Strategy, Metrics, and Value with Denny Miller
I’ve known Denny for three years and have always thought of him as somebody who is very sharp. A true hustler. Today, we’re going to dig into the weeds of the intentional playbook that he is running within this Vancouver market.
- (01:11) – Background Leading up to Today
- (01:25) – Denny shares how he got into the property management business.
- (01:41) – Buying and selling houses.
- (03:13) – Inspired by NARPM.
- (04:38) – The brokerage side of Zenith.
- (06:50) – How Denny decided to position Zenith in order to successfully target a specific market segment.
- (10:57) – Denny’s ‘Golden Objective’.
- (01:25) – Denny shares how he got into the property management business.
- (13:30) – Lessons from a Parallel Industry
- (13:56) – Denny shares what he learned from working in a car dealership regarding fee optimization and financial levers.
- (13:56) – Ancillary fees.
- (14:30) – Adding value for your clients and customers.
- (14:42) – Using metrics to demonstrate that value.
- (17:30) – The power of metrics when presenting to a potential client.
- (13:56) – Denny shares what he learned from working in a car dealership regarding fee optimization and financial levers.
- (19:58) – Fee Maximization
- (20:22) – How Denny handles objections around fees.
- (25:51) – Annual inspections.
- (20:22) – How Denny handles objections around fees.
- (27:52) – Strategic Thinking
- (28:05) – Denny describes the strategic playbook he’s running at Zenith.
- (28:30) – Making Zenith a ‘relationship’ business.
- (29:08) – Using the tools from Strategic Coach.
- (29:21) – Engaging in strategic conversations with your clients.
- (30:17) – Building an amazing team as a long-term growth strategy.
- (33:24) – Denny discusses what it looks like to act as a strategic advisor for his clients.
- (33:47) – Summary reports for high-value clients.
- (34:45) – In-person meetings and luncheons with clients to discuss strategy.
- (36:33) – Team development.
- (38:13) – Expectations on employees and team members.
- (38:20) – Making your team participants in the success of the portfolio
- (28:05) – Denny describes the strategic playbook he’s running at Zenith.
- (42:49) – What typically goes on at a car dealership that people don’t see?
- (47:36) – What’s your experience been with BDMs?
- (50:26) – What kind of financial contribution does the finance department at a dealership make on the backside post sale?
- (52:17) – Are entrepreneurs born or bred?
- NARPM (07:22) – National Association of Residential Property Managers
- Strategic Coach (29:01) – Premier business coaching for entrepreneurs used by Denny.
- AppFolio (34:06) – Property management software recommended by Denny.
Where to learn more:
If you want to learn more about Zenith Property Management, head on over to their flagship website at ZenithPro.com. And tune in to the show for Denny’s personal email.
Jordan: 0:00:00.0 Welcome closers. Today we have another episode of The Profitable Property Management Podcast coming at you. This is Season Three on profit, and I’m your host Jordan Muela.
Every week, I interview world-class property management entrepreneurs and industry experts who share actionable insights to help you grow your property management empire.
0:00:16.7 Whether you manage 100 or 10,000 units, this broadcast is designed to help you see the big picture and to give you the tools and tactics that you need to get to the next level.
0:00:25.0 Today I’m talking with Denny Miller, the broker and co-founder of Zenith Property Management, which specializes in managing single-family homes in and around Vancouver, Washington.
0:00:35.7 I’ve known Denny for maybe around three years. Been into his office a couple of times. Denny is sharp, he’s a hustler, and we’re going to kind of dig into the weeds of the intentional playbook that he is running within this Vancouver market.
0:00:50.7 Welcome to the show Denny.
Denny: 0:00:53.9 Hey Jordan. It’s great seeing you this morning, and thanks again for everything that you’re doing in the industry. I really enjoy your podcast. You have some great guests and you’re bringing a tremendous amount of value to the industry. 0:01:06.4 So thanks for all you’re doing.
Jordan: 0:01:06.8 Yeah, absolutely. Well, to have a good podcast, I have to have smart people on the show like you.
0:01:11.5 So, let’s kind of talk about the business. Before we talk about the business, let’s actually talk about how you got into the business. The path leading up. Kind of influences, the approach that you take. What’s your background before getting into property management?
Denny: 0:01:25.9 So, I’m a lifetime sales guy. We talked a little bit before the show started. I was in the auto industry for about 24 years.
0:01:33.8 And I got tired of being tied to the ball and chain, and was always very, very interested in real estate.
0:01:41.4 So, in 2001 I started buying some properties. We started to fix and resell. I did lease options. I did a lot of creative stuff.
0:01:55.5 The item that we really got into doing was pre-foreclosures. 0:01:58.1 So what we were doing, is we were buying houses – this was before the whole foreclosure crash. 0:02:06.2 We were buying houses, fixing, reselling, holding on to some of them. 0:02:09.1 Selling some of them with creative terms.
0:02:12.2 And we just had a great business model doing that from 2002 all the way up until the music stopped in 2008.
0:02:20.1 During that period of time we probably bought, fixed, flipped about 200 houses. We had one year that we closed on over 40 transactions on the sales side. 0:02:32.0 And we had some rentals.
We were always interested in building some wealth through owning rentals. 0:02:37.8 However, we were not really prepared for the amount of the decline in the market that took place in 2008.
0:02:47.8 We had a lot of properties 0:02:48.1 <Inaudible> cash flow, and as a result we were funding our operations with sales.
0:02:56.1 And, of course, after Meryl Lynch went down, you couldn’t sell anything. 0:03:02.5 And so, the music had stopped and there was no chair for us to sit down in. 0:03:05.4 And we realized our business model was dead, and watched the market go down.
We thought, “Well, heck. We love real estate, how are we going to stay in the game?”
0:03:13.4 So, we decided that we would go ahead and start property management. Started out by going to a NARPM meeting.
0:03:20.1 This was before we had any fee-managed properties at all. 0:03:24.7 And, in the summer of 2009, we launched Zenith in July.
