Our guest for the first episode of “The Power of Change with Michael Praeger” is Cat Carmichael, the Chief Executive Officer for Strategy 123, a strategic community association management (CAM) consulting company focused on acquisition preparation, increased profitability and creating successful exit strategies and succession plans.
Praeger, co-founder and CEO of AvidXchange, asked Carmichael about the main challenges facing the CAM industry, the reasons for property managers to embrace technology and the importance of clear communication as a leader.
Listen to the full episode now (you can find a complete transcript at the bottom of this post) or catch the key highlights below:
3 main challenges facing the community association managemnt industry
Due to the economic challenges of the last few years, the CAM industry is facing several issues that threaten the financial stability of many management companies.
Carmichael pinpointed the top three issues facing the industry:
- Talent shortages
- Commoditization caused by price sensitivity
- Overall profitability
The first challenge mentioned by Carmichael is for property management companies to remain efficient despite a shortage of qualified talent.
In a survey of Community Associations Institute (CAI) members conducted by AvidXchange in May 2022, 37% of respondents believe their organization will face the challenge of managing critical operations with limited staff. That’s up from 27% of respondents in 2021.
The second issue, according to Carmichael, is that management companies are being commoditized, meaning buyers (association board members) can’t tell the difference between a high-level company and a less qualified one. Instead, the buyer only knows to ask about the price, which can be fatal.
The final problem highlighted by Carmichael is the pressure community managers are under to achieve profitability.
According to Carmichael, community management profit margins linger around 25%. Since profit margins in the industry tend to be thinner than others, it’s crucial to find a way to increase revenue while decreasing expenses.
Why CAMs are slow to adopt technology?
Property management companies, according to Carmichael, are slower at adopting technology because many leaders prefer to wait and see the benefits other companies enjoy as a result of upgrading their technology.
But Carmichael said that’s the wrong approach as early adopters are perceived as leaders who believe the benefits of technology are greater than the risk associated with being one of the last to jump on board the trend.
The importance of clear communication as a leader
Carmichael and Praeger agree clear communication is critical as a leader, both from a management and business partner’s perspective.
Not only is it vital to translate your vision to your company, but it’s critical to help members of an organization navigate change and understand their role in the shared success of your business.
What’s next for the industry?
At AvidXchange, our customers in the CAM industry company use AP automation to pay suppliers so their finance team can process payments and invoices accurately and on time.
And as Carmichael expects, with a younger workforce gradually making its way into the CAM industry, community association management companies will seek innovative leaders who are fearless about taking the appropriate risks in business.
For more information about how to tweak your company’s leadership style in a less-than-perfect economy, make sure to download the full episode of the podcast and connect with Carmichael on LinkedIn here.
The Power of Change with Michael Praeger: Cat Carmichael, CEO of Strategy 123
Please note: “The Power of Change with Michael Praeger” podcast is designed for audio consumption. Transcripts are generated using speech recognition software and may contain errors. Please check the corresponding audio before quoting in print.
Welcome to The Power of Change, a brand-new podcast series produced by AvidXchange. I’m your host, Michael Prager, the CEO and co-founder of AvidXchange. My goal with this podcast is to bring insights from business leaders who embrace the power of change to fuel their careers and transform their businesses and organizations.
Each month, we’re bringing you a new interview and actionable advice to lead your business through change and empower your own professional journey.
Our guest in this episode of The Power of Change is Cat Carmichael, CEO of Strategy 123. Cat has served the community association profession for three decades, both as a management company executive and as a financial services professional dedicated to serving management companies and their clients.
Strategy 123 is a strategic management consulting company focused on creating successful exit strategies, succession plans and increased profitability.
In my conversation with Cat, we cover her journey to becoming a thought leader in the HOA space, the role of technology in the evolution of the industry, and the characteristics that help define a strong leader such as Cat.
So. Season 1, episode 1. Super excited. There’s no better way to kick off a new series than having a great guest. And today we have Cat Carmichael, the CEO of Strategy 123. We’re probably going to learn a little bit more where the name and focus of Strategy 123 came from. But maybe just a start, maybe give us a little bit of your, you know, overview, your role and vision that you have for what you’re currently doing.
