Trailblazers Interviews: Cat Carmichael
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[Jon] Well, hello, and thank you, everyone, who’s tuning in. Glad to have you for another in our series of trailblazer interviews with the examining of what’s going on in association management and turning to experts, executives, consultants, folks who really live and breathe this industry, to make sense of what’s changing and how you can react. I am thrilled to be with Cat Carmichael, CEO of Strategy 1 2 3, to dive into today’s trends and challenges and have some fun along the way. Thanks for being here.
[Cat] Absolutely. It’s a pleasure.
[Jon] And for those folks who– I think a lot of people will know you from your various leadership roles in the industry. But for the folks who don’t, why don’t you give a little bit of a background?
[Cat] Absolutely. Thanks, Jonathan. I am thrilled to have made the community association industry my home since I graduated from college. And in that time, I’ve had the opportunity to see our industry from a variety of different viewpoints. First, I had the experience of working as a community association manager. I sat in that seat for about 15 years. Then I transitioned to a community association banking professional. I had the opportunity to be in that seat for about 15 years. During that time, I felt that it was really important that I contribute to our industry as a whole. And I sat on the membership representation group for CAI for the Business Partners council, and I also earned a position on the Board of Trustees, where I was the 2019 president of the board. My current position is the CEO of Strategy 1 2 3. I started my consulting business about four years ago because I realized that many owner-operators who started their management company with a vision didn’t quite know what the end game looked like. And so Strategy 1 2 3 helps people create exit plans so that they can enhance the value of their business and ideally sell it to the person that they want, at the time they want, for the amount of money that they want.
[Jon] You have viewed the industry from so many angles, which gives you the perspective, I think, that management company executives need, especially as you’re thinking about that pivotal moment of selling. We can dive into some of that expertise. I am curious. One of the things we talk about is the role of technology, the growing role of technology, and how that factors into your conversations with management company owners and executives as they think about transferring or selling their business.
[Cat] Well, that’s absolutely right. All good conversations between industry professionals go really deeply into what actually matters to people. So whenever we have conversations about technology, we’re never talking about a product because the product isn’t what matters. What matters is the outcome that the product creates. And technology, from an exit planning standpoint, is really important because it’s a key driver of value. So, for example, I know when a management company has a certain amount of revenue, I can divide that revenue by a certain multiplier and I understand how many employees they have. And I know what those numbers are. So if you have, let’s say, for example, $2 million in revenue, industry averages, you should have 20 employees. So if you’re looking for a good value indicator, it’s how many employees do you need to create the amount of revenue that you have. Technology clearly is the bridge for that. So if you have $2 million in revenue but you can do that with only 16 people, your company has just become much more valuable.
[Jon] That’s a fantastic breakdown. I really appreciate it. And you also played a big role in pushing technology forward in this industry, specifically around connecting some dots between banking and accounting. Right?
[Jon] And that has really taken roots and become sort of canonical or a must-have in this space. I wonder if you might take us back to how that originated and your perspective on where that is today.
[Cat] Gosh, yes. I mean, it was fascinating to be at that table when the earliest conversations were happening between the bank that I was with and Caliber Software. We know that there’s stress in this industry to provide services that are routine and repetitive. So if we can predict that something needs to be done, can we have our systems do it for us? And that was really the genesis of the conversation. We started talking about what is it that’s knowable in the bank that needs to be knowable in the software, and how can we connect those two things. And luckily, those conversations were brought up with the best minds in the business who recognized what we’re trying to accomplish, right? We’re trying to make the systems do the work that the systems can do so that the very, very expensive employees can do the work that they can do. And so that’s exactly how that conversation started. My bank started the first API, which was able to take information out of the bank [Square?] processors and provide it to the software platform that would then [ingest?] it. So when you think about the number of steps you eliminated by having the systems talk to each other, it was a game-changer. And that enabled us to start telling a completely different story. And you’re right. We started with a handful of integrations, things like automatic lockbox posting, automatic interest posting, those types of things. And it evolved into a much more robust back-office system. So now between the banks and Caliber and most of the other software platforms, you’ve got at least 15 to 18, maybe 20 automations now that eliminate human touch, that creates a much more beneficial experience for the employees and a much more beneficial experience for the homeowners.
[Jon] The wrinkle that makes this rewarding but also challenging is there are a lot of constituencies in HOA.
[Cat] Well, there are. I mean, you’re right. There’s a lot of different stakeholders. And the experience of every one of those stakeholders has to matter when you’re developing systems and procedures. So the CEO, for example, is trying to fight the commoditization that happens in our industry and drives prices down. So board members who contact a management company for a potential partnership often will simply ask, what do you charge? Well, that’s not really a fair question because the manager doesn’t know how much time they’re going to need to spend, what the board’s expectations are. They don’t know any of that stuff. So the CEO is really looking for a way to differentiate their company so that they can charge what they’re worth. And trust me, they’re worth a lot. The services that they provide are very, very high-value professional services, and they should be paid accordingly. So the CEO cares about that. They also care a lot about attracting talent, right? Hiring is hard, so they want to have systems and procedures that make people want to come work for them. So they’re thinking about those two things. The manager is thinking about, how do I be the best advisor and support for my board. They’re trying to help the board have a good experience. They’re volunteers, too, so they need to be relieved of some of the routine things that could bog them down and keep them from truly being that trusted advisor for the board. And then the homeowners expect us to behave like every other technology they interact with, which is basically a 24/7 self-service, kind of instant gratification-type thing. So when you’re developing software, innovative people out there who do this stuff, you’ve got to think about what that means to every one of those stakeholders.
