Much of startup-world news suggests tales of companies that are successful from Day Zero, hitting the ground running with near instantaneous product-market fit and never looking back. Or sometimes there’s the tale of a brief wander in the woods before finding the “It” product that then takes off on the fast train to Unicorn Station (see Instagram, Twitter, Slack). As investors, it’s great to back founders who can seemingly create something out of nothing and very quickly gain traction. Who wouldn’t want that?
But in reality, not all journeys are straight lines. In fact, most of them aren’t. Markets mature, new players arise, products go haywire, teams change, life happens. Product-market fit often proves elusive, and the search for it can be riddled with false positives. If I had a dollar for every company I’ve worked with that declared PMF success, only to flatline a few quarters later…
In these instances, it takes a special kind of leader to be able to look honestly at his/her company and make the often brutally difficult choices that are ultimately necessary to have a shot at success. We don’t talk enough about these nonlinear paths.
In our world, last month’s news of Reonomy’s successful $16 million fundraise marked a major milestone on one such nonlinear journey. It’s a journey that I think offers far more valuable lessons than the typical Unicorn Station Express story.
Reonomy’s story began back in 2013, when Rich Sarkis and his co-founder Charlie Oshman built a platform that took a fresh spin on the traditional, highly fragmented approach of analyzing commercial real estate assets. Their ultimate goal was to become the Bloomberg or Capital IQ of commercial real estate data; to eliminate the manual, time-consuming and often inaccurate research required to build a comprehensive data set of all the relevant data points that investors, brokers, lenders and other players must unearth about a given property. The vision - realized quickly and compellingly with the launch of their first product in late 2013 - was that Reonomy’s platform would compress that weeks-long research processes into mere minutes, and return more accurate and comprehensive data than was previously available.
The company’s initial, New York City-only product was a hit, selling like hotcakes in the first year and landing contracts with leading real estate firms and banks - including JP Morgan Chase, Jones Lang Lasalle and Tishman Speyer. On the strength of this early success, the company raised a $13 million financing and rapidly expanded its team in preparation for a national rollout, having targeted Los Angeles as its second launch city. But then…the wheels ground to a halt.
After months of work, LA’s data sets proved very difficult to reconcile and manage via the same model that had worked so well in NYC. Back home, sales suddenly slowed, as we learned that some flawed assumptions underpinned our understanding of the addressable market. That said, we were making some measured sales progress, and there was a potential path to glory around the LA product. The obvious choice would’ve been to press on, launch the LA market, and make the best of it. We had cash in the bank and a high-powered team, after all.
But Rich did something different, something incredibly unique and intellectually honest. He carefully appraised the LA situation and the product limitations that had surfaced. He realized that the model they would have launched with would have limited the scope of the product to just a handful of viable markets in the country, thus impairing their addressable market and scalability. There was a business there, but it certainly wouldn’t have been the one that he or his investors had signed up to try to build. So rather than pushing onward, Rich made the harder choice and led a full-scale existential reevaluation of the business. And he did that without anyone asking him to.
Around the boardroom, there was some degree of disbelief that things were really that bad. Frankly, it didn’t seem possible, given the company’s promising head start in New York. But Rich had taken a dispassionate look at the data and he wasn’t sugar-coating things. He presented the truth in a brutally honest, data-driven way that was hard to argue with. Long term, he was still determined to become the definitive platform for commercial real estate data. He just needed to find the right product.
As investors, we’re used to working with entrepreneurs who are wired for growth and optimism, who, blinders-on, push their businesses forward at nearly all costs, gunning for that linear path to glory. So it was refreshing to have the CEO, in this instance, be the one to hold up the mirror and expose the emperor, wearing nothing but a fig leaf. Before anyone asked, Rich had cut the burn in half, restructured his team and was all-in himself, seizing the reins of product leadership to forge a new path. Sure, revenue growth would slow further for a while, but ultimately, this was the only way to success, he told us.
After nine months of toiling, Reonomy’s new and improved product launched in Q2 last year. As the team dug deep into what worked and was most valuable in v1.0, they cracked the code on scaling the national data model. Rather than having to launch one city at a time, as they had initially planned to do, Reonomy was able to go to market with a full-scale national product that provides rich, deep data on virtually every piece of property from LA to NYC and everything in between. Need to do some analysis on the suburbs of Sheboygan, Wisconsin, or hamlets on the eastern plains of Montana? No problem. As importantly, they were able to drive down the cost of the platform, opening up huge new segments of the market that had been priced out of the original, Cadillac version of the product.
Having been in a very uncertain place just one year ago, the Reonomy of today is in full-blown heydey mode, now seeing strong month-over-month growth, per the chart below. Not surprisingly, that has made for a happy management team and an increasingly happy boardroom. Existing investors, led by Bain Capital Ventures, clamoring for a larger piece of the action - ourselves included - preempted the company’s next financing and closed the recent oversubscribed $16 million round.
Sure, there are still a million things that could go wrong, as is true of any business at any time. But under the stewardship of leaders who understand the value of staying ahead of the data, who are unafraid of taking a dispassionate, intellectually honest view of the limitations of their business, and who are committed to making the hard choices when those are the right choices to make, we’re confident that the Reonomy team will weather the next wave of storms it confronts and continue to thrive.