PropTech needs Raving Fans to Thrive

The recent collapse of Boomin and Rightmove’s troubles have hit the press and made people pause for thought about whether or not PropTech has a future? Add a global recession to the mix, high interest rates, a property price correction and long-term above average inflation, and it is easy to see a tough environment ahead.

For PropTech’s starting today it is definitely going to be a tough environment. Many PropTech’s who are pre-seed or those with short runways aren’t going to make it. But for those who can survive and thrive, the current economic conditions might be the catalyst required for success.

From our time so far “on the tools”, this is what I think will be the critical difference between success and failure.

?Law of Diffusion of Innovation

Change doesn’t happen all at once, different people respond to change in different ways. Change is not driven by the masses.?It is early adopters of technology who drive change.

Simon Sinek covers this in his Law of Diffusion of innovation. Adoption of new technology is broadly split across a number of different groups, innovators (2.5%), early adopters (13.5%), early majority (34%), late majority(34%), and the laggards (16%).

To reach a critical tipping point in a market, PropTech’s will need about 18% market share. 18% is a tipping point and at this level of market penetration the new technology will become mainstream and widely accepted.?This tipping point will be achieved by getting the innovators and early adopters to resonate with the technology.

Companies who have successfully done this in the past like Apple have not necessarily had the best technology. They have had the best messaging. They have been able to communicate with consumers and have them resonate with their brand. Not because their product was so much better. But because they could communicate their “Why”. Why they were doing what they were doing. What is the world they wanted to create and why will it be so much better.

The early adopters and innovators "had to have" these products because they got their "Why". They became raving fans and the hype took care of the rest. This is the approach PropTech will need to take.

Differentiation

PropTech’s that don’t differentiate their product offer are setting themselves up for failure. PropTech’s that simply digitize an existing process will likely find others are already in that space. If they’re in a crowded market, they’ll need their product to be significantly better than everyone else’s. Even if they can find a product market fit, it will be easy for others to replicate or replace them. Simply proving a “Use Case” for a technology application and then having someone else take the spoils won’t be a profitable experience.

To gain broad market acceptance PropTech companies will need to re-engineer current processes. And make them user centric. Unless products make it cheaper, faster, and better to do something they won’t get the raving fans required to get everyone talking about them.

Total Addressable Market

PropTech’s which build products which do not have Total Addressable Market (TAM) which is not in the billions will find it difficult to raise capital. Funding will be difficult but so will product market fit. Finding a niche market is easy in the B2B space. Finding niche consumers in the B2C market is expensive. Even if you find one who has a great experience, they may not know enough other potential customers to effectively amplify your brand.

PropTech’s which don’t have a TAM of a significant magnitude would be better off going back to the drawing board. There will be other use cases for their concept if the technology is repositioned. Being able to identify what they are will require direct market knowledge.

Product Market Fit

Product market fit will be crucial. Just because you envisage a specific use case for your product it doesn’t mean that consumers will use the product in the same way. It is very easy to put yourself in an echo chamber of like minded people all slapping each other on the back agreeing how clever you all are. Good PropTech will come from being challenged on its market fit. As well as thinking through market problems from all sides, not just two.

To find their market fit PropTech’s are going to not only create messaging to get consumers to come and ‘try’. But also create feedback loops to get a real-time information flow about how consumers are using their product and see it benefiting them.

Fast growth is not a Good Indicator of Long-Term Success

Initial fast growth might not be a good indicator of long-term success. It may be easy for companies to raise capital and spend big on ‘click bait’ to get initial engagement or offer their service for free. However, this is unlikely to amount to genuine engagement. It might just simply drive internet traffic but not create long-term customers.

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