Episode #001 – The Moat: How to build a lasting competitive advantage in your market


“The Moat: How to Build a Lasting Competitive Advantage in Your Market”

You're listening to the REI Marketing Nerds podcast, the leading resource for real estate investors who want to dominate their market online. Dan Barrett is the founder of AdWords Nerds, a high-tech digital agency focusing exclusively on helping real estate investors like you get more leads and deals online, outsmart your competition, and live a freer, more awesome life. And now, your host, Dan Barrett.

Dan: Hey, everybody! What is up? Daniel Barrett here from oldsite.adwordsnerds.com, and this is officially the very first episode of the REI Marketing Nerds podcast. Thank you so much for being here, man – or lady, I should say! [laughter] Cause I don't know who you are! But listen, I'm really excited about this podcast and really excited about what we're going to do here.

I want to take a quick second to introduce what this podcast is going to be about. I wanted to make this a little bit different from the classic real estate investing podcast. There are a ton of awesome podcasters in this industry right now. People do really, really amazing work, and I wanted to do something a little bit different. I wanted to make a podcast that was going to be a little more focused. It's going to be really focused on just value ad content. We are going to get into the weeds on how to market for motivated sellers, primarily using online marketing, and I really wanted to dive deep because there is a ton of misinformation out there. There is a ton of stuff that's like, somebody told you 10 years ago that this made sense, and it's something that works, but no one is really discussing what is working on the cutting edge, what's working in the trenches right now. So rather than do kind of the classic interview format where I bring on guests and we talk and we'll probably do that in the future. What I wanted to do is put out some really high quality content and really try to move the needle on raising the literacy of real estate investors in this vitally, vitally important field.

My goal is you're going to listen to this podcast, you're going to leave this podcast with insights that are going to directly help you grow your business and get more motivated seller leads; work less, which is another big part of this for me; work less, make more; and basically just be a happier, healthier, more wonderful person.

So that's the goal for the podcast. I really hope that you are going to enjoy this with me. We're going to do a whole bunch of episodes of this, and yeah, let's get straight into it. We're going to start with a concept that is absolutely vitally important to understand. If you are doing any kind of online marketing at all or really if you're in any kind of business at all, I'm going to apply this to online marketing, but this is a universal business concept that is revolutionary when you understand it, and it is the concept of “the moat”.

Okay, “the moat”. This is about building a lasting, competitive advantage in your market that is going to help you survive the next 5 to 10 years of your business life because we've all heard the statistics. The vast majority of business don't last year 1, much less year two, much less year five, much less year 10, right? Most businesses do not make it. They get out there, people put in the work, they put in the capital, they read the books, they watch the videos, they take the courses, and it just doesn't happen for them, and if you're a real estate investor, and you are getting started, you haven't done a deal yet, you've got to know that.

You've got to know that the mass majority of investors that get started in this business never do a deal, and they never really get started, and if you've done deals before, you're in the tippy-top percentages of this industry, right? And that's heartbreaking to me. It really is. If you're like any of the other investors that we work with or that I talk to every day, you are a passionate person, you want to help people, you want to grow wealth for your family and for yourself, you want to have more free time to do things you love – be with your family, be with your loved ones. These are really important things in peoples' lives, so why don't people succeed? Why don't they make it? It's not lack of motivation, and it's not lack of knowledge, because knowledge is everywhere. The problem is a lack of competitive advantage.

So let's get into that. What is a competitive advantage? Well competitive advantage is anything that gives you a lasting advantage in the marketplace. It basically makes you harder to compete with, give your competitors a harder time catching up to you. One of the key things to keep in mind about this is that it has to be hard for others to reproduce. This is something that is really, really important to understand for online marketing.

You can't have a competitive advantage that other people can easily reproduce or bring into their own business. Let's say, you're doing Facebook Ads, for example, and you start to mess around with a new ad type. They’ve got a new lead generation ad where people can just click a button, and it sends you their email, right? That's super cool. That's a really, really cool thing to use, and you're like, hey, I'm getting leads cheaper, everything's going well, I'm awesome.

