Case Studies of
Self-Capitalized Enterprises
•
Creating Powerful, Innovative Value Propositions and
•
Sustainable Competitive Advantage through Differentiation
Professor Bruce M. Firestone
Case Study– Tony Hsieh and Zappos.com
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Tony knows nothing about selling shoes
But he wanted to run an Internet business
Wanted to develop a business where
customer service was a core competency
No time limits on or scripts for his CSRs
Fell in love with a Biz Model that was
‘practically no money down’: based on
drop shipping
Professor Bruce M. Firestone
HOW I BEAT MY COMPETITION
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Drop shipping meant that he had no control over transportation to
the client
And he could not offer a great selection because shoe
manufacturers would not give him access to top of the line
models– only retailers with RL locations got that
Shoe manufactures gave preferential treatment to brick and
mortar stores
Had to open a RL location
Had to build mega warehouse and delivery infrastructure
Had to go ‘all-in’: even sell his beloved condo in SF to keep the
biz afloat
Professor Bruce M. Firestone
Tony developed ten core values as part of his corporate culture
and part of his DV:
1. providing WOW service
2. embracing change
3. being a fun place to work and a little bit weird
4. being creative, open minded and having a sense of adventure
Professor Bruce M. Firestone
5. promoting growth and learning amongst employees and
as an organization
6. having honest relationships not only between staff
members but with customers and suppliers too
7. creating a positive team environment and a family spirit
8. doing more with less
9. being passionate
10. being a bit humble
Professor Bruce M. Firestone
• Similar to Ottawa’s fastest growing tech co, Shopify’s corporate
culture
• Passionate, committed, high end CS, terrific biz model, funky
corporate culture, superb execution, bootstrapped, adaptive,
authentic, innovative and lots of DV
• http://www.eqjournalblog.com/?p=2171
Professor Bruce M. Firestone
•According to Daniel Goleman, Emotional Intelligence accounts for
75% of the performance of an employee or manager with 25%
explained by IQ and everything else
•For
CEOs, ratio is even higher
Professor Bruce M. Firestone
• A Zappos.com client is not looked at as a customer who is buying
one pair of shoes for $200
• She represents a lifetime client who might buy shoes, handbags,
work-out clothing and more—thousands of dollars
• Brian M. and the stalled Cadillac
Professor Bruce M. Firestone
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Tony wrote “Delivering Happiness” about his experiences
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Asked influential bloggers to write a review
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Promised them a free, advance copy
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When they received it, there were two copies
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Delivering “WOW service” again
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For the ~$300,000 they spent on this, they got the book to the NYT
Best Seller List (http://www.eqjournalblog.com/?p=973)
Professor Bruce M. Firestone
LESSONS LEARNED
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Customer service is a profit centre not a cost centre
Customer service can be a key differentiator
You have to be in it boots and all– not one foot on the shore and
the other in the boat
Tony can execute expertly
Tony understood that if he didn’t fix biz model, Zappos.com would
die– you must adapt
Zappos pays (almost) as much attention to the supply chain as the
value chain [Walmart also does this]
Professor Bruce M. Firestone
Entrepreneurship and
the Sports Business
Professor Bruce M. Firestone
OTTAWA 67S HOCKEY CLUB
“WANTED: RICH UNCLE BUCK TO --> MILLIONS TO START MY SPORTS BIZ”
•
Jeff Hunt and his brother relocate from NFLD to Ottawa
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‘Great’ JOBs– selling carpet cleaning at $3.50 per hour
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Jeff figures he can sell for himself
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Starts his own firm– he sells/his brother cleans
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Mom and Grandmother in tears
Professor Bruce M. Firestone
•
Jeff can SELL
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Jeff’s insight: branding is important
•
‘Borrows’ Sears’ brand
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Takes over all Sears Carpet Cleaning coast to coast in Canada
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Sears lends their name/get royalty in return/money for nothing
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Jeff visits Chicago
Professor Bruce M. Firestone
•
Hung around long enough to go golfing with Sears Roebuck VP
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Turned down in US market
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Months later: Houston we have a problem
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Gets opportunity to turn around Sears Carpet Cleaning in Houston
•
Makes sure he does a good job
•
Takes over US market
Professor Bruce M. Firestone
•
A few years later– Sears decides to buy back its own name!
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Jeff is sitting on $40 million USD at age 40
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What’s next?
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Buy the Ottawa 67s!
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Buys team from owner Howard Darwin and his partner at low point–
attendance is less than 1,500 per game
•
Everyone tells him: DON’T DO IT!
Professor Bruce M. Firestone
•
Everyone tells him:
* DON’T DO IT!
* YOU CAN’T DO IT!
* YOU’LL FAIL!
* IT’S A LOSER NOW THAT THE SENS ARE IN TOWN!
Professor Bruce M. Firestone
•
Makes every game an event
•
Brings in beloved stars of old (like Yvan Cournoyer) to sign
autographs and collectibles
•
Sells out all 44 private suites by bundling them with signage,
sponsorship, giveaways– things that leverage their investment
Professor Bruce M. Firestone
•
Turns a cost centre into a profit centre
•
> 500 charity requests per season
•
Instead of giving them money, Jeff gives them discounted tickets that
they can resell for a profit
•
Never needs to turn anyone down!
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67s set attendance records and is model franchise
Professor Bruce M. Firestone
•
Naming rights of Civic Centre never sold
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Jeff creates a ‘lottery’
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30 companies who each buy minimum of $1,000 of 67s product
(season tickets/signage/suites/sponsorship) entered into a draw.
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Urbandale wins naming rights for a year
Professor Bruce M. Firestone
•
67s set attendance records and is model franchise, copied by not only
other Junior teams but by the NHL’s Ottawa Senators and others
•
Franchise value is now vastly more than Jeff’s purchase price
•
He is too young to retire!
Professor Bruce M. Firestone
LESSONS LEARNED?
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•
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•
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•
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Jeff had confidence in himself
Brand creates trust and trust creates the opportunity to sell (more)
Innovation, big and small, is important
Never take ‘no’ for an answer
Great execution counts– make a profit every year
Buy low/sell high
Turns a cost centre into profit centre– better yet, turn it into a new
distribution channel
Never retire
Started with nothing/bootstrapped his way to wealth
Now leads Lansdowne Live and the return of the CFL to Ottawa
Professor Bruce M. Firestone
PB4L—Personal Business For
Life: Case Studies from Real
Estate Practice
Professor Bruce M. Firestone
....Or how I got my Start in Real Estate
Terrace Investments Ltd (An Example of Bootstrap Capital)
Professor Bruce M. Firestone
•
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•
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•
•
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Bought from group set to retire
Asking price: $350k
First offer (October 1982): full price offer, rejected
Second offer (February 1983): full price offer (coldest day of the year),
accepted
$10k down, STB 5 years, 0 interest w/ principal pmts every yr
Fully paid off < 2 yrs
“Why should we sell to you, Bruce?”
“Because I’ll actually pay you and you trust me.”
“Where did you get to $10k?”
“I borrowed it!”
Professor Bruce M. Firestone
1025 Merivale Road (An Example of Trading Behaviour)
• Plaza part of the TIL package of assets, valued at $185,000
• End of 25 year lease with IGA at $1.87 per s.f.
• Seen as a huge problem—plaza soon to be100% vacant
• Actually huge opportunity to BUY LOW/SELL HIGH (trade!)
• Lipstick renovation with architect Barry Hobin: $120,000
• Sub-divide space: $14.00 (Beckers), $6.85 (Active Components),
$5.00 (Martial Arts)
• Sell for $1.1 million 18 months later
Professor Bruce M. Firestone
Professor Bruce M. Firestone
Bob Campeau (An Example of Stand Your Ground)
• TIL partner Admiralty Enterprises goes bankrupt
• Campeau Corp buys 80 properties from Receiver including 5
TIL/Admiralty warehouses
• TIL had right of 1st Refusal clause
• Invoke rights
• Campeau invokes “Principal of the Greater Good”
Professor Bruce M. Firestone
• Andrew Jacob: “What do you want for your half, Bruce?”
• “$2.1 million.”
• “But we’re getting Admiralty’s half for $400k!”
• “Why don’t you want to be partners with the great Bob Campeau?”
• Larger, better capitalized partner can kill you
“He (or She) who has the Gold, rules,” Anon
Professor Bruce M. Firestone
• They can make $$$ by leasing space to tenants in bldgs they own
100%
• Empty out 50/50 buildings/then come to weaker partner and do them a
‘favour’
• TIL might lose their ½ share for 0 or even negative dollars < 2 to 3 yrs
out/hard to argue for the ‘greater good’ when you are still getting your
interest for 43% than FMV
• 10 minutes < court hearing, “How much do you really want?”
• “$2.1 million” 5 minutes before: settlement for $2 million, cash
Professor Bruce M. Firestone
Professor Bruce M. Firestone
Brookstreet Resort and the Marshes Golf Club (An Example of
Trading Behaviour and Bootstrap Capital
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•
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Bought 62 acres of industrial land in 1994 for $365k
Tough recession
Industrial land in Kanata had gone down by 90% +
Actually huge opportunity to BUY LOW/SELL HIGH (trade!)
Two investors put up 100% of capital
Loaned Bruce the $$$ for his 1/3 interest at 8%, capitalized
Sold in 1997 to Sir Terence Matthews for $2.2 million
Investors each get $725k
Their IRR is 57% p.a.
Professor Bruce M. Firestone
• Bruce’s IRR?
