Not that there’s anything wrong with changing course when you notice you’re not gaining traction. It’s called responding to the market – or, more bluntly – change or die.
Marc Andreessen wrote about this process – what he called getting the right “product/market fit.” Of the 3 things he believed a start-up needs to succeed – a great team, product and market – having a great market was most important. Why?
In a great market — a market with lots of real potential customers — the market pulls product out of the startup.
You can have a great team, a great product – but if there is no demand, you get nowhere.
He went on to say that a great market is related to the size and level of demand users have for a product. Just about everyone assumes commercial real estate is a large market. It’s valued at over 16 trillion dollars with billions in transactions each year. And many assume that CRE’s lagging technology status infers a demand for change.
But the commercial real estate market is also a fractured one with each segment typically performing a single set of services. You’ve got brokerages, agents, users, owners, financial services and more in locations around the world. While there’s certainly some overlap, when you drill down to each group, the bulk of their needs are very specific. Not just the actual task needs but local and cultural differences.
Take the agent market as an example. According to the US Bureau of Labor Statistics, there are about 422,000 residential and commercial agents. Let’s say 20% of each is commercial. The market size for CRE agents is about 85,000. And if you look at the US Census Snapshot, the number of all real estate agents is even lower (about 242,000). This is not a large market.
Or users. If you look at search volume for commercial real estate terms (using Google Adwords Keywords Tool), it’s a fraction of that for residential real estate. Break those totals into searches by use and/or location and the numbers become increasingly smaller. In a secondary market, all the firms in that area are competing for maybe 10 searches per day.
While it’s possible for small markets to still have high demand (and maybe still be considered a great market), it doesn’t seem to be the case for CRE. Perhaps start-ups have “heard” that it can’t survive on agents or users alone.
That’s why, I believe, we’re seeing CRE start-ups pivot to appeal to a broader base. Those single purpose apps or “better” office listing sites for users are adding more tools, becoming transaction portals or integrating with other services. And maybe it’s why so many start-ups are going after the investment or leasing/portfolio management markets. Because those sectors can include a lot of different players. Not just agents or users, but owners, financial services and third party vendors.
A year before Andreeseen’s Guide to Startups, Chris Andersen’s book, The Long Tail, was published. Andersen wrote of the opportunities that waited in niche markets in the internet age. With those long tail users now easier to reach, start-ups popped up all over the place trying to cash in by “selling less to more.”
That niche thinking has been pervasive in commercial real estate – and well before Andersen’s book. CRE was just a small, quirky portion of the world-wide giant real estate market. No money there! But while several developers – CRM types in particular – have done well catering to the CRE niche, niche thinking hasn’t done much for the industry as a whole.
Maybe great market thinking will. And with that approach, the hope is that something rises to the top. Something that standardizes and integrates instead of creating proprietary islands. The challenge for start-ups is how to stay afloat long enough to “hear” what the CRE market is trying to pull out of it.
Original Post 10/6/2016