0:03:32.4 So, it was just about exactly nine years ago earlier this month that we collected our first fee. 0:03:38.5 In July of 2009, Zenith made $150 dollars. And from then, we grew the business organically.
0:03:47.2 So, it just wasn’t enticing in 2001 to 2008 to think about collecting $100 dollars a month, or $150 dollars a month, or whatever it cost to manage a property.
0:03:56.5 I mean, we were going to title company and picking up five-digit cheques. 0:03:59.1 It seemed like it was chump change. 0:04:01.7 We learned very quickly about the value of recurring income.
0:04:07.0 And so, from being a couple million dollars in debt, we bootstrapped Zenith from those very, very humble and ragged beginnings to today we manage about 400 units.
0:04:24.9 We have, on our staff, about eight full-time people plus a couple – two or three real estate people. 0:04:33.3 And my wife and I manage the business.
Jordan: 0:04:36.4 And what else are you doing? Do you still have the brokerage piece?
Denny: 0:04:38.8 Yes we do. And it was interesting. When we were buying and selling properties, neither one of my wife and I were licensed.
0:04:46.0 We had a brokerage. We were using a brokerage company to sell our properties so that we could keep some of the commissions in-house.
But neither one of us were licensed and really, from the time that we started Zenith, I did not focus on real estate sales.
0:05:07.4 So, it wasn’t until the market really started to recover and a number of our reluctant landlords were interested in selling their properties that we really started to build a sales component to our business.
0:05:19.6 Currently – well, last year was probably our best year for real estate sales. It represented about 25% of our gross income.
0:05:29.0 This year it will probably come in a little closer to 20%, which is a good split as far as I’m concerned.
0:05:33.3 We want property management to be the primary driver. That recurring income. 0:05:39.5 And there’s just so many dovetails that we get out of property management to not keep the focus on property management.
Jordan: 0:05:48.1 Got it. So, for those of you listening at home, I want to get real clear on why I wanted to have Denny on the show.
Everybody that comes on the show has something to contribute, something to add, something from their background, from their personal experience. 0:06:00.6 But for me, there has to be a modicum of understanding of what is distinct about any guest.
And for Denny, who is a participant in the property management benchmarking study that we performed recently, there was one thing that really stood out about Denny’s business.
0:06:14.2 And that, specifically, was the fact that you have a very clear focus on the type of client that you are attracting, and that is reflected in your overall unit economics. The revenue that you are able to drive from those customers.
0:06:28.5 It’s just a lot higher than for a lot of other businesses. And as a result of that, you have a lot of flexibility and a lot of options that people don’t.
0:06:36.2 For example, when people are tempted by, or dabble in the low-income segment and go down that path, they’re making a lot of future decisions as a result of the flexibility that they have based on just unit economics on a per door basis.
0:06:50.3 So, I’d love to hear from you, how did you decide, positioning-wise, the market segment that you wanted to go after? 0:06:59.0 How long did it take, being in the business before you got really clear and intentional on that?
Denny: 0:07:02.4 Well, actually, it started right in the beginning. I’ve never been a cheap sell kind of a guy. I always try to figure out how we could maximize the revenue.
0:07:12.4 And obviously, you have to provide value. I mean, if you’re selling a house, you have to give it the window dressing. 0:07:16.7 You have to make it attractive. You have to have a great marketing piece.
0:07:22.1 The interesting thing was – I told you about joining NARPM before we got our first fee-managed client, and at that first NARPM conference in Portland, in April of 2009, we were introduced to a property manager who had a company here in Vancouver that was putting it up for sale.
0:07:42.9 And she’d been in business about 20 years. She had 120 units, which didn’t seem like very many units to us for those 20 years.
0:07:52.8 And so we decided – we engaged in a discussion and we hired a consultant to evaluate the business.
0:07:59.9 And we went out and looked at it, and in the previous six months or so, she’d written off over $10,000 dollars in late fees. We looked at the average rent. We looked at the fee income.
0:08:09.9 I mean, here was 120 units and she was grossing, you know, maybe about $12,000 dollars a month.
0:08:17.3 And it was a rundown portfolio of crappy properties and owners that she was actually lending money to to buy appliances. This kind of thing.
0:08:26.7 And we just said, “We don’t want to be that company. We are not going to be that company. We will establish our own clientele.”
0:08:35.3 And in the beginning, in the first year or two, yeah we took everything. And we took a couple of bad clients.
0:08:42.1 We took a guy – our number two client had 29 units, which we thought, “Wow, this is great.”
0:08:49.1 But yeah, he was just a hard guy. A really hard guy. Cheap guy. Low-end properties. And that relationship lasted, you know, maybe a year, year and a half. 0:08:59.0 Now we learned a lot from that, but we learned what we didn’t want to do.
0:09:05.1 So, we got very, very focused on the upper end of the single-family market. We specifically were looking for nicer properties, nicer neighborhoods.
0:09:15.9 We manage a lot of properties in a couple of the suburban areas around Vancouver, Washington. 0:09:21.4 Camas, the Salmon Creek area. 0:09:23.7 These are great neighborhoods, and what we learned is that there’s actually really a demand for higher-end rental units.
0:09:31.2 And if your business model, if your fee model is based on a percentage and you just – if it’s ten and the unit rents for $1000 dollars a month. I mean, that’s a hundred dollars you’re getting to manage it. If it rents for $2500, so that’s $250. That’s two and a half times the revenue.
0:09:50.5 So we got really focused on just getting the nicer properties.
0:09:54.9 The other thing is, I talked to a tremendous number of people who we crafted our original management agreement, and we put a number of ancillary fees in there and kind of tested that over time.
0:10:05.9 And, of course, our management agreement has evolved. But we’re really focused on the revenue model. 0:10:14.4 Kind of our golden objective is to have 0:10:15.8
Jordan: 0:10:42.1 Hey, I am so sorry about that.
Let’s see what I can do here. We lost you at the golden objective so give me one second here. Let me just make sure this is still good.
Alright. Yeah. So. Back to the golden objective.
