Today’s REI Classroom Lesson

Tom Olson elaborates on both the linear the circular business model and how it relates to the real estate investor. You have to consider your approach and if your goal is getting there quick or building relationships with repeat customers.

REI Classroom Summary

Many people start out thinking about 1 client at a time. Instead of chasing new customers over and over, the circular model encourages building relationships and a reason for customers to want to come back to you.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Announcer: Welcome back to the Flipnerd.com REI classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.

Tom: Hi, this is Tom Olson. I’m happy to host you today for the REI Classroom. Today, I’m going to talk to you about two different ways that most businesses run.

Announcer: This REI Classroom real estate lesson is sponsored by Uglyopportunities.com.

Tom: And how do you run your businesses? How do you think of your customers? How do you think about the way your businesses run, and how your sales are made? And, really, it’s kind of lumped down into two different ways that most businesses run. Normally this starts out, especially for me, when I was younger, I just wanted a job. I just wanted to get it. I started in construction and so I just wanted to find a way to get a customer so I can do one job and after that customer was over, I didn’t really think about that customer.
But through the years you start thinking to yourself, man, I am just throwing away so much money, so much relationships, so much value, and actually so much fulfillment in not only life but in your business. And it is just so important I think . . . something I’ve learned over the last couple years and a couple books I’ve read, a book called Scaling Up, a book called A Saleable Business, and then there’s another one that’s very similar to that. I forgot the name of it but basically it talks about two different models in the way people run their businesses and it’s circular versus linear.
And, if you think about linear, and the way people run their businesses as being a linear business, it would be a . . . if you think about it in a funny term, you think of the Roadrunner and you think of the Coyote. And the Coyote is always running and chasing after that one client you could say. And half the time he doesn’t even catch him, as you know, but what happens every single time he thinks he catches him or he gets really close? Well, he just goes right off the cliff and he’s got to start all over again with maybe the same client, if you could think of it in business terms, or that same Roadrunner. So, that’s why I like to think of the Roadrunner of that because it’s normally a straight line. It’s a linear business.
So, let’s just apply that to being a wholesaler. So, a wholesaler would mean they would get a house and then they would have to go find a buyer to buy that one particular property. And, honestly, we ran a business that way for the first 500 deals that we did. The first 500 deals that we did, we did not have repeat buyers. We just bought and sold houses to individual buyers and occasionally, yes, the same buyer would find our advertisement and the same buyer would buy another house from us, but we didn’t really think of this as a circular model.
So, now let’s contrast a linear model of a business to a circular model. Maybe one of the best examples that you can think about is Apple. So, I love Apple products, but what does Apple do? Did Apple just come up with one phone one time and say, “Okay, we’re done.” No. You had the iPhone 1 and then the iPhone 1S, and then the iPhone 2 and the iPhone 2S, and 3, and 4, and 5, and 6, and 7, and they always add the S’s and they always do all that, but then they have the iPad. And then they have the Mac, and the Mac Book Pro, and they have all these different things and once they get an Apple customer, they’re . . .
And, again, it’s not just all about up-selling, but it’s about serving their client. And then they’ve also integrated their Apple phone with their operating system and they’ve made it so all your stuff, like your Notes for instance are all on your phone. So, I can take notes in a meeting on my phone and it’s transposed to my Mac later if I wanted to go review it. And that’s kind of what they’ve done with creating a circular business model. That’s kind of how I put it.
So, when you’re working in real estate, that’s something that I’m constantly thinking about. How can I create a program, how can I create something that I get paid for over and over and over again if I just find the one client? And, if you look at that, a fix and flip for the most part is going to be a linear type deal, because you’re going to fix the house, you’re going to sell it to one customer one time. Although I do think there’s money to be made right now in fixing and flipping, and I’m doing it, so I’m not going to say I’m not doing it. But it is a linear type of business model.
If you think of wholesaling, wholesaling could be two different ways. A wholesaler could be just looking at buyers and just finding them properties over and over and over again, or they could be looking at trying to find more and more properties and then they have to go out and find a buyer. So that could be one or the other and I would tell you to try and focus on having the one customer that you know is going to buy 40, 50, 60 houses.
I talk to a lot of wholesalers sometimes and they have three buyers, that’s all they have, and they’ve sold 50, 60 houses during that year. You know, me, we’ll probably sell about 300 wholesale deals this year and one of our big main goals is to have repeat buyers. We want to have 50 repeat buyers by the end of the year and I think we’re actually going to reach that goal this year, but more and more of our business is being consumed and being brought into that circular type model, creating programs, creating more value.
As I mentioned with Apple, they create more value, more ways that the things integrate with each other. So, just know that with sales, when value exceeds price, the sale is made. I know it’s, kind of, like a sales topic but I promise you it’s the exact same thing when you’re dealing with customers and you’re dealing with an actual way that you run your business and just the whole thought process behind it.
So I talked about wholesalers, and that’s why I like rentals. I love owning rentals. I own over 100 rentals and that is a circular model. I mean, you have one customer that pays you over and over and over again. And so, I hope that helps you today. You can apply that to a lot of different ways in your business. You can apply that to even your relationships and you can apply that to life in general.
So, thank you very much for joining me today on FlipNerd and the REI Classroom. I’ll see you next time.

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Tom Olson
I am an investor working in the greater Chicagoland area. I have been in this business for over a decade, and have bought and sold over 1,000 houses. In addition to looking for deals, I offer real estate coaching for the new investor as well as a flip-management program for those looking for the profit but none of the hassle.