Smart Buildings

Are We Crossing the PropTech Chasm? Geoffrey Moore Interview

“In the past, most of the technology disruption was actually happening inside the tech sector itself —Microsoft would disrupt IBM and Google would disrupt Yahoo, or whatever— but what's happened in the last 15 years, is that tech has begun disrupting other industries,” explained best-selling author Geoffrey Moore during a Memoori podcast last week. “The first place was probably traditional media when Facebook emerged with social media, then we saw it with streaming entertainment, online retail, and FinTech in banking, for example. Now we're seeing it in hospitality, transportation, and buildings. So, I think that the urgency to react to tech and the pervasiveness of the tech are the two big trends I see in real estate, and other industries, today.” Geoffrey Moore is an organizational theorist, management consultant, and author, known for his best-selling books Crossing the Chasm & Zone to Win, which discuss the challenges faced by start-ups and established companies, respectively, in the digital age. In the smart […]

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“In the past, most of the technology disruption was actually happening inside the tech sector itself —Microsoft would disrupt IBM and Google would disrupt Yahoo, or whatever— but what's happened in the last 15 years, is that tech has begun disrupting other industries,” explained best-selling author Geoffrey Moore during a Memoori podcast last week. “The first place was probably traditional media when Facebook emerged with social media, then we saw it with streaming entertainment, online retail, and FinTech in banking, for example. Now we're seeing it in hospitality, transportation, and buildings. So, I think that the urgency to react to tech and the pervasiveness of the tech are the two big trends I see in real estate, and other industries, today.

Geoffrey Moore is an organizational theorist, management consultant, and author, known for his best-selling books Crossing the Chasm & Zone to Win, which discuss the challenges faced by start-ups and established companies, respectively, in the digital age. In the smart buildings industry, Moore is currently associated with Wildcat Technology Ventures who have invested in Remarkably, a marketing intelligence company focused on smart multi-tenant residential buildings. In our podcast last week, Moore applied his broadly tested business theories to the specific challenges of the proptech space in 2022 and beyond.

“One thing I learned about proptech that surprised me is that ownership is federated, meaning property managers, property owners, and property users are often in different ecosystems. So, their ability to respond quickly is limited, because you've got this rather loosely federated ecosystem that is not designed to ‘go to war’ as it were,” Moore said. “The first question in such a market is; who owns the problem? And the answer is a three-headed beast with an economic owner who's paying for the problem, a process manager who's trying to control the problem, and a technical person asking ‘what exactly is it that you want me to do?’ Getting those three clearly in view is a big challenge for proptech vendors and startups.”

Our fragmented buildings industry appears stuck between a tech and a traditional place as proactive silicon valley business models clash with passive traditional real estate ownership, entrenched construction methods, and an increasingly dynamic user landscape. For startups, that means that they are entering a new world alongside giants, each vying for their share of this emerging market. While it is hard to compete with the resources of established players, it also pays to be agile in a new and rapidly changing space, giving startups some advantages in the still-maturing proptech market. Moore says those young firms must find their niche.

“As a startup, you never really have the complete solution, you may have a thing that changes the game, but you still require the other players to come in. You also have no ecosystem as a startup, nobody knows who you are, and nobody necessarily wants to work with you,” Moore points out. “Orchestrating the ecosystem, bringing it together at the point of attack to attack with compelling reasons for this target customer to buy the product is the whole discipline of ‘Crossing the Chasm’ and of niche or use case marketing. Startups often have this very horizontal technology that’s going to change the entire universe, which is a great vision, but they have to get the fire started and they have to start it somewhere.

“The truth is, if you're in disruptive waters, you want to be in a small boat, not a big boat. In a small boat, you might be able to dodge around and get to your destination. So I do think for startups, there will be enough pragmatism pain [to drive them] but I think what the startup has to be thoughtful about is to bite off the right sized chunk of problem to tackle in any given 123 year period because the industry is going to be in disarray,” Moore continued. “I don’t think trying to go global with some massively quick solutions is going to work. I see this as a 20-year problem with more specialized solutions working for the rest of this decade and more global solutions, probably coming in the next one.”

For established enterprises in the proptech and broader smart building space, the situation is very different. Plagued by the fear of the innovator’s dilemma, corporations have the funding but they also have established profitable products ensuring they always have one foot in the past. Worried they’ll miss the next wave of innovation, established companies may overspend in the wrong places, or fearful of that, they may underfund and stop projects too early, others will be paralyzed by indecision and miss the wave altogether. For them, Moore suggests they channel their inner venture capitalist in a zone to drive innovation the right way.

“Established enterprises worry a lot about not being innovative enough but that's not really the problem. The problem is they're innovative, but then they kill it as it starts to scale because it's making more and more demands on a limited budget and losing money. That's how many established enterprises go down, like what happened to Kodak and Polaroid, or Businessweek. All these companies just couldn't get their head around it,” states Moore. “The venture capital model is the right model for innovation, but most large corporations aren't venture capitalists. So I think it's important for them to create a ‘zone’ they manage the way a venture capitalist would.”

Large corporations can also obtain the innovation they desire by acquiring smaller, younger, and more innovative companies in their space, then give them the resources and freedom required to innovate and grow. The problem is that the parent firm will want to bring that asset into its established support ecosystem eventually, which conflicts with the freedom those acquisitions need to keep innovating. Acquisitions can be very successful, of course, but in disruptive industries like proptech, the balance between freedom and integration can be more difficult to maintain.

“The classic acquisition model from 20 or 30 years ago was actually a consolidation model. In a mature industry such as automotive, you may have 22 car companies but only really need seven. So there are acquisitions and you basically just smash them together and it works with synergy because the ecosystems are the same, you're just consolidating an ecosystem,” says Moore. “The problem with disruptive technology is it is two ecosystems. The new ecosystem could even be cannibalistic to the old ecosystem. Look at the automobile industry again, the traditional dealership is becoming part of the old model and is totally threatened by the digital models. So how do you make that work? There's a similar problem with the architects and the engineers, and the building maintenance people, in a commercial building.”

Both startups and established companies in the smart buildings space are held back by an industry fragmented on chronological lines, with the traditional real estate mindset clashing with modern business models, but also on technological lines as each player takes their own approach to the problem. Furthermore, commercial real estate has found itself in the eye of the COVID storm, as lockdowns prompted the rise of remote work and leave the future uncertain for a very significant portion of the world’s commercial building floor space. Commercial real estate has long been seen as a very solid return on investment, attracting pension funds and other cautious investors, this has now become a barrier to disruptive innovation with no clear solution.

“I don't think the industry can do anything to change it, but I think the world is changing. Investing in shopping malls used to be quite a lucrative thing to do but shopping malls don't look so good anymore. And now, all of a sudden, we are considering the future of office buildings in the face of remote work. It will come back but not the same way, and the way we use space and think about space is going to be very different,” Moore concluded…

“I think there's going to be a lot of forcing functions on the industry that are going to say, this industry will not create the kind of returns you used to get. So, if you want those returns, maybe you should look at bonds because this is not what's going to be going on in our industry for the next 10 to 15 years, there's going to be a revolution, some people are going to make a lot of money from it, but I don't think it's going to be the traditional players.”

https://youtu.be/F0puPCRi_vA

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