My Favorite Subject

Several years ago Jim Collins wrote a very influential business book titled Good to Great. The idea was to study great companies. Actually, it was a little more complicated than that. You see, Collins had already done a study of great companies. And the results were published, along with his coauthor Jerry Porras, as a book titled Built to Last. The companies in Built had essentially been great from inception. These were companies like HP and Merck.

Then one night at dinner Bill Meehan, a managing director for McKinsey & Company, leaned over and asked Collins about the companies that weren't spectacular from birth. Meehan was asking about, “the vast majority of companies that wake up partway through life and realize that they're good, but not great.” Collins understood the point. And it led him to ask the questions, “Can a good company become a great company and, if so, how? Or is the disease of 'just being good' incurable?”

This post isn't really about the book Good to Great. Perhaps I will post a book report someday, but not today. Specifically, I wanted to talk about just one of Collins' findings. Collins, and his team, found that companies who make the leap from good to great embrace a certain cognitive tension. It's a mindset that Collins called “The Stockdale Paradox.”

James Stockdale, “was the highest-ranking United States military officer in the 'Hanoi Hilton' prisoner-of-war camp during the height of the Vietnam War. Tortured over twenty times during his eight-year imprisonment from 1965 to 1973, Stockdale lived out the war without any prisoner's rights, no set release date, and no certainty as to whether he would even survive to see his family again,” writes Mr. Collins.

In the later years of his life, Admiral Stockdale was a senior research fellow, at the Hoover Institution, where he studied the Stoic philosophers. As it turned out, this was during the same time that Collins was a professor at Stanford. One day Stockdale invited Collins, and one of his students, out for lunch. Having read Stockdale's book In Love and War, Collins knew of the experiences the Admiral went through while interned in Vietnam. Stockdale's story had Collins feeling quite depressed. He wondered how anyone could have survived such an ordeal. Their lunch date gave Collins the opportunity to ask.

“I never lost faith in the end of the story,” is what Stockdale said. “I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining event of my life, which, in retrospect, I would not trade.” Collins pondered the statement for a minute and asked, “Who didn't make it out?” Stockdale replied, “Oh, that's easy. The optimists.”

Collins said he didn't understand how that could be. To which Stockdale said, “The optimists. Oh, they were the ones who said, 'We're going to be out by Christmas.' And Christmas would come, and Christmas would go. Then they'd say, 'We're going to be out by Easter.' And Easter would come, and Easter would go. And then Thanksgiving, and then it would be Christmas again. And they died of a broken heart.”

There was another long pause and then Stockdale turned to Collins and said, “This is a very important lesson. You must never confuse faith that you will prevail in the end–which you can never afford to lose– with the discipline to confront the most brutal facts of your current reality, whatever they might be.”

Collins writes, “To this day, I carry a mental image of Stockdale admonishing the optimists: 'We're not getting out by Christmas; deal with it.'” And this led Collins to the creation of The Stockdale Paradox. Collins states the paradox as follows, “Retain faith that you will prevail in the end, regardless of the difficulties. And, at the same time, confront the most brutal facts of your current reality, whatever they might be.”

Far be it from me to question Admiral Stockdale but I think his use of the word “optimist” is misplaced. The story kind of downplays the importance of optimism. And, as we know, Martin Seligman has shown, beyond any reasonable doubt, the usefulness of optimism. When Stockdale spoke of, “faith in the end of the story,” he was clearly demonstrating a form of optimism. The people that didn't make it out of the Hanoi Hilton, if they were optimists at all, were a kind of delusional optimist. What's needed is what Heidi Grant Halvorson would call, “Realistic Optimism.” It's a sort of grounded optimism. And, it's the essence of The Stockdale Paradox. It's having faith in the end game while, simultaneously, being aware of current reality. It's the sort of groundedness that is the essence of the eastern philosophy of Mindfulness.

When asked what the hardest part of being an entrepreneur was, Jack Harding replied, “Persistent failure.” If you have ever built a business you understand why Harding would say such a thing. Building a successful business involves one mistake after the next. The key is resiliency or what Dan Pink would call, “Buoyancy.” Understanding, and embracing, The Stockdale Paradox is at the core of resiliency and perseverance. Because one of the core paradoxes of entrepreneurialism is that, "we fail our way to success."

The only reason your business exists...

