Alex is coming to you from the 2016 Annual NARPM convention in Maui with:
- Jordan Muela as the co-host; CEO of LeadSimple.
- Michael Monteiro, the CEO of Buildium
- Andy Propst, CEO of HomeRiver and past national NARPM president
Our topic is the state of the property management industry, and we want to talk about how small to mid-size entrepreneurs can compete in this space over the next five years.
Outside Capital In the Property Management Industry
Alex: Let’s start with a tough question: at this stage, there is a lot of outside capital flowing into the industry. How do you think this shift will affect the competitive abilities of the small to midsize entrepreneur?
I think the same way that smaller independent companies have competed with better-funded companies since the beginning of time. It’s important for the property management company to first figure out how they are going to be different in the market. What will they be better at than anyone else, and what will they be known for? I think that’s how property management companies will compete with larger, better-funded companies. It might mean specializing in a specific kind of rental management or providing outstanding customer service. They need to be clear on their ideal customer and deciding what they want to be known for.
I agree with that, and having their own story will make a difference. With larger companies, the story gets lost. A smaller company can go out there and share their story about how they got to where they are. They have an opportunity to connect on a local level and be meaningful. That will help them stay ahead. And it’s a great question; a lot of this is happening. Finding an identity and getting the message out there is important.
On Branding for Property Management Companies
Jordan: Doubling down on niche and brand, I know you both run companies where branding is a priority. Was this important to you from day one, or did it grow over time? How did your evolution happen?
For me, branding was a priority from day one, just because with my personality, I care what people think about me, and I couldn’t differentiate my brand from who I am personally. We looked at our mission statement and we wanted our brand to represent our mission. I wanted to have the same message throughout our brand. We don’t think of our brand as the logo or anything like that. It’s how the public perceives us and what we do. I want that to be a good message. The brand is important and has been since day one.
I’m not sure we thought about it as brand 12 years ago, but it was important for us from the beginning. We wanted to be clear on how we would be different. Our market is competitive, and we have larger and better funded competitors in our space. But we decided early on that we would be laser focused on one property management vertical. We decided we would be laser focused on small to medium sized property management firms. And, we decided to be laser focused on residential property management. So, I’m not sure we thought about it as branding back then, but it is something we thought about in the early days: “where will we stake our claim?” That has helped us succeed in a competitive market.
Where Should a Small Property Management Business Invest Time?
Alex: What specific things would you advise these smaller companies to invest their time in? If they want to zero in on the perfect customer and building a brand that makes the business as attractive as possible to these folks?
We call that the ideal customer profile. The better and clearer you can be on your ideal customer, the more successful you’ll be. In property management, we hear all the time that people will take on any clients willing to hire them. Be clear on your ideal customer, and resist taking on anyone who doesn’t fit that.
There are a lot of rabbit holes in property management, too. It’s a great business, and it’s a tough business for an entrepreneur because it opens so many different opportunities and avenues. So, it’s important for people good at property management to decide where to serve. There’s commercial and multi-family and real estate, but the people who run the best property management companies have the ideal customer in mind and they focus on what they do best. Then, they can do a good job growing their business.
Alex: So, having a clear focus and understanding the opportunity cost of having a squirrel mentality?
Andrew: Yes, there are a lot of squirrel opportunities in this business. If you don’t believe me, walk down the trade room floor. You could leave this place with a thousand different opportunities. Most property management companies don’t go out of business, they die of too many opportunities, which causes problems.
Situational Property Management Issue
Jordan: You need to have the discipline to say no. Putting ourselves in the shoes of some of the companies who are experiencing pressure, how would you handle a scenario like this: You are running a 250-door property management shop, and over the last 12 months a couple of well-funded companies have entered your market to compete directly with you. They are advertising low fees and attractive service offerings. For the first year since opening, you have lost more properties than you’ve gained. So, you can’t float or go sideways; you’re going to have to get to the next level or really start to suffer. How would you handle that situation?
This is a great question because it’s happening now. The real estate market has caused a bit of an issue in property management growth. All the properties going on the market for sale are selling, so there’s more of a challenge for managers to grow their business, unlike 2008 through 2010, where no one could sell, so everyone was handing over doors.
You might have to take an opportunity to rebrand yourself. Look at what’s out there, because there are opportunities. In 2009, our company shifted. We saw that the market was going to end up like it is today, and we shifted to multi-family. The multi-family market is blowing up right now. So, if you’ve been specializing in single family properties, there’s no reason why you can’t make that shift. Those opportunities are out there, and I would strongly recommend not doing the same thing over and over again. I like to make big changes. For some people, smaller changes might be better. But it’s hard to control the market.
Diversification is one thing that you could do to continue growing. Not to sound repetitive, but it comes back to getting clear on what you’re going to do better than anyone else and staking that claim. Figure out what you can do that those larger companies cannot.
Local knowledge comes into play, telling that compelling story is an opportunity. Look to answer these basic questions about your company:
- Why do you exist?
- What is your purpose?
- What do you value and believe?
- What’s the vision two to three years out?
Answering those fundamental questions will help bring clarity to what you will do to compete. It’s one of those things that everyone understands but they aren’t always urgent things to address. This is an opportunity to work on your business.
