Unlocking Franchise Economics: Pt 3

This is the third installment of a three part post entitled Unlocking Franchise Economics (see Part 1, see Part 2)

Have we ever wondered how the consumer views our real estate industry franchises? If we are going to unlock franchise economics and truly understand the value propositions inherent in franchising we must also see them (franchises) as the consumer sees them and we must ONLY value them as does the consumer.

If you were to create a list of distinctions…real ones…dynamic ones…that separate one franchise brand from another in the eyes of the only true client, the consumer, what would those distinctions be and how are they manifest in the process of transacting business?

Enjoy the PhotoBlog below. Read it carefully and ask yourself what might happen if the consumer could place all franchises into one blender and extract the best. What would the “best” be? What are the clear distinctions between franchise A, B and C?

If franchises have any value, and REALonomics believes they do, what is the empirical value to the consumer? Is franchise value a black-and-white proposition or, will we see living color coming out of the recession in 2009 and beyond? What changes do franchisors need to make to create distinction in local markets? Can distinction even be created and sustained? Do we need to blend the franchises? Do we need fewer franchises? Will franchises be blended out of economic necessity and through mergers and acquisitions?

If a Broker/Owner adopts a franchise model what is the set of “measureable” distinctions derrived from the relationship that will impact the consumer? Specifically, how do franchise distinctions create revenue for Broker/Owners in the crowded marketplace?

Related posts:

1. Unlocking Franchise Economics: Pt 2
2. Unlocking Franchise Economics: Pt 1
3. Three Stooges: ‘09 Acid Test #2

In this series of posts REALonomics has one primary objective it would like to accomplish on behalf of owners and that is as follows:

…to help owners unlock the door to franchise economics so that gain an understanding of the substantive value propositions that exist and how a franchise name and associated promises can be quantifed in real dollars that are converted to a profit equation that is greater than it would be if the brokerage firm operated without the franchise.

Franchising is an Add-On Toolkit, with Limitations

At its most fundamental economic level a real estate franchise is a brokerage toolkit. Yes, there are all sorts of issues such as marketing, relocation, referrals, training, conventions, etc. But for now, we are setting those aside. A real estate franchise is an economic toolkit, at least it should be. Franchisors spend a great deal of time butter-balling brands, numbers of offices, growth, name recognition, relocation, referrals, etc., and that is how most franchise sales people will present their proposition to an owner. It’s the owner’s responsibility to translate the presentation into real economic reality and performance and to insist that the franchisor do the same.

As a toolkit, there are some things a franchise can do, there are many things it cannot do and there are more things it does not want to do for a brokerage firm because to do them will harm the franchisor’s bottom line. Let me be clear on this last point. At some point in the franchise relationship, an owner may find the franchisor a competitor for market territory, referrals, relocation and even local business.

As owners, it is important to enter your franchise considerations with both feet firmly planted on the ground and your eyes wide open when you begin to consider both the limitations and the benefits of the franchise toolkit. Converting the tool kit into a quantifiable economic model is entirely another thing and in the end will prove to be the true test of the value to your brokerage.

When an owner considers franchising his/her brokerage firm, one of the highest considerations is the impact on agents and operating overhead. Make no mistake about it; a franchise decision will change the economic structure of the real estate company before it ever delivers a single penny of economic value. Overhead is going to increase immediately and not all agents and employees will perceive and measure value as an owner might. – Donald Teel, Realonomics

Bottom line: the tools provided by a franchisor should fill voids in the brokerage firm with real solutons that can be measured. The brokerage firm must know with certainty how the tools produce NEW ROI (more on this later) and finally, how the implementation of the franchise enlarges the company’s market position and growth opportunities. It is entirely possible that becoming a franchise may in fact diminish a firm’s market potential.

Understanding Owner & Franchisor’s Motivational Schemas

As with any business arrangement, understanding the motivations of the parties is critical so that each can build a workable blueprint. Franchisor are in it for the money. Since franchisors are in it for the money, so should the owner be! Business is conducted with a profit motive, although some brokerage firms are not necessarily profit driven.

If you franchise, you will spend a lot of time (perhaps years) in continued negotiations with the franchisor over myriad operating issues (we will get to this later, as well). Therefore, coming out of the chute, the owner needs to have a pristine understanding of what drives the franchisor’s model.

The Owner’s Schema. I never met an owner that didn’t love transactions. Typically, when an owner considers incorporating a franchise brand into his/her market model, transaction are a key motivator. The Franchisor knows this and the presentation is designed to convey a perception that once franchised, transaction counts will increase.

In addition, broker/owners want more market opportunities in terms of their ability to provide agents with services that will enhance recruiting. However, recruiting is a somewhat dying art and most metro markets are saturated with brokerage firms and agent, reducing the recruiting message to a simple message, “We pay you more.”

Some owners want and desperately need networking opportunities with other owners where they can exchange information, create idea forums and discover new ideas to improve the efficiency of their company. Franchisors can meet this need and most do a good job at creating opportunities for Broker/Owner exchanges.

Today technology and the Internet play an ever increasing roll in real estate brokerage business operations. This was not so true just 14 scant years ago when the first property listings found their way to the Internet and pagers found their way into the hands of agents.

