Special - Peter on The Profitable Property Management Podcast

I want to be able to manage more units with the same number of people. Or to put it another way, I want my DLR to go up. I want to be able to generate more revenue for the same payroll burden.

I don't throw darts at a board. I bet on sure things. Read Sun Tzu, The Art of War. Every battle is won before it's ever fought.

Think about it.

Welcome to another episode of the Profitable Property Management Podcast. Today I have my man Peter Lohmann in the house. Peter, thanks for coming on.

Hey, great to be here, Jordan. Appreciate it.

So let's just jump right in. Yeah. For those that don't know anything about you, what's a little bit of background? Where are you coming from? Tell me about your market. Tell me about your company.

Sure. So Columbus, Ohio. Uh, we manage about 650 units there. I've been in the business 9 years. Uh, my background is engineering, so I graduated with a degree in electrical engineering and my business partner and I started working as engineers full-time, just as W-2 employees. And almost immediately started buying single-family rentals in the Columbus area there and really enjoyed that process.

What time were you buying?

So this is 2008 is when we bought our first property. So couldn't have timed it better. Obviously not really our doing. It's just when we entered the market, that was right out of college. And honestly, it kind of spoiled us, right? Because we were buying from 2008 to 2012. Prices were fantastic. And it sort of set the bar to where now I just look. And for the last like 8 years, I've looked at prices and I'm just like, I can't stomach the prices because I saw what they were back then. So we were buying these rentals and self-managing them while we were both working as engineers and we were kind of getting sick of our day job. We had read, you know, all the books like Rich Dad Poor Dad and a couple other like 4-Hour Workweek type books. And it really motivated us and inspired us to open our own business and start building something for ourselves. And so we really saw an opportunity in property management because everyone we talked to in Columbus who had used a property manager or there's just, there was no good property managers, especially for investors. And so we're like, eh, we already put together some systems and processes to manage our own properties and being engineers, seemed like, how hard could this really be? Famous last words. So we put a plan together, both got our real estate licenses, and then I quit my day job in 2013, started the business. Once my business partner saw that it was viable a year later, he decided to go ahead and join me. I'll never stop teasing him about that. So he and I have been in the business together ever since, although last year we acquired a small engineering company and now he's running that. And he's completely out of the management company. But yeah, that's kind of the, the 2-second summary there.

How many doors? What's that? And what's the staff count right now?

Yeah, 650 units. And we've got about 22 people on staff. And that includes, I think, 8 full-time maintenance guys.

Where would you describe where you're at with the business right now? There's all these inflection points. What's the felt experience of what feels unique about the stage of the business that you're at?

Sure. So I definitely am feeling, you know, I've heard some folks who have been in the game longer than I have, or at least gotten bigger than I have. You hear them talk about kind of like a, I forget what they call it, like a black hole that exists from once you hit like 500 units until you get over 1,000. It's like the dead zone, or I forget, they've got a great name for it, but I really am starting to feel that where you start to need to add layers of management because the headcount you just can't manage everyone directly yourself and you need to start bringing in higher-level talent and paying for that, but you haven't quite reached the point where you're getting some of the efficiencies of scale that would allow it to be more profitable, right? So we were profitable when we were smaller. I think a lot of companies experience that on their growth journey. So It's a little nerve-wracking to watch those numbers click down as you bring in payroll burden, but I'm confident that it's the right move for the business in the long run. And I can see a path toward, you know, once we hit that 900, 1,000, 1,200 unit mark, it's all going to work out and we're going to— because you only need like once you start adding managers, you really don't have like the direct labor to balance that out when you first add your first few managers, right? Because there's like that kind of a pyramid scheme type thing going on with how, how many direct reports can report to a manager, etc. So yeah, we're working through that. And ever present, of course, in property management is just the nature of every time you add a few hundred doors, everything breaks and you have to rework your processes, redistribute workload among employees. Especially in a departmentalized style, which is how we run our management company.

Was that from day one?

Pretty much from day one. Yeah. The problem there is what used to take one person doing all the leasing, well, you really need two people now, but then you're doubling your payroll burden in that department and the second person doesn't really have enough to do. And then you're trying to like parse off different parts of a job function and give that to another person. And then everyone's like, well, I thought Jeff was the one processing. Yeah, that was last month. Now it's Susie, you know. So it causes a little bit of chaos in how information and tasks flow through the organization. But we're getting through it.

And so what's the velocity of the business right now? 650 units. How many units did you add last year?

We added a few hundred. Of course, we churned out a fair number as well. Columbus is quite hot for sales and like others in hot markets around the U.S., you know, clients sell, they see what they can get for a single-family rental or even a small multifamily and they're like, why not? I can, you know, double my money what I paid just a few years ago and then you lose the account. So but even despite that, I think we grew about 35% like net by unit count in 2021 versus 2020 and I think we'll probably do about the same this year.

So is that, is that velocity speeding up? You have a full-time BDM. Does that—

Yep. We have a full-time BDM. It's the best thing I ever did. I should have done that way, way earlier. We were on LeadSimple pretty early on, so I knew what my closing rate was because we were pretty diligent about entering all the leads and my closing rate was about 15%, 12 to 15%. Brought the BDM in. He had no property management experience. We used RentScale to find and hire and train him. And within a few months, he was closing 20 to 25% of the leads. And he's got months where he hits 30%. So huge payoff there. Highly recommended for anyone who doesn't yet have a BDM. So the— I wouldn't say it's necessarily accelerating because as of course, as we're growing, what's 15% churn when you have 500 units is different than 15% churn when you have 800 units. Yeah. So it scales with you, which is that's, you know, kind of unfortunate. But so, yeah, I think, you know, I like that 20 to 30% growth range. I think for a service-based business like property management, it's healthy, it's comfortable. You know, there's enough time to accommodate that growth and nothing comes off the rails too much.

What's interesting about growth is that one of the factors you have to think about is what am I capable of managing? And the demonstration of your competence as a manager is your revenue growth. Really, it's the beauty of bootstrapping. The biggest danger in taking on additional funding is that you are— you outstrip your, your own competence because you haven't earned it. You took on some debt, you took on some funding, and you grow way faster than you actually have the ability to manage. That's when the wheels can come off. Compromises on hires because I just need them right now. There's no pressure. Stress to you as the owner, and it's not obvious what the upside is. Breaking things. The company starts to feel like, hey, the quality is going down. Do I want to be here? This is stressful. We're making unforced errors. 25 to 35%, that's still healthy growth though. When you think about the transition that you made in your own thinking, aside from Stroking a Track and working with some outsourced professionals like RentScale, what was the, the learnings for you in going to a higher level of organic growth?

Well, one thing I love about starting and growing a business is that you're constantly at the limit of your capabilities.

Never done it before.

Yeah, you're always at your 99th percentile skill, experience, learning, right? When I was an engineer, I would be given a project. I turn the crank for a few months, we go out, commission the project, and then it's— you're on to the next project and it's pretty much the same as the last one. You very quickly hit that ceiling of capacity or capability because it's kind of just, that's your job until you get promoted, right? Whereas in small business, to your point, the business is a direct reflection of your abilities. So there's no one to blame, right? You can't blame a boss who didn't promote you. You know, I think even people who blame market conditions, it's like, really? I mean, businesses can grow and thrive in all different situations. So You're always right on that bleeding edge of your own skill set, your own leadership skills, your own management skills. So it's definitely been a journey for me. I think of it— I think I've tweeted about this before where it's like stage 0 is you're doing the work. Stage 1 is you're managing the people who are doing the work, and stage 2 is you're managing the managers. So for me, in the past probably year, I've been quite frankly struggling sometimes with that transition from stage 1 to stage 2. I got pretty comfortable managing direct reports and I was still pretty close to the metal, right? When you're managing a direct report, I heard a leader I really respect, he says you can hit the more button. So if, if your team is not performing well or, you know, the report that they produced was sloppy, you can jump in there You can stay late, you can get it done, you can get it caught up, right? Because you're still very familiar with the work that's going on. You've only got a few direct reports and you can kind of like pick up the slack. You can hit the more button. When you're managing managers, there's no hitting the more button. You're too far from the work. There's too many people underneath you. That's not an option. So you are really— your output is directly correlated to your management and leadership skills. And that's hard to learn, especially as someone who coming out of the engineering world, I'd never had a single direct report. I had no management experience or training. So, you know, I've been doing a lot of learning, reading, listening to podcasts, talking with people. Hey, how do you do this? How do you handle your direct reports? How do you, you know, what KPIs are you using? How do you do annual performance reviews? How do you handle raises? All these things I'm sort of learning from scratch. But the beautiful thing and back to this, like, can't hit the more button anymore. The flip side of that is once you figure out how to manage managers, there's no limit to how high you can go, right? Like Jeff Bezos, he's managing managers. That's all it is from here to the top, right? There's no other skill set you need to learn necessarily. It's, it's kind of back to that, you know, Who Not How book. It's bringing the right people and managing them well. So that's been a journey for me, and I think I'm still on it for sure.

And it scales the higher the caliber of people that you're managing. I feel that when I bring in higher caliber people, higher caliber people into the organization, every time I take a step up, there's some uncomfortability involved. And part of it is my own assessment of like, man, this person's smart enough to know what's missing in the organization. They may think that we're— there are some real holes and they're not wrong, but like, that's the opportunity. To lean in and to fill those holes. You recently placed a COO. Tell me about that journey, that process, and what your learnings have been.

Yep. So I got to give a shout out to Matthew Whitaker, who talks about when you bring someone in, a high-level person, you should feel a little scared. You should feel like, wow, we really need to step it up here because this person is an A-player who has a lot of experience and we need to actually bring our game up to, to like, you know, not disappoint them basically. So I was looking for that going into our search for our COO. I wanted someone who had been there before, had worked and grown a small business, who knew what it was like to experience a little bit of chaos and could bring their experience in management to our industry and to my company. So We brought in our COO in January after a pretty extensive search by me to find the right person. And she's been working out great. Fantastic. She had no property management or real estate experience, which didn't bother me in the least. I actually think it's an advantage in some ways. I was a little bit worried how the staff would react to a number 2 coming in above what was already a couple manager leader type folks. Especially someone with no experience. So I was very diligent in finding someone who had that right touch, who was going to come in, ask a lot of questions, and spend the first couple of months learning the business, learning how our particular business works in addition to the general property management industry. And not, you know, you don't want someone coming in who's way too timid and is just scared to do anything. But you also don't want to bring in like a bull in a china shop either. You need that kind of medium touch. So she's been perfect with that. I've really enjoyed teaching her about how our company works, and then I'm able to hand off projects to her and she can run with them. She'll come back, ask me a few questions, and then just go execute. So that's been beautiful.

