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Podcast

Episode #007 – Systems Thinking: Why everything online is hard, and what to do about it

In business, we often want things to be as easy as 1-2-3. If you had a single cause-and-effect relationship for each of your goals outlined, you would achieve them in record time, every time.
The problem is: Reality is more complicated.
In reality, an action doesn’t have a single specified outcome, but influences many different outcomes. This is true in relationships, athletics and, of course, real estate markets.
You can either ignore this complexity and get surprised by sudden changes like exploding lead costs and powerful competitors—or leverage complexity to box out your competition, even if you’re less established.
This episode teaches you how to leverage our complicated world to dominate real estate markets anywhere. Show highlights include:
– How most people normally think—and why that way is insufficient for running a profitable REI business. ([3:45])
– The important difference between a system and a “straight line”. ([5:00])
– How your leads get more expensive by making the obvious choice to get cheaper leads. ([5:55])
– Why outbidding your competition can ruin a market. ([8:00])
– How to think in systems to beat your competition. ([10:40])
-One metric to watch which gives you an almost unfair advantage in the two most popular paid ads networks. ([11:00])
– Why spending $100 on a pillow can yield a gigantic ROI (it sounds odd, but this is systems thinking in action) ([18:05])
– Which book to read to learn how to solve life, business and even societal problems using systems thinking. ([19:30])
To get the latest updates directly from Dan and discuss business with other real estate investors, join the REI marketing nerds Facebook group here: https://adwordsnerds.com/group
Need help with your online marketing? Jump on a FREE strategy session with our team. We’ll dive deep into your market and help you build a custom strategy for finding motivated seller leads online. Schedule for free here: https://adwordsnerds.com/strategy

Read Full Transcript

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 in deals online. Outsmart your competition and live a freer, more awesome life. And now, your host, Dan Barrett.

Dan: Hello everybody, welcome to this episode of the REI Marketing Nerds podcast. As always, I'm Dan Barrett here from AdWords Nerds. I got to tell you guys, it has been quite the day here at AdWords Nerds headquarters. I had a very rough morning, very rough afternoon, but I definitely wanted to jump on here and talk to you guys, because this is going to be a slightly different episode. I am going to get into a subject that is going to seem a little bit far field of the classic REI online marketing stuff that we cover, but I promise, this is going to come back to things that you can absolutely apply, not just to your real estate investing business, and not just to marketing for more motivated sellers and more deals, which of course, is always what we want, but this is going to be something you can actually apply back to your personal life, and hopefully make your personal life a more pleasant, rational, wonderful place. I think this is going to be really exciting, I think you're going to get a lot out of it, so bear with me, it doesn't seem super, super obvious how it's going to connect right in the beginning.

Today I want to talk about one of the biggest improvements I have made to my mindset over the last year, year and a half, or so. I think of this very similarly to kind of downloading software onto a computer. You've got a computer and it does the stuff that it does and it's great, but you can download new software to that computer and expand its capacity. Much in the same way, I'm always reading and I'm looking for new things to learn and new things to understand that are going to help me live my life, and one of the most important ones, the highest impact ones, the highest leverage ones has been Systems Thinking. This had a huge effect on how I run my business, how I run my personal life, how I think through problems, how I do my marketing, literally everything. It's just had a huge impact on me and it's something that I'm going to get into a little bit today, and hopefully just wet your whistle. If people still say "wet your whistle", I'm going to wet your whistle about systems, and hopefully just get some curiosity so you can go out and learn more about this on your own.

What is Systems Thinking? Systems Thinking is actually an academic discipline, something people are studying in college, in academia, something they're writing very, very fancy books on. We're going to keep this high level here, and primarily just talk about how you can use it, what it is, how you can use it. Alright? And the way to get into what Systems Thinking really is, is to contrast it with the way that we normally think through problems. We usually approach our problems linearly, which is in a straight line. That's kind of how we naturally think about things. If you think about a problem or an issue that you're running into, you really think about it like saying, "Okay, what is the cause of the problem and what's the effect that causes having and how do I then fix the cause or change the effect?" Right?