0:10:57.4 So, the golden objective is to have our monthly management fee be less than 50% of the total revenue stream.
0:11:06.7 So, for example, if you have a property that is kicking off $1500 or $2000 dollars a year in monthly management fees, then we want to be looking for sources of income where we can get more than $1500 or more than $2000 a year in other fees.
0:11:23.6 And if you’re bumping along and you’re getting maybe a small percentage, 25% of your income from ancillary fees, lease up fees, that sort of thing, and you can double that?
And put that on the bottom line and have that in your business to hire better people, to be able to seize other opportunities.
0:11:47.1 And probably one of the most key things about making sure that you’re going for some kind of a fee maximization model, is because that revenue will allow you to be able to make some mistakes.
0:12:00.1 I mean, quite frankly, from the place that we started our business, if we didn’t have a pretty strong fee model, I don’t know if we would have made it. 0:12:07.6 I mean, I don’t know if we would have survived those first three or four or five years.
0:12:12.6 And quite frankly, right now, it’s given us the latitude to be able to have a really great office, to hire really great people, to pay really great wages. To make some mistakes and to make it a pretty rewarding business.
0:12:25.7 It’s allowed me to have enough good quality people around me so that I actually have the time to work ‘on’ the business rather than being involved in any of the day to day functions. Which I really have very little to do with at this point in time.
Jordan: 0:12:38.9 I love that. So, the way I think about it is just that it’s a different constraint to solve for.
0:12:44.4 You could solve for the constraint of figuring out how to run the business at $100 bucks a door.
But is that a worthwhile constraint to try and solve for? You could solve for it by having a really cheap lifestyle. Right? 0:12:55.8 You basically have a job where you need to live very inexpensively and I’m sure you could make that work.
0:13:01.4 You know, I should caveat that. I’ve seen at least one instance where there was a company making good margins at a revenue per door below $100 dollars.
0:13:08.9 But the owner had basically completely pushed himself out of the business and ran an incredibly tight and lean operation.
0:13:17.1 By and large, you could either solve for that constraint, or you could solve for the constraint of figuring out how to make more money.
Your mindset, your attitude, what you bring to the table is largely deterministic in which of those two problems you choose to solve for.
0:13:30.6 In your case, you have a sales background. You mention that the car dealership was where you kind of initially cut your teeth in a sales environment. 0:13:38.9 You worked in the F&I, finance and insurance department.
0:13:42.8 Can you just kind of walk me through some of the lessons that you took through from that specific experience of understanding what financial levers and fee optimization could look like in that context? And how it potentially influenced your thinking here?
Denny: 0:13:56.8 Well, exactly. We sold all kinds of things. The extended warranties, the sealant packages, the undercoat. I mean, there was so many products and services that were offered in that office.
0:14:09.8 And, quite frankly, the sum of those sales in many, many cases, exceeded the revenue that the dealer got for the actual sale of the car.
0:14:23.3 So, it was a pretty natural thing for me to think about in terms of what my background and experience was.
0:14:30.1 And the other part about this, I mean, it’s not just slapping a bunch of fees on your clients.
Jordan: Right. Adding value.
Denny: 0:14:36.0 Ok, you really have to understand the value of each and everything that you’re doing.
0:14:42.0 And that really segues into the other thing that we’ve gotten very focused on, and that’s the metrics. Measuring everything. Days of vacancy.
0:14:53.3 And what we’re doing in terms of year over year, new lease rental rates, and what we’re doing in terms of lease renewals.
0:15:02.9 All of the 0:15:02.2 <Inaudible> value added propositions. If you have a very solid value proposition that is logical, that is sensible, that makes sense to a professional investor, where you can show how it is that you can make them more money.
0:15:19.3 I mean, you’re not just going to them to say, “Hey you know what? We’re just better than the competitors out there.”
0:15:23.9 “How are you better?”
“Well, we just are. I mean, look at our people and our office. And you know.”
Jordan: 0:15:29.9 “We care more. We’ve been around for a long time, we’re number one.”
Denny: 0:15:33.2 We answer the phone, you know, we care more. Yeah we’ve been around for a long time, you know. We’re smart, you know. We treat the tenants nice.” All that kind of…”
0:15:41.3 If you can show them in black and white what your numbers are – and this was actually – this was another gift of NARPM, is that at the very, very first owner broker that we went to, and we’ve been to every single one of them – and in the Orleans, that horrible casino that they had the first one, there was some representatives from Zelman & Associates there and they were looking for data from the single family market.
0:16:09.1 They were – their primary product is intellectual property that they have been collecting for years and years for the financial industry and the multi-family industry.
0:16:19.0 And now, all at once because of all these foreclosures, there was no data out there in the single-family market.
0:16:26.3 And they needed to be able to collect the data, so they came to NARPM and they said, “Do you want to be our research partner? You be our research partner, provide us your personal business stats on a monthly basis. We’ll share our data with you. Now you can’t share it with anybody else because that’s our intellectual property, but you can at least see what’s going on in the market.”
0:16:46.5 And we jumped right in. The interesting thing that we learned, was there were questions that were on the survey every single month.
0:16:56.1 Those were the questions that were important to these professional investors. The Goldman Sachs, the Blackstones. All these people that were buying these massive amounts of foreclosures.
0:17:04.2 And we just got really good at measuring those numbers. And we had a history of what those numbers were inside our company.
0:17:10.6 And then we started to use that information to talk to our clients about how it was that we were producing these kinds of results. And how we compared to the rest of the data that Zelman was collecting out there.
0:17:25.4 And we were better. We were better than what the rest of the industry was producing. 0:17:30.8 And that became a very easy sell. The fees then, became really a secondary question.
I mean, you know you have a really great presentation when you go through a conversation with a potential client.
0:17:46.8 And first of all, you have to listen to where it is that they’re hurting. Because there’s no reason to present something to them that really doesn’t matter.
