The DNA of Multifamily Digital Transformation

All right. So on today's episode, we are going to be talking about the DNA of a multifamily digital transformation. And listen, I get it. You are thinking about your business being more modern, introducing new technology, and we gotta be up and up on everything that's going on. And there's so many products and services out there. How do we bring them into our organization and how do we make them stack up so we can create this competitive advantage for our companies and ultimately, drive better cash flow so we can reinvest in our business and our processes? So that may be why you're doing this, but the reality is it's not easy. I'm sure you already know this and so many things about how we do this.

I'm gonna set you up with a little analogy, in that real estate developers truly get this and they have the secret and I don't think that anybody's really unlocked it and that when they build an apartment building, they have a vision for a future. They know who's gonna be in the building, who they wanna rent to. Some cases they do. Sometimes they don't. They see the land as an opportunity and they're going to help that community do great things and in a future forward, people will be celebrating birthdays in the homes they build and there's a lot that has to happen for that victory to be achieved. So, going into this process, they have a mindset that it's gonna take time. They've got to enroll the community, they have to have legal in place, they have to have financing in place, they have to understand supply chain and construction processes and selections of projects. And they're set up as developers to think through this three years, four years down the road, even if they're flipping it, which means they're in a mindset to know like they're not going to get income right now but there will be a big payoff if we do these things right. And with that mindset they're thinking about the future, because by the time a customer rents the apartment it may be further down the timeline from today. So they're sort of already set up to think big and think long-term in some aspects. Right, it's very important to think like that in technology. Now, what they also know is they engage an architect. Right, they have engineering disciplines, they're landscape architect, you have a regular architect, general contractor. You have all the disciplines of all the people that are going to come together and make this building come together. It's not done with one person and they don't try and do it themselves. They coordinate and they project manage, they budget, they forecast, they put the resources in the right areas. All right, so that's a pretty good setup that, hey, if you could do that, you could do this technology stuff.

However, what happens when you buy technology, the same real estate developers, the same operators it's not maybe short-term thinking a little more short-term thinking Is they just? It's almost as if they saw, like, as a developer, they saw land and decided let's build something there, and they're like all right, let's go to Home Depot, let's go to Lowe's, let's get some stuff, and they start putting lumber in the yard and in the ground and let's go start building things. How winky would that building be? How long would that building last? Would there be ongoing repairs and problems? Would customers even want it or enjoy it? Probably not. Yet that's the way we go about buying products and services today. We're buying it from products that were developed without an understanding of our business. And I'm not talking about just because somebody knows multifamily, but your business. Do they know your business? The way you've set it up, the way you've structured your processes? Probably not. And so there's some tension there to digitally transform your business, because I know you want to do it. It's just hard to do Now.

Recently, when I completed my certificate at MIT, leading under or learning under Dr George Westerman, he talked this was for applied generative AI and digital transformation of the business, and in there there's deep technical neural networks and AI and large language, like all the stuff to know from an engineering standpoint, but it's paired with really good business stuff, and one of the takeaways from this experience was you know, it's not really the technology that's the solution, it's probably you, the leader, that's the solution, because, as we know, in multifamily the technology to fix all of our problems already exists. Right, the technology is there, and sometimes we only look inside multifamily for options for solutions, as if, I don't know, healthcare hasn't solved that problem, or the automotive industry, or space travel, right, restaurants who else has customers? Car washes who else has got customers that have done things that we can learn from? So digitally transforming an organization is hard work Number one.

A lot of times in W2, employees meaning people that have a single flow of income are challenged with this and they're not always supported, because the people that created the wealth have never had to do this and they have lots of money now to prove that they were right. So you have a new employee that's excited about the possibilities of the future, and why would they take a risk of their own income to put pressure on themselves to fall flat? So through, like the multifamily innovation council becomes a great frequency to support those organizations that are trying to make those moves, but just know it's not easy. So if you're trying it and you're not doing it, don't just sit tight, take a breath. Let's focus on the capabilities and move through this. So at MIT, we went through the DNA of a digital transformation and I'm applying this to multifamily and I'm gonna take you through that here in just a moment. The framework Think of it like a two up of you know, a Y and X axis. Right, you got two different things we're going after there.

But what's most important about Dr Westerman's study is you know, in In just the media and all the news and noise around, what's happening with what leaders should be doing. Just listen to CNBC every day. Right, it can feel like a lot of pressure to do something and if we rush a process, nothing goes happens. But what Dr Westman did is he we've studied, we're seeing the news a lot of like Apple and Tesla and Amazon and all these great companies doing these innovative things, and that's great, but it may not apply to you. It may not matter in your market with the way you've structured things, the way they do it or what they've done. And so, while it's nice to hear those stories and see the exciting trends, what will really make a difference, though, in your business and Dr George Westman studied this many companies, some of the all the you know most of them, and we'll go through the research line by line, but I will tell you the takeaway from this was he was looking at the boring companies that were doing interesting things, and what he was looking for was what, what were they doing that was making a difference?