As you have probably noticed I think, and talk, a lot about Peter Drucker. And for good reason! He was the man. People really do need to know more about Peter's teachings. Especially business people. This week I thought I would take it back to the fundamentals of business.

I have read a great many business books and a lot of them can be rather complex. Seeing as we live in a complex world, it makes sense that these books are complicated. But it's also wise to try to keep things simple. Leonardo da Vinci is quoted as saying, “Simplicity is the ultimate sophistication.” It's a yin and a yang. Indeed, it's a paradox. As paradoxical as it sounds, it's actually quite hard to keep things simple.

In all the books I have ever looked through, there was only one that asked the question, “What is a business?” Now, that may seem like a ridiculously obvious question. But I don't think it is. I think answering that question is the simplicity which is the ultimate in complexity. Below I have included a scan from Drucker's magnum opus. And I'll never forget the day I first read this chapter. It was profound.

Drucker says that THE most important question you need to ask is, “What is our business?” And, as simple as I know that question may sound, it's wonderfully difficult to answer. Indeed, most people get it wrong. Let's say you work for Microsoft. If you say your business is software, sorry, but you're wrong.

Another example is the medical field. Most people, who work in the medical profession, would say their business is, "Health care." And they'd be wrong. Healthy people, as a rule, are not admitted into the hospital. By definition, a more accurate statement is, "Sick care." And, even the phrase “sick care” would be far from sufficient. This is something I wrote about here: Assurance to the Afflicted

Back to the more fundamental question, “What is a business?” Tell me, what do you think? Take a minute and think it through. Better yet, take out a piece of paper and write out your answer. I promise you, it's an excellent investment of your time. So go ahead, I'll wait...

Now, hopefully you did spend a minute on Drucker's question. Few people clarify what A business is and, more particularly, what THEIR business is. And this is probably the single largest cause of business failure. Drucker calls the answer to the question your, “Theory of business.” The cool thing is that you can get your theory of business “wrong” and not be a failure. How? By adjusting and tweaking, of course. If the theory is wrong, scrap it and get a new one. Make adjusts. The key to business, indeed, the key to life is adaptability.

Before I leave you to your thoughts, allow me to answer Drucker's question for you. The question I am referring to, of course, is, “What is a business?” I couldn't possibly tell you what YOUR business is, because all sorts of people are reading this post. But, the general question I can answer. If you look closely at that image, taken from Chapter 6 of Drucker's book, you will see the following phrase, “The Purpose of a Business: To Create a Customer.” As obvious as that may seem, it's amazing how many people get it wrong.

A fair number of people believe that a business exists to make a profit. Which is getting the sled in front of the dogs. Even the supposed business elite think in these sorts of terms. On Wall Street it's fairly popular to talk about, “Maximizing shareholder value.” Indeed, quite a number of companies have that very phrase in their mission statements. For these people, the sled pulls the dogs.

Peter Drucker, and later Stephen Covey, would remind us to keep, “First things first.” The proper order is to keep your focus on the realities of your customer. You need to create real value for people. When all is said and done, business is nothing more than the exchange of valuable things. You produce something customers value. And, in return, your customers give you something you value. Namely, cash money. And, voila, you have fulfilled the purpose of a business by creating a customer.

This is non-trivial because understanding the true nature of business allows you to understand the actions you must take. Going back to that image, from Drucker's book, you will see the phrase, “The Two Entrepreneurial Functions: Marketing and Innovation.” By pin-pointing the purpose of a business, we have identified our two main tasks.

There are several ways to conceive of marketing, and we will discuss them over time. There exists many models to draw upon when constructing your marketing strategy. These include the 4 P's, STP, and even Phillip Kotler's ME. Again, these are discussions for another day.

As far as innovation goes, again, I won't get into it here. All you need to know is that innovation is about creating customer value. It is something I have written about, at length, on the following website: The Future That is Already Happening

So, hop to it. Please. Take the time and answer the question, “What is our/my business?” And, don't say you sell photocopiers, or pharmaceuticals, or houses. Trust me, that's NOT your business. If you need some help, again, I would encourage you to read this post: Assurance to the Afflicted

What you're basically trying to answer is the following question, "What need/desire do I satisfy for my customers?" Looking at your business through the eyes of your customers is wonderfully useful. But, I must tell you, it ain't easy. It's hard, hard work. So please, get started today!

