No strategy is static. Names like Marti Hampton and Ben Kinney may occupy the top of the charts this year, but next year isn’t written yet. And I only voice this because we’ve all seen top companies fall. Think blockbuster. Think Microsoft. What about Kodak and K-mart? Those brands dominated their markets just 15 years ago. Now, they’ve been replaced.
What pushed them aside? Two things: Leadership and an evolving business model.
Now, let’s return to Marti and Ben. There are hundreds of real estate agents in their market areas. There are dozens of teams. What put them in the forefront was a disruptive business model led by individuals who stuck to their strategy. They rejected distraction and kept to the basics — yes, basics! Let’s jump to the details …
Design a Winning Business Plan
Lead generation has been the primary building block of real estate competition for the last few decades. But with changes in technology, the quest for market advantage has shifted toward business planning.
Leads are everywhere, but they’re not infinite. There are only so many homebuyers and sellers; and I guarantee you, the “lead” you have is also registered with another real estate agent (or team). Lead generation isn’t enough to sustain a business, nor is it enough to grow your business. You need a steady plan that builds your organization, holds everyone together, and ensures performance (i.e. closed transactions).
Here’s how Clayton Christensen from Harvard Business School defines a smart business plan:
Successful business plans are broken down into four elements: A customer value proposition that fulfills an important job for the customer in a better way than competitors’ offerings do; a profit formula that lays out how the company makes money delivering the value proposition; and the key resources and key processes needed to deliver that proposition.
Customer Value Proposition
What’s your unique value? It can be a difficult question to answer. Almost anything you say, your competitor can probably say the same. Buying a house and the role of an agent doesn’t change all that much. To create a customer value proposition think about the customer first. A buyer in New York City probably has different needs than a buyer in Charleston, SC. Your unique value starts with what the customer values (not with what you think is valuable). Then how do you make your service offering superior on the few elements that matter to your clients?
Start there. Demonstrate it. Document it. Show that you understand their priorities. If you think and work from this origination point, your value proposition will be 10x superior than your competition’s.
[ Create a unique value proposition with our Growth program. ]
Profit Formula
Here’s the second question to designing a business model in real estate: How will you make money? In simplistic terms, it’s your revenue minus your costs. However, you need more detail than this. Think about your profits by these categories:
Revenue Model — What service model will you use to generate revenue. In real estate, this often revolves around commission splits for agents and whether you’ll focus on listings or representing buyers (or both).
Cost Structure — What immutable costs do you have (i.e. overhead, equipment, software)? Then think about what budget you’ll provide throughout the year for changing costs, like advertising and supplies.
Market Analysis — What price point does your MLS area sit at? How many total homes are located in the area, and how many usually go for sale? Then think about how long it takes to typically sell those properties and how many leads>clients>deals it takes to get there.
As you piece together your profit formula, remember you’re not defining your whole business plan here. You’re evaluating how you’ll make money based on your customer value proposition.
For example: If you decide to focus on listings solely, you need to consider how long it takes to sell a house (typically) in your area. Luxury properties usually sit on the market for months at a time. How you’ll generate profit throughout the year will depend on how you structure your team, divide commissions, and what advertising you’ll do.
Key Resources
What resources does your real estate team need to close deals? Think about the tangibles first: For Sale signs, business cards, meeting rooms, etc. Then think about the technologies and equipment you need to provide. Examples run from lead management software to systems managing contracts. There are a variety of tangible and intangible resources a real estate agent needs to succeed.
Now, that you have a list. How can you make it more efficient? What resources can you compile and reduce costs? Does it complement your customer value proposition?
Example:
Marti Hampton uses Keeping Current Matters to share real estate news. It doubles as an education medium for potential clients and as a vehicle for marketing. She can demonstrate “her expertise” by leveraging the data KCM provides her. She then shares it on social media and on her blog.
Key Processes
Once you’ve identified what resources you’ll provide team members, how will they function around it? If you have a lead generation software, how will agents use it and how will you hold them accountable … to make sure they are performing and closing deals (think about your profit formula).
Kickstarter ideas for building processes in real estate:
What team model will you employ?
How will you hold team members accountable?
How will you have agents communicate to leads and handle contracts?
Let’s also analyze outside the real estate industry — specifically the battle between Wal-Mart and K-Mart. In the late 1980’s, K-Mart was the dominating force. So, how did Wal-Mart steal away business while both companies employed similar pricing strategies and offered the same goods? Answer: Wal-Mart built a process that saved them money and time — BUT also something K-Mart couldn’t replicate easily.
Wal-Mart chose to build their business model with an integrated design. They didn’t just use bar-code scanners (which were new at the time). They went further, developing its own satellite-based information systems, and then using the data to manage inbound logistics + giving suppliers the information in return for discounts.
K-Mart hadn’t opted to complement their strategies and actions. Copying elements of Wal-Mart’s strategy in piecemeal would only provide little benefit. To see the full success, K-Mart would have to adopt the whole design (which they didn’t do for years).
