Nail It Before You Scale It
As an entrepreneur in the real estate market, you doubtless dream of the time when you’ll be able to scale your business. You think of closing more deals, hiring real estate agents to work in your company, offices across state, the whole nine yards. While this is exciting, you must approach scaling with caution. A study run by Startup Genome, a startup research company, and covering some 3,200 startups, found that the biggest danger to startups was premature scaling. In fact, this was the main reason up to 70% of the startups surveyed failed.
Before we talk about how to you can get your playbook right before scaling, let’s first discuss what scaling is, in the real estate context. Let’s assume you are a solopreneur. You run your business alone and you’ve been doing so for some time. One day, you land some funding and you decide it is time to ramp-up the business. You open a big office, you hire a couple of people, you put an expensive marketing firm on retainer, etc. This is the definition of premature scaling.
To beat the premature scaling death trap, take the following three steps to prefect your playbook first.
Minimize Risk
The one thing that gets amplified when scale prematurely is risk. Let’s say for instance you have been operating in an area with a high concentration of real estate agents. The market is also shrinking. In such a scenario, the risk is that if you scale quickly, there may not be enough market share available to sustain the bigger business. This can be potentially fatal to your business as you’ll burn through your resources while being unable to find enough business.
This is a common mistake with entrepreneurs as they overestimate the size of the market they operate in. Another risk factor would be low commission properties. If the properties you primarily deal in are low commission, then you may not be able to sustain a large enterprise on these commissions.
Other risks to look out for staffing risks (can you find competent real estate agents to hire), capital risks (what happens if you run out of capital), operational risks (do you have the skills to manage a team and handle bigger business), etc. To avoid this, do a through analysis of current and potential risks facing your business. Work with a consultant if possible to help you do a proper analysis and do the necessary projections.
Route to Market
This is a technical term that refers to the methods you will use to reach your target market. As a solopreneur, your route to market is probably word of mouth and other high-touch methods like phone calls and personal email. Route to market for a scaling business is radically different. Think of a scenario where you have hired 10 agents and they are all on the phone with leads. Each one has their own way of talking to leads and pushing for a close.
If it’s email, all your agents have different email writing skills. As you can see, if you scale too fast without considering all these things, you won’t have the necessary controls in place to manage these interactions. Other things you will need to consider here is how you market your scaling business, where to place your ads, how to drive conversions in an automated and scalable way, etc. The real risk here is often that the fantastic job you did of reaching your market is difficult or impossible to replicate with a rapidly growing company. If you cannot find a suitable substitute, then you will run out of business fast.
Runway
In startup culture, runway is common parlance for funding that allows you to run your startup for a certain time until you can support yourself through internally generated funds. Premature scaling is often associated with short runways and high burn rates. As a solopreneur, your overheads are obviously low, you have minimal capital needs and you chug along at a sustainable pace. Scaling is a whole different story.
If you have not gotten your playbook right in terms of how you will manage overheads, you will be setting yourself up for a crash landing. This is because entrepreneurs often overestimate what their current funding can achieve and overestimate how much they can achieve with the funding. When this happens, an entrepreneur will take funding and then institute an ambitious scaling plan. They will also often do this without having backup funding available for when they run out of the cash they have at hand.
What transpires is a situation where the business burns through the money without achieving any meaningful growth. To avoid this, scale slowly. If you want to expand your market, start by getting into the nearest city instead of jumping statewide. If you want to hire, start with hiring one person then working your way up. The more time you take to scale, the more time you will have to catch costly mistakes.
Having a startup playbook is the best way to prepare for scaling. It will give you the right data and information you need to make informed decisions. While the merits of scaling are obvious, its fatality is a reality. Avoid this startup deathtrap by getting your playbook right before scaling.
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