Matthew Ferrara, Philosopher
 

The Future has Already Started

Recently I participated on a panel where the audience could ask literally anything. After a few softball questions to get started, the pink elephant entered the room: What do you think the brokerage company of the future will look like? The room was suddenly still. Everyone leaned forward in their seats. All eyes were on the panelists. And after three other great answers – about companies focused on leadership, treating customers like guests, and practicing the fine art of salesmanship – the microphone came to me. What would be my answer? What will the real estate brokerage of the future look like. No talk about virtual offices and wireless tools. Forget social networking online. Those aren’t models – but tools. Think evolution. So I gave the answer nobody wanted to hear: We already have the future brokerage model, in most companies, today. We just have to be willing to look.

The real estate brokerage model of the future will be a team.

At Matthew Ferrara & Company, we believe the real estate industry is passing through its industrial revolution. A slow, steady, and painful transformation is occurring, moving the industry from a semi-feudal organizational model into a renaissance of modern production methods. The existing business model was created by Baby Boomers, for Baby Boomers, based upon 19th century apprenticeship shops. A loophole in the tax code let Boomers create and sustain non-modern artisan workshops where salespeople remained independent and left to learn their trade from experienced elders. While costs remained low and operations required mostly manual labor, this Old World model worked.

Today, real estate requires knowledge workers, not manual labor. As a result, the future brokerage model must be organized around the knowledge team.

The old model of cheap labor was, essentially, a ponzi-scheme. Everyone had an Aunt Sally who would move someday. A large network of nieces and nephews offered brokers a baseline of social network deals every year. A high attrition rate of non-productive salespeople meant that recruiting – a cheap effort – ensured a fresh flow of nieces and nephews. It worked well, as long as overhead remained low, technology was minimal and were confined to the local area of relatives.

Developing the sales forces required apprenticeship, like craftsmen from days gone by. New agents learned by watching and copying experienced agents, ensuring both good and bad habits were passed on. Tradition became ingrained. Managers (often past-agents of varying success) reinforced “how it is done in our office.” Competition became a game of one-up-manship. Whichever company had the shiny-new-thing was thought to be better than others. Since most companies were in the same guild, locally and nationally, all regurgitated basics were codified as “standards.” It was traditionalist and copy-cat, with no penalty for failure. Mostly, agents were left to figure it out on their own. Most never did, which is why we have E&O insurance.

Along the way, the industry languished. Profits depended mostly upon “booms” while busts simply cleared out the tired and weary. Brokers risked fortunes on a model where “hoping” was the dominant theory. Performance was measured by luck, timing, and the shiny-bullet-of-the-day.¬† Sales fell out of fashion, becoming passive-aggressive postcard canvassing done by “counselors.” Technology was resisted, even when it promised new markets and lower costs. When the most common question from brokers was how to get their agents to attend office meetings, greater dysfunctional problems surely lurked below the surface.

Consumers suffered too. Service was a hit-or-miss, based upon which agent happened to be on floor duty that day. Branches within the same company operated differently. Quality controls were sporadic. As whims and talents varied from workshop to workshop, performance was thought to be based upon superstars, not everyday agents. Yet somewhere within this hodgepodge, a small group of agents discovered how to overcome the chaos around them. They built organizations-within-organizations to do what was necessary to create consistently productive outcomes.

They created teams.

Agent teams divided up the labor amongst a group of specialists. The division of labor is the organizational breakthrough that created the modern world. Most people remember Taylorism as the thinker who studied factory assembly lines. Subdividing work into smaller parts and assigning experts to each stage lets productivity soar. The division of labor isn’t just a time-saving model for manufacturing: It’s a talent maximization model for service organizations like real estate companies.

Real estate teams are amongst the most highly productive entities in the industry today. Each team member person does only that which they have been fully trained to do. And they do it consistently well. Personal talents, now intellectual not physical, are applied systematically. A team’s division of labor positions the right person doing the right job to fulfill customer’s desires.

Output soars. So do profits. As does customer satisfaction.

That’s the model of the future. Organizing brokerages into performance teams that permit each person to focus on their best efforts every day. The proof of concept has already been completed: Most brokerages’ highest source of revenue comes from their in-house agent teams. (If they make little or no profit from team revenue is an entirely different problem.) The very existence of teams proves that the model of independent agents floating aimlessly is disliked by career-minded salespeople.