Brynn here from LeadSimple. I love LeadSimple, but that feels like a given. Instead of telling you why I love it, here's Sarah Hatch from Hatch Property Management.

We're very happy and I recommend so many people to LeadSimple because I'm like, oh my gosh, it changed our world. It totally changed our whole way of managing properties and staying in contact. It's the best business investment I've ever made.

To learn more and connect with one of my teammates, go to leadsimple.com/podcast today. Tell me about the role. What did she take off of your plate and what new things did— new competencies did she add that weren't being done.

Yeah, so she, she really took off a lot of the day-to-day management tasks. So I went from having, I don't know, 8 or 9 direct reports to having 2. So that was huge in terms of freeing up my time. She also brought a lot of experience with developing team members, like how do you take someone who's earlier in their career and really paint a picture for them of what's possible with some hard work and with some, some effort as far as where they can go with their own career. And whether that's within our company or whether that's somewhere else, like, I'm fine with either. I want our company to be a place where folks feel like the leadership is invested in them and wants the best for them. I don't feel that's a strength of mine at all. I'm much more system and process oriented, which is probably no surprise to anyone who knows me. I'm all about how's this going to work? How's it going to interface with these other systems? You know, what are exactly the detailed steps of the lease signing checklist and how can we automate that? As far as who's exactly doing that, I could care less, honestly, but that's a weakness of mine. She brings in the, okay, let's talk about Lauren. She's been here this many years. Her skill set is this, like she's expressed interest in that. You know, how can we fit a role for that? And that's going to allow her to grow, right? And that's— that was really needed in our organization. So a lot of the just the day-to-day questions from staff, she's able to take on the harder client calls. So I was completely out of dealing with tenants and I had been for a few years, but I would still get the really difficult client objections, concerns, problems. And I was getting worse and worse at that over time. Your patience was getting— my patience was zero for problem clients, right? But she's able to come in, bring that professional manager tone and attitude with our clients, and that's been great. Really, I should probably never talk to a client again. Honestly, the last couple of times I've done it, I basically blew it up. So, so that's been good. Yeah.

And the search process, how long did it take? What resources did you put behind it? How many candidates did you look at? Everyone would love to have a great COO. How do you get there?

Happy to talk through that in detail. So I started the search process by writing a kick-ass job description, right? You read a lot of job descriptions. It's just the most boring generic stuff you've ever seen in your life. So I'd seen a few job postings for similar, like, operator-type roles, president, COO, whatever you want to call it. And I kind of had saved some of those over the previous couple of months because I knew that we were going to be making this move. So I was able to piece together some exciting copy, talked about our values, talked about how we run on EOS. I was looking for someone with experience with EOS. And I talked about our history, where we're going, the vision for the company and our mission. So it started with that. I published that on Indeed and LinkedIn and began reviewing resumes. I think we had probably 60 to 80 applicants overall over the course of Probably had that listing open for 6 to 8 weeks or so. And from there I followed the WHO method for hiring pretty much verbatim. I had read that book leading up to this hire because I knew it was really important and I had heard a lot of people recommending that. It basically takes the Topgrading method. That was actually his dad, I think Jeff Smart, who developed Topgrading and the WHO book fleshes that out a little bit more and it's, it's a little bit more applicable for small business. I followed that process to a T, highly recommended. And then I also layered in with it Predictive Index, which is like a personality profiling software. And there's a few of these like Culture Index, DiSC, Predictive Index, VisionSpark. Yeah, there's a lot of them. Predictive Index had come highly recommended. I did some research and I talked with reps from a few of the different companies and I really clicked with the Predictive Index rep. That would've been assigned to me. And I think that's really important. He was able to explain it in a way that really resonated with me as we reviewed like my profile and a couple other profiles that I had kind of did like a test run. So that Predictive Index process allows you, like after the first kind of phone interview, you have them take this 5-minute personality profile and it comes back with sort of an assessment of their strengths and The areas in which it's not like an IQ test or anything like that. It's much more about like, is this person have a high drive or are they more passive? Are they more detail-oriented? Are they more task-oriented? Are they more people-oriented? And you can create profiles for specific job functions and then sort of gauge a candidate against the profile for that role. So a great example is like. If you have a kick-ass leasing agent and you would love to have 10 of them, you can give them this assessment. Now you have the profile of what a great leasing agent looks like, and then as you're hiring, you can review candidates against that. So I did something a little bit like that for this role, and that really helped me narrow in on specific candidates that then I would bring in for like a much longer interview in our office.

So the number of candidates that you spoke with, actually had calls with? What was the ballpark number?

So I think out of the 60 to 80 applicants, I probably talked on the phone with 25 or so, 20 to 25. And then out of those, I brought in for like a 2-hour interview, probably 6 or 8, I think, and then made the decision from there.

When you think about the bet that you were making, there's always some nervousness with any of these high-level hires. And some of it, as you stated before, is related to the competencies that this person is going to bring into the organization and they're going to push us to a new level. But it's also the premise, right? The thesis of hiring a COO. Is this indulgent? Is it too early? Is my company big enough? Is this an out? Am I being avoidant? Should I work harder? How did you think about the thesis itself of hiring a COO at that stage of company size?

That's a great question, and that's definitely something that is a real feeling for many entrepreneurs, business owners, including myself, right? We didn't get here by being lazy. We didn't get where we are by bringing in talent and sitting back drinking coffee, right? We got here by picking up a shovel, right? By getting it done, hitting the streets, solving problems. So it is a little bit of a mindset shift to— it's like, hey, I'm going to bring someone in. They're going to kind of do all the quote hard work and I'm going to go be the visionary, right? We run on EOS. I'm kind of a classic visionary. So I was looking for an integrator and it is indulgent. It feels indulgent. I shouldn't say it is indulgent. It feels indulgent for, I think, probably most business owners. Like in some ways it's the dream. It's what you've always envisioned. You're like, oh, I'm going to be on the beach, you know, sipping Mai Tais while my COO is running around like with her hair on fire. But you really have to get comfortable with this idea that you need to— I can't remember who said it. I was listening to a great podcast yesterday and they said you should do what only you can do, right? Which you need to take where your highest and best use is, to use like a real estate term. What's the highest and best use of your time as a visionary, if you are a visionary personality type, you should not be in the details of your company on a day-to-day basis. Your role is much more externally facing. I heard a great description of visionary integrator as integrators are inwardly facing. They're dealing with personnel problems, employee problems, customer problems, processes, systems, HR, Visionaries are externally facing. They're looking at market trends, they're looking at new technology, they're looking, they're meeting with key customers or potential customers. They're looking at what's coming up and what's ahead for the business. And so if you buy into the idea that that is a valuable activity for somebody to be doing, and then it should probably be you, then to not hire a great integrator or a great COO You're actually doing a disservice to the whole company, including the people who already work there, because they're not going to have the opportunities to grow in their own careers and in their own skillset if the company isn't growing as a whole. So I don't know, maybe there's a little bit of twisted logic there, self-justifying, perhaps. It's hard to say, but as I look around at other folks who have been very successful in business, I've seen this as a recurring theme. They brought in a great operator who lives and breathes for those details and loves figuring out all these problems. One of the things that my COO said, which really impressed me almost from the get-go, is she said, I make a great number 2. Like, I don't enjoy being the visionary. I don't enjoy being out there coming up with the strategy. I love executing and making it happen. I think that takes a lot of self like you have to have a great understanding of who you are as a person to feel comfortable saying that, right? So, um, yeah, it's, it's definitely a, a growth path or just, I think everyone maybe eventually gets there, but at different rates.

Yeah. So when you talk about the different motivations, the way I would parse that out is it could be what's gonna be best for the people there, for the, for the organization. It could be— and when I say that, I mean staff. It could be I'm making this decision because it's best for the shareholders. And there could be a divergence there. There could be a benefit, a near-term benefit for the shareholders that comes at the expense of staff. Think about leveraged buyouts. It could be that you're optimizing for the lifestyle. It could be that you're optimizing for your portfolio and you want to go start another business, very different motivations. In your case, what is the aspiration that you have for RL, and how do you think about that in terms of the alternatives, comparing that to the alternatives? Inertia is the default in business. Lean in, make it better, faster, stronger, grow it. And maybe the, maybe the best idea is to shut it down and do something else. It takes a lot of self-awareness and cognitive dissonance to hold tension there. How do you think about evaluating relative alternatives when thinking about your plans for this business?

That's a hard question. So I knew what motivated me to bring in this person was I wasn't sure what I wanted to be doing over the next few years, but I knew it wasn't running the management company on a day-to-day basis. So this needed to happen as a prerequisite for whatever was coming next, even if that was continuing to grow this company. And it kind of scared me a little bit when I realized we had been in business for— now it's been 9 years, so next year it's going to be 10 years that we started the company. 10 years is a long time to be doing something. And for me to still be in the day-to-day talking with clients, dealing with process, a lot of the stuff that's integral to running a company, I mean, setting up people in payroll, just, you know, handling disputes about, you know, vacation time. And so it's just like that stuff gets old, right? So after 10 years, I got a little scared, like, wow, have I stopped growing as a person and just gotten comfortable with the lifestyle that's afforded to me by the size that we're at, plus or minus? So I knew, I knew it needed to happen. And getting this person in place was going to free me up to kind of poke my head above the water and look around, you know, what opportunities are out there.. And so whether that's growing this company to the moon, so to speak, is it starting up a line of business that's adjacent to property management, which there's an almost an unlimited opportunities there, whether it's, you know, a, an HVAC company, a plumbing company. We could open up a brokerage division, which we don't currently have. We could start buying more real estate directly. Like I think about, In property management, you can kind of compete with your clients, which would be buying real estate directly. You can compete with your vendors using your captive demand to carve out space within, whether that's a maintenance department or that just serves your own portfolio, or a maintenance department that serves the public. And you can also go laterally and acquire other property management firms. So, I tend to follow what captures my interest. It's almost impossible for me to stay focused on something that doesn't excite me, interest me, challenge me, motivate me. And so I kind of, I'm just like putting feelers out right now to see what kind of sticks and what can I not stop thinking about, right? And that's, I think, gonna be where I'm gonna pursue. And I don't know what that is yet. I've got some ideas, I've got a list. You and I, Jordan, have talked about a few different things that we both find interesting and yeah, we'll see.

