Being strategic is a vital part of doing business. Let’s face it, if you do not have a path and a strategy to follow that path then you are at serious risk of getting lost along the way. In chapter 3, the focus is on Evaluating Environmental Threats and how it plays into firm strategy and performance. Different managers may define strategy differently, but for the sake of this post I will define it as the following. Strategy: An action plan designed to achieve an end goal. Personally, I am of the mindset that the strategy used to achieve your goal is in a constant state of change, adjustment, and improvement as you work to overcome various unforeseen obstacles in your path to success. Commercial real estate is a great example of an industry that flexibility is KEY to be able to minimize time and risk. Basically, you can put in the exact same “cookie cutter” 3,000 square foot office building in 100 different towns and you will face 100 different codes officials, planning commissions, contractors, union issues (even when nonunion), and the list goes on. Sure, certain key aspects will stay the same, but you can guarantee that at least one thing will be different in each market. The ability to stay true to your end goal while amending your strategy for the specific task/market is crucial!
Back to evaluating environmental threats, it’s important to bring up the maestro Michael Porter and his Five Forces Model of Environmental Threats. The objective behind developing a model of environmental threats is to assist managers in identifying these threats so that they can be more effective in developing a strategy to neutralize the threat. Below I summarized Porter’s five forces framework to show what he suggests are five critical areas that affect the ability of a firm to maintain or create a competitive advantage.
I felt it important to list Porter’s five forces framework; however, I will not dive into any of these five when discussing the threats of my firm. Since Acqudev is a new firm and is not a pure capital partner due to its relative infancy, it’s more important that I look at how others can compete with me. In a very short time, these threats will become my competitive advantage against those firms who have the capital to play in commercial real estate development. Never forget that real estate development is a risky business. A firm a make a significant profit margin on one project and on the very next lose BIG!
Cost Advantaged Independent of Scale as a Barrier to Entry:
| Proprietary Technology: | When an existing firm has secret or patented technology that reduced their costs below that of potential new entrants. The cost of developing the technology can act as a barrier to entry. |
| Know-how: | Existing firms have knowledge of the process, skills, and information needed that can take years to accumulate and are not typically possessed by potential new entrants. Most new entrants know one part of commercial real estate, not the entire picture. The costs of developing this know-how can be very prohibitive. |
| Favorable access to Raw Materials: | When existing firms have access to low-cost raw materials that are hard to get as a new entrant. Great examples in commercial real estate can be relationships with engineers, surveyors, architects, attorneys, brokers, buyers, etc. |
| Favorable Geographic Locations: | When existing firms have all the best locations already. The cost to duplicate can act as a barrier to entry. Very common in real estate as real estate tends to be a local market in most situations. |
| Learning Curve Cost Advantage: | When existing firms have high levels of cumulative volume of production that give them cost advantages over potential new entrants. |
As you can see from the list of cost advantages above. It’s very common for existing firms to have a cost advantage over incoming new entrants due to various reasons. The inverse is true as well. For example, the overhead of Acqudev is not as high as a large-scale competitor and therefore our flexibility on fee structure reflects this. This is a strength of a new entrant and we hope in the near future our know-how, access to great materials (land, engineers, buyers, etc), and experience is our niche geographical locations (markets) gives us the competitive advantage to compete as we evolve into a more robust commercial development company.
“If opportunity doesn’t knock, build a door.”
Winston W. Parks