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[Podcast] Entrepreneur Gold with Zac Maurais on the Profitable Property Management Podcast

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In episode 150 of the Profitable Property Management podcast, host Jordan Muela interviews Zac Maurais, co-founder and president of Sunroom.

Maurais shares his entrepreneurial journey, starting with how he and his co-founder, Ben Doherty, built Favor, an on-demand food delivery startup, from their friend's parents' basement to selling it to HEB five years ago. He discusses how they leveraged first-mover advantage to educate the market and build a two-sided marketplace, the importance of density, and how a strategic exit was the right path for Favor.

Moving on to his current venture, Maurais talks about Sunroom simplifies the rental process for both renters and property managers. He emphasizes the importance of middle-of-funnel optimization and solving edge cases to help renters qualify for the right properties. Maurais also discusses the macro trends in the rental market and how Sunroom works with third-party property managers to provide a better rental experience for everyone involved.

In addition, the podcast dives into the how Sunroom aims to ease the operational burden of leasing for property managers. They utilize a mix of automation and humans-in-the-loop to manage leasing, get properties to market, and solve fraud in applications by connecting directly with prospective renters' bank accounts for bank-approved verification of income. The discussion also touches on proptech trends, including business intelligence, and the future of the property management industry in light of the current economic climate.

Finally, the podcast concludes with a discussion on people management, including the use of Google's OKRs and agile software methodology.

Listen to explore the world of property management and hear from experienced entrepreneur, Zac Maurais, who provides valuable insights and practical tips for success in the industry.

Episode 150: Entrepreneur Gold w/ Zac Maurais on the Profitable Property Manager Podcast transcript

Z: As a technical founder, when I started, I wasn't good at managing people at all. It's messy, right? You've got to figure out how to get a lot from people but also have them like you and like the company and be passionate about what they're working on.

J: Welcome to another episode of the Profitable Property Management podcast. I'm your host, Jordan Muela, and today I am with Zac Maurais from Sunroom. Zac, thanks for coming on.

Z: Thanks for having me.

J:  Right, Zac. I am excited to hear about your background. You have an interesting career as an entrepreneur. You've already done some things, even in the midst of doing some new stuff. You're in startup mode, but you've also already done startup mode. Let's talk about your background, specifically. Let's talk about the last company that you went through the full founding and exit life cycle on. What was that company, and tell me about that story?

Z: Sure. So, I am the co-founder of an on-demand food delivery startup called Favor. For you Texas listeners, probably some of you have heard about it. It is a way to click a button on your phone and get anything you want brought to you in 45 minutes or less. You'd be getting Torchy's Tacos or maybe something from the grocery store. That company I had started coming right out of college with one of my best buddies. And, like you said, we had started it. We grew it up to having about 50,000 delivery drivers we called Favor Runners. And then we had sold it to a grocery chain called HEB about five years ago.

J: Well, that was a very succinct explanation of a pretty significant journey. I'd love to hear some more details about it. Where were you going to school? Were you in any kind of an entrepreneurial incubator program? What was the degree? How is it that you did this kind of entrepreneurial cliché thing of drive out of college, go start a business? How did that actually come to be?

Z: Yeah, you bet. So, at the time when we had the idea for it, my co-founder Ben was delivering pizzas, and he just loved delivering pizzas. And him being an engineer, he was driving around thinking about the return trip and how there's probably a place closer than the place that he just came from. And it was with that thought that he and I set up shop in his parents' basement. We got a "Coding for Dummies" book and we cut it down into sections, and we said, "You know, Ben, you take back-end, Zach, you take front-end," and we just kind of worked on it from ground zero like that.

J: So, you're both technical?

Z: Both technical, both very product-minded founders, so very much in the weeds on what it does and how it does it. And we believe that building great products is how you build great companies.

J: Born out of dogfooding, you understand the use case firsthand. I love that. But the problem itself actually is a fairly deep problem. Think about other applications, logistics, think about UPS, some of the challenges that they've had, some of the stories that you hear about the programmatic solutions that they came up with, and the very explicit challenge that they made to drivers to say, "Can you beat this routing, pathing problem?" Tell me a little bit more about the essence of the problem abstracted from the immediate use case.

Z: Yeah, you bet. So, you know, I think on-demand food delivery, it's been a popular category and there's a lot of other companies now. You mentioned FedEx, Amazon, everyone was trying to solve this problem of how do you get something from someplace local to some the end user cheaply and quickly. And a lot of that, you know, maybe there'll be robots or self-driving cars in the future, not a thing anytime soon, right? Right. So, this is about routing efficiently. This is about how do you get a lot of people to do a thing and want to continue to do that thing because in that whole space, one of the big question marks that a lot of venture capitalists had is can you actually get 50,000 people and have them consistently clocking in every week to do these deliveries? And a lot of that came down to how you're going to send them around town and how can you have a smooth onboarding experience for them and how do you go about even assigning them orders or figuring out the key times to staff.

J: So, you mentioned that there's, there was this question mark at the time. Enough has transpired in that space that there is a lot that is no longer a question mark. What were the analogs that you were pulling from what had already been done in that space that was a reference point?