Many brokerage firms are looking for technology solutions and the implementation and maintenance of these solutions can be incredibly expensive. Franchisors are finally beginning to see how technology can provide them with a lock on brokers. When considering a franchise Broker/Owners should have a complete understanding of what a particular technology solutions will create in terms of not only opportunities, but operating costs, maintanance, training and obsolescence. After all, it won’t be included in most franchises.

The Internet is separate from technology, in our opinion, and there will be a whole set of operating and branding requirements for the owner and his/her agents when it comes to utilizing the Internet. Do not assume that your website will automatically comply with the franchisors requirements…read that fine print. Franchisors are doing a much better job today with their technology and Internet delivery than were even five years ago. Most owners want more Internet traffic. Find out how the franchisor delivers Internet presence AND traffic.

The market is paramount to an owner. Almost every owner I have known in nearly 25 years shared the desire to see their company grow in size and market share. What owners may not realize is that “market” is a very important word to the franchisor and it is here where the greatest potential for conflict between owner and franchisor might arise.

Owners want to capture and control more market area horizontally whereas, many times, the franchise will contained highly defined and rigid definitions of “market area” that the owner may find restrictive. Will entering into the franchise agreement expand or contract the owner’s market opportunities? This is an all important question needing to be answered.

Owners are increasingly discovering that market definition in the franchise relationship can make or break them. Any and all attempts to block an owner’s legitimate rights to horizontal growth should be negotiated out of the franchise agreement. Retrictions and control of horizontal market expansion is a key to the franchisor’s economic model. Franchisors typically exercise control over expansion by denying use of marks, brands and branch offices unless they approve. – Donald Teel, REALonomics

Finally, profit is the end game for owners. Although the franchisor will state its strong support of owner profitability, what will happen to the relationship when losses mount for the owner. What specific economic support does the franchisor provide to failing brokerage firms in terms of fee reductions or set asides?

Franchisors should be required to specifically demonstrate with empirical data how the franchise will pay for itself and how long it will take before the relationship brings profit to the Owner when measured against all related expenses. In the opinion of REALonomics, this should be a warranted performance item, with franchisee recource. If they can’t or won’t do it, show the franchisor the door. After all, profit is the end game of business.

The Franchisor’s Schema. Real estate franchisors measure things with a different stick than do most broker/owners.

The king pin in the franchise economic model will always be the brokerage gross commission income (GCI). It is the primary calculator for the franchise payment stream. Franchisors are interested in GROSS as the number against which their multiplier is applied, whether it be 3, 6 or 8 percent. This is their great motivator. Forget the franchise fee of $15k, $25k, $30k or $50k because this number will pale over the long haul of 5-10 years (typical initial franchise term).

How an owner thinks about and treats the franchise effective fee rate in the accounting process is paramount to quantifying the franchise value. If you think of franchise fees as a cost of sale, that’s one thing. If you treat is as an expense item, that’s another. But if you view it and treat it as a business development and capital expansion cost, that’s entirely another matter.

Definitions do count and calling a franchise cost a “selling cost” may be a giant investment error. After all, what did the franchise have to do with the selling cost of your transactions and if it did contribute, how did it contribute? Can you specifically account for it as a selling cost? An expense? Franchising is a market and development cost. Think of it in terms of research and development.

Franchisors are also motivated by the durability of the brokerage firm when they award a franchise to and owner. This has to do with the history and good will of the company in the local market(s). From this a franchisor can deduce predictability and replication of fee payment.

Referrals and relocation leads are a huge part of any franchisors presentation. But, be careful, because most of the major franchisor are running the relocation and referral businesses under not so evident agreements and as separate profit centers. This is a political and economic playing field that is continually tilted by franchisors. It is not uncommon for one franchisor’s relocation lead to be given to a direct competitor operating in the same market as its franchisee.

Watch out when you weigh relocation and referrals as a part of your decision-making. Our advice, based upon your market location, is to consider whether these should be taken off the table as considerations in the value proposition. You’ll only be able to do that if you ask for and receive the referral and relocation statistics with detail. Do not predicate your decision to franchise your firm on empty promises relocation and referral leads.

An owner should explore franchise training programs, business planning and the host of other fringe benefits as well. These are a part of the toolkit…but will they be used and are they, in fact, cutting edge or shop worn?

Stay tuned for “Unlocking Franchise Economics: Part 3.”

Related posts:

1. Unlocking Franchise Economics: Pt 1
2. NEW Franchise Blender-Extractor Available for 2009 Holidays!
3. REALonomical: an Economic Mentality

Some broker/owners would claim that a franchise has made them incredibly successful, while others would say they have failed miserably with respect to leveraging a franchisor’s brand and its prima fascia value propositions.

However, despite the predominance of real estate franchising a large number of real estate brokerages still prefer their independent status and some of these have become their own franchised brands, capitalizing on the economic dividends available to them through leveraging themselves.

Although franchising is a powerful force within the industry, REALonomics believes there is still too little careful analysis and quantification of franchising’s market and economic value on the part of owners.