Outside of real estate, the team model is the norm. Think of high performance organizations – doctors in an operating room, attorneys at a law firm, race car pit teams. Everywhere high performance is needed, a team is involved. Motivated, integrated, seamless, able to create great outcomes over and over again. Teams make profits, turn clients into raving fans, and create careers for team members. Each team has a leader, surrounded by support experts, but only together can they reach their goals: A successful surgery for the patient, a win in the courtroom, a victory lap on the race track. Helping buyers and sellers of a home.

The future model has been right in front of us all along. Today’s teams have mastered the performance and profit formula. Teams leaders are specialists, surrounded by support experts. Team members are paid according to their individual contributions to the goal. Teams expand by adding specialists – a buyer’s agent, a relocation expert – supported by the same team of experts. One nurse supports multiple doctors; one paralegal supports multiple lawyers. The growth of the company is always at the specialist end, not the support staff end. Which is totally different than today’s model, which confuses supporters for salespeople.

The real estate industry needs to focus on its organizational theory. The self-serving mantra being repeated today – that once the market comes back, everything will be fine – is not only incorrect, but traditionalist nonsense. Companies waiting to go back will become extinct. Like steamships in the age of spaceships. The old ways¬† didn’t perform very well, without a false-economic boom.

The only solution is to leave behind the cottage-industry mentality and implement the division-of-labor models of the modern economy. Teams already outperform other models, by targeting the expertise of their knowledge workers, supported by technical experts, technology and management. That’s what teams can today. If brokers are smart, they’ll stop trying to return to the wheel. Just copy the team model – on a grander scale – and prepare to go where nobody has gone before.

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  • Excellent!

  • Excellent!

  • Matthew Ferrara

    Thanks, Jodi. Good luck out there! The future is arriving faster than we think!
    – Matthew

  • Matthew Ferrara

    Thanks, Jodi. Good luck out there! The future is arriving faster than we think!
    – Matthew

  • Hey, can’t you blog something occassionally that is not so thought provoking! Just kidding; where and in what role do you see the managing broker of the firm playing on the teams? Just a legal entity or as a guiding manager or senior executive,minus the perks.

  • Hey, can’t you blog something occassionally that is not so thought provoking! Just kidding; where and in what role do you see the managing broker of the firm playing on the teams? Just a legal entity or as a guiding manager or senior executive,minus the perks.

  • Donna Coleman

    As always, I am blown over by Matthew’s intelligent foresight. As an office manager I would love a little bit more specifics and examples of just how to bring this concept into reality within our office. Any suggestions?

  • Donna Coleman

    As always, I am blown over by Matthew’s intelligent foresight. As an office manager I would love a little bit more specifics and examples of just how to bring this concept into reality within our office. Any suggestions?

  • Charles Esters

    I wonder if the same issues that the Big Three Auto companies and the issues they are dealing with are close to what we as Realtors are having to deal with. It seems like we must change to match the times or be left out in the cold. Great article.

  • Charles Esters

    I wonder if the same issues that the Big Three Auto companies and the issues they are dealing with are close to what we as Realtors are having to deal with. It seems like we must change to match the times or be left out in the cold. Great article.

  • Matthew Ferrara

    Thanks everyone for the comments.

    Donna – to bring the concept to reality at your company requires a three stage process; Develop a strategic plan; create a timeline to close the old-model down and re-open with the new model; and assess your existing talents to see how to allocate/terminate/reposition people as needed. It’s a LOT of work – just like opening a brokerage “new” for the first time. But we help clients do it – so let me know if you want to discuss further (drop me an email).

    Matthew

  • Matthew Ferrara

    Thanks everyone for the comments.

    Donna – to bring the concept to reality at your company requires a three stage process; Develop a strategic plan; create a timeline to close the old-model down and re-open with the new model; and assess your existing talents to see how to allocate/terminate/reposition people as needed. It’s a LOT of work – just like opening a brokerage “new” for the first time. But we help clients do it – so let me know if you want to discuss further (drop me an email).

    Matthew

  • Matthew Ferrara

    Paul:

    Thanks for your comment. The managing broker can play three roles:
    1. Silent finance partner.
    2. He can be a “specialist” at the top of a team; perhaps he wants to focus on retirees, or new buyers, or relo, or whatever. But he can create his own team – it might be his WHOLE company, or if he’s is targeting enough sectors, he’s one of the team leaders. He’ll then have to hire other team leaders (like a law firm) for other specialties.
    3. He can MANAGE team leaders, but NOT sell on his own. He can hire multiple team specialists, hire the centralized staff, then MANAGE PERFORMANCE, coach, monitor finance, etc. He can work ON the business, not IN it.

