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20 / 20 Vision The State of Marketing and Technology in the Real Estate Industry

Michael Minard

Originally I hadn't planned on doing the cover article for the first issue of Real Estate Marketing and Technology. I generally tend to try and stay behind the scenes quietly doing my thing at Delta Media Group. I've been this way for nineteen years!

However, with 2020 almost here and all the technology changes we have pushed within the real estate industry the past three years, it's only fitting that I share what is going on inside my head.

Lately, I have been doing a tremendous amount of reflection on how far the real estate industry has come in the past twenty years and envisioning where I see it heading.

This subject is especially relevant more than ever given the technology shakeups that have happened within our industry over the past couple of years. In this time, we saw no fewer than four major technology moves that will have everlasting effects on our vertical. The real question with these shakeups that can't be answered yet is: Will these moves have positive or negative influences on the real estate industry?

Anyhow, let me share some of my specific thoughts as it relates to the current state and future of technology, technology companies in our space, and marketing.

Speaking of technology shakeups, what is going on with technology companies selling in the real estate vertical?

I tend to look at things from a simple perspective, so I see four types of technology companies.

I have personally owned or had ownership in all four types of these companies. So this is my perspective on their struggles and the realities of their businesses.

First, the bootstrapped startup. 

These companies are generally just a person or a group of people with an idea. They usually have a handful of clients, a decent product or feature disguised as a product, and they are entirely dependent on the person, or people, who started the business. If that person, or those people, left the business, the business would quickly fail. They survive out of the sheer will of the person who started it to succeed. Usually speaking, they work for nothing for a period of time because the business can't afford to pay anyone. Nearly all of these businesses fail due to poor market research and the inability to self-fund the business.

An excellent example of boot-strapped startups is to consider all the small technology businesses over the past nineteen years at the NAR Convention that no longer exist.

There are fewer of these businesses in the real estate vertical today due to the maturity of technology in the space. For all intents and purposes, these companies are gone. They're viewed as too risky to do business with and could go away as quickly as they started.

Moving forward, I predict that we will see fewer and fewer boot-strapped startups in the real estate space.

Real estate marketing and technology

Second, growing companies that aren't making a profit. 

This is what a boot-strapped startup turns into as it grows. During this phase, these companies make little to no profit. All these companies do is push growth to survive. The owner is on the payroll, but the growth of the business is consuming all of its profits. The faster it is growing, the harder it is to make money. 

I know this phase well. This is where Delta was between 2003 and 2007. We were experiencing massive client growth.

This is the phase where companies that never had funding usually take funding to fund their growth. They take the funding because most don't have the profits to sustain their growth and remain competitive from a technology perspective.

I believe that we will see companies in this phase die a slow death in our vertical over the next few years. It will become harder and harder for them to compete, especially if there is a downturn in the economy.

Third, growing companies that are profitable. 

This is usually the third phase of a technology company. Generally, if a technology company takes on funding during this phase, it is because they aren't making enough profit to fund both revenue growth and product development growth enough to remain competitive.

This is where you tend to see consolidation, and I believe we will see a consolidation within our space in 2020 or at least by the next downturn in the economy. However, I believe the companies that will be positioned the best will be the companies that are growing, highly profitable, investing significantly in research and development, are debt-free and have amassed cash for future opportunities.

Many venture capitalists and private equity Investors use what is called the 'Rule of 40' for Software As A Service (SAAS) Companies. The 'Rule of 40' is the combination of Annual Run Rate (ARR) Growth percentage plus the EBIDA percentage of the business. (Example: 35% ARR + 10% EBIDA = 45%) If this number is 40 or higher, it is considered to be very healthy. I have personally seen very few SAAS companies that met the 'Rule of 40,' and I am fairly confident that there are very, very few technology companies in the real estate space that meet the 'Rule of 40.'

For reference, Delta's 'Rule of 40' number is currently 61%, with our massive R&D annual budget already included.

What does this mean for technology companies in our space? You will see continued pressure on companies not meeting the 'Rule of 40' to remain relevant. Most, if not all, of them, will be forced to take on funding out of necessity to fund acquisitions while the highly profitable technology providers can fund acquisitions out of their profits as needed.

Or, an alternative that I see happening in the real estate space in 2020 is the quickening growth of mature all-in-one providers as their research and development budgets grow as they grow, thus putting compounding pressure on less mature competitors to take on funding in an effort to remain relevant. 

Fourth, companies that have raised capital. 

We have already seen these companies face severe pressure due to the aforementioned technology moves that have happened in our space.

At Delta, I have seen more questions related to company ownership, corporate structure, and future plans in the past twelve months then I have in the previous eighteen years. To be blunt: The industry wants to know where their new technology provider will be in twelve months and if anyone new will own them or not, including their competitor down the road.

Going into 2020, you will see these companies try and create a narrative that venture capital and private equity backed companies are somehow good and necessary for the industry. I don't agree.

I have been both an investor and someone who raised capital in other business ventures. Every single time, regardless of which end I was on, I had a three to five-year plan. If I raised capital, I knew I was exiting in the next three to five years if all went as planned. If I invested capital, I knew the return on my capital in a three to five-year span.

In 100% of my experiences with investing or raising capital, an extreme amount of pressure is put upon the business to grow revenue.

Because of this added pressure, I believe we will see companies that have taken funding forced to raise rates in the next couple of years. They will balance how high they can raise their rates against their clients' perceived pain of making a move to another provider.

