Daily insights for city builders, delivered every morning at 6 AM ET. I’m Brandon Donnelly — a Toronto-based real estate developer and founder of Globizen. I’ve been writing here since 2013.
Large law firms typically operate on a structure known as a pyramid or leverage model. The basic idea is that at the top there is a small group of equity partners who are expected to make it rain and bring in big clients, but who don’t actually do most of the work.
Beneath them is a middle layer of senior people who manage the day-to-day, and at the very bottom is an army of juniors who do most of the actual grunt work.
Because the base is wide and the juniors are getting billed at hourly rates that far exceed their fixed salaries, the partners at the top get the benefit of the excess funds flowing upward. It is a model that relies on juniors working long hours, most people burning out and leaving, and a relative few becoming partners.
But as we know, AI disrupts everything. Interestingly enough, Wall Street firms are reportedly going to their big law firms and saying, “Hey, now that AI is empowering you to work fewer hours and be way more efficient, we’d like you to tell us exactly how many hours you’re saving and reduce your fees accordingly.”
According to this recent FT article, the broad expectation is that the cost per transaction is going to come down significantly and that legal firms will need to adopt different business models in the short term.
I don’t think this necessarily means that legal firms will become less profitable, but it certainly encourages people to move away from “this is how many hours I worked” to “this is all the value that I created for you.”
We landed on our big-picture luggage strategy for Vivienne’s first trip, and our car seat versus no car seat decision (who wants to drive?), so now let’s look at some of the smaller stuff. As a reminder, we’re going to be operating with one large 85L check-in bag, a Patagonia 30L carry-on backpack, another smaller carry-on bag, and the Ergobaby Metro 3 travel stroller. Below is a mostly comprehensive list of the other, less-obvious things we’re bringing. Most of what you see pictured will be going in my carry-on backpack.
Pictured (from left to right):
Baby carrier for urban exploring on foot
Portable fan that attaches to our travel stroller (charges via USB-C)
Diaper pack cube with 20 diapers and a fresh pack of wipes (this is going in our carry-on just in case we once again become quarantined at Brest Airport and we can’t buy diapers for 24-48 hours)
Smaller packing cube with clothes, burp cloths, and other important stuff for Vivienne
Smaller diaper bag that we’ll use for diaper changes (instead of carrying the bigger diaper pack everywhere)
AIAIAI headphones for the plane (these will get cut if we end up short on space)
Various chargers and cables
Plane and beach reading material (including Monocle’s summer newspaper, Med, Mountains & More)
Fujifilm camera (it’s been a while since I’ve taken this out)
GoPro, and selfie stick, which also doubles as another stand for our baby monitor (these are liable to be cut as well)
Cycling cap and cycling shoes not pictured here (plan is to do some road biking even though I’m the furthest thing from conditioned this summer)
There’s an old saying that “cynics sound smart, but optimists move the world.” And indeed, studies show that we typically perceive pessimism as a sign of intelligence. On some levels, this makes sense because it requires intellect to understand something, and then expose its vulnerabilities.
But at the same time, pure cynicism can be inherently passive. It’s an easy armour to wear, one that protects the user from (1) taking risk, (2) being proven wrong, and (3) doing the hard work to determine whether something might actually work. Importantly, cynicism generally creates zero new value. It may protect you from a bad decision, but it also blocks you from the really great ones. Value creation demands action.
Now, blind optimism is not the answer. Risk management is essential. In fact, some of my real estate developer colleagues describe the business purely in these terms: “I manage risk for a living.”
The right answer is a kind of rational optimism. Because the greatest value creation comes when you believe something is true or possible, even if it has never been done before. If someone has already proven the thesis, it doesn’t require the same degree of optimism; it only requires research.
If you’re looking for evidence of this in practice, consider that the most entrepreneurial cities in the world have robust capital markets that are inherently tolerant of risk. Venture capital, for example, is rational optimism scaled across an asset class. It operates on a power-law distribution. The assumption is that most investments will be a failure, but a select few will more than make up for it.
This is an important feature because it rewards bold ideas that can change the world. But for all of this to work, you need a healthy dose of institutional optimism. Without it, these bets go unmade and the future gets created by someone else. Let’s not ignore this key ingredient as we build our cities.
I recently came across an online post criticizing a Canadian Tire ad that was very clearly created by AI. The text was illegible (most AI models aren’t excellent at text). The model’s face was plasticky. And everyone was piling on, saying things along the lines of: “Shame on Canadian Tire. They should have hired a Canadian model, photographer, and graphic designer.”
