Photo Left: JT Foxx and Stefan Aarnio
I have spent the week in Chicago at an event hosted by JT Foxx and George Ross and my perception has changed yet again on business and investing.
I have met investors from all levels in last few days. Some investors have literally done 1000's of deals in a short time span, others have done 500's of deals, 100's of deals 10's of deals and many have done no deals at all. What amazes me, is the different mentalities between the levels of investors.
I find that the lower the level of the investor, the more greedy they are, the lower the skill set, and they have a tendency to try to 'hoard' equity and kill deals. In contrast, I have noticed that the investors who have done 500-1000 transactions in 5 years or less are extremely generous, have wonderful abundance mentalities and can literally PRINT MONEY whenever they want. They make money by creating opportunities where others see nothing. They can freely add profit centres to distribution channels and multiply cash flows where others saw nothing. These investors are successful because they are able to ADD VALUE which is a key component of business. The unsuccessful, new investors try to TAKE VALUE away and are only focused on one number... That number is ROI or Return on Investment.
Mini-Mega Partnering is the seminar I have spent 3 days this week in, and close to 50 hours of time. It is full of some of the world's top real estate investors and coaches and the ironic thing is THERE IS VERY LITTLE TALK OF RETURN ON INVESTMENT. Very few are discussing ROI or numbers or percentages at all... Instead, 75% of our time has been spent focusing on the OTHER returns that people make in investing and more importantly in BUSINESS. After all, business and investing are extremely similar, and business is really just a high velocity version of investing.
But please don't misunderstand me. Return on Investment is a very important return to anyone investing money and please use it when evaluating a deal. However, there are 4 additional returns that I think everyone should consider when considering a business opportunity.
- Return on Effort
- Return on Time
- Return on Learning
- Return on Relationships
In my real estate career, I have done 12 transactions this year, all with none of my own money. I leverage these four returns and create value for my partners and investors by letting them consider Return on Effort, Return on Time, Return on Learning and Return on Relationships... In addition to these 4 Returns, I also give them a very healthy Return on Investment.
JT Foxx has gained access to hundreds of millions of dollars to do his real estate deals and he has done over 700 deals in 7 years. His perspective is:
"The back office (The team running the deal) is more important than the acquisition (The deal itself)." -JT Foxx
The brains behind the deal (often called the management) creates ALL OF THE VALUE in any real estate or business deal because any moron can serve coffee, but it takes a genius to create a Starbucks.
I like to remind people when I'm raising money for my deals that money has very little value when parked in a bank account. Money is a transportation medium and can be compared to a car. If you have a beautiful Porsche and leave it parked in the garage all winter, by the time summer rolls around you will have a rusting hunk of metal. The car will be devalued, in bad shape and will need repairs. Money works the same way - it needs to move. If money is parked in a bank account for the winter, by summer it has devalued. Money itself has no value and if parked long enough, it's value will go to Zero.
I have dozens of deals come across my desk every week and I always have to decide on the 5 major returns behind every opportunity.
1) What is the Return on Effort? I want to operate the deal with minimum effort. I like to cherry pick and if the deal requires too much effort, I will sell the opportunity to another investor. I am becoming a high velocity investor, big risky rehabs are less attractive to me than they used to be and need to be turned in less than 30 days. I like a high return on my effort and so do my investors.
2) What is my return on Time? Again, I am becoming high velocity. My goal is to achieve 100 deals in a year and I cannot take on a project that takes all of my time. Remember, keep the best opportunities for yourself and if something is too time intensive for your appetite, pass it on to another investor.
3) What is my Return on Learning? I need to make sure that the deals I'm doing are going to take me out of my comfort zone enough to keep my skills sharp. The world is always changing and you need new skills every day. Make sure you are learning something all the time in your deals, don't get too boring. Take some calculated risks and learn.
4) What is my Return on Relationships? I try to employ two strategies when choosing deal partners. A horizontal approach and a vertical approach. The horizontal approach is to do as many deals with as many people as possible to gain a social track record and develop a reputation. This is a great way to get your name out there and network. On the flip side, I like to remain loyal to my best investors and create deep relationships where the success and trust can climb to higher and higher levels. I like to consider who I am doing business with and the relational capital that is exchanged when doing business. Relational capital is EXTREMELY important in the business world, and many new investors completely forget about this very important currency.
The biggest mistake I see people make in business or investing is that they get rigid in their thinking and only focus on one type of deal or one number - usually ROI. Next time someone brings you a deal, consider the 4 other returns and look for the 'hidden gold' that is buried deep in some opportunities.
Remember the other types of capital that circulate in the world and learn to harness not just money but time, effort, relationships and learning.
Thanks for reading,