I mean, all clients are looking for one of three things. 0:17:57.4 They’re either looking for a hassle-free experience, a maximum ROI, or somebody’s going to help them mitigate risks. 0:18:04.7 And every single thing – and one of those three is going to be the strongest. And then you’ve got your pitch according to that.
0:18:12.5 But right now, in this market, we’re seeing more and more professional investors, and the ROI is really important.
0:18:19.7 So how can you prove to me that you’re getting a better ROI? And if you’re giving me a better ROI, why do I care if you’re participating in the success that you’re producing for that portfolio?
0:18:32.0 So that’s really how the pitch works with a potential client. And how the value adds of the different fees that you charge really become a non-issue. 0:18:47.3
Jordan: 0:18:49.1 Yeah, wow, that’s great. I love it. So, lean into the value. The quantified, demonstrable value, not the theoretical value.
Not only the value that you know about, but you haven’t demonstrated. I love the notion of unarticulated, unacknowledged value is undelivered value.
0:19:07.3 This whole notion of, “If you build it they will come. If I know in my heart of hearts that I’m great. I know in my heart of heart that the service is great, well then the consumer is just going to intuit that right?” 0:19:16.6 They’re somehow just going to see it.
0:19:19.2 But we’re selling – in general, we’re selling to folks that have a tenth, maybe 1% of the potential buying criteria in terms of knowledge about the good or service that we do.
0:19:30.9 Now, in some cases you have a very educated investor, but by and large, the consumer looks at the transaction completely different.
0:19:39.3 The pipe or the whole of the lens that we’re looking through is like this, they’re looking through it like that.
0:19:43.5 And if you’re focused on these periphery things that are outside of that lens, then you’re doing it wrong and you’re not really going to be influencing things that can actually influence the outcome of the transaction.
0:19:53.4 So I love how you’re thinking about the overall transaction. 0:19:58.1 Let’s lean into the conversation regarding fee maximization where some people get uncomfortable.
And that’s the notion that it’s money grubbing. It’s not in alignment with the best interest of the tenant or the owner, etc.
0:20:10.5 How do you defend fees? And purely in the sense of, you know, the quasi-moral sense of really adding value and not just being exploitive. 0:20:21.2 How do you approach that objection?
Denny: 0:20:22.8 Well, I’ll give you a really good example. So, we charge a flat-fee on a lease renewal, or a percentage of the annual increase that we’re able to get for the owner.
0:20:36.8 So, for example, if the rent is $1900 and we move it to $2000 dollars on a renewal, which is a 5 or 6% increase.
And in our market, and in a lot of markets around the country, 5 or 6% is pretty typical of what we’ve seen in the last few years in terms of rent increases.
0:21:00.8 In fact, in our market, it’s probably been higher than that in a couple of the preceding years.
0:21:06.9 You can take the easy route as a property manager, as a portfolio manager, to just send a renewal.
We know it’s in our client’s best interest to keep the tenant on a lease. 0:21:20.1 We don’t have that unexpected vacancy, that unplanned vacancy.
0:21:23.0 Not only that, we can put a provision in the lease agreement where if the tenant has to leave early for some particular reason, they have a lease break fee that defends the vacancy that the client didn’t start with.
0:21:37.7 So, you could take the easy road. I mean, a lot of tenants might give you some push back and you say, “Ok congratulations, you had a great year on the property, you can stay another year. And by the way, your rent’s going up $100 dollars a month.”
0:21:51.4 Well, that conversation, if there’s some pushback, could say, “Well, ok alright. I know my client doesn’t want a vacancy, alright we’ll just renew you for the $1900 dollars.”
Well, there’s some energy involved in making sure that you explain what’s going to be involved in looking for another property, the value that your firm is providing in terms of the convenience of the services, and you have to have a great service proposition to the tenants as well.
And, as a result, you made the client $1200. 0:22:20.2 Well, if you get a third of that, or a fourth of that, or 40% of that? I mean, that’s a three or four hundred dollar fee you can get where you really did add value for your client.
0:22:31.6 And by putting a provision in the lease, where if the lease break fee is two months, now you’ve got a tenant who’s going to have moving expenses, who’s moving out, we don’t collect the last month’s rent up front, so they’ve got to pay the last month’s rent, they’ve got to go ahead and wait for their security deposit refund if they’re going to have one. If they’ve taken care of the property.
0:22:52.2 And you’re collecting a two month’s rent rental lease break fee. 0:22:57.3 Well, there’s a lot of work involved in collecting that money.
And so, we defend our owner’s interest by giving them one of those months, because we know that we can get the property leased in less than a month. We can get it leased probably pretty quickly.
0:23:12.9 And, for the reward of collecting that lease break fee for the owner, we get 50% of it.
0:23:20.1 And, you know, those kinds of fees can really add up. And, are you providing value to your client that you have fiduciary responsibility? Absolutely.
0:23:30.8 But you’re working really hard to make them successful. And you’re participating in the success that you’re creating. And there’s nothing wrong with that.
0:23:40.9 I mean, we like to view our client relationships as partnerships. 0:23:44.8 And we want to make our clients successful.
And I’ll give you another really good example. We just took on a client with 62 units. Great client, way below market.
These are primarily multi-family, well they are all multi-family. 0:24:00.1 And we estimate that they’re probably oh, 20 to 30% below market on their rents. And this is a rent roll that right now is in the 50 some thousand and it really should be 80 thousand.
0:24:14.6 So, if we can go ahead and increase the rent roll by – take a low number, $20,000 dollars a month in the next year and a half, that’s $240,000 dollars on an annual basis.
0:24:30.2 Use a current cap rate of 5 or 6%, we’ve just made that asset in less than two years worth another three million dollars or more to that client.
0:24:39.2 Now, is that creating value? Do we have a right to participate in the success that we’re creating for that client? Absolutely. Absolutely.
Jordan: 0:24:48.3 Yeah. Should you work for free? You can. You could either do that in your business or you can do it in private time and call it charity.
0:24:55.3 In my mind it’s good to separate those two and just be clear on what you’re doing in what moment.
