This episode of the Serviced Accommodation podcast is all about Strategy, this is the second part of a 2 part episode. So if you haven’t heard the first part, jump back to http://www.thesapodcast.com/15-strategy-part-1/. This second part covers what Chris considers the most important part of business, creating a strategic plan. The strategic plan allows you to achieve what you want to achieve, in a systematic way, helping you see the big picture.
The Serviced Accommodation Podcast is a show brought to you by Chris Poulter and Ritchie Mazivanhanga aimed at new and experienced property investors alike. With each show we help you Start, Systemise and Scale your Serviced Accommodation Business.
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Hi I’m Chris.
Hi I’m Ritchie
And welcome to the serviced accommodation podcast.
Today we’re going to be talking about how to put together your strategic plan.
For me a strategic plan is probably the most important element of the business because what a strategic plan does is it allows you to actually achieve what it is that you want to achieve. Because again we were talking about it a bit in the last episode but what we tend to find is that people go into a business wanting to achieve something in their personal lives and then they kind of get drawn into the business you know. And the kind of everyday stuff and you get so focused on the detail that it’s quite hard to kind of see the big picture. And so for me the strategic plan it’s all about having a kind of big picture, something that you’re aiming towards and kind of a blueprint if you like within the business in terms of what you’re trying to achieve.
So this episode came about whilst we were in the process of setting up a new mastermind group and we went back to our previous mentees for feedback.
Because we’re always trying to improve what we do, aren’t we?
Most certainly are, yes, yeah, learn from what we’ve done right and amplify that and then learn from what we’ve done wrong and kind of minimize that.
Exactly the same philosophy as what we teach when it comes to serviced accommodation in terms of getting feedback from your customers, feeding it back into the business, making improvements, right?
Spot on that’s it yeah and the consistent theme the thing that had the most immediate impact on their businesses was the three hours they spent with you Chris prior to starting the mentorship group.
It’s something which started in terms of just sitting down with people and understanding a bit more about their business. But as we work with more and more people it kind of evolved into a format which really maximized the kind of clarity around the strategy of what they’re doing if you like and the vision for what they had as a business. And so at the point we are now it’s actually quite a refined format which really kind of maximizes the value which it brings to people.
And so if we look at a couple of the mentees who we’ve done this strategy plan with, if I think about one of the guys we work with for instance then he was building up a guaranteed rent business and we realized that because of the potential impact of that, it wasn’t good to be able to achieve exactly what he wanted to achieve on a personal level from that business in that format. So again we kind of flipped it on its head. We looked at the models, we changed around the models, we looked at how he was expanding the business and he’s now well on his way to achieving that.
If we take another example of someone that we were working with, they currently had three properties and they were all in one entity if you like. But we realized that the VAT implications of that that were going to be quite bad and even though she had essentially three different investors she was working them in one entity. So I think the key take away from that was that we kind of changed our strategy a little bit and the key thing here was we changed the corporate structure of what she was doing. So she had three different companies there because quite legitimately, she had three different sets of shareholders for each of the current properties and that then allowed her to go and expand her business up to the point where each of those businesses had kind of four properties in and that was generating the kind of money which was actually aiming for in the first place whereas she probably would have needed about twice as many properties if she continued with her initial corporate structure.
So I think the things that we look at this are really profound and fundamental to the way you do business. I think that’s why our mentees have found that they’ve had so much impact of what they’re doing.
Having gone to previous mentees we went out and spoke to people about joining a group, we ended up speaking to 25-30 people and even though we only have five people in a group, we spoke to a lot of people to make sure that we have the right group dynamics, you know that wide dynamic so we’ve got the right people in a group.
Yeah that’s really critical isn’t it?
It most certainly is.
If you’ve got a small group of people kind of working together to drive on their businesses, you’ve got to have the kind of right dynamic. If you have one wrong person in there it can kind of disrupt stuff.
Definitely so you’ve got to have the right dynamic to ensure that everyone gets the maximum value. And the consistent theme was that everyone we spoke to would benefit from a structure in some way, shape or form whether it’s a big issue with scaling up the right model or refining their corporate structure.
So we realized then that there were two opportunities coming off the back of that.
The first was that if this information was that helpful and useful for people that we should be sharing it in a podcast so that you guys can benefit from it as well.
The second being that if we’re having that major impact on people businesses in a relatively short space of time then we should be offering it out, not just to people who are joining a mastermind group but to a wider audience of people as well.
So what we’re doing on today’s episode is we’re sharing with you the exact process that we go through when we do a strategy review in order to come up with a strategic plan. But we’re also going to share with you an opportunity in terms of how you could work with me to put together your own strategic plan and all the benefits which come with that.