Andrew: It’s not because the business isn’t coming in. With 250 doors, property managers are so overwhelmed with the property management work that they don’t have time to focus on the business and growth. They don’t have systems in place, so they feel dug in.
Statistics have told us that between 65 and 80 percent of rental properties are managed by self-managers, so there are opportunities out there. You can go get those opportunities, but it’s hard when you’re stuck inside your business. You have to get those systems in place and you have to get the right people on board. Once you can do that, growing your company is easy. Managing the growth is where you’re challenged.
Michael: That’s true. I always say it’s easy to start a property management business; in many states you don’t even need a license. But, it’s hard to grow.
Andy: What we’re doing at HomeRiver right now is finding people who are at this 250-500 door position. We can come in and help them with what’s dragging them down. We give them the resources to grow. We help them grow systems and not get stuck in the day to day, which is so easy to do in this business.
Tasks for a CEO of a Property Management Company
Alex: I spoke about this in my presentation for NARPM – “How to Convert More Leads in a Hyper Competitive Market.” Working on the business is foundational. It’s not a good idea to manage your own portfolio of properties so you can make more money yourself. Why spend 60 percent of your time managing your own portfolio when you have a business to grow? There’s a huge opportunity cost. If you’re making sure your owner statements go on time, there’s something wrong. That’s not a CEO job, that’s for the accounting manager to do.
Andy: That’s true. But as you see here at these conferences, all these people are running off to send out those owner statements and manage stuff like that. We are all control freaks, and it’s hard to let that go.
Alex: Speaking of branding, Michael’s shirt says “Ctrl freak.” He knows his clients.
Andy: It’s something I say in my speeches – we’re all control freaks. It gets a big laugh every time.
Michael: There’s a great book called E-Myth, which stands for Entrepreneurial Myth, and in that book, Michael Gerber talks about the trap that so many entrepreneurs fall into, where they don’t take the time to operationalize their business. So, they can’t think strategically about the business. They’re sending out statements and reconciling accounts and collecting rent because they didn’t think to take the time to put these business systems in place.
Building Culture for Your Property Management Company
Alex: E-Myth was a cornerstone for my business – I recommend it to the audience. It has a big following and there are coaches that follow the book. Here’s what most people get wrong: culture. We talk about the need to stop doing the day to day work and to focus on the big picture, but you can’t do that without a great culture. So, what are your specific pieces of advice for how to build your team? I know Andrew has lived it and Buildium has always been impressive with engaged employees…
I could talk about culture all day long. It’s one of those things that is important and in my mind, it’s the only thing that matters. It comes from the word cult, which in religious terms is not a great word, but are you building something that will inspire people to follow you no matter where you go? If you can build a culture of trust in your organization, you can let those tasks go as an operator. Because the less you control, the more you can do. Get things off your plate so you can focus on the important and not the urgent.
Show that you trust your employees without expecting trust back. That will free up your time and get your employees on a career path where you can understand their goals and priorities. You’ll find your loyal co-workers will break through a wall for your company. When we have a good month or a bad month, that’s great. But when you see an employee reach a dream, there’s nothing that feels better. That’s the joy of owning a business.
Culture is one of those mythical words that means so many different things to different people. Some people hear culture and they think of beer fridges and ping pong tables and free lunches. For me, to make it more tangible, it starts with thinking about the environment you want to create for your employees.
At Buildium, we decided early on that we wanted to build a company that would stand the test of time. In 2012, eight years into our company history, we spent time describing what our employee experience was and what we wanted to create. That made it tangible.
So, my advice is to figure out what your property management business looks like in the next three to five years. What does it look like in terms of:
- Ideal customer
- Employee experience you want to create
Use words to describe it and be deliberate. That’s the other thing I would say; every company has a culture whether you’re deliberate about it or not. The best companies have founders that are deliberate about the culture you want. Otherwise, it will develop on its own, and then you can’t change it.
Jordan: Would it be impossible to change culture once it’s developed on its own?
Andy: I think so. A bunch of large changes are possible, but culture has a funny way of attaching itself to the least common denominator. You have to be able to get good people in there from the start because if you don’t, good culture doesn’t happen by accident. I felt like the culture that we built was from the ground up. We didn’t hand out mission statements. We all got together as a company to own it. The rank and file need to contribute to it and make it special. We read our mission statement and value statement every morning in our meetings.
On Property Management Technology
Jordan: What is your thought on the rate of change driven by technology in this industry? Are we seeing any plateaus? Is it accelerating?
Michael: I think everything is speeding up. Look at the vendors here today versus three years ago. It’s dizzying. Every year, there are more tools and technologies and more opportunities to automate. In general, this industry has been slow to adopt new technology and yet the rate of change is increasing, so I don’t think that trend will slow. It’s incumbent upon property management firms to figure out how to leverage the technology that’s out there. If they don’t, it will be hard to compete. There will come a point where there is some consolidation. But, I don’t think it will slow down.
Andy: I agree. A lot of these companies are betting big on technology, and they’re implementing it. The smaller companies will have to embrace that to keep up with the services. The good thing is, I’m not too concerned with developing an Uber for property management. We have a lot of regulation and the industry is fragmented, but I don’t think it will slow down. We’ll see even more of what we’ve seen.
Alex: Thank you all for your time. We appreciate this insight, and we’ll see you next time.
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