Absolutely. Well, there’s no question that change is inevitable, of course. And the community association industry has seen so much of it. But especially the velocity of change in the last couple of years has been really unmatched in anything I’ve ever seen in my career. So, I have a really unique perspective that I’m really thrilled to offer. I did spend the first 15 years of my career right out of the University of California as a community association manager.
So, I spent 15 years in that seat. I understood strongly what it is that community association managers do. And then I was very lucky to transition to the business partner side. I started in banking and worked on that side for about 15 years as well. And it was during that tenure that I realized that the industry had to evolve.
I mean, I’m talking about when I started in community association management, all the payments came into our office, all the checks came out of our office. People use things like checks, stamps and things like that.
And now we know those.
Well, right now that that stuff is unheard of now. During my time not only as a community manager but also as an HOA banking professional, I had the opportunity to talk to hundreds, if not thousands, of community association management executives all across the country. And I think because of our shared management background that they were very welcoming.
There’s a fellowship among community managers, and especially if you have a shared professional designation like a PCAM, that world of people is very, very small. And there is a professional courtesy that we share PCAM to PCAM. And so the conversations that I would have with executives often weren’t about banking, at least not right off the bat.
They were much more about what their challenges and their needs were. That is how I created the vision for Strategy 123, by recognizing what the needs of management companies were and how that niche wasn’t filled by anyone else.
Unpacking the top challenges facing the community association management industry
Okay. So we have to dig in this a little bit more. So like were big some great examples of common issues, challenges that you’re seeing routinely across you know, the HOA landscape. You know, what are, you know, the top couple of things that you were dealing with, see?
Well, right now, without question, and probably over the last couple of years, it’s been a talent shortage. People haven’t been able to find people to work in their businesses and they haven’t been able to not only attract them, but retain them. So I have a lot of ideas about how to solve that problem without just throwing extra money at the people that you do hire.
Some of the ways to solve that problem are industry related challenges of image and reputation. We have those kinds of things in our control, but it’s also that the job isn’t known to be super cool. But it actually is cool when you think about what managers do right? You help people make their homes better, their communities better.
You create neighborhoods. But that’s not really what people think about. And so we’ve been spending too much time in kind of the rules enforcement world when we really need to spend a lot more time in the community development world. There are some really big, thoughtful voices on this topic nationally as well. But that’s what needs to change, because we can’t find people because they don’t understand what the job actually is.
And because it’s not quite cool enough to compete with the other employers out there, we need to solve that problem.
Okay. So talent number one, and I think, you know, that’s probably a shared concern across lots of, you know, lots of different industries, including our industry being, you know, in the software technology area. What would be another one related to, you know, big issue that you get involved with seeing that, you know, you know, as a consultant, you have some really good ways of working with those type of companies to get on a better path.
The second big problem is that management company executives say to me all the time is that they get commoditized, which means that the buyers, the boards of directors can’t really tell the difference between a high-level company and a less qualified company. And so they only know to ask about price. And that’s fatal.
Right. I mean, any time you’re judged on price, price pressure pushes you downward and you wind up being commoditized. And that’s not what community management is at all. The very last thing that they should be asking about is what the price is that you charge. They should be asking what the outcome is. So finding talent, avoiding commoditization. And then the third, huge, huge, huge pressure is profitability.
You know, margins in our in our business are not huge. We know tech companies margins are usually north of 50%. For management companies, iff they’re kissing 10%, they’re doing okay. Well-performing management companies might be making 25%. So they need to figure out a way to increase revenue and decrease expenses, clearly to make their margins better.
Yeah. And we’re going to come back to that because I’ve got a hunch that you have a belief that technology can play a role in that equation of how they can, you know, do more with less and be more efficient and drive a greater margin.
Cat Carmichael’s career journey in community association management
All right. We’re going go back to that, but before we get to that set of questions. Okay. So tell us a little bit about your career. You know, you grew up in California, went to school in Irvine. I, I think criminal justice was your major?
