Marketing Campaign

Marketing Campaign

The marketing plan for the venture would be very lean in the beginning with an attempt to leverage word of mouth through strategic partnership with financial advisors and real estate agents/brokers who all regularly meet along with investors in community-based meetings and roundtables. Flyers and conversations would be how we garnish attention from the stakeholders within local real estate investing that goes on in the initial market that we attempt to penetrate, the highly fragmented and spread-out region of Los Angeles and Orange County. These are very similar tactics used by real estate agents who attempt to target the potential buyers and sellers of property in a specific area. Eventually, once we have a platform built out and have established a user base from our guerilla marketing efforts, we would then start to consider using digital marketing spend through social media, videos, testimonials, and SEO. Ideally, a lot of the digital media impressions would be able to come from press relations and get our product, brand and success stories into blogs and media coverage.

We do not currently have a website or social channels up and running beyond our blog presence, which we are using to document the journey of our ideation and design iterations. The website would essentially be the product itself, which will take awhile to develop, but in the meantime we will work on mockups and vaporware versions of the site to get consumer insights and help us design.

Realistically, we could start with one or two marketing teammates in the field, especially since they will work through various other intermediaries (e.g. advisors and agents) to achieve leverage in their reach.

Property management services generally are contract based, so a client is going to continue with the service for at least 12 months, and it may then renew at that point for another 12 months or could switch to a month-to-month agreement going forward. We don’t have an idea of the average churn or renewal rates of the industry as a whole because it is such a fragmented industry and the services are generally provided off-line. From personal experience, I switched property managers once every 18 months or so. What is great about our platform, is that we may be able to help our clients switch from one PM to another, if they weren’t satisfied for one reason or another, but they would still want to go through us to maintain their buying power and get a reduced PM rate or still be eligible for PM services.

Theory of Change

Theory of Change

We want to address the real estate market because housing is an essential component to our economy, to building wealth, and to maintain a safe and secure place to live. Our theory of change is multi-sided, since there are different stakeholders participating.

Property management:
We believe that if we provide a platform that ranks and displays property managers, then we can help these small business owners find new business and decrease their marketing spend. We can increase the size of the pie for them by bringing in real estate investors who never before would have considered or were precluded from being eligible for PM because they don’t own enough property to qualify or be worth a PM’s time. This will also allow new entrants to enter the market and increase competition so that property management quality increases with time and provides a better standard of living for tenants and ensures that properties remain occupied and prevent them from becoming vacant, which become abandoned, which become a greater problem for the community at large (e.g. breeding ground for drugs, crime, arson, etc). These new entrants will also find a way to generate new income for themselves, the way that the shared/on-demand economies of Uber or TaskRabbit have offered new chances of self-employment to people who may not have attained a 4-year degree.

Real Estate Investors:

Real estate crowdfunding has democratized real estate investing into large commercial projects and given opportunities to accredited investors. When the JOBS Act allows non-accredited investors, then we will see some new investors and individuals take advantage of the available investments, but we believe that many out there will still prefer to be in more control of which property they own, how it is managed, and when they may sell. We believe that if small real estate investors are able to join cohorts with others to be eligible for low cost property management, it would fulfill their need of taking care of the property and protect them from any difficulties they may come across (e.g. evictions, tenant laws, repairs, etc). This is just the begin of what we have planned to impact the real estate investors out there, our goal is to get them in with property management, but to eventually have these cohorts form LLCs together that buy property. Essentially, a form of crowdfunding, but we want to have the people within a community be the owners of the community, as a collective. This would eventually mean including renters and aspiring homeowners who are not able to buy a home on their on, whether it is a single-family or multi-family property, and give them the resources, support and network necessary to help them become a homeowner for the first time, which makes up the majority of people’s net worth in this country. With good partnerships, thorough analysis and financial leverage, a $10k investment into one’s first property can easily become $30k, $60k, or even a $100k within 5 years. That type of capital could change the lives of a household. This could be enough to ensure a child can afford college and avoid being bankrupted by student debt or for an entrepreneurial parent to finally start a business.

The YearUp case showed us how important it is to pivot along the way and to be open to partnerships. But these grander visions and strategic partnerships may not be possible until you have built a brand and a product that has attained some sort of following and track record to show a mastery of the space and the aptitude to do good work.

