A friend shared an article with me today. It’s about an institutional investor, ReAlpha, planning to spend $1.5 billion to buy 5,000 homes to rent out. I’ve followed institutional buyers of single-family homes for the last decade. Atlanta is one of the biggest markets for companies like Invitation Homes and American Homes 4 rent, both of which are publicly traded and own tens of thousands of single-family homes across the country that they rent out on a long-term basis. The strategy has worked well as home prices and rental rates have steadily increased since the financial crisis.

The article discussed a slightly different strategy: purchasing thousands of homes to rent out short-term on Airbnb. The idea isn’t new, but it hasn’t been pursued at scale by institutional investors. The customer acquisition strategy is intriguing. Instead of acquiring customers (i.e., renters) through traditional sales and marketing efforts, they plan to acquire them on Airbnb, which is a marketplace.

Marketplaces are places where buyers and sellers connect. Using a marketplace to acquire customers is an attractive and capital-efficient strategy for sellers. The fee (or take rate) is usually a fixed percentage of the revenue a buyer pays. That leads to a highly predictable customer acquisition cost. Sellers pay X cents for every dollar in revenue from buyers. Sellers don’t have to worry about paying to attract potential buyers who never pan out; they pay only to acquire revenue-producing customers. Sellers don’t even need to take on sales or marketing—they need only have the ability to service customers.

This approach has downsides, and the customer relationship is a big one. The marketplace owns the customer relationship. Buyers aren’t loyal to the seller they transact with; they’re loyal to the marketplace. Concentration is also a big risk. If you get all your customers from a single source that you don’t control, changes can significantly affect your revenue. Lots of stories circulate about businesses being crushed when a marketplace they rely on changes how listings are displayed or suspends their account.

If ReAlpha moves forward with these plans, it will be a huge growth opportunity for Airbnb. I’d imagine ReAlpha will seek discounts on Airbnb’s fees, but even so this could unlock a new product offering with the potential for massive scale in Airbnb’s platform.

I’ll be watching to see how this evolves.

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Companies aim to create value by solving a problem. Founders, to increase their chances of creating a solution that has value—i.e., that customers will pay for—should have a deep understanding of the problem. An interesting approach to this goal is incubating a company inside another company: A company has a problem. It builds something to solve it. Management realizes others have the same problem. The company begins selling its solution. The solution grows so quickly that it’s separated from the parent company to become a stand-alone entity. I know a few founders who’ve successfully incubated companies this way—and the new companies became massive over time.

I’ve noticed a few things about this approach. If the parent organization has ample resources (usually money and people), this can be a great way to get something off the ground without raising capital. If not, it can drain and burden the parent company. The legacy company’s leaders often are attracted to the new growth company because it has great potential. But managing both companies can become challenging. I’ve seen leaders put someone in place to run the legacy company while they focus on the growth company. This works well—if the right person can be found, which isn’t easy.  

I like this approach. It isn’t realistic in most companies, but when it is, it can lead to something big.

At CCAW, to expand our distribution, we partnered with companies that had underutilized warehouse infrastructure and wanted to optimize it to get a better return on their investment. Using other companies’ warehouses, we could add a new distribution point in a matter of days, so we scaled our distribution network rapidly and could reach any consumer’s home in one or two days. With technology, we overcame lots of logistical challenges, which I I won’t get into. I still love this concept. I think it’s applicable in many other areas.

I learned about a company planning to build a national restaurant brand using this approach. No more building out locations or franchising. This brand hopes to leverage, through technology, existing restaurant infrastructure that’s not fully utilized. I’m not sure if it will work, but I like the thought process.

Some companies have become big winners by solving problems for customers using others’ underutilized assets. For example, Uber and Lyft got their start when their founders noticed how many cars on the highway had only one occupant (i.e., lots of empty seats). I think that technology will accelerate this trend. We will see more companies leveraging existing assets and building large businesses in the process.

If you’re a founder looking to solve a problem but don’t have the assets, consider using some else’s.

I recently got an update email from a founder I haven’t spoken with in months. He sends them out every month to a distribution list. They’re pretty good, and this one put his company back at the top of my mind.

