Will You Miss Me When I'm Gone?

Today we’re going to talk about some important differences and distinctions between what it means to be an entrepreneur and what it means to simply being a proprietor or owner of a business. I said something in a prior episode that triggered a few people and generated a few comments regarding whether or not you, as an appraiser, are actually considered by some as anything more than an independent service provider or sales person. I said that real businesses don’t consider outside salespeople, independent sales people, or independent service businesses to really be legitimate businesses because an appraisal business, as we’re fond of referring to ourselves, is nothing more than our license number and name, a little goodwill we’ve built in the business, a spot on an amc or bank list, and of course, our experience. Yes, some of us have multiple appraisers working with or for us, we may have staff, virtual or otherwise, and we may actually have a brick and mortar location with equipment and computers and what not.  

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However, most appraisal businesses live and die on the main person who started the business (or service of appraising). If that person stops singing reports, stops doing observations, stops bringing in the business, that appraisal business starts to wither on the vine. As I’ve also recognized, before you start emailing with all the instances of appraisal businesses that have been sold or how big your company is and how efficiently it runs without you, I get it. Those are the extreme minority in this industry. I helped build one of those too and I fully understand that it can be done.  

However, an important distinction between that kind of business, one that runs itself to some degree, doesn’t necessarily rely on the chief appraiser’s day to day interaction, may have some equity built up and may have a salable asset, is that that business was built by a particular type of person or persons with a particular mindset. That mindset is called the entrepreneurial mindset and its one of the things that can set one individual or business apart from another. You can have two appraisers who came up under the same mentor, learned the same things, shared the same practices and report comments, yet one goes off and builds a salable company and the other has to work each day to bring in the cash. One takes vacations, manages people, and looks for opportunities. The other takes the new orders, schedules them up, completes them, and its rinse repeat each day until retirement, death, or extinction…or a conscious choice to leave the industry.  

I’m not, by the way, making any qualitative judgements regarding either one. If you are the latter and think that I am somehow judging that as less important or valuable, I’m not! As I mentioned earlier, this is the vast majority of appraisers in our industry and somehow many of us are doing quite well so it would be silly to judge this as being a bad thing or ‘less than’ in some respect. I‘ve been on both sides of that fence and also somewhere in between and can speak to the pros and cons of all of them. Different people are suited to different things and the appraisal ‘business’ can be a great business for somebody with skills to manage and lead others and it can also be a great business for those who like to work alone from home. In fact, its one of the few businesses that one can get into, or at least could when I was starting out, without a college degree yet make an income greater than most with college degrees. It’s an industry that can allow you to set your own schedule to a large degree, no cap on your income, extreme freedom, somewhat location independent, and the ratio of income to time requirement is vastly out of proportion when compared with most hourly or even highly salaried careers. For all the naysayers, doom and gloomers, and and glass half empty folks in our industry, I’d challenge you to go find all of the qualities that can be found in this business in any other business and, if you can, the question would be “why aren’t your doing that”?    

The answer, of course, is because that opportunity doesn’t really exist OR its because you’re simply too scared to make the move. And if you that you’re too old, you have too much invested in this already, or that that opportunity isn’t there for you, well then, you’ve just contradicted yourself and made your answer null and void. We’ve come full circle back to my challenge, in which case you’d have to change your answer and come up with a new business opportunity that is available to you that gives you the freedom, income, and opportunity that appraising real estate does. Go ahead and dance in that circle as long as you need to to decide if its time to move on from this business or take the bull by the horns, so to speak, and decide if you’re an entrepreneur or simply the proprietor of ABC appraisal. 
   
That challenge, by the way, speaks to a principle we utilize every day in our businesses called the principle of substitution. In a real business its referred to as the cost of capital which is the return an investor expects to earn on his or her investment and, if that return isn’t met, would likely make an alternative choice of investment lest they destroy their principle and take a loss. Investors look at opportunities to make a return on their capital invested and will typically choose the one  that will meet their demands for return relative to the risk they’re willing to endure. We look to the market when comparing the subject to comparable sales and ask the same question, why would somebody pay X for the subject if they can, or could have, paid less for something similar in the same market and for the same risk.   

So what’s the difference between an entrepreneur and a proprietor you ask? The difference is profound my friends! I have heard for many years now and from a variety of industries that I’ve both worked in and coached in, the term entrepreneur tossed out by business owners of all kinds from franchise owners, real estate brokers, truck drivers, mechanical contractors, martial artists, and of course appraisers. However, what many of those who threw the term out there thought they were referring to when they called themselves entrepreneurs was really just the proprietor of something loosely called a business. I’m not here to argue the definition or semantics of the word business. What I would like to point out, however, is the difference between being an entrepreneur and being just a proprietor or supervisor of what you think is an entrepreneurial venture. 

