Archive for May, 2019

Interview with Rafael Birmann on Entrepreneurship in Brazil

Thursday, May 16th, 2019

[This is the full interview with Rafael Birmann which was published in our Kaizen newsletter.]

Rafael Birmann on Entrepreneurship in Brazil

Rafael Birmann is a Brazilian real estate developer and President of Birmann S/A Comércio e Empreendimentos.

Kaizen: When did you decide first to go into real estate development, in your career?

Rafael Birmann: It’s an interesting story because I always say I never choose this profession. Very early on, in 1978, I was working in a software company.

Kaizen: Software?

Birmann: I was selling software, and then my father got ill. He had Lou Gehrig’s disease in 1978, and his doctor said he had 6 months to 3 years. He was a banker, and he sold his bank and said, “Let’s invest in real estate.” I turned to him and said, “But, father, what do we know about real estate?” “It’s easy,” he always said that, “it’s easy, don’t worry.” We didn’t know anything, and that’s how I got into it. And then I really enjoyed it because I think it’s very easy just because you can do anything—you can grow new economics, public relations, public spirit, business—it all relates to real estate.

KaizenIt’s where we live and work.

Birmann: Yeah, you can explore or develop yourself in anything; it’s part of you. So I enjoy it. That was forty years ago. I was 25-years-old when my father got sick. He was deteriorating fast, and I was handling the business without much experience. It was very interesting because at the time I didn’t know what I should do.

Kaizen: As a young man, right.

Birmann: How do I make decisions? It was a slow, difficult, dirty process. It occurred very, very slow.

Kaizen: Now, forty years later, you have projects all over Brazil.

Birmann: I did projects in Rio, São Paulo, and now in Brasília.

KaizenWhy don’t we talk about the current one here in São Paulo?

Birmann: It’s an office building. We got the site, which was kind of the best site in the business district of São Paulo. It’s on the most prominent business avenue. It was an assembly of 35 lots, so it was a struggle to buy. Most people would say, “Oh, I’ll buy it if somebody gets an option for all 35.” That doesn’t work. So I decided, let’s buy each one independently and just believe that in the end we will get the whole thing. I said, “I will get those 35 lots.” For some you pay more. The last one you pay the most and some guy is blackmailing you, but in the end we bought the site.

Kaizen: What is the footprint of the 35 lots?

Birmann: The footprint it almost 14,000 square meters. It’s good. We can build about four times that. Today it’s considered a very valuable piece of property. I started buying those things in 1998.

KaizenIt’s turning into a twenty-year project.

Birmann: Then I had some financial issues in 2000. I, more or less, had to restructure the whole thing. I had what you’d call a boutique company, which is a nice way to say that it shrank a lot. So at the time I stopped, and then I had this five-year hell period from 2002 to 2005. At times I was trying to get deals and get some people to put some money in this deal. Nobody wanted to put money in the deal. I needed money to finalize the assemblage of the site.

Finally, I got some people to invest some money in 2005, which is the date I came back to the business, and in two years we had the whole thing assembled. That’s the process. Then we got this design, and I thought that I did many buildings in the past and then went through that hell period and now I had this opportunity to do something meaningful again, so I set this goal: I said, “I want to do the best building in São Paulo. How do I do that?” So I set three goals: I want to be the best in terms of architecture and urban design, I want everything inside to be at the edge of technological development, and I want to revise the whole ownership and management of the building.

So the design process was a study process and discussion with our team and a lot of thinking about how we should do this and how we should do that. How would the buildings be open to the city? That was a very fascinating discussion, and we came through with a much more open perception of how this thing should work because in Brazilian cities we have so much concern about security and crime. Everything is closed, and that kills the city in a way because of the lack of interaction.

Kaizen: You want to have human connections going on.

Birmann: Yeah, at times it becomes not a city. All this is very interesting. Then we came to a discussion of public space. Investing in a public space is an externality, so why would I as a private investor care to improve the wealth of the public of the city? It’s a very interesting discussion, and in the end I came to a conclusion about that. Each individual that promotes this externality will not make a profit by himself, but when everybody else is doing something, we all make a profit. It’s very interesting.

KaizenSo it’s a collective action issue.

Birmann: I had this discussion with my partners. Some of the partners even sued me because they were saying I was not interested in a business and they invested in the project as a business. They wanted to know why I was diverting the focus from the business and talking about urbanism and public space. They thought it was ridiculous, and it even got me in the newspapers. My defense was that it would bemore profitable, though it’s questionable if we will be more profitable. I like it much more and I want to do it like this, but is it more profitable?

Kaizen: Part of it is the issue of aesthetics and meaningfulness to you to make the best building you can.

Birmann: Yeah, absolutely. My motivation was always that.

KaizenSo the main issue of the design was that you wanted to incorporate the urban space and make it a people-friendly space. How did you solve that problem? How would you describe the concept?

