G.M. Filisko is a Chicago area freelance and former editor for REALTOR® Magazine.
Occasional business blunders are inevitable. The mark of a great broker is learning from those errors and making a commitment to do better next time.
February 1, 2011
Things were not going well at Merle Whitehead’s real estate brokerage in Naples, Fla. In the five years since it opened in 2004, the beleaguered RealtyUSA outpost had been hemorrhaging about $250,000 annually, and the future looked decidedly unrosy.
"Two things were happening in Naples," says Whitehead, president of Buffalo, N.Y.–based RealtyUSA, which currently has 52 offices. "The average sales price was dropping like a rock, and it was one of the top foreclosure markets in the country. We realized that even if we made $200,000 for the next six years, we’d still be 11 years into the project and wouldn’t have made one dollar." So Whitehead shuttered the Naples office in 2009.
It’s not easy to admit that a business decision isn’t working out as planned. There’s always the nagging feeling that maybe you haven’t given the idea enough time. Or perhaps you haven’t funded or nurtured it properly. And even when your instincts are screaming that you’ve made a mistake, accepting that truth is painful.
"Ego absolutely plays a part," says Ryan Hess, a partner and associate broker at the eight-office Coldwell Banker Select Professionals in Lancaster, Pa. "Anybody who tells you it doesn’t is a liar. We’re in a very image-oriented business, and it’s hard to look at your people and say, ‘We screwed up.’"
But making mistakes is also one of the best ways to learn and grow, say brokers who’ve survived miscalculated business decisions. The key is to act swiftly and adjust your business plan accordingly once a mistake is identified.
Have a System for Accountability
The market played a huge part in the closing of Whitehead’s Naples office. But if he hadn’t set up his company in a way that made it easy to evaluate the success of each location, the losses could have been even greater.
When the recession hit, Whitehead made the decision to look at every office and affiliated service as a stand-alone profit center. Then he created a team of the vice presidents to take responsibility for various parts of the business and hold each other responsible for maintaining profitability.
"When properties weren’t profitable, they went on a watch list, and those vice presidents had to tell everyone else why those offices weren’t profitable," explains Whitehead. "That really took my ego out of the Naples decision because I was just a player on the team. When it was so clear to everybody not vested in the property that it wasn’t going to be profitable, it really helped me."
And in the end, the structure has helped his company greatly, says Whitehead, who’s closed nine of his 61 offices since the recession hit. "One thing people don’t do is create a sense of urgency, instead saying, ‘Next year, next year,’" says Whitehead. "When things were going well, we were casual about investing in markets. Now you can’t be casual about anything."
Know When to Put on the Brakes
Scott Nordby’s mistake was getting swept away by an idea. "I got excited by the bright, shiny object," says the broker at Innovative Real Estate Group in Denver. "I thought I’d found the magic bullet."
Nordby is referring to his move last summer to hire a marketing consultant and start developing new promotional materials without fully assessing his company’s needs. He soon realized that rather than come up with additional, scattershot marketing ideas, he needed to take on a more thoughtful branding campaign. "When I started interviewing our sales associates, I found that we really needed to think about our whole company brand—signs, marketing pieces, and so on. I ended up letting the consultant go, and now we’re hiring someone to rebrand our whole company. I jumped to step 10, and we’re now back at step one."
Nordby’s exuberance cost him only $1,500, but it reminded him that sometimes he needs to curb his enthusiasm. "I presented the hiring of the consultant as, ‘We’re doing this. I think it’s a great idea. Let’s go!’"
"We have a process, and I went outside the process," concedes Nordby, referring to his sales associate council; his business partner and wife, Lora; and the company coach and office manager, all of whom typically participate in major decision making. "If I’d listened to them, we’d not have gone down the wrong path for a month."
Nordby also learned it’s unwise to rush decisions. "Sometimes it’s good to shelve an idea for a week or month," he says, "and come back to it to see if it’s still a good idea."
Might you lose an opportunity? "Not usually," Nordby says. "There’s not a whole lot of risk in setting aside an idea."
Don’t Underestimate Careful Planning
In his effort to quickly expand into a new market, Hess of Coldwell Banker Select Professionals failed to do the planning necessary for the launch. "In one office, we had a bad fit with both the recruiter and the manager," he recalls. "Recruiting wasn’t happening. People weren’t communicating with me as they should have been, and the financial trends weren’t going the way we’d hoped. We watched it for another few months to give it a fair shake, but we decided to pull the plug. It’s been a big letdown."
Hess says he hired staff in a rush to get the office running, later realizing he hadn’t taken the time to vet the candidates as well as he should have. As a result, he suffered an agonizing eight months watching his company bleed money.
