FCB #002: What Is Scalability? How Do You Scale A Professional-Services Practice?

WHAT IS SCALABILITY?

A scalable business model implies that a company can increase sales given increased resources. 

Scalability refers to the ability of an organization to perform well under an increased or expanding workload.

A business that scales well will be able to maintain or increase its level of performance even as it is tested by larger and larger operational demands.

In the corporate world, a scalable company is one that can maintain or improve its profit margins while sales volume increases.

A scalable firm can quickly ramp up production to meet demand and at the same time benefit from economies of scale.

With economies of scale, a company is able to reduce its production costs and increase profitability when it produces more of a given product. In effect, it is spreading production costs over a greater number of units, making each of them less expensive to produce.

At its core, a scalable business is one that focuses on the implementation of processes that lead to an efficient operation.

Scalability and technology are inseparable for an efficient operation during growth. A scalable technology system is ready to handle increased demand. Technology makes the process of scaling a company much easier. Even non-tech businesses like CRE appraisal can incorporate technology into their operations to make their work more efficient as they grow.

In the marketing realm, technology like LinkedIn links businesses directly to clients and talent, making lead generation easy and affordable, even for small businesses.

HOW DO YOU SCALE A PROFESSIONAL-SERVICES APPRAISAL PRACTICE?

Professional-service practices, like CRE appraisal, can scale their production capacity by building their “expert system”.

Most small professionals struggle with how to replicate and scale the expert-reliant skill of themselves or their professional services firm.

By taking off your “technician” hat and putting on your “leader/manager” hat, you can challenge the faulty assumption that only you or your team of appraisal specialists can help your clients get the results they’ve come to you for. Only then can you find scalable ways to better serve your clients.

The best expert systems build a great deal of “expertise” into the system itself.

When I was doing all the quoting in my business, I thought I was the only in my company who had the expertise necessary to fulfill this function.  My business coach at the time (Eden Sunshine with Level 7 Systems), challenged that assumption and helped me build an “expert” Excel sheet with several variables impacting price that anyone could input and come within $50 of the quote pricing I was making as the quoting “expert” in the firm. Within a week, I had trained one of our Analysts to take over this “expert” quoting function, and I never looked back.

The secret to building this “expert system” is to build your “secret sauce” into the system itself.

• How many appraisals each month should we do?
• How long should an appraisal take to complete?
• What are the resources necessary to produce quality appraisals quickly and profitably?
• What specific questions should the appraisers be asking stakeholders to pinpoint the problems to be solved?
• What tools – like Datappraise or VALCRE narrative software and templates – do appraisers need to do their best work?
• What analyst, appraiser, and reviewer trainings are needed to help them master this expert system?
• What is the best assignment management system – like V-AMS or Appraisal Inbox – needed to help each department and the resulting workflow to be most efficient?
• What integrated, relational-database technology – like Zoho One or SmartSuite – are you using to automate many of these processes?

Your goal is to replace yourself as the “expert” in your practice through an “expert system” that other team members are trained on and use to duplicate and scale your efforts.

Here are the basic steps you can use to create such as “expert system” in your CRE appraisal practice.

Step One: Define All Deliverables

You have already been producing deliverables, just in an informal way that one or two key people in your practice just “did.” In the most inefficient practice, one person (the appraiser) does all of these steps end to end.  

You first need to list out these steps, sub-processes, or deliverables so you can design a system to produce each of them more efficiently and with a higher level of quality. In the CRE appraisal process these could include:

1. Job Assigned
2. Inspection Scheduled
3. Subject Property Research Conducted
4. Property Inspection Conducted
5. Scope of Work Verified
6. Appraisal Software Job Setup Completed
7. Comps Researched, Verified & Selected
8. Appropriate Valuation Methods Determined
9. Land Valuation Performed
10. Cost Approach Performed
11. Sales Comparison Approach Performed
12. Income Capitalization Approach Performed
13. Report Writing Completed
14. Value Indications Reconciled to Final Value Conclusion
15. Proofreading & Copyediting Performed
16. Technical Appraisal Review Performed
17. Final Appraisal Produced
18. Invoice Requested & Produced
19. Final Delivery of Report & Invoice Performed
20. Client/Reviewer Comments Addressed Timely & Professionally
21. Report Revisions Made and Final Report Delivered
22. Workfile Archived
23. Assignment Management System Updated

Each one of these deliverables should be documented with best practices for each step built into the entire expert system.