And he ended up with a two up. And I mean, you know, if you were to draw four squares on a paper, the bottom left would be beginners, and that means that they're low on digital capability and also leadership capability, okay. And on the far right box, the lower right, would be conservatives, right, so they're high on leadership capability. They've got a great vision, right. They're. They're doing great things, a lot of focus on governance, right, and then so on the bottom is, if you were to draw this box, you don't want to be on the bottom. On the bottom, on the left, is beginners. On the bottom, on the right, is conservatives. Now, as you visualize this, as you listen, the top left is what he calls the fashionistas. Right, these are the ones that are like the early adopters. They're high on digital capability, they're the ones to try the new thing. They're beta testing, they're stacking things on top of each other. They're go go and they're not really connecting it all together into like a single platform or digital platform. They're just adding, adding, adding things. They're early adopters, right. And the top right, which is digital masters, is where we want to be. That's what we're all aiming for, which means that you are high on digital capability and also high on leadership capability.

Now, what's fascinating about digital capability because here we are talking about the DNA of the multifamily digital transformation is in order to have digital capability. You're focusing on customer experiences, right, you're focusing on the operations, the employee experiences. Also some business model stuff, right, you've heard centralization and all these other things, but in that digital capability, there's no mention of tech. There's a mention of customer experience. There's a mention of operations. There's a mention of employee experience, of business model and a digital platform to connect it all, because when it's connected, all you have experience, you have the better customer experience, you have the data right. You may have a different model as a result of that, and that's what's fascinating. That's why I tell you, it may not even be tech as the answer. It may be the digital DNA transformation of your multifamily company through leadership. That's the answer and having that technology to connect everybody through the process. And so again, he's looking at these boring companies that are doing interesting things. There's a lot of studies and there's been written about this too.

Now, the digital masters are both high on leadership capability and digital capability. Now, leadership capability means they've got a great vision and with that vision, they're engaging their employees right and they have the right technology and they have the right leadership in place and they've created a digital ready culture. That's the digital master. You have a vision for the future, you're engaging your employees, you have the right technologies, you're connecting those technologies into a single digital platform, you have the right data, you have the right leadership and you have a digital ready culture.

Now, conservatives on the opposite side of those things right, the bottom right. This is where most multifamily is right now. Now, when I say that, it's whenever we hear we're behind. And behind to whom? Because somebody's cashing checks and they may be for what they designed their business for. So nobody should tell you how to run a business unless right, well, you're the owner. The owner of the investor is decides what happens. There are the ones taking the risk. Right, we may have ideas, but the conservatives are just, by nature, so much wealth has been created in multifamily that they haven't had to take any risk. You know, we've just been able to get away with just keep raising the price on the customer. But I will tell you, the path to leadership of the CEO of the future is not like the really wealthy CEO. It's the technology. Even if you look at Duncan Donuts, the CEO's vision is like to support the franchise with technology resources, and now they got some innovation and ads and things like that selling donuts thinking about technology. So we've been able to get away with just charging customers more.

If multifamily is about creating wealth, two of the wealthiest people on the planet care about A Bezos with Amazon that the customer of the future is going to care about costs and we're going to try and get people what they want without friction and at a lower cost. He just kind of innovates to knowing like people are always going to want lower costs of things. He's thinking about his customer, so he's got a lot of them. Elon Musk, when asked about supply chain and all these other things like are you going to raise the price of the Tesla? And he did his famous like pause and think and think about this answer, give a thoughtful one. And he said it's not that we're trying to lower the cost or increase the cost of the car vehicle, it's that he's trying to increase the value of the vehicle. And I don't think we'd think about that in the multifamily industry.

How do we increase the value of the leasing experience we're thinking about? How do I buy a property? How do I put some money into it, fix it up, rent it for more, sell it to somebody else at a higher rate, and I'll make my profits and find another one and repeat the cycle. The problem is, every time somebody does that, the basis gets higher and higher and you end up with where everybody loses and there's market crashes and regulation comes in, because you can't just keep expecting the customer to pay more. You're reducing the customer's purchasing power and you're pushing people, you're pushing customer segments, out of your market. So we've been able to get away with that, which is fine. A lot of wealth has been created and a great experience has been made in multifamily and apartment living. But I can tell you can do both. The investors should still get returns.

