Many new brokerage businesses are built on the fallacy that "hustle" is the key to success. Influencers in the brokerage community preach hard work, grinding, cold calling, early morning routines as the key to success. Much of the time, these intense routines lead to burnt-out real estate brokers.
Amazon’s Founder Jeff Bezos didn’t work harder than commercial real estate brokers to earn his success. Rather, he built a business that ruthlessly pursued and achieved product-market fit.
I’ve recently become obsessed with pursuing product-market fit in Bullpen. The journey has led me to wonder, can a commercial real estate brokerage find product-market fit?
What is product market fit?
Product-market-fit describes the harmony that is created when a great solution solves a big problem that a lot of people care about.
Marc Andreesen characterizes product market fit in his blog “The Only Thing That Matters” as follows: “The customers are buying the product just as fast as you can make it -- or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You're hiring sales and customer support staff as fast as you can. Reporters are calling because they've heard about your hot new thing and they want to talk to you about it. You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house. You could eat free for a year at Buck's.”
Translate to apply to commercial real estate brokerage -- Buyers and sellers are lined up at your door. Your deal flow is growing as fast as you are able to hire more brokers. You are making so much money that you don’t know what to do with it. Local media wants to interview you for an article. The Real Deal is inviting you to speak at its annual brokerage event.
The problem is that brokers can work hard enough to trick themselves into thinking they have product-market fit.
Real estate brokers need to re-invent themselves. Problems are scattered throughout local real estate communities, waiting for innovative brokers to solve them.
One of my favorite pieces is by Y-Combinator’s Michael Siebel on product market fit, which I’ve linked here.
What problem do your customers have that you believe you can solve?
Let’s get meta.
Brokers are transaction managers. Their job is to get the best offers for their client's property and seamlessly close the transaction.
This simplistic job description for brokers describes what brokers do, but it doesn’t tell us anything about the problem that brokers solve.
Some brokers might say that selling a property is hard (problem). As a broker, they walk their clients through the sale, making it easy (solution).
The trouble in the above statement lies with the problem. How do you know that selling a property is hard for your customers? What’s the probability that your customer would say that selling a property is quite easy? They might simply call up the leading broker in town and voila, money arrives in their pocket.
Real estate brokers have saturated the market, and real estate investors no longer have a representation problem.
Go deeper. Find the problems that haunt property owners.
Don’t guess - ask them!
First, identify your target customer
Before you can ask your customers questions about their problems, you need to identify your target customer.
Are you going to pursue buyers or sellers? Do you want to be broad or choose a niche (hint: niche brokers typically perform better than generalists)?
Tip: Before choosing a niche, examine your service area and map the number of properties and average annual transactions. In tech, we call this the total addressable market (or "TAM"). Make sure that your niche is big enough to support your goals!
A niche might be based on geography or sector. For example, you might choose to focus your business on brokerage transactions in a certain neighborhood (geography). Alternatively, you might choose to focus on industrial properties in an entire city (sector).
Start with these questions.
Once you have identified a target customer, ask them the following three questions to better understand their problems.
- What is the hardest part about owning [insert your niche] properties?
- What frustrates you the most about the current real estate environment?
- Does anything keep you up at night? (Doesn’t have to be about real estate)
Maybe some owners will be concerned about a new local zoning ordinance. Others might be concerned about taxes, retirement, sending their kids to school, or a host of other things.
Keep in mind, people make decisions that minimize pain and frustration. You’ll notice that all of the above questions are meant to uncover pain or frustration in your target customer.
When you identify a problem that is relevant to lots of your target customers, you’re ready to move to the next step. Solve the problem.
Your product is not a real estate transaction.
Congratulations. You identified a problem that lots of your target customers have in common, and you’re starting to empathize with their pain.
Your customers want help solving problems. Most of the time, the solution to their problem (aka your product) is not a real estate transaction. Rather, the real estate transaction is your monetization strategy after solving your customer’s problem.
When you realize that your job is less about selling properties and more about solving problems, you’ll start to allocate your focus, time, and resources on activities that will grow your business.
Picture a sleepy part of town, full of old industrial buildings, with high crime and vacancy problems. Current owners are frustrated with the degrading neighborhood. A local broker decides to do something about it, petitioning the city to change the zoning in the neighborhood. Moreover, the broker connects with all the property owners to get them on board. The city passes a developer-friendly zoning ordinance, and the area explodes! New developments drive up property values, and a once-dying area now thrives.
The broker in the example became the most popular person in the neighborhood. They solved a problem and now get to monetize their solution by selling properties in the neighborhood.
Perhaps your target customers are retail property owners who are struggling with securing top retail tenants. Your product might be a series of blog articles that provide research, analysis, and practical advice about finding the best tenants. Your monetization strategy might then be securing the best tenants for their property.
As you can see, there are countless ways to solve problems that aren't related to a transaction.
Can a commercial real estate brokerage find product market fit?
Brokerage product-market fit. Is it an oxymoron?
Moreover, a better question might be, is product-market fit as described in tech startups relevant to commercial real estate brokerage?
I think the answer is yes, but it requires that a broker separate their product from their monetization strategy. Your product should solve your target customer’s problem. Your monetization strategy is the brokerage transaction.
It is no longer good enough to be the best transaction coordinator in your market. You can’t hustle your way to product-market fit. The best brokers solve problems that their target customers care about.
A few of my favorite articles about product-market fit: “12 Things about Product Market Fit” by a16z blog and “The only thing that matters” by Marc Andreesen.