Defining Your Personal Highest & Best Use
One of the best parts of being a professor at NYU is getting to mentor graduate and undergraduate students seeking to enter or move up in the world of institutional and commercial real estate. When a student sits down in my office, I almost always start with the same question, “what do you want to do?” For some, the answer comes quick and easy with a high degree of certainty and confidence while others respond back with some form of “I don’t know, that’s why I’m here.” Regardless of how the student responds, I will engage them in a discussion to figure out what their Personal Highest & Best Use (HBU) is or what it may become.
What is Highest & Best Use?
Highest & Best Use (HBU) is the theoretical use that makes an asset maximally productive. It comes from the works of classical and neo-classical economists such as Irving Fisher and is essentially a condition that gives the means of deciding how something should best be utilized. Those in the real estate profession may recognize determination of HBU as an essential step in appraisal and valuation exercises. It is still today the leading theoretical paradigm to value a parcel of land with or without improvements. While this powerful economic concept has greatly been developed for use in real estate valuation, I find it equally powerful in helping people decide what they should with their lives. A question known to vex everyone at least once before, during, and even after their working years.
What is a Personal Highest & Best Use?
A Personal HBU is the overarching career or activity archetype a person is meant to follow or become that will allow them to, as economists say, “maximize utility.” What exactly is “utility” is up for lots of discussion and debate. From my experience, humans tend to place value on a vector of factors including wealth/income, happiness, security/safety, and recognition/esteem. There are also harder to define X factors, such as making a positive difference, that people tend to state as important. Thus, in order to define your Personal HBU, you must first decide what maximizes your own utility. On this subject, I am not the best guide. My advice, do not be concerned what others or society says should be important, follow what you fundamentally believe is important to you. Thus, to help guide you along, I will present a simple three-prong set of criteria to follow to figure out your own Personal HBU. These are of my own creation, but I will give credit to Jim Collins who wrote about the Hedgehog Concept in Good to Great, a similar concept applied to firms. His work inspired my thought process on developing the Personal HBU.
Criteria 1 – What are you most passionate at mastering?
If you are to be successful at any endeavor, be it a career field or hobby, you must fundamentally love the field and want to master and learn everything about it. Achievement takes a lot of time and dedication, Malcolm Gladwell in Outliers suggests mastering a field or craft takes at least 10,000 hours of practice. Times of practice, study, and other “entry level” tasks/jobs are bound to be rote, boring, and unprofitable at times if not most of the time. Thus, you must be very passionate about the field or craft if you are to sustain and persist through the learning curve. Even after achievement of “mastery”, passion and dedication to continuous improvement and learning is crucial. In short, if you cannot be passionate about it, it’s probably best to move on as you will not master the field. Your Personal HBU will center on a field that you want to learn everything about, essentially willing to be a total “nerd” in dedication to the field.
Criteria 2 – What naturally plays to your strengths?
Collins’s Hedgehog Concept calls this criteria, What Can You Be The Best in the World At, which is fine for corporate strategy, but too limiting for a Personal HBU. When deciding what fields or crafts you should pursue, you should gravitate to those that naturally align with your core strengths and minimizes any weaknesses, perceived or real. If you are good at solving puzzles and discovering findings in piles of facts, then pursue fields where those skills are utilized. In the negative example, if you dread talking to new people, talking in front of groups, or otherwise having to persuade people as part of daily activities, don’t enter a field like sales where interpersonal skills are required to dominate. If this sounds obvious, it is, yet my experience shows me that people err in this dimension all the time. You are going to be more productive maximizing your strengths than attempting to mitigate weaknesses, the sooner you realize this the happier and more successful you will be.
Criteria 3 – Where is there a market opportunity you can exploit?
Just because you are great at it, and totally love it, if no one wants to pay you sufficiently for your time and effort, you will be miserable. This is undoubtedly the hardest of the three criteria to solve as the market is changing all the time. This is both great and terrible, as your perfect field could literally be eliminated or created overnight, thus you may need to constantly shift your exact field or role as the market changes. My advice, find a “supply and demand imbalance” or “market inefficiency” and solve it. The supply and demand imbalance is easy to understand; when there is more demand for a skill or talent than there is long-term supply of people to provide it, people with such skills can command higher wages and better job security. In fact, it shocks me that people often do not look and supply and demand trends before picking careers and college majors, it should be a fundamental part of life planning. The latter idea, exploiting a market inefficiency is more complex, but worth a deeper dive.
Labor Market Inefficiencies
Every day, some people will get vastly overpaid (professional athletes as an example) while others will get vastly underpaid (K-12 public school teacher for example) relative to the value they create for society. Both of the examples above have more than adequate supply and/or turnover (in the case of teachers) to remove the inefficiencies but yet they persist for decades and probably will for decades to come. Why? Short answer, it’s just the structure of the market, we may not like it, but it is reality. Some of the happiest, most successful, and wealthiest people I have ever met appear to have ended up in that condition by exploiting market inefficiencies in their careers and businesses. In short, they provide skills and services that are easy and even fun for them to provide yet excessively costly or highly valued by the market. When asked about what my consulting firm Lakemont Group does, I like to say we specialize in problems that are hard to solve and require special expertise, the kind that most firms will not want to hire or could afford to hire full time. In short, we solve problems that are complex, costly, or generate high value for our clients, but are just “routine” to us.
The key to finding market inefficiencies of your own to exploit is a matter of ingenuity and opportunism, with specialization being the key tactic to make yourself the perfect solution to a known problem or untapped opportunity in the market. The only hint I can give is that these jobs, skills, or even business opportunities will not listed on job boards, likely not defined by a traditional college major (but maybe a course*), and will not be a “standard” career track. Yet, you are probably connected to dozens if not hundreds of such people and firms on your LinkedIn right now! There is a book that really captures this strategy, The Millionaire Mind by Dr. Thomas Stanley; in it, he describes the path that many US millionaires took to reach their level of wealth, typically in one generation. The path is often specialization in a field that is profitable.
Conclusion– Your Personal HBU
Your Personal HBU will be the intersection of all three criteria, just like a Vinn diagram (look at the Hedgehog Concept to see what I mean). If you lack in any one of the dimensions, you may miss a key component of utility maximization. Are good at something the market values but hate doing it? You will be unhappy and may even underperform your peers. Are good at something and passionate to master it yet the market does not value? Congrats, that’s called a hobby and you may go broke! Passionate at a field with great market potential but not really skilled in critical areas? You will underperform, get fired, and ultimately lose your passion. Get all three right? You stand a chance to make major impacts in this world both for yourself and society. Choose wisely my friends!