Brandon Donnelly

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.

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Tag: tech

  • Economies of scale in the car and housing industries

    Over the weekend I watched this interview discussion between Elon Musk and Marques Brownlee. If it doesn’t show up below, you can find the video here.

    [youtube https://www.youtube.com/watch?v=MevKTPN4ozw&w=560&h=315]

    Elon figures that if Tesla works really hard they could probably come out with a USD 25,000 car in about three years. The key to that affordability is twofold: (1) design & technology improvements and (2) scale. 

    So part of the answer is just time. As design and engineering iterations continue to take place, the components will become better and cheaper, just as they have for things like cell phones. Elon estimates that we’re in the 30th iteration of the cell phone today.

    But the second factor is simply volume. And that got me thinking about housing production and the similar importance of scale and density. We do a lot to limit volume, despite saying we want more affordable housing.

  • Winner take all

    We have talked a lot on this blog about the concentration of economic activity in global cities. Here is an old post about a paper called “winner-take-all-cities”, which documents the overrepresentation of talent, economic activity, innovation, and wealth creation in a select number of alpha cities.

    But this same phenomenon is playing out in a myriad of different ways. Aaron Renn calls this the “superstar effect” and has been writing about it for years. Another more recent example is this post by Richard Kerby called: Where did you go to school?

    Kerby looked at where venture capitalists in the US went to school and discovered that around 40% of them have gone to one of two schools: Stanford or Harvard. His argument is that not only is the venture capital industry lacking in gender and racial diversity, but it’s also lacking in cognitive diversity.

    My point with this post, though, is one of hyper-concentration. Tech is a dominant force in today’s economy. And in 2017, nearly 45% of all venture capital investment in the US went to companies located in the Bay Area – meaning San Francisco and San Jose.

    So here is an example of a select number of schools training a select number of minds that then go on to invest in a select number of cities. Fred Wilson, who is a venture capitalist, has a good response to this problem of diversity in the VC industry.

    But, of course, this is bigger than just the VC business.

  • Apple and the humanities

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    This morning I came across two news item that are interesting in their own right, but also have a noteworthy relationship.

    $AAPL now has a market cap that exceeds $1 trillion. And not surprisingly, everyone, from the New York Times to Bloomberg (photo essay), is talking about it.

    But the one thing that continues to stand out for me about this story is what Steve Jobs said back in 2011 when he unveiled iPad 2.

    He said that fundamental to Apple’s DNA is its ability to marry technology with the liberal arts and the humanities. Its secret sauce is not technology alone.

    Now let’s move on to the second piece of news that caught my attention.

    As of 2017, less than 5% of college and university students in the US were studying one of the big four humanities majors – a sharp cliff-like drop from 2011 according to this data.

    That’s almost certainly because business degrees and STEM degrees are thought to be more valuable and in demand in the labor market. And I’m sure they are right out of school.

    But perhaps we shouldn’t forget Apple’s trillion dollar lesson. And I think this goes for both the tech space and the real estate industry, as well as others.

  • How ecommerce is growing in rural China

    This piece in the New Yorker about how e-commerce, and in particular JD.com, is transforming rural China is worth a read.

    In typical New Yorker fashion, it’s a good long-form read, but one that you can also listen to if that’s your thing.

    What’s immediately fascinating are how important trust is to JD’s rural expansion strategy and how locals from these rural communities are used to penetrate the social networks.

    Today, Xia oversees deliveries to more than two hundred villages around the Wuling Mountains, including his birthplace. But, in line with JD’s growth strategy, an equally important aspect of Xia’s job is to be a promoter for the company, getting the word out about its services. His income depends in part on the number of orders that come from his region. Across China, JD has made a policy of recruiting local representatives who can exploit the thick social ties of traditional communities to drum up business.

    This is important because:

    “Chinese people don’t easily believe the good will of strangers,” Liu told me. “Why do you think Chinese fight tooth and nail to get on the bus and subway?” He shook his head and laughed. “It doesn’t matter that it’s less efficient or unnecessary. It’s a complete reflex for them, because it’s what they’ve been taught since they were young.”

    When you have some time, here is the full article. 

    According to the New Yorker, JD.com is the third largest tech company in the world in terms of revenue. They also have the largest drone delivery platform in the world.

  • Learning about O-zones

    I spent this evening reading about Opportunity Zones, or “O-zones”, in the United States. 

    For a census tract to become an O-zone, it has to have a poverty rate of 20% or higher, or the median household income has to be less than 80% of the surrounding area. Governors are also only able to designate 25% of their eligible census tracts.

    Here is a map of the areas that have been designated as Opportunity Zones.

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    Here is how these O-zones work. (All excerpts taken from this Forbes article.)

    The law’s engine is a new breed of financial product, the opportunity fund, that offers investors a trifecta of attractive tax breaks. Here’s how it works. Investors who sell assets have 180 days to plow their taxable capital gains into an approved opportunity fund, which must hold 90% of its assets in Opportunity Zone projects. To put money to work fast, the law requires that the funds invest all of their cash within some specified time frame. (The Treasury Department is still deciding on that and other crucial details.) Tax on the original reinvested gain isn’t due until 2026, and the taxable gain is cut by 15%. Meanwhile the new opportunity investment grows tax-free, like a Roth IRA, provided it’s held for at least ten years. (If it’s sold earlier, it can be rolled into another opportunity fund and remain tax-free.)

    Here is how it could get the real estate industry to take action.

    For real estate developers, O-zones offer cheap real estate and unlimited, untaxed upside if a neighborhood takes off. Developers must do more than stash cash in crumbling property. To qualify for tax perks, they must make swift and significant upgrades (at least equal to the cost of the initial purchase). With real estate projects come new office buildings, industrial districts, restaurants and affordable housing—all of which can lay the groundwork for an economic boom. “The real estate aspect is a great catalyst to attract new businesses,” says AOL founder Steve Case, an early supporter of the O-zone initiative, whose Rise of the Rest Fund invests in backwater areas. “But it’s the startups that will be the real job creators.”

