156: Put a Dent in the Universe with Mike Kaeding

17
Jun

Mike Kaeding is a residential real estate developer and the CEO of Norhart – a company focused on building exceptional apartments that create a better way for people to live. We discuss ways to attract amazing talent, the exciting future of smart homes, and how your company can put a dent in the universe. 

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Put a Dent in the Universe with Mike Kaeding

Our guest is Mike Kaeding, the CEO of Norhart, a real estate company that designs and build exceptional apartments that create a better way for people to live and helps drive down the cost of housing. Mike, welcome to the show.

Yeah, thanks for having me.

It’s great to have you here. And I’m very curious if you could share with us and the listeners your journey of becoming the CEO of Norhart and taking over this company and being the entrepreneurial driving force behind it.

Yeah, that sounds good. You know, I grew up in this business. My parents started it. It was a very small real estate company at the time. We built some small apartment buildings. And I can remember as a young kid driving out, it was sort of the family outing where we’d drive to a hardware store, maybe a half an hour away. And us two young boys and my parents each filled up two of our own carts full of materials up sky high, pushed it off to my dad’s little trailer and packed that full drive down the highway. I’m not sure it was entirely illegal, but we did it. And that’s how we got through in those early years. And then eventually it went off to college. And when I went to college, I really didn’t want anything to do with the family business.

And then deep down, the reason that was is because I didn’t want people to think it was given to me. So I really wrestled with my own ego on that but eventually realized that deep down I really wanted to make some kind of meaningful positive impact on the world and here I could take this small business and grow it to something much larger to have that kind of impact. So I got past my own ego, jumped in full throttle, and then not long after that, my dad passed. It was unexpected. He was relatively young. And overnight, I was running this business. At that point, I honestly didn’t really know what I was doing. But looking back, I think that was sort of the magic. We just started to question everything. Why is it done a certain way? Why can’t we do it differently? There was nobody to tell us no. And that’s what sparked things off and really got us going. 

I really wanted to make some kind of meaningful positive impact on the world and here I could take this small business and grow it to something much larger to have that kind of impact. Click To Tweet

That’s fascinating. That is very interesting. And then you basically never looked back. So when was that when you took over? Was it like three, five years ago?

Closer to 10 years ago now.

10 years ago, okay. And you have grown tremendously since then. So tell me a little bit about how you grew this business. So you say that you didn’t know what you were doing, but kind of that was the magic, you questioned things, you started things, do things in a different way. What was the different way that eventually you figured out was kind of your blueprint to grow the business?

Yeah, you know, if you look at the past 60 years, industries like manufacturing have improved productivity by 760%, agriculture improved by 1500%. Do you have a guess of what construction has done over the past 30 or 60 years? Construction? 30 percent? 10 percent. It’s essentially nothing. It’s awful. And so what we started to realize is if we could take the lessons learned from these other industries and apply it into construction, we could have a meaningful impact. And so we’re already producing about a 20 to 30% reduction in construction costs. And we think we’d achieve a 50% reduction in costs.

But imagine what that means. It means someday your rent or mortgage payment could be half. So how do we do that? You know, the first thing that we started to realize is that construction is a very segmented industry. Your owner is a different company typically than your developer, who’s different than your general contractor Coordinating all of the construction who’s different than all of your subcontractors your plumbers electricians or HVAC Who’s different from your manufacturing supply chain? And what happens then is is that system to produce the result just doesn’t function very well Imagine if construction produced cars.

You’d have a different company installing the window, a different company installing the door, a different company installing the wheel. And then the wheel company would get backed up at some of their other jobs and not be able to come out there this next week. So the entire line would be shut down for a week. And then when they did come out, they would be irate because they want to work on 100 cars at once and not just one car at a time. And so we brought everything in-house and started solving some of those kinds of issues. And then once we did that, we opened up our world to be able to do a variety of other techniques as well. 

That’s fascinating. It’s a great analogy. I never thought about this gross inefficiency of construction or the subcontractors. And it is so frustrating. I have a client who is a construction company and they are, you know, they build houses and they use subcontractors. And they tell me that one of the challenges they have is how to communicate with the owner when no one is on site. So when the subcontractor is not able to show up and the owner wants to see things happening and work is not going on and he thinks or she thinks that these people are slacking off and they’ve neglected them. It can be very frustrating. So great, that’s a great insight.