Update emails are a simple yet powerful tool that can benefit early-stage founders. They help with accountability and focus and they remind outsiders that the company exists. The exercise of creating the email is good for founders because it forces them to reflect on the most important things that have happened and how the company’s KPIs or other metrics look.

These emails don’t have to be long or dense. The more concise the better, in fact. I’ve seen founders create a template and change only key pieces of information each time. Most importantly, these emails should be consistent and truthful. Pick a time interval (I’d suggest monthly at a minimum) and stick to it. Sporadic updates with constantly changing formats and KPIs give the impression that the company or founder is unfocused.

Updates shouldn’t be all about everything that’s going well. Running a startup is hard, and things are constantly going wrong. Share those things, too. When you’re open about where you need help, it’s easier for people to help you. And people will tend to trust you if they feel they’re getting the complete story. If you say your startup never struggles, people won’t believe you.

If you’re an early-stage founder, consider asking people you meet with (at the end of the meeting) if you can add them to your update email list. And send regular updates to everyone on it.

I recently replaced an Apple product. Having not kept up with their products for the last few years, I did some research. As I read their website and spoke with their customer service, I observed several things. The main one: Apple is edging into financial services.

• Trade-ins – People can dispose of an old device and receive a credit toward the cost of a new one. Reminds me of the car dealership business. I suspect this is handled by a third-party company behind the scenes, but it’s still a smart way to make products more affordable without using discounts or sales. The brand integrity is maintained. I’m pretty sure this reduces the average time between device upgrades.
• Financing – New purchases are eligible for 0% interest for a year if the customer signs up for Apple Card (more on this). This stretches the cost of a sizeable purchase into digestible monthly payments, making the products more accessible to more people. If you can afford the monthly payment, you can get a device now instead of having to wait until you have the cash for the full purchase price, and you don’t have to pay interest for a year. More importantly, this is an ingenious way to introduce consumers to the new Apple Card product.
• Apple Card – This is a credit card product, but done the Apple way. It offers a lot of things consumers value, such as cash back and no fees. The software and user experience appear to be very different than those of traditional credit cards. It integrates tightly with Apple devices and services that consumers already use every day. iPhones conditioned people to think of Apple as a company that helps them communicate. Apple Card will likely kick-start people into thinking of Apple as a company that can help them manage their money. If Apple builds a significant financial services business, this product will have paved the way.
• Apple Pay – This product is focused on making it easier for consumers to pay. It’s a mobile payment and digital wallet service. It’s been around since 2014, so it’s not new. It has gained traction. It positions Apple between consumers who love their devices and merchants who want to sell to those consumers. I noticed that Apple Card offers a 2% cash back on charges made via Apple Pay. Another great way to entice consumers to use multiple products.

Apple is a strong company whose hardware and software have heavily influenced our society since the release of the iPhone fourteen years ago. I suspect financial services (in addition to other unannounced businesses) will further solidify its role in consumers’ everyday lives. If it’s successful, I can see a day in the future when people will think of Apple as a place to go for help with managing their money.

I connected with an early-stage founder who spent a few years building some amazing technology. He released the beta version of his product within the last seven months. To his surprise, he’s received two unsolicited acquisition offers. He’s now deciding whether he should raise capital to grow or be acquired (he’d become an employee of the acquiring company).

This founder is in a great position. Users are signing up and paying for the early version of his product. Two larger companies want to acquire the technology. These are signs that the solution he built is creating value. He has a difficult choice to make. I have no idea which way he’ll go, but I’m sure his decision will be well thought-out and he’ll do well.

I think this founder’s situation is one other founders should take note of. Why is he in a position to choose his destiny? Because he hyper-focused on solving a single problem extremely well. His solution is creating massive value that others are happy to pay for!

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When I read about a new indoor entertainment venue that recently opened in Atlanta, I called a friend who lives in the area. He said the venue is doing well—he often sees a line of customers waiting to enter. I drove by this weekend and saw the line for myself. Opening this venue was no small feat. It required tons of construction. It must have been preceded by years of planning. And given that it just opened, I assume the owners decided to push forward during the uncertainty of 2020.

Last year was a once-in-a-lifetime circumstance (hopefully) and one of the scariest situations a lot of entrepreneurs will face. But on a smaller scale, short-term changes in the market and unexpected hurdles are common. If founders focus on what’s happening right now, they’ll constantly be changing their plans.

