Old-fashioned TV set

Think about your company. Are you innovating? Are you thinking ahead? Are you looking at how you can do things better and are you willing to be the first to take action?

The answers to some, or perhaps all, of those questions could be ‘yes’. In which case you are lucky, your company may be one that survives the next 10 years.

If you answered ‘no’ to some of those questions, the chances are that you and your colleagues are all going to be working somewhere else pretty soon. Harsh words, but the realities of commerce can be fast-paced and brutal.

You have probably seen plenty of examples where just this has happened, where companies that do not keep pace and advance ultimately declined. Due to increasing populations, incomes and regulatory constraints, real estate has been a great money-maker for many years. Consequently, many real estate firms have been content to rest on their laurels and ride the wave of Beta: up when the market is up, down when the market is down (which it almost never has been). For these companie, the need to innovate or adapt has been futile.

Survival of the quickest

Think about companies in other industries that have not adapted, adopted or innovated fast enough. From taxis to post boxes; landlines to desktop computers; there is stagnation in most industries – hotels, construction, aviation, retail and more. I bet you can easily recall at least one household name that has vanished in the past few years, simply because it did not keep up with the times.

This trend is now accelerating and, along with it, the lifecycle of companies is shortening. The rewards for getting it right (and in turn, the consequences from getting it wrong in business) are becoming more extreme; some companies suddenly amass great fortunes and others turn to dust.

Picture1

What happens when the inflationary pressures that have increased real estate prices then disappear? What happens when a company can no longer rely on simply buying in the centre of a growing city and watching as the ‘value’ goes up?

pic2: men who knew too little

There are several red flags I have come to recognise from meetings with companies (both large and small), which identify those that will still be around in the next decade, and those that will not.

I will share them with you now in the sincere hope that if you recognise them at your own firm you can take action in time to prevent falling behind with the times.

Spotting the warning signs

“I’ve been in the industry for 20 years and I know what goes on in the market. I don’t need new technology!”

This statement (and its many variations) is a personal favourite of mine. It is the most flagrantly ignorant.

Ask any doctor, pilot, banker or other serious professional if they think they that they have amassed so much knowledge in their career that they could not possibly do any better, or if they have such a perfect clarity of information that it could not be improved upon.

The answer would be a resounding ‘No!’ As a former pilot and trader, I can attest that technology and the rapid transfer of transparent information has been a godsend. No more opening up charts in the cockpit, they are all on your iPad! No more wondering what the market valuation of a company is, it is on Bloomberg! No more wondering where that other airplane is, it is on your screen! No more buying when you should have been selling, the trends are at your fingertips!

pic 3:men who knew too little

However, in real estate, time and again, I have heard those exact words. What they are often really saying is: “I’m threatened by this. I have spent a long time doing things the old way and, rather than advance, I’m going to safeguard my immediate future at the expense of the mid- to long-term future of my job and the company”.

What happens to this person in that mid- to long-term future? Well, as other companies adapt and evolve to make better use of information, this person discovers that actually their memory is not as good as a database of terabytes. They are also likely to discover that their emails, folders and phone calls are not as good as instant access, and that the time they spent on the old way is now being used by other companies to easily outflank them.

Eventually, they will find that they are overworked, their bids and offers are at the wrong prices, that they miss crucial deals. When this happens a few times, and becomes a pattern, their business is already out of the competition, regardless of how much they thought they knew.

Remember: sports teams and racing competitors have won simply by improving everything they did by just 1%. Do that a few times as a businessman and you will be ahead of the rest of the market.

The Complacent Networker

“I don’t need this because I have a great relationship with [X,Y,Z]”

This very phrase was said to one of my colleagues by a senior person at a very large company, of which I shall not name. I do not think their private equity owners would appreciate that hundreds of millions of their money is being spent and invested on the basis of a few pints and a candid conversation.

However, much like the ‘Industry Expert’ approach, this mindset shows someone who has invested a lot of time and energy into an old way of doing things. Just as no one would like to graduate from typewriter college in the 1970s only to be replaced by computers and printers, no one wants to admit that the traditional means by which information was gathered in real estate (namely through agents, networking and other events) is about to go the way of the dodo.

What Real Estate can learn from Finance

The finance industry used to be this way. Many years ago, while I was a child stacking building blocks, one of my investors was sat at his desk in the City of London – a desk with only a phone and an embedded ashtray upon it. He learned what was happening in the market from phone calls, dinners, the FT and occasionally a telex machine.

Fast-forward a few years and the industry is almost entirely computerised. Whole teams have been replaced by a myriad of integrated computer systems all working from a single operator. Why? Because those firms that could innovate faster and replace their analogue relationships with digitised systems were able to offer better prices, faster responses, lower costs and improved accuracy to their investors and clients.

Those companies that held onto the old ways did not last much beyond the early 2000s. The chart below shows how transaction costs decreased in the stock market from the 1960s onwards, which was exactly from the point when digitisation first started to enter the stock market.

This next chart shows just part of the consolidation that occurred in the financial sector in the 1990s as rapid transference of information caused margins to shrink. Those that adapted and adopted early, survived and quickly bought out all the others.

Picture2

In recent years, I have seen companies that employ several members of staff, whose sole purpose was to maintain the spreadsheets and databases that gave them a fraction of the capabilities we offer at REalyse. I have listened to these founders insist that they already have everything they need.

Imagination is not necessarily the client’s responsibility. Many tech companies try to emulate Apple in the way they market themselves to inspire people to use their products. However, it certainly helps if the client can at least think about what might be possible using a new approach.

“Innovation is the specific instrument of entrepreneurship. The act that endows resources with a new capacity to create wealth.” – Peter Drucker

Just as importantly, while thirty years ago you may have considered cobbling together some wire, batteries and a transmitter to make a walkie-talkie, you would not now even consider the idea of trying to build your own iPhone.

Likewise, real estate companies that spend precious time and resources on creating their own technology are never going to be able to beat a tech specialist at their own game.

While it is encouraging to see the early adopters prosper, it is probably worth noting that Boeing has yet to build a car, Bentley does not yet make microchips and Google does not yet offer fine cuts of chateaubriand. They all stick to what they are good at. So, to paraphrase a long-standing industry aphorism:

‘It is not the most intellectual of companies that survive; it is not the strongest companies that survive; but the companies that survive are the ones that are able best to adapt and adjust to the changing environment in which they finds themselves.’

Thanks, Darwin!

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