Z: Well, for us at the time, we had first-mover advantage, and so there had been kind of no point of reference started no doordash no Postmates, no Uber Eats and um so we were the first one to launch in Texas but a little bit over a decade ago when we, you know, first got going on this. Um, the I think the probably the closest thing that had been going was a company called TaskRabbit, which was based up in Boston. And they were kind of the first gig economy businesses, so they were figuring out how to trade time for money and get people to do odd jobs around the house or other things. And so, it had some parallels to that just in the sense of you've got a new mobile workforce working behind a phone doing jobs for you, and that kind of thought was brand new, um, and something that we were able to kind of ride the coattails of all this pent-up demand for people not wanting to have a traditional job, be their own boss, and work when they want.

J: Well, it is telling that you use TaskRabbit as an analogy because it's definitely not as direct as it could be. However, broadly, gig economy early beginnings, later acquired by Ikea, they went in a different direction, fairly successful. I'm actually an end-user, and it's pretty great. It is interesting with that marketplace that it's frequently used as lead gen by the gig workers that don't necessarily stay through it all the time. So, there's some level of fit, but not enough to necessarily lock them all the way. That's a side point. Back to first-mover advantage, a fascinating idea and concept because, on the one hand, the benefits are obvious, but the benefits are not guaranteed. Category domination part of the headwinds, part of the tax per se, the friction is that you're educating the market. Educating the market is such an interesting place to be in an SMB context. It makes sense because that's talking about providing a holistic solution, speaking to the category, painting a bigger picture than just your service so it's not a commodity. But in another context, you're talking about a lot of wasted energy just to get belief to what later somebody following after you can just take for granted and doesn't have to fight

Z: "Oh yeah, so interesting. A lot of stuff to unpack there. I think one of the most interesting things for us, though, was for the most part, this thought of 'get anything you want delivered at the top of a button' was a relatively simple thought to get. More so than probably more SMB B2B types of concepts where you have to kind of really understand these deep problems. This, I think, from the demand side of the marketplace, pure product market fit, you didn't have to do as much awareness. It was kind of just about riding the coattails of the brands that people recognized. You know, people already get Torchy's Tacos or Chick-fil-A, and if you could have an engagement with that or put that out there, people would generally understand it. I think the bigger level of education that happened had to happen in that marketplace was on the supply side. You know, teaching people that this is a new way to make money and probably a good thing for you to try."

J: "So it's interesting you mentioned that. What comes to mind for me is the challenges associated with two-sided marketplaces, which are notoriously challenging. I had an early stint with that early on in my career building a company called Management Property doing lead generation. Part of the fascination there was you can have a lot of inventory on both sides and make no money, especially when it's localized in an e-commerce setting. Somebody in Canada can buy something in Florida, and so the inventory challenges are not as significant when you need to have a buyer and a seller in a single given zip code. You have to have a lot of penetration, a lot of depth before you're actually making any money. And you're compounding on top of that logistics on top. So tell me, what was your evolving awareness of what you were even doing in business as you were working through that opportunity?"

Z: "Yeah, so one of the things that stuck out when you were just explaining is that density is really important, you know, for us. We have this thought of don't boil the ocean, right? Don't be all things to all people. And we would even look at cities and not just say we want to be the best in a place like Austin, Texas, yeah. You know, what's that one ZIP code that has the certain characteristics of decently high consumer spend, enough population, the right age demographic, and then focus all of the marketing budget on winning that narrowly defined group. And then it will kind of boil over to the other places. But we found that worked both in the context of marketing, but also in the context of being able to provide a higher quality of service. Because just in the context of that use case, if you could have a lot of drivers in one ZIP code, you're going to have faster delivery times and thus be able to get a lot of more organic marketing just because you provided a really great service. I think those same concepts apply to other types of businesses too, you know, not as narrowly defined as logistics, but certainly for logistics, I was a big part of it."

J: I'm fascinated by winner take all markets, zero-sum, where things like aggregation theory are really in full effect. Those are use cases where venture capital makes more sense because it really is an arms race to figure out who will be the one person, in the mind of a consumer, that is the place to go. You have limited examples where there's duality. I still use Uber and Lyft; that's about as much as I could stomach. If there were four other competitors, you know, maybe there are, frankly. Maybe there are competitors to bring Lyft; don't know, don't care. Two is enough. I'm hassled with two, and I'm in a hurry. I'm just picking one. There's not a lot of mindspace for consumers in any given category. How did you think about the need for funding? Was funding obvious from day one? Was that always the plan? Did you feel compelled to do that because it felt like zero-sum?

Z: Yeah, I think that was one of those markets where it was kind of winner take all, and we had raised a good amount of money, around 35 million dollars, but even in context of the space, it wasn't a lot, relatively up in the bucket, right? And that's why we could only win Texas. If we had raised a couple hundred million, maybe we could have thrown in California or New York or Florida or some of these other major states. But knowing that we have what we had, and so much money had been injected so quickly, weird subsidies going on, all sorts of weird stuff. Like, you know, if a lot of the game was who could get the best venture capitalist, so we're gonna have the deepest pockets, to know that in some of these really, really big markets, it was a game of holding your breath and subsidizing the marketplace. And for us, without only the money we had, that wasn't a game we could play. So our go-to-market was, you know, just win the customers we could and focus on less places and just do it better there.