That’s not an isolated experience. That is the norm, which is crazy to me. 

So, what is the blueprint that’s going to change that?

There are a variety of things. It’s not just one magical thing. Even the reality is that really, it’s about solving 10,000 problems. No one problem makes the big difference. It’s the whole collection that makes the big difference. So I think the core is building a team that’s able to solve those problems. Everyone from leadership down to the frontline workers, everyone involved. And that’s sort of my number one lesson that I’ve learned about in life, which is that you need to find and hire the very best people. You know, the best people outperform the average ones by two to three to five to 10 times as much. I have seen it over and over again.

You need to find and hire the very best people. You know, the best people outperform the average ones by two to three to five to 10 times as much. Click To Tweet

I know what amazing teams look like, and I will fight until all of our teams are at that level. But what’s interesting is many business owners think, well, I want to save money by lowering salaries. That’s totally wrong. The way you save money is by paying the best salaries to have the top people because they’re actually less expensive when you think about it from the perspective of what they’re producing. And so for us, I think the core fundamental blueprint is to hire the best people, build the best culture, and then build the capability for them to solve all the problems that we face to move this industry from its antiquated 60-year-old way of doing things into the 21st century.

Love it. So how do you attract all these people? It’s easy to say, “Yeah, we have to hire the best people” and obviously you have the balance sheet to do that, still, how do you attract them? How do you convince them? Because my experience is that the good people tend to be already respected and well-paid, and whoever employs them want to make sure that they dig a moat around them so that they don’t leave. How can you attract these people away.

Yeah, there are a lot of things that we do to make that happen. To give you some sense of it, one of the first things we realized is that if we want the best people, just like you said, they’re at great companies. They already have a job. They’re not looking for an opportunity. They’re often not the people that apply for the job within your company. And so we ended up hiring 15 recruiters on staff, 15, which is pretty large for a size of company. And then we started building out lists of where all these top people were at these different companies. It started to build relationships with them over time so that they started to see our company, learn more about us. We started creating videos and just being on podcasts like this to share what our company is about.

So they had opportunities to get to know us, like us and eventually trust us for the right fit for them. And I think a big part of it too is hiring great people on the team because these people will come out and tour our facility and come see us and they need to be able to see the kind of workers that they’re working with and realize that everyone in this team is at that, their kind of level. And that’s exciting to A players. You know, A players attract A players. Another part of it is simply building out the right culture and environment for people. So, we spend a lot of time on culture. We were one of the top places to work in our state, but that is not just an accident. That is hard-earned. Those are some of things, some of the flavor of how you accomplish that. 

A players attract A players. Click To Tweet

So, what does it take to build a great culture? Everyone talks about core values. Of course, they are really important, but there must be other elements to this, building a great culture. So, what are the things that you’re seeing as requisites for a great culture?

Yeah, there’s a lot, but the biggest one hands down is the people you hire. Great workplaces are simply stunning colleagues. So bringing on that caliber of people creates that kind of environment. And what’s really fun is things start to happen from that. For example, we have events that go on one or two times a week. Everything from having a dinner with one another to going to Valley Fair or going hunting or ice fishing or skiing. Or there was one guy who created this video of the motorcycle truck they were going to do along the north shore of the Great Lakes and got people inspired to go join him for that motorcycle tour.

But those relationships, those events, they are not led by the company They don’t lead by the people Because they want to do something fun with these awesome people that are around them, And so that the bill is up and starts to build this culture. Another really key element is Defining what you want to see in that culture For us we have our purpose or why we exist we have a mission or what we do We have our values which describe who we are. We have our strategies, our goals, our beliefs, and our habits. And we spend a lot of time, in fact, I’m at every single orientation, giving orientation, it’s two and a half hours long, describing what these values, this culture is going to look like. Then we have a follow-up orientation just a couple of months later, where those same people come back to me and tell me what areas where we’re weak and we need to improve.