Quantifying a Franchise Value Remains Elusive

In addition, the ability to create economic performance models for a franchise, judge its market impact on a forward moving basis (trending), fully understand the costs and benefits to owners, agents and most importantly, to understand with as much certainty as possible the way in which consumers view franchises, remains quite elusive.

Franchising is a powerful economic consideration for broker/owners and an initial term can represent as much as fifty percent of the life cycle of a contemporary brokerage firm. For some time, franchisors have been negotiating initial franchise commitment terms that will run more than a decade. Another perspective is to consider the lifespan of an executed franchise agreement in terms of the changes that will occur within the industry during this “initial term” of a franchise agreement.

REALonomics will be posing questions, analysis, insights and extending some limited advice regarding how broker/owners can unlock the door to franchise economics. It’s this door that we believe is the key to identifying the benefits to adoption of a real estate franchise.

In true fashion, we will steer our spotlight of analysis and critique on the not-so-oft understood downsides of franchising. We will highlight and accentuate the benefits as we see them. We will ask the powerful questions that should be asked of franchisors who in turn ask broker/owners to pledge their companies to a particular brand at a cost that can sometimes be astronomical.

Framing the Franchise Analysis Correctly

We will help frame questions broker/owners can use to ask franchisors to quantify their economic delivery, their stated marketing value propositions and to clarify the broker/owner’s recourse for sub-standard performance on the part of a franchisor. We will suggest ways for franchisors to remodel some of their old propositions and presuppositions that cannot and do not create value for owners and how they can and should be delivering transparent, consumer-centric solutions that can differentiate them with owners, the market and consumers.

This will be fun, challenging and perhaps a little ugly at times. At the end of the day we hope REALonomics delivers some value to broker/owners, to its general readership and to franchisors.

We want our readers to be a part of the content, so your posted comments, insights, experiences (good or bad), together with private emails and other communication with us will be welcomed by everyone.

Our objective is to see if we can unlock the door to franchise economics, since the state claim of real estate franchisors is their delivery of an economic enhancement and a stronger overall market asset. Broker/owners need to know how a franchise can and should perform on their behalf and how to make the critical judgments associated with the cost versus benefit relationship.

Some initial questions about franchise value might include the following:

1. What is a franchise worth to an owner, i.e., what should today’s initial and ongoing cost be? How do franchises differ from one another, if at all?
2. What is the preeminent economic value of a real estate franchise to Broker/Owners and to agents? Why have new franchises such as Keller Williams and EXIT Realty been successful in the midst of a very crowded playing field?
3. Do consumers have predisposition toward franchise names or, are consumers neutral when it comes to loyalty?

Broker/owners, franchisors and agents are invited to post comments about their franchise experiences, good, bad or indifferent. If you wish to communicate but do not want to post a comment you can use our traditional Contact Form.

Yikes! What have we started now?

Related posts:

1. Unlocking Franchise Economics: Pt 2
2. NEW Franchise Blender-Extractor Available for 2009 Holidays!
3. Three Stooges: ‘09 Acid Test #2

When the economy did poorly, real estate introduced wealth.

When 911 all but destroyed our faith, real estate restored the American Dream.

In many occasions, and in many years, real estate has been the rock to depend, or in some cases even the rocket to ride to riches. But times have changed and the bright years of 2000-2005 have become a dull memory.

It’s not really that real estate itself crashed and burned, but that with new construction out of control, speculation spiraling and lending becoming irresponsible, the burden real estate had to carry became to heavy and the first nail in the coffin ground what was a good thing, to a halt.

Collapsing financial institutions led to immense write offs, allegations and actions of improper conduct led to finger pointing and investigations that in turn led to layoffs and disaster.

With unemployment steadily rising and home prices in a constant month by month decline, the real estate market is brittle and cautiously teetering on which way to go.

With the unprecedented rally of crude oil tethering at $150, and now two government-sponsored entities, Fannie Mae and Freddie Mac possibly requiring government bailout. The pair guarantee around $5 trillion worth of mortgages – that’s almost half of the $9.5 trillion debt of the United States. I think we have just witnessed the second nail being hammered into the heart of real estate. Not good at all.

Let’s pray and hope that we don’t have a third nail – a major terrorist attack on local soil in the foreseeable future. Barring the above, the road to real estate recovery is going to be a slow and bumpy one. Most likely it may only pick up momentum during or after 2010 – especially for areas such as Florida, California and Las Vegas.

So for those of us that earn our daily bread from real estate my message is a simple one: Batten down the hatches, expand your horizons, re-engineer your company, automate your business, market more online – yes, maximize every opportunity. Survive the years 2006-2010 and come out the other side with an automated, more efficient, new paradigm, consumer focused real estate model and you may very well find yourself in the front row to become the Amazon, EBay or Google of real estate.

This post is also posted in Inman Community under the title: Three Gold Stars and Two Rusty Nails.

Related posts:

1. Is the Future of Real Estate in Google’s Algorithm?
2. Obama & a New Real Estate Industry
3. Ten Commandments for the New Real Estate Economy

“Busted” is not used here as an economic term rather, it is an emotional and mental term that refers to the ability of Broker/Owners to cope with the industry and its myriad pressures, changes, challenges, costs and operating demands.