• Infinite
• Sell for $1.1 million 18 months later
• Why wld investors loan Bruce the $$$ to co-invest?
• Asymmetric information + operational and sales experience
(Use IRR to calculate yr real returns: Cap rates are simply a ‘rule of
thumb’.
www.dramatispersonae.org/IRR/IRRPowerOfLeverageGoalSetting.htm)
Professor Bruce M. Firestone
Professor Bruce M. Firestone
Personal Business for Life, PB4L
Professor Bruce M. Firestone
Key facts:
•
Turns disadvantage (can’t draw) into advantage.
•
Guinness Book of Records application– longest running comic strip
where characters never change/move.
•
Quirky personality.
•
Revenue streams: merchandise sales/book sales/appearance
fees/advertising by Project Wonderful, PW.
•
PW created by Ryan: profitable < 10 days > launch.
Professor Bruce M. Firestone
Startup Budget:
•
$15.00 for domain name: www.poo.ca.
•
$15.00 for domain name www.qwantz.com.
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Web hosting: $35 per month.
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Fulfillment costs: outsourced.
•
Won $500 in 2003 Business Model Competition.
•
Startup Budget = -$400.
Professor Bruce M. Firestone
Marketing:
•
T-Rex cardboard cutouts.
•
Placed around campus with this domain on them: www.poo.ca.
•
Resolves to: www.qwantz.com.
•
Ryan is a wealthy person today with plenty of time to explore new
ideas…
Professor Bruce M. Firestone
Professor Bruce M. Firestone
ProjectWonderful.com:
•
Profitable within ten days of launch
•
Democratic Advertising engine
•
Used www.qwantz.com audience as initial marketplace
•
Reverses out pricing to advertisers/infinite auction
•
Frees publishers from duty of proving traffic/setting CPM
Professor Bruce M. Firestone
To Be Or Not To Be: That Is The Adventure
•
•
•
•
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To Be Or Not To Be is an illustrated, chooseable-path book version of
William Shakespeare's Hamlet, written by Ryan North
"William Shakespeare" single-handedly gave us "all that glitters is not
gold", "too much of a good thing", and "the game is afoot"
"Ryan North" critically-acclaimed comic Dinosaur Comics, writing the
incredibly popular Adventure Time comic book series, or from coediting the #1 Amazon bestselling short story anthology Machine of
Death.
"Chooseable-path" trademark-skirting version of phrase and book
series you remember from childhood. Remember? Books in
which... an adventure is chosen?
#1 most funded publishing project on Kickstarter ever
Professor Bruce M. Firestone
Project by Ryan North Cambridge, MA
15,352 backers
$580,905 pledged of $20,000 goal
0 seconds to go
Kickstarter.com must be US-based
All or nothing
Indiegogo.com open to other nations
Can select less than all (higher percentage to site)
Professor Bruce M. Firestone
•
Pledge $15 or more/ONE FUTURE BOOK, a DRM-free digital copy
of To Be Or Not To Be as soon as it's completed 795 backers
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Pledge $20 or more/SIGNED paperback copy of To Be Or Not To
Be & digital copy 4635 backers
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Pledge $25 or more/TOTALLY SWEET: signed book and digital
copy plus some Kickstarter-only temporary tattoos! One of T-Rex
saying "Sup?" and other of Utahraptor saying "WHATEVER" 5490
backers
Professor Bruce M. Firestone
•
Pledge $50 or more/AMAZINGLY RAD: SIGNED limited edition
hardcover copy of To Be Or Not TO Be & digital copy 1421 backers
•
Pledge $90 or more/SUPER I WANT TO PUT THINGS ON MY
BODY AND WALLS: book + poster + rad tats + digital copy but with
a hardcover copy of the book instead 508 backers
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Pledge $250 or more/GIANT ADVENTURES, GIANT POSTERS:
Everything in SUPER, hardcover book, rad tats, digital copy, poster
but with poster printed both regular (large) sized and
TREMENDOUS-SIZED. You'll get 4 posters that combine, Voltronstyle, to form poster that is larger than your body in every
dimension except thickness 11 backers
Professor Bruce M. Firestone
Mont Cascade and Pro Slide
Professor Bruce M. Firestone
•
Rick Hunter, former Canadian Ski Team Member
•
Retires after injury
•
Buys a ski hill
•
Mostly on credit and a bit of savings
•
Loses an atrocious amount year 1
•
Sitting on the hill in Spring of that year– what to do?
Professor Bruce M. Firestone
•
Family to support
•
Debt to repay
•
Bankruptcy facing him
•
Looks at hill/looks at lake/looks at hill again
•
Eureka!
Professor Bruce M. Firestone
•
Buy two straight plastic tubes from manufacturer in Rigaud, Québec
on (yet more) credit
•
Buys a couple of pumps on (still more) credit
•
One shack for women’s change room/another for men’s
•
Reuse parking and food services and toilets from ski hill
•
30,000 people show up that summer and give Rick $13 to use his
waterslides
Professor Bruce M. Firestone
•
Saved!
•
Asks Rigaud manufacturer: “How about a tube with a bend in it?”
•
“No we don’t do that.”
•
“Why not?”
•
“We do it that way because that’s the way it’s always been done.”
•
Rick hires first engineer to design a waterslide with a curve in it
•
Non trivial problem of g-force calculations
Professor Bruce M. Firestone
•
One day a Disney executive
hears about this
•
Rick gets the contract for Splash
Mountain
•
Pro Slide is born
•
World leader in custom design,
engineering and manufacturing
of fiberglass water rides
Professor Bruce M. Firestone
Lesson Learned?
•
Just because you’re a good skier doesn’t mean you know anything about
running a ski hill– you need to be an expert
•
Opportunity is where you find it/disaster focuses the mind
•
Never give up but be prepared to change what you are doing if it isn’t
working
•
What business is Rick really in? The design business.
•
Which can not easily be knocked off or outsourced to CHINDIA
Professor Bruce M. Firestone
Wilderness Tours and Mount
Pakenham
Professor Bruce M. Firestone
•
Joe Kowalski from Philly falls in love with Algonquin Park
•
Decides to be an outfitter– taking visitors on canoe trips
•
First summer is a disaster– turns out no one wants a guide
•
But he learns that there are force 4 rapids on the Ottawa River that no
one had traversed in over a century
Professor Bruce M. Firestone
•
Joe and his pal Robbie Rosenberger scout out the territory
•
Joe sees BIG OPPORTUNITY
•
Less than 90 minutes away is a market of 800,000 outdoorsy people
with lots of disposable income
•
Next Spring, he and Robbie ask a farmer for permission to set in to the
river on his property
•
They launch Wilderness Tours with two rafts– Robbie in one and Joe
in the other
Professor Bruce M. Firestone
•
100s then 1,000s of people show up
•
Problem– while the rapids are terrific, the ride is short
•
Joe embraces programming: swimming the rapids/one channel for
adventurous paddlers/another for families who want to bring
kids/bungee jumping/kayaking/ mountain biking/rock
climbing/volleyball/ horseshoes/paddle tennis/basketball/ soccer/ball
hockey/lawn chess/softball
•
Joe starts to buy land
•
Joe starts to build a town
Professor Bruce M. Firestone
•
4,000+ acres owned by WT
•
Both sides of River (Québec and
Ontario)
•
No development permitted (other
than WT)
•
Problem– how to keep good staff
in seasonal biz?
Professor Bruce M. Firestone
•
Buy Mount Pakenham– winter time staff reallocation
•
Another problem– smallest vertical anywhere in the region
•
Turn Mount Pakenham into largest ski school anywhere– safety becomes
their competitive advantage
•
Schools show up what ever the weather
•
More programming?
•
Add snow board park
•
Add tubing for non-skiers/boarders
Professor Bruce M. Firestone
•
Further expansions– jet boat business in Lachine and Niagara Falls
•
Another problem– smallest vertical anywhere in the region
•
Turn Mount Pakenham into largest ski school anywhere– safety
becomes their competitive advantage
•
Schools show up what ever the weather
•
More programming—snow board park/tubing for non-skiers/boarders
•
Now selling fractional ownership for Presqu’ile
Professor Bruce M. Firestone
Lessons Learned?
•
Entrepreneurs would rather ask for forgiveness than beg for
permission
•
Start with nothing/bootstrap your way to success/make a profit/cash is
King
•
See and seize opportunities where others fail to go
•
Outcompete your competitors
•
Be innovative and creative
•
Turn problems into opportunities– your biggest weakness becomes
your greatest strength
Professor Bruce M. Firestone
Jim Balsillie, the Phoenix Coyotes and
the Hamilton Bid
•
If you want to join a private club, litigating your way in probably not the
best way
•
NHL a private club with 30 voting members plus the Commissioner
•
Similar to a political campaign to become Mayor– just fewer voters
•
Member clubs held in trust by their owners for their fans
•
NHL believes they should not be moved until all options exhausted
Professor Bruce M. Firestone
•
NHL leadership—two lawyers (Gary Bettman and Bill Daly)
•
NHL leadership– no fear of litigation
•
Jim soundly defeated in Phoenix courtroom
•
Expansion route probably would have worked
•
Financial incentive for owners since they share in expansion proceeds
but not relocations
Professor Bruce M. Firestone
•
“Do you want a new one or a used one?”
•
Relocation means disenfranchising fans in other cities (Ask Cleveland Browns
fans how they feel about the Colts)
•
New one creates opportunity for fresh brand and sets stage for love
affair between fans and team
•
NHL agrees that TO and Buffalo do not have veto
•
Expansion remains a possibility
Professor Bruce M. Firestone
•
Estimated cost of Hamilton Expansion Franchise?