If you have never heard of the great Peter Drucker, I would like to suggest that you start googling Peter Drucker and become familiar with his writings and business philosophy. Peter Drucker left us at the ripe old age of 95 back in 2005 after having a massive impact on the business world and the field of management specifically. What Drucker gave us was a way to look at businesses, creating them, running them, building and managing them, and then a new way to value their impact and their true profitability in something other than just straight line accounting terms. Drucker taught us about a concept called Economic Value Added, which is a way to look at what a business is truly creating in the market. Without going into all of the accounting minutiae of the EVA (economic value added) model of valuing a business, what it essentially says is that unless or until a business is adding more to the market than what it is taking from the market to cover its costs, including the cost of capital, regardless of whether or not it appears to be making a profit, its actually destroying wealth, not creating it. 

Ok, this is a huge concept and it can get complicated because Peter Drucker taught large manufacturing organizations how to look at quality, efficiency, leadership, accounting, and a variety of other topics so that they could exist profitably long into the future. Some of the things that are valued and measured in a manufacturing system would have little to no comparison or equivalent in an appraisal or real estate business. However, the ideas and concepts, once you understand them, can be applied across the board to any and every business and that’s what this episode is about.  

In essence, I’m hoping to get you thinking about what you’re really doing in the business you’re in. What kind of business are you operating, and more importantly, what kind of business do you WANT to be running? One of the first steps in moving in that direction is asking a series of questions. 3 of the questions that Drucker was famous for teaching his management and leadership students were these: 

1. What is our business today? 

1. What will be our business? 

1. What should be our be? 

Since most appraisal businesses are one to three person operations, the owner and chief appraiser is typically the one who is responsible for asking these questions, or at least teaching his or her people to be asking these questions on a regular basis.  

Drucker was famous for a bunch of different ideas and sayings, but one that has made a serious impact on the way I’ve looked at business for the past 20 years or so is something else Peter Drucker said, which is that “the purpose of business is to create a customer”. In fact, he said that is really the only purpose of a business. Businesses do a variety of things. Some make stuff, some sell stuff, some provide services, and some do a combination of all those things. However, is that the purpose of their businesses? Drucker would argue no! The purpose of all those businesses is to create a customer and the way they do that is by constant review of what it is they do to create that customer, what they should be doing, how they are taking care of that customer, the value of their product and service in the marketplace and how to continuously be looking into the future to see what business will be and what it should be. 

When you think of your business in that way and from those perspectives, I believe your paradigms start to shift. One of the big problems in the appraisal, real estate, and lending industries is that many of the people producing the product or service tend to think like employees in a bigger business. By that I mean that they tend to think it the job of somebody else to innovate, to think differently, to question value and process. By value, of course, I don’t mean opinions of value, I mean the value an appraiser, a realtor, a loan originator adds to the overall market. I can tell you with 100% confidence that almost every single one of them thinks about one thing and one thing only: profit. Or, said a better way, paycheck. Appraisers count everything in terms of appraisal dollars, lenders and realtors count everything in terms of commission checks. Appraisers buy things based on the number of appraisals it will take to pay for a thing and realtors buy based on the number of commission checks it will take. A computer is 2 appraisals, a nice Disto laser is one and half, appraisals, and a reliable car is 50 appraisals.  

That kind of thinking is, of course, very limited and limiting. It puts you in a position of simply taking from the market and thinking you’re making some profit if you cover your cost of doing business and put a little in the bank at the end of the week, month, or year. Forget about whether or not you actually lose money at the end of the year. The big problem is those who think they’re profitable at the end of the year because there’s some left over. The extra money lies to them and makes them think they’ve actually created something. It makes them believe they're doing something right and why break it if it ain’t broke! If they were to start thinking like an investor, however, they’d apply the principle of substitution and highest and best use of their time, energy, and resources and they’d likely look at things a little differently. You can easily build your bank account in any of those businesses. You can make really good money in the appraisal, real estate, and lending businesses. Especially if all you’re looking for is to make an income! If an income is all you need and you’re good, perfect. Do what you need to do to get licensed, get mentored up, get on some lists and off you go. You’ll make what the market thinks you’re worth for as long as the market needs you.  

And this is what people like Mr. Drucker and Jay Abraham would refer to as merely proprietors of a business and not entrepreneurs. A proprietor is somebody who adds nothing meaningful to a particular business category. They merely siphon off market capital and wealth from the market without necessarily creating any value and offering that back to the market, this is the EVA concept, or economic value added, that we discussed earlier (a much simplified variation, anyway). A restaurant, auto shop, grocery store, Realtor, Lender, or appraiser that does things the same way everybody else does it, and the same as the thousands that have come before them, is adding very little, if any, real value to the market. They’re simply doing things the way they’ve always been done, more or less, and taking an income from the market. 

Now this may not be a big deal to you. You may say, I don’t give shit what you call me as long as I’m getting paid. To which I’d say, cool, carry on. But to those that call themselves entrepreneurs and legitimate business people looking to be around for a long time and evolving with the market, as well as the needs of your customers, you’d do well to examine the differences and requirements of calling (and thinking) oneself an entrepreneur versus merely a proprietor of a business that, as we’ve discussed in other episodes, is seen typically as a commodity by most users, just as the typical burger joint is seen as a burger joint like all the others, aside from maybe its location. The owners of the typical business are hoping to extract from an existing market more dollars than it costs to operate and meet their needs for income or some kind of return on their investment. They’re hoping that the market will expand to take advantage of whatever it is they’re offering but they offer nothing special in return and offer nothing in the way of a better experience. They don’t innovate, they don’t redefine the the concept or service, its merely another appraiser or realtor in the market.  