“I’m burned out, I’m broke and I am busted…I can’t keep up any more,” said one broker to me in a recent conversation. “I want to execute…I can’t execute…I don’t know what to do anymore and I no longer recognize the industry I have been a part of for more than two decades.” “The money is gone, my strength is tapped, my will is gone and my attitude is in the tank…I’m on the edge.”

What is BBS?

BBS is an insipid malaise. Although not officially recognized by the Centers for Disease Control (CCD), make not mistake about it, BBS is real. Ask any Broker/Owner who is willing to engage in a transparent discussion.

BBS begins with the onset of market change, disruption and rapid business evolution that renders the Broker/Owner’s ability to adjust his/her business model to the prevailing transformations taking place within the industry.

Result? BBS increases, confusion, tension and economic and personal stress on Broker/Owners, often causing them to lose perspective regarding their appropriate roll as visionaries and leaders within their company. This diminishes their ability to consistently deliver sound, well-thought-out business solutions to their organizations.

BBS is primarily rooted in the potting soil of industry and market transformation where demands far outweigh the capacity to deliver solutions. BBS is stress that Broker/Owners face in a rapidly changing industry. BBS erodes the self-motivation, self-confidence and even self-esteem of Broker/Owners.

BBS thrives wherever a Broker/Owner is operating a traditional brokerage business environment that is confronted with changes it does not understand, cannot readily adapt to and seemingly cannot control. This is the optimal eco system for the onset and growth of BBS.

Symptoms of BBS

BBS begins with a set of often ignored emotional symptoms that find their ultimate expression in the actions and reactions of the Broker/Owner. Again, rapid, unchanneled and uncontrolled change is where BBS thrives…change is not where Broker/Owners thrive…thus, the two are in conflict from the outset.

Symptoms of BBS start with a sense of fatigue and diminished motivation when faced with the daunting challenges of a rapidly evolving industry. Stress begins to cloud business judgment and creativity is replaced with survival instincts…hanging on, hoping and waiting for a new market cycle and a general inability to create outcomes.

Other symptoms include poor financial judgments, borrowing excessive amounts of money in order to keep the brokerage operating, neglect of fundamentals such as recruiting and market expansion, technology and Internet solutions designed to curb overhead.

Under these conditions loss of hope, despair and depression can take hold of a Broker/Owner so that he/she can actually become immobilized and sometimes unwilling or unable to cope with the obvious needs of his/her company. Things grind down and sometimes the organization ceases to exist as it once did or, unfortunately, doors are closed.

Broker/Owners are becoming increasingly disillusioned with their position within a rapidly changing and chaotic industry. Like anyone, when a person of leadership is overwhelmed with too much change too fast, that person can feel as if he/she is clinging to life on the edge of a precipice.

Symptoms of BBS often include an attempt to move faster than is necessary, less than optimal decision-making, diminished objectivity, poor financial decision-making, short-sightedness, erosion of personal relationships and a sense of doom and gloom. Folks, this is real stuff!

BBS is real. It’s not a joke. This post is not hyperbole or satire. This is not humor. We are dealing with real people who run thousands of real estate companies. We at REALonomics talk to Broker/Owners almost every day. We hear their stories, listen to their frustrations and attempt to console them by delivering some business solutions to their market and financial dilemma.

Something new is emerging as we listen, dialogue and coach. There is a very real set of emotional, financial and operating issues facing Broker/Owners specifically and real estate practitioners in general. As an industry we have little or no emotional or financial mechanisms for assisting career Broker/Owners who are overwhelmed. Why?

Causes of BBS

What are the specific causes of BBS? There is an emotional, psychological and spiritual dimension to all businesses. We call it “culture” or “model” or something less dramatic in order to distance ourselves from discussing sensitive, deep dimensions of an owner’s dilemmas in operating and sustaining a real estate business.

The causes of BBS are diverse and complicated. BBS isn’t like the common cold that comes and goes in a few days. The influences of BBS take place over the long haul. BBS gains momentum within a Broker/Owner who really cares, who keeps plowing his/her field…the one that takes care of his/her agents, participates in the local, state and national organizations and is always trying to do what is right.

BBS has a common set of causes, however. The biggest cause of BBS is rapid, overwhelming change followed by a lack of preventive inoculations such as access to powerful business models that work, personal coaching and capital.

BBS is caused by a sense of inadequacy that grips an owner. This inadequacy, left unchecked, extends itself into the capacity of the Broker/Owner to implement new operating models called for in the consumer-centric era.

BBS can cripple an Owner’s ability to re-inventing his/her business, creating a perception of isolation (yes, one can be public and still be isolated). BBS works over time creating confusion, anger, guilt, frustration and a sense of hopelessness that can overwhelm Broker/Owners.

The real estate industry is clearly in the throws of an upheaval that can potentially annihilate our most precious resource, the career leaders, Broker/Owners. These are the men and women who have been on the front line for a long time carrying the financial and leadership load. These have become the vulnerable ones.

Solutions and Cures for BBS

Unfortunately, there is no quick-fix solution. However, if our industry values Broker/Owners, and we know it does; and if the franchisors value their Broker/Owners, and we know they do; and if our myriad local associations, core service providers and others value the important place Broker/Owners occupy within the industry, we should have professional, business and financial support mechanisms in place that can bring assistance to Broker/Owners in time of need.

