Matthew Ferrara, Philosopher
 

Wake Up and Smell The Coffee

A recent Businessweek article featuring Starbucks CEO Howard Schultz should be required reading for REALTORS. Its main point – that the Starbucks that told its employees “do anything you feel like” has finally met the cold reality of customer expectations. With sales dropping and stores closing, the Seattle-based giant has had to wake up and smell the coffee. Gone are the boom years, when Starbucks opened a store a week, hired “partners” not employees, and left it up to them to “organically” figure out how to pour coffee and make customers happy. Turns out that was a stupid business model. Not unlike another industry that was only profitable during a credit boom.

When credit was cheap,  customers would drink anything, as long as it was chic. Much like the housing business, much of it has turned out to be lukewarm. Today $4 cups of coffee alone can’t capture enough customers, no matter what the “experience” is like in the store. Moreover, many stores’ experience isn’t all that great, exactly because it has been left to untrained people with no specific process. Again, not unlike the real estate industry that hires recently licensed “,” sticks them on the phones or at open houses, and wonders why so few customers are converted into deals.

Starbucks, at least, is learning to grow up. Critically, it is learning that process matters. Much like the dot-coms eventully learned that profits matter, Starbucks has to become more than just image-centric. desire consistency of outcomes and dependable value – which only comes from managing people operating sound performace processes. All of which parallels the real estate brokerage business that’s learning it has outgrown the mom-and-pop model, even with big websites and electronic lock boxes, where anything and anyone goes…

Not, says the consumer, any longer.

Ironically, most REALTORS earn about the same as Starbucks coffee shop employees. After taxes and without Starbuck’s basic benefits like health insurance, vacation and stock options, 75% of REALTORS actually fare worse. As for the customer, with plenty of alternatives, it turns out both industries require more than just a “people business” operating model that both tradionally mouthed.

Customer value means more than just nice people.  And that’s where both industries have much to learn about process.

Starbucks started out there, but 16,000 stores later found that without specific production processes and active managers, they lost control of the “experience.” REALTORS also used to control the experience, mostly when they had tight control of information; with their strangle-hold gone, agent-personality alone just isn’t enough to sustain customer loyalty in the future.

And less than 30% of customers use the same REALTOR again the second time to sell their home. Or third. Or fourth.

Both industries are grappling with this change: The need to create business models that go beyond the truism that it’s all about people. It may be true; but it’s not enough. For consumers, good people, high service and honest relationships are the beginning of the value equation. Consistent outcomes, understandable processes and reasonably determined fees must also factor into any service business proposition. When these things remains uncertain for millions of transactions annually, it’s no wonder either industry faces challenges when consumers are watching their spending more closely.

The parallels are perfect. Starbucks was renowned for being the place where “… most of its existence was fast-growing and free-flowing, a place where the experience was everything. A place where the boss led by instinct, where authenticity was what counted.” This is the very model of most struggling (and failing) real estate companies today, who have left their success up to managers who work from the gut, and agents who wheel-and-deal the experience mostly with the customer’s dreams and money. The focus – and marketing – is about the “experience” rather than the actual outcomes.

And customers won’t buy that any more. Not, at least, without a discount. And neither industry can afford a price cut.

Most of the Starbucks experience was created by the customers, not the company. The “sit and sip on sofas” experience depended entirely upon which other customers were in the shop at the time, not the employees interacting with the customer. Employees could barely keep up with the long lines – because their process was too “free flowing” it took 8 minutes to pour a cup of coffee. No time left to create experience, really. And once the grunge-group youth hit their credit card limits, the only customers left making the experience were soccer-moms trailing kindergarden kids and retirees. The experience changed because it was completely out of the control of the company. And Starbucks core-customer, the Gen X buyer, simply decided it wasn’t the experience they wanted any longer.

Just like today’s real estate office.

