The author is the owner of Acorn Appraisal Associates, a 22 year old firm offering a wide range of quality appraisal services to the Financial and Business Communities in the greater Houston SMSA
[This is the third post in series a by Ken Verrett of Acorn Appraisal and Thomas J. Inserra, SRA of Zaio. The first part Zaio and Me - The Business Model Examined described Ken's perception of the Zaio business model as an outsider looking in. The second part Zaio's Response - The Business Model Examined was an effort byTom to clarify possible misconceptions about Zaio. In this final segment Ken looks at Zaio from an Insider's (Zone Owner) point of view.]
When we started this column in 2006 objectives were defined in quite limited terms. See the introduction here. http://tinyurl.com/ohcsz
I'm no expert in anything but my business. Brian asked me to contribute here, and he lets me choose my subject matter. I generally confine myself to my humble roots. So most of my posts have been my personal perspective, and the insiders view of my business, shared for better or worst when it relates to my image and ego. A chronicle of a business journey; the good, the bad, the full Monty. In that sense, Runt Rant's may be unique. 
I share my closet, all for the common good. At least that is my intention. Whether I achieve that is for you to judge.
The one or two frequent readers of Runt Rants (there would be more, but my mother and father are long deceased) will recall columns in which I have detailed Acorn's history. We did a six part series on growing an appraisal business based on Acorn's experience. See http://tinyurl.com/yra4sa. For those short of time, Acorn is a twenty plus year old company that seven years ago embarked on an expansion plan. Then it was a one man shop. Now we have nine employees and are seeking a tenth addition.
Revenues have grown at an average annual rate exceeding forty percent each year during that expansion. Quality and customer service as measured by internal indexes has improved. The staff all earn incomes in the upper tier of their peers according to surveys we subscribe to at Salary.com. Employee benefits have continually increased; a group health and life plan has been established with Acorn contributing more than thirty percent of the cost for each employee. NOI for the company has risen at a faster rate than revenues as we continually use technology to increase productivity and efficiency while at the same time enjoying the significant benefits of economies of scale.
Last year was in many ways a watershed year for Acorn. Major gains achieved in gross revenues. Even larger gains achieved in NOI. Fat City! Time to reap the profits from the last six years of hard effort? Hardly! Business environments change daily. It's a competitive, Flat World out there. To rest on one's laurels is to risk being over run. We all know that. We've all been run over once or twice. Innovation and change are part and parcel of business these days if you intend to survive.
So it is in Acorn. We are always looking toward the future; to get more efficient, to be more productive, to find business opportunities that compliment our core business.
In December of 2006 I did a review of one of the new business concepts to hit the market recently: this one being the Zaio Corporation. That review can be read here http://tinyurl.com/y3sxy3 . I thought the review was quite favorable, but concluded that it didn't meet the financial performance standards in my business. Tom Inserra, the CEO of Zaio, responded privately to my column. His response was eventually posted on Appraisal Scoop. You can read those comments here http://tinyurl.com/tz993 .
At the end of Tom's response was an invitation to attend one of Zaio's Webinars to learn more. That I agreed to do, reasoning that to be fair I needed to learn more and if it changed my opinion, then I should so note that in a subsequent column of Runt's Rants.
A series of private emails were exchanged between Tom and myself, discussing different market trends and business philosophies. Like a rose opening, each additional piece of information changed the picture slightly, and none of those pieces were on the web site. That discussion led to Tom directing changes be made to the web site to provide more clarity. That was impressive....a corporation willing to accept input and change accordingly.
Click below to read on . . .
By this time, a week or so after the Appraisal Scoop column appeared, I had determined there was enough potential in the Zaio Concept to warrant getting my Bright Horses involved. I try to involve them in such conceptual discussions...they will need to make those decisions in the future without me, and the more experience they get, the better prepared for the next opportunity they will be. This was the third such venture I've asked them to participate in analyzing.
I briefed the Bright Horses on the concept and suggested they visit Zaio web site www.zaio.com to learn the first cut details. I had developed an Appraiser Start Up Model (posted on Appraisal Scoop here http://tinyurl.com/22v4bm). I directed the BHs to expand that model to fit the Zaio Concept and create a seven year projection model built around a key variables page, similar to the Start Up Model. We could then use that model to analyze the opportunity.
The Zaio webinar was held in early January, 2007. Several of Acorn's staff attended. By then the BHs were as informed as I, and they had developed the first draft of the analysis model.
The meeting was pretty high tech for me. I was located in the Galactic HQ, the Bright Horses were at the Acorn office, and Brad Stinson was somewhere...who knows where... We were all connected via phones and computers. Brad took over our workstations and conducted the presentation, answering our questions as the session progressed. It lasted three and a half hours.
I was impressed. Impressed with the additional details that Tom Inserra suggested were net positives. Very impressed with Brad Stinson. A no nonsense entrepreneur. Like me. Gave straight answers. Comfortable in saying "I don't know" or "We haven't decided that...what do you think". The honesty, the sincerity of the man came through loud and clear.
