Book Review 009: The 7 Habits of Highly Effective People - Stephen R. Covey

Authored by Stephen R. Covey, the book titled "The 7 Habits of Highly Effective People" discusses seven principles that effective people embody, and it also teaches readers how they can build their character and shape their lives with purpose and intent. While many business and self help books may focus on developing a good personality, Covey describes how developing a good character is more important as well as productive. He is a believe that your personality will emerge naturally when your character is built well and deeply rooted in positive principles. For example, if you attempt to develop a good personality without a foundational character, it may seem like you are wearing a mask to hide your true self. This in itself will ultimately be seen by others as deceptive.

The author states that in order to first develop a sound character, one must have a new way of seeing things, a sound paradigm. As an example, in the past, surgeons did not wash their hands, and when patients died of infections, no one understood why and did not see the correlation between the two. As a result of a paradigm shift, sterile operating rooms came to existence and also opened their eyes into how disease worked. In order to create a sound character, and live a life of integrity, you must embrace the new paradigm and act consistently in accordance with the new character. Covey mentions that building a character includes building habit. As Aristotle said, we are what we habitually do. To develop the habit we must first:

  • Know – Understand what you want to do and why you want to do it.

  • Develop skills – Become able to do it.

  • Desire – You must want and will yourself to do it.

Although we can change our outside appearance as much as we want, the most important work is the inner work. When we master our interior self, we will in turn, master what is outside of us.

Habit 1: Be Proactive

Per Covey, highly effective people are proactive and do not limit themselves from taking action. They are able to see that they have the freedom to choose what character they will become and how they will act. Viktor Frankl was a prisoner in a Nazi concentration camp where his entire family, except for one sister, was murdered in the camps. Frankl was in a situation most people could not even imagine, but he was able to rise above the occasion and realize that he was able to be the "victor", not the "victim". “In choosing our response to circumstance, we powerfully affect our circumstance.” Through his grit and determination, he inspired other inmates and took fate into his own hands. Instead of thinking, "no, I cannot do anything", they think, "how can I do something?" or "what possibilities are out there?"

Habit 2: Begin with the End in Mind

Highly effective people think carefully about their goals and demand accountability. By creating a personal mission statement that outlines your goals and describes the kind of person you want to be, you naturally make a commitment. Remember, what can be measured, can be managed. 

Habit 3: Put First Things First

As highly effective people realize that they have the power to change who they are, they must also remember that habits are key in ensuring they meet their goals and objectives. Alot of people waste their time staying "busy" but are not "productive." We aimlessly create task lists and are unable to focus on the wildly important goals. Highly effective people must learn to prioritize their workload and not confuse urgent with important. One is easy to see, but the other is harder to discern. Remember to place emphasis on planning, developing key relationships and placing yourself in situations for more opportunities. Once you have prioritized the things in your life, remember to give each role an appropriate allotment of time on your schedule. Don’t rob Peter to pay Paul; make sure each role gets its due. Remember that effective management is putting first things first.

Habit 4: Think Win/Win

In discussing habit 4, Covey shares how successful people use "interpersonal leadership" In marriage, business or other relationships, to create win win situations. Simply put, two wins makes everyone better off; two losses places everyone in a worse situation. Furthermore, a win/lose relationship creates a victor and leaves someone injured. Highly effective people strive for win/win transactions, which incentivizes everyone to cooperate because all the parties come out on top. Highly effective people become highly effective by multiplying their allies, not their enemies. A good alliance is seen as a win/win.

Habit 5: Seek First to Understand, Then to Be Understood

Communication is a two-way street. In order to develop strong relationship, first find out what the other party desires and learn what winning means to them. Never assume that you know what they want. Use attentive listening to understand what the other party needs before you begin to outline your own objectives and share your wants. Place yourself in the other person's situation and do not argue or oppose their thoughts. For example, a good lawyer will present their strongest possible case from the lense of their opponent. Only when you truly understand the other side's motive and their point of view, can you draft the best response and get what you ultimately hope for. This is acting upon the “principles of empathetic communication.” Real self-respect comes from mastery over self.