Testing Location: Whats Best for Us?

57% of booming companies are headquartered in San Francisco. Yet housing markets for investors are likely to boom in Texas, Utah, North Carolina, and Colorado. And furthermore, we have great access to investors, mentors, and real estate agents in Boston, New York, and L.A. So, where should we go create a company- a place close to the technology center, a place close to our customers, or a place close to our startup network?

This really comes down to a conversation about philosophy and business mindset.    Some argue that proximity to tech partners and the epicenter of innovation trumps proximity to customers.  Others argue that you’re a very small fish in an exceptionally large pond by going to Silicon Valley, so stay in Boston where we have great access.  And then there’s the argument that being far from a customer creates a bubble where customer problems are not solved.  

Overhead costs are going to vary greatly in all three locations.  Ultimately, we’re leaning toward operating in Boston or NYC given our network.  Property managers and small investors are plentiful in the northeast (to say the least), and we will have access to tech talent here too.  But the beauty of launching a startup is that it’s a journey: flexibility matters.  

Wharton Simulation Game

From negotiating a valuation with an investor without a product (or MVP) to joining a startup as the first employee, the Wharton Game Simulation was a 50 minute crash course into startup chaos.  My character was a pharmaceutical executive who managed a major product line, and interested in joining a startup in the early-stages.  Of course few people can go from being hired to helping the company raise four million in 50 minutes.  But the simulation “built the muscle” by forcing us to navigate a world without perfect information. Here are a few things I experienced and what I learned from the exercise.  

1. Skills, Background, and Domain are Relative: I shopped around by speaking to four co-founders who needed to hire employees.  I met a team that was creating a SaaS product for DNA and genome discovery, and the two co-founders needed a first employee with key experience in marketing. Though I was not an expert marketing professional, both of us realized that deep expertise in one domain (unless it’s a technical skill like front-end web development) is not necessary at such early stages.  Instead, the team needed strategy chops, a passion for the field, and ability to get things done.  I was able to offer that to her from my employee profile and experience.

2. Equity Trumps Salary in the Early Stage: I had the luxury of joining the startup with some cash in my own personal bank account.  I was in it for the journey.  But we had to negotiate (and use precious time) on salary versus equity terms.  This obviously will be person and industry specific, based on risk preference, skills level, and lifestyle flexibility.  But as Carl said about the reality of joining a new startup, salary matters less in the early stages because if the company folds, you don't receive the money anyways.  On the other hand, negotiating more equity gives you more upside if the startup matures.  And afterall, why would you join a startup that you don’t think will succeed?

3. Negotiating with Investors is like Dating: This was the most invigorating piece of the puzzle.  We needed to raise four million dollars to ship product in six months.  After having brief pitches to four different investors, we realized that their interest, background, and risk profile could change the deal terms immediately.  But once we had three solid offers (valuing the company at $10m post...come on, without even a MVP?!), we thought we made the mistake of allowing each of these investors to discuss among each other about their interest and goals.  They came back to us with a more aggressive offer taking more equity share, and we had to settle in the interest of raising cash.  But that's the reality of living in the 21st century.  Information is not perfect, but companies like Angelist, Crunchbase, and Mattermark are getting us closer.  So I have yet to decide if it's unrealistic to think that a co-founder can expect that the investors will not pool cash and potentially collude (in the words of Carl)? Or are there major rates for this collusion process?  

So as you can see, the simulation provided a snapshot of startup chaos. But I’m cautious of the fact that the journey is almost never a cinderella story.  From my personal experience in Kenya, I also know that time, passion, and luck play a significant part of the hiring and investing game.  Even more, a simulation can never help us experience the blood, sweat, and tears of moments that you hit a wall.  It could be failing to raise money, failing to sell the product, or failing to attend a family wedding because of work.  Sure, these are normal balances and roadblocks in the working world, but it's often a lonely journey with you and your co-founders.  More to come on this topic!