J: What was the inflection point when it became obvious to you that a strategic exit was the right path, rather than just trying to go to the mattresses long term?

Z: So what was unique about the time for us was I thought that there was just going to be consolidation in the space from those kinds of third place, fourth place, fifth place, regionalized delivery players. But that's not how it played out. What ended up happening was we were in a pilot with HEB, and we were working on the last mile fulfillment for them. So, you know, think they had pickers in the store getting all the food and then bringing it out to the curbside. And then we would come pick it up from curbside and bring it to the person's house. And because of that relationship, they were really eyeing the delivery space and how it would be important for their business. And Jeff Bezos had come after Whole Foods, decided to do a deal, and that's also a Texas-based brand. And HEB, being really big in Texas, I think their first fear was like, "Whoa, you've got tech gurus here that are going to go head to head with them and probably reshape consumers' preferences." You know, I know that I use services that bring me my groceries every weekend because I have such a limited amount of time. I just want to go on the app and click a couple buttons and have it show up at my house. So, they saw HEB saw that, uh, that Whole Foods and Amazon was going to be a thing and so they got thinking to themselves, we need someone who can figure out that last mile for us and also someone that really knows how to do digital, how to figure out tech, and how to build out that whole engineering and product team which was something that we had done at that point.

J: That had to be an "oh" moment for HEB, saying Bezos coming in and swooping up Whole Foods. You know, what's he gonna do? Is he going to like lower prices dramatically? Yeah, I mean this is scary. This is not a thick margin business, right? Groceries, in general, right, it's narrow. So they approach you, and where is your head at when they come in? Tell me about navigating that deal. How long did it take? Where were you guys at with that?

Z: So, the interesting thing for us at that time was we had just gone on an all-out Blitz growth mode. So, from zero revenue, I think we had to like 1 million and six, then 18, then 35, and profitable. And so for us, you know, we were in a good position because since we had become profitable, we knew that we didn't have to get a deal done. It would have been nice if we did and stars aligned, but it put us into a better position because of that.

J: You were able to have that runway where there wasn't a gun to your head.

Z: Exactly.

J: Well, if you need the money, you can't have the money, right? That's the old adage, right? So, you're in that position where you have some paradoxes too. If you need it, you probably can't get it. So, how did you think about them as an acquirer? The right acquirer is determinative of a lot of things, the quality of the exit, whether or not there's lock-in, the legacy of what happens to your app. How did you think about identifying who the right buyer was?

Z: So, HEB is the biggest employer in Texas, and they've been around for a century, so they're really not going anywhere. And they have an awesome reputation for the way that they treat their employees in the community or like all the give-back things. And so, I was so thrilled that that was the acquirer for us, and I think it makes me really proud of sending our child off to college, and again, you know, it's going to live around too, um, by being owned by such a great institution. And it's been really cool that they haven't just kind of turned it into the HEB app. You know, Favor still exists as a standalone product to be able to get anything you want delivered, and that's kind of, you know, cool almost from an ego perspective, but something to be able to see your company that you started still be in existence and something that's been growing a ton. You know, I think all this stuff that I was just explaining happened right before all the COVID aspects, and as you know, for that, people just weren't going out, so they're at their house, you know, and really important to be able to get groceries and food brought to you because, you know, just completely changed the way that we lived for a period of time. And all this happened right before that, so it continued to grow a ton over the last couple of years.

J: I want to hear about your next and current venture, but before we do that, I want to park on the psychology of having a successful exit and taking another at-bat. When I talked to most founders that are still in it, there's a real lack of self-awareness, as I would put it. Even when I ask that question and have a conversation about this topic, I sense the difficulty of getting outside your own head to think about how it would be different to have an exit and then to go back in the game not to take an exit and to go live on a beach. We can all imagine what that would be like, but to go back back in the game. So you're young, you're still in it, how has having that under your belt changed the way that you relate to risk and opportunity globally going forward?

Z: Yeah, great question. Um, you know, I don't think I'm the type that would just want to be on a beach for a little while, you know? I'm a tinkerer, and the guy that I did the next company with, Sunroom, we had started Favor together. And so, you know, work is fun, you know? It feels like you're able to make strides every day. And, you know, the whole thought of being able to be a maker of things and go from, you know, just something on a whiteboard to a screen, for me, it's really rewarding. Um, having one under my belt, it was a little bit easier to be able to get the resources that we need to get the team developed to be able to execute at the highest level and then also be able to, you know, want to have, uh, more of the opportunity to play the long game. You know, I don't have to have a quick sale because I'm itching for, you know, a small payday. It's, you know, you could swing bigger, you can try to do something more meaningful because you don't have that pent-up pressure.

J: So you do sense that it has adjusted your risk profile and your risk tolerances?

