Key to Exponential Growth: Fire Owners Regularly

This post was originally published on VRMIntel.com

I will never forget the way my coffee cup felt as I gently ran my thumb around it’s rim. I sat there quietly while two owners, who had previously been low maintenance, lambasted me and my business partner for an hour at the conference table in our main office conference room.

Historically, their rental property had been a low performer. However,  even though it was small and was below our typical quality, guests rarely complained and  the owners had been low maintenance until now.

We signed the property in our early-days as a company when we naively believed that "any inventory was good inventory".

As we grew, we assumed it was still a good decision to keep the property since it was producing incremental revenue and didn’t distract us too much from our core business goals.

As the details of the conversation unfolded, we learned that unbeknownst to us, the owners of the property had placed a “$500 duvet cover” (according to them) in the property during their last owner stay and it had gone missing.

As far as they were concerned, their poor decision was our responsibility and we should be financially responsible for it. 

As a business owner it was difficult to rationalize how it made sense to put something that nice in a property that rented for $99/night on average (which was a significant increase over what the previous company was able to achieve).

Worse though, it was even more difficult to rationalize how neglecting the rest of my business, my staff, high-value owners, and high-value tasks for this conversation made sense.

It was time to fire them as customers.

Not because I was emotional, and not because I was upset, but because the time-value equation of keeping them on the program no longer made sense.

How to know when it’s time to fire an owner

When I travel and speak about my days as a property manager, one of the top questions I am asked over and over again is, “How do I know it’s time to fire an owner?”

What’s most interesting is that this question is usually preceded with a very real, emotional story about how low producing the property is, how resistant an owner is to investing in improvements, and how incredibly high (read: unrealistic) their expectations are for the properties financial performance.

While there is no perfect formula for understanding the timing of firing an owner, what I’ve learned over time is that there are generally four classes of property owners, and only one class of those that should always be let go.

The best run companies will continually prune their owner bases to group as many as possible in the "high-profit/low-effort" class.

As shown in the scatterplot above, owners typically fall into one of the following categories:

  • High-Profit / Low-Effort (Your ideal clients)

  • High-Profit / High-Effort

  • Low-Profit / Low-Effort

  • Low-Profit / High-Effort

So which one of these owner categories should always be on the chopping block? You guessed it - any owner that falls in to the “Low-Profit / High-Effort” category.

Have you ever thought about your owners in this way?

It would be a largely insightful effort to actually sit down, make a list of all of your owners, and then categorize them into one of these four buckets.

The insights you will gain from your team about your company, owners, and understanding of the burden to your business of carrying certain owners  as customers will be enormously helpful.

Breaking up is hard to do

I was talking with a property manager recently, who we’ll call Carl.

Carl explained to me that he had started a company 16 months ago and had already grown to thirty units under management (what an exceptional feat!) - but Carl had a problem.

As a lot of new property management companies do, Carl signed any homeowner who would come on board to get the critical mass he needed to have an actual company.

Unfortunately, Carl felt that about 10 of these homes were now falling into the category of “Low-Profit / High-Effort” and as a result, the relationship-management side of keeping these unrealistic homeowners satisfied was already wearing Carl thin and putting the higher earning, lower effort category of homeowners at risk.

My advice to him? Cut them loose - soon.

“Be professional. Give them notice.”, I said, “Don’t get emotional or get down in the weeds about why. Thank them for being a customer, serve them notice and get off the phone. But do it soon.”

Carl immediately had questions about how he would make up for the lost revenue these 10 properties were producing.

I advised him that in actuality, if these properties were as high-stress and low-profit as he was telling me, then his largest revenue losses were happening on the high-profit properties that are being neglected right now that he may lose if he doesn’t redirect his focus.

So how should Carl fire the owner from this program? A few thoughts:

  1. Do not do it in person. I know this is counter-intuitive but the point is to stop your losses. The last thing you have time for is a really long meeting about why you can’t invest time in their property anymore. This is about rescuing time.

  2. Pick up the phone, call them, and explain very calmly and professionally that you are no longer going to do business together. Explain that financially it does not make sense to keep managing their property for your business. Thank them for being a customer, get off the phone.

  3. Don’t have a change of heart. Some owners will promise to start investing in improvements or doing the things you have asked for. Don’t give in - make your decision before you call and stick to your guns.

  4. Send an email summarizing everything you just said on the phone to them with the roll-off date clearly spelled out. Schedule maintenance to decommission the property. Walk away.

Despite our hesitancy to cut properties loose, the reality is that pruning your list intentionally, on a schedule, with proper thought and strategy (not on a heated whim!), will actually set you up for success.

This new time you’ve rescued from poorly performing properties will free you up to focus on the highest earners, sign new properties, and grow even faster with better inventory making your bottom-line stronger and stronger every year.

Said another way, it’s a common form of self-deceit that managing thirty properties is more profitable than managing twenty-five, or that managing one hundred properties is more profitable than managing eighty.

Time is the only asset you can’t get more of - put it where it’s going to be most effective at achieving growth and revenue goals, not expectation management.

How to sign and keep more profitable owners

At this point, maybe you’re already processing your own list of owners who you know are that toxic mix of high-effort and low-profits and know it’s time to professionally part ways.

But, what if there was a way to keep the high-effort / low-profit owners out of the roster to begin with?

One of the biggest mistakes I see property managers make when signing new owners is not level-setting with the owner what expectations for the management experience will look like.

They’re so excited - too excited - to sign another owner that they forget to qualify the client as the type of client that will help them grow, not get sucked in to constant “crisis” management.

One simple question to qualify a new owner: “Is this property an investment property or a dream vacation home?”

The response you receive to that question will tell you everything you need to know about whether or not this is a relationship you want to be a part of.

For owners who respond that it is an investment property, it is much easier to level-set that investment properties take wear-and-tear, have things go missing, and ultimate goal is maximum financial production. Have this conversation before you sign them.

For owners who respond that the property is a dream home, family inheritance, or similar, you have a decision to make. You can either refer them to another company, or you can set very different expectations for them.

For example, you might indicate that if they do not want it to be treated as an investment home, then you will intentionally keep rates high to keep nights booked low, and that you wouldn’t anticipate having any conversations about financial performance since that isn’t their primary goal.

It’s amazing how many owners re-evaluate their own self-categorization during this conversation and decide they’re okay with more wear-and-tear, items going missing, etc. if it means they can actually make a profit.

Even if they don’t have a change of heart, it gives you something to point back to if they start complaining later about performance - a strategic move you took from day one.

Closing Thoughts

The pareto principle (also known as the 80/20 rule) would tell us that 80% of our managerial stress is likely coming from 20% of the units under management.

Alternatively, 80% of revenue is typically coming from roughly 20% of clients. Wouldn’t we want to minimize the amount of time our low-earners are stealing from the highest producing clients on our roster?

Even though it may be painful in the short-term, firing owners regularly who are high-maintenance and low-profit is always the right business decision.

You will gain a new level of freedom and laser-focus on your business that will make this temporary pain not only worth it, but pave the way for future growth and success.

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