Tuesday, October 16, 2007

Who is Peter F. Drucker? Why Should You Care?

by George W. Mantor (Realty Times)

Peter Drucker passed away in 2005 at the age of 97. If that means nothing to you, it is important that you continue reading. You are in business. And Peter F. Drucker was to business what Billy Graham is to religion, what Mozart was to music, what DiMaggio was to baseball, a legend for the ages in his field of endeavor.

The "Druckster" was the mac-daddy of the business world and when he spoke, king-makers listened. And speak he did. For over 60 years he influenced generations of business people as a teacher, writer, and business leader.

He is widely regarded as the father of modern day management philosophy.

And his basic premise is more relevant to our business today than fifty years ago, when Drucker wrote, The Practice of Management, in which he raises the question of the very purpose of a business.

I often raise this question in my workshops and overwhelmingly people agree that the purpose of a business is to make a profit.

Drucker says they are wrong.

And this is the important lesson for us Drucker says, "There is only one valid definition of business purpose: to create a customer."

He notes that profit is the by-product of doing that well.

If you are waiting for customers to create themselves, fuhgeddaboudit. They don't know how.

Drucker stresses this point. "Markets are not created by God, nature or economic forces but by businessmen. The want they satisfy may have been felt by the customer before he was offered a means of satisfying it. There may have been no want at all until business action created it."

His core principal, if fully understood and implemented, is the perfect response to current market conditions that, in many places, have changed. Buyers are apprehensive. You can tell them that this is a great time to buy, but many still believe that values are going to decline dramatically.

On the supply side, there is a lot of dormant equity that is generating zero return or less for the property owner.

Despite our immersion in all things real estate, non-practitioners are frequently absorbed in other things. There are many customers waiting to be created in this group. How? Ask, what would Drucker do?

Analyze the situation.
During the last few years, many new licensees have entered the real estate business. At the same time, a hyper-robust economy, historically low interest rates and a growing population combined to create record numbers of transactions.

Now in most communities, the pent up demand has been temporarily satisfied and monthly closings have receded back to their baseline level.

There are now far fewer closings than the surplus number of licensees and that signals attrition within the industry. If you've been living off the frenzy, you had better get a new plan.

Define the customer you intend to create.
No matter how lofty it talks, the real estate industry cannot wean itself of the concept of "prospecting" and "lead" generation.

Everyday a dozen different companies email me about their great leads. Frankly, I cannot understand how, if all of these "leads" are so good, they could possibly trickle all the way down to me. Then I watch my DVD of David Mamet's "Glengarry Glen Ross" and Drucker's words come back to me.

The interesting thing to keep in mind is that customers have habits and patterns and these have been studied at length by the industry. And the industry doesn't like what it sees. In short, there is a problem. The customers timing is out of synch with the realities of the industry.

Buyers and sellers of real estate tend to take, on average, anywhere from five months to five years to "collect experiences" before acting. That exceeds the career life span of most new licensees and demonstrates the inefficiency of trying to time the beginning of the relationship at the exact moment when the customer is ready to act.

Real estate needs are driven by routine life events not because of real estate marketing.

Leads are perceived as having an immediate need. Once you have a lead all that is left to do is close them. Leads are for closers. But how do you close someone who is still in the experience-collecting phase? You can't.

But you can be their indispensable guide along the experience-collecting pathway.

Only you have the power to create great customers for you.

Make a simple plan.
For all of its hi-tech, gee-whiz gadgetry, earning a good living in real estate comes down to a few simple realities. Most new licensees will fail because there is not nearly enough business to support them all. Period!

Building a portfolio of marketable listings is the only way to attain security.

By focusing on sellers, the best buyers will come your way.

Set simple objectives as a way to avoid distractions. This will keep you on course doing the right things throughout the course of your business.

Present one CMA (Competitive Market Analysis) every day.

If you are working today, you are presenting a CMA. If not, it's a day off. You'll be tempted to do something else frequently, like show property. Do not be drawn away from your simple, daily objective. Before you do anything else you must set appointments, do the work, present your findings, and begin helping the client formulate a plan. Everything else is extra.

Have you ever thought about the connection between a CMA and a listing? In virtually every case, the listing was preceded by a CMA. Conclusion, more CMA's equal more listings as well as purchases and lending opportunities.

Rather than "trying to get a listing" use the CMA to create a customer for when they are ready to move forward with the next logical step in the plan that you are helping them develop.

Presenting a CMA is a great opportunity to create a customer. People are interested in the value of their homes so it is a very easy appointment to get. Your purpose is to explain the factors underlying their home's value.

Once the value and equity have been determined it is time to move the discussion to issues of asset protection. How do they hold title? Are they aware of the benefits of a living trust? Do they have adequate insurance on their real estate? Rapid appreciation has left many property owners short of insurance without them realizing it. Do they need a personal liability umbrella policy?

Explore how their real estate can be an important part of their overall life plan, college payment plan, retirement plan, business plan or other goal.

For example, real estate around colleges continues to appreciate. Parents are buying condos as a future residence for a college-bound child. Appreciation could offset the tuition and housing costs.

Your immediate objective is to do a CMA for everyone you know who owns real estate. You aren't selling anything; you are performing a valuable service. You must present it in person and you must explain exactly what data you analyzed, why, and how you arrived at your conclusion.

Marshall Your Resources.
What do you need to implement the plan? Two things: knowledge in the areas I am about to define and relationships.

Learn the fundamental tax laws regarding real estate. Many agents eschew any questions about taxes, but favorable tax laws are one of the great customer creators, because they are extraordinarily jaw-dropping generous and not well understood.

You should be very conversant with the tax payer relief act of 1997 and the details of the law prior to the enactment of Section 121. You should also be able to articulate the benefits of Section 1031 and how benefits can be combined, under certain circumstances, with Section 121.

And, a recent change regarding Private Annuity Trusts might suggest a need for a change in strategy for those planning to use this vehicle to defer capital gains taxes.

Learn financing. Repositioning dormant equity and creating exit strategies are the appropriate response to flattening appreciation.

Money ought to be working, but if there is no appreciation, property owners' money power is eroding. If they have the income potential and understand the tax implications, they might very well see the wisdom in repositioning some of their equity, refinancing, moving up, buying a second home or a rental, or creating a plan to do these things in the future.

Learn alternative real estate vehicles.

Longtime landlords might want to liquidate during an extended period of flat appreciation. The problems and responsibilities of owning and managing residential properties can be eliminated by exchanging into an alternative real estate investment such as a Tenant-In-Common (TIC) vehicle.

Beyond selling and lead generating is an entire market of customers who are waiting for you to create them. Planned real estate ownership is part of a long-term life plan. But real estate's value as an investment vehicle is often obscured by the fact that the industry is primarily focused on selling houses rather than creating customers with a lifetime of multiple needs to fill.

If you want to create more customers for your business, do what Drucker would do…offer something people would want if only they knew about it, and then go show them what is possible.

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