Competition will always remain at the core of the success or failure of a business. The need therefore for innovation in today’s saturated market therefore has, perhaps, never been more important. Positive change, however, rarely occurs within a vacuum. Ideas without structure will likely remain as just that, ideas. That’s according at least to Simon Shinerock, Chairman of Choices Estate Agency and Founder of The Advanced Rent Option, who in this latest interview offers his thoughts on strategic innovation in relation to gaining competitive advantage in Estate Agency.

As someone with whom innovation has become synonymous with, I was interested to hear your thoughts, based on your experience, on what it takes to successfully transform an innovative concept into a truly competitive and effective product? I know, from having heard you speak before, that your time spent working at Imperial Life from New Bond St in central London set you up with some of the fundamental business principles that have served you ever since. I was interested to find out what impact, if any, the years you spent there had on your ability to generate ideas?

“I joined Imperial life simply because of their management program. I realised that whatever business I ended up starting, if it involved people, I would need to know how to manage and lead.”

“By the time the course had ended, I still hadn’t had a great creative idea. It was only after putting the things I learned into practice for three and a half years that I started Choices. Even then, my ideas were precocious and not fully matured.”

“What the course did was to provide me with a framework I could use to turn my vision into reality, always on the proviso that my vision was an improvement on the status quo.”

“Indirectly, the course gave my creativity wings, as well as time to nurture and grow. It made it into something practical that could result in real change. Without that course, it’s likely my ideas would have remained just that. Ideas.”

I suppose that innovations can be revolutionary without being disruptive, successful without being revolutionary, both revolutionary, and disruptive – or more evolutionary? Take the Primary Tenancy Model as an example. What gave you the idea in the first place? Transforming an idea like that into a fully developed business model within such a regulated industry can’t have occurred without multiple challenges? What processes did you have to move through to make that a reality? I’m curious also as to how you would class it now, retrospectively, if you had to simplify it into one or any of the above?

“The Primary Tenancy came about as a response to the Global Financial Crisis of 2008. Faced with a very tough sales market, I focused my attention on lettings and was thinking of ways to attract new landlords. It wasn’t for the first time either. Our initial explosive growth in lettings came off the back of an earlier idea I had in 1995. At that time agents were not advertising lettings in the same way: as sales and special offers were unheard of. My idea was to offer full management at 5% plus vat for the first six months. This simple offer, combined with strong advertising unleashed a floodgate of business.”

“By 2008 the original special offer was running out of steam, as other agents copied us. However, at the time, rent guarantees were all insurance-based and presented challenges and limitations when making a claim. I wanted to offer landlords a much simpler guarantee, without the need for insurance. To do that, I realised we would need to ‘become’ the tenant. It was out of this simple observation that the Primary Tenancy was born”.

“There were many hurdles to jump before the PT could become a viable alternative business model. We piloted it for several years before running it through the business, building up experience with operating the model as well as doing a lot of due diligence. Because the PT is a profit rent model and there’s no VAT on a profit, we had to get through HMRC, who needed to accept the inherent benefits of the model that go beyond the tax implications. We also needed to build up experience with our regulators such as the ombudsman and Safeagent. As we gained experience with running the PT, we kept discovering advantages for tenants, landlords, the regulators and of course, us, as a business.”

“I’d say the Primary Tenancy is evolutionary rather than revolutionary. It takes the benefits of regular agency as well as all the other components of the business and builds upon them, rather than replacing them”.

Having been described as a disruptor, which innovation/s, to you, stand out as having been (or still are) disruptive?

 “Along the way, I’ve introduced several variations on the establishment theme in sales and lettings. Even in my Financial Services days, I introduced innovation to the way pensions were sold. When I founded Choices in 1989, we started trading using a novel way of charging our fees. We asked for an upfront fee plus a reduced commission on sale based on the formula commitment + incentive = effectiveness. It worked well, giving us over 70% local market share. It only eventually got replaced because volumes fell so low, and I, perhaps erroneously, wanted to try something else”.

“My next approach to home sales was based on a ‘total freedom guarantee’ a contract the seller could cancel at any time without the usual lock-in period, I was a big and vociferous critic of sole agencies (and in some ways I still am), although experience has helped me see both sides of the story”.

 “I then introduced an incentive-based commission structure where we earned far more of our fee on performance than on the established flat fee commission system. Then, in 2008, once again, in response to the financial crisis, I innovated a buyer pays the fee model which we still use today – and I believe is a great response to a supply driven market which lacks enough property to go round”.

 “However, no matter how good these ideas were, (or I guess, how bad), they were not on their own decisive enough to be called disruptive (because in agency other factors like people and processes trump good ideas). To be truly disruptive, an idea has to have such a powerful basic attraction power that once refined it literally lays waste to the competition.”

 “With the Advanced Rent Option, we have just such an idea. Like the best ideas, it’s simple. It attracts landlords by paying them a year’s rent upfront. But also, like the best business ideas; to offer it, there is a very high barrier to entry. Not only do you need the cash to do it: you also have to have experience operating a profit rent business model like the Primary Tenancy. It’s still early days but the signs are very good for ARO. It’s growing very fast, both with us directly and with selected agents across the country who are tapping into its potential to grow their businesses, with our help.”

If your agency is an adopter of the ‘more for more’ strategy; to what extent do you think an innovation, when marketed well, however revolutionary, has the capacity to persuade a landlord to have their properties managed by you, when perhaps they are paying a lower management fee (or even self-managing)? Or are the ones that need persuading not really the ones you want? What has been your experience of this? I imagine there are distinct audiences that ARO appeals to for example?

 “There is no doubt that some people, not just landlords, have fixed ideas, that although wrong, can’t be changed with reason. So, a landlord who is prejudiced against all agents and believes ‘agents do nothing for the money’ won’t give up that view, even in the face of facts that disprove it. Prejudices by their nature just adapt to the facts to preserve themselves.”

 “Frustratingly, this means that although they may be attracted to the ARO; because they value the agency management service at zero – they see the management fee as more of an interest payment. Judged as such, it’s deemed as expensive, as opposed to free. Of course, landlord opinions on the value of property management services will always fall within a spectrum. Some landlords don’t need convincing, as they are clear that a good agent is worth their fee. Others are in two minds, and their concerns often manifest as a price objection. Some are prejudiced – and no amount of persuasion will change their view that an agent’s service is worthless.

 By having a significant point of difference between you and your competitors, it makes it a lot easier to deal with price objections, but it’s interesting to note the best agents generally charge the highest fees. I believe that in agency choosing a cut price agent is a false economy – and you usually get what you pay for. In the end, I’d rather go with a great agent with a boring established business model than an average agent using a great business model. People are still the key component of the business. Our people are trained to provide a great service, but also to qualify the enquiries we get and select the landlords we want to deal with rather than trying to sell to everyone.”

 If you were 22 again now, would you start up an Estate Agency in the current climate? What advice would you give to someone considering doing so?

 “Sadly, I probably wouldn’t because I’d be put off by all the bureaucracy regulations and compliance. It’s one of the reasons why I left the financial services, because regulators were strangling the business unnecessarily. It’s a contentious subject and despite the promises of successive governments to cut out red tape, the opposite is happening. Being an optimist, I think technology will eventually come to the rescue: but only once all the different systems are joined up. If I were starting out today at 22, I would probably look at how products and services are sold, choose one I felt had potential and try to improve it.”