Venture Capital Tips

Chris Dixon joined class on Thursday to speak about the Andreessen Horowitz investment criteria and operating model. I’ve read about the good, the bad, and the ugly when it comes to working with VCs.  Two books I’ve personally found helpful to navigating the VC game are by Jeff Bussgang and Brad Feld.  And Chris offered one model that summarizes what I’ve seen so far:

Tip #1: In-House networks are critical for each stage of a company.  Sure, some VC’s like Fred Wilson stay away from angel investing, but a network of experienced strategist, designers, ex-CEOs, and investors should be a criteria in selecting a VC.  Startups don’t always have a choice, but if you do, network over brand can really matter.  

Tip #2: We live in a matrixed world, void of silos, and VC’s need to have a network outside their specific domain expertise.  Real estate and financial technology interact with two major “unbundling” effects and two sectors that Fred Wilson previously described (check out my post on his talk).  So having a VC adept at strategic partnerships and networks in each of these domains would be powerful.  No, Chris Dixon himself may not be a designer + technologist + real estate expert, but his venture firm has that network.  

Tip #3: In our talk, Chris said: “Think of startups not as a static and linear model but rather an idea maze. Some paths lead to a prize, other paths lead to danger. Good entrepreneurs think through the paths.”  What Chris did not say, which was covered in our case about Andreessen, is that a VC should be helping you think about the dangerous paths.  It could be regulatory, it could be trends, it could be operational, but VC’s should be far more than a bank account.  

Brandon and I will have to think through the technical, design and market goals and advice we’d seek twelve months down the line.  We’d be first time founders of a tech company, and Chris’ advice about his VC philosophy pushed us in the right direction to think about creating the best VC and founder dynamic.

New Assumptions, New Research

New Assumptions, New Research

Our market research, customer interviews, and ideation have been rapid paced, but critical to refining our business model canvas and value proposition, testing metrics, and assumptions about key-hires.

First, about the customer. Attending Lendit 2016 where Realityshares.com presented about the unbundling of real estate through crowd investments confirmed that small-time investors need a platform like Cash on the House. Market research on platforms like Trulia and Realtor and industry data confirm that small-scale investors do not have robust platforms to provide information about property managers. But most of all, in our own attempt to find property managers in Boston, L.A., and Washington, DC, we confirmed that the process is far from automatic, and there are barriers to entry for our target customer. On the other hand, customer interviews with current investors illustrate that once they buy a property, they use the same property manager. This last piece will be critical for our Phase 2 plan as we think about value add services by property management function.

We’ve also learned that technology tools to create a MVP reduces the immediate need to have a full time developer on the team. We’re still in market development, testing, and discover phase, so we do not even have requirements for a developer! Platforms like Balsamiq and InvisionApp allow tech proficient, though not coders, to help potential customers understand our idea. Our best estimate shows that we could have prototypes, market research, and a solid canvas without a full-time developer for another 60 days.

Equity, Cash, and the Startup Ride

Equity, Cash and Startup Role - Ockham Technology Case

Jim Triandiflou was on one hell of a journey.  He started a sales automation and marketing tech company called Ockham Technologies at the height of the Y2K tech bubble.  Joined by one part-time co-founder and one "idea" co-founder, the team found some initial success after sourcing IBM as a key client.  In this case, we studied challenges at Ockham including business planning, finding a founding team, scaling through partnerships, and financing.  This blog post specifically focuses on the equity terms on the founding team at Ockham, particularly because Ockham had three very different co-founders.

Initially, Jim, Ken, and Mike were going to raise $150,000 by each co-founder pitching in $50,000.  Jim was the sales/growth guy, Ken was the idea/product guy, and Mike was the sales management expert.  Fair share to each receive ⅓ equity, right?  Well, turns out Ken could only put in 30k, Mike put in 45k, and Jim put in 75k.  But Jim was going to carry the weight - he invested the most capital and  was going to do the startup full-time.  As it turns out, Jim received 50%, Ken received 20%, and Mike received 30%.  

These terms matter because there’s mixed literature and thinking about founder equity.  Sure, most employees who join have sweat equity and low salary.  Investors will have preferred stock for the company.  But Jim received the bad bargain from the beginning.  He took the risk, managed the growth, and contributed the most for launch, but Mike and Ken got a great deal if the company grew.  