When the customer experience changed, all that was left was competition on price and service. Starbucks’ Gen X customers decided to just buy cheaper coffee, once all the seats in the shop were occupied by kids and grandparents. It was no longer their ‘scene’ so the drive-through at Dunkin Donuts was an equivalent substitute: Long lines, poor service and no desire to sit around with those customers either, but half the price.

The same lesson is being learned at real estate companies. Their customers are left questioning the price, since the experience is so unpredictable. Core Gen X and broke Baby Boomer sellers are suddenly asking why it costs $36,000 to sell a $600,000 home, as much as they paid for the Honda hybrid. Neither offers their loyalty automatically any more, certainly not to the bank-owned agents who won’t call you back, even after you put a full-price offer in on their foreclosure. And forget about Gen Y getting an agent to communicate by text messages. If you want them to leave a voice mail, Gen Y is going to go look at FSBO’s by themselves. At least they don’t have to pay a commission for a bad experience.

When customer start to give up – walking out of the coffee shop or waiting for an agent to text them back – the writing is on the wall. Perhaps that’s why Starbucks’ CEO also said, “We got swept up,” Schultz says. “We stopped asking: How can we do better? We had a sense of entitlement. And I’m here to tell you that’s over.” Is anyone saying that in real estate brokerage? Maybe, but certainly not loudly.  While Starbucks seems to have understood that process matters, the real estate industry can’t seem to get the message. Too much recruiting still claims it’s “all about the agents.” Too few companies even know how many customer inquiries go un-answered each day. Even those with the best technology aren’t making the process changes necessary – to training, and quality controls – to get customers to come back regularly.

Instead, customers are walking away, while agents are still preening in the mirror. While Starbucks is learning how to pour a cup of coffee all over again, too many REALTORS are just waiting for their entitlement days to return again.

The bad news is that too few will be around to see them return; The good news is that at least Starbucks will still be hiring.

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  • Hi Matthew,

    Some of us Realtors have only been inside a Starbuck or the drive-thru with clients. We make our coffee at home. You keep trashing the baby boomers they are 48% of the population and they control 75% of the wealth, do not count them out of the picture.

    The generation X and Y has a long way to go in building and keeping credit or a job. If the X and Y

  • Hi Matthew,

    Some of us Realtors have only been inside a Starbuck or the drive-thru with clients. We make our coffee at home. You keep trashing the baby boomers they are 48% of the population and they control 75% of the wealth, do not count them out of the picture.

    The generation X and Y has a long way to go in building and keeping credit or a job. If the X and Y

  • Matthew Ferrara

    Hi Judy:

    Thanks for your comment, although I’m not entirely sure what you mean when you say I’m trashing Baby Boomers… I have spent more than 20 years trying to help this very demographic be more successful, so I think my record of any criticisms can be called constructive, not trashy.

    As for the Baby Boomer’s control of wealth, and your assertion that Gen X and Y are not on the ball as economically as Boomers, let me just point out that Boomers and seniors are/were big consumers of subprime loans – long before the bubble began to burst, in fact. According to AARP’s site:

    A recent study found that borrowers 65 years of age or older were 3 times more likely to hold a subprime mortgage than borrowers less than 35 years of age…. that for borrowers 45 and older, 56 percent of mortgages were subprime, while for borrowers younger than 35, only 12 percent of mortgages were subprime. http://www.aarp.org/research/ppi/econ-sec/pensions/articles/risk_preferences_and_the_investment_decisions_of_older_americans.html

    And that’s a VERY old study. I’m trying to find the demographics of overpaying, overborrowing consumers for the last five years. Rest assured that when I do, I will blog that info, too.

    As for Boomers being the generation “from which the most has been taken” I find that just downright funny. You mean the “Me” generation hasn’t received the highest amount of credit, homeownership and government subsidies and programs all these years – and doesn’t own more cars, computers and homes than their parents or children? I wonder which generation will be the last to receive its prescription drug benefit and retirement checks before the system breaks – with money taken from the current salaries of younger workers and the future tax burdens of the next generations? Maybe I missed your humor on that one…

    Alas, I think you may have missed the point of my article; it wasn’t about the inter-generational struggle at all. It was about companies – like real estate companies and brokers – who are finally learning that they can’t just get by any more with on your formula of “trust and honesty,” but must use systems and tools to create predictable, consistent outcomes. And that’s what ALL generations of consumers want and are not getting from either their coffee shops or agents these days.

