Welcome to the kick off of The Room Podcast’s Seventh Season!
On today’s episode we sit down with Spencer Rascoff. Many of you likely know Spencer as the former CEO and co-founder of Zillow. But did you know he also founded Hotwire, which sold to Expedia for $685 million in the early 2000s? As CEO for over 10 years, through their IPO, Spencer grew Zillow to over 4,500 employees, $3 billion in revenue, and a $15 billion in market cap. He has a lot to share on the early days of Zillow and relevant insights for first-time founders today. Currently, Spencer is an active angel investor in more than 100 companies and is incubating several more through his startup studio and venture capital firm, 75 & Sunny. He serves as executive chair of dot.LA, a news site covering the Los Angeles tech scene. He is also co-founder and board chair of Pacaso, the company pioneering a new way to own a second home.
In our conversation today, we explore insights and themes such as:
- the art of a killer feature, like the Zestimate
- managing team morale and execution amidst a macro-economic downturn
- why the future of real estate is fractional.
Let’s open the door.
Key Theme 1: The Art of a Killer Feature
When founding a company, many investors are looking for the illusive “product-market fit”. A framework that denotes your software solution has found an audience who is willing to pay for the product you’ve built, PMF is harder to unlock than one might think. It requires not only a slick and powerful product innovation, but also a market that is ready to adopt this product and pay for it. Many companies have fallen prey to right product at the wrong time. When Spencer and the Zillow team set out to launch a marketplace which brought pricing transparency and real estate transactions to the masses, it was 2004. This was three years before the iPhone was announced and the same year Amazon released their first AWS Blog. Rascoff and his founders were asking the question, how do we encourage a viral engagement loop for our consumer product amidst low-fidelity data? Enter the Zestimate. A tool which both predicted the home price in advance and gave home owners the chance to “claim” their home to update the price estimate. This feature did two things, it created an addiction to checking other people’s home prices (which drove daily active users) and encouraged home owners to engage with the product which made Zillow’s data better. When the Zillow team first launched, the Zestimate had a 14% median error across 40 million homes. Today, it has a 2% median error across 100 million homes (the majority in the US).
TLDR — its not enough to build a feature, you also need to build a feature that breeds loyalty, returning use cases, and helps the underlying data engine powering your ecosystem.
Key Theme 2: Managing Team Moral and Execution amidst a Macro-Economic Downturn
Spencer learned on the job at 23 while starting his first company Hotwire. Things were looking bright in 1999, however the ecosystem quickly took a turn for the worse in 2000 when the internet bubble burst. The travel market was understandably hindered again when 9/11 happened in 2001. Spencer shared three tactical things he, and the leadership team, did during that time which helped saved Hotwire. First, they cut the company employee base from 200, to 150 in order to extend runway. Secondly, they raised more capital in a down round. Never ideal, but as Spencer said, “better a down round than no round.” Finally, they pivoted the company towards a hotel product, which expanded their offerings from just flights. For founders, these three examples offer tactical steps you and your team can be taking to bring control and certainty in a time of many unknowns.
Outside of the tactical, Spencer also highlighted the less tangible importance of connecting employees to the mission during the period of uncertainty which breeds community and a shared vision.
TLDR — Team adjustments, raising more capital (either through debt or equity), and potentially adjusting your product scope are all measures you can take to ensure longevity amidst macro turbulence.
Key Theme 3: Why the Future of Real Estate is Fractional
Spencer is a subject matter expert on the digitization of the real estate industry. This is why we’re pretty confident in his assessment that the future of real estate ownership is fractional. As founder and chairmen of Pacaso, he is helping too unlock access to second-home ownership. On the episode, Spencer explains how their model works and why it’s democratizing the ability to own more than one home. The fractionalization of home ownership extends beyond personal use, it also unlocks the investment vertical. Pacaso is specifically going after this market for second homes, but other companies are tackling this model in different ways. Take Fractional or Doorvest, both platforms help too unlock investing into rental properties at a lower cost entry point than a normal full investment price. For more on the topic check out Pacaso’s blog. https://www.pacaso.com/blog/pros-cons-fractional-ownership
TLDR — Just like uber unlocked democratization of car services, companies like Pacaso are creating new modes of consumption within an asset class who’s ownership model hasn’t been disrupted in years.
We hope you enjoyed hearing from Spencer Rascoff as much as we did! For more this episode, sign up for our newsletter at TheRoomPodcast.com/Newsletter
We’ll be back next week, Tuesday October 11th, 10 am EST, 7 am PST. See you in The Room!