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In this Outside Insights episode of Permanent Podcast, guest Chris Powers, Founder and Executive Chairman of Fort Capital, a Texas-based, privately-owned real estate investment firm, talked with Brent Beshore and David Cover about finding a North Star, building exceptional teams, the critical importance of real friendship and support, knowing where you’re going to provide the most value and find satisfaction, and prioritizing an operator’s mindset in the face of challenging conditions.

One of the key inflection points for Fort Capital was the (eventual) decision to focus – to find a core competency and double down on it:

“For years the business couldn’t get a flywheel that could build momentum and start growing because I was constantly changing it… We were just trying to do deals, but we were great at nothing… We focus on one thing now.”

And while that thing might specifically be becoming the best real estate operator in the world, the key is in the “operator.” Chris’s focus, and the focus of his team, has been a relentless cultivation of an operator mentality. 

In a shifting economic and operational context, that operator mindset might be the differentiator for any small business.

“The markets call for true operators that are masters of their craft, [which] has been discounted for the last few years. You can look at a lot of what’s happened over the last five years and say… there were a lot of people making a lot of money that were speculating or playing hot potato.”

In the real estate world, that looked like buying something, adding a little superficial shine to it, waiting for interest rates to go down, and selling it at a gigantic profit. 

Now money’s no longer free, and those with a natural inclination for or muscle memory of the grind it takes to maintain operational excellence, what Chris calls “true operators,” are starting to shine through again.

“The people who are amazing at what they do are going to reap a lot of the value and success [in the future].”

So how do you focus on operational excellence and adopt a “true operator” mindset?

1. Build the best team – and understand when you’re not “the guy.” When Chris and Fort Capital doubled down on their focus on operations and effectively managing properties and assets after the deal was done, the first step was to figure out how to develop a team that was well incentivized, well led, and well managed. He started asking “What model am I setting?”

   “At the time I felt like I was doing the right thing. I felt like holding people to expectations that they had never been held to before, being the first one in and the last one to leave, setting these enormous goals and… giving them hope that we could get there was all that it took. [But employees] understand when they're being led by motivations that aren't long lasting…

   [I understood] there is somebody here that's gonna lead a wonderful organization and build incredible leaders… the only pat on my back I give myself was a little wisdom or insight to go, ‘I'm not the guy.’ There's a lot of people in our shoes that don't ever get to that point… They just clog the company for so long….

   I talk to business leaders all the time, and I hear about their companies and I hear about some of the things they're doing. And all I'm hearing is, this is a founder-CEO that thinks it's his job to try and express his feelings through the business. And what you realize is that most employees and teams don't want to wake up every day wondering what the CEO or the founder's going to come in with.

   That's a very tough way to live over the long term. They'll put up with it for a while. But once people want to know what they're incentivized to do, what they're held accountable to do, that they have a good career path and can grow.”

2. Quit playing hot potato. Some markets and operating environments incentivize a revolving door approach. But if you’re looking to adopt an operator mentality, you’ve got to dig back into the fundamentals, put in the work, and look for opportunities to optimize where it makes sense:

   “You’ve got to operate again. You’ve got to generate positive cash flow… Obviously I'd love my assets to appreciate, but the one thing that we know is that… if you're focused on cash flow and creating yield, other problems tend to take care of themselves. It's when you don't have that focus – you don't have cash flow, you're not trying to operate well – that a lot of other problems can creep in…

   For Chris and Fort Capital, day-to-day operations include meeting all new tenants face-to-face, getting 200 leases put in their database within 30 days, getting tenants to pay through the property management system, negotiating new and renewal leases, running capex work on a building, cleaning up distressed vacancies, maintaining accounting software…

   “These are things that are huge pain points, take a ton of time and slow people down to working on low value tasks rather than high value tasks… And so all these things at a high level seem like, yeah, not any one of those things is super complicated.

   But when you really start looking into the business and you go, ‘Man, there's like a thousand wasted hours going on in the first 30 days of this asset because we just haven't really prioritized it. What could we do with those thousand hours back? A lot. 

   When I talk about operations, [I don’t mention] raising a bunch of money and doing a great deal and all the headline stuff. That's all great, but there are so many little things that happen.”

3. Create incentive structures that align everyone in the same direction. For example, Fort Capital doesn’t have acquisitions people. Really. 

   “We have 46 employees. We have over a billion dollars of assets. We don't have one acquisition person on our team. Why? 

   The acquisition guys are incentivized to do what? Acquire. They're not necessarily incentivized  to acquire great deals. And you won't even know if it's good for five more years. [In that model] they're paid a lot up front… They're paid acquisition fees. And then you have this whole team that does all the work for five years, but they didn't get to participate in the acquisition bonus.

   Secondly, [acquisition people] are naturally ambitious. They’re  motivated by money. They're highly sought after. And so as soon as we would get a really good deal with an acquisition person, they would leave anyway. Again, the incentives were all messed up…

   It wasn't the right setup. Now we have no acquisitions people, we partner with local partners in each market… that work for other companies, but have contracts written with us to bring us deals. And what we said on our team was, we're gonna optimize differently. We're gonna spend all of our resources on generating amazing data, giving it to these people in these markets, and saying, ‘Go focus on those 20 buildings.’

   Once they've gotten a deal under contract… we take over. Most people that are great at finding deals are not as good at being middlemen… So we said, ‘Okay, we'll take that off your plate. We will negotiate everything’… And then of course we pay [these partners]... we incentivize a system that gets them paid very, very well. What you have with all that is acquisition people that can't leave you…

   So you're not investing all these resources in folks that you know may or may not be there. The culture at the company is much better and the speed at which we can execute is much better… We said, ‘How do we turn the acquisition model on its head?’”

If you’re building a culture as a “true operator,” you’re building with focus – on your team, on your foundations and resilience against challenges, and on the incentives you use to align, motivate, and reward. The operator mentality is a problem-solving mentality. It’s not complicated, but it does take a rigorous commitment to excellence and the patience and self awareness to figure out where your momentum and real value lie. 

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