I write this newsletter to share some of the new ideas I’m thinking about as well as my professional progress. A little about me:
I own and manage an agency in Toronto called August that designs and builds digital products. We spend about 80% of our time on client work, and 20% on internal projects. The most recent, and the one I’m most excited about, is called All Sorts, a catalog offering direct mail marketing to DTC brands. I also invest in real estate with my two brothers.
The big news in Canada over the past month has been the federal election, which was held on September 20th.
It wasn’t very interesting but cleared the air for me to now focus the electoral politics part of my brain squarely on the upcoming Ontario provincial election, which will be held in June 2022.
Provincial elections are more interesting to me as the Province has much more of a mandate to do something about housing affordability, which has easily become the most important issue in Toronto (and beyond) over the past few years.
This is how I think about housing affordability, by the way:
Housing in Toronto is expensive because there’s not enough of it. There’s not enough of it because municipal land use rules are overly restrictive. And municipal land use rules are overly restrictive because city councillors and the people who elect them like it that way.
This is the NIMBY problem, and I think that it needs to be resolved by the Province, which is less of reliant than the City on Toronto homeowners for electoral success.
That is especially true of the Progressive Conservative Party of Ontario (PCPO), which relies least on Toronto homeowners for electoral success. A PC government might therefore be best suited to resolving the NIMBY problem.
As all three major parties spend the next few months working on their policy platforms, they should also spend some time thinking about what the first 100 days of governance might look like if they were to be elected.
We’ve arrived at this housing equilibrium described above through the very democratic process of residents voting to keep new residents out of their neighbourhoods. Within that context, if we’re to meaningfully resolve the land use rules that constrain housing supply, there are some things that the parties should propose during their respective campaigns, and other things that they should keep quiet about and implement following their election.
“A newly born government must dazzle and astonish; when it ceases to do that, it must fall.”
Napoleon Bonaparte said that. He was a pretty smart guy.
Here’s how I might dazzle and astonish, were I a newly elected (or re-elected premier). Within the first 100 days,
I’m rewriting the Toronto, Ottawa, and Hamilton Official Plans and Zoning Bylaws, and there will be no right to appeal my changes. (I’ll flesh out the specifics in a future newsletter.)
I’m banning residential-detached zoning and minimum parking requirements across the province.
And I’m pairing these changes with a high-quality communications campaign that would feel… overwhelming.
This would all happen lightening fast, with a goal of having all the sturm und drang wrapped up by day 100. My Ministry of Municipal Affairs and Housing would then spend the new few years blocking and tackling municipal attempts at undoing these changes, while builders would be encouraged to build, build, build and establish a new and irreversible built form context.
The key with big, bold reform is to do things that, though they might be unpopular at the time, quickly become established as a new status quo.
Toronto’s amalgamation and halving of council size both fall into this category. How crazy would you have to be to propose de-amalgamation and a doubling of council size in 2022?
Similarly, how crazy would you have to be to re-introduce exclusionary zoning and minimum parking requirements in 2026?
August, as you know by now, is a service business. We design and build digital products for clients. We also spend a bit of time working on internal projects, and I’d like to do some more of that.
As I think about this split in focuses, I’m reminded of this visual flowchart outlining Walt Disney’s strategy for his business in 1957.
I’m a huge Walt Disney fan. He accomplished a lot in his life, and it’s striking how it all started with a creative service business.
That service business (originally producing short animated videos for distributors) allowed him to hire extremely talented people, who could then be redeployed to internal projects as the size and profitability of the business increased.
One of the most important metrics every service business tracks is their utilization rate. This is the amount of time employees spend working on billable client-facing tasks vs. the total amount of time they are available to work.
There are some nuances to how this could and should be calculated that we won’t get into, but for the purpose of this discussion, it’s helpful to think about the utilization rate for a service business as a whole and how it relates to working on internal projects.
Let’s say you’re targeting an 80% utilization rate, which we are. If you have eight employees, which we do, that’s ~320 total hours of work per week, with a target that ~256 of them be spent on billable tasks.
Those remaining ~24 hours per week can then be spent on non billable tasks, like administrative work, including human resources, marketing, business development, and if possible, internal projects.
That’s not a lot of time.
If you grow your headcount to, say, 24 employees however, that’s ~960 total hours of work per week, ~768 hours targeted for billable tasks, and ~192 hours available for non-billable tasks.
That’s starting to get better.