Z: Yeah, and, you know, we did really well with Favor, but we, to your point, we weren't the top one or top two in the category. And I think that there's probably a strong chance that we could build a kind of category winner over the next little while with this next company, and that's kind of the bit that we're making.

J: So you mentioned that some founders may get out early for the need for liquidity. Talk to me a little bit about your thoughts on the secondary market and the strength of secondary markets for founders in order to provide stamina. Have you seen much of that, and do you have thoughts around what would need to be true for folks to have an alternative that allows them to have some upside along the way as opposed to the whole thing being pent up till the end?

Z: Sometimes founders can sell in between significant fundraising rounds, like a Series B, and have some liquidity. But I think a lot of the investors that are along the way, they're like, hey, look, if I'm buying your stock and you're selling it, that's not a good signaling, um, type of thing, uh, at least for the ones that I've seen. They want you to be all in and really believe in the stock that you're holding, so there's no-

J: I want the gun to your head.

Z: Right, yeah, and you're right. It is kind of like, uh, you know, all or nothing type of thing for a lot of these high-growth companies that are venture-backed.

J: So let's talk about your current jump. It's common to have an EIR at a fund, an Entrepreneur in Residence that is really thesis-driven and is looking for an opportunity for disruption aggregation. I got my start working for a venture-backed HOA company, and it was started by a former EIR that was looking at a bunch of different industries. He saw HOA, it looked crusty, fragmented, thought he could jump in, do a roll-up, layer software on top, and it would be great. It didn't quite work out according to the original premise, but that's how that function works. How, um, how did you get back into this opportunity? Was this another dogfooding situation? Did somebody piss you off? Did you have a bad experience, and you thought, like, I could do that better? Did you have a bad experience and you thought like, "I could do that better," or was it more of a strategic mapping and more thesis-driven?

Z: It's a little bit of both. And, you're right, those are two of the great ways to figure out if it's a good entry point. You know, on one hand, you almost have the, "I felt the pain, I know other people feel it too, and it's a big enough pain that you want to solve it for people." And then, on the other side, it's like it's more like you're a professor of things, and you're like, "This is the macro trend that's gonna happen. If I don't do it, someone else is going to do it." And I think inside of the rental market, it was a little bit of both. I mean, the whole time that I was a founder at Favor, I was a renter. 

And here it is, I'm running this big company as an exec, and for one, I don't have much time. For two, you know, I've got a lot tied up in the business, so I just thought it was silly that I couldn't just go tour places on my own. I had to waste my whole weekend. I'm driving off certified funds checks to neighboring towns. I'm having to tap my parents to be guarantors for me. And I just thought that if I could make it more self-service, kind of think what Carvana has done today with cars, but for homes, that could be a big benefit. And then, you know, you talked a little bit about the macro trends. We saw a lot of that type of stuff even a couple of years ago when we started to work on this. We noticed that half of Americans rent today. We saw that people are spending more and more of their money on things like Austin City Limits and big concerts and then tuition. 

And as a result of some of these big trends of having less money, and then a lot of these assets for kind of first-time homebuyers is getting harder and harder and harder to get, there that people are just going to be renting for a long time. And if there's going to be more and more people renting for longer, the kind of the bar of their experience to me is an important thing to solve for. And, you know, I think even so that was the thing that got us going on this journey of wanting to solve leasing, you know, at scale and figure out how to make it a better process. I think over the last couple of years, we've been thinking about how you actually have that self-service leasing happen to as many properties as possible so they can have the highest and broadest impact within that system. And, um, it would have been kind of, uh, grown customer basis in a couple of different segments. 

Property managers being one of the ones that's been kind of emerging over the last year and change has been, there's been a ton of institutional investors that are flooding into the space. And I think it's a big macro trend that's happening, um, that people today, it's usually been, you know, individual mom and pop owners that will have one or two properties. And all of a sudden, you have these funds that are coming in with a couple of hundred million dollars to buy hundreds of homes really, really quickly in a lot of these emerging Sunbelt cities. And so, you know, when we talk about macro trends and skating to where the puck's headed, you know, we see that as one of the kind of plate tectonics that's moving that we're trying to get a get ahead of and figure out how we can kind of be a part of that solution.

J: So what, at its essence, is Sunroom? What is the offering, not for a PM or in a B2B sense, but for the consumer? And talk to me about the consumer experience.

Z: Sure, so renters can browse our app for self-service properties that are easy to tour and then easy to apply to. And we make it a simplified process. You know, I think just riffing around that Carvana thing, I just bought a Tacoma on that, like, a week or two ago. I just saw a lot of parallels for the way that that process went. You know, up front, here's what's going on in the process. You know, being able to text someone if you had a quick question about something and get an immediate response, and then being able to, right on your phone, be able to kind of submit all the docs you need and have that even be a more thorough process, too, even though it's simplified. You know, it's a more thorough process that allows you to connect the things you need to have when you apply, like your bank account or your license plate or your ID, to be able to apply for the property.

J: Now, I've actually toured as a renter using Sunroom. I've been to a couple of tours. There was a person involved, so we're not talking about a touchless model. Correct?