That's an interesting methodology. The entrepreneurial nature is to have some level of obsessive compulsive desire and you work with it and you direct it and you channel it, but ultimately it is its own thing. And I know for me, I'm not capable of directing it on command to anything that I want. It has a— it has its own bent of what it wants to pursue, and it's many ways my superpower. Embracing that and just acknowledging that that's okay. It can feel irresponsible, and it can certainly be destructive at times if it's not properly channeled. For example, I was a terrible student in school. Wasn't passionate about it. What's the point? I just kept asking that. What is point of me being here. I know it's legally required, but other than that, I'm really unclear. I would have thrived if I had had alternatives. If I had been given a menu, it would have served me well. As an adult, obviously we have that, and in business, that optionality, it gets channeled. I think one of the channels is— one of the challenges is that in the entrepreneurial game, it's easy to buy into the idea that financial returns and financial gain is the thing that we're fundamentally solving for. Obviously, it's how we keep score. But the underlying idea that that's like the number one priority, we need to overindex on that. So I have all these ideas, but at the end of the day, which one's going to make the most money? It's a misnomer. Yeah. In my world where I sit, I don't buy that that is or should be the number one criteria is or should be for you. How do you think about that same balance? You don't want to be doing something where you're going to lose money or it's not profitable because profitability and revenue is a demonstration of value creation, and that's the entrepreneur's desire. At the same time, you could— you could find all sorts of things that where you could make more money than the thing you may do, but could be dramatically less enjoyable. How do you think about balancing that nuance?

Yeah, great question. And I think a lot about this. So as I consider what's next or what do I want to be doing, there's one question I always come back to. And a friend of mine, Adam Lehman, posed this question to me probably 6 years ago. He said, who do you want to serve? Who do you want to serve is such a great question and a way to frame this thought process. And as I've gotten older, it's become more and more relevant. It's like, kind of like, who are your people, right? Who do you vibe with? Who do you feel excited about seeing succeed? And in property management, when I started the business, I thought I would really love helping real estate investors with property management. And that is still true. But it's become clear to me that it's not every property owner that I want to serve. There's certain property owners I have no interest in serving. One of them is like accidental landlords, homeowner clients, we call them. I just— I don't— I don't respect them, to put it really bluntly. They have done absolutely no financial calculus on whether they should sell the home or rent it. And their question is always, should I rent this out versus a real estate investor who's like, should I buy this investment property? That's a totally different mindset. And being an engineer, a numbers guy, I'm all about, you know, what's the ROI. And so for real estate investors who are earlier in their career, I do want to serve them. I want to help them be successful with their real estate investment. And that's actually our mission at our property management. I want to see people grow and develop a portfolio of properties and be successful. Whether that's with us or somebody else, I honestly, I'm fine with either. And whether that's by using the content that we produce and self-managing, or whether that's hiring us and taking the full suite of everything we offer, or whether that's getting paired up with a property manager who's better suited for them, I want to help them be successful with their real estate investment. So in the domain of property management, that's who I want to serve now. There's a broader question of do I want to serve real estate investors in whatever subset for the rest of my life? I think maybe the answer to that is no. For me personally, I've been exposed through Twitter to a broader community of small business folks, kind of the sweaty startup world of people who are either buying small kind of service-based businesses or starting them from scratch. I love these people. They're— I know you've, you've described property managers as like the salt of the earth, and I like feel that times 10 with the small business community. And I would love the opportunity to serve them in some capacity. And I have done a little bit with like I've shared, I've shared some of our best practices around systems and process that we've developed, and folks in other industries have found that really helpful. And I'm right now, I'm really getting a kick out of that. So So that's really how I'm thinking about this question is who do I want to serve and in what capacity, right? Because there's a lot of different capacities in which you can serve somebody. You can do direct consulting work, you can do information products, you can start a company that serves them directly as a vendor, right? You can maybe even compete with them and sort of form a community there, right? So that's really what I'm thinking about.

Yeah, a lot of that resonates with me. The exposure that I've had to multiple industries, domains, business models, business partners has served me so well because it's broadened my horizons and it's caused me to question my own reality. When I face the same problem and I interact with 10 people with 10 different answers, I kind of realize, hey, nobody has it figured out. There's a lot of answers. Hold yours loosely and think about it in the broadest possible context. So I am I'm personally kind of obsessed with the cross-application of domain knowledge, both from related fields, i.e., non-business, and also business discipline, different business disciplines. I enjoy insurance. That's one that I've like followed for years.

Who doesn't? I mean, insurance.

All right, fair enough. It's not sexy as a product. I mean, yeah, the product stuff puts me to sleep, but the agency model, and agents and the skills and the coaching that they get and the ecosystem of vendors. It's— I don't know why, but it's very interesting to me. Automotive from a sales level, the transaction dynamics are similar enough. Brokerage. I mean, you can, you can see a lot of other fields where there's a different set of ideas and best practices and vendors and concepts that are not that hard to port and apply elsewhere. And I can totally see that with service SMB businesses. As you think about the cross-application for you and, and what turns you on, what is it specifically about that, that service SMB field that you feel like are the common dynamics that really appeal to you?

Um, so I guess for me, I guess maybe a few things. I There's a big part of me that's very tactical in nature. I like to see how things work, right? That's the engineer in me. I like to optimize. So I love taking a process and improving it, making it be able to go faster, more accurately automated. And small business is really— it's where the rubber hits the road, right? It's a direct interface between a customer and a problem and a solution. In a way that you can really wrap your head around. So, you know, big Fortune 500 companies, they're solving big problems and they're delivering massive value or they wouldn't exist in a free market economy. But it's so hard to conceptualize, right? It's so hard to envision. You know, sometimes you drive down the road and you look at a big skyscraper where like one company like has their headquarters there and they've got 30 floors of people and you just think to yourself, what the hell are all those people doing? Like, Is it really necessary to have 30 floors of people at computers? Like, what is happening there that is providing value? It's just not clear, right? And, you know, there's the part of you that's like, I could come in there and, you know, I could solve that with, you know, 2 dozen people and a computer. Right.

But that's like Elon taking over Twitter, right? Yeah. Fire everybody.

Right. But in small business, it's super clear, right? It's like you're right on the front lines, you're solving problems. And there's just something very tactile about what small business folks are doing. And it's kind of like, it's almost like the business version of the American dream, like the Main Street business. There's just something there that's interesting, exciting. I don't know. It's in the people are just so great. Like there's something about the small business community that is welcoming, sharing, inviting, very smart people. I think, I think there's maybe a perspective that whoever owns your local HVAC company is just some dopey boomer who doesn't know anything about anything and can barely turn a wrench. Yeah, but the reality is people who run small businesses are extremely sharp. They have to be or they wouldn't have gotten where they are. And so there's a lot to be learned both from folks who are kind of starting to age out and sell their businesses, they've got a ton of wisdom to share. And there's like, when you walk into a business and you're like, why the hell is this like this? Like I could come in here and just totally— the reality is like that might be 20% true, but for 80% of cases, there's a reason something is set up the way that it is and it works really well. Um, and then the younger generation is bringing in, you know, all the software, the technology, the low-code, no-code, like, and that stuff is super exciting to me as well. So Yeah, I don't know. I'm not sure why I really, like, resonate with this community, but for now I'm just riding it.

This is the choose your own adventure part of the podcast. You want to talk about systems and processes or M&A?

Um, let's talk about M&A.

All right. So you just alluded to it a second ago. Salt of the earth, customer-facing. They had that core conviction. They're responsible for delivering results to their clients as contrasted against publicly traded company, shareholders. Shareholders have no idea what's going on. Grand floor, don't care, want returns, ROI. These things are diametrically opposed and there's a lot in the middle. PE sits somewhere in the middle and there's, there's small mom-and-pop M&A. What interactions have you had with M&A yourself personally, either in attempts you've made to facilitate yourself or offers you've received? What's been your interaction thus far?

Sure, so we've done 2 tuck-ins. We've bought 2 different books of business in the course of our company's lifetime. One was a really small one. It was like 30-some units back in like 2014 or 2015. And then more recently, about 2 years ago, we bought a book of business from a competitor who just wanted out. And this is both locally in Columbus here. That was about 150 units. 50 units or so that we bought from him. So have some good experience in buying books of business. You know, these are asset purchases and learned a lot about how to integrate clients and properties at scale, how to talk to clients about, hey, I know you were with this other company, but now you're with this company. You know how to smooth that over. We also have some data now about churn rates, right? What's the— what's our overall churn rate? But then what's the churn rate for a a specific cohort of a book of business that you onboarded. So that's been my experience on the buy side. On the flip side, I think I have just probably like everyone else in the industry, gotten plenty of interest from calls, emails, mail, letters. Right. And so, you know, I definitely take a look at those things when they come across my desk. I have a folder where I keep them in case they're ever needed. Not really something I'm pursuing right now, but I like to keep up with the folks who are active doing that. I'm very interested in like the unit economics, right? Because there's a bunch of groups who have raised a bunch of money and anyone can go around with a checkbook, right? And acquire businesses for the, you know, if you're willing to pay enough, you can do that. But there's a price at which it doesn't make sense to buy a book of business or a company. You know, there's some dollar per unit at which you're just, by the time you factor in the customer lifetime value, the churn, the cost of, uh, maintaining that account, that was a loss for that company who acquired that book of business. So I'm interested to see, you know, of course everyone likes to know what the current valuations are, but like how accurately are these larger groups penciling out these acquisitions. You would hope that the groups who have done dozens of these, and there's a few of them, really know the numbers on, okay, how many of these are going to churn out? How do we structure the clawback? How do we incentivize the entrepreneur? How do we onboard these clients? And they've, they've, they know their like gross margins. So they know like the cost of customer acquisition organically versus buying the book of business. That stuff's all very interesting to me. And I think it's, it's different for different companies, right? Because a lot of property management company owners I talk to, they're like, well, what multiple, right? What's the multiple? And I'm like, well, a sophisticated buyer doesn't really care about a multiple because they know what the unit is worth to them. Like, regardless of what the multiple is, after the first year, they're going to roll the client onto their standard management agreement. You know, if not sooner. And they're going to be making whatever revenue per door they're making on all their other units. So if they know their numbers, if they know their revenue per door and their, their, their margins, right, then your multiple is kind of irrelevant unless it's a stock sale and they're, and they're, you know, they're buying the whole company and they're going to leave it running intact.

