Sure. The example I've discussed most recently on HN is the real estate brokerage, and that one would probably be the easiest to explain. (I also don't want to give away the special sauce recipes for some of my other ventures. The real estate brokerage is probably our least original business in the overall scheme of things.) I have no personal pain points with real estate, but real estate is a huge, screwed-