Another technique we use is simply doing engagement surveys to do every six months. And the important thing to do here is that we share those results openly and transparently with the whole team. And one of the reports that comes from this nationwide survey that’s done is the CEO’s report. And this is a report that’s not passed to the employee, that’s not passed to leadership, it’s only given to the CEOs of these companies. Well, guess what the very first report that our team sees? It’s my report. Now I scored. In fact, now we post all of our results openly up on the internet. And you can see the good, bad, and the ugly. There some juicy comments out there that you can read if you so choose. And so those are some of the elements that we engage in to build a great culture?

Well, this ultra transparency is amazing. Yeah. It’s something that many companies struggle with, how to be more transparent, how to share financials with people, that’s the first step, and then how to be vulnerable with each other, and how to share the bad news when the company maybe is not doing so well. CEOs are very reluctant often to share that because they want to scare people. But essentially, they treat their people as children, right? That they need to be protected rather than partners who will help figure this out together.

Exactly. And sometimes the most scary news is exactly the news that people need to hear. I think it’s so short-sighted to think for a CEO, say, “I want to sugarcoat this for our team.” But the reality is, if the team knows the honest truth of where they’re at, they can come alongside you to solve the problems. And I’ve seen that over and over again, it’s so powerful. And so, transparency wins all the time. You know, one thing I often say is that I don’t want us to be fake good. I’d rather for us to be honest about being mediocre, if that’s the case in a situation, because then we can work to improve and grow that. But if we pretend to be good when we’re really not, there’s no opportunity for growth.

Transparency wins all the time. Click To Tweet

That is true. And that’s amazing that you share this kind of dirty linen, not just with your own people, but also with the public. So you have this vulnerability, essentially. I think that what that communicates to me, if I look at this, is that, okay, this company, they are willing to be a role. They are not perfect, but they also set a high bar because then you say that, “Okay, we have these issues” and you have to work on it. There’s no alternative because the cat is out of bag. It’s kind of forcing function on you as well. I love it.

So, you have this big mission. I don’t know if that’s your mission, but it was on your website and you mentioned it, that you want to help to drive down the cost of housing. So, why is this so important to you personally and how are you going to do this? So, we identified this fragmentation of the industry. Okay, that is a problem. We identified healthcare being fragmented and nothing’s done about it. So just by identifying a problem doesn’t mean it’s going to be solved. So, what is your, why is this important? And do you have a vision of how to solve it or you just empower your people and they will figure it out?

You know, my dad died at a relatively young age. It made me really realize at a deep level how short life really is. We only live about 5,000 weeks here on this earth. And I ask myself almost every morning, “How do I want to spend the minutes I have here on earth?” For me, I want to make some kind of meaningful, positive impact in the world. I honestly could care less about fame or the size of our company or about money. I mean, what good is money when you die? Are they going to shovel a hundred dollar bills under your coffin? Like it’s worthless to me. The thing that motivates me is again, I want to make that impact, that dent in the universe. And for us, I think the impact that we can make is by driving down the cost of housing.

The thing that motivates me is again, I want to make that impact, that dent in the universe. Click To Tweet

In fact, that could actually be a very meaningful impact for so many people’s lives because typically about 30% of our expenses go to paying for housing. But imagine if that was just 15%. What could you do if you had 15% more income in your life? That could radically improve your own life. And so how do we accomplish that? You know, the first step, and the one we’re doing right now, is by driving down the cost of construction for ourselves. We’re already achieving about a 20 to 30 percent reduction in cost. We have many more ideas that we’re implementing, so I think we have a shot at bringing that down to a 50 percent reduction in cost. And then we want to scale that up. You know, one of the questions I often get is, “Mike, great, your 50% reduction in costs or 30% reduction in costs, why aren’t your rents lower?” The truth is we charge fair market rents. That’s intentional.

The reason is we take the profits we earn from these projects and we move that into the system that builds the buildings. So, Elon Musk talks about how it’s hard to produce a car, but it is 10 to 100 times harder to produce the factory that builds the car. And we’re scaling up across the country. Our goal is in the next 10 years to reach 192,000 units and producing units at a rate of about 60,000 units per year. Once we start hitting that kind of level, now we’re having a meaningful impact in supply and demand. We’re producing so many units to the marketplace, it starts deflating prices. But now, because we’re deflating prices not only on our own units, it’s a market-wide trend. And that’s where we can start having the kind of impact we want and driving down the cost of housing for everyone. 