•
$420 million
•
Of which $90 m to TO for infringement
•
$30 m to Buffalo for infringement
•
$10 m each to all 30 NHL Member Clubs
•
Possible sweetener: 50% of local TV rights to TO/Buffalo for 10 years
on a declining basis
Professor Bruce M. Firestone
•
But can you pay $420 million and make it work?
•
Sure by bootstrapping it!
•
Naming rights: $45 million
•
Arena management, product rights, parking rights, F&B rights: $20
million
•
Pouring rights: $15 million
•
Local TV rights: $120 million
•
Debt: $100 million
•
Net Franchise Cost = $120 million
Professor Bruce M. Firestone
Lessons Learned?
•
Play to your strengths not your opponent’s
•
Be strategic
•
Litigation is a soul-destroying, time sucking black hole
•
Bootstrapping lowers your risks and increases your returns
“You can catch more flies with honey than with vinegar,” Anon
(See: Why Not Make it Nine? Will We One Day See 9 NHL Teams in
Canada? http://www.eqjournal.org/?p=392 )
Professor Bruce M. Firestone
Five Stories To Inspire Entrepreneurs
Kevin Rose and Digg.com
Aron Thornton and Subway
Peter Patafie and Patafies Inc.
Craig Schoen and Kijiji-Feed.com
Bruce Firestone and the Ottawa Senators
Appendix: Ten Things that Startups Forget to Do
Professor Bruce M. Firestone
•
Kevin Rose, Founder, Digg.com
•
Kevin Rose made $60 million in 18 months
•
How did he do that?
a) JOB?
b) Entrepreneurship?
Professor Bruce M. Firestone
•
•
•
•
“If you spend our last $10,000 on launching this site instead of a deposit
on a home for us, I’m going to leave,” Kevin’s ex-girlfriend
Kevin and his partner populated their site by CALLING 3,000 of their
friends
They didn’t push on a string– an email campaign might have gotten them
15 users
I wonder how she feels now?
Professor Bruce M. Firestone
DIGG.COM’S DIFFERENTIATED VALUE?
•It
is a new model for a newspaper uniquely adapted to the Internet
•It
is not simply the online version of the New York Times or some classified
advertising page transferred to the Internet
•It
is a digital community made up of a fairly homogenous demographic—
80% are male, mainly young techie readers
•Readers
are also contributors
•Readers
dig up interesting stories from all over the web and post brief
synopses to the site and links to them whereupon other readers vote on
them—the most popular ascend the page
Professor Bruce M. Firestone
•
The site harnesses the competitive instincts of the readers/contributors to
compete to see whose story will lead
•
The site works because of its homogeneous demographic—contributors only post
stories that will be of interest to the group/site is dynamic—leading stories change
by the minute or hour
•
Digg.com’s cost for headline writers = ZERO
•
Digg.com’s cost for journalists = ZERO
•
Digg.com’s cost for editors = ZERO
•
Digg.com’s cost for distribution = ZERO (at least, the marginal cost is practically
zero)
Professor Bruce M. Firestone
•
Digg’s sustainable competitive advantage is its business model and its
readership
•
You might be able to knock off its business model but it is extremely
difficult to knock off its millions of dedicated readers which form a
community
•
The key is that the readership and community are relatively homogeneous
and have similar interests
Professor Bruce M. Firestone
Digg.com– Build a Community
•
How to first populate Digg.com?
•
Each co-Founder can personally call 1,500 people in a month
•
That’s 50 calls a day for 30 consecutive days
•
Then let scalability and network effects take over
•
The more readers, the more contributors, the more contributors, the
more readers
•
Clients (readers) are also suppliers!
Professor Bruce M. Firestone
Digg.com– Threats
•
Founders lost focus, eg, Digg TV
•
Founders ignored community/undermined competitive
instincts of readers/news suppliers
•
Introduced updates that were confusing/overly complex
•
•
Just because you can do it, doesn’t mean you
should/simple is often best
Hubris/Reddit.com left them in their dust
Professor Bruce M. Firestone
Digg.com– Threats
•
Social sharing site sold for just $500,000 to New York startup incubator
Betaworks, July 2012
•
According to The Wall Street Journal, Digg took more than $45 million from
investors since launching in 2004
•
Matt Williams told New York Times, “price floating around is inaccurate.”
•
Looks like price reported by Wall Street Journal was for Digg's core assets
•
Digg's investors likely got additional equity in Betaworks and Betaworksbacked companies
Source: http://mashable.com/2012/07/12/digg-sold-for-500000/
Professor Bruce M. Firestone
Reddit.com
•
Simple
•
Democratic
•
Cross-communication amongst community
•
Fans/friends/follower model
•
Even comments rated/voted on
Professor Bruce M. Firestone
Reddit.com
•
Reddit.com contributor MasterThalpian got 432,450 views
and used 280.75 GB bandwidth as of April 28, 2013
•
With friend recreated Van Gogh’s Starry Night from
magazine cutouts in 23 hours
•
Not sure which one I like best!
http://www.reddit.com/r/pics/comments/1d8wyp/my_friend_and_i_spent_23_hours_cutting_and/
Professor Bruce M. Firestone
Reddit.com
Professor Bruce M. Firestone
Reddit.com
•
@ProfBruce
•
http://Reddit.com contributor MasterThalpian & friend
recreate Van Gogh's Starry Night w/ mag cutouts
http://www.old.dramatispersonae.org/images/vangogh.pdf 432k views
Professor Bruce M. Firestone
Reddit.com
•
My friend and I spent 23 hours cutting and pasting
magazines to recreate this classic work of art (imgur.com)
•
submitted 10 hours ago by MasterThalpian
•
233 comments
•
top 200 comments show all 233
•
sorted by: best
Professor Bruce M. Firestone
Reddit.com
•
[–]-ThomasJefferson- 169 points 10 hours ago
•
If I remember correctly Van Gogh also liked cutting
things.....
•
[–]gfish93 100 points 10 hours ago
•
What an earie thought
Professor Bruce M. Firestone
Reddit.com
•
[–]Kubaker1 65 points 9 hours ago
•
I hear that.
•
[–]steve0suprem0 36 points 7 hours ago
•
that was amazing. i lobe it.
•
[–]kharmakazy 33 points 7 hours ago
Professor Bruce M. Firestone
Reddit.com
•
Your opinion seems pretty sound.
•
[–]MasterThalpian[S] 72 points 6 hours ago
•
You've turned this into a pun thread? You all need to
Gogh.
•
[–]fireorgan 19 points 5 hours ago
•
but, but it helped drum up interest in your post
Professor Bruce M. Firestone
Reddit.com
•
[–]hereiamstuck 19 points 4 hours ago
•
yeah, at least now people wont be bored to deaf
•
[–]Mc_douchebag 21 points 4 hours ago
•
Ear. Ear.
Professor Bruce M. Firestone
•
So is there anything else that you can do today?
•
Yes!
•
Something new!
•
Something unexpected!
Professor Bruce M. Firestone
•
The Mechanical Turk;
•
The anti Dr. Strangelove
•
The opposite of Fail Safe
Professor Bruce M. Firestone
•
Putting the human back in the loop!
•
Who selects stories that go up on Reddit.com’s site?
•
People do that
•
Who votes them up (or down)?
•
People do that (better than any algorithm)
Professor Bruce M. Firestone
•
Naver.com out competed Google in Korea!
•
How did they do that?
•
By replacing the Google algorithm with a natural language search
tool that allows users to ask questions
•
Which are then answered by other users!
•
The Mechanical Turk is inside the system!
Professor Bruce M. Firestone
•
Who else does that?
•
Wikipedia for one
•
Put the human being back in the loop and develop a better
business model will give you a sustainable competitive advantage
and probably a better experience for users
Professor Bruce M. Firestone
IF YOU HAD TO CHOOSE FOUR THINGS TO START YOUR
BUSINESS WITH, I WOULD RECOMMEND:
1.A good business model
2.Launch clients and customers
3.Self capitalization
4.Sound execution
Professor Bruce M. Firestone
I WOULD PLACE MUCH LESS EMPHASIS ON:
1.Bank financing
2.A great, never-before-tried idea
3.A partner
4.Access to government grants
5.Access to VC financing
Professor Bruce M. Firestone
Keys to success:
a.
Sound biz model;
b.
Guts;
c.
Marketing that works;
d.
Community makes Digg.com tough to knock off
e.
Beaucoup de differentiated value
f.
Scalable
g.
Human curate the news
Professor Bruce M. Firestone
•
Putting the human back in the loop!
•
Who selects stories that go up on Reddit.com’s site?
•
People do that
•
Who votes them up (or down)?
•
People do that (better than any algorithm)
Professor Bruce M. Firestone
•
Next?
•
I would redo Digg for Tech, Entrepreneurship, Yoga,
Cooking, Poetry, Boating/Yachting, Sports…
•
Then I would make a platform out of it to let others build
their own Digg’s
•
Like pligg.com tried to do
Professor Bruce M. Firestone
Aron’s Trial
•
Where does true job security come from?
•
Having a job with the GOC?
•
25 years with the GOC doing post project reviews
•
Aron Thornton (not his real name) laid off in the recession of the
1990s
•
What to do next?
•
Send out 500 CVs
Professor Bruce M. Firestone
•
ZERO interviews
•
What kind of JOBS are available for a guy with a PhD in Anthropology
•
Who has done nothing but GOC work for 25 years?
•
ZILCH
•
What to do next?