    – Matthew

  • Matthew Ferrara

    Paul:

    Thanks for your comment. The managing broker can play three roles:
    1. Silent finance partner.
    2. He can be a “specialist” at the top of a team; perhaps he wants to focus on retirees, or new buyers, or relo, or whatever. But he can create his own team – it might be his WHOLE company, or if he’s is targeting enough sectors, he’s one of the team leaders. He’ll then have to hire other team leaders (like a law firm) for other specialties.
    3. He can MANAGE team leaders, but NOT sell on his own. He can hire multiple team specialists, hire the centralized staff, then MANAGE PERFORMANCE, coach, monitor finance, etc. He can work ON the business, not IN it.

    – Matthew

  • Virginia O’Connor

    Another excellent article, Matthew.Thought provoking and inspiring! Would you please run for President?!?!

  • Virginia O’Connor

    Another excellent article, Matthew.Thought provoking and inspiring! Would you please run for President?!?!

  • Terrific~! We in our office are implementing this concept. We (3 agents and one broker) are really in the embyonic stages but are steadily going forward. Our concept is to have each contribute on her own strengths, assign value to those attributes and pool a portion of the profits for now. We, at the moment, are working on some location problems(trying to keep our site)and cash flow issues. We feel that our tiny little office is boldly going into a new frontier.

  • Terrific~! We in our office are implementing this concept. We (3 agents and one broker) are really in the embyonic stages but are steadily going forward. Our concept is to have each contribute on her own strengths, assign value to those attributes and pool a portion of the profits for now. We, at the moment, are working on some location problems(trying to keep our site)and cash flow issues. We feel that our tiny little office is boldly going into a new frontier.

  • Connie Wardell

    Matthew,
    Any article that makes me think and rethink is great. Your ideas are, however, not new. The same concept was presented in the real estate downturn of the 80’s. Specialization & teams in the securities industry gave us Bernie Madoff. Do we need that in real estate? It was specialization that destroyed our auto industry. (the line where all you do is add one screw). Teams can work, but only if all team members AND support staff understand the whole concept of the product. I have been rethinking my specialization concepts as I see where it led us in the securities industry, the lending industry, you name it. We are in trouble because we lost the small business approach to understanding the whole. Can technology change what we do, how we do it? It already has and is. Our customers come to us with a better understanding of our product. That helps them define what they need from us. Accounting firms in our area no longer expect to be the whole magilla. They contract for what you need, including on your tax return. My accountant does the capital gains and partnership part, I do the rest with current tax software. Real Estate has fought that concept, but the customer is winning that battle. If the customer wants to be more involved in the process, they can be and should be. If they want to opt out and let you handle, that should also be an option. Going back to the accounting model, we have a local CPA whose business is done entirely online. He services high receipt businesses (bars, casinos, ministorages) The business receipts the income during the day, transmits it to him at the end of the day. Working from home, he has experts in Quickbooks that input the information into QB in porper format, pay bills as needed (these are also received online), the formatted input is transmitted back to the ownere the next day. Small business receives excellent accounting at an affordable price and at the end of the year, tax return preparation costs 20% of the usual cost. It also utilizes the skills of those who prefer to work from home–students, stay at home moms or dads, those looking for a 2nd income. I am considering this from the prospect of how I structure my business and I am finding some parallels that work. Using available specialized support staff, but still keeping on top of the whole end game. That is where we are headed.

