Business Opportunities: On-Line Articles - Dealing with Change Is Vital to Success

Dealing with Change Is Vital to Success
By Michael J. McDermott

You might say that Cecil Phillips is an agent of change. He’d like that, and, boy, is change agency ever a useful skill set to have in your tool bag these days. Change is in the DNA of creativity. It carries the genetic code that triggers innovative responses to challenging situations by certain individuals. It enables them to see opportunity where others see only defeat.

For all intents and purposes, Phillips invented an entirely new segment of the real estate industry. Later, when others finally recognized it as a potentially profitable niche, he simply out-marketed, out-managed and outperformed his would-be competitors until most fell by the wayside. Over the past 17 years, he has grown Atlanta-based Place Properties into the real estate industry’s most successful developer and manager of university and military housing. But it hasn’t been a straight-line journey. Anything but.

Phillips’ seminal lesson on the relationship between change and creativity came immediately following graduation from law school at the University of Michigan in 1971. He decided to take a year off and travel the world by himself. Hardly the typical tourist romp, his itinerary took him through challenging and sometimes dangerous places, such as Afghanistan, Iraq, Pakistan and Tibet. He describes it as a defining experience in his life, one that changed who he was and who he would become.

"I’d walk up to a farmer driving a cart in the middle of nowhere, speaking a language I didn’t understand, and I’d have maybe a minute to make myself understood and convince him to give me a ride," Phillips recalls. "If you had taken a photograph of me before and after that journey, I’d have looked the same physically, but over that year I became a completely different person."

An eclectic background and curious nature can be valuable assets for entrepreneurs.

Returning to the states, Phillips worked as an associate and partner at an Atlanta law firm through the remainder of the ‘70s. He then spent four years as an executive assistant to the governor of Georgia, George Busbee. Next up was a decade of merchant banking, a period during which he managed money for some very wealthy and influential people in the U.S. and abroad - connections that would prove valuable in his next venture, Place Properties.

"Each of the jobs I held was very different from the others, and each required a different set of skills. I had to retool myself repeatedly," he says. "It was challenging, uncomfortable and very gratifying all at the same time. It was good, too, in that it presented a positive example to my children. They’ve grown up understanding that there are no more 30-year jobs. We have to inculcate in our kids, in all our citizens, that this is the way of the world now, and they have to learn how to deal with it."

AHA! MOMENT

Phillips got the idea for Place Properties while reading an article in American Demographics in the late 1980s. The story was mostly about the Baby Boom generation and the impact it was likely to have on everything from medical care and Social Security to real estate and financial services over the next 20 years. But buried somewhere in the article were a couple of paragraphs about the Boomers’ children, the so-called Millennial generation, and that’s when Phillips had his "aha!" moment.

Here was a new generation growing up unlike any other in American history. From 1776 through the time Phillips was reading the article, there had been at least one war and/or one serious economic reversal in the U.S. every 20 years. "This was the first generation not to be called on to defend their country or to suffer through a serious economic decline," he says. "They thought life was good and would always be that way."

About two months later, Phillips had a conversation with a small developer who was interested in building off-campus housing. That segment of the real estate industry consisted primarily of mom-and-pop operations, very opportunistic and with no focus on managing or preserving the asset. Owners took a big security deposit and expected to use it; tenants were not expected to take care of the property, and they rarely disappointed.

"I saw a sea change in the attitude of the up-and-coming generation (the Millennials)," Phillips says. "They wouldn’t accept living in dormitories or in dad’s off-campus apartment. They had much higher expectations."

Phillips grub-staked the developer and they began building higher-end student housing in college and university towns. No one had ever seen anything like it. "Just as in the land of the blind the one-eyed man is king, we set the bar because we created the market," he says. "It really was a wonderful business. The market voted with its feet and validated what we expected would be a successful business model."

The same parents who had coddled their children with new cars in their teens proved just as happy to pay a premium for upscale off-campus housing. Between 1990 and 1995, Place Properties built thousands of new beds and filled them as fast as it completed them. Still, one nagging problem persisted, and Phillips’ eclectic background would provide the solution.

Despite the company’s success, it remained very difficult to get conventional real estate financing for new projects. Phillips’ lifelong embracement of change, it turned out, was not shared by most lenders. Fortunately, Phillips had spent much of the ‘80s putting deals together for wealthy individuals and families all over the world, and, as he puts it, "They trusted me."

That’s an understatement. In one case, Phillips’ investors put up 100 percent of the financing needed for a new project. In almost all cases, he had to come up with at least 35 to 40 percent of financing from private investors. Eventually, though, the banks realized that his model worked and they began to come around, making conventional financing easier to secure.

LEARN FROM MISTAKES

At that point, money was inexpensive and the company faced little competition. "We learned from our mistakes and tried not to make them a second time," Phillips says. But Phillips is not the type to rest complacently on his laurels; he was already looking ahead, anticipating change, and ciphering the calculus needed to turn it into new opportunities.

Successful businesses must be willing to change and embrace new opportunities.

Phillips also had what he describes as an “epiphany” on the product side of his business in 1995. While the company’s surveys routinely showed high levels of customer satisfaction, tenants consistently asked for improvements - more bathrooms, larger rooms, more amenities - and indicated a willingness to pay for them (or have mom and pop do so).

His partner was unwilling to go that route, so Phillips decided to integrate vertically, becoming a developer as well as a money man and property manager. Place Properties’ new-and-improved product has been well received, and the company has gone through several successful rounds of capital raises and infusions because, as Phillips says, "our results have been worthy of it."

Not surprisingly, change remains central to the company’s continued success. It has been, and continues to be, on the cutting edge of meeting the needs and desires of a target market notorious for its addiction to the latest and greatest. Place was the first student-housing company to provide high-speed Internet access in its units back in 1995. All its new properties boast Wi-Fi connectivity, and bedrooms are no longer hard-wired for telephones, reflecting the college-age population’s widespread reliance on cell phones.

Place Properties currently houses about 27,000 students nationwide, and has replicated its model in off-base military housing. Driven by the military’s huge base realignment and closing program and the lack of off-base housing for soldiers in most areas, Place’s 4,000 beds in that market will grow to 9,000 by the end of 2009 and will ultimately total about 20,000.

Change also continues to characterize Phillips’ personal life. The most difficult for him accepting that he can’t do it all himself. "As we grew, I had to give up responsibility for things I liked doing," he says. "I couldn’t continue to head the management company and bring in the financing and find the sites and negotiate the construction contracts. I had to recognize that I couldn’t do it all myself. It’s painful and very difficult for an entrepreneur to recognize that fact and act on it. But it’s absolutely necessary if you want to grow and succeed."

Certainly, growth and success have been the outcome of Cecil Phillips’ embracement of change in both his professional and personal lives, he looks forward to more.P>