Helping Landlords Find Tenants – Sean Mitchell of Rezi
Craig Cannon [00:00:00] – Hey, how’s it going? This is Craig Cannon and you’re listening to Y Combinator’s podcast. Today’s episode is with Sean Mitchell. Sean is the co-founder and CEO of REZI. REZI helps landlords find high-quality long-term tenants in 48 hours. They were part of the winter 2017 batch. You can find them at rentrezi.com. All right, here we go. Why don’t we start with just a brief explanation of what REZI does and then go back to what you applied to YC with.
Sean Mitchell [00:00:30] – REZI is a rental marketplace with the mission to make renting better. We use our technology and we use finance in order to provide products that allow us to do that. Our first product was a product called Upfront which is essentially a solution that gives landlords an option where they’re guaranteed to lease out their vacant apartments and gives tenants the ability to lease apartments from us in under 10 minutes. When we applied to YC, we’ll just call it winter of 2016, we were focused on the rental space, we knew that there had to be some sort of risk transfer from the landlord to either us or some other party, but we didn’t really candidly have a great handle on what the model should be so at the time we were kind of toying around with the idea of “Okay, well, what if we gave landlords protection from the downside,” like if a tenant doesn’t pay their rent.
Craig Cannon [00:01:36] – To a put a finer point on that, the risk transfer has to happen because that’s your value proposition. Otherwise, no one cares.
Sean Mitchell [00:01:43] – Yeah, right. Let’s think about it from the landlord’s perspective. A landlord principally has two risks with a vacant property. The vacancy risk itself, the lost income and the carrying costs from owning that asset every single day. If they’re not generating income, that’s a loss. But then when they lease the property out to a tenant, will the tenant pay their rent? Will the tenant damage the unit? Will the tenant be disruptive to other tenants who live in the building? These are all considerations that they have to have. We got fairly comfortable on how to solve that second problem. What changed during our time at YC was we decided to take the next step forward and solve the first problem. Prior to YC, we looked a lot like, effectively, a software solution that gave you better due diligence or better screening for your tenants. While we were in YC, what we realized was okay, what if instead of saying to the landlord “Hey, if you use our tool, you’ll have a better success rate with screening tenants.” What if we said to the landlord, “Okay, you never have to worry about a vacant unit ever again.”
Craig Cannon [00:03:01] – Right.
Sean Mitchell [00:03:04] – Would that be compelling enough of a solution that, you could make a business out of it and, completely candidly, we got to YC January 4th, I told the team I wanted to pivot the strategy probably on January 6th, and we went to Office Hours, with are partners, kind of told them “Hey, yeah, you know what you let us in for, yeah, the thing you let us in on, we’re not going to do that anymore.” We had tried to figure out what we want to do and I’d say by the end of the month, we had, decided on this strategy and we actually closed our first transaction at the end of the month. It was a whirlwind January in 2017.
Craig Cannon [00:03:48] – And we got to go into the financing in particular, but what was a particular revelation that you had to shift.
Sean Mitchell [00:03:55] – Yeah. It was how big of a problem can we solve? Anyone in leasing and anyone in the rental space is familiar with the problems and pain points in the leasing process. Tenants have terrible user experience. Frequently, there are are agents, whether there be brokers or other parties who don’t have skin in the game, so the landlord who is effectively at risk of finding a bad tenant or not finding a tenant fast enough and losing money, they don’t have a partner who is, in that same risk. Those two problems were pretty apparent. The quote unquote aha moment was what if you could create a scenario where, for the landlord, that risk didn’t exist anymore? And if you could offer that product and that’d be, we knew it would be enormously complex to offer but if you could, because you have to solve pricing, you have to solve funding, you have to solve, technology but if you could do it, could you then meaningfully improve the tenant experience where, tenants have the ability to lease properties in minutes versus, waiting days and, sending all of their sensitive personal information in, typically very unsecure ways.
Craig Cannon [00:05:23] – Did you have cash on hand in the beginning to pay these landlords? Or how did you get that side of the marketplace?
Sean Mitchell [00:05:29] – The first transaction we did we had the YC SAFE capital, we had a little bit of money that we’d raise from friends and family but the first transaction we did, I pulled my other two co-founders aside and I said, “Teah, I’m going to probably use 40% of the money we have on this one deal and it’s like if this doesn’t work, yeah guys, I don’t know.” That’s what I told them. And that was not an easy conversation. But, we felt fairly convicted that it was the right solution. Knock on wood, that went well and continues to go well.
Craig Cannon [00:06:08] – Right. For people who don’t understand the product fully, how much cash are you giving this landloard, it’s a full year, right?
Sean Mitchell [00:06:16] – Right, so depending on a given transaction, it could be anywhere from call it 30 to 50 thousand dollars.
Craig Cannon [00:06:21] – Okay, that’s average.
Sean Mitchell [00:06:21] – Sometimes on a per-unit basis. On a portfolio of units, if we’re, for instance, if we’re engaging with a landlord who has like several units or something, then it can be, several hundred thousand dollars or greater.
Craig Cannon [00:06:35] – Gotcha, and from a tenants side, how do you meaningfully differentiate?
