Thanksgiving week is a great time to reflect on what we're grateful for. I've been reflecting on a conversation with the founder of an impressive new multifamily technology company earlier this year. His company had identified a new solution to a long-standing problem (I will spare the details to maintain anonymity). But over the hour we spent on our zoom call, he made me reevaluate my priors on a particular area of multifamily operations.
Regular readers of this blog are probably familiar with my views on product-market fit and, in particular, how we understand value. Around a year ago, I published an article about a Forrester Research analysis of how vendors routinely misunderstand the value customers get from their products. Vendors, company founders, and their sales teams usually hold strong beliefs about why customers purchase their products, but they relatively seldom reflect buyers' true motivations.
To use Forrester's terminology, founders and salespeople typically rely on "false proxies" of value to construct a value proposition. NOI lift usually falls into this category, as sellers over-simplify some operational improvement into a notional hard dollar value.
Persuasion and Product-Market Fit
Companies and individuals who are good at persuasion can usually put themselves in their prospects' shoes and understand what will improve about their business if they implement their product. There's usually a deeper motivation than the dollars in the ROI spreadsheet, and it pays for vendors to discover what it is.
My conversation with this vendor reframed how I think about this discovery process. I started the conversation, skeptical about the solution and the problem it was trying to solve. The most valuable insight was finding out what I was wrong about.
We know, for example, that our industry is unusually diverse and unwelcoming of "one size fits all" solutions. Apply insights from one type of operator to a different group; you often discover your initial findings no longer hold. More and more, I consider this to be an essential element in gaining deeper insights into how things operate.
Back to School
I am currently preparing for my 20 annual interviews with senior executives for the 2024 edition of the 20 for 20 White Paper. The 20 participants represent the gamut of portfolio sizes and business models. Increasingly, I find the best insights from this annual research are the ones that show that I have been thinking about something the wrong way. Those insights foster the deepest understanding of how technology adoption works in our industry.
Take centralization, for instance. A couple of years ago, when some REITs started discussing the savings they were achieving through technology-enabled centralization, it seemed that all other companies would follow suit. The obvious question was: "How quickly?"
However, the 20 conversations revealed this was not the right way to think about centralization. Focusing instead on how closely clustered an operator's properties are and to what degree they control their operating environment yielded more useful insights.
Business Intelligence (BI) provides another example. The inaugural 20 for 20 report noted the surprisingly slow adoption of BI in multifamily compared to other technologies and the generally lukewarm sentiments among many of its adopters.
However, the following year, a deeper dive into BI revealed a different adoption pattern from other technologies. Companies start by going as far as they can without BI before rolling out their PMS provider's default BI application. When they outgrow that, they spend years custom-building their own BI platform. What initially looked like slow and unenthusiastic adoption was actually a multi-step, multi-year process, unlike any other technology adoption pattern in the industry.
Growing Diversity, Greater Nuance
It's not just that the interviews yielded insights. In both instances, incorrect initial assumptions played a crucial role in unearthing the real insights.
My recent discussion with the founder followed a similar trajectory. We talked about the vendor landscape and buyer appetite for this particular technology and the reasons I had observed that stopped companies from adopting it. His company had approached the business differently, and the impressive roster of new clients suggested they were onto something (further conversations with clients verified what I learned during the conversation).
There's room in our industry for many and nuanced business models. Earlier this year, I started to note the growing fragmentation of our industry and the significant implications this has for both buyers and sellers of technology. This fragmentation is equally important when considering the value of technology. It's tempting to think that solutions applicable to large owner-operators (who are often the early adopters) should easily transfer to the rest of the market. But most of the market consists of companies that are, on average, smaller and more third-party-managed than the early adopters.
Understanding the makeup of the industry is critical to understanding technology trends. It's hard to do without getting deep into the business models and operations of all sorts of operators. I've found few better ways of accomplishing that than letting companies tell you what's wrong with your understanding. That there are companies willing to tell me that is one of the many things for which I am thankful!
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