Recently, I’ve found myself repeating the same piece of advice over and over, so I’m going to share it here.
The context is as follows: Someone comes to me for help in optimizing her real estate business. He wants to figure out how to generate more revenue per deal or how to do more deals in the same period of time or whatever.
I respond by saying the following:
Imagine you find yourself in the oil business. You’re trying to figure out how best to allocate your time to maximize your income. You’ve basically got two different choices:
1. Spend a ton of time optimizing your existing wells. You can add the newest drill rigs. You can calculate the best times to drill. You can blast water and chemicals in there to try to pressurize the oil and make it flow better. You do the super-secret oil dance around your property.
2. Go find a gusher, where all you need to collect the oil is a bucket.
Now I’m not saying you shouldn’t optimize your business. In fact, that’s what Adaptive’s all about… optimizing the shit out of the very complex process of repositioning apartment buildings. But we’re doing the work to optimize it because we have sampled the economics of the niche and believe we can build a profitable business in it.
This is NOT the case for all niches. There are plenty of niches where you can work like a dog and never create a business with compelling economics. Maybe the niche is too competitive and you can’t do enough to differentiate your product or service. Or maybe the deals are too complicated, so that doing them well requires a level of attention which is infeasible to provide, given the small commission. Maybe there simply aren’t enough deals to do.
The point is that, before you go spend a whole bunch of time optimizing your well, you need to make sure you’re drilling in the right place.