Sean Mitchell [00:06:40] – Yeah, so user experiences are a big focus as it relates to tenants. You look at the leasing process, so, particularly I leased in New York, you’ve been through this too, leasing an apartment, particularly in any competitive metro is a very painful process. There’s no standardization on the qualification criteria. Typically if your broker’s not being really responsive, you can have missteps with being able to see the unit or visit the unit and so we really focus on okay, how do we make this process more efficient? First and foremost, we, decided to tackle showings and we said okay, can we make it possible for someone to schedule a showing anytime they want? And we did that leveraging, our concierge team. But after they see the property, how do we improve the application process such that it’s more secure and it’s better? And really that’s where, the technology kind of came into play and kudos to our CTO Hersh who really thought through how do we implement this in a way where a person can just apply and get a decision, fairly instantaneously? We’ve been fairly fortunate to be able to achieve that.
Craig Cannon [00:08:07] – Volume wasn’t a critical issue, it was mostly nailing the user experience. For example, all the apartments or a majority of the apartments that I looked for when I was living in New York and out here actually, just Craigslist stuff, right? You didn’t need to have an apartment in every area in Brooklyn at the time.
Sean Mitchell [00:08:24] – No because we typically used third party tools to market through. No, it was really user experience and to make sure we got pricing right.
Craig Cannon [00:08:33] – Okay. Where do you fall on the pricing spectrum?
Sean Mitchell [00:08:36] – We’re live in the Bay area and in New York at the moment. A typical apartment, our price ranges are, probably anywhere from 2,000 to, maybe on the upper end, 6,000 dollars on a given unit, it really depends on, is it a studio one bedroom, two bedroom, et cetera. I think where there’s, a tremendous amount of value of what we do is that we are able to provide a fair amount of insight to our landlords, even landlords who don’t end up transacting with us, we’re able to provide them a fair amount of insight on where their units are likely to transact given a certain price because, the thing is, when you think about the resources that landlords have to kind of get price discovery, the tools are not very nuanced and precise. They don’t provide the landlord insight okay into “How does my likely, executable rent change if I had stainless steel appliances or not. Does it change if I have a patio or not? Or if I have a deck or not?” And, what we’ve tried to accomplish on the modeling side with our, our internal system is can we put a price on those things? Can we say to the landlord, okay, if you have stainless steel appliances, your rental rate should increase by 57 dollars on the corner of 72nd and 2nd for a one bedroom apartment.
Craig Cannon [00:10:08] – That’s amazing, wow.
Sean Mitchell [00:10:09] – That research process and, developing that sort of pricing at minimum provides landlords with, a valuable insight into, where the market may be even if they decide for whatever reason that our product isn’t the right fit.
Craig Cannon [00:10:28] – Okay. Following in that, we had a question from Twitter from Roberta Stamrkus. What mental frameworks and thought processes were behind growing the supply side around landlords? Doing things that don’t scale in particular.
Sean Mitchell [00:10:40] – Yeah. Landlords are probably one of the more nebulous communities to figure out how to sell to and I, first and foremost, will not pretend that we have fully figured it out. We’ve learned a lot. When we started, Kennan and I, Kennan’s another one of my co-founders, we essentially, in our little rental, while we were going through YC, we essentially set up a two-man cold calling operation where we, essentially, would go to Craigslist, Zillow, and any other site, pick 100 units, and we’d just call people. Frankly, the willingness to be able to just talk to your customer just like, the funny thing is that it’s not complicated, it’s not fancy, it’s not using, AdWords or PR or anything like that and we graduated to that stuff later, but to start it was like, call a thousand landlords and have 900 of them tell you, I will say it more politely than they did that they’re not interested and you learn a lot.
Craig Cannon [00:12:00] – What are you asking them?
Sean Mitchell [00:12:02] – Typically we confirm, at that point we confirm, is the unit still vacant first off? And second of all, if the unit was still vacant, then we said, “Okay, well, this is what we do. We’ll make you an offer to rent your apartment. We’re able to close in 48 hours, we would love to send somebody out to come and just take a look and we’ll make you an offer.” We almost 100% of the time have landlords who say to us, “Haven’t heard of this before, can you explain to me how it works?” Because they’re fairly curious about the process, right? What we’re really able to speak to is the fact that not only are we going to provide them that certainty of execution and, give them that cash in hand but we are fairly sophisticated in how we approve tenants. Although we’ve meaningful improved the tenant experience, in many cases our due diligence process is meaningfully more robust than the landlord’s. They kind of get this best of both worlds where, they have the certainty, they get the cash up front, but they also have now this, this entire technology company that has skin in the game with them to due diligence these tenants extremely well. For the ones that we were able, for the, not the 900, that told us, the 100 that stayed around, that was a fairly interesting option.
Craig Cannon [00:13:47] – Okay. What exactly are you doing to screen tenants?
Sean Mitchell [00:13:50] – When a person applies for a REZI apartment, we’re looking at some of their rental history. We look at credit, we look at their income and employment status. One of the things I’m probably most proud of is the fact that what we’re not doing, which I think a lot of tenants have commented us that they like this about our process, what we’re not doing is evaluating things that don’t relate to whether or not you’re going to be a good tenant and I think the fact that it’s, an automated algorithmic process really reduces the potential for discrimination, reduces the potential for not approving tenants who are viable and potentially great tenants. We balance the right line, we want to make sure that, you’ve in the past been a good tenant, you have the ability to pay your rent, you’re background indicates those things and if we can verify that.
Craig Cannon [00:15:02] – Does the landlord have any part in the final choice?
Sean Mitchell [00:15:09] – No.
Craig Cannon [00:15:10] – Okay. So, that’s how you avoid the bias. Yeah, okay, gotcha. Yeah, I’ve gotten apartments in funny ways and you’re just like, I don’t know, they said they thought it was cool that I worked at The Onion a long time ago and I was like, maybe that’s what they thought, maybe not.