As Brandon and I think about starting Cash on the House, we each need to determine our risk, value-add to the product and company, and capital available for investment.  As the company grows, more players want pieces of the pie.  Because who knows, five years from now, neither one of us want to spend our days dealing with terms when we should be focusing on scale.

Scaling Our Venture

Scaling Our Venture

At this stage, it may be premature to begin thinking of how we would fully fund our startup to reach scale. We are primarily focused with achieving problem-solution fit and product-market fit before anything else. To do so, we plan to incorporate a very lean model and leverage many of the resources that are already available to us in designing the mockups and tests with end users. Building the MVP would require funding, but we will focus on raising those funds from friends & family, which we envision will be more than enough to get our MVP and alpha product out there and go through a few iterations. Once we are at the beta stage and want a broader launch, we may start to seek outside capital.

Given our for-profit business model within a real estate/fintech platform, we would not expect to get funding from any banks or foundations during our seed rounds. We would primarily look to angels who have industry experience and investing expertise within our sector and then move on to venture capital (VC) firms once we are at a stage that is  much more appealing to them. The milestones that we would strive to hit in order to reach this level of appeal are the follow:

1. Assemble a strong team
1. Ensure that we have a well-rounded team in regards to skills and traits
2. Assemble a board of advisors that could keep pushing us forward & growing
2. Demonstrate a proposition that adds true value
1. Design the product in a way that meets the needs of our users
2. Continue iterating until we have delivered value
3. Build a model that has high barriers to entry
1. Network effects and analytics that give us competitive advantages
4. Prove product-market fit by showing some market traction
1. Focus on a niche and gain market share
2. Position ourselves to succeed by creating a monopoly in a given area

We would consider looking to the following VC investors for the seed stage of funding based on their demonstrated investment experience with real estate based fintech companies (Zeus, Lovely, Roomi, RealtyShares, Rentlytics) that have a marketplace and/or analytics component:

GV, SV Angel, TEEC Angel Fund, Initialized Capital, Rich Miner (Angel), Founder Collective, Great Oaks VC, Sand Hill East, Trinity Ventures, Rincon Venture Partners and General Catalyst Partners.

In addition to funding, we believe being a part of an ecosystem with other startups is an invaluable benefit that comes from being connected to the right venture capital fund. For that reason, we would also look closely at incubator and accelerator programs to get off-the-ground. These two look attractive given their focus on real estate startups: Moderne & VineOC.

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Sales & Marketing Strategy Steak

Sales & Marketing Strategy Steak

New customers would need to be attracted on both sides of our two-sided marketplace, which Chris Dixon said in our class session that they are some of the hardest types of ventures to start. He commented that social networks or search engines were already around and would be around no matter who ended up being the dominant player or providing the best version of such a platform. Marketplaces, however, may simply NOT exist because they may not hit critical mass, which is necessary for a marketplace to truly grow and be lasting.

Network effects are a huge part of creating such an effective marketplace, so we would want to reach critical mass within a cluster. With a cluster being a small subset of the greater population that may use this marketplace, it is much easier to achieve critical mass when the area has been minimized. For instance, Yelp was successful because they focused not only on the San Francisco area but also limited it to the bars and restaurants within the city. Facebook did the same thing with Harvard, moving on to Ivy Leagues, to colleges and universities and then opened it up to the masses.

We would strategically go after a sub-cluster, such as Los Angeles, where I am from and have experience with the local real estate investors and property managers, and work to get as many of the smaller RE investors and property managers signed up to the platform. The chicken and egg problem becomes an issues, but we would focus on working with the property-managers first, getting them to commit to offering their services if we provided them with a cohort of a certain total number of units that met their liking. Then we could at least list what services could be provided to the investors and at which pricing, if they were to sign up to our platform and join a local cohort. Because the industry is so fragmented on both sides, it would require tactics that are on the ground and go to the investor roundtables and networking events. Partnering with real estate agents and brokers could also be advantageous, and we would work to provide them with incentives that would pique their interest enough to get involved. For instance, we could waive our cut of the fee to these agents and they could be listed on their as a property manager (since many agents also double as property managers for stable income in addition to the variable commissions they earn from selling or buying a property for a client). We could pitch it to them as a way for them to build closer relationships with current owners of properties, and these relationships may lead to them being the agent for such clients when they are ready to sell. Speaking from experience, this is exactly what happened when I built a relationship with my 2nd property manager (after getting rid of my first one who was of low quality and unreliable). My new property manager happened to also be an agent, and I used his services to sell the property when I was ready to do so, about 18 months after he began managing the 4plex for me.

