Over the years the property management industry has grown in leaps and bounds and as result Venture Capital companies are interested in the business opportunities available in the industry. However, the industry is difficult to dominate because of its fragmentation.
Interestingly, local property management companies have built a good reputation for themselves alongside a competitive advantage over Venture Capital backed companies because of the trust they hold with their community.
There’s a possibility that three out of ten self-managing landlords are ever going to become your customer. Once you understand this concept it will enable you to narrow your focus when it comes to going after leads.
Why are Venture Capital companies attracted to property management?
This is an intriguing question and you can’t help but wonder why Venture Capital companies want to be in property management at all.
The most probable answer is this: money. Money drives and fuels the desire of venture capitalists. Property management is a lucrative industry and there’s a lot of money to be made. It’s an enormous business opportunity.
Did you know traditional management services generate hundreds of billions of dollars? It doesn’t end there, if you add up the ancillary services these companies can provide, we’re looking at trillions of dollars.
An advantage local businesses have is that they have successfully captured most of the market share.
If we take a look at a national scale, you’ll see where companies backed by venture capitalists began in property management. Venture capital investors were smart and in their shrewdness they funded industry-specific endeavors like Appfolio, Buildium, and other similar platforms. The investors that backed these ventures are aiming for more and they want some of the market share that local property management companies control.
An interesting statistic to note is that 7% of multi-family properties in the United States are owned by the top 15 property management companies. It might interest you to know that no other industry behaves like this. As a matter of fact, when you take a keen look at the retail industry, industry giants like Amazon and Walmart literally own and control an insane amount of the market share. They can come in and eat everything up because It’s easy. On the other hand, property management is a democratized playing field and it is one of the remaining industries where Venture capital companies find it hard to dominate. That’s because the business is so fragmented.
Winner-Takes-All Thinking is alien to Property Management
Generally, companies that are backed by astronomical amounts from venture capitalists have a penchant for industries that have a winner takes all playing field. Basically, if you’re smart enough to identify the needs and figure out a solution within a particular industry, you can dominate the market. A good example is Microsoft, they identified a need early on and dominated the software industry for so long with an 85% market share. According to businessinsider.com, in May 1998, the DOJ filed suit against Microsoft court ruled in April 2000 that Microsoft had violated the Sherman Act, and later ordered that Microsoft Corp. be broken up into two separate companies. This was to enable other competitors to gain entry into the software industry.
So many Venture Capitalist backed companies have the goal of growing so big to the point where they monopolize the market. This can significantly increase the company’s market capitalization, cash flow, and profit margins. However, there’s a downside to it, monopolies attract the government’s attention.
With property management, seldom will you see a situation where it’s a winner takes all playing field or a company monopolizes the market. A case in question is Zillow: it is never going to become a monopoly where there’s little or no room for competitors. Property management remains one of the few industries that will not allow this to happen.
Venture Capital companies want a piece of the pie because the industry is so big. They’re not aiming to take it all, they know that owning a fraction of the market will enable them to make a lot of money. Unfortunately, local property management companies have a lot of competitive advantages preventing them from eating up a significant size of the market share. You’re probably not even competing for the same type of business as these VC companies.
VC companies and the prospects of acquiring Property Management companies
It is expensive to acquire a door at a time. VC companies have devised a faster way to drive their growth. and decided to acquire property management companies instead of doors. They’re paying a premium for the acquisition of an entire company, but they’re making significantly more in profits than the local company was earning. The payback period is what drives their growth and it is a more efficient way to ensure a good ROI.
To accomplish this feat, an enormous amount of capital is needed. These companies need cash for the acquisition of local property management companies. Cash isn’t the only thing needed, masterful execution is required to ensure the availability of huge profits. This form of competition is limited to VC companies with vast resources.
The good news is that local property management companies aren’t employing this form of competition. As a property manager, you’re not looking to other property management companies. The way to go would be to grow your business by acquiring additional doors, units, and owners. Keep in mind that a healthy market is not a monopoly market.
As a local property management company, there are things you have that give you a competitive advantage.
· As a brand evangelist, you’ve already earned customers’ trust and loyalty.
· A growing number of people are diversifying and expanding their portfolios by investing in homes from out-of-state. This shift in the new economy has made investors develop a propensity for seeking local experts in markets where their investment property is located.
· Improve your operations by utilizing software that can automate the bulk of what you do.
· Build business relationships by collaborating with real estate and other property management companies in your area.
There are different ways through which you can compete with Venture Capital companies:
Become a pillar in your community
Are you a member of any professional organization or do you belong to NARPM? You can equally take up a leadership role in the local Chamber of Commerce. This can boost your credibility and provide a better reputation than anyone in a Venture Capital backed management company that works in your local market.
There might be a huge competitor buying local property management companies in your area. Acquiring companies isn’t enough because they could be uninformed about the community itself, their way of life, and its trends. You, on the other hand, have a good mastery of your area, you’ve built relationships with business owners and the residents. More so, you have a sense of community that goes beyond the services you offer. Property management is a contact sport, it is a relationship business and it is difficult for a Venture capital company to replicate this.
Exceptional Customer Service and prospecting the Right Landlords
Customer service is the holy grail of every business, and once you master it, it can reveal the secrets to success in business. Having a company that is customer-centric is crucial in achieving success in property management. If you are building a service, you have to understand the needs of customers and respond to what they want. This requires time, research, and experimentation and it will enable you to define your customer.
Let’s assume you’re trying to attract new owners, and you’ve targeted 10 landlords to whom you’d want to advertise. Out of the 10 landlords, 3 of them are going to be receptive to your marketing. These three landlords fall into one of the following categories:
Investors who just bought a property in your local area and they’re not conversant with or have a good mastery of the market.
Landlords who have a bad experience with their current property manager and they’re on the lookout for a new property manager.
The accidental landlord: has little or no experience and is enthused about the possibility of working with a property manager.
It is important to know what each customer wants. Your value proposition should be reflected in your offer and this could include the following:
· They don’t have to collect rent.
· You handle and manage the entire gamut of the property management process, namely leasing, maintenance and repairs, marketing and advertising, tenant screening and selection, etc.
That’s a higher value you’re providing, and you want to look for landlords who are interested in full-service property management and wouldn’t want to constantly think about their assets.
Narrow Your Target Market, Improve Retention and Compete with Venture Capital companies
In the world of property management, owners who think too much about their property fuss a lot and are your worst customers. You want someone who can trust you with the management of their property. The way you operate is important and it can determine the type of owners you attract. The most effective way to attract owners who simply want peace of mind you need to optimize your marketing and services.
Retention is another key area to focus on. It is insanely important when it comes to growth and staying competitive. Do your best to keep your tenants and your owners. By doing so you lessen the pressures that come with operational work. If you’re unable to retain your property owners, you’re probably not doing things right. Every business has bouts of turnover, but if you spend a lot of money in gaining new clients and you eventually lose them, this will slow your growth and ability to stay competitive.
Venture Capital companies deal with turnover and lost clients more than local property management companies. You can use this to your advantage and plug those leaks faster. Additionally, you can seize the opportunity to pick up the customers Venture Capital companies are losing. Seek to understand the reasons why they left, identify the issues they had with these companies, offer your value proposition and guarantee a positive experience.
Developing a competitive edge and outsmarting VC companies is a daunting task and a broad subject. Conversations surrounding this issue are elaborate but it doesn’t end here. We’re willing to extend our expertise and share years of experiential knowledge in property management. Ultimately, this will help you build a competitive edge and grow.