While I can appreciate where this is all coming from, the reality is that the cat is out of the bag. As I’ve said before: What is real anymore? It doesn’t matter. We all have to adapt. I have, for example, noticed a dramatic change in the architectural workflow on our projects. We are now seeing an infinite number of visualizations throughout the design process, and that is making it a lot easier to iterate and refine ideas. So much for the quick blue foam models.
On some projects, where we have a collaborative working relationship with the design team, we now send AI renderings back and forth in group chats: “I’ve changed the material on these soffits and modified the brick coursing. What do you think?” None of it is perfect. But neither were the physical models and other tools that we used to rely on to test ideas.
If anything, it’s overwhelming in the best possible way. The creative possibilities are endless.
Canada has a smart, highly educated, and entrepreneurial population base. The problem is that too many are leaving to build elsewhere. Here are some alarming stats from Barn Ventures, using data from Dominion List.
The list shows 517 US-based companies with a Canadian founder. Of these founders, 88% were educated in Canada (12% were only born here), and the top feeder schools are the exact ones you’d expect: University of Waterloo, University of Toronto, and McGill University (in that order).
Collectively, these companies have raised something like $414 billion of capital and 56 of these founders are now worth at least $1 billion. This is wealth being generated outside Canada, and then being reinvested into things, people and opportunities outside the country.
The good news is we already have the raw ingredients. Excerpt from Jesse Rodgers at Barn Ventures:
The thing Canada has is the one input none of these programs can manufacture: the builders. The Dominion data proves it — 88% of those founders are our graduates. Waterloo produces them on a schedule. The missing piece isn’t talent, or even capital — it’s the infrastructure to recognize and back people before someone in San Francisco does, and now “before” means before they’ve finished a degree.
If we wait until a smart young person has graduated, started a company, and proven out their idea (which is often what Canadian capital wants), it’s too late! That founder is gone, living in the US, and raising capital for audacious, stupid-sounding ideas that have a small chance of 100x payoffs.
As they should.
This is one of the reasons why I think our current real estate downturn will be a net positive for the country in the medium and long term. Too much capital was getting allocated to real estate, starving other economic development opportunities (and I say this as a real estate developer).
We need to be taking more bets on young Canadians with crazy ideas and accepting that failure is a normal part of the process. Because if we don’t, another country clearly will.
This is a longstanding joke / criticism among nerds:
Namely, it is the fact that the charging port for Apple’s Magic Mouse is on its bottom, meaning, when it’s being charged, you can’t use it. This would be annoying if you ignored the low battery warnings and let it die in the middle of working on something critically important. And so lots of people think it’s a ridiculous design. But is it? Here’s an excerpt from a recent post by John Gruber of Daring Fireball:
Yes, with the charging port on the mouse’s belly, you cannot use it while it charges. There are obvious downsides to that. But those positing the Magic Mouse as absurd act as though Apple doesn’t know this. Of course Apple knows this. Apple obviously just sees this as a trade-off worth making. Apple wants the mouse to be visually symmetric, and they want the top surface to slope all the way down to the desk or table top it rests upon. You can’t achieve that with an exposed port.
This is an argument that feels right. Apple is not the kind of company that makes arbitrary design decisions. And the deliberate decision they have made is that a more perfect design is more important than solving for the few instances where a user was negligent and forgot to charge their mouse. Gruber goes on to say, the “charging port placement is an opinionated design, not an absurd design.”
But this then raises another question: Is opinionated design the right approach?
For well over a century, one of the maxims of good design has been that form should follow function. In other words, the shape and design of an object should relate to its intended use. And so, in this instance, if “function” involves using the mouse while it’s being charged then maybe, by this criteria, it isn’t a good design. Then again, it is a wireless mouse. Maybe Apple doesn’t want you to use it while it’s charging.
Let’s consider another design object that you touch with your hand: Walter Gropius’ famous door handle.
Originally designed in 1922, the simple design consisted of a square bar and a cylinder. And its job was to communicate to you that, in order to use it, you should grab the cylindrical part, and not anywhere else. So on this level, the design was responding to its intended use, to our hands. Grab here. But is this truly an example of form following function? It’s debatable.
Architect and professor Witold Rybczynski, who I would say generally isn’t a fan of modernism, has argued that it’s not. His critique of the overall Bauhaus movement — of which Gropius was the founder — was that it was actually a design school dedicated to “form follows predetermined aesthetics rather than form follows function.”