Here's the specific line of inquiry I'd like to pursue with you. We had dinner last night with some local PMs, hung out, good time. And one of the things we chat about was M&A. It came up and it came up specifically with the number for you. What's the number for you that would take to get out? Everybody has a number. We express that in terms of a multiple, and I believe it was a 4 revenue multiplier that you said would kind of start to get you interested, start to be interesting. What I'm interested to hear your perspective on is explaining the delta that exists between that 4x revenue multiplier versus what you would buy a company for and how you explain and think about that delta. I mean, this is common. Almost everybody has a gap between what they'd sell for versus what they're willing to buy for. How do you think about explaining that gap?

I don't think there's any— I don't think there's anything really behind it. I think when I'm looking at what I'm willing to pay for a book of business, I'm running those numbers I was talking about earlier. I'm looking at what's this unit worth to me? And there's, you know, I'm going to pay almost right up to my own customer acquisition cost right now. There's some advantages that come with buying a book of business that make it different from looking at a customer acquisition cost when you're buying a book of business. It's like you're buying a group of clients who have already been onboarded. And yeah, there's some onboarding work bringing them into your company. But if they've been in— if they've owned a rental property for 5 years, that's a lot different than onboarding a client who is buying their very first duplex. So there is a— I think there is a delta between the customer acquisition costs and the, and the like buying a book of business valuation on the account service side of things. Yes, exactly. On the account servicing side of things. So for me, that's just a pure numbers game when I'm looking at buying a book of business. When I'm looking at selling my company, that's a much more personal thought process I'm running through, right? I'm thinking about, okay, well, if I sell for X, by the time I split it with my business partner, pay taxes, I'm left with Y. Is that interesting to me, right? Does that— is that a life-altering amount of money or is it 18 months of runway and then have to figure out how to make a living. Right. So is that fair? Logical? I don't know. But that's just the reality of being a small business owner, right? It's— you're looking at it from a personal lens more so than like if I owned, you know, a Fortune 500 company, it would be a lot different because I'd be looking at like, what's the ROI? And if I could sell the company, and generate like a 20% rate of return and then go buy at 15, I would probably do it. But when it's just like my company and it's my whole income, it's a lot different.

Yeah, I get that. Certainly a deeply personal decision. And the math that you articulated around if I was to sell, what would I do with the money? That's one of the dimensions. What would I do with my time? What would you do with what would I do with my identity if my identity was so tied to the business? A lot of the considerations for folks are very different when they're closer to retirement, when there's cancer, there's some kind of cataclysmic event. But the reality is that having a profitable business does give you optionality. You know what your baseline is. And particularly when you're hiring staff like a COO, et cetera, if you have time freedom and cash flow, that's the gold standard right there. I think in those situations, get— the bar does naturally get higher and higher and higher, for sure. And I don't think that that's divorced from financial numbers, because the imputed value, when you think about the discounted cash flow— let's take like a Berkshire Hathaway. The business is its discounted cash flows into the foreseeable future. But Buffett has articulated that 10 years tends to be kind of the time horizon, both because you can't know what's going to go on. I think just largely because you can't get going to know what's going on. But if you're that close to the business, the closer that you are to the business, the more accuracy, or at least perceived accuracy that you can have, the more stable it is, the more if you like, you could really pull back.

There's a lemons problem here, which is you, you know the business because you run it, you started it, you know all the demons in the closets and, and or lack thereof. Mm-hmm. A buyer has no clue despite their due diligence and their quality of earnings that they're going to do. They're really buying a bundle of unknowns. And so they're going to discount for that appropriately, as they should. But you, as the— it's kind of like when you buy a new vehicle, you drive it off the lot. This is the lemons issue. Well, you know that you didn't wreck it on the way home from the dealership and then pay someone to fix it real quick because it's your car. So in your eyes, you're like, well, it should be worth what I just paid for it 2 days ago because literally nothing's changed. But a buyer doesn't know that. And so they discount for that uncertainty and that risk. And that's, you know, that's directly applicable to small business as well. So I think that might explain part of that delta.

Let's talk a little bit about the markets in general. One of the potentialities for something cataclysmic happening is a change in the markets. I had dinner with a local PM the other day, and my wife and his wife were present. And one of the topics that came up was some concern on her behalf of things could change with the market. Those that are more Austrian-minded, for those that listen to voices like, let's say, Peter Schiff or gold bugs or folks that are generally of a persuasion that the actions of the Fed are less rather than more productive. And then the attempts by the Fed to control the economy are actually counterproductive. There's anticipation of a crash.

Mm-hmm.

How do you see that playing out in property management? My encouragement to this gal was that actually, well, PMs classically countercyclical, etc. You're in it, you own it. How do you think about that potentiality?

It doesn't worry me that much. I mean, it— you know, I haven't owned a business through a full market cycle yet. Um, I started the business in 2013. We've experienced nothing but a bull market ever since, with that one blip for COVID. So, but I've heard from the old-timers, right, that it is countercyclical. So I've always maybe taken refuge in that idea. You know, we'll see how true that is. But I have experienced one half of that cycle and it is painful to watch clients sell, right? They're experiencing record high valuations for their properties and they're looking at those numbers and they're just like, rightly or wrongly, they're like, I'd be stupid not to sell right now because I can get a 2x return in 3 years or whatever it is.

What are you thinking and saying in those conversations with them?

The problem is I don't ever get to have those conversations because we're always the last ones to know when they go to sell. I actually had a great conversation last night with another PM who, who's gotten ahead of this. And I asked how, and they said, we take the opportunity of the lease renewal coming up to initiate that conversation. And we, we talk to the client about, hey, so the lease renewal is coming up here. Here's what we think you could raise the rent to, you know, do you have any thoughts around selling? So they're getting ahead of that conversation. And specifically for them, they have a brokerage function. And so they're able to capture that and really profit off that. We could as well because we have referral agreements set up with realtors. So we really should be maximizing that. But as it is today, we're the last to find out that the client is selling. Sometimes they even forget to tell us they sold the property. And, you know, we will call them up and say, hey, we haven't received the rent from your tenant this month. We just want to let you know. Oh, no, I sold that property 3 weeks ago. I didn't tell you. It's like, no, you didn't tell us, buddy. Sorry. So, yeah, we'll see. It'll be fascinating to go through a full cycle as the owner of a property management business. It doesn't worry me that much because the properties are going to be there and they're going to need to be managed. And it's hard for me to envision a it's hard for me to imagine a reversal of the broad market tendency toward professionalized management. That Iceberg report that came out 6, 7 years ago. Yeah, it's been a while. Yeah. Everyone keeps talking about it. I'm like, that's really outdated. Like, I would love to see an update to that. What is the number today? Right. I think back then it was like 30% of properties were professionally managed or whatever it was. It's got to have gone up. It has to have. And, you know, has it gone up 2 percentage points, 20 percentage points? We don't know. So but it's hard for me to imagine it going back the other way, no matter how bad the economy gets.

If you were in that conversation, the client contacts you, a friend, family member contacts you, they're thinking about selling their rental property. What would be your advice and counsel? You own some rental properties yourself. How are you thinking about that?

Yeah. So I would ask them, what are you planning to do with the money? Right. Where are you going to go and earn a return on your capital right now? And I would ask, you know, I wouldn't come out and say it quite like that. I would start asking questions around, okay, great. And tell me a little bit about why you'd like to do that. Have you run the numbers? Like, what have you seen has been your return on the, on the, on the investment that you made in this property thus far when you account for your mortgage and everything else? And I would probably just guide them through, like, I think a lot of real estate investors, you know, which, what's interesting about our industry is, you know, there's classic B2B, business to business, and there's B2C, business to consumer. But we're basically like, I call it B2A, we're business to amateur. Our customers are not professional investors by and large. But neither are they really engaging in a consumer activity. It's kind of like a business, but it's not. It's not their professional activity either. So our clients are in this weird thing where they own a rental property, but it's not like they work at a REIT. Like, it's not their profession. It's not something they've been educated in usually. So that, that can make it difficult because the, the variety of knowledge or the, the range of knowledge of our clients is huge. Some of our clients know absolutely nothing about real estate investing in general, financials, how to read an income statement or anything like that. And other folks are amassing properties at an unbelievable scale and are more sophisticated than I am. So you have to figure out where your customer is in that range and then tailor a conversation around that, right? So maybe they've never heard of an ROE or return on equity. They don't understand what that is or why it's important. And you explaining that could really shift the needle for them on the calculus of whether they want to sell or continue renting. Whereas another customer is like, going to show you 10 pages of spreadsheets of how they ran the numbers 6 ways from Sunday and why this is the move.

So how do you advise clients that are interested in buying right now? You have a vested interest, get the property to manage. What's your—

We generally don't. We don't have a brokerage function. And I mean, we'll give them some general guidelines around what we'll manage and what we won't. You know, there are certain areas of the city that we won't take on properties and certain types of properties, but we generally try to stay completely out of that function.

If they were to ask, you're on the phone by circumstance, what would you say to somebody that's considering buying some rental properties in Columbus right now?

I would say buy in as nice an area as you can afford. I think the higher quality the neighborhood, the schools, the better off you're going to be in the long run. I think you're going to see better appreciation. It's going to be easier to manage whether we're managing it or somebody else or you're managing it yourself as the owner. You're going to have tenants that are easier to deal with. They're going to beat up on the property less. And that's, that's been my experience.