  • Connie Wardell

    Matthew,
    Any article that makes me think and rethink is great. Your ideas are, however, not new. The same concept was presented in the real estate downturn of the 80’s. Specialization & teams in the securities industry gave us Bernie Madoff. Do we need that in real estate? It was specialization that destroyed our auto industry. (the line where all you do is add one screw). Teams can work, but only if all team members AND support staff understand the whole concept of the product. I have been rethinking my specialization concepts as I see where it led us in the securities industry, the lending industry, you name it. We are in trouble because we lost the small business approach to understanding the whole. Can technology change what we do, how we do it? It already has and is. Our customers come to us with a better understanding of our product. That helps them define what they need from us. Accounting firms in our area no longer expect to be the whole magilla. They contract for what you need, including on your tax return. My accountant does the capital gains and partnership part, I do the rest with current tax software. Real Estate has fought that concept, but the customer is winning that battle. If the customer wants to be more involved in the process, they can be and should be. If they want to opt out and let you handle, that should also be an option. Going back to the accounting model, we have a local CPA whose business is done entirely online. He services high receipt businesses (bars, casinos, ministorages) The business receipts the income during the day, transmits it to him at the end of the day. Working from home, he has experts in Quickbooks that input the information into QB in porper format, pay bills as needed (these are also received online), the formatted input is transmitted back to the ownere the next day. Small business receives excellent accounting at an affordable price and at the end of the year, tax return preparation costs 20% of the usual cost. It also utilizes the skills of those who prefer to work from home–students, stay at home moms or dads, those looking for a 2nd income. I am considering this from the prospect of how I structure my business and I am finding some parallels that work. Using available specialized support staff, but still keeping on top of the whole end game. That is where we are headed.

  • Matthew Ferrara

    Hi Connie:
    Thanks for your comment; I appreciate you taking the time to write it all out, but I’m finding it really hard to follow your reasoning. I don’t understand how specialization led to Bernie Madoff… He was a crook and a fraud; it had nothing to do with the organizational strategy of investment banks. Specialization also did not destroy the auto industry: Honda. BMW, Toyota and others use specialized factories to create the most profitable companies in the world. If anything, the “American” auto industry was destroyed by the ANTI-specialization mentality of “unions” which are just modern day “guilds” of the mercantalist days.

    The bottom line is this: specialization in real estate ALREADY works. When you break down the top performing entities in the business – the TOP revenue generators – you find teams. Teams divide the work and apply the best strengths of each person to the tasks. And they create the most cost-effective, consistent and profitable outcomes.

    Well, thanks for your comments, nonetheless. I’m not saying I have all of the answers. But I think the evidence is fairly clear:

    Last year it took 1 Million REALTORS to sell 4.9 Million homes. That’s definitely not specialization, efficiency or a sustainable model for the future.

    Have a good day,
    Matthew

  • Matthew Ferrara

    Hi Connie:
    Thanks for your comment; I appreciate you taking the time to write it all out, but I’m finding it really hard to follow your reasoning. I don’t understand how specialization led to Bernie Madoff… He was a crook and a fraud; it had nothing to do with the organizational strategy of investment banks. Specialization also did not destroy the auto industry: Honda. BMW, Toyota and others use specialized factories to create the most profitable companies in the world. If anything, the “American” auto industry was destroyed by the ANTI-specialization mentality of “unions” which are just modern day “guilds” of the mercantalist days.

    The bottom line is this: specialization in real estate ALREADY works. When you break down the top performing entities in the business – the TOP revenue generators – you find teams. Teams divide the work and apply the best strengths of each person to the tasks. And they create the most cost-effective, consistent and profitable outcomes.

    Well, thanks for your comments, nonetheless. I’m not saying I have all of the answers. But I think the evidence is fairly clear:

    Last year it took 1 Million REALTORS to sell 4.9 Million homes. That’s definitely not specialization, efficiency or a sustainable model for the future.

    Have a good day,
    Matthew

  • Don

    Another great article Matthew. I left my company of 4 years, which I had joined as a new agent, to go to a bigger company (big red), to join a team that was forming. Sadly the potential was never realized, as some agents had a hard time with the team concept. Realtors tend to be TOO independent, and in this case, sharing the work and profits was something no one could agree on. The experience was so bad I went back to my old company. I want to work as part of a team here, but selling agents on the idea, that someone might better handle some aspect of the business, to everyone’s benefit, just isn’t happening. Meanwhile almost everyone is struggling on their own…what to do? Anyone??

  • Don

    Another great article Matthew. I left my company of 4 years, which I had joined as a new agent, to go to a bigger company (big red), to join a team that was forming. Sadly the potential was never realized, as some agents had a hard time with the team concept. Realtors tend to be TOO independent, and in this case, sharing the work and profits was something no one could agree on. The experience was so bad I went back to my old company. I want to work as part of a team here, but selling agents on the idea, that someone might better handle some aspect of the business, to everyone’s benefit, just isn’t happening. Meanwhile almost everyone is struggling on their own…what to do? Anyone??

  • Ed Martin

    Don,
    The best advice I can give you is: “keep looking”, you will arrive at a team company. It is a fact, these TEAM companies do exist, you just need to find where they are. I bet a lot of them are just as tiny as Adrienne’s operation.