0:25:00.4 So my view is that you want to be able to say, yes to the client when they’re asking you to do something that’s rational. Within a reasonable scope of services and that’s going to make you more money.
0:25:12.1 You want to be able to say yes and aligning that activity to making money is the easiest way to actually be able to say that.
0:25:19.3 As opposed to capping yourself by having low fees and really having focused instead on saying no.
“No I can’t do that. No I can’t do that.” Or, “Yes I can do it but it’s going to take me a really long time.”
It’s really just greasing the wheels and the skids for you to have more margin in your life and in your operations.
0:25:39.9 And ultimately, the higher touch approach that you’re taking, you can deliver to the higher touch clients that are, presumably expecting that. 0:25:47.7 So, really, it’s a virtuous circle is I guess what I would say.
Denny: 0:25:51.9 Right. Well, yeah. And another really good example is, say annual inspections. And, you know, clients laugh.
“Well, how often do you inspect the property?” It should be inspected at least annually. I mean, a thorough inspection on the inside.
0:26:05.3 And if they’re thinking about coming over from another property management company, well, “Do they do inspections?”
0:26:11.2 “Well, they said they do. But, you know, my property was ruined after the tenant was there three years.”
“Well, are they charging you for inspections?”
“Well, no. No.”
“Well, then I’m saying they didn’t do them. Ok. Because they’re not providing an inspection report.”
0:26:28.3 So, these people that are run ragged because they are on a low-revenue model are just not going to have time to get to the work that really needs to be done, unless there’s a revenue reason to do it. 0:26:42.6 Because you’re just stretched too thin.
Jordan: 0:26:46.5 Yeah. Absolutely. 0:26:46.4 Now, let’s talk about the counter point to this. The counter point to me in my mind is that long-term, fee maximization and lowering your costs through outsourcing doesn’t seem like a viable business model.
0:26:58.1 Near-term, it’s what needs to be done for business optimization. But in terms of that long-term, visionary approach – you think about the Amazons of the world where Jeff Bezos has stated that he’s willing to trade margin for marketshare in the near-term to be able to have long-term victory.
0:27:15.7 That’s a hyperbolic overstatement that I don’t think is relevant to our context. But what I do think is that the profit maximization for the purpose purely of profit maximization is a little bit shortsighted.
0:27:29.2 And I think that’s where some people get hung up. It feels like it’s all about the money, it’s all about the dollar.
No. The truth is, optimizing for profit gives you freedom to do whatever you want. And if you’re smart, you’re going to do something useful with that profit.
0:27:42.0 Maybe that means going on and taking your family on a vacation. Maybe that means investing in an IRA. Maybe that means reinvesting back into the business now that you have the freedom and the margin to do so.
0:27:52.5 So Denny, my question for you is, when you think about big picture strategy at the highest level for the business, how would you describe the strategy that you’re trying to – the strategic playbook that you’re trying to run at Zenith?
Denny: 0:28:05.6 Well, you know, you bring up a really good point, which I think is a great segue into concerns that a lot of people have in our industry.
And, you know, Amazon is a great example of what’s happening to retailers. And that is that products and services are being commoditized. Ok?
0:28:22.1 And margins are being squeezed and, “Is the big national company coming into my town and are they going to crush me?”
0:28:30.5 And that’s a really legitimate concern. And, you know, my answer to that and our bigger long-term strategy is to insulate ourselves from commoditization through making our business a relationship business. Ok?
0:28:48.7 I mean, you can just be cranking out widgets, or you can be building relationships. Relationships tend to – relationships are insulated from commoditization.
0:29:01.4 So, one of the tools that I learned and that we’re working on, has been through my involvement with Strategic Coach
0:29:08.4 and one of the things in Strategic Coach, one of the tools, is this – what they call ‘R-Factor’ question and this D.O.S. conversation.
0:29:21.0 So, the R-Factor question is a relationship question which says, “If we were going three years out in the future and you will have accomplished everything that you would have wanted to accomplish, what would have had to have happen?”
0:29:34.7 And you’re starting the conversation with a client that is much deeper than, you know, “How fast can you get my property rented and what are your fees?”
0:29:42.8 It’s, “What are your goals with this asset? And what is your future plan? And do you want to build a portfolio and what’s going on in your life that we need to be aware of so that we can help you accomplish your goals.”
0:29:57.4 Now, how are you going to build these relationships? If I’m going to grow my company, I can’t build those relationships – all of those relationships myself. I have to have a team around me that’s willing to engage in a deeper level of service to our clients.
0:30:17.4 And so, that kind of gets to the other part about my long-term strategy, which is really to build an amazing team.
0:30:25.7 And we’re working on that. We just hired a HR consultant to help us with a number of different things inside our company.
0:30:35.1 We’re being very, very careful about recruiting, hiring and training. We’re hiring now. We’re always hiring. We’re always looking for great people.
0:30:45.2 If any of our listeners are thinking about coming to Vancouver, Washington and they’re looking for a great company to be involved with that has full benefits and a 401K and an amazing future and leadership opportunities, this would be the place to come.
Jordan: 0:30:59.8 This is what happens when you let a sales person on your show. Nice Denny. I like that.
Denny: 0:31:06.9 I knew I’d get that in there somewhere. Anyway, you have a great audience, Jordan, thanks for having me on.
Jordan: Love it.
Denny: 0:31:14.0 Anyway. So, in terms of the longer term strategy, to get back to your question, it’s really to build a relationship business. To build – and where’s that going to go? I mean, are there going to be other dovetails to take outside of property management? Very possibly.
0:31:30.0 When you have the revenue to set aside or to enjoy or to invest in your company, you’re just going to run into additional opportunities. And who knows what those will be in the future.
Jordan: 0:31:46.5 I love it. So, there was a lot in there that really resonated with me. The focus on customer. Let’s start there.
0:31:53.4 So, what is the customer relationship represent? What is the juice that we can squeeze out of that piece of fruit? I think that there’s quite a bit.