Z: So originally, before COVID, we had a lot of showing agents involved in the process because I think the whole industry was a bit skeptical. But after COVID happened, almost all the homes that we leased now, it's all self-service or self-showing lock systems.

J: Got it. And so how many markets are you guys in right now?

Z: So Texas was the main place we've been operating over the last couple of years.

J: You just love starting things in Texas, huh?

Z: That's right. You know, it's in our backyard. We could dog food in easily. You just go drive over and see what happens. But now that we've been proving the model, we've now leased more properties than anyone else in Austin, and now we're having that same thing happen in other major cities like Dallas and Houston. And over the last, I guess, around five months or so, we've been doing a ton of things to get spun up in new states. So there are at least five or six states that we just got up and going in over the past quarter. So places like Florida, Georgia, Arizona, North Carolina, a lot of the places where there's a lot of interest in getting rental properties.

J: Let's talk about the search experience for consumers. Let's talk about front end, back to the idea of aggregation theory. It's the idea that when inventory is pooled together, eventually there is one winner. What I said before, I don't want to go to Uber, Lyft, or a bunch of apps. I'm going to follow where the best quality product is, and I'll just keep going there, really not considering other options. What's interesting to me about what you're doing is there are search views, lenses, layers that can be added onto existing inventory, and inventory has kind of been solved for, at least as far as it as we're talking about the ILS conversation. That's really not a point of distinction. There are so many different websites you can go to, and so search is it. Searches parameters, view, click pathing, etc. Sunroom is an interesting player in a very, very crowded space in terms of at least the consumer inventory space, but the search is really well done for somebody that's not in your market. I would encourage them to go on the website just to check it out and see what that feels like. Give me some of the background context on how you thought about what you were optimizing for in that search function.

Z: Yeah, so you're right. There's a lot of things that help you find properties top of funnel, right? Think Zillow and the bazillion other ones, 100 plus, literally 100 plus. I mean, and so we don't see ourselves competing in that kind of top of funnel game. Ours is more the middle of funnel when you want to be touring and be able to pack in, you know, five tours back to back to back to back, and then, you know, the application side of it. So when we get listings, we'll actually take them and syndicate them out to all those sites. So for us, you know, it's kind of that search process is a bit more of a commodity in the sense, and we'll have those kind of renter leads that come in from those and then direct them back into our ecosystem once they inquire on certain properties.

J: Well, you're going to know your limits, and I appreciate your identifying mid-funnel, not top of funnel. My experience, what I was saying, is that I think the top of funnel was really strong.

Z: And it is right, like, you know, we're good at design and user experience, and so it is strong. It's just probably not the thing that we're going to be able to win in because it's already been done, you know you're--

J: So you're saying that you are identifying the advantage of what you need to compete is to is both really is top of funnel but really mid-funnel, which most folks drop off when you go mid-funnel, either the qualification criteria that you're asking are interesting to me, the way you back into identifying does somebody want to rent now, do we want to rent sometime in the future, etc. What's behind that? What's the motivation, and how do you think about what you're doing there?

Z: Yeah, so yeah, great point. So around middle of funnel, I think I saw as a renter that I was wasting a lot of time on properties that I had no business even engaging with, ones where my move-in date might not work, ones where my pet situation or credit score or rent-to-income ratio might not work, or ones in which, you know, there's already three applications on and I'm probably not going to get the place because they're running best qualified. So, I thought that we should make, you know, if you're going to spend your whole Saturday touring, you should be touring the right properties, and so we built some things that help people qualify and then have more visibility into things that are somewhat complicated. You know, every property manager, every owner, they have different preferences, even around how long they'll hold the property for. Are they going to hold it for five days? They're going to hold it for two weeks? You know, depending on when my move-out date is and anticipated move-in, that home might not even work for me. So, some of these more complicated things that are edge cases that actually play a meaningful role in people's ability to secure rentals, we're solving for.

J: Now, let's talk about the intersection with third-party residential property management. That's my world, that's my bread and butter, and that's why we got started. You reached out to have some initial conversations as you were trying to better understand the market. What does Sunroom do for and with third-party PMs?

Z: Yeah, so, uh, we are great at just the leasing thing. So we're normally there from vacancy all the way through lease sign, and then we're out of it. And so, we believe that that property management is a whole beast unto itself, and so we didn't want to get involved in that. Instead, we thought, what are some of the things that are challenging for property managers, and how can we ease some of that burden for them? So, you know, when we do leasing for companies that are our property managers or REITs, we will be able to do things tied to getting properties set up, so all the field operations things of getting the assets to market the property, like photos and getting the lockbox secured on the property, and then even back office operations inside of the process of applying and then processing lots of applications and having it be a better system that is more secure and has less fraud. So, from a really simplified perspective, we partner with property managers that are growing and then ease the operational burden of leasing, which is a big part of what they spend their time on today, and we are able to give them that time back to focus on other initiatives.

J: Now, that's an interesting proposition because leasing is such a core competency of the business. Let's say some more startups roll up, we're the startup that takes over maintenance, we take over leasing, we take over inspections, well, what's left? How do you think about navigating that conversation for folks that may be self-conscious or nervous about handing over a core competency of their business?

