A Proptech Pivot: A Conversation with Daniel Shaked

Everyone likes a good pivot story. And today we have one for you. Daniel Shaked is someone many of our readers know. He made his entrepreneurial bones in the call tracking space as founder and CEO of NoProblem, a business he exited in 2015.

Since then, Daniel has been on a long journey that appears to have finally landed on something promising with Home365, his proptech business that just raised $16.3 million and made a series of acquisitions. The company currently manages 7,000 rental properties via its innovative, technology-driven approach.

An Inauspicious Beginning

Things weren’t so promising in the beginning. In 2016, Daniel launched an app called ClipCall that uses video to make facilitating transactions between homeowners and home services pros more efficient. And while ClipCall still exists, it was by Daniel’s own admission, a lousy way to make a living.

“Building out a transactional, location-based, skill-based marketplace is a huge challenge,” Daniel told us in an interview last week. “Most of the marketplaces that are succeeding are marketplaces that are either not location-based, or the supply side of the vendors are not skilled. Like Uber drivers. They just need a pulse and driver’s license, right?”

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By contrast, trades are a confusing matrix of sub-specialties, each looking for specific kinds of work. And they are not interested in paying for leads that are not precisely targeted to the kind of work they want to do.

“Even plumbing has like so many different sub-trades and nuances. So matching, supply and demand overall, with all those complexities, it’s kind of hard thing to do,” he explained.

Ultimately, Daniel said the unit economics weren’t there.

“You need to ensure a decent repetition that people would keep on consuming your service again, and again and again,” he explained. “So you can recoup on the cost of acquisition and make some decent profit on that. And the lifetimes were short, relatively, because of all those complexities. There’s yet another complexity in transactional home services marketplaces, which is that the job is happening offline.”

That means there is often leakage, with repeat business not happening on the platform but rather via direct negotiations between the homeowners and tradesperson. This cuts out the platform that brought them together in the first place. Daniel said they attempted to police this using the best available location technology and so on. But ultimately, he found this process was like “digging concrete with a spoon.”

Airing of Grievances

Another sad discovery Daniel made was that building a home services marketplace isn’t a happiness factory. It’s a breeding ground for petty beefs and grievances. Yet this somewhat depressing finding did lead him to the business he has today.

“We were building a transactional marketplace, so we had all the communications stored on our side. Phone calls, chats that people had with service providers. And the thing that that you see there, more than anything, is that both sides hate each other,” Daniel said.

“They don’t trust each other. People don’t trust plumbers because they think they’re stretching their projects out and are trying to be sneaky. And plumbers don’t trust people because they don’t know anything about their job. So they would engage with five and ask an endless amount of questions for projects, which are worth a couple of hundred dollars and [keeping them] from bigger things. Eventually, it was just a hassle for people.”

This led Daniel to the insight that the problem that needed solving wasn’t that residents and tradespeople want to communicate via an app rather than over the phone. It’s that they didn’t want to communicate at all.

“You didn’t solve big pain by pushing people from one platform to a different platform, although it’s better looking,” Daniel said. “But the pain is not solved.”

Not a Total Loss

While the ClipCall business model wasn’t working. It did produce a mountain of data. To the tune of 150,000 projects that passed through the ClipCall platform. Daniel and his team started to sift through the data to see what they could learn from it.

“We were correlating all the data to the type of buildings that people were living in. Also the age of buildings, the location of that building. We were trying to build patterns and find who is our best customer, and what should be the price. Eventually, we had so much data and when we started looking at it in a very thorough way, we came up with the beginning of our prediction model,” Daniel explained.

“We could say, how many garage door problems we’re going to have tomorrow for the number of people we have. And what the odds are for garage doors not to open for every 1,000 homes in San Francisco tomorrow. Now, if you can do that, at certain proximity, you can build an insurance product.”

Eureka.

Subscription-based Maintenance

And so Home 365 emerged from the rocky beginning that was ClipCall. Skipping ahead a bit, what the company offers today is a solution for investors who own rental properties. Most of them are small investors, often based overseas, who want a simple and cost-certain way to manage their rental properties.

Home365 is essentially a subscription product for building maintenance and operations. Home365 uses the original ClipCall data, improved over time with machine learning, to predict maintenance costs and then spread them out so the owner avoids unpredictable spikes in cost. Basically, Home365 covers the things that the owners’ insurance policies don’t cover. Just as car insurance covers collisions but not worn-out brake pads, a building’s policy generally covers calamities but not ordinary wear and tear.

Here are its basic services.

  • Tenant management platform. Home365 promises to find the most qualified tenants for your property. This includes conducts full credit, background, and rental history checks on potential tenants. Then once they are in, tenants use the app to report any issues.
  • Full maintenance insurance. For example, it covers operating expenses such as routine repairs, proactive maintenance, turnover services, and so on. it works with a network of home services providers to handle the maintenance work.
  • “Preventative sensory system” throughout the property to detect maintenance issues before they become major problems. This sounds a lot like the IoT vision of your refrigerator messaging the repair tech once it detects the ice maker isn’t working.
  • A Rent Guarantee. Basically this de-risks property ownership. Of course, it comes at a price so it’s reserved for upper-tier customers.
The Walking Dead

Daniel initially talked to property management companies about offering this home maintenance subscription model. That didn’t get him very far.

“I met over 150 property management companies in us all over trying to sell them this thing. And what I found is very similar to the Yellow Pages industry. It’s a Walking Dead industry. Selling great software to a dying industry never works,” he said.

Yet Daniel realized that to facilitate its model, Home365 needed to acquire an existing property management company and adapt it to his new way of doing things.  So in July 2019, Home365 acquired a local traditional property management company in Las Vegas that managed 280 properties. And he subsequently grew it to 700 properties. The company has made subsequent property management acquisitions, bringing properties under management to 7,000 today.

Why the Rental Market?

Daniel said Home365 decided to focus on the rental property market for a few key reasons. These include the sheer size of the market, estimated at about $1 trillion. Another factor is the nature of the industry. It’s comprised largely of “mom and pop” owners with an average of two rental properties in their portfolios.

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“The way we pitch it really is, ‘Look, we are here to change the way you experience investing in real estate by making more of a new asset class that drives to predictable performance very passively. So it’s more like a savings account experience rather than being an investor.”

Ready for Home Owners?

Daniel eventually wants to take his maintenance insurance concept to the residential homeowner market. But that is a ways off, given the massive opportunity that remains in the rental market.

“The rental space is a huge market. And it’s a global market,” Daniel said.  “The same pains are in Spain and in Italy. If you are a landlord in Greece, you’ll have the same pressures. The thing is that we’re building a platform to power the next connected smart digital home. So right now we’re focusing on rental space. But at a certain point, we might go out of this space.”

So what began as an app for consumers to use video to solicit bids on home repairs has evolved into a sophisticated rental property management platform with 7,000 facilities under management. That’s quite a pivot.

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