ThoughtSeed from Mid-Year: On Industrial vs. Artisanal Real Estate

One of the best things about conferences is having great conversations with really smart innovative people.  Garron Seliken of M Realty is one such smart, innovative person, and he and I (along with a bunch of other folks like Marie Still, Jay Thompson, Chris Drayer, and Daniel Rothamel) had lunch today at NAR Mid Year.

Which then led to a thoughtseed — nothing fully fleshed out, but an idea I’ll be exploring more in the days ahead.

Basically, the idea is that we are experiencing the transition from the Industrial Age to a New Artisan Age.  The Industrial Age is marked by large organizations leveraging the efficiencies of things like the assembly line, division of labor, vertical and horizontal integration, etc. to create mass-market products.  Levi’s can go from a one-man tailor shop to a global corporation on the basis of the Industrial Age.

The New Artisan Age, however, is marked by at least an homage to craftsmanship, the idea of a more personal, more customized, more intimate product created by a single artisan for a particular customer.  Maybe some designer might offer a custom-made bespoke pair of jeans, at $500 for a particular customer to fit her body and her preferences.

It seems to me that the general consumer behavior is heading in that direction.  Think about the explosion of microbreweries, artisanal farming, and so on.  People are willing to pay a premium for products they believe are more than just the bare product and its functions.

In my conversation with Garron, it seems to me that his brokerage M Realty, is practicing a form of artisanal real estate brokerage.  He spent a lot of time talking about how he works with each and every agent on an individual basis, creating strategies, offering advice, and offering technology that are custom-tailored to that particular agent’s strengths and weaknesses.  The best example is an agent who wanted an IDX website; Garron found that this agent got most of his production from five people in his sphere of influence.  The advice, then, is to forget about the IDX website, and spend more time with those five people, and maybe make that eight people in the sphere.

Customizing activities to the particular idiosyncracies of the particular agent… isn’t that sort of artisanal real estate (brokerage)?

Krisstina Wise of GoodLife Team also does this, in a different way by building a brokerage around the principle of coaching.

If you will, Keller Williams — a company whose mission statement says that it is a training organization that happens to run a real estate brokerage — is a product of the Industrial Age.  M Realty — a company that turns out to be a coaching organization that happens to run a real estate brokerage — is a product of the New Artisan Age.

Something to think about.  When I have more time.

One question is whether this difference between Industrial and Artisanal extends to the relationship between the agent and the consumer.  (Or better yet, a question might be whether the real estate transaction was ever Industrial to begin with….)

-rsh

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  • http://twitter.com/ProfessionalOne Michael McClure

    Rob,

    This thought is a nice extension of your “Does Size Matter”? series.

    As you dig deeper, it *feels* like you are coming to the same kinds of conclusions that I've been moving toward over the last 5ish years.

    And I absolutely agree that the overall societal trend – not just in real estate, not just in personal services, but in ALL things – is toward smaller/more intimate/more personal, and away from larger/one size fits all/institutional.

    Your microbrewery analogy is 100% spot on. THAT is the kind of model that is coming to real estate.

    Whether this trend is borne of the explosion in Social Media, or organic and simply fueled by Social Media, I think this is the wave we're going to be riding for at least the next decade, and maybe more.

    “Boutique” is in.

    “Monolith” is out.

    Best,
    Michael

  • http://twitter.com/danwoolley danwoolley

    Rob – You're also seeing this in software development, especially in web and mobile apps. It's being driven by declining prices for dev and hosting the past three years, making the efficiencies of a large company less necessary. The most visible symbol for this is 37 Signals out of Chicago who espouse a more artisanal approach to development.

  • http://www.bawldguy.com BawldGuy

    Rob — Having seen a few iterations over my longish time in real estate brokerage, I'm curious. How would a brokerage with well over 100 full time agents fare in the market, if they followed this new 'Artisanal' approach?

  • http://www.chitownliving.com Jeff Kerr

    Post got me thinking. In our Chicago market the small brokerages are mostly being absorbed by the larger brokerages as they can no longer sustain their operating costs as a stand alone entity. That said, the smaller brokerages are moving into the larger brokerages and maintaining or operating as teams in many cases. They are now operating as a “brokerage within a brokerage” if you will. The deciding factor as to where they move often seems to be which large brokerage will be the best cultural and operational fit. In many cases regionals win out as they have the most flexibility to allow teams to function independently while providing leading infrastructure and marketing. Interesting to see if the trend continues.

  • robhahn

    @Michael – Thanks mate. This is still a “thoughtseed” though — haven't fully processed what might be an insight here, and not sure I know all of the answers.

    My take right now is that it's a little too early to say “boutique” is in and “monolith” is out. There is a momentum towards boutique/artisanal type of stuff amongst at least a big chunk of the consumers, but people still shop at WalMart more than they do any other store.

    And note that I'm still thinking of M Realty as a brokerage whose customers are the agents, not the ultimate homebuyer/seller.

