How to ID a Market Primed for Speed

We hear often that speed is a virtue in the startup trade. Mike Cassidy thinks speed is the highest virtue, in fact. (Check out his presentation, Speeding Up All Parts of a Startup, which we found via Venture Hacks earlier this week.)

As luck would have it, Found|READ has been talking about this very thing – how to accelerate your startup’s success — with serial entrepreneur Ashfaq (“Ash”) Munshi, currently the founder of TeraBitz, which he launched in 2006 with his son, Kamran Munshi. (Talk about speed: Kamran is 18!)

Cassidy’s presentation focuses on how to accelerate startup processes like fundraising, product rollout — even a company sale. Munshi has advice on how to accelerate the one step in launching your startup that is primary to these others: How to identify a market that is “ripe for speed” in the first place.

Management gurus all say that inefficient markets are a good place to start. Inefficiencies mean opportunities for innovation. Munshi believes entrepreneurs hunting for “speedy” success can do even better by identifying inefficient markets that may also be affected by an external catalyst in the very near future — regulatory reform, for example, or an inflation rate cut by the Fed.

This is how Munshi went about identifying the market for TeraBitz. In his case the “catalyst” was a federal lawsuit. We’ll summarize Munshi’s “Four Steps to Speed” first, then illustrate them through the case of TeraBtiz.

Ash Munshi’s Four Steps to identifying a market primed for speed:

1. Identify an inefficient market.

2. Identify a market in which VC money is already being spent. “This means others believe there is a transformation about to a happen,” he says. “What transformation are they betting on?”

3. Identify the part of that market that has not been “staked out.” And be a friend to the constituency that isn’t being served.

4. Look for an external catalyst that could act as a change accelerant. “The question is, if something breaks (like regulation, a rate hike), can you capitalize on [the change] in a way no one else can?”

TeraBitz serves real estate brokers by aggregating the property listings they need from various geographic markets into a single data feed to their firms’ web sites. Real estate is a notoriously inefficient market. To maximize the homes they can show to (or for) clients, real estate brokers have to use the Multiple Listing Service system, which indexes available properties in a given location. But MLS listings are controlled by regional estate associations that impose lots of rules to access them. To list a home for a client in Houston, for example, a California-based broker must open an office in Texas.

Fragmentation means inefficiencies (Step 1: check!), which is why startups have piled into the market with web-based models aimed at streamlining the business, among them, and RealEstateABC. Each one puts listing data directly in the hands of buyers and sellers, cutting out brokers altogether. (Step 2: check!)

Between being disenfranchised by the web and the mortgage crises, brokers have become the orphans of the industry — sitting in their bricks-and-mortar offices, they have fewer properties to sell, and fewer people to sell them to.

So with so many consumer-focused startups already established in the space, Munshi went for the ground that had not yet been “staked out.” Building a business to help the brokers made sense, he says, not just because they were the one constituency that wasn’t yet being served, but because he believed brokers would remain valuable.

“Consumers will never get comfortable exclusively buying and selling property virtually,” he says. “Their home is still the largest asset most people have. We think they’ll want an intermediary, because it is such an emotional decision.” (Step 3: check!)

And here’s the speedy part:

The same brokers’ associations that made access to property data difficult for out-of-state brokers completely excluded Internet brokers from their prized listings. Even as margins were getting crushed, the practice thwarted the one innovation that might aid brokers most — going online — because they feared losing access to the MLS data.

The Justice Department filed an antitrust claim against the National Association of Realtors (NAR) in 2005 — one year before Munshi founded TeraBitz. Munshi learned about the lawsuit through his own property dealings, and it influenced TeraBitz’s business model. (He was later subpoenaed to testify.) “I knew [the case] would have an impact, but it happened even sooner than I thought it would.”

The parties settled the case on May 27. The NAR may no longer withhold data from online brokers.

In an industry slow to change, the settlement will speed up business like a performance-enhancing steroid. “The last disincentive for brokers to adopt new technology is gone,” Munshi says. (Step 4: check!)

Then he chuckles. The settlement offers little benefit to competitors like Zillow and Trulia because they don’t serve its prime beneficiaries, the brokers. In other words, TeraBitz is not only in a position to “capitalize” on the catalyst, but “in a way no one else can.”

(Step 4: check! check!)