I said one factor had to be that Redfin invented map-based listing search, which rocked Seattle for a few years before we raised capital to expand. Another panelist cited the theory that industries clump together because the industry’s craftspeople clump together. Even though this panelist himself recognized that building an online real estate website requires nothing more specialized than general website-building skills, it got me thinking about the skills Seattle has that no one else does.

What great companies have been built here? Any list would have to include Amazon, Starbucks, Costco and Nordstrom. All are still run by their founders or founding families. And all of those people are great merchants, with a fanatical commitment to perfecting the customer experience in every last detail. This is a very specialized skill indeed.

It’s amazing, when you think about it, how many of the world’s greatest merchants live within two miles of where I’m typing this note. Jim Sinegal is notorious for stalking the Costco floor, correcting his staff on the price history and sales volume for a key lime pie, dismissing banners and other marketing sass with the refrain, “we don’t need that sh** here.” This mentality has made Costco grow revenues faster even than Microsoft, but whom do Seattleites talk about more?

The Nordstrom family is famous for happily accepting a customer’s return of car-tire snow chains when the store doesn’t even sell chains. This is the reason that Nordstrom is perhaps the only great retailer to remain relevant and revered during the e-commerce revolution.

And then there is Howard Schultz, who was the first to figure out that the reason a mom would load three kids into the car for a coffee-shop trip wasn’t just the coffee, but how the shop made her feel when she met her friends there. To this day, whenever Starbucks executives go into the field they carefully inventory every detail about each store: its parking lot, its sign, its bathrooms.

I don’t even have time to talk about Mark Vadon, the co-founder of Blue Nile, who is a beautiful beast of a merchant. But we have to account for Jeff Bezos, the “giant-brained alien” with “a tangential interest in human affairs” who runs Amazon. No one has been more relentlessly focused on perfecting a website or an entire operation than Bezos, the Captain Ahab of customer experience. The result is an army of engineers with an unusual passion for understanding the customer themselves, who could start their own Amazons if there weren’t making so much money at Amazon itself.

I have learned from chance encounters with folks at all of these companies; a lunch with a Nordstrom bra salesperson gave me a way to think about field bonus plans that put the customer first.  An hour with Costco’s CFO convinced me to focus on maximizing customers and profits, not profits per customer.

Thirty minutes each with Blue Nile’s two co-founders were what first woke me up to the idea that even a website-company should answer the phone on the first ring. Coffee with Starbucks’ COO reminded me to focus on how the experience felt, not just what the company did. None of these meetings would have occurred outside of Seattle.

Consider the common attributes of these businesses, and ask yourself if this could become the DNA of 100 new Seattle-based startups:

• culture-based service, where everyone from engineers to accountants takes the customer’s point of view
• value-driven, where disruptive economics, relentless cost-discipline and scale save consumers money
• commerce-oriented, with an instinct for getting consumers to whip out their wallet, not just spend time on a website
• operationally-intensive: unafraid to have cars, call centers, distribution points, employees in many cities

The reason this can be our thing, the thing that we put into the water from which everyone here drinks — is that many places don’t even want it to be their thing. A new vogue for customer-service notwithstanding, Silicon Valley has long preferred high-margin media businesses that scale as easily as you can spin up new servers. Manhattan and LA are even less likely to get down and dirty with the customer.

And yet we still wonder how Seattle can become more like Silicon Valley. Having started a Silicon Valley company, I can promise you it will be a long struggle to keep up with the hyper-kinetic restlessness, the elaborate network of ideas that draw companies like Box.net from Seattle to the Valley.

But the Valley will never have the blue-collar commitment to customer service that Seattle does, or our best companies’ niggling attention to detail. If you don’t believe me, just ask Tony Hsieh, who had to move Zappos from the Bay Area to create the service-driven culture that made Zappos famous. “Anyone in San Francisco who took a job in customer service,” he once explained to me, “just saw it as a stop-gap until he could find something supposedly ‘better.’” It isn’t a coincidence that many Zappos folks now work in Seattle too; it is a law of gravity.

As commerce becomes popular again in mobile and web-based businesses, my hope is that more Seattle startups will follow in these great merchants’ foot-steps. Every region has to be true to itself. LA startups aren’t going to build new databases or web infrastructure; they’re going to build new entertainment companies like Hulu. Finance will probably be re-invented in Manhattan, not Menlo Park. And customer-service companies belong in Seattle. It isn’t our only heritage, but it’s certainly one we can recognize and embrace.