REALonomics believes that the plight of Broker/Owners is reaching dangerous levels. Much of the situation is swept under the rug as Broker/Owners quietly close their doors and walk away from careers that sometimes span decades.

REALonomics believes that the situation could become pandemic resulting in the loss of much of the industry’s true talent and leadership. REALonomics believes Broker/Owners are core assets to the industry and assets should be treasured, protected and supported during difficult times with business and financial assistance as well as development coaching and peer support.

We face a couple of huge glitches standing in the way of assistance. These have always been part of the culture of being a Broker/Owner…pride and ego. Our healthy sense of self-determination among Broker/Owners is good and admirable…mostly. But under these circumstances and at this time, some Broker/Owners will have to stop pretending, drop the pretense, lose the ego and reach out for help to those they can truly trust and those who actually care about them as people, not as pawns in the real estate industry’s game of market chess.

How many psychiatrists does it take to change a light bulb? Just one, but the bulb has to really want to be changed.

Related posts:

1. Permission Based RE -vs- Non-Brokers
2. The Four “Bs”
3. Mug Shot: A New Front Face & Profile

Throughout our history we have deployed control-based business models. Like the real game of Monopoly® our industry has created its own market game board governed by a set of rules we wrote and occasionally edited to extend our control.

During previous eras an owner’s business model was based largely on mechanisms designed to control information, markets, brands and for a long time we even tried to control the real estate agents who were part of companies.

It is equally important important to note and to admit that the real estate industry has historically attempted to control the consumer with respect to our business models utilizing our clever control over access to property information as the primary mechanism for doing so.

Control and Dominance

Large segments of the real estate industry and its core service providers still engage in Realonopoly, a game about market control and dominance. In the game of Realonopoly we carve out spots within defined markets…we then seek to control our position, until, as we have all experienced in the game of Monopoly®, we can no longer pay the rent; a position in which too many owners find themselves today.

Within real estate, mortgage and title companies, creating one’s board is the first initial step; everything flows from there. Position on the board can mean power and power typically equates to a kind of control measured by muscle flexing. Control has historically been everything in the real estate industry.

The ultimate control was consumer control.

Losing control creates a depression and a void…a crack where others can slip in. Yet, it is the contention of REALonomics that each era in the historical timeline of the real estate industry unravels when control is challenged and the challenge typically stems from a change in informational technology…the means by which people gain access to real property data.

Collaboration and Community Forcing Change

Business models typically change when the old models are confronted by new technologies and people empowered by concepts of innovation. Most of the change in business modeling is induced by innovation driven primarily by advances in technology. These advances in real estate technology create a “democratizing” of information, which then empowers others to innovate and challenge the control status of the prevailing models.

This is precisely what has taken place in the real estate industry. REALonomics has presented this as the Democratization of Real Estate, a time where the industry loses its grip on the game of Realonopoly and finally is forced to abandon its position in favor of a new board game. Think of this concept as three distinct eras as follows and notice how transitions occur when new technology is introduced…then, notice how control is relinquished as information is decentralized and ultimately democratized.

Examine the following illustration, extracted from our archives. It demonstrates the evolution of the real estate industry’s business models.

Control works well in business model climates where informational access and free exchange are blunted, where collaboration is limited to the controllers and where the rules only change when the controllers are finally confronted by free thinking people who are initially labeled as rebellious fringe lunatics.

We have now entered an economic era with a new personality being formed by collaboration and communities, rather than control and corporate bureaucracies. Each consumer who is empowered with Internet access is empowered to shape our business models and help us write the rules that will govern The New Real Estate Economy.

There is a new board game emerging that will redefine how we will play the real estate game tomorrow, next month, next year and for quite some time in the future. It’s now a game without many rules, one of collaboration and community, of open, free-flowing dialogue where one person is just as powerful as a group. How do our current models stack up to his new reality.

The question we ask is “Does anyone still want to play the old game, Realonopoly, a game in which we predict there will be no winners?”

Related posts:

1. Mug Shot: A New Front Face & Profile
2. Same Game, New Rules – Owner’s List
3. REALonomical: an Economic Mentality

Although REALonomics cannot address the validity of Bug’s economic model, its brand, marketing, emphasis on cyber agents and offices, lower overhead and a commitment to meeting the needs of the consumer in a transparent way caught our attention.

We tracked down Kevin and found him as open as his model. He was eager to share with us his vision for Bug! Realty and the the real estate industy itself. Kevin discusses his own franchise offering, comparing it to what he calls the “tired…instituional…not current” traditional brands. The following excerpts come from our exchange with Kevin Seney. For the full interview, click here.

REALonomics: Can you tell us who Kevin Seney is and about your real estate background?
Seney: I have been involved in real estate since I was a teenager. Growing up in Wyoming, I had a remodeling business in high school which led me to building spec homes when I graduated. We eventually lost our butts, when our construction loans went to 18%, but I learned some valuable lessons at 20.