Step Two: Lay Out the Process

Next, get a stack of sticky notes and a big white board.

Label vertical columns for each of the roles or departments which will be involved in operating your expert system: Quoter, Administrator, Analyst, Trainee, Junior Appraiser, Senior Appraiser, Proofreader, MAI Reviewer, Administrative Assistant, Managing Director.

Start to lay out the sticky notes in a swim-lane workflow process chart on your white board.

Once you have the whole process laid out, ask some critical questions and adjust as needed.

• Which deliverables are most important?
• Can any single process be “batched” so a team member can do it more efficiently for several appraisals at once?
• What is the lowest-level team member that can be trained and employed for each deliverable?
• Which can only the Appraiser do?
• Which should the Appraiser not be doing?
• Can the order in which they are done be changed around for more efficiency?
• Can any steps be eliminated or reduced in scope?
• Can any steps be consolidated for efficiency?
• Can any steps be offshored for reduced costs or speed (offshore talent can work on a step or steps at substantially lower rates while your staff is sleeping)?
• How can you speed up this process?
• How can you improve the quality of this process?
• How can you automate, semi-automate, templatize, or checklist portions of this process?
• How can you improve communication between various team members and departments?
• Who else in the world has a related process or tool you can learn from to help you better design this expert system?

Once you’ve brainstormed answers to these questions, go back to your whiteboard swimlane flowchart and make any indicated changes.

Once you complete Step Two, you’ll have the beginning of an expert system process that is faster, cheaper, of better quality, with greater impact, and that is more scalable.

Create a document where you list out each step in this process: Step One, Step Two, Step Three, etc.

Step Three: Determine the Optimal Level of Expertise for Each Step

The biggest problem I see in most appraisal practices is the senior, most experienced appraiser is doing way too many low-level tasks in this process.

From my early days at Cushman & Wakefield and CBRE Group, I employed assistants to help me and delegated to them everything I didn’t like to do, that I wasn’t very good at, or that I didn’t really need to utilize the expertise I had built up as a regional mall appraisal expert.

I confirmed regional mall sales across the country, did the financial and DCF analyses, and the final report writing, but I delegated almost everything else to my team of assistants, many of which went on to very successful careers in CRE appraisal, investment, property development, management, etc.

In your practice, you want to find ways to relieve your most expensive and experienced professionals from doing lower-value work. To sustainably scale your business, you must strive to transfer as much of the work of each part of the expert system down the value chain so that your experts do less menial tactical work and leverage their highest and best use as professionals to do only those portions of this expert system that they can do. 

This immediately increases your capacity because your expert specialists can be spread over a larger volume of total work, but it also drives down your costs as the work performed at a lower level is much less expensive. 

You can also generate incredible synergies once your practice becomes large enough for the professionals to specialize in a given property type or geographics area, or both.  Then the true magic of leverage and synergy start to happen!

There is a hierarchy of expertise for each step in your expert system.

• At the bottom, you have those steps that can be automated, semi-automated, or made into a template.
• Next, you have those steps that require a person to complete, but not necessarily a highly skilled or experienced person (e.g., clerical, administrative, offshore talent, etc.).
• The next level up is for those steps that need a semi-skilled team member to perform (e.g., analyst, trainee, junior appraiser, etc.).
• Above this is the level of skilled work, which require a basic expert to produce (junior appraiser, senior appraiser).
• Finally, at the top, is for those steps that require a true top expert (e.g., MAI/specialist) to produce for the business, which in most small practices is the owner or one or two key MAI appraisers who specialize in one or more specialty property types.  In my case, it was regional and super-regional malls in the Western United States.

