In the beginning of 2013 my digital marketing agency was looking to help our property management client come up with ways for them (and us) to provide more value to their residents.
It was a long night at the office with my wife brainstorming on my whiteboard. We came up with a concept to deliver apartment community news to residents while providing special offers to nearby stores and restaurants. I gravitated to that concept and began doing research.
There weren’t any actual competitors. I found that a couple of apartment complexes were doing this themselves, but seemingly no property management company had anything organized. Surprisingly, given my digital background, this whole idea was completely offline. We would be printing the news and coupons on paper and having a delivery service go door to door at complexes.
The revenue model was centered around selling ad spaces to local businesses around the community who wanted to provide a special offer to residents. We would not charge the property management company, in fact we offered a revenue share with them.
1 – Understand EVERYTHING That Needs to Be Validated
So, in my mind we needed to validate two markets. We needed to confirm that this is something property management companies would be interested in supplying to their residents. The other market would be that local businesses would be interested in purchasing ad spaces within the newsletter.
I’m not a fan of two-sided business models. Meaning, I have to sell two different sets of people in order for the business to succeed. eBay would be an example in the consumer space, where you need both a seller and a buyer.
This particular model, come to find out, actually had THREE sides that needed validation. Can anyone tell what else needed to be validated?
Well, this third thing went overlooked and it ended up shutting down the business. More on what this third reason was later…
Out of the gate, we had a top 10 property management company in the country sign on and let us work with 30 or so of their local properties. We put the addresses into our custom built system and it used Google’s API to pull in all of the surrounding businesses. We then began selling to those local businesses who were nearby.
After some massaging, building out marketing automation in our system, and a handful of other tweaks we found ourselves generating 2 to 4 sales per day.
2 – Don’t Worry About Scalability Too Early
We were seemingly off to the races.
Projections were beginning to look insanely good. We had a few sales people, and brought on an awesome ad designer. The top 10 property management company ended up wanting to invest in us.
We needed to think about scalability. How could we remove the printing costs? How were we going to get reliable delivery setup in every city when we took this national?
So we started looking forward and already had a plan to take this to a mobile app and we would print off newsletters telling residents to download the app. We wireframed it all out and spent countless hours thinking about scaling the business.
We were obviously way too early to be thinking about scaling this. One of the best stories I’ve heard is how Zappos got started. Their CEO actually went to local mom and pop shoe stores, took pictures of products and then posted them online. When orders came in, he would go buy them and ship them himself! Talk about not being scalable. That business was eventually sold to Amazon for $1.2 billion dollars.
3 – Talk with Potential Customers Before Starting
All things need to be validated.
Yes, we got the two things validated that we were concerned with.
1 – We had a top property management company onboard with aspirations of rolling this out nationwide as quickly as possible.
2 – We had local businesses signing up every day. As I mentioned earlier, this tricky little business model had a third market that needed validated.
The third thing we needed to know was, “Would residents use the special offers at local businesses?”
In our case, we didn’t talk to residents to see if this was actually something they even wanted. We had assumed that everyone wanted to use discounts and special offers. We didn’t educate them on why this newsletter was put together or how they could get the most out of it.
This ended up killing the business because businesses were only sticking around for a few months at most. This meant we were churning through businesses, and there are only so many of them within a few mile radius of the apartment communities. Eventually we would run out of businesses to sell to.
We needed customers to be onboard closer to 7 months on average to cover costs and turn a scalable profit. That could change by upping the price, but it wouldn’t replace the fact that the local businesses weren’t getting customers.
Not Everything Was a Total Loss
We ended up building out a very robust backend that managed our entire lead generation, cold calling, graphic design, marketing automation, and printing processes.
It recorded calls our sales people made, automatically billed businesses when we sent the newsletters to print, pulled in all leads around the apartment complexes, sent ad proofs to customers, and a lot more. This, itself, may become a product we decide to license in the future (with tweaks to make it more universal of course).
In addition to the system that was built, I personally learned a lot of things about cold calling, how to hire sales people (both salary and commission only), and numerous other things I’ll be able to carry with me in future endeavors.
The business actually broke even and it was a tremendous learning opportunity. I think the most important thing is understanding what your revenue is dependent on and then working through all of the things that impact that revenue to determine what needs to be validated.