owners

Unlocking Franchise Economics: Pt 1

Although relatively new, franchising has a powerful presence in the historical flow of the real estate industry and has shaped many outcomes and market realities since its inception.

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?

owners

Brokers Clinging to the Precipice

We are facing a new syndrome. BBS. Busted Broker Syndrome. Exactly what is BBS, what are its symptoms, what creates it and how is it treated?

“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.