0:32:02.2 The first that I relate to is the joy and the energy that comes from actually caring. When you are in relationship with people and it’s a healthy relationship, and you’ve set up the terms such that it’s a healthy relationship, work just simply becomes more fulfilling. Right?
0:32:16.8 We all know that. It’s self-evident.
This is part of the challenge of managing lower-income units. Is the relationship, in large part, becomes more like a prison guard and prisoner type relationship, as opposed to two people that are actually trying to help each other.
0:32:34.1 So that’s the lowest potential end. 0:32:35.3 The highest potential end of the relationship looks more like acting as a fiduciary. A strategic advisor.
Somebody that knows more than you and that you are leaning upon to help guide you towards a long-term ultimate outcome.
0:32:50.0 So you always have to ask yourself, “Do I want to be focused on the raw mechanics? On functionality, and have a transactional relationship? Or do I want to be focused on the intangibles? Do I want to be focused on how the customer feels about me and my brand? Do I want to be a strategic advisor that’s casting a vision that’s leading and guiding this person?”
0:33:12.6 And that, as soft as it sounds, is really the intangible that is, in large part, determinative of a thousand other sub-decisions.
0:33:20.0 You made that decision early one, let’s put some more meat on the bone.
0:33:24.7 What does it look like to act like a strategic advisor for your clients? You mention the end-state question. Can you put some more meat on that?
Are we talking annual pro-formas with investors to talk about their portfolio? What else do you do on a high-touch level to really make them feel like there’s a journey happening here? Not just dollar in, dollar out service delivery.
Denny: 0:33:47.6 Well, one of the initiatives that we’re rolling out is for our more important clients. The ones have multiple units. The ones that we think are growth oriented.
0:34:01.0 We’re rolling out a summary report that we send every month that’s going to have a lot of these metrics in them.
0:34:06.3 And we use AppFolio. You send the financial report out. If a client has multiple, multiple units, there’s going to be pages and pages and pages to go through.
0:34:17.9 And, you know, there’s just a few high-touch points that they really would want to know.
And, in addition to that, building and reinforcing the value that we’re providing, we’re building a summary sheet that we’re going to provide.
0:34:31.0 We’ve already started with a couple of clients but we’re still in the refining process that – we’ll show them what the rent roll was the previous year, what the increases were.
You know, a couple of the different high-level metrics that we use when we’re pitching for a new client that we’ve learned through Zelman. 0:34:44.5 On their portfolio.
34:45 In addition to that, because I have a great team around me, and I have more time available, my goal is to meet and I already have with a number of our high-level clients, you know, “Let’s go out to lunch. Let’s talk about what it is your objectives are. Where you want to go from here.”
To have that R-Factor question with them. 0:35:09.0 Because we weren’t always smart about asking that in the beginning. 0:35:14.0 And I think that’s just a great way to add value to the relationship.
0:35:20.7 So, having those conversations, having lots and lots of touch points with our portfolio managers, between the owner/client.
0:35:31.7 We want to have, probably on average, half a dozen or more additional touch points during the course of a year. And that’s presuming there’s no turnover. Ok.
If there’s a turnover, we have to have lots and lots of touch points with a client to talk about what’s going on, what the marketing looks like. You know, what we see going on in our market.
0:35:55.2 There’s some other things that, you know, I’m taking a page from your playbook, Jordan. We’re going to be starting our own local podcast and to do some different things here in Vancouver, Washington to establish ourselves more as the local expert in our market.
0:36:18.6 I know that Dodson Property Management is doing this very effectively in Virginia and thank you for setting the model, Duke. We’ll go ahead and copy you.
0:36:28.0 We’re on the opposite side of the country so it shouldn’t bother you too much.
Jordan: No harm no foul.
Denny: 0:36:33.8 And, so those are a couple of the things – I think really, probably the other super important thing is just our team development.
0:36:46.5 One of the things that I think is super important that a lot of property managers struggle with and I know in the beginning we didn’t think that we could really do it, and that was to recruit and hire the very, very best people, provide the training, compensate them well, coach them on a regular basis.
0:37:06.5 Probably over 50% of my time now is spent really working on coaching our team. 0:37:11.0 And our team development.
I don’t have as much client facing time as I’ve had in the past, but I want to be able to have the freedom to travel, to take as many free days, to take 150 free days a year away from the business.
0:37:26.0 And in order to be able to do that, we have to have a team that can deliver that experience to our clients.
0:37:32.7 I’m not sure if that’s all of what you were looking for as far as putting some meat on the bones on that relationship.
Jordan: 0:37:37.1 Yeah, it does. I mean, let’s dive into team a little bit. Team is one of those areas of potential hesitation.
0:37:42.0 If the consideration or the belief is that I need to find somebody as good or better than me, it’s a very high bar to set relative to the level of your preferences, context, etc.
0:37:52.1 So when you think about replacing yourself in a certain role, as you’ve thought about it, as you’ve grown, what has been the threshold of expectation that you have placed upon somebody to really feel like you are getting an excellent person that you can trust in that role?
0:38:05.7 As opposed to a lower-wage labor that you’re essentially having to actively manage.
Denny: 0:38:13.0 Well, we’ve – I’ll talked about our portfolio managers, our property managers, for a little bit.
0:38:20.2 One of the things that we instituted here a couple of years ago was really making them participants in the financial success of their portfolios.
0:38:26.9 So, they have a stake in making the portfolio perform. They have a stake in keeping the clients happy. If the client’s happy and they decide to sell, they’re incentivized for that.
0:38:39.3 We spend a lot of time, and we’re developing right now, a young lady. A really young lady, very, very smart individual who really gets the business component of what property management is all about.
0:38:59.3 So, people who are smart, people who are engaged, people who want to grow. We’ve had challenges trying to hire people who are inside the industry.
0:39:11.4 We’ve had a lot of success going out in the market and finding people who may be in another service business and bringing them in and training them from the front desk on back.
0:39:23.0 And we’ve had a number of really great success stories of people who have just been hired at entry level positions that have grown into significant contributors here on our team.
