Leading in these Sweet Times: 10 Things to Remember
June 1, 2015
Written by: Matt Slepin
Nearly a decade removed from one of the largest downturns in market history, it might be easy to forget the hard lessons taught.
Everyone in the apartment industry knows that this is one of the sweetest times in one of the best markets in the history of our sector. No exaggeration, right? The fundamentals are great. Rental versus ownership is back to an all-time high. New construction has not yet caught up with demand, and the desire for urban living plays into our industry’s strength. I keep hearing people say, “If you can’t make money now, you should not be in the business.” All of these words usually portend a fall, but one does not appear imminent. So, besides just making money while the sun shines, how do thoughtful and strategic leaders of a multifamily business approach this part of the market and this part of their careers?
Balance is key—the balance that keeps prosperity from turning greedy and pigs from turning into hogs, since we all know what happens to those (insert neck-breaking noise here). The real estate enterprise, in this case multi-unit owners and investors, must be concerned then with the long-term success of the business as a whole. How are you maneuvering through the good times and preparing for the bad? Here are 10 things to consider:
1. Resiliency — The next downturn will happen. It might be regional, or it might be by industry (think of the energy glut at the moment), or an exogenous situation might blow everything up again. You cannot be bulletproof and you cannot plan for exogeny, but you can be thoughtful and you can improve your resilience factor. What plans do you and your company have in place? How is your business resilient? How are you brittle?
2. Succession — Everyone talks about it and, in corporate America, companies plan for it. But in the private enterprise, leaders are often woefully in denial about both their lifespan and that of their long-term trusted team members. During the hot part of the cycle, it is harder to bring in strong talent because of high salary expectations. Pay them! Now is the time to build your organization for the next generation. Look at all of the key roles in your organization, including your own, and see how prepared you are.
3. Capital structure — The twin pillars upon which resiliency rests are leadership and capital. Capital is a key factor in succession planning. How is your capital structure set up for a downturn? How is your capital structure set up to take the best advantage of today’s opportunities? Is your capital structure set up, (especially if you are a private company), for the next generation to have the wherewithal to take over the firm and also allow your rightful liquidity over time?
4. Business infrastructure — How strong is your business infrastructure? In particular, how strong is your technological backbone? How integrated is your accounting and reporting with your operational systems? How is the communication among your team? Do you have a strategic or ministerial head of HR? Where can you upgrade? Where are your weaknesses and your risks? How does your infrastructure compare with your best competitors? This might seem to be the mundane part of the business, but it is the base upon which long term versus pure transaction shops are built.
5. Diversity — One of our clients was recently reviewed by an outside consultant, and their only negative mark was that they are a team of really talented white guys, all of whom have been working together for 20 years. Too stable. No diversity. My client’s objection: but this is our strength—we all get along and work together so well! But, if everyone has been together for 10-20 years, it is too easy to be myopic. New faces on the website’s leadership page are important. More important? Diversity matters throughout an organization, including in the board room. This is not head-in-the-clouds idealism—it is critical to the long-term success of your business. Look more like your customer and your investor base or you just won’t get it in terms of responding to your markets. Now is the time!
6. Sacred cows — Like a child with a pacifier, what are you holding onto in your business that needs to go? It could be people, assets, process, geography, and more. What is it in your firm? What is that one hard decision that you just have not looked at yet?
7. Best at — What do you do better than anyone in your business? About average? Worse? Make the best better and make it your fortress. Improve the average stuff by 10 percent. Solve the bad stuff. Go for it. Otherwise you are treading water.
8. Rewards — What is the balance of the financial rewards between ownership, leadership, workers and investors? This is a question of sustainability and fairness. Are you providing key employees with the opportunity to create net worth? Is the balance between the financial rewards appropriate and aligned for you, your key senior team, the investors and indeed the worker bees?
9. What’s new? — You cannot afford to be caught flat-footed by changes in the economy, technology and the globe. Both in your customer base as well as your employment base, you cannot afford to miss the trends of the next generation and the globalization of capital, tastes and opportunity. Always be asking, “What are we missing?” and keep looking forward.
10. Are you having fun yet? —Finally, take a look inside. Business is a sustaining passion for most executives. But you know there is more, both in your approach at work and in the balance of your life. What are you giving back? Who are you mentoring? What are your business and personal passions, delights, and satisfactions? Again, now is the time to be hitting this on all cylinders.
This is indeed a sweet time for all of us. Nearly a decade removed from one of the largest downturns in market history, it might be easy to forget the hard lessons taught. It might be easy to get a little fatter and a little happier. For those in leadership positions, how will you take advantage of your position, ensuring sustained success? This is a clear blue-sky moment—make sure you’re making the most of it.
Matt Slepin is the founder and managing partner of Terra Search Partners, a retained executive search firm helping real estate companies build great teams. Terra Search Partners serves many of the country’s foremost REITs, private equity firms, pension fund advisors, private developers and owners, family owned businesses and non-profits. Contact Matt at firstname.lastname@example.org or 415.433.2244.