SPEAKER_00 0:02

Nick has a saying that I've heard probably a million times in my lifetime, and I'm gonna share it with all of you today. That saying is operations is everything.

SPEAKER_01 0:11

Operations is everything.

SPEAKER_00 0:13

Sometimes we just say it back and forth to each other. There was a huge snowstorm in in Minnesota this past weekend. Like 14 inches of snow fell. There was a like a three-hour break in the snowfall, but it was super windy, so snow was blowing, and it wasn't exactly safe for our plow truck drivers to be out during that time, but they kind of needed to clear some of the snow because more snow was going to continue to fall. And so we were talking about, you know, ways to prioritize their safety while also prioritizing the safety of the residents living in our buildings and access and all of the things that go with you know managing snow clearance for thousands of units in a very snowy climate. And we must have said to each other, operations is everything, you know, 20 25 times that weekend. So let's dive into that.

SPEAKER_01 1:04

We'll be in line at Chick-fil-A and watching how swiftly and courteously they serve the line. We'll just kind of look at each other and say operations everything. And it's true, operations are it's the least sexy part of growing a business, and it is by far the most critical thing. When you listen to most podcasts, they'll talk about oh yeah, we bought this business or this building or we launched this company or whatever at this multiple with this value, we grew this. But fundamentally, if you can't run it, there's no point in starting it, buying it, growing it. And we were growing very quickly at that time. And we had had the privilege to have some pretty world-class training. Elaine, you know, trained at the Mayo Clinic, and I sought out a lot of really incredible, you know, training opportunities. You know, it's it's kind of interesting, but you know, a bachelor's degree in ministry, it's all about serving people and leading a large organization where you have to manage a lot of people. A lot of this concept I learned at the Mayo Clinic, and they have this incredible ability to stroke a check for a billion dollars to build a building, launch a whole new field of medicine, buy a proton beam. But they taught me that if you can't operationalize it successfully, not only does it have negative value, but it's a it's a tremendous liability. And, you know, for for whoever's listening right now, wherever you are on your journey in life or in business, you know, maybe you've got uh one Airbnb and you're going to two, or you've got two and you're going to three. And you know, there's there's something called constraint theory. You can read the goal by uh Dr. Eli Goldrat or the Phoenix Project or study uh lean manufacturing and stuff. There's always a constraint. There's always a constraint in your business. It often surprises you. So maybe you've got this Rockstar Cleaner that could handle all of your turns for one Airbnb and then two Airbnbs. And then when you get to three, all of a sudden you can't handle it. And things are just kind of falling apart. And that one Rockstar cleaner, they did okay with two, but three is just too much. You hire a new cleaner and they're not good, and you get rid of them, you hire a new cleaner and they're not good, and you get rid of them, you hire a new cleaner, you get that they're not good, you get rid of them, you're getting bad reviews on your new Airbnb, and you're losing money. And like things were going so good when you had two Airbnbs and you got three, and you're just like, How the heck did everything fall apart so damn fast? And I've got great news for you. That's normal. That's a completely normal thing to encounter in business. And so, you know, in that 2022 timeframe, we were growing so fast, and we had to be really you know mindful about hiring people. You