In response to a previous post I wrote about why real estate is an attractive industry for tech founders, Phil Lang of Suitey responded with why real estate tech is actually not that great a choice (HN comments).
This is the response I wrote, which was too long for HN.
Clumping “real estate” as a class of problems or companies is crazy. It’s like saying “science is easy” or “science is hard”. There are a lot of problems and solutions, small and large, that are easy or difficult, lucrative or not.
Real estate broadly has a lot of areas: residential sales, residential rentals, commercial sales, commercial rentals — which you can break down into single family, multifamily, privately owned and managed, part of a huge portfolio — then further provide solutions to the buyer/renter, seller/lessor, or any of the intermediary agents like brokers, service providers like bankers, advertisers, etc.
There’s a lot going on and of course its crazy to say that it’s all easy or all hard. My point is mostly that there are many (not all) shockingly easy, lucrative problems to solve compared to the companies that capture the lion’s share of the attention in tech circles (and probably venture financing from Sand Hill Road).
1. We have *HARDER/EASIER* problems to solve
My note was about tech problems being trivial. They’re essentially solved tech problems with no bleeding edge development required. I don’t think you or rubyn00bie disagree with this.
You had several comments in this section, which I’ll respond to in turn.
A. “real estate is people centric” : I mostly agree, with the obvious disclaimer that “real estate” is a lot of things and some of them aren’t people centric. For example, the best listing site on the planet doesn’t need a lot of human interaction. Apartmentlist.com and craigslist.com don’t do better with a charismatic salesperson. The people centric components won’t (or can’t) be solved by technology solutions. Not only is solving people problems with tech “hard”, it might be impossible. I advocate finding the problems you CAN solve and shooting for them.
B. “Making any change to the industry requires working within a very entrenched, highly regulated system that is set up to keep tech out of the industry” : Some components are highly regulated and some aren’t. It’s really easy to create a rental application site that can be used without dealing with much regulation. Others that require little maneuvering of regulatory hurdles:
- Tenant/landlord communication portals for maintenance requests
- Autogenerating tax documents for landlords (this is a bad idea for other reasons, but not regulatory)
- Even online rent payments isn’t that hard — regulatory issues are with handling money, not real estate, and it’s been done, is a solved problem, though admittedly a pain in the ass.
- Internal tools for managing the pipeline/status of existing deals for commercial and residential sales and rentals. For example, Rentjuice (now zillow) helped leasing agents manage leads. No regulatory issues.
- Listing/search sites – There are some instances where having a license is helpful here and some instances where there are constraints on the usage rights for data, but again, its possible to create these sites without regulatory hassle. This is my least favorite class of real estate tech startups to pursue though, but the difficulties here are not regulatory.
Of course, there are many problems in this space that DO suffer from regulatory issues. Pursuing those doesn’t fit my startup goals. I think there’s plenty of prize outside of that set though, so my advice is to skip those unless you already have an unfair advantage in that space. Once
you DO crack it though, it becomes a barrier for competitors against you.
I don’t believe your comment that a “regulated system is set up to keep tech out of the industry” is at all accurate. While it’s true that there are entrenched financial interests who want to protect their pie, its not about keeping tech out, and it’s certainly not “set up to keep tech out”.
Almost everyone in real estate, and especially the governing bodies and associations think tech is both valuable AND the future. There’s just no consensus on what the tech solutions look like, who is going to execute it. Partnering with the right insiders here would dramatically increase the odds of success and I assure you that they won’t be fighting to keep it out.
Pay them and they’ll invite you into the club. Real estate is about dollars. Period.
2. The bar for excellence is *LOW/HIGH*
Your comment does not explain why the bar for excellence is high. I claim the bar for excellence is low because competing solutions are crap. The average person who has been hanging out in the tech/startup circles has a much more developed, opinionated sense of product. The startup crowd creates better product than people outside that circle (*huge generalization, but I’ll stand by it*).
Beating the software incumbents is easy. Beating faxes, scribbled pen and paper solutions, and manila folders & filing cabinets in a property managers office is taking candy from a baby.
Hence, the bar for excellence in product is low.
Your other objection centers around usability for a subset of prospective users.