•
Scared to become an entrepreneur
•
Not the kind of person to start his own business
•
Needed some structure– Ah Ha!
•
Buy a franchise
•
What franchise?
Professor Bruce M. Firestone
•
Bought a Subway franchise and a couple of years later bought another
•
Took over a loser of a location but only paid $35,000
•
Turned it around in less than 18 months using smart (guerrilla) marketing
•
Every day at 10:30 am go to mega mall parking lot across the street* and
put $1 off sub coupons under the windshield of 500 cars
•
Run back to his shop and wait for the traffic to come in the door
(* With permission of franchise owner + promise to clean up lot every evening)
Professor Bruce M. Firestone
•
Also visited every local (tech) office within three kilometres between 11:00
am and noon weekdays over the next 18 months
•
Would bring in huge platters of finely cut subs and a bunch of $1 off
coupons
•
Talked his way past receptionist and security to hand out free food and
coupons by the bucket load
•
Although he only made $30k in his first year, he made over 100 grand for
himself and his family in year two
Professor Bruce M. Firestone
•
Bought a second location and now takes home over $140,000 every year
•
Making more than he ever did at the GOC and loves what he does
•
Does his own hiring, firing, banking, accounting and marketing—outlet for
creativity
•
As long as he keeps a good relationship with the Master Franchiser, no
one is ever going to downsize him again
•
True job security comes from what you have between your ears: what you
learn over a lifetime + your ability to put it into practice
Professor Bruce M. Firestone
•
Peter Patafie: up by the bootstraps kind of guy
•
Hired on to sell moving and packing supplies– 100% contingent (all
commission)
•
Peter had confidence in himself
•
At age 45, suddenly laid off
•
Why?
•
Because he was making too much money (more than the President)
•
He had a wife and three kids to support and only had High School
•
What to do?
Professor Bruce M. Firestone
•
Started his own business selling moving and packing supplies
•
Started with less than $5,000
•
But he had a great reputation, knew how to sell and he could get product
on credit from suppliers
•
Also brought some creativity to the new biz
Professor Bruce M. Firestone
•
First great insight: realized that his clients’ salespeople spent a lot of their
time redelivering packing and moving supplies to their clients
•
That is, he worried about his clients’ clients
•
What if instead of delivering moving boxes to client warehouse and then
having their salespeople redeliver them to people who are moving, deliver
boxes and moving supplies directly to them
•
Client salespeople can then spend more time selling (moves) and less
time delivering boxes
Professor Bruce M. Firestone
•
Peter ended up with a 97% market share (better even than Microsoft’s
OS)
•
Within six years, business that did $13 million per annum with 30%
margins
•
Never expected to make that kind of money and every year gets together
with his employees and shares cash with them!
Professor Bruce M. Firestone
Peter has three priorities:
Priority # 1: TAKE CARE OF THE BUSINESS
Priority # 2: TAKE CARE OF MY FAMILY
Priority # 3: TAKE CARE OF YOURSELF
•“Surely,
•No!
•What is
you mean TAKE CARE OF THE FAMILY is your number one priority?”
the number one cause of divorce: a) Alienation of Affection, b) Financial
Difficulties?
•Answer is b)
•So take care of your business so it can take care of your family and you
Professor Bruce M. Firestone
•
Next insight?
•
People scrounging in garbage for used boxes
•
Peter offers to buy boxes back!
•
Cleans and re-sells them as used
•
Another $2m+ biz is born
•
Greenwash his company too
•
DV matters but execution counts as well
Professor Bruce M. Firestone
•
•
•
•
•
•
•
Canderel enters the marketplace
Terrace goes from $18 per s.f. for its
office space/five years later it’s $6
What to do?
What does Toronto have that Ottawa
doesn’t have?
A zoo/Princess of Wales Theatre/
Wonderland/NHL Team
Conversation w/ Cyril Leeder and
Randy Sexton
Bring Back the Senators
Professor Bruce M. Firestone
West Terrace and the Palladium
A simple plan:
1.
Buy the land.
2.
Win the franchise.
3.
Sell the surrounding lands.
4.
Pay for the franchise.
5.
Retain the land for the building.
6.
Build the building.
7.
Win the Stanley Cup in 7 to 12 years.
Professor Bruce M. Firestone
Professor Bruce M. Firestone
Professor Bruce M. Firestone
Professor Bruce M. Firestone
Frank Finnegan, original Ottawa Senator
and member of 1927 Stanley Cup winning
team in Palm Beach, Florida.
Words to Mr. John Ziegler, President of the
National Hockey League, evening of
December 5th, 1990: "Now listen, John,
you just be sure to give those fellows from
Ottawa a team tomorrow!"
Professor Bruce M. Firestone
"Is that your marching band (disrupting
proceedings)?" John Ziegler.
"No. It's his," Bruce Firestone pointing to
the Mayor of Ottawa, Jim Durrell,
December 5, 1990.
Professor Bruce M. Firestone
Cyril asks how much will it cost?
•
$35 million (est. based on NBA)
•
Actual NHL ask?
•
$50 million USD
•
Randy says let’s go for it
•
Cyril asks how will we pay for it?
•
Bootstrap capital, that’s how!
_______________________________________________________
•
•
•
We were constantly trading up in terms of business size and
complexity
Moved to a market with fewer competitors and some more DV– got
out of the way of the elephants
Professor Bruce M. Firestone
•
Buy 600 acres at $12,500 per acre
•
Put a NHL team and NHL-calibre building in the middle of it
•
Drive up the value of the land to $112,500 per acre
•
Keep 100 acres for Scotiabank Place and parking lot
•
Sell extra 500 acres for a profit of $100k per acre or $50 million!
•
NHL franchise cost = ZERO!
Professor Bruce M. Firestone
•
Also get 32 Original Corporate Sponsors at $15k each
•
And 500 Corporate Sponsors at $500 each
•
Pre-sold 15,000 PRNs at $25 each
•
Pre-sold media rights for radio and TV for $250,000 and $4,000,000,
respectively
•
As Al Davis once said: “Just win, baby.”
If u want a short, pleasant annual meeting w/ yr Bank, make a profit
every year, no excuses.
Professor Bruce M. Firestone
No Local Competition:
•
Own the land
•
Have the only MCF zoned facility
•
Lock up the best arena designer on the planet
•
Have 15,000 PRN's sold at 25 bucks each, 30 Original Corporate
Sponsors at $15k each, 500 Corporate Sponsors at $500 each, meet
all the BOG members individually, sponsor hugely successful NHL
exhibition games, lock up a lease deal on existing building, have
letters of support from every mayor, councillor, politician, ...
Professor Bruce M. Firestone
Professor Bruce M. Firestone
Professor Bruce M. Firestone
Professor Bruce M. Firestone
Professor Bruce M. Firestone
Professor Bruce M. Firestone
Professor Bruce M. Firestone
Professor Bruce M. Firestone
Potential Solutions List- Students 2001
•
Rights fees from Provincial Sports Lotteries that use NHL IP
•
Elimination of Provincial Amusement Tax
•
Reduction in Municipal Property Taxes
•
Greater exploitation of web presence
•
Introduction of virtual seats using telepresence
Professor Bruce M. Firestone
•
•
•
•
•
•
•
•
•
•
•
•
Eliminating priority of local broadcasts over national ones in USA
Revenue sharing including local television and ticket sales
Salary cap
Elimination of Interchange costs
Elimination of TODS limitations on Corel Centre signage
Re-pricing of Sens/Corel Centre products in US $ where properties
are international
Sale of naming rights for Corel Centre Gates
Develop NHL owned Hockey Channel in Canada and USA and
elsewhere
Take Municipal and State subsidies of NHL teams and buildings to
arbitration under NAFTA
Issue DPSs (Distressed Preferred Shares)
Obtain EDC guarantee to lower capital costs
Sell tax losses
Professor Bruce M. Firestone
Rejected Options
•
Sell arena to Municipality
•
Sell team and building to new owner
Professor Bruce M. Firestone
Richard's Take
•
I just got a new idea for the Senators which happens to include
Transitus!
•
Everybody knows how die-hard the Ottawa community is about
hockey, especially their Senators. Well, with the Sen's doing so well
and the playoffs coming up, maybe we can take all of the advertising
banners from failed Transitus project and use them in one or all of the
following ways: 1- We can rent them out to die hard fans who want to
have huge "Go Sens Go" logo's on the top of their cars...2- even
better is get some die hard fans to place them for free on top of their
cars... the cost can be offset by selling some limited advertising space
on banners which will mostly comprise of "Go Sens Go" type slogans.
Professor Bruce M. Firestone
•
This will give the Transitus advertising boards great publicity all over the
continent, I can just see it now, people in Colorado will be watching sports
news and the announcer on the sports network says "and how about those
Ottawa senator fans.... how die hard are they? ....the fans are driving
around town with these billboard type things on their cars with "Go Sens
Go"
slogans".... you can get my drift :)
•
Another great advantage is the reputation and legitimacy that these "cartopers" will gain.... So what do you think? Can it be done? I can even help
set it up...
•
Editor's Note- great idea. One of the things, however you need to focus on
is that what you need to do as an entrepreneur is find a niche big enough
to create independent value. This idea is like a publicity stunt- it will work in
the sense that it creates noise but if there is no backup; i.e., no way to
reap benefits from it in a systematic way, it is doomed to remain just that- a
publicity stunt. But it is very creative. Keep it up.
Professor Bruce M. Firestone
Robin's Take
Problem:
•
The decision to bring an NHL team to Ottawa was based on emotion
and not financial data. The numbers did not support the idea.
