Lessons Small Businesses Can Learn from Real Estate Failures

Cities are natural hubs of entrepreneurial activity. While each urban area has its own culture and personality, a frenetic hubbub of creative energy and innovative thought is common to them all. The organic collision of people and ideas that takes place whenever people live in close proximity makes cities natural incubators for entrepreneurial thought and action; small businesses readily root and thrive as residents collaborate and exchange ideas.

Because the real estate market supports consumers’ ability to work and play, its ups and downs can provide useful insights into whether small businesses will thrive in an innovative city or crumble under local pressures. However, the lessons small business owners stand to learn from real estate professionals aren’t always so directly connected to the market. A savvy business owner can pick up on the nuances in real estate failures and apply those lessons to their endeavors without suffering losses directly.

Go Digital or Get Left Behind

Over the past two decades, technology has managed to integrate itself into nearly every aspect of our personal and professional lives. Gone are the days that real estate agents would rely on hard-copy paper and glossy print booklets to advertise their listings — now, even the suggestion of a print-dominant marketing strategy would be laughable. Online tools like Zillow, Redfin, and Trulia have risen to the forefront of the real estate industry; recently, Zillow even released a toolkit that will allow users to not only find housing but also pay their rent and interact with their landlords online. The popularity and utility of these platforms have profoundly influenced the way consumers engage with the housing search: in 2017, a full 51% of buyers found their home on the Internet.

Just as a real estate agent who relies on ads in the local paper is unlikely to reach a broad audience, entrepreneurs who don’t pay attention to tech-savvy trends are doomed to receive lackluster interest. Even small businesses need to have an engaging website and a presence on hard-hitting social media properties like Facebook, Twitter, and Instagram. The increased connectivity ushered in by the digital age is a double-edged sword: it both allows businesses to reach many more potential customers than they might have through traditional marketing strategies and sets a standard that demands digital engagement. An online presence is a necessity — in real estate and business alike.

No Market, No Business

Even promising urban markets have their flaws, and having a strong customer base does not guarantee business success. Cities need corporate businesses to thrive — but they also need the coffee shops, boutiques, markets, and theaters that imbue their streets with culture and personality. Entrepreneurs need to look closely at the residential market before they set down roots — otherwise, they may have trouble finding employees who can afford to live close enough to work.

Let’s take the impact of real estate prices in the Silicon Valley as an example. While high-powered tech companies can provide their employees with significant salaries, few of these non-tech establishments can afford to pay their baristas, cashiers, and waitstaff the hundreds of thousands of dollars they would need annually to have a chance of competing in a real estate market saturated by tech workers. Ordinary residents have a choice: they can either put the vast majority of their pay towards sub-par housing or move on to a more affordable city. Without their workers — and fewer consumers — businesses will inevitably begin to shutter their doors under a poor economic environment.

Think Long Term, But Know When to Let Go

Like any other industry, real estate has its ups and downs; markets naturally thrive and recess in a cyclical pattern. A neighborhood in the midst of a retail revitalization period today could find itself withering under the burden of too-high commercial real estate prices a decade from now. Real estate professionals who work in the industry for years learn to identify markets that have potential, recognize the red flags of a downturn, and determine whether it’s financially feasible to remain in the area.

Entrepreneurs need to make similar assessments when it comes to risk and delayed reward. While most new businesses lose money in their earliest years, some may reach a point where the potential payout is so uncertain or the losses high enough that continuing is no longer worth the effort. Striving to bring a great idea to achievement is all well and good — but if the market sours and the potential isn’t there, it may be time to let go and try something new.

The real estate industry and the small business world have a symbiotic relationship: urban areas need retail centers and entrepreneurial action to thrive and grow. This connection empowers small business owners to garner information about the evolving state of the market and assess trends applicable to their potential success without ever putting their business directly on the line. Entrepreneurs can learn plenty from the state of the real estate market, creating shelter from financial uncertainty during the process.

Originally published on SCORE. 

By | 2019-01-16T17:18:10+00:00 December 20th, 2018|Blog, Real Estate|0 Comments

About the Author:

Sonny Kalsi is an accomplished real estate investor with more than 20 years of experience that spans a range of areas, including: investment management, real estate financing and hedge funds. Since 2010, Sonny Kalsi has worked as a partner-owner of GreenOak Real Estate, the independent real estate merchant banking platform where he is also a founder. Sonny's professional career also includes almost two decades of experience at Morgan Stanley, where he served as Managing Director and Global Head of Real Estate Investing in parts of Asia and in New York City. In an effort to share this wealth of knowledge and experience, Sonny Kalsi teaches at Columbia University as an adjunct professor in the university's Real Estate Development program. Connect with Sonny on Twitter at @SonnyKalsi_

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