Conversely, a real entrepreneur runs a business committed to continuous innovation of how they operate, offer their services and products, conduct their business, and the experience the customer or client receives from the interaction. A proprietor sets up a nondescript generic business that simply extracts an oxygen molecule from the air and cash from the market but contributes nothing beyond their own self serving nature of the product or service they’re offering. An entrepreneur thinks through every step of their offering and service and all of the potential pain points in the process to make the product, service, and experience different than the burger joint down the street. In essence, always asking “what business are we in”, “what business should we be in”, and “what business do we want to be in”and constantly reconciling those questions. The proprietor merely does what has always been done with no effort to create a new satisfaction, experience, or consumer demand for their product or service. All they do is hope to tap into existing demand.    

We see this every day in every market. Appraisers complaining about the lack of business, the lack of clients, the proliferation of AMCs, the decreasing of fees, and a host of other issues related to the industry. And as I’ve stated several times before, many of them very real issues for appraisers and signposts for the industry. However, entrepreneurs tend to see all of these things as signposts and then look for the opportunity that may exist, whether one exists now or needs to be created. A proprietor will simply complain and slowly wither away or they’ll willingly exit the industry on a sour note. In essence, the burger joint closes down because there aren’t enough customers in your market to continue extracting money from. The burger joint didn’t do anything special, different, or innovative enough for the market to say, “we’ll frequent your burger joint over the one three blocks or a mile away”.    

Entrepreneurs create! They create new things, new experiences, new levels of satisfaction for their clients and customers, they’re more exciting, better marketers, more desired and desirable in the market, and, most importantly, they add some value back to the market instead of just taking from the market. Entrepreneurs think differently and, based on the way they think, they find ways to improve, innovate, redefine, and shape the experience for the end user so as to add value and thus separate themselves from the rest of the market. It’s not good enough to just tell the market you’re better, if you actually are, because its about recognizing that you have to actually be different before the market can accept it as true. When you actually innovate and redefine the experience, the customer and client do the marketing for you.    

I’ve talked about this before; it’s a marketing concept called push pull. Either you’re pushing your marketing onto your market hoping they’ll bit on your offer, or you create so much value in your market that the market actually demands YOU, this is the pull side of marketing. You create so much value for your market that they pull you into the transaction. That’s one of the big differences between a proprietor of a business and a real entrepreneur. One does what has always been done and is subject to the whims of the market where the other is always seeking to change the game, renew the vision, redefine the marketplace, and they seek to add value to their offering beyond what it costs.  One of them works for somebody else (and that could still be you as the sold proprietor) and the other is constantly rehiring themselves by creating new markets, new customers, new clients, new products and services, and new experiences.
   
At the end of the day my friends, this is all just an exercise to begin asking yourself which one are you currently, which one would you like to be, and which one should you be. You may come to the conclusion that you are quite happy to extract an income from the market doing what you’ve always done and that’s just fine. There are many appraisers, realtors, lenders, and burger joints doing just fine and happy with what their business model affords them in terms of lifestyle and income. The point of the exercise and questions are simply to create some honesty in your self assessment of your business, what it is and what it isn’t. If you’ve been telling yourself and others that you’re an entrepreneur and you run a successful appraisal business but the bulk of your business comes from AMCs, it may be time to reassess because you are what Peter Drucker would call simply a proprietor of a business doing what thousands have done before you and adding nothing to the market. The entrepreneur, on the other hand, is always looking for ways to add value to the market, systematize their business, build some kind of equity, and get paid based on the value they create in the market.  

A proprietor asks “where is my next deal coming from”, an entrepreneur asks “will they miss me when I’m gone?”. If you can honestly say that your clients and customers will miss you when you’re not there providing whatever it is you provide, then you’re doing something right. Build on that and develop a business that will not only be missed if it was no longer around but one whose return would be demanded by the market should it ever disappear! Don’t be replaceable by yet another proprietor offering the same thing or better! 

As always, I want to thank you for investing your most valuable currency with me my friends, and that is your time. I will always do my best to try to return some value for your investment of time with me but ultimately its up to you as to what you do with the information and questions. I know from experience that one question can change the course of ones life and business and I implore you to begin asking more questions, better questions, and focusing on the things that will ultimately bring you to the place you think you should be. As far as we all know, we only get one life to live. Even if we have more lives to live, we wont know it when we’re living them so treat this one as your one and only. Do what you were meant to do and do it with all you’ve got! 
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Thanks again, and as Gandhi purportedly said, Be the change you wish to see in the world! A big fist bump to all of your and we’ll fist bump again next week!