As some of you know, I earned a two-year MBA program at a small business school in central Michigan. It was an extremely valuable experience.
After two years of analyzing Harvard business case studies, writing more papers than I could count, spending hundreds of hours in group projects, and stretching my mind to understand some pretty complex concepts… I was awestruck by how many facets there are to running a business.
About 12 months into this program, it became clear that a healthy and thriving company is nothing to take for granted. In fact, I'd almost say it's a miracle! When you consider all of the complex decisions that go into running a profitable enterprise, it boggles the mind. Whenever I talk to successful business owners, I have a new sense of appreciation for what they do because it isn't easy. And most people just don't have the stomach for it.
I know that a lot of people will never have the opportunity (or desire) to jump through all of the hoops that I just did, and I completely understand that. Grad school isn't for everyone. But since I just paid a ton of money and sacrificed a sizable chunk of my life to earn this degree, I thought it might be beneficial to compile a list of the most valuable nuggets of wisdom I gleaned during this process. Who knows—you might even learn something from my experience too!
This list contains a pretty broad range of concepts. I hope that at least one of these points will open your mind to some new ways of thinking.
Lesson 1: One's Level of Self-Confidence Doesn't Equate to Actual Knowledge, Wisdom, or Experience.
I've noticed a bizarre psychological phenomenon that occurs in almost any group of people; maybe you've noticed it too. In many instances, the loudest, most assertive, and the most confident-sounding person will usually assume the position of “leader” within the group. When people meet each other for the first time in a group setting, this positioning will usually happen in the first few minutes of interaction. It isn't necessarily a “conscious decision” on anyone's behalf—it just happens. You may have noticed this at dinner parties, social networking events, staff meetings, board meetings, town hall meetings, and the like, where everyone seems to pay the most attention to the “squeakiest wheel” in the room.
Why does this happen? Often, it's because by simply sounding confident, everyone else (by default) will make the subconscious assumption that “Well, this person sounds confident. They must know what they're doing.”
There is just one problem with this.
You Know What They Say About “Empty Barrels”
Usually, the loudest, most assertive, most confident-sounding person is WRONG. They don't have one more shred of knowledge or experience than anyone else. But because they sound confident, everyone else feels like they need to move over and let this confident person take charge.
The real kicker is, many of the most soft-spoken people we come into contact with are ironically the smartest people in the room. They have some extremely rich contributions to make, but it's not easy for them to be heard over all the Type-A personalities who are hogging the stage!
We live in a society that glorifies extroversion and assertiveness because these people have a natural and uncanny ability to “outshine” their peers. These people are great at talking big and presenting their ideas in compelling ways. But when it comes down to the substance of what a person is saying, we need to think critically and see past many questionable ideas. Believe me, there are a lot of them!
The lesson I took from this was to scrutinize. Ask questions, and don't be afraid to swim against the current. The world is in desperate need of good leaders, so when a seemingly good leader presents themselves, they can usually get the job pretty quickly. But if you ever have questions or reservations about where your leaders are coming from, don't be afraid to put them to the test. If you ask the right questions, you may end up saving a lot of people from so much trouble.
Nobody has all the answers, and people get things wrong all the time (even when they sound like they have it all together). For a more in-depth perspective, check out this presentation by Kathryn Schulz:
Lesson 2: The Accuracy of Your Assumptions and Inputs Matter A LOT.
Whether you're analyzing the projected cash flow of a rental property or estimating the costs of flipping a house, EVERYTHING hinges on the accuracy of your inputs and assumptions.
If you're in the habit of making wild guesses about your inputs (e.g., determining the annual rent revenue, cost of utilities, vacancy rate, etc.), expect the return on your investment to have an equal level of uncertainty.
On the other hand, if you're willing to dig deep into the numbers and cross-check the information with reputable sources, you'll be able to live with a much greater level of comfort and confidence in your decisions. Of course, there are no guarantees with any investment—nobody knows the future, after all—but the more diligent you are in your upfront research, the happier you'll be in the end.
This probably sounds like an obvious truth, but believe me, you would be astounded by how careless some beginners are at putting together their projections. As prudent investors, we simply cannot afford to be careless about our research. Our preliminary analysis is everything. If we want to avoid any unwanted surprises, we need a thorough understanding of what we can expect year in and year out.
The numbers you plug into your calculation will drive your ultimate decision whether to buy or not. Understand where these numbers are coming from and what kinds of assumptions live inside them.
Lesson 3: Learn How to Read The Story Behind the Numbers.
I'll be honest: I've always had difficulty dealing with numbers.
For most of my life, I've suffered from a phobia of dealing with complex math, finance, and accounting. The first time I read a financial statement, it just looked like a mind-numbing ocean of obscurity that didn't really tell me anything. It may just as well have been written in Chinese!
And I know many people struggle with the same.
Later, I realized that the only reason I had so much trouble was that I didn't understand how to read the story behind the numbers. Financial statements are really just stories (with varying levels of detail, depending on the amount of information available). The only difference is that this story is being communicated in the language of math. Some people can learn this language quite easily; others, like myself, have to work hard and for a long time to decipher what's going on.
