A Goal Without a Plan is Just a Wish

by Kevin Hawkins on April 20, 2016

Coin FlipA French writer wrote this line – “a goal without a plan is just a wish.” It often pops into my head when I read a trade story about a hot new real estate tech company that upon closer inspection, isn’t a company at all, but an idea in search of a business plan.

I also find myself thinking about the same thing when I walk through a conference where startup firms are lined up. I pay a game in my head call “product or product feature.” It seems that so many tech startups in real estate are really just a feature that should be rolled into another product that is offered by an established company.

Most often with these new tech startups, there isn’t enough “there there” with the product to justify building a company around. Real estate tech conferences need a professional match-maker who walks around to counsel these firms solely on what product their product feature would best fit, and find a way to marry their innovation off that company.

You’re no Google

At one conference, I challenged the founder of one of these firms on the viability of his product when it became clear he had no idea how he was going to generate revenue. The CEO argued that Google didn’t have a revenue plan.

Google. Really? You are going to compare yourself to Google? I bit my tongue and almost found myself paraphrasing President Ronald Reagan’s retort by saying “You’re no Google.”

Not to be too cynical, but there continues to be too much hubris and not enough substance in the plans for some real estate tech firms. Their hockey stick projections that they are selling to the VCs are based on fairy tales of product adoption rates that have never been achieved in real estate. It feels like there are 500 companies all offering the hottest real estate tech for agents at just under $20 or $50 a month. When you ask how many sales they think they can hit, they talk about 10% of the 1.2 million agents as being a “conservative” number.

My math says that’s 120,000 agents, paying $20 a month, or $2.4 million in gross sales per month, nearly a $29 million a year business all from one product. No wonder the VCs are throwing money at so many of these firms. That’s sounds great, sounds easy even. Until it is not, then it is not.

At a bigger scale

Those are the B2B high tech firms, targeting the agents. Where I personally cringe the most is with real estate tech startups that are B2C and focused on consumers, particularly those targeting homebuyers and home sellers. Their Pollyanna projections are often laughable, because once again, they are counting on nearly unattainable results without a huge river of money to spend. Worse, some simply haven’t done the math.

For example, typical home sales in any given year are about 5.5 to 6 million. Researchers estimate that at any given time, just 5% of the households in the U.S. are looking for a home to buy. There are about 125 million households in the U.S. So the best-case scenario is that if a real estate firm has a revenue model based on homebuyers, they have a total potential audience of about 6.25 million families. Yet, when you comb the numbers in their investor presentations, they think somehow they will have the appeal of Zillow Group, which collectively reports reaching more than 100 million eyeballs a month.

I hate to break it to those CEOS, but I fear they aren’t no Zillow either.

Something old is better than something new

I think some of the most exciting technology for real estate today isn’t coming from the shiny-new-objects that are being created by startups. I think the most exciting technology is coming from the old guard: Real estate technology firms that have been around for a decade or more. The ones that have real goals, real business plans, real revenue and something Zillow wish it had: real profits.

We sometimes get enamored with new stuff and forget the tried and true. Quietly, it seems many of the established companies in this space are more than catching up, some of them are likely to leapfrog the newer competition. It’s going to be exciting to watch, and I am hopeful that the trade media pays attention to the something olds, because that VC money the something news are spending is fleeting.

Dave Liniger, Founder of RE/MAX, once told a Real Estate Connect audience laden with founders from the hottest tech startups of the day more than a decade ago that making money still matters. That, and market share won’t pay the mortgage.

{ 1 comment… read it below or add one }

Saul Klein April 20, 2016 at 10:52 am

Nice work Kevin. Sometimes the best advice to young entreprenuers attempting to penetrate this space with inadaquate industry expertise and resource, is not to try…this will save many of them money and time in the long run.

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