Birmann: First, most buildings in São Paulo are gated. Ours is totally open. We have a public square in front of the building. A tenant would say, “Oh, I want security.” I say, “But we have this public square. It’s an open space.” So there’s a conflict there, and we have to manage it. We have this full square. I want to bring in chairs like in Bryant Park in New York City. “Oh, people will steal the chairs,” they said. No, people will learn to respect the public space, but we have to spearhead those things. If you don’t, nobody will learn.

Kaizen: So, it’s a public education.

Birmann: We developed several concepts around that. We thought, let’s make the building also open. We’ll have information about the design of the building so people can learn about it. The building, when it’s finished, will have a kind of visitation program. They will go to an air-conditioned room, and we’ll have screens explaining all the concepts. You could ask what’s to gain from all of this, but personally, I like it. I think it’s good. I have a ten-year-old son and he says, “Father, you talk about being a libertarian, but sometimes you sound like a socialist.”

Kaizen: You can do it as a libertarian effort to create a libertarian-friendly social space. You don’t all have to be living on your private islands with no interaction.

Birmann: Right.

Kaizen: Someone has to create it.

Birmann: I think our capitalism is basically a social thing. Of course—interaction, exchange—all that is social. Anyway, so we had all those issues. I had a huge discussion with my son, Pedro, about the theater. The theater is a huge investment.

Kaizen: What kind of theater is it? A movie theater?

Birmann: No, it’s a live theater. It has 500 seats and super modern equipment. In fact, we are buying some Canadian stuff. There’s a Canadian company that does some shifting seats. We have reclined seating or flat seating, so you can have open space for conference, for exposition, or theater space. This will cost fifty or sixty million to do.

KaizenHow is a theater fifty or sixty million? This is U.S. dollars?

Birmann: No, Brazilian reais. It’s fifteen million dollars. The total investment is something like a billion reais.

KaizenSo about 350 million U.S. dollars?

Birmann: Yeah. We bought the land as equity, and then a local bank financed the total construction. That’s a new thing in Brazil. All my life I was fighting to find money, and finance wasn’t available. But this time we got the full finance which is very good. Back then the theater was questionable. How could I justify that investment? Most buildings are very badly managed here because they have this view, “Oh, I will hire so-and-so to do this, and I will hire so-and-so to do that,” but nobody really knows. There’s no alignment between the decisions and the interest of the tenants, which is basically the cause of the building—to serve the tenants.

Anyway, it was an experience of coming back and doing something fulfilling. That’s what I enjoy most to be able to do. And I was very lucky because I got partners.

Kaizen: How many partners do you have?

Birmann: At first we had a group of partners, but then we had a fight with one partner, and then I had another partner. He was able to bring in the financing and all of that, and he basically gave me enough so I could do execute my design vision.

KaizenTalk about the engineering. You were mentioning power plants and the energy systems.

Birmann: I’m very pleased because the main thing today with the energy system is…

KaizenSustainability?

Birmann: Yes, basically it’s a question of efficient use of energy and efficiently air conditioning the space without wasting.

Kaizen: The standard now is you buy electricity from the public utility?

Birmann: Everybody does that, but you can buy more or less efficiently. So we had these generators. We had what they call co-generation. At the same time the generators produce electricity they produce hot water. From that hot water, I can produce cold water. It’s very interesting. Part of the air conditioning of the building is down to this process, so it’s very efficient. We got these generators as we started designing the building. We are improving efficiency, and we are at very high efficiency today. Basically, at current rates, our annual bill of energy would be something like, say, a couple million dollars. They can save half of that. The way I designed the building, the owners of the property own that. And I do a deal with my tenants and say, “I’ll provide you energy, with fail-safe systems, for 95 percent of the going rate”.

KaizenEverybody likes five percent.

Birmann: Maybe I can negotiate ten percent, but that’s not an issue. But I own it, so the more efficient I am the better I get. The building is totally fail proof in terms of energy. They can supply from gas, from the grid, or what we call in Brazil today, the free market of energy. Somebody can sell energy in the market, and I can buy it and fix a different price.

The issue with those things is that when you buy that energy, people use for it for five years and then get kind of stuck in the contract and can’t get back to the grid. The grid company says, “Now you want to come back? First you have to sign this contract.” So you get stuck. But the way I do it is I have the gas. “Oh, you don’t want to sell to me? I have the gas.” So today I have gas, the grid, and the market. I can manage that daily.

Furthermore, I meter every tenant so everybody in the building knows how much they’re spending. Energy, air conditioning—I meter each one. I sell water to each floor, and we meter that. Everything is metered in the building, which is very interesting. Very few buildings have that.

Bottled water is also 100 percent managed. We have wells. We capture rainwater. And then we use the sewage water. We clean it and use for the air conditioning.

