The Warring State of Real Estate Business Strategy
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The Warring State of Real Estate Business Strategy


Too many people think about business strategy as an act of war. It’s easy to hear analogies to the Art of War, but real estate would be smart to avoid the zero-sum game of competitive battling. Head-butting and competing on leads is a game that diminishes value … for all parties.

Think about the airline industry. Nearly all of them compete against ticket prices, continually harming their return on investment (ROI) — hence all the ridiculous fees consumers see. The trouble is our minds think time to battle. There’s this warring state of real estate, where everyone wants to be #1.

Ask yourself — where is the battle taking place? At your competitor’s doorstep or in the market?

Your goal isn’t to beat Agent Joe Schmo down the street. It’s to be [insert value proposition]. Example: The Cassina Group wants to be the representative for historical homes in Charleston, SC. Becoming that requires a business strategy.

Here’s how to think about real estate business strategy …

 

Competition — Strategy in the Face of Enemies

Think about your competitors. Here’s a misconception you’re making right now … you’re thinking to beat them, you have to be better than them. Not true.

A lot of companies think success comes from “being the best,” and they think there’s a direct contest between rivals. Your mind is focused on winning the real estate lead (or the listing). But that’s too narrow for business strategy. You need to focus on the competition for profits, and that doesn’t always mean competition with other real estate teams.

5 Competitive Forces Real Estate

Competing for profits is more dynamic than beating your rivals. There are more forces to consider, including internal operations, homebuyer demand, and technology shifts.

 

Profit = Price – Cost

 

Your competition — the game you’re trying to win — is earning a profit. The struggle to stay “positive” in revenue, sales, and income is what you’re battling. And that’s where a strategy will help. Strategy means developing a game-plan for creating sustainable, long-term profits.

Costs are the real enemy. Business rivals, real estate demand, technology suppliers … they all impact those costs, and how much profit you make. The puzzle is figuring out how to manipulate those forces.

Business Strategy Real Estate Points

 

Business Strategy — What’s Good and What’s Bad?

The kernel to good strategy starts with a diagnosis. If you don’t understand what’s challenging your business, then how would you define a strategy to beat it?

For those who look at their market and identify the forces working against them, it’s your job to simplify it. There will always be “tons of things” working against you, competing against you, but single out a theme. What overall event is going on? If you draft a complex diagnosis, then you’re strategy will try to do too many things. You want a central focus to addressing a problem.

Good business strategy (in real estate) also involves a guiding policy and a set of corresponding actions. Think about your approach to overcoming the challenges to your business. Then, design a series of actions to accomplish this approach. The actions must be coordinated. Link them. Tie them together!

Business Strategy Notes

 

Good strategy explains how you, faced with competition, will achieve superior performance.

 

Bad strategy usually revolves around the idea of “competition to be the best.” This is where people drum up dramatized ideas, motivational speeches, and emotional actions. They want war. The problem with “strategic war” is there can only be one winner.

Victory means you have to destroy your competitor. But are you really going to be able to do that? Not really. Think about Wal-Mart and Target. They rival each other, but both have distinctive strategies to create value and profit. Wal-Mart is solely about “everyday low prices.” Target is similar, but more tailored to people who want flair with their product.

Being the “best” is not feasible. Defining the “best” will vary with each person you ask. Each homebuyer has different tastes and will want different things from their real estate agent. So, how do you become the “best” for everyone … who defines “best” differently?

Good Strategy vs Bad Strategy

 

Creating Value among Similar Competitors

Here’s a definition to ponder: A distinctive strategy means deliberately choosing a different set of activities to deliver a unique mix of value. It’s not just a unique sales pitch or value. It’s a chain of activities that support the value you’ve created.

Think about your operations. Your processes. How your agents sell and conduct real estate business. Breaking away from real estate competitors — who all offer the same product (i.e. houses) — means you need to look outward at the customers. Creating a unique value among similar competitors starts with these three questions:

  1. Which customers are you going to serve?
  2. Which needs are you going to meet?
  3. What relative price will provide acceptable value for customers and acceptable profitability for the business?

Real Estate Value Proposition

Let’s look at the rental car business-industry. Hertz, Avis, and Enterprise are the top three competitors. A few decades ago, Enterprise was the new up-start. Hertz and Avis commanded strong positions in the market. So, how did Enterprise breach the market and win over a sizeable chunk of the other two’s business … and become more profitable?

“Amateurs discuss strategy; professionals discuss logistics.” — U.S. Army slogan

They had a distinctive value proposition and business strategy — based on a simple insight: there are different reasons for renting a car. Traditionally, Hertz and Avis had built their business around travelers (hence renting a car at the airport). However, Enterprise realized there was a minority of people who needed to rent a car in their home city (roughly ~40-45% of people).

Enterprise realized there was a need to rent a car for people whose car was stolen or wrecked. Within these cases, a person’s insurance would typically cover the costs for a rental, as long as it fit within the contractual limits on the price. So, Enterprise created a value proposition for this need: reasonably priced, convenient, home-city rentals.

Enterprise is not the best car rental company, but it made a different choice to what they offer (compared to Hertz and Avis). Today, a new competitor is challenging the traditional model of rental cars, again. Zipcar allows people to rent a car for time periods as short as an hour. They cater to people who don’t own a car, but who occasionally need one.

A value proposition is a strategic element that focuses on customers. The chain of activities to support the proposition focuses on internal operations. Strategy is designed to bring the value and operation together.

Remember how we mentioned the airline industry is inundated with competitors battling over price (instead of a value proposition)? Well, some companies are turning that around. Keep an eye on are Southwest Airlines, JetBlue, and WOW airlines.

 

Scaling Business Strategy for Growing Real Estate Teams

Look back at your real estate career. What core problems did you have at the beginning compared to now? Undoubtedly, your business strategy would be different for each of those time periods. In real estate, you’ll need to evolve. The strategy will need to evolve … because the market is not standing still.

 

Growth is inevitable. Evolution is a choice.

 

Scaling strategy with your business (without settling for less) is a ground war + air war. During World War II, pilots blanketed bombs across towns, areas, and enemy encampments. Unfortunately, only about 18% of U.S. bombs fell within 1,000 feet of their targets. Without ground operations, victory would not be obtainable. The same applies to your business.

Scaling up your business strategy is more than you carrying it out. It means teaching real estate agents and operational staff what the strategy is. It means enforcing it throughout the business. And to do that, it’ll require “hot causes and cool solutions” — as Robert Sutton, author of Scaling Up Excellence, would call it.

To scale up a business strategy in the real estate workplace, focus on changing people’s beliefs and behaviors. The two must be in concert. You want a “hot cause” — something that emotionally inspires someone — to move people into action. You then want to have them promise on a change in behavior (i.e. action).

 

Hold them accountable, or design a system where team members hold each other accountable.

 

Business Strategy

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