But the problem is, anybody can do that that has a Facebook account. The second you start doing that, other investors are going to notice, because it's a small world out there, for sure [laughter], if you're a real estate investor, you probably know this! It's a small world, right? Everybody knows everybody, everybody is all up in everybody's business, so if you're getting leads real cheap with this new ad type, Bob or Jane down the street is going to see that, and if they have easy access to this ad on Facebook, which they do, they're going to start doing it, too, and all of a sudden, you're back at the same point. You're right back where you were where everyone is in exactly the same position, and that's not an advantage. It doesn't last, right? So we need a competitive advantage that is hard to beat.

I like Charlie Munger, who is Warren Buffett's partner over at Berkshire Hathaway. It's probably one of the most… I think he is one of the most successful stock investors of all time. Charlie Munger calls this “the moat”. He calls these competitive advantages moats because it's supposed to be hard to get across, right? I think he has talked about this, but I always picture like… You don't just dig a trench around your castle. You fill it with water, right? [laughter] Because it makes it more of a pain to get across, and then ideally, you put crocodiles in the water, and then you put lasers on top of the crocodiles, and then when the crocodiles open their mouths, bats fly out. [laughter] So you want to make it as tough as possible for other people to get across and beat your competitive advantage. That's what we need a real competitive advantage.

Now, in real estate investing, it's easier to feel like this is hard to do. If you think about Coke or whatever, Coke's got the brand name. Or you think about Apple. Apple had got all these amazing Apple stores that are everywhere. That's a huge competitive advantage, right? But in investing, it's kind of like… It's hard to figure out what your advantage is going to be. Everyone is kind of doing the same deals a lot of the time. We've all had this experience where you kind of get to a lead's house to talk about putting their house under contract, and there's like 5 other people in line after you, right? Or this person gets your postcard, you send them a yellow letter, a postcard, or whatever, and they've got a stack of 40 other postcards. It's easy to feel like everybody is doing the exact same thing and nobody has a competitive advantage.

In my opinion, the easiest way in investing – there are other ways for sure – but I think the easiest way to build a competitive advantage in investing is in the marketing space. If you can make your marketing consistently 10% more effective than your competitors, that is a huge competitive advantage that will allow you to completely dominate a market over time, and I'm going to get into exactly why that is and how that works, but that's what I want to focus on now. How can we make your marketing 10% better? Where your leads come in 10% cheaper, your deals come in 10% cheaper; you're getting 10% more leads. How can we do that over time and make that a lasting competitive advantage?

Let's talk about how we actually do that.

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Dan: Now, this can seem very overwhelming, especially if we're talking about online marketing because frankly, most people, even if you're computer savvy and you're tech savvy, most people don't really know where to start with online marketing. If you've ever logged into Google AdWords, it looks like… Have you ever played Microsoft Flight Simulator? [laughter] Remember, if you ever played this video game, it's like you get in and there are dials and buttons on the dashboard and there's the stick… It's like there's a million things going on, and it's kind of overwhelming because you're like, where do I even look, right? Which dial tells me if the plane is crashing or not? And it's kind of the same way on online marketing. There's a ton of stuff going on, a lot of numbers flying at you. It can get overwhelming, but we can start in a very focused way and grow momentum over time, and really this is the key. It's key to focus your attention, your effort, your investment, etc., and then grow your momentum off the back of that improvement in this one focused area.

Let's focus on building a cost-per-lead advantage; specifically I'm talking about getting your leads cheaper than the average competitor gets them, right? If you're in a competitive market, and people are using online marketing to get leads and they're buying leads like they're doing… Like they’re doing a lead buying program like zBuyer or something like that, or they're doing online advertising, and they're spending money to get clicks. There's kind of a market rate from your local market that people are paying. In really expensive markets, that rate is higher; in more rural markets with less traffic, less competition, that rate is lower, but there is a market rate that if you just kind of log on and do what everybody does, you're going to get that market rate for your leads, and everybody is kind of paying the same, but you can actually improve that for your own business by lowering your cost per lead over time, and you can do this by improving any one of the key metrics in your online marketing.