Sean Mitchell [00:15:24] – We hear all types of stories. We meet tenants who are like, yeah, the guy just, he just shook my hand and just liked the way I presented myself. I mean and like listen, more power to them. I think those landlords, they’re great, the stories we hate to hear about are–
Craig Cannon [00:15:40] – The downside, yeah.
Sean Mitchell [00:15:40] – Yeah, the other sides of that but from our perspective, we know that we’re taking not only a financial risk but we’re also taking, the risk of the type of tenant this person’s going to be. Are they going to be disruptive? Are they going to, do they have a history of not, being the best member of that community and so we take that fairly seriously. We really try to balance this line between giving a great experience but also verifying that we’re screening. You know, I would say probably 90% of the cases, we’re probably screening better than our landlord clients would have if they hadn’t used this.
Craig Cannon [00:16:18] – Do you have a ballpark acceptance rate? That’s not even the right word probably.
Sean Mitchell [00:16:23] – Yeah. I know what you mean. Sort of. It’s a little bit difficult to give you context on because it really does vary by apartment. We have apartments that, we’ll show it two times and it’ll rent and it’ll only get two leads and then we have apartments where it’ll get 40 leads a day for a month and it… It really does vary by location. I could give you an aggregated number but it’s actually, it’s not the most correct.
Craig Cannon [00:16:58] – It’s actually apartment specific. It’s not just like “Hey, I’m going to sign up and then I apply anywhere?”
Sean Mitchell [00:17:03] – Well, so, any person who applies for any REZI apartment, we don’t charge application fees. So, if you apply for a REZI apartment and you’re approved, if you decide that you want to take, apartment A instead of the apartment B, you’re freely able to do that. We don’t charge application fees, we don’t charge broker fees. So, tenants have a very frictionless process as it relates to renting the units but yeah, different units they just attract different types of volume. If it’s a three bedroom versus a studio, you know at the right part of New York or right part of San Francisco, you’re going to drive a meaningfully different amount of traffic.
Craig Cannon [00:17:43] – Okay, so let’s talk about the financing side because I think this is quite different from the average YC start at the average VC backed company. If the standard path is to sell equity in your company shares, whatever that might be. You guys did that but you also raised debt to finance the leasing of the apartments. Explain.
Sean Mitchell [00:18:03] – Yeah, sure. Pretty early at the outset decided that we wanted to be able to have capital to provide the solution at scale for our landlord clients. We knew we had to be kind of thoughtful about that. A lot of companies approach that and they kind of think all right, well, I raised X amount of dollars in SAFEs so I raised X amount of dollars in VC capital, I got to spend that equity capital to fund my origination. From our perspective, we thought well wouldn’t it be better if we intelligently kind of created a financing mousetrap because we’re generating a return on these investments. Those returns are attractive to third party investors, can we create a structure that allows those investors to earn that return and allows us to use the money that our, our SAFE investors gave us just to operate the business? We were fairly successful in doing that but I also think, it’s sort of the thing that you don’t even know to ask that question unless you’ve kind of been on that side of it. My background is in finance and, structured products and so I did a lot of that in my past life and so I think we have a little bit of an advantage.
Craig Cannon [00:19:22] – How did you package that product? Because the closest thing, as a consumer of this, I’ve never worked on that, is like a REIT, like, something that like you’re like okay this is kind of real estate-y.
Sean Mitchell [00:19:34] – No, that’s actually, yeah, it’s a really good comparison actually. In effect, what we did was say, okay, we lease apartments that creates a receivable. Is there a way to kind of put those receivables together and then raise money from that? And that’s essentially what we did. REIT’s are effectively that with properties attached.
Craig Cannon [00:20:00] – Right. Before you raised the debt, had you standardized what you expected to return across all of these units? How did modeling that out even work?
Sean Mitchell [00:20:11] – Yeah. We had a fair understanding of what the market would require, so, and when I say that I think whenever you’re thinking about like the returns of your asset or your receivable, whatever you’re doing, at the end of the day, it has to be at a return that’s attractive to investors, so, we knew, investors in consumer receivables tend to like to earn something in the ballpark of mid teens or greater into the 20s returns on their cash flows, so we said okay. We probably need to solve to be somewhere around there or, at minimum, if we’re going to be lower than that then, we just need the budget for it. But I don’t think it’s very difficult, for particularly the startup founder to know exactly what the return is. Because you had these, it’s effectively two markets. There’s an investor market that has its required return and then there’s a product market that has its potential return and your hope is that those two are, at minimum, fairly similar, ideally the product one is a little bit more. But there’s a discovery process there and I think that we, so far, have been fortunate enough to, provide that solution on both sides but that’s a pretty important consideration whenever you’re launching any FinTech company is, if you’re creating a return that’s, 2%, well, investors can go and invest in US treasuries for 2%, so, do they really want to invest in your thing?
Craig Cannon [00:22:08] – Which is not a sure thing by any means. What did the education process look like on both sides? RBoth on the debt side of like hey, we’re doing this thing, and then on the venture side of like “Hey, just so there’s this debt thing happening.”
Sean Mitchell [00:22:22] – Yeah. Well, on the debt side, we were fortunate, we had pretty thoughtful and educated investors there, I think fairly sophisticated and also very capable in getting up the curve on new assets and so I think that we were, we can’t really take all the credit for that but I think we were fortunate in that regard. As related to our VC partners, I think, whenever they invest in FinTech, whenever they invest in this space, I think, they probably one of the biggest risks that they are worried about is can this company fund whatever, like, the origination that it’s creating and I think, from their perspective, the worst case scenario is that, I gave you 500 thousand dollars or a million dollars to, pay for salaries and pay for server costs and you went and lent it out. Not that that’s a bad thing, per se, but it’s now limited your ability to do anything else. When we went to our VC’s we said pretty clearly, our intent is not to use the majority of the capital that we raise from you for funding these receivables, our intent is to, create this financing solution that allows us to do it.
