Join Jason interviewing Mehdi and Barry from Three Shore Development in our last episode of the Polestar Podcast by VELA Wealth. They’re talking about forming a win-win partnership, discipline and planning, entrepreneurship journey, and approaches to dealing with uncertainty.

 

 

About the Guest – Mehdi Shokri

Mehdi is inspired by the desire to create meaningful change through development and is driven by an overarching passion to make neighbourhoods better. He aims to align visually-inspiring environments with sustainable and profitable solutions. To read more, please visit the Three Shore website.

 

About the Guest – Barry Savage

Barry values precision and process. His goal is to take a focused, structured approach to development, and values the methodical process of any project. His passion is to carefully consider all details in order to execute a plan that works for all stakeholders. Inspired by the urban vibrancy of other big cities, Barry is interested in how land use can shape and create homes and communities. To read more, please visit the Three Shore website.

 

About the Host – Jason Boudreau

Jason has built VELA Wealth into an established life and estate planning firm, guiding families as they make meaningful choices at the intersection of life and wealth. Jason’s areas of expertise include intergenerational wealth transfer and estate planning with a focus on advanced insurance-based solutions that incorporate philanthropy and legacy planning. Leveraging these specialties, Jason brings a fresh perspective and outside-the-box thinking to the strategic planning process. To read more, please visit the VELA team page.

 

 

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Read the transcript of the Polestar Podcast here.

Listen to the Polestar Podcast here.

Podcast Transcript

 

Jason Boudreau:

Welcome everyone to the Polestar Podcast by VELA Wealth. Today we have two very special guests Mehdi Shokri and Barry Savage, Co-Founders of Three Shores. We’re going to be talking about their entrepreneurial journey and having them share about what led them to where they are today, and then also some look forward to the future. I’ve had the opportunity of getting to know both of them over many years and watching them grow into what is become a very cool company that we are excited to be aligned with. I’ll turn it over to them to give some background on how Three Shores started, evolved and then we’ll get into some details on the life and entrepreneurial journey.

Mehdi and Barry, maybe just one of you can jump in, or even both of you, and just share about the journey to Three Shores and how it became what it is today.

 

Mehdi Shokri:

Sounds good! Well, first of all, thanks for having us on your podcast, Jay. We’re excited to be part of this. So, just kind of jumping into your question on how we started Three Shores. So, roughly seven years ago Barry and I met. I believe in two instances we were meeting without realizing how connected we actually were, but I was looking for somebody to help me out at the time. I was in the capital market space at CBRE with my role being to facilitate finding development opportunities or investment opportunities on behalf of other clients in British Columbia. I just finished selling a high-rise property and a gentleman who had purchased it really needed the expertise to have someone take him through the entitlement process and basically all the way through to construction. Knowing that it was a pretty unique ask, generally, developers are the ones who going to do that in-house, I reached out to one of my contacts, a well-known individual in the industry who right away jumped and said “I got the perfect guy. You need to call him. He’s just left working for a large developer, so you want to connect with him soon because he’ll probably get really busy fast”. So, anyway, that’s how I got the first introduction to Barry. Coinciding with that, I was helping another client of mine sell a site, Barry was on the other side for a developer who wanted to acquire a property that I was selling. Personally, I am very good at finding opportunities, dealing with capital stock, structuring the deal essentially, and Barry was really the one who’s taken it through the process and got things done to see the development through. We both realized that we’re helping some people make a lot of money and we quickly decided we should be doing this together.

 

Barry Savage:

Well, I think that another thing that kind of made us a good fit to be a company is that we have a really complementary skillset. Going through working for other developers, one thing that I noticed is that you do need to have people who have specific skillsets that complement each other because in our industry you have to know the big picture, but you also have to know really detailed information. I think that’s one of the things that makes Mehdi and I a good pair – he’s let’s call it the big thinker and he can see an overall strategy where we want to go and look at it from say forty thousand feet in the air, and my skills are more on the day-to-day detailed stuff. He can come up with a big picture, but then we know we can execute it.

 

Mehdi Shokri:

And I’ll probably add to that. Speaking for myself, I started in the industry as a lone wolf. I quickly realized the importance of building a team and obviously to grow you’re going to need help. I wasn’t always the best at understanding how to ask for help or facilitate help in my early days. I wanted to take on everything myself. A bit of a control freak–still am, but definitely learned quickly that you have to find the right help. I think what made it also very unique for me, at that point in my career things were definitely on the trajectory to be getting really busy for me, but I still really had a tough time finding somebody that I trust and who would actually get things done. I know I’m pretty much a “gut” guy in a lot of instances, and in a minute, I saw how Barry operated to his point, how different he was in so many ways than myself. I think the key thing for us is that we immediately had a connection of trust in what we were both good at. So, I think that really skipped a lot of the questions frankly around how to find a partner and like go through the dating process, we kind of jumped right in there and started working together.

 

Barry Savage:

Well, the other thing is that we both came from well-established careers, both successful at what we do. So, I think we we’re both comfortable knowing what our strengths and weaknesses are, and that helps when you know what lane you’re supposed to be staying in and that you don’t vary from. That’s always the conflict that you have between partners – you have them varying between what the role is within the company. Without sitting and writing down on paper our roles we both just intuitively know what we’re good at and what the other person’s good at and we let them take the ball and run with it and we don’t try to interfere in each other’s business.

 

Jason Boudreau:

So, Three Shores is two years old now, right?

 

Barry Savage:

We’re 7 years old.

 

Mehdi Shokri:

Yes, we went further after that connection was made. We decided that given where we were, still in inner prior roles, we weren’t going to move slowly and steadily, right? I was very aware of the conflict of sort of wearing two hats – being representative of other developers and capital partners that this wasn’t supposed to be something of the gun where we were just going to start taking on the world. So, after a couple of projects, things started to escalate, and it became clear to both Barry and me that it was time to roll all our activities into Three Shores. So, about two years ago we officially enrolled all of our activities.

 

Jason Boudreau:

So, thinking about where you are at today and what you’ve accomplished over the last couple of years since you really went into this, what’s one thing that you are really proud of that stands out for you?

 

Mehdi Shokri:

I’ll jump in. First of all, I think what I’m proud of is that it’s always a tough decision to form a partnership and create a business and obviously put yourself out there as an entrepreneur, but I think what I am proud of is that we’re very thoughtful about why we did this. We’re not dissolute, we didn’t just say okay, we’re going to jump in and we’re going to be developers now on our own even though we could have our egos to go that route because we had very successful track records in what we did. We definitely wanted this to be done in the right way and we wanted to make sure if we were going to do this, ego aside, we weren’t to become the next big developer or we were copying and pasting all the same kind of formulas that are out there to do in the industry. So, I’m proud that we stuck to that. I mean we were quite principled from the beginning, and I think we continue to have that same intention with everybody we talk to. We want to be involved, we want to be the face of this company and we’re committed to frankly not doing deals over the right partnerships and the right projects that just don’t align with why we did this in the first place.

 

Barry Savage:

Well, I would say the thing for me that I’m the most proud of, and it seems a bit of an odd thing, is I’m actually more proud of the stuff that we walk away from than the stuff that we actually do. I think that goes back to both Medi and I, and our experience in dealing with new developers. They inevitably do projects that are way too big for them and they shouldn’t be doing. I think Mehdi and I have the discipline to know what type of project we should do first and what should we do second and how should we grow methodically with purpose. We weren’t ever trying to jump further than we probably could have if we really wanted to push it. I think that this shows all of our partners that we have the discipline to know when to walk away from something and I think that’s important in our industry. People get caught up in doing the biggest and the best thing that they can do and sometimes taking a step back and being a little bit more conservative is the best business plan that you could have.

 

Jason Boudreau:

Yes, that totally makes sense. From business books or articles you read, and podcasts you listen to, you hear about some of the most successful people in the world, whether it’s Elon Mask, Bill Gates or Warren Buffett, and constantly what I hear as a commonality between them is they’re defined by what they say NO to, versus what they say YES to.

 

Barry Savage:

Well, and I think based on my background I used to do big projects such as two hundred plus million dollars projects. We had the discipline to start off doing a thirty-five million dollars project, right? I think a lot of people in our industry would not go back and go on to a small project like that, they would think it’s too small and would be eager to do bigger.

 

Jason Boudreau:

Interesting. So, pulling on that thread a little bit – how would you define success? This can be an individual thing, it can be a joint thing. I’m curious to know as you both are entrepreneurs, you’re in a unique business in real estate development, and obviously have tons of experience. We’re talking about the fact that you’re proud of the fact that you say NO to things, you’re proud of the fact of the discipline you stick to. So, to carry on that, how would you define success then for yourselves?

 

Mehdi Shokri:

Coming back to the purpose of all this, the money was never really the driver, nor was the ego. It was actually about the impact. So, for me, the purpose of what I am living for and some of those bigger philosophical questions really started to come into my mind as I was trying to better understand why I was happy and why I wasn’t happy about the things I was doing in my prior role. When I was committed to moving to Three Shores, I thought I would always tell myself that success will be about the reputation and the acknowledgment from the people that I care most about. That we did things right, we were good stewards, we were good people and built good relationships, had some humility and sincerity and were not just greedy. Again, our reputation would speak for itself after we went down the road years away and reflected on our company. That to me was really what I thought hopefully a successful outcome would look like. And it still is.

