A new digital business seems to hit the headlines everyday. The news report suggest that the entrepreneurs had a sudden flash of insight, and after a few coffee fuelled weeks of writing code, a product was launched and truck loads of money rolled in. Reality can be very different.
I recently came across a company called RentHop, an apartment listing service based in New York City, during a predictive modelling competition held on Kaggle. The aim of the competition was to predict the number of inquires a new apartment listing would receive based on the listing’s creation date and other features. To understand the context of the data supplied by the the competition, I gathered as much information on the company that I could find. Themes started to appear during my research that provided a fascinating insight into the hard work and determination that goes into the development of a very successful digital business - there are many lessons for the rest of us.
RentHop was started in 2009 by Lee Lin and Lawrence Zhou following bad experiences with brokers when trying to rent apartments. They initially thought that brokers were not adding any value and therefore the industry was ripe for a radical change - a disruption. After all if books can be bought, taxis ordered and restaurant tables booked with a few clicks why can’t a similar process be in place for renting an apartment ?
The first lesson to emerge from RentHop’s history is to understand the intricacies of the market for your idea - detail is everything ! To understand the detail it is important to experience the market that you are targeting both as a customer and as supplier. In the early days of RentHop they were challenged by the venture firm Y Combinator, who supported them during a summer incubator program, to spend time as brokers so that they could check if their idea was going to work. Lee and Lawrence gained their brokers licence, which required 75 hours of class, and then spent a few successful months as brokers in New York City. They learned the craft of a broker down to the nitty gritty, such as buying six-packs of Coronas for the Superintendents to get in with them so they could get a copy the master set of keys and therefore be the first to get into apartments. During their time as brokers they realised that the most important part of brokering is the relationship developed between the broker and renter. A really good broker makes the process a whole lot less painful for the renter and they realised that a great broker adds value. Therefore RentHop changed direction - pivoted - and worked on adding value to the broker’s activity by increasing the effectiveness of the leads. For example, at the heart of RentHop’s offering is the HopScore which rates the quality of an apartment listing. Listings with higher HopScore appear at the top of the search results where they’ll have more exposure to renters.
Nothing stands still is the next big lesson. Markets are constantly changing: new entrants, new technology, new legislation all provide a turbulent background where your are trying to hold onto your customers and find new ones. In the case of RentHop new entrants into rentals are AirBnb who are changing the rental landscape. Is AirBnB a short term let or are they moving apartments into the hotel business ? The development of mobile technology continues having an impact. It’s inherent value can be exploited, for example brokers arranging meetings with clients while on the move or updating the information about an apartment after a visit and therefore increasing its HopScore while on the move. Also, as RentHop continues to grow it can leverage its property data - its digital assets - and by combining with with public data ( e.g. New York City Rents By Subway Stop 2017 ) to provide a better service and therefore competitive advantage.
One advantage of a digital business is that it can grow very quickly compared to a bricks and mortar type business - easier to scale. However, another lesson is that scaling has to be sensitive to local markets. For example the HopScore had to be changed when covering other cities. In New York City the more people that see an apartment but show no interest, then it can be concluded that it is poor quality, and therefore the HopScore can be dropped. However in other cities there maybe bottom feeder investors looking at the apartment therefore the eleventh showing could be just as important as the first visit.
Behind the click-to-cash headlines for a digital business there are many years of hard work by dedicated entrepreneurs. Analysing the development of companies like RentHop provides valuable lessons for future entrepreneurs.
For more information on RentHop, its history, challenges and many more lessons, see:
You’ve Got The Power With Lee Lin, Founder of RentHop #137 - a fascinating interview which covers why and how RentHop started, the intricacies of rental markets, the impact of new technology and legislation. The post: Why Real Estate Brokers Exist in 2016 And Beyond analysis the future levels of automation of the brokers activities. Finally, Lee describes the similarities between brokers and chess players in the post: Hello from RentHop – and why brokers and chess players are similar