Once we get agents to sign up as PMs (through the incentive), then I believe we could start to gain traction with some smaller RE investors in the areas of Long Beach/Los Angeles. From there, we can get traditional PMs to also sign-up once we have success stories to share of other managers getting business from these marketplace. One last partnership that we would consider, but may be a stretch, is to work with local private wealth managers that work at banks or have private practices in the area. Again, speaking from experience as an ex-financial advisor, many of these clients are small business owners and real estate investors, especially in Southern California of all places. I personally learned a lot about real estate investing from my previous clients and would get referrals from them for contractors and property management services. I have some friends who are advisors and wealth managers, and would start with them and move from there to see what other partnerships could be established. The benefit for them would be added services to their clients and we would also provide them with opportunities to meet the RE investors who come to our platform and may be looking for advisory services or relationships with banks for financing (an important element within the RE investing value chain).

Impact Investing and Seed Stage

Impact Investing and Seed Stage: Odds are Never in your Favor...

In our first of the “venture workshops,” May Samali presented her master’s thesis on on the motivations of impact investors and the problems inherent to early stage financiers avoiding risk.  Her preliminary findings and perspective are in the Stanford Social Innovation Review, but her three main findings are:

1. Seed and angel stage financing often take 6-9 months longer for mission aligned companies versus a pure for-profit venture.
2. The pool of impact investors may be growing, but is far from mature
3. The odds are stacked against you while pitching a low-return (<5% IRR) / low-risk (<10% chance of losing principal) venture to an angel investor.

If there are 100+ venture-backed companies valued north of one billion dollars, do we see a similar number of venture backed social enterprises?  May and the Tumml team say no, no where close.  That’s a sad reality for an industry 30+ years old (Bill Drayton first coined the term “social entrepreneur” in the 1980’s).

While Cash on the House would likely not raise impact-investment money, I’ve seen 20+ social enterprises raise a combination of impact investment and traditional philanthropic money.  Some organizations like Refunite are operationally on-par with leading for-profit ventures in the same category and space.  These early-stage organizations are operating in tough environments, addressing tough issues, and dealing with longer sales cycles.  

But with that said, I’m not totally surprised by the dearth of impact investors at the angel level nor the unequal treatment in the impact versus for-profit space.  Angel investors are in the game because they have capital, want to change the world, or stay close to the innovation space.  All angel investments are a bet, that’s why most investors say they care about the team, not the idea.  Yes, it’s a disservice to entrepreneurs who want to change the world with an impact enterprise.  Yes, the financing cycle is far longer than for-profit ventures.  But valuations will be lower if the expected returns are lower.   

Out of all the high net-worth investors out there who turn to angel investing, we can only assume that a small portion will comprise of the Pierre Omidyar’s who want to spend their money seeding ideas that will likely earn a low return.  Thats natural, but luckily, social enterprises have options.  May talks about these options, including specific targeting to tech investors, raising a combination of philanthropy and impact money, and crowdfunding.   Every entrepreneur talks about the challenges with raising money, but I do hope the trends change in the impact investing world too!

Fred Wilson on the Future: The Network Effect

Venture Link Luau: Converging Trends & Investment Philosophy

Three years ago, Fred Wilson spoke at Le Web about how the future will look in 10 years. No, he admits, he doesn’t have a crystal ball! In this fascinating talk in which he described three trends matrixed with four sectors, Fred was actually describing the investment criteria or mindset at his venture capital firm Union Square Ventures. Here’s the cliffnotes version:

Trend #1: A transition from bureaucratic hierarchies to technology-driven networks.
From the radio and entertainment to hotel and learning industry, Fred observes that institutions that controlled content are no longer the status quo. Instead of watching ABC News as my one source of political information, I can stay updated because of a crowdfunded network like Twitter. Instead of spending hours in a classroom located at a school, I can learn to code from companies like Codecademy and General Assembly.