I'm going to do a deep dive on key metrics in a different podcast because it's a really, to my mind, an interesting discussion and something we can really talk a lot about, but key metrics are these particular numbers inside your advertising account, inside your online marketing stuff that are going to really affect the overall performance. I'm going to give you examples here. One is click through rate.
So click through rate. A lot of times it is abbreviated to CTR. And basically what click through rate is, is the percentage of people that click on your ad after they see it. If 100 people see your ad, and 10 of them click it, you have a 10% click through rate. Now what affects click through rate? Click through rate is primarily driven by how attractive your ad is. If your ad is really well written, and it's snazzy and it talks exactly to what I need, and hey, I read this ad, and I just feel like you understood me, man! [laughter] I feel like you just got me in a way that even the people closest to me don't understand me. If you can get people to have that reaction, [laughter], which again is probably a little hard, but if you can get people to have that reaction, a higher percentage of these people are going to click the App. That's just natural. And if you're ad is terrible, it's got a million typos in it, and you're like, yeah, whatever, I can buy your house, or nah, whatever, I don't care. No one is going to click that ad, and so you're click through rate is lower. The better your ad, essentially the higher click through rate, and the higher click through rate, what does that mean? You're getting more clicks.

Now the cool thing about that is that pretty much every advertising platform, whether it's Facebook or Averts or Bing, they are going to reward you for having an ad that more people click on by giving you lower prices, and this is because if you think about how these companies work – Google, Facebook – they get paid when you click on the ad. If no one clicks on your ad, they don't get paid. It's in their best interest for you to write a really awesome ad that everybody clicks, and so when you have a really awesome ad that everybody clicks, they charge you less as a way of rewarding you, of incentivizing that behavior. The higher your click rate goes, the better your ad, the more people click on it, the higher your click rate goes, the lower your costs go, and you start to get leads at better prices. That's just one key metric: click through rate.

Another key metric that you can focus on improving is your conversion rate. Conversion rate is the percentage of people that contact you, whether that's they call you or they email you; the percentage of people that contact you after they land on your website. If you think about typical situation, right? I type in sell my house in the Google. I click an ad, click your ad, I land on your website, and I'm like, hey, this is a pretty awesome website. This guy's got a lot of cool pictures of himself and his family. He seems like he really knows what he is talking about when it comes to buying homes. He is local to me, handsome, rugged, square-jawed, [laughter], you know? Like, of course… [laughter] Just a really, really awesome person. I'm going to contact this person, and they fill out your form, and they become a lead.

Now if that same person clicked on your ad, and your landing page has no information on it, and you say, hey, I'm trying to buy houses, I've never bought one before, I don't really know how it works, chances are this is illegal, I've got a warrant out for my arrest, you know whatever? [laughter] If you'd say all that stuff, that person is probably not going to fill out your form and contact you. They'll leave, right? So the higher your conversion rate goes, the higher the percentage of people that contact you after landing on your page. The more leads you're going to generate per dollar that you spent because you spent the money to get the click on your site, and now the more people that you convert into leads, you're not paying any more for that. You're just getting more and more leads for the same amount of spend. As your conversion rate goes up, your cost per lead goes down.

We just talked about click through rate, the higher your click through rate, the lower the prices you're going to have to pay for every click that you generate. The higher your conversion rate goes, the lower your cost per lead goes. When you start to improve these, that's just two of many, many metrics that you can focus on improving, but let's say you just focused on these. When you start to do these together, you get synergistic improvements that are really, really awesome, and I'm going to get to that in a little bit, but the thing I want you to remember about this, the thing I want you to take away from this, is that it is simple to do this. It doesn't mean it's easy. It's not easy because, again, we don't want everyone to do this. It's going to take work. It's going to take effort. It's going to take some technical know-how, but it is simple. You're just trying to improve one metric at a time. Moving your key metrics past the market average, improving them even by 10% will set off a chain reaction that's going to give you a massive competitive advantage over time.