He now plans to run the office without a manager or recruiter, instead overseeing it from his main office. "We’re stripping that down to an unstaffed office," he says. "Rather than closing it, I’m going to eliminate about $10,000 a month in overhead by relying on more centralized administrative and management functions. I’ll keep my brand there and offer sales associates better commission splits. They really aren’t losing anything except for some drama."
Looking back, Hess realizes that in his rush to open, he didn’t do enough planning. "We did do some interviews, but we weren’t hard enough in the planning stages on the two people we decided to bring on board," he says. "Had we actually taken another two to three months—maybe another six months—to plan, I could have avoided eight months of negative cash flow in that office. Now I have to start from scratch."
In a challenging market, Hess says, careful planning is more critical than ever. "That’s been a huge lesson," he says. "In the gravy years, if you spent $10,000 on marketing, the worst-case scenario was that you’d break even. Now you have to ask yourself, ‘Is what I’m trying to do mission-critical?’ If it’s not, and it’s not worth doing for some other reason, don’t do it."
Time for Reckoning
If you fear a business decision is heading south, you should ask yourself three questions, says sales coach Tom Ferry of Newport Beach, Calif.:
- If I make this decision, what’s the worst-case scenario, and can I live with that?
- What’s the most likely scenario, and can I live with that?
- What’s the best-case scenario, and can I live with that?
Making these assessments helps you get to a neutral, less emotional mindset that allows you to be better prepared to make a decision. "Brokers struggle to make a decision, yet never look at this process," Ferry says. "And they’re not making decisions fast enough, instead waiting for things to get better or to get one more bit of information. Yet in their gut, they already know what they have to do."
As you evaluate these scenarios, don’t let money control your decision. Ferry coached one sales associate-turned-broker who spent $700,000 in opening two offices. He went from earning $2 million a year to $240,000 a year, which was hardly enough to recover the money he’d sunk into his company. Ferry advised him to sell the offices to his partners, but he resisted, hoping to recoup his $700,000 investment.
"I told him, ‘That cash has already been spent, and you’re not getting it back,’" Ferry says. "He didn’t understand that his desire to get his money back was the trap that stopped him from growing. He should have evaluated the worst-case scenario and asked himself, ‘If this is no longer on my mind and I’m moving forward, how much more money can I make?’"
Also consider your brand and the impact of your decision on others at your company. One broker erred by holding on to unproductive sales associates for too long. "I just advised a broker to let go of 10 of his bottom-quartile sales associates, whom we’d identified as energy-sucking vampires," says Ferry. "He let them go, and at his next sales meeting, he got a standing ovation from his team."
Ultimately, the key to fixing a mistake is accepting you’re fallible and moving on. "We don’t have all the answers," says Paul Mydelski, broker-owner of RE/MAX Leading Edge in Winchester, Mass. "Realize that life is full of trial and error, and if something’s not working, fix it or get out."
Six Rules for Fixing Flubs
- Identify success. "Look at how you’re defining success," advises Shawn Brodof, president of Clarity Coaching and broker at Clarity Realty in Charlotte, N.C. "Ask yourself, ‘What does success look like?’ Is it units sold or personnel brought on board? Strangely enough, many people can’t answer that question."
- Set time frames for measuring progress. "I’ve learned from making mistakes over the years that I’ve got to have a time in my process to measure what I’m doing," says Paul Mydelski, broker-owner of RE/MAX Leading Edge in Winchester, Mass. Case in point: Mydelski’s company opened a real estate academy this year as a recruiting and retention tool. After six months, he asked his sales associates for their feedback and ideas on how to make it better.
- Seek objective advice. You need to reach out to a trusted third party to help you assess your situation, whether it’s your business partner, a CPA, a lawyer, or a member of a networking group. "You need someone to be a check and balance," Mydelski says. "Having a go-to person as a sounding board is really important."
- Curb your ego. It’s easy to get overzealous sometimes. "Maybe it’s marketing you shouldn’t have spent money on, a high commission split you shouldn’t have agreed to, or a new condo project you shouldn’t have pushed to be the exclusive marketing agent for," says Merle Whitehead, president of Buffalo, N.Y.–based RealtyUSA. "Your ego can get so involved that you oversweeten the deal, and then fixing the problem can become a distraction."
- Start over when necessary. Don’t wait for a problem to resolve itself. Start over. "If you’re wondering whether you made the right decision, go back and do the planning you should have done in the first place," Brodof says. "There’s never a bad time to do additional research and planning. Your idea may still work out."
- Cut bait but remain positive. "You can’t be afraid to change course," says Cinda Riley, broker at United Country Premier Brokers of Colorado in Salida, Colo. "Look at the pros and cons, be optimistic, and move forward." Try to couple your admission of failure with good news. "If we make a mistake," says Ryan Hess, partner and associate broker at Coldwell Banker Select Professionals in Lancaster, Pa., "we time the revelation of the mistake with a positive so our salespeople say, ‘We’re not going out of business. Something good is happening.’"