Kaizen: You have your own water treatment plant?

Birmann: Yes, because the water companies here charge you for the water they supply and, once more, for the sewage they receive. It’s much easier to have our own water and sewage.

Kaizen: All these engineering systems—the gas plant, the water treatment plants, and so forth—are these coming from all over the world?

Birmann: No, no. We are learning. There’s nothing we invented here in Brazil. The gas generators are from GE. It’s all international.

Kaizen: You’re buying the best from all over the world.

Birmann: Yeah. The design of the building was done with an American architect, the son of I.M. Pei. The landscape in the plaza was done by Tom Balsley from New York. The theater was a local Japanese architect.

I didn’t want to give the entire design to one architect. I told him, “You design only the tower,” and he didn’t like that very much. For the theater, the plaza, and so on, we have different designers. People say, “Oh, but it lacks unity.” I said, “Yeah, cities lack unity. There’s no unity.” We had this modernist view of architecture and sculpture with everything unified, but I think today we are recognizing that street level is much more important than unity. People really interact with the building, and that interaction is more important than unity. It needs more diversity.

Kaizen: So how many stories will it be?

Birmann: It will have thirty. It is not much by the international standard, but it will be the tallest building in Faria Lima. We’re one of the first to have insulated glass, which is also rare here.

Kaizen: If I am a standard person in business and I’m looking for office space in São Paulo, what makes your building attractive to me?

Birmann: Well, it’s not for anyone. The tenant that we envision is somebody like those tech companies: Google, Facebook, or Apple. I had some interviews with those guys, and the issues they have are interesting. They say things like, “Oh, I want to be able to bring my dog to the building.” Some buildings forbid it, and I say, “Well, of course you can bring your dog.” We’ll also be bicycle friendly.

There’s a symbolic or immaterial level to all of this. Not only is the building integrated in the city, but we’re also advocating for this type of integration. This advocacy gives the tenant a meaning of, “Oh, I am part of this.”

Kaizen: I’m just going to a cubicle of space and doing functioning work, right?

Birmann: Yes, the space gives some value to this. And I think this kind of tenant values these things—the recycling, the energy saving, and all of these things. And also the building is totally efficient to serve the business needs.

Also, we have this big plaza. I decided to put up a sculpture of a whale, so we have a full size whale as a focal point in the corner the plaza.

Kaizen: That would make it a landmark.

Birmann: Yeah, it’s very interesting. And I said, “I want something with meaning.” And they go, “What’s the meaning of a whale?” I say, “I don’t know. Let’s find a meaning,” and we did some research and came up with a beautiful story of the meaning of the whales. We found that the whale has many meanings. We have the whales and the sea, but few people have met those whales. We also have whales in our minds that we meet everyday, like Moby Dick and Jonah’s whale. Jonah and the Whale is a story of redemption, rebirth, and challenge. So I said, “Well, if you go into the belly of the beast, and come out, you come a better man.” So we did this sculpture, and it’s an open whale where you can walk through it.

Kaizen: It sounds like it would be really popular with the children, like something you want to explore.

Birmann: It’s a cool story. You go into the whale, and this is our symbol of visiting the city and you experience a magical moment that changes your perception. But what’s the business purpose of this shit? Well, everybody will know the place. People will say, “I’m going to the whale building.” This has value.

Kaizen: The building is scheduled open mid-2020. You mentioned projects also in Rio and Brasília. What were the natures of those?

Birmann: That’s an old project I did a few residential projects in Rio years ago. Nowadays, I’m doing only two things. This project in São Paulo and one in Brasília. The project in Brasília is a very interesting project too. We had this huge parcel of land, one of the only privately owned parcels of land of Brasília. We came up with this concept of making a new city. It will be kind of an answer to Lucio Costa’s Brasília, because he had this concept of modernist urban design that is absolutely crazy and dysfunctional. And we’ll have these walkable streets, sidewalks, stores, and so on.

Kaizen: Human organic, yeah.

Birmann: We’ll build something like five million meters. We’ll have something thing like 200,000 people in our project, but the whole area already has something like 200,000 people, so there will be close to 500,000 people. 500,000 people is a city.

We had all these discussions again focusing not only on the land but how to direct the whole project. One big mistake is when we just focused on the design of the building. You need a whole design concept. We need to pay attention to what’s across the street. How we interact with those things? That’s the right way to approach design. We want to do something interesting and challenging and meaningful.

Kaizen: The kind of place people want to live?

Birmann: Yeah, I would say it’s a city for people. Our goal is to make people happy with the city and design a city we would like to live in. My son Ricardo started working with me ten years ago. He studied physics at university, so he was into science, but he decided to come work with me.

