Originally published on the TowerHill Blog.
The business world is flush with technology designed and built for small business users. Right now, small business applications are affordable, flexible, and robust. And that includes a host of new, flexible technology in the real estate space. Anyone who has heard me talk about starting the new brokerage, TowerHill, has heard me say that I feel like we’re in the best era ever to start a small business.
But there’s a big caveat to my enthusiasm. Too much technology spend can sink the profitability of a small company. Tech products are usually not the “hard work emancipator” that we all think they will be when inputting credit card info on the sign-up page. We overestimate the impact these apps and products will have for our businesses. It’s not a fun feeling when you look back at your income statement and realize your tech purchases might have made you look cool (awesome CRM, bro!) but didn’t help your your bottom line.
So how does one avoid that sinking feeling at the end of the year? There’s a simple way to avert tech buyer’s remorse and find the products that fit your business model and your people in 2017.
When I’m evaluating a new tech product for a company (in this case, the new brokerage) I’m testing against three criteria: necessity, cost and ROI. To see if they meet my criteria, I ask myself three questions:
Is this tech necessary to run a modern real estate company, or is it just window dressing?
Does the cost of this tech fit within the profit margins I’m aiming for in my budget?
What is the expected return on investment (ROI) for this tech, and how long am I willing to pay for it to see those expected returns?
These three questions help me avoid “shiny object syndrome”. This is the syndrome that causes otherwise sane business owners to buy fancy and expensive tech products that they probably don’t need. I, for one, have learned the hard way that shiny tech products may promise the world, but if they don’t meet all three criteria, I’m not buying. And these are questions that can apply to any business technology in any industry, not just real estate.
Let’s look at the first criteria: Need
“Is this tech necessary to run a modern real estate company, or is it just window dressing?”
It really is an age-old business conundrum. Does this product truly enable my sales or it does it just make me feel good about my brand or my advertising? Does this product have features that we absolutely will need, or am I buying it because I have a hunch we’ll need those extra features in the someday future? It’s a tough call, and the answers aren’t always clear, but what makes it easier is having a good understanding of how your team chooses to sell and chooses to operate. If it aligns with your vision for sales and operations right now, then it passes go, if not, then table it for a later date when your sales or operations need to evolve.
Time for criteria two: Cost
“Does the cost of this tech fit within the profit margins I’m aiming for in my budget?”
This one is simple. Or seems simple, but can be tricky to stick to when you’ve just heard a slick sales pitch. But remember – you set a budget at the beginning of the year! You almost certainly had a line-item or two for technology needs. Does the cost fit into your annual budget? No? Move on with your life. Yes? Move to the next criteria…
Last, but not least: ROI
“What is the expected return on investment (ROI) for this tech, and how long am I willing to pay for it to see those expected returns?”
This last question is twofold, and is more easily applied to a marketing/sales product than an operations product, but it should still be asked of both. It takes some trial and error, and is a question that needs to be asked over the lifetime of the product. The first part can be re-stated as: if I pay for this product, how much revenue do I want to see as a direct consequence of that product’s implementation? Do I want to see a 5x return? (I spend $100 and expect to see $500 in revenue.) Or maybe 7x? ($100 turns into $700.) And so on. Whatever the return might be, you must have a goal at the outset to measure the efficacy of your investment. The second part of the question is deciding on a time frame to see that return. You want to give the product enough time to work through a business cycle to see if it produces the return you want, but you also don’t want to continue to pay for a non-producing investment once you’ve determined that it’s not working. You can see how it can be tricky, and it will be messy, I assure you. But it’s part of the game of business, and so long as you are clear at the outset what your time frame and return expectations will be, and you evaluate the product according to those criteria, you’ll find what works and what doesn’t.
A note to parents:
Lessons learned in business can oftentimes be applied to the rest of our lives, and vice versa. I actually didn’t find my criteria in a business book – I found them in the wise advice of parents and educators that I look up to. You can apply the same criteria for a business to the context of your family gift-giving:
Is this product necessary for a family to function in the modern world, or are my kids better off without the distraction of another entertainment device?
Does the monetary cost of this technology fit into the family budget? Or perhaps more important, will the time that my kids devote to this form of entertainment take away from the time budgeted for the family to spend time together?
Are there other gifts that offer a better “return on investment” for my kid’s intellectual development than another tech product? I’m not saying every toy or present should have an educational purpose, but it’s helpful to keep in mind that things like books, family trips to museums, and good old fashioned board games are all examples of things more stimulating intellectually for our children than a smartphone.
You’ll see a lot of parallels between the decisions of a wise parent and a wise business owner. Parents are very attuned to the needs of their children, just like a business owner knows what his employees need to get the job done. Parents want to foster a certain culture and tradition in their families, just like good businesses want a certain culture for their employees. Our families and businesses are both capable of a lot of good – so introducing them to technologies that meet their needs and enhance their culture is crucial to their growth.