Last weekend, my husband asked my thoughts on whether to invest in Rivian. They’re an up-and-coming automaker in the U.S. electric car market. He was wondering—rightfully so—when Tesla would have an all-electric competitor.
To his chagrin, I don’t know much about the electric vehicles. My sturdy Subaru is still going strong, and I haven’t needed to think about a new car. But thanks to my dear friend, Wikipedia, I learned all about Rivian. While they are still the David to Tesla’s Goliath, they’ve been slowly but surely gaining steam. Rivian currently loses $40K per vehicle sold, but that’s significantly less than the $160K loss just over a year ago. Yet they’re no match for Tesla’s $7K profit per car. That said, they increased their margin by $120K in one year. Tesla, watch out.
This got me thinking about Tesla’s rise. It wasn’t that long ago that Tesla was the new kid on the block. A David to the Goliath of incumbent automakers. Through grit and proper aim, Tesla prevailed… only to have a target on their back and Rivian nipping at their heels.
Which brings me to the subject of this week’s post: competition.
The Underdog
We all love the David and Goliath story. Who doesn’t enjoy rooting for the underdog?!
Sidebar: The term “underdog” comes from the late 19th century and refers to a dog that was defeated in a fight. It was popularized with the 1960s Underdog cartoon.
Not too long ago, one of my colleagues at a CRE tech startup, a David, asked whether I thought it was possible to unseat their Goliath. My response is below, redacted for anonymity.
“Industry giants have been falling for hundreds of years. Kodak is the typical b-school one, and there's a ton more. Typically, it's because a new entrant took advantage of a huge growth opportunity that the incumbent ignored. There are too many smart people and too much money going into proptech/CRE tech for them *not* to be upset eventually.”
My colleague pondered for a bit, and then wrote me back the following.
“There is a rule of thumb where to change software it needs to be 10x better. Do you think this would apply?”
They had an excellent point and question. Can you make the tool 10x better, or do you need to identify a huge growth opportunity to disrupt a leader? For the record, I wasn’t quite right about Kodak. They identified the opportunity, but they didn’t solve the problem in the right way. Let’s talk about that example.
The lessons from Kodak are subtle. Companies often see the disruptive forces affecting their industry. They frequently divert sufficient resources to participate in emerging markets. Their failure is usually an inability to truly embrace the new business models the disruptive change opens up. Kodak created a digital camera, invested in the technology, and even understood that photos would be shared online. Where they failed was in realizing that online photo sharing was the new business, not just a way to expand the printing business.
Both my colleague and I were right; one of either method is required for disruption. So either you redefine the problem and take advantage of the right opportunity OR your tech is 10x better (or both, if you’re lucky).
The 10x better method is summarized well by Peter Thiel.
“As a good rule of thumb, proprietary technology must be at least 10 times better than its closest substitute in some important dimension to lead to a real monopolistic advantage. Anything less than an order of magnitude better will probably be perceived as a marginal improvement and will be hard to sell, especially in an already crowded market.”
There are many Goliaths and hundreds if not thousands of Davids in the CRE and multifamily tech space. Check out any number of market maps to see what I mean. On the property management software front, only a handful of PMSs dominate. On most data fronts, CoStar rules. But in certain areas like commercial lease generation and automation, it’s the wild wild west with loads of competition. It’s not easy becoming a Goliath, and it’s even harder to stay in power.
How To Keep Your Goliath Status
No one talks about what happens after David wins. Not to mention the fact that he is the new Goliath.
If you’re at the top, you have a target on your back. I wrote about this here. Tldr; I was on a super successful academic team who thought we were hot shit because we won the state championship. I learned the hard way that you can’t rest on your laurels forever. We went from being a phenom to getting second. Aka silver. Aka the first loser. Here’s an excerpt.
“What I learned from that experience is this: no matter how good you may think you are, there are so many other smart, innovative people out there trying to find a way to be better than you. Yes, we should all be intrinsically motivated and aim to beat our best. But that doesn’t work for everyone. For those people, you need to know that YOUR best will not always be THE best. Someone, someday, somewhere will come along and unseat you. It may happen after your career is long over, but it will happen. With that knowledge of the target on our backs, we must work harder every day, every minute.”
You may know how to win as a scrappy up and comer, but how do you maintain that success against new incumbents?
I’ve heard of firms creating innovation committees to agree on what new thing (usually tech) to pursue. Heck, I led one at a real estate firm myself. But the more I’ve learned and seen truly innovative teams, the more I’ve realized that telling people to be innovative rarely makes them so.
You can’t mandate innovation. The best you can do is create spaces where it might occur. True innovation comes from naysayers, not politicking consensus or asking for permission. It’s a culture that you either cultivate, or you don’t. You praise trying something new even if it fails, or you dismiss it as a bad idea because of the first outcome. You acquire and integrate innovative new solutions, or you view them as unimportant competitors. Those who empower their teams to challenge their own status quo will ultimately unseat themselves.
As another way to think about maintaining success against incumbents, Charlie Munger used to say, “Invert, always invert.” In other words, let’s talk about how you will most certainly lose your spot on the leaderboard.
If you…
Ignore new tech,
Don’t choose wisely about how to apply new tech, or
Fail to cultivate innovation internally
You will most likely be hit in the head with a rock and tumble dramatically to your knees, falling face first with your nose in the sand.
Whether you’re a real estate or tech firm fighting to maintain your spot or unseat another’s, remember that you will always have a target on your back and newcomers nipping at your heels.
Jen’s Reading Corner
Lead and Disrupt offers practical ways for large organizations to maintain innovation without mandating it. I read it in my private equity real estate days, and it equally applies to real estate and real estate tech.
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