Yes. You did a lot of research.
All right. So how do we go from a criminal justice major to a management guru? Just tell us about your career.
While I was while I was in college, I was studying criminal justice. At the time, it was the late eighties, they were heavily recruiting women to be in federal law enforcement. They were very much looking for those of us with criminal justice degrees to either join the FBI or the CIA or something like that. They really needed female representation.
And I’m really pleased to see, by the way, that so many women choose law enforcement now, you know, it’s obvious that that early outreach was successful for myriad reasons. That wasn’t the path I ultimately took. But I wound up as a portfolio manager for a contract security firm where we provided officers either for gated communities or for industrial complexes and things like that.
And that’s how I learned about what an HOA was. It was by providing security services to a gated community in Huntington Beach. And that’s really how my whole career got started. The security business is tough. It’s a 24/7 deal. And I didn’t mind that schedule since I understood working nights, going to school during the days.
But it was just too much. It was really difficult to be on call that much. And so I was browsing through, the want ads, which we used to do in the eighties before we had easy access to the Internet. And I found an ad for a position called Community Association Manager Trainee, and I didn’t know what that was, but as I read the job description, I thought, well, I could do that.
There were 300 applicants for the job at the time, and it came down to the top three people was me, a guy and another person, and they gave us a writing test and I had to write a violation letter. And the scenario was that people were walking on the slopes.
I didn’t even know what a slope was. I didn’t know what a violation letter was. But I knew that I was a good writer. And so I wrote a good enough violation letter that ultimately won me the job.
Discussing the lack of tech innovation for community association management companies
Wow. So there you go. The skills from college coming back to, you know, advance your career in a different purpose. I love it. So let’s go back to technology. And so, you know a little bit about, you know, the landscape of technology nature away from being, you know, in this business, you know, real estate, h-hey have been some of the industries that have been laggards of adopting new technology.
So maybe just start there. Why is the industry been a laggard in adopting technology and leaning into, you know, making those investments?
Well, we know that a lot of management company leaders were great community managers. There’s a very low barrier to entry to start a management company. And so while if you were really, really good at producing the work, which is being a great community manager, you could start a community management company. That’s still the case today. However, that doesn’t mean you’re going to be profitable, and it doesn’t mean you’re going to be able to create a competitive advantage that’s going to break the commoditization problem that we know we know that they have.
So I think that generally there’s been a lot of courageous leaders in community association management who have trailblazers. They really have created a way to show people that it’s okay to take risks and frankly, that our business lives depend on taking risks. So once someone has proved that a concept works and works well, people follow. So our industry has a lot of great first followers, but not a whole lot of original innovators.
So I think that’s why I think also they get really bogged down in sort of the day to day stuff where they just don’t have time to innovate. And really that’s what the CEO’s job is, right, Michael? I mean, you know, you’ve got absolutely you’ve got to be looking through the forest and figuring out what it is that you need to do to take your company through it.
All right. So speaking, we’re going to stay on the theme of innovation because one of my, you know, all-time favorite, you know, fellow entrepreneurs is a guy named Justin Nelson. So Justin was the founder of a company called Strong Room, which we acquired back in the 2015 timeframe. I was actually in Houston last Thursday and had dinner with Justin.
He’s now a great product leader for us and really driving innovation around all the integrations and our new integration platform. But I think you had an early interaction with Justin and maybe just tell us about that.
You’re quite right. Dovetailing on what I said earlier, which is that a lot of management companies want great solutions. They just don’t want to have to figure it out themselves. And at the time there was a major software platform, still one of the industry leading software platforms that was doing user groups, and they would take their show on the road and they would bring along with them business partners who were innovative, who they had done the legwork with.
Right. So they had figured out how to create banking integrations and how to how to deal with websites and how to deal with things like payables. And I was sitting in one of those user groups and I looked over to my left and I said, Hi, I’m Cat. And he said, Hi, I’m Justin. And he started to explain to me what Strongroom Solutions was.
And his explanation was, this is a payables lockbox. And I thought, what if we could get rid of paper invoices and make it easier on the management company and create a great audit trail? I thought he was genius, but I thought his messaging was going to be very, very difficult because he had to disrupt the way it was always done.