0:39:34.3 The team training is really important. I’m very excited about engaging in an HR professional. I’m kind of a hard guy sometimes. I’m very results oriented and I believe in accountability and that kind of gives me a little harder edge than I’m learning that I need to have.
0:39:53.9 And that’s been part of my development, is the coaching that I’ve gotten through a strategic coach, the coaching that I’m getting from our HR professional.
0:40:04.3 The kinds of things that I need to do, and quite frankly, on the hiring side, my wife actually has a much better touch. She’s made most of our best hiring decisions, because she’s a consummate people person, worked in the recruiting industry in southern California. 0:40:18.4 So she really understands that component.
0:40:23.3 But, it’s providing them the tools and the incentives and the face time. And then, just being ok with letting them – like Scott Fritz said in that one interview, you know, to do the 80%. Can I accept 80% as well as I would do.
And the reality is, a lot of these people are much better than me. 0:40:43.8 I mean, I’m not a very organized person. I’m not necessarily that great on followup.
And it’s really delightful when you can see people grow into doing things in a way that is better than what you would have done.
Jordan: 0:40:58.7 One second, I’ve got to plug in my laptop. That was a great answer. 0:41:10.2
0:41:11.2 I love the passion that you’re sharing there about hiring and investing your team. When we think about what sustainable career development looks like by hiring the best people.
It’s been said that you can hire someone, but if there’s a really short ladder, it’s going to directly correlate to the level of their aspiration. If there’s only two rungs on the ladder, that’s essential the degree to which they’re aware to have to grow.
0:41:35.6 So, culture, a track of knowing that there is growth potential in the organization. Not necessarily even laterally or vertically in terms of taking on a new job, but just knowing within your role that you will be nurtured, you will be encouraged to progress.
Makes a huge difference in the mindset of the expectations people bring to the role.
0:41:56.6 I’d like to transition now to the rapid-fire section of the interview. 0:42:01.4 Normally I have a list of questions that we cover. If you’ve heard the podcast before, you’re probably familiar with those.
But we’re going to skip all of those questions, because instead, I’m going to leverage the fact that this is my podcast and I can talk about what personally interests me, and that is this, Denny: I want to talk a little bit about the car dealership business.
0:42:18.4 Those of you listening at home have probably heard me say before, I have a fascination with adjacent industries that have similar dynamics. Particularly around the sales process.
0:42:26.6 Meaning, sales complexity, sales cycle, transaction size, etc. Real estate, independent insurance brokerages, car dealerships, all of these qualify.
0:42:37.5 So I pay attention to what’s going on in those industries. Here we have a professional on the background. Somebody that’s on the phones. Somebody that has that experience. So, if you can give us a little bit insight.
0:42:49.3 What typically goes on at the dealership that people don’t see? What’s the background view that you’ll never see going in as a consumer?
Denny: 0:43:00.7 That’s a good question. And again, I’ve been out of the industry for more than 15 years.
Jordan: I don’t imagine that much has changed, Denny.
Denny: 0:43:12.2 Well, I think there have been some changes. I think the sales process in the automobile industry has gotten softer.
I think it’s gotten more responsive to – not softer in terms of being results driven, but softer in terms of the customer experience. 0:43:32.2 And, it’s needed to be. That’s for sure.
0:43:36.9 One of the behind the scenes thing is, you know, in the car business, they’re looking to make a sale as quickly as they can.
So, there is – I mean, when you step foot in a car dealership, you’re there because you’re interested in an automobile.
0:43:54.8 And the assumption is that you’re there to buy. And that assumption is thoroughly exhausted through every avenue that they have until you decide to leave.
0:44:09.9 So, one of the things that I learned right in the beginning of the car business, is back in 1978, was the whole ‘turn’ concept.
0:44:18.6 So, if you somehow didn’t get it on with a client in terms of building any kind of a rapport or a relationship, what you did is, “Excuse me for a second, I’ve got an idea, I’ll be right back.”
0:44:31.1 And you go and grab the best guy on the floor who wasn’t currently with a client and you say, “Let me introduce me to so and so, he knows a lot more about this particular product or what you’re asking about. And by the way, I’ve got a phone call, here’s Bob, see you later.”
0:44:49.4 Ok. And what I learned really early on is that you just – you’re not going to hit it off with everybody.
And personalities aren’t the same. And sometimes – and I always – it kind of made me mad because I always considered myself a really great salesperson. When I would do a turn to another salesperson and they actually closed the deal.
0:45:12.1 It’s like, “Dang, he was better than me. What happened there.”
I love to take turns myself and go ahead and close the sale where somebody else couldn’t get the rapport going.
0:45:23.3 So, they’re going to exhaust every single opportunity. A lot of times you’ll have the opportunity to meet the manager.
And the manager will find out whatever the objection and be able to figure out if there’s a way to solve the objection of what it is that’s holding somebody up from making a buying decision. 0:45:40.2 They’re just really laser focused on the sales process.
0:45:43.9 And I think, in property management, you’ve talked about this in a number of your other podcasts, is developing a sales system in property management is a huge opportunity.
0:45:53.8 And we’re going to do a better job of that here. We’re looking to get another business development manager and use LeadSimple in a better way, and crank up some marketing to bring in more clients. 0:46:07.5 But, I think building a sales process is really, really critical.
Jordan: 0:46:10.8 So let’s start here. When they did turns, Denny, did the sales person ever do a turn with one of the mechanics out in the shop? Did they ever bring one of the mechanics outside to sell Denny?
Denny: 0:46:22.9 No. No. No, no, no, no, no. No. You are looking for the best guy. The best guy.
Jordan: A sales person.
Denny: 0:46:31.6 Whoever is putting up the biggest numbers. The guy who just closed a deal. Ok. The guy who is riding the wave. The guy who is hot. That’s who you are looking for.
Jordan: 0:46:42.2 So Denny, in your business, when an owner calls in, do you ever, if you’re short staffed, put them on the phone with one of your maintenance techs?
Denny: 0:46:51.3 No.
Jordan: 0:46:53.7 So, what can we infer from this? You know? It’s a sales focused business and they make no bones about that. There’s no confusion.
