What Real Estate Investors Can Learn About Motivation From Charles Schwab & Bethlehem Steel

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Charles M. Schwab was one of the most successful businessmen in American history who helped make Bethlehem Steel the second biggest steel company in the United States shortly after the turn of the century.

He was also a great motivator.

Dale Carnegie gives one famous example of such is his seminal book How to Win Friends and Influence People that shows just how easy it is to motivate people — simply lay down a challenge:

“Charles Schwab had a mills manager whose people weren’t producing their quota of work…

This conversation took place at the end of the day just before the night shift came on. Schwab asked the manager for a piece of chalk, then, turning to the nearest man, asked:

‘How many heats did your shift make today?’

‘Six.’

“Without another word, Schwab chalked a big figure six on the floor, and walked away. When the night shift came in, they saw the six? and asked what it meant. ‘The big boss was in here today’ the day people said. ??He asked us how many heats we made, and we told him six. He chalked it down on the floor.

The next morning Schwab walked through the mill again. The night shift had rubbed out ??six? and replaced it with a big seven.

When the day shift reported for work the next morning, they saw a big seven? chalked on the floor. So the night shift thought they were better than the day shift did they? Well, they would show the night shift a thing or two. The crew pitched in with enthusiasm, and when they quit that night, they left behind them an enormous, swaggering 10. Things were stepping up.

Shortly this mill, which had been lagging way behind in production, was turning out more work than any other mill in the plant.” (Carnegie 175)

The simple truth that this example shows is that people need to be challenged. Without a challenge (and perhaps a little bit of friendly competition), people will regress to mediocrity — or perhaps worse. Human beings just aren’t good at standing still. Indeed, nobody is standing still. You are either getting better or you are getting worse. And if you’re not actively trying to get better, then you are probably beginning to atrophy.

And the same goes for businesses.

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Laying Down a Challenge

Liz Wiseman and Greg McKeown make this same point in their book Multipliers as they compare the habits of leaders they call multipliers and leaders they call diminishers.

In their view, the job of a leader is to help their employees (or colleagues, partners, even vendors) reach their full potential. Multipliers help them to flourish. Diminishers get in the way. Diminishers try to make all the decisions themselves or micromanage or create undue stress. In this case, diminishers just “give directives that showcase how much they know” (Wiseman 23) instead of taking advantage of everyone in the organization’s strengths and ideas (not just their own).

On the other hand, multipliers “lay down a challenge.” Often they lay down a challenge to an employee they have given a particular project to and simply act as support. They give real ownership of that project to their subordinate. Other times, multipliers lay down a challenge to the entire organization, as was the case when Matt McCauley took over Gymboree:

“When Matt took over as president he had the benefit of a recently rejuvenated product line but the challenge of some sloppy business operations. He saw an opportunity not only to grow sales, but to vastly increase net income per share, which was then at $0.69 per share. Using his deep knowledge of operations and inventory optimization, he estimated the upside opportunity, and then went to the board and told them he believed the company could achieve $1.00 per share. The board members laughed, but Matt remained convinced of the opportunity.

“As Matt met with his management team, he explained his rationale for the growth opportunity in both sales and earnings per share. He took them through the calculations for sales and expense optimizations that he had been studying for the last five years and asked if they could indeed be achieved. He then threw out ‘Mission Impossible’ —a net income of $1.00. He asked each member of his management team this question: ‘What would be your Mission Impossible?’ As the management team caught the enthusiasm of this high-bar approach, they began to ask the entire organization to do the same. Soon every person inside this 9,500-person organization had a Mission Impossible goal—a crazy aspiration. It appeared that being asked to identify their personal Mission Impossible ignited the charge to make it possible.

“A year later Matt announced to the board, to Wall Street, and to every employee in Gymboree that they had achieved not just the ‘Mission Impossible’ goal of $1.00 per share, but $1.19 per share, which represented a 72 percent improvement over the previous fiscal year.” (112-113)

What’s more is that it didn’t stop there. McCauley’s goal for the next year was $2.00 per share, which was even more ridiculous. But they ended up hitting $2.19 a share! Then it was to hit $3.00 in two years, and they got all the way to $3.21.

McCauley kept pushing the bar and laying down the challenge — just as Charles Schwab did — and it paid off five times over.

What Real Estate Investors Can Learn From Charles Schwab and Matt McCauley

We have pretty consistently had a problem with rehab projects going over budget. Indeed, I’ve heard similar stories from many a real estate investor. It hasn’t been a disaster (at least not recently), but there is plenty of room for improvement.

We have on-staff construction employees, and so every day on the job counts. So we decided to convert the rehab budget into a time goal. Approximately 60 percent of our expenses on the construction side have been for labor, so we take the budgeted number (which we base off of contractor bids, subcontractor bids, employee feedback and the like) and multiply it by 0.6. Then we divide it by the wages of the employees on that project and then again by eight to come up with the number of days they have to finish a project.

Then we tell this to them as well as the rationale up front. We then proceed to touch base daily to go over any concerns, problems, or questions. During that time, I also remind them of the time goal. Finally, at the end of the project, when the numbers are in, we meet briefly to recap how it went.

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All of a sudden, they have a goal to aim for, and already this has improved our rehab performance. We plan on adding in small bonuses when time goals are met to help incentivize them and give them ownership of the project’s performance all the more.

Indeed, all sorts of things like this can increase performance in every part of your company, just as Charles Schwab vastly improved the performance of that one mill by writing the number “6” on the floor. For example, our leasing manager is great at setting these kinds of goals for himself, such as getting a certain number of leases in a particular month. A few months ago he picked 10, which we all thought was pretty high. He got 11. And that number has kept going up. Last month it was 19!

And of course, this can be for organization wide goals as Matt McCauley did. It goes back to those BHAG’s — Big Hairy Audacious Goals — that Jim Collins talks about. But don’t just make such goals, make them out loud. Lay down such a challenge to your staff or partner or colleague or even yourself! After all, just like everybody else, you will atrophy too if you don’t challenge yourself.

We’ve had a crazy year. In fact, we have actually doubled the number of units we have in Kansas City in the last 12 months. Now that same leasing manager is telling us we need to double again for next year. I guess laying down the challenge can go both ways.

Investors: How do you make sure you and your employees are challenged and motivated?

Let me know with a comment!

About Author

Andrew Syrios

Andrew Syrios is a real estate investor in Kansas City and a partner in Stewardship Properties along with his brother and father. Their company owns just over 500 units in four states.

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