Let's chat a little bit about security deposit alternatives. We've seen fintech enter the industry in a variety of areas, and I expect and anticipate a continued impact because of the presence of fintech. Land and expand kind of approach. There's loans for maintenance, security deposit alternatives. It's all over the place. Let's hone in specifically on the security deposit alternative. I know you've looked at a number of those vendors. You've actually published a pretty informative blog post for those that haven't checked it out. What's the name of your website? PeterLohmann.com. PeterLohmann.com. Go check out that article. Give me the Cliff Notes here on your research into this category.

Yeah. So there's a number of these companies and actually it goes back many years, long before I was in the industry of basically an alternative to a security deposit. So there's been a lot of folks who have looked at the massive amount of money that tenants are expected to front in order to rent an apartment. And a bunch of people thought, we can do better. Like, this is, you know, not only is this an inefficient use of money because it's tied up who knows where, not really doing anything for anybody, but also there's an argument to be made that it's reducing housing availability for low-income folks, right? It can be hard to come up with one month's rent in addition to the security deposit in order to lease a new apartment. So there's a couple approaches here. I won't go into a lot of detail, but there's like a bond model, like a surety bond that's been around forever. And then there's some newer, there's some newer approaches that are either kind of like insurance or are actually insurance. And they're kind of tackling this problem from a couple of different ways. So I got interested in this because I'm kind of fascinated by the concept of tenant screening in general. And security deposits are kind of integral to that process for a couple of different reasons. For one thing, you know, a lot of people envision the function of the security deposit as a way to ensure the apartment or home gets returned in good condition. You know, it's a way for the tenant to have some skin in the game. And at the end of the lease, when they move out, if there's a little bit of damage or a little bit of unpaid rent, the property owner or the landlord can use those funds to help restore the property or make themselves whole. And then the tenant gets, you know, the remainder there. So that's kind of classically what a lot of people think about when they hear security deposit. But there's actually another function of a security deposit which is it's actually part of the tenant screening process. You know, in addition to checking credit and criminal eviction history and all that good stuff, the ability or not of somebody to come up with one month's rent as a security deposit functions as a screener.

Are they solvent?

Yeah, exactly. So, you know, some people would say, hey, if somebody can't come up with one month's rent as a security deposit, that tells you a lot about them as a person. And how responsible they are with their finances. So what have I— what I've observed is a lot of people are solving for that first problem, making the landlord whole at the end of the lease, and not really addressing the reality of the security deposit being used as a tenant screening tool as well. So the other thing that's happening in this world is regulation. So there's a a number of cities around the U.S. who have passed what's called renter's choice legislation. And sometimes that includes things like SOI or source of income discrimination protection, which means that you can't refuse to rent to somebody just because they're Section 8. You have to account the voucher as income. So that's one piece of this renter's choice legislation that's sometimes rolled in. But the other part of it is forcing landlords to provide an alternative to a security deposit. And there's, there's actually a group in, in that world of security deposit alternatives that's literally going around city to city lobbying city councils to pass legislation mandating a renter's choice type of law that, surprise, surprise, their product is able to slot in and fulfill that role. So it's a little dark. It is, but it's happening. And I think people should know about that. So that actually happened in Columbus. And I went and testified at the city council hearings multiple times explaining why this was probably actually not a great thing for tenants, because if you make it easier for tenants to get around this security deposit issue, landlords are going to react by raising their standards in other areas. One of the beauties of Ohio, which is a fairly landlord-friendly state, and Columbus specifically, is landlords there are not afraid to take a chance on a tenant. So if a, if a tenant has, you know, an eviction a few years ago or a criminal history or some other like blotch on their record, a landlord in Columbus or in Ohio is with the comfort of a 1 or 2 months rent security deposit, they're going to say, You know what? I'm going to give it a shot. You seem like a nice guy. You seem like a nice family. I've got the security deposit here. If you're not able to pay the rent, I'm just letting you know I'm going to initiate eviction procedures and you're going to be out within a month or two. So it's kind of counterintuitive that a well-functioning eviction and tenant screening system would benefit— lower the bar. Yeah, it actually does. So if you go the other way, like some of these big cities have done, you make it almost impossible to evict a tenant. You require the landlord to offer security deposit alternatives so that they're, you know, feeling a little bit more exposed. They're going to react by saying, well, if your credit score doesn't start with an 8, we're just not interested. Or if your income isn't 5 times the rent, we're just not interested. Right. So, so that part of it kind of interests me as well. But I've always had a fascination with tenant screening. I feel that tenant screening in our industry is in the dark ages. It's, you know, if you're familiar with Moneyball and the whole story of how sabermetrics— yeah, statistical analysis came into the sports world and totally revolutionized things. I think that we're way overdue for that to happen in the world of tenant screening. I mean, if you talk to 5 different property managers and you ask them, what are your standards for tenant screening, you're going to get— not only are you going to get 5 different answers, but if you ask them where they got that from, they're just going to say, Oh, I— that just worked for us, or that's what I've always been told, or that's the way we've always done it. And I always push back on them. I'm like, okay, so what's your income requirement? Oh, it's 3 times the rent and income. Like, okay, why is it 3.0 and not 2.9 or 3.1? Well, I don't know. You know, they have no answer because the answer is no one knows. No one's done this analysis to actually figure out what impacts the likelihood of a tenant being evicted or not paying the rent or damaging the property. So I think it's important not only for our industry to solve this problem, but these security deposit alternative companies, if they are not underwriting the tenants that they are financially agreeing to back, the numbers aren't going to pencil out. It's an adverse selection problem where the property manager is like, well, if I can just file a claim and get paid regardless, What do I care if I rent to somebody who had an eviction 2 years ago? Because I'm going to be made whole in the end, you know, and it's no skin off my back. So there's an issue here around underwriting from these tenant screening services and then just the industry as a whole with are we screening tenants? You know, the problem is if we're, if we're not using statistically valid ways to screen tenants, there's two sides. Where it goes wrong. The one side is we're placing tenants that we could have avoided who end up getting evicted. The flip side of that is we're not renting to people who may have actually been great tenants. And so solving that problem, I think, is— it's something that's interested me for a while. The problem is it's a data issue. You would really need probably tens of thousands of tenant screening data and then outcomes. Those need to be tied together. And then you need to run like a regressive analysis on what actually is tied to the outcome.

So the things that you're highlighting here are interesting to me. You kind of glossed over the solvency of the underlying companies. Like, are they actually going to make the payouts? You commented on the macroeconomic implications and its implications on the, the quality of the tenants, the tenant that's being hired, and the tenant screening criteria. And fair housing dominates screening criteria conversations, right? Because that is the one objective thing of like I either want to be in or out of compliance and really want to be in. And then it's interpretation. Is it first to apply or is it best? That's a whole nother conversation. But what are your thoughts on the solvency of these companies? Have you— do you have any?

I do have thoughts. So there is a— there is an open question around this and around COVID, there was one of these groups that stopped issuing policies completely. And there was a question around their solvency. Actually, there might have been more than one. And I think what's going on is you get a group of people who come together and they're like, all right, we're going to tackle this security deposit alternative problem. And so they put together some thesis and they realize that they need— they're basically selling a quasi-insurance type product. And so they need, they need a They need a— the financial backing of a larger insurance group. So they start shopping and they find a big insurance group like Lloyd's of London, or there's a few of them who's willing to underwrite them and financially back so that if there's an issue of the solvency of that tenant screening group or security deposit group, you know, that the larger insurance company will step in and make them whole.

They're not taking balance sheet risk.

Correct. So sounds great, right? Oh, well, great. Lloyd's of London backed by Lloyd's of London. Right. You see that what's not really disclosed is the fact that that's an annual contract that Lloyd's of London may or may not renew. And so I think any insurance company is, is willing to work with a new group for a few years. Why would they not? They're going to collect a bunch of premiums, right? It's especially with the time frame that an average tenancy is, which is probably 2 to 3 years in our industry. You don't have to start paying claims for like 2 to 3 years. So why would you not agree to collect claims for a few years and then when the— or collect premiums for a few years and then when the claims start rolling in, well, shoot, you can just say, well, you know, you know, things have changed. We've looked at this again and we're just sorry we're not going to be able to renew your contract or here's the new renewal rate and it's 3 times what it was before. So I think just because these groups are currently backed by a larger underwriter doesn't necessarily imply that their unit economics are positive. And I think there's been a few great articles written around this, not by me, about this issue of basically the unit economics of these insurance-like products and how the, the surety bond industry has struggled with this problem for years because when you run the math, the amount of money you have to collect in premiums to really cover a security deposit, it's so high that you're almost— you're kind of back where you started. So, yeah, it's interesting.

So you're highlighting that as the risk profile changes, the willingness to provide coverage could change. This is related to another thing we discussed last night, which is the self-insurance movement, which is related to the broader revenue per unit optimization, fee maxing, revenue optimization, whatever you want to call it. It's a component of that. It's gotten more traction and more steam. And some would say that it's an unknown in terms of the regulatory approval, the regulatory burden. I haven't seen a ton of scrutiny applied and I wouldn't know one way or the other. I literally know nothing about this. So let's, let's start the conversation there. What's your take and your feedback on what you see in the space right now around what I think is fair to call various flavors of self-insuring different aspects of risk? There's a couple of different use cases, but what have you seen and what are your thoughts and have you partaken in any of that?

Yeah, so we have partaken. So we did launch a pet protection program this year, just a few months ago actually, where we're collecting the pet rent and then we're offering to cover the owner in the case of pet damage. So we'll reimburse them costs, I think up to $2,000 or so. Common, profitable, very common. It's fully disclosed. You know, it's in our management agreement. We actually highlighted on the PMA renewal to make sure the owners fully understand what's happening. So and there's a few of these things. There's, there's even some property manager, property managers who are self-insuring around security deposits. So we just talked about the security deposit alternatives. They're property management company owners who are saying, instead of collecting a one-month rent security deposit, I'm going to charge the tenant $50 a month, whatever it is. I have no idea. As like a security deposit protection program. And in this way, the tenant doesn't have to come up with the money up front. And I'm stepping up and willing to cover any damages or anything else that would happen if, if the tenant moved out and there was an issue. I don't know the details.