Professor Bruce M. Firestone
Solution:
•Gambling
- set up a web site that allows you to do the exact same thing as
Proline but the NHL gets 100% of the profits and cost is minimal. The
domain name www.BetNHL.com is available. Take down the Proline signs
in NHL arenas and put up www.BetNHL.com signs. Inform Proline that the
NHL will put their signs back up for a percentage of their profits.
•Legalities,
the web site needs to be on a server in the island of Antigua.
Payments for bets need to be made to an Antigua based corporation. The
Antigua based corporation can be owned by the NHL.
•If
the NHL is worried about creating a negative image by owning a
gambling site, I would be more than happy to set it up and pay the NHL a
large percentage of the profits in exchange for advertising and exclusive
material that could be put on the web site.
Professor Bruce M. Firestone
Jeff's Take:
Problems that have already been mentioned:
1. Low Canadian Dollar
2. Must build own arena.
3. Lack of revenue sharing with US TV broadcast rights
•
One of the main costs is paying the players salaries. It seems to me that the owners as
a whole are unable to neg. reasonable contracts with the players.
•
If someone dropped 20 million US on each of the teams, it is likely they would just turn
that over the players in their contracts, leaving the teams in the same financial trouble
they are currently in.
•
The owners should be able to control these costs! Therefore, they should internally
agree to a total salary cap on a team basis. You can play an individual player as much
as you want, but you must balance this by having less money available for the other
players. This will help keep this main cost under control. In addition, this is easier than
creating a player-salary cap since that would have to be neg. with the players union
likely resulting in a strike. An internal agreement can be make without involving the
union.
Professor Bruce M. Firestone
•
Teams that can not use their total salary (small market teams) would be able to "sell"
their un-used portion to other teams. This would create an additional revenue stream
for these small market teams.
•
It would appear to me that renting an arena for a buck is an unfair, to the Canadian
teams who own their arena. Therefore, the Canadian teams should be able to take this
to court as an unfair government subsidy under the NAFTA trade
agreement (or free trade, or WTO), to help even the playing field.
•
In addition, the Canadian teams should have the same TV contract as the US teams.
This situation is unacceptable but there is no reason why Canadian teams should be
helping out the US teams through the Canadian TV contract. If they are unable to
share their US contracts, then the Canadians should "take their ball home too."
•
This all assumes that the teams can not get together can create a revenue sharing
system between all the NHL teams like the NFL. From the sounds of it, the owners
have trouble thinking beyond their own team.
•
Another option I have often heard is creating a 2-tier league similar in how the
soccer/football leagues work in Europe.
Professor Bruce M. Firestone
•
Pre-sold 30-year arena management contract for $15 million + a
corporate guarantee
•
Pre-sold pouring rights for $3 million
•
Pre-sold product rights for $1 million
•
Pre-sold 10,000 season tickets 22 months before the first game for
$22 million in cash
•
Pre-leased 100 suites at $100,000 per suite per year or $10 million
per year for 5 years = $50,000,000
Professor Bruce M. Firestone
•
•
Bought 600 acres for $12k per acre, won a NHL franchise, built a
MCF (Major Community Facility– aka, Scotiabank Place) in the
middle and sold extra 500 acres for $112k per acre to make
$50,000,000
You get the picture… PRE-SELL, PRE-SELL, PRE-SELL… find
‘launch clients’ before you launch
Professor Bruce M. Firestone
Howard Darwin: “If anyone should be bidding for a NHL team for Ottawa
it should be me. But you have the only site for a MCF, you have 500
corporate sponsors tied up, you have 15,000 reservations for season
tickets, you have the relationships with the NHL BOG.”
Me: “That’s right, Howard.”
No exhibition games
Canada 125 Medal
Professor Bruce M. Firestone
•
Having launch clients (pre-sales) changes everything– it gives
everyone involved confidence that you are on the right track, it
increases your credibility and is an important source of (cheap)
capital
•
The minimum number of launch clients you need is three: you can
convince one fool to buy any product or service, maybe two but
probably not three
Professor Bruce M. Firestone
•
Meet with each member of the BOG at least twice
•
Meet with the President of the NHL
•
Go to Palm Beach with 120 followers including the Ottawa Fire
Department Marching Band
•
•
Slogan: “Bring Back the Senators”
Name things like: “The Palladium”– give it the breath of life (like the
Elves did in Middle Earth)
Professor Bruce M. Firestone
•
Prioritize
•
Lobby
•
Know what you are doing (learn from Bill Torrey/Glen Sather/Sam
Pollack)
•
•
Media proclaims: ‘Milwaukee/Seattle’
Stand your ground– “You will NEVER, EVER get a NHL Team in…
Ottawa.”
Professor Bruce M. Firestone
•
Plaster Palm Beach Airport with Bumper Stickers
•
Make your presentation a conversation
•
Never stop
•
Last thing they see is your happy, smiling face
•
Be someone others can have trust in; trust is the foundation of a
successful life in business and in your personal situation
•
•
“Go where hockey is known and loved and we’ll take care of your
franchise.”
Beat Milwaukee, Portland, Seattle, Houston, Hamilton and St
Petersburg
Professor Bruce M. Firestone
•
Dec. 6, 1990, the NHL awarded franchises to the cities of Ottawa and
Tampa
•
But really they awarded them to Phil Esposito (for Tampa) and Bruce
Firestone (for Ottawa)
•
They trusted us
•
Our theme song– Tom Petty’s DON’T BACK DOWN
•
We get a unanimous vote from the NHL!
•
In entrepreneurship, results count and results come from a
fundamental source: trust— remember this— “People like to buy
from people they like and trust.”
Professor Bruce M. Firestone
Conclusion Part 1
•
When something isn’t working, do something new
•
Learn from your competitors
•
Commitment is important: “YOU’LL NEVER, EVER GET A
FRANCHISE IN … OTTAWA”
•
You can bootstrap big projects
•
Even Fortune 50 companies do that (Disney and the Anaheim Ducks
for example)
•
Sponsorship can apply to many industries and is a form of Bootstrap
Capital
•
Keep your core competencies in house– outsource the rest (Hockey
ops and relationships w/ fans & sponsors, that’s all)
Professor Bruce M. Firestone
Conclusion Part 2
•
Set your goals, internalize them, democratize them and publicize
them [N = ?]
•
Outwit, outplay and out execute the competition
•
Know who your real audience is
•
There’s the published hierarchy then there is the one that really
makes things happen– not all owners are created equal– know the
business ecosystem
•
If you are profitable, you will get financing not the other way round
•
Entrepreneurs make their own rules
Professor Bruce M. Firestone
Conclusion Part 3
•
•
•
•
•
•
•
•
•
•
•
Entrepreneurship takes guts
Sweat equity is important
Creativity and innovation are key
Sometimes you need to trade to get ‘table stakes’
Avoid competing directly with behemoths
Try to add some differentiated value to your PB4L
Be trustworthy
Surround yourself with a competent, trusted team– REALTOR/MORTGAGE
BROKER/LAWYER/MENTOR/ETC.
The harder u work, the luckier u get
Let 100 opportunities go by but when the right one comes along, strike!
MAKE A PROFIT!
Professor Bruce M. Firestone
Villager Home Corporation (An Example of Build and Hold)
Professor Bruce M. Firestone
Professor Bruce M. Firestone
Professor Bruce M. Firestone
• Santa Cruz, California, circa 1969
• Big house/little house—1011 and ½ Seabright Avenue (Bruce and his
girlfriend)
• “Old” Lady—wants company, security + the little house provides her
with extra income
• Carry plans with me for 25+ yrs
• Steve Silver et al lobby Ottawa to legalize in-home suites
• Mayor Chiarelli does this (< he loses election)
• Legal everywhere in Ottawa (except for Rockcliffe Park!)
• Fast solution to homeless problem/affordable housing/keeping
seniors in neighborhood instead of in vertical warehouses
• Extra income for homeowner
Professor Bruce M. Firestone
• CMHC provides up to $25k for conversions (forgivable loan)
• Bring gray market apartments up to bldg code.
• Fire separated/sound separated and smell separated units
• Flexible housing stock: 2 families, 1 family with extended family, kids
returning with kids, student housing, elder housing, 1 single family
home
• Add one door (or remove it) to make these changes
• Half level down/half level up (like Scotiabank Place!)
Professor Bruce M. Firestone
• Tax advantages: interest on mortgage for rental portion now tax
deductible
• Principal residence still not subject to capital gains tax provided
renovations are within existing building envelope
• Forced savings from paying off mortgage
• People with less capital can afford a home
• Live in your own home for less than $600 per month
• Renters pay part of your mortgage for you—wealth effect
• All increase in value goes to equity holder
Professor Bruce M. Firestone
• ABSOLUTE FAILURE!
• People don’t want to be Landlords
• People can afford (or think they can afford) more housing on their
own*
• Construction risk—cost overruns and delays are killers
• YOU ARE NOT THE MARKET!
• THE MARKET IS RIGHT EVEN WHEN IT’S WRONG!
(* Imagine the average home price in Vancouver is now > $1 million. Now imagine being able
to ‘rent’ $1 million from a Bank on a variable rate mortgage for, say, 2.15% p.a. or just
$1,791.67 per month!)
Professor Bruce M. Firestone
Blue Heron Corporation (An Example of Build and Hold)
Professor Bruce M. Firestone
• CO and CC biz—overrun by large scale players
• Their cost of capital: less than 1.5% (Banks, Pen Funds, Insurance
Cos, REITS, Publicly traded r.e. firms)
• Our COF: 8 to 12%
• That’s like competing in the 100 metre dash but giving up a lead of 80
metres at the start line! I can beat Usain Bolt in London in 2012!