When I first bought your book, I bought it because of postmodernism in architecture. And then I realized it was about something else, but in architecture it’s modernism that is irrational. They’ll say that a house is a machine for living. It’s bullshit. It sounds very rational, but it’s not. I think they miss the symbolism—all the values in the equation that you don’t see at first glance but are there.

Kaizen: So what stage is the project in Brasília in?

Birmann: We had huge challenges, as you can imagine. We finally have everything approved, and we’re about to start the first buildings next year. It’s been ten years of work.

Kaizen: The project in São Paulo is a twenty-year project. The one in Brasília is a ten-year project?

Birmann: Yeah. I question myself, what did I do that wrong?

Kaizen: You started investing millions years ago and you have been carrying those costs for so many years.

Birmann: Yeah, it’s absurd.

Kaizen: In the beginning did you think they would take this long?

Birmann: No, no, no.

Kaizen: Brazil has a reputation for being politically and financially difficult.

Birmann: Yes, everything is worse in Brazil.

Kaizen: So, why do it?

Birmann: I have ambition. It’s not ambition for the money, because I could make more money if I did simpler things. Who wants more money? My wife always say, “Why didn’t you do some simple thing? Why aren’t you building some small buildings? You would sell them and make money.”

Kaizen: But you have an architectural, human-lifestyle vision.

Birmann: I like to enjoy the things I do. Of course, I like to make money too.

Kaizen: Do you enjoy the deals?

Birmann: What I enjoy most is the kind of deal that you buy the house and it’s an interesting interaction. You have the concept, the engineering, and you have all these discussions and it’s amazing. I mean, it’s really interesting.

But why did so many of these projects take so long? Part of it is needing more money. I didn’t have enough, perhaps. We did many things without money and they were very efficient, but if you need money they take longer.

Then you have the regulatory nightmare. Here in Brazil, after the ’89 Constitution, they gave superpowers to the public attorneys. And these guys can’t be fired. They answer to no one. There is one guy in charge of urban design, and he meddles in everything. They’ll inquire about this and that, and they never close the inquiry. They never say, “Okay, you passed.” No, no. They keep it open and keep charging. Environmental issues are crazy.

Kaizen: You’re always on the strain.

Birmann: Not only me but also the public officials because they were trying to force the cities to do something, and the cities wouldn’t do anything. They start charging the individual responsible for the issue, not the department. They charge him personally, and the city does not supply him a lawyer to defend himself. This paralyzed the whole government structure. Is it better to do nothing? Because if you sign something you might be sued.

Kaizen: Then you’re liable.

Birmann: We have a regulatory nightmare. The government is not functioning. You have this strong leftist kind of anti-business, anti-market, anti-private development. I am considered the worst monster as if I eat children for breakfast and it’s crazy. So, the environment is very difficult.

But on the finance side of things, things have changed in the last few years. Now we have finance. We had very high interest rates, and now things are getting closer to normality. This building is the first building I ever built that I have fully financed. I don’t have to worry about it. I had buildings in the past where the money ended and I still had building to finish. So in the past we had to sell the building before we started construction.

Kaizen: For cash flow?

Birmann: For cash flow. Most of the people you would interview have successful business stories. I haven’t been as consistently successful, but I’m a survivor. There’s this guy, Elie Horn, who is the largest developer in São Paulo. Back in 1990, our companies were kind of around the same size, though his was somewhat bigger. Today this guy is worth three billion dollars. He was very successful, and I didn’t do it. From a business perspective, I think I didn’t do all the right things that I should have.

Kaizen: You made mistakes in a very difficult environment. That’s natural.

Birmann: Yes, but I think that’s life. You take the cards you’re dealt, you do what you can, and don’t give up. I’m trying to enjoy it.

Kaizen: The project in São Paulo is scheduled to be completed in July of 2020. And then, at what point will you know that it’s both a success according to the planning concept and a business success?

Birmann: The whole story of these challenges is a story of victories. We wanted this, and we wanted that—it’s all a success. The last thing that I need to achieve now is to get the tenants. We’re working on that now, and if we get the tenants it will really be a success. This building will be very valuable. It will be my retirement. I believe it will be a big financial success.

Kaizen: What about the project in Brasília with your son, Ricardo? Are you starting the construction this year?

Birmann: Next year we’ll start to build.

Kaizen: You’re talking half a million people.

Birmann: It’s a thirty-year project. The challenge is, how do you build a city form scratch? At first, cities, like in cowboy scenes, start with two or three houses. How does this start to grow?

Kaizen: So there will be organic development?

Birmann: We will try to do this organically, but you have to promote those things. You have to bring in the commerce, schools, shopping, and so on. And I think we don’t need to wait thirty years to know if it’ll be a success. After three, four, or five years, we’ll see the first things. Then we will have established a kind of a concept, and I think people will love to live there. It will sold by it’s urbanism, because you can’t walk in Brasília on a sidewalk.