Craig Cannon [00:23:42] – Right, so it’s not necessarily, it’s actually maybe more attractive to them.
Sean Mitchell [00:23:47] – I think so.
Craig Cannon [00:23:47] – That’s the notion.
Sean Mitchell [00:23:47] – When we go out and raise again I’ll let you know.
Craig Cannon [00:23:51] – Someone asked an interesting question, Akash Jane asked how do you model risk given your business model?
Sean Mitchell [00:24:00] – I could probably talk for like an hour on risk but I would say, so, our team, we bring a lot of different types of expertise to bare in mind is structured finance, my co-founders Pearling Commercial Real Estate, Pearling Engineering and, two of our senior team members, one’s entire background is in receivable research and analysis and the other’s is on, product development and design. The one thing that I will say that we’ve been fortunate with is that, you know, we each kind of know our strengths and know where we got. More specifically to this question when I think about the risk we have, it’s principally two things, we’re taking vacancy risk, we’re also taking the performance risk on the tenant side. Does the tenant perform?
Craig Cannon [00:25:01] – In other words, do they pay their rent?
Sean Mitchell [00:25:02] – Well, do they pay their rent but also, are they a good tenant? Because even if they’re not paying, even if they are paying their rent, if they create a scenario where the landlord doesn’t want to work with them anymore or work with us anymore, that creates business friction for us. Our process and understanding that risk has been kind of a combination of looking at other types of consumer receivables and understanding how those are underwritten as well as, you know, kind of testing things and saying, “Okay, well, we think the timeline for this particular rental should be X.” Let’s go back and see if that’s what actually happened, right? Not even testing it with a live transaction but just like seeing kind of back testing our own models and saying okay, our models would suggest that lease up would happen in 60 days, let’s look back, did it happen in 60 days or sooner or something like that. There’s a fair amount of back testing for us on the pricing side and on the vacancy side and there’s a fair amount of, not necessarily comparable but other types of consumer receivables that we can learn from on the tenant due diligence side and so that’s kind of how we approach understanding our risk.
Craig Cannon [00:26:27] – On the pricing side in particular, are you basically suggesting to the landlord this is where it ought to be?
Sean Mitchell [00:26:34] – Yeah.
Craig Cannon [00:26:35] – And that’s just how it goes?
Sean Mitchell [00:26:34] – Yeah. There’s no landlord that we’ve ever engaged with that doesn’t negotiate, they always want to. We have a fair understanding of the amount of room we have to negotiate but, we are fairly transparent with our landlords on, “Okay, this is where we’re going to pay, this is what we’re going to pay you, and this is where we’re probably going to relist it and the reason we’re going to relist it here is because this is what we think the right price is.”
Craig Cannon [00:27:04] – Okay.
Sean Mitchell [00:27:05] – And I think, again, that that information is valuable. You take rentals out of the equation for a minute, any asset, if you’re selling your car, right? And Kelly Blue Book doesn’t exist, some of the best way you can have, an understanding of where your car is valued is if somebody else comes and makes you an offer, right? And so we try to be a very transparent partner to our landlords and say look, this is what we’re going to pay you and this is where we’re going to relist it. You know exactly what we’re going to make from this transaction and we’re telling you why we think this is the right timeline and we can have an open and honest conversation.
Craig Cannon [00:27:49] – And then that doesn’t put them off in general.
Sean Mitchell [00:27:51] – No, frankly, that transparency is helpful because this is their asset and this is our landlord’s, this is their investment, managing property is a very difficult, very argentous process and so it’s important that they see us as their partner. from our perspective, the biggest value that we give to our landlords is that, again, we have skin in the game. If we think it’s going to take three months to lease this up and it takes four months to lease this up, we’re going to lose money, not you.we want to be able to communicate to them, transparently in order to solidify that trust. I think it’s a fairly important thing with any business relationship.
Craig Cannon [00:28:41] – now do you have just like a network of people who are essentially reps for you to interact with these landlords? Are they assigned a rep the whole experience or what?
Sean Mitchell [00:28:50] – we have a sales team, they engage with landlords at all different levels and what’s been important for us is learning that the market has to teach us a bit. real estate is so wide and so diverse, there are mom and pop landlords who own one and two units and there’s, Blackstone who owns 100,000 units and there’s a huge subset in between of people who own, 100 units up to like 10,000, 20,000 units and all of them have different, pain points and particularly when we were in YC, we Wre very adamant. Like okay, it’s this type of landlord and I think what we’ve had to learn is like okay, let’s go find out. Let’s go ask them and see, who wants a solution and why and, try to craft a solution that works for everyone. The other thing is, that we’ve learned to be a little bit flexible to really respond to landlord’s concerns because the interesting thing about it is if you are able to solve the problem on the landlord’s side that the benefits really accrue to tenants. If landlord’s have lower friction, if they have lower risk, if they are happier with their process, if they spend less money, a lot of that benefit gets felt by tenants who, are able to have a faster and more secure application process but frankly often are able to get much better deals in terms of their pricing and as it relates to broker fees and as it relates to application fees not as it relates to the actual rent itself.
Craig Cannon [00:30:45] – Right. Now do you have an average length of a tenant right now? You’re winter 17, so right now you’re just coming up on a year.