So you think about this a classic problem, you've got to walk to work or you're walking down the street and it's raining. So the problem is it's raining, if I walk outside I'm going to get wet. Right? So that's that cause and effect chain there; really pretty straight line. If I want to solve the problem, what do I do? Well I get an umbrella. I get the umbrella, I'm not going to get wet, therefore I've solved the problem, linear thinking, cause, and effect, A and B. Really straightforward. That's an amazing way to think of it, a very rational thing to do; there is nothing wrong with that. But the problem is that most of reality isn't the straight line. Most of reality is not one cause having one effect, most of reality is a system and a series of interlocking systems, and systems don't run in a straight line. In fact the defining element of a system is that it's got multiple elements, all interacting with each other. And so there's not one cause and there's not one to affect, everything affects everything else.

So let's give you a slightly different example. Let's take an example from investing, and let's specifically get into online marketing to connect this all with the subject of this podcast, and we'll think about this through the lens of Systems Thinking. Okay? Real common issue is that an investor will get into online marketing, let's say they're going to do Google AdWords, but it could be Facebook Ads, whatever it is. It can even be direct mail, doesn't matter. They're getting into this and they're saying, "Okay. I want $50 leads." So they get online, they hire someone to run their ads and they're working with this person and the leads are more than $50. Okay? And basically they say, "Hey, you know, they’re kind of expensive. If we want to lower our cost per lead, we got to have more leads. And the way to get more leads is by bumping up your bids. So you're going to raise your bids to get a higher position for your ads, that's going to get you more leads." So again, linear thinking here. "I want more leads; I got to get a higher position. To get to a higher position, I got to raise my bids, meaning I spend more per click. So therefore raise a bit, higher position, get more leads, bing, bang, boom, it's going to be great."

Now if things worked in a straight line that would make sense. You would raise your bids, you'd get a higher position, you'd get more leads, everybody would be happy. AdWords or Facebook Ads or any market, it's not a straight line, it's a system. And remember what we say about systems? In systems, all the parts interact. So let's say this investor wants more leads, they raise their bids, and the position of their ad jumps up and they start to get more leads. Awesome, but it doesn't stop there, because there are competitors in this investor's market. Maybe their competitors are like, "Hey, hold on a second. My ads used to be number one. Now I'm number two." Joe Investor down the street now he's number one. What's the deal?" Now are those competitors going to take that lying down? Maybe, but probably not. Probably not. Instead what that investor's probably going to do is they're going to raise their bids too. Joe Investor, remember in the beginning, he wanted more leads and he wanted a higher position for his ads to get those leads, so he bumped up his bids. Okay? But now his competitor is also raising his bids. Now everybody's raising their bids. Now what ends up happening is that Joe Investor goes back down to number two now, because this competitor bumped up their bids, so competition, bidding level, everything's going up. Now, everybody is exactly where they started. Joe Investor, our guy, he's back at number two, the competitor's back at number one, but now everybody is paying more. Nobody's getting any extra leads, nobody is anywhere other than where they started, but everyone is worse off. That's what you get when you don't understand how the pieces of a system interact.

If it's a straight line you do A, you get B that has same result, awesome. But in a system, you do A and that affects B, but it also affects C and it also affects D and then G and F and H and I and everything else is interconnected, and the thing that ends up happening, well maybe you predicted it, maybe you didn't, it's very hard to understand what drives what outcome. So we can go from linear thinking where it's like raise your bids, get a higher position, get more leads, easy to understand, versus the system situation, which is much closer to reality, which is, "Hey, I raised my bids and now I'm paying more, but I'm not giving anything extra." You got to understand in a system situation how those different elements interact.