The post A New Phoenicia appeared first on Redfin Real Estate Blog.

Now as companies invent arcane financial metrics to create a sense of profitability without actually being profitable, investors are again clamoring about “fundamentals,” the term they use for revenues and profits.

But the most fundamental measure of a company’s success is whether the sources of its profit — its customers — happily part with their money. Customers’ happiness tells you as an investor that the company is not merely profitable or unprofitable, but sustainable.

There’s a big difference. A company that makes money can still be unsustainable. HomeAway had a soaring IPO, but the customers who use its site to rent vacation properties hate it. This tells you that one day a startup like Dwellable or Rentmix is going to destroy HomeAway.

LinkedIn on the other hand eked out only $1.81 million in profit last quarter, earning money at about the same rate as Redfin did in June. But LinkedIn is worth $9 billion. That’s because LinkedIn’s earnings are very sustainable — and Redfin’s earnings are, admittedly, still very seasonal. No company will replace LinkedIn as a professional network anytime soon.

Investors’ inability to distinguish sustainable companies like LinkedIn from trendy dreck is what drives bubbles as well as crashes. We talk about crashes as the return of rationality but in reality crashes are just as irrational. Yes, the NASDAQ today is at only half of its April 2000 peak, but it’s at double its September 2002 low. The broad, multi-year bet that Wall Street placed against the Internet post-bubble was fundamentally the wrong bet.

Already, history has repeated itself. Remember the wildly popular 2007 video, “Here Comes Another Bubble”? It mocked PayPal’s Peter Thiel for insisting there’s no bubble. As evidence of the madness, it then cited the valuations of Facebook at $15 billion (now valued at $100 billion), Skype at $2.6 billion (just bought for $8.5 billion) and YouTube at $1.65 billion (the best deal Google ever made, with traffic and revenues that just keep growing through the roof).

A year later, Sequoia’s “R.I.P Good Times” presentation — which argued after the financial crisis that “a v-shaped recovery is unlikely,” and showed a picture of a Depression-era soup-line — was mostly a death knell for itself. Since then tech’s recovery has been nothing if not v-shaped, and Sequoia has missed out on an explosion of early-stage opportunities.

Now in 2011, the stupidest conversation we’re having is whether we’re in a bubble or not. Rather than trying to figure out whether all companies are overvalued or undervalued, we should think about which ones are using disruptive technologies to solve a serious problem for a large group of customers. Those companies are almost certainly not overvalued.

Take for example that company which lost $720 million in a single year. It had the dubious honor of being the most unprofitable Internet company in 1999, but it turned out to be the most sustainable business the Internet has ever created: Amazon. Post-bubble Amazon was trading at $7.19; today’s it’s trading at $209. Does anyone think Amazon is wildly overvalued?

The post Are We In A Bubble? Just Ask The Customers appeared first on Redfin Real Estate Blog.

1. Deliver everything same-day including groceries the way it does here in Seattle
2. Go after UPS, using its analytical super-powers to banish left turns
3. Hire a national salesforce for Amazon Web Services, to help the folks wearing head-sets in south Lake Union beat Microsoft & Google
4. Restore profitable, risk-free affiliate marketing partnerships with folks in 100 cities
5. Rent books & take out Chegg, which requires a local presence
6. And go into a dozen other businesses it has passed on to avoid being local

Cost:  8% – 10%, paid by your customers, to build schools, parks and roads.

Amazon’s operations people are total beasts, and its insistence on remaining Seattle-bound for tax purposes is the chain holding ‘em back. Pay the tax! Unleash the hounds! The day Amazon concedes this issue will hereafter be remembered as its independence day.

The post Memo to Amazon: Pay the Sales Tax & Put Everyone Else in E-Commerce Six Feet Under appeared first on Redfin Real Estate Blog.

Steve Jobs is at such a far end of that spectrum that he can hardly bear to hear customer complaints for even a minute. Redfin’s engineers get caught somewhere in the middle: we try to make beautiful software, but we also spend a lot of time manually adjusting the location of listings based on users’ requests.

Business schools talk about innovation and customer focus as if the two were one and the same virtue. But mostly they’re opposites. Customer focus is a painstaking process of listening to customers and solving their problems one by one. Innovation is mostly the art of not-listening, so you can hear the creative voice inside yourself.

