How Not Setting Goals Allowed Us to Buy 157 Units in 2015 and 123 Units in 2016
Back in 2013, we set the goal of buying 100 houses that year. We finished with 54. Not bad, but we failed to hit our goal, right?
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In fact, I would say we failed in the opposite direction. Particularly in the latter half of that year, the deals we got were subpar, and our rehabs started to go way over budget. We later learned that our rehab coordinator was taking kick backs and doing a lousy job in general, which greatly contributed to the poor performance.
So, I would say that if anything, our failure was in buying too much, not too little.
Then, in 2015, we bought 124 properties with a total of 157 units, and in 2016, we bought 91 properties with a total of 123 units. Most of this was due to two large packages of houses we could not have foreseen (a package of 97 houses in 2015 and a package of 41 houses in 2016). In neither of those years did we set a goal at the outset for the number of properties we wanted to purchase, but in 2015, we exceeded our 2013 goal, and in 2016 we were very close (and exceeded it terms of units).
Taking Advantage of Opportunities Instead of Setting Arbitrary Goals
Nassim Nicholas Taleb noted how difficult (all but impossible, really) it was to predict the future in his book The Black Swan. The title refers to highly improbable events (or events that we mistakenly thought were highly improbable) that can completely throw things out of whack. In the global sense, 9/11 and the 2008 financial crisis would qualify as Black Swans.
Related: 5 Highly Actionable Steps to Make REAL Progress Towards Your Investing Goals
Taleb also mentioned how important it was to be able to take advantage of Black Swan opportunities when they appear. Indeed, his recommendation is to literally “drop everything.”
But it’s not just Black Swans. Indeed, despite buying fewer one-off deals in 2015 and 2016 than 2013, the deals we bought were better, and the rehabs weren’t a mess. That was because we had our systems in place and were taking advantage of opportunities as we could find them instead of pushing for an arbitrary goal. We weren’t reaching. Indeed, we didn’t have anything like the necessary infrastructure in 2013 to take on the two packages we later purchased. That infrastructure was built up slowly, piece by piece and system by system.
Let’s use an out-of-left-field example to clarify this point: Why are decimal numbers—be it 10, 100 or 1000—so attractive to us for goals? (“I want to buy 100 houses,” “I want to get down to 150 pounds,” “I want to bench press 200 pounds,” etc.) In all likelihood, the only reason humans use a decimal number system is because we have 10 fingers. But it would make much more sense to use an eight-based or octal number system (that went 1, 2, 3, 4, 5, 6, 7, 10…) since eight is a round number. With our current system, you have 64 teams in the NCAA tournament instead of what would be a nice, even 100 in an octal system (64 in a decimal system would equal 100 in an octal system). An octal system would be simpler and less messy.
So, let’s say the United States adopts the metric system, the world switches to speaking Esperanto and we all move to an octal number system. Then we may have pushed for a nice, even goal of 100 houses, but that would only be 64.
In another example, let’s say you wanted to get your weight down to 180 pounds. But then maybe you get sent off to the new Mars base and now only weigh 67.8 pounds, which would be a rather odd goal to set.
The Trouble With Goals
The moral of the story is that the numbers we use for these goals are often arbitrary. Furthermore, things change, and often they change fast. What if we found in the middle of 2013 that focusing entirely on apartments or commercial would have been a superior way to go? Well, then our goal would have been completely useless. Or maybe it would have been worse than that as our goal psychologically pushed us to stay with what we were doing. The goal could act as its own inertia to prevent us from taking advantage of a Black Swan or other, more mundane opportunities.
This point was really driven home to me when reading Scott Adam’s—the creator of the comic Dilbert—new book How to Fail at Almost Everything and Still Win Big. Here’s how he describes the trouble with goals:
“If you achieve your goal, you celebrate and feel terrific, but only until you realize you just lost the thing that gave you purpose and direction. Your options are to feel empty and useless, perhaps enjoying the spoils of success until they bore you, or set new goals and re-enter the cycle of permanent presuccess failure” (Adam 32).
And if you fail to hit your goal, it’s even worse as it can be a major hit to your self-esteem.
Scott Adams recommends systems, not just for your business, but for your life in general. Here’s how he differentiates the two:
“The system-versus-goal model can be applied to most human endeavors. In the world of dieting, losing twenty pounds is a goal, but eating right is a system. In the exercise realm, running a marathon in under four hours is a goal, but exercising daily is a system. In business, making a million dollars is a goal, but being a serial entrepreneur is a system.
“For our purposes, let’s say a goal is a specific objective that you either achieve or don’t sometime in the future. A system is something you do on a regular basis that increases your odds of happiness in the long run. If you do something every day, it’s a system. If you’re waiting to achieve it someday in the future, it’s a goal” (33).
One example he gives of a system is that he must go to the gym everyday. He doesn’t have to work out, but he has to walk in. Nine times out of 10, that will be enough, and he’ll work out. But every once in a while, it’s not, and he goes home. But the system has kept him working out consistently for many years.
Related: The Ultimate Guide to Adding Systems & Outsourcing to Work Less in Real Estate
I applied this idea to several areas to my personal life. One example is that I found myself eating out too much or just picking up something from a convenience store during a busy workday. So I just banned myself from eating out on my own or buying any food from a convenience store. A ban on any sort of junk food usually fails, but that’s not what this ban is. I can still eat whatever I want. I could eat a dozen deep-fat-fried Twinkies doused in whipped cream and partially hydrogenated chocolate sauce if I want to. They just can’t come from a convenience store or restaurant. Maybe it goes without saying, but since then, I’ve been eating much healthier.
With real estate, one of many possible examples would be to focus on the system of how many letters you send out each week, to whom, and the analytics you run on your marketing, not how many properties you buy.
Focus on the System
Again, goals regarding how much to buy may push you to buy stuff you shouldn’t.
This isn’t to say that specific goals have no place at all. Indeed, part of measuring is to see what you need to improve on. And goals can be set in those regards, but they should be subordinate to your systems. If you have to break your system to reach your goal, you should usually discard your goal.
Perhaps it’s better to see these goals as and refer to them as targets to aim for or something like that. This is because the word “goal” sounds like the absolute top of what you are aiming for, when they shouldn’t be. Systems should be at the top.
Overall, the system-based model is something you should orient yourself toward. Systems can be applied to all sorts of areas in your life and business, and it’s much more effective than just having arbitrary goals to aim for.
How do you keep your business on track—with systems, goal-setting, or something entirely different?
Leave your thoughts below!