Much of the talk around scaling a business misses half the point. Scaling a business means growing not just substantially, but sustainably. It means preparing for growth before it happens, while it happens, and after it happens. And ideally, it means replicating the model your business was founded on, to serve an ever-growing family of clients--providing for ever-improving results.
Serving customers profitably should be the purpose of every company. Without profitability, you won't be serving customers for long. If startups are any reflection of our short-term thinking, we've got a ways to go: The research from Startup Genome tells us 70 percent of internet startups fail because they mishandle scaling.
Would you invest in something with a 70-percent fail rate? I wouldn't. How about a company whose annual IRR was about 30 percent over 30 years, through a rollercoaster of markets?
I did.
In 2014, a friend introduced me to the Connor Group, a real estate investment company solely focused on apartments. While the average S&P return at the time was 7 percent, the Connor Group was reaching returns four times that. It was enough for me; I invested. But frankly, as a business coach who's worked with hundreds of companies for the past three decades, I only wish I'd invested more.
So how can you have your investors wishing the same thing?
1. Focus with precision on what you're good at.
In 1992, the Connor Group had one investor and $400,000 of seed funding, which it put toward three apartment communities in Dayton, Ohio. Coming from outside both the apartment industry and the real estate industry, founder Larry Connor didn't know all the rules, so he made his own. He knew operations and he knew investing. And he knew virtually nobody else was combining the two. Larry built his initial business model around just this idea.
With this niche plan, laser-like precision was key. He determined that in real estate, operations weren't creating big returns like investments. Instead, he applied operations to the front end: finding apartments in great locations that were significantly underperforming against their potential. Here came the model: purchase, re-engineer, and sell. Instead of scaling up by size like everybody else (say 1,000 apartment units to 10,000), the Connor Group aimed to scale its transactional activity.
During strategic planning, Larry and his team asked, "What can we model now that we'll be able to repeat again and again?"
2. Define what success means for your company.
You can run your business so you'll never need layoffs, and it certainly doesn't hurt to attain and retain employees. But finding and keeping good investors can say a lot about your company. If they become repeat investors and refer others, it says even more, and your business will inevitably become more profitable. For the Connor Group, this was clear--success equaled enhancing the investor rate of return.
From vetting to acquiring, to re-engineering and eventually selling, the Connor Group tracks potential investor returns of every apartment community throughout its entire process. This methodology requires a low-headcount, high-productivity, customer-centric model. The hands-on forecasting also enables all Connor Group associates to see how they are driving overall performance.
3. Refine your success through systems.
These very systems and reporting structures allow you to learn and refine your goals. More importantly, if you use them well, they create buy-in and accountability for all members of your team. The key here is repeating what you're good at over and over. It's a relentless push toward improving, not just in numbers but in the business model itself.
The Connor Group runs its systems day to day, week to week, month to month, and year to year. But every five years the company pulls back to assess environmental changes and look at strategic planning as a longer-term refinement of the model. And these plans don't stay at the top.
"People lead growth," Connor said. "Not the other way around."
In a study on individual accountability called "The Circle of Success," every associate in every job position, in every location, is linked together in communication every day. Like many of the open-book companies I've coached over the years, this management style is the engine for cultivating economic understanding and delivering transparency. It creates a common denominator across the entire company.
It garners trust and participation from employees, but it also makes every endeavor at the Connor Group a cyclical process of assessment, adjustment, and innovation.
Management Implications
The management approach at the organization is strikingly like our management philosophy. A few years ago, I enlisted friends at Harvard Business School to help me research whether certain management principles could produce better financial results--specifically, whether treating employees like trusted partners was good for business. We created a survey of 15 questions that relate to five pillars: customer service, shared economic understanding, transparency, shared compensation, and employee participation. We call it economic engagement. After 10 waves of 50 to 150 companies per wave, the results were captured in this article. Our research showed time and again that companies in the top quartile of Economic Engagement were enjoying double the profit growth of their peers. The Connor Group's profit growth exceeds these results.
As a rule, the organization doesn't hire from within the apartment industry, but actively recruits people from all industries and provides them with the tools and training needed to succeed. Since associates don't know the industry standards, they have no idea what others have deemed impossible. They proceed, then, with the mindset that anything is possible.
And the company rewards and recognizes associates in unique and innovative ways, including a partnership program open to associates in literally any job description. In 2015, the Connor Group promoted its first groundsperson to partner. After years of hard work, he'd earned an ownership stake in one of the country's top privately-held real estate investment firms.
Doing things differently? Well, it produces different returns. Given how successful the company has been, its employees and investors are embracing the differences. The company now has more than 1,300 investors and $3.7 billion in assets, and it operates in 17 markets across the country. Most investors have become repeat investors, myself included. The Connor Group began with three partners. Today it has more than 60, including service technicians, administrative personnel, property managers, sales associates, trainers, and top executives. People lead growth, indeed.
BY BILL FOTSCH, FOUNDER, ECONOMIC ENGAGEMENT
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