The Millionaire Real Estate Agent

This is an overview of the book The Millionaire Real Estate Agent by Gary Keller

Mr Keller's bio: Gary established Keller Williams Realty, with partner Joe Williams, in 1983. Keller is a native of Houston, Texas and a graduate of Baylor University.

Key point: Run your occupation like a real business. And the goal of a real business is to have others successfully run it for you. In particular this book is about how to net a million dollars in income through a business that others run for you.

Mr. Keller speaks to the importance of keeping it simple. He quotes jazz legend Charles Mingus as saying, “Making the simple complicated is commonplace; making the complicated simple, that's creativity.” He goes on to talk about creativity. He says we should build our creativity on top of solid, proven models. To do it the other way around would be too hard and take too long.

Speaking about models, Keller talks about making it to the top of the real estate mountain when he says, “Once the path was identified, the journey became more accessible to others.” It is mentioned that doubts can truly undermine our efforts. Knowing that others have achieved the exact success we strive for allows us to model the behavior. In turn we increase our chances of achieving the results we strive for. Gary gives the example of Roger Bannister and the four minute mile.

It had long be thought that no human being could run a mile in less than four minutes. Australian miler John Landy had made numerous high-profile attempts but had come up short each time. Then along came British medical student Roger Bannister. Bannister broke the goal down into manageable pieces, a quarter of a mile is less than a minute. On May 6, 1954 Roger ran the “miracle mile” in 3 minutes and 59.4 seconds. What's equally interesting is that Landy came back to break Bannister's record in less than two months. Once the psychological barrier was torn down, and the sub-four mile was proven possible, Landy and many others were able eo accomplish the feat as well.

“The truth about ability is that it is neither set nor predetermined,” says Keller. This may seem obvious to some, but many people don't believe it. The Stanford psychologist, Carol Dweck, wrote an excellent book on the subject titled Mindset. If you believe Keller's quote, you're said to have a "Growth Mindset." If you disagree, you are said to have a "Fixed Mindset."  While this may appear to be an inconsequential idea, it turns out to make all the difference in the world. I can't get into it here but I will be posting an overview of Dweck's book soon.

Anyways. Keller talks about The Three L's of his real estate agent model. They are: leads, listings and leverage. Gary says that every professional – regardless of whether they're a doctor, lawyer or whatever – has two jobs: their chosen profession and lead generation. It could be argued that many people choose to work in big companies so as to keep from being responsible for the generation of leads. Meaning, the unspoken code is, “You find the work and I'll do it.” Hopefully they come to understand the price they're paying for such abdication. Often the real value is in the finding of the work.

Keller suggests that you think of yourself as being in the lead-generation business. “If you count on the market to deliver leads when times are good, you better count on it to take them away when times are bad.” Indeed, one of the main ways to prepare for the inevitable shifts in the market is to create and maintain a habit of prospecting (lead generation). Gary says, “The ones who look like marketing and prospecting geniuses do it consistently over time and meticulously track and source their leads...For all its creativity and art, the part of marketing and prospecting that is science always rules.”

So Keller is saying that leads generation comes first, last and always. And the leads that you should be most focused on are seller-listing leads. Listings just flat produce more income than buyers. In the book Gary lists what he calls, “The Many Virtues of Seller Listings.” They are:

1. Seller listings mean marketing opportunities:

a) You get to put your sign in the front yard (and maybe directional signage, as well).

b) You get to market the listing through direct mail and email, etc.

c) You get to advertise the listing through newspapers, magazines, the MLS, your website, etc.

2. You have more control of your time. There is usually not the sense of do-it-right-now urgency with sellers that buyers often have. As such, you should be able to control your schedule a little better.

3. Seller listings maximize your per-hour compensation. It usually takes a lot less time to obtain and market a listing prior to its selling. More time consuming is showing and selling property to a buyer.

4. Volume, volume, volume. In Keller's experience a highly focused, highly leveraged real estate agent can work fifteen to twenty-five seller listings per month. And keep it up. The same agent would be hard pressed to work seven or eight buyers per month, while continuing to do so over a long period of time.

5. With seller listings you are on the front end of pricing, which translates into an intimate knowledge of the market.

6. Properly marketed seller listings bring you more business. Because of the multiple marketing

opportunities that are part of the listings process, Gary has found that on average, one well-marketed listing will generate one serious buyer who buys. So, if you focus on obtaining and marketing seller listings, you should be able to get all the buyers you need. It's the real estate industry's version of the “twofer.”

