Starting a Brokerage? 7 Questions to Consider

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People start real estate brokerages for several reasons. Maybe they’ve cultivated a strong client base and efficient ways to work with them. Maybe they have a passion for the industry and want to dedicate their life to it. Maybe they seek independence and growth. Whatever the reason, there are seven important questions to ask before getting started, according to Peter Thiel’s Zero to One: Notes on Startups, Or How to Build the Future.

  1. Is now the right time to start your particular business?

Timing is everything. Evaluate not only the real estate industry but other industries as well to see how they’re doing. This is not to say that there is always a right time to start a business. Indeed, many companies have started in economic downturns and with uncertain futures. As Thiel points out, “Entering a slow-moving market can be a good strategy, but only if you have a definite and realistic plan to take it over.” There are certainly more optimum times to start a business, too. Compare what your brokerage needs now with what it’ll need several years into the future to determine if you and your agents, staff, and customers are ready.

  1. Are you starting with a big share of a small market?

Say you’re a restaurateur. While there are several million restaurants across the world, what does your restaurant offer that no other restaurant provides? Are you the only restaurant in the world that serves lobster rolls from a food truck parked in front of every federal courthouse in the country? Although that particular market may not seem large, one restaurant could certainly have a monopolistic operation.

The same questions can be asked of your real estate niche. What will your real estate company offer that no other brokerage provides? Are you an expert in a particular neighborhood, a certain type of home, a specific type of purchase or sale?

To best answer the monopoly question, determine what your real estate business can do best and how it can serve its core customers better than anyone else. When you figure out this formula, you’ll be able to ward off competition.

  1. Will your market position be defensible 20 years into the future?

A really great company creates its own durability. For example, in the late 19th and early 20th centuries, the primary mode of transportation for individuals was the horse-drawn buggy. When Henry Ford introduced the Model T automobile, the public initially did not react well to the invention. At the time, the general opinion was that automobiles would never last. Today, with perfect hindsight, we can clearly see the automobile was a great invention and certainly answered the durability question.

If the market changes in 20 years, how well will your brokerage be able to adapt to the market forces?

  1. Can you create breakthrough technology instead of incremental improvements?

This question is the most difficult for most business owners to answer. Some of the best companies have simply taken an existing idea and made it better. Chick-Fil-A says it best: “We didn’t invent the chicken — just the chicken sandwich.” While there is certainly nothing wrong with taking an existing idea and making it better, companies like this will not build the future.

You have to be innovative and bold to make a long-lasting impression. You cannot think about what people are doing right now; you should think about what people will be doing 20 years from now. How will people be shopping for, buying, and selling real estate in two decades? How will today’s 5-year-old want to shop for and purchase a home when they’re 30?

As Thiel puts it, “Companies must strive for 10x better [improvements] because mere incremental improvements often end up meaning no improvement at all for the end user.”

There is a certain element of risk involved: What if what you think everyone will use in 20 years doesn’t come to fruition? Just remember, with risk comes great reward. If you can successfully build a new real estate product, service, or way of doing business that does not currently exist, you will create a long-lasting company.

  1. Do you have the right people on your team?

What good is the world’s best baseball team if it does not have a great manager to lead and organize the lineup in an effective manner?

Finding the right talent to add to your team and great managers who will implement your vision is a big challenge when starting a brokerage. You must first set the mission and vision of your brokerage. Having your goals clearly defined will give you an idea of who has the right skills and talents to join or lead your vision into the future.

  1. Do you know how you’re going to reach out to potential buyers and sellers?

Let’s say you just wrote the next great American novel. You have spent countless hours writing and editing your story to make it the best work possible. But how do you know if you truly have a great piece if no one will ever read your story?

This is the importance of distribution.

Having top-notch customer service or highly experienced market knowledge is only useful if buyers and sellers know about it. While every business has the capability to create new distribution channels, only the best companies utilize their most effective distribution channels to their advantage.

The secret to utilizing your distribution channels is that there is no secret. While one brokerage may be the best at marketing to millennial buyers on Instagram, another brokerage may have an effective mailing campaign targeting sellers in 55-and-older communities. There is no right or wrong way to maximize your distribution. The trick is to find what’s working for you and make sure you are maximizing your exposure to best suit your niche and your clients’ needs and wants.

  1. Have you identified a unique opportunity other brokers don’t see?

The level of importance this question has cannot be understated. How well you answer this question will determine how well you can expect your company to grow in the future. If you have no distinct competitive advantage over other real estate companies, what will keep your customers and clients from going to a competitor? On the flip side, if your competitive advantage is so great that no other company has any idea how to compete with you, what’s holding you back from obtaining every client?

This article was previously published on REALTOR® Mag in October 2015.


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