I started my own Mortgage Company, The Home Loan Store, Inc. I opened the company in a small, highly visible downtown retail space, right next to Starbucks. I finally sold the company in 2000 and took some “much needed” time off.

Looking back at my experience working with Realtors® I walked away with a very unique perspective on the business of real estate. I was always amazed how much money Realtors® spent on “Image Advertising” and “putting on the show,” but as an insider, I knew how INEFFECTIVE it was for them. Meanwhile, I felt like consumers were all laughing at the industry. The economics of real estate were changing quickly. Real estate needed an “Image Makeover.” I HAD MY IDEA!

REALonomics: As you know, REALonomics is in a perpetual quest for what we call “Model Perfect” because we think the real estate industry and its relationship with the consumer is in dire need of a transfusion. What makes Bug Realty a unique model in the sea of options for brokers/owners and agents? What are your core value propositions and distinctives?
Seney: First, let’s talk about our brand. Existing real estate brands are tired and institutional. They are not current. They are from the 1970’s.

Our brand is NEW. It is COOL. It stands alone in the industry as being COMPLETELY DIFFERENT. People love to talk about Bug! Our brand has personality. Our brand is clearly distinctive!

REALonomics: What prompted you to create Bug Realty and what’s the message behind the bugs?
Seney: I saw a clear opportunity for this model. The market is wide open for change. The message behind the Bug goes clear back to my original objectives with brand development. I set out to create a brand that was simple, yet cool and consumer friendly. Something New! Something Fun! Something Remarkable! Something that signaled CHANGE.

Here is what all the experts said: Powerful brands are simple. Powerful brands are memorable. Powerful brands carry significant emotional meaning to the consumer. As a result, people talk about powerful brands. Consumers love us. They love Bug! simply because they already did.

REALonomics: What do you see as the major trends that are present in the real estate economy that can harm and/or help owners get a grip on their business and its profitability equation?
Seney: We could not have launched our franchise at a better time. I would like to say that I timed it that way, but our experience so far, has been that the entire industry is looking for something new.

Consumers are also licking their wounds, recalling the guy in the $100,000 car who sold them the house that is suddenly without equity. The consumer wants change too. People are becoming economy and ecology minded. Our message is being well received.

The more difficult the market, the more our model makes sense. Every day I hear of established brokers going out of business. Can’t pay the rent.

REALonomics: Does Bug Realty have any relationships with core service providers such as mortgage, title, escrow, home inspection, etc. and how do these work within the organization’s framework.
Seney: So far nothing. The industry is still floundering and not paying much attention to new opportunities. Coming from the mortgage industry, I also believe that the consumer wants freedom of choice for both mortgage and escrow.

Keep it Simple, is our motto. When the time is right we will tie up with a national lender for marketing reasons and a shared web experience but I still believe in local people making their own choices, in their own markets, with local service providers. This is still a “People Business” and we want to keep it that way.

REALonomics: Apart from the Internet, what are the components of your technology platform, that is, your internal technology tools that you bring to the table for owners and agents? Do you espouse transaction management; tablet PCs or any of the trendy technology solutions?
Seney: We require all agents and franchisee’s to have the basic “Bug! Virtual Office Package” which consists of a wireless laptop, cell phone, eFax and online forms, and business software.

We are exploring many options such as agent blog sites, internet marketing options, and an array of transaction management software.

Recently, I made the decision to standardize our Franchise on the Apple iPhone. All agents will have one. Why? They make us even more portable. Our agents always have internet access, even in line at Starbucks. And, most of all, they are just cool. We are a cool company. It works.

REALonomics: Are you seeing broker/owner profitability problems in the current market situation and do you think the industry is going to see the closing of doors with respect to real estate brokerage firms.
Seney: We already covered this, but again, it is clear that there is a lot of “fixin” to be done in the real estate industry. Doors are closing daily, across the nation. We believe we have the solution.

REALonomics: We have a readership of thousands of people from all aspects of the industry including franchises, title, mortgage, owners and agents. What’s the most important message you have for the industry as a whole?
Seney: Join us! We have an incredible future ahead. We are pioneers having the time of our lives. We are creating something really cool. We need leaders. We need visionaries. We need regular people.

In December of 2007, we closed out our first round stock offer of our Series A Preferred. We are already planning a second round offer later this year. We exceeded our plan for 2007 by 118%. Our costs were HALF what we expected!

2008 and 2009 will be explosive for this company. Our franchise is currently approved in all 50 states. We have a regionalization plan already in place. We have already sold our first Region: Welcome Region ONE in San Francisco, CA.

Every day I wake up and pinch myself…is this really happening?

REALonomics: What question would you most like asked of yourself that we have not asked and what’s your answer?

To see the Kevin’s answer to this question and other you may retrieve a complete copy of the interview by clicking here.

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That isn’t all bad in today’s tired and shop worn real estate industry. The branding concept utilizes the Volkswagen Beetle Bug as an icon. Geek Squad gone realty! The power behind the brand is the natural, built-in consumer predisposition toward the Bug…I’m talking Beetle Bug.

REALonomics would like to recognize Bug! as Model Perfect from the standpoint of their keen attention to new brand creation. Watch for our REALonomics Interview with Bug Realty Founder and CEO, Kevin Seney.