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Now let's go back, let's start with that same problem. We got Joe Investor, he wants to raise his position so we can get more leads, and we know that the first time we did it we kind of approached it with that linear mindset, he raised his bids, the competitors raise their bids, everybody was worse off, nobody got any extra leads. Let's take a step back, let's think about it from the beginning with a systems thinking perspective. I might think through all the possible scenarios that might happen and say, "Okay, if I do this, what will my competitors do? What will the market do? What will AdWords do? How will this change how many impressions, how many clicks, what key words?" I think through all that stuff, and instead of raising my bids, maybe what I decide to do is focus on increasing my quality score. The technical details are not super important, so to say quality score or relevancy score in Facebook, these are just numbers that basically these ad networks used to rate your performance, and the better your score, the less you have to pay. So it's like an incentive to make better and better ads, which is cool. So if you raise your quality score in Google, you raise your position but you don't have to pay more. In fact, many of the times you end up paying less.

So remember in the first scenario I raised my bid and I took over the top spot of my competitor saw that and so he raised his bid and I went back down and everyone is paying more? But if I increase my quality score instead, so I don't raise my bid, but I make my ads better, my position still increases, but now I'm paying less. So I’m not paying more, I'm paying less, but I'm actually getting more leads. Now my competitor, I'm sure, will notice this, just like in scenario number one, my competitor will notice this. What's he going to do? He's going to do what he did the first time; he's going to raise his bids. So he bumps up his bids even more. But remember, I never raised my bids. I just improved my quality score. So I'm paying less, he's paying more than he was before. Now that puts his in a real disadvantage. Now if I raise my bids I can probably crush him over the long term. He's going to be paying way more than me, because I have this quality score advantage. So we can see how approaching problems in a different way, in a System Thinking way, thinking through the potential outcomes, repercussions of how every element is related to every other element gives us different options for attacking the same problem.

Now I originally started thinking about this during this podcast because I mentioned in the beginning I had a real rough morning, rough afternoon. This morning I'm getting out of bed and my kids, I've got a two year old and a four year old and they are crawling all over me, jumping on me. I'm like all bleary-eyed, tired, stagger into the bathroom to brush my teeth. My youngest comes in any kind of knocks my iPhone off the sink where I'd put it, and it kind of smashes on the ground. I got real angry. I got angry. I don't I don't usually get angry at my kids, I'm usually pretty calm around my kids, but I got upset and I yelled. That made him feel bad, made me feel bad.

So then I got into the office and I just couldn't focus and I had a lot of trouble concentrating and I'm just like, "Something is bothering me. What is it?" Right? And I realize I'm having trouble focusing, I'm having trouble working because I yelled at my son. I had guilt, dad guilt. If you're a parent, a mom, or dad, you know this parental guilt thing is very real, it's very real. Everybody gets it because everybody screws up with their kids, so you know you have this real sense of guilt and it's messing me up. I'm not on my game. So I'm thinking through this problem and it's like if I'm thinking through this in a linear way, I might say like, "Well, I've got to work harder at not yelling at my kid. I've got to make sure that I don't yell, I've got to be more calm." I might think of like all these things I could do. I'm already trying to do that. So instead I thought of it, I took a step back and I looked at this problem, I was like, "Okay, what are all the things that affect my behavior that might have attributed or might have contributed to this problem? Because I'm not focusing at work. I'm not focusing at work because I yelled at my kid this morning. What contributed to that?" I just kind of do just a general scan of like how I feel, what's going on my life. I'm like, "Well you know, I have a lot of work stress lately, we're changing a whole lot of systems, we've been growing, our team is growing. It's a lot of things changing. We're moving, we're in the middle of a move, that's super stressful. New environment, old routines aren't there."