Sean Mitchell [00:30:52] – Right, so we had a fair amount of renewals over the last few months and we’ve done several more deals in the last quarter. Typically we’re leasing, call it between one and two years.
Craig Cannon [00:31:05] – Okay. It’s pretty standard for New York or San Francisco, same deal. You mentioned learning from the market, what were the other surprises post YC? I’m sure there are a bunch.
Sean Mitchell [00:31:15] – Yeah, a few, yeah. The thing that was probably the most surprising was finding out, when you’re a startup founder, you research other startups and you try to understand, how they solve these problems in their markets and some of the companies, you would imagine had very sophisticated mechanisms to acquire customers actually just had like regular sales teams that cold call people and like, That was one of the biggest aha moments where, interestingly I think sometimes you get caught up in the idea of like I have to innovate everywhere. And I think one of the things that we learned and, I want to say thankfully we learned this now.
Craig Cannon [00:32:21] – Yeah, sooner rather than later.
Sean Mitchell [00:32:22] – Yeah, is that, you know what? Some processes work because they’re the right process and so you should just do that. We learned fairly early that, if you really want to work with a landlord and want to get them comfortable, you got to talk to them that there’s not a scenario where you’re not going to engage with this person, particularly if it’s a mom and pop landlord, there’s an emotional attachment to this asset. Don’t expect them to just like come over and like just list it on a platform that they don’t know. At this early stage at least, there’s going to be an education process. For tenants, it is similarly, our experience has been, we give them an automated experience in the leasing. There are times where just, even after someone’s leased an apartment, just interacting with a person, like literally giving your customer a call and saying, “Hey, how did you like your experience? Hopefully everything went well.” That’s sort of small stuff, that’s not just an automated response which we do, we have automated responses, we have automated notifications. We can’t engage with, with every single tenant that we have or every single landlord that we have on a very hands on level but we do make the effort to do it a little bit because we learned and also we build a customer loyalty there that will play out to be pretty valuable.
Craig Cannon [00:34:07] – Well, it’s such a unique angle. I’m trying to think of an example where something that used to be so high-touch just becomes automated away. Imagine the first time you go in a self-driving taxi and you just step out and you’re just gone. It’s like, is this it? Is this it?
Sean Mitchell [00:34:26] – What’s really exciting about right now is that we are kind of participating in a reimaging of a lot of these, industries, whether it’s, if you take Opendoor and home purchasing, you take Oscar and health insurance. There are a lot of businesses that the infrastructure itself that is allowing these transactions to occur actually looks very much like the traditional infrastructure of the past. What’s changed is technology’s ability to improve the user’s experience and that is something, at least for us, is a very exciting thing to be a part of because we know 20 years from now, two years from now, more and more tenants are going to, they don’t want to feel like they’re applying for a mortgage to lease an apartment. The same experience that they have with, buying something on Amazon is the same experience that they want to have with leasing an apartment and so we know that if we’re providing that, we’re on the right side of history and similarly for, for landlords, like anyone else, there’s actually no other investment that I can think of where the investor gives their asset to someone who has no downside. Whether it’s successful or it fails, real estate is probably one of the singular places where you see that happen and I just I don’t think that’s something that’s likely to continue. Landlord’s are going to want that accountability with
Sean Mitchell [00:36:10] – their real estate transactions and tenants are going to want that better user experience and I know what we do is providing those things and so given that, our bet is on those tenants remaining true and if they do then we have a really good chance of being successful.
Craig Cannon [00:36:31] – That makes sense. In terms of broader trends, you’re talking about trends in global consumer behavior, basically how they want to purchase stuff. On the apartment level, are you noticing certain things are just really coming up and this is what makes an attractive apartment?
Sean Mitchell [00:36:48] – Yeah. A lot of companies are of the same mind that the application process, the search process, needs to be elevated, it needs to be more technology, less human beings, and there are a lot of companies that are doing this in some way, shape, or form. I would also say that other “theme” that is fairly powerful right now is this idea of creating communities at different buildings and I think there are a lot of different companies that do this, Common, I think there’s another one called Own that’s doing that with kind of common spaces but this idea of create like using technology but also just understanding how to engage in a social level to create communities and buildings and the power of that effect, I think it’s very interesting, it’s something that, I anticipate we will have the opportunity to play a part in as well but I’d say, automated process and more, kind of community, living in community frameworks for different buildings and neighborhoods are both transit I expect in the real estate space to continue and to expand.
Craig Cannon [00:38:18] – Anything on new construction?
Sean Mitchell [00:38:22] – In terms of–
Craig Cannon [00:38:23] – In the context of like what’s coming on the market, what seems to be attractive now.
Sean Mitchell [00:38:28] – Yeah. Landlords are constantly looking for differentiators and so they’re leaning towards, more technology inside of your house. There are apartments in New York where you’ll get, they’ll give you a year worth of Netflix, they’ll give you an Amazon Echo, I think it’s really just about gaining an edge and getting the apartment marketed and leased but yeah I expect that to continue.
Craig Cannon [00:38:57] – Okay and are you finding that these trends are broad across the US or is it super market specific? Where are you guys mostly right now?
