What I Learned Starting a Commercial Real Estate Brokerage
by: Scott Swanson
I founded Commercial Partners with 2 other partners (one financial backer and one real estate industry veteran) to use technology to become a dominant Commercial Real Estate business, starting in San Francisco and working out way outward.
To achieve this goal with capital efficiency, we created a traditional tenant representation leasing leasing brokerage and a real estate investment fund to work within the industry outward – hiring agents with an existing book of business then bootstrapping the innovation using free cash flows.
This strategy turned out to be problematic because of the following reasons:
- We recruited very senior agents without explicit confirmation of their resolve to change the commercial real estate industry from within;
- We underestimated agent’s expectations of what a brokerage is meant to provide its agents and the costs associated with those things;
- We became dependent on the revenue from these agents, giving them an over-weighted say in capital investments; and
- We failed to overcome their compensation and consumption habits.
Salespeople are hardwired to maximize current cash flow – which is why sales organizations are almost always coin operated. This dependency made investments in disruptive software all but impossible, and overcoming it would have required us cut off the hands that fed us and raise outside capital, which our financial backer was unwilling to do.
Everyday we became more like a traditional leasing brokerage, with no differentiator, at which point I became less interested in the business as a long term commitment. I sold my shares to the two remaining founders and started looking for my next venture.
I recognized the impact digital was about to have on marketing and sales, which was a constant problem at Commercial Partners, so I left to start a b2b marketing agency to learn its potential first hand. More on that here.
What I learned: Innovation inside traditional businesses is hard. Blockbuster, Sears, Kodak, Xerox, Yahoo, Macys, RadioShack, AOL, and so many others all had the same problem. This is why you so frequently see startups beating massively entrenched, well capitalized companies in even old categories (e.g. Slack vs. Microsoft’s Skype).
Enterprise companies know and use this knowledge. When you see BigCo buy TinyCo, they’re outsourcing their R&D and reducing their risk in exchange for money – often times paying a large premium for the privilege. My next product will leverage this knowledge much more extensively.