Home Brokers & Agents A Theory of Real Estate Brokerage: Thinking About Dr. Dunbar

A Theory of Real Estate Brokerage: Thinking About Dr. Dunbar

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I saw the following cross my Twitter feed earlier today:

 

Brian Solis, of course, is the widely respected “social business” author and consultant, and I’m sure the FastCompany article is full of goodness (it actually is; do check it out.)

But since I work in real estate industry, I got to wondering about a few things.

First off, if any industry embraced social media, it was the real estate industry. I don’t think it’s a stretch to say that no other industry or profession — except maybe SEO consultants, social media gurus, and the like — got as heavily involved with blogs, Facebook, Twitter, Instagram, Pinterest, whatever-flavor-of-the-week as real estate did.

Second, for an early adopter industry, the track record of social media marketing is spotty at best. Some real estate companies and agents have done fantastically well. Others have struggled and failed, despite spending hundreds of hours and thousands of dollars.

Third, in the midst of all this, I feel as if we are in the midst of a push for “social business” in the mainstream corporate world as very large brands start to figure out how to use social networks and social engagement methods to brand themselves, create fans, and push products/services.

So let’s think out loud for a second here. Oh, who am I kidding. It won’t be a second; it likely won’t be minutes either.

Social Business

The first place I’ll start is with a confession. I don’t have a clue what “social business” actually means. The Wikipedia definition, which goes with Nobel Laureate Muhammad Yunus’s definition, is as follows:

In Yunus’ definition, a social business is a non-loss, non-dividend company designed to address a social objective within the highly regulated marketplace of today. It is distinct from a non-profit because the business should seek to generate a modest profit but this will be used to expand the company’s reach, improve the product or service or in other ways to subsidise the social mission.

Since pundits and consultants use the phrase “social business” and apply it to entities like Coca-Cola, I highly doubt that’s what they mean by it. Yunus’s definition seems closer to “socialIST business” actually.

The right definition seems to be “social business model“:

Organizations that have adopted the social business model utilize social media tools and social networking behavioral standards across functional areas for communicating and engaging with external audiences, including customers, prospective customers, prospective employees, suppliers, and partners.

The idea, I guess, is that when businesses utilize social media and social networking, and then “engage” with customers, prospects, employees, partners, etc., this results in all sorts of benefits for the company. I’ll happily grant them that.

Thing is… I wonder if the whole point of “social business model” is for large enterprises to mimic the behavior of very small ones.

Consider this. The most “social business” I’ve ever dealt with was the dry cleaner near my house in New Jersey. I first started going there in 2005 or so when we moved into the neighborhood, but over time, I got to know Mrs. Kim, and she got to know me and my family. I’d stop in, drop off my clothes, and we’d chitchat for a bit about the weather, the family, church (Mrs. Kim was married to Rev. Kim, and my parents are both pastors so there was a connection there), whatever. My kids would come with me on some errands, and get candy from Mrs. Kim and prance around. Her company did good work, but more than anything else, the familiarity with the owner, the relationship we slowly built made it inconceivable that I’d take my dry cleaning anywhere else.

Isn’t this the whole point of social business? To somehow create these thick bonds of relationship between say Coca-Cola and the consumer that approximates the bond between Mrs. Kim and myself?

Human Connections Are Irreplaceable

The trouble for me is that I simply don’t see those “social branding connections” as being anything like a real relationship. Brand marketers love to talk about engagement and relationship to the brand as if the brand is a live human being. That’s simply not true. People can like a brand, hate a brand, love a brand (see, e.g., Apple fanbois), but they know instinctively that the brand is not a person and therefore, there is no relationship there. There’s something else there, but it ain’t a relationship.

Social business models, therefore, are analogous to voicemail systems: they approximate human behavior, try to seem human, try to sound human, but they are clearly not human.

Furthermore, with product companies, the consumer’s relationship with the brand is inherently through the product: Apple iPhone, Diet Coke, etc. It isn’t through a human being who works at the brand. With service companies, however, the exact opposite is true. The consumer isn’t buying a widget; he’s buying a person’s time and knowledge and energy.

So it seems a truism to me that the meaning of “customer service” and “client relationship” is dramatically different for a product company vs. a service provider. In my mind, only a service company can have relationships with customers, because their “product” is a live human being (in some way, shape or form).

