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TODAY'S OTHER NEWS

PropTech Today - why do PropTech companies fail?

I was giving an interview this week for an upcoming conference - yet another to convert from a physical to a digital offering - and they asked me an interesting initial question about failure. Why do PropTech’s fail? 

It made me reflect for a while before answering. It made me consider the countless times I have heard people say “PropTech is simply creating solutions for problems that just don't exist” and whether this indeed was true. 

Whilst it may be true, it isn’t the reason they fail and that is what I want to review today. 

Why? Because I am beginning to lose count of the number of people that are getting in touch with us to either find a job or to start up their own PropTech business. 

If this is you, then there is one very important reason businesses fail and it is going to be a key driver to whether PropTech’s establishing now, or scaling now, will succeed. 

Let me take a step back first and give you a macro view of the PropTech landscape for a second. 

At the time of writing, we are tracking 8,179 PropTech firms. In addition to this, there are now 424 companies that are now tagged as inactive. They failed. 

If you look at the scale of growth in this PropTech market over the last few years, 2015 was the peak for global PropTech businesses being established as this basic graph below shows.

PropTech Today - why do PropTech companies fail?

The story is slightly different in the UK with there being an obvious wave from 2015 through to 2018, perhaps offering explanations for this feeling of PropTech fatigue that some felt. 

Just a point of note about the seven companies that have originated in 2020 - six of them are focussed on residential. It seems, when I delve further into the figures, that the residential focus had a slight lag on commercial and now there is an overwhelming bias - perhaps because there is still life in the resi market which is just simply not there yet in commercial. 

One thing I am aware of, however, is the similarity between this graph and the first peak of a Covid graph. The overwhelming and almost exponential growth is all apparent but slowed in the last two years. 

However, like we are starting to see here in the UK, I am expecting a second but smaller spike in 2021 with new models created given the Covid situation as new businesses are created off the back of the pandemic. 

PropTech Today - why do PropTech companies fail?

Equally, I am expecting to see that figure of 424 inactive PropTech companies increase. Partly because Covid has made business models obsolete, but also because venture money has dried up in some cases. If these businesses were in anyway speculative with no proven business model yet, funding has all but dried up. 

But this isn’t really the actual cause of the failure. Let's get to the nub of the issue.

“Tech, Team and Traction” is the historic mantra of many venture capital (VC) firms. Analysing each, in turn, suggests whether a firm will actually thrive and offer the returns expected. This then determines investment. 

Delving into that in a bit more detail, “Product, Market, Fit” is the mantra of many a startup. That really informs whether there is enough ‘Traction’ to make the product/service viable. Ultimately, does the product work for the particular market they are focussing on? A key indicator for many that there is something exciting (or not) apparent. 

Furthermore, is the founding team the right mix? Do they know their market? Are they influential? Are they skilled enough to make it happen? Ultimately, are they the right people to invest in? 

Lastly, we have the ‘Tech’ element of it all. Does it actually work? Will it scale? Is it resilient? To use Buffet speak, is it protected by a “moat” and therefore defensible to competition? 

If all three elements of the venture capitalist’s mantra can be answered satisfactorily, the PropTech is dubbed a ‘winner’ and sent off to become a unicorn.  

But, there is one huge thing missing in all of this. There is a huge element very few people ever get right. It trumps Tech, Team and Traction every time. 

It is something almost unpredictable. VC’s who invested, just before Covid struck, into business models that are no longer relevant, will be rueing the day they even considered investing because of it. 

There is one thing that separates everybody and everything else. 

You can build the best team, have tremendous early success with the best tech stack available but still fail. 

Conversely, you could build an okay team, with little tech or traction and actually succeed. 

That is because one thing trumps the rest of it put together. 

It's all about…

Timing. 

  • Where Is The  Monii Money

    It's an interesting take and I'd like to add a couple of points.

    ONS data says that 42.4% of business fail within the first five years. If nothing else changes, the figure of 424 would reach 3,468 failed companies. That's not "because", it just "is".

    Someone much more clever than me once said, "...the only reason for any purchase is to solve a problem or to have fun..."

    Timing is a hard one to measure but solving a problem isn't. Technology either addresses the issues or doesn't. I suspect that particularly in PropTech, businesses tend to focus purely on the delivery of the "new" and fail to solve the problem.

    James Dearsley

    I might suggest that is a bit chicken and egg.

    There are some that are obviously solving problems that simply don't exist YET hence the timing issue.

    However, there are some just ridiculous solutions out there so I may agree are a waste of time.

     
  • Daniel Hamilton-Charlton

    My business has entered this field of innovation to solve a problem. The problem is age old and has been seen as something for Solicitors to sort out and the rest of the chain to just shout for.
    Searches.

    We are the only Search business offering true innovation to support the property industry by enabling home buyers to use a hazard checker service and buy the correct Search pack instantly online right at the start of a transaction. No delays, no waiting for a Solicitor to do it, instant access to answers the seek and their lender will require.

    Our Hazard Checker is a free to use service for the industry as it provides greater awareness of issues that could adversely affect a sale that Estate agents should want to be aware of during marketing.

    The challenge many PropTech firms face is not whether they are solving a problem or not, it is that whilst Estate Agents criticise Solicitors for being slow to adapt and change, they themselves are so busy fighting their battles that they don't stop often enough to see that something can actually solve a problem for them.

    They do need to adapt and occasionally take a moment to see whether something can genuinely help them or more importantly, help their clients and purchasers.

    James Dearsley

    see above Daniel.

     
  • Kristjan Byfield

    Actually think failures will decrease (as a %) as the market matures and better-honed products enter the market. More and more are being started from people within their targetted sector with genuine knowledge of the process, regulations and friction points it solves- that or businesses are learning to engage relevant professionals on their board and in their product earlier in the journey. Equally the clients are getting better at understanding what their business needs and what constitutes a quality solution- or are engaging experts to assist with their digital transformation.

    Where Is The  Monii Money

    I thought about this over night and have a couple of further thoughts.

    Forbes believes that 90% of tech companies fail so that is more likely to be the starting place for your claim of a percentage failure reduction.

    Maturing Innovation is almost an oxymoron although I do agree that innovation should come from within with the caveat that any idea should be religiously challenged. Encourage people to fail quickly and cheaply.

    Never engage experts. An "ex" is a has been and a "spurt" is a drip under pressure!

     
  • Daniel Hamilton-Charlton

    Sorry James, I can't reply to you. What are you highlighting or suggesting to me?
    Are we solving a problem that doesn't exist.....no
    Are we offering a Ridiculous solution......no
    That just leaves chicken and egg, which I am struggling to see where that fits, sorry.

    Search ordering by Solicitor is a delay in the process. A lack of foresight in what searches are and how they can adversely affect a sale or the marketing of a property is a very real issue.
    Our solutions solve both.
    Absolute visibility oh Hazards that exits in a postcode area and Direct access to buying Searches on day one that a sale is agreed.

    Please explain how any of that is a bad idea or failing to solve something?

  • Where Is The  Monii Money

    This is Bertrand Russell's teapot!

    Give me a real-life Proptech example of solving a problem that doesn't exist yet?

    I think you can identify a problem and build an education piece to highlight the problem which then has a possible solution through technology as this requires an acknowledgement that the problem exists in the first place.

    I suppose you can say that a technology has been created and what are the Proptech implications but again, this is not about timing and it would still have to tilt towards solving the problem.

    You can eliminate the "chicken and egg" situation by having a problem-focused technology methodology and no carts or horses will be hurt or damaged during this process!

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