The Virtual Office Partnership opportunity discussed in this series is not currently available, however the technology and coaching required to open your own independent virtual office is available. Feel free to contact us for details.
Taking the “Virtual” Plunge
Now that we’ve covered the tools and training, what does it mean to “go virtual”? Let’s assume that by now you have assembled the essential technologies that I detailed. Next let’s talk about the practical side of practicing real estate from a Virtual Office environment. I’d like to move away from the theoretical and begin to paint you a picture. I’m afraid that for many of you, what I’m preaching sounds like science fiction, not reality.
I realize that the average agent today is a 52-year-old female who is very relational in her real estate practice and very reluctant to rely on technology. (Okay, for the 42% of you who are men, you’re also 52 years old, and you’re also allergic to technology, although not quite as much.) Male or female, you’ve been in the business an average of 10.5 years, so changing your mindset will be difficult, but I’m up to the task…
I know that for many of you, “going virtual” sounds either too complicated, too impersonal, too expensive, or just plain too different to even consider. But I’m telling you, as soberly as I can, that you really need to consider it. And consider it quickly, or you may find yourself considering another career. I’m not trying to scare you, but I’m encouraging you to think about making a transition to this new age of real estate. It really is much easier than you think.
I’d like to expand your thinking a bit (as if I haven’t already!) by giving you a “virtual tour” of a virtual company. My company. I’d like to take you through it, one part at a time, and contrast it with your real estate brokerage so you can see the practical advantage over a traditional model company. Once you’ve seen it with your own eyes, you’ll be open to embrace this new way of doing real estate.
Let’s start with everyone’s favorite topic: money. The average traditional brokerage in America pays its agents 62% of gross commission income (GCI) and yet it only brings 2% or less to the bottom line. In fact, some companies pay their agents even lower splits and still see tiny profit margins. Today many broker-owners have to personally list and sell real estate because they can’t afford to keep the doors open without being the top producer in their own office.
When I started in real estate, I worked for a very traditional independent company. A year and a half later, the owner decided to become a traditional franchise company — a Century 21 office. At one point, we had as many as 35 agents. But for the entire two years I was with the company, we never had a single profitable month. How could we stay open? Easy.
The owner was also a large builder, and although he continually lost money in the real estate brokerage, the company sold a lot of his new homes and he made good money on the construction. As soon as he closed his construction business and became a developer, he immediately sold (essentially, gave away) the franchise, because there was simply no way to make a reasonable profit in today’s climate and the traditional model.
Contrast that to our FavoriteAgent.com Virtual Office brokerage. We pay our agents an average of 21% more than our traditional counterparts and yet still bring 17% to the bottom line — pure profit. Now I know what you’re thinking: How can you pay out 83% and keep the remaining 17% as profit? Easy! Our brokerages have no additional overhead expenses. We have a Virtual Office model. By virtual, I don’t mean without a physical location — I mean technology empowered, low overhead.
Our company doesn’t advertise — our agents do. And our agents spend the same amount of money on advertising as our competitors, and yet they receive about 30 times as many customers. Why? Again, the power of our technology. While our company is over twice the size of the brokerage I started in, we have no staff, as opposed to the eight full-time employees they had. How? Again, technology.
We don’t have a receptionist. We don’t have an MLS clerk. We don’t have a file clerk. We don’t have an office manager. We don’t have a rental department and property managers. We don’t have a bookkeeper. We don’t have… We don’t have a lot of personnel overhead. We don’t have a lot of office politics. We don’t have a lot of sick days. We don’t have a lot of office turnover. We don’t have a lot of bickering or griping. What we do have is efficiency.
When I was an agent in a traditional office, when I took a new listing, I filled out a form and turned it over to an MLS clerk. Assuming the clerk was at work that day, or not behind from previously missing work, a day transpired before my listing was in the MLS. Invariably some detail was entered wrong, but the clerk didn’t bother to call me with her questions. And how did I find out about the mistakes? From my client who managed to see the mistake on the website before I even knew about it.
Then the client would call me, angry, and I would have to turn in the corrections. If all went smoothly, it would take a week for the listing to actually be entered correctly in the MLS, creating needless liability for the company (and me) and costing the company lots of money that could have been returned to the agents in commission dollars.
By contrast, our agents enter their own listings. No lack of communication. No time lag. No bureaucracy. No hassle. No cost to the office. The agents prefer it. The clients aren’t angry because they caught some minimum wage clerk’s mistakes and assumed they were made by their agents.
At the traditional office where I began, either duty agents or a paid receptionist fielded all lead calls. We had a strict policy in place that any call coming in requesting information about a specific listed property was to be forwarded to the listing agent. Pretty simple. Now because all agents are honest, that policy was consistently obeyed, right? Yeah, right!