[Jon] Yeah, and that’s certainly our approach and our intent, and there’s always room to improve. But it’s an exciting journey and charter because you are affecting the lives– you’re trying to improve the lives of so many people and help them achieve what success looks like. One thing you said a minute ago really struck me and I wanted to get back to it, which is that when a board member calls, the first question they might ask is, what do you charge? And what the management company executive wants to open with is the services they provide and the value that the community will derive from those services. I’m wondering, from your vantage point, what are you seeing among the, let’s call them, [upper-crust?] management companies, the most successful, that allow them to really stand out?
[Cat] So what they have to do, of course, is to have the right platform on which to scale. So the beautiful thing about success and growth is to be able to increase your revenue without adding overhead. So having the right foundational platform is 100% common among all of them. They have to be able to have systems that work for them so that they can sell what is the most valuable thing, which is their manager’s time. So that’s the value proposition, right? They have to get boards to start thinking about their professional managers just like every other professional advisor they have. Because while it is the board’s community, they don’t know what the manager knows. They simply don’t. And the worst thing that a board can do is to micromanage a manager rather than let them help the board just achieve the outcomes that the board wants. So boards should not be doing things like waiving late fees and things like that. That’s not a board function. That’s a simple policy issue that the manager could execute on. The board should be thinking on a much grander scale. What’s my vision? What is our community like? How do I enhance value? How do people choose to buy a house in my community than a neighboring community? So people understanding their roles is really a function of leadership, and that starts from the top. The CEO has to be able to express what his or her expectations are of their managers, and the managers need to express what their expectations are of their clients. It’s fun that way. I mean, this is a really fun job. I can tell you it’s fun because I’ve done it. I did it for 15 years. And getting the right kind of customer perspective starts with the manager explaining to the customer what their job actually is as a volunteer member of the board.
[Jon] Yeah, that’s really well-put. And again, there’s a theme here of professionalism and treating this like a profession and the board members respecting the expertise community manager. Although the flip side of that right now, any conversation, I think, in this period that talks about community association managers has to acknowledge staffing. I know you’ve spoken about staffing shortages on a few occasions. Is there an end in sight?
[Cat] Well, we have to definitely change the perception that our industry has. I’m extremely proud to have been a community association manager. It’s part of my DNA and it’s something that I will always be. So I think that we do need to change the perception of the industry. We need to do a better job at helping people understand the career viability of this job. It’s not only satisfying to help communities become better places, but it’s a well-paying position. The CAI Foundation for Community Association Research just published its recent salary survey, and the numbers are higher than they’ve ever been. And especially for community managers who have professional credentials and education, the numbers for them are even higher. So one thing that you mentioned to me earlier is absolutely true. You said as risks increase, so is the demand for expertise. Well, not only has our industry got a big job to do, but the risks of doing it wrong are life and death. So managers have to be risk managers. They have to convey important things to boards so boards can make good decisions about how to budget, how to reserve, how to do all those things that makes their community solid. That’s what’s going to change the perception of our industries, that managers have to insist that they be counted among the most valuable and trusted advisors that an association has.
[Jon] That’s a lot of great advice, and clearly, you’ve done a lot of thinking about this topic. But I think that’s a phenomenal start, is just a greater appreciation for the expertise and for the professional development that goes into becoming a top-flight community association manager.
[Cat] Absolutely. It’s not an easy path. It takes a tremendous amount of commitment and desire to not only do well for your company and your customers but to do well for yourself. So you’re quite right, and I’m so thankful that you brought that up, because managers are the unsung heroes. They deserve far more recognition for the specialized expertise that they have. And frankly, with the stakes as high as they are, you can’t overlook that and you certainly can’t commoditize that and base a manager’s performance on price.
[Jon] So, on that note, you’ve, again, sat in many roles in this industry. When you think about how the conversation should go between a board member inquiring about different management companies and that management company executive, what’s one suggestion? What kind of questions should that board member be asking to get the right fit?
[Cat] Well, I think that they should be prepared to have some questions asked of them as well. So the board members need to know who they are. They should be able to articulate what their vision is and whether they– it doesn’t even need to be a formal, official corporate record or anything like that, but they should be able to say, we want to be the most desired active adult community in Colorado. I mean, something like that. They should be able to give the manager really what their outcome is. Then the manager can go, okay, so I hear what you’re saying. So you need someone who has expertise in this area, who has a high degree of maturity, who has an understanding of leadership. Those are the kinds of things. That’s how the manager correctly aligns with the right kind of client. And trust me, not every client is right for every manager. So client selection is a huge, huge part of profitability. When you become really good at a particular type of client, you make way more money because you’re faster at it. You learn from one client to another client, and you’re able to duplicate work that you’ve done before. So I strongly suggest for managers, find your link. Find who you’re really good at serving, whether that’s high-end condos, whether it’s single-family homes with gates, what’s your niche? And then look for clients that are aligned with what you do best.