Yeah.

So I've been observing this and I was talking to— I was talking to an attorney who serves our industry and he was explaining to me his perspective, which is that Frankly, this is illegal, that property management companies are exposing themselves to a massive amount of legal risk by basically starting and running completely unregistered insurance products. There's a lot of state and I think even federal rules around issuing or creating an insurance product, collecting premiums.

There's a lot of requirements around that without the burdens of being an insurance company.

Exactly.

Some of those burdens are related to solvency.

Correct.

If you're carrying a bunch of balance sheet risk, you have to have the cash to actually back it up, that sort of thing.

Right. So it was his perspective that this is an issue. This is a problem that the industry is unknowingly sort of walking into and that if the regulators find out, they're going to take action. I have no idea. You know, I, like you, know almost nothing about this. I don't know the limits of where an insurance product begins and a fee-based program ends. But yeah, so I don't know. We'll see.

You know, there's a lot of, of interesting intellectual, if nothing else, conversations around the fiduciary responsibility. There's an intersection here. When you talked before about potentially deprecating the quality of the tenant as a result of removing that hurdle of the security deposit requirement, it's one thing if that involves a third party. It's even a little more pointed if you're the one collecting the premium that's going straight to you and potentially also deprecating that. Is that the case? I don't know. Beyond my pay grade. However, there's other related conversations that you brought up last night. The potential conflict— I'm not saying it is, but the potential conflict around as revenue optimization and RPU increases and as the burden on the tenant increases, potentially that could impact rents, that could suppress rents a bit, therefore impacting what's going to the owner. And the vast majority of the other fees are not going to the owner. What are your thoughts?

Anything? Yeah, it is something I'm observing. There's no doubt that when you're charging a $40 a month tenant benefit package, as a part of your property management services and you mandate it, you know, a, an educated consumer is going to incorporate that into the overall cost of living at the property. They're going to basically add it to the rent in the same way that they should be doing with utilities, right? When you're look— when you're shopping for a place to live, you need to be looking at, of course, not only the base rent, but any other fees, and the average cost of utilities at that location. And that should be sort of like your apples-to-apples comparison. Of course, there's a million other variables like location and amenities and things like that, but that at least gets you back to like, what are the dollars out of my pocket on a monthly basis? So property management companies who are charging a monthly fee, which we do as well, we have a resident benefit package. In theory, they are reducing the base rent that can be obtained for that property. Now, is that a dollar? Is it, you know, what percentage of that benefit package is making its way back through that calculation in the, in the mind of the average tenant and actually impacting the base rent?

Feels pretty minimal.

It feels pretty minimal. I think a lot of tenants just kind of accept it as a cost of doing business these days or they really, by the time they figure out and run that math, they've already submitted an application and fallen in love with the property and they're going to pay what they're going to pay. You know, I don't know. So I think at the very least, the property owner should be informed of that. And I think we need to be careful as an industry that we don't walk too far down that path because at $100 a month, I don't think there's any question that the amount of rent that can be obtained for a given property that's charging $100 a month in a resident benefit package versus a property that isn't, I don't think there's any argument that, that there's a loss there to the property owner that may, that may not have been disclosed.

Right. So and this is the self-interested side of the conversation. I don't bring this up for do-gooderism. I bring this up because I'm a free market guy. I believe that every action has an equal and opposing counteraction. And you bring up a great example. How far do you push revenue optimization before it is genuinely counterproductive right now for the vast majority of the industry, for the folks? Let's be honest, for folks that are not listening to this podcast, revenue optimization is heaven sent. It is a huge boon. Everybody should be paying attention. Once you've heard that message once, twice, 30, 40, 50 times, like some of you listening to this, there's enough repetition that the other— the ditch on the other side is worth addressing, which is once your revenue per unit exceeds, I don't know, pick a number, $250, $300. At some point, some awareness around could this impact growth as one easy example. A more abstract conversation would be could it impact the regulatory environment that I operate in? Those are both some considerations Thoughts on, on either of those?

It's a valid concern. And I think, you know, the regulatory response is not to be trifled with. And some states already have this, right? There's some states that really limit what you can charge tenants, anything from an application fee to a benefit package to how much you charge for late fees. So it's not that it's not possible. We know it's possible. So You know, there's the regulatory aspect. There's also the reputational, the industry reputational potential damage. Right. So if it's not like property managers have a great reputation to begin with, I think they're one click above a car salesman in many cases. Unfortunately for us who are in the industry, the last thing we really want is the narrative among real estate investors to become not only are property managers incompetent, but they're ripping you off. And not even telling you about it, and here's how. Disclosures.

Exactly. It's huge, right? Yeah. Within that whole revenue optimization game, you cannot miss out on the ethicality of making appropriate disclosures. I think the vast majority of the professional industry does that.

Yeah. And there's a concept that I've been really thinking about recently, which was introduced to me by a guy named Alex Hormozi. He's got a fantastic YouTube channel. I've really been enjoying his content recently.

He's the I have nothing to sell you guy.

I have nothing to sell you. Me and my wife have $85 million business. Yeah. So he talks about this idea of customer surplus. Customer surplus is the delta between how much you charge and the value you provide. Right. And as a business owner who's trying to grow, he articulates very well the idea that your customer surplus should be as massive as possible. Especially in a recurring revenue business, what you want is to get a customer and never lose them. And a really great way to do that is with a massive customer surplus, meaning what that means in plain English is the customer feels like they're getting a fantastic deal. They feel like for the X dollars a month they're paying their manager, they are absolutely getting an incredible benefit, right? To translate this to our industry. They're getting not only the basics of property management, rent collection, leasing, maintenance, they're getting, you know, personalized attention, they're getting financial advice, they're getting access to early deals, they're getting introduction into a community of like-minded investors. You know, whatever it is, you want that customer to feel like the price you're charging is almost a joke. It's like a no-brainer. Yeah. There's no way they would ever look around. There's no way they would ever sell a property. So there's two ways to grow that customer surplus. You can reduce your prices. That's one way. Of course, that's going to grow that. You know, that's not something I think anyone really wants to do and it's probably not sustainable. The other way is to increase the perceived value. Right. And prestige. Right. So a resident benefit package or the various other revenue maximizing activities that we're engaging in as property managers, whether that's an annual fee to the owner, a marketing fee, some of these other things, you are reducing your customer surplus. You are charging more for the same in many cases. And I know we try to put some things around, well, this is what this is covering, this is what this is covering.

But it's a mandate to add value is what you're saying.

Yeah, it's a mandate to add value. And it's also a warning to let's be very careful about approaching that limit and reducing that customer surplus.

Shaving away all that margin.

Exactly. I think a lot of property management company owners have experienced raising what they charge or introducing a fee, and they're amazed when no one churns out or maybe 1 or 2 out of 100. And they're like, oh, this is fantastic. And that becomes the narrative around the industry. And that's very much the case because I think there's the limit and there's where most people are at to what you were saying. And if you move from here to here, nothing's really going to happen. If you move from here to here, nothing's really going to happen. If you move from here to here, you may not notice a churn right away, but you've, you've destroyed your goodwill with that customer in a very real way. I think, I think as property management companies ourselves, we've all experienced a vendor who's come out with a price increase and you're like, it felt just over the top. It feels over the top. It's like Wow, before, like, I already felt like this was kind of high, but I was getting good value, and now they're raising it from X to Y. And you're immediately like, there's the feeling that you have in your heart when that happens. You're like, oh, really? Like, because on the one hand, you kind of sympathize with the owner of that company because we're doing it too. But on the other hand, you're like, come on, guy. Like, you know, I'm trying to run a business here and you can go and raise your prices. And you know how hard it is to switch away from our our accounting software or whatever it is. So it's— you feel both sides of that. But there's other companies you do business with, other vendors you do business with as a business owner, and they— and maybe they raise their price a little bit and you think to yourself, I don't care at all. This is still such a great value. I'd pay 3 times the amount, right? Like, for me, this is like I don't know, Process Street, and we're getting ready to move away from Process Street and go to LeadSimple Process. But we've been on Process Street for years. Process Street could raise their prices 5x, and I wouldn't even blink because the value we get out of that software is so high. So they've got a great customer surplus, right? And they've added features. Feature upon feature upon feature has been added to that product over many years.

That's the promise of SaaS. And it's worth noting. The promise of SaaS, recurring revenue, juicy, yummy, love it as an entrepreneur. But the promise of SaaS is that the product will get better. On-prem software, desktop software, that wasn't supposed to get better. You got what you got. Be happy with it. In property management, it's recurring revenue, but there's maybe not that same perceptual expectation or mandate on the owner to get better. And I think that's an open invitation of Why not? Yeah. You're renting your customers. You know, I know you work off 12-month contracts, but whether it's a month or 12 months, you're still renting. You know, nothing is entitled in the long run. Yeah. The thing that you brought up about the gap, I want to make sure that people are getting that. If there wasn't a gap of value, a surplus, as you put it, there would be equivalency. And what would you do? Nothing. Have you ever taken money to the bank to exchange it for fresh dollar bills? That, that would be the equivalence. If the service had equivalence with my money, I wouldn't spend the money because it would be the same as just changing out the cash. Yeah. I like that idea. And I think you feel it and you know when you have leverage, not like airport leverage when you buy the $10 bottle of water because you have no choice, but like really volitional leverage, like you are in a strong value position. It's a good feeling.

The airport is such a great counterexample. We've all been at the airport when you need that bottle of water or that magazine or that piece of candy for a long flight. You go into those little kiosk-type stores at the airport and you're like, oh my God, you're like, $8 for a bag of M&M's. That what you're experiencing there is a customer surplus of like 1%. Yeah, barely worth it. You do it because you need it, but you feel horrible about it. That's what it feels like. To have no customer surplus or the tiniest little sliver, right? What you want to be providing for your customers if you're trying to grow your business and, and reduce your churn is you want to provide as big a customer surplus as you can.