Kaizen: There’s a huge cost for you, but you have a vision for what you want to do architecturally in terms of urban planning. What advice would you give younger people starting out in business in Brazil now?

Birmann: Well, I don’t know if this is good business advice, but I think it’s good life advice: Follow your passions. The only thing I told my children is, “Do whatever you want, but do it well. Do it the best ever. Do it your best.” Pedro, my second son, studied art. He complained to me, “Why did you let me study art? That’s useless! I should have studied engineering,” because now he’s more involved in computers. He blames me for letting him do what he wanted. I said, “What did you want me to do?”

Kaizen: Be a dictator dad?

Birmann: I tried to be open-minded. My fourth son is studying film in Boulder, Colorado, film. I think that’s useless. I say, “Okay, do what you want, but try to do a second thing in accounting or studying Western philosophy or something.”

Kaizen: Follow your passion, do it well, and have a backup plan.

Birmann: Of course, you have to follow your passion but understand business. Business is a game, it has rules, and you have to play according to the rules. My kids always complain that I was not a good father. I may not have been a good father, but they’re turning out okay. They’ll say, “You give this advice, but that’s not what you did.” That’s why I can give that advice; I know the other side. I tell them, “Take my advice as a father. Don’t do as I did.”

Kaizen: Learn from my mistakes.

Birmann: Yeah, of course.

Kaizen: Good. Let’s stop on that note.


This interview was conducted for Kaizen by Stephen Hicks.

More Kaizen interviews with leading entrepreneurs are here at our site.

CEE Review: Are top CEOs underpaid? | Free trade vs. protectionism in medieval England, and more

Tuesday, May 14th, 2019

News and Opinion

Billionaire Jeff Bezos: To live a happy life with no regrets, ask yourself these 12 questions. CNBC.

Are top CEOs underpaid? Marginal Revolution.

Surgeons in South Africa complete landmark ear operation using 3D printed implants. 3D Printing Industry.

Fracking: a tale of two states. Strata.

Maken Engelond Gret Ayeyn: how the contest between free trade and protectionism sparked fervor and unrest in medieval England. Lapham’s Quarterly.

Mercatus’s useful RegData tool now available for Canada’s provinces. Mercatus Center.

Purdue Pharma and the OxyContin crisisBusiness Ethics Highlights.

Failures of integrity in medicine: doctors prescribing pain killers for cash, sex. The Washington Post.

Stephen Hicks’s article on Ayn Rand and contemporary business ethics republished by The Atlas Society.

Announcements

The latest issue of Kaizen [pdf] features our interview with Leslie Marsh on Entrepreneurship in Canada as well as our interview with Rafael Birmann on Entrepreneurship in Brazil. Print copies of Kaizen are in the mail to CEE’s supporters and are available at Rockford University.More Kaizen interviews with leading entrepreneurs are here at our site.

Idea: “Character is revealed by how you behave when no one is looking.” — As defined by the Josephson Institute of Ethics

See you next time with our digest of new and interesting items in entrepreneurship, ethics, and political economy. Here are the previous editions of CEE Review.

Kaizen 36: Leslie Marsh and Rafael Birmann

Thursday, May 9th, 2019

The latest issue of Kaizen [pdf] features our interview with Leslie Marsh on Entrepreneurship in Canada as well as our interview with Rafael Birmann on Entrepreneurship in Brazil.

Also featured in this issue of Kaizen are guest speakers Gregory Sadler and Shawn Klein.

Print copies of Kaizen are in the mail to CEE’s supporters and are available at Rockford University. Our next issue will feature an interview with Simone Amendola and Carmela De Stefano on the theme of Entrepreneurship in Italy.

More Kaizen interviews with leading entrepreneurs are here at our site.

Interview with Leslie Marsh on Entrepreneurship in Canada

Thursday, May 9th, 2019

[This is the full interview with Leslie Marsh which was published in our Kaizen newsletter.]

Leslie Marsh on Entrepreneurship in Canada

Leslie Marsh is a research associate in the Dean’s Office at the University of British Columbia and Founding Editor of Cosmos + Taxis, a journal focused on studies in emergent order and organization.

Kaizen: Where you were born and how did you get to Canada?

Leslie Marsh: I was born in London, England.

KaizenAs we can tell from your accent.

Marsh:  So I was born in London, England, and I spent some of my early years in the Dominions—what was then Southern Rhodesia and South Africa—but that was forty years ago. I went back to the UK in the 70s. The early 70s were pretty grim. Musically it was fantastic, but economically it was pretty grim.

I didn’t know what I was going to do, but my mother—not an educated woman—always said, “Son, whatever you do, get a liberal arts education.” How she knew that, I don’t know. She said, “Whatever you do, don’t become a freaking accountant at 23 or 24. Don’t do that. Go and get a classical liberal arts education, and find out who you are, what you’re interested in, what you’re suited for. You might discount things, and you might discover things.”