So, you said it’s a 15% reduction, but it’s actually a 15% increase in income. I would say it’s probably the doubling of the income because most of the income of people is tied up with bills, with credit card bills, with the mortgage, with the car payments. So actually, the dispensable income, their dispensable income may be just 50% of it, of the top, of the gross income. So maybe you’re going to double their disposable income, which means they can go on vacations, they can buy the second home, which is also going to be cheaper this way. It could really change people’s lives.

Exactly.

I love that. So, let’s talk a little bit more down to earth. Because I’m curious about, I watched this video on your website about this smart home technology that you have. So, you went to this apartment and you started talking to Alexa and Alexa were switching up and down lights and colored lights and kind of their stories that you can program into it. That was fascinating. So, what I’m curious about is what is the next frontier for smart home technology? What’s coming next?

You know, I think the things that make the biggest impact in people’s lives is just removing small pain points. It’s maybe not an exciting headline for people, but I’ll give you some examples. In most apartments you move into, you have to sign up for utilities. You have to sign up for the internet. You might have to do in order to get all of my stuff figured out. Well, for our units, everything, including your internet, is done immediately. All you do is walk in and the unit is ready.

You can open up an app and see your utility usage and see how that’s affecting or what your behavior is affecting the costs in your own life. And so, I think the technology is headed more in that direction by just removing the friction points out of people’s experience and a little less about the flashy stuff that’s being done. Although I will say the work in AI right now is incredible. And we’re incorporating as much of that as we can into our day-to-day business.

So, this is a huge idea, these friction points. I mean, I’ve read a couple of books on technology and growth hacking and these kind of topic. And they are talking about the friction points all the time. It’s all about how do you remove the friction, lower the barriers so people stay engaged on your site and they’re gonna take the next step. They’re gonna subscribe, they’re going to stay, they’re not gonna churn. And what you’re saying is you are taking it off the internet and you’re doing an analog version of that. Why don’t you reduce the friction point? You can reduce the friction point anywhere. It doesn’t have to be technology. It’s everywhere in our lives, we are full of friction. How do you do that? That’s a big idea. I love it.

Even things like our lease is only currently, that’s only two pages long. It’s very large font. It’s only a couple of sentences per paragraph. It’s just minimalistic. The reason is you look at an official lease, it’s maybe 10 pages of lots of legalese kind of stuff. Nobody reads that. What’s the point, right? We strapped all of it out just to the things that people actually care about. Because again, that was another friction point.

I totally agree with you. And when, you know, 10 years ago, 15 years ago, when I started my business, I figured it out as well. I was an investment banker and I used to work for a big bank and they had this 12-page engagement letter which was full of indemnities. And basically, the clients would hire our bank and then the lawyers would spend the next three or four weeks just to figure out what this engagement was gonna be, this how bad it was.

So, when I said my business, I pretty quickly realized that there’s no point in this. If I have a long engagement letter, I’m just inviting the attorneys of the client into the deal, which is going to ruin everything for all of us. So basically, I went down to a two-page and then a one-page, because what I realized was that actually if I speak in simple language, make it very transparent, it’s going to be rock solid. It’s going to be really hard to actually find a foothold on it for someone who wants to misinterpret it. So it’s actually much better. So.

 Yes, I cannot agree more. 

That’s great. So you are launching an investment platform, which I guess is going to again bring a sea change in your business. So what is your idea? Why do you launch this platform? And how’s it going to be different from other fundraising efforts?

You know, one thing that drives me nuts about real estate is that the vast majority of people can’t get access to the investments because it requires, at least in the United States, that you’re an accredited investor, meaning that you have $1 million dollars in assets excluding your home or more, you’re making more than 200,000 United States dollars per year, which for most people is just not the reality. And we look at people, groups like the banks, and we thought, “Is there a way that we can allow everyday people to become the bank so that they can earn the profit, the interest that they would have earned from the bank plus the bank’s profit.” And so, what we have done now, we actually looked first if we could just create a bank and then give people that profit margin.

