Charlotte Property Management Weekly: Thankful for an Awful Year: Next Top 2 Business Takeaways from 2009 (Part 2)

“I thwink… 2010 will be a treeemendous year… I mean, it’s gotta, just Gotta (with a capital “G”) be better than this one… you know what I’m sayin’? Hey, honey, pass me another glass…” (Drunken Charlotte business owner bypassing the shot of hemlock for some more red wine)

“The MacArthur Foundation gave out its annual genius awards. This year’s awards went to a journalist, a mental health scientist, and a couple who sold their house three years ago.” (Conan O’Brien from The Tonight Show with Conan O’Brien)

“Have yourself a merry little Christmas. Let your heart be light.” (Ralph Blane)

In last “Charlotte Property Management Weekly’s” episode, I discussed the first two takeaways from businesses looking to survive this tough economic environment. This article will focus on the other top two business adjustments I’ve seen businesses take in 2009. Without further ado, they are:

1. Revenue hedging became important. By this, I mean that business models adapted. Let’s look at real estate. People need to live somewhere, right? If they are not buying and selling homes, they’ll be renting. Businesses made sure they were in position to benefit no matter what their potential customers chose to do.

2. Cash was promoted from “King” to “High and Mighty Emperor.” Before banks completely shut off the loan faucet, forward-looking businesses took the maximum out of their lines of credit and put the cash into interest-bearing accounts; their cost of accessing capital was the interest spread between the borrowed money and the short-term certificate of deposits. Smart move! Banks cut everyone else’s lines of credit to tighten their balance sheets. So what did businesses do so they would have sufficient working capital to pay people?

Small business became like big business. They played with their accounts payable (paid their vendors later) and accounts receivable (provided incentives to customers to get paid earlier). What does this mean? Here are examples:

· Accounts payable: You pay your vendors an average of $1K/day and wait 15 days to pay invoices. However, if you started paying invoices in 20 days, you would now have $5K more in your bank account (5 days X $1K/day = $5K).
· Accounts receivable: You take in $2K/day in revenue and your customers pay you in 30 days on average. If you can get them to pay you in 27 days, then you would add $6K to your bank account balance (3 days X $2K = $6K).

It has been said that 90% of all businesses fail for lack of cash flow. Take these steps to stay in the game. And be thankful that the tough economy, though presently painful, ultimately makes your business stronger (think of how tired the Karate Kid was washing all of Mr. Miyagi’s cars)! When economic times get better, you will be very thankful (think a beaten-down Daniel-Son taking down Johnny Lawrence with the “Crane Kick” to win the All Valley Karate Tournament!)!

Thank you for your readership and I look forward to dishing on more of our business issues in 2010. Have a wonderful holiday!

Brett Furniss is the President & Owner of BDF Realty, “Charlotte’s Most Innovative Property Management & Investment Company”specializing in rent-to-own (lease options) and rent-to-sell homes. You can follow his Twitter thoughts on the Charlotte real estate market by clicking on http://Twitter.com/BDFRealty. He is the author of the FREE E-Manual entitled “How to Rent-To-Sell Your Own Home” (http://www.RentToSell.com/RTS-Book.html) which details how to get the most potential buyers to your home in this challenging real estate market.

Charlotte Property Management Weekly: Thankful for an Awful Year: Top 2 Business Takeaways from 2009 (Part 1)

“Oh… Deck the halls with boughs of holly (picked for free from the yard), fa la la la la, la la, la, la… ‘Tis the season to (fake) be(ing) jolly, fa la la la la, la la, la, la… (“Unthankful” Charlotte Business Owner)

“…give thanks in all circumstances…” (1 Thessalonians 5:18)

“Left a good job in the city
Working for the man every night and day
And I never lost one minute of sleep
Worryin' 'bout the way things might have been”
(Proud Mary by Credence Clearwater Revival)

Wow! It’s been a tough year for traditional real estate brokerage. In Charlotte, the year-over-year statistics for closings and home prices have gone down every month (except this past month when closings were up 1%- woohoo!). Many of the people who left their jobs to become Realtors and contributed to the real estate boom are now wondering what they were thinking. The same can be said of business owners who took the leap and are struggling to make payroll every week.