I’ve never met an innovative person whom I could really describe as customer-driven. The most innovative maniac I’ve ever worked with was happiest when he jabbed the air with a finger and said “F*** the customer!” — which he did all the time. He solved problems primarily for himself, and his products decisions were mostly made in terms of what was cool, not useful.

The fact that many people are now arguing that an iPhone doesn’t really have to function as a phone is the ultimate triumph of coolness over utility. But examples are everywhere: do any Redfin old-timers remember how the map used to swoop around before landing on a location? Or have you ever noticed that dandelions pop up in the background as you complete each field of Picnik’s registration form?

Both the swoop and the dandelions take time to code, and often slow the user experience. Both come from folks who believed in their products as works of art, an end, rather than as just a means to an end. It’s obvious in watching Steve Jobs talk about the iPhone that he believes it belongs in a museum as much as your left hand.

If Steve Jobs worked at Nordstrom or Zappos he couldn’t take that position. Just imagine Jobs being confronted with the canonical examples of customer service: someone ordering a pizza from Zappos’s call center or returning snow tires to Nordstrom’s clothing stores. It wouldn’t be pretty. If you turn that around,  and try to think of a company driven by customer-service that is also innovative, you can’t.

Except for Amazon. How does the company that came up with the S3 or the Kindle also deliver groceries on time? I don’t know. But now that I’ve worked at Redfin for a few years, I feel sure that Amazon will be a great brand 50 years from now precisely because it has somehow struck a balance between the chutzpah of innovation and the humility of customer service. It works a lot better than being humble all the time or just being cocky.

The post Customers Are So Annoying… appeared first on Redfin Real Estate Blog.

GREAT QUESTION! This is a topic we’ve discussed before, predicting last March that e-commerce would enjoy a new vogue, and publishing in 2007 our manifesto that e-commerce still had the most potential to fulfill the role that technology is always supposed to play in economics: making markets more efficient.

But we have never discussed what will set apart the new generation of e-commerce companies. My thinking about this changed last fall, when Menlo Ventures’ Shawn Carolan reviewed the pitch we used to raise money from Greylock, and concluded that Redfin was “a media company mating with an e-commerce company.”

What he meant was that Redfin generates its own traffic, functioning as a destination site for lookie-loos to browse homes they have no intention of buying, or that they have no intention of using Redfin to buy. And then we are also a commerce company, representing buyers and sellers in the purchase or sale of a home. As Iago would say, we’re a beast with two backs.

Building up our own bona fide media site frees us from the prison-house grind of buying and monetizing traffic, of merely offering a service for a few pennies more than it costs us to deliver it, and into a garden of delights: our project, with Redfin’s search site, is to please. Every time we consider an ad campaign, we decide we’d rather spend the money on an engineer to make Redfin search better. The only ads we’ll pay for are the ones we show to millions of people on our own site, for free.

This is why, as Bob Hagerty notes in last week’s Wall Street Journal, we built the top-rated iPhone app for real estate, even though the application is almost entirely free of any mechanism for users to work with one of our agents. The iPhone app accounts for 10% of our traffic on weekends, when home-buyers are out looking at properties in force. Using mobile devices to engage users deeper in the process is a big reason Redfin has taken off over the past 12 months.

So we would suggest that one characteristic of a commerce 2.0 company has to be that it generates its own traffic, by creating a sense of community, by publishing unique content or offering unique inventory. And we think that the commerce companies, once they stop merely buying and converting traffic with screaming “BUY NOW” sites, are often best suited to generate their own traffic, because we know what buyers want.

Imagine if you wanted to create a book review site without Amazon’s catalog of every book that has been published; it would be near-impossible. By the same token, Redfin now recognizes immediately when a home sells and for how much because we are members of the Multiple Listing Service used by brokers to list homes and record sales; we can be the authoritative site on where the market’s headed simply because we know a month ahead of everyone else what sold.

This advantage is not simply an artifact of the MLS’s exclusive rules. Since we write offers, we know that in my neighborhood offers just started going for above asking price for the first time in years; since we tour houses, we know that buyers are shifting to short sales due to new anti-foreclosure laws limiting REO inventory. We’re in the game, baby! By comparison, other sites seem to be watching the game on tape delay, from a Goodyear Blimp.