 

Barry Savage:

I think I’m along the same lines. The other thing that I would say is that for us our partners are always really important whether it’s our business partners or our consultants who we treat as partners whether it’s the community and the neighborhood that we’re working in. I think for whatever project we’re doing to be successful, all of our partners have to participate and gain from whatever we’re doing. For example, we did not have to put a daycare into the project that we are doing on W 3rd Street, but we thought that was the best thing to do and if that enhances that neighborhood at all, then that is a success.

 

Mehdi Shokri:

It kind of triggered another point that I was thinking of when Barry mentioned partnership. I think in general we were really hopeful that we did not have to entertain whether it was a deal or a partnership that wasn’t completely aligned with the type of people we wanted to work with.  For us in the end, success will be defined by the people we work with. I don’t say from a place of being cheesy about it, I actually mean it. If we start doing things such as working on behalf of partners for the wrong reasons, then that won’t be something I will look back at and say we succeeded in our mission. If we continue to stick to what we said about being aligned, and that might mean we lose some really big opportunities, then I think we’ve succeeded in what we said we were going to do.

 

Jason Boudreau:

Speaking from our experience, obviously, we’ve got a project on the go together, and I really feel like it’s a true partnership with you. You’ve come to us, said that you’ve got this opportunity, and offered to reach out to our network and help bring in the capital, while you’ll take the development on. Then, you are providing these quarterly updates that we’re able to send to our investors. People read them and they feel really good about it. It’s very professional. A lot of what I’ve seen in the development industry and smaller developers in particular around the city or even the province is there isn’t necessarily that level of professionalism, but you seem to have really brought that to the forefront. That to me just instills greater confidence for us as partners, but of course most importantly, for our investors who are partners of ours, right? So, speaking firsthand from experience I can definitely attest to the fact that you have brought that mentality to the forefront.

Just to sort of flip it a little bit, I am curious to know what keeps you awake at night. Because one thing is to talk about all the amazingly positive things that are happening but as a fellow entrepreneur I know they’re things that don’t allow me to sleep every day and I’m curious to hear from you – what keeps you up?

 

Barry Savage:

I would say in the current economic climate it’s protecting our partner’s money that they’ve entrusted to us, right? I mean that’s obviously for every developer it always has to do with the bottom line and in our case, it’s at least for me, it’s no different. It’s trying to do whatever we can to protect not only the equity that we’ve put in projects but to protect the equity that all of our partners have put in.

 

Mehdi Shokri:

I would echo that. Obviously, we’re very mindful of our reputation lasting. What keeps us up at night is also the opportunity that I see in front of us because I think we’re clearly in an environment where those who execute and follow up on what they say are the ones who will see these times. They’ll find the greatest opportunities and how we grow from this. Speaking to Barry’s point about protecting our investor capital and staying true to what we promise in the first place – those are all very top-of-mind realities that we’re dealing with but it’s also things that you can’t control. Accepting that, right? It is hard enough for me personally because as I said before I’m a bit of a control freak still… you try to think of all the various things that can come at you even in whether it’s in the good times or in times there’s more chaos. But it’s definitely a lot of managing expectations that probably I’d say is what keeps me up at night and making sure that you’re doing it the right way.

 

Barry Savage:

Actually, early in my career, one piece of advice that I was given was “if you want to be able to sleep at night you have to let things go”. Sort of what Mehdi said, there are things in our industry that we have absolutely zero control over. Take interest rates, right? Yes, we have no control over that. So, I don’t let that bother me because there’s nothing I can do about it. But what you want to do is you want to be prepared for it and have a plan on how you’re going to react. Those are the things that keep you up at night. But that’s what you’re thinking if someone’s coming in saying you know there’s another 75 basis points coming next month, right? The thing that will keep me up is not those 75 basis points coming up, the thing that will keep me up is do I have a plan on how I’m going to address it?

 

Jason Boudreau:

Yes, yes, that totally makes sense. One of the things that I’m curious about from your perspective is…From my side as an entrepreneur, one thing I’m guilty of is always looking at the horizon and thinking about where do I want to go versus where I’ve come from right?

 

Mehdi Shokri:

Or where you are now…

 

Jason Boudreau:

Yes, right. In the present.

 

Barry Savage:

I’m laughing a bit because that’s Mehdi’s lane. I don’t have to worry about that, I’m just looking at the present and how do I get to tomorrow. How do I get the project to tomorrow and the next day and the next day. I’ll let Mehdi look at the horizon.

 

Jason Boudreau:

It’s interesting to hear you share that because I just came from our office. You know Rob, my business partner. We’ve been involved in strategic planning for next year over the last couple of months and a lot of these conversations come up and it’s a very similar dynamic where I’m out there, sort of being head in the clouds, visionary, seeing things progress in a certain way, and then Rob said to me “Okay, now how we can execute that?”. He can see the vision and all the execution points and so we’ve got this great complementary skill set which I’m obviously very grateful for and that gate that does keep me grounded, right? Because I can always sort of chase the horizon or look at the horizon and sort of not look back to see where we’ve come from or have that eye on the present. That said, I’m curious about you how do you feel relative to what you set out when you decided to really jump in headfirst a couple of years ago into this thing to where you’re at today? How do you feel in the progress that you’ve made thus far and then what are some things you’re looking to accomplish that you haven’t yet?

 

Mehdi Shokri:

I’d be the first to say that I always battle looking forward and how we’re going to grow and all that kind of stuff. Or even looking back and not wanting to repeat maybe mistakes or experiences that I fear happening again. I think our mentality has been really about how we manage what environment we’re in and the journey so far has been really about like Barry alluded to earlier being able to say No right now.

I personally grew up in a world where success was defined by how many deals you did and there is almost a habit that needs to sometimes be broken in my own psyche world. Let’s say the shiny new ball – you don’t want to start chasing it and especially in this environment because as crazy as it is we are now seeing more and more opportunities, more than ever, and fortunately we built a good reputation where we have brokers coming to us now, trusting us and our abilities, telling us about off-market deals and sharing sensitive information about how to kind of structure some of these deals that it’s getting to the point where it’s now time to be able to have the discipline to say No. So, I think right now being committed to understanding that you can’t do everything, and you’ve got to stay focused on how you’re going to get to Barry’s point the next day is really kind of everything for me right now.

 

Barry Savage:

I think all businesses and partners need to have discussions. Mehdi and I set out what our goals would be over the next year. And again, we go back to the discipline, to stick to what that plan was, right?

Forget about a lot of the noise that’s going on but try and stick to what we thought was the best course for us when we were planning ahead and to try and stick to that. So, if we, for instance, in our case if we decided we want to do one wood frame and two concrete projects for this year coming up – that’s what our goal is. What the discipline becomes is what are the two best concrete projects and what is the best wood frame project to stick to, right? I think that’s what we’re trying to do and that’s what we want to do.

 

Jason Boudreau:

That makes sense. In the last couple of years when you really decided to jump in headfirst and you look at where you’re at today. Do you feel like you’re where you want to be, are you ahead of schedule or behind? What do you feel you’re at? Has it evolved?  I’m sure it’s evolved.

 

Mehdi Shokri:

I mean I’m never satisfied. So, I do not know how to answer that question (laughing).

 

Barry Savage:

So, that being said, if we were to look today and go back two and a half years ago when we decided that we’re going to do this full time we’re probably almost exactly where we said we wanted it to be. I think the difference is that we have a lot more opportunities that come forward now we’re picking and choosing the right one. But in terms of the number of projects we set our goal out, we’re pretty close to being right on our original plan. Maybe some stuff shifts maybe by six months or so, but it’s pretty close.

 

Jason Boudreau:

I think that obviously speaks to that discipline mindset that you have brought in – sticking to that plan. That’s really good to hear.

When we talked earlier about how you define success. I know Mehdi you said you are never satisfied or how did you frame it? When you define success and what’s important in your life today and of course look forward, do you feel like you’re successful?

 

Barry Savage:

For me, I think it’s actually too early to define whether you’re successful or not. I think we need to get through the next year or two before you will truly be able to say whether we were successful or not. Because of the projects that we’re doing right now – we haven’t completed one yet, right? We’re getting close on two that are going to be completed early sometime next year. But until you get to that stage I don’t know if you can say you were successful or not.

 

Jason Boudreau:

What about you Mehdi?

 

Mehdi Shokri:

I probably look at it a little differently because again, I come back to the point of not being able to control everything. I try not to look at success so much by what the end result is because some of those things are completely out of your control as to how they end up being successful or not whether it’s for the good or on the opposite side of what success looks like from a financial metric. I think for me I would still say it’s too early only because when I really thought about moving into this space there were a lot of mental health discussions that I was having with some business coaches and counseling and a lot of things, especially through Covid that really opened up my eyes to what success and happiness look like. I think I’m still going through this journey. I think for me as a broker in the Capital Market Space I never really felt like I was completely understood and that was probably more to do with my own shortcomings–not leaning in, or opening up to people about what kind of person I really was with my closest friends and relationships. I defined success as being a top broker in the country, or in the office, and that’s all I needed to know to keep me in line with my job.