Z: Yeah, you know, it's a good point. Um, you know, I think that if you were to look at the average property manager, outside of growing their business and working on new owner acquisition, there is maintenance, there's leasing, and then there's basically accounting functions. And while leasing is, uh, is a big aspect of what they do, it's not always the most profitable. You know, like margins are thinner for it, and especially in terms of where the property manager is at in their growth curve, you know, sometimes the amount of headcount that they have makes sense, and then they're trying to grow up and they have to hire another headcount, and then no longer is it profitable. So, the way that we're able to step in for them is it becomes a little bit more elastic, you know, and also be able to, inside a property management, a lot of people are probably taking a breath of catch up coming off the busy summer season. Typically, these property managers have to staff up going in the summer, fall comes around, and then they might have to staff down. So, it's kind of like this game where they're having to always shift things in the business, and so it just, you know, it's pretty challenging. I think if a property manager is trying to optimize their books and show better returns and grow, the more third-party things that they can use for pointed things, the more that they can focus on what's most important and connecting with their investors and helping those investors acquire more properties and kind of grow their book of business.

J: So, tell me more about where what you're opinionated about. If you're taking over that core function, you better be good at it. Where in what ways would me working with you be adopting an opinionated way in which you do the function versus you simply executing my directives on how leasing should be done for my company?

Z: Yeah, good question. So, at this point, we've done a lot of those different aspects. Let me just zoom in on a couple of them that I think are novel. So, one is around the field operations aspect. You have to get the property live, and a lot of times, that involves getting assets about the property and also understanding the condition of the home and the marketability of that home. You know, think the little details around, is the home really show ready, and what's the bathroom look like, and what's the kind of situation with pests, and all the things that the runners are going to be zooming in on when they're going to tour that. First, we're able to capture some of that data, help them run a CMA so it gets priced well out of the gate, and then have the home lease faster than it otherwise would have been if they just kind of put it up or didn't have a really formalized process for those types of things. So, you know, opinionated about how you go about getting a property set up and have that property be set up for success out of the gate.

Another thing, application processing. We've now processed just thousands and thousands and thousands of applications, and one of the things that we've learned over the last couple of years is that there started to be an uptick in fraud. You know what's happened a lot of these income verifications, what part are we talking about?

J: Exactly, income verification is the big piece. Today there's a lot of people that are on the knuckle where they're like, you know, their wages haven't increased as fast as the rents. There's a 3X income to rent requirement a lot of times, and since it's becoming harder for some renters to secure places, they'll try to cheat. They'll upload fake pay stubs or they'll have a friend try to do the verification of income aspect. And we experience finding some of these things firsthand, and so we've been building tech aimed at solving for that. How can you connect directly with the prospective renter's bank account so it's not, you know, a document that might have been manipulated or something, but you have the direct source of that bank-approved data to be able to say, "Hey, this is exactly what they've had deposit over the last couple of months, and therefore they qualify from bank-approved verification of income."

J: Now, fraud does sound like a great use case where you guys come in and use some application of scale, etc. When you think about the volume of transactions that you're dealing with, talk to me about the human side. Because automation and tech are great. You know, I'm a believer. I'm running a company doing the same thing, but there is that human component as well. What, as the business has grown and matured in the solution, what is the shift in the balance look like between tech versus still the people, the first-hand boots on the ground actually doing some of this work?

Z: Yeah, I think you have to find a balance. You know, I'm a big believer in figuring out where you can have the higher-skilled labor be able to touch things that are harder to code and also worry about all the edge cases. So, we have, you know, what we call human-in-the-loop for a lot of these different things, and we'll get eyes on different aspects of it. You can look at data all day to figure out why a home might not be leasing, but even inside of that, it's usually better to have a trained eye who's leased a lot of homes be able to kind of dig in and make their interpretation and and then be able to communicate that to property managers or REITs. so that's one example of when a human is involved even inside application processing you know there's like machine learning things that exist, but a lot of times you just need to have a person look at the dog and recognize is this a pit bull, does this actually adhere to the dog policy, compare a photo of what the renter uploaded versus what that dog actually is, and is this actually that dog yes or no. And so human in the loop gets used in a lot of different aspects of the business still even though there's been a lot of automation and tech already built. 

J: So for a PM that's working with you, where do they pick back up in that process?

Z: So, as soon as the lease has been executed and the move-in instructions are getting handed off, we will introduce the property manager as the point of contact from that point on for any of the utilities, for any of the detailed move-in instructions. We essentially provide a code to the runner so that they can, you know, get in the place on the move-in day and introduce that other party as their new point of contact.

J: So, I'm handing you my qualification criteria, the parameters for the property, etc. Let's talk about the inventory and the qualification criteria. You're going to manage everything in my portfolio. Are there any exceptions? Are you managing a home in the ghetto, on a hill, furnished, non-furnished, or any caveats there?