Eventually, I learned that the answers don't live inside any one number by itself, but in ALL of the numbers. Like the words you're reading on this page. If you isolate any one word by itself, it won't mean much, but if you read the entire article, every word will contribute to a bigger picture—a “story.” As with anything, you need to consider all of the data to get a better perspective.
After years of struggling to wrap my head around how financial statements work, I can tell you now that it's worth the time to learn this stuff. Once you grasp basic accounting principles and terminology (generally covered in any entry-level college accounting course), you'll discover that you're armed with some powerful information vital to making effective business decisions.
Lesson 4: Understand Your Company's Mission.
“Purpose” is your company's mission—what drives your business forward. You cannot be everything to everybody, nor should you be everything to everybody. It is thus crucial to understand what your company's purpose is in the marketplace.
Think about these questions for a moment:
- Why does your company exist?
- What compels you to make the decisions that you make?
- How should you respond to the actions of your competitors?
- What kinds of investments will you pursue over the long term?
- Where will your company be in 5, 10, or 20 years?
- How do you decide on the best places to spend your money?
- What is your exit strategy?
With a clear mission, company identity, and an understanding of who your customers are, you can answer quickly and easily all of these questions.
Your goal is not to make everybody happy but to make the right people happy. Once you've found your niche and your target audience and you've established your corporate identity, you'll find that a lot of your decisions will become second nature instead of an ongoing guessing game. You will become proactive rather than reactive—and this kind of decisive approach will make all the difference in your business.
Lesson 5: Selling Means Making Your Customer Believe the Value of Your Product Is Worth More Than Its Cost.
What causes you to buy something? Price is probably an important factor in the equation, right?
If you expect anybody to buy what you're selling, you need to make them believe (honestly and ethically) that the benefits of what you're offering EXCEED the monetary sum that they'll have to pay for it.
Let me reiterate that. The benefits SHOULD NOT match the price you're charging, but GREATER THAN the price you're charging. This margin between price (which should be lower) and benefit (which should be higher) is called “value.”
And I'll let you in on a little secret: People LOVE to buy things. They love it because they believe that purchasing a product or service will solve a problem or meet a need in their lives. When someone truly believes that they are receiving something that exceeds what they're paying, you'll have a hard time not selling to them. The real trick is:
- To know what this product is worth to your customer.
- To communicate the value of this product unequivocally to your customer.
In the realm of real estate, it is important to understand what your properties are worth to your customers, how you can add to the perceived value of these properties, and how to price them appropriately. If you can get people to understand the value they'll receive when they purchase your properties, you will sell. And you will sell a lot.
Check out this illustration from Derek Halpern:
Lesson 6: Don't Confuse Your Opinions With the Opinions of Your Market.
It's ridiculously easy (and understandably human) to form a strong opinion on something. And because you feel strongly about it, you might jump to the conclusion that everyone else must feel the same way.
The problem is, this is seldom true. Everybody looks at the world a little bit differently. And while your opinion is certainly worth factoring into the overall equation, it would be tragically short-sighted to think that you're somehow blessed with a supernatural ability to read the minds of your customers.
Remember—your goal is to provide a product or service that brings so much value to the table that people want to give you their money for it. The only way you can do this is to thoroughly understand what your customers want and then meet that need better than your competitors.
Luckily, we live in the information age, and free or inexpensive tools can help you understand what your customers want. For example, you can use Google Trends and the Google Keyword Tool to figure out what people are searching for in your marketplace and then compare these searches with other locations and time frames.
The bottom line is, your business decisions need to be data-driven. This means your choices should be based on reliable information, not on the ever-changing ideas and emotions bouncing around in your head. Your internal perspective is certainly worth considering as part of the overall decision-making process. But if you isolate it and then completely forget about what the actual data is telling you, you'll be setting yourself up for failure.
If you want to be an intelligent, fully informed decision-maker, base your decisions on reality. This leads us to the next lesson:
Lesson 7: Become a Fully Informed Decision Maker by Understanding “That Which Is Not Seen.”
In 1850, Frederic Bastiat wrote a groundbreaking piece entitled That Which Is Seen, and That Which Is Not Seen. I highly suggest you take the time to read it because it might just change the way you look at the world—I know it changed my perspective in a big way!
In this book, Bastiat goes into great detail about a common flaw that most human beings are guilty of. We all make decisions (often huge, life-altering decisions) based solely on the few known facts and data that are readily in front of us.
We don't take into account that in almost every instance, other, equally relevant facts could have a major influence on our decisions—but they aren't readily visible to us. The question then becomes: If certain information isn't readily available to us, does that make it any less important?
The question opens our eyes to another universe of variables and consequences that are just as important (if not more so) as the information that's right in front of us. Yet somehow, this less-obvious information usually gets ignored, and major decisions are made without considering this highly relevant data.
We've all made plans that didn't pan out the way we'd thought, and this usually happens because we aren't even thinking about that which is not seen. When we develop a heightened awareness of these external factors, we can learn how to look for them, find them, and consequently, make better decisions about the direction of our business and life.
Lesson 8: Delegating Is Crucial; Master It.
