One of the blogs I try to read regularly is written by a gentleman out of Toronto Brandon Donnelly, a self-described “architect-trained and tech-obsessed real estate developer”, recent post, Move Fast and…, was inspired by an article by CEO Dave Girouard of Upstart, Speed as a Habit. The latter discusses his belief that speed is a defining characteristic of successful companies and that organizations need to learn how to make decisions quicker. These posts caused me to start thinking about how a small developer or a small business might move fast, or begin to practice how to move faster.
Not all business strategies and philosophies flow down to smaller businesses by just simply shrinking down the concept to the corresponding size of the business. While large enterprises, with cash reserves, and start-ups that have plenty of capital from investors, can afford to risk some of their capital on adjusting quickly to events and decisions. They can afford to gamble a little more than a smaller enterprise. Small local business owners or small-scale real estate developers who decide to risk several thousand dollars acting fast on an opportunity that does not work out, lose a larger percentage of their net worth. A small organization which has one or two key players is who I have in mind when I am thinking about a strategy for applying this “quick decision” philosophy. I believe that Brandon Donnelly summed it up best in part of his conclusion, “the ideal outcome is both lightning fast and high quality decisions”.
How do one or two people enable themselves to make quick valuable decisions and still minimize their risk? The keys to this are preparation, planning, and having good data. Take for an example a small-scale real estate developer. The developer finds an attractive piece of real estate in their area of focus. Assuming the current real estate market is very hot and property is selling quickly, this would require the developer to move fast. How does the developer confidently move quickly on this property? They need to have all of their tools and models already developed and their data sources known. Processes must already be in place to collect the correct and pertinent data and processes developed to get that data inputted into their most appropriate financial models. Additionally, they may have already identified and networked with potential investors and know what type of opportunities each one would be interested in. This last item might be the more difficult, but I believe there is tremendous value in knowing who has the appetite to invest before one brings them a proposal. To borrow Facebook’s new motto, while slightly repurposing it, “Move Fast With Stable Infrastructure.” The infrastructure is, in this case, these tools and data sources.
Tools will include spreadsheets with your business cases and proformas ready for you to plug in your numbers. A business owner should be familiar with how their financial models work so they can quickly and confidently assess the business opportunity. One gets to this point, like with all things you want to be an expert on, with practice, practice practice. They should be running simulations using these tools on properties that are in their area of focus. These properties can be under contract or recently sold, or even property that is not attractive to them. The goal is to run the numbers on these properties, rerun the numbers on it till they know their models inside and out. Always using data that is as accurate as they can find. Error checking can be done by comparing the output of their models with financial models they find on the internet. The goal is to fine tune, or sharpen their tools so they are ready when the opportunity presents itself.
They will need to have already researched the data needing to be included in their models such as: rents, market pricing, construction costing, zoning, title, and deed information. They should already know where to get that information, with real estate data sources identified. Construction costing can be estimated from previous projects or other sources available. They should know how to use their local municipalities websites to get zoning information, how to understand the zoning restrictions, and who to ask for clarification. They would need to be familiar with how to research the title for other issues that may or may not hinder the property. The goal isn’t to have all of this information on hand for every opportunity, but to have sources identified and available. To be familiar with the resources and websites, and to know how to quickly use them to gather the data they need. These resources should be bookmarked and just like with their financial tools, they need to research and practice using these sources of information.
Having well-researched tools and data ready is only part of the process. Decision makers will also need to know how to measure and compare the output of those tools. Staying with the small-scale developer example a little bit longer. Even though a property is priced low relative to the market, the other data collected in conjunction with their financial models tell them it is still a risky opportunity and they should probably pass. Making a quick decision to get a contract on the property because of a low sales price alone might have cost them several thousands of dollars later when they would have to break that contract. Therefore, there is a need to know the business’ goals, their objectives, and have well defined and thought out criteria and metrics. These should be clearly stated in their business plan already and hopefully been the basis of previous decisions.
There are short-term and long-term goals and objectives. They can evolve and change as the business grows, but they should guide the managers’ decisions and the strategy of the enterprise. A new business might have a goal to establish itself as a quality provider of a certain type of product or service. If they were to evaluate an opportunity to expand organically or through acquisition, they might decide that it did not have the quality controls in place for an expansion yet. While yet another small business might have a goal to capture an aggressive percentage of their area business in a short time period. They would indeed see an expansion of this sort as an opportunity in line with their state goals. As a business approaches the point where it is about to achieve the goals, the key people should start to think about how the goals will stretch and grow.
The criteria may cover whether or not the small enterprise already has the skills, ability, or manpower needed to successfully implement the outcome of the decision process. Which could lead to another quick decision to be made. This point further highlights my belief to exercise these tools every chance they get. The outcome might be the need to address missing data. For example, how does a small business budget for a new skill that they never had for before but might need to hire at some point? The outcome of the exercise is to collect data regarding hiring these new skills.
Metrics measure the performance of an organization’s decisions and/or activities. In this case, we are using tools and models to predict the potential return on a decision. That potential return then needs to be measured against the predefined metrics for the enterprise; Does the output of the models and tools, meet the minimum returns or margins desired for this type of investment?
Whether you are a small business or a small scale developer, if you have your tools in place then you can easily evaluate an opportunity against your business goals, criteria, and metrics, enabling a fast decision. As Dave Girouard said in his article, it is about making it a habit, and habits are formed from practice. While this may not be a direct application of what he had in mind, it is how his article has inspired me.