What Josh, Fred and Shawn made me realize is that we’re headed for a world where the whole division between e-commerce pure-plays and media pure-plays — which I have often emphasized — is a canard. The media companies could generate far more revenue per visitor if they took Ethan Lowry’s advice from the last Naked Truth: “get as close to the transaction as you possibly can.” And the e-commerce companies could get higher margins — which investors have been insisting on throughout the great e-commerce drought — if we stopped buying traffic and started making our own.

The post A Media Company Mating with an E-Commerce Company appeared first on Redfin Real Estate Blog.

Which came as news to our chief technology officer, our Seattle-based engineering leaders, three star product managers and our hyper-productive lone marketing director, all of whom worked at Microsoft.

And it came as news to me, since I grew up in Redmond, adore Microsoft’s pass-the-bong video ads, and defend to the death the relevance of desktop applications (see comment 107). The first business book I ever read was Microsoft Secrets. My new favorite marketing campaign is Microsoft’s “I’m A PC” campaign. 

So it’s probably fair to say that no CEO from Silicon Valley has a higher opinion of Microsoft than I do. I learn from Microsoft every day. And I’m intensely grateful that so many Microsoft and Amazon folks have thrown their hat into the Redfin ring.

“This Was Discussed at the Highest Levels Within Microsoft”
The trouble started because of one line in a Redfin job description: You don’t need big money to do something big. Don’t apply if you’ve worked too long at Microsoft, Amazon or an agency.

“This was discussed,” one applicant explained over a slice of pizza at a mall food court, “at the highest levels within Microsoft.”

What kind of “pompous ass,” one angry Microsoft veteran asked us, would write this job description? The people at Microsoft and Amazon, he continued, “know exactly what it takes to run in a start up environment, we were doing it when whoever wrote this ridiculous JD [job description] was probably in diapers.”

Of course, I’m the pompous ass. We agree that 30 years ago, Microsoft could still fairly be called a startup, though by that time I had graduated to underwear.

We probably disagree over whether someone who has not worked in a startup for 30 years is still a startup-type of person. And we disagree too, over whether any disrespect was intended to Microsoft, a company more successful than we’ll likely ever be.

Different Horses for Different Courses
My point wasn’t that any 15-year veteran at Microsoft has less talent or skill than the driven maniacs who tend to thrive at Redfin. Microsoft is a gladiator academy for brainiacs. But no one can honestly tell me that marketing Windows is remotely similar to persuading someone to ditch her Realtor-friend and buy a house through a website. We have no no budget, no agencies, three people.

We have to win by delighting consumers, juicing the Google index, having Octopus sex with the blogosphere, fighting like a trapped squirrel, moving super-fast. There’s just no way a company the size of Microsoft or Amazon — or Google (after complaining that we never saw Google candidates, we have seen a few) or Apple — could remain as desperate and impatient and unrealistic as we are.

Plenty of Microsoft folks thrive at Redfin and other startups, but their point of departure is how different a startup is from Microsoft.

“How Long is Too Long?”
Our best employees left Microsoft because they were squirrels and octopuses, juicers and speed-freaks. Some had been there two years. Some five. Some longer. But none had been there “too long” which was supposed to mean past the point of being passionate about what they do.

When we wrote this job description, we’d interviewed plenty of Microsofties who talk about staying “too long.” They’d say Redfin is a way to rekindle their passion for software or business. It makes us feel like a red sports car, or an extramarital affair.

Of Microsoft, But Unlike Microsoft
The truth is that many of the people at Redfin are of Microsoft, but they all say Redfin’s not like Microsoft. Marcelo Calbucci explained the difference.

The way I think about it is that our left brain (analysis, discipline, brilliance) comes from Microsoft, and our right brain (speed-lust, techno-promiscuity, the Internet’s goofiness and freedom as a cult) comes from Silicon Valley; nearly half of Redfin engineering is based in San Francisco.

It’s a good balance. What we’ve learned from Microsoft employees has made us better in engineering, product management & HR, where Microsoft folks excel. In marketing, Microsoft has taught us how to think in different dimensions than just public relations, social networks or search engine optimization.

What Do You Think?
We thought we’d ask other startups what your experience has been hiring from Microsoft and Amazon? And we’d like to know what to do about the job description. If it has offended others, we’ll change it. If there are any folks from Microsoft or Amazon reading this blog, please, tell us what you think (and if you haven’t worked there “too long,” apply for a job!)

(Photocredit: sexy octopus, jrixunderwater; speed dog, WisDoc )

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