If you've ever held a management role of any kind, you probably know first-hand how difficult it can be to delegate. To manage people, you need to get comfortable with giving orders, trusting people, relinquishing control, and allowing people to work independently—without your constant supervision.
This can be a difficult concept for real estate investors like you and me to fully grasp. But the fact of the matter is if you're not delegating, you're not being effective.
Nobody is fully equipped to run every facet of a business on their own. If you look at the most successful business owners in the world, most of them are only good at a few things. None are a “jack of all trades.” We all need help, and that's where delegation comes in. If you aren't capable of putting the right team in place and getting others to work for you, it's going to be a long and unnecessarily difficult road.
The last thing you want is to become a “bottleneck” in your company's operations. Obviously, any startup will require a lot of hands-on work from the business owner, but as your company grows, you should constantly work to make yourself non-essential to its continued existence. A great business model allows your company to function without your constant involvement.
To hammer that point even further, check out this insight on delegation from Richard Branson, founder of Virgin Group:
Lesson 9: The World Isn't Black and White, and Your Business Decisions Are No Exception.
It's awfully tempting to look at the results of our business (good or bad) and point to ONE factor that we think caused those results. I know I've been guilty of this in my career.
The truth is, our successes and failures rarely boil down to any one issue. They are usually the result of several things done well, poorly, or somewhere in between.
Take, for example, a direct mail campaign.
I've often enjoyed a response rate of anywhere from 5%-18% (which is pretty darn good), but what exactly causes this response rate to be so high? Hint: It DOESN'T all boil down to one specific factor. It's the result of doing several things right. For instance:
- A good sales copy.
- The right choice of mail piece (postcard vs. letter in envelope).
- A targeted list.
- Current and accurate information.
- Appropriate timing.
- Quick responses to all calls and emails.
It takes a lot of precision and attention to detail to get good results; it doesn't just happen with the click of a few buttons. Sometimes it can take years of failure before we understand all the factors that come into play.
Beware of Over-Simplification!
It always bothers me when I hear someone rattle off an overly simplistic reason for their success or failure—because it's just not that simple! For any company to stay competitive and function at the most basic level, they need to do dozens of things right, and failure at any ONE of these things can spell doom for the entire organization.
The lesson here is to think critically. If you're looking for the real cause behind an effect, there is almost always more than what you can see on the surface. The same goes for any real estate investment. Understand the FULL scope of what is going on and learn how to uncover hidden issues that could be eating away at your profits behind the scenes. If you spend all of your time evaluating a single metric, I guarantee you will miss the bigger picture. So keep an open mind and dig deep if you want to see every facet of what's going on.
Lesson 10: A College Education Is NOT Proof of Intelligence.
A college degree can certainly be a valuable thing, but believe me, there are a lot of stupid people walking around with college degrees. Even some folks with graduate and Ph.D. level educations can display an incredible level of ignorance in their everyday interactions with others.
Some people love to tout their academic achievements, but if I've learned anything over the past two years, it's that having a few extra letters next to your name (in and of itself) doesn't really say much about a person. It may tell the world who has the patience to slog through years of extra school, but this is a small ingredient of what makes up a wise, intelligent, knowledgeable person.
MANY people choose to go to college for no reason other than to put a feather to their cap. Perhaps these people feel they have something to prove to the world, and adding another college degree to their resume will do it.
Over the past two years, I've actually talked with several individuals who were upfront that they had little interest in actually learning anything. They were paying tens of thousands of dollars for a world-class education, simply to add another gold star to their resume. And if they can find a manager dumb enough to hire them solely on the merits of their education, that's great for them and bad for the world.
A Shortcut to Success?
Believe me, a college education is undoubtedly a valuable thing. I wouldn't have invested all of this extra time and money into it if I didn't think so. But DON'T get wrapped up in the notion that it's a prerequisite to success. It's not.
Can it help you develop your expertise much faster? Yes.
Does it speak volumes about how smart you are? To some people, I suppose.
Will it guarantee your success on any level? Absolutely not.
If you have the time, energy, resources, and desire to get an MBA (or any college degree for that matter)—go for it! If you're willing to apply yourself, it will prove useful on some level. But if you're simply responding to pressure from your family, friends, or co-workers, or if you feel like your personal worth will be less without it, these are probably the wrong reasons to pursue this kind of adventure.
Was the MBA Worth It?
Pursuing an MBA required a lot of work, caused a fair amount of anxiety, placed tremendous strain on my time, it put my personal relationships to the test, caused a small bit of marital tension, and forced me to re-evaluate everything that I had previously spent my time on. However, it also fostered personal and professional growth, unlike anything I've ever experienced. As a result, my level of confidence is now significantly higher than it was two years ago, which has left me feeling empowered to do a lot of things that I once felt incapable of doing.
So given what I know now, and you'd ask me if I'd do it all again? Yes, absolutely.
Obviously, there isn't “one right answer” that applies to all people. Everyone has to decide for themselves how much college (if any) they want to pursue based on their career goals and objectives. But I can tell you that in my situation, with my career goals, prior knowledge, and aspirations for personal development, getting an MBA was a slam dunk decision that fit very well with where I wanted to be at this point in my life.