Now it’s more about making sure that the relationships I have, and people really get to know who I am and I truly feel like I’m also doing my part in allowing them to know who I am. So, again, relationships take time. That’s why I think it’s too early to say. I think until those relationships really mature in this new space that we’re operating in, I won’t fully feel like I’m successful.

 

Barry Savage:

Well, I think for both of us as we go through our careers success is different, right? You know when we’re both young and didn’t have families career would define your success, right? Now it’s somewhat secondary.

 

Jason Boudreau:

Let’s talk about that a little bit because obviously, I know you both are family men and I am as well, and our families know each other. How do you want your kids to see you down the road? For me, I’m always lead by example person, right? I look at my kids and I think they’re going to emulate what I do way more than what I say or tell them to do. So, I’m curious about that from your side. How do you look at that when it comes to your kids and how they look at you?

 

Mehdi Shokri:

That’s a heavy question.

I didn’t have a father growing up, so just going right to the core of it – I want to be available. My entire intention when I became a dad was that I was going to be there all the time. So, now to some extent I maybe overcompensate because I’m a head coach for both of my boys and they’re playing more soccer than I ever realized would ever happen. So, my part-time job is really coaching kids’ soccer.

I do it because what I’m hoping for is that not only that I’m available but to your point that you lead by example and you want them to see when you commit yourself to something you do what you say and you’re accountable and you’re reliable, and you’re not a flake. All those things are part of why I’m doing this and why stick to it and I don’t try to veer off and do a half-ass job at anything that I’m involved with them, but I think I also want them to feel safe. I feel like if I’m there I don’t necessarily need to tell them what to do, but I want them to know that at this age, in particular, my kids are so young, that the feeling of safety is everything which I don’t feel like I had that necessarily as a kid. So, again compensating a little bit for my own childhood trauma. I think for me, that’s what I’m really trying to do as a parent right now more than anything – is just to give them that feeling that no matter what there’s not only somebody there but they’re in a safe place–that they can be themselves, they can talk to me and they can do whatever they need really.

 

Jason Boudreau:

That’s awesome, thank you for sharing.

 

Barry Savage:

I think it’s kind of along the same lines as what Medhi said. It is to be there.  There is a neighbor of mine who is in our industry, and I would say he has been on the same journey as us, but he’s probably eight to nine years ahead of us in terms of how they set up. I remember one of the things that he said to me when he saw me walk the girls to school and he said, “Those are the things that you need to enjoy because you’ll be amazed at how fast it’ll be gone”. And so that sticks with you, you want to make sure that you’re there, that you’re around, that you can participate.

 

Jason Boudreau:

Yes, totally and that’s certainly one of the advantages that being an entrepreneur lends itself that you can build that flexibility into your life and at the same time it’s always that dangerous line. You commit to something too much and all of a sudden, you’re way on the other side.

 

Barry Savage:

I agree. When I made the move from working at a development company to doing stuff on my own, I definitely worked more on my own, but it also at the same time gave me more time to spend with the kids. So, those are the trade-offs you make, right? You at home, it’s nine o’clock at night and you’re working, but you don’t necessarily feel bad about it because then you’re able to take the kids to soccer, you’re able to go to their swimming lessons. Whereas if you’re at a development company you’re there for a specified period of time and you never have that flexibility.

 

Jason Boudreau:

Yes, totally!

We’re closing in on our time together. So, continuing the family conversation. The last question I love to ask entrepreneurs is if they are talking to the next generation or your kids and sharing about life aspirations, what are some of the things that you would share with them, or maybe you do share with them now about the future or about what they want to achieve in their life?

 

Barry Savage:

I think the main thing is that they have to be passionate about something that they love to do and when they start off whatever their job is at the beginning the amount that they’re getting paid should be irrelevant. The question should be do you love doing it? And if you do then you’re going to be able to make a career out of it. If you don’t love doing it, you shouldn’t be doing it. It doesn’t matter how much you’re getting paid for it because you’re never going to be satisfied and you’re never going to be happy.

 

Mehdi Shokri:

I hundred percent agree. I wish I had that kind of guidance because I was naturally a good academic student in high school and university but coming from a Persian background and having parents who generally want you to be a lawyer or a doctor. Basically, it was very much in my mind that those were called the defined successful jobs that you could have. I think I’ll go a bit further than what where Barry was going with. Maybe it’s too early now but to your point, we’re talking about them a bit older is to be true to themselves and be comfortable with who they are. I know how much harder it gets when you become a teenager and people start to judge you and start to question whether or not you’re weird or you’re cool or whatever it is. So, I think it’s just that again that feeling of just knowing that they’re safe like I said earlier and that they are a hundred percent good the way they are. I think when you get to that point when you’re passionate about something you can only have clarity in mind about what you’re passionate about and that you’re comfortable with who you are. So, I guess setting them up for that moment, right? As I said, I thought I knew what I wanted to do when I was younger, but I know now I was confused because I didn’t really know if I could be myself in a lot of ways.

 

Jason Boudreau:

Interesting.

 

Barry Savage:

It’s funny because when I was growing up one of the things I loved was maps, right? So, when I was going through my education, I actually wasn’t going to be a planner or to be doing development or doing real estate even. When I was going through university that wasn’t what my end goal was. I always thought that I was going to go with land use, but I was more going towards land use in terms of forestry and getting it to grow to master’s in forestry. It’s amazing how things changed after one Co-op semester. I was working in a planning department and that totally changed what I wanted to do and that’s what I was saying – I knew what my passion was maps and that type of planning, right? But you never know where it’s going to take you to.

 

Jason Boudreau:

That’s great. Thanks for sharing that. Well, I think we’ll end it there on a high note because I mean I love hearing about your entrepreneurial journey, and then I love for our listeners to learn about who are the people behind the businesses that we talk about on these podcasts. I’m really grateful that you took the time here and thank you for sharing and being so open. It’s been great having you.

 

Mehdi Shokri:

Thanks. It was great. I appreciate it.

 

Barry Savage:

Thank you.

 

Jason Boudreau:

Stay tuned for the next episode of the Polestar Podcast by VELA Wealth

Our most recent episode of The Polestar Podcast by VELA Wealth features Kori Chilibeck and Matt Moreau, founders of the social enterprise The Earth Group.  The Earth Group exists entirely to provide school meals to children globally through a worldwide agreement with The United Nations World Food Programme (WFP).

Hosted by Rob Wallis, Kori and Matt will share the journey of the Earth Group, its social initiatives and business model, challenges they faced during the pandemic, difficulties they experience while building new relationships with well-known brands, and their successful stories on changing minds and lives.

 

 

About the Guest – Kori Chilibeck and Matt Moreau

Kori Chilibeck and Matt Moreau met in 2005 while working at Skiers Sportshop in Edmonton, Canada. Through extensive travel their eyes were opened to the dire circumstances in which a large percentage of the world lives. This instilled a sense of responsibility to do what they could to create positive change in the lives of people who need it most. In 2005 Matt and Kori started a social enterprise called Earth Water and donated 100% of their net profits to the United Nations World Food Programme. Please visit The Earth Group website to learn more.

About the Host – Rob Wallis

Rob Has provided senior financial planning and advice to VELA clients for over 15-years. He excels at working with entrepreneurial professionals and business owners to define their individual ecosystems and establish meaningful life and financial goals. He has specialized expertise in guiding healthcare professionals who are building multi-location, and specialist clinics. To read more, please visit the VELA team page.

 

The episode is also available on:

    

Read the transcript of the Polestar Podcast here.

                                                                               

Live-drawn board performed during the Gravity 2019 event in Vancouver.

 

Listen to the Polestar Podcast here.

Podcast Transcript

 

Rob Wallis:

Hi, welcome to The VELA Wealth Polestar Podcast. Today we have the pleasure of having Matt Moreau and Kori Chilibeck from the Earth Group. We will be talking about their business and what they’re up to in the world.

We have the pleasure of welcoming these guys to our Gravity event, when we did in-person events back in 2019. It is incredible as it was over three years ago and how much the world has changed and moved on in that time.

It’s pleasure to have you back, and welcome. Before we jump in, could you tell us a little bit about the Earth Group? And then we’ll get rolling from there.

 

Kori Chilibeck :

Sure! The Earth Group is a social enterprise that right now sells water, coffee and tea in various countries all over the world. We use our profits to provide food, water and education to some of the poorest children on the planet through our partner, the United Nations World Food Program.

 

Rob Wallis:

I’m just looking at the board that we had live-drawn when you were in Vancouver in 2019 and it says you guys had four million meals served. How many meals have you had to that now?

 

Matt Moreau:

By the end of this year, we’ll probably be sitting about the four and a half million mark. Can get into it, but COVID certainly put a damper on things for us. We had to switch our model the year that COVID hit in 2020 and did a program locally and funded 50,000 meals for people here in the City of Edmonton with the local food banks.

 

Rob Wallis:

Got it. So, let’s talk about Covid. How was that for the Earth Group?

 

Kori Chilibeck:

It was, uh… it was devastating and it happened quickly. I remember Matt and I were sitting at the office, looking at revenue for the month and I think it was one of the worst months we’ve ever had since we ran the company out of an old van. It was bad. It got back quickly too. What are your thoughts on that Matt? Sorry, I might be exaggerating.

