Matthew Ferrara, Philosopher
 

The Aflac Lesson for Real Estate

Readers of this column long know of our contrarian opinion of most traditional real estate practices. None more frequently irks us than the idea that all problems in real estate can be solved by increasing the body count, er, . Even amidst the worst downturn in housing markets in two decades, who hate recruiting still can’t stop doing it. Perhaps because as awful as it is, recruiting is still easier than focusing on productivity.

Imagine a company that rarely recruited. What would it look like? How could it possibly expand or grow without constantly adding more salespeople to its staff? You don’t have to imagine it, you can find it today – just not in the real estate industry. In fact, you can find many companies so focused on productivity that they only recruit when absolutely necessary. They have the recruiting/productivity process so well implemented, they have also never had a layoff!

Ever.

Such a company is Aflac. In a recent interview with CNBC, Aflac’s president made a statement that snapped heads to the screen: Aflac has never had a layoff. Not once. Even with 4,700 employees.

This week, Aflac’s stock hit a 52-week high and the company announced it was actually hiring during a recession. How could it possibly have this level of strength and expansion, in the insurance sales business, when the entire insurance industry is off by half compared to 2007 levels?

Maybe one reason comes from Aflac’s CEO Daniel Amos’ philosophy to, “… not overhire during peaks and during the valleys… put on hiring freezes.” This approach, of course, is completely opposite of the real estate industry’s typical approach, best described as “hire all the time.” Whether the market is up or down, recruiting is the magic talisman of profit-making in real estate. During the 2005-2007 boom, almost 250,000 additional real estate agents entered the business nationwide; since the recession, more than 300,000 have left.

But during both periods, brokers were still hiring!

We’ve long contended that constant recruiting without productivity-driven expansion is the sign of a sick company, if not an irrational industry. The costs of adding, training and mentoring additional salespeople is not what it used to be, when all an agent needed was some business cards and an MLS account. The legal barriers to entry may be low in real estate, but the financial costs (marketing, technology, training) of adding agents is higher than ever. Not to mention such operational challenges as team disruption, disruptive personalities and diluted management attention that occurs when  someone new enters an office.

The Aflac story demonstrates how a rational, productivity-oriented alternative to the recruiting turnstiles found in the front doors of real estate brokerages actually works. When markets peak, a focus on per-person productivity for existing staff – including almost certainly technology and system efficiencies – permits the same number of people to handle cyclical increases in business. Only when absolutely necessary is new manpower added to the mix. Profits are maximized this way, especially for individual commissioned sales agents. The  company reaps higher returns and hopefully saves or invests for the day business returns to normal (or falls). Rarely does Aflac suffer a glut of agents competing – and diluting – the per-person margins especially during market downturns.

That’s why they can expand even in the recession.

All of this presupposes that companies are focused on individual and organizational productivity – not sheer volume. It means each agent maintains a significant and consistent production level of business every month. The per-person productivity must be both high and sustained. More importantly, non-production is not tolerated in the hopes of the mythical “one deal” an agent might bring in. For Aflac to hit its 52-week highs, you can be sure they don’t have a bunch of insurance agents sitting around resisting prospecting calls or social networking, waiting for their one deal to come in.

It’s a different way of thinking about the sales business. In an August 2009 interview with CBS, Amos said, “We have never had layoffs in Aflac’s history…We will let an unproductive worker go in a minute. But, if you are a great employee, we will do everything in our power to keep you.” Note that he said employee, too. Aflac has never laid off employees because there were too many bloating their payrolls, including benefits. Compare that to real estate brokers who struggle to fire (and then seek to hire more) non-producing independent contractors.

Not too many real estate brokerages today are hitting 52-week highs in their stock or company value. But plenty of brokers are still running around hiring agents of marginal productivity. Perhaps the Aflac spokesduck can teach real estate brokers how to avoid quacking-up by the time the housing market turns around.

  • I totally agree as usual Matt! Our office competes against several offices in the area with weak management and training, but four times as many agents as our office. Many have managers, or trainers with no real estate sales or marketing experience at all. Many of these brokerages are built on non-sustaining business models with irrationally high commission splits. They hope that volume will ride them to “profit-land”. Agents who seemingly don’t care about training, marketing and strong management flock to these other brokerages for a few more points to themselves thinking commission split is the most important thing when starting out, but end up selling significantly less because of the lack of training.