I averaged 50-60 active listings while I was an agent with the company, and I was available every single day to answer my phone. Not once in two years did a call come in from over 50 yard signs! Not once! The reason I know no leads came in is because I would have been given the lead. Right? Yeah, right! And let’s be honest. You’re traditional company is no different. If you aren’t getting all your leads, part of the problem is your model.
Contrast that to our Virtual Office model company. Our agents are allowed to advertise, including on their yard signs, their own phone numbers as well as their own LCM Phone Gateway numbers. And if a customer calls their LCM Phone Gateway, the call is electronically routed to the agent without anyone touching it, stealing it, or dropping the ball. Simultaneously, both an email and text message are sent to the agent, while the lead is seamlessly inserted into his client management application.
The email and text messages contain the caller’s phone number, the property called about, and the advertising source (whether the call came from a yard sign, a homes magazine, their website, or wherever). Again, expensive and inefficient personnel has been replaced with inexpensive and efficient technology.
In that traditional company, the few Internet leads that came in went to the broker. The broker’s lead coordinator eventually got around to sending them to a handful of “pet” agents, who generally did little or nothing with them. The company had a website, and it listed all the agents on the company site. The website was always out of date, and did very little in terms of capturing business. In two years at that company, I never got a single web lead from the company.
By contrast, we provide each of our agents with his very own website. They each generate as much business as they want from their sites, and nobody else ever sees or touches those leads. The company also refers company leads to some of our agents, and those leads can be seen and managed completely by our managing broker through our Virtual Office technology platform. We can see exactly what the progress is with any lead at any time.
If an agent is not doing his job in following up a company lead, the broker can pull that lead back from the original agent and reassign it to another agent with the click of a mouse. It’s easy, and it’s seamless. The lead, complete with the entire history and notes, is removed from one agent’s client manager and inserted, seamlessly, into the others. How cool is that?!
I know that I’m causing you to have a meltdown, but stick with me. Don’t feel like the lone ranger. Several years ago, a very successful traditional broker attended one of our National Agent Summits, a quarterly training seminar we host, where we teach our new model of real estate to agents from all over the world.
I won’t name him, but he is extremely successful, and his company owns eight large franchise offices in Atlanta. His is one of the most innovative and most profitable traditional model operations in the country, and he actually brings almost 3% to the bottom line. He’s one of the top real estate franchise brokers in the world, and he has several hundred agents.
He drove to our training summit in his brand new Jaguar, dressed impeccably in expensive clothing and jewelry. He was “the man”. He was powerful and impressive. When we all met around our large conference table, it was clear that this man was the “big dog” in the room.
Everyone waited for his reactions before speaking. I’m sure you know what I’m talking about. In our first session he sat with his arms crossed over his chest and his head cocked back a little, as if to say, “Go ahead, tell me something I don’t know.” I have to admit, I was a little intimidated. He was and is an extremely sharp guy.
By the second session, he was sitting on the edge of his chair, and by end of the third session he was taking notes furiously. By the fourth session, he was asking question after question, trying to understand the details of our model. We messed him up. We completely blew his mind!
On his drive home he called and said he had been on the phone speaking with his partner and wanted to know what they had to do to purchase the development rights to Georgia. He wanted to lock down our Virtual Office model in his state. He had to see it to actually believe it, but after two full days of seeing real estate the new way — the FavoriteAgent.com way — he experienced an awakening.
I can assure you, it was not the profound wisdom that rolled from my lips, as eloquent as I am! No, it was that he truly experienced something so radically different from the traditional real estate model that his real estate world will never be the same again. He caught a vision of something so powerful, and yet at the same time so simple, that it literally messed him up.
Why did he want to buy the rights to Georgia? Our company was much smaller than his. Here’s why: When his eyes were opened, he realized that when our model of real estate came to Atlanta, his model was finished.
We paid our agents far more than he did, and yet he still netted far less profit. His overhead was staggering. His agent services were good, but ours were every bit as good. He saw that we had everything that his company had, only we did it virtually.
And going virtual is a mindset. Instead of following traditional overhead-intensive methods for accomplishing a task, we look for a virtual way of doing the same thing while invariably saving money in the process. You could do the same thing too if you reprogram your mind to think that way. It’s easier than you think.
A couple of years ago, as our company was exploding in size and influence, we were asked by a number of brokers and entrepreneurial businessmen to franchise our business model. But something about it bothered me. I had this nagging sense in the back of my mind telling me there had to be a better way. It finally struck me what was wrong with the franchise model: The costs are too high. Way too high.