What Bug Realty wants to convey to the consumer is their deliberate lack of pretense…simplicity is the idea behind the message as contracted with the big and brassy brand message of some other franchises.

Bug! touts a no-frills, no-hype real estate model. Bug! agents drive the Volkswagen Beetle in order to drive home (no pun intended) the idea of simplicity and no frills.

Bug! resists the idea of being labeled a “discount” brokerage company, opting instead to convey to consumer that they reduce costs by eliminating things like inefficient advertisement in favor of streamlined operating systems. Bug! agents conduct their business with wireless technology solutions with full access to MLS property information via the Company’s intranet, laptops and of course, cell phones.

Founder and CEO, Kevin Seney, said this about current brands, “Their brands are stale, they’re institutional. The communication they’re sending out to the marketplace is we’re big, we’re fancy, and we sell estate homes. But that image doesn’t work anymore.”

REALonomics congratulates Bug Realty for its marketing design that is truly innovative, fresh and recognizable in an industry that desperately needs fresh paint and new screen doors.

Watch for our REALonomics interview with Bug Realty Founder and CEO, Kevin Seney.

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My ownership experiences created the foundation for REALonomics, new real estate model math. I’m no longer a believer in the traditional brokerage business model. It cannot sustain owners and provide them with the return on the investment they need to justify their risk and certainly in most cases provide them with an exit strategy. More importantly, the model is increasingly being rejected by the consumer, who favors less control and much, much more transparency.

The fickle markets, all-wise consumer, transaction complexities, capital and legal risks and the arcane nature of the industry itself have rendered the notion of a broker-centric business model nearly obsolete. Want the unvarnished truth? Of the dozens of broker/owners I speak to each month, almost none of them believe in their model, not with the passion necessary to an ongoing and profitable business endeavor. My broker/owner friends are just stuck knee deep in the cement of a dead model.

Power brokering is becoming highly irrelevant. My broker/owner colleagues, nearly to the person, shake their heads and mumble, “…not worth it…I’m keeping the doors open so my agents can make money…and even they aren’t making money any more…”

Our Quickening March toward Obsolescence

Has the pace of change created an every quickening march toward functional and more importantly, economic obsolescence? Yes, it has! To a large degree the idea of opening a brokerage, complete with agent office space, desks, computers, copiers, coffee room and the assortment of industry trinkets that have little or nothing to do with providing consumers access to property information and homes, seems frightening and very risky.

Ours is an industry where owners just won’t let go of themselves, even after staring into the mirror of obsolescence, where we see ourselves, tired, lonely, frustrated, isolated and economically challenged.

The Broker-Centric era (the first economic wave) and Agent-Centric era (the second economic wave) business models are in a final march toward obsolescence. In effect, neither owners nor agents can afford to push the model much further into a future where liquid property information will abound, consumers will bask in the democratization of real estate and we will service transactions from wholly new vantage points.

This “march toward obsolescence” is a not an industry death knell. More accurately, it could be described as the introduction of a new “script” that charts the direction for highly innovative blueprints that finally redefine how we interface as an industry with people in the Consumer-Centric Era (the third wave of our economic development).

Exorcising the Resident Demons and Myths

Like Emily Rose, we are possessed by many demons. In order to build a neo design we will need to cast out the old counter-productive forces that have taken up residency within our business models and whose negative influence permeates the industry. We are possessed of many…most must go…some will be allowed to remain, temporarily, due to necessity…others can be tamed and trained, perhaps.

The long held notions, superstitions and fairy tales about real estate brokerage will need to be addressed, as these have long held sway over our creative capacity to reinvent, paralyzing us and placing us in an economic stupor.

We must cast-out the idea of property information control and open a transparent portal for the consumer to enter into new conversations with us about real estate investment, where we are truly qualified, trusted and knowledgeable about their investment strategies.

We must expunge the idea that bricks-and-mortar retail models in fixed and defined metro market service areas can continue to produce adequate ROI. We must drag the demon of overhead, kicking and screaming out into the open market where it can be exposed for what it truly is, the enemy of owners and franchisors.

Our demons are legion…they do not come out easily and when they finally do they leave a mark, a dent, a scar that says, “We once lived here.” Our resident guests impact our economies of scale, our market agility and most importantly, our long term survival.

Etch-a-Sketch®: a Neo Design

In 2008, REALonomics will etch concepts for the creation of a neo design. We will put it on paper (well, in the blog) and make the model ideas accessible to you. We will interview brokers, agents, industry leaders and of course, real people who buy and sell real estate. Novel, eh?

Changing our industry’s design is daunting. We need to take a look at our sprawling geographic markets, such as California, Florida, Phoenix, Las Vegas, Chicago, Atlanta and the rest and ask “what can work here, now and tomorrow?” Our industry should deliberately engage in designing the optimal consumer-centric, consumer-partnered, brokerage services model, replete with features necessary to the era in which we live.

Baseline business modeling begins with unfettered access to property information…sketch it in!

Baseline business modeling includes a renewed commitment to standards of practice that please the consumer and create a new, more comfortable reality…sketch it in!

Baseline business modeling marries cultural realities to the real estate transaction prototype…sketch it in!