That nuance, I think, is really important to tease out. There's something specifically about overpaying in a context where you feel like the seller is leveraging your lack of optionality. This is when this is generally historically when the term price gouging comes up. When the price of a generator spikes 10x during a hurricane, it feels wrong. And the reason it feels wrong is I really need it. And the only reason you're charging me more is because of my, my desperation and circumstance. So it's something to bear in mind. Let's pivot a little bit to talk about this meta conversation about what property management is. I feel like this is kind of the genesis of talking about workflow technology. You mentioned Process Street earlier. I know you're going to be switching over to LeadSimple, but this broad category of workflow, it gets at the heart of what is property management? Why do we need software? There's so many folks in the industry that have been doing it for so long and they're so clear of like, I got this, I know how to do this. I'm the expert and technology's coming. I should adopt. Wouldn't it be great? But when they get up to it, In many cases, folks' native intuition, experienced veteran, is so strong, and the technology gap feels so wide for an uncertain promise, for an uncertain upside. If you have that bent, if you're an engineer in your case, you know there's some upside, but you're also just into it. How would you articulate the upside relative to the upside and the use case of what it's fundamentally solving for around workflow? Process automation?

So for me, it's solving for two things. It's solving for labor cost and it's solving for accuracy. Um, when I think about low-code, no-code workflow process, that's what I'm thinking about. I'm thinking I want to be able to manage more units with the same number of people, or to put it another way, I want my DLR to go up. I want to be able to generate more revenue for the same payroll burden. And there's— in order to accomplish that, you can either charge more. So now you're reducing your customer surplus.

You lower your labor costs offshore.

You can lower your labor costs by trying to hire people at minimum wage. Good luck with that. You can offshore. Great option. We're taking advantage of that. The other thing you can do is just literally reduce the number of tasks that your staff has to do every day. And that's front of mind for me when I'm digging into Zapier or Process Street or LeadSimple is how can I reduce the number of tasks that a team member has to do every day, either by making it easier or by automating it or by removing it completely.

The best step is no step.

Exactly. Property management is tasks, tasks at scale. I've said this for years. I'm probably not the first to say it. It's an inch deep and a mile wide. So it, it's a game of tasks. And if you can automate those tasks or connect products together so that you're not doing double entry, so that you're not manually typing an address somewhere or manually typing in a tenant's phone number to a work order or anything along those lines, it's gonna compound over time. Right. And, and it's gonna reduce your error rate. So for me, that's exciting. Like how could we How can we improve the quality of our service and reduce our labor costs at the same time? Like, that's a win-win.

So the premise is fairly obvious of the savings in those categories of using technology to do it. What I find interesting is the conflation of the technology with the outcome. Like, if I get this tech or this tech will help me do that. But as I hear you describing it, what comes to mind for me is policy. If you don't have sense on a policy level, good luck with the tech. Talk to me about the policy frameworks that are the precursor to get leverage of then codifying those policies through technology.

100%. So software is not a magic bullet. Software is just— it's the logical written implementation of what you're doing in your head. Right. And so if you don't have clear policies around we will or won't work with this type of property, we will or won't waive late fees, we will or won't manage half a duplex where the owner's living on one side, you know, we are managing HOAs or we aren't. Every time you have an additional edge case or an additional exception or a gray area, You can't code that, like, or by the time you could code it, the software's so complicated and unclear that it's unusable. So in order to have success with automating processes, tying tools together and streamlining your operations, you have to start with what exactly are we doing here? What is included in our scope of services? What types of properties are we managing? What are our policies around lease renewals, adding a roommate, approving tenants, getting owner approvals, maintenance limits, like all these different things that we are all making decisions on every day. If you have any wiggle room at all in those, that's a manual step now where a human has to come in and make a decision. Something I think that's uniquely challenging about property management is so many decisions. I mean, think about the number of decisions a property manager has to make every day, the number of different situations that they're going to encounter where they need to make a call, they need to make a choice, and they're, they're trying to weigh these different factors. Like a classic one is like tenant calls, it's 4 p.m. on a Friday, the hot water's out. It's like, shoot, like anyone I'm going to get to go out this weekend is going to be charging 3 times the rate because it's after hours. You know, could the tenant really, like, make it until Monday without hot water? It's not like they don't have water at all. It's not really that cold out. And then you're trying to weigh like, what would the owner think about this? Right. It's just this— oh, it's so difficult. Yeah. You're thinking, right? So that's a unique challenge to our industry. Think about running like a Main Street retail shop, you're not really making decisions, you're selling products. Your biggest decision is like, do I say hi or do I say hello to the customer? Or inventory choices. So it's a challenge. And so if you can reduce the scope of those decisions through policy, through procedure, through standardization, now it becomes possible to actually encode those into software and then take steps to automate or, or simplify. So I think our industry has a long way to go towards standardizing the scope of service that we're providing to our customers. It's a, it's a challenge because, you know, not only do 10 different property managers do things 10 different ways, they, we, we don't even have, uh, agreed upon terminology. Some people call it a leasing fee, some people call it a letting fee, some people call it a marketing fee. Like, We haven't even agreed on what it is we're calling what we're doing, let alone what's included in the fee and what isn't. So that makes it very difficult for customers to cross-shop, which we may or may not care as the owner of a property management company, but it also makes it very difficult for vendors to provide solutions for our industry because you can't write a piece of software that captures let alone all the differences and gray areas within one company. Now multiply that times 20,000 property management companies across the US. It's no wonder the software products that we have in many cases are diluted, diluted, watered down, no access to API, because you, you're asking the software developers here to tackle an unsolvable problem.

What— there's not a series of protocols in the industry to build software protocols around.

Exactly.

I think that human nature is such that we tend to fascinate way more with the score of the game rather than asking if it's a game worth playing in the first place. What you're getting at in talking about limiting scope of services, whatever your scope is, you're going to solve everything inside of that. But you can make your life a lot easier by reducing down the scope. I think the concept that resonates with me here is the compounding complexity, not the linear, but the logarithmic change in complexity when you, when you allow these additional use cases. What are the axiomatic decisions that you made that you feel like most tactfully and surgically reduced scope of services in a way that served you and your customers?

Yeah, so when we started the company, we would manage anything, right? Because we were hungry, we were hung up, we wanted the business, right? So we would take on any type of property, single-family, multifamily, A, B, C, D class owners living in the other side. We even messed around with HOA management for a while. Didn't really matter what condition the property was in. Property owners would want to make all kinds of exceptions and carve-outs in our management agreement. We would play along with that. They wanted to customize their lease. We would play along with that. They would ask us to do all kinds of random things like Oh, can you make sure like in the fall the hose gets unplugged from the spigot and drained and the fountain and everything? And man, like you've mentioned before, Jordan, the human brain can generally cope with this. It's really built for—

One brain.

One brain can understand taking this information and kind of remember this stuff. But once you go to the point where you've got multiple people in the business and you start to have a lot of clients, it's untenable. So we made a lot of decisions around no HOA. We only manage basically B-class properties. We won't manage properties that aren't well maintained. We never make exceptions in our management agreement. We never make exceptions in our lease. We have a set of 3, you know, bronze, silver, gold. You can choose from those. Beyond that, we don't customize. And I'm constantly looking for other opportunities to narrow that scope of service. And I think the intuition here is that the more you niche down in this way, the smaller and smaller your TAM, right? Your total addressable market gets like the number of customers you could potentially serve. And, and that feels, um, it, it activates a little bit of a scarcity mindset. But the reality as I've experienced it is the opposite happens as you narrow your scope of service and you hone in on a, on a specific customer type in a specific property type, everything becomes easier, everything becomes smoother. It's calmer at the office. And where you can really turbocharge this is in your marketing because you get to know the language that your customer uses. You get to figure out where they're hanging out. You understand what's important to them and where they are in their journey. And you can, I mean, if you just think about receiving, let's take this to the total, like, analog. Picture getting a postcard in the mail advertising a property management company. One of the postcards says, we're a great property manager. We've been in the business 20 years and we've won these awards. We want to manage your property. And another postcard says, we specialize in managing 2 to 20 unit properties in Delaware County in Ohio for property owners who want to grow their investment. Wow, what a different reaction you're going to have as a property owner when you receive that postcard because it's speaking directly to who you are and what you're trying to achieve. And you can't do that unless you narrow and kind of niche down. So I'm a, I'm like a big believer in that.

So if we take it a step further and we do talk about pushing it into software, your policies are clear, tight, you've thought through it, you really thought through about the, the processes in abstract, whether that's a flowchart, whatever works for you. If that pre-work has been done, there's staff buy-in, there's a connection to this is the way, this is the why, hopefully you push that up into your marketing and your messaging. If you've done all that work, now let's talk about actually putting it into software. What are the best practices that have worked for you? Well, first off, what are your chops? What are your background? What have you built? What kind of leverage and what's been that evolution of that build-out for —do?

Yeah. So, you know, we're, we're running a, a pretty standard set of products. We're on Buildium. We use Process Street, as I mentioned. Um, and we also use Airtable to kind of supplement the fact that Buildium doesn't allow custom fields. And there's a bunch of data about properties, units, and owners that you really want to be tracking in a database type environment that Buildium doesn't allow.

Um, and so I didn't realize you used it specifically for that use case. Yeah. So do you keep for, for the, the non-custom fields, you still keep that data in Buildium?

We're trying to get everything without a dollar sign out of Buildium.

Yeah. Common for folks that really go pro.

Yep. So my experience has been over time, uh, moving that data out of Buildium has been a big part of it because once it is out of Buildium, and into Airtable or another product, I can now interface with that using Zapier or other, other tools, right? So that allows me to do something like click a button in Airtable that starts a new client checklist in Process Street and pre-populates it with some of the data. And that's something you can't do in Buildium at all. So I love playing around with these tools, like I love getting, um, data feeds into Slack so that our team can see, like something I did recently was I took, uh, ShowMojo has kind of an API type, uh, exposure. I, I, I worked with a friend of mine to get that pulled into, um, Zapier and then pushed it into Slack such that anytime we get a new showing scheduled, It pushes that information into a Slack channel, like a dedicated Slack channel. I call it Pulse, and it just gives you a feel for the leasing velocity that's happening right now. We did the same thing with LeadSimple. Anytime we have a, a PMA sent for signature, which is a stage in LeadSimple, it pushes a message into Slack in that Pulse channel. So the ops team knows, oh, PMA sent for signature, and it gives a little description of what it is. It helps for capacity loading purposes, right? So, um, so that, that's been my experience and I'm so anxious for the industry to adopt more of these open APIs, Zapier integrations. You know, I, I have a blog post on my, on my website where I'm literally tracking every single piece of property management software that has a Zapier integration. Short list. It's a pretty short list right now.