The last of The Three L's is leverage. Leverage is about three keys areas: people, systems and tools. Keller counsels, “Until you have maxed out on what you can accomplish through focus on leads and listings, you should not be hiring another person.” But, once you've got more on your plate than you can handle, you will want to hire help. The first hire will be the first piece of leverage and it should be administrative help. Obviously, such assistance will help with the load of administrative work. But also, this person will eventually help create and implement your systems, the second aspect of leverage. Keller clarifies, “Systems documentation is an ongoing process. It is never complete.”

Your documented systems are one of the tools of leverage which will allow you the freedom that comes with the passive income generated by your business. Two key pieces of advice are given and they are; one, know your numbers, and two, practice what Keller calls “Red Light, Green Light.” RLGL is where you take one step at a time and make sure that every expenditure pays for itself. Whenever adding an expense, hold it accountable and make sure it improves profitability. Whether it be an advertising expense or a new hire each expense needs to prove itself profitable before additional funds can be spent.

As you progress and grow your business make sure you are operating based on proven models. Gary quotes Warren Buffett as saying, “One learns through experience, and if not from experience, from those with experience.” You need to maintain a grasp of how the various aspects of your business interact to produce financial results. Obviously, this will help you practice Red Light, Green Light.

Keller references the legendary marketing book Positioning by Al Ries and Jack Trout. I won't explain this book too much. As you might have guessed, I have an overview written about Positioning as well. I plan to post it in the not-too-distant future. Suffice it to say, the marketplace is very congested with advertising messages. You need a strategy to get through all that clutter.

So, how do we fill up our sales funnel/pipeline with all the necessary leads. Keller says, “A strong marketing-based, prospecting-enhanced lead-generation plan backed by script and dialogue mastery is the best formula for creating the greatest number of leads for your business.”

As you probably know, your database IS your business. When marketing to your database you want to divide it into two groups: the people you've met and, the people you haven't. All the people you have met should go through the 8x8 and 33 Touch program. This means you will contact these people, once a week. for eight straight weeks. An additional 33 touches will come throughout the year.

From these efforts you should be receiving 2 closed deals for every 12 people you put through this program. Keller phrases it as 2 for 12 instead of 1 out of 6 because it should be one repeat sale and one referral sale. Remember to put the referred client back through the 8x8 + 33 Touch system.

For the group of people you have targeted but haven't met (including your farm) you will do the 12 Direct program. It stands for twelve direct mail pieces mailed out annually. From these efforts you should receive one closed deal for every 50 people you put through the 12 Direct program. And, of course, you want to take and put all new clients through the 8x8 + 33 Touch system. This may seem like an expensive endeavor. Gary encourages you to go ahead and do the math, based on expected commissions, and you'll see this system more than pays for itself.

Keller says the key to growing your business is to follow the four models and to focus on The Three L's. The four models are the following:

1. Your Economic Model – where you'll invest your money and time
2. Your Lead-Generation Model – 8x8 + 33 Touches and 12 Direct
3. Your Budget Model – accounting and Red Light, Green Light accountability
4. You Organizational Model – hire administrative help first, hire talent

As part of your organizational model, seller specialists are responsible for five key activities:

1. Converting seller leads into appointments
2. Making listing presentations
3. Securing seller listings
4. Handling communications during the marketing period
5. Negotiating purchase offers

Similarly, your buyer specialist is responsible for six key activities:

1. Convert buyer leads to in-office presentation appointments
2. Make the presentations
3. Secure the buyer listings
4. Show houses
5. Negotiate purchase offers
6. Handle communications from contract to closing

Keller figures you need $2.4 million in Gross Commission Income (CGI) to net a million in income. That because you will need $700K for Cost of Sale (COS) and another $700K for Operating Expenses. The break down is as follows, CGI – COS – Operating Expenses = $1M. To achieve $2.4M you're going to need lots and lots of leads. Hence the reason Keller spends so much time on the subject.

The book finishes with advice on a personal level. Keller reiterates, “Your growth will actually come before the growth of your business.” He takes a minute and discusses the idea of a balanced life saying that it's basically an illusion. Especially if you wish to be a high achiever. Life will often see-saw between balance and imbalance. The key, Gary says, is to, “allow imbalance when key goals are at stake, but not to dwell in that state too long.” Keller calls this “counterbalancing” and says it's much more realistic than a so called “balanced life.”

