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For the past decade, Scott Butler, QS '16 has been the founder and CEO of HighStreet Ventures Inc.
In today's episode of the Ivey Entrepreneur Podcast, Butler retraces his entrepreneurial journey, from leaving WestJet, and becoming a real estate developer in one of Canada's hottest markets.
The Ivey Entrepreneur Podcast is sponsored by Connie Clerici, QS ’08, and Closing the Gap Healthcare Group, Inc.
Transcript
You're listening to the Ivey entrepreneur podcast from the Pierre L. Morrissette Institute for Entrepreneurship at the Ivey Business School. My name is Eric Morse and I will be your host for this episode. For the past decade, Scott Butler has been the founder and CEO of high street ventures Inc, a real estate developer in one of the hottest markets in Canada. Here's Scott retracing his entrepreneurial journey.
Scott Butler
Well, we started doing real estate development. When I left westjet, my wife and I decided to start our own business. And that was at the end of 2004. And just so happened that one of the cofounders of westjet, Dawn Bell told me when I was leaving that he would back whenever we started. So that gave us the confidence to go out there and find something. Didn't know we're going to do real estate at the time. But that ended up being the top of the list and about 10 things that we were thinking about doing and real estate development came out on top. So kind of came by naturally, I guess my dad had a construction company. When I was growing up, and my, my brother was doing construction for other developers, so seemed like a natural fit to play the developer role and, and go out and start doing real estate.
Eric Morse
So it wasn't I mean, it was familiar to you, you kind of had a sense of what it was all about. You thought you could take that on. But your business model was a little different. Tell me a little bit about that.
Scott Butler
Yeah, oddly, it wasn't that different in the beginning, we didn't have the plan that we then embarked on later, I think the in the early days, it was just a matter of survival and trying to find opportunities, making a making a business for yourself, I didn't have any employees at the time it was just get out there and try to get a project going. And our first one was a condo project in Courtney, I suppose even at that time, we had the idea around doing repeat buildings. So we knew that that was a primary concept that we wanted to apply, which was, I suppose, similar to the westjet philosophy of the same aircraft type, and the efficiencies you get out of that. So we knew that if we repeated the same buildings, it would become more efficient, and we get better at it. Even on our first site, we had three buildings, and they're all identical. So that was a, certainly an early mandate. And then it wasn't until the downturn in in 2008, that we really got on to the current model. And that was, again, kind of happenstance. There was there was there wasn't a big master plan. It was just, again, we were survival. It was how do you how do you turn we had some early success on the first project and then built a hotel, had to sell that. We're the only hotel sale in BC and, and in 2009, so we were the only hotel sale. And times were a little difficult. And it was really a combination of my brother had done a lot of construction for rental apartment developers. And we always, I was always interested in that model. And I always liked it. But couldn't figure out how the numbers worked until we did the hotel. And there was a big epiphany when when we did the pro formas on the hotel and then looked at take out financing on the hotel. And of course you build with financing based on cost and your takeouts based on value. And all of a sudden, we realized you could take out a bunch of equity that you'd put in initially, you can take it out once the building's full and cash flowing, and then the numbers made sense, then the numbers could actually get you double digit returns to the point where it made sense to actually split the difference to actually split so that as as people that were running the development, we could get a margin out of that and still have enough leftover for the investors. And it was really the hotel that led to that epiphany. And then it was oh, hey, we can do this with rental apartments, and then started going gangbusters on rental apartments.
Eric Morse
And so once you started to rent rental apartments, the rest of it was like you said you had the Epiphany, but the rest of it was more kind of gradual learning, hey, if we do the same structure repeatedly, we're going to get better at it. We're gonna lower prices. How did the business model evolve?
Scott Butler
Yeah, for sure. It was in the beginning it was literally looking at what other developers were doing and and saying, Oh, well, there's a there's a model that we can follow. You know, two bedrooms predominantly and they're all two bed one bath the time for rental. And you know, pretty basic building we call it version 1.0. We had we actually went into markets like Yellowknife thought we were going to do rental and sold them as condos. And that was an eye opener as well. Just the ability to pivot to condo if there was an opportunity but not focus on condo. So we've we've still done a fair amount of condo In our past but not we don't go into markets thinking we're going to do condo and so you're aware.
Eric Morse
Your value proposition is interesting though because it's apartments is what you go after but it's it's a nice it's almost condo level.
Scott Butler
Oh yeah, it's evolved over the years for sure I mean we can easily transition between rental and condo if the market dictates so it's Yeah, we're you know it's two bed two bath quartz countertops, stainless steel appliances. All right, he couldn't tell the difference between what we build in a condo other than our it's actually more energy efficient but
Eric Morse
right. And that's evolved as well right in terms of part of the business model the value proposition for people coming into these apartments, it's one it's high end, and two, it's, you know, really energy efficient, you guys just recently won a number of awards. Tell me about that.
