4 Million Brands Part 2 - Profitability Over Growth
4 Million Brands Part 2 - Profitability Over Growth
Just as I am writing this, two more national short-term rental brands have bit the dust this week as they failed to find additional venture capital funding to sustain a currently unprofitable business model.
The short-term rental industry has been seen as a gold rush over the past few years, combined with the abundance of venture capital and cheap interest rates, which created a growth-at-all-cost business model that is now coming back to haunt many prominent property managers. In almost a crazed frenzy, companies tapped into an endless well of "easy money" to try and gobble up market share, hoping that the scale would eventually produce a profit. The well is running dry, and many companies have failed to reach the scale necessary in order to be profitable.
Companies once again need to be profitable to be sustainable... I know, crazy idea!
Even if you are not a venture-backed company but are just operating a small local management company, lessons can still be learned from these failures. I get the appeal of telling people, " I have 50 properties, 100 properties, 250 properties," in our management portfolio. The larger the number grows, the farther the person's jaw drops; it leaves you feeling accomplished and presents itself as successful. And it's typically the first question people ask about your management company. On the one hand, the number of properties under the portfolio lends a facade of credibility to your company and makes it exponentially easier to continue to grow the company to a point.
However, the number of properties in your portfolio acts more of a facade than bears any real weight to how successful your organization is. The real metric of success is found in owner retention rates and the average age of your owner contracts.
So, what lessons can you take from these grow-at-all-cost failures:
Look at each one of your properties on an annual basis to see if the property is not only cash flow positive for the owner but also for yourself. When you break down the cost vs income at a unit-by-unit level, you will often find that a few individual units stunt your success. Cut the cord with these properties even if you don't have properties in the pipeline to replace them. Or better renegotiate the contract so that it will be profitable in the future.
Just as you audit your portfolio annually, audit your reoccurring expenses annually, partially your tech stack. New and exciting shiny tools are being sold to us every day. We add these tools and software for the same reason we add unprofitable properties: it makes us look, feel, and appear more successful and significant. Look at what tools you are using daily and what directly relates to improving profitably. That may be from time saved or may be directly connected to generating revenue. If you can't connect it to one of these two things, it is time to cut the cord.
As we continue into 2024 and beyond, it won't be the most prominent companies of today that survive, though some will. It will be the managers who focus on sustainable, profitable growth that will be around long into the future.