Just the regulatory compliance costs alone for a franchise system with operations in all 50 states is over quarter of a million dollars a year. Add to that the costs of developing the never-ending franchise documents, the systems, and the operations support, and the cost of franchising is staggering. And somebody has to pay it. And you can bet that it will be the franchisee and not the franchisor.
There had to be a better model. For nearly two years we studied various other models of growing our national brand. One day I read about one particular restaurant brand that typically had the highest volume and the fastest growing restaurants in every market they entered. The company: Outback Steakhouse.
They had an entirely different model — they found aggressive and talented operators and then partnered with them to open restaurant locations. These locations were neither corporate owned, nor were they operator owned. Instead, they were a strategic partnership between the corporate office and a local operator.
What a great model! If one partner did well, they both did well. The perfect alignment of interests. I immediately realized that was the direction we needed to go to grow our brand. But I’m getting ahead of myself. First I need to show you the bigger picture. After you see the big picture from my vantage point, all the pieces will begin to fall into place.
Earlier I told you that CNN featured our company. What I didn’t tell you was how it fit into part of a bigger story. When they called to ask us about featuring our company, it just so happened that I had been reading Marketing Warfare and Positioning, by Al Reis and Jack Trout. These are probably two of the best books ever written on the subject of growing a brand. Let me share with you some of what I read from those books.
First, they described how our country is the highest consumer of marketing messages, per capita, on the planet. We are over saturated with marketing messages — from the time we wake up until we go to bed at night — one message after another, from commercials, to bill boards, to print ads, etc. That’s certainly no surprise.
Then they went on to describe how our mind processes all those messages. Instead of keeping them all in some giant mental container to be retrieved at will, we have a very specific organizational system. We file all the brands away by category. For most low interest categories, we typically maintain about three brands in our minds. For high interest categories, we might maintain as many as seven.
The brands we keep in our mind are filed away like rungs on a ladder. The top rung has the highest brand awareness. It typically has about twice the mind-share of the second rung. The third rung has about half the mind-share of the second, and so on. Some examples of low interest categories are laundry soap, tooth paste, tires, peanut butter, and… real estate.
That means that while real estate is a high interest category to us, the general public sees it as a low interest category. That means that while there are dozens of national brands, the public only remembers the top three. For years, those top three have been Century 21, Re/Max, and Coldwell Banker, in that order.
With few exceptions, the first company to advance their brand into a category effectively captures the top rung on the ladder. And unless they manage to fall from their position, they can maintain their top rung position while spending far less money than those below them. Those brands on the lower rungs of the ladder are at a tremendous marketing disadvantage, simply because it’s easier to hold your position that it is to capture a new position.
I know, Century 21 wasn’t the first real estate company, but it was the first company to get its ladder up. Ford wasn’t the first car, but they were the first company to get their ladder up, and for 40 years they maintained that top rung, until they managed to fall down a few rungs with blunders like the Edsel.
If you are trying to grow a national brand, that paints a depressing picture, particularly if you are entering a crowded field like real estate. What it means is that it is effectively no different being 4th than it is being 40th when it comes to brand awareness. You simply can’t spend enough money to push a new brand to the top of a crowded ladder. Miller beer found that out the hard way, spending millions of dollars trying to overtake Budweiser, the “king of beers” who has held the top rung for years.
But then one day Miller had an idea. What if instead of spending millions of dollars trying to move up the beer ladder with little success, they spent the same money putting up a new ladder? Hmmmm. It might just work! And light beer was born. Tastes great. Less filling. Miller successfully raised a brand new ladder and to this day they own the top rung of that light beer ladder.
Here’s why that’s important. CNN’s Pulse on America program profiled our company, not because we were the biggest, or fastest growing. They featured us because we’d invented a new way to do real estate. A better way. And having just read those two books, it dawned on me: that’s our new ladder! We aren’t your father’s Oldsmobile. We’re not your grandfather’s real estate company. We’re FavoriteAgent.com — real estate the new way!
If we executed well in getting up our new ladder, I realized we could capture the top rung, and with the way our industry is trending, probably the about the same time the traditional ladder falls down! What a tremendous opportunity! But not only is it a huge opportunity, it is a huge risk as well. If you recall, there are huge companies, like Realogy that I mentioned earlier, that are desperately looking for solutions.
You can believe that some of the sharpest minds in our industry are turning over every stone looking for answers for this crisis. And you can believe that as soon as they discover what the new model looks like, they will be throwing every dime they have toward grabbing that top rung. We just happen to have a good head start, because we figured it out first.
Since most of the national brands are so heavily invested in the traditional model, it will take several years for them to change to a new model. That gives us a limited window of only about 2-3 years to get our ladder on the wall and our grasp firmly holding the top rung, or we risk losing the opportunity to some company that figures it out late but has the money to move faster.
