0

9 May 2008

Long Fuse, Big Bang (Part 2 of 3)

Posted by Nicolai Kolding

In my April 11th posting, I raised five broad questions of what could be asked in each of the STEEP (Social, Technological, Economic, Environmental, and Political) categories for building a Scenario. Let’s now work this down to two and make the questions more industry-specific. Remember that we’re trying to ask questions about the world sometime in the not-too-distant-future that are specific yet far-reaching in their implications. Being able to plan for the Scenarios created is intended to give you a distinct competitive advantage.

Economic: Is it possible that a major “outside” corporation (one that is not currently in residential real estate brokerage but with the ability to quickly enter on a national basis) jumps in?

Political: Is it possible that a state or federal government agency moves to regulate the industry through a restrictive measure such as a commission cap?

Think for a moment about the two questions raised here. Remember that you don’t want to limit yourself to questions you know the answers to (for example, why pick a Social question like: “Will the local population increase?” You don’t have to search too hard for reliable demographic data so the answer is predictable). Ask questions about possible scenarios that would represent a dramatic shift in the landscape.

Most brokers I know have had at least a few sleepless nights thinking in some way about the two questions I’ve posed. I hear the Economic one playing something like: “My gosh, imagine if XYZ company entered the direct brokerage business!” In fact, let’s call our imaginary company Goozillsoftmart. A silly, nonsensical name, of course. I just like the sound of it, nothing more. On the Political side, ask yourself if it’s at all possible that somewhere someone in power is now thinking: “I know what’ll fix housing – let’s force a cap of 2{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} on all broker commission rates! Sellers will lower their prices with no further pain and inventory will zip right along!”

To build four Scenarios, take the two questions and line them up against each other like so:

 

“Outsider” Stays Out

“Outsider” Jumps In

No Regulation

   

Regulated 2{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} Cap

   

Our questions have now created four hypothetical Scenarios each with its own implications. The upper-left quadrant represents the status quo (at least as far as these two questions are concerned). No Goozillsoftmart, no government cap. On the flip side, the lower-right quadrant is quite a doozy isn’t it? In a capped environment that would doom many “traditional” brokers, there’s also a powerful new player – one with near universal market penetration, tons of funding, and a completely different value proposition. The other two quadrants have one “bad” answer and one status quo answer.

What now? We need to put our best estimate to the probability of each of the four Scenarios. Go one question at a time. For arguments sake, let’s decide that there’s a 40{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} chance that Goozillsoftmart braves the waters and jumps in. Let’s also guess that there’s only a 10{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} chance that broker commission rates are artificially capped. Let’s now revisit our table:

 

“Outsider” Stays Out

“Outsider” Jumps In

No Regulation

60{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} x 90{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} = 54{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c}

40{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} x 90{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} = 36{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c}

Regulated 2{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} Cap

60{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} x 10{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} = 6{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c}

40{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} x 10{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c} = 4{0a8e414e4f0423ce9f97e7209435b0fa449e6cffaf599cce0c556757c159a30c}

For our two example questions, we’ve now decided that there’s little more than a 50/50 chance that our world will stay the same. If you knew there was a 50/50 chance that there would be a dramatic change to the landscape five years from now, would you start planning for it?

For my final post on this topic, I’ll discuss what you do with your Scenarios so that you can build the foundation for a solid long-term strategic plan.

Leave a Reply

Your email address will not be published. Required fields are marked *