After the Zaio Webinar I polled the Bright Horses.
- What did they think of such a concept?
- Did it seem reasonable, practical, potentially profitable?
- Did it compliment our core business?
One was clearly on board and saw a perfect fit. Another liked the concept but was skeptical of certain USPAP issues that needed further clarification. All agreed that the new information we learned should be included in the analysis model we were building.
The next day I emailed Tom Inserra, told him we were impressed with Brad Stinson and saw potential for Zaio and Acorn to work together. I asked for additional information. Tom put me in touch with Frank O'Neill who sent the latest version of the Zone Purchase Contract as well as the Area Development Office Contract.
I began reading the contracts in detail, feeding information to the BHs as it affected the analysis model. The BHs in turn were working diligently to refine and expand the model, which ultimately went through seven iterations before we had it working as we needed.
Both the contracts and our Acorn internal discussions generated numerous questions which I posed in a series of email exchanges between myself and various Executives of Zaio. Some questions were easily answered. Others didn't have answers. I get persistent in such situations. I'm plain spoken, direct. I expect that in return. At one point Tom and I were clearly confrontational. I like that. A good time to get a measure of a man and an idea.
In the space of a few weeks we had obtained most of the answers, and isolated the unknowns as we saw them. The model suggested a workable plan could be developed which, if successful, would yield significant benefits to Acorn. Not the one year cash on cash return I have always demanded on our business investments. Instead the cash on cash return would be achieved in a projected 32 months. Beyond that, the future returns on future effort are projected to increase our productivity significantly.
The Bright Horse Team were impressed with the Zaio Executive Team and vice versa. There seemed to be a fit of minds and personalities: a fit as to mutually agreed high standards of ethics and quality.
One BH argued for a commitment of 25 to 30 zones. I was more conservative, wanting to limit the risk to 10 zones. We all agreed that the ADO position was attractive to our situation. In the end we agreed internally to commit to 15 zones and the ADO responsibilities. A cashiers check was delivered to Brad Stinson on his visit to Houston for the down payment, the rest subject to suitable financing arrangements being completed. I had by this time reviewed the proposal with two national bank loan officers and received assurances the proposal for financing would be considered.
A few weeks later two of our Bright Horses flew to Phoenix.
One to participate in the training for managing the coming Photo Project.
The other to visit the Inserra appraisal office in Mesa to observe first hand the software and hardware in operation and to discuss the integration of the Zaio Concept into a working appraisal business.
Shortly after their return we increased our commitment to 23 zones. The business expansion proposal was submitted to the two National Banks using the Business Opportunity Model we had developed. The proposal was evaluated by the bankers and approved through their loan committees. We closed on the loan and the finalized the purchase of the 23 zones in April.
We began the Photography Phase about eight weeks ago, beginning with the advertising of the positions in the local market. We currently have ten active photographers in the field taking pictures and uploading them each night into the Zaio servers. We have just concluded interviews for our second photo training class, and a class of thirty or more is scheduled the first week of June. We've taken over 120,000 photos so far, and our objective is to reach 50,000 photos per week by the middle of June.
Since the beginning of this journey we have been welcomed warmly by the Zaio Staff. They have been open to suggestions, even implemented most. They have fulfilled all of the contractual obligations to date, and gone beyond those obligations when appropriate.
Acorn's team of Bright Horses are thrilled to be a part of an innovative approach to improving our product lines and serving our cherished clients in a better way. Communication back and forth has been nothing short of phenomenal. I just checked my Zaio folder in Outlook. Over 600 emails exchanged between myself and Zaio Execs alone!
As I look back on the original column I wrote here on Appraisal Scoop and Tom Inserra's subsequent response, I find nothing in either that I would note as incorrect or needing modification. My analysis was accurate; Tom's response was accurate. That's remarkable to me. Rarely in my career has that been the case. I think that is a tribute to both myself and to Zaio as being honest and straightforward from our first introduction.
The Zaio Concept is innovative, combining unique and tested software and hard technology. The corporation is led by a stellar executive group that has great depth of experience. Those executives have the respect of the leaders in the financial industry and it's regulators which will go a long way toward gaining acceptance of this new approach. There is a can do attitude pervading and a clear confidence that each part will fall into place and a better solution to our cherished Clients and community needs will eventually be achieved.
The effort to put together a national network of zone owners and managers and the massive logistical challenge of amassing the individual property data and neighborhood market analyses in each community is staggering!
Yet significant progress is being made monthly in both these areas. Zones sold across the country now exceed 1,000 and the sales trend is exponential. The Photo Phase is reflecting that continued market penetration. The future looks bright.
We've considered at a number of opportunities to change and expand our business to meet what we see as the evolving needs of the market. The Zaio Concept is not the only innovative idea being tested currently, and there surely will be others.
But Zaio fits with Acorn hand in glove.
The author is the owner of Acorn Appraisal Associates, a 22 year old firm offering a wide range of quality appraisal services to the Financial and Business Communities in the greater Houston SMSA
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