So how can we get our ladder up in only 2-3 short years? How can we get to a “tipping point” in brand awareness before the rest of the industry catches on? And how can we rapidly expand our brand without giving our competitors a blueprint for precisely how to do it? That brings us to our growth strategy.
By simultaneously launching our new model in only the top 50 markets, we can touch over half the national agent population. We intend to open enough Virtual Offices to recruit 5% of the agent population in those top 50 markets, as rapidly as possible. The fewer Team Leaders we have to recruit, the better. The key, then, is to find the right Team Leaders so we can aggressively grow that agent market share and successfully capture our top rung.
So how do we accomplish that lofty objective in a struggling real estate market? First, we attempt to identify Team Leader candidates who have the three specific characteristics we need in order to get our ladder up in that short window. Then we lower the barrier of entry so that those who meet our qualifications and want to join us can. Finally, we place clear-cut and reasonably attainable recruiting milestones on those new Team Leaders.
What are the three characteristics we are looking for in a Team Leader?
- First, we are looking for someone who “gets” our model. This agent needs to fully understand that the industry has changed forever, that the customer has gone online, and that traditional real estate model is dead. Time is short, and we don’t want to spend the first six months “preaching to the choir”. We have a ladder to raise and a short time to do it, so we need someone who already gets it.
- Next, we need someone with passion and energy. Let’s face it: most agents are well over 50, and many are cruising toward retirement. That’s fine. There is nothing wrong with retirement. But we need Team Leaders who are willing to “bust their buns” working for the next three years. There will be plenty of time to sit on our yachts and tell war stories once we get our ladder raised. Until then, if you’re looking for an easy gig, this one isn’t for you.
- Finally, we are looking for Team Leaders who can “pull the trigger”. Some people can make decisions quickly while others ponder every decision for ages. There is nothing wrong with being one of those who decides slowly — my wife has been looking for a winter coat for months. Of course, we expect our Team Leaders to do their due diligence, and get all their questions answered.
But because of the number of Team Leaders we need to recruit and the short window of time we have in which to recruit them, we cannot wait for months while an agent decides it is right for him or her. Sorry. After we get our ladder up, new candidates can take how ever much time they need to decide. But for now, we need those who are decisive.
Now that we’ve covered the characteristics we require of our Team Leaders, next let’s discuss how we’ve lowered the barrier of entry. To open a national franchise, an owner typically needs $20,000 or more for the initial franchise fee, another $10,000 to secure a commercial lease, $70,000 for furniture, fixtures, equipment, and “stuff”, and then another $150,000 of operating capital to survive the first six to twelve months. But that’s the traditional model.
Our model is virtual, so it has lower overhead. But even a Virtual Office of 30 agents would require roughly $35,000 each month in technology licensing fees. What we’ve found is that most of the agents who have the money lack the drive, and most of those who have the drive lack the money. But remember, we have a short window of time in which to get our ladder up. That means we need Team Leaders with drive, and if we find them, we realize we will have to write the checks.
How can we afford to do that? The easiest way to show you is to share the following story with you. The other night I was watching the news and they were interviewing the CEO of a major drug company. After a few “soft ball” questions, the news anchor shifted into a stern tone and said, “We’ve been doing some research on your company and specifically on the drug, XYZ.”
“From what we can tell, it costs your company approximately 14 cents per pill to produce the drug… and yet you charge $10.68 per tablet. How do you sleep at night? Isn’t this exactly what’s wrong with our health care industry today? Isn’t this why we have runaway health care costs? Isn’t this exactly why we need the government to come in and fix health care?”
I was stunned. I expected the CEO to start squirming or to get defensive, or maybe even to offer some lame reason why the pills cost more than they actually did. But he didn’t. He very calmly said, “I have to admit, your researchers did a great job. Actually, it costs us exactly 14 cents per tablet to produce the drug.” Then he paused a moment before continuing, “The problem is, that first tablet cost me $78 million.”
What a great response! I nearly jumped out of my chair! I realized that was exactly the situation I’m in. My first Virtual Office cost me about $12 million over five years. The rest are 14 cent pills. I mean, let’s be honest: What does it cost for a few 1s and 0s on a hard drive? What does it cost for a little band width? Not that much. Even factoring in the cost of training and technical support, the incremental cost in opening a Virtual Office is not that great.
The real cost to me is not financial. I’ve already paid that. We have no debt. We turned down venture capital twice when we were a young company, and we’ve financed our own growth from day one. No, the real cost to me is the opportunity cost of not getting my ladder up in the 2-3 year window. And that cost is huge! That cost is staggering! The fact is, it costs me more not to take a chance on a good prospective Team Leader than it costs me to give him or her a shot.