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, recruiting. Even amidst the worst downturn in housing markets in two decades, brokers 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 management process so well implemented, they have also never had a layoff!
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.