    In any case, thanks for stopping by and joining the conversation.

  • Matthew Ferrara

    Hi Judy:

    Thanks for your comment, although I’m not entirely sure what you mean when you say I’m trashing Baby Boomers… I have spent more than 20 years trying to help this very demographic be more successful, so I think my record of any criticisms can be called constructive, not trashy.

    As for the Baby Boomer’s control of wealth, and your assertion that Gen X and Y are not on the ball as economically as Boomers, let me just point out that Boomers and seniors are/were big consumers of subprime loans – long before the bubble began to burst, in fact. According to AARP’s site:

    A recent study found that borrowers 65 years of age or older were 3 times more likely to hold a subprime mortgage than borrowers less than 35 years of age…. that for borrowers 45 and older, 56 percent of mortgages were subprime, while for borrowers younger than 35, only 12 percent of mortgages were subprime. http://www.aarp.org/research/ppi/econ-sec/pensions/articles/risk_preferences_and_the_investment_decisions_of_older_americans.html

    And that’s a VERY old study. I’m trying to find the demographics of overpaying, overborrowing consumers for the last five years. Rest assured that when I do, I will blog that info, too.

    As for Boomers being the generation “from which the most has been taken” I find that just downright funny. You mean the “Me” generation hasn’t received the highest amount of credit, homeownership and government subsidies and programs all these years – and doesn’t own more cars, computers and homes than their parents or children? I wonder which generation will be the last to receive its prescription drug benefit and retirement checks before the system breaks – with money taken from the current salaries of younger workers and the future tax burdens of the next generations? Maybe I missed your humor on that one…

    Alas, I think you may have missed the point of my article; it wasn’t about the inter-generational struggle at all. It was about companies – like real estate companies and brokers – who are finally learning that they can’t just get by any more with on your formula of “trust and honesty,” but must use systems and tools to create predictable, consistent outcomes. And that’s what ALL generations of consumers want and are not getting from either their coffee shops or agents these days.

    In any case, thanks for stopping by and joining the conversation.

  • Matt ~ Pure and simple, the coffee business, the Real Estate business, any business, it’s all about the customer ~ not about us! When I help a buyer and seller, I tell them, “this process is about YOU, your family, your needs”. I have used this as the core of my business practice and I must say it is working for me. I think it works because I’m sincere about it. My company is sincere about the practice of making it all about the client/customer. I’m not talking about soft couches or high end meeting rooms or chauffer service for looking at homes. I’m talking about returning calls in a timely manner, treating people with respect and kindness. Giving the information people need so THEY can decide what the best decison is for them. What home or location works best for them? What can I add to make the process more positive? While I agree with several points in your article, I think the best Realtors are working hard at the basics. Making sure you are in contact with your clients, giving them the time and information they need and being there to act as their advocate when they need you.
    I’m not looking for the “entitlement days” to return. I am happy to sell a $200,000 condo and I’m just as happy to sell a $6,000,000 luxury estate. It’s all fun, it’s all about people, it’s all about being professional and providing the best possible service. And sometimes, it is even going to Starbucks to get the client a cup of coffee while you sign up tne next deal. I’m not planning on going to work at a coffeehouse anytime soon. I’ve been a Realtor since 1986. I take great pride in what I do and I hope to inspire others to be the very best Realtor they can be! As for my coffee, I usually prefer to make my own at home but I do get a Starbucks Tall Latte from time to time… when I can afford to.
    Best regards,
    Susan T. Barba
    Turpin Real Estate, Inc.
    http://www.turpinrealtors.com

