Key to Exponential Growth: Fire Owners Regularly

I will never forget the way my coffee cup felt as I calmly ran my thumb around its rim. I sat there quietly, while two owners, who had previously been low maintenance, lambasted me and my business partner for an hour in our main office conference room.

Historically, their rental property had been a low performer; however, although it was small and below our typical quality, guests rarely complained, and the owners had been easy to work with until now.

We signed the property in our early days as a company when any inventory was good inventory. As we grew, we assumed it was still a good decision to keep the property because it was producing incremental revenue and didn’t distract us from our core business goals.

As the details unfolded, we learned that unbeknownst to us, the property owners had placed a “$500 duvet” (according to them) in the property during their last owner stay, and it had gone missing. As far as they were concerned, this was our responsibility, and we should be financially responsible for it.

As a business owner it was difficult to rationalize how it made sense to put something that nice in a property that rented for $99 a night on average. It was even more difficult to rationalize how neglecting the rest of my business, staff, high-value owners, and tasks for this conversation made sense.

It was time to let them go. Not because I was emotional, and not because I was upset, but because the time-value equation of keeping them on the program no longer made sense.

How to know when it’s time to fire an owner

When I travel and speak about my days as a property manager, one of the top questions I am repeatedly asked is, “How do I know it’s time to fire an owner?”

What’s most interesting is that this question is usually preceded with a real, emotional story about how low producing the property is, how resistant an owner is to investing in improvements, and how incredibly high (read: unrealistic) the owner’s expectations are for the property’s financial performance.

Whereas there is no perfect formula for understanding the timing of firing an owner, what I’ve learned is that there are generally four classes of property owners, and only one class of those that should always be let go.

As shown in the scatterplot, owners typically fall into one of the following categories:

• High profit/Low effort (ideal client)

• High profit/High effort

• Low profit/Low effort

• Low profit/High effort

So which one of these owner categories should always be on the chopping block? You guessed it: any owner who falls into the “Low profit/High effort” category.

Have you ever thought about your owners in this way? It would be an insightful exercise to sit down with your team, make a list of all of your owners, and then categorize each one into one of these four buckets. The insights you will gain about your company, owners, and understanding of the burden to your business of carrying certain owners as customers will be enormously helpful.

Breaking up is hard to do

I was talking with a property manager recently who we’ll call Carl. Carl explained that he had started a company 16 months previously and had already grown to thirty units under management (what an exceptional feat!), but Carl had a problem.

As many new property management companies do, Carl signed any homeowner who would come on board to achieve the critical mass he needed to have an actual company. Unfortunately, Carl felt that about 10 of these homes were now falling into the “Low profit/High effort” category, and as a result, the relationship-management side of keeping these unrealistic homeowners satisfied was already wearing Carl thin and putting the higher earning, lower effort category of homeowner at risk.

My advice to him? Cut them loose soon. “Be professional. Give them notice,” I said. “Don’t get emotional or go into too much detail about why. Thank them for being a customer, serve them notice, and get off the phone. But do it soon.”

Carl immediately had questions about how he would make up for the lost revenue these 10 properties were producing. I advised him that, in actuality, if these properties were as high stress and low profit as he was telling me, then his largest revenue losses were happening on the high profit properties that are being neglected right now that he may lose if he doesn’t redirect his focus.

How should Carl fire the owner from this program? A few thoughts:

1. Do not do it in person. I know this is counterintuitive, but the point is to stop your losses. The last thing you have time for is a long meeting about why you can’t invest time in the owner’s property anymore. This is about rescuing time.
2. Pick up the phone, call the owner, and calmly and professionally explain that you are no longer going to do business together. Explain that financially it does not make sense to keep managing the property for your business. Thank the owner for being a customer and get off the phone.
3. Don’t have a change of heart. Some owners will promise to start investing in improvements or doing the things you have asked for. Don’t give in. Make your decision before you call, and stick to your guns.
4. Send an email summarizing everything you just said on the phone to the owner with the roll-off date clearly spelled out. Schedule maintenance to decommission the property. Walk away.

Despite our hesitancy to cut properties loose, the reality is that intentionally pruning your list, on a schedule, with proper thought and strategy (not on a heated whim!), will actually set you up for success. The time you’ve rescued from poorly performing properties will free you to focus on the highest earners, sign new properties, and grow even faster with better inventory, making your bottom line stronger every year.

Said another way, it’s a common form of self-deceit that managing thirty properties is more profitable than managing twenty-five, or that managing one hundred properties is more profitable than managing eighty. Time is the only asset you can’t get more of. Put it where it’s going to be most effective at achieving growth and revenue goals not expectation management.

How to sign and keep more profitable owners

Maybe you’re already processing your list of high effort/low profit owners and know it’s time to professionally part ways. But, what if there were a way to keep the high effort/low profit owners out of the roster to begin with?

One of the biggest mistakes property managers make when signing new owners is not level setting with the owner what expectations for the management experience will look like. They’re so excited—too excited—to sign another owner that they forget to qualify the client as the type of client who will help them grow and not get sucked into constant “crisis” management.

One simple question to qualify a new owner: “Is this property an investment property or a dream vacation home?”

The response you receive will tell you everything you need to know about whether or not this is a relationship you want to be a part of. For owners who respond that it is an investment property, it is much easier to explain that investment properties take wear and tear, have things go missing, and have the ultimate goal of maximum financial production. You need to have this conversation before you sign them.

For owners who respond that the property is a dream home, family inheritance, or similar, you have a decision to make. You can either refer them to another company, or you can set different expectations for them. For example, you may indicate that if they do not want it to be treated as an investment home, then you will intentionally keep rates high to keep nights booked low and that you wouldn’t anticipate having any conversations about financial performance because that isn’t their primary goal.

It’s amazing how many owners reevaluate their own self-categorization during this conversation and decide they’re okay with more wear and tear, items going missing, and so on if it means they can make a profit. Even if they don’t have a change of heart, it gives you something to point back to if they start complaining later about performance—a strategic move you took from day one.

Closing Thoughts

The Pareto principle (also known as the 80/20 rule) would tell us that 80 percent of our managerial stress is likely coming from 20 percent of the units under management. Alternatively, 80 percent of revenue is typically coming from roughly 20 percent of clients. Wouldn’t we want to minimize the amount of time our low earners are stealing from the highest producing clients on our roster?

Even though it may be painful in the short term, firing owners who are high maintenance and low profit is always the right business decision. You will gain a new level of freedom and laser focus on your business that will make this temporary pain not only worth it, but it will pave the way for future growth and success.