Relationship Capital

What it is

Relationship capital is what I’d call the emotional savings account I hold with every contractor, sub, vendor, and title rep I work with. Deposits are the small consistent things: paying fast, being clear about expectations, not calling at 10pm, treating people like humans, covering lunch on a hot day. Withdrawals are the opposite — anger, blame, phantom expectations, late payments, changing the scope midgame, yelling on the phone.

The strength of your business is directly correlated to the strength of relationships you have with the vendors you work with. And inversely correlated to the amount of bandwidth you will spend on each project. Without strong relationships, the only option you have is micromanagement. And micromanagement is not conducive to a stress-free wealth-building enterprise.

Why it matters

New flippers think contractor pricing is set by market rate plus a little haggling. It isn’t. Pricing is set by a stack of things the contractor feels about you: trust, payment confidence, likability, future work. All of it collapses into one question from their side: do I want to work for this person again? If yes, you get lower bids automatically. If no, every bid carries a surcharge whether you can see it or not.

I always pay these guys fast. I literally put two checks in my mailbox for contractors to come by and grab before I started filming one of my videos. They sent me a bill the night before, I wanted to get them the money the next day after confirming they did the scope of work. I go out of my way to pay fast. That’s the deposit.

But here’s the other thing — the law of power. The power is the money, no matter what. It’s not a nefarious thing. Everybody has bills to pay. Everybody has mouths to feed. Contracting is a tough business. They’re always working on the next thing that’s going to bring money to them. You need to be the next thing that’s going to bring money to them. You pay fast, but you never pay ahead.

Three bids is actually for burning bridges over the long run. Conventional wisdom says get three bids for everything. But if you really think about it, you’re wasting the time of two of those people consciously every time you do that. The better method is to build good relationships to where you know you’re getting good pricing and you understand the pricing yourself. That’s intuition built over time.

How it shows up

Some specific moves that deposit consistently:

Pay fast when the work is done — not “when I get a chance.” A predictable pay rhythm is worth a percentage point in bid pricing by itself.

Sometimes I deny a bid that doesn’t have a problem at all just to keep them on their toes, make sure they know I’m looking at the pricing. Can’t let them get too comfortable.

Seven iPhone photos are equal to one countertop to some contractors. Not tech-savvy guys find it genuinely hard to send photos via iCloud. That request costs them more than it costs you. Wear their shoes.

Show don’t tell when you’re starting out. Meet them at job sites instead of your office if you don’t have much going on. You don’t want them to smell the rookie on you. You want them to see you as somebody who can continually give them good employment.

The depth chart gets deeper on its own once relationship capital is working. One contractor with high trust introduces you to two more inside his network. Those two give better pricing from day one because you’re “the guy who pays on Fridays” instead of a stranger off the internet.

Related

fear tax, depth chart, contractor black hole, scope of work, pay schedule, costco bid