In our business, we tend to think it’s an operations focused business. Well that’s what we do. What we do is property management. Sales and marketing, it’s kind of this nice to have, bolt on, wouldn’t it be great if we could do that well.
0:47:11.1 In my mind, the first sign of real commitment to sales and marketing is to actually hire people that do that professionally.
0:47:19.5 And that doesn’t mean that they have to have this crazy x, voodoo sales factor that’s unquantifiable. It could mean that it simply is a really great process that has been invested in, and refined over time and is run over time. 0:47:33.7 The focus and job designation to me is huge.
0:47:36.8 You mentioned a BDM, for example. What’s your experience been like in cultivating BDMs? How long before you got to the point before you made the investment in that formal role?
Denny: 0:47:45.3 We developed somebody here about three years ago. And she did a reasonably good job for us for a couple of years.
0:47:56.1 She’s no longer with us. We freed up her future for a couple of reasons. And we have one of our real estate brokers who is currently doing the BDM function.
0:48:09.5 And we’ve been interviewing hard for a business development manager. We use a number of different tests. 0:48:13.4 We have – we’re very careful.
One of the tools that we learned from Strategic Coach was the Kolbe profile. And it has a lot to do with how people work.
0:48:26.1 Entrepreneurs tend to really high on what they call, ‘quick start’. Really effective sales people tend to be really strong on the quick start. They’re willing to go out to meet people.
0:48:36.0 So, the qualifications, I mean, they don’t necessarily have to come from a strong sales background.
0:48:39.2 You know, I don’t know that I would necessarily hire a car guy to be a business development person in our business.
0:48:45.2 But they have to have that aptitude. They have to have that willingness to go out and meet people and a willingness to face rejection. That willingness to engage in quite a lot of activity.
0:49:01.2 And they then, of course, have to be a quality person. I mean, they have to have integrity and all those other things.
0:49:05.6 But there’s some definite qualifications to look for and I think the really successful companies in our business that are going to experience a lot of growth will have a multiple business development managers.
And right now, I’d hire two or three if the right people showed up. 0:49:22.3 The problem is we’ve just not been able to find the person that’s the right fit. We have a long interview process and we’re just pretty darn selective.
0:49:32.7 And so we’re going to have to get – build a marketing function for recruiting, to tell you the truth. Because that’s really going to drive our business.
Jordan: 0:49:43.8 I love that. So you have the vision, you’re progressively leaning into it, you’ve had a BDM, you will have another BDM in the future.
I mean, the way I think about it is temperament aside, ultimately you have to have somebody that has the focus, the role, the time, the accountability. Which means that it needs to be their job.
The property manager, by nature, is juggling a lot of different responsibilities, wearing a lot of hats, and to have anybody doing anything on a part time basis is going to lead to sub-optimal outcomes.
0:50:11.8 So, that’s certainly one take-away, is that the car dealership business is a sales business. The other half of the business, let’s look at the metaphor of the initial sale versus finance and insurance versus management base fee versus ancillary fees.
0:50:26.3 I’d love to get your take on in the dealership business, what kind of financial contribution does the finance department make on the backside post sale?
Denny: 0:50:36.7 Well, it’s gotten to be a higher and higher percentage over the years. And I don’t know what it is now, having been out of the industry for awhile. 0
:50:45.6 But when I left the industry, it was a significant percentage. I don’t want to say it was 50% of the sales revenue, but it’s been growing.
And I know that in the automobile industry, margins have continued to me squeezed. 0:51:05.5 Manufacturers have done that with their dealer agreements in terms of the margin that they’re offering the dealer.
0:51:15.7 And these ancillary sales, if you will, are amounting to a very significant percentage.
0:51:25.7 I don’t know today, but it could be 50% or in excess of 50%. And you’ve got maybe one or two F&I guys in the dealership and you might have an army of 20 or 30 sales people.
0:51:37.4 And those two guys are making close to the same amount of money from the dealership as those other 20 or 30.
Jordan: Wow. Wow.
Denny: 0:51:45.4 You know, there’s just an example of kind of an 80/20, 90/10 kind of a dynamic that takes place in that industry.
Jordan: 0:51:54.3 Yeah. Huge relevant cross-application here. None of the best practices, the principles, high level thinking we’re talking about that’s good for property management is good for property management in isolation.
We’re entrepreneurs, these are general business concepts. 0:52:08.7 And revenue maximization, ultimately it drives more oxygen that should hopefully affect your bottom line.
0:52:13.5 So, I love you kind of taking us through some of the background there.
0:52:17.0 Let’s close with this: I do ask each and every guest one question, Denny. You probably know it’s coming. And that is this: Denny, in your opinion, are entrepreneurs born or bred?
Denny: 0:52:28.4 It has to be in your character to want to step into the risk zone. And to some extent – I mean, I believe it can be developed in people over time.
But, I mean, to some extent – you’re going to develop that, you’re going to know that about yourself. 0:52:47.3 It’s going to be part of your unique ability.
It’s going to be a part of how God created you to be willing to take those kinds of risks. To be willing to deal with that kind of adversity. To deal with that kind of rejection and uncertainty.
0:53:05.7 And not everybody has it. I think it can be grown. I think it can be developed. But I do think that it’s probably in your genes.
Jordan: 0:53:13.8 Alright. So, another one of the few on the born side. There’s arguments for both. I think I’ve made my leanings fairly clear. Denny, I appreciate you coming on the show. For folks that would like to learn more about Zenith and what you do, what’s the best place for them to go?
Denny: 0:53:29.8 Best place to go would be to our website, which is ZenithPro.com. Or you can get ahold of me at Denny@ZenithPro.com. I’d love to network with all you closers out there and growers. Thanks, Jordan, for the opportunity to be on your show. You have a great show, keep doing it man.
Jordan: 0:53:57.4 Alright, hey. It’s a pleasure having you on. Next time you’re in Austin, let’s break bread.
Denny: Alright, you got it buddy.