 

Matt Moreau:

Not at all. 85 percent of the revenue disappeared overnight. We were very heavily invested in channels such as hotels, cafes and restaurants, catering companies and airlines. And all these things just basically disappeared overnight. So, it certainly put the fear of God in us for a little right there.

 

Kori Chilibeck:

Yes, we actually had a contract with Hilton Hotels in Japan going through the Olympics. Obviously, the Olympics got cancelled and pushed a year. Then, when it actually happened, all the hotels were empty because they didn’t allow anybody in the country. So instead of potentially the best year we had ever had on record, it ended up being one of the worst.

 

Rob Wallis:

And how were regular retail sales during that time?

 

Matt Moreau:

Most of that disappeared as well. If we’re talking about regular grocery stores, people that used to walk into a store, grab a sandwich and a bottle of water, and head back to their office just weren’t doing that anymore.

So, our product is never going to sell in a 24 pack. We’re not here to compete with Nestle. So, that was the only water product that was moving in these stores, and we saw a lot of single use stuff in the lunch out disappear as well.

 

Rob Wallis:

Crazy. How it is now?

 

Kori Chilibeck:

Well, things have changed a lot. Again, it just happened all of a sudden: really picked up and I would say we probably had our busiest six months that we’ve ever had as a company right now.

 

Matt Moreau:

Yes, we’ve picked up. Speaking for myself, a few months there was kind of feeling of sorrow and I was terrified of what was going to happen with the business and everything. Then we just sort of dusted ourselves off and started finding spots that were still open and knocking on doors that were still in business. Places such as cafes, party bakeries were one of those spots.

Fast forward to today, we’re just starting a nationwide launch with all the Cobs bakeries across the country. The film and television industry were still operating, and they were really looking for a product that had a story for social enterprises support. So, we picked up a lot of great new business there.

With these new distribution channels and then everything else coming back online as far as the catering companies in the hotels and so forth, as Kori says, things are going really well right now.

 

Kori Chilibeck:

I think during COVID we had a lot of time to plan and find other avenues that we hadn’t explored. We were thinking about anything and everything. So, I think after two years of working the phone, sending e-mails, sending samples, trying to grow business when the world turned back on again. We had all these leads out there that just all the sudden started coming together all at once. So, it was nice.

 

Rob Wallis:

Great. And were you able to maintain relationships with the bigger companies such as Hilton?

 

Kori Chilibeck:

Well, Hilton is tricky because there are a lot of factors. One, it was in Japan and the Canadian dollar increased over COVID by about 16-17% against the Yen. So, we just became more expensive over COVID by quite a bit. Then, with the shipping situation globally including huge increases in shipping, we just became a very expensive product outside of Canada. Even with inside of Canada shipping has been difficult. The prices are starting to come down now and we probably ended up landing almost 30% more in Tokyo than we were before COVID.

So, it really put a damper on sales in that part of the world right now. We’re hoping that’s going to come back now and that things are starting to normalize a little bit.

 

Rob Wallis:

So, in terms of the story, what is the story of the Earth Group? How did you come up with the concept and what was the journey from there to where you are now?

 

Kori Chilibeck:

Well, it started as a spoiled kid growing up in Edmonton, realizing that the world was not what I thought it was. I went to university at the U of A, played hockey, went on family ski trips, didn’t really realize that 90% of the world wasn’t living the same lifestyle I was.

I had taken a year off of school, I was on a Mount Everest basecamp expedition with my girlfriend, now wife, and we were going up towards basecamp dressed as your typical North American tourists, wearing big North Face down, puffy outfit on, and there’s a kid behind me carrying three people’s backpacks and heading up towards basecamp. And we passed this old man on the trail, who was going the same direction as us, and he had a big woven basket on his back. He was totally barefoot, no gloves, no hat, no jacket, just like some ripped pants and an old shirt, and we asked him what he was carrying. He says, “I get paid $0.25 US a day to carry this basket, I don’t really know what the items are and it’s not something I can afford”. When we looked inside the basket, it was just cans of Coca-Cola.

So, at that point I started to realize that either directly or maybe indirectly, some of the biggest companies in the planet were making money literally off the backs of the poorest people in the world.

So, came back to Edmonton and thought, well, why couldn’t you have a company that could compete against the biggest brands and biggest companies in the world? But at the end of the day, we would give back to people who really, really needed it. So, that was sort of the idea of the company in the very early days.

 

Rob Wallis:

Got it. I’m seeing you two drink bottles of the Earth Water right now, and it’s in aluminium or aluminum for our North American listeners. What was the impetus  for choosing aluminum as a material of choice for the water?

 

Matt Moreau:

Kori and I are probably the only owners of a bottled water company that encouraged people, not to drink bottled water. For the most part, we’re very lucky here in Canada to be able to go to a tap and fill up from there.

So, we’re aware that we’re creating an impact on the planet through our operations and that single use plastic is a major global issue. So, we were looking at things thinking, how can we lessen our impact on the planet’s a little bit? We found out that aluminum gets recycled at a much higher rate than plastic and takes less energy to recycle. So, we got these fully reusable and recyclable aluminum cans that can be rinsed out, resealed, and used over and over again.

And I think that’s been a big kind of boom to our success as well through COVID. We made that transition basically a couple months before COVID hit and then had the last couple years to tell that story to people about how we have this product that is lessening the impact on the planet and just has a little bit of usability to it.

 

Rob Wallis:

Can you please tell us why aluminum has a higher recycle rate than plastic?

 

Kori Chilibeck:

I think there’s a couple reasons. In Canada, a lot of things changed since the 50s, when they started putting beer in aluminum cans. The beer industry created a really good recycling programs with the deposit on it. There is a value to aluminum whereas plastic is a bit of a false value. We put a value on it through the deposit system whereas aluminum is a commodity that’s traded on the open market. I think that stat is 70% of all aluminum ever created since the beginning of time is still being used today. So, it’s an amazing product that way.

So, the actual facilities do recycle because there is an actual market for the recycled material. Whereas with plastic it’s difficult to utilize recycled plastic and even trying to make other plastic bottles out of recycled plastic bottles creates a lot of energy and a lot of waste doing that. Whereas aluminum is just that much better. It’s exponentially better.

 

Rob Wallis:

Got it. What is your first product?

 

Matt Moreau:

The Earth Water was the first product. Sort of a water for a water idea.

By buying Earth Water you could provide water relief for someone somewhere in the world whether that was digging distribution points or wells or so forth in refugee camps.

As we’ve grown into coffee and tea and a little bit of apparel, that message has expanded from just providing water relief to funding school meal programs as well.

 

Rob Wallis:

And the other products that you’ve launched are coffee and tea, have I missed one?

 

Matt Moreau:

We do a little bit of apparel. For example, we were just sponsoring the Edmonton Folk Music Festival last weekend and we have hats and T-shirts and things like that. So, a little bit of that on our online store as well.

We’re really hoping, I would say in early 2023, to have some sparkling water and flavored sparkling waters as well. Kori’s got some other product threat perhaps on the go here as well.

 

Kori Chilibeck:

Yeah, I was trying to diversify the product line a little bit.  We’re changing up our packaging over the next months, hopefully early in the New Year. We’re trying to get more sustainable and do different things. There’s always a way to make things better because we’re a small company, we’re able to switch to new packaging quickly. Whatever the next greatest thing that comes along that’s more sustainable, benefit environment and maybe caught more cost effective – we can look at that immediately because we don’t own $100 million production lines that we’re able to switch over to something better.

 

Rob Wallis:

So how do you use the Earth Group to help the planet?

 

Matt Moreau:

Our main focus is school meal program. So, kids are given a safe place to go during the day, free food, free water and then provided that all important free education. So, better educated kids grow up to have higher earning potential, they’ll have less kids on average and they’ll make it to university. Effects of these school meal programs are enormous.

 

Rob Wallis:

Right, and how do people that need your help find you?

 

Kori Chilibeck:

Well, we really work closely with our partner, the United Nations World Food Program. So, they’re the experts, not us. We work in Edmonton majority of the time and we’re just not out in the field doing that. We’re really honored to work with some of the most passionate people on the planet. Essentially, they come to us every year and give us sort of a list of three or four places in the world that have the greatest need in their eyes. We work with them and fund projects that we feel that we can make an impact on, and we do try to do a project every year somewhere else in the world. For example, Tajikistan, Bolivia and then the Philippines. It depends on what’s happening in the world.

Also, and we do try to focus on places that aren’t in the public eye a lot. We try to focus on places that are sort of the world’s bit forgotten, but still need a lot of help.

 

Rob Wallis:

Could you give us an example of that?

 

Kori Chilibeck:

Sure. We did a project in Bolivia which is the poorest country in the Latin America. There was very little aid going into the country. Their school meal projects were actually about to be shut down before we came in there. They were running out of funds and we thought this was a great place for us to go in and help. So, I think we funded 500,000 meals in Bolivia.

 

Rob Wallis:

Wow.

 

Kori Chilibeck:

Obviously, 500,000 school meals over a certain amount of time.

Then there were other projects happening such as solar panels, and some green-houses. So, the world programs got all these amazing projects that they sensibly pitched to us and we try to get involved as best we can with the funds that we have.

 

Rob Wallis:

And how did you get the relationship with the UN to create the partnership?

 

Matt Moreau:

Months upon months of phone calls and emails and sending out packages and concept ideas around what this company would stand for.

