Part 1: Value to Consumers

Most business students at the University of Guelph seem to think that their B.Comm. degree teaches them how to make money and, maybe, how become a millionaire by the time that they are 25.  They find some classes, such as when an economics instructor teaches that revenue just covers costs (in a long run perfectly competitive equilibrium), unsatisfying.  They should listen carefully, since success is harder than most 20 years olds expect: earning profit is a consequence of choices not of good intentions. 

You need to be sort of nice to consumers because of competitors.  The ability to create something that is worth more to consumers than it costs to produce is necessary to make any profit.  I have a gold pan in my office which, to my knowledge, is the only way to make money without being a little bit nice to somebody else.goldpan.1

Students learning about marketing and market analysis learn how to identify which types of people want to buy what, how much they want to buy and how much they are willing to pay.  There is lots to learn but knowing this aspect alone misses the idea of creating value.  Some marketing students also seem to think that you can survive by fooling consumers.  The saying “Fool me once, shame on me.  Fool me twice, shame on me.” suggests that nobody can use this strategy for long.  Ignoring the ethical aspect, which is discussed in another post, fooling somebody may not be effective in a real estate business which depends on a relationships and long term perspective.

Knowledge of the demand side needs to be combined with knowledge of the operational aspects.  In real estate, that means courses like property management or real estate development: i.e. the determinants of competitive advantage and efficiency.  Operations classes can seem like mechanical job preparation but excellent students excel by finding ways to innovate: lot of people can do things differently but real learning is always about learning something new.  Choosing well is vital since earning any profit is a consequence of these choices made by managers and employees, plus a bit of luck.

Recent events in the real estate industry have shown that this Big Idea of Creating Value is critical in a practical sense.  Earning a profit without creating value demonstrably is part of the reason why the fancy-but-flawed financial instruments offered in the U.S. during the early 2000s eventually failed.  The mortgage meltdown in 2007 and 2008 was the observable consequence.  The fact that some aspects of those instruments, e.g. securitization, create value in unexpected ways explains why they remain popular.