Habit 6: Synergize

Covery understood that with synergy, 1 + 1 = 3. Creative cooperation may yield an addition bonus and multiply the effects. Just as 2 horses combined can pull a cart that is much heavier than the maximum weight each horse can pull on their own. Synergy essentially means, bringing together a whole that is greater than the sum of the parts. The most important part of synergy is the ability to communicate successfully and cooperate. This is different from "pretending" to play along nicely while hiding their true intentions. You must listen, understand, and actively cooperate with the other party to create something together, than one could not possibly create on their own.

Habit 7: Sharpen the Saw

A dull saw makes the work of cutting down a tree tiresome, tedious and unproductive. Highly effective people understand that one must sometimes take one step backward in order to take two, three steps forward. In this example, the man must take time to sharpen their tool (e.g. physical and spiritual rest, personal growth) and approach the task of cutting down the tree with a renewed self. People need to give care to their mental health by thinking positive thoughts, ensuring their mind is engaged and active. Further, successful people must also defend their heart and emotions which drive our everyday self. 

Favorite Quote: “Most people do not listen with the intent to understand; they listen with the intent to reply.” 

Below are some key areas of focus that the author tries to convey to his readers:

  • Focus on developing character, not personality.

  • You are what you habitually do, so adopt productive habits.

  • Excellence is a habit, not an aptitude.

  • You are free because you can determine how you respond to circumstances.

  • Choose sound principles – integrity, dignity, quality, service, patience, perseverance, caring, courage – and endeavor to live by them.

  • Write a personal mission statement to clarify your principles and set your goals.

  • Think of what you want people to say about you at your funeral; try to deserve it.

  • Build trust in your relationships.

  • Balance the attention you give to each of your roles. Allot your time to attend fairly to each of your responsibilities and relationships.

  • Understand that you have the ability to improve your habits and your life.

Hope you enjoy this book!

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Book Review 008: Good to Great - Jim Collins

Jim Collins is a popular author of business books who also wrote Great by Choice and How the Mighty Fail. Good to Great, published back in 2001, takes a deep dive into how to build a sustainable business by asking yourself the question, "How can a good company become great?". He along with his team researched many companies and found patterns to create the "good to great" formulas which many businesses try to emulate even to this day.

By looking at the past 25 years of Fortune 100 companies on Wall Street, one can see how some Companies that appeared to be great, quickly disappeared, and others withstood the test of time. Jim Collins breaks down the success principle as follows: Hire the right talent, be specific in your purpose and goals, focus on results and make tough decisions.

In the process of gathering data for this book, Jim and his team looked at over 1,435 Fortune 500 companies that had 15-year cumulative returns at or below the stock market average, followed by cumulative returns that were three times the market over the next 15-year cycle. Companies that became the target of this metric were Fannie Mae, Gillette, Kroger, Walgreens, Wells Fargo, and Circuit City, to name a few.

Furthermore, the team compared these companies against those in the same industry but were unable to sustain "greatness" for a long period of time. Once the companies were selected, the team interviewed executives and upper Management, as well as review their forecasted goals, financial statements, and company culture. Some interesting statistics that were found early on included that trend that a company does not need a famous CEO nor does executive compensation play a role in the achievement of a corporation. 

The book describes the path of a company transitioning from good-to-great as three stages:

Stage 1: Disciplined People

Collins saw that companies trending towards the path of becoming "great" needed the right people who displayed "level 5 leadership", meaning they were professionally driven, not for their own achievement and success, but for the greater good of the company. Furthermore, these leaders were humble, accepted responsibility, and were able to choose great successors.

State 2: Disciplined Thought

Leaders must be ready to face the data and ask the hard questions. They must be ready to accept the truth and make decisions based on facts. Jim shares that leaders must engage their team with dialogue and debate, not coercion. In other words, ask and lead with questions, not answers. Its often easy to fall back on "tribal knowledge" or past experience to give a quick answer, instead of facing the new reality. Do not use this opportunity to place blame, but self-examine. Also, implement controls, or mechanisms to be able to detect red flags before they become larger issues.

