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27 February 2008

Thinking “Inside the Box”

Posted by Nicolai Kolding

Prior to joining the BH&G RE team, I spent my entire career at Realogy being a part of, and eventually running, the company’s M&A group. I had the privilege of meeting some of the industry’s best minds and getting a chance to study how they built great companies. Every deal I worked on was an invitation to learn something new that could be applied elsewhere.

Over the past decade, I reviewed thousands of companies across the globe (I’m not kidding, we talked to companies on five continents). I discovered early and often that, despite what some people may want to believe, this is a very difficult business; even the best companies barely exceed a 10% return.

As the meetings and years went by, I gained tremendous respect for the broker-owners in this industry. They’re entrepreneurs through and through and nearly all of them have this infectious never-say-die attitude. It’s what’s allowed them to survive in a world where most small businesses fail. What propels so many companies is that their owners are creative “outside the box” thinkers. But thinking creatively can’t come at the cost of ignoring the basics. As we enter the third straight soft spring, the focus after so much cash flow strain needs to be on the fundamentals or survival will be at stake. Think “inside the box.”

Most firms know they should be taking a good hard look at their P&L right now but too many of them lack the information and guidance to tackle their profitability problems. It’s more than just expense cutting. It’s training your eyes to certain trends and ratios and then knowing what the options are. For many, this can be brutally time-consuming and frustrating. I don’t think it has to be.

One of my tasks is to apply what I’ve studied to build functional tools to help our future affiliates operate their businesses profitably. Point out the trends. Highlight the key ratios. Compare and contrast to similar companies (similar in size, geography, whatever). Create “what-if” scenarios so owners can see what a certain change would do to their bottom line. I don’t profess to have all the answers but I’m looking forward to the challenge of helping companies focus “inside the box. ”

More to come in the weeks ahead.

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