100% Pure Grape-Nuts

TechCrunch’s Sarah Lacy just published an essay on how Silicon Valley has still been eating steaks throughout the recession. She makes the case using the upside-down logic that is unavoidable in the Valley, based on venture and merger activity.

This is true. A recession is the best time to be an early-stage company. But for later-stage companies with customers and revenues, times have been hard. Redfin will emerge from the recession fundamentally different from how we came into it. It’s not an experience that we would wish on anyone, but we’ll be much better for it.

It’s easy to see how a hard time changes an organism when you have an identical twin brother. A week before graduating from college, Wes broke his leg playing soccer. He knew it was a bad break when it happened because he felt only a great thirst, not pain, and because he saw how everyone else on the field was looking at him.

I flew out to Chicago after my own finals to help. What I noticed first coming into Wes’s room was the smell. His surgically repaired leg smelled rotten. He couldn’t sleep from the pain. Often, he couldn’t stop crying.

Taking over his convalescence from his girlfriend, I came to the bizarre decision that it was the perfect time to put him on a Grape-Nuts diet so that he would come back from the injury “100% pure steel.” He still hasn’t forgiven me for it. But to this day, he weighs less than I do, and runs faster.

Redfin this year is like my twin brother. We’re coming of age in the midst of a few bad breaks, which makes us more competitive. Two years ago, the percentage of Redfin customers who signed an offer within 30 days of seeing a home decreased 50%, increasing our costs a lot. We re-tooled our business to accommodate the change and became profitable.

In the past year, the home-buying tax credit expired and that number dropped by 50% again, and again we have had to re-tool to come back to monthly profits, a process that has been as hard as the Grape-Nut nugget itself!

It would have been harder if we had already become a big company. Our main competitor came of age during a real estate boom. Revenues skyrocketed. The competitor expanded into marginal markets. Few noticed the deterioration in unit economics.

As we’ve noted before, growing that fast is a lot like a long drive down a gravel road. The windows are down, and the wind in your face feels good, but when you stop, the whole cab fills with miles of dust and detritus.

The longer you’ve been driving fast, the more mistakes you leave in your wake without even realizing it. On the other hand, occasionally being forced to stop and re-build yourself in the end leaves you with a better truck.

This is probably why so many companies like Facebook, LinkedIn, Twitter or Zynga have waited to go public. All of these companies have acquired users very fast, and some have grown revenues quickly too, but they are still tinkering and re-tinkering with how they make money.

Redfin has grown too, nearly doubling every year. But we’ve only been able to do that through an annual cycle of sheer terror and adaptation. And we still go through periods of profits and losses, learning how to lower our costs and improve service at every turn of the screw.

My guess is that when the world emerges from this economic downturn, there will be a whole generation of Grape-Nuts-hardened startups making money hand over fist.

Discussion

  • http://www.nosnivelling.com daveschappell

    Glenn's spot on. TeachStreet's much stronger because of having lived through the recession — if we had 'gone big' on hiring and growth we'd still be living with legacy (hidden/unknown) issues that we'd likely never shed. Instead, we cut to the core, and focused on (existing & new) user experience, at the expense of sheer customer acquisition, and have been rewarded with booming conversion and retention metrics, and less technically, a much more kick-ass customer experience. I'm not saying I'd like to experience it again anytime soon, but I know that we're massively better positioned for having gone thru it. And, I hate grape-nuts too.

    • http://blog.redfin.com GlennKelman

      TeachStreet was one of the other companies I had in mind as I wrote this Dave… :-)

  • http://www.PhoenixCommercialRealEstate.com Marc Brodeur

    The only constant is change right? I think change simply happens faster and adaptation is more the norm than it ever was. Gone is the company you can work for your entire career and retire from with a fat pension. The same is true of careers. They say the average college graduate now will have 7 different careers. I think its about being prepared for change and being able to adapt to it. Keeping ones eyes on potential threats is critical…..or you will get spanked again and again. Its better to be proactive than reactive.

    • http://blog.redfin.com GlennKelman

      Excellent point Marc! I'm trying to have as few careers as possible…

  • http://www.DesertMountainRealEstateAZ.com Desert Mountain Scottsdale

    The growth that redfin has accomplished in the past few years is a testament to how quickly the real estate business is changing.

  • http://www.mn-houses.com/white-bear-lake.php White Bear Lake Homes for Sale

    This is a very uplifting article. I believe that every successful company, whether it's a one man/woman show, or a 40,000 employee monster company…has to be constantly adjusting its “financial rope”. You need to give a little slack here (to invest and build), but pull the rope taut there (tighten down on expenses). Great post…thank you!