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In the long-run, innovation is the only enduring source of competitive advantage. Firms that do things the same way their competitors do will not stay ahead of the pack for long. This is true in every industry, including real estate.
Real estate technology, or PropTech, has come a long way since the early days of online property listings. Today, PropTech drives new efficiencies in virtually every corner of the real estate industry, allowing buyers, sellers, managers and service providers to work more efficiently and intelligently.
As the entire industry embraces change, the first movers will benefit the most. However, “doing things differently” means working with technologies that haven’t yet been widely adopted and working with firms who have not been long in the market. This can be a challenge for companies without experience adopting new technologies or working with start-ups. So how should these firms get started?
In our experience, there is a three-step process companies can follow to make better use of proptech.
1. Engage with the Ecosystem
Most real estate investment executives are not proptech experts, so it is important to supplement the team with people who are. Real estate firms are increasingly creating innovation teams and employing “Chief Innovation Officers” to add the needed expertise to their organizations. These groups can play three important roles.
First, they can build a bridge between the company and the proptech ecosystem by attending technology conferences, networking with venture capitalists and exchanging information with their peers in other firms. Importantly, they can track the progress of the various startups in the space. As venture investors are fond of saying, “lines, not dots” – i.e. you can tell more about the quality of a startup – and potential partner – by observing their progress over time rather than how they present themselves at one particular point in time.
Second, they can help separate the new solutions that are worth leaning into from those that are too early-stage or too risky from any perspective. Innovation teams are better suited than business teams to assess whether a particular vendor is using scalable technology, has put in place appropriate information security measures, and so on.
Third, they can help business teams effectively engage with startups by designing effective pilot projects, which brings us to step two.
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To mitigate the risks inherent in working with early stage companies and new solutions, it’s often a good idea to begin any engagement with a pilot to prove the effectiveness of the solution and the reliability of the team behind it.
Pilots often fail and these failures should be both expected and accepted as part of the cost of true innovation. However there are ways to increase the chance that a pilot will be successful.
First, focus on existing capabilities. When you decide to work with a new technology, the decision is often based on current and future functionality (i.e. the vendor’s roadmap). However, the pilot should be focused only on functionality that is already available. Making a pilot contingent on development is extremely risky because pilots are usually time-bound (as they should be) and software development timeframes are notoriously difficult to predict.
Second, set realistic expectations across the firm. To get a pilot project approved, the team proposing the pilot needs to get others in the business excited, but this can backfire if not done carefully. Excitement should be tempered with realistic near-term goals and a clear distinction between the benefits the business will receive now and in the future.
Third, stack up quick wins. Success breeds confidence and goodwill and those in turn breed more success. So, rather than design a six month pilot with all the validation coming at the end of the project, ensure your pilot has interim goals, ideally coming as early as a few weeks into the project. These early victories will help build trust on both sides of the customer-vendor relationship. When hiccups arise later in the project – as they inevitably will – this reservoir of trust can help keep the project from falling off the rails.
3. Commit to the Journey
The end of the pilot is only the start of the journey when working with new technologies. Ensuring that your business gains the long-term benefits you seek requires a sustained commitment to continuous improvement.
At this point it’s essential that the innovation team hand ownership of the solution and project to the people in the business who are responsible for the outcomes the solution is meant to deliver. Often, once a solution has been implemented, most of the incremental values come from changes in business processes. These changes must be driven by business leaders.
Unless everyone from senior leadership down to individual contributors see technology as an essential part of how they do their jobs – and how they win in the market – even successful pilots can eventually result in solutions that fail to be adopted and used. In organizations that continually succeed at innovation, we see technology adoption and improvement goals included in MBOs and factored into bonus calculations to ensure teams are incentivized to not only perform at their jobs but also continually improve how they do their jobs.
At the end of the day, it comes down to a combination of technology, people, business objectives and an alignment of incentives across the organization to spur innovation.
In PropTech, as in many other areas of innovation, nothing ventured, nothing gained. But a structured approach helps mitigate risks and deliver meaningful change to a business.
Of course, there will always be challenges and setbacks in innovation projects. Sometimes, vendors may seem promising but fail to meet risk standards. At other times, pilots may need to be rethought and rescoped so that they result in valid learnings and conclusions. And above all, changing the way people work requires a thoughtful rollout strategy and careful planning.
The benefits, however, are worth it. This is an especially favorable moment to work with PropTech companies. New providers typically make significant efforts to listen to and partner with their customers. Working with them can be an opportunity to influence product design and even participate in upside risks and rewards.
There is a bigger picture to consider as well. The world of commercial real estate is facing real pressures to change. Especially in this environment, innovation can be the key to ensuring that your organization not only survives these changes, but thrives.