An Idea is Born, Neutered, and Born Again
1.3 - A Pre-Launch Pivot
By the end of summer 2016, we were stuck. Our idea of a sharing economy solution for apartment dwellers had been dismissed by many of the biggest players in the multifamily industry. The handful of companies who loved the idea said there was no way they could make it work, because they had an unofficial NO-Airbnb stance.
We weren’t about to let that stop us. We knew Airbnb (and sites like it) were here to stay. We set about brainstorming.
Now, the following paragraphs highlight some of the problems we identified and how we solved them. They're not particularly interesting on their own, unless you're starting a short term rental business in the multifamily industry, but I wanted to include enough detail to demonstrate how we approached problem solving, and how the process of working through each customer concern helped us gain market acceptance for our solution before we'd written a single line of code.
Based on feedback, we knew our potential customers had three main problems we needed to address.
Problem One: Property Damage
The first problem turned out to be the easiest. Property owners and management companies worried about liabilities. In other words: damage to their property. That was fair. Airbnb offered an insurance policy to hosts, but it was cloaked in secrecy. There were no clearly stated rules for eligibility or claim adjudication. If an apartment resident hosted a guest who caused damage to the property’s pool, could the building’s owner file a claim for repairs? Owners don’t like ambiguity when it comes to protecting their assets.
What if we offered additional insurance on top of Airbnb’s? And what if we provided the policy documentation to every customer?
We met with insurance operators in the multifamily space. Many weren't interested. We progressed quite a ways down a path with one provider, but that relationship fizzled quickly. Thankfully, an innovative team at Assurant wanted into the short-term rental space. Together, we developed a brand new insurance product that would bring an extra layer of liability protection to our customers. We built the cost for the added insurance into the per-stay fees we would eventually charge our clients, and we could clearly articulate how their properties would be protected.
Problem one solved.
Problem Two: Resident Safety
Problem two was a bit more serious. Property owners and management companies wanted to know if any guests posed a safety hazard to residents living at the property. Again, it was a fair concern.
Airbnb, at the time, made unofficial claims indicating they performed background checks on every guest. Like their insurance policy, the details of this screening program were rather opaque. How did they do it? What did they screen for? And how did they account for situations in which an Airbnb user booked on behalf of someone else? For example, I may have had the Airbnb account, but what if I used it to book travel for my parents? Airbnb had no knowledge or data about my parents, so how could they possibly “screen” them? Total strangers could show up for a reservation, and neither the host nor Airbnb would have any knowledge of who those people were.
We began to research screening companies. Our original insurance provider also offered background screening services. We used their services during out pilot phase, but when that partnership deteriorated, we sought something better. Ultimately, we would launch a streamlined solution with TransUnion, who proved to be a great partner.. It would integrate with our backoffice tools to create a mostly automated approval process.
We wouldn’t just screen the person making the reservation. Our customer experience team would require specific names and details for any guest expected to arrive at the property. We informed users prior to booking that we would require non-credit background checks as part of the process, so they wouldn’t be surprised when asked for personal information. We also created a rules-based approval process so that hosts at the property never made personal decisions to approve or reject guests. Multifamily operators must comply with federal Fair Housing rules for tenants, and we wanted to bring that same compliance to short term rentals. Problem two solved.
Problem Three: Control
Problem three was a bit trickier. How could we build a solution to let residents share their apartments if the property owners didn’t want their residents to share? We had no product if we couldn’t convince the property owners and management companies to play along.
I don’t remember whose idea it was. I don’t remember exactly when or how the concept developed. But at some point, we were suddenly talking about guest suites.
Apartment buildings across the country kept one or two guest suites on site. Fully furnished, these units were employed as staged models for tours to prospective residents. Sometimes residents lived in guest suites while maintenance was ongoing in their actual apartment. Occasionally, out of town visitors would rent the space for a night or two. But there was no system in place for properties to effectively track guest suite usage. There were certainly no tools in place to optimize them. Most of the time, these apartments sat unoccupied. Empty square footage.
What if we could use guest suites to demonstrate to the industry the size of the opportunity? The phrase we used repeatedly was, "Let them dip their toes in the waters."
The multifamily industry is notoriously slow moving, especially when it comes to new technology. We couldn’t expect them to quickly adopt a new revenue model. It's painful for us as technologists and entrepreneurs, but it makes sense if you consider their point of view. Drastic changes can have long lasting effects on rents and occupancy. A rush into allowing short term rentals, for example, could lead to negative online reviews, detrimental to their brand, and the property could lose significant revenue for years to come. So what if we give them an opportunity to move slowly? List your guest suites on Airbnb. Control the process and control the messaging. You’re not formally allowing residents to share on Airbnb, but you can tell residents you’re testing the viability and impact of short term rentals. This gives you a way to experiment and collect data without conceding to tenants that sharing will be tolerated.
This idea changed everything. Most importantly, it didn’t require major modifications to our concept or product planning. The tools we expected to build to give owners control over a resident’s listing would still apply, because now the owner was acting as the resident. Additional resident tools could be added later when the owners and operators were more comfortable with the idea.
A Change in Pitch
With this new direction, and with our additional security features, we set off on another round of feedback. This time, the response was different. Eyebrows lifted. Gears turned. Instead of an endless string of NO’s, we heard questions about revenue and cost. If one guest suite performed well, could they add more guest suites? What if the guest suite was unfurnished? Could we furnish it? Would a unit perform better or worse if it was designated for short term instead of monthly rental? They still wanted to control the sharing process, but given we were only talking about units they already controlled (as opposed to resident units), control became less of a factor. In other words, they wouldn't need to approve a resident's photos or content. They could use whatever content they felt comfortable sharing.
All the objections we encountered during our first round of feedback vanished.
Of course, there were other issues to solve. Owners didn't know how their banks would react. How would short term rental revenue count in property valuations? Would they be violating the terms of their loans? And what about liability?
But this new feedback solidified the idea. Negativity gave way to excitement and interest. We even locked in a potential pilot partner.
There were still plenty of people adamant that no Airbnb sharing would ever be tolerated, but even they were curious.
All we had to do now was find a way to build it, a task that is often easier said than done.
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