Four Rules Of Business Expansion

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

These four rules control the level of risk you will need to take to achieve a Champion Agent’s business. The farther down the list you venture, the more risk you incur, and the probability of achieving a return becomes even lower. I always counsel clients to attack these rules in order.

Rule #1 – Protect what you have currently

This doesn’t take a lot of work. Sometimes you get so excited about the new venture or opportunity expansion that you fail in your core business area. Your core business begins to slide and becomes stale, stagnant, and lifeless. Don’t ever take your eye off the ball. Each of you has one or two pillars of your business that generate a sizable business without much extra attention, but it does need some 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 lead generation sources that we neglect to protect the business, past clients, and sphere of influence that we have now. As I once said to a new client, when explaining the four rules of business expansion, it’s like you’re running a ranch. You spend all of your time buying new cattle (that you find through a little prospecting or through marketing). The problem is the whole back of your corral is open, so your freshly acquired cattle that haven’t been branded yet are getting out into the neighbor’s pasture. You have some fence mending to do.

The easiest and fastest way to growth in your business is to protect what you currently have. This doesn’t really take a huge investment of time or dollars. It needs to be done, or you will be working too hard for too little return.

The National Association of Realtors┬« has done many studies over the years about 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 series of years, 69% of people were satisfied with their Agent’s service. When they checked back with this test group, they found out that only 24% of the people who conducted another real estate transaction did so with their previous Agent. We only produced a 69% average of satisfied clients, which is about a C- grade. We then only got 24% of the total to even do business with us again – another 45-percentage point drop. Those numbers are really terrible.

What that says boldly to one is that we don’t protect what we currently have very well; that too many of us are sending out trash and trinkets in hopes of those leading to referrals and long-term relationships with our past clients and sphere. It is obviously not working!

A Champion works first to protect what he currently has before moving down to improving market penetration with his target market or those he already does business with. Most Agents go to number three on the list first. The reason is because it’s new; it’s fun; it’s an adventure; someone recommended it; they’re bored. Most Agents move to number three before anything else. Remember that the risk and probability are inverted the farther down the list of rules we work. The risk is higher and the probability lower as we go to rules three and four.

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

Rule #2 – Improve your market penetration 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 to get more. Figure out ways to acquire a larger piece of the business in an area you have already penetrated, if you already control a piece. If you have a farm to work, increase your market share in the farm. I have a client who owns over 30% of the sales in her farm. Our first step was to create a strategy to increase her market share to over 45%. We did that through promoting her dominance as compared to other Agents and even companies. We also promoted the concept of a second opinion to the people who lived in the farm. She wanted to raise awareness of the changing marketplace 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 beautifully. She increased her number of appointments in the farm by 23% in the first few months. She is on track to exceed the 45% threshold of market share easily. She is getting a far better return in a short period of time with lower risk by working Rule #2, rather than Rule #3.

You also can convince your clients to invest in real estate; to do more deals with the people you currently do business with by getting their friends and relatives to work with you. Ramping up your referrals is a Rule #2 activity.

A target market would be any market that you currently target to generate business. It could be geographically, like my example, or it could even be FSBOs or expireds if you already do them. It is anything you are doing currently and deliberately to generate business.

Rule #3 – Expanding horizontally in your core business area.

For the majority, your core business area is residential real estate. Whatever you generate 80% of your commission dollars from is your core business.

When you expand horizontally, you open up another section of your business or a new lead source but still remain in residential real estate. You could begin to work builders; market to condos, multiplexes, investment property, FSBOs, or expireds; or establish a new farm area. Move into conducting open houses, attending service clubs, and conducting seminars for Home Buyers, Home Sellers, or Investors. The options are really endless for what you could do in this category.

The key is to expand into this area once you have hit the point of diminishing return in the first two rule categories. The law of diminishing return says that you are getting close to the maximum in that area, so the closer you get to the ceiling, the less growth you will receive, even if you put in tremendous effort and resources. There’s just not enough growth potential to be worth it.

Rule #4 – Change and create vertical expansion.

To expand vertically would be to move to a similar, complimentary 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 revenue stream.

The most common occurrence for Agents in this area is to open a real estate brokerage office and recruit Agents to work for them. You could also create a mortgage company, title company, escrow company, branch off into land development, building homes, or investment real estate. I have even heard of Agents becoming or forming a business partnership with a property and casualty insurance provider.

If you have data based well and communicated with your past clients and sphere frequently you certainly have the option of servicing them with other financial needs, as well.

Champions work to follow the four rules of business expansion. They focus on the risk and the probability of working to keep those both in their favor. I know of many Agents who became Champion Agents merely by focusing on Rule #1 – protecting what they have currently and Rule #2 – improving their market production with their target market or those they already work with. Because of their skill, database size, and frequency of communication, they can achieve exponential growth with limited risk.


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