know, this is uh this is something that gets lip service, but your people are truly the only asset that matters. A lot of people, especially in the real estate industry, see payroll as a liability. I mean, it's like your number one controllable cost, and we see payroll as an asset. Obviously, we we don't want to grow payroll more than more than we can afford, but uh you know, your your people are the thing that that grow your business. And so we had to grow very quickly. The systems that we used to manage our properties when we had uh one unit, 10 units, 100 units, those systems, all of them broke when we had hundreds of units. So just as a just as a comical example, you know, we used to do single-day turnovers. Uh so if someone moved out on May 27th, it was uh an article of discipline that I just drilled into the team, you know, with with kind of uh fanatical emphasis that someone moves out May 27th, someone's moving in May 28th. We do one-day turns. Every every Marine is a rifleman, every staff person has you know a mop and bucket in their car and can go do a turn and and and so forth. And when you have a small number of units, that that kind of works. It I mean, it worked really well, it kept our vacancy extremely low. But then all of a sudden we had hundreds of units, and the team is screaming at me, Nick, there is no way. There were uh there was a day where we had, I think, like 50 turns in the first week of June, which is like kind of our peak turnover season. And our team is like, you know, there's not 50 of us. There is no way it is not humanly possible for us to go around and clean all these units. And uh we we live in safety culture. You know, our team is obligated to report problems, and that's one of the best ways for you to find uh constraints in your operations. And they were uh they were shouting at me, Nick, we we can't do one-day turns anymore. In fact, we had to put in a break where there was at least, you know, like a like a five business day type type time frame to turn over a unit because there's just so many, uh, so many units that need to get turned, it was no longer logistically feasible. And this is the story of growth. Like you get all sorts of huge economies of scale as you grow. We're able to get fantastically better pricing on you know uh uh home improvement supplies from Home Depot, but we can't do a one-day turn anymore. And hopefully the economies of scale that you get exceed the the overheads that go with uh with growth. And whatever company you're growing, uh you are no doubt bumping up against your operational constraints. And that's okay. There's absolutely nothing wrong with that. And you have to be constantly identifying and troubleshooting them. You know, just in the last uh seven days here, we've rolled out a whole new automation system for renewals because we've got um like 700 pending renewals in the next uh 60 days. And it used to be we had like a renewal officer that kind of managed them, and it was that's just no longer even remotely feasible. We've grown the portfolio 52% in the last 12 months, which is a lot for a portfolio our size. And so all the systems that worked last year, well, those systems don't work anymore. But the the good news is that the obstacle is the way. If you if you find a way past that constraint, on the other side, it often becomes an incredible strategic advantage. Our new renewal system we rolled out is 10 times better than the the previous renewal system we had. It reduces our uh cost of renewal, it increases our our renewal rate and stuff. Um, so so whatever journey you're on, whatever growth journey you're on, you have to you have to make sure that you're managing the operations. Operations is everything. And when you do that, you will often you know be shocked by what you discover and will create the new strategic capabilities that kind of propel you to the next stage of growth.