One of the downsides of running a service business is that your revenue growth is very much correlated to your headcount growth. You can increase your hourly rates, but ultimately, if you want to build a bigger business, you need to hire more people. It’s a build once, sell once business.
But with headcount growth comes more time to work on internal projects. For a digital agency like ours, that typically means software projects, with a goal of launching a separate software product business—a build once, sell twice business.
And things then start to get a lot more interesting.
You could of course skip the whole service business step and raise venture capital to fund the talent needed to build a software business, but that comes with two disadvantages.
First, you don’t really know whether you’ve got a good idea until you launch it. And you might have to launch multiple ideas before you get to a good one that demonstrates real product-market fit. A service business can ensure that your bills keep getting paid while this experimentation is taking place.
Second, equity dilution.
I like the Walt Disney approach: work on projects for paying clients, hire the best people you can, and as you grow, redirect some of those people to working on your own projects.
This is how a small, scrappy studio eventually builds Disneyland.
I’m going to nickname the real estate project mentioned in last month’s newsletter Forever Hold #1, or FH1. My brothers and I have done two solid real estate deals before this one, but this will be the first we hold onto.
In any case, since closing on FH1, we’ve done a few things.
First, we discovered that the place was a complete mess. We had agreed with the seller that they would ensure a clean, empty building, but didn’t account for the fact that they are wholesalers* who never actually had access to the property prior to close.
Here are some “before” pictures for the main living area and master bedroom.
To honour our original agreement, the seller agreed to pay for junk removal, though they weren’t particularly happy about to do so. We got three quotes, the lowest of which was $5,000, and after much haggling, agreed to have the seller reimburse us $4,000.
Here are the “after” pictures.
Much better, though we still need to do something about that Coke fridge.
Second, we have not yet had our Pre-Application Consultation with the local Planner to determine whether or not they’d be open to a few minor variances. As we wait for that meeting, we’re going to apply for a Preliminary Planning Report (PPR), which would confirm which variances we would need for our preferred design approach. It typically takes six weeks for a PPR to be issued, so we should have ours sometime in November.
Third, we’ve started casually meeting and chatting with our neighbours. It’s generally a good idea to get to know your neighbours if you think you’ll end up applying for minor variances at the Committee of Adjustments. This allows you to gather feedback on those things they might be most sensitive about, and helps you build some rapport and (ideally) mutual empathy.
The process of infill development and intensification is the process of changing the way a part of a neighbourhood looks and feels. That can be jarring to long time residents. Many developers underrate how much they can influence the general response to their projects by being friendly and respectful. We plan on being both.
*A wholesaler is someone who sends large volumes of unsolicited letters to residential and commercial property owners offering to buy their properties. If successful, the wholesaler typically signs into an Agreement of Purchase and Sale (APS) with the seller, which would include a conditional period within which they’d be able to walk away without losing any money. They then try to find a real buyer for the property within that conditional period and assign the APS over to that buyer. That might sound like an easy way to make some money, and if you’re really good, it can be, but it’s very competitive.
stuff I’ve enjoyed
This is some of the content I’ve come across over the past month that was especially good.
Article: This essay by Allen Farrington and Big Al is an expanded and much smarter version of the argument I advanced in last month’s newsletter, that Bitcoin is categorically different than the rest of the crypto market, and will in time absorb most of its utility and value. It’s hard to read this piece without getting more excited about Bitcoin’s promise, regardless of your priors.
Book: I re-read most of Alain Bertaud’s Order Without Design this past month. In my view, it is the single best book on cities and urbanism, broadly defined. It’s one of those books that you wish you could force onto people—in this case, municipal politicians and urban planners. I had the pleasure of hosting Alain in Toronto when this book was first launched, and was very happy to see Toronto’s Chief Planner Gregg Lintern in the audience.
Podcast: I discovered a new podcast called How To Take Over The World. Its episodes summarize biographies of great men and women in history. Two stand out episodes were on Napoleon Bonaparte and Thomas Edison (three-part series).
Video: A few months ago, I read a great book on the people working to advance fusion power. It’s called The Star Builders: Nuclear Fusion and the Race to Power the Planet. Since then, I’ve been obsessed with the topic, as cracking this code could radically advance our civilization. Since, then, this past month, I’ve also come cross this really cool video explaining fusion power in a way that a child could understand. You should check it out. In fact, the whole channel is excellent.
And that’s it for now. I hope you have a great October!
Feel free to reply to this email with any comments or questions. I love chatting about everything mentioned above.