078: How to Pivot When Your Business Plan No Longer Works
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We’ll set the scene. You’re at the airport, bags checked and ready to go. You’re enjoying your pre-flight glass of wine 🍷 at 8 am because, as we all know, there are no rules in the airport ✈️. You’re sipping and dreaming about how you can’t wait to get to Tulum, Paris, or wherever your dream destination is and finally relax.
Except, just as the server is setting down your cheese board to go with that wine, you hear a loud and clear voice over the intercom telling you your flight is canceled due to thunderstorms and it’s going to be at least a two-hour delay.
Yup, it happens. And if you’re an experienced traveler, you know this feeling all too well. Whether you’re going to your favorite luxury vacay spot, or just visiting family in Tahoma, plans change– and you’re forced to pivot.
Of course, this analogy doesn’t apply to just traveling, it applies to life, family, and yes, even the best-laid business plans.
At the same time, we’d also say pivoting is necessary. It helps you grow, makes you a stronger leader, and forces you to think outside the box to come up with smart solutions that you will learn from in the future.
Pivoting is necessary for business and can create opportunities to expand revenue. It’s widely agreed upon that apartment syndicators will pivot.
And for fans of the classic comedy show, Friends– we’re channeling our Ross Geller big time with this episode. So let’s get into it!
Some people in that situation would order a second glass of wine and crack open your beach read a little early. Or, you’re the person frantically searching for when the next flight leaves.
There’s two ways of working this out, and the same can be true in business. While pivoting in the 🏢 apartment syndication world is the responsibility of the General Partners, it’s impossible for passive investors to understand the shift in a new strategy.
Sometimes it may entail drastically changing the whole business plan, but even then that’s not always the case.
If you’ve been here for a while, you know we love 🧡🧡 to travel. And our favorite places to travel are often far-off destinations. Of course, with trips like this, planning things out ahead of time is essential and we try to think as thoroughly as we can for each phase of our journey.
👉 What roads do we need to take?
👉 How do we drive there?
👉 What’s our first stop?
👉 And what adventures will we go on each day?
How a trip is planned really sets the vibe. Is this an action-packed, spelunking-in-ancient ruins of Peru 🇵🇪 type of trip?
Or sipping Mai-Tais at a luxury resort swim-up bar in 🏝️ Bora Bora?
Once we settle on the locations and what we’re trying to get out of it, the planning begins. Yet, with all of our combined years of traveling, we can honestly say we don’t think we’ve had one trip that follows exactly what we planned.
Our plans rarely, if ever, truly follow through 100%. Things happen, and with travel, there is so much out of your control. However, ensuring we have a memorable and enjoyable trip, no matter the outcome, starts with what decisions we need to pivot.
Let’s tell you a story about how we almost didn’t make it out of the Argentina mountains 🏔️ during a national holiday. It’s also the perfect illustration for a classic pivot. Like we said, we like to go off the beaten path a little, so we decided once we were in Argentina to take a road trip to Patagonia and settle in a small village called El Chatén.
Again! Keep in mind we had plans set. We didn’t go to this village in hopes we’d find things to do. We knew we wanted to explore the region of Patagonia and take a hike at Torres del Pine. Buuuut something caught the eye of my dear sister Palm.
It was an advertisement for these beautiful mountains and we thought we should totally check it out!
Honestly, it took a lot of convincing for me and our other friend who was traveling with us. We were asking Palm questions like “how would we get there? Where is this place exactly? Do we even have the right equipment to hike this mountain?”
But we both agreed to come.
✅ That was pivot #1. But first, we needed a car. 🚗
Normally, renting a car isn’t that big of a deal but we missed one detail– it was a national Holiday in Argentina, so taxi drivers were unavailable. We went back to our hotel and asked the concierge service if there were any cars available, ya know, to see these glorious mountains Palm had her heart set on.
Luckily they were super helpful at the hotel and found someone to take us. It was a four-hour drive there and they told us whoever took us up the mountain would have to stay with us overnight to take us back down the next day. So we agreed to pay for that person’s accommodations and were on our way!
It was a pretty awkward car ride though, for four hours it was fairly silent as we tried to communicate with our cab driver but our broken Spanish was barely enough to order tacos for dinner.
Finally, we arrived. And just as we were unloading our bags, our cab driver pulls out of the hotel driveway and says he’ll be back for us at 11 am the next day.
Not originally what we agreed to, but we made it work.
✅ Therefore making it pivot #2.
Why You Need to Pivot
Changing course is a necessary part of life. And whether you hate change, or love it, at some point in time you have to embrace it. The same is true for apartment syndication.
All apartment syndications start off with a business plan based on historical assumptions. There’s research on in-depth market knowledge and other data points. The goal is to hit “x” return in “y” years. All these line items are theoretical until we actually take over the property.
Once we own the asset, we get to assess in real time what the property truly needs and what will benefit our investors and residents the most.
The Pandemic Pivot
So, how do you know when you should pivot? For us, it was obvious and recently we had a full circle moment with a property when we sold it in early 2022. The deal we’re about to talk about was a doozy from the start and required quite a few pivots along the way.
Like all dizzying stories start these days, the year was 2020. You remember early 2020 right? People were coming down from the holiday high and claiming that this new decade was going to be theirs. There was a lot to look forward to…
For a good 60 days before ish hit the fan! Around this same time, we became in possession of a great asset under contract in February 2020. We were on the hunt for new investors to bring into this property and start the year off right. After sending out the initial email alerting our investors of this upcoming opportunity, we were already generating significant interest.