The successful founders I know have taken a longer-term view. They decided where they thought the world was going and developed a vision for how their company fit into this future. They were heads-down focused on turning that vision into reality. They powered through short-term ripples in the market, always believing in their longer-term vision. Not over-focusing on the short term was the right call and these founders built great companies that went on to do great things. Often, others couldn’t see it and thought they were crazy for bucking current trends. They didn’t care, stayed the course, and were proven right.

I don’t know the owners of this new venue, but I imagine this describes them. After all, they chose to continue building an indoor venue in the midst of a pandemic!

If you’re an early founder or considering becoming one, be mindful that success will come from taking a long-term view of where the world is going, not reacting to daily changes.

An early founder who’s thinking about scaling his company asked for my thoughts. As we chatted, I zeroed in on something. What he ultimately wanted and what he planned to do weren’t aligned. I couldn’t tell if he wanted to build a lifestyle business or a high-growth company, so I asked him.

Building a high-growth lifestyle company sounds ideal, but it isn’t likely to happen. The main goal of a lifestyle company is just that—to provide for the lifestyle the owners want to live. Owners take distributions from the company to cover their personal expenses. The goal of a high-growth company, on the other hand, is—wait for it—growth. Growth is expensive. You’re hiring and making investments ahead of anticipated growth. Cash often stays in the company and is funneled toward growing the business.

The founder asked whether building a high-growth lifestyle company is feasible. I told him it’s unlikely. The core challenge is the conflicting constraints on the company’s cash. You can’t take all the money out to fund a cushy lifestyle and fund rapid growth. You have to pick one or the other.

In the end, this founder said he wants to build a high-growth company. I’m excited for him and can’t wait to hear more about his journey to turn this into reality!

I learned about warehouse management when I ran my company. We never operated a warehouse, but all our partners did. Working with them helped me learn how they approached warehouse management and how critical it was to their operations. My big takeaway was that the systems run by a lot of companies in the aftermarket automotive parts industry to manage this critical part of their business were extremely outdated. It’s a wide open opportunity for a technology company.

Today I spoke with a founder who, after a decade in warehouse operations and warehouse management systems, understands the space. He’s created a SaaS solution to solve pain points for companies running large warehouses. His product is easier to implement than existing systems and requires less upfront investment because it’s SaaS. Of course, SaaS isn’t new. Delivering software over the internet has been around for well over a decade (if not two). But it’s relatively new for this space. Most traditional systems run on-site and impose implementation costs.

I like this founder’s approach, and I think it’s one others can follow. Some cutting-edge businesses rapidly adopt technology, but others can’t or just don’t. Laggard industries are great opportunities for entrepreneurs, who can watch a new business model be validated in other industries first. A new approach can create massive value for customers even if it isn’t cutting-edge in other industries.

I’m excited for this founder and can’t wait to see how his approach revolutionizes the space!

An elder once told me that if your plan requires perfection, you’re more likely to fail. I was in high school or early college, so I didn’t grasp the weight of this comment at the time. Over the years, I learned exactly what he meant.

As a founder, I was super bullish and optimistic about many things I was doing. In my mind, if I did X and Y, Z should happen. Eventually, I learned two things. First, I hadn’t fully understood a lot of things about X and Y, so I couldn’t accurately predict how long they would take to execute and what resources were required. Put another way, I didn’t know what I didn’t know and hadn’t factored in that knowledge gap. Second, I realized that this is an imperfect world. Things beyond my control could happen that would dramatically affect my plans. (Think pandemic.)

Over time, I learned to do a few things that were helpful. I sought out people who had done something similar to what I was attempting and asked about their experiences so I could fill my knowledge gap and adjust my plans accordingly. Next, I started adding a buffer to my plans. If I thought something would take three months, I had a plan in case it took four or five. If something was projected to cost $10, I budgeted for $12. It was my way of accounting for the inevitable curveballs the universe would throw at me.

Early-stage founders should remember that nothing in life is perfect. Especially not in startups! The entrepreneurial journey is a long one, and everything won’t go according to plan. Consider incorporating some wiggle room for yourself and your team.