Stage 3: Disciplined Action

Great companies stimulate a culture of discipline. While early on, start-up companies may fuel their growth through the use of creativity and passion, as the company matures, they need to find a way to become more systematized, hire the right people, and build processes that are scaleable for the long term. This may become counter intuitive to a start-up promoting creativity and "forward thinking", however, leaders can create a disciplined framework and foster creativity within the framework for continued growth. Through researching these companies, Collins and his team found that greatness does not come from strategy or technology, but comes from careful and deliberate cycle of development followed by a leap forward in the right direction.

“The Flywheel and the Doom Loop”

Companies that go from good to great develop a pattern of growth. This pattern of steady buildups and breakthroughs is similar to the concept of a flywheel that builds momentum. The overall result is from the cumulative effect of small victories and good decisions made over time. They never have a meteoric rise or a “miracle moment” that can be pinpointed to a single event. This “flywheel effect” is circular and builds on the “accumulation of effort applied in a consistent direction.” On the other hand, companies that Collins and his team compared with good-to-great corporations but that didn’t make the grade, fell into the "doom loop". They launched new “miracle” programs that were the next big thing, and tried to buy their way into success through mergers and acquisitions. This caused frequent corporate restructuring and leadership change that landed them out of business.

“The Hedgehog Concept”

Jim Collins illustrates the "hedgehog concept" by explaining a Greek fable that pits a fox against a hedgehog. From the outside looking in, the fox is smart, cunning, and sneaky. On the other hand, the hedgehog is slow and unexciting. However, no matter how much ingenuity the fox shows in its attack, the hedgehog rolls into a ball with its spikes sticking outward. After numerous attempts, the fox leaves empty handed and defeated. The point is that the hedgehog knows its strengths and sticks to what it does best.

Good-to-great companies are like hedgehogs, able to focus on what they do better than their competition. That is why we constantly see competition dwindling in numerous industries such as airlines, healthcare, pharmaceuticals, and restaurants. For example, Walgreens sought to become America’s most convenient drugstore during its rise in the 70s, 80s, and 90s. The company decided to stick to high-traffic sites and pioneered the idea of drive-through prescription pickups. Walgreens was able to combine the idea of convenience and increased profit per customer per visit. By sticking to these two fundamental goals, they were able to rise to the top and crush their competition. 

Collins explains how we all can find our hedgehog concept by asking ourselves what we can do better than any other organization, how do we make money, and what stimulates your dedication to the organization's goals? This ties back to stage 1, where by hiring the right employees who are passionate and driven, they are able to push the flywheel in one consistent direction harder and faster than others. This creates the momentum and push that the organization needs to become "great". 

Favorite Quote: “While you can buy your way to growth, you absolutely cannot buy your way to greatness.”

Good to great is a perfect book for entrepreneurs, business owners, and employees alike, especially those in Management positions, to help shape the company culture and thought leadership by sticking to your strengths, goals of the organization, and making the tough decision. 

Good Luck!

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Real Estate 027: All About Home Inspections (Rental Property Edition)

A critical step in the home purchasing process is due diligence. Assuming that you have done your market research, found a deal, and negotiated it under contract, its time to conduct a home inspection to ensure that there are no surprises that significantly change your cash flow numbers. As Ronald Reagan infamously said, "Trust, but verify." Home inspections are a great way for a buyer to hire an objective third party professional to be your eyes and ears, especially if you are unable to physically visit the subject property.

The first step in home inspections is to find the right inspector. For investors, this means finding a team that is investor friendly and understand where you are coming from. There may be "add-ons" to the inspection package that an investor may not need as they are not occupying the property. Further, you may come across a conflict of interest when inspectors also perform repair/rehab services as they may be incentivized to recommend repairs and attempt to perform the work themselves. Hiring an inspector who's sole job is to find issues without being the remediator will allow you to have an objective helper.