Chris can you tell us why we have a strategic plan and not a business plan?
I think when we talk to people about a business plan; people tend to be a little bit intimidated in a way. It sounds funny but people have these kind of connotations of what a business plan should be. That it’s long, that it’s complicated, it might have very detailed figures and like I say the overall feeling I get from people is that it almost intimidates them a little bit, that they feel like well maybe not the right person to be creating a business plan and to some extent as well I think people feel like it’s a bit irrelevant. If they’re looking at a business plan which has like monthly projections for the next three years then obviously you look at it and go well this isn’t very likely to be accurate is it and therefore is it actually relevant if I’m only making guesses all these things?
So while the strategic plan and a business plan are almost interchangeable I think the key difference for us is that with this strategic plan we’re really focused on the end goal. Yeah it’s not that we’re necessarily doing the steps all the way to get there but we’re focusing on what the end goal is and broadly what we need to do to achieve it.
Okay so it’s like a bit of an overused cliché, okay let’s drive upto Edinburgh and I’ll put the postcodes or the address in my satnav or Google maps should I say and even though I’m heading up to Edinburgh it could divert me because of congestion, because of an accident happening here and there. But at the end of the day I will still get to my end goal which is Edinburgh.
Yeah yeah, I think that’s a perfect example and you know even though a business plan can be flexible like that. I think people tend to think of it as something that you write and if you don’t come back to and I think just by understanding it’s a strategic plan, it gives it a bit more clarity for me in terms of this is our end destination and the work which we’re doing around it is in terms of then linking back everything that we do to where are we going and how is what we’re doing going to help us get there?
So starting with the end in mind and what the habit number is that Chris?
Oh yes we love bit Stephen Covey. I believe that’s habit number two. And in case you have no idea what me and Ritchie are talking about, it’s Stephen Covey and his Seven Habits of Highly Effective People which is a really good book. He talks about seven different habits and number two is ‘begin with the end in mind’ which is kind of fundamental to what we’re talking about here, isn’t it Ritchie?
Yes it is.
And so like I say, the first step of the three steps that we go through when we’re doing a strategic review is essentially starting with the end in mind and looking what we’re actually wanting to achieve out of this. Now it’s not necessarily as straightforward as you might think because typically what I’m seeing when I’m kind of talking to people about this step is that immediately they jump in and they go yeah I want £5k a month, I want £10k a month and that probably comes from a lot of that kind of wealth creation community kind of putting these round figures in people’s heads. But the problem is that generating £5000 a month has no emotional impact on you whatsoever. Yeah it’s a number, it is not an emotion. And so what we really need to do is kind of break that down to a much lower level in terms of what is the change you’re trying to drive in your life. You know are you looking to spend more time with your family, go on more holidays, whatever it might be. And in terms of that lifestyle change which are looking for then what number do you actually need to achieve to allow that to happen?
I think that’s really important because very often there’s a big difference between the figure which people have in their heads and what figure they actually need to achieve to make significant difference on a personal level and if I think back to one example in particular, a married couple who were mentoring and we went through this whole strategic review exercise with and they’d come into it going okay what we what is £10k a month and I’ve started off by saying okay so what does that mean to you on a personal level. They’d actually resisted quite hard and said no look we’ve done this what we want is £10k a month, can we move on. So me being me I don’t let things drop so I kind of kept pushing them and kept pushing them and we started to break it down a little bit and what we realized that what they were actually looking to get out of it were three key things. They were looking to spend more time together as a married couple because one of them was currently in full time work and they wanted to get out of that and actually they loved the idea of having a business together cause they get to spend more time together. I think that’s a fantastic objective to have for a business is to have a direct personal goal which isn’t just financial.
You’ve got to have the emotional buy in yourself isn’t it?
Exactly, exactly. The second thing which they were looking to achieve was they had quite a large extended family and they never been on a holiday together because the logistics of getting everyone together and not everyone in the family could necessarily afford it. So what they wanted to be was in a position where they could take their whole family on holiday and not have to worry about it.
I can definitely relate to that large extended family. I would love to take everyone on holiday!
Yeah it might be a bit expensive to take like 200 people on holiday.
Just a little bit yeah!
The third thing they were looking to achieve on a personal level was they were saying well you know what we’d love to do is to be able to do more missionary work with our church and maybe go off for three months to go and work on a project or spend time touring the country talking to people about the work which we’re doing and generating funds. And that again was very important and personal to them and tied in a lot with the spending more time together.
