Real Estate

Mike McMullen is the CEO of Prominence Homes and the author of Build. Rent. Sell. Repeat! 

Last spring, the world went into lockdown. As a result, the economy wallowed in economic molasses. A great many companies are still feeling the effects today, and some aren’t around to feel much of anything. 

Doubtless, you’ve heard the platitudes. We’re “living in unparalleled times.” This is the “new normal.” The world “is a different place” in 2021. 

As a business owner, the cliches have a tendency to take on a more frantic sense of meaning. People require food, shelter, companionship, sleep, etc., but businesses rely on cash flow. Without it, they wither and die. 

During the scant months of last spring, a great many businesses found themselves out in the cold. We faced the same conditions, but I’m happy to say that we made it through. And we not only survived but thrived, growing our market share considerably in the process. 

These are the lessons we learned along the way. 

Black And Gray Swans

If we are honest with ourselves, we should have seen this coming. Global pandemics are always a distinct possibility. They’ve happened before and they will happen again. Yet, they are relatively infrequent, and because of this, they tend to catch the market by surprise. 

Economists refer to predictable, rare, tumultuous “earthquakes” like Covid-19 as “gray swan events” or simply “gray swans.” In contrast, completely unforeseen “earthquakes” are known as “black swans.”

I would argue that Covid-19 was a gray swan. We probably could/should have known a global pandemic was a distinct possibility. Conversely, the economic shutdown was a great example of a black swan. Who would have predicted that America, land of the free and home of the brave, would mandate closings? I certainly wouldn’t have. 

So, we couldn’t control the economic shutdown. But by distinguishing between what we could and couldn’t control, we were able to shake off the molasses and move forward. 

Lean Into The Chaos

While we did make short-term adjustments to our office hours (although we never shut the office down completely), we all ended up doing more work during the heat of the pandemic than ever before. And we reaped rewards as a result. 

That is something that often goes ignored about swans: When a big event happens (a bomb drops, the market crashes, a hurricane rolls in, a sector experiences exponential growth, etc.), everyone is affected equally. Good or bad, big events make waves. If you have the wherewithal to hang onto the raft, you might just find that there is more room once the storm has passed. 

Take Calculated Risks

Finally, you need to know when to take calculated risks. When the lockdown hit, we made a company-wide decision to double down. We actually built far more houses than in the spring, summer and fall of 2019, and the decision paid massive dividends. 

The key to taking risks is calculation. Every gray swan can be mitigated with enough forethought. 

For instance, lumber prices have been skyrocketing lately. This presents a sizable gray swan for builders. Some are struggling. But increased material costs and supply shortages are measurable elements — something that happens frequently, something that can be accounted for.

We had assurances on lumber during the summer of 2020 because we’d cultivated amicable relationships with local and national lumber suppliers. We knew we’d have the supply, so we moved forward with confidence. 

My point is that some events take you by complete surprise (black swans), but others can and should be prepared for (gray swans). As a business owner, you have to learn to prepare for the things you can change and accept the things you cannot.

It’s been said that the unthinkable is inevitable, but that the unlikely is merely inconvenient. Entrepreneurs, investors and CEOs must learn to tell the difference between the two.

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