Team And Talent
Great things in business are never done by one person, they’re done by a team of people.1
—Steve Jobs
Assembling the right team with the right knowledge and talent is crucial to a successful real estate investment deal. To put together a successful deal you must know all aspects of the industry, understand the key performance indicators (KPIs), and apply that knowledge systematically. No individual possesses expert knowledge and talent in all these areas.
By definition, a successful deal must benefit all the parties. Implicit in this idea is partnering with others. We usually think of partners as the people investing in the deal. But I use a broader definition.
When I started investing in real estate while I still had a day job as a pharmaceutical scientist, I worked hard to learn the industry. Building my knowledge from the ground up taught me that I would always have blind spots and weaknesses as well as strengths. So, I partnered with others; mentors who offered guidance and, when I began to scale my business, team members.
No real estate project starts with unlimited capital. Most projects rely on investors, and you cannot approach investors if you don’t have a good team working with you. In fact, you can’t get anywhere without a good team—a team with talent and with strengths that complement your strengths, fill in gaps in your knowledge, and support your weaknesses.
The kind of team you want and the kind of team you need may not be the same. To distinguish between the two, you must understand your strengths and weaknesses. This entails a certain amount of self-analysis. It’s the same as the deep look you take at your company when evaluating its strengths and weaknesses. But in this case, no books, workshops, or guidance will help you. You must dig in to discover and own your strengths and uncover and equally own your weaknesses. Only then can you find the necessary qualities in other people, successfully hire them, and help them grow into a well-functioning team. Developing this self-awareness requires the same systematic research that you use to understand the industry you work in.
Now, the ultimate goal is to create a win-win situation for the firm’s team members or employees, the founder or owner, partners, board of directors and, above all, the investors. To accomplish that, you must structure situations so that benefit accrues just as much to your team as to you and your investors.
Many entrepreneurs who are beginning to scale often forget to consider their team when setting up that win-win situation. There are two factors to consider when making sure benefits accrue to your team. One is the team’s working environment. The other is the incentive scheme.
A team’s working environment depends on the nature of your and their relationships. Sure, the office set up and equipment matter. But these material things are not enough. Nothing in a work environment is more important than how you work together.
For example, acquisitions it at the core of what a real estate investment firm does. Therefore, you want the person doing acquisitions to have strengths in finding the best properties, analyzing them, and buying them. If I hire an amazing acquisitions person, would I want to tell them, “You can’t do this. Do that instead”? No. The talented acquisitions person can figure out what to do and guide your firm to the best deals. Your job is to let the acquisitions person tell you that a deal is good and the company should go after it, and then review the analysis because it’s your bottom line. Their talent and role are finding and underwriting the deals. Your role is to enable them to do that. This is how a team works. Like Steve Jobs said, “It doesn’t make sense to hire smart people and tell them what to do. We hire smart people so they can tell us what to do.”
Once you buy properties, an asset manager must manage them. After the acquisitions person comes up with the model, analysis, and forecast, the baton passes to the asset manager, who must manage the properties to meet the expectations laid out in the forecast. A successful firm must have an equally competent asset manager who has a track record of managing and turning properties around. You don’t want an asset manager treating your properties as guinea pigs. He or she must have experience and be on board during the analysis and acquisitions phase, aware of the KPIs and ready for the handoff. Again, your job is to enable that talented asset manager to do their best work.
Providing the right incentives is just as important as hiring the right people and enabling them to do their work. With the right incentives in place, people focus on their positions, rather than, say, looking for another job. Cutting corners by hiring people at a lesser salary leads to failure. In fact, according to Rose Leadem, you can trace 23% of small business failures to having the wrong team. With a higher salary as an incentive, you get a higher quality person, and then that higher salary keeps them focused on their work.
When the incentive—the salary—is lower, you end up hiring someone with less experience and less talent. And most of the time, when you pursue that strategy, two things happen. The person you hire learns while doing, which has a cost, and looks around for a job with a higher salary, which means he or she is not as focused. This all results from not having the right incentives in place.
One way to reward people who work hard is through bonuses, for example, a percentage of a deal. Every time we sell a deal, we distribute a set percent of the profits to the key people who put together and managed the deal. A set percent doesn’t seem large, but they add up across multiple properties. Typically, American Ventures® incentivize the team at the time of acquisition and when we sell. For example, let’s say we made one million dollars on a deal. Five percent of that is $50,000. So, the acquisitions analyst who helped find and underwrite the deal, who did all the legwork, gets a set percent. A director of acquisitions might get a little higher percent of the profit. Asset managers get a percent of the deal returns. The junior-level people who help make a deal may get a little lower than senior-level executives. For people to realize the bonuses, they must be employed in the company when we sell the property and realize the profit.
In a year when we are making, let’s say, $5 million, these percentages add up. Five percent is about $250,000. For us, the talent matters more than how old a person is. We have millennials in our office, barely twenty or thirty years old, and they will make a six-figure income for the first time because they get a set percent of ten deals. This financial incentive structure is meaningful for people, and it helps us retain the best people.
The lessons here are easy to remember and difficult to accomplish. First, you must know your strengths and weaknesses. Second, you must work to your strengths and find partners or team member who are skillful in your weak areas. Third, to ensure your team functions well together, you must develop KPIs and well-stated, measurable objectives for each deal. Last, you must create a financial incentive structure that is meaningful for team members.
Author
Shravan Parsi
CEO & Founder | American Ventures
