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Wharton Emeritus Professor Peter Linneman discusses considerations in growing one’s staff at a real estate company.
BRUCE KIRSCH: A lot of entrepreneurs, when they’re growing their business or targeting to grow their business, they’re not necessarily desiring to hire on a lot more staff, because if they can get the same work done for a smaller number of headcount, then they’re going to be more profitable. And so how does an operator of a real estate company balance this notion of bringing on more full time employees, bringing on more staff in order to improve the company but not bringing on too much so as to bog it down?
PETER LINNEMAN: Well, a couple of reactions to that. One is, do you bring on people before the opportunity so that when the opportunity comes, you’re up, ready, and capable of fully taking advantage of it. But of course, the risk of taking on the people before the opportunity is you’re eating the overhead. You’re chewing into your own money, so yeah, you’re all dressed up and ready to go, but what happens if the go never occurs?
The flipside of that is, well, I’ll be behind. I’ll add assets and then add people. Well, the problem with that is the capital providers and they look at you and say, well, I don’t know that you have the capacity to really run these assets, and yes, I know you say you’ll get people, but how do I know you don’t just pocket it and my assets that I’m providing the capital for don’t get taken care of.
So if you run behind in terms of people relative to assets, you run the risk that you– not only are understaffed, but you also run the risk that you can’t attract capital, and if you’re overstaffed, you run the risk that the opportunities never occur. That’s the delicate balance. And if you say, what does a great growth manager do, that’s the balancing act. That’s a risk and opportunity situation of balancing between those.