Keller references a book by Michael Gerber called the e-Myth. In it Gerber talks about the difference between working “IN” your business and working “ON” your business. Working in your business means doing the tasks that are necessary to close deals such as showing property, negotiating, prospecting, etc. Working on your business entails the bigger picture that you allow you to walk away with ownership of a successfully operating business. Examples would be defining the mission, detailing your values, orchestrating the direction of the enterprise, leadership, etc. When it comes to leadership Keller finds it useful to remember the acronym MVVBP. Meaning that you want to bring five key things to your venture: Mission, Vision, Values, Belief and, Perspective.

Keller says, if you stay focused and utilize the energy that comes with continuous learning, you too can net a million.

How can you use this information right now?

Focus on The Three L's of real estate: leads, listings, and leverage. Stick to the basics because fundamentals win championships. As obvious as it may seem, treat your job like a real business. Some people may not like this idea but, the language of business is numbers. To the extent that you can understand and master your numbers, you will improve the results you're getting and, your life will get easier. This includes things like you conversation ratios. It also means holding all, non-fixed, expenses accountable for improving profitability.

A Revolutionary Idea

Like most people, I love America. I am EXTREMELY thankful to have been born in to such an amazing country. The land of the free and the home of the brave, right? Especially the free part. Freedom is one of the most powerful words in these United States. In fact, a lot of people would argue that the two words (America & Freedom) are synonymous.

My whole career, and the mission of my company, is to realize the dreams of our founding fathers. It's all about, “Life, liberty, and the pursuit of happiness,” like Thomas Jefferson said. But if you want to really understand America you will need to understand paradox. From its conception, so much of the United States has been paradoxical.

Let's just take one example, and why not make it about the country's patron saint? I am speaking, of course, about George Washington. As we know, Washington led the Continental army and was our first President. One thing you may not have thought about is that resolving paradoxes was one of the main keys to George Washington's greatness.

The paradox, which has been in my mind lately, has to do with the Revolutionary War. In colonial times, a lot of people believed that dedication, and conviction, were all it would take to defeat the British. The idea was that colonists, who were devotedly committed to “The Glorious Cause,” could defeat the seasoned mercenaries that made up the British armed forces. This romantic illusion persisted for quite a while. But events in New York City changed everything.

All across Long Island and Manhattan General Howe, and the British, kicked the crap out of the Continental army. It was so bad that Howe had a very real chance of winning permanent victory. But, for some reason, he chose not to tighten the noose. The events in New York confirmed what General Washington had long believed. The only way to defeat a standing army was by becoming a standing army.

Herein lies the paradox. The imposition of a standing army was the very thing that the colonists were rebelling against. The imperialism of the monarch was precisely what caused a million dollars worth of tea to get thrown in the harbor near Beantown. And yet George Washington was proposing the creation of a standing army. Talk about a tough sale!! I mean, how do you recruit people to become the very thing they despise?

Washington is arguably the most important of the Founding Fathers. That said, he certainly wasn't perfect. In fact he was a pretty lousy general. He lost more battles than he won. And the colonist's two main victories were largely attributable to other people. In the case of the Battle of Saratoga, Horatio Gates was in command. And it was the French that were running the show at Yorktown.

As it was, Washington initially had wanted to fight the British head-on. Being an extremely proud and courageous man Washington wanted to go at it mano-a-mano. New York City demonstrated what a disaster such a strategy would have been.

In spite of the seemingly overwhelming odds, they did it. The revolutionary soldiers defeated the far superior forces of the British crown. The fact that the colonists won has led many people to deify George Washington. As Washington himself has said, “Reputation derives its principal support from success.” Had the Americans lost the war, the name Washington would probably have meant very little. As it turned out, victory allowed Washington to name the federal city after himself. Or at least suggest naming it that way.

George Washington was a great man. And much of his deserved reputation stems from his ability to resolve paradoxes. Indeed, solving paradoxes is one of the key tasks of leadership. And Washington was definitely a great leader.

So, how did he do it? What did he do? Put yourself in his shoes. What would you have done? In today's post I figured I'd ask questions rather than give answers. The reason being, this sort of mental exercise is quite useful. Actually, I can't think of an exercise that is more valuable than the practice of solving paradoxes. Difficult though they may be.

So, chew on it. Please. How would you have done it? How would you have defeated the British? And how would you have recruited people to become the very thing they hate? I will give you one hint, simply appealing to patriotism didn't work.