How to Compete with Venture-Backed Property Management Companies



Summary:

Ethan Lieber from Latchel is our guest on The Property Management Show, and in this podcast we’ll talk about these behemoth venture-backed companies that seem to be entering the property management space in record numbers right now. We want to know why they’re here, what motivates them, and how smaller property management companies can compete.

Key Takeaways:

* Venture Capital companies are interested in the business opportunities available in the property management industry, but the industry is difficult to dominate because of its fragmentation.

* Local property management companies have a competitive advantage over VC-backed companies because of the trust they hold with their community.

* Ethan believes that only three out of ten self-managing landlords are ever going to become your customer. Understanding this concept can help you narrow your focus when it comes to going after leads.

Why Is Property Management Attractive to Venture Capital Companies?

At PM Grow 2021, Ethan delivered a fireside chat on the topic of competing with these VC companies. Before we can get into strategies for competing, a lot of property managers may be wondering why. Why do these VC companies want to be in property management at all?

The obvious answer is this: money.

There’s a lot of money in property management. It’s a huge business opportunity. Traditional management services generate hundreds of billions of dollars. When you add in the ancillary services companies can provide, we’re looking at trillions of dollars.

Typically, local businesses have captured most of the market share.

Look at a national scale, and you’ll see where the venture-backed companies began in property management. They funded industry-specific endeavors like Appfolio and Yardley and Buildium and similar platforms. The entrepreneurs that backed those initiatives now want some of the market share that property management companies themselves have been earning.

Here’s an interesting statistic: the top 15 management companies only own 7 percent of multi-family properties in the U.S. No other industry behaves like this. When you take a look at retail, huge companies like Walmart and Amazon can come in and eat everything up. It’s easy. But, property management is one of the remaining industries where it’s hard for VC companies to dominate. That’s because the business is so fragmented.

Winner-Take-All Thinking Isn’t Part of Property Management

Generally, venture-backed companies have been drawn to industries with a winner-takes-all playing field. If you figure out what an industry needs, you can dominate the market. Microsoft figured that out early on and the government had to force them to break up and allow competitors.

A lot of VC companies have the goal of getting so big you’re a monopoly. But you don’t want to look like a monopoly because you don’t want to attract the government’s attention.

With property management, it’s hard to see a situation where someone is a monopoly and a winner that takes all. Zillow is never going to become a monopoly where there’s no room for anyone else, for example. Property management is one of the few industries that this will not happen.

The VC companies want in because the industry is so big. They don’t need to take it all. They know that just a fraction of the market will make them a lot of money. So, they want to eat up a lot of the market share, but local property management companies have a lot of competitive advantages. You’re probably not even competing for the same type of business as these VC companies.

Property Management and Industry Disruption

Another thing that VC companies look for is this – how ripe is an industry for disruption?