When I’ve talked to other business owners prior to this year, I would always hear about how “great” things are. Things are “great”, sales are “great”, “employees are great” (this is the first clue that they are lying), my wife thinks I’m doing “great” (second clue), and have you been to “the club” recently? Unfortunately, I have no idea what “the club” is. I try to pull the Groucho Marx “I wouldn’t join a club that would have me as a member” line and then try to change the subject. That’s always followed with “Who the heck is Groucho Marx? Is he a member of the club too?”

Now, things are very different. “Brett, I’m not making any money.” “This economy %&**#!!” (meaning “not great”) “Are you going to finish those?” Entrepreneurs are eternal optimists but I suppose that can only go on for so long. Scraping by every month is tough and the business lines of credit that provided some comfort have been cut, bagged, and appear on the back of milk cartons.

But like all negative things, there are silver linings. Tough times make businesses adapt and strengthen. For this we should be thankful! If “pain is weakness leaving the body” then the same can be said of financial struggles for a business. When money is tight, you’ve got to be creative to improve (and survive!). The top two business improvements I’ve seen as a result of this economy are (drum roll please):

1. The elimination of unnecessary fixed costs. These were much more than anyone thought. Old assumptions on this were challenged: With technology improvements, do employees need to work out of an office all the time? Any of the time? Do I need to pay salespeople before they sell anything? What can be outsourced to make it a variable expense? What costs can be shifted away from an employee to (much cheaper) technology?

2. The return of “return on investment”. Our old friend, ROI, made a comeback and it was brutal. If an expense wasn’t generating any revenue, it was eliminated. The “pay for play” model became much more dominant. You had to prove it, too! No longer was money hurled at marketing with no tracking capabilities. Employees had to prove they were part of revenue generation to keep their jobs. The pay-per-click Google model was emblematic of this; you didn’t need to pay marketers so people saw your ad, you would only pay when someone clicked on your ad. (On a side note, I see this being taken further. You really should only pay when someone actually clicks on your ad and purchases something from you. I mean, why do I pay you if they click on my ad and don’t give me any money? The only barrier to this is how to track it, but I see this obstacle being eliminated over the next year or two.)

These two business practices are now commonplace among the firms that are still open. So you’re still in business and never made any changes along these lines? Count your lucky stars! But remember as they say on Wall Street, “the market can stay irrational longer than you can remain solvent.” And the three-word advice of the late NC State basketball coach, Jim Valvano, on the key to staying alive in the NCAA Tournament. “Survive and advance.”

Part two of this article will discuss the other top takeaways from this year. Have a wonderful holiday season!

Brett Furniss is the President & Owner of BDF Realty, “Charlotte’s Most Innovative Property Management & Investment Company”specializing in rent-to-own (lease options) and rent-to-sell homes. You can follow his Twitter thoughts on the Charlotte real estate market by clicking on http://Twitter.com/BDFRealty. He is the author of the FREE E-Manual entitled “How to Rent-To-Sell Your Own Home” (http://www.RentToSell.com/RTS-Book.html) which details how to get the most potential buyers to your home in this challenging real estate market.

Charlotte Property Management Weekly: Can You Beat UNC Coach Roy Williams in a Pie-Eating Contest?