    @BawldGuy — really not sure how it would work with that many agents. One of the issues with both M Realty and GoodLife is scalability. It isn't clear that they scale particularly well. On the other hand, it isn't clear that they need to scale. Like some artisanal cheesemaker, it isn't clear that they'd even want to get much larger. If the personal attention of the chef/craftsman/broker is really the value, then it's unlikely that such an operation could scale beyond what that person is able to focus on….

    -rsh

  • http://twitter.com/ProfessionalOne Michael McClure

    Rob,

    On the issue of scaling, I agree with what you wrote: “It isn't clear that it needs to scale.”

    I think the notion that a real estate franchise concept NEEDS to scale is in and of itself somewhat “old school” and derivative of the traditional big box, build-it-and-they-will-come (and-sell-nearly-nothing) approach.

    People just ASSUME that agent count is the “right metric” in real estate.

    It's not.

    BASELINE PROFITABILITY is the right metric.

    That is, what is the “financial blueprint” of the brokerage? How many moderately producing agents are needed to break even? How man are needed to earn a 20% ROI? A 40% ROI? A 50% ROI?

    Now you're thinking, “OK, but don't you need agent count to drive baseline profitability?”

    Not necessarily.

    Not if you build the business correctly from an expense/overhead/technology perspective, in which you create the optimal physical office arrangement at the lowest possible cost.

    To cut to the chase and to use a simplistic illustration, I see the brokerage of the future as 30 fairly uniform, philosophically aligned agents selling $2M on average per year, in a small, low overhead operation, as opposed to the old model, of 60 random agents selling $1M on average per year in a monstrosity that costs a fortune to run, which is a nightmare to manage and police, and which “sits 90% empty 90% of the time” (this is an actual quote from the former broker of a 16,000 square foot, $100K per month in overhead operation that went bankrupt in my market; see at http://budurl.com/dgez).

    The ROI of this new model can be excellent. The ROI of the old model was and often still is bankruptcy. Not to mention that it is inherently easier, less stressful and less problematic to manage 30 people than it is to manage 60.

    I'm just now wrapping up a blog post that explains this point in greater detail. Look for it on http://P1Fran.com in the next week or so…

    Best,
    Michael

  • http://twitter.com/benjaminbach Benjamin Bach

    from a broker's perspective, is ~2mil really a good level? People would barely be making a living after business expenses !

  • http://twitter.com/ProfessionalOne Michael McClure

    Benjamin,

    The idea behind this illustration was to demonstrate financial conservatism in terms of business planning and thinking.

    Ergo, if a broker can run a brokerage and make a good return on his investment with a relatively small number of agents selling at a modest level, think of how much more he can make if his agents sell at a stronger level? THAT was the point.

    Best,
    Michael

  • http://twitter.com/ProfessionalOne Michael McClure

    Rob,

    On the issue of scaling, I agree with what you wrote: “It isn't clear that it needs to scale.”

    I think the notion that a real estate franchise concept NEEDS to scale is in and of itself somewhat “old school” and derivative of the traditional big box, build-it-and-they-will-come (and-sell-nearly-nothing) approach.

    People just ASSUME that agent count is the “right metric” in real estate.

    It's not.

    BASELINE PROFITABILITY is the right metric.

    That is, what is the “financial blueprint” of the brokerage? How many moderately producing agents are needed to break even? How man are needed to earn a 20% ROI? A 40% ROI? A 50% ROI?

    Now you're thinking, “OK, but don't you need agent count to drive baseline profitability?”

    Not necessarily.

    Not if you build the business correctly from an expense/overhead/technology perspective, in which you create the optimal physical office arrangement at the lowest possible cost.

    To cut to the chase and to use a simplistic illustration, I see the brokerage of the future as 30 fairly uniform, philosophically aligned agents selling $2M on average per year, in a small, low overhead operation, as opposed to the old model, of 60 random agents selling $1M on average per year in a monstrosity that costs a fortune to run, which is a nightmare to manage and police, and which “sits 90% empty 90% of the time” (this is an actual quote from the former broker of a 16,000 square foot, $100K per month in overhead operation that went bankrupt in my market; see at http://budurl.com/dgez).

    The ROI of this new model can be excellent. The ROI of the old model was and often still is bankruptcy. Not to mention that it is inherently easier, less stressful and less problematic to manage 30 people than it is to manage 60.

    I'm just now wrapping up a blog post that explains this point in greater detail. Look for it on http://P1Fran.com in the next week or so…

    Best,
    Michael

  • http://twitter.com/benjaminbach Benjamin Bach

    from a broker's perspective, is ~2mil really a good level? People would barely be making a living after business expenses !

  • http://twitter.com/ProfessionalOne Michael McClure

    Benjamin,

    The idea behind this illustration was to demonstrate financial conservatism in terms of business planning and thinking.

    Ergo, if a broker can run a brokerage and make a good return on his investment with a relatively small number of agents selling at a modest level, think of how much more he can make if his agents sell at a stronger level? THAT was the point.

    Best,
    Michael