Scott Butler
Yeah, absolutely Well, part of it, I suppose the we've got a goal to have 1000. net zero homes that we own and operate by the end of 2024. And that probably came more from philosophy, but we also recognize that there's a payback there, when you're building and selling, the cash flow really dictates the value. So if you can reduce the expense side and increase the cash flow, a lot of these energy efficiency improvements pay for themselves and, and more. So for us it was it was about math, and we are willing to spend beyond pure math on making it more efficient, though, and, and help you know push the industry in what we think is a logical and, and correct direction, both from a financial standpoint and for doing what's right. But it's in the early days, there wasn't as much push on that certainly the hotel we built had a lot of energy efficiency built in and and water savings and everything else. But it did take a while to come back to that I think once we really figured out where with the product it gave it and then kind of independence of thought through changes. And in our structure and our partnership structure. It was really about what do we want to be known for? And how are we going to, what change we're going to make in the industry. And that really led to, to the net zero vision. turns the product itself, a lot of that was response from the market pushing where we were to go in the beginning. And when we first started doing this in 2009, there wasn't a lot of competition. And so no matter what you build in Alberta, they would fill up and you'd be competing against much older product that was built in the 70s or 80s. And there wasn't a lot of new and then that is that changed over the years, you'd have a lot of condo builders that entered the market in their rental space. And and that created an uptick in. In the level. We also got the feedback from institutional buyers that I remember specifically we had in the downturn in Alberta, one of our projects that we did there, we wanted to sell it, and it was after the downturn. So after post, I guess it was early 2015. And we had what we thought at the time were great layouts. We had, two bedroom, one bath, dining room, quartz countertops, stainless steel appliances, so we pushed kind of everything else in that direction, the underground parking everything else. And we fully underground we I think about three or four years ago, we just started doing everything with underground parking. So we thought it was a really good product. And the institutional buyers balked because they said they wanted to bed two bath and nine foot ceilings and we had eight foot ceilings and so you in a time of having to sell the institutional buyers had other products to choose from that had what they were looking for. And so we were last on the list when it came to selling ended up selling to a private company, not an institutional buyer in and the price effort for sure as a result. So so you kind of some of these changes get forced on you through you know, you get beat on the head with okay, that's what the market demands now. Whereas, it's not always brilliant for you realize it when you're in a bit of a crisis that Oh, crap, that's not what we should be doing anymore. And so you just make the change without even fun, not the financial consideration, because you couldn't, financially it was harder to justify a second bathroom and nine foot ceilings, but when the difference between selling a project and not selling a project is second bathroom and nine foot ceilings, you put in the nine foot ceilings, right.
Eric Morse
Right. You know, it's interesting, I think I'd see I see that in a lot of successful businesses is there's a sense of, of planning of, you know, we see this as the right way to go. But there's also a sense of you got to react to the market and those that are successful can do both. Right. And I think you've done a great job of that. You know, one of the things that's interesting got about about your businesses that you can kind of take either direction with a business model, you can either build this out and then sell it to an institutional investor or you can take it in house and operate. Why both models? What led to that thinking? And is one better than the other?
Scott Butler
Yeah, that's a good question. I don't know that. I don't know that one's better than the other. I don't think that there is a either works. And yeah, there's certain, I'd say the model of building and selling repeatedly is simpler model of building an operating is more complicated and then requires additional typically would require additional equity requirement, if you're going to hold. And especially you're going to hold everything, we're evolved into a mixed model, I'd say for the first few years we were selling, because we kept the project size kept growing. And as a consequence, we would require more equity. So you kind of build it and sell get the equity and the profits out to do the next couple projects. And we continue doing that for a while. And it seemed like for a while we were purposely trying to stay at three or four projects a year. But we still needed more and more equity because of the project size grew. You know, when was eight years ago, our project size would have been we did 96 apartments in St. Albert. And we did 112 and sunset Valley. And then, you know, our latest projects for you know, 240 in West Kelowna and 280 in Kelowna, and, and 288 in Calgary, so the projects got bigger, so right, equity requirement would triple. So by virtue of that we grew. And it only was recently when we kind of reached this size, terms of size and development, we've got our our sweet spot of 150 to 200 or so apartments, and doing for a year. And now we're starting to keep about half because of the we can just roll that the remaining half protects with the sale and profits, we can roll into new projects and keep our volume going without having to raise any more money. So that's really a bunch of things came together, it was that the formation of our private mutual fund trusts to hold all of the new development stuff in, then we created an entity to hold them in, which was a separate master limited partnership. And so now we have an entity that to properly hold the man outside of the trust. Yeah, the whole thing is just really come together in the last couple of years.
Eric Morse
Yeah, very cool. Two questions I've got. The first one is I love what you've done in terms of the net zero building and your philosophy on that you have a philosophy in terms of bringing as many people along with you as you can, you've got all your employees have the opportunity to buy in. Can you tell me a little bit more about that?