“I’m not making any money. The economy is killing my firm. I’d be lying if I said I wasn’t in anything but survival mode at this point. My New Year’s resolution this year is to be able to make a 2011 resolution with a roof still over my head.” (Charlotte business owner)

“Creativity without implementation is irresponsibility.” (Ted Leavitt at the Harvard Business School)

“In a typical game we want to have between 90 and 105 possessions, and we try to get that number up as high as we can, because if I’m better than you are, the more possessions we play, the more likely it is that I’m going to beat you. If I play golf against Tiger Woods for one hole I might beat him, but over 18 holes, I have no chance.” (University of North Carolina Basketball Coach, Roy Williams, from "Hard Work: A Life On and Off the Court")

Roy Williams is one of the greatest college basketball coaches ever. Besides winning 2 national championships in the last five years (2005 & 2009), his accolades are mind-blowing: 594-138 record in 21 seasons, Hall of Famer, 7-time Coach of the Year, 1st in winning percentage among active coaches (81.2%), 3rd best winning percentage all-time, only coach to win a NCAA Tournament game in 20 consecutive seasons, and the list goes on and on…

What makes him so good? There are many reasons obviously. But the one that I want to focus on is that he is incrementally better. What the heck does that mean? And what’s with the italics again? Well, it goes along the lines of his quote on top of this article. If you play UNC long enough, they should be able to beat you. They have great coach, talent, and system. UNC doesn’t blow out every opponent, but they do win most of their games. For example, in the 2005 NCAA Tournament in which they won it all, they beat their opponents by 28, 27, 1, 6, 16, and 5 points respectively. They were good, but didn’t win every game by 50.

The reason is the essence of the game of basketball. It has fixed rules. There are only so many points you can realistically score in a 40-minute game, and your defense cannot fully stop a talented team from scoring. Basketball is a “fixed pie” meaning that there are usually a certain amount of points scored in a game. If you have just one more than your opponent, you win!

So let’s say your business is really good and always takes 80% of your city’s market share. Last year, there was $10M in sales (fixed pie) and your firm predictably took in $8M of that. Awesome stuff! But this year, sales have shrunk to $8M (smaller fixed pie), and your firm made $6.4M. That is still good, but not as good as last year. So maybe good old Roy has got it better than you? He wins 80% of is games over his career and is a Hall-of-Famer. You take 80% of market share this year and your shareholders are wondering whether it’s time to find another CEO to run things.

But maybe, just maybe, you have it better than Roy. Roy is locked into a “fixed pie” scenario and you’re not. In business, if you don’t like the pie you’re eating out of, you can shift to another pie. Or you can be eating several different pies at once (sort of like what we’re all doing this holiday season, even those who have sworn off sweets).

In real estate, most were eating out of the brokerage (buy/sell) pie. You were just like Roy, incrementally winning by keeping a steady market share in a growing amount of business. Your 80% market share was nice when your city’s brokerage pie grew from $10M to $12M ($9.6M in sales, up from $8M the year before. Yeah, baby!) There was more than enough pie for all and everyone was happy! Then the housing market fell apart and there was less pie for everyone. Some went hungry and left the business. Others started rationing their smaller portion while complaining about how hungry they were.

But you’re not Roy and stuck in his world! You can use innovation and change the game! As I’ve written before, people still want to transact real estate; the American dream of homeownership is still alive and well (arguably even stronger!). Macroeconomic conditions have made it necessary to transact real estate through other methods like rent-to-own, rent-to-sell, owner financing, short sales, or any other way you can think of! These pies are growing and taste pretty good! And there are less forks banging together trying to take their piece of it out!

If Roy could legally add more methods to score, he would. I’m sure he would create his own version of “Calvinball” (yes, a Calvin & Hobbes reference) and start blowing teams out by singing “Thriller” while throwing a horseshoe over the backboard (10 points!).

But, alas, Roy is stuck between the baselines with fixed rules and one fixed pie, so you can easily beat him! Are you ready to eat heartily from some different pies in 2010?

Brett Furniss is the President & Owner of BDF Realty, “Charlotte’s Most Innovative Property Management & Investment Company”specializing in rent-to-own (lease options) and rent-to-sell homes. You can follow his Twitter thoughts on the Charlotte real estate market by clicking on http://Twitter.com/BDFRealty. He is the author of the FREE E-Manual entitled “How to Rent-To-Sell Your Own Home” (http://www.RentToSell.com/RTS-Book.html) which details how to get the most potential buyers to your home in this challenging real estate market.

