What do New Business, Cholesterol and Fat Cells Have in Common?

Like cholesterol and fat cells, there is good new business and bad new business. New strata management business that you buy from a comparison strata broker is more likely than not bad. 

This week on LinkedIn I engaged with Strata Options and their offer to ‘Unlock rapid growth for your strata management business’. They run a comparison service for owners corporations in NSW and Victoria looking to change managers. When I asked who paid for their service, they said while they would like owners corporations to pay, they won’t, so they get paid by the chosen strata management firm. 

Apart from the obvious conflict of interest arising from purporting to act for one party (the OC) and getting paid by another (the OC manager), the Strata Options website raises a few more red flags- 

• Claims that they’re independent – they’re not. They get paid by managers while advertising a service to owners
• The website call to action is ‘Get Prices Now’ - encouraging competition on price alone and perpetuating the race to the bottom for strata management fees
• Negotiated discounts for the OC for two months – more fixating on price rather than value propositions

This type of service is not new. They have come and gone over the decades. Historically, after a couple of years, strata managers work out this is not a smart way to grow. This service attracts price shoppers and having changed once for a better price, OCs will do it again if they think they can get it cheaper still. 

Experience tells us this business model isn’t plain sailing for the broker either. Despite stressing that the OC makes the final decisions, the broker represents an ‘exhaustive’ selection process that rejects poor performing managers so when things don’t go according to the OCs expectations (i.e., when they get the first big bill for Schedule B additional charges), they hold the broker responsible. Previous operators of this type of service typically responded, ‘OK then let’s get you another one’, and the process was repeated with the broker picking up another fee. I’m not suggesting Strata Options does this, just that this is what’s happened in the past. 

There is something about this service that is not quite right on the part of owners as well. Notoriously, OCs have unrealistic and uncommercial expectations of their service providers. The adage is true (which is the nature of adages) - when you get something for free, it’s worth exactly what you paid.