Sean Mitchell [00:39:06] – Yeah, so we’re in the Bay area and New York. We will potentially be in other markets over the next 12 to 18 months. Those trends are common across every market but they’re moving at different speeds. New York, in particular, is very interesting because of the saturation and new development has forced a meaningful increase in the concessions that landlords have to offer in order to get their units leased. And in lieu of a concession like lowering the price or in lieu of a concession like giving away a month free, I think a lot of landlords are thinking okay, how do I better amenitize my unit? How do I give you services? How do I give you an Uber pass? How do I give you a Netflix subscription? To accommodate that tenant’s desire and New York’s going to be a place where that trend moves fairly quickly because there are buildings and landlords who are picking up on the fact that, tenants are noticing. They’re paying attention to what the leasing experience is and they’re making decisions because of it. Right? Just as much as getting those stainless steel appliances matters, the experience in leasing out your apartment matters. They’re starting to realize it and I think that that’s been triggered a lot by the new construction that’s kind of come on the market. New York is going to move fairly quickly. I think San Francisco is somewhat similar.
Sean Mitchell [00:40:48] – Market’s like Dallas, D.C, Atlanta are all kind of in that boat, Miami also in that boat, but there are a fair amount of cities in kind of the Midwest or central corridor of the US that, they’re moving in that direction as well but there’s still so much potential return available in those rental markets that those landlords don’t feel, they don’t have the same urgency.
Craig Cannon [00:41:22] – Are these landlords all… I guess it’s probably location specific in terms of margins, where you see certain landlords are like doing quite well and then others are really feeling the squeeze?
Sean Mitchell [00:41:33] – Yeah, I think. It’s definitely market specific and, that’s a long-term trend that, metro areas tend to have lower returns on it in terms of a rental basis then on metro areas. So, we’ve seen that, continue and anticipate that change anytime soon.
Craig Cannon [00:41:51] – Yeah, nothing changing. All right, cool. Now that you’re like a seasoned wise entrepreneur, what would you have told yourself having now started a company, having now gone through YC, say three or four years ago?
Sean Mitchell [00:42:05] – Well, I’m still a fairly young person, so I think I’m still learning quite a bit actually. What I would have told myself and what I kind of continually tell myself is really be focused on solving the problem. Once you raise some money and once your team kind of expands a little bit, there are a lot of ways to get kind of lost in the shuffle of running a company versus committed unfocused to, the reason why you started the company in the first place and it’s easy to fall into the trap of, you’re an entrepreneur or you’re running a startup for startup sake or for that sake and I would say, I continually tell myself this today and I certainly would’ve told myself then to be hyper focused on how do we solve the problem and you can’t over optimize your business and over strategize, but I think you have to be willing to iterate and willing to like learn from what the market tells you and not fall in love with, I created this really cool fancy thing and, if nobody is interested in it then you got to also be willing to throw it to the dustbin of history as well. Just that commitment to being problem-focused is definitely something I would certainly continue to tell myself and I would advise everyone to think of it that way.
Craig Cannon [00:44:00] – Yeah, I think it’s so common. Especially on the technical side. Being like “Hey, look at this crazy software I made and it’s super fast, it’s an all new programming language, I invented it all last night,” and you show it to a customer and they’re like–
Sean Mitchell [00:44:13] – Yeah, if nobody wants it, what’s it matter?
Craig Cannon [00:44:14] – Yeah, don’t care.
Sean Mitchell [00:44:16] – Doesn’t matter.
Craig Cannon [00:44:16] – Have you now just hired people that you can delegate to so you can stay focused on that problem? What do you do?
Sean Mitchell [00:44:22] – Yeah, we have expanded our team, I talked a little bit about, I think I’m certainly among the most fortunate founders in that I have a team of very experienced people who are also incredibly humble and willing to get their hands dirty. I am very acquainted with the fact that that is extremely rare. I really try to supplement weaknesses. We haven’t really expanded the team as it relates to the debt financing or securitization financing side because that’s really my expertise and I don’t think we need to. We have expanded the team on the sales side and, in particular, on the real estate operations side because we needed to increase our bandwidth there in order to be able to engage larger customers but we also needed to kind of import some expertise, we had to like, learn a bit about how is the standard whether it be broker or technology, how are they solving the problem and how can we put our own spin on that? We’ve kind of been fortunate on our sales side to really hire some people with some strong real estate and customer acquisition expertise.
Craig Cannon [00:45:47] – What are your recruiting pro-tips? How do you get these people?
Sean Mitchell [00:45:51] – Yeah. Recruiting is hard.
Craig Cannon [00:45:53] – I am aware.
Sean Mitchell [00:45:55] – It is so hard. They don’t tell you how hard it is. That’s the thing like recruiting particularly people who are like great people like it’s very difficult.
Craig Cannon [00:46:01] – But once you get out of your friends circle, often times, I knew three or four people we could hire and then you’re done.
Sean Mitchell [00:46:08] – Yeah, same here. That’s exactly right. My recruiting tip is if you need to hire for a role, at the outset be very specific about what you need and it’s important to know what you need versus what you want, right? Sometimes you can get caught up in the, optimal perfect I’m going to hire for somebody who’s going to become, five years from now potentially a senior of the company and as a startup you’re like your life exists in moments. At any given point in time you’re, maybe anywhere from six months to a year and a half away from not existing. It’s very important to just remain focused on like achieving your goals. Hire to do that and then when you got to reassess, reassess.
Craig Cannon [00:47:06] – You were working a finance job before you started this company. What kind of mental process did you have to go through to like get ready? Did you quit your job before you guys went all in? How did it go?
Sean Mitchell [00:47:16] – I was really fortunate that the company I was working at prior to starting the company, they were very supportive and continue to be, it’s a great team and, we remained fairly close. When we applied to YC, I was still working there.
Craig Cannon [00:47:38] – Oh, okay.
