SQUARE FEET

Our business has been steadily growing over the past three years. Because of this we’ve found ourselves needing to hire additional staff members, develop new vendor relationships for graphic design work, accounting, corporate structure evaluation and human resource advice and coaching. In our search for new vendors, we’ve found both large and small service providers and have found the differences between them startling.

The value we’ve found we can expect for our dollars spent, the level of service provided, and the ability to customize solutions and think clearly and creatively didn’t correlate with vendor size.  In fact, our experience has been that bigger is not at all better, but often worse.

When a company aggressively pursues expansion, more often than not the quality of their product or service will suffer if they are focused on the bottom line only.  Take Toyota, for instance.  While the car maker is known for their quality vehicles, there have been numerous problems that have developed in their vehicles in the last few years.  CEO Akio Toyoda himself admitted,

“Toyota’s priority has traditionally been the following: first, safety; second, quality; and third, volume. … These became confused.”

They had allowed their pursuit of volume and revenue to supersede their commitment to quality.

“The decision to grow is often accompanied by a series of decisions to accept slightly lower levels of quality, whether it is for facilities modifications to suit different real estate requirements or ingredient changes to sign on a new distributor,”

says brand expert, Denise Lee Yohn in her recent article.

In commercial real estate, many of the so-called large national firms are also allowing revenue and expansion goals to supersede their commitment to quality.  This is particularly true of the large, corporate owned firms that have multiple lines of business spread over multiple service sectors.  In the midst of an unpredictable market, these firms have high fixed costs, cumbersome reporting structures, rogue employees without much supervision, and a myopic focus on the bottom line that sacrifices the client experience and therefore the service outcome.  In order to succeed at a national level, these organizations have multiple lease obligations, high labor costs, layers of shared services, marketing expenses at the local, regional and national levels, and excessively high IT costs.  As a result, their constant need for investment capital requires them to be focused on short-term financial objectives instead of producing long-term value for their clients.

A smaller, more entrepreneurial-minded firm, on the other hand, can foster innovation, creativity, and offer a better quality of service to its clients.  Because it has lower fixed costs, it can turn a profit more readily even in mixed economic conditions and with a smaller client base.  As a result, these kinds of firms can be more flexible, switch gears quickly in a changing environment, and  make their primary focus the delivery of results for their clients.

While large commercial real estate business models may look dominant at first glance, many of them are cannibalizing themselves.  When all the dust settles, it will be the well-run franchisors and networks with  the consistent ability to generate profits and scale regardless of the economy that will prove to have the better business model.