Today’s entrepreneur and storyteller: Robert McLaws
Husband, father, software guy, Microsoft enthusiast, Halo fan, movie buff, foodie. In no particular order.
Robert has been a software developer his entire adult life. He did four years of JROTC in high school and had a four-year full-ride scholarship to any college in Arizona through the United States Air Force. After failing the physical, all of a sudden his college plans went out the window. He grew up in Mesa, Arizona, which is the second largest population of the Mormon religion in the United States, and most of his friends were Mormon. After high school, they go on a two-year mission, and then they do college — so most of his friends were six years out from having a degree. He decided: “I like computers, I’ve been programming, I can make this a career”. He ended up creating one of PC Magazine’s “Top 100 Websites of 2004”, building the first blog community for Windows back before Windows Vista crashed and burned. He got to meet Bill Gates, got to have front-row seats at the launch of Urge in Las Vegas (an MTV and Microsoft joint music streaming service). And then he joined a startup called AdvancedREI — the startup cadaver that is on our table today.
Name of the project: AdvancedREI
About: The first app designed specifically to help real estate professionals manage their investment activity. Whether you are an investor, developer, broker, or lender, AdvancedREI helps you build better, more accurate models in far less time.
The year started: 2011
The year closed: 2017
Location: Santa Monica, California/Remote
Category: Commercial real estate, PropTech
How much capital raised: Self-funded
Who were the investors (optional): Founder
Key competitors at the time: A few legacy tools/software that you paid $3,000 for and downloaded it and installed it on your machine. And it felt like it was designed in 1994 because it was. But mainly it was spreadsheets.
Traction reached: We had 300+ people registered in the system who created a demo account.
Target market, market situation: In commercial real estate, brokers are responsible for the sale, and brokers will put together spreadsheets to help people understand what the investment of the property is. But those spreadsheets are overly complicated and can be wrong. They will show you what’s going on today in a building, and then they’ll show you a pro forma that has all of the units at whatever the market rent is today and show you those two data points showing what’s going on in the building. And they’ll sell the proforma as the opportunity, but what they’re saying is the day you buy this building, I’m going to kick everybody out and get all new people in at today’s rents. And I’m not going to spend a dime on turning the building over. And that’s an impossible scenario that they’re selling people.
What inspired the idea: We decided to build a capacity algorithm to understand exactly when units turn over in a building and how rent increases three, five, seven years from now, and how you make money. When those things turn over and so on in a 300 unit apartment complex, it would take you 40 plus hours to build that spreadsheet out. And it would be guaranteed to be wrong. The software could build one that was much closer to being right in five minutes.
- The first mistake that I made was thinking of my co-founder as the customer because initially, he hired me as a consultant. And so I did not do any investigation into the market and ask his customers what they would want, and how to approach the problem from their perspective. He came to me with the thing and said, can you build this? And he came up with the specs. I broke it down to something that was shippable and we shipped something three different times. We built a prototype, the first full iteration, and then a full rewrite, over those six years. But for the first few years, I didn’t talk directly to the customer.
- If you’re just asking them surface-level questions, because you’re trying to validate your bias, you will end up on the wrong path. You have to approach it as a scientific experiment. You have to dig deeper and you have to make sure that you are dialed in on the problem.
- Commercial real estate is a fun side of the industry to talk about because you have multiple parties involved that have multiple viewpoints and perspectives and competing and conflicting interests. We didn’t understand those market dynamics at the beginning and how the different customers were negative in different ways in that transaction process. And we wanted to connect all of them together. So there are three different groups of people that have three different competing interests and all have deal-breakers or things that will make the process more complicated in order to be able to sell to them. None of that was considered. It was just: Hey, there’s this thing that takes 40 plus hours, so if we build a better product, they’re just going to want to use it. Some of that was true, but being able to get money and turn that into a SaaS business was one of the real major challenges.
- We were targeting real estate brokers. I determined by, I would say mid-2013, that that was the wrong customer. We did some digging and started going after banks at the very end of our process and trying to sell it to the underwriters — but we ran out of time.
- We had no sales process. We had done some stuff with onboarding, but we didn’t really have a good structure on how to sell at all. My cofounder sold commercial real estate, we thought that selling buildings would translate to selling software — but it didn’t. It was not exclusively the fault of sales, but strategy and direction that defined a big part of the process. And that’s again, usually a symptom of a different problem, right? Because if you’re not able to come up with sales cycles, if you’re not able to see that there’s something else wrong with the product, there’s something else wrong with your approach. And these things are the side effects of that.
- Big lesson number two is you have to understand what your customers like. Especially if you’re trying to build a network or an intermediation play between two parties facilitating a sale. You have to understand what is every potential customer mindset, where they’re coming from, what their personal viewpoint is going to be on how they handle things, and what are their motivations for being in that part of the business. Everybody has motivations and their motivations are not going to align with your product just because you’re a nice person or you’re trying to do something interesting in the world.
- The third thing that I would say is the major fuck up the founders is stubbornness. And there is a distinct difference between having a vision for what needs to happen in the marketplace and a long term vision for how you’re going to get there. And you want to have a specific structure for exactly how you’re going to get there, but you cannot be stubborn on the steps you take to get there. Stuff’s going to happen along the way, and you need to be able to go with the flow to a certain extent and be able to take the detours and let the trip tell you what you need to do differently. The lack of ability to adjust and to learn and to be able to be wrong and be okay with being wrong is the third major thing that killed us.
- You can’t just build one product. You’re building two. You’re building the thing you’re going to sell the customers and the rest of the company. And you have to build them both at the same time. If you wait for the product-market fit to start thinking about that, you will always be behind for the rest of your life. You have to be thinking about it early enough because that second product is what you’re selling to investors. Investors don’t invest in ideas. Make sure your sales process understands that these are two different things that you’re selling.
And this is how it works: it’s death by a thousand cuts. Self afflicted.
Key causes of failure:
- Didn’t do any investigation into the market and talked to customers
- Didn’t understand market dynamics among multiple players involved, their needs and motivations
- Targeting the wrong customer, initially
- Could not build a sales process
- The founders’ stubbornness, inability to adjust
- You have to build both the product and the company at the same time
Grateful for/Key learnings:
- I saw these problems that were going on in businesses because people weren’t looking at the problems and startups the right way, and decided that I needed to do something about it. Solving AdvancedREI target problem and understanding how that worked really has got me starting to think about capacity in general. And how do you look at what’s possible and how things turn over. And that led to business capacity planning, the human capacity to get something done during a day, and all that kind of stuff. And so that led me to my new business, but that was the original concept.
- The second time around building my current company, I spent a ton of time talking to customers first before I built anything. So that’s step one. You have to understand what your customer wants and, and be able to ask them the questions that get to the problem under the problem under the problem.
- It’s not that nine out of 10 companies fail. If you went on the VC track, it’s 97 out of a hundred companies fail, right? Because they’re failing nine out of 10 at every point along the way. You need to understand what you’re going to do to fix that problem.
P. S.: Robert is now trying to help as many companies as possible to get through that Series A gap and understand how to go from $250k in sales to $3m and beyond. His company BurnRate helps your team stay agile and plan for multiple scenarios without the hidden mistakes of spreadsheets. @BurnRate_io
How do you get from nothing to the point where you start to see your model scaling and you understand how that works? Anybody who wants to chat about that, Robert is happy to share some more road rash stories and help talk through whatever challenges you’re facing.
This information’s purpose is to help learn from the mistakes (and pivots) of others, as well as to encourage founders to openly speak about things that failed. Look at it as a shared f*ckup depository for resilient brilliant minds.
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