Let's talk about that. Let's talk about this massive competitive advantage over time, what I mean by that, why this is important. The thing to keep in mind is that when you start to make these changes, you start to see some of this improvement, you gain momentum, and your future changes become easier. Now why is this? I can't remember who told me, but this kind of general principle stuck in my head for a really long time, and it's really important to understand if you want to understand how the online marketplace kind of works in reality? The saying is, the bulk of any market will go to the advertiser who can afford to pay the most for leads. I'm going to say this again. It's this important. The bulk of any market will go to the advertiser who can afford to pay the most for leads. If you are able to raise the amount you are paying for leads aggressively, let's say you make more on the backend of your business than everyone else of you're able to capitalize on more of the clicks because your stats are better – whatever it is. You're able to pay more upfront. You will be able to box out your opponent, even when those opponents are much larger than you. If you can, let's say, improve your click through rates and get more clicks, you can use that to raise your bids because remember what we said: When you raise your click through rates, your cost goes down. So now you're paying less. You're like cool, I'm paying less for the same amount of clicks as everyone else, I'm going to raise my bids. Now I'm paying more than everyone else, and I'm getting even more clicks than I was getting before. So you are raising your prices. Raising your prices, improving your performance that lowers your cost, that allows you to raise your prices again.

Now that gives you a lot more data. All of a sudden you're getting a lot more people clicking through on your website, and now you can use that data to improve your website. More people clicking on the website, more people looking at the form, more people reading your copy. Well that allows you to test some things and raise your conversion rate. Remember your conversion rate, the percentage of people that contact you. So you improve it a little bit, improve it a little bit, improve it a little bit. Now, your cost per lead is going down. It's going down again, it's going down again. Now you are getting more leads than everyone else, but you're actually paying less. What do you do then? You raise your bids. Now you have even more clicks because you're raising your bids and your click through rate is higher, and even more leads because you're raising your conversion rates and your raising your bids again, and this creates a virtuous cycle as one metric starts to generate more data at a lower cost. You can use that data to improve your other metrics and lower your costs again. It is a virtuous cycle. The more momentum you gain through these focused changes, the easier it is to create more focus changes down the line, and the further the distance becomes between you and your nearest competitor. If you do this over time, you're improvements compound on one another. This adds a massive competitive advantage over time. That is very, very hard to overturn, and whether I'm coaching an investor or we're working with an investor for done-for-you-service, this is the goal.

My goal is yes, I want to generate leads, and yes, I want to get deals for my clients, but my real goal, the thing I am actually focused on doing, is creating a long-term competitive advantage of compounding focused changes that allow me to pay more for leads than any of my other competitors, and if I can do that, over time, I am going to eat the market.

This is just straight economics. It's not something I made up. It's not something I invented. It's not something that I'm theorizing about. This is what happens in every single real estate investor marketplace on Earth. The question is can you adapt that process to help you overcome? And you absolutely can.
So, again, just to kind of back up a little bit, we know we need competitive advantages in order to last the next 5 or 10 years in our business, right? So how do we get a competitive advantage? The easiest place is in our marketing, and how do we do that? We focus on a couple key metrics. We improve those metrics over time, which creates a virtuous cycle, allowing us to make more focused changes. Those focused changes compounding on one another over a long period of time are going to add up a massive, massive competitive advantage allowing you to bring in leads and deals at a discount. This is absolutely huge, and this is really the philosophy I want you to take into all of your marketing going forward. No marketing activity that you do exists just by itself in a vacuum. It's part of this process of developing your competitive advantage in your marketplace.

All right, I hope that makes sense, guys! Listen, the show notes for this show are going to be at www.oldsite.adwordsnerds.com/podcast. We'll have notes, links, all cool stuff you can go and check out. If you like this podcast and you want to get more live trainings from me, you want to get online and share tips and strategies and data with a bunch of other really cool investors who are out there in the trenches doing this stuff right now, you should come and join the Facebook group that we started, the REI Marketing Nerds Facebook group. It is awesome. It is growing super fast. It is a really high-quality, no spam place to hang out, and you can find that at oldsite.adwordsnerds.com/group. That’s oldsite.adwordsnerds.com/group.

Alright, guys, see you in the next episode. Hope all is well, and I will talk to you soon. Cheers!