• Go under the market (and over the market– Ottawa Sens + SBP)
• Mini-offices (Terrace Corporate Centres & Exploriem.org) + ministorage
Professor Bruce M. Firestone
•
•
•
•
•
•
15 acres of industrial land in Kanata North
Cost to construct sheds: $35 per s.f.
Rents are $12 per s.f. per year gross +/Not too management intensive
Lots of competition
Our competitive advantage—built a duplex on site where Manager
lives + month-to-month leases
• Retired person
• Provides security/leases units
• Free rent and other benefits
Professor Bruce M. Firestone
• Kanata wanted BHSC to fence and gate with razor wire entire site
• Part of Village
• We never fenced it but did put in a gate
• Gate never closed!
• Zero vandalism/theft (so far!)
Professor Bruce M. Firestone
• 92% to 96% occupancy (can never actually get to 100%)
• Bought lands for $92,500
• Rezoned
• ‘Old fashioned’ rural development: mom/dad/family in front with the
factory/warehouse/workshop/farm/barns/storage in back
• Sold for $1.1 million
Professor Bruce M. Firestone
Presidential Executive Travel Apartments
(An Example of Build and Hold)
•
•
•
•
•
•
•
•
•
16 condos—Holland Cross and Robertson Mews
Ground floor access
Lockboxes—self admittance at all hours
Furnished units
Telephone, cable, basic kitchen foodstuffs, etc ready to go
Cleaning service—extra charge/profit centre
Apartment rents: $1,200 monthly (1990s)
PETA rents $3,000 monthly (1990s)
Used for Sens players/trades
Professor Bruce M. Firestone
• Not too management intensive
• High quality tenants—paid by tech cos/few problems with collections
• Limited competition
• Developed long term relationships with HR managers at local firms
• Simple exit strategy– MLS.ca
• Leases were 30 days to 90 days—more sales required than typical
one year res leases
• No significant damage to units
Professor Bruce M. Firestone
Stittsville Bungalow (An Example of Asymmetric Information)
•
•
•
•
•
•
•
•
REALTOR puts Seller and Buyer clients together
Not on MLS
Seller wants to sell with 0 showings
Seller wants to sell/lease back so his elderly parents-in-law can
remain in situ for up to 3 yrs
Sale is ‘handicapped ‘ as a result
Buyer is investor with limited budget
Buyer requires co-investors to complete
Co-investors want in on project because: purchase of home for $40k
< FMV, 3 yr leaseback at rent > FMV, Tenant pays all utilities,
stable/predictable cashflow, paydown of mortgage by Tenant,
increase in value over time, bungalows in increasing demand
Professor Bruce M. Firestone
•
•
•
•
2 x Dentists co-invest
They have money but no time
Managing partner has time but no money
Managing partner brings connections with REALTOR, property
management skills, the opportunity to buy below market and to rent
above market
• Investor ROE: 6% cash-on-cash + 7% pay down of mortgage by
Tenant + 1.5% r.e. inflation (~4.5% on equity) + $40k from below mkt
purchase
• Much better return that GICs (3.15% to 3.85%)
• Managing partner gets 20% of the deal for ‘nothing’
Professor Bruce M. Firestone
Thurston Drive/Auriga Drive Industrial Condos (An Example of Build
and Hold + Differentiated Value)
• Too many investors chasing ‘shopping plazas’ or ‘res duplexes,
triplexes, quads’
• Buy product that others overlook/avoid the behemoths like Banks/Pen
Funds/Insurance Cos et al
• Can purchase industrial condos in Ottawa from $165k to $350k+
• Create some DV (Differentiated Value): e.g., add a mezzanine with
separate entrance
• Can rent upper level separately from ground floor or both together
Professor Bruce M. Firestone
Compare industrial condos with residential rentals:
INDUSTRIAL
5 yr leases (typ)
net/net/net leases
little investor competition
low vacancy rates
not too management intensive
few debt collection problems
no RTA– simple distrain
normal wear and tear
Tenants self reliant
Professor Bruce M. Firestone
RESIDENTIAL
probs
1 yr lease (typ)
gross or semi gross
everyone wants in
low vacancy rates
medium amt of mgt requ’d
many debt collection
RTA– evictions difficult
mega damage possible
Tenants needy
• Investors inevitably ‘chicken out’ due to unfamiliarity with product
category
• Only want to buy when 1st class tenants are in place on long term
leases and with 0 risk
• But remember: buy whenever everyone else is selling and sell
whenever everyone else is buying/you make money in r.e. when you
buy not when you sell
• Units become available because they are vacant– great opportunity
for you!
• Buy in a recession– great fortunes are made in recessions
(Baron Rothschild in 1871): “Buy (real estate) when there’s blood in
the streets.”
Professor Bruce M. Firestone
Maple Leaf Design and Construction (An Example of Bootstrapping)
• Bootstrapped their way to success
• Source of capital (essentially supplier credit)
• Friendly landowner provides options on land, basically at no cost
• Owner gets paid by home buyer not Maple Leaf
Professor Bruce M. Firestone
• Option on 20 lots for $500
• Sweat equity: summer in a trailer with plans,
signs and Agreements of Purchase and Sale
• Pre-sold 10 lots
• Collected $20,000 deposits
• Now have $200,000 in their bank account–
impressed with a trust
• Used homeowners credit scores to get
construction financing
Professor Bruce M. Firestone
•
•
•
•
•
•
•
•
•
Triole Street (An Example of BUY LOW/SELL HIGH)
Streetscape is a mess
Crappy tenants/crappy building
stock
But… baseball home run distance
from St. Laurent Shopping Centre
Visibility from Queensway
Bought 9 acres at $1 per s.f.
One yr later– offer for 50 cents!
“Oh, oh, I made a mistake!”
OJ reminds me: “BUY LOW/SELL
HIGH”
Why so hard to do?
Professor Bruce M. Firestone
• People can be sheep
• “Is this dress/suit popular/in-style?”
• Banks only lend when u don’t need the funds– i.e., they only lend to
people who don’t need the money!
• Banks lend when everyone else is lending and when the press is
good
• The reverse is also true
• Investors invest when everyone else does and when the press is
good
• The reverse is also true
Pittsburgh investor buys 300 homes in 2008 for $350 each;
everyone tells him he’s crazy. Now makes his original investment
back every 3 weeks.
Three victims of the Sept. 11, 2001 attacks meet in a stairwell & head down. Then they run
into another larger group who are heading up to await ‘helicopter rescue’. 2 join up
because everyone else is going up. 1 defies conventional wisdom & goes down thru the
smoke and heat because he figured it out (wld take 2 days (!) to evacuate everybody by
helicopter) and he didn’t panic. He was the only 1 to survive. He made it out w/ < 5 mins to
spare.
Professor Bruce M. Firestone
• Two years later
sold 4 acres to Car
Dealership for $8
per sq. ft.
• And 5 acres to
Roofing Company
for $12 per sq. ft.
Professor Bruce M. Firestone
Personal Business for Life, PB4L
How would you like to own a business that made you $100,000 per year
and took about 200 hours of your time ($500 per hour)?
• Richard Rutkowski, former Kanata City Councillor, REALTOR,
Owner, Best of Kanata.
• $600 per page to advertise in book.
• Lots of pages.
• Books sell at retail for $20 each.
• Two main sources of revenues.
• Each book buyer becomes a member and gets 10% off at all
participating retailers using BOK CARD.
Professor Bruce M. Firestone
•
“Secret sauce”: his advertisers are also one of his main distribution
channels.
•
They buy books to sell to their customers at $20 and keep $10.
•
If a full page advertiser sells 100 books, the cost of their ad is -$350!
•
What a great value proposition: BUY AN AD IN THE BEST OF
KANATA FOR A –VE $350.
Professor Bruce M. Firestone
•
Another channel– charities and minor hockey/soccer groups buy the
Books for $5 and sell them for $20.
•
Low tech.
•
Richard can SELL.
•
Richard is trusted.
•
Advertisers pay 50% on signing contract and balance on delivery of
books.
Professor Bruce M. Firestone
•
Pre-sold enough advertising to pay for first printing and then some.
•
Cash required to start BOK: -ve!
•
This biz is scalable.
•
Maybe there is a market for:
Best of Dartmouth,
Best of Cole Harbour,
Best of Lower Sackville,
Best of Manhattan!
Professor Bruce M. Firestone
•
NEVER, NEVER sell this.
•
It is like:
a sinecure,
a franchise,
a license,
a concession,
a Personal Business…for life.
Professor Bruce M. Firestone
•
Perhaps, we should each have one micro business that we hang
onto for life;
•
It would be pretty cool if every man, woman and child on the planet
each had their own Personal Business.
•
It’s a fallback position or, as my Dad used to say, your “iron reserve”.
Professor Bruce M. Firestone
•
A PB4L does not include things like the guy who tells you: "I can show
you how to make a million! Just send me ONE dollar, and I will tell you
how."
•
And, of course, the answer is: "Get a million fools to each send you a
dollar to tell them how..."
Professor Bruce M. Firestone
•
They have to be real businesses.
•
One way to find inspiration might be to go get a copy (from your
library) of the Encyclopedia Britannica and look for crafts from the
1930s.
•
Say, for example, making high end paper for writers, socialites and
important persons who want acid-free paper to preserve their writings.