  • Matt ~ Pure and simple, the coffee business, the Real Estate business, any business, it’s all about the customer ~ not about us! When I help a buyer and seller, I tell them, “this process is about YOU, your family, your needs”. I have used this as the core of my business practice and I must say it is working for me. I think it works because I’m sincere about it. My company is sincere about the practice of making it all about the client/customer. I’m not talking about soft couches or high end meeting rooms or chauffer service for looking at homes. I’m talking about returning calls in a timely manner, treating people with respect and kindness. Giving the information people need so THEY can decide what the best decison is for them. What home or location works best for them? What can I add to make the process more positive? While I agree with several points in your article, I think the best Realtors are working hard at the basics. Making sure you are in contact with your clients, giving them the time and information they need and being there to act as their advocate when they need you.
    I’m not looking for the “entitlement days” to return. I am happy to sell a $200,000 condo and I’m just as happy to sell a $6,000,000 luxury estate. It’s all fun, it’s all about people, it’s all about being professional and providing the best possible service. And sometimes, it is even going to Starbucks to get the client a cup of coffee while you sign up tne next deal. I’m not planning on going to work at a coffeehouse anytime soon. I’ve been a Realtor since 1986. I take great pride in what I do and I hope to inspire others to be the very best Realtor they can be! As for my coffee, I usually prefer to make my own at home but I do get a Starbucks Tall Latte from time to time… when I can afford to.
    Best regards,
    Susan T. Barba
    Turpin Real Estate, Inc.
    http://www.turpinrealtors.com

  • One more thing Matt, I totally agree with you when you say we can’t get by on just the “trust and honesty” practice anymore. It takes great work to put together charts, data, and real information from real experts to help the clients see the reality of today’s market. Trust and Honesty help a great deal but I tell my clients “I’m like Fox News, I report, You decide”.
    One of my favorite real estate experts is Steve Harney. Check him out if you’re not familiar with him! He’s on Facebook and here is his link.

    http://www.keepingcurrentmatters.com/

    Susan T. Barba
    sbarba@turpinrealtors.com
    Twitter Me @ BestMoveForYou

  • One more thing Matt, I totally agree with you when you say we can’t get by on just the “trust and honesty” practice anymore. It takes great work to put together charts, data, and real information from real experts to help the clients see the reality of today’s market. Trust and Honesty help a great deal but I tell my clients “I’m like Fox News, I report, You decide”.
    One of my favorite real estate experts is Steve Harney. Check him out if you’re not familiar with him! He’s on Facebook and here is his link.

    http://www.keepingcurrentmatters.com/

    Susan T. Barba
    sbarba@turpinrealtors.com
    Twitter Me @ BestMoveForYou

  • Robert Byrne

    Consumption is all about the experience. How do I feel as a consumer when I buy this product, or contract for that service? So I would say in that respect Howard Shultz has it right. Having lived in Seattle when Starbucks had 6 stores, and while it began it’s incredible growth, I have experienced for myself what Mr. Shultz’s vision is. Since moving back to the east coast I have seen how the vision can become blurred. Baristas in Seattle could cut through a line like a hot knife through butter. I would say that they would best their east coast counterparts by 3 to 1 in terms of coffee drinks served. That created an energetic atmosphere in the shop, and isn’t that what a coffee experience should be? So where was the break down? In replication of the underlying value of the brand and ownership of that value by the partners.
    In addition they lost some of the other key features of the experience; handmade coffee drinks replaced by push button machines, no loose coffee in the store (hence no coffee scent). They added music and movies to the lineup of products, what about that says coffee? Those changes and no system to replicate the expected customer experience changes your value proposition to the consumer. In a multi-location business this is deadly since your lowest performing store is your reputation in the market. How does this relate to the real estate business?
    Simply put the Broker is like Starbucks and all the associates, be they brokers or salespeople are like a new Starbucks location. The Broker had a vision when they started the company. A level of service experience that they wanted to provide the consumer. Initially the Broker hires people just like them, people who share the vision. As the company grows and recruits new agents (new to the company and new to the business) how do they insure that the culture of the company is owned by the associates? They need a system and a plan to implement that system. That is what management and leadership are all about.