So although they’d come into this with a very fixed goal of £10k a month, £10k a month, £10k a month, when we actually broke it down into the personal goals we realized that you don’t need £10k a month to do that. When we actually looked at the figures involved we realized that probably £3 and half, £4000 a month would actually allow them to get to that end goal of where they want to be on a personal level. So the very real danger here would that they’d be focusing on the number rather than the personal goal and therefore they’d actually have more than enough money to actually let them be free and kind of go off and do what they wanted to do but they wouldn’t be doing it because they’d still think they had to work towards something. So when therefore we’re starting a business it’s always got to be personal goals in mind in terms of how does this business fit in with what you want to achieve in your life?
And so that step one, by focusing on that, by understanding that then allows us to make sure that these strategic goals which we’re going to put together now are really in keeping with that. And yes in a lot of cases you’re going to end up with a figure which you say I want to generate X amount a month in my business but having that understanding of how it feeds into what you’re doing is just absolutely key in terms of going and achieving it.
Excellent, the second step is the build, test, scale model. So this is where we look at building a particular model, testing the assumptions, refining this model before scaling and making sure that you can scale it, when you do scale it it’s going to be sustainable and profitable.
And we talked in the first episode of this two part episode about some of the experiences we’ve had in business and how this kind of model evolved around the things we’ve done in business and particularly some of the mistakes we’d learned from and the real key I think around build, test and scale is that when you look at any new business that you’re starting, that you’re looking at getting going, there’s a bunch of risks in that business. It might not work out, it might fail, it could take down a bunch of money with it. And the key thing really is that when you start the business you’re making a set of assumptions and those assumptions might be that there’s an enough of a corporate market in my area to support this particular model of serviced accommodation. The assumption might be that people are going to be willing to pay this amount per night and that’s therefore going to generate the revenue which you’ve projected or it might be any number of other assumptions around the model which you’ve built.
But the fundamental for me is the risks in your business model and the risks within your business as you scale that business they are all contained in those assumptions that you’ve made. So if you can test those assumptions and make sure that to the best degree they are accurate before you go and scale a business around it, then you are reducing the risk in your business very very significantly. And that’s essentially what we’re looking at with the build, test, scale model. It’s that we’re looking to reduce the risks by testing the assumptions in the model.
So in defining a model we have eight areas you look at, the first being location.
When choosing a location you need to be as specific as possible. You can’t just be generic and say Southampton, my target market is Southampton for example it’s got to be as specific as okay, Southampton Central, it’s got to be 15 minutes’ walk from the train station or it’s got to be five minutes’ drive from the motorway. It’s got to be location sensitive and very specific and this specification is mainly driven by your target markets and what your target market needs.
This leads us to the second area that we need to define within the model which is the guest type, so for instance we might be looking at corporate, we might be looking at contractors or we might be looking at tourists. For a lot of people you’re going to see a mix within the guest type. So again in Southampton we would tend to say we’re looking at contractors Monday to Thursday night and tourists Friday and Saturday night. So you can have a type, you can have a mix of guests in there but you do need to define the guest types which you’re expecting to see within your niche model.
The guest types have a direct influence on your property type too because you can’t market studio flats to construction workers because they need a lot of space and they usually come in teams of 3, 4, 5, 6. So your property type be it a one bedroom, two bedroom flat, three bedroom house or four bedroom house is mainly influenced by your guest type.
Yeah and I think this is one of the really really important areas to actually niche and build a model around because when we talk about kind of risks and how you can scale the business and scale the risk if you’re not careful, we see a lot of areas where for instance a three bed property might work really well but a five bed property doesn’t work at all. So if you have a whole range of property types which you’re operating then how do you know if you’re scaling up using models which work? Whereas if you’re being a lot more specific then it doesn’t have to be three bedrooms only but you might want to say three or four bedroom properties or one and two bedroom properties but it’s really important to understand that these can actually be very different models and therefore you want to be as specific as possible to kind of reduce the risk in terms of what you’re doing.
The next area we need to define within our model is the structure. And if you listen to the first episode of the podcast we talk about some of the different structures that you could use. You might be looking at guaranteed rent, you might be looking at a landlord JV, you might be looking at the management model or you might be looking at purchasing but you need to understand what type of structure you’re looking at within this model because particularly when we come to the scaling step later on that’s going to have a fundamental impact on how we look at scaling the business.
So the next area is marketing, so looking at your marketing channels and where your bookings are coming from. This is very important because if your model is based around corporate and the assumption that 50 percent of your bookings will be generated from corporate clients and this does not happen this will have a profound impact on your business. So it’s very important to know what percentage of bookings we are looking to get from areas like Airbnb, from booking.com or other marketing channels. So marketing is a very crucial part of your business.