But liberal arts education then in the UK was pretty much under stress. It was in North America, in the U.S., where you had small liberal arts colleges. And guess where I landed up?

Kaizen At one of them?

Marsh:  Yes, Evergreen College in Olympia, Washington.

Kaizen: How did you find your education there?

Marsh:  I had a ball. It took a while for the pennies to drop. It was very much the early days of what we now call SJWs.

Kaizen:  Social justice warriors?

Marsh:  That’s what I’m saying. It was there, but it wasn’t. I got on well with people. They had individualized study there, which suited me perfect because I don’t follow anything. I do what I want. In point of fact, I’m so embarrassed about what universities have become these days. I consider myself an autodidactic.

But anyway, they let me be, and I followed what I wanted. I did mathematics, early computer programming, literature, and Harvard Business School-style case studies. I let it rip and had a ball socially as well. It was in the days of sex, drugs, and rock-and-roll.

KaizenAfter Evergreen what happened?

Marsh:  I went back to the UK, and very naively. I didn’t know what I was going to do with my life. I didn’t have a clue, but I’ve always been lucky. I’ve never had to plan.

I went into merchant banking at Chemical Bank. And the fact that Chemical Bank no longer exists is not down to me. It might have been the seeds of its downfall. It might have started with me. Anyway, I was there doing arbitrage eurobonds.

Kaizen:  This is your math and computing background coming in handy, right?

Marsh:  Yeah, but I had absolutely no interest in it. It was silly money basically, and I hated the office culture. I really wasn’t interested in the water cooler conversation there, but I struck it lucky. The guy that hired me was, in his early days, a student. He was what you would call a committed socialist, but a very, very thoughtful one. I mean, he spoke Russian and loved Russian literature. And I said to him, “Simon, why did you hire me? You know how disinterested I am in all this.” And he said, “Well, at least I’ve got someone to speak to over lunch.” We’re still great chums these days, but he said, “You know you’ve got to get out of this. You’ve got to do something else.”

Kaizen: So he could see that it wasn’t your thing.

Marsh:  Yeah. I got lucky, and he said, “Well, go out and just bloody well do something else.” And he knew I was philosophically inclined, but I didn’t really know that. I couldn’t articulate that, because I love philosophical literature. So I went out and I did my Master’s at Birkbeck, which is the evening college at the University of London. I just continued studying, and I’ve never really stopped. I found philosophy very unsatisfactory, especially because I made the mistake a lot of people make. I wanted to go into philosophy via literature, because of course that is where the rubber hits the ground, and I had to be educated. You’re vulgarizing it if you look at it purely in those terms. That’s how I snuffed out of that way of thinking, but then I saw the failings in the syllabus— no conservative stroke. The syllabus was liberal thinking as we understand it.

Kaizen:  So this is a Master’s degree. After Birkbeck, what was the next step?

Marsh:  Now bear in mind I was in community college, but I was working during the day. I did part-time in classics, but not for linguists because I just felt that my classical education on mainstream philosophy was somewhat underserved. I needed to look at Plato and Aristotle much more closely. I taught myself elementary Greek, and I worked again independently. And then after that I moved into sociology for my sins, also at Birkbeck.

Kaizen:  Okay. Let’s jump ahead to your position at the University of British Columbia. You work in the offices of the Dean at the medical school. What’s the nature of your position there?

Marsh: I work with a guy called David Hardwick. I work with him for the International Academy of Pathology, which is an educative thing in underserved areas of the world. It’s a big, big outfit. But he’s also interested in open systems and the Scottish tradition of liberality as we understand it.

Between us, we set up Cosmos+Taxis, which is an open access journal. It’s with Simon Fraser University as well. I don’t know if you’ve seen the journal, but it’s open access and it’s beautifully done. It started off under different guys as basically PDFs.

Kaizen: So, actually, you’re part of the evolution of publishing from the traditional style into contemporary media.

Marsh:  Yeah, and it’s thriving. Of course it’s free, but we’re not in it for money. We’re in it to get knowledge out there. We don’t have careers riding on it.

Kaizen:  What’s the scope of this particular publication now?

Marsh:  Studies in spontaneous order, which basically covers the liberal tradition as we understand it.

Kaizen: You’re also involved in another start up you mentioned in distributing video content.

Marsh:  Yeah.

Kaizen:  This is in Canada, of course. The current heavy hitters are Netflix, Amazon, and so on. Your idea was to do a Canadian entrepreneurial start up that would distribute video content based on that model. Can you say more about that project and some of the central problems that you’ve run into?