•
Or a high end chef sells his restaurant to his employees and canning
his recipes (like smoked canard) which he then sells with his two
partners at shows and high-end shops in Québec and elsewhere…
Professor Bruce M. Firestone
Le Naked Lunch
•
Who: You are the Chef running a high-end
restaurant at 4816, rue Wellington, Montréal,
Québec
•
You are trying to convince your two partners
to sell the restaurant to your employees
•
To focus exclusively on canning your recipes
and selling them across the planet in
specialty shops and at trade fairs
Professor Bruce M. Firestone
•
Your accountant told you that last year you made around $55,000 from
your restaurant and deli counter
•
You worked unbelievable hours running the restaurant and you have a
dedicated client base that love your food
•
You speak some English but like many Québécois, you feel more
comfortable in French
Professor Bruce M. Firestone
•
As you were leaving your accountant’s office, he offhandedly told you that
one unusual thing he noticed was that your deli counter made you and
your partners almost 80 grand last year
•
A few days later, you found yourself awake at 3 am with a thought: “If we
made $80k from our puny nine foot long deli counter but only $55k overall
from the whole enterprise, is there a message here for us?”
Professor Bruce M. Firestone
•
You know you are a great chef with unbelievable recipes—this is your
business’ ‘secret sauce’
•
Colonel Saunders had his 11 secret herbs and spices
•
Coca Cola has their secret formula
•
But how many people know how to make your Smoked Meat de Canard
that sells for $18.95 per tin (CAD) or TAJINE DE LÉGUMES À L’OLIVE
ET À L’AGNEAU that sells for $14.95 for a tin that holds 530g?
Professor Bruce M. Firestone
Answer:
only one person knows how to do that—you!
Professor Bruce M. Firestone
•
What if you could work 1/3 fewer hours?
•
Travel the world selling your stuff?
•
Visit fabulous places?
•
Meet cool people?
•
Sell online and in specialty stores?
•
What if you could actually make money by selling your restaurant to your
employees and make still more money by selling them your products on
an ongoing basis too?
Professor Bruce M. Firestone
Is the fact that you made more money from your tiny nine foot long deli
counter selling take home products than running a complex operation like a
high-end restaurant with its long hours, demanding clients, significant
business, litigation and health risks, needy employees and greedy landlord,
is all this telling you something?
Professor Bruce M. Firestone
•
It’s interesting to note that when you disaggregate results for even quite
small businesses, you can learn something new
•
In this scenario, the deli counter is making an $80,000 profit while the
overall business is seeing just $55,000 on the bottom line
•
That means the restaurant itself is losing $25,000 per annum
Professor Bruce M. Firestone
•
When we ran the largest mini-office operation in eastern Ontario, we
found that we made money renting minis but lost money in our word
processing and services division
•
Rather than closing it, we did something similar to what the owners of Le
Naked Lunch did: we sold it to an entrepreneur.
•
Within six months of buying it from us, she had turned a $3,500 per month
loss into a $4,500 per month profit. Meanwhile, we received $45,000 from
selling the biz, its equipment, client list and lease plus we turned a
monthly loss into a new rental income stream (she paid us rent for her
space)
Professor Bruce M. Firestone
Please note: that the accounting scenario presented above for Le Naked
Lunch is created by the author as a plausible set of circumstances for the
change that took place for the Chef and his two partners based on a
discussion with one of the partners in Magog, Québec in September 2009
Professor Bruce M. Firestone
To Make Yourself More Successful.....
Professor Bruce M. Firestone
.....First Make Your Clients More Successful
•I
built my own Shopify store on their platform in less than ten minutes
•Problem
•Sent
•At
understanding their back end customization system
an email to them at 5:50 pm on a Saturday night
5:57, I got an answer from one of their ‘gurus’
Professor Bruce M. Firestone
SHOPIFY
Professor Bruce M. Firestone
Shopify.com’s experience
•
Shopping e-commerce platform established by Tobi Lutke and Scott
Lake in 2005
•
Original mission was basically to fund the guys’ interest in
snowboarding
•
Unhappy with then e-commerce offerings, Tobi, who was a
sophisticated developer originally from Germany, built a better
mousetrap using Ruby on Rails
Professor Bruce M. Firestone
•
RoR is an open-source web framework
•
Inspired choice– coding was no longer an indecipherable, exclusive
priesthood
•
Friends started asking them if they could build online shops for them
•
What business are they really in?
Professor Bruce M. Firestone
•
So typical–business plans or models introduced into RL (Real Life)
transmogrify into something quite different when they greet first
customers
•
Shopify’s business model based on SAS, Software as a Service
•
They have CMRR, Committed Monthly Recurring Revenues– Holy
Grail of Techdom
Professor Bruce M. Firestone
•
Profitable in first 12 months
•
> 10,000 clients by 2010
•
Fastest growing e-commerce platform in the world (1,000s of new
stores on their platform each mth)
•
In Dec. 2010– they take in $7m in VC (Series A) and $15m in 2011
funding from Bessemer Ventures, 3rd largest and oldest VC in US
•
First Bessemer deal straight equity–Preferred shares
Professor Bruce M. Firestone
•
This is after they had established annual run rate of $135
million and become No. 7 on Canadian Business’ List of
Canada’s Fastest Growing Businesses
•
Founders retain control/sweet deal because Shopify had
real clients/real cashflow/Took Bessemer’s money: every
dollar invested in marketing, sales and their ‘guru’ program
returns four/suivez l’argent
Doesn’t hurt that Bessemer can intro them on 1st name
basis to tech titans like Twitter, FB and Google/superbly
well connected in Silicon Valley
Professor Bruce M. Firestone
•
•
“…we work in a business of tough competitors,” Jerry McGuire
•
When I was a boy, there were about 3 billion people on this planet and
perhaps 20% participated in a modern economy
•
Now there are nearly 7 billion and probably 60% participate in the
modern economy
Professor Bruce M. Firestone
•
Good news– more people to sell to
•
Bad news– much more competition
Professor Bruce M. Firestone
•
Opened up platform
•
API for best-of-breed providers of services
•
e.g., email marketing (Mail Chimp) and accounting software (Intuit and
Quick Books)
•
Clients wanted to integrate these services into their e-stores
•
Expanding their reach too
•
Powerful companies like Intuit have strong incentive to integrate Shopify
into their offerings
Professor Bruce M. Firestone
•
Shopify’s business model: COGS (Cost of Goods Sold) approximately
zero
•
Top line growth powers profits because gross margins are high since
platform is already built
Professor Bruce M. Firestone
•
Subscription model with clever pricing strategy
•
Price each store pays for service per month (roughly) proportional to
bandwidth use with a minimum charge for smallest stores (under $30
monthly)
•
Traffic on the site could come from people window shopping or people
actually making transactions
•
From client’s point of view, not giving up a percentage of each transaction
to Shopify
•
Incentive to pump up average sale
Professor Bruce M. Firestone
•
Shopify adding new stores at prodigious rate (in the hundreds and
hundreds per month)
•
Currently employ >100 people, about half of them developers
•
Funky offices in the Byward Market (a cool downtown part of Ottawa)
•
Friday afternoons, expect developers to work on projects not related to
work
Professor Bruce M. Firestone
•
Everyone has secret, private dream
•
At Shopify they align private dream and worklife
Professor Bruce M. Firestone
“One person with passion is worth 40 people merely interested,”
Peter Brown.
•
People want to feel they belong to something bigger than
themselves
•
At Shopify, they don’t talk about work-life balance
•
Bogus differentiation
Professor Bruce M. Firestone
•
http://www.dodocase.com/ single-handedly resurrected handmade book
binding business in San Francisco
•
Dodo Case built their Shopify store and won a $100,000 prize for being
fastest growing business on the platform over a 6-month period
•
Make customized iPad covers
Professor Bruce M. Firestone
•
Competition face value cost = $100,000
•
Acquired 1,300 new stores during 6-months that it ran
•
1/2 of which are still with them
•
Marginal revenues = $86,000
•
Out-of-pocket costs = just $14,000
•
Great Guerrilla Marketing
•
Fabulous earned media in New York Times and Wall Street Journal
Professor Bruce M. Firestone
•
Before Shopify, Yahoo store or developer builds you one
•
Cost of tens or hundreds of thousands of dollars
•
Months to launch and another year or two to debug
•
Lucky lady gets call on Thursday to be on ABC’s morning show Monday
•
Her big chance
•
But doesn’t have online store
•
Designer builds her one on Shopify platform from Thursday to Monday
•
She does $2 million in watch sales over following two weeks
Professor Bruce M. Firestone
•
Shopify’s innovation: create a class of people (Shopify Gurus) who,
although have technical training, are neither in technical support nor sales
•
Gurus are in business of helping Shopify’s clients develop their
businesses
•
They follow them and coach them during the life of each store
•
Job is to make sure that clients do well on Shopify platform
•
Belief is that if clients do well, Shopify will too
Professor Bruce M. Firestone
There are seven things that the Shopify Gurus keep in mind when they are
helping clients with their biz dev:
•
1. Don’t try to out-Amazon, Amazon, basically, sell what Amazon doesn’t*.
Amazon has fabulous selection, incredible pricing and fantastic delivery. Dodo
Case sells hand bound covers for the iPad that they choose not to make
available on Amazon.
(* They borrowed this from Seth Godin’s story that even mighty Wal-Mart has
signs up around their HQ that say: ‘You can’t out-Amazon, Amazon’.)
