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May 3, 2018

RED HERRING: BUILDING THE FOUNDATIONS OF START-UP SUCCESS

Building the Foundations for Startup Success

It has taken some time for innovation to focus in on the property sector, as the physical dynamics do not lend themselves well to disruption in its purest form. No app or algorithm can stop buildings deteriorating, or magic away a planning dispute.

But with start-ups like of Purplebricks, Zoopla and Habito all completing successful exits and providing hundreds of millions of value for investors, it is clear that the property sector is sufficiently large and traditional to be a fertile space for innovation. The search for the first PropTech unicorn is well underway.

Property is the second biggest asset class globally and is, at its heart, a traditional sector that revolves around selling and managing physical assets. Investment in PropTech start-ups has been building serious momentum and on a truly global scale: in 2017, venture capital investment was set to exceed $3 billion worldwide.

But this is only the first wave of innovation, with a wealth of applications being layered over the traditional market. PropTech can spark a structural revolution and there are signs that real structural change is already underway.

For any entrepreneur motivated to develop new applications for technology in this or any sector, there are three basic principles worth bearing in mind:

Think about solving current problems, not just disrupting the markets
There is little point innovating when there is no problem to be solved. Start-ups that can solve current problems in a sector often have the clearest value proposition. Successful innovations in the residential property market have made it quicker, easier and more cost-effective to buy, sell and find a mortgage. Co-working innovations have made it easier for smaller businesses to work in an agile way. By reducing the time it takes to take a property to market or making it easier to find the right lead, start-ups can be valuable enablers of the commercial market. Innovations that come from the marketplace are often the most credible.

Do not seek to simulate those tasks best done by humans
The nascent potential of machine-learning is vast. When it comes to big data analysis, machines are able to eclipse any market researcher, but human experts are indispensable when it comes to high-level strategy or building vision and consensus for complex group deals. What is needed is innovation that streamlines operational tasks, freeing up business teams to spend more of their time focusing on strategy and building deals.

Series A investors need business acumen, not just a product that works
An added benefit of innovations that come from the marketplace is that the teams behind them are more likely to understand the market and the existing culture of the industry. Knowledge of the market is an irreplaceable asset when it comes to attracting Soil and Seed funding, but is even more important when it comes to securing long-term investment. Series A investors are not just looking for a product that works; they are looking for a core customer base that is growing underpinned by staff teams with the capacity to develop a sustainable business.

PropTech itself has proven its potential and has already achieved a change in mentality across the sector. Investor confidence in PropTech is growing, but established funds and investment houses carry with them years of market experience. That is why businesses able to scale through investment need to have the full package – a credible value proposition, a product that works and the business expertise to convert potential into revenue.

Technological innovation will continue to drive considerable change within the traditional property market and real estate industry by making buildings ‘smarter’, but also enabling players within the sector to do business in a better fashion. I encourage the entrepreneurs of the future to focus on ways to improve the market in both these areas in order to make a real impact and attract future investment for their businesses.