Thankfully, there’s a gentleman out in Ottawa who finally answered the call and showed some interest in what the concept of the company was and at the end of that first year, we were able to give a small $7,000 check. I think at that point it was ok. We’ve decided to see what we can do in the second year. In subsequent years we were just able to continue coming back with bigger and bigger checks.

The financial side of it is one thing, but the reality is we’re still really small company and the World Food Program works with partners like Vodafone, Pepsi and Kraft who are donating millions or tens of millions of dollars. So, we are able to help a little bit financially, but it’s also just the awareness around what we’re doing as well. We’re one of the only products in the world to bear United Nations logos. When someone walks in and buys a bottled water at IKEA, they turn the bottle over and they can start reading about the World Food Program. Samething happens in places such as Fairmont Hotels and The Four Seasons and really all across the country.

So, we’re able to do a big chunk of awareness for what they’re doing as well, which is equally important.

 

Rob Wallis:

So, do you have companies that seek to shop your products more now than five years ago, and how is the social enterprise landscape shifting demand and visibility of the Earth Group?

 

Kori Chilibeck:

I mean, when we started the Earth Group, the word “social enterprise” barely existed. That was just sort of very new to the landscape. In fact, we probably didn’t even call ourselves a social enterprise at the beginning, because I wasn’t even aware of what it was. Now, the world has changed quite a bit in this regard.

Well, I know the consumers are looking for companies that make a difference. As much as one really wants to pour Coke, Pepsi, Nestle, Unilever, they don’t really care about those companies. Giant, publicly traded companies that are just everywhere. So, there’s not really much of a choice.

When people walk into a Fairmont hotel or a Hilton Hotel and see the Earth Water and see this story – that differentiates that spot from what everybody else is doing. They realized that maybe that hotel cares about what’s happening on the planet and actually searched out a product that does something a bit better.

I think for a lot of years, we felt like we were a bit ahead of the wave. And now I feel like the world sort of catching up to what we’re doing and maybe understanding that people need to focus on products that are trying to do something good in the world because, to be honest, that’s really a way to make great changes. I’m hoping that we’re sort of hitting. We’re in the right place and at the right time where people are looking for these types of products.

 

Rob Wallis:

As individuals, how do you define success? Matt why’d you go first?

 

Matt Moreau:

I’ve got a young family of a 3-year-old and a 10-month-old. I hope that this company is around for 30 years from now and that we can do some incredible things as far as putting people into school, educating them, being very aware of our environmental footprints, finding ways to combat that and be able to do that. Hopefully, some of that kind of the kids can glean some things from that.

If I’m sitting here 30 years from now, looking back, I would hope that there’s some good successes there along the way. Kori and I are so lucky to have been able to speak at all sorts of events over the years, whether it’s Rotary clubs, churches, university groups or business associations and hearing from people…We just got a note into our website a week ago. Someone saying that the path that they’ve chosen to go into for both work and school was kind of heavily influenced by a talk that they heard from Kori and I gave about six years ago.

Making people aware that we as businesses have the power to change the world for the better and that we as consumers literally have the power in our pockets to change the destiny of someone’s life simply through everyday purchases, simply through something boring as a bottle of water – is pretty cool.

 

Kori Chilibeck:

I think Matt said a lot about the way I feel too.

If someone like Nestle ran the same way we do – we could solve world hunger in a matter of years.

So, maybe there’s the next big thing coming down the pipe that someone thinking about, heard us talk or saw our business model and said “hey, maybe I can work my company the same way” and next thing you know they turn that into a $10 billion company and we’re able to really make some huge changes.

From our own sort of success, from our company, it’s again just that number that we talked about at the beginning of the show. We want those meals to be up to 50 million meals, we want to have these crazy numbers out there that we’re really starting to move the needle and starting to help people.

It feels amazing to send 50,000 meals to someone, but it feels incredible when it starts getting to that million-meal range and start to really make some significant changes in people’s lives. That momentum is something hopefully we can capitalize on and maybe other companies seeing this will react as “they just did a million meals, let’s match that!” and will throw another million in there. Now we got 2,000,000 and sort of get the world a little bit galvanized around what people are trying to do. These small things make huge differences.

 

Rob Wallis:

Matt you’ve mentioned 30-year time horizon quite a few times in your answer. If we were sitting down in 30 years, what would you like the Earth Group to have achieved if we were looking back over those 30 years?

 

Matt Moreau:

Well, like Kori said, if we can get to the point where we call you and say we’re making a donation and it’s literally funding millions upon millions of meals for people. To have created legacy projects in certain countries around the world where we’ve been able to support them year after year. To have been able to do that with the support of certain companies. We worked with IKEA for six years now, let’s say we’re lucky enough to work with them for another 30 years, really trying to build some landmark programs for them where they know that every bottle of water that they sell is benefiting a certain project. Doing the same thing with the Fairmont’s and the Hilton’s being able to come to these companies with more than just a couple of products like we are today, whether that’s for the beverage products or food items, or who knows, tech ideas, apparel for sure. For example, every time we sell one of our hats, we can feed and educate a kid for a week.

It’s really about every product that we sell. We sell a case of water, we sell a bag of coffee – we have a certain dollar amount that goes to the World Food Program. Leading with that transparency that as a consumer or a corporation when you buy that from us versus the Coke, the Pepsi or the Nestle, here’s the change that we can create in the world.

 

Rob Wallis:

You mentioned somebody reached out to you after you spoke six years ago? When you talk to young people, what do you share with them and what do you think inspires them?

 

Kori Chilibeck:

We try to share as much as possible – just to do something you are passionate about. I know that’s bit cheesy, but the reality is if you love what you do, you’re probably going to be very good at it and you’re going to be happy. For most people, doing something they’re passionate about, probably something good, something that’s doing something positive in the world and doesn’t have to directly feeding children, but it can be all sorts of things that just make the world a little bit better place no matter what you’re doing. We try to convey that just go out there, be passionate, tenacious.

Matt and I’ve been told so many times, I can’t even count, that we should shut the company down, that it’s not a real company, it’s terrible idea, that we are going bankrupt, it’s awful, to get other jobs and move on.

And that’s happened a lot. Some very influential, successful people have told us that over the years and sometimes it shakes you a bit, but we’ve just been “Nope. This is what? This is the path. This is what we believe in, we have to go, we have to do it no matter what anybody says”.

And that’s another thing to tell young people. People are going to tell you not to do it or you can’t do it. That’s total BS. You can do anything you want.

If you believe in, and you are passionate about it – just honestly don’t give up until it’s over, and even then, it’s not over. We’ve been beyond over and still come back from the edge and build the company back again.

 

Rob Wallis:

You guys must have learned a lot of resilience over the years then.

 

Matt Moreau:

Resilience. Tenacity. We often would tell a story about how we approached IKEA for about four years. Anytime we’re in a major city, we go introduce ourselves at the store. We would send out handwritten notes, send out samples. And finally got a call back from someone said “Listen guys, please just leave me alone. We have a contract with Nestle..” but that two-minute call turned into 10 minutes and 10 minutes turned into 45 minutes. As we said earlier, now we’ve been working with them for multiple years and we’re talking about perhaps expanding to other countries outside of Canada.

As Kori said, “It’s never dead”. Even if it was a “no” on January 1^st doesn’t mean it might not be a “yes” on June 1^st. We just kept on calling and setting the reminders in the calendar and respectfully harassing people as much as possible.

 

Rob Wallis:

Totally. So, if you were to come do the journey again, would you have done anything differently?

 

Kori Chilibeck:

That’s a really good question.

Every time someone says, “oh, but maybe it wouldn’t be exactly where we are if we would have done things differently and learned the extremely tough lessons we learned along the way”, which are super important. Now when you look back and realize you’ve learned a lot. So, I don’t know if I would change anything. Maybe I would have got a better accountant and lawyer on the first day to give you a little bit better advice. But other than that…

 

Rob Wallis:

We’ve done a podcast on that recently too, by the way. Reference: Key Considerations to Make When Selling a Business.

 

Kori Chilibeck:

Yes, there’re two things to tell people when they’re starting a company: get some good accounting and legal advice. But beyond that, I can’t think of anything I’d want to change.

There have been some ups and downs, but most of the time it’s been up. What do you think Matt?

 

Matt Moreau:

I have to agree. It’s like you say, it all led us to where we are today and those horrible lessons, those bad, tough days where you don’t even want to get out of bed because you’re struggling that much. Like you said, Rob, it builds resiliency and brought us to where we are today.

I think that’s where, as Kori mentioned, you find something you’re passionate about. It makes it that much easier, when it’s just week after week of “no” or month after month of getting beaten down or whatever the latest incident is. If you’re incredibly passionate about it, there’s a way to drag yourself out and get back at it.

 

Rob Wallis:

Yes, absolutely. Does anything keep you guys up at night anymore, given what you’ve been through? Far from children.

 

Kori Chilibeck:

Far from family and kids… It seems like there’s always a fire burning somewhere that needs to be put out. It hits you on some random Tuesday afternoon that you weren’t expecting… Maybe don’t keep me up like they used to just because I know that Matt got my back, and we can and we’ve accomplished so much and going over some pretty terrible things. So, these things sometimes seem a little bit on the minor side when they come up and we… I’m optimistic all the time. At least on my end I still have some sleepless nights, but there maybe not as many as they used to be.

