”

“Our Co-op will provide permanent affordable rental housing for moderate and low income households in a self governing community,” said Pam Cripps, President of Blue Heron Co-operative Homes. “This housing is desperately needed, and after six long years of struggling to develop Blue Heron Co-op, we are very happy to see governments getting back in to the housing business. We wish to thank all three levels of government for pulling together to make this project a reality. We look forward to being an active member of the Kanata community.”

Today’s federal and provincial allocation will be complemented by more than $3.2 million in municipal financial incentives.
In Ottawa, the Government of Canada, through Canada Mortgage and Housing Corporation (CMHC), has contributed $6.7 million through the Canada-Ontario Affordable Housing Program Agreement.

The new federal-provincial agreement, signed on April 29, 2005, comprises a commitment of $301 million from each of the two levels of government. With this commitment, the federal, provincial and municipal governments will have invested $734 million over the life of the Canada-Ontario Affordable Housing Program Agreement, to assist some 20,000 Ontario households.

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