Jason Cochard for Land Academy
I’ve been reading a book called Measure What Matters, by John Doerr. It’s a book about management in business, and the history of a concept coined at Intel by its VP and then-future CEO Andy Grove, called Objectives & Key Results, or OKR’s. John Doerr was a young employee of Andy Grove during the push to get their Intel 8080/8086 series microprocessors to beat out the Motorola 68000 series in the key metric of “design wins”, which is when an OEM designs their product around a given microprocessor. Typically, an industrial product design won’t switch architecture after choosing a microprocessor, so there is a long term buy-in effect. Great example: Apple used the Motorola 68000 in the first Macintosh, in 1984, and it took until 2004 to switch to Intel, a decision that Steve Jobs has been open about being extremely difficult. The book isn’t about microprocessors, but uses it as an example of Intel’s organization-wide culture of using structured goal-setting — Objectives and Key Results — to become focused and aligned from top to bottom. I won’t spoil the book, but you will learn quickly that this system of OKR’s was introduced to two young upstart entrepreneurs after Doerr’s venture capital firm Kleiner Perkins invested in their company, Google. The book has no connection to land investing, but the efficiency required for successful land investing has such a huge connection (or, potential connection) to structured goal setting that the system of OKR’s bears mentioning here. It’s good enough for Google, Intel, and the Gates Foundation, after all. OKR’s are split into two components, an objective and a key result.
The objective needs to be a specific goal but on its own may have ambiguity on what constitutes success or failure. A key result is the companion of an objective, and must contain measurable metrics that can be tracked. To avoid getting too focused on details, any objective should have only 2-4 key results. It’s easy to think of key results: I want to flip 10 properties a month. I want to make $5K on each flip. I want to make $50k on each flip. Those are obviously measurable, but in that form they’re divorced from meaning, and the objective provides meaning.“I want the freedom and enriched relationships that come with a lack of debt and a solid cash flow.” That’s a broad objective, but you can easily see the meaning that it provides. You can argue about whether you’ve reached it because by itself it’s a bit subjective, but when you add an inherently objective key result and put a deadline on it, you will become so focused on that goal, with your progress always remaining within view and within grasp, due to the measurable nature of the key results. Now, let’s think of some key results for that objective, so that you’re able to gauge at any moment whether you’re on track. Your key results might be:
- Make $15,000 free and clear take home money per month
- Do 10 deals a month
But those are ill-formed results. They’re measurable, but I would argue they don’t measure what matters. I’m glossing over a lot of nuance that is found in the book here, but when you measure what matters, and work towards the goal within that context, meeting the objective will usually take care of itself. So instead, I might set these as my key results:
- Increase mailer “yes” response rate to 2%
- Send a minimum of 5,000 letters per month
- Decrease average time holding/owning properties to 20 days
There’s a lot to consider here, and these are just examples. But these metrics are deeper and more nuanced than “do 10 deals a month” or “make $15k per month.” The second set will give you more insights over what’s really going on and driving your success or failure. The possibilities are endless for how you measure success. Let’s say you’re currently flipping rural vacant land. By sending 5,000 offers per month with a 2% yes rate, you’ll get 100 people saying yes. But a 2% yes rate is difficult, so you’re probably at 0.5% or 25 yes responses. In order to achieve the 4x increase, you might need to be offering slightly higher % of market value than before, or do a better job of finding areas with likely sellers. As you start to measure these things, you’ll begin to determine factors that increase your “yes” response rate. Of course, you’ll inevitably encounter properties that have problems, so you’ll never really buy them all. Increasing the yes rate % will give you a larger pool of deals with fewer problem deals. That’s good for cash flow — glad you measured it.Sending a minimum number of letters per month will keep the deal flow timely and current. 5,000 will ensure that you at least have something to consider purchasing at any time. You’ll almost always have an opportunity to collect some equity. Then, in order to decrease DOM, you’ll probably need to decrease your margin. Decreasing your margin will make the sales flow faster, but because the money is turning faster, you get a faster compounding of the money, thus having shorter DOM is more important for your long term happiness (the objective, after all) than squeezing every last cent out of every single deal. I’m sure there’s a curve you could graph here, but you wouldn’t know the sweet spot until you measure it. Of course, if you’re doing that many deals and not outsourcing certain parts of the process, then that will have an adverse effect on your long term happiness and time management. You or your spouse will resent the cash flow because it comes at the expense of your time. What could we do to fix that? The short answer is obvious: outsource. But how do you measure the effectiveness of your outsourcing? Could it just be a feeling of having more time? Yes, but why don’t you set another objective that relates to time, and set up some key results to measure that. I’ll let you do that one!
And of course read Doerr’s book Measure What Matters, it’s pretty great. I enjoyed what the Motorola exec said to the Intel exec about the plane ticket, but I don’t want to spoil it. I recommend the audiobook, as they cast different readers for the various case studies in the book. Let 2019 be your year of implementing OKRs in your business.