I have never seen so much interest as I have in the past six months from firms looking to acquire Delta. Quite a few factors go into this interest, but one of them certainly has to be the pricing pressure we have been able to put on the other technology providers in the space. Our entire technology stack represents a significant technology cost savings, especially to larger real estate firms. As our technology matures through R&D, there are fewer and fewer reasons to ever look at stand-alone feature providers for necessary functionality.

Real estate marketing and technology

How can I save money looking ahead? If there's a potential recession on the horizon, I'd want to start being proactive now.

There is only one thing you can control when it comes to the next recession. You can only control what you do within your business.

This will be a major topic in 2020 moving forward as we all question when the next recession will hit.

If there is anything I learned in going through the Great Recession a few years ago is that I will be more prepared for the next one.

So how do you do this?

One, you make wise moves as it relates to debt. I bought out my business partners in 2016, and I have been retiring that debt as fast as I can. Admittedly it has taken me a tremendous amount of discipline and encouragement to continue paying off this debt so aggressively. Now that I am only a few months away from being completely debt-free, I couldn't be happier with this decision. By not having debt, I will be able to take advantage of opportunities that my competitors with debt will be unable to respond to. Additionally, I can pile up more cash more quickly. We are already increasing our R&D budget for 2020 as a strategic advantage to gain market share.

Two, you amass cash. Times are good right now, and one thing I swore during the Great Recession is that I will never put myself in the same situation again. Delta was growing at an amazing pace, and cash-on-hand was tight, so when the downturn happened, I had to react quickly, which I did. This is typical for a SAAS company, but I will never make that mistake again and neither should you. My current goal is to have three to six months of cash on hand within the business. I should never need this money, but having that amount of cash-on-hand, or more, will afford me opportunities during the next recession to "go shopping" at a time when prices will be low.

Three, you automate as much as you can in your business now. Automation is always good. Having the ability to do more business with the same number of people is an amazing place to be. Without automation within our own business, we wouldn't have been able to grow so quickly in the past couple of years while also having the profits we have. You need to be doing the same thing in your business. Instead of licensing new software that adds to your budget, look to your current vendors. In the past two years, Delta has helped large real estate firms save millions of dollars over a three-year period on their technology and marketing spend while also achieving better results. This is where making the move to an all-in-one provider can help your business the most.

Four, you cut costs. I've already mentioned it, but we have helped real estate firms save a significant amount of money by cutting out redundant vendors. As all-in-one platforms continue to mature, it will be impossible for the so-called best-in-breed approach to succeed. The all-in-one platform will be significantly less expensive and will eventually provide more functionality as the platforms mature.

Real estate marketing and technology

 How can I get better engagement from my sales associates with what I have? Adoption is a huge problem; how can we get our sales associates to do more with what we've got?

The focus on the actual adoption of technology will be a massive shift in the industry.

Be forewarned that technology companies realize this trend, and some are trying to exploit it. The recommendation that I can give is to be judicious in your research and do your due diligence before accepting adoption numbers that seem unrealistic.

I have personally seen technology presentations for some of our larger clients where the technology company presenting touts extremely high adoption rates of their technology. These so-called adoption rates are not real.

So what adoption rates are we seeing right now, and what will affect adoption rates moving into 2020 and beyond?

We are currently seeing all-in-one platform technology adoption rates fluctuating between 10% and 72% on the exact same platform between varying companies across the United States.

We attribute the variance to the following:

  • Normal markets generally yield higher adoption rates
  • The lower the average age of your sales associates; the higher your adoption rates will be
  • The more your sales associates are trained, the higher the adoption rates are
  • If the organization puts a concerted focus on being a technology leader in the marketplace the higher the adoption rates are
  • The more excited your sales associates are about your technology, the higher the adoption rates will be

Changes that you will see in 2020 that will put an emphasis on pushing adoption rates higher:

  • More mature user interfaces of technology platforms making them easier to use
  • More seamless integration of technology platforms, and the life-cycle of a client creating a more cohesive workflow
  • The further maturation of A.I. helping sales associates focus their efforts
  • A refined definition of how to accurately measure true adoption

Real Estate Marketing and Technology

How can I compete with the digital brokerages that are coming into my market? They've got billions in funding and are in the news daily.

Stop asking how and realize you can. Today!

You have the ability and the opportunity to complete right now. Technology is maturing at an increasingly rapid pace. The full technology stack available to you today from an all-in-one provider like Delta Media Group makes it possible for you to WIN in a market with a digital brokerage! You can be faster with data, you can have a more integrated solution, you can have a technology and marketing solution that is rapidly evolving.

What you have to do is two equally important things. First, adopt a technology and marketing solution that can keep pace, or even outpace, the development of digital brokerages. Second, you must initiate an internal marketing initiative with your sales associates to educate them on your solution and create a culture of technology within your organization.

If you lose out to a digital brokerage in 2020, it will only be because you allowed it to happen.

I need to switch technology providers, but moving is so much work and has never gone well. I feel stuck where I am, what can I do?

Technology is rapidly changing, and these changes have impacted how quickly technology firms can launch new clients.

Our technology has developed to the point that we can launch enterprise clients, with 1,000 or more sales associates, with a customized web design, full CRM, and all-in-one platform within ninety days. We come on-site to help launch and show up with customized printed marketing material promoting the new initiative with your branding.

Things have drastically changed. Today, with the right company, the onboarding and launch experience is completely different than it was just a few years ago.

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