Disruption Comes (Finally!) to Commercial Real Estate
How Jason Freedman and 42Floors cooked up a killer business idea that could turn commercial real estate on its head.
David H. Freedman
Creating Serendipity: Jason Freedman (left) and David Woodworth head to yet another meeting in New York City. Freedman believes that if you have a compelling story and tell it enough times, good things will happen.
David H. Freedman
Home Base 42Floor's co-founders (from left) Ben Ehmke, David Woodworth, Jason Freedman, and Jon and James Bracy live and work in a four-bedroom house as they prepare to launch.
Jason Freedman hunches his shoulders against New York City's December chill and walks faster, nudged both by the cold and by being late. He and David Woodworth, co-founders of an Internet company called 42Floors, both stand out a bit with their buoyant, vulnerable Californianess as they swim against the trudging, elbowing crowds.
Focused on the iPhone he clutches a foot in front of his face for navigational purposes, oblivious to how dorky and unsafe this seems on these streets, Freedman races on to the next stop in a two-day string of meetings, Woodworth trailing a few feet behind.
Freedman and Woodworth are several months into the creation of 42Floors, which aims to make finding office space as easy as searching for plane tickets. They're here in New York to...well, it's not entirely clear why they're here. For sure, they hope large New York real estate companies will eventually agree to share office-space listings with their start-up, though it's too early to ask for that sort of commitment. Mainly, they're here to share their plans for 42Floors and get feedback, given that New York will be an early market for them. But they also want to open doors to possible, as yet unspecified alliances or just somehow make something good happen, whatever that might be. If nothing else, Freedman hopes the meetings will generate leads for more meetings. "If they can't help me, maybe they play golf with someone who does," he says.
Freedman believes that start-ups need a certain amount of serendipity to succeed and that this serendipity comes to those who go out and take meetings. "Serendipity is a function of how compelling your story is and how many times you repeat it to people," he says.
That theory is just one tidbit from a vast repertoire of rules and advice that Freedman, 32, has gathered as a Dartmouth M.B.A., a founder of two previous companies, and a hard-core networker in Silicon Valley. Freedman passes much of this wisdom on through his blog, humbledMBA, which has become a favorite among young entrepreneurs. They eagerly soak up Freedman's lessons on how to take a kernel of an idea and turn it into a thriving business, a process that's currently consuming pretty much every minute of his waking life.
What Freedman does not want to get out of these meetings is the one thing most people seem to think he wants: money. That's because he believes that you should take as little money as possible early on, to protect the value of your shares down the road, when you really need the cash. Plus, good entrepreneurs don't ask for money, he says. They ask for advice and partnerships so they can refine their ideas and make them terrific, after which the money will flow unbidden.
What Freedman and Woodworth are specifically sharing at the meetings is Chapter Seven of their company. Freedman calls the successive iterations of his venture chapters. "Entrepreneurs tend to get too fond of their ideas, and that makes them resistant to change," he explains. "It feels like having to let go of your dream. But calling it a chapter acknowledges up front there will be more chapters. A chapter is easier to let go of."
That trick must work, because Freedman has been able to let go of six of them so far. What 42Floors actually does has, at times, radically changed from week to week. But Chapter Seven might be the co-founders' last shot. They have just three months left to polish their business model and create a website before presenting the results to the powers that be in Silicon Valley, a showing that will probably make or break the company.
Given that commercial real estate brokers wield all the power in the industry and would seem to have little to gain from being dragged into the digital age, 42Floors's mission initially strikes almost everyone who hears about it as quixotic, naive, misguided, or outright doomed. In other words, it's clear Freedman has a lot of minds to change. Yet Freedman has in fact been steadily changing them, and in all corners of the Internet and real estate industries. His unwavering confidence is palpable. It stems, he says, from another of his many beliefs, one that happens to be a sort of prime directive. "If you have a good team, an industry with a big problem, and a product that can solve it with technology, you have the makings of a hit company," he says.
His theory is about to be put to the test in a big way.
The introduction to Freedman's seven-chapter saga started about a year ago, when he was driving to Lake Tahoe with his girlfriend, Jennifer Karol, whom he had met online a few months earlier. She had had enough of listening to his tech start-up talk and had started telling him about her job at a large commercial real estate firm. Freedman winced. He was looking for office space, and it was the bane of his existence. He didn't want to spend his time off hearing more about it.
"Fine," said Karol. "We can talk about our relationship."
"OK," he said, sinking back into his seat. "Tell me about commercial real estate."
So she told him how commercial real estate really works. How tenant brokers—as opposed to listing brokers, who represent landlords-thrive by keeping listing data as proprietary as possible, so that companies looking for office space are dependent on their broker to know what's available, what's good and bad about particular spaces, and whether they're priced fairly. How a company called CoStar dominates the listings data business, making information available only to brokers, and at a cost of $5,000 a year per computer. How the industry's opacity is the key to generating some $25 billion a year in commissions globally.
And if you were a relatively small company looking for, say, 2,000 square feet for 10 employees, your problems got worse. You really weren't worth much of a good broker's time. Though smaller deals account for 80 percent of commercial leases, they provide only about a quarter of brokers' revenues. The result: Small companies often can't get decent information.
Suddenly, Freedman's own real estate woes made sense. He started peppering Karol with questions. For someone who had tried to avoid the subject, he suddenly seemed awfully interested. In his mind, at least, Freedman had just started his third company.
From the get-go, the venture seemed to have all the makings of a loser. The Internet world is littered with the bodies of commercial real estate start-ups that tried to limit brokers' ability to lock in tenants and rake in big commissions. Why would brokers want to pass on the needed information to a company that was trying to cut them down to size?