 

Rob Wallis:

So, in terms of wrapping up, could you explain to our listeners where they could find your products in Canada?

 

Matt Moreau:

You can find us in place like IKEA, Cobs, handful of Fairmont hotels, lots of hotels across the country. You guys are in Vancouver – the Vancouver Aquarium carries us.

We’ve been really lucky to start getting some phone calls from some major universities across the country lately, which five years ago never would have happened because they were completely locked up in Coke and Pepsi contracts. Places like Whole Foods. What am I missing?

 

Kori Chilibeck:

You are in Vancouver, so, Tacofino got it. Simon Fraser University has got some, especially in the student union building. I believe UBC started to put some in the SUB building now.

Lots of cafes and little restaurants are carrying our products. We are trying to focus on that type of stuff.

 

Matt Moreau:

And another thing is – if you head into a cool cafe, grocery store, whatever it is, and you don’t see our products it would mean a lot for a manager to hear from someone “Hey, did you know this product exists here?” We can make cold calls all day long, and generally speaking, people don’t want to talk to us because off the hop they just conceive or perceive us as a bottled water company, but we’re really not that. Bottled water happens to be one of the vehicles that we’re using to try to affect change. The coffee, the tea – are the same things. So, those warm introductions go a long, long way for us.

 

Rob Wallis:

Thank you, Matt. Thank you Kori. I really appreciate your time and your energy and your passion. Look forward to seeing you soon.

 

Kori Chilibeck:

Thanks for having us on.

 

Matt Moreau:

Thank you.

Welcome to another episode of The Polestar Podcast by VELA Wealth. Today, Rob Wallis speaks with Ryan Howe, a business lawyer from Alexander Holburn Beaudin Lang. Ryan acts as general counsel to various BC based businesses with national and international operations on a wide variety of corporate and commercial matters.

In this episode, Ryan and Rob provide insights about selling the business, different transaction types,  transaction uncertainties and potential risks. They also discuss share preparation, negotiation and closing recommendations.

 

 

About the Guest – Ryan Howe

Ryan Howe is a Partner in the Business Law Group at Alexander Holburn Beaudin + Lang LLP. Ryan acts as general counsel to various BC based businesses with national and international operations on a wide variety of corporate and commercial matters. Ryan also acts as chief coordinating counsel for multi-business entrepreneurs who require personal legal representation to protect their personal and family interests and to coordinate their various other legal professionals across their holdings. To read more, please visit the AHBL team page.

About the Host – Rob Wallis

Rob Has provided senior financial planning and advice to VELA clients for over 15-years. He excels at working with entrepreneurial professionals and business owners to define their individual ecosystems and establish meaningful life and financial goals. He has specialized expertise in guiding healthcare professionals who are building multi-location, and specialist clinics. To read more, please visit the VELA team page.

 

The episode is also available on:

    

Read the transcript of the Polestar Podcast here.

 

Disclaimer

The information expressed in the podcast is designed for general informational purposes only and is not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.

Listen to the Polestar Podcast here.

Podcast Transcript

 

Rob Wallis:

Welcome to VELA Wealth Polestar Podcast! Today, I’m very excited to have Ryan Howe from AHBL (Alexander Holburn Beaudin +Lang LLP). We will be talking about business transactions. What makes and breaks deals. Welcome, Ryan and please introduce yourself.

 

Ryan Howe:

Thank you very much for having me, Rob. My name is Ryan Howe. I’m a business lawyer with Alexander Holburn Beaudin Lang or AHBL for short. I’ve been practicing business law for the last twelve years here in Vancouver at the same firm that makes me a lifer. I focused on private clients and their myriad of business law problems and successes.

 

Rob Wallis:

Thank you, Ryan. We have a lot of business owners as clients and a lot of the time the trend of the conversation around about selling their business one day. Sometimes it can be confronting, or it can be a joy, or it can be somewhere in between depending on who you are and what stage you’re at your business. What we like to talk about with people in addition to what are they going to get for their business if it is indeed even salable, is how they actually get there. When it comes to that transaction happening – what can help that be successful or indeed even happen in the first place? We feel there are three steps in that: the prep, the negotiation, and then the closing of the deal. So, if someone was coming to us saying that they want to sell their business in three to five years, what would you be saying to them from the standpoint of being the legal counsel?

 

Ryan Howe:

Well, the first thing I would probably start with is asking them whether they are selling because they have to or they are selling because they want to? So, if they “have to” that’s a different assessment than if they want to. If they “want to” – the first thing I’d say is to reach out to their tax advisors and ensure that we’ve got this thing structured optimally to take advantage of tax treatment such as lifetime capital gains exemptions. At the same time, we’re going to optimize the structure. We’ll probably be able to start digging in a touch, to what we call presale diligence, where we’re looking at problems that we know a purchaser is going to identify when they run diligence on the business and trying to prevent it before we actually get to the negotiating table. This allows us to negotiate from a position of strength when we’re negotiating the terms of the transaction.

 

Rob Wallis:

Okay. So, out of a scale from 1 to 10 when someone comes to you and says they want to start selling in 3 to 5 years, typically, how ready are they?

 

Ryan Howe:

That’s a great question. I think it goes back to that “I want to sell in 3 to 5 years”. Is that “3 to 5 years sale” a part of the plan that’s been structured with their investment advisors, their tax advisors, and their significant others, or is that just a kind of a very loosey-goosey plan? Is this a deliberate person that follows steps and they’ve got a prescription and they’re following it or is this just a lot of wishful thinking?

If it’s wishful thinking they may not have the stick–to–itiveness required to really push this thing through the right way. They might have been in a sort of desperation sale later when health issues or financing issues hit. So, a lot of it is part of the plan. If is a part of the plan, such as they plan to retire at 65, the kids are graduated, they are moving to Mexico, whatever the thing is – THOSE are very high success rates versus the ones where it’s “well I’m just kind of tired of what I’m doing…” and they haven’t really thought nor done any deliberate action to move that agenda along. So, I would say 50% are on the right path ready to rock and we’ll have a successful sale.

 

Rob Wallis:

Interesting. A lot of the time we find people’s idea of the value of their business is somewhat different from the reality of the value of that business. Then an exploration into what is the market value of my business at relative to where am I now financially and what can I actually do if I do want to retire or maybe work optional, am I there yet? Tends to drive more in-depth looking at planning and figuring out what is actually realistic. Do you find that on the offside too?

 

Ryan Howe:

Yes, hundred percent. I think you and I talk before about the notion that sometimes clients set the purchase prices as the amount, they think they need to retire. So, if their advisor is telling them they need 2,5 million to retire they’re like “Well, guess what? The purchase price is 2,5 million”. What that does is – it just shows to purchasers that you’re unsophisticated and unreasonable. Instead of that, if you need to get to 2,5 million – a lot of business sales are based on EBITDA functions or Multiples and if you are close you got to roll up your sleeves and maybe you can get there within the two-year period required to get that tax planning in place. Most people are not structured properly to maximize tax planning on sales and that’s a two-year lookback window, right? So, if we know we’ve got two years, the same time you’re going to the accountants for the restructuring should be the same time you should be thinking “let’s pull up our bootstraps here, and let’s get this EBITDA maxed”. This way we can come and get exactly the number we want. If you’re way out to lunch and you can’t possibly get that number where you are, you need to change your expectations or explore. I would call this an “alternative transaction structure”. Those you sometimes see when you’re selling to management or you’re selling to the next generation in the family in which case we typically get the number we want, and we effectively delay the sale or partition it in like a 10-year period. So, instead of getting cash on closing, you get money over 10 years. There’s a risk, but you get more than you would otherwise get on the open market or at closing.

 

Rob Wallis:

Okay. So, what about other things in the business that need to be cleaned up apart from tax planning? What other things do you see?

 

Ryan Howe:

The most common I see, and this is because it creates such a massive liability, are employees. So, if your employees aren’t on contracts that reference the employment standards act and cap their severance at eight weeks, you could have a mass of severance obligations sitting there, which is going to hit you if you do an asset sale because the purchaser is going to force you to terminate everyone. So, that can be a massive liability. We had one recently where we sold an iconic company in the Lower Mainland, and it had 250 employees of which 200 were not on contract. So, you can imagine the liabilities associated with that and that’s a big shock to clients when they haven’t thought about it. So, getting them (employees) on contracts and making sure you got that severance and then protecting the company against other things such as making sure there’s a confidentiality term, non-solicitation agreement and etc. That leads a little bit to confidentiality to IP (Intellectual property), right?

Sometimes you have freelance contractors or employees that have prepared IP for the company. Maybe they did it before the company was incorporated and it’s unclear whether the company owns that IP. Do we have an assignment of intellectual property rights and a waiver of moral rights? Do we fully own the thing? You can be a hundred percent sure that a purchaser’s diligence is going to reveal that absolutely immediately and if intellectual property is a key component of the business assets being purchased, having gaps in that chain ownership is going to be a major problem ultimately may kill the sale.

 

Rob Wallis:

So, that sounds like that could take many-many months to clean up.