Marsh:  Well, Dave’s nephew Doug is a big player in the film industry in Vancouver. He’s spent probably the best part of 30, maybe 40, years with that same open systems mentality. He was an Oscar nominee, but he doesn’t buy into the, pardon my French, bullshit of Hollywood. But, of course, he had this idea because you could see where Hollywood was going. Basically, he was tired of the circus-type stuff coming up to Vancouver because of the tax credits.

Kaizen:  Right.

Marsh:  But anyways, he had this idea. He’d been thinking about it for a good fifteen years, and he started building it. And then when we met, we got to talking about it. We said, well, let’s bring this to market. So we had a good crowd of people that understood what we were doing, but not people with deep pockets. We put together what you’d call a crowdfunded group, and we built it out. It’s online. It’s finished, but there was a snag: we need the content.

Now, it’s not so much the content. Anyone can come to it and put up their content, but we needed a kick-start by having all the free content that the National Film Board, which the taxpayer is paying for in Canada, has. It’s paid for. The National Film Board really should have given us the content or should have used our platform to distribute our content. We’re not profiteering; it’s run like a utility. We only have a markup on the bandwidth, simple as that. The whole back is Amazon technology. The technology is there, but because of governmental faffing around and not understanding the way that the digital world has gone, they just failed us.

So we didn’t have that kick-start, we don’t have the content, and it’s just been mothballed. Well, it’s there and running and functional, but it’s not doing any business.

Kaizen: Okay. So, Canada is a 35-million-person market, and they are accessing digital content. Where are they getting it from? Is it all from Amazon and Netflix?

Marsh: That’s exactly what they’re doing.

Kaizen: So it’s all American distribution. American companies succeed, whereas Canadian companies, in effect, got mothballed?

Marsh:  But the whole point of the World Wide Web is not that we’re serving Canadian content to Canadians. The rest of the world are interested. Can you imagine indigenous populations in New Zealand or Australia being able to hook into indigenous populations generating content in Canada? There could be a whole thing going, and it can be monetized so easily. The problem is, it’s not on a level playing field. Netflix and Amazon and any of these U.S.-based mega entities do not pay tax, whereas a Canadian entity has to pay tax. It would’ve cost us over $300,000, probably a lot more, to have all the programming and the mechanics involved to be able to do the regional Canadian tax. And there’s this whole harmonization problem in Canada between the two tax tariffs, for want of a better word.

Kaizen: Is it a tax differential at the national or the international level? Amazon and Netflix pay taxes domestically back in the U.S. on their profits, but they’re not paying on the Canadian tax.

Marsh: They’re not paying Canadian.

KaizenIf you’re a Canadian company you’re not paying the American taxes, but you would be paying Canadian taxes, so where is the tax differential?

Marsh:  Well, there are maybe a dozen small entities with platforms in Canada, but they’re not doing a large volume. No one’s making money. Netflix is basically cannibalizing already existing content. Just because they have their loss leaders—their big things that they’re financing—doesn’t mean they are contributing any content. So what’s happened is that…

Kaizen: They’re denying rights to broadcast.

Marsh: That’s exactly it. And if you’re a struggling independent and someone comes to you and says, “I’ll give you $15,000 for your one-hour documentary,” the temptation is enormous. You take that, but afterwards you can barely afford a cup of coffee. There’s no serious money.

Kaizen: How would the model that your company was proposing do that differently?

Marsh:  Well, you would have to go online to see it, but let’s just take an example. When you go on to Netflix, what have you got? Thumbnails. What we offer is deep search—the ontology. We work hard on the ontology of categorization of documentary, performance, and theatrical. We had the idea of referrals that had some substance. In other words, not anyone can just come on the site and skew the referral system. Everyone on the site is answerable. You couldn’t rate anything until you’ve actually viewed it. You could drop something in someone else’s box and say, “Hey Stephen, I saw this show. I think you might like it.” And you’d build up community. You could put your own playlists on. So on the viewer’s side there is a lot of engagement.

On the provider side, you’ve got so much flexibility. You can brand it yourself, so when I come to Joe Blog’s filmmaker, it’s all Joe Blog. It’s all branded by Joe Blog. We’re just operating in the background. They’ve got complete flexibility, and they’ve got access to their accounts.

Kaizen: So different treatment than from, say, the YouTube model.

Marsh: Yeah. It has some similarities, but we don’t do everyone’s cat video. You’ve got to have stuff of substance that people obviously want to monetize.

Kaizen: So if you have a registration fee to be a part of your site, then you can put up whatever you want and brand it, market it, and so forth. And it becomes open source?

Marsh: Totally. You market it yourself. You do not need a film distributor. In this day and age, if you’ve got access to the distribution you do not need the traditional middleman, which is what screwed the film industry over—especially the independents—historically.

Kaizen: So what do you need the Canadian government to do if it’s essentially the YouTube model? Why does the tax differentiation matter at this point? It sounds like you’re doing is different from Netflix. You’re not going out and paying $20,000 for the film rights or whatever. That’s what Netflix is doing.