So. Yeah. Yeah. It's fun to see the evolution there. I mean, what does it mean? What are the implications of the software here? This interface, as you put it, it's a way to know what's going on. It's a way to manipulate your data. It's a way to communicate directly through the tenants and the owners who are also using some of this technology to a limited degree. It is assumptive that you can and you do want to make changes. And that's the shift that we're seeing right now, where the appetite for getting into the weeds, leveraging process automation is going up over, over time incrementally. I think this is a long-term play. I think we have not begun to scratch the surface of folks leveraging this. And I think that has to do with the profile of people that are in the space and in the industry. And you've heard me say this before, but I fundamentally believe that over the next 5 to 10 years, the people that come in the industry will have a different and distinct identity about what property management is. Property management historically has been fieldwork, like you're there, you're doing the thing. It's the execution and the prosecution of the task that defines it. You say it's tasks at scale. I think, I think I don't know if those have equivalency. Tasks at scale. This is the— I think here's another conflation. A big business is not a scaled-up version of a small business. It's a fundamentally different enterprise. Do you experience tasks at scale to be the aggregate sum total, or is it something else altogether? At least if you're, if you're focused on systems and you're using technology to augment what you can do?

Well, I think we need to draw a distinction here between what your job is as the business owner and what's actually required to execute on managing a home, right? The tasks that need to be done in order to manage 123 Main Street aren't really going to change all that much with technology. Someone still needs to sign a lease. Someone needs to move in. Someone needs to handle maintenance requests. I think what you're speaking to here is folks who have been in the industry a long time They identify very deeply with being involved with the execution of those tasks, or at the very least, having direct line of sight into the execution of those tasks. Folks who are just recently entering the industry or, or have a tech mindset or a process mindset, I view my job as not doing the tasks and not supervising the people doing the tasks, but constructing the framework in which the tasks are getting done. Right? So the tasks are still getting done. We're still tasks at scale. I'm just not observing every one of them because the software is, is not only executing some of those tasks automatically, but even generating some of those tasks automatically. So, you know, you were asking earlier about what's been like a best practice for developing a process or a workflow. For me, it starts with deeply understanding the job to be done, right, of that specific activity. And I constantly with my staff, I bring them back to a high level. I'm like, listen, this isn't rocket science. We're managing properties. Basically, we need to lease properties, handle maintenance, and collect rent. That's what we're doing. If you don't know what to do, step back a minute and think about that. Like, I know we get all wrapped around the axle around all these processes and all this software and all these regulations and everything else. But at the end of the day, collecting rent, leasing properties, dealing with maintenance. If we're doing those things, we're doing all right. So when you're creating a process, you need to have a deep understanding of the activity that needs to be done in order to take something from start to finish, break that down into a series of steps and literally write it out. In a Word document or on a piece of paper. This needs to happen. This needs to happen. This, this, this, this, this. And I would even suggest working off a printed out checklist for a week or two. Hand it to the person who's actually doing the job and say, hey, take this. I want you to use this step, this checklist every time you collect rent, every time you sign a lease, every time you onboard a client, take a pen and mark it up, cross out steps, move steps around, update the language. And only then when you're very comfortable with it and it's been photocopied 15 times and you can barely read the letters, Now let's bring that into the digital domain, whether it's Process Street or, uh, Airtable or LeadSimple, and let's create a digital version of that checklist. And now is the unlock. Now you can automate some of that. You can bring data from another source so that you're not manually typing in the tenant's address. You can automate like an email campaign that goes out after they move in and all these other things become possible. Um, but it starts with a deep understanding of what actually needs to happen.

Beat on, proven. Yes. I really like what you're highlighting here. One of the tendencies that I see with folks that have this bias towards technology is not balancing the wisdom of the velocity with which you're making changes. Yes. I have this back and forth with my peer equivalent and my co-founder Chris, who's, who's technical, and we're building a software company. And so we have the ability to make changes. But it's easy to lose sight of the organizational impact of constantly making changes. How do you, what's that conversation look like internally for you?

It's super clear in my mind. I picture a bank account and every time I make a change, I'm making a withdrawal from the bank account of goodwill with my team and with the people who are actually doing the work. And every time I make no changes for 2 months, It's, it's earning interest and the balance is going up. The balance is going up. They're getting comfortable. They're getting familiar with what's happening. They're building confidence. They're building competence. And we know that confidence and competence are very important to job satisfaction. And every time I'm like, hey, here's the new lease signing process. I know it was in Process Street, but now it's in LeadSimple. It's pretty much the same steps, but it's going to look a lot different. You got to log into a different software. And now we've drawn— we've made a withdrawal. And so the classic case is the visionary entrepreneur comes back from the conference, they have all these great ideas, all these new softwares, and they're making big withdrawals from that bank account. And you need to be very cognizant of that and read the room of how frustrated are your team members right now with what's actually happening. Because remember, they're the ones doing the work. Someone's doing this work, and if it's not you, it's probably them. Over time are going to know a lot more about what's actually happening in the business and, and what's working and what's not working with your processes.

Somebody is going to do the real work, which is not making the decision, but like prosecuting it to the nth degree and thinking about all the unintended cascading chain of consequences downstream. What you're talking about there, the, the cost of the change. This is why in software they say bitching ain't switching. Complain about your property management software all day long. You gonna change? You gonna switch? Probably not. It's profound to me when you can see blood-curdling levels of annoyance and crystal clarity. And no, I'm not gonna switch. By no means am I considering getting off of it. And then you see other folks that have switched 5 management, they've tried all 4 of the major 4 over the last 6 years. And I think, huh, that doesn't seem wise.

That ain't it. Yeah, I see that too on the Facebook groups. You know, I switched from Buildium to Rent Manager and then we went back to Buildium and now I'm looking around. What do you— what do you like about AppFolio? I'm like, this ain't it. Yeah, I'm sorry, this ain't it. Like, there's a problem. It's, you know, the corollary here is the property owner who's on their fourth property management company.

Yeah, right. Yeah, yeah. A huge red flag. So. And yet you mentioned switching from Process Street to LeadSimple and Process Street. As far as my understanding, Process Street is working. And I want folks to hear me say that as a vendor in this category, I don't approach it thinking like there is one software solution. It's a bunch of software solutions. Now, obviously, the totality of the offering, there's differentiation here. The fact that we understand, we tailored one use case, one vertical, I think that makes a difference. But in your mind, what, what's even making this a viable conversation and what has compelled you to switch from Process Street onto new tech, knowing that that's going to be a lift for you and your staff?

It's going to be a big withdrawal. It's going to be the biggest withdrawal I've made in years making this change because we're deep into Process Street and the team really likes it. What's, what's making it like, why now for me is the Buildium integration. So we're on Buildium. So the LeadSimple Process integration with Buildium is a huge part of this. And there's really two reasons there. One is it's one less software product that we have to deal with. Like when we move off of Process Street, we can close our account. Yeah, it's nice to save the monthly fee. I honestly don't even really care about that. It's more about just one less thing, one less login for the team, one less thing to train people on, one less thing to deal with, one less location that information is stored. Um, so moving to LeadSimple that has an integration with Buildium, the problem with Process Street was always that you, it's like when you start a lease signing checklist in Process Street, you have to type all the tenants' names and their addresses and their email addresses if you want anything to happen with that data, which you really do. Whereas when you're dealing with something that has a direct integration with your core property management software, you pull that data automatically. It's a database. It's a database itself. So, so that for me is, is is where I'm gonna, is what made the choice pretty easy for me.

Let's end it here, Peter. When you think about the things that you'd love to see change in the industry, things you'd love to see be different, if you could wave a magic wand, what's the one thing that you think would make the biggest difference and change in this industry?

You know, I went on a rant the other day on Twitter about, I feel like Property management hasn't achieved product market fit. You know, there's a saying in SaaS, like you create, have this idea for a new app, right? And you launch it and you get your first few customers and you observe their behavior. Are they engaging with the app? Are they renewing their subscription? Are they logging in every day, every week, every month? How quickly are they churning out? And you, what you really want to do is you want to talk to your customers. Your first few customers, figure out what they like, figure out what they don't like, and tweak and tune your app or your service so that they love it, so that they're engaging with it often. They're telling their friends, they're more than happy to pull out their credit card. That's when you know you've hit product-market fit. Property management as a service, you almost never meet someone who says they love their property manager. Most people you meet don't like their property manager, and I don't think that's because everyone who starts a property management company is an idiot or a fraudster. We know everyone in the industry and they're mostly great, smart people, salt of the earth. So what's happening here? There's a, there's a disconnect between what we're offering the market and what the market wants. There has to be, or there wouldn't be this, this weeping and gnashing of teeth that's happening every day across the country between property owners and their property management company. So if I could wave a magic wand, I would solve that problem and figure out we need to redefine property management and come up with a new solution set for our customers that resonates with them and that they like and is of high value. And whether that's— I don't know what that answer is. I don't know whether it includes more self-service and à la carte options. I don't know whether it includes a standardization of services across the industry. I don't know if it's a software problem that can be solved using tech. I'm not sure what that answer is, but that would be the one that I would wave for sure.

It's a great answer, man. Yeah, thanks. Peter, appreciate you coming in. Excited to stay in touch and see where your journey takes you. Thanks, man. Happy to be in the industry with thoughtful guys like you.

Yeah, this is great. Thank you.

Until next time. Yep. Jordan here asking you, what do you got? What is the question you want to ask me? Can you stump me? Can you throw me something hard, perplexing, vexing, something you feel tied up in knots with? Throw it at me. I'll do my best to try and answer that question, to dissect it, to parse out the nuance and maybe help you get a bit more clarity. I'm looking for questions as the basis for creating content, and you're looking for answers as the basis for clarity and Wouldn't it be perfect if those two things matched up? Drop a comment, send me, send me an email, jordan@leadsimple.com. Let's stay in the conversation. Peace.