Charlotte Property Management Weekly: Jack Welch is Envious of Your Real Estate Firm?

“I’m not sure what we are going to do… Revenue is down and costs are the same. We are scraping by on a few first-time home buyer sales that come through. Worst of all, my employees are having a hard time making a living in this traditional brokerage business model.” (Frustrated Charlotte Real Estate Firm Owner)

“Most small companies are uncomplicated, simple, informal. They grow on good ideas regardless of their source. They need everyone, involve everyone, and reward or remove people based on their contribution to winning.

We love the way small companies communicate with simple, straight-forward, passionate argument rather than jargon-filled means.

Everyone in a small company knows the customers- their likes, dislikes, and needs. Small companies have to face into the reality of the market everyday, and when they move, they have to move with speed. Their survival is on the line.” (Jack Welch, former CEO of General Electric from 1981 - 2001)

Jack Welch was one of the most successful businessmen in the 20th Century. Under his leadership at GE, he took the company from $14B in market value (1980) to $410B (2004). He helped create the largest and most valuable company in the world.

Welch felt that while being big was good and had its advantages, GE would only be successful if it maintained the traits of a small business. These traits included personally knowing their customer base, shifting to meet changing customer needs, and the ability to nimbly reposition their services efficiently to serve niches of customers before their larger competitors. And they had to do it quickly!

The problem was that any major initiative GE undertook would go on for years; it was the nature of their sheer size. When you have hundreds of thousands of employees, it takes a long time to disseminate information, train employees, and get things working correctly; just fighting through layers of bureaucracy is a time-consuming ordeal! Welch hated this and wished he could move at the speed of the market.

Big real estate firms have this same issue. They made billions of dollars in a buy and sell market and positioned themselves in the public’s minds as the place to go for brokerage. Their agents were trained killers that were negotiating offers, putting up listings, and putting ads all over the country. Unfortunately, as the pure brokerage market began to fade and real estate revenue sources moved elsewhere, they ran into the same issues as GE.

Besides being costly and time-consuming, repositioning a large company’s value proposition to customers is risky! The risk is in confusing the public about what they do well. For decades, big real estate companies told the public (with many, many ads!) that they were good at helping people buy homes; this year they are telling different stories. Some are saying that they are expert property managers now? Some are now good at finding foreclosure and REO properties for investors? Short sale specialists?

Here’s the rub. Name one company that says they do multiple things well- it’s tough! You just don’t see this in today’s marketplace because this type of marketing message doesn’t work! Customers do not like generalists; they go to specialists. Think about it. When you shop for shoes, do you go to Wal-Mart or a shoe store? Most people actually go farther than this. They’ll visit a very specialized shoe store (women’s dress shoes only stores, running store for running shoes, etc.), rather than a regular show store. Customers feel that if you say you are good at many things, you are actually mediocre and not an expert at anything!

In a changing market, small businesses are in the best position to capitalize. They can reposition their business to specialize in growing customer segments, get employees up-to-speed quickly and inexpensively, and communicate to their existing customer bases what they are doing. There is no red tape. Today you can be “Charlotte Brokerage, Inc.”, and tomorrow you can morph into “Short Sales 4 U, Inc.”, “Distressed Properties R US, LLC”, or “Rent-To-Own Rock Stars, Inc.”

You can innovate and implement today with little hassle. This is why Jack Welch is envious of your small business!

Brett Furniss is the President & Owner of BDF Realty, “Charlotte’s Most Innovative Property Management & Investment Company”specializing in rent-to-own (lease options) and rent-to-sell homes. You can follow his Twitter thoughts on the Charlotte real estate market by clicking on http://Twitter.com/BDFRealty. He is the author of the FREE E-Manual entitled “How to Rent-To-Sell Your Own Home” (http://www.RentToSell.com/RTS-Book.html) which details how to get the most potential buyers to your home in this challenging real estate market.