It turns out there’s some rules in the United States that prevent us from doing that. But instead of we’re going down a slightly different route, we need approval through the SEC, the Security Exchange Commission. And we have to go through a bunch of audits, background checks. We unfortunately have to have hundreds of pages of legal documents here, but by doing all this, we can meet the rules and requirements and it’s government so that we can allow everyday investors to invest. And so, what it is, it’s a money where you put money into an account and earn a high rate of return, much higher than you can get from a bank. And then you can pull the money out when you want, or you can choose to lock it in for certain periods of time and earn higher interest rate yet again.

Love it, that’s great. You basically, you’re cutting out the middleman, you’re pushing the banks out of business. If they are not efficient, then maybe they don’t belong in the middle. Love it. Love it. So last question before we wrap up, because our time is coming to a close here. You have a podcast, your own podcast called Becoming a Unicorn. So that’s a very enticing title. And what I’m curious about is what are two or three, what are the two or three best lessons that you learned from these unicorn or these would-be unicorns, these entrepreneurs that are creating unicorns?

Yeah, so becoming a Unicorn is about the journey of small companies becoming billion dollar enterprises and really looking under the hood. What’s the good, the bad, and the ugly? You know, one of the lessons I’ve been learning recently, the podcast has not launched yet, but the interviews we’re having have been fantastic. You know, one of the lessons I’ve learned recently is about this notion of being a multiplier or diminisher. In fact, there’s a book written on this topic. Multipliers are leaders that you want to give more than 100%. You’re inspired. They’re making you a better person as a result, and you can produce far more for the organization.

Diminishers are those that make you feel small, inadequate, incapable, and you start to curl back in and not really be excited about your job. You may be only giving the bare minimum, just punching a clock to fulfill that job. And if companies really want to become amazing, their leaders have to become multipliers. Now, there’s an interesting insight there, which is maybe point number two, which is that most of us are not multipliers or diminishers. Most of us fall somewhere in between called accidental diminishers. These are people that have moments, I have moments where the behavior I engage in I didn’t realize is actually being diminishing toward others.

Maybe the last really interesting point I’ve learned recently is you want to understand people’s genius, right? We all have a part of us that is our innate genius in life. And as a leader, you want to understand that. You want to name it so that employee knows about their own genius and can make that flower into something even greater. But then you want to make sure that the role that they are in has been tweaked and altered and put and created in such a way that really matches them up to their genius. Because if you do that, that employee is going to produce for you far more than they otherwise would be able to do. 

Well, I really enjoyed this chat. And every time when I have an interview with someone, you see me jotting down ideas. I’m looking for a great headline for the episode. And I’m just going to share this. I haven’t done this before, but the first headline I thought when you were talking about solving 10,000 problems, I said, “Oh, wow, that’s a great headline.” I put it down.” And then you said, “Hire the very best people.” Okay, that could be a good headline as well. And then you said, “Make a dent in the universe.” Wow, that’s even better. So, I’m going to go with that.

And then you say, “Become a multi-plan leader.”That could be an even better one. And then “Understand your people’s genius.”So lots of headlines, we could slice and dice into six different podcasts, but we’re not gonna do that. We are going to put everything together into one. So thank you, Mike, for coming here and sharing your wonderful ideas and insights. And for those of you who’d like to learn more, where should they go, what can they find out about Norhart and yourself, what are the good places to look for on the internet?

Yes, you can come visit us by visiting norhart.com. That’s N-O-R-H-A-R-T.com. 

Okay, fantastic, and Mike is also on LinkedIn, so you can check him out there. So, Mike Kaeding, the CEO of Norhart, a real estate company that is putting a dent in the universe. So, thank you for coming on the show. And those of you listening, please stay tuned because there is another exciting entrepreneur coming on the show. And also, if you’re on YouTube, you see the poster behind me. So, there’s a new poster this week, which is my new book that is coming out in a couple of weeks. And also, if you’re on YouTube, you see the poster behind me. So, there’s a new poster this week, which is my new book that is coming out in a couple of weeks. So, thank you. Thank you for listening.

 

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