    We tried that route before, having lots of dead weight around, but if the office isn’t profitable and productive what good is it?

  • I totally agree as usual Matt! Our office competes against several offices in the area with weak management and training, but four times as many agents as our office. Many have managers, or trainers with no real estate sales or marketing experience at all. Many of these brokerages are built on non-sustaining business models with irrationally high commission splits. They hope that volume will ride them to “profit-land”. Agents who seemingly don’t care about training, marketing and strong management flock to these other brokerages for a few more points to themselves thinking commission split is the most important thing when starting out, but end up selling significantly less because of the lack of training.

    We tried that route before, having lots of dead weight around, but if the office isn’t profitable and productive what good is it?

  • HOWEVER,during a time of industry turmoil, there is and will be a great deal of consolidation.Only the strong will survive to the next round of whatever this industry is careening towards. It is important to have the most marbles and weed out the clunkers later if need be.

    Saw you last week in Stamford,CT….great presentation

  • HOWEVER,during a time of industry turmoil, there is and will be a great deal of consolidation.Only the strong will survive to the next round of whatever this industry is careening towards. It is important to have the most marbles and weed out the clunkers later if need be.

    Saw you last week in Stamford,CT….great presentation

  • I am an Associate Broker with a non-franchise firm that has one Principal Broker who has grown to having 5 offices and over 80 ’employees’. At the onset, he stressed the importance of integrity, loyalty, and education!! He always encouraged us to take as many courses as possible and to attain designations to better serve our clients. I have been with this Agency for 7 years, have a great respect for him, myself, and my co workers. We have been the # 1 Agency in Ulster County for the past 17 years. I guess Westwood Metes and Bounds is doing something right!! Diane Silverberg, CRS, ABR, CLHMS.

  • I am an Associate Broker with a non-franchise firm that has one Principal Broker who has grown to having 5 offices and over 80 ’employees’. At the onset, he stressed the importance of integrity, loyalty, and education!! He always encouraged us to take as many courses as possible and to attain designations to better serve our clients. I have been with this Agency for 7 years, have a great respect for him, myself, and my co workers. We have been the # 1 Agency in Ulster County for the past 17 years. I guess Westwood Metes and Bounds is doing something right!! Diane Silverberg, CRS, ABR, CLHMS.

  • A company which considers recruiting more valuable than quality, ongoing training, caring, involved and communicative management, bricks and mortar updates, and cutting edge technology, is likely to need to constantly recruit to keep up with rapid agent turnover.

    As with any successful business, the proprietor always needs first to provide service to your existing client base, in the case of real estate, to your current licensees. If we provide top quality service, commitment and complete integrity to them, we have little or no turnover of successful agents. In fact, we usually have the most successful agents in the marketplace.

    What does fuel the need to recruit sometimes, however, is company demographics. Many companies have successful, productive agents who approach retirement and are resistent to change, especially in technology and market demands. A principal broker needs to recruit if she or he cannot fill vacancies solely on professional buzz about their company. Such good buzz can bring new players to fill such vacancies created when quality agents retire from the business. It just sometimes does not bring enough prospects on their own.

  • A company which considers recruiting more valuable than quality, ongoing training, caring, involved and communicative management, bricks and mortar updates, and cutting edge technology, is likely to need to constantly recruit to keep up with rapid agent turnover.

    As with any successful business, the proprietor always needs first to provide service to your existing client base, in the case of real estate, to your current licensees. If we provide top quality service, commitment and complete integrity to them, we have little or no turnover of successful agents. In fact, we usually have the most successful agents in the marketplace.

    What does fuel the need to recruit sometimes, however, is company demographics. Many companies have successful, productive agents who approach retirement and are resistent to change, especially in technology and market demands. A principal broker needs to recruit if she or he cannot fill vacancies solely on professional buzz about their company. Such good buzz can bring new players to fill such vacancies created when quality agents retire from the business. It just sometimes does not bring enough prospects on their own.

  • What an inspiration.

    It goes to show the key to a great business is it’s people & a great leader. I think the real estate industry in general has lessons to learn from stories like this.

  • What an inspiration.

    It goes to show the key to a great business is it’s people & a great leader. I think the real estate industry in general has lessons to learn from stories like this.