One of the biggest obstacles of starting a business or doing something entrepreneurial is making it sustainable once you reach success. The W2 9-5 work culture views their job as a safety net of stability that will always be there to take care of them in good times and bad. In my business, this is something we think about often. Staying many moves ahead of where we are now helps us prepare for future market shifting events so we can get ahead of the competition. What we are doing right now will likely change and alter within the next 6 to 18 months. This is how successful business operates.
Staying innovative
If you look at some of the major corporations that stay at the top of relevancy, namely Apple, Tesla, etc., it is because they continue to innovate so much that they crush their competition. Tesla is evolving their cars at a rapid pace dictating the entire automobile market with their innovation. Apple leads the way in the electronic market always releasing new phones and gadgets that create new market segments within their markets. These companies pour billions into research and development (R&D), and for good reason. They know that in order to stay at the top, they must continue to innovate. We as entrepreneurs can learn from their example and implement some of their processes into our own businesses.
The importance of adaptability
In my niche of real estate, many people are struggling with the rise of interest rates and more expensive debt. Realtors and other one trick ponies are getting caught holding the bag in turbulent times like this. One of the best things my team and I have done to combat this is to join a community of innovators who work together to navigate difficult markets. We do most if not all of our current business using the “subject to” method of real estate purchasing. What this means is that we take over payments from someone on their existing mortgage on their home and gain ownership of the house in doing so. Everything works just as a normal transaction would besides acquiring new financing from a bank. Instead, we make payments to the existing debt. The advantages of this are multifaceted. The main advantage is that for the last 2-3 years, interest rates were at all time lows in the 2%-5% range. This debt is super valuable since interest rates are now north of 8% for the average homeowner. It allows us several more ways to make money that traditional investors wouldn’t have access to. We currently purchase subject to deals in our desired target markets to build our portfolio and cash flow, while wholesaling the ones that aren’t to make more active revenue. For those who may be unfamiliar with real estate wholesaling, it’s simply putting a property under contract and selling the rights to close on that contract to someone else for a fee.
Right now and for the foreseeable future, this is going to be a viable strategy. With no signs of rates coming down anytime soon, equity will continue to drain from people’s homes and low interest rate debt will become more and more valuable. However, my team and I understand it won’t be this way forever. We understand that in real estate, the market is cyclical. We already have plans to switch back to cash wholesaling when the market determines its appropriate to do so. We understand when rates go down, our buying strategy will have to change. Staying ahead of these trends and being able to adapt is an extremely necessary trait if your business is to survive. Being a one trick pony could be a death sentence for you and your business.
The problem with one trick ponies
It would only be appropriate for me to dissect a real estate related one trick pony example and how it could lead to the downfall of a business. For our example, we’ll use our realtor friend. We’ll call him Chuck.
Now Chuck has been in real estate for a few years now and the market has been super hot. He is used to getting lots of listing appointments over the last year or two and being able to promise he will sell his clients home for full ask or better! Much of the time he has been successful in doing this! In 2020 and 2021, Chuck grew a little complacent and his ego grew as he sold more and more houses. All he had to do was stick a sign in the lawn of the desirable areas he was getting listings and bam, sold, over ask! 2022 rolled around and rates started to go up. Less people started to show up for Chuck’s open houses and his calls for offers, best and highest, were no longer met by multiple offers, if any at all. Chuck was perplexed. He couldn’t figure out why he could no longer move all his inventory. Without a real strategy, a lot of Chuck’s listings began to fall through the cracks. Clients began to pull their homes off the market rather than do price reductions due to the increasing expense it would be for them to obtain debt on a new home. From 2022 to 2023, Chuck went from 30 listings sold to just 8. His business collapsed by more than 2/3!
This happened because Chuck only had one trick up his sleeve. He would put a sign in the lawn, host an open house, and wait for the conventional, full price offers to roll in so he could cash that big commission check. His luck ran short when he wasn’t prepared for the market shift. If he had learned more creative options for his buyers and had more solutions prepared for the ever changing market, he might have salvaged a large portion of the business he lost! He may have even gotten notoriety around the neighborhood for his solutions and gotten more business than even before. Success in turbulent times puts you ahead of your competition. When your competition is scratching their heads, that is your time to strike, much like it should have been Chucks! Don’t be a Chuck and be a one trick pony. Plan for the future, map out future moves, and stay ahead of competition. That is the secret sauce to longevity and sustainability.