Below are a couple ways that I have found my property inspectors when investing in a new market:

  • Property Manager

  • Real Estate Broker/Agent

  • Google (Yelp/Facebook Groups/Bigger Pockets)

  • Fellow investors

  • Local Real Estate Investment Association (REIA)

Once you have created a short list of inspectors, make sure you have a phone call w/ them to set expectations, check if they are properly licensed and bonded,  request sample inspection reports, and understand costs involved (e.g. Single Family Residence, Duplex, Quads, Radon, Termite, and Sewer Scoping). Although inspectors will have disclaimers stating that they are generalists and not experts when it comes to specific issues such as the foundation, electrical, and plumbing, etc. their experience inspecting homes will allow them to help identify patterns and trends when it comes to issues they have seen in the past. For example, an inspector who has seen a hundred homes in a certain zip code will understand the nuances of that neighborhood and will be able to advise the buyer in a more specific manner. In my experience, I have been able to find an investor friendly inspector who knows I will be a repeat customer, offer special pricing, take additional reference photos (not in the report) as well as walkthrough the inspection report with concerning areas. 

Once the home inspection has been scheduled, be sure to coordinate with your Broker or Property Manger to make sure utilities are turned on so that the inspector can test lighting, appliances, and other CapEx items. Upon successful completion of the inspection, its time to assess remedial costs. Generally, your property manager, handyman, or General Contractor should be able to put together a "high level" bid for you to take to the seller and negotiate a credit at closing, reduction in sales price, or seller repairs. Of the three aforementioned scenarios, I prefer a credit at closing as I would like my own team to perform the work and control the output. Sellers may opt to use cheaper materials or put "lipstick on a pig" that may result in reperformance of the work down the road. Further, I do not have my rehab crew put together a detailed scope of work at this stage, as I do not know if the seller and I will be able to reach an agreement. Reason being, if market conditions do not allow for us to reach a deal, I do not want my team to have spent to much time on this project.

Some of the red flag issues that may cause serious concern relate to:

  • Significant termite damage

  • Mold

  • Radon

  • CapEx (Roof, Wiring/Electrical, Plumbing, HVAC, Structural)

  • Asbestos

  • Lead Paint (Generally found in homes older than 1978, highly toxic and a health hazard)

  • Flood Zone

Please note that if you are financing your property, your lender may request many if not all of these above items to be remediated before closing. Further, your lender will typically require an "A" grade insurance plan to cover liability of the property, and your insurance company may deem these issues to be uninsurable. These are real problems that you need to consider before moving forward in the purchasing process. Be sure to differentiate the "must repair" items with the "nice to have/value add" repair list. The seller will generally list the house taking deferred maintenance into consideration (e.g. old carpet, cabinets, touch up paint, fixtures, windows, etc.). 

Refer to my previous blogs on negotiating real estate (e.g. Never Split the Difference book review, and buying real estate through seller financing) for tips and tricks on how to speak with the seller. Bottom line, remember you are not trying to squeeze ever dollar out of the seller, but you are simply trying to hit your pre-defined cash flow numbers and renegotiating the deal based on newly discovered facts. Remember to use your Real Estate Broker as a sounding board when negotiating as an experienced Broker will have a good idea on the After Repair Value (ARV) and local market cap rates that typically drive the selling price. In addition, be strategic when negotiating issues with the buyer and make sure you highlight the high dollar value items and not make a long list of minor repairs. Show the seller you are a reasonable buyer who has identified these issues, but am willing to give up the smaller things (e.g. cosmetic repairs below $100) in order to close the deal. 

In addition to the inspection report, its always good practice to perform an inquiry with the seller or their representative agent to understand their motivation for selling, which may sometimes uncover issues the owner is currently facing or have faced in the past (e.g. high vacancies, vandalism, wet basement, or roof damage due to high winds/hail). Further, you will be able to get a sense of whether or not the seller is trying to hide or conceal issues from you as you begin to ask probing questions.

As always, please make sure you do your due diligence and talk to your CPA/Attorney/Financial Adviser before making any investment decision.

Good luck!

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