SPEAKER_00 7:01

Nick and I are somewhat evangelical about operations because, well, operations is everything. And it's certainly a piece that gets far less attention in not just an entrepreneur's life or a real estate investor's life, but even in our own lives as people. Um, you know, we want to focus on like, say, our goals or milestones or major achievements. Operations is where those things happen, right? So let's say someone has a certain health goal, that's great. And I want you chasing that and I want you excited about that and invigorated about that and sharing that with as many people as possible. It is going to come to fruition through operations. It is going to come to fruition through things like what is the exact plan of how I'm going to procure food? What will my eating plan be? How will I get that food? How will I avoid the stumbles when the schedule gets busy or I'm traveling or those sorts of things? All of that is operations. So operations shows up everywhere. It shows up in our personal lives, in our relationships, in our real estate portfolio, in growing a business. And it is where the real value is created. And certainly in real estate investing and business circles, you know, masterminds that we've, you know, received tremendous, tremendous, tremendous amount of value from, they focus on sexy things like marketing and revenue generation and growth and even hiring, because hiring to some extent is sexy. Like, oh, first you have an executive assistant, then you have a COO and you know, on and on and on. And there's very little teaching out there about operations that used to frustrate me so much. I would just, I would be so just kind of so confused and so frustrated about it. And the story I now tell myself is operations is somewhat specific to different industries and locations and regulation and those sorts of things. And it's also something that to some extent kind of needs to be figured out individually for certain businesses. And then also it's not as fun. Nick, Nick always says, like, it's not sexy, it's not as fun. And so that's why it doesn't come up as much in say these masterminds or events. And yet, this is our call to you to say, be proud of operations. Operations is where the real value is created. It is absolutely not just okay to focus on operations, but it is what is going to separate you from someone who has a goal and say chases that same goal over and over and over and over again, but doesn't exactly get to where you want to get, or worse is constantly kind of throwing darts at goals and growth, and things are getting worse. Things are falling apart, you're stumbling, you're having a lot of failures, you're missing the mark. If any of that resonates with you, this is our encouragement to hunker down and focus on operations. Operations in many ways is harder because it's it's more concrete, disciplined work. Things like, okay, let's look at this very step by step. Let's come up with a standard operating procedure, let's test that standard operating procedure. There's always this like um push-pull between you want to make sure that your SOP covers the extreme majority of things that might happen, but doesn't get so into the weeds, into the like one in a hundred thousand and one in a million type scenarios. Um, you know, let's say even like that example I gave a few minutes ago about, say, you know, healthful eating, if someone say travels internationally for one week every couple of years, you probably don't need to put it in your SOP, you know, how you're going to eat when you're taking your one trip abroad every couple of years. You can just kind of figure that one out as you go. You're going to need to just kind of make those decisions on the fly. But if, say, you eat at a restaurant, you know, once a week or a couple of times a month, you absolutely need to make sure that that would be included in your SOP. You need to make sure your team is trained, that there's clarity on it. I am consistently surprised at the things that we might think are common sense, other people don't, or vice versa. Our team might think something is like so hopelessly obvious and it's, you know, maybe not as not as obvious to us because we're working with an older paradigm, or, you know, we're not like in the field the same way they are. So there's these additional steps that for many people feel like drudgery because they are work and it's holding a lot of pieces of data in the mind and creating that SOP, going back and iterating it, testing it, making sure that it works in the field, making sure that it creates the most amount of value. And then just like Nick said, often as soon as it's kind of working, you know, the system has grown. And then you need to, you need to rework it. You need to either refine it or just completely break it and start over. All of that is where the value creation happens. All of that is where the value creation happens. And when you learn to love operations in your personal life, in your wealth, in your finances, in your investing, in your business, in your career, wherever, this literally shows up in every domain of life. You can kind of think of operations in another way of saying it is like disciplined decision making, instead of just consistently making decisions on the fly, but having disciplined decision making, your life will be better in indescribable ways. And I think we learned that, you know, in our real estate journey so early because we self-managed all the way from our very first property. We self-managed, quite frankly, because we couldn't afford a manager. Um, that property, you know, was just barely cash flowing. And if you pay uh, you know, say a typical 10% of gross monthly rents, well, then we would have been negative cash flow. Plus, I had lived in that home. It was just a couple of miles away from where Nick and I were going to live after we got married. So we said, you know what, we'll just, we'll just self-manage it for a couple of years and kind of see how that goes. It's just one. And that's where we learned that things like responding very quickly to a leasing inquiry and getting a showing immediately before the other, you know, potential rentals have even called the prospective resident back. That's very important. Handling maintenance tickets in a very timely fashion is important for satisfaction. And it really comes up during renewal time. Like we just kind of learned that whole process. And it was just so solidified to us that the better we operated that property, the exponentially better the financial outcomes. We could get a higher rent in the beginning, we could maintain our maintenance costs as low as possible. And then we were much more likely to get renewals if our residents were happy living there. And we've basically just taken that and multiplied it by a few thousand now. Operations is everything. How can you take that concept and apply it to your business if you're an entrepreneur, to your career if you're working, to your real estate investing portfolio if you're an investor, to your personal life, to your relationships, to your health, to your spirituality? It hits in all domains of life, not just investing, not just business. It hits everywhere in life. How can you operationalize something in your life that right now is just messy? And you're kind of flying by the seat of your pants, and maybe you're even like super excited about it, right? This is not need to say that it's an area of your life that that there's you know struggle. It can be an area of your life that you're super excited about, the growth that's happening. When you operationalize it, you will exponentially increase the amount of value that you create.