Baseline business modeling has something to do with expunging the ego-centric expressions and components from the industry that continually project a self-serving, money-grabbing image…sketch it in!

Baseline business modeling is predicated upon a model for all participants, one with the highest possible qualifications for entry…sketch it in!

Baseline business modelling requires rigorous adherence to qualification standards for owner/operators, agents and core service providers…sketch it in!

Finally, baseline business modeling demands adequate ROI when measured against the risk of capital, creative and intellectual investments of the players and principals…sketch it in!

Our impending obsolescence is merely temporal. Our model is being replaced, part-by-part. Can we, those of us within the industry, shake the demons that possess us and sketch a new, highly productive model that will propel us into the future? REALonomics thinks so…sketch it in!

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The new economic rules and realities form the New Model Math for an industry that is morphing from its broker-centric and agent-centric roots to a decidedly consumer-centric model. Whoever writes the new rules and effectively addresses the new realities will, to a large degree, control the game and much of its economic outcome.

Mugging for the Camera

A new mug shot is emerging and we are finally able to sketch the features of the front face and profile of an industry whose economic and operating models are undergoing massive revision. What emerges will become the new real estate professional and business operating profile for the coming decade.

Images of the old mug of total brand separation, rugged individualism and attempts to have it all will become economically unfeasible. The consumer demand for services has raised the price of admission in an arena where there will not be many front seats. We will simply have to do more for the all powerful consumer than we can afford to do, this will be a huge economic reality that will lead to new operating rules.

Defining the New Broker/Owner Realities

New Reality 1: We’re moving at light speed and managing change will become a fundamental and deliberate action for business success. Broker/Owners will no longer need to throw themselves under the bus; the bus will simply run us down! Business will largely become the management of change in red hot crucible.

Our new Model Math reality must include what REALonomics calls “change management.” Manage change or watch your business erode. The changes will include brand new, never before seen models, that trim fat and speed up efficiencies…more specificity on this later in this post.

New Reality 2: Broker/Owners will see further challenges to profitability unless they adopt consumer-centric, transparent real estate business models that truly partner with the consumer. Things like true conversations in the market place that allow the consumer , peer-to-peer (seller to buyer and relocation transferee with resident) opportunities and a blogosphere the likes of which we can’t even begin to fathom.

It’s time for the industry to embrace the inevitable democratization of all things RE. And we will need to start with unfettered access to property information on at lease a statewide and perhaps eventually a national basis. This is our new reality. Grab it and go with it or see your business die.

New Reality 3: Coalition real estate. I can hear some of you asking, “what the…?” Coalition real estate is a REALonomics term representing a new type of merger/acquisition model that involves the creation of hybrid relationship between the strangest of bedfellows. The old M&A model will become scant, with new technology-driven relationship becoming a “norm” without anyone necessarily owning it “ALL.” We can’t afford to own it all, can we?

Coalition Real Estate is an economic “Club-Med” that enables us to have all things without having all things…arghh, this one is tough! In the New Real Estate Economy, coalitions will be a fact necessary to the management of change and the demands of the consumer. It will involve new agent sharing models, technology pyramids that collate the tools for groups of Broker/Owners to utilize with optimal price points. Transaction complexity within the lending and brokerage industries together with consumer demands will force us toward coalition strategies as a normal part of business.

New Operating Rules for the New Realities

The new realities push new rules into the market place and these new rules are the dots Broker/Owners begin to connect for optimal business model strategies. However, let’s not think that we have no control over the rule-making and design of the real estate industry for the next decade. Although many Broker/Owner have abdicated some critical authorities in the industry, it’s not too late to exercise strong influence on content of the new rule book.

Although REALonomics will not have time or space to qualify each of these new operating rules, the economic primer for them includes, but is certainly not limited to, the following ten industry considerations:

1. Deliberate reduction, as a matter of policy, in the number of real estate agents allowed to practice and thus a reduction in mediocrity.
2. Business entities that are set up to study, manage and influence industry change on behalf of Broker/Owners and the industry itself.
3. Refined definitions of the models and economic blueprints for core services utilized by Broker/Owners.
4. Partnerships and consolidation of services between competing franchisors – ouch! Indeed, franchisors face the same famine of profitability we all face.
5. Implementation of Paperless Tools for front and back end transaction management favorable to agents, owners and consumers.
6. Removal of the structural impediments inherent in the old MLS property models so that transparency and utility can become the norm.
7. Demolition of the local Association of Realtors model in favor of at least regionalization and ultimately, nationalization in favor of the consumer.
8. A new mandate for NAR that redirects and allocates our resources in favor of models and programs benefiting Broker/Owner profitability.
9. Adoption of high-speed, data-rich property evaluation tools, including rapid price evaluation technologies at affordable costs.
10. Replacement of old Internet lead generation models with transparent partnerships with the consumer.

These new business rules will evolve from the realities we now face as an industry. Together, these rules, with others yet to be articulated, will form our new Front Face and Profile.

It’s going to be a very cool decade ahead of us. Enjoy the ride, embrace the pace…enjoy the thrill. After all, you’re already on the roller coaster. Buckle up…grease the bearings…here we go!

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