Enter Robin Dunbar

Robin Dunbar is a British anthropologist who came up with the idea that human beings have a finite number of connections or relationships that they can manage. From Wikipedia:

Dunbar’s number is a suggested cognitive limit to the number of people with whom one can maintain stable social relationships. These are relationships in which an individual knows who each person is, and how each person relates to every other person. Proponents assert that numbers larger than this generally require more restrictive rules, laws, and enforced norms to maintain a stable, cohesive group. No precise value has been proposed for Dunbar’s number. It has been proposed to lie between 100 and 230, with a commonly used value of 150. Dunbar’s number states the number of people one knows and keeps social contact with, and it does not include the number of people known personally with a ceased social relationship, nor people just generally known with a lack of persistent social relationship, a number which might be much higher and likely depends on long-term memory size.

Dunbar’s number was first proposed by British anthropologist Robin Dunbar, who theorized that “this limit is a direct function of relative neocortex size, and that this in turn limits group size … the limit imposed by neocortical processing capacity is simply on the number of individuals with whom a stable inter-personal relationship can be maintained.”

The first idea is that there is a finite number of relationships — 150 or so — that any person can maintain at any given time. Note that Dunbar’s Number specifically excludes ceased relationships (“My ex-girlfriend from high school”) or casual acquaintance (“We’re Facebook friends.”) We’re talking about people you know personally, keep in touch with, interact with, etc. The key phrase for me is “persistent social relationship”.

The second idea — from Robin Dunbar — is that this limitation is a function of biology: the size of the neocortex. In other words, it’s kind of a hard limit. There may be individuals who are better than others at maintaining relationships, but we’re not talking orders of magnitude here — some human being who can maintain 50,000 interpersonal relationships, for example.

The inference I draw here is that most of what service providers call “relationships” is actually not a relationship. It falls more into the casual acquaintance arena, or into the area of ceased relationships. This is particularly true in real estate, where an agent might work closely with a seller for six months, establishing a close working and often personal relationship, and then go seven years without hearing a peep from him.

With all that as background…

Theory #1: The Client-Agent Relationship

If the Dunbar’s Number theory is correct, then the first conclusion I draw is that most real estate agents simply do not have a relationship with many clients or ex-clients. This isn’t a function of laziness (“you failed to stay in touch”) or of tools (“if only I had a good auto-drip email system”) but of the size of the neocortex. 🙂

After all, if each person can manage only 150 relationships or so, one has to assume that friends, family and coworkers will take up a large chunk of that 150 number. The remainder can then be spent on maintaining an active stable social relationship with clients or ex-clients.

The other thought I have here is that when a real estate agent starts working with a new client — thereby adding him to the list of people with whom she has to have a stable social relationship at least for a while — that impacts her ability to maintain relationships with at least one person in her existing circle. (For sake of convenience, let me call this the “Dunbar Circle”.) That 150th person, if you will, has to move into the “ceased relationship” area.

I think this is true. When I get busy with work, I know I let up on emails or phone calls. Part of it is being busy, but another part of it is that I simply do not think about certain people, because I’m working with other people. My brain is limited, like every other human’s brain, in how many active stable social relationships it can manage at a given time. It may be that after the work is finished, I can re-establish relationships with some of those people, but it may also be that the new relationships stemming from the work replace those relationships permanently.

The Dunbar Circle, in other words, is not fixed. It’s fluid, and changes, but it remains limited.

I can’t help but feel that this idea has to impact things like referrals. The key phrase in real estate is “staying top of mind”. But the consumer also has a Dunbar Circle, and whether you are in it or not depends upon how many other relationships that consumer has in his life as well as how active your social interactions are with him. If you play poker with the guy every other week, chances are that you’ll remain in each others’ Dunbar Circle. If you just send him a “Newly Listed” email once in a while, chances are that you’re outside of it.

Theory #2: Real Estate Management

The second conclusion I draw from the above is that there is a finite limit to how many agents can be actively managed by a sales manager, office manager, broker, what-have-you. The manager also has a Dunbar Circle, which includes friends and family and coworkers (the boss, corporate hierarchy, vendors, etc.). It seems inconceivable to me that an office manager could effectively manage 3-400 agents. They can effectively manage some number of agents (Dunbar Number – Personal Relationships – Corporate Coworkers = Agents Managed Effectively), and then sort-of manage the rest. Kinda like the difference between voicemail and talking on the phone.