But he had the big brothers of those big software platforms there to help him tell his story and create his value proposition. So, yeah, I met Justin really early on. I don’t even know how many customers he had at the time, but had I not been in that user group and and listened to what he was telling me he was going to change in the management company, I never would have really understood that payables could be could be pleasurable and not painful.
Absolutely. Justin was one of the, you know, early really visionaries for you know especially within HOA it how technology can really be a great use case of using technology to automate a key business process. And one of the things that we look at at avid exchanges, you know, now extending that the other industries is where do we have the characteristic of a very manual, paper intensive process that we around either, you know, managing invoices or getting bills paid that we can deploy our technology and really have a really revolutionizing experience for the customer and, you know, what we find, you know, every day in our business is when you get in and you have these conversations about why you do it this way, usually the answer is, well, they haven’t thought much about it. It’s just that they inherited it like it’s always been done this way. So like I didn’t really think of, you know, is there a better way?
And one of the things that maybe is, you know, a ray of fresh light is that we’re really seeing a trend across not only highway real estate and other key industries that the next generation of leadership being those that are you know, I call digital native that grew up, you know, in an online digital environment.
They’re the ones now. They’re asking those questions when they, you know, show up for work. And they’ve been, you know, a digital native professional growing into a leadership role, say, as a controller. And they get 1000 checks every Tuesday and Thursday, they’re like, why am I signing a thousand checks? I don’t do this my personal life. Like, why am I doing it in the business?
And meanwhile, you know, no one else has been asking those questions. So, you know, I think one of the learnings, at least that I’ve had in my career is, you know, how do we advance, you know, you know, more leadership where they have the courage to ask the question about like, why do we do it this way? And I’m sure you have some experiences about that in your career as well.
Gosh, absolutely right. Both from the management side, but also from the business partner side, a as a professional banker. Part of our job is to make businesses better, not just sell our products. Bankers really, truly should be a good business partner, in the same vein that the software platforms and the other business partnerships that a management company has are important relationships that help operate the business.
Instead of selling a product, I would ask questions like “How many how many of the payments that you have every single month come from a budget that’s knowable?” 50% of them, right? Once the board adopts a budget, I know what the management fee is. I know what the landscape fee is and all that stuff. So why aren’t management companies automating those knowable payments?
Why aren’t you creating a way to pay those business partners in an automated, predictable way? I know your software can post a recurring payment to the general ledger. And you’re right about that second generation, as some of the owner operators that I serve now develop their exit strategies, they are looking for innovative leaders who are fearless about making changes like that right now.
Where can the community association management industry lean into technology?
Absolutely. So let’s go in. You know, you know the work that you’re doing every day and the opportunities you see for technology, obviously around the accounts payable payment area is one that you’ve leaned into. What are some of the other areas that you think are the low hanging fruit for ways where if they can lean into technology, it makes a difference?
Well, outsourcing anything that is predictable. Printing and mailing, for example, I find it very inefficient for a management company to deposit money on a postage meter and to maintain their own copier and have to count copies when in reality, the better thing to do is to send this to one of the very well qualified HOA mailing houses and let them send everything from a single source mailing house.
Mailings is a huge, huge thing after payables. Obviously there’s been some tremendous work done in outsourced escrow and Resale services. There’s a lot of great companies who do that. Virtual professionals are another huge, huge advantage for management companies to outsource tasks like customer service and accounting and things like that. And in fact, your platform is one of the most popular things that can be done by a virtual professional because of its SaaS based system right now.
We saw some great use cases at the beginning of COVID, you know, in supporting a workforce that was 100% remote, which wasn’t necessarily ever in the design plans that we had in terms of the use of software. But certainly it was a tremendous, tremendous asset to companies who needed to find a way to serve their customers.
We even had, you know, one CFO that bought vaults for his AP staff to take home and put on their dining room table to store check stock. And he had armored Brinks cars go to their homes between 5:00 and 7:00 every night to pick up the checks that they were printing on their dining room table.
