Four rules of business expansion

To be a champion agent, you must understand the four rules of business expansion. These rules are universal to all businesses, but especially service businesses where competition is high and opportunities for repeat customers and referrals are greater. Those factors describe the real estate business well.

These four rules control the level of risk you’ll need to take to win the business of a champion agent. The further down the list you venture, the greater the risk you incur and the probability of achieving a return becomes even lower. I always advise clients to attack these rules in order.

Rule #1 – Protect what you currently have

This does not require a lot of work. Sometimes you get so excited about a new venture or expanding opportunity that you fail in your core business area. Your core business begins to slip and becomes stale, stagnant, and lifeless. Never stop looking at the ball. Each of you has one or two pillars of your business that generate considerable business without much additional attention, but needs attention. Don’t throttle all the way back.

The vast majority of agents do a poor job of this. We are so excited about new techniques, new systems, and new sources of lead generation that we neglect to protect the business, past clients, and sphere of influence that we now have. As I once told a new client, explaining the four rules of business expansion, it’s like running a ranch. You spend all your time buying new cattle (which you find through a bit of prospecting or marketing). The problem is that the entire back of your paddock is open, so your newly acquired cattle that haven’t been branded yet are running out into the neighbor’s pasture. You have to fix a fence.

The easiest and fastest way to grow your business is to protect what you currently have. This really doesn’t require a huge investment of time or money. It has to be done, or you’ll be working too hard for too little return.

The National Association of Realtors® has conducted many studies over the years on our clients and the satisfaction and retention levels of both Buyers and Sellers. The numbers are really quite shocking. In a survey conducted over a number of years, 69% of people were satisfied with their Agent’s service. When they checked back with this test group, they found that only 24% of people who made another real estate transaction did so with their previous agent. We only produced an average of 69% satisfied customers, which is roughly a C grade. So we only got 24% of the total to do business with us again, another 45 percentage point drop. Those numbers are really terrible.

What that boldly tells you is that we don’t protect what we currently have very well; that too many of us are shipping junk and trinkets in the hope that it will lead to referrals and long-term relationships with our previous clients and sphere. It obviously doesn’t work!

A champion works first to protect what you currently have before moving on to improve market penetration with your target market or those you already do business with. Most agents go to number three on the list first. The reason is because he is new; it’s fun; it’s an adventure; someone recommended it; they’re bored. Most agents go to number three before anything else. Remember that risk and probability are reversed the further down the list of rules we work. The risk is higher and the probability lower as we go through rules three and four.

We must protect the farm we have (if we have one), our past clients, and our sphere of influence. You need to protect your position first, and that means wherever you’re currently generating business from… protect it!

Rule #2: Enhance your go-to-market with your target market or the people you already work with.

Once we protect them, we need to expand our reach in our target market. Basically, the rule says that wherever you have strength or control, exploit that strength for more. Find out ways to acquire a larger piece of the business in an area you’ve already entered, if you already control a piece. If you have a farm to work on, increase your market share on the farm. I have a client who owns more than 30% of the sales on his farm. Our first step was to create a strategy to increase their market share to over 45%. We did this by promoting your domain compared to other agents and even companies. We also promoted the concept of a second opinion to the people who lived on the farm. I wanted to raise awareness of the changing market and the fact that a second opinion costs nothing but gives them peace of mind that they are making the right decision. That strategy worked wonderfully. He increased his number of appointments on the farm by 23% in the first few months. It is well on its way to easily surpassing the 45% market share threshold. She is getting a much better return in a short period of time with less risk by applying rule #2 instead of rule #3.

You can also convince your clients to invest in real estate; make more deals with the people you currently do business with by having your friends and family work with you. Increasing your referrals is a Rule #2 activity.

A target market would be any market you are currently targeting to generate business. It could be geographically, like my example, or they could even be FSBO or expired if you’ve already done them. It is whatever you are currently and deliberately doing to generate business.

Rule #3: Horizontal expansion in your primary business area.

For most, their primary business area is residential real estate. Whatever generates 80% of your commission dollars is your core business.

When you expand horizontally, you open up another section of your business or a new source of potential customers, but you still remain in residential real estate. You could start working masons; market to condominiums, multiplexes, investment properties, FSBOs or expired; or establish a new cultivation area. Stop by to hold open houses, attend service clubs, and conduct seminars for home buyers, home sellers, or investors. The options are truly endless for what you could do in this category.

The key is to expand into this area once you’ve reached the point of diminishing returns on the first two rule categories. The law of diminishing returns says that you are nearing the maximum in that area, so the closer you get to the ceiling, the less growth you will receive, even if you put in a lot of effort and resources. There just isn’t enough growth potential to make it worthwhile.

Rule #4 – Change and create vertical expansion.

To expand vertically would be to move into a similar complementary business that is structured like the real estate business or has ties to the real estate business. This rule allows you to take what you learned in real estate or use the contacts you have in real estate and build an additional business and income stream.

The most common thing for Agents in this area is to open a real estate brokerage office and recruit Agents to work for them. You can also start a mortgage company, title company, escrow company, branch out into land development, build homes, or invest in real estate. I have even heard of Agents who converted or formed a business partnership with a property and casualty insurance provider.

If you have a good database and communicate with your previous clients and sphere frequently, you certainly have the option of serving them with other financial needs as well.

Champions work to follow the four rules of business expansion. They focus on risk and probability to work to keep both in their favor. I know of many agents who became champion agents simply by focusing on rule #1: protect what they currently have and rule #2: improve their market production with their target market or those they already work with . Due to their skill, database size, and frequency of communication, they can achieve exponential growth with limited risk.