Proptech Founders’ Guide to Getting Early Customers

Contents

Proptech Founders, I’m giving you the answers on a platter.

Early stage proptech founders, you need to read this. Because I will explain exactly what landlords and developers like myself want as YOUR customer, while keeping in mind your priorities as a startup. And ultimately, that is your biggest challenge as a founder.

Understanding The Challenge

The timeline and goals of a startup and its investors are inherently at odds with those of your customer. VC’s want you to find product market fit as fast as possible- which means you need a bunch of guinea pigs to experiment on. That’s perfectly okay when you have a high volume of quick transactions. I call those kinds of industries more.. “Viscous”. Because disrupting industries that are receptive to new technology is like diverting the flow of water in a river.

Whereas real estate has low viscosity. It’s like trying to divert the flow of asphalt, which if you’re not aware, is actually a liquid. Go google the pitch drop experiment. There’s a live stream of asphalt dripping at the rate of approximately one drop every 10 years. Fascinating stuff.

But I digress. My point is that real estate owners can’t afford to experiment when our buildings have over a 100 year life cycle, so for proptech founders, finding initial customers can be a real challenge.

And once you’ve iterated a bunch of times and found a good product market fit, your investors want you to grow on steroids. Your pricing and product will evolve and your new customer agreements will look nothing like what you signed with your guinea pigs, who will probably leave you. So you’re gonna have a lot of customer churn before you feel somewhat stable. So proptech founders, if any of this resonated with you, here’s a step by step instruction manual on what you can do better for your customers and win more business.

Is it Proptech and do you really need VC funding?

First, if you haven’t technically started yet, you need to take a long hard look at your business model and ask yourself if it’s actually proptech. There’s a pretty loose definition, but dressing it up as a high flying tech company can help you raise money faster and attract top talent.

But if it’s just a plain old real estate business, attaching the proptech label comes with a lot of baggage. If you take VC money, it comes with pretty intense expectations. And proptech has a stigma attached to it for a lot of real estate insiders. So don’t take this decision lightly- it could backfire on you.

Think Like a Real Estate Developer

Next, and especially if you’re still conceptualizing your business, you have to think like a real estate developer or landlord. This sounds obvious but it’s not easy. It’s a totally different profession from a software engineer, and our capital sources think very differently than a VC.

Real estate developers are constantly thinking about schedule and budget. Time is money. Promotes buy boats. While we have a high tolerance for risk and get high returns, everyone else on our cap stack has a lower risk/return profile. The more money a stakeholder has in our deals, the lower risk they want to see, and they all get paid out before we do.

So, if your product f*cks around with the risk profile of the deal, you’re not gonna find a lot of customers. But if your product improves the risk/return profile, The Proptech Scout is gonna give you a phone call and ask to try your product.

Furthermore, the amount of risk you’re taking on doesn’t matter to us at all. We don’t care that you left your job and are bootstrapping and living off ramen to change the industry. YOUR investors know their investment can go to zero. OUR lenders and investors expect that in the worst case they’re gonna be able to liquidate the property and get a lot of their money back. And they don’t want to jeopardize returns on YOUR experiment just because you’re on some self imposed mission to change the world that makes you feel more important. Sorry that was mean.

Think Like a Landlord

Landlords think differently than Real Estate Developers. Once a building is completed and running, we’re relentlessly focused on maximizing NOI. So either raising rents or minimizing expenses. There’s a lot of different ways to do that.

We can make the tenant experience better- make upgrades once in a while, make sure security is tight. And also try to be more efficient at maintenance and prevent big problems by replacing systems on a schedule. And in general just minimizing vacancy. Every dollar of NOI translates into building value, which, upon exit, is where we make the bulk of our profit.

So back to you proptech founders- if your product is focused on the property management portion of a building’s life cycle, you need to focus on improving three key areas- NOI, tenant experience, and the property manager’s efficiency. If you go in the opposite direction on any of these, even if you drastically improve the other two, WE WILL NOT BE INTERESTED IN YOUR PRODUCT.

How to find your early customers

Understand The Risk You Pose

Typically in real estate your early customers aren’t getting the privilege to use your product. You’re lucky to land customers. I’ve never seen a proptech product that real estate developers are clamoring to get on a waitlist for. Because there’s a well established way to do business that financial stakeholders expect to see. And messing with the status quo messes with the risk profile.

If you’re asking your customers to take a risk with you by doing things differently and committing to a product from a company that probably won’t outlast the building, you have to ask yourself– Is your product so much better than the incumbent that the associated risk is justified? Or is it only marginally better but high risk? That’s what we think about as your early customer.

Do Things That Don’t Scale

In order to make up for that kind of risk, you’re gonna have to be more like a consultant to us in the early days. That means you’ll have to do things that don’t scale, which if you hang around Silicon Valley types long enough, I’m sure you’ve heard that a thousand times.

Keep your early customers happy. This is when you can establish some of your most loyal customers and followers, who can in turn be some of your best spokespeople. But you’re not just slaving away for us. It’s a symbiotic relationship- constantly ask us for feedback and we’ll help inform you of how your product fits into our processes.

Set Expectations Before a Break Up

When you’ve reached a point in your growth where you’ve learned enough from us and it doesn’t make sense to give us that 1-on-1 attention anymore, there comes a time when you may think about ditching your early adopters to chase high value clients. Because your investors will be pushing to do that once they see a clear path.

I’ve been ditched before, and it’s just business so no hard feelings. But if you don’t do it tactfully, I’m not coming back as a customer. The tactful way to do it is to set expectations early on.

Beta test customers are getting the benefits of your efforts that don’t scale, and not all people in real estate understand that. And some of the more shrewd ones totally understand it and are simply taking advantage of you. But you should clearly set conditions under which the early-stage pricing and level of attention will end, allowing both parties to establish when a conversation should take place in order to continue working together.

This is especially tricky if your business model has some sort of recurring revenue from the customer, and you change your pricing and service level. If you’ve nurtured dependency and then raised prices to a point where you’re hurting NOI and therefore property value, you’re in for a real ugly breakup and possibly some bad press. So while your VC board members are hovering over you and demanding that you price gouge the customers you’ve acquired, your challenge is to balance those demands against a good long term relationship with customers.