Did you hurt yourself when you jumped out of your window after hearing that?
Of just like, you know, something, you know, we had to bring him, you know, that CFO, you know, I think on to a podcast so we can actually record this story. Hopefully he has the courage available to actually retell it, but certainly their life was a lot different once they adopted Avid Exchange for sure. Well, in wrapping up, and there’s one part that I actually I wanted to hit on and you know, you talked about the value of your writing skills.
And one of the things that I see across all, you know, developing leaders and female leaders as well is a core skill set of communication. And to be able to not only, you know, communicate with peers around, you know, kind of tasks at hand, but also be able to communicate like a vision, a vision for yourself, a vision for, you know, the company you’re working with.
And, you know, maybe share a little bit about, you know, kind of that, you know, journey for yourself. Certainly, you know, writing has been a great tool of how you’ve communicated, but maybe share a little bit more about that.
So you’re right. You are what you say and you are what you write. And my mother was a journalism major in college, as well as a marine Corps officer. So there’s no reason for me to not take shortcuts on anything that I that I’ve written. But it has turned out to be a tremendously valuable skill set for me, not only to communicate things like vision, but also to communicate properly processes and value propositions, those types of things.
I think that’s really cool that you brought that up because not many people talk about communication skills and yet they’re among the most vital things that any leader can have. And one of the things I try often to tell my clients is you are the leader of your own ship. successful change management requires leadership and you have to prove that you have the ability to lead through implementation of new innovations.
Change management is not only to create the right vision that everyone will charge up the hill behind you, but also let them know what’s in it for them. That’s the key. When you write something or convey a vision, it’s not about you. It’s always about them. From a marketing standpoint, any changes has to show and resonate immediately with the person who hears your vision and reads your writings.
Well, I think that’s a great way to wrap this segment. Where you take is a skill that you learned, you know, early in your career around the writing. You know how you got one in your first initial roles and then you know how that continues to be applied towards progressing your growth as a leader and creating, you know, that vision that others would follow.
And communication is a cornerstone to that. So real life, you know, examples on something that you’ve done and it’s a phenomenal story and Cat, I can’t thank you enough for being here today, participating in season one, episode one of the Power of Change. And with that, I think we have a wrap.
Thanks so much and thanks for all the good that you’ve done for our industry as well.
Thank you. Well, we’re in this together and look forward to many more of, you know, industry conference is and podcast and everything else where we keep evangelizing, you know, the opportunities the industry has, especially in the adoption of technology.
Boy, it was awesome spending some time with Cat Carmichael of Strategy 123. And a couple of things I thought were really interesting about hearing Cat’s story and building her business was really kind of three themes that I find that are kind of characteristic of success of lots of companies, including AvidXchange, actually.
And the first one is she’s extremely passionate in what she does. It’s contagious. I got excited listening to her. And passion, especially by the leader, is something that’s just really important. And it really serves as a cornerstone in kind of building the culture of a business.
The second one was Cat’s really curious, and it really shows up in the innovation that she’s incorporated into her business. She’s always asking, why not? And always innovating and I think there’s a lot of kind of a corollary and comparisons that you can make.
Steve Jobs had a cornerstone of talking about innovation. And he said innovation really distinguishes between a leader and a follower. And I think that’s been certainly true for Cat at Strategy 123.
And then the last one is really about dreaming big. And we have a saying at AvidXchange about how fortune favors the bold that we need to continue making big bets and investments in our business. And I think Cat had the same dream in terms of thinking of big and making kind of bold decisions in growing her business. So I enjoyed my time spending with Cat and learning her story and it was an awesome experience.
That will do it for this episode of The Power of Change. This episode was produced by one of my teammates, Travis Durkee. If you like what you heard, make sure to subscribe to the channel and leave a five-star review.
Keep an eye out for new episodes each month with leaders from various industries. In the meantime, make sure to follow me and AvidXchange on Instagram and LinkedIn. Links to each are in the show notes
And visit AvidXchange.com for our latest research reports and business insights. So, until then, remember, the best future is ahead of us – make it a great one.