So from all these other areas we’re essentially going to end up with a bunch of figures and we should be putting this into kind of deal analysis where we know and we understand the model and we know what the figures look like based on our structure. So it could be that it gets down to the point where you go with all my cost assumptions, with all the different bits which I’m going to be doing with it. Each property is going to generate say £500 a month for me under the appropriate level of VAT depending on how big you want to scale. So once you know and you understand those figures then that becomes a fundamental part of what you’re doing because you know each time you add a property it’s going to add X amount to your gross profit.
How we source these properties forms a crucial part of your model be it the guaranteed rent structure, the vendor joint venture or the management; these are all sourced differently. So with the guaranteed rent you can go out to agents, you can build long term relationships with them and get your business from them whereas with the vendor joint venture it’s mainly through building relationships with landlords, building relationships with developers, it’s mainly down to networking and same applies to management structure. Sourcing is very crucial because you have to ensure that you get enough deals to scale your business and to make it sustainable. No sourcing, no business, no growth.
Yeah that’s another key assumption isn’t it, that you can actually get enough deals at a particular time to scale your business and that’s not necessarily a given which is why it’s a really important part of the model because it’s another assumption that you’re testing.
So the final area we look at defining within the model is financing and for some of the structures we talked about you know like the vendor JV or management then you don’t necessarily have financing thing in there but it’s really important whether you’re buying or whether you doing guaranteed rent or you just thinking about your overheads. It’s important to think about how your financing, the deals which you’re doing because a lot of the time we see kind of people looking at figures on a guaranteed rent deal and thinking yeah it works brilliantly but they’re not necessarily taking to account okay but I don’t have the funds sitting there for it so I’m going to need to work with an investor. So if you’re working with investors that need to form part of your model because that’s kind of fundamental to what you’re doing in terms of you know once I’m paying back an investor on a regular basis, is this actually generating the cash flow which I need to go and achieve my personal goals which we talked about in part one.
So the financing in the model is actually really fundamental, particularly if you are kind of joint venturing or taking loans from people in terms of funding your deals.
When choosing your model you’ve got to know what you’re ultimately trying to achieve and this relates back to the personal objectives as we discussed in step one. So first and foremost what opportunities so you see in your local area for instance developments, contractors are going to need somewhere to stay. Is there enough supply to accommodate these people in your area?
When choosing a model you’ve got to know your strengths, what resources you have in place and the more niche you make your model the less risk there is as you scale up.
So that was step two, the building the model phase which moves us on to step three which is testing the model.
Now we do need to think about how exactly we’re going to go and test this model which you’ve built, you may well be in the process of testing it. And you’ve got to think how many properties do you want to test it with? Do you want to test it with one property or a number of different ones so that it’s easy to scale up afterwards? Do you want to test one model or do you maybe want to test some variations? It might be that your model is two or three bed properties but if you’re going to successfully test that model, you probably want to have at least one two bed and at least one three bed property to make sure that you’re fully testing that model to make sure it will work.
Now once you’ve decided how many properties you’re going to test the model with, you need to think about how you’re going to decide if it’s a successful test. So how long are you going to give it and over what kind of period? Now if you’re working in a seasoned market you probably want to give it a full 12 months before you scale up to a large level or at the very least you need to understand how the winter performs before you add in lots of units. Otherwise you could test in March, you could be successful through to September, you could scale up the business to a large level only to find out that actually winters are really horrible in your area and all you will have done is scaled up a massive liability over winter.
So again you’ve got to think about what kind of time frame is going to be appropriate to test your area in order that you can cover off as many risks as possible. You then need to think about what KPIs you are going to use to actually gauge the success of it. You probably want to be comparing the performance of your properties to what you put in the model to make sure that as a baseline you’re getting the performance in terms of gross profit out of the model which you anticipated in the first place. Now it might be that your occupancy rate is slightly higher and that your average daily rate is slightly lower than you anticipated but you’re still generating that profit. But as long as you get there and you understand how it’s operating you’ve got a clear way for you to make a decision otherwise unless you set it out in advance, how are you going to know whether you judge it a success or not when you’re testing the model? When we’re talking about the testing phase then yes obviously the big chunk of that is actually testing the model to make sure it does perform as expected and that we’re covering off these assumptions we’ve made in the model and therefore the risks but at the same time we need to be building capacity so that when we do get to the scaling stage that we have the capacity there to go away and scale the business in an effortless way so building capacity is really about two things. It’s about making sure that while we’re testing the model we’re putting the systems in place that are going to allow us to scale up very quickly and it’s also about putting the teams in place so that might be cleaning teams, it might be maintenance teams, it might be in-house team of staff who are actually managing the property for you but you also want to be building that capacity as you test the model so that you can scale up afterwards to the point that you want to be.