Sean Mitchell [00:47:39] – I notified them when I applied and said, listen. This could be a great opportunity, so I might leave. They were really great about being supportive and being helpful there. The process for me went fairly, it was fairly straight forward. We let them know what we were doing, we kind of mutually agreed upon a time when I was going to leave and you know that’s kind of how it ended. One of my co-founders, he quit much earlier and he was just working on the company kind of day in, day out and that’s the sort of thing that, you got to have really significant amount of trust between your co-founding team when, different people are in different life situations. It helps that, particularly for me and Kennan, we’ve known each other for, in excess of a decade, we’ve been friends for a very long time. With Hersh, we kind of found somebody that, this is so cheesy, I know, but we kind of found somebody who’s simpatico, who was willing, we’ve all kind of had this view of we’re just going to work as hard as possible until we get there and I don’t think even when Kennan was working full-time and Hersh and I were part-time, I don’t think he ever felt that we weren’t contributing our share because we would just work until midnight and put in, 16 hour weekends like until we couldn’t.
Craig Cannon [00:49:23] – Until you shift it.
Sean Mitchell [00:49:24] – This is important.
Craig Cannon [00:49:28] – It’s a super common thing, right? You were like, “Oh, you’re working on it full-time and like the other guy has one foot out the door” and it’s like “Eh, me?” Especially with YC. If you get into YC then I’ll do it. It’s like more often than not. If I get into Harvard, I’ll go to college. Oh, awesome man. We had a great question from Twitter that I should ask more often. From Renee Deanda, they asked on personal life, how do you manage your wellbeing day to day?
Sean Mitchell [00:49:57] – That’s a fantastic question and something that I am constantly thinking about. I don’t think when we started REZI, I don’t think I appreciated how much taking care of yourself impacts your ability to run the business and it’s so important. I’ll answer a couple of ways. I would say, physically I’ve been, more recently over the last few months, trying to take better care of myself in terms of not only eating but exercising more, getting the gym in, try to hit at least three times a week if not more.
Craig Cannon [00:50:36] – Get to the gym? Yeah.
Sean Mitchell [00:50:38] – Jut literally put yourself in a space where you’re not thinking about anything else. The mental relief from being in the gym is just as valuable but, I’m a big guy, down like 15 pounds and starting.
Craig Cannon [00:50:51] – That’s amazing.
Sean Mitchell [00:50:52] – Thank you, man. I have a lot more to go.
Craig Cannon [00:50:56] – But it’s not easy. It’s not easy.
Sean Mitchell [00:50:59] – But I’m happy with that as a process. I would say outside of the physical side, in terms of the mental challenges that you have, I mean, running a startup is you engage with terror and euphoria all the time. All the time. I can’t think of any other experience where like on a weekly basis think the world’s going to end and you think you’re on top of a mountain. Hhaving resources around you, we have, a coach who I talk to on a regular basis just to kind of level set and be able to think outside of just the tactical day to day but, and this is going to be a little sappy but it’s true… Frankly the biggest help to me on a day to day basis was, my partner or my girlfriend, she is, I genuinely don’t know how I would do any of this without her. Frankly having her as, a person that I can talk to and just download with but also can help kind of take me away from the day to day, that’s been super helpful for me, so, I feel really fortunate. I have a lot of really supportive people who understand the amount of effort and time it takes to run this business and have been there to be really supportive.
Craig Cannon [00:52:34] – Do you now block off time to spend time with them? Or how do you do it?
Sean Mitchell [00:52:37] – Yeah, it’s tough. Yeah. I’ll give you a good example, we took a family vacation a few weeks ago. I didn’t really vacate. I was physically there but, I’m still doing conference calls, still checking emails, because a startup’s your life. You try to separate but it’s your baby, right? What I’ve been doing a better job of is, giving myself blocks of time, two hour windows, three hour windows where, okay, I’m genuinely not going to do anything and that’s really what I’ve been practicing is like every day or so after eight o’clock or after nine o’clock like okay, I’m not checking. I’m not checking. And then, I wake up at five every morning and then it’s like, okay, I’m checking. back to it.
Craig Cannon [00:53:39] – I agree, man. Well, not everyone has a problem with someone who wants to work a lot, but it’s the person who’s constantly checking, refreshing e-mail feeds and stuff.
Sean Mitchell [00:53:47] – Yeah, you got to have, at the end of the day, you have to be able to show that that person’s important.That’s not that difficult for me because she’s extremely important to me. I’m learning not to be so much of a workaholic and I’m getting better at it.
Craig Cannon [00:54:10] – Okay, all right. You mentioned working with a coach and obviously having a tight relationship with your girlfriend, super helpful for managing stress. Are there any books.. Managing stress is a big, big issue that people need to take seriously in order to not just be busy, they need to be performant. They need to step back and think strategically, “What ought to I be doing right now?” How do you frame that? What do you read? What do you think about?