    And here is how it could influence where new businesses decide to locate.

    “If Facebook could have chosen to locate itself in an Opportunity Zone, like the Tenderloin in San Francisco, the investors would’ve paid no capital gains on their equity,” says Parker, who presumably would have been one of the big winners. The promise of mega-returns could send VCs, investment banks and private equity firms scrambling to launch their own opportunity funds to create incubators, scour second cities for overlooked talent or move portfolio companies into O-zones. “It wouldn’t surprise me if a lot of Silicon Valley VCs started to tell founders, ‘We’d like you to go over the bridge to Oakland, or we’d like you to go to Stockton,’” Parker says.

    If you’d like to learn more about Opportunity Zones, check out the Forbes article.

  • Value of distribution and reach for consumer facing products

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    Forbes recently pegged social media influencer Kylie Jenner’s net worth at somewhere around $900 million. That makes her the youngest (she’s 20) person on Forbes’ annual ranking of “America’s Richest Self-Made Women.” 

    And if the trend line continues, she’ll be the youngest self-made billionaire, ever. Mark Zuckerberg apparently holds that title right now. But he was a classic underachiever and only became a billionaire at age 23.

    Most of Kylie’s net worth is derived from Kylie Cosmetics, which launched less than 3 years ago, but did an estimated $330 million in revenue last year. Forbes values the company at almost $800 million. And Kylie owns every bit of it. 

    The reason I am mentioning this today is because I was fascinated by the above Forbes article. It’s such a powerful example of social media leverage. Forbes put it differently: “Social media has weaponized fame.” 

    Kylie has 111 million followers on Instagram (plus many more on her other social channels) and that’s really the most important part of this equation. She has the distribution and reach to acquire boat loads of customers. It doesn’t matter what you’re selling if nobody knows you’re selling it.

    The rest of her business is pretty much outsourced. Seed Beauty (out of Oxnard, California and Nanjing, China) handles the manufacturing, packaging, and shipping fulfillment. Shopify (headquartered in Ottawa) is her e-commerce platform.

    We could of course have a debate about whether a celebrity-fueled business is really all that sustainable. And perhaps there’s risk in relying so heavily on social for customer acquisition. But youngest billionaire is youngest billionaire.

    Image: Forbes

  • Why confidence is so important in ______

    Those of you who are regular readers of this blog know that I like to incorporate tech into the topics I cover here and that I follow a lot of venture capitalists. 

    Well, I was reading Mark Suster’s recent post on why confidence is so important in (venture capital) fund raising and immediately thought that this audience may also find it interesting.

    Maybe you’re trying to raise money for a real estate development project. Maybe you’re trying to start a small business. Or maybe you’re just interested in human psychology.

    Here’s an excerpt from the post:

    But confidence is CRITICAL in fund raising. Investors are human and humans want what they can’t have and what they perceive other people want. It’s human nature — just read Cialdini and others on this topic. We don’t think we work that way, we do. If you don’t act in demand, people will subconsciously know you’re not in demand.

    It reminds me of one of my favorite lines from one of my favorite movies (which I have posted before on this blog):

    “Now the trick is that we gotta look like we don’t need this shit and they give us the shit for free.“ –Mike Peters

    There’s a lot of truth to that.

  • In defense of the gig economy

    Bill Gurley – who by the way is an investor in Uber – has an interesting piece up on his blog about the thing he loves most about Uber. It is the ability for the network to level load on its own. And here’s what he means by that:

    In spite of all the ink that journalists, analysts, and pundits have spilled on Uber over the years, no mainstream article has focused on what I consider to be the most elegant feature of this now ubiquitous, high growth global service — no driver-partner is ever told where or when to work. This is quite remarkable — an entire global network miraculously “level loads” on its own. Driver-partners unilaterally decide when they want to work and where they want to work. The flip side is also true — they have unlimited freedom to choose when they do NOT want to work. Despite the complete lack of a “driver-partner schedule” this system delivers pick-up times that are less than 5 minutes (in most US cities (with populations over 25K) and in 412 cities in 55 other countries. The Uber network, along with Mr. Smith’s invisible hand, is able to elegantly match supply and demand, without the “schedules” and “shifts” that are the norm in most every other industry.

    When surveyed, most people seem to prefer a job where they set their own schedule and get to be their own boss, compared to a steady 9 to 5 job with benefits and a fixed salary. Assuming that’s true, then this is a feature worth talking about.

  • Going dockless

    A couple of months ago I wrote about Bird, the electric scooter sharing company that is trying to solve the last-mile problem. They are expanding across the US and it is seemingly wildly popular.

    But its popularity is also leading some people to call them a public nuisance. Perhaps the biggest contributor to that is the fact that the system is dockless. That is, when you get to your destination you can park the Bird wherever you want.

    That’s obviously a great feature for users (who wants to look around for a docking station?), but it’s also causing a proliferation of “Bird litter” in the cities and neighborhoods where they are widely used. 

    I am sure this will eventually get resolved.

    The other thing about going dockless is that you now have a charging problem. Where and when do these scooters get charged and by whom? Bird solves this problem through decentralized contract workers called “Bird hunters.”

    You register to be one and then Bird pays you $5 to $20 for every scooter charged, depending on how difficult the Bird is to find. And as you can expect, these scooters are getting left all over the place.

    I thought this was a clever solution. And apparently it is popular with high school students looking to earn extra cash. Some are making several hundred dollars a day by spending their evenings picking up and dropping off Birds.