Re-Inventing the Wheel

I have been thinking of investing in rental real estate, and I recently posted on a contractor forum seeking input from anyone who has previously done so. The response was quite interesting.

I was quickly told about the problems I would face, such as tenants who don’t pay, destroy the property, or both. I pointed out that with the proper systems in place, such problems could largely be avoided. But this did not dissuade the critics.

I was struck by how similar this is to other things I frequently hear from painting contractors: door hangers don’t work, yellow pages don’t work, customers are cheap, nobody appreciates quality, illegals are stealing all of the work, yada, yada, yada. I call these people the nay-sayers.

And then this morning I received the following Thought of the Day from the Napoleon Hill Foundation:

A POSITIVE MIND FINDS A WAY IT CAN BE DONE. A NEGATIVE MIND LOOKS FOR ALL THE WAYS IT CAN’T BE DONE.

Certainly there are challenges in rental real estate, just as there are challenges in contracting. So? If it were easy, everyone would do it. The challenges aren’t the issue here—how we deal with those challenges is.

The nay-sayers continue to insist that painting contractors can’t make money, despite an abundance of evidence to the contrary. They see each obstacle as an impenetrable wall that halts any progress. And when someone points out evidence that contradicts their conclusions, they respond with more excuses: that may be true in large cities but not in rural areas, I don’t want to be a high pressure salesman, I won’t compromise on my quality, yada, yada, yada.

Whether it is real estate or contracting, the nay-sayers are determined to stick to their conclusions, come hell or high water. Their situation or market is completely unique, and sound business principles simply do not apply. This of course, is simply not true.

Whether they realize it or not, the nay-sayers are making an admission: they lack the skills, ambition, perseverance, or some other characteristic necessary to overcome the challenges. The crucial fact that the nay-sayers overlook is that, in most situations, others have already overcome the challenges.

A wise man learns from his mistakes. A really smart man learns from the mistakes of others. In other words, don’t try to re-invent the wheel. Learn from those who have accomplished the goals you seek. Find a mentor and listen to his advice.

This does not mean blind obedience. You must judge for yourself the prudence of each idea. But it can be a huge waste of time, money, and energy to try to discover each idea on your own. This applies to real estate, and it applies to paint contracting.

Kissing Butt as a Sales Tactic

Some painters seem to think that effective sales means kissing the customer’s butt, gushing insincere platitudes, and similar types of fakery. This is no different from the proverbial used car salesman. Both are a form of dishonesty and manipulation.

The implication is that the truth is somehow one’s enemy. But the fact is, the truth is always our ally. The truth provides illumination and understanding. Dishonesty brings about destruction. The truth may be unpleasant, but burying one’s head in the sand or believing fantasies will ultimately be far more so.

This does not mean that we must be uncivil and speak every thought that enters our brain. Speaking the truth means not faking reality. It doesn’t mean being unnecessarily rude.

Effective sales is about communication and education. This means discovering the customer’s needs and desires, and then communicating how your company will satisfy those values. This requires a commitment to what is true, not what you think the customer wants to hear. Stating that the putrid green color the customer selected is perfect for her dining room ceiling is not helping anyone if you truly think it’s the wrong color.

Customers hire us for our expertise, not because they want a lap dog. If we think that the customer is making a bad decision, we have a moral responsibility to say so—and provide the reasons for our opinion. Most of the time this is incredibly effective as a sales strategy. It tells the customer that we are truly interested in what is best for her. Most people appreciate the honesty.

Again, there are civil ways to put your foot down. Honesty does not require that we insult the customer’s intelligence or berate them. Simply state the facts—you don’ think the color is appropriate because it clashes with her furniture and flooring (or whatever the actual reason is).

Too many contractors think that sales is all about manipulating people to make a purchasing decision that they don’t want to make. They see the sales process as a contest of wills between the contractor and the customer, in which each is trying to screw the other. But if we view the sales process as a mutually beneficial exchange (which it is), both our attitude and our results will be much more positive.

Tightening the Belt

Tough times call for tough decisions, and cutting overhead can be one of the toughest decisions. Operating a business requires certain overhead costs, such as phones, equipment maintenance, advertising, and insurance. If we eliminate, or greatly reduce some of these expenses, we make it increasingly difficult to stay in business.

This can seem like a horrible Catch-22 situation. If we cut these costs, we take significant business risks. If we don’t cut these costs, we risk facing severe cash flow problems. What is a contractor to do?

Now, more than ever, knowing your numbers is crucial. Understanding your cost structure and selling at the right price—that is, a price that is profitable—is the first step. If you aren’t doing these things, almost nothing else matters.

There is no simple answer to this dilemma. Each contractor must assess his particular situation in the context of his business and goals. But it is important to keep long term goals in mind when doing so. For example, saving a few dollars today on advertising may be disastrous in the long term.

The recession isn’t limited to contractor—other businesses are also slowing down. This can be an opportunity to negotiate better rates on advertising, phone service, and other overhead items. As an example, we recently switched our phone service at a savings of more than $150 per month.

If you find yourself needing to trim your overhead, examine your financial statements closely—year to year comparisons can be particularly helpful. They can show where expenses have risen most significantly. Compute the ratio of each expense to revenues—raw numbers are not always helpful when revenues fluctuate. Most of all, develop a plan for dealing with your particular financial situation.

Cash and Spending

If you pay much attention to the media, you will quickly "learn" that many of our economic problems are being caused by consumers spending less. Less consumer spending, the argument goes, means less demand for goods and services. According to this thinking, stimulating spending--in either the private or public spending--will get the economy rolling again. In other words, we need more spending. However, even though the federal government is pumping trillions of dollars into the economy, much of the money is being used to improve balance sheets--that is, saved.

There are several errors in thinking that consumer spending drives the economy. First, it simply isn't true. Say's Law states that supply creates demand. An increase in production results in an increase in demand. Or to put it differently, consumption cannot occur without production.

Another error is that savings are spent. If you put $100 in the bank, that money is subsequently loaned to businesses or individuals. They then spend the money, either on expanding production (in the case of business) or for consumption (in the case of individuals).

As owners of small businesses, we will certainly feel the pinch during this recession. Consumers are spending less, which will translate to fewer leads and less work. If we listen to many of the "experts" we should not be saving money or paying off debt--we should be spending so as to stimulate the economy. But this could be extremely foolish, and ultimately destructive to many individuals.

It is always wise to spend less than you make, to save and invest. That doesn't change when the economy slows.