Step four for the strategic plan is how to scale the business. This is not just as simple as if I have a model generating me £500 per unit and my target is £5000 a month I can just multiply that by 10.
Oh if only!
Yeah I wish it was that simple.
And this is probably one of the key points which a lot of people miss when they’re doing deal analysis and that’s that deals generate gross profit and you still need to account for the overheads. And what we see is that the main overheads you have when you’re managing service accommodation are things like staff, software and phones. Those are probably the big three costs involved I think.
So when you’re looking at scaling your business and you’re looking at scaling it to the level which is going to deliver the personal objectives we set out in step 1 then you also need to make sure that you’ve projected appropriate levels of costs so are you just having a management company in to manage it for you or are you bringing in staff? Is it going to be one person part time, two people full time? What kind of levels of costs are going to be associated with it? So when we look at scaling up the model we’ve got to make sure that yes it’s going to deliver your personal objectives set out in step 1 but that’s on a net basis not a gross basis. So that as we scale the business there will be costs which come in and we need to make sure that we’re looking at those appropriately.
Now we also need to look at it and go okay so if that’s where we want to be, let’s say that you’ve set a target that you want to be at 20 units of your model and that taking into account all your management costs and staff, software and phones is going to deliver you the net figure which you actually want out of your business. So if that’s the case then okay you know you’re going to need some staff in place to do that but what systems are going to need in place? If you’re doing management model for instance then having a very resilient bookkeeping system and a reporting system for your clients is going to be incredibly important. But regardless you’re going to need a good bookkeeping system in place. And what other systems are you going to need? You’re going to need a great system for managing the bookings and payments etcetera etcetera. So you need to have a quick think around what type of systems am I going to need in order to run X number of units of my model. And that’s really important.
Now with that understanding of how many units you’re going to be operating at and knowing what kind of turnover levels are going to be at that point and knowing what staff you’re going to have then from there it’s very easy to see what type of corporate structure you should be using and when you think about your corporate structure you should be looking at the risks involved and your attitude to risk. Obviously what we’ve just been talking about which is what kind of level you are going to be scaling it to and the implications that might have for instance on your VAT and also what JVs you might be doing and working with investors, how you should be optimizing your corporate structure around those people that you’re working with.
So today we covered the four steps of your strategic plan.
Step one – your personal objectives and goals.
Step two – how to build a model.
Step three – how to test this model.
Step four – how to scale the model.
One of the most powerful things about having clarity on your model is communication. IT’s so easy to communicate this to all the parties be it investors, be it landlords, be it potential business partners. It’s just having clarity. For example our criteria is that we only work with landlords with four or more properties and outside the M25, an hour and a half from Southampton. This is very powerful in my job role because I go out and communicate this to people.
When networking people ask me oh Richie what do you do?
Chris, give me an example of what people usually say, when people ask what you do when they do serviced accommodation?
Oh I do serviced accommodation.
You don’t have to sound like a robot though Chris do you?
No I don’t mean to offend anyone.
Could you please ask me what I do?
So Ritchie what do you do?
I work with landlords who own four or more properties in their own name and are affected by the recent tax changes. I help them to sidestep these changes in an HMRC approved way.
Perfect because if you look at what you’re saying you’re not even mentioning serviced accommodation, you’re not talking about additional cash flow. What you’re doing is you’re taking our model, working out who are kind of avatar is in terms of sourcing and you’re positioning it in a way that people immediately understand, well if they’re a high rate taxpayer and they’ve got properties in their own name now what benefit might be for them but even if they’re not, if someone that they know might be appropriate that what’s in it for them.
Yeah and if you just reply with serviced accommodation then you’re completely missing that opportunity and having that clarity of communication it all stems from understanding your model to that deeper level I think.
Yes it does.
Everyone we’ve worked with before this has found massive value and we really hope that you have as well. Now if you’d like to work with me putting together your strategic plan then we do have a fantastic opportunity for you. As we say we’ve been working on this for a while now with members of our mastermind groups, with our mentees and we’ve seen so much value there that we do feel we need to bring it out to a wider audience.
So we’re launching a strategy review today and at £500 we know it offers huge value to people because we’ve seen the impact which it directly had on our mentees businesses. However as a launch offer if you book by the 9th of June and you don’t have to have your strategy review by then, it just needs to be scheduled. If you book by the 9th of June then we have a special launch offer for you of only £250.
If you’re interested please go to the thesapodcast.com/strategy straight away to book your slot. That’s thesapodcast.com/strategy.
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