Marsh: Right.

Kaizen: If you’re not competing in that market, why is there a problem?

Marsh: Well, because they don’t have to pay tax. We do. And not only that, there’s a very complicated technological way to collect the tax.

Kaizen: It’s not just a matter of, say, here’s how many registration fees we have and here’s our twenty percent tax or whatever.

Marsh: Yeah.

Kaizen: Okay, so you have byzantine tax structure.

Marsh: Not only do we have to collect tax that way, but we also have the corporate tax that Netflix and the others are not paying, so it’s all going south of the border.

Kaizen: Since the government is interested in long term revenue, why are they not more on top of this? If they recognize Netflix and Amazon as huge entities—there’s going to be billions of dollars in the coming years—why are they not leveling the playing field or having a more rational tax policy?

Marsh: I think it’s traditional political short-termism. Right now 500 million dollars might seem like a lot of money.

Kaizen: That was the Netflix offer to the Canadian government?

Marsh: That was what they, the government, sold out to Netflix for.

Kaizen: So it’s about 400 or 500 million U.S. dollars.

Marsh: It’s over five years; it’s peanuts. You know, a government in the normal course of operations can blow that. So it’s short-termism, but it’s also a lack of political leadership and insight.

And the whole point of the platform is we’re content neutral. So long as it’s not the obvious hate, it’s content neutral politically.

One of the guys that did use us as an experiment, and it worked quite well, went on a bicycle and made a documentary following the famous pipeline that they were going to build.

Kaizen: The Keystone controversy?

Marsh: Something like that. He’s a documentary filmmaker, and he went out on a bicycle with his damn camera and did show the exact area. I thought, well, he’s an environmentalist, but there’s also political aspect to it—a policy thing. But this is good stuff whether or not you subscribe to his political ideas. Why aren’t people taking any notice? Because you can’t get his stuff out there.

Kaizen: Sure.

Marsh: And it’s a wonderful thing to get people with localized knowledge creating content. In this day and age, with an iPhone you can do interesting things.

Kaizen: What about YouTube? Why is not advantageous for him to say, “Here’s my 50 minute documentary. I put it up on YouTube, and I’ve got my subscribers and word of mouth, and people vote it up and down.” So it’s already distributed, a public domain thing.

Marsh: Because we offer him a lot more flexibility behind the scenes in terms of marketing and branding. For all intents and purposes, everyone comes to him thinking this is his whole operation.

Kaizen: I see. So, one more question and we’ll wrap up. If the Canadian political jurisdiction doesn’t work, is there anything to stop your company, or the idea of your company, just being in some other jurisdiction?

Marsh: Well, there are two options. We’re putting together a video and a letter, because I’ve been in correspondence with the previous minister of heritage or culture or whatever they call themselves. We can locate to south of the border, but then what’s the point? There are others, and they’re giants. The whole point is to give the Canadians a break, a Canadian entity, Canadian jobs, and Canadian content, but not just for Canadians. Canadians are not interested in Canadian content because most of it is crap. It really is.

Kaizen: In every country 80 percent of it is crap, but the world market is huge.

Marsh: Exactly. If you wanted to do a woodworking video, you’d only need a hundred thousand nerds around the world who would willingly pay the price of a cup of coffee—99 cents—and you’re sitting on $100,000. That is the point. You can find your niche.

Kaizen: You’re looking for the long tail.

Marsh: The long tail, exactly.

Kaizen: It sounds like a work in progress, but this is also wide-open technology to a large extent. We’re in the early days of all of this.

Marsh: Well, I’m afraid nothing is going to happen with this company. I’ve been making inquiries to see if we could sell it. At the very least, maybe we’ll just mothball it. It’s not wasted, but it hurt because people who are set builders—and not on the glossy side of things—put their money in it. I think each put in $10,000, and we put together about $300,000. And though these people knew the risk, it still left a bad taste in our mouths, especially because these are people who know the industry. They’re in the industry. They’re not people sitting up on high saying, “Oh, wouldn’t it be nice?”

Kaizen: Would you then say the lesson for you, the entrepreneurial strategist, was that you needed better understanding of the political process before committing the capital? Were you too idealistic about how that would go?

Marsh: I think I had misplaced expectations in the political process. It’s all lip service; we live in an age where we’re young, hip, and tech savvy—but not really. Underneath all that you need a politically sensible, ethically sensible, long-term view. You need some substance, and you also need to understand the dynamics of a market.

Kaizen: Right.

Marsh: These people just don’t understand the dynamics of a market.

Kaizen: So political value-structures set cross-purposes in this case.

Marsh: Yeah.

Kaizen: Fascinating stuff. We’ll stop there.


This interview was conducted for Kaizen by Stephen Hicks.

More Kaizen interviews with leading entrepreneurs are here at our site.