BEING A CONTRARIAN CAN PAY OFF
Making strategic decisions that defy conventional wisdom can often pay huge dividends. Earlier this year, hedge fund manager Bill Ackman believed that the coronavirus pandemic was a massive risk for the United States, its economy, and global financial markets. He was able to invest $27 mm in hedges, which turned into $2.6 billion in less than a month. He then took most of those gains and bought the beaten down stocks of companies like Starbucks, Berkshire Hathaway, Hilton, and Lowe’s— stocks that were available at “fire sale” prices, yet will most certainly go up in the long-run. He was a contrarian and saw the opportunity: this is why he is a billionaire.
At the absolute height of the 2008 financial crisis, when markets were tumbling amidst a wave of bankruptcy filings, Warren Buffett penned an Op-Ed in the NY Times urging investors that now was the time to buy American stocks. He followed through on his recommendations and purchased equities in many American companies, including Goldman Sachs. Ten years later, his advice proved to be correct. The S&P 500 was up 130% and Goldman’s stock had jumped by approximately 196%. Both Buffett and Ackman demonstrate the immense benefits of going against the grain.
ONCE IN A LIFETIME OPPORTUNITY
“Whenever there is change, whenever there is uncertainty, there is opportunity” ~ Mark Cuban
I believe we are at the beginning of a once-in-a-lifetime opportunity in our industry. More vacation rental inventory will be spawned out of this crisis, and during the next 6-12 months, we will see more management contracts change hands then we’ve seen over the last decade. Second homes that have never rented before will begin renting. “Rent by Owners” who were frustrated by cancellations and dealing with irate guests will be happy to turn them over to professional management companies. And unfortunately, some management companies will not be able to make it through this crisis. Vacation rental managers that seize the opportunity of this inevitable wave will be poised to grow exponentially and be well positioned on the other side of this pandemic.
A study by management consulting company McKinsey & Company found that when the economy turned down, as it inevitably does, the most successful companies looked for opportunities to expand. These companies increased their valuations by more than 38% over companies that simply battened down the hatches. The most successful companies found opportunity and pressed their advantages. As companies today look to weather this storm, they should consider that managing risk doesn’t mean avoiding it altogether. Echoing this sentiment, an article from Harvard Business Review in 2008 talks about Steve Jobs’s strategy around capitalizing on the opportunity of doubling down during recessions. “... we would be ahead of our competitors when the downturn was over. And that’s exactly what we did. And it worked. And that’s exactly what we’ll do this time.”
WHERE WILL ALL OF THIS INVENTORY COME FROM?
Our agency, Vintory, specializes in helping vacation rental managers grow their inventory. One of the steps in our sales and marketing system is to create and define personas of potential inventory targets. There are several personas that I feel will be changing hands with the current state of affairs. First Time Frank, RBO Ruby, Upset Ulysses, Venture-Backed Victor, and Shut Down Sheldon. I’ll go into more detail on each below.
First Time Franks
In the midst of the Great Recession of 2007/2008, my business partner at Vantage Resort Realty and I were targeting just about every property owner in Ocean City, MD. As we started signing up new properties, we found an interesting phenomenon: about 25% of the owners we were signing up were “First Time Franks,” second home owners that had never rented out their homes before. They were forced to begin renting their personal vacation homes, their prized possessions, due to their personal financial situation related to the downturn in the economy. Given the deep financial impact Coronavirus has already had in just a short period, I am predicting that we will see a similar situation to the Great Recession where countless homeowners will be forced to rent out their homes when previously they would have never considered it.
RBO Ruby has been self-managing for several years now. She lists her home on Vrbo and AirBNB and times have been good to RBO Ruby. She casually does this on the side while taking care of her 2 school age children. However, recent events have changed how Ruby feels. The wave of cancellations, wrestling and arguing with guests over refund policies, and having thousands of dollars pulled directly out of her account have all left a bad taste in her mouth. Now, Ruby’s cleaner has stopped cleaning leaving her in a pinch. She desperately seeks reliable, professional management. RBO Ruby is ripe for the picking.
Justified or not, Upset Ulysses has been extremely frustrated with his current management company. He feels that they have given “his money” back to guests. He doesn’t understand that in some cases, it was out of their control and dictated by the OTA. Ulysses is also upset over the lack of communication from his current management company. Ulysses has already started calling other management companies looking to make a move.
Venture-Backed Victor is listed with a large, venture-backed, national conglomerate. He was impressed with their slick marketing and claims of technology. However, Victor’s management company has had massive layoffs and furloughs leaving Victor unable to communicate with anyone. He has called and emailed dozens of times with absolutely zero response. His primary contact is no longer there. Even his secondary contact has been laid off. He feels vulnerable about the status of his home. He just wants answers! Victor will most certainly be looking for new LOCAL management.
Shut Down Sheldon
There is a new persona that we have never defined previously but will most certainly come into play in the near future.... “Shut Down Sheldon”. Shut Down Sheldon is a homeowner that is left “manager-less” after their management company has faltered and gone under. This is an unfortunate consequence of our current situation. I feel great sorrow and pain for the companies that inevitably will have to close their doors due to this black swan event. Nonetheless, it is going to happen and there will be tons of inventory looking for new management.
A well laid out plan to get in front of these personas is essential right now and time is of the essence. Clearly defining each profile and segmenting your data by persona will make your marketing much more effective. Ideally you can customize your messaging based on each persona’s pain points and how each of your unique selling propositions (USP’s) solves those pain points.
There has never been a better time to step on the gas and grow. As counterintuitive as it seems, don’t hunker down. If the forward-thinking of Bill Ackman, Warren Buffet, and Steve Jobs can teach us anything, it is that great results can come out of a time of chaos and uncertainty. By using the unique circumstances we are all under to your advantage, you can come out the other side in a fantastic position that could have the possibility of setting you up for years to come. This is a once in a lifetime opportunity— don’t miss out on it!
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