Adoption of Technology in CRE & BuiltTech
Every conference, podcast, article, or interview in the BuiltTech world asks the same question. It’s not highly controversial or hotly debated.
Why has CRE and Construction been so slow to adopt technology?
One of the common refrains from founders and investors (in their moments of blunt candor) is a stereotype about some faceless 60-year-old male executive at a CRE or AEC firm who would rather play golf with his “deal buddies” than learn a new CRM/Workflow Tool that could earn/save his company millions.
That archetype oversimplifies the matter and misses the broader point. Furthermore, it does nothing to help you strategize around selling more software or hardware to that company.
There are two things that truly seem to matter in the adoption of technologies in our space and both are associated with cost.
First is . . . cost. (GASP!) Seems like that would be obvious, but I am shocked how many companies want to start with premium pricing with their product and charge thousands of dollars per month a la CoStar, ARGUS, et al.
While there is no set rule here, I like to keep it simple. If you charged $29 (or $49 or $79 or $99) per month for a SaaS product, tell me a company who wouldn’t simply try your product for a few months? You think they would lose sleep if they hated your product after 90 days and lost $297?
Admittedly, this is different for products like robotics and drones where you have to pass hardware costs on to the consumer, but the logic still holds even with higher COGS. Get him hooked on something that is a financial no-brainer and then ruthlessly upsell him once he sees how transformative you are.
This is the logic of the Freemium model and not new at all to the startup space, but I would estimate that 60–70% of startups come to me with a “premium” offering that prices their product relative to the (pricey) incumbent market-leader. That is almost always a mistake.
Actually, I prefer the “almost Freemium” or the Freemium-ish model where, and I said above, it is so cheap that the sunk cost is negligible. This stems from the quirk of human psychology that we tend not to use and engage heavily with things we get for free. If you pay anything for it, you will spend some time trying to use it. (Sunk Cost Fallacy)
The reality of sales in an age of noise is that almost the entire battle is just getting a foot in the door. In fact, that is the ACTUAL definition of disruption — starting at the bottom of the market on pricing to get traction and then working upwards. Just get the client to try it at some price. That is such a mental barrier that it is always a win regardless of the dollar amount.
(Side note — This is actually a lesson I learned painfully well in CRE deals. It’s called “Get them pregnant” and it happens when an investor puts a deal under contract without actually having capital to close or a formal strategy for closing. The idea is that once the seller is under contract with you, or “pregnant”, it would be easier to stay in a deal with you when you re-trade them to a lower price or ask for more time than it would be to go back out to an open-market bidding that would further delay the sale that they want. They would have to renegotiate a PSA, weigh new bids, blah blah blah. Most sellers prefer to stick with the “impregnator”. #NothingNewUnderTheSun)
Once you are in, if you simply listen to the feedback on UI and UX, you can Lean Startup your way to a high-quality solution fairly quickly. Then you get to charge more for more offerings and your sales pipeline compounds on itself.
Did anybody stage protests in Seattle when Amazon announced the price for Amazon Prime just increased by 20%?
Second is opportunity cost and it is almost always underestimated. This is really a function of empathy. You need to understand that this executive is making $750k a year in his analog world. Your digital world may seem exciting to you, and it might actually transform his world eventually, but he built his wealth and influence in the analog one. And he is very “busy”.
Your sales pitch has to convince him that it is worth his time to stop doing what he is doing (making good money) to go and learn how to use your product. And, that pitch HAS TO come with the implication that he will earn substantially more than $750k if he would just use your cure-all widget. (More on that in another article)
Because every minute he spends getting to know your product, trying it, and then trying to measure the results, he is not spending on making money the way he has for the last 20+ years.
Think of it this way — If he has generated 90% of his clients from golfing with potential clients and attending fundraising galas over the last 20 years, and you come and tell him some widget will help him get more clients/deals, how much time do you think he wants to take away from golf and galas to fiddle with your widget?
(That Golf + Gala concept is probably a realistic case. With the historic opacity of information in CRE and AEC, it has been an extremely relationship-driven business. Your time was better spent on fishing trips, lunches, fundraisers, etc than digging through digital databases or “tech-ing” your way into great deals.)
Another factor with his time is your comparison shortcomings. The truth is, fair or not, you are going to be compared to his iPhone. If your user interface isn't as intuitive and dead-simple as his phone, he is going to have a mental barrier for figuring out all of the nuances of your product. He can take his iPhone out of the box and figure out 75% of the product within 10 minutes. If he can’t do that with yours, he has to estimate the amount of time it will take to do so. And those minutes are time he isn’t spending on generating revenue the tried-and-true way.
Freaking Jony Ive.
You are forcing this executive to think about the value of his time and he will certainly value it highly. He wants to hear — “This will take almost no time to learn and you will make more money.” He’ll skip the back nine for that meeting.
So in CRE and AEC, we have an industry that is historically overly-relational full of executives who will compare your tech to their iPhone and who are too busy making lots of money to try and learn new technology. I wonder why BuiltTech hardware and software doesn’t just sell itself? Shocking.
And while I’m not sure there is a hard-and-fast rule here for factoring opportunity cost into sales other than a maniacal focus on simplified UX, I do think it’s an important nuance to sales/adoption in BuiltTech that you ignore at your own peril.
If you can craft a freemium-ish pricing model and address opportunity cost by solving a big enough problem or clearly articulating the financial/time benefit of your product, I doubt you would have the typical sales challenges of the average BuiltTech company.