In many practices, by pushing steps down from the top two levels (Basic Expert and Top Expert) to lower levels, and by leveraging software, templates, standard forms, and checklists, the business can quickly increase its capacity by 25-35 percent and lowering its costs by 10-20 percent.  Combined, this can all result in substantial profit and cash flow improvement, which in turn drive up the value of the practice should a exit or sale ever be desired.

Step Four: Control for Consistency

Once you have the steps of your expert system realigned for maximum efficiency and each step delegated to the most cost-effective human resource required, you can now focus in on controlling consistency.

You need to improve quality and reduce variability. 

The more you can automate, semi-automate, templatize, and checklist, the easier it is for you to control consistency.

The airline industry is famous for its use of checklists, and if you read the The Checklist Manifesto by public health researcher and surgeon, Atul Gawande, you will become a strong advocate for employing checklists in your appraisal practice and related expert systems.

Standardize wherever you can.  This will help accelerate the process, increase efficiency, lower costs, and improve quality. I thought of one of the fields in our Datappraise software for site improvements, where the appraisers had the ability to add new entries and we ended up with 100+ items on the picklist.  

We ultimately standardized this pick list to five choices: Poor, Fair, Average, Good, and Excellent, and probably saved a minute of time on each appraisal.  Multiply that by 30,000 appraisals a year across the organization and that was 500 hours or 12.5 weeks a year that was saved by that one standardization alone!

Move away from tribal knowledge, where most knowledge is stored in everyone’s brains and shared only by word of mouth.  This is an incredibly inefficient and unreliable way to train, plus it is very risky for the business when employees leave.  Instead, capture institutional knowledge in a searchable knowledgebase, wiki, and FAQs.

If you don’t have a company intranet with knowledgebase built in, get one!

Cross-train team members so you always have redundancy for key positions and parts of your expert system process.

Step Five: Prioritize Key Steps in Your Expert System to Improve First

When deciding which parts of your expert system process to work on improving first, consider the following contribution factors when deciding which step to improve first:

• Will it increase revenues?
• Will it decrease expenses?
• How much time does each take?
• How often is each step performed (frequency)?
• Which can people readily accomplish?
• Which do you hate to do?
• Which do you do you do best?

Once you identify which steps in the process you are going to work on first, come at this continuous improvement effort from a few different angles:

1. What controls do you need to install to monitor and ensure quality?
2. What training do you need to design and implement for effective delegation?
3. What tools or resources do you need to enhance and leverage this step?
4. What expert knowledge do you need to institutionalize in your knowledgebase?

We will delve into the continuous improvement process (“Kaizen”) in another newsletter, but the key here is to work on improving each step in your expert system process until this whole “expert system” is a smooth-running, efficient, quality system that delivers maximum results for your clients.

Step Six: Periodically Reevaluate Your Expert System and Continue Improving It

You’ve heard the adage: “How do you eat an elephant” One bite at a time.” The same is true for building and improving your CRE appraisal “expert system”. You won’t complete it all in one month or even one quarter. It may take a year or more to complete.  

You will want to circle back periodically to reevaluate how it’s running and how effective and efficient it is.  That time period may be quarterly, but most likely, if your small business is anything like mine was, this will be an annual reevaluation and improvement process.

Conclusion

When I first read E-Myth Revisited and I truly understood what Michael Gerber was talking about in terms of the owner/expert starting to shift towards a strategic mindset of working “on” their business instead of “in” the business, and his idea of developing their own “franchise prototype”, never did I think that I could actually do any of this.

But the more I thought about CRE appraisal like an automotive design and assembly line process, the easier it became for me to tackle developing my own “expert system” process for professional CRE appraisal services.  

And that made all the difference in freeing me up to work “on” my practice and build systems that would ultimately make it systems-dependent not owner-dependent and in the process, more valuable, and most importantly actually sellable.