Thursday, July 31, 2014

The Art of Successful Business

Concepts that Apply to Every Business

Buy Low - Sell High

That's it.  No seriously, that's it.  It doesn't matter whether you run a grocery store and have to buy produce, an auto shop, if you buy gold or other metals, stocks, boats, TV's... It's all the same.  I chose real estate. It was the logical choice for me because it's the thing I knew the most about growing up.  I also gravitate towards real estate because everything in business is based upon mark ups. And as real estate is one of the highest priced "products" available, the mark ups and therefore pay offs, would be the greatest.  I like to work smarter, not harder.  Fewer transactions for higher commissions.

And that's really all I have to say about making a boat load of money in whatever business you choose to apply this elementary concept.  But there are a few other pointers that will make the bigger picture easier to attain.

Negotiating 

It is my hypothesis that when two equally skilled negotiators enter into a transaction with an equal desire or necessity to buy or sell, the final agreed upon sales price will be equal to a third of the difference between the asking price and the original offer, plus the amount of the original offer.  For instance: A house is listed for $100,000. A buyer offers $50,000 and there are no other offers. The seller must sell, and the buyer must purchase.  The agreed upon price should be around $67,000.  An agreed upon price in either direction would show a fault in one party's side to negotiate.  This may be the result of a simple lack of skill in making a deal work, a more pressing desire to sell than to buy, multiple buyers pursuing the same product, or any number of other reasons.

The Buyer has the Power

The emasculated way of saying this in pop culture is that, "the customer is always right".  This doesn't explain the reason though.  The buyer has the power in business transactions because he has the sole capability of completing the transaction by providing payment.  Multiple sellers are often in a given market offering substitute products. A buyer might compromise some qualitative aspects if he feels the negotiation is not going well.  Buyers do (generally) not have to advertise.  They have no overhead, no employees, and no carrying costs whereas sellers generally incur all of these expenses.  It takes time to find a buyer, not a seller, and time is money.

Reducing Competition for the Buy

I am in no way advocating the creation of a monopoly.  But from a mathematical and economical standpoint, the lower the competition is, the better chance you have to increase your profits.  If I'm the only person bidding on a house, the price will not get driven up!  True auctions hold the ideal way for sellers to maximize their proceeds from a sale and allow for pure capitalism to "do it's thing". If you're trying to get a better price, look at the products others aren't.  Another easy way to reduce competition is to be the first to offer.  It doesn't always work, but it works a surprising amount of the time.  Highly motivated sellers will often jump at the first offer they see, without taking into consideration that higher offers may soon be forthcoming.

Reduce Competitors

I am in no way advocating the creation of a monopoly.  Using free market capitalism can actually set you up to reduce competition.  By initially lowering your mark up, fee, commission, or charge for your product, you can slowly start to drive your competitors out of business by offering your products at lower prices. Once you have established your business or your competitors have left the market place, you can then raise your rates and take advantage of an increased market share.

Reputation - More Important that Profit

The most important concept in preserving a good reputation is to do what you say you're going to do, and to not do what you say you won't do.  I've had dozens of clients and partners get mad at me for an entire array of reasons, but the only time I've gotten myself into trouble was when I broke this fundamental rule.  You can always retort to an accusation if you stuck to your word and were honest about your intentions.
Ever speaking ill of anyone can only hurt you.  Do I love my direct competitors? Of course not.  Would I ever say anything detrimental about them to anyone?  No.  Speaking ill of anyone in your profession will only make you look buffoonish and will make that person reluctant to do business with you.  Additionally, there is an exceedingly high probability that the person will tell not only the party you spoke negatively about, but will inform others of your unprofessional behavior.

Cut out the Middle Man

This is principle number one of every drug movie you've ever seen.  Every link in the chain between the supplier and you is a tax, a mark up.  It's the way they make their money.  Getting to the source is always going to provide you with the cheapest price of a given product without the interference of middle men. Real estate agents are often regarded as consumer advocates by the public, ensuring that actual buyers are not able to directly negotiate with actual sellers in an effort to prevent exploitation of the seller.  This is a good thing for society, but in certain instances well educated buyers and well educated sellers do conduct business between themselves directly and independently - which is not advisable.  Often times attorneys come into play on larger dollar amounts. They advise on unconventional transactions that require rigorous attention to the law to protect both parties involved, not only from exploitation but legal and tax ramifications as well.

Networking and Increasing Buyers

Every networking opportunity is a chance to build your network.  And every person in that network is potentially an opportunity to do business down the line.  Listening to Dale Carnegie's How to Win Friends and Influence People will teach you that people are inherently more interested in talking about themselves than listening to how accomplished and awesome you are.  Allow him to tell you about himself, take notes, keep those notes, and when an opportunity comes up down the line that your acquaintance can provide assistance with, reach out to him.
People in your network do not want to be constantly solicited business.  It is beneficial to make it known to your peers what it is that you do and how you can be an asset to them. But constant solicitation of business is annoying to everyone and will only cause people to leave your network.  This is especially true in the new era of social media, where anyone has the capability of becoming a pest to their friends and peers by constantly trying to either buy or sell something.

Keep Your Buyers and Sellers Separated

Would you like to know the fastest way to go out of business?  Introduce who you buy your products from to your biggest repeat buyers.  Your clients, as loyal as they may be, will ten out of ten times cut you out of the picture if they can figure out your acquisition source.  Don't let your clients know what you paid for your goods, don't tell them where they came from, and don't tell them how you found them.  You won't be on top long if you begin to breed and cultivate your own competition.  Limiting access to information is key to long term success.  

Never Offer List

It doesn't matter what price the seller is asking for, I'm not offering that much.  It doesn't matter if it's the best deal in the world, I'm going to ask for a lower price.  Have you ever seen the show Pawn Stars?  How many times has Rick Harrison said right out of the gate, "Done.  $300? Here's the cash." Never.  He always asks them if they'll accept at least a little bit less.  If you don't ask for a discount, you won't get a discount.  This is a good rule of thumb but not necessarily a commandment.  If there is competition, you will likely have to be as competitive as possible.  But in the absence of other buyers you should always offer less than the asking price.

Don't Reinvent the Wheel

There are very rarely revolutionary ideas or concepts that change the way business is done in your field.  I've seen many people spend extraordinary amounts of time thinking of ways to reinvent the foundations of how investing in real estate is done, all of which have been short lived.  You should instead dedicate your time to tweaking existing models to improve them, by making them more efficient.  

Failure More Valuable Than Success

I can go online right now and find fifty seminars on how to become a millionaire by buying real estate.  That's great, but if I could find a book titled 1,001 Ways to Lose Money in Real Estate, I'd read that first.  I'm not advocating to learn from fire by sticking your hand in.  This is the perfect example of when to reach out to your network and find out what other people did that didn't work. "Hey, Ryan, you remember that time I lost thirty grand on that deal in Alamo Heights? Yeah, I'm never doing that again."  This is an easy and pain free way to learn at someone else's expense.

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