Now, consider the fact that the general rule of thumb in the industry is that 20% of all agents do 80% of the work. And every brokerage office I’ve ever seen or heard about has a fairly sizable number of agents in the bottom tiers who do nothing at all.

Question is — and I honestly don’t have any data on this — how many of these cases are from large offices where the manager’s Dunbar Number has been exceeded?

Put another way, let me hypothesize that a 300-agent office suffers from higher rates of sub-par performers than does a 100-agent office, which in turn has higher rates of sub-par performers than does a 50-agent office. Is there any data to support or contradict that hypothesis?

The theory of Dunbar’s Number would suggest that the smaller offices would have lower rates of sub-par performers, simply because the manager who is tasked with training, coaching, educating, and working with agents to maximize their productivity has enough slots in his Dunbar Circle to effectively manage the agents — or get rid of them and bring in new ones. The larger offices, in contrast, might have a manager who would love to do all of that, but simply doesn’t have enough leftover slots in his Dunbar Circle to do anything more than send out a memo once in a while to agents who never show up to the office meetings anyhow.

That would point towards a strategy in which a large brokerage would intentionally reduce the office size to allow the manager to do his job effectively. The Swedish Tax Office has apparently embraced the idea and reorganized the workforce to limit each office to a maximum of 150 people. We also know that Gore-Tex embraced the concept, and limited its office and factories to a maximum of 150 people, building new ones when the number went above 150. And business has never been better, apparently, for Gore-Tex.

I hypothesize that a large brokerage could achieve higher productivity per agent, which in turn drives both revenues and profits, simply by limiting the size of each office to a maximum of 150. (I would actually say fewer, taking into account the personal connections in an office manager’s Dunbar Circle.) And it isn’t enough to just setup a new manager for every 150 agents; they must be housed in a separate facility, since so much social interaction happens in physical space, “around the water cooler” as it were. I further hypothesize that the current move towards virtual brokerage, towards reducing office space per agent, etc. might actually backfire in terms of productivity unless the manager makes an enormous effort to ensure that those offsite agents are part of his Dunbar Circle. Out of sight is out of mind in many cases.

Theory #3: Intentional Distribution of Clients

The final theory — nay, hypothesis, if not rank speculation — is that a brokerage might achieve higher levels of productivity if it mandated limiting the number of active client relationships per agent. This is, of course, difficult to even conceive of implementing as things are setup today. But let’s explore the idea anyhow.

The idea is that the manager — who has limited the number of agents to one within his Dunbar Circle — would actively work with each of those agents to get them to actively manage client and ex-client relationships, and force the handoff of any relationship that would fall outside the agent’s Dunbar Circle to another agent in the same office who has the “mental room” for it.

Taken to an extreme, it might mean something like this:

  • Each agent is allowed a maximum of 150 people in her database.
  • To bring in a new person into the database, the agent must choose one to eliminate.
  • That client is handed off to another agent in the office who has slots in her database.

One can imagine a daisy-chain: Agent A hands off a relationship to Agent B, who in turn hands off a different relationship to Agent C, who then hands off a relationship to the newbie in the office. The idea is that the more experienced, better agents would constantly work upwards in the value curve (handling higher price points with more complex elements), while the lower value relationships would be handed down the value chain.

Of course, in real life, things would never work this way. Agents don’t know if that seller they worked with four years ago might not resurface. The ceased-relationships are likely to be quite valuable in many cases. Nonetheless, the concept is something to be thought about.

If having an active relationship with a customer or an ex-customer leads to more referrals (still the most important source of business for active agents), I could see a strong argument to be made to structure the company in this way.

Conclusion

Since this is merely hypothesis at this point, I don’t know that you can draw a strong conclusion one way or the other. But the idea is to look at whether reducing the number of connections that an agent has might lead — counterintuitively, to be sure — to higher production, higher income, and higher company dollar. The closely related concept is to put managers into place who have a limited number of agents, to maximize the ability to train, monitor, and manage individuals either up or out and to start new offices based on Dunbar’s Number as opposed to something like geography. The question there will be whether increases in revenues and profit would justify the increased costs (manager salary, office setup, etc.).

Just something to think about on a NFL Sunday. 🙂

-rsh