I recently found myself watching the classic movie, Glengarry Glen Ross. This movie is to real estate brokers what Tin Men is to aluminum siding salesmen; it paints a pretty unflattering picture. The movie takes place over a two day period as four aging and harried real estate brokers struggle to keep their jobs in a winner takes all sales competition. Alec Baldwin’s character, the way too slick, but financially successful sales trainer, Blake, delivers a cruel and devastating speech to the battle weary team insisting that to make it in the brokerage business, you must stick to the ABC’s: “Always Be Closing”. While the Glengarry brokers were peddling speculative land, Blake insists they aren’ t really in the real estate business at all; they are in the sales business. And that, in a nutshell, is one of the biggest flaws in the traditional, large firm brokerage model.
Most businesses have experts who develop their products or services and they have a completely separate team of professionals whose job is to sell those products or services. Thus, Dow Chemical hires legions of gifted scientists to develop its sophisticated compounds, Microsoft hires scores of cutting edge programmers to write its revolutionary software and BMW populates its ranks with the best and brightest engineers to design the next generation of ultimate driving machines. The scientists, programmers and engineers are experts in creating the goods or services; however, Dow, Microsoft and BMW would never rely on these same technicians to sell what they make. They leave that to different experts; their professionally trained and managed sales teams who have completely different skill sets, compensation models and personalities. While their sales teams certainly have to have a working knowledge of what they are selling, Dow, Microsoft and BMW aren’t relying on them to develop or build their chemical compounds, software or cars. Unfortunately, that’s not the way it works in most large brokerage firms. In most commercial real estate brokerage shops, the brokers are not only the “experts” who provide the service; they also constitute the firm’s entire sales force.
Having one professional both doing the work and selling the work is not unique to brokerage. It happens in many professional service firms including law firms, accounting firms and consulting firms. However, these organizations are different in some very important ways. First, lawyers and accountants go to school for special training in their fields of expertise before joining the profession and then must pass difficult exams to qualify to practice in their fields. Then, they spend 8-12 years or more apprenticing in their fields and becoming experts before any business generation is realistically expected. In the interim, they are trained and paid a salary. Even after they become partners, only a small percentage of the professionals become successful rain makers. It is not uncommon in some firms for 80% of the business to be generated by less than 20% of their professionals. It’ s just very hard to be good at both doing the work and selling given the competing time commitments and the different required skill sets.
In many cases with law, accounting and consulting, the business follows the expertise; once you are recognized as a leading expert in your field, clients flock to you and satisfied customers refer work to you. While these firms would surely like more of their partners to generate business, because they are ultimately selling knowledge, intelligence and expertise, they are willing to pay significant salaries (and partner draws) to very smart, knowledgeable and hardworking professionals even if they aren’ t bringing in much business. They understand that brains build their brand so that is their focus in hiring and professional development. Sales prowess, at least initially, takes a backseat to substantive knowledge and expertise. In sum, at law, accounting and consulting firms, it is the professionals and their resumes that give credibility to the brand.
Large brokerage firms are different, however. Because these public firms have annual and even quarterly sales goals imposed on them by Wall Street, and because almost all of the brokers are on a pure commission, these firms need immediate and constant production from their brokers. They simply cannot afford the luxury of developing experts over 10-12 years before requiring success in business generation.
As it is very difficult to find professionals who are both expert technicians and effective at business development, brokerage firms often need to choose between hiring (1) real estate experts who then must be trained to sell, or (2) sales people who then must be taught real estate, financial analysis and negotiating skills. Because the sales expert can generate revenue more quickly, they are often the preferred choice; the exact opposite preference of most law, accounting and consulting firms. As a result, when selling, these firms often emphasize their sheer size and global brand as opposed to the credentials of their individual brokers.
Because the brokers constitute their entire sales force, large brokerage firms do with them what all companies do with their sales team; they manage them to ensure they meet their numbers. That means a lot of emphasis is placed on selling and closing. This emphasis on sales is evidenced by the fact that broker’s at large firms can close 50 or more deals a year. In fact, one local broker at a large, national firm recently boasted that he closed over 100 deals in 2013. That’ s good for him but probably not very good for his clients.
Real estate can represent one of a company’s largest line item expenses as well as one of its most strategic assets. Given the financial significance of this assignment, their broker should first and foremost be an expert in real estate, with strong financial, deal management and negotiating skills and the deal should close when the client’ s leverage is optimized. However, when there is constant and increasing pressure to grow revenues every year, firms often have no choice but to sacrifice the professional with expertise in favor of the employee who will Always Be Closing.
For more information contact Glenn Blumenfeld