How Wal-Mart took down K-Mart’s dominance was through integrated processes. Every cog in the machine turned with the other. When you’re building your business model, think about how all the systems and structures play together — and maximize the efficiency.
What Does Your Business Structure Look Like with BoomTown?
What Leaders Really Do
A winning business plan can keep your team on track. It’ll keep you focused on priorities. However, for the business plan to work, you need your team members supporting it. And to rally them, you need to be a strong leader.
When I talk about leadership, I’m not referring to management. Leading and managing are different from each other. Managers make plans. Managers solve problems. Managers even organize people. But leaders … they prepare teams for change and help them cope as they struggle through new processes and resources.
Management is about coping with complexity. Leadership, by contrast, is about coping with change.
The “norm” doesn’t stay the norm for long. As the internet gained capacity and ability, the way we communicate with people has gradually (and radically) changed. The introduction of the iPod and iPhone have even brought changes to our behavior. Now, with technological changes in the real estate industry, like Project Upstream and RESO, real estate professionals will be facing change yet again.
A leader’s role is dual in nature. First, your job is to make your team comfortable with the changes happening. Second, it’s your responsibility to set the direction of the business (in the face of these changes).
I doubt any of the Real Trends “Thousand” said no to social media when it first emerged. When Facebook gained a large audience, I guarantee a lot of those top producers saw an opportunity, a chance to market their business and expand. With the addition of blogs, more real estate teams took advantage of content. Look at Miamism.com for example.
The difference between managing and leading:
Leaders align people versus organizing and staffing.
Leaders motivate people versus solving problems.
This doesn’t mean you shouldn’t be a strong manager. In fact, it’s a prerequisite for being a leader. You have to organize and solve problems before you start aligning and motivating. Team members can’t become autonomous when they aren’t given direction and aren’t organized into a business model that they support.
To further understand the difference, think about this analogy:
A peacetime army needs good administration and management to survive (coupled with good leadership at the very top). A wartime army, however, needs strong leaders at every level and rank.
Turning Great Strategy into Great Performance
You have a business plan. You’re ready to lead. Now, how do you translate all those goals into results? Start with strategy, but monitor execution. Both are equally needed. Here’s why: A lot of value is lost in translation and performance bottlenecks are hard to notice. The former is strategy-related while the latter is execution-based.
Good Strategy vs Bad Strategy
Let’s start with defining strategy. A lot of businesses and real estate teams react to market forces and rely on tactical solutions. Rarely do they build a strategy where every part of their business works in unison to achieve a goal.
Richard Rumelt defines strategy as how an organization will move forward. Doing strategy is figuring out how to advance the organization’s interests. This is where we deviate from goal-setting.
We all have goals. Your business plan to succeed in real estate has a goal. Your agents have goals. But strategy is an action based on your business plan. Good strategy has three elements:
A diagnosis
A guiding policy
Coherent action
First, diagnose your problem. What are you trying to achieve? Why aren’t you there right now? What obstacles are blocking you? Then craft your guiding policy, which specifies the approach to dealing with those obstacles. And lastly, what coordinated actions will you take to carry out the guiding policy.
Steps for Executing a Successful Strategy
Keep it simple, stupid (KISS). Don’t build lofty-goals and drawn out descriptions of them. Instead, clearly describe what your company will and won’t do.
Next, challenge assumptions. If you remember our Wal-Mart versus K-Mart case study, there’s one assumption Wal-Mart challenged: That you couldn’t build stores in low-density towns. Before K-Mart focused their locations on high-density population centers. Wal-Mart contested that idea (as the only way to create profits), and they won. A lot of innovative companies reached their positions as market leaders because they contested assumptions on how things should be done.
Identify priorities. Reaching the performance a strategy has outlined requires focus. Stating upfront what you care about and what you’re working on will help others understand your motives. It’ll give them a clear direction on where they should focus their own time to help.
Continuously monitor performance. Everyone has ideas. Everyone loves ideas. Very few record how their strategy performs … or even how their actions perform. Holding your real estate agents accountable is key to analyzing whether your strategy is failing or whether your team is failing at execution. Knowing the difference can make or break your entire business.
The One Number You Need to Grow
Loyalty. The number of loyal customers is real estate’s gold. Agents want (and need) referrals. They need to build a sphere of influence (SOI). The power of loyalty and how past clients recommend you to their friends, family, and co-workers is an income source no one questions.
There are dozens of ways to build loyalty, but for now, we’re going to focus on how to measure it … since there are a lot of wrong yardsticks out there. To test true customer loyalty, survey customers and their satisfaction with your business (or particular agents). Then, match individual survey responses with their actual behavior, i.e. repeat business and referrals.
Track who is actually behaving like a loyal client. Don’t just take a person’s word for it. And then interview them again. Reach out and understand what makes them loyal. As you gain more information, scale up those qualities.
Growing and becoming profitable lie’s with your ability to get loyal customers to become, in effect, its marketing department.
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