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Entrepreneurs are used to getting lots of feedback. Unfortunately, almost all of it is carefully filtered, highly uninformed, or both. We rarely hear candid, intelligent, and unbiased feedback about the choices we’ve made and the challenges we face. For me, that all changed last month, when the Harvard Business School invited my cofounder and me to visit one of their classes, where we would listen to 90 MBA students debate and discuss RentHop’s unfinished story for over an hour.
The class was part of Harvard’s Online Economy course, teaching strategy and entrepreneurship to students planning careers in online business. Like most classes at the business school, the format followed the case method. The professor prepared a 10-page document, the case, titled “Killing Craigslist: Entrepreneurship in the Online Apartment Rental Marketplace.” The reading quickly summarizes the online real estate landscape and profiles our first two years working on RentHop, including the initial conception, graduation from Y Combinator’s Summer 2009 batch, and our early user and data acquisition successes. The case ends with a simple question: How does RentHop make money and continue growing?
On the actual visit day, we sit tucked away in the back corners of the classroom, instructed not to participate in the discussion until the last 15 minutes. An astute few probably notice our presence, but it’s early in the semester and Lawrence and I are young enough to blend right into the crowd. As the case guests, we will have no choice but to sit and listen as dozens of students take turns brutally critiquing each of our decisions from our naive early days. Afterwards, in a dramatic Jerry Springer style introduction, the professor will call us to the front of the classroom to explain the path we eventually chose and offer rebuttal and closure on any loose ends from the student debates.
The professor begins class with a cold call, challenging a student to walk us through a mock online apartment query for off-campus housing using our live site. The search quickly morphs into a short focus group, as other students suggest tacking on search criteria and filters. Thankfully, our product handled most of the search scenarios, but a few items hit my mental TO DO list. After the demo, the conversation quickly turns to the key business model issues. We offer a two-sided marketplace. How does one attract the initial users? Who would be willing to pay? Are there tricks for scaling?
The course assistant brought us lunch before class, but I was too fascinated by the discussion and too busy scribbling notes to make a meaningful dent in the food. This was our story, arguably the company’s most fragile and stressful two years, and some of the brightest minds were vocally taking opposing positions on whether we made wise decisions navigating the many obstacles and opportunities that came our way. It felt as if we had hired 90 different consultants and asked for their advice all at the same time.
Suggestions come in rapid fire. Maybe charge the consumers, because we are providing them so much useful data? No, answers the next student, we want to always keep the site free for consumers, but charge the brokers and landlords for giving them business. Yet another student believes the situation is geography dependent, where consumers should pay in a tight housing market while landlords pay in areas with higher vacancy rates. Others want to make the site free for both sides, making money instead on selling ads, offering ancillary services such as credit checks and tenant screening, or selling the data to banks and hedge funds. Inevitably, the discussion converges to cracking the classic chicken and egg problem. Can we scrape data to bootstrap the supply side and attract enough buyers, or will we run into technical or legal issues? Will we ever reach critical mass if we’re missing even the last 5% of the inventory?
The first hour blazes by without a dull moment. The professor takes a final poll, asking students to vote on the half a dozen monetization proposals. After finishing the tally, he announces, “Let’s hear from the founders themselves! Here’s what they actually did!”
We quickly summarize how we solved all of the immediate problems mentioned in the case and give a brief snapshot of what the company is doing today. Then, we take on a rapid barrage of questions from students until the professor announces we are out of time. That doesn’t stop a handful of truly engaged students from rushing down to the front of class to continue the conversation after class is officially dismissed (this practice is apparently called “pit-diving” and doesn’t earn the students any participation credit).
Overall, the experience was amazing and we’ve already notified the course professor that we’d love to be back should they teach our case in future years. There are a few takeaways that stand out from my short stint as a business school observer:
1) Hearing something you already know, articulated from a different vantage point, can be just as valuable as hearing it for the first time. There is a benefit to concisely formalizing concepts that you already know. You’ll have an easier time processing the topic in your head and communicating your thoughts to others.
2) Students are increasingly more interested and knowledgeable about tech startups. My guess is this is a result of a combination of startups being a more popular career option and the MBA admissions criteria shifting in favor of those with more technical and quantitative backgrounds.
3) Students are far too concerned about competition from big companies like Google or Zillow. They should be much more scared of the disruptive startup that hasn’t yet entered the spotlight. Even more importantly, the main fear should be defeating themselves with a poorly executed product.
4) Many students believed affiliate programs and ad networks provide good paths to monetization. That may be true for services that attract large quantities of visitors with diverse and general interests. However, our service focuses on a much narrower target set of visitors who are in the early or mid stages of a very specific transaction: finding a new rental apartment. In these cases, I strongly prefer a revenue model that charges the transacting participants who are clearly gaining measurable value from the service.
5) The “Yelp for X” business model is popular. I believe it’s quite hard to create a comprehensive review service when “X” is not food or travel. Specifically, lots of people are happy to relive their dining and vacation experiences by writing about it on Yelp or TripAdvisor. Very few people will happily praise their landlords for collecting rent on time each month and promptly calling the exterminator.
Lee Lin is a data geek from MIT who spent years at quantitative hedge funds cranking out models to explain and predict financial markets. Real estate has always been a big part of Lee’s life. He grew up helping out at his parents’ Jersey Shore motels, became a landlord his first year out of college, analyzed mortgages on a fixed-income trading desk, and acquired a New York real estate license. At cofounder and CEO of RentHop, he combines his nerd talents and real estate knowledge to constantly tweak the secret HopScore. He currently lives near Bryant Park and his favorite restaurant is Cafe Zaiya.
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