SPEAKER_01 14:50

And I think people often even approach this a little bit backwards where they'll say, I really want to buy a home services business. I see that's like a hot thing to do right now. And so I'm gonna go buy a mud jacking business in uh Tuscaloosa, and then I'm gonna figure out how to run it. And we just kind of face ball when we see that. And this is like a very fashionable thing to do, and and people will you know celebrate this huge leap in growth and stuff that they're making. And we we always encourage people to find their asymmetric advantage. What's something that you know you can do? Where is an area of your life where you already excel from an operational perspective? And then that becomes your your growth trajectory. Uh, like I was just doing a little bit of coaching with someone on buying a property management company, and I basically said, you know, if you're good at it, like the world will pave a path to your door. There is so much demand for high-quality property management services. You know, you are the prize. You are the prize here. And uh, why why would you you know buy someone's business when if you're just you're skillful, you can you can just grow the business with your own competence. Your operational excellence will almost by default grow your business. You know, we brought lawn and snow in-house, bought trucks and power brooms and all kinds of stuff. And within like a couple of snowfalls, people were already reaching out to us saying, Who's doing your snow? Your snow removal is so good. You know, we're a next door neighbor to one of your property. Is there any way you could you could clear our snow? We never sent out a flyer, we never did anything to grow the business. We just did the business well and the world paved a path to our door. And we see that over and over again. Um, you know, really concretely, a couple of frameworks that we think about growth and operationalizing things is you are typically one hire away from taking your life to the next level. You're typically you know one relationship away from taking your life to the next level. And it's it's most often a hire, or you know, maybe you have no staff, you have no company right now, maybe it's a maybe it's a partner, maybe it's a contractor, maybe it's a service provider, maybe it's a you know, a private equity fund manager or a real estate broker, mortgage broker, something like that. You are one relationship away from taking your life to the next level. And so Elaine and I are always asking ourselves, you know, who do we need to be in relationship with? Who is the person that we need to find, the person we need to create when we're hiring for our team? We are always trying to hire based on uh, you know, kind of culture, fit, and background as this person who has handled a lot of difficult things in the past and uh has good communication skills, good customer service skills, good service skills, you know, whatever whatever it is. And we can we can probably train them in property management. We do things very differently, so it's actually a bit of a liability sometimes most of the time when we hire people with previous uh property management experience. And then uh we just we just we pour into those people. We you know, write down the process that is happening right now, we figure out how to improve that process, and then we have someone take that process over, and it can be something as basic as uh mowing our lawn. I mean, Elaine gets all the credit for that. She ripped the lawn mower out of my hand, said this is ridiculous, you're doing this. You know, here's who we're gonna hire, and they they're gonna come out and take care of everything. Maybe it's something that's high yield that you think you know no one else can handle. Uh well, if you can't write it down and put it into a process, is it is it truly scalable? Or are you really gonna be the thing that holds your company back from growth? And are you going to be that that constraint? Do you feel overjoyed to to hand this off to someone? We're we're always hiring, we're always growing, and you know, we train everyone in our team to be constantly uh improving something, changing the way we operationalize that thing, and then handing it off to someone else who can hopefully make it even better. And then when you hire that person and uh inevitably they don't do it as well as you'd like them to, or they do it differently. Uh, three three operative questions that I might leave you with here. If someone's not doing the thing that you need them to do, if your operations are struggling, it's almost always because there's a person not doing the thing the way they need to do it. Is that true or is that true? And there's just three operative questions to fix any people problem of that sort. So, first is do they know what to do? And we've been doing this a while, and time and time again, this is the problem 90% of the time. 90% of the time, because we're in a place now where we our company hires people that we don't even meet. You know, we I see someone in a hallway of a building wearing, you know, company branded apparel, and oh, hey, what's your name? When did you join the company? So we have very little you know control over that training and onboarding process. And hey, hey, we you know we didn't clean this spot in the building. Why not? Well, that person didn't know that that was their job. They didn't know that this was an area of responsibility. Or maybe you have an admin and they're doing a great job managing your email, but they're doing a terrible job managing your calendar and you kind of fume about it and you wonder why balls are getting dropped