Rent healthy rent increases are great for markets. People want to pay for great things, people want luxury brands, people want to pay high prices for things and there's value. The value has to be more than the cost, right? So when we're thinking about that, that tells you, as you're digitally transforming these organizations, to think about ways to increase the value of the organization and the renting experience, the employee experience. Imagine increasing the value of hiring somebody at your organization that you can only afford to pay them this because of the budget, but you're increasing the value of them working there by providing them access to investment strategies, access to meetings that are taking place, that they're learning how to be an investor themselves and maybe they go off and buy their first apartment transaction and create some wealth for themselves and, by the way, they stay working with you because you made them that or gave them access to that, the loyalties there, and now you've got an employee that it doesn't have to work there but wants to work there. It's a really great thing if we can figure this out.

What I mean by that is in conservatives, they're too focused on governance. This is the organization that doesn't want to try something new, doesn't want to move. They want to play it safe. Some of the biggest companies I talked to in the industry that you all know they ask questions like who else is using that? Well, what about this company? It's almost as if they don't trust themselves. It's because of safety. They're going for safety. They're basically saying well, that company over there said yes, makes me feel better, that should be an easier decision. I can make that decision. We need to trust our own instincts. We need to trust our own leadership capability, we need to understand our own communication styles, all that stuff, and we need to trust our own failures, because that is where we learn.

But in the bottom, let me describe the two up here. At the bottom of the four square, you have the beginners on the left right, you have conservatives on the bottom right. At the top, you have fashionistas on the left and you have digital masters. On the top, right and at the bottom axis you have leadership capability, and on the left axis, leading up, you have digital capability. So, fashionistas the top left are high on digital capability, low on leadership capability. Digital masters are high on digital capability and also high on leadership capability. That's the goal. It's the conservatives that are low on digital capability but high on leadership capability, and they're high on leadership capability because they have records of history, years, legends of success, piles of cash, strong governance, big properties all the way around the country and the world to show evidence of success, and they're too focused right now on governance, and that can keep you out of the game. So what we can do is we can focus on increasing our digital capability, thinking through how we can move organizations to set a new direction, right Eye, that vision of what you wanna do with your organization and just be the. It's not the tech that's gonna solve you, it's the. Don't get off track. Get on track and get the people together aligned with your vision.

Now let me give you a few stats that are important to know around why it matters the fashionistas, as I mentioned, they're. Those are the ones that are innovating like crazy, but they're not tying everything together. And the conservatives on the off, parallel to that, are being really careful. They're essentially trying to not waste money, but they're really not innovating the way that they should. Now the fashionistas what they're doing? These are the ones that are early adopting. They're going crazy, going fast. They're driving more revenue through their capacity because they're trying more things, and you can get some false signals with that. They can feel like progress is happening, but what happens is they have a lower profit margin. Now, on the off, parallel of that, the bottom right you have the conservatives, and they're not necessarily wasting money because they're not trying anything new. They're not off being distracted, but their profit margins are good. Right, they're the ones doing really good on the profit margins, but they're not driving revenue like the competitors are, so they're leaving some money on the table. Now the digital masters, which is at the top right these are the people that are putting it all together. They're sort of reinforcing their feedback loop with their employees. They're driving a 9% more revenue and 26% higher margins compared to the other large companies in their industry.

So if you're conservative, you're gonna miss the game. You're gonna miss some opportunities. You're gonna be playing it safe. You can play in a lot of governance, but you're gonna have good margins, but you're gonna leave some revenue on the table. You have to start thinking about what that means to your financial equation. And if you're fashionistas and you're just trying a bunch of stuff fast, fast, fast and you're not getting the leadership capability up, then you're getting false signals. You're growing revenue, it can feel like there's growth, but your margins are lower and it's not good.

So what we wanna do is we wanna get you up to the top right, which is that digital masters, high on digital capability and higher in leadership capability, and you are pulling it all together, engaging your employees around your vision, bringing it in the right technology, and you have the right leadership and you have a long-term view, like you do in the development process, as I opened up this episode. So I hope this was helpful. There's a lot more to this process, but the takeaway that you wanna understand is the technology choice itself is not the answer. It's your ability to lead and develop the organization in this way, and that's the unique ability that you have and probably want to develop. So hope you guys have a great episode. If this was useful, please let us know in the comments, or if there's a way that you wanna engage with us, you can go to multifamilyaipodcastcom. You can leave us a message there, you can leave us a note, let us know what other episodes, whatever content, you'd like to hear, and we'll see you guys in the next episode.