EPMEPM: BD & Growth

Numbers Game: The science of becoming a peach

Are you a peach or a lemon? Ben White tackles art versus science and what it means to be a ‘peach’ in our second excerpt from his latest book, Numbers Game.

As an adolescent I was obsessed with cricket. Unfortunately, it was my first unrequited love. I would practise as much as the next person, but never had the skill or talent to really succeed or make my mark. It wasn’t for want of trying; it just wasn’t for me.

There was one conversation that helped me come to terms with that basic reality. I was at a training camp and Allan Border, the Australian cricket immortal, was there as part of the coaching squad. I remember introducing myself and asking him, ‘Mr Border, how do you do a cover drive?’ And he responded, mimicking his stroke, ‘I don’t really know; I just do it.’ I knew then and there that I would never play for Australia!

It turns out that Allan Border was one of the great cricketers of the era, yet he was a terrible coach. He was too good, and was therefore unable to teach another person. Everything was instinctive and highly-trained, far beyond the scope of us mortals.

This story comes back to me every time I have a discussion about growing a rent roll. Of course you can go to a conference with a speaker who will tell you how easy it all is and how they just get out there and grow the rent roll. You will walk away motivated and energised, but ultimately without anything to get started on. In many ways, you have just listened to the Allan Border of real estate.

It is not enough to class rent roll growth as art and therefore leave it undefined. I don’t think that is good enough and, more importantly, it’s not helpful. If we are to address the issue of rent roll growth, we have to accept that we can reduce it all to a science.

My experience is that the best agencies embrace the science of rent roll growth. Our time with these leading offices is the inspiration for this book and for the focus on the mathematical frameworks that are included. These offices have a clear framework for thinking about their growth potential and have resourced their team to go after that potential. The business development team is structured to support that desired growth and the compensation packages are aligned to those goals. The business tracks all its leads and the reports that are generated give insight into what is working and what isn’t. Then the business reacts accordingly.

It’s these types of businesses that we call peaches – as opposed to lemons. This comes from the theory of the lemons market, which focuses on the interplay between quality and uncertainty and how a marketplace can break down when goods of varying quality are sold through it.

The classic case study is the used car market. The basic equation is that there are good used cars and bad used cars. The seller of the car – the used car salesperson – likely knows which cars are good or bad quality. The buyer, unfortunately, isn’t really going to find out until he or she has owned it for a month. Unless the buyer is a mechanic, it is just too hard to tell which cars are good and which are bad. Sound familiar?

We are absolutely convinced that this theory is at play in our industry. There are too many good agents who struggle to maintain appropriately high fees because bad agencies have a vested interest in perpetuating the myth that all agencies are the same. Those bad agencies say ‘We are all the same, but we just have lower fees.’ What is a landlord to do? Given the lemons market dynamics, they follow the lower fees because they have learned not to trust the truly good agents. The bad agents get a free ride from the work of the good ones.

It is a devastating consequence because the end result, left unchecked, is for the whole market to collapse under its own weight. The good news is that there are solutions. It turns out that the lemons market theory comes about because there are some peculiar features of the market in question.

In understanding these lemons marketing dynamics, we’ve developed a range of ways that all agencies can use to overcome the challenges posed to our industry. Encouragingly, these strategies indicate a much stronger growth potential than many agencies would think possible. What’s good for our customers is also good for individual agencies and our industry as a whole.

In Numbers Game we outline how using a scientific approach to growing your rent roll enables a business to benefit from increasing the symmetry of information and can provide a marketable point of difference. It’s a book for the peaches and those striving to be peaches.

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Ben White

Ben White is the co-founder and Chief Executive Officer of Ailo and Managing Director of LPMA . Ben has spent a number of years in the property management sector and has written three books on the industry.