  • Robert Byrne

    Consumption is all about the experience. How do I feel as a consumer when I buy this product, or contract for that service? So I would say in that respect Howard Shultz has it right. Having lived in Seattle when Starbucks had 6 stores, and while it began it’s incredible growth, I have experienced for myself what Mr. Shultz’s vision is. Since moving back to the east coast I have seen how the vision can become blurred. Baristas in Seattle could cut through a line like a hot knife through butter. I would say that they would best their east coast counterparts by 3 to 1 in terms of coffee drinks served. That created an energetic atmosphere in the shop, and isn’t that what a coffee experience should be? So where was the break down? In replication of the underlying value of the brand and ownership of that value by the partners.
    In addition they lost some of the other key features of the experience; handmade coffee drinks replaced by push button machines, no loose coffee in the store (hence no coffee scent). They added music and movies to the lineup of products, what about that says coffee? Those changes and no system to replicate the expected customer experience changes your value proposition to the consumer. In a multi-location business this is deadly since your lowest performing store is your reputation in the market. How does this relate to the real estate business?
    Simply put the Broker is like Starbucks and all the associates, be they brokers or salespeople are like a new Starbucks location. The Broker had a vision when they started the company. A level of service experience that they wanted to provide the consumer. Initially the Broker hires people just like them, people who share the vision. As the company grows and recruits new agents (new to the company and new to the business) how do they insure that the culture of the company is owned by the associates? They need a system and a plan to implement that system. That is what management and leadership are all about.

  • That was a great article with the comparisons to real estate. I met a lot of my buyers at Starbucks! It was a great place to meet since there are so many all over the Phx metro area and they had such name recogntion.

  • That was a great article with the comparisons to real estate. I met a lot of my buyers at Starbucks! It was a great place to meet since there are so many all over the Phx metro area and they had such name recogntion.

  • Rachel LaMar, J.D.

    Matthew,

    First of all, you are a talented writer (and I love the ending)…great blog. This is an issue that I have been discussing with other agents for a long time, and I completely agree with you that the real estate business is all about service.

    I think the customer has always expected to be the center of attention, and rightfully so. There were many agents (and still are) in the boom days who treated customers like deals instead of people. Many of those agents are no longer in the business, and thankfully more who follow this path will leave as well. That’s fine with me–those of us who “get it” will survive because we know what matters. People are too smart for anything else and deserve white glove service.

    Now if we can only fix false advertising claims and ethical issues in our industry, we should end up with a great core group of Realtors who have their goals and perspectives straight, allowing our customers to get what they deserve.

    Rachel LaMar, J.D.
    Broker/Owner
    LaMar Real Estate, Inc.
    http://www.LaMarRealEstate.org

  • Rachel:

    Thank you for your comments. I think that the companies who are succeeding – even in tough times – are those who focus on customers, not themselves, at the center of their marketing and their service goals. With regard to ethical issues and false advertising, I’ve often found that the customer, as always, is the best “defense” against these infractions. And today, lapses of either kind can be “shot around the world” within seconds by customers, so perhaps the “policing” of the bad apples will happen faster than ever – by customers!

    Wishing you continued success,
    M

  • Valasie

    This is an excellent analogy and sadly more true than I want to believe or admit about my industry. Nevertheless, it is the truth. Trust, competency and service for a price that the consumer will pay because the value is there is what every consumer wants and should demand. Minimum service standards backed by consistent processes would go a long way to help agents move towards a model that has the right components. However, until the broker/owners are willing to accept breakage in order to raise the bar, what you propose will only be possible on an individual basis…one Realtor at a time. I manage for a large independent and I work towards this end every day because I believe in the principles as well as the fact that my agents owe it to the consumer to get it right. Generally speaking though, across our industry footprint the changes are often too slow for the public who is paying for the service or lack thereof.