Sometime back, I was listening to the BiggerPockets Podcast interview with Chris Clothier on scaling a real estate business. Most of it was great stuff, but one part left me (as well as Josh and Brandon) dumbfounded. Here’s the exchange that really caught my ear:
Brandon: “I want to know a little bit more about how you fill in vacancies. What’s the process for you, the unit goes vacant—what do you guys typically do?
Chris: “From day one, the way that we market properties, we’re a little unique. We actually put four rental signs in a yard.
Josh: “Four signs? Are they all the same signs or…?
Chris: “They look similar—they’re blue and white. For those of you out there that are right now thinking ‘What the heck did he just say?’ we created a system early on that was all about competition. We wanted, as I said earlier, people who were hungry, who really wanted to work and work hard and earn their living. We pay our rental agents very well. What we’ve done is each of them has their own sign that has their own independent number, so we don’t have this one branded sign that sits in a yard; everybody has their own sign. They had to be blue and white. The person that rents the highest number of homes in a month gets to put their sign as a very first sign next to the curb. All the signs are lined up, they have to be lined up vertically from the curb. From the curb to the front door, you can see from both directions, the first sign on the street is the lead rental rep. The second sign in is whoever gets out there next. We only allow four signs, we have about nine people at any given time that rent houses for us. […]
“What happens is if you think about it, a renter pulls up in from of the property and they’re going to call that first number. If somebody doesn’t answer the phone, they’re going to call that next number. If they don’t answer, they’re going to call the next number. What it does in the way we train our people is if you’re not answering your phone, you’re not making money, you’re going backwards. If you don’t answer it, somebody else will. They’re going to get that rental, and pretty soon, they’re going to pass you—they’re going to be number one.
Josh: “I’m sorry, that sounds crazy.”
Chris: “The funny thing is everyone that comes to visit us, they just smile and they shake their heads: ‘I cannot believe that this is the way this happens.’ But we run on average a vacancy rate of, this year anyway, 4 percent. Properties typically take less than 40 days for us to get not just rented but to actually have the tenant move in. What happens is we’ve got people two things—people who really, really, want to rent houses for us because they know they can make a lot of money if they’re willing to hustle. What we don’t do, and I don’t suggest anybody does is we don’t have that one branded sign, we don’t have that one call number where you have to leave a message and someone will call you back later. Because the tenant wants to see it is right then. That’s what we do. Our real agents, they’re not in an office; they’re out on the streets all day. It’s what they do, and we pay them well for it.”
So this madness has a method behind it. Continuing on:
Brandon: “I like how you kind of gameify it, you make it a competition. That’s cool.”
Chris: “Every week in the office, we make them give us a goal. How many houses are you going to rent this week? They go and they come back and we’ve been known to ask people before, ‘What are you doing here? For two weeks, you haven’t rented a house. Why are you even coming to this meeting anymore? What’s your purpose?'”
Now, who am I to question Chris Clothier? Chris has built an extremely successful business, and so, as they say, the proof is in the pudding. His method works.
I concluded that the exchange was striking to me because, well, our method is completely different. And our method works, too. We get our properties rented quickly, usually at rents that are at least at the top of the market. We also have good retention rates and get good feedback from our tenants. But our approach is completely different.
As opposed to Chris’s competitive approach, we have used a more collaborative approach. For example, we don’t pay our staff, even our leasing agents, with commissions of any sort. We work in teams as much as possible and try to dampen interpersonal competition within the company to focus on building more of a cohesive unit. We have monthly company luncheons or events (like going to a baseball game together) to improve teamwork and camaraderie. And while we haven’t gone to one of those “team building camps” with the trust falls or anything like that, such events very well might be in our near future.
So, which method is better? Or more appropriately, which culture that is created by such methods is better—the competitive or the cooperative?
Sticking to a Culture
Which culture is best? I would argue that generally speaking, collaborative cultures are generally the most effective. But that is not always the case for every business, industry, or even department. The real answer is “it depends.” We go for more of an orchestral arrangement, where every musician needs to do their part for the composition to sound good. On the other hand, Chris is attempting to melt faces with a wicked guitar solo—in which case, “Screw the bass player, I’m gonna shred.” In certain industries, such as real estate agencies, it usually makes more sense to have a competitive culture. In other industries, such as marketing firms, it makes more sense to work as a team to come up with a consistent ad strategy. But most of the time, the “what” is less important than the “how.” And no matter which you choose, a successful approach is contingent on consistency.
In other words, our culture works for us and Chris’ works for him, but we can’t go back and forth. You need to be consistent with your strategy and hire (both W2 employees and 1099 contractors) with that culture in mind.
For example, say we are trying to build a collaborative culture in our leasing department and then offer leasing commissions. How much are the various leasing agents and sales support staff going to cooperate and work together when their incentives are now at odds with such cooperation?
And Chris would get the same result if he tried to build a collaborative culture with the competitive incentives he has put in place.
In other words, your incentives and the structure of your company need to align themselves with the culture you are creating. You want to be conscious of what type of culture you want your company to have and take proactive steps to get it there. Don’t just let it grow in an aimless and haphazard way. The ill-fitting pieces will lead to all sorts of office and interpersonal drama as well as disappointing financial results.
Related: Why Consistency is the Magic Ingredient to Ensure Your Real Estate Business Grows
In fact, it goes even further than this. If you are trying to build a cooperative culture but constantly play favorites with your staff, that will do a lot of damage. Office politicking can be the death of effective teams, which leads right to the next point.
Hiring for Your Culture
Back in college, my professor asked our class a question about which of four prospects we should hire for a creative, entrepreneurial position. One of the candidates had clearly the best qualifications, and so most of the class picked her. However, our professor came back at us by noting that a group of hiring specialists actually ranked her as the least qualified.
The reason wasn’t that she was poorly qualified. To the contrary, she was exceptionally qualified—for a different position. All of her experience came from a long career in the military, which is hierarchical and involves following orders, performing tasks with precision and working within an established framework. While I’m being a bit stereotypical and perhaps unfair, it’s not at all meant to be an insult. Such a person would do fantastically at many positions, but a creative and entrepreneurial one is probably not the best fit.
The same goes with hiring for culture. A great team player would not be particularly effective on Chris’s leasing team. At the same time, we try to keep the number of type-A personalities on staff at a manageable level.
Too many business owners approach their business in a haphazard way. If someone seems like the most qualified, they’ll hire or contract that person. But as hiring experts Geoff Smart and Randy Street note in their book Who, you don’t want to hire “all-around athletes.” You want to know clearly what they’re skill set is and make sure it fits what you are looking for. And you also want to evaluate whether that person will fit your culture or ruin it.
As your company grows, it will develop a culture whether you want it to or not. It’s best you know what you want and guide your company along the path to get it there.
What kind of culture do you foster in your real estate company? Why?
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.