Sean Mitchell [00:54:40] – I have always been addicted to activity. I need to do something to keep my mind and what I’ve really began to learn over the last year or so… That’s because I had a lot of these personal life experiences that I was really just trying to avoid and just not think about. I was just like all right, I’m just going to keep busy so I don’t have to think about it. These anxieties, they can be driven by, personal life experiences or experiences of close friends, both in my case, that manifest themselves in you working but frequently that working isn’t productive because you’re just doing it to not like pay attention. First and foremost, a skill that I’ve only recently learned is in the middle of having an anxious moment or in the middle of being really, really stressed out like, actually just stopping and asking myself like, “Okay, why do I feel this way?” I mean literally doing it. That could be construed as oh, well do it in the moment. No, I mean literally like stopping whatever you’re doing, walking away, going to a private room or a stage and like literally saying okay, why do I feel like how I feel? And I will tell you that like I’ve only been doing that since I started, working at REZI and that has been so transformative for me because when you think about starting a company, it’s a very stressful thing to do. Right? You’re putting your career and you’re livelihood at risk
Sean Mitchell [00:56:39] – ,but that’s actually not even the most stressful thing. The most stressful thing is that you’re putting other people’s livelihood at risk and if your concepts and ideas fail, it’s not just going to impact you, it’s going to impact them. These are people who, you likely are very close with and so that’s a very stressful thing to deal with on a day-to-day basis. Not to mention anything else that’s happening just in your personal life because your personal life doesn’t go away when you start a startup. It all still exists. The way, at least for me, that I’ve been able to really get a handle on the stress is knowing why I’m doing what I’m doing. There’s a lot of, I certainly was one of those people that was kind of just working and just living the life without having a purpose around it and now one of the things that has alleviated a lot of my stress is that everything I do is purpose driven. I know why I’m running the company. I know why I’m in my relationship. I know why I have the friend group and support group that I have and so there’s no part of my life that isn’t purpose driven and isn’t connected to where I want to be. That alleviates a lot of stress because even if we’re wrong and even if there’s downside, I know that, I’ve done the best that I could have because my interest and my actions are aligned. I really want to be able to say I read this and that’s where this came from and that’s, fortunately or unfortunately
Sean Mitchell [00:58:19] – that’s not what happened, I had, I think a challenging year last year. Not challenging in a negative way but just a lot of big things happened. I turned 30 last year, my mom turned 70 and got older, my girlfriend and I got much closer, oh and I started a company. That too. It was a very active year and what I’ve been fortunate enough to learn is that none of that stuff is too big for you. None of that stuff is too big for me to do. As long as I’m doing it in a purpose-driven way. Why am I doing all of those things? And as soon as I’m, very focused on the reasons why I’m doing it. Everything else kind of, the stress kind of alleviates ’cause I know what to do.
Craig Cannon [00:59:14] – Well it also helps you cut out the bullshit.
Sean Mitchell [00:59:16] – Exactly.
Craig Cannon [00:59:16] – Where you’re just like this is not–
Sean Mitchell [00:59:16] – Exactly.
Craig Cannon [00:59:18] – Yeah.
Sean Mitchell [00:59:18] – The things in my life that aren’t about these things, aren’t getting me closer to where I want to be with these things, they just go away. Because you don’t have time for them. Not even just time but you don’t have appetite for them anymore and that is a fantastic place to be. Weirdly, I am daily in what probably should be the most stressed I’ve ever been and yet I’m daily probably the happiest I’ve ever been.
Craig Cannon [00:59:47] – Right. Well, it’s not surprising, beause there’s progress. If there’s a goal and there’s a purpose behind the goal and you’re making progress towards the goal and you’re not just like zigzagging around.
Sean Mitchell [00:59:59] – Totally man but you know what… Other than the select few who like launch a product, it becomes the greatest thing known to man and they, ride off into the sunset. Everyone goes through these periods of iteration and I think getting used to the fact that having those moments of this is the greatest idea anyone’s ever thought of, we’re conquering the world, and then this company’s totally going to fail, we’re done, we should go.
Craig Cannon [01:00:35] – It’s not going to work, we have a competitor.
Sean Mitchell [01:00:37] – We should go pivot to being a beer company. Which is definitely an inside joke at REZI. Just being able to handle those ups and downs and keep very focused on the outcome, that is a skill that I’ve really only learned effectively by trial by fire but it’s been very, very helpful and very useful for me in terms of managing my stress. Even in the most stressful moments, I’m able to level set and it’s like “Okay, this is what’s happening, I understand why I’m freaking out, let’s focus, let’s solve it, and let’s keep moving.”
Craig Cannon [01:01:20] – You put the purpose into words by just asking yourself. Are you journaling this down?
Sean Mitchell [01:01:25] – I do journal things down. I do that all the time where I will… I’ve actually found that in those moments where I’m taking a step away again, like I said, I’m physically I’m walking away. I’ll go take a walk or I’ll leave the room for a minute and I’ll just open up Notes on my iPhone and I’ll literally just start saying what I’m feeling and what happens is that it just comes out, comes out, comes out, comes out, comes out and as you express how you feel, the logical centers of your brain start to take over and it’s like “Oh, that’s why I feel like that. Oh, that makes a lot of sense. Oh, okay, fine.”
Craig Cannon [01:02:05] – That’s how I get myself, whenever I’m worked up, I’m just ready to turn, this is silly, why do you care about this?
Sean Mitchell [01:02:10] – That logical assessment of the situation can’t happen until you get it out. Because you feel how you feel and until you can accept that you feel how you feel, you’re not able to, actually move on from it. Running a startup is a very all encompassing experience because it’s not just the running the business, it’s the what it takes from you as a person to do it and, I’m really grateful for the opportunity to do it because it has driven a lot of personal growth just as much as it will drive, a lot of professional growth.
Craig Cannon [01:03:00] – Yeah. Man, that’s great. Lot of wisdom. Let’s just wrap it up there. Thank you so much.
Sean Mitchell [01:03:05] – Cool, all right, thanks.
Craig Cannon [01:03:07] – All right, thanks for listening. As always you can find the transcript and the video at blog.ycombinator.com. If you have a second it would be awesome to give us a rating and review wherever you find your podcasts. See you next time.