Z: Yeah, so the only homes that we wouldn't take on are short-term rentals, and then any furnished rentals too, just because it's just too complicated to explain to renters where some home has furniture, other ones don't, or whatever. So, as long as the home is unfurnished, it's a long-term rental, then it's up for grabs. And we also are very myopically focused on single-family residential and then some garden-style apartments that would be up to 50 doors.

J: No on-site manager?

Z: Right, no on-site manager. That's kind of the cut off is where it would make sense for, you know, it's basically scattered site focused.

J: And what about the criteria for qualification?

Z: So, it's all configurable and customizable to whatever the property manager has and is trying to adhere to. We understand that some people are trying to do class A properties, others are doing class C, so they can basically upload what they want to have, and then we can run with that. And our system is very malleable to adhere to whatever they want it to be.

J: What about conforming to municipalities? What's your POV and your feelings on first in, first out? What's, you know, how far you can push a natural and organic optimization versus the risk hedge of just saying, let's take the most conservative position relative to the legislation in our local municipality?

Z: That's a good question, and I think it's probably something that we'll have to ask ourselves more and more as we're looking at expansions in cities that would be a bit more contentious or have a microscope, which is like California. We're not out in yet, but I'm sure those will be questions that we'll be having to kind of wrestle with ourselves when we make that jump.

J: So, in terms of the growth for the company right now, are you doing this city by, you mentioned in the previous example, a zip code by zip code. How localized is this expansion? How are you thinking about your market footprint as you expand?

Z: I think it is a city by city type of thing, so me coming from the world of on-demand food delivery, I think will lend itself well to this. Obviously, there are some functions that are centralized, so you could do across everything, so it kind of doesn't matter as much. But I do think that there's still an element in real estate of having a local presence and taking it by a city by city approach and being able to kind of look at the unique aspects of each place that you're operating in, and then certainly the regulatory aspects of it. You know, there's lots of things to be able to get spun up as a brokerage that can operate in a lot of these places, and look, I think the fact that we are solving those state by state types of challenges, we could grow with property managers that maybe they have a presence in one state, but their investor base is taking them somewhere else. We can help them with that expansion, at least from the leasing side, which is really great for them because then they don't have to, you know, do all that because there's a lot of steps there. We've seen it with, uh, just you know, one example. We've been helping a company that has been on a tear buying tons of homes really quickly, and they're trying to find yield, so they're looking at places that, you know, are going to have better return on investment for their investors. So they've been having to quickly get spun up in places like, you know, Atlanta, Georgia, and then, you know, maybe there's only a couple homes that they'll have to pick up in like, you know, Ohio, and so it would have been a heavy lift to do all that stuff for them, but they could just kind of tap us, and we'll be able to allow them to operate in more places more efficiently.

J: What is the financial proposition for people to go down this path? People are making money on leasing, so is this an abstract away complexity and headache, but I'm also giving up all of the profit potential there, or there are some splits involved?

Z: Yeah, there are splits involved. Uh, most of the... So, just to step back, so we broke our service up into three different products, so people could use us as a "help me process these applications," and then, you know, that would be a free thing where we're just collecting app fees. People could use us for the setups and then pay per job to get the property set up and then be able to, you know, make money there, or they could elect use us for all of the things, and we believe that, you know, that's kind of the future. We call that full-service leasing. Inside of that use case, then it's a function of first month's rent, and we normally try to have it set up in such a way that the property manager will still be able to make a split, maybe not as much as they were before, but they'll still be able to have some margin in there despite not having to do any of the work.

J: How do you think about proptech as a category? We're both participants. There's a lot of money coming into this space. What trends are you seeing? I'm seeing some definitely more undertones of fintech coming in here. I don't see the rate of investment decreasing. What are you seeing? What are you observing in that space?

Z: I think, you know, V1 a lot of it was getting things online, you know, being able to manage things more efficiently. I'd call it like workflow optimization. I think that's even where it is right now in a lot of ways. I think the transition that's going to be happening over the next couple of years is more of around business intelligence. You know, you get a listing live and what are how can you use a lot of data to make better informed decisions? These big operators like Amherst and Invitation Homes and these other parties are almost applying analyst lenses to operating these companies. And so I think we're in the process now as a category of transitioning from workflow optimizations and automation types of pieces to also, you know, true intelligence systems. And that's one of the big pieces. And then I think the other big trend that I'm seeing is around, like you had kind of alluded to, I think there are some interesting financial aspects that are happening. I'm seeing some companies that are making it easier to acquire homes, even having fractional ownership models to give the ability to get properties in a lot of places more cheaply as something, and I think there's going to be more to that. You know, maybe you almost have, like, you're operating almost like a REIT but as a retail investor where you can invest in a home and, you know, in five different cities where you think are gonna have good returns because you know you're not going all in on the mortgage itself.

J: Anti-landlord sentiment proliferated during Covid and it continues to remain strong. It's one of the concerns of what may drive additional legislation that may restrict and make certain opportunities for property managers more difficult to do their job and serve their communities. As you look at that trend and you think about the implications for what are really I guess what's driving that inventory, is part of it the story and the narrative and then there's just the basic reality of that rent is going up, inflation is a real thing, there is real pain going on in the market derivative of the choices that we've made collectively around building and providing supply. What do you see going on in the future? What do you think is going to do? Do you think we're gonna see any alleviation there? Obviously, the market's cooling, home builder's sentiment has plummeted to an all-time low. Give me some macro-level commentary.