In some ways, he’s right. You can tell when something came out of the Bauhaus, just as you can tell when something is from Apple. There’s a particular aesthetic and stubbornness to maintaining it. That’s why the Magic Mouse can’t be charged while in use and why Apple, equally famously, clung to the simplicity of a single-button mouse. Two just didn’t look as nice.
But I see this as an honorable quality. Having an opinion is better than not having one. And there are lots of objects out there without one.
One way you could oversimplify the Canadian economy is to say that it revolves around three things: natural resources, real estate, and high immigration. (You can tell me I’m wrong in the comments below.) More recently, we’ve also been touting the growing number of tech workers in our cities. But in some ways this is a bit of a vanity metric.
I think of it in terms of two different categories of workers. There are tech workers that are the result of foreign companies opening satellite offices to take advantage of the weak Canadian dollar and our more enlightened immigration policies. And there are tech workers that are the result of Canadian-based companies innovating, growing, and needing more talent. Think Shopify.
The former situation is not at all bad, but a lot of the value is going to accrue outside of the country. Whereas in the latter situation, we get to be the principal recipients and we get all of the positive externalities associated with innovation and entrepreneurship. One of these is a powerful compounding effect. Successful startups tend to beget even more new companies.
So even though I work in and benefit from one of the three things that I mentioned at the beginning of this post, I believe that we need to be much better at encouraging a culture of innovation and entrepreneurship in Canada. We’ve become too complacent.
This is a critically important topic that we don’t seem to be talking about nearly enough. So I plan to do more of that here on the blog.
Now, there’s a lot of speculation about what this will ultimately mean for the city and for Asia, given that Beijing is a crypto hater (all crypto transactions have been banned in China since 2021).
Some think that this could be a leading indicator for a softening Chinese position on crypto; while the cynics think that this reinstatement could be short lived given that Beijing remains a hater.
Whatever the outcome, I think it is noteworthy that Hong Kong is trying to reestablish itself as a global hub for digital assets and that it believes crypto is here to stay.
It is also a good reminder that, even though the herd has moved onto AI, there’s still important work happening beneath many of the mainstream headlines.
My own conviction and activities around crypto haven’t changed over the last year, and so I’m happy to see cities like Hong Kong working to reassert themselves in this space.
My most recent post about Opendoor, the so-called iBuying company, is about how it wants to become the “transaction layer for homes.” What that means is they would like to start facilitating third-party transactions between buyers and sellers, and move away (either partially or completely) from actually owning homes for a period of time.
The company is still trying to sell homes that it purchased in Q2-2022, which, as we all know, was a very different kind of housing market. So by doing this, Opendoor would be both reducing the market risk that it takes on and making its business model less capital intensive.
Knowing this, I actually think that “iBuyer” is the wrong moniker for their business. As I see it, the long-term objective is not to just be an iBuyer of homes. The objective is to ultimately facilitate transactions in a capital efficient kind of way. The point of iBuying is/was to seed their two-sided marketplace with sellers.
As we have discussed before, two-sided marketplaces usually always have a chicken-and-egg problem. No sellers equals no buyers, and vice versa. So you have to figure out a clever way to attract one side. Of course, now that Opendoor has sellers, the company can start to aggregate the demand side (i.e. buyers). And that is exactly what it is doing with Opendoor Exclusives.
Exclusives works like this:
The inventory consists of “off-market” homes that have yet to be listed on MLS
The homes are discounted about 2-4%
They are available for 14 days
You can’t negotiate the price — it’s first come, first served
If your appraisal comes in lower, Opendoor will price match
And finally, Opendoor will not pay any buyer commissions (which is reflected in the above discount)
As I understand it, if the home doesn’t sell, it then gets listed on MLS and all of the normal terms and practices would apply. But before that happens, the key objective is to facilitate a quick transaction in one of two ways.
The first way is for the seller to request an offer from Opendoor’s network of buyers. In this scenario, Opendoor never needs to own the home or perform any improvements (which is usually what it does when it iBuys). It is an intermediary earning some sort of take.
The second way is for Opendoor to do its usual thing and make an instant offer to buy the home. But here’s the thing. With enough buyers on its platform and by creating a sense of urgency (hey, here’s a lower price!), presumably the idea is that it may never need to close on a number of these homes. It just needs to find another buyer within 14 days.
If it works, this could be an interesting business.
Tech analyst Benedict Evans — who has 175,000 subscribers to his weekly newsletter — has just published his big annual presentation about “what matters in tech?” This year’s is called “The New Gatekeepers.” And as is normally the case, he explores a number of macro trends that I think will interest many of you, even if you aren’t in or interested in the tech industry. To check it out, click here.
