Illusion of Technology

I’ve read hundreds of business books over the years. I remember when Dad gave me my first one, How To Win Friends And Influence People by Dale Carnegie. That book changed the way I did business, and probably changed the trajectory of my life. 

Because of my fascination with business strategy and love for “new idea” business books, in 2014 I launched a website showcasing a collection of two minute audios (narrated by yours truly) summarizing some of the most thought provoking, game changing business books at that time. 

One of the books I summarized was The Lean Startup by Eric Ries. In it, Reis reinforced the concept of the Minimum Viable Product, a term coined by Frank Robinson in 2001 and popularized by Ries’ book in 2011. Ries defined it as “a version of a new product which allows the team to collect the maximum amount of validated learning about customers with the least amount of effort.” 

Too many companies fail to use the MVP formula of launching a basic version of their product or concept first, letting their customers know it’s a “beta” (so they don’t expect perfection), then improving it based on customer feedback.  

Failing to follow the MVP customer feedback formula occurs often in the tech sector. Silicon Valley startups sometimes spend thousands of hours and millions of dollars developing a new product or process without a lot of consumer feedback. I believe this is why we see more business failures in tech than in other sectors.

The way I see it there are two main objectives when spending money on technology – to improve your customers’ experience or operate more efficiently so you can charge less, earn more, or both.

Australian tech start up is a good example of doing it right. It launched in 2014, and today the company offers a robust menu of services, including “professional photo editing, virtual staging, floorplan redraws, and rendering at unbeatable prices.” BoxBrownie’s “lean startup” trajectory is outlined year-by-year in the About section of its website. By constantly eliciting feedback from its customers, the company has exhibited rapid trial and error growth. 

In the business world today it’s fashionable to be considered a tech company. It also adds to your valuation multiple. That tempts companies to characterize themselves as tech companies without having meaningful technology. They spend a lot of money on tech without improving customer experience or cost efficiency. 

In my industry (real estate) there is a debate about a company that recently went public…Compass. In 2019 real estate news outlet, Inman News, ran an article by industry thought leader Mike DelPrete entitled: Is Compass a tech company or a traditional brokerage?

The article starts by saying, “The company often refers to itself as a tech company and a tech-enabled brokerage, which is part of the lure of the Compass vision.” But DelPrete observed this may not be the case.

He points out the obvious…”A technology company should employ technologists.” He goes on to say, “I observed that the most successful technology-enabled brokerages around the world had around 10 percent technical staff. Compass was the outlier at four percent.”

Another notable characteristic of a true tech company is efficiency. DelPrete noted, “By leveraging technology, operational efficiency should be higher than the industry average.” So how does Compass stack up? DelPrete says, “Looking at agent efficiency of the top 20 U.S. brokerages shows Compass right in the middle of the pack. Its agents are considerably less efficient than a number of others, many of which don’t style themselves as tech-enabled brokerages.”

A third defining factor of a tech based company is scalability. As the article points out, “Tech businesses should scale non-linearly, growing revenues faster than expenses and leveraging technology to become more efficient over time. Between 2016 and 2018, each new hire at Zillow corresponded to around $300,000 of additional revenue, compared to around $80,000 for each new hire at Compass (slightly below the traditional industry average).”

Before Compass went public on April 1 of this year, Surface Magazine published an article saying, “Compass’s heavy spending and lack of profitability has earned it a bad reputation with critics, who have questioned its valuation.” Compass tried to get a $10 billion valuation by positioning itself as a technology brokerage. 

After the it went public at a valuation of $8.2 billion, ran the headline What If Compass Is Basically Just Like Every Other Real-Estate Brokerage? 

The article posed the question: “Is Compass an industry-disrupting technology platform, or just an old-fashioned brokerage with good branding and a lot of cash?”

Is Compass a tech based real estate company? 

That’s not for me to say, but it reminds me of something Steve Jobs once said: “You’ve got to start with the customer experience and work backwards to the technology. You can’t start with technology and try to figure out where you’re going to sell it.”

That would be an illusion of technology.