Looking back, I think we were a little too confident. Remember joking about how we didn’t even need to host a webinar because we already had so much interest from sending a few 📧 emails?
Yes, and like the rest of the 🌎 world, we had great expectations for 2020! But back then we had no idea what we would be coming up against. Miss Rona had other plans. 🤓🤓
We’re not naive to the fact about how 🧫 Covid has shaped our society today. And we are so thankful for the nurses, doctors, and yes, even our Amazon delivery guy, for being on the front lines during a very scary time.
We’re also incredibly thankful we know how to better protect ourselves with proper hygiene, and more importantly, a vaccine! But back in February and March of 2020, none of these points were known.
Covid-19 didn’t leave a single soul or business unscathed. It changed everything about our business plan and laughed at our silly assumptions about the property we had done so much work on! At the beginning of the pandemic, the industry had a fear that residents would stop paying rent, forcing us to pivot and make major changes to our business plan.
The lenders also had a right to be afraid that apartment owners will stop paying the mortgages and thus required us to have a large reserve held in escrow to cover 18 months of mortgage payments plus 12 months of insurance. ➡️ Pivot #1.
So we decided to face the music and make some adjustments. We came to the conclusion to zero out our rental income growth for year one and leveled off the income increase for subsequent years to just 2%. This, on paper, impacted the return for investors slightly. ➡️ Pivot #2.
We even got the sellers to guarantee us rental income will remain the same for the first six months of our ownership, just to be on the safe side. All of these changes were communicated to our investors prior to them wiring us the funds for their investments in the property.
When we knew we had the new agreement in place, we spent a lot of time drafting the email to our investors and explaining as thoroughly as we could to let them know how these changes will keep the investment conservative. Of course, the returns would be lower than the original performa, but if they found the investment to still be worth their while, they had the option to continue to wire their funds.
So with a heavy sigh, we hit send and sat back fully anticipating every single person to back out. Except, to our major delight– no one did!
The pivot to underwriting was necessary because our number one goal for our investors is their wealth preservation. We will never stick with one version of the underwriting if out-of-the-blue situations suddenly appear and impact our investors.
And it didn’t get more “out of the blue” than a worldwide pandemic.
So, what happened once we took over? 👀 Did vacancy skyrocket? Did residents stop paying rent? Did we have a decline in income collections?
The answer still astounds us to this day. No no no!
Vacancy averaged almost 100% during the entire time we owned the property. Income collection was strong and delinquency was minimal.
We actually kept increasing rents every month while the pandemic lockdown was still in place– even though we did zero interior upgrades to the unit.
Yep, we’re definitely counting that as another pivot.
So, what happened to this property? Like a good Hallmark made for TV 📺 movie, everyone got their happy ending.
In January 2022, this property sold just after 20 months of hold and our investors profited from a 150% return in just 20 months!
That’s less than 2 years– during a pandemic!
Look, if you’re anything like us then you’re in the CIA Control Issues Anonymous. Trust us, we know how hard it is to pivot, it’s not like we were having a jolly ol’ time rewriting projected returns while we were driving each other crazy staying at home all the time!
It’s true, it was a stretching time for both of us. But Cashflow Multipliers, we hope our real-life example inspires you to make pivots of your own when necessary because the result may be even better than you originally expected.
The Perfectionist Guide to Pivoting
So, here’s the deal, if you’re anything like us you’re going to need a guide on how to do this well. We’ve rounded up some of our top tips to make pivoting as successful and stress-free as possible.
Once you decide to pivot your business plan, you must take into account the numerous factors that entail a successful pivot. Here are some tips to ensure that you can reduce the risk associated with pivoting and increase your chances of a better-than-expected outcome.
1️⃣ Tip number one, do it as soon as you can. Whether it’s once, twice, or multiple times a year– you need to do it as early as possible as this helps avoid wasting precious time, effort, and money. Just rip off the band-aid!
2️⃣ Tip number two, pick new goals that align with your vision. Anyone can be a general partner, but not everyone can be a great one. It’s hard and requires a lot of work to be able to hit the projected returns to your passive investors. If the current business plan won’t get the results you expect. You not only need to step back and evaluate, but you need to put in extra time and effort to ensure that your new vision is the right fit for your business plan.
3️⃣ Tip number three, don’t scrap the hard work you’ve already done. Every pivot is different, and not all of them require a radical change of course. It’s important to identify what aspects of your business plans can be salvaged, kept, and reused once you’ve settled on the new direction to head in. You’ve already spent so much time, energy, and money on building them– you should be able to redirect your current resources towards your new goal.
4️⃣ Tip number four, and the final one for today, make sure your pivot presents opportunities for growth. Yes, pivoting can be a useful decision for apartment syndicators who have encountered a roadblock and can go no further. However, if you pivot your business plan in a new direction without much thought as to where you’re going next, there’s a strong possibility that you’ll hit yet another roadblock, just under different circumstances. To prevent this, make sure you not only consider pivoting from your original path, but you take into account the opportunities for growth and expansion in your new path.
Okay, so back to our Argentina adventure, we ended up doing a four-hour trek through El Calafate and it.was.glorious! Totally worth every pivot, and yes our cab driver did end up picking us up the next morning.
The moral of this story is, that in life and in business, we are allowed, and have to pivot and never just stick with the exact plan that we started out with because the results can be even more beautiful than what we expected.
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