You don’t need to have spent much time around Silicon Valley to know they are obsessed with the word “disruption.” Every industry must be “disrupted” by “bootstrapping” or using an “incubator” to “pivot” its “mission” to create a “platform” that will “revolutionize” the industry by bringing it onto the “cloud” to “monetize” the “sharing economy” in order to “scale.” Or something to that effect.
Buzzwords aside, though, real estate has finally started to be—like Silicon Valley likes to say—disrupted.
As Salim Ismail notes in his illustrative book Exponential Organizations, as technology becomes more and more important, “every company increasingly becomes a software company.” And this most definitely includes real estate companies.
Technology & the Economic Landscape
Ismail makes the obvious observation that technology is radically reducing the costs of production and information gathering. But the levels of those reductions are often understated even by those who recognize the importance of such cost reductions.
Indeed, his book came out several years before this article was written and even back then, the costs of various items had fallen through the floor.
He lists the following as examples:
- 3D Printing: $40,000 (2007) to $100 (2014) = 400X in 7 years
- Industrial Robots: $500,000 (2008) to $22,000 (2013) = 23X in 5 years
- Drones: $100,000 (2007) to $700 (2013) = 142X in 6 years
- Solar: $30 per kWh (1984) to $0.16 per kWh (2013) = 200X in 20 years
- Sensors (3D LiDAR sensor): $20,000 (2009) to $79 (2014) = 250X in 5 years
- Biotech (DNA sequencing of one whole human DNA profile): $10 million (2007) to $1,000 (2014) = 10,000X in 7 years
- Neurotech (BCI devices): $4,000 (2006) to $90 (2011) = 44X in 5 years
- Medicine (full-body scan): $10,000 (2000) to $500 (2014) = 20X in 14 years
And many of those prices have continued to fall since then. In fact, they’re falling so fast in key areas that long-term projects are becoming more and more untenable.
As an example, Ismail opens his book discussing Iridium, a 12-year project by Motorola that was slated to put 77 satellites into low Earth orbit and provide mobile telephony for one price no matter where. The project failed spectacularly and cost Motorola a cool $5 billion.
Why? The big reason was that Iridium’s business model used a linear projection. Technology progressed so rapidly that digital communications eclipsed their plan. The project was already antiquated long before it was completed.
The market today is not linear, it’s exponential. Thus, when the Human Genome Project in 1997 had only sequenced 1% of genome after seven years of the proposed 15-year project, techno-futurist Ray Kurzweil proclaimed “that means we’re halfway done.”
And he was right!
Ismail’s book explores the “exponential organizations” he named his book after. These are companies that have done the following three things:
“First, a minimum of 10X improvement over the status quo.
“Second, leveraging information to radically cut the cost of marginal supply (i.e., the cost to expand the supply side of the business should be minimal).
“Third, the idea should pass the ‘toothbrush test’ originated by Larry Page: Does the idea solve a real customer problem or use case on a frequent basis? Is it something so useful that a user would go back to it several times a day?”
Companies that have succeeded at this have grown at exponential rates that put the giants of old to shame. (Think Amazon, Google, Facebook, Airbnb, Uber, etc.)
These companies are all technology-based, but again, “every company increasingly becomes a software company.” The book discusses many other aspects of becoming such an organization, but the biggest one is what Ismail calls an MTP or “massive transformational purpose.”
“Some aim to transform the planet, others just an industry. But radical transformation is the name of the game… today’s ExO declares with sincerity and confidence that it intends to accomplish near-miracles. Even a company in a comparatively small market can ‘think MTP’: Dollar Shave Club, for example, is transforming the shaving industry with the mantra ‘a dollar a month.'”
Other larger examples include Google: “Organize the world’s information” and Quirky: “Make invention accessible.”
In order to do this, nearly all of these organizations join or create what Ismail calls “relevant MTP communities.”
“The collaborative power of communities is critical to an ExO. Whatever your passion (let’s say you dream of curing cancer), there are communities out there filled with other passionate, purpose-driven people devoted to the same crusade.”
Lessons for Real Estate Investors
Real estate has been one of the last industries to get disrupted, but it is being disrupted. And even if it weren’t, as Steve Forbes put it, “You have to disrupt yourself or others will do it for you.”
Again, there are way too many lessons in this book to summarize in one article, but some of the big takeaways that could be applied to real estate are as follows.