    Matthew,
    The way I see how this industry will take off on the TEAM concept is to create some type of what the software industry calls it “OPEN SOURCE” in the Real Estate industry. If we can all agree on sharing our experiences and blog them in a way as to create a flow diagram that will enhance performance for the industry as a whole without looking only for our best interest but that of a Global Team Effort. Looking back at the old model, many of us know what works well for us, so we keep using it and keep on trying new things to see how we can enhance our performance. This worked well up to a certain and limited point, even within a small company team.

    However, if we want for our industry to reach higher levels of success, we must learn to share our positive and negative experiences with an organization that manages this information and disseminates it at no cost to all members. Both the experienced and the novice can learn from a global team, a whole array of new ideas will flow in and out of this model in a such a way that it will create a vacuum for new knowledge. When we all have the information based on previous experience, the whole team will rise to the top.
    Ed

  • Ed Martin

    Don,
    The best advice I can give you is: “keep looking”, you will arrive at a team company. It is a fact, these TEAM companies do exist, you just need to find where they are. I bet a lot of them are just as tiny as Adrienne’s operation.

    Matthew,
    The way I see how this industry will take off on the TEAM concept is to create some type of what the software industry calls it “OPEN SOURCE” in the Real Estate industry. If we can all agree on sharing our experiences and blog them in a way as to create a flow diagram that will enhance performance for the industry as a whole without looking only for our best interest but that of a Global Team Effort. Looking back at the old model, many of us know what works well for us, so we keep using it and keep on trying new things to see how we can enhance our performance. This worked well up to a certain and limited point, even within a small company team.

    However, if we want for our industry to reach higher levels of success, we must learn to share our positive and negative experiences with an organization that manages this information and disseminates it at no cost to all members. Both the experienced and the novice can learn from a global team, a whole array of new ideas will flow in and out of this model in a such a way that it will create a vacuum for new knowledge. When we all have the information based on previous experience, the whole team will rise to the top.
    Ed

  • Matthew Ferrara

    Hi Ed:

    You are correct that team-companies exist; in fact, we’re helping CREATE them all the time here. Many brokers have understood the need to divide the labor, share the profits and create a modernly-organized company. It’s not just catching on, it’s growing fast.

    As for sharing the concept with the rest of the industry, I think that’s already been done. It’s called a “business degree” from any university. Every other industry in the universe knows how to organize talent and teams; it’s really only the hold-out “superstar” based sales industries that can’t let go; and as we’ve said, even within their industries, the real producers are already out of the “solo” models and building interior teams. There’s no SECRETS to how to do it; just go down the street and watch how any DINER works. Different people do different jobs; the customer pays one person and everyone gets paid a wage, which is a percentage of the profits.

    In my opinion, if we take a “industry” approach to this, it’s going to get screwed up. Anything that has to do with the “industry” means committees, task forces, pressure groups and bigwigs. That’s why most “industry” organizations are such a mess (including brokerages, which are types of industry organization). It’s up to companies to do what’s right for them; their competitors can do whatever they want. My advice is to focus on the CONSUMER and just “forget” the rest of the industry exists.

    Radical. But it works.

  • Matthew Ferrara

    Hi Ed:

    You are correct that team-companies exist; in fact, we’re helping CREATE them all the time here. Many brokers have understood the need to divide the labor, share the profits and create a modernly-organized company. It’s not just catching on, it’s growing fast.

    As for sharing the concept with the rest of the industry, I think that’s already been done. It’s called a “business degree” from any university. Every other industry in the universe knows how to organize talent and teams; it’s really only the hold-out “superstar” based sales industries that can’t let go; and as we’ve said, even within their industries, the real producers are already out of the “solo” models and building interior teams. There’s no SECRETS to how to do it; just go down the street and watch how any DINER works. Different people do different jobs; the customer pays one person and everyone gets paid a wage, which is a percentage of the profits.

    In my opinion, if we take a “industry” approach to this, it’s going to get screwed up. Anything that has to do with the “industry” means committees, task forces, pressure groups and bigwigs. That’s why most “industry” organizations are such a mess (including brokerages, which are types of industry organization). It’s up to companies to do what’s right for them; their competitors can do whatever they want. My advice is to focus on the CONSUMER and just “forget” the rest of the industry exists.

    Radical. But it works.