Trend #2: Unbundling of how services are packaged and taken to market
This time, Fred points out how we pay, on what we pay, and for what we pay for as a major trend that’s changing. For example, I do not have to go to a bank for collecting money, my loan, and using the safe. I can now use peer to peer (P2P) platforms like Lending Club or Kickstarter to raise money for a project. I do not have to pay Comcast a monthly TV bill because I can personalize my viewing on Netflix, Youtube, Hulu, etc. The price points and diversity of options are dramatically changing, and technology networks are changing the old ways of business.

Trend #3: Mobile phone allowing you to be a node on the network
No brainer here, mobile phones are changing my accessibility and the accessibility of 2.6 billion smartphone users. At the most remote parts of the world, you’ll find the young and the old with a smart phone. And you see the usual suspects like Facebook, Google, and Youtube who are capitalizing on the data and accessibility so each of us can be a node on the network.

Money, health and wellness, data leakage, and trust & identity. 

These are the four sectors that Fred thinks are at the brink of dramatic change, a change he argues will look dramatically different in 10 years. From digital currencies like BitCoin and Ethereum to 3-D images of my DNA sequences, each one of these sectors are a dramatic departure from the old operating models. Technology networks explain each of the changes.

Fred’s matrix of trends and sectors made me think about the opportunity for Cash on the House. Real estate has been experiencing a dramatic shift for the last ten years. Yes, new investors with spare cash are coming to the table, and sometimes they make risky bets that, at the aggregate level, can put a developed economy at risk. But the service side of real estate is still dominated by the property manager and a handful of service companies. Cash and checks are the primary money “technology” that is costly, inefficient, and inconvenient. At the end of the day, information about service operators, outcomes, and feedback are changing the hierarchical real estate industry today. Our technology network could change it.

Business Model Canvas

Business Model Canvas

The Founder's Story (Brandon)

Founders Story

Brandon is currently a MPA student at Harvard Kennedy School (HKS) and will be graduating this year as a Sheila C. Johnson Fellow at the Center for Public Leadership. While attending Harvard, he has been focused on studying social entrepreneurship and behavioral economics and has been active in the Venture Incubator Program at the Harvard Innovation Lab. Professionally, he has ten years of experience in financial services, in which he started as a part-time teller but has since covered many roles including wealth management, investment banking and equity research in technology & media. His entrepreneurial spirit led him to recently invest and rehabilitate distressed real estate and previously build a music production studio, which originally started in high-school as a way to make ends meet as a homeless youth. Brandon earned his MBA in Finance from Wharton in 2015 and graduated cum-laude with his Bachelors in Business Administration from California State University Fullerton in 2007 at age 20 after completing two years at Cypress Community College. He is deeply interested in finding innovative ways to increase diversity and inclusion in business and financially empower the underserved to tackle the racial wealth gap. In his spare time, he likes to travel, SCUBA dive, and read Batman comics & graphic novels. 

Meeting Rajan when we joined a large team within an entrepreneurship class at HKS (taught by Dick Cavanagh), I quickly connected with him as we worked on the project, a make-believe start-up that was an educational toy subscription company. Through that experience, we learned that we work well together, complement one another's skills, and have common interests in FinTech and social impact. While in Carl Byers, Entrepreneurial Finance class, we have been working together to test and design ideas around a FinTech marketplace platform that provides opportunities for income generation and wealth creation for small or aspiring property managers and current/future small real estate investors. 

Hypothesis and Testing Plan

Hypothesis and Testing Plan

Cash on the House is providing a marketplace for small-scale investors to pool real estate assets with high-quality property managers at a discount rate.  In phase 1, we’re focusing on creating a feedback mechanism for evaluating and sourcing property managers and pooling real estate investors (REI).  Phase 2 will focus on creating individual task products and services demanded by the REI.  Along the way, we have three hypotheses about the market and value proposition.

Hypothesis #1: Property Managers have the bargaining power with REI because of asymmetric information about quality, prices, and scale of service providers.
*Test: Cross-compare the number of property managers in Boston searchable on Google, Zillow, and Angie’s List with expert interviews that have a network of property managers.

