The latest for the Flops File Zillow Offers Rita McGrath
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People in “Thoughtland” underestimate how many assumptions they are making, especially if they are used to a long track record of success
THE 'ZILLOW OFFERS' CONCEPT
'Zillow Offers' was launched in April of 2018, to up homes, make necessary repairs and list the home on the open market with the goal of having a sale within 90 days of acquisition
“We created Zillow Group in 2005 to make the real estate shopping and purchase process easier” Rich Barton, Zillow CEO (2005-2009)
UNTESTED ASSUMPTIONS, TAKEN AS FACTS
Faith in the Power of the Algorithm An algorithm would be able to identify properties suitable for flipping at scale because it would have inputs from across the nation, giving it an edge. The problem is that, home values are influenced by many factors an algorithm can’t identify. This was a knowable issue, people. The pricing algorithm, reflected in Zillow’s popular “Zestimate” estimation of a home’s worth has been shown to often be wildly inaccurate. Since this was the basis for Zillow’s pricing decisions, it isn’t surprising that they were on average paying too much for properties.
Faith in the ability to forecast future prices
In Real Life is not the Internet
For a “flipping” model to work, the entity doing the flipping needs to be pretty confident that after they have assumed the risk and spent the capital to buy a home, that it will appreciate rapidly once it’s been fixed up.
We’ve this movie before: Internet companies making forays into the Real World, assuming it will behave like the controlled digital systems they are used to.
"A cheap experiment beats good ideas every time" Michael Schrage
Few opportunities for low-commitment testing Before making an irreversible and significant commitment to a particular business approach, I’m a huge fan of doing as much lowcommitment, de-risking testing as possible.
Respecting uncertainty, planning differently
1. Define success before you start
3. Operations specifications
2. Market and competitive benchmarking
4. Document assumptions
Like so many businesses, this is where companies dreaming in Thoughtland fail to get real.
This looks to me a lot like assumptions that completely took over from fact-based reasoning. We wanted it to be true, so in our minds it is!
5. No checkpoint planning The heart and soul of a discovery driven plan is saying, “let’s not do this all at once, let’s plan to the next checkpoint and see what we’ve learned.”
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Lesson Learned Managing innovation is not an undisciplined grab bag where you get to do whatever you want. It’s a disciplined process which can be de-risked and managed with the appropriate practices.