Z: Ah, yeah, there's a lot of headwinds in the space as a whole. I mean, you had mentioned different things tied uh, are more inventory going to come online, which would be one of the easiest ways to reduce the price of rent. I think with all the high interest rates that are happening, there's going to be less of that because if I'm a builder and I'm looking a couple of years out, I don't know what the economy is going to look like, and I might be less apt to do a large build-for-rent community as a result of that. So I think over the last maybe five years, we've had absolute bananas record-breaking rent growth, and in some ways, that's caused it to be relatively easy to operate and rent homes because you know they were flying off the shelf even if they were 20 percent above what they were last year. Now with the recession kicking in and kind of probably going to deepen over the next six to 12 months, I think there'll be a softening inside of what people can get on the rents, and then there's going to be some challenges that kind of force both really big institutions and even property managers of how to navigate those conversations with their investors. And they'll, I think they'll be a bit of a freak out moment inside of that. Um, and then I'm not totally sure what's going to happen about rent prices and supply across the industry, just because, you know, I think there's a lot of unknowns right now.

J: Unknown, that's the way to put it. There's definitely some mystery of what's going to happen. What will remain a constant is that people are going to need safe, high-quality, affordable housing, and the unique place that the residential professional property manager places of being able to facilitate that need, I don't see going away. That is part of the magic of being on this side of proptech. It's not a monolith. Proptech covers a lot, hardware, brokerage, mortgage. I like this side. I like the SMB feel. I love those relationships. I love being built on the back of something that is fundamentally counter-cyclical in nature. Yeah, I would guess you take no small comfort as well and on being on running a recurring revenue business that serves recurring revenue entities.

Z: Oh yeah, I mean I think that, you know, people are going to have to rent. You know, it's a business category that isn't going anywhere and is only going to become more important. Um, and so I think it's a great sandbox to be able to plan.

J: Durable. Yeah, durable is the word that comes to mind for me.

J: When you think about the lessons that you've taken away from your career thus far, I want to wrap here, talk to me about people, talk to me about being a manager. You mentioned that you're technical, I am not. No matter where you start in the business, you start with some frontline problem-solving contexts that are very different than managing people. The act of management, the person that is a great manager is often not the same person that is the pioneer on the front lines. What have you learned about, and how have you grown as a people manager and a leader?

Z: Hmm, yeah, there's a lot of cool learnings inside of that. As a technical founder when I started, I wasn't good at managing people at all. It's messy, right? You've gotta figure out how to get a lot from people but also have them like you and like the company and be passionate about what they're working on. The way that I've approached management is just to kind of borrow some tried and tested frameworks for management. So one of them is we use Google's OKRs as a way to have goal-setting by individual and by department. It's a way to give people autonomy in what they're working on, set big audacious and ambitious goals that they can get fired up about that they have a say in. That takes the burden off me as a manager because we can just be recurring talking about what their big goals are for that quarter, and then it's less of me writing them on this tiki-tacky tactic that's inside of that bigger goal that we set together. Another thing that I've borrowed is agile software methodology for different aspects of management. So, in short, when you're doing product management, you're trying to figure out how can you have the biggest bang for your buck, so to speak. You're constantly trying to pin different things that you're building against each other on what's going to be the easiest to build and then have the highest impact or return for the business for that. We kind of look at the activities that we're doing week to week in that same lens. It doesn't matter if you're doing an operations thing or a marketing thing, you're trying to stack rank all the different things that they could work on and then use a framework to almost say, "Hey, this is a really small project, this is a really big project, this thing we believe is going to do this compared to this," and it just helps them better prioritize their week or day. That's been a useful management tool for me. I think to be a good manager is to figure out good frameworks that work for you or the organization.

J: Talking about borrowing, you're talking about frameworks, you're talking about the meta ideas that can be abstracted and applied in a variety of contexts. Let's end it here. Give me the top three most influential business books for you over your career.

Z: Let's see, um, I would say "The Hard Thing About Hard Things" is a good book. Any of Paul Graham's essays that he has on startups is great, which you can buy in book form or even on their blog. They're just long-form, so it feels like a book. And then I would subscribe to Adam Draper's podcast from Boost. I had gone through a business accelerator program, and he puts out different content, and you know, just different cool snippets that you can have that are kind of quick reads. He emails them over, and I think, you know, there are other accelerators that are out there, but that one's really cool and one that kind of pushes the boundary of tech. So, I like his writings.

J: I love seeing new operators come into this space to serve the community and make it better. The reality is that this community and market wins as a result of competition and the cooperation that inevitably comes from it. It makes things better even if any one vendor is not the answer. Collectively, the space gets better. You guys are a part of that. Appreciate you being here. Thanks for coming on, Zac.

Z: Thanks for having me. It's awesome. Let's leave it there.