And I kind of realize too it's, "I can't sleep well. I haven't been sleeping well all this week." And when I don't sleep well, you know, definitely my temper flares up. So that's a big part of it. Why aren't I sleeping well? I'm not sleeping well because I'm not in my bed, I'm actually in a temporary house while we're waiting for our new house to close, so I'm in this new house on a new bed and the beds not super comfortable, and even more than that I have these pillows where it's like... You ever like go to a hotel and you go stay at a hotel and they have that pillow? I swear these pillows are always at hotels where you go and you lay down on a pillow and then five minutes later your head is like touching the mattress and all the fluffy stuff in the pillow has like shot to the sides and it's like around your ears instead of under your neck? Do you know what I'm talking about? I really hope you people know what I'm talking about. It's like it flattens out and there's like nothing there and then you basically don't have a pillow anymore. Well that's the kind of pillow that I have on this bed that's in this house that's not a mine. I end up waking up multiple times during the night and try to like re-position the pillow and fold it over, prop it up. It's pain in the butt, it's waking me up, it's fragmenting my sleep, and because it's fragments my sleep it's making my temper worse, and because my temper is worse, when my son woke me up early and then knocked over my phone I got angry at my son, and then because I got angry at my son, I felt guilty at work, and because I felt guilty at work, I wasn't able to focus.

I'm like, "Okay, well there are a lot of things contributing to this issue, but one of the things I have control over..." I don't really have control over the move right now, it's going to close when it closes, we're just on schedule, I can't speed it up. The stuff that work is actually good, it's a little stressful, but we're growing, things are going well so I can really do a lot about that, then I can affect is the pillow. I can buy a new pillow. In fact, there's like a Tempurpedic store down the street from where we're staying and I can go down there and get really, really nice pillow, and that whatever it is, I don't know how much they cost, let's say $100, a lot for a pillow, but that investment of $100... If that investment of $100 to get a better pillow, to get a better night's sleep so that my anger and temper is better so that I don't blow up my kids so that I don't feel guilty so that I can focus that work, and if all I do is get 5% more productivity out of my day at work, I'm going to make many, many, many, many, many, many times the investment of that $100.

And that's Systems Thinking. It's looking at a problem not just as a straight line from one cost to one effect, but thinking about how all the elements of a system interact with each other, and then trying to have the biggest possible positive effect with the absolute smallest input or change. Again, bring this back to real estate marketing, bring it back to real estate marketing. If you're looking at a market, think about the market not just as a straight line problem, but as a system where all the elements connect, and think about what small element you could change or move or modify that's going to affect the system as a whole. So a really, really interesting way of thinking through your problems. There's a lot of stuff out there about Systems Thinking, there are people out there that know way more about this stuff than me and there's a lot of really, really classic books.

I'm going to recommend a book that I finished reading couple weeks ago. It was like the fifth or sixth book I've read on Systems Thinking lately, but this is, I think, the best beginner's book of Systems Thinking, because it not only gives you the basics of how Systems Thinking works, but it also tells you directly how to apply it to your everyday life, and even to some really cool societal problems. The book is called The Art of Thinking in Systems, The Art of Thinking in Systems, and it's by Steven Schuster, SCHUSTER, Steven Schuster. By the way, I'm going to have a link to this book, as well as all the stuff from this episode in the show notes. You can get to those at oldsite.adwordsnerds.com/podcast. That's oldsite.adwordsnerds.com/podcast.

By the way guys, if you are not a member of the REI Marketing Nerds Facebook group, what are you doing? First of all, it is free. Second of all, I am in there every single day during the week posting nonstop content, there are tons of really amazing investors in there sharing tips, tricks, strategies, sharing numbers, showing what works for them, showing what hasn't worked for them. It's an incredible community, there are no hard pitches here, this is not a sales vehicle for us, we constantly police it for spam, so it's not one of these investing groups where just people constantly post deals and hard money or whatever it is. This is an incredibly high quality community. If you're listening to this podcast and you're not in that group, you are missing out. I want you to go to oldsite.adwordsnerds.com/group. That's oldsite.adwordsnerds.com/group, you'll be taken directly to Facebook group, apply to be a member, we would love to have you. Let me know if you use some Systems Thinking either in your business or your personal life. It's been a real eye opener for me, it's massively, massively valuable. I hope you got some value out of this. I am going to go home today and I'm going to go buy a fancy pillow and I'm going to sleep like a frickin' baby. Okay? I wish you the same. Hope you guys have awesome rest of the week; I'll talk to you soon. Cheers.

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