Hypothesis #2: Pooling multiple housing units will incentivize the property manager to offer discounts on their services

*Test: Call three property managers about rates for managing a 1000 square foot unit versus rates for managing four different properties in the same area and same type of housing unit.

Hypothesis #3: Friction from REI’s about quality of service from property managers can be crowdsourced using feedback loops and ease tension about quality.  This is the core test for evaluating if a REI is willing to pay for the service, and the network effect i.e. number of total reviews will likely add to the value proposition.

*Test:  Survey three REI’s in Boston, L.A, Richmond, and New York about their willingness to pay for sourced property managers. The target REI has one or two side properties, new to real estate, and has a full time job.

Ultimately, scale, availability of multiple property managers, and perceived friction will be the key assumptions and drivers for Cash on the House.  

Long Tail vs Short Leash

Long Tail vs Short Leash

The long-tail theory rests on the idea that units that don’t sell very much could contribute a lot when variable costs are very low and they are sold in massive volume. For instance, when Amazon sells millions of books that are nowhere near being bestsellers and sell 1, 5, or 20 books in total, it doesn’t cost Amazon much to keep those less popular books on its servers and to distribute them digitally to the few consumers who purchase them. Meanwhile, when it sells books for millions of these unpopular authors, it is generating a lot of revenue. Often times the less popular books sold en masse can outweigh the revenue generated by the top selling titles combined.

These top-selling titles are the short leash. Traditionally, media such as books or movies was determined to be worth being produced only if it were a “hit.” When records or books used to occupy shelf-space and had cost millions to produce, a miss was a big disappointment. The business was heavily reliant on being able to find the next best-selling author or the next hit record from undiscovered talent, hence the value that producers and A&R reps at labels used to create. Businesses that still rely on this short leash would be something that is capital intensive and/or tangible products such as automobiles. If a model doesn’t sell at all and becomes built up inventory that has to then be discounted and wrote off, it can be costly. Thus, automobile makers strive to create and maintain models that are popular and will discontinue models when necessary.

Our Long Tail

Our venture would focus on the long-tail: We are not focused on acquiring the big real estate owners and investors out there who have huge portfolios that we are looking to manage, similar to what you see with a traditional wealth management business that may have minimum asset requirements for future clients.


On the contrary, we will be more like the retail banking model that looks to get volume from all of these small customers (novice real estate investors and property managers). We will be able to do this because we will not have much overhead and won’t be putting much capital into each unit. The capital will be provided by the real estate investor cohort and most ongoing-services will be rendered by the property manager users that we have on our marketplace. We will have a broker model that links the parties together, giving the RE owner the economies of scale and a network and providing property managers or future PMs the chance to start a business. This may very well create new PMs the way that eBay created opportunities for entrepreneurs to build their own e-commerce storefronts or AirBnB let property owners venture into the hospitality business.

Customer Interactions and Observations

Interactions with End User / Customer

With some experience in real estate investing, so far we have taken into account the type of service we would like to see in the market and is currently lacking: A two sided marketplace with real estate owners on one side and property managers on the other. 

Our game plan is to reach out to real estate owners and investors of small properties who are looking to invest and property managers who have additional capacity but may be struggling to find new properties or generally don’t want to sign-on one new property at a time because it doesn’t appear to be worth it to them. 

Customer Observations & Curious-to-Discover

One on hand, we are curious to see whether real estate owners and investors are comfortable with forming a co-operative and what that would look like to them: 

Would it be worth giving up some control for the opportunity to get heavily discounted and reliable property management services? How much of the payments, management, and other services the pain points for them? 

It would also be interesting to see how connected the investors want to be, since there is not currently much of a network available to new/small-time real estate investors. Perhaps they would be interested in pooling capital together (The Able Lending model) from cash or sales of properties and form partnerships to scale up to bigger projects: the traditional real estate dream is to start with a single family property and continue moving along the spectrum to a multi-family, then garden style apartment building, and to a mega complex and/or mixed asset types.

On the other hand, we are curious with the perspective that property managers might have on such a platform. Clearly, those who have been willing to take on small properties and charge the higher premium may not be keen on the idea; then again, if it means more volume and more profit ultimately, perhaps they will be open to such an arrangement. This could also reduce the sales & marketing expenses they are currently paying to find business.