on your schedule. Well, you first you have to make sure that they know that they're supposed to do that thing and and give give exact parameters for that. Uh second, if they don't know what it is that they're supposed to do, they often don't know how to do it or they're missing a tool, time and time again. You know, like we we recently purchased an apartment building and there's a site manager there who is a very skillful site manager, has been in the business for a decade, and we uh you know, we do everything with uh with with you know paperless, all electronic, and we use our cell phones. Well, the the previous management company was all paper, and uh personal cell phone use was prohibited. Personal cell phone use was prohibited, which I know sounds kind of strange, but they you know they thought of it the way like a maybe a hospitality operation or a food service operation would where you know you're probably not working if you're on your phone. Well, that doesn't work for us because the whole business runs off your cell phone in you know in our in our organization. And this person had been with us for two months and was struggling with some of our stuff. So I literally sat down shoulder to shoulder with her. And I'm like, Can you show me what it looks like when you pull up a keypad code to get into a unit? And she takes out her phone. It's it's eight o'clock in the morning, and it's like an iPhone zero with a crack screen and it's got 10% battery. And I'm like, What wait, what just happened here? This is you're not gonna be able to get work done on that on that phone. And she's like, Well, you know, I try to use my phone as little as possible. You know, I know cell phone use is prohibited, personal cell phone use is prohibited. I'm like, no, no, no, that's that's the opposite of our policy. That's the previous policy, and you can't show up to phone, you know, show up to work with a damaged, you know, dead phone that you're not gonna get any work done. So she knew what she needed to do. In this case, it was you know the most basic thing of accessing a unit and and knowing what keypad code to get, and she just didn't you know have that ability. So so first is to make sure they know what to do. Second is they uh you have to make sure that they know how to do it, that they have the tools to do it. Uh, and third, and this is the least common problem. This is the least common problem is do they want to do it? Do they want to do it? And uh part of that is on you as a leader. You need to inspire them and make sure they understand the the why their job matters, that thing matters, but a lot of that's on them. So, you know, we do a lot of leasing, it's a it's a sales thing, and you have to do a lot of cold calls, and you know, you need to be able to make a hundred outbound touches a day uh with with enthusiasm, or you're not gonna succeed, and you're paid on a commission basis, and only a small portion. percentage of the population, you know, will that ever work for them? There's there's only a small percentage of the population that can do that kind of body of work and uh and be successful. The ones who can, they are, they are paid extraordinarily well, and that's that's the case in our organization as well. But most people, they are just never going to have the the motivation uh to do that kind of job. And what we find over and over again is people grow is they uh they they focus on I'm gonna go buy that uh mudjacking business in Tuscaloosa then I'm gonna I'm gonna figure out how to operationalize it or worse yet I'm just gonna hire someone who will figure it out and then things don't go well and then they just skip to this assumption that that person that they've hired to operationalize it isn't motivated. They they skip past the what and they skip past the how and never in the first place did they understand the what or the how themselves and you end up with you end up with really bad outcomes. You end up with really bad outcomes. So throughout you know 2022 and into 2023 we were I mean that that was one of the toughest growth times in the history of our company uh because there's just so much growth happening. Even though even though we've had 52% growth here in the last 12 months you know we we already have enough momentum enough staff that I don't know it's maybe it's easier to absorb and and during that like 2022 timeframe I think we you know doubled or tripled in a single year. So it was just a furious pace to make sure that we are keeping operations on the rails and getting better every day. And those are just a few frameworks that we use to to make it happen. Could not be more more happy with our outcomes they're always getting better. Uh you know this year I feel like is the year of cleaning that's something that in the past we've just kind of optimized the expense and we've done a lot just just in the first few months this year of improving cleaning commonary cleaning our properties you know boring unsexy things that make all the difference in the world to the you know to to the people that we serve.

SPEAKER_00 23:43

So maybe not as fun as our prior episode where we talked about the exuberant launch of our our first private equity fund. Where all the value is though yeah exactly that's exactly what I was going to say this is where all the value is created. So that's operations is everything we hope you enjoyed this episode. If you're getting value out of the real estate real life podcast it would be so meaningful for us for you to like subscribe leave a five star review share it with a friend who will also get value. We're excited to grow this together we'll see you in the next episode