•
2. Demonstrate awesome customer service. Melondipity.com, which sells baby
hats, allows mothers to text for customer support since many of them are not
allowed to use the telephone at work or their PCs for personal use, so they text
for help instead.
•
3. Pick a group and interact with it. Don’t try to sell to the world.
GoodAsGold.co.nz sells wacky clothes to unique individuals and they have more
than 8,000 fans on Facebook. They interact heavily with them using their
Facebook account.
Professor Bruce M. Firestone
•
4. Articulate your value proposition and your mission. Acts of Random Kindess
sells t-shirts but their mission statement is that, every time you wear one of their
shirts, you must perform one act of random kindness, a beautiful thought.
•
5. Entertain your customers. LooseButton.com lowers the price of a product if
you can get more people to ‘Like’ it on Facebook. Every ‘Like’ is worth
(approximately) a negative 16 cents. That means that they are paying $160 per
thousand pairs of eyeballs (their CPM*) but it’s worth it to them since this is also
their magic marketing button. Every ‘Like’ has the chance to go viral too since it
appears in your news feed and if you too ‘Like’ it, then all your FB friends see it
as well. This is smart pricing. Even Profs today are in the infotainment business.
(* For more about how CPMs work in the advertising business, please
read:http://www.eqjournalblog.com/?p=622.)
Professor Bruce M. Firestone
•
6. Curate* your site. Curating is an old profession and one that is making a big
comeback in the 21st Century. Even old-line department stores get it; they are
reducing the number of items they stock in favour of fewer, more interesting
combinations that a consumer would be hard pressed to find on their own.
Shop.Holstee.com, for example, stocks fewer, impossible-to-find-anywhere-else
items like super strong, long lasting belts made from…old firehoses.
(* I wrote more on how this profession is making a comeback
at: http://www.eqjournalblog.com/?p=487.)
•
7. Lastly, believe in something. The founders of Dodo Case and Holstee share
their core beliefs with their audience and they interact with them every day.
Holstee publishes their manifesto on their site and it is one of the most often seen
images anywhere on the Shopify platform.
Professor Bruce M. Firestone
•
About 30% of Shopify revenues come from designers who embed
platform in their offerings
•
In effect, becoming Shopify resellers
•
This could be the fastest growing part of their business in next five years
Professor Bruce M. Firestone
•
Shopify realized early on: they exist in business ecosystem
•
Has at least two dimensions on client side of business model: customers
who want to set up e-commerce enabled stores and designers who
create stores for customers who want to participate but can’t self serve
Professor Bruce M. Firestone
•
Businesses need to look at complete ecosystems
•
Both the supply side and the revenue side
•
Discover new opportunities in inter-relationships in supply chain, in
revenue chain and links between parties on revenue side and parties in
their supply chain
•
Discover then unlock enormous new value from business model
•
See: The Complete Business Model
(http://www.eqjournalblog.com/?p=692)
“You can think your way to success a lot faster than you can work your
way there,” Prof Bruce
Professor Bruce M. Firestone
•
Shopify in strong position to use Negative Cost Selling with both their
direct customers and the design community
•
For latter, as kind of reseller, cost of using Shopify platform is likely to be
less than what they can charge for custom e-store
Professor Bruce M. Firestone
•
For direct customers, Shopify proves that cost of running each e-store
less than margins each client realizes from their sales
•
Have to understand customers’ businesses almost as well as they do
themselves
•
Which is what makes Shopify Guru strategy brilliant
(http://www.eqjournal.org/?p=2171)
Professor Bruce M. Firestone
Transitus– A Study in Abject Failure
•
T.C. Transitus Communications Inc. (Transitus) designed and developed
innovative backlit billboard advertising units for use with the taxi industry
•
The billboards (called MediaDomes) are protected under US Patent no.
D386,209, issued November 11, 1997 which is valid until November 11,
2011
•
Transitus invested in and developed a full service advertising company
using these units
•
Circa 1999
Professor Bruce M. Firestone
Professor Bruce M. Firestone
The Competition
Professor Bruce M. Firestone
National Research Council Wind Tunnel Tests
Ottawa, Canada
Professor Bruce M. Firestone
More Photos
Professor Bruce M. Firestone
•
Nine-sided MediaDome is suited to campaigns for world brands
•
Sleek unit profile and 360-degree viewing angle, combined with full color,
vinyl graphics and true color representation from using translucent white
polycarbonate and halogen bulbs provide the advertiser with a
significantly improved billboard product
•
Visibility after dark and the 24-hour, 365-day operation together with the
above features make the MediaDome a world brand advertiser type of
vehicle
•
The ease with which the images can be replaced and their relative low
cost are additional considerations in keeping the message fresh
Professor Bruce M. Firestone
•
Business model includes tying together a national and international
network of cities using MediaDome
•
A web enabled system will allow advertisers to e-mail their artwork to the
company and receive final design for final approval the same way
•
The company can control the production quality of the vinyl images in a
few centers and deliver them by overnight service to installation people in
each locale
•
Transitus can turn around orders for a taxi billboard campaign in a matter
of a few days
Professor Bruce M. Firestone
•
Development costs were approximately US$600K over a three-year
period
•
The potential for a high-quality, cost-effective taxi billboard product in
North America is US$5M to US$10M in annual sales within five years
•
The related advertising business delivered on MediaDomes presents
substantially higher, and virtually perpetual, stream of revenues and
margins
•
Market penetration of some 30,000 to 35,000 taxis produces potential
annual advertising revenues of more than $100M with excellent margins
Professor Bruce M. Firestone
Cost Comparison of Advertising Media -
Cost per Thousand Viewers (CPM, US$)
Professor Bruce M. Firestone
The Bus Board CPMs have been calculated using the Gamma-Poisson
method which is a different method from what was used for the other
media. They are based on peak-hour traffic only since 85% of transit
buses are not on the road in off-peak hours. In practice, there would be a
small percentage of additional viewers in off-peak hours which would
reduce this calculated rate, but without internal lighting, day-time only
operation should be included
To calculate GRPs and CPMs, please see:
http://www.dramatispersonae.org/TransitusGRPs.htm
Professor Bruce M. Firestone
Qualitative Differences
Taxi cabs and MediaDomes in particular, deliver more value than
the numbers alone suggest, although the numbers are terrific too.
Taxi cabs, unlike bus advertising or stationary billboards or other
forms of advertising, yield a number of advantages including:
Professor Bruce M. Firestone
1. They travel on non-fixed routes and, typically, 24 hours per day, seven
days per week.
2. Busses tend to operate Monday to Friday and during peak times only-the remainder of the day they tend to park (unseen) in city depots far
from the pulse of city life.
3. Taxis, even when parked at taxi stands and ranks, tend to be where the
action is and where they can be seen.
4. Transitus' MediaDome is lighted so its visibility actually increases still
further after dark--bus signs are essentially invisible after nightfall.
Professor Bruce M. Firestone
5. The MediaDome and advertisers' messages are seen up close by
passing vehicles, trailing vehicles and pedestrians unlike billboards
which can be far removed.
6. Our self-adhesive, full-color vinyl ads are UV protected and do not
fade giving the advertiser fully consistent results throughout the
campaign.
7. The creative is also not affected by car washes meaning that the
advertising partners' products look good all the time.
8. Since the creative is inexpensive to reproduce and install, the
advertiser can change the campaign often and keep the message fresh.
Professor Bruce M. Firestone
9. MediaDome advertising gives much greater value per thousand
viewers in absolute dollar terms than any other media and it also
delivers qualitative advantages such as--client messages can not be
zapped by a television remote control.
10. The MediaDome product is new and its elegant, innovative, patented
design delivers a powerful message that will get noticed.
11. National and local advertisers will now have a new channel to reach
a narrow or wide, upscale audience--taxis tend to travel in all parts of a
metropolitan area but they also tend to concentrate more in areas that
deliver superior demographics.
12. Each viewing of the MediaDome can last a long time--there is a
captive audience on clogged city streets and congested freeways.
Professor Bruce M. Firestone
Abject Failure
•
One launch client: Corel Draw
•
Virtually no other clients
Professor Bruce M. Firestone
Why?
•
Cigarette advertisers
•
Political advertisers
•
Girlie clubs
•
No mainstream brands
•
Business plan but no biz model
Professor Bruce M. Firestone
What should we have done?
•
MINIMUM 3 LAUNCH CLIENTS
•
Biz Model
Professor Bruce M. Firestone
http://www.dramatispersonae.org/tr
ansitus-biz-model-circa-1999.jpg
Professor Bruce M. Firestone
Investigate implications and advantages of e-paper:
1. sale of time instead of space
2. no need for cabs to come in for changeover of ad campaigns using
wireless modems
3. e-paper is bright even in full daylight
4. low power consumption
5. can still be backlit
6. ad campaigns can be very au courant
7. less of a stigma for this industry
8. high technology component- more attractive to VC industry, advertising
clients and cab drivers, owners and operators
Professor Bruce M. Firestone
But there is something more!
5:20 am on the 14th day of Feb. 2011, I figure it out
11 years > failure
Professor Bruce M. Firestone
GIS
If you combine e-paper with GIS by using GPS systems in cabs,
you now have an unbeatable combination which wld appeal to Google and
Bing.
Sell time on MediaDomes and location.
Pull up to an office complex, run an Ad for Starbucks.
Pull up to a convention centre, run an Ad for Nightclub.
Professor Bruce M. Firestone
•
But you can NEVER go home again
•
If you fail at something, don’t revisit it
•
Move on with yr life
•
Let the next generation pick up where you left off
Prof Bruce
Professor Bruce M. Firestone