 

Ryan Howe:

Absolutely! But once again, we always think about a two-year warning. If we’re thinking about a two-year minimum seasoning period – we’re really talking three (years). For true planners, they would be thinking five (years). Humans are just in a certain way always tend to attack the whole number and half number. So, 60 is a big birthday, 65 is a big birthday, and 70 is a big birthday. So, it’s your 65 birthday and if you’re thinking 70 is the chart, start moving then.

 

Rob Wallis:

 

Right. So, in preparation for a sale, it pays to be uber prepared?

 

Ryan Howe:

Well, yes. It is hard to explain how that works unless I could show what it feels like trying to negotiate terms in a deal where we are absolutely pristine condition: all the sheets are pressed, they’re white, there are no stains, the bathroom’s been scrubbed clean versus walking into an Airbnb where you’re going to leave a negative review immediately and there’s a dog pissing in the corner. That’s the reality. So, when someone comes in and looks at what you’re selling and they’re like “Wow”. If you get a “Wow” experience, then they’re absolutely not going to have the leverage they think they can, and really the only things they can attack are sort of future financial performance-oriented things. So, that EBITDA Multiple might get eroded a touch but, once again, the nice thing with a vendor is if you got a really nice product, you could find other purchasers. That walkaway power is what allows you to really set a price and get those terms that you want. But you can’t get that if you’re living in an illegal sub- suite.

 

Rob Wallis:

So, around 90% of businesses are not saleable. What do you do if you don’t have a buyer or you can’t find a buyer? My business is worth X but there’s no market for it.

 

Ryan Howe:

Well, that’s where you kind of fall in. So, I think you start looking at different options there. The one of the three that immediately jumped out to me would be selling to staff, right? We sometimes call it management buyout (MBO). That typically involves leverage on the company and the seller. So, you’re effectively propping them up and giving them very nice financing terms and maybe even guaranteeing their own borrowing. Because you just want cash out, you want to step down, transfer the reins and you want a little bit of liquidity, and then probably you’re going to be structured in a payout over 5-10 years. The same thing works for the next generation, for kids, even nephews, nieces, and extended family. The nice thing with kids is there are some tax benefits to intergenerational wealth transfers. So, we’re seeing quite a bit of that where generation 1 is going to generation 2 or generation 2 to generation 3. Once again, those are pretty loose least structure purchases because ultimately that kid’s going to inherit the estate. So, if the parent is relatively old, they’re not going to go through all that money. And once again, you’re not looking at a huge purchase price you’re looking at pretty loose financing terms probably getting paid over 10 years, and if the company craters because of the change in management your host. Then the final one I would say is thinking about partitioned asset sale, where you’re looking at your competitors in the market. They would otherwise acquire you but for the fact they don’t want the liabilities with your employees, they don’t want your office space. All they really want is your contracts. So, you could turn around and wind up the business and strategically sell off assets. That’s not a great way to go because your workforce is going to hate you. I mean, that’s effectively liquidation downsizing, kind of stuff but I mean in some instances if your heart’s out of it, your health’s not there, you can’t find those other 2 options then that’s kind of the way it goes.

 

Rob Wallis:

Interesting. So, could you just give us a couple of soundbites on asset versus share sale to start? Super concise, please.

 

Ryan Howe:

Sure! Speaking from the vendor’s perspective, the vendor is always going to prefer a share sale wherever possible because of the capital gains exemptions and lifetime capital gains exemptions that can be triggered. Specifically in that two-year planning when we were talking about – that’s where you want to put in a family trust and then try to take advantage of as many capital gains exemptions as available for the beneficiaries. So, share sales are riskier to purchasers because they end up stepping in and absorbing effectively all the liability of the company by buying the shares. Asset sales are more preferred for purchasers because they can pick and choose what liabilities they assume. It’s not as favorable to vendors, because vendors don’t get that lifetime capital gains exemption. Then they do get capital gains treatment and if you structure the transaction in such a way that the majority of the purchase price is allocated to goodwill you can sometimes end up with a tax result that’s not that bad relative to a share sale. But once again, it really depends on what kind of share sale you’re looking at. Let’s say if you’re selling your business, Rob, and you got a family trust, you’ve got 2 kids and your wife – that’s 4 capital gains exemptions typically. So, that’s indexed at 900K, you’ve got almost 3.6 million in the shelter there for that exposure. Whereas in an asset sale, even if we crank the goodwill, we might not be able to get there. So, there’s an inherent tension in the way that you structure the transaction itself and depending upon this goes back to, you know, the housekeeping if you have dirty sheets, right? They’re not going to want to buy them. So they’re going to say “you can keep your sheets. We just want this nice little Bose. We want this tv …”. So, you don’t want to give them an out on the share sale. You want them to lean in and say, “yes I want to buy the shares”.

 

Rob Wallis:

Okay. Let’s move into negotiation. Let’s say that the sheets on that bed are crisp. They’ve been starched. It’s squeaky clean. It’s beautiful. We’re going in to start negotiating. How does it roll from that?

 

Ryan Howe:

So, I think in that instance, what it allows us to do is really set favorable terms in the term sheet or the Letter of Intent (LOI) and those two terms are used interchangeably, they mean the same thing. Effectively, it is an agreement to agree. We want these things to be largely non-binding. The only binding provisions are typical with respect to deposits if applicable and then exclusivity. The rest of it is effectively non-binding. So, it gives the parties a framework for how they would approach the transaction. Purchasers typically want to jam in the loosest one-page LOI on the planet that may talk to a possible price and then nothing else. And then they bury you in details on the definitive purchase agreement. The problem is that by the time everything shakes loose, vendors who have never been through this process before get overwhelmed very quickly because of all the documents and information and decision requests that are happening. They get something called transaction fatigue that affects them and they become very poor negotiators. They lose their spine, they give in across the board and they lose the tactical advantage. Our recommendation for when you have “crisp white sheets” is we negotiate the hell out of the LOI or the term sheet. And what we’re trying to do is modify risk allocation at the outset. So, the way we do that is we say “listen the purchase price is X and we want 95% of that on closing. This is not a structured payday”. We’re getting all of it and then there’s a 5% holdback for known indemnities or whatever the case may be.

You want to get as much cash as possible on closing and ideally nothing else unless it’s there’s no other deal on the planet. Then you would typically want to avoid holdbacks and earnouts because that affects the total purchase price and it’s unclear where that’s going to come from. Also, that can affect tax positions and then from there, we want to look at things like indemnification. What’s our indemnification obligation? Is there a cap? Are there deductibles? Are they baskets? Are they tipping baskets? What’s the survival period? Can they come back on us indefinitely or can they only come back on us two years after the deal closes? Are there conditions to closing associated with us signing employment agreements or are senior people signing employment agreements that we may not like? Do we have to do transition services? There’s a whole bunch of sort of ticking time bombs that you could diffuse very early on in the transaction at the LOI stage. The nice thing is that you’re not really exposed to professional fees at that level. Negotiating a term sheet typically is not very expensive relative to getting to the end of the line on these definitive purchase agreements of getting ready to close.

So, in my experience, the best time to negotiate and use your negotiating power is at the term sheet level with the pure understanding that it may not go, and they may walk away. You have to be prepared for that and you have to look in the face of them walking away and accept it. We’ll find someone else, and you just learn from that.

When he desperate clients that are terrified for approval of the purchaser – we end up with terrible purchase terms and they’re always unhappy. We just successfully negotiated 1 for 1 of our clients and it took us two months to negotiate the term sheet. We got everything we wanted! But it was a horrendous process. Now they’re set. So, we know when the definitive purchase agreement comes in – all these matters already done. So, we’re not going to have to fight about it when the client doesn’t have the energy to do it.

 

Rob Wallis:

So, if both parties agree to walk away or one wants to walk away. Is there a risk that valuable information could have been given away from the seller?

 

Ryan Howe:

Well, that’s an excellent point. Typically, we have phase disclosure of information. One of the things we like to do is before we even enter discussions with someone, we want to get a nondisclosure agreement. So, the nondisclosure agreement will protect us against any disclosure we give. Beyond that, the other way to protect us is to segment the disclosure of information into multiple tiers. So, tier one would be after the nondisclosure is signed, tier two might be after the letter of intent or term sheet is signed, and tier three would be after the definitive agreement is assigned. That makes parties more and more committed at each level and the likelihood of the transaction increases exponentially. So, the likelihood of them just kicking the tires to take sensitive information and run with it is very low.

Also, we wouldn’t give them sensitive information until the very end.  We would not disclose things such as IP trade secrets, employees’ names, material, customer names, material suppliers and etc. We would give them loose data on that, we might give them charts that say here are top customers or clients, but we would anonymize them. We’d give them the raw details, but we just would say customer A, B, C and etc.

Then you disclose that on the definitive. Sometimes if we really get stuck, we’ll do an escrow delivery of sensitive information to their lawyer. So, their lawyer gets to see it, but the client never sees it until the deal closes, and then we know it’s protected because the lawyer’s going to be bound by undertakings to me. That’s how we protect against that.

 

Rob Wallis:

Very interesting. So, been super clean in the prep, very selective in the negotiation about how you disclose information, strong on the LOI… What about when we got through all of that? Everybody’s happy. Well, let’s assume everybody’s happy. They should be if they’ve done everything properly. What about closing? How does that typically roll if everything’s all in order and stacked up?

 

Ryan Howe:

Well, one of the things that we’ve been noticing recently is that even though we recommend to our clients to start working on the disclosure schedules early they typically don’t do it. Disclosure schedules are qualifications for reps and warranties. So, when you’ve got a purchase agreement, a purchaser is going to say “Rob, I want you to say that your company has never done anything offside with respect to the income tax act” and you’ll say “I’m pretty sure we haven’t done that”. So, you might say “to my knowledge, I’ve never done that” or maybe you know you did do something you can say “to my knowledge and except as disclosed in schedule 1.1-2, I’ve never done anything offside the tax act”. So, that except as disclosed in schedule X is a disclosure schedule. So, disclosure schedules are often used for the vendor to qualify reps and warranties that they don’t want to give and then often used by the purchaser to force disclosure at a diligence level for certain things. So, for instance, schedule 1.1 sets out the authorized share capital of the vendor. So, now we’ve made a representational warranty with a schedule that says “…here’s the shares as issued”. Those disclosure schedules can sometimes run 200-300 pages long. What happens is when they’re due, and they are due pretty much 5-10 days before closing realistically, the clients are completely overwhelmed. They are so busy trying to do integration, close bank accounts, get client consent, make payroll, and pay the accountants to run the balance sheet… there’re probably 25 different material things that they are responsible for in those two weeks prior to closing, so they tend to not pay attention to this. And then what happens is they do bad disclosure. That bad disclosure comes back to haunt them. If it’s wrong or if it’s a materially misleading in which case, then they get hit for indemnity. So, I would say the major keys to success in closing would be getting those disclosure schedules done way in advance and making sure that you have someone dedicated to your team to run the information disclosure. That could be a transaction advisor who comes in and negotiates the deal for you, they run the data room and handle a lot of upper-level technical requests. Also, it can often be a controller within the company. The only issue with the controller is that he/she is probably busy running your business. So, giving them another full-time job on top can be very stressful. So, you might want to hire an assistant for the controller to let them do this because some of these diligence windows can be as long as six months. Although we generally prefer to get these things closed in 90 days.

I’d say have good help and remember to get moving on your obligations early. You will never have enough time. Always be proactive because it always ends up being a rush and then it’s terrible.

 

Rob Wallis:

Okay, and if I’m selling a business. How do I ascertain that the purchase has actually got the money to close?

 

Ryan Howe:

That’s a great question. One of the ways we can do that is we can put in the term sheet or the LOI that serves as a representation and warranty from them, that they have sufficient funds to close, and they don’t have to go get financing. A lot of purchasers are hesitant to do that because they like to rely on debt wherever possible. However, once again it depends on the nature of the transaction. If they come and approach you with an unsolicited offer from a strategic buyer – they better have cash. If it’s desperation and you’re going on the market and selling to anyone who’s got hope – you’ll take the financing condition. It is what it is. This goes back to your leverage on how saleable you are and whether you can pick and choose amongst different buyers.

 

Rob Wallis:

Totally. Then, what about the order of signing and closing?

 

Ryan Howe:

That’s an interesting one. I think you and I talked in the past about the difference between simultaneous sign and close agreements versus a sign and then close agreements, with our preference being for the latter. Sometimes with weird tax transactions or public companies they can’t sign the document until the closing date. That means you as a vendor are exposed that entire time because they’re just sitting back saying “we’re not going to sign until you do this”. “We’re not going to sign” versus assign and then close – let’s say you sign the purchase agreement today and then maybe thirty days to close. So, now you’ve got some certainty as a vendor. As long as nothing happens in the window in between we’re good to go. Whenever possible we want to avoid simultaneous sign and close because it gives an infinite amount of leverage to the purchaser. We always recommend for our vendors the traditional approach which is a sign and then close.

 

Rob Wallis:

Our point of view in the planning work is that we work with our clients’ proactivity: planning for the future, considering what you want your life to be now and what you want to do in the future, and how your asset position support whatever that is and if it’s a business transaction that’s required to deliver some capital into the family balance sheet to ensure that there are sufficient funds into the future, what is that and then how is it going to be allocated? So, to deliver income and capital needs into the future for a family, what do you see from your end? Are people showing up knowing that they’ve got a clear plan for funds when they get them, or they are “I’m going to go and blow this money” or “I’m going to put it in another business!”. Quite often we see business owners wanting to go into another business and we need to remind them “well, let’s think how hard you’ve worked so far on the journey to get where you’re at and this is what you’ve made. Do you have the capacity for loss, for money to go into a new venture or is it more sensible to use someone else’s money?” What do you see?

 

Ryan Howe:

That’s a great kind of starting point. To your point once again, it comes back to the delineative people. If they’ve got a plan with their advisor that they’ve worked out and this has been going on for 5-10 years – they’re following the plan.  So, when that money comes in (when that “twenty mills” comes in), we know exactly where it’s going. It’s part of the plan. It is to do A, B and C and that’s why it has to go to X, Y and Z to do A, B and C. Those people that get it without a plan… there’s almost this insecurity that comes with entrepreneurs and business owners. There are feeling naked without a business. “What I’m no longer a business owner? I’m just Rob?” and the answer is “Well, no, you are always just Rob”. Sometimes they get a little bit terrified, and they immediately jump into something else. Our recommendation typically is to think about why you left in the first place? What were you doing? What were you trying to achieve and is this the right decision for you?

A lot of our clients do end up back in some sort of commercial enterprise, but they tend to be very low risk, low Involvement, straight cash…we’re talking parking lots, storage locker or owning bare land, just holding land and then selling it, that sort of things are easy. It doesn’t take a huge amount of time or effort to make smart commercial plays there with the right advice. Often, they’re doing that as a hobby, to maximize that total asset pool for them on retirement and then ultimately for their kids. But the ones that immediately jump into a high involvement and high-risk business, unless they’re very young and very hungry, always make me terrified and worried they’re going to absolutely lose everything. But some people are serial entrepreneurs and they got to do it. So, I think that’s where you as the advisor can really show your worth in terms of making sure that they feel confident in the plan and that they stick to the plan.

 

Rob Wallis:

Yeah, well back to that family of 4 with the 3.6 million of capital gains exemption. That’s a one-time thing, right? So, that money got to work even harder for growth.

 

Ryan Howe:

That’s a one-time thing, yes. So, it’s indexed around 9, so all those kids have used it up. So, if they want to be an entrepreneur in the future, they can’t use that. I mean if they’ve used their entire exemption. With the idea being that capital created will ultimately end up in their hands when their parents pass. that’s… I think there’s a difference between enough and then enough to stop.

So, there are just different personality types there and you got to figure that out. But there are so many worthwhile efforts out there and so much need for capital in targeted areas that would be more fulfilling than a purely commercial enterprise, right?

Some people may dream about running a bar on a Commercial (Drive). Good luck. I can’t wait to see what will happen here. Versus people who wanted to focus on regrowth options in this part of BC and doing a little bit of side planting and supply. Well, that’s great.

But once again, who am I? I’m just the lawyer, right? I’m not the one that’s got the moral suasion here. I’m simply the guy who’s seen 250 deals and here’s the way it shook out for these people. So, you have quite a bit of perspective, but they don’t come to you for the perspective they come to you for protection and making sure they got paid and are not screwed over. It’s not about “I’ve done it. What should I do Ryan?”. That’s more your domain, right?

 

Rob Wallis:

Well, we’ve both got lots of stories, that’s for sure. Thanks, Ryan, it’s a really interesting conversation.

So, the key points are to be squeaky clean, negotiate very-very hard and very selectively, make sure your purchaser can close, have a plan for what you do with the money and don’t blow it or open a bar unless you can afford? Right?

 

Ryan Howe:

A hundred percent! That’s the key takeaway! Thanks, Rob.

 

Rob Wallis:

Appreciate your time. Thank you!

 

Ryan Howe:

Thank you.

In this episode, Jason Boudreau speaks with Dennis Serre, President and CEO of Serre Financial, a company providing expert advice to financial professionals, new and existing business owners, and executives to navigate and fully mine the complex benefits of the Canadian Income Tax Act.

Dennis shares his passion to help entrepreneurs and business owners through advantageous tax structures and talks about the change in clients’ priorities, the positive impact of using consulting services, individual pension plans, private health service plans, and much more.

 

 

About the Guest – Dennis Serre

Since 1990, Dennis Serre and his wife Lisa have built and curated a team of leading tax experts with one truth in mind — every client’s situation is unique. With the Income Tax Act as their playbook, Dennis and his knowledgeable team have provided expert advice to industry professionals and business owners alike, all to find value with a net benefit to the end client. Over the past decade, the Serre Financial team has grown to include many talented tax experts, each crafting superior solutions for each of the several thousand clients. To read more, please visit the Serre Financial website.

About the Host – Jason Boudreau

Jason has built VELA Wealth into an established life and estate planning firm, guiding families as they make meaningful choices at the intersection of life and wealth. Jason’s areas of expertise include intergenerational wealth transfer and estate planning with a focus on advanced insurance-based solutions that incorporate philanthropy and legacy planning. Leveraging these specialties, Jason brings a fresh perspective and outside-the-box thinking to the strategic planning process. To read more, please visit the VELA team page.

 

The episode is also available on:

    

Read the transcript of the Polestar Podcast here.

 

Disclaimer

The information expressed in the podcast is designed for general informational purposes only and is not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.