“The median age of a broker in the US is 57. They are on the brink of social security checks and medicare. Creating an app or service that a 57 year-old will easily be able to use is a challenging task”
My advice to aspiring real estate founders – Don’t make product for that person. You can not make the perfect product for EVERY person. You are a resource constrained small organization that has to play smart. Make SOME people ecstatic instead of trying to make EVERYONE “kind of happy”.
The problem you described is that some people aren’t familiar with tech, period. The sales job of tech to non-tech people is hard. Support of tech to non-tech people is expensive. With every passing year it gets easier (luddites retire, new tech generation buys more real estate, tech penetration in business in general expands). So if you’re adamant about serving EVERYONE, apply this strategy:
First, solve the problem for people who already get tech. It requires less work and less teaching customers. After they are comfortably paying your bills, then tackle the median 57 year old broker. By then, a median broker will have had a few more years of being forced to use technology in other areas of life anyways so your job will be easier.
There are more tech-savvy people that are NOT your customer today than you can possibly reach. Getting hung up because a solution can’t serve everyone today is bikeshedding.
I know that sounds dismissive, and I don’t want to trivialize this problem, as it *is* particularly pronounced in real estate. [Please excuse ageist commentary ahead].
- Real estate is expensive.
- Buying real estate requires wealth
- Accruing wealth takes time
- Accumulated wealth increases with age
- Technology adoption is inversely correlated with age [link so I can possibly weasel out of the ageism critique]
tldr: old people don’t use iphones and old people have all the real estate.
I had a customer for my online rental application company that called me (back when I was doing phone support), furious that my website wasn’t working when she typed in the URL. After about 5 minutes on the phone I realized she was typing a URL into the “to” field in her Microsoft Outlook instance. I had to explain to her that she needed to open a web browser. This happens. A lot.
Obviously, that makes it a bit tricky. Since there are plenty of tech-enabled candidates that aren’t using tech in real estate than we can reach: cater to the people who WANT your product, you’ll save yourself the headache of explaining how computers work.
It’s important for founders to evaluate why they are founders. Your job is to create a profitable business. “Great product for everyone” sounds positive, but it comes at an astronomical cost (whatever it costs to do something impossible). It’s far more effective to acknowledge that you can NOT do so, and treat your product as a curated set of features for a subset of the total population. Again, create a few raving fans instead of many disappointed critics.
3. “The market is becoming saturated with an alphabet soup of tech products” vs “The market is huge and terribly underserved by tech”
I had written that the market is underserved by tech. Basically I’m saying that people aren’t USING tech yet. You’re saying that there’s a ton of crap options out there. I don’t think these are mutually exclusive.
I also don’t really think there are THAT many outside of the rental search space compared to say, the number of social apps, bar recommendations, bill splitters, and especially when you compare the number of products relative to the economic size of the prize. Yes, there are a handful (I published a list of 100 or so apps in the space about a year ago), but most of them are (a) crap, (b) just shells of websites that nobody uses.
Less apps, bigger pie.
4/5. “The prospective customers are difficult to round up”+”It’s relatively difficult to engage the people in the space” vs “It’s relatively easy to reach players in the space”
I think your point is: “They’re busy and its hard to get their attention.”
I agree with this 100%.
Convincing someone to use a new product involves:
- (A) Finding them
- (B) Convincing them
Yes, (B) is hard. Getting their attention is hard. Convincing them of anything is hard. These are not unique to real estate customers.
However, I can buy a list of names, email addresses, mailing addresses, phone numbers, company names for many real estate niches. Want a list of just apartment complex owners in Tacoma? No problem!
That’s not an option if your market is “startups”. Customer.io can’t just buy a list of new startups easily, or without scraping it (which is still an incomplete set). Why did I choose customer.io? Because I like them and I want to give them a backlink. Yay!
Each market has its own challenges, of course, but I enjoy that in real estate, IDENTIFICATION of potential prospects is a problem that CAN be solved with money (whether you want to or not is a different question).
6. Good data is hard to come by
Hell yes. The data will get better. It’s not good today. There will be rewards for the people who CREATE good data (or liberate the existing data, but existing data is low fidelity).
Until then, my response is: Don’t solve data dependent problems. Rent payments, for example doesn’t require listings.
If youre a startup and you want to get data, don’t spend the “months (if not years) of regulatory hurdles to get the data”. Just partner with someone who has it. Even if you give up some of your wins, you’ll save yourself the headache.
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I’m always interested in meeting other real estate founders or anyone interested in chatting about startups. Drop me a line.