Three Drivers of Economic Growth

by Victor Lund on February 22, 2016

Sometimes, business owners fail to understand or focus on the basic elements of growing a business. As a consulting firm, we have a distance from the business that allows us to see things that business operators often miss. The funny thing is that we miss them in our own business.

I remember talking to my Uncle Albert about this as a kid. He owned a house painting business that was very successful. It afforded him the Growthopportunity to live on Plain Street in Historic Lewiston, NY. It is a charming street of grand, three-story homes with pillared center entrances. Because it is located in the historic district of town, each home was painted white. The only whimsy was the color of the trim. Most homes along the street choose the stately color of black for the trim. My uncle painted every home on the block except his own.

Economic growth in your business is driven by the same three factors that drive the economic growth of our nation. Regardless of your enterprise, this does not change. Capital, Labor, and Productivity are the three primary economic drivers of growth.

Capital

Strategically, capital is a hard one to manage. Our government runs at a capital deficit of somewhere over $18 trillion dollars. The United Kingdom has about $2.2 trillion in debt. Zillow has $520 million in cash and $230 million in debt with a negative profit margin of 23%.Capital

My businesses have zero debt. I must be doing something wrong. Right? Do MLSs or Associations of REALTORS® carry debt? Probably not. Or if they do, it’s on a building where they have a favorable debt to equity ratio. Do brokerages carry debt? Some do, others don’t.

Interest rates in America are at their historic lows. Using leverage, businesses have a rare economic opportunity to grow tremendously. Having a good capital strategy will allow you to fuel growth in your business.

Labor

Labor is pretty tricky. The best strategic philosophy on labor is to hire slow and fire fast. But labor is a key to successfully driving growth. If you Laborlabor pool has people operating above capacity, you are stifling your growth. If you want to grow 20%, you need to have the people in place ahead of the growth, not after the growth. I see this happen with technology companies over and over and over again. They invest in building a product, but do not invest in the marketing, sales, support, or training teams. How often have you gotten a product demo from the CEO of a company? Is it typical, occasional, or rare?

It is also interesting to look up the word labor in the dictionary. It means work, especially hard physical work. That type of labor is really hard to develop in your business. But if you are a great leader, you can be the master of engaging your labor force to work hard.

Productivity

Real estate thinks a lot about productivity. We even herald a group of people in our industry called “top producers.” In my experience, top producers are people that deliver the least productivity in real estate. They absorb transactions at a high rate and deliver very little return to the Productivitybusiness. Their rate of output per person is very high, but the economic growth from the productivity is very low.

The highest rates of productivity in real estate are related to economic value per unit. If you are an MLS, you want to maximize your economic value by satisfying the largest core audience of subscribers who are transacting. This means segmenting your users by transaction volume and focusing on that group. Stop listening to the crowd of agents who don’t sell anything. That group will stall your economic growth. Also, be lean in your product offering. Focus on delivering high value applications and turn everything else off. The same is true for brokerages.

Economists would suggest that the market will be flat or slightly up 5% in 2016. Our clients are projecting enormous growth rates because they are operating against a clear set of economic growth objectives. They are budgeting, hiring, and focusing on their strategic goals. I can’t wait to see the results.

 

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