Guest author Aron Susman is the co-founder and CFO of commercial brokerage firm TheSquareFoot.
After I and two friends, Justin Lee and Jonathan Wasserstrum, founded our business in 2010, we experienced some initial success. Then we tried to expand into a new market, and wound up having to scrap our business model. That turned out to be a great thing for our company.
Initially, we were successful in Houston, having commercial landlords pay to give us listings and creating leads for them. We were even able to expand our market to include properties in Dallas and other parts of Texas. But our attempt to do the same in New York City failed and forced us to change our business model.
Here’s a look at what happened—and ultimately what we learned—from our failed business model.
Testing Our Theory
Our business began after realizing that the search for office space was not nearly as simple as the house-hunting process. Commercial real estate just did not have the tech tools to assist businesses in their search for space. When we started in Houston, the initial plan was to have landlords pay us a monthly subscription fee, and in return they would give us their listing data, so we could generate leads for them.
A couple years into our business, we were all-in. Jonathan, our current CEO, was studying for his MBA at Columbia University and the company had received its first seed funding. We got $40,000 to relocate to New York City and put our business model to the test. We’d also recently been accepted into the Winter 2013 class of the ERA Accelerator.
Our ultimate goal was twofold: First, we wanted to put the “If you can make it here you can make it anywhere” mantra to the test. Second, we were trying to infiltrate the tech and startup scene in New York City to receive more backing for our company. We quickly learned that using the business model we had, we weren’t going to make it there.
New York City is tough, and discerning landlords weren’t willing to pay an unknown startup for the promise of leads. We were outsiders in an insider industry.
We were able to recognize our shortcomings and failures by putting our business model to the test across different markets. It worked in Houston and Dallas, which are very similar markets, but not in the ultra high-demand market of New York City.
For other young startups, I’d recommend following a similar path to determine your business model’s viability. If your model can only function under ideal circumstances, then it’s neither adaptable nor scalable, meaning it likely won’t be successful in the long term.
Another factor that clued us into the extent of our failing business model: We hadn’t solved the problem that we initially set out to fix. Running on a subscription model was easier than creating a full system for securing office space, but it wasn’t a complete solution to the problems apparent in office leasing.
My takeaway from this experience? A startup that knows their business model is failing should evaluate if their business is bridging all the gaps it potentially could bridge within its intended niche. If not, it’s time to go back to the drawing board.
Pivoting Towards Success
As our current business model continually proved ineffective in NYC, we had the choice to either pivot or accept defeat, and we weren’t about to give up. We had all the ingredients needed for success — we had all our founders together in one place, acceptance into a highly acclaimed accelerator, and the first taste of funding.
Our subscription model, however, had two gaping holes. First of all, landlords didn’t have the time to sift through unqualified leads, and they didn’t have the desire to guide new, uninformed clients through the leasing process. Our leads needed more help going from finding a prospective space to actually leasing it and moving in. We had leads contacting us all the time asking us to be their brokers for them, so to save our business, that’s exactly what we did.
What We Learned
I’d love to say that as soon as we realized we had to become a tech-fueled commercial real estate brokerage, we became successful in the industry, but that’s not the truth.
If we had to live through this scenario again, it’s obvious that we would have done things differently. For starters, we now know that getting your foot into the door in a competitive market like NYC is way harder than it looks. We would have leveraged our contacts further, and done more to entice and incentivize insiders to join us on our mission to change CRE.
Getting your foot in the door in competitive markets, like anything else, is all about networking, so whether you have an investor who’s on the inside or hire an employee who is familiar with the region, having someone who knows the market will work wonders to establish your company in that location.
For young companies who plan to do what we did—that is, inject tech into a traditional industry—it’s also critical to recognize that traditional industries are resistant to change, and often don’t want to implement your technology into their existing infrastructure. Thinking that you’re their savior will only do harm to your reputation.
Before you try to fix an industry, play their game and do as they do—because otherwise the industry will shun you. Think of your startup like a doctor: You have to learn all about the human body before you can fully diagnose and fix a problem.
The struggles we faced as the newest brokers in New York City helped mold us into the people we are today, and hopefully will help other young startups on their journeys too.
Lead photo courtesy of Bigstock Photo via Stephen Moyers