Scott Butler
Yeah, for sure. We, I guess my wife and I were the we were the beneficiaries of the profit sharing and share purchase program at westjet. And that was a it was a mantra that they would repeat at westjet all the time is that, you know, people wanted to benefit from their own success, they'd be a celebration of success, and people would be able to participate in that as owners. And I think that's a big part of culture. It's not the only part of culture, Don and I have talked about this a lot. And certainly, are the financial rewards. Even if you say it's half and half, half of your interest in wanting to act like an owner and be like an owner is your financial interest. That's great. And the other half is obviously the culture and your manager and how well you get treated empowerment and everything else. But we always wanted to have people who, if we were successful, they would be successful and successful beyond what they could have made elsewhere. If we're doing really well, we want to share in that and I think that really high street started because of the share purchase plan at westjet. It allowed. And listen, I have to say 100,005 years on not very high salaries. And we went around, we turn that 100,000 into 500,000 on our first development. So it was that ability to save that much money in a short amount of time. And I really saw that as something that I was passionate about. And helping people do not that everybody's going to go and save money and start a company but just help them with their own financial security, their own financial freedom. And hey, if we're all making money, let's all let's share it and make money together. And you know, we've we've had a huge emphasis on trying to get our employees to invest significantly. So we actually do we contribute 50% of up to 20% of their base salary in their investment. So yeah, so if you think about if you make 50,000 a year you contribute 10? Well, we'll put in five for you. Right. And that's out of our own pockets and not not another project money. It's from Melissa and I, from high street ventures. So we actually contribute directly to helping people save. And the idea is that they then participate as owners and they get to benefit as owners.
Eric Morse
Yeah, the better you do, the better they do.
Scott Butler
Yeah, absolutely. And then the third part we have is the profit sharing. So we've really, you know, it's base salary, the ownership and the profit sharing or bonus, which is, again, based on performance. So if we do well, as a company, the bonus has been anywhere from 10 to 18%. Since we started 18% of salary. Also, we, and obviously, the logical thing we do is when we pay out the bonus, we ask them to invest and yeah, and then they can get 50% more than that. So I'd love for, for people to, you know, if they've worked at high street for 10 years, I always you can do the math, if they work at high street for 10 years and save 20% a year. And we put in the, the 50% of that. And if they're diligent about that, and leave it in, in I always look at the numbers go well, in 10 years, they'll be making as much profit, how does they are working there? So right, a very good place to work, right? That's always the logic. But I love that idea that people can, can save and do well and have that option. Right, have that option to not work if that's the salary you need, then have that option and do well, because there's no reason we can't share it.
Eric Morse
That's fantastic. Scott, thanks. So if there was any last thoughts you wanted to leave? You know, the listeners in terms of tips, lessons learned? You know, would there be one or something jumped out at you or a couple things?
Scott Butler
Yeah, I mean, some of the biggest lessons for me that I tell entrepreneurs starting out, that really be clear about what you want, I think Don, Don was a fantastic mentor, and I just wasn't the best listener in the beginning. And I should have learned the lesson at westjet, too, it was there was a big emphasis on on values. Now didn't really get that, I guess, wasn't paying close enough attention. But I think it's really important to know what you want in business and what what that means. And by saying that, I mean, clearly articulate your values and how you want the company to be seen and how you want your people to conduct themselves. And how you want to be seen as a as part of values and, and figuring out what that is. And the hard part about figuring out values, if you haven't thought about it is you often come up with values by thinking about what you don't like, rather than what you do, like it's easier to think about things that that somebody pisses you off right and and see, what is it about them that pissed me off? The opposite of that is what you value, typically. Right? sure what pissed me off about that interaction, I must like the opposite of that, and therefore find the positive side of it, which is the value that you that you hold. And I think, really important to nail that down, because it It sounds wishy washy, but ultimately, any partnership that you have, whether it's your marriage, or your business, partner, whomever, if you if you have a fundamental disconnect on what you believe in and what you want to how you want to conduct yourself, you're going to get into a lot of arguments and save yourself that pain.
Eric Morse
Yeah. And if you don't really articulate it and think of it proactively, you just end up somewhere. Yeah, a place you want to be right.
Scott Butler
Yeah, absolutely.
Eric Morse
Scott, thanks. Thanks so much. I really appreciate you spending time with us today. And continued success.
Scott Butler
Okay. Thanks, Eric.
Eric Morse
Awesome. And that was Scott Butler, CEO of high street ventures, Inc. I wanted to briefly revisit just a point from that interview it it was a it was one was really a lot of fun. For me, Scott was one of my very first students when I got into academia some 20 years ago. So that was pretty special to me. And one of the things that I love about Scott's story is, around the idea of business models, I am passionate about business models, I love looking at companies and figuring out their business models and how they've gotten to where they are. And you can see how high streets business model evolved to really fit the opportunity. And Scott said that over and over again, but you can also see that that was guided by his experience, his experience in his family, his experience in school and his experience at work. And he was able to take that learning and evolve it and apply it and learn and evolve and apply. And I think that pattern is you know, what sets Scott and many very successful entrepreneurs apart is that they're, they're always looking for a great idea and how they can apply that in their situation, evolve it and make it great for them. So Work for great companies, take from them, learn from them, work with great people, take from them, learn from them, and you know, start great businesses. And I think all those things go hand in hand. So, well done, Scott!
Conclusion
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