1. Leverage Technology
Not long ago it would have been all but impossible for one company to own and manage a massive portfolio of houses or small multifamily properties. But advances in technology have made it much easier to do so. And today Invitation Homes owns a whopping 80,000 single-family houses all by itself!
Real estate may be late to the game, but there are all sorts of technologies available to help scale exponentially in both property management and acquisition. Some examples follow.
- Property management software, such as Rent Manager or Buildium, is an absolute must
- Rehab and turnover scheduling software, such as Monday
- Showing and scheduling services, such as Rently and ShowMojo, allow for showings without leasing agents
- Smart locks that can change the keys without switching locks or even be opened by your cellphone
- Mail scanning services, such as Sasquatch
- Remote check depositing, which many banks offer
- Remote tenant payment processors, such as PayNearMe
- Smart thermostats like Nest can automate and schedule heating and cooling in apartments and office buildings
- List services, such as ListSource and CoreLogic, can provide all sorts of lead data (homes without mortgages, absentee owners, etc.)
- Lead managing software, such as Podio
- Marketing companies, especially those that use letter-writing machines that appear handwritten, such as Yellow Letters
- SEO marketing (search engine optimization) has also become a major source of leads for many investors
And, of course, virtual assistants like those you can hire on Upwork can accomplish all sorts of tasks relatively inexpensively. Furthermore, the ability to share pictures, videos, and other information has made it possible for investors to manage projects from across the country—or even the world. While this is still a challenge, it would have been unthinkable 20 years ago.
As Forbes noted regarding the latter,
“The property owner and tenant experience is also being reinvented. Zenplace, out of Silicon Valley, provides full-service, national property management services to property owners, institutional property portfolios and property managers. Zenplace uses technologies such as AI and machine learning to provide a proactive approach to property management.”
At a recent real estate conference I attended, “machine learning” and “artificial intelligence” were pretty much the only things I heard. Most of this included automated responses to prospect inquiries and maintenance requests, which seemed unnecessary to me. But this is the initial phase. Automated responses are likely the direction we’re heading.
One might ask, “What will anyone do when every job is automated?” But that’s more of a political question. The question for real estate investors and entrepreneurs is, “How will these technological innovations change the real estate industry and how should I adapt?”
The answer should be to start utilizing technology in your business as much as possible. Because in all likelihood, those who don’t will be at a severe disadvantage.
2. Create or Take Advantage of Online Communities
Real estate syndicator Joe Fairless recommends starting a “thought leadership platform” to raise your brand awareness and build credibility. This not only brings potential leads your way (whether it be deals, private lenders, partners, etc.) but is also a great tool for winning them over, as it demonstrates your knowledge and professionalism.
Being seen as a “thought leader” is social proof—people want to work with those that other people admire and respect—and such social proof is a great way to earn the trust of potential sellers, lenders, partners, etc., as well.
And while starting your own thought leadership platform is a good idea, you can also leverage those that already exist. Where better to start than here on BiggerPockets? It’s not just a great place to learn, but it’s also good for building your reputation or meeting potential investors to work with.
I know multiple people who’ve done deals with others they’ve met here on BiggerPockets. Indeed, you can start right away by writing a Member Blog. You can do this in conjunction with your own podcast, YouTube videos, blog, or newsletter.
We have our own “thought leadership platform,” but just by blogging for BiggerPockets, we’ve found several private lenders, had a great portfolio deal come our way, and have been able to strengthen our reputation with many people we do business with. BiggerPockets has been much more helpful than our own platform thus far. So if you haven’t gotten active in building your reputation through BiggerPockets, I highly recommend starting.
3. Massive Transformative Purpose
Admittedly, this one is a little tough. Real estate is essential to the economy and our society, but it’s hard to see it as a “transformative” business. Our mantra is “serving people in their housing needs.” I think it’s a good purpose, but it’s hardly transformative.
Whatever your purpose is, it needs to inspire you and those who work with or for you. It’s definitely something worth putting more thought into. (I know I certainly will be doing so.) What can you do with your company that would be transformative, even if just locally?
The world is changing at an exponential pace and real estate investors need to stop thinking linearly. Technology, community, and reputation need to be at the top of your mind. This will require trying new things and seeing what works and what doesn’t.
Indeed, there will be failures as you try new things. That’s just part of the job. You must be open to changing the old ways of doing things because they’ll change either way. It’s best to be ahead of the curve!
What are some of the most helpful technology tools you’ve found for growing your business?
Let us know in the comments below.