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Evolution vs Revolution in Commercial Real Estate

Hey everyone, it's Robert again. I came across a post on LinkedIn today that asked the age old question when it comes to IT: should technology be used to introduce a new process, or should the process determine the technology? Having been in the IT consulting business for the last 13 years, I can say that corporate development wants the latter (usually designed by committee for incremental improvements), but groundbreaking new services and ideas come from the former. I posted a little about this on LinkedIn, but I wanted to expand upon it here.

As someone working in the CRE technology sector, I can say that working around existing processes can be very limiting to innovation. For example, in the multifamily business, there are dozens of "bad habits" when it comes to calculating the financials that are virtually industry standards. Ten years ago, there were two widely-adopted ways to calculate these financials: pen and paper, or a spreadsheet. Hundreds of people made tons of money building and selling their own spreadsheets to CRE professionals to help them run better numbers. In fact, our own CEO was one of them. But those tools had limitations to the calculations you could run, and so the whole industry built itself up around using averages and simplified calculations that end up putting a property tens or hundreds of thousands of dollars off course. Investors know this, and look for properties where the financials are off as the ones to purchase. But most CRE professionals are unaware of the fact they are running the wrong numbers, day in and day out.

If I was trying to build a tool around how CRE professionals work today, I would have built a really efficient system for generating really bad financials. And maybe it would have a ton of users... but it would be just another service among hundreds that are not truly innovating. All of the billion-dollar services that are out there today: LinkedIn, Facebook, Instagram, Xbox Live, etc... completely changed the way people did something. And they didn't look for "buy-in" from an existing team before those services were built, either.

The best approach to technology in this (or really any) industry is to throw out your preconceived notions of how the process should be, and start fresh. If you were to have the perfect system, what would it look like? How would it look when you first see it every day? How would it evolve as your information flow evolves? How do you use it to share, connect, analyze, and decide? How do you boil something down to its simplest idea, and then build it up from there?

When I started at AdvancedREI, I had no idea about Commercial Real Estate. So I asked a ton of questions, challenged every assumption, and made Jeff fight to make his case (and he did the same to me). Sometimes we argued for days. But that process of creative distruction lead to a ton of great ideas from the both of us, and some really innovative stuff. And we're still learning new things every day. That process is the one you should focus on, not whatever specific thing you are trying to fix.

Once you have mapped out THAT system, you build it in rapid, iterative steps, keeping the idea and the process as simple as possible. The problem is, most people stop there. The step most "builders" miss is that you have to build an on-ramp into any product that deviates from the norm. You have to understand that people will have pain points, and then build educational materials for helping them understand those things right into the product. That way, the learning curve is smoothed out, and the user doesn't seem overwhelmed. Incidentally, we're in this part of the process right now, and our next several releases will be focused on ways we're making the process even easier.

At the end of the day, people don't like change. They like finding a way to do something, and once that happens, most will do it that same way until they die. But there is a new generation of individuals coming that were born to live and thrive in that change. They embrace it... they adapt without even thinking about it. They're always installing the latest update on their phone or tablet... waiting for the "new stuff" they get to play with. Those are the people who will replace you if you do not learn to evolve as they have.

Does that mean that business should be changing things all the time? Of course not. But there is evolutionary, and there is revolutionary... and the CRE business is poised to be at the center of the next great tech revolution. The tech will move past "store all of your PDF files here!" and into cloud-based, real time analysis, collaboration, and transactions. RealtyMogul.com, LeaseMatrix.com, and (of course) our AdvancedREI.com are all reflective of this approach. But those ideas did not come from a "design by committee" process or a "just do it like the pros do it" mindset. Those are incremental mindests, not exponential ones.

The point is, when it comes to technology and commercial real estate, don't be afraid to let the technology dictate the process. There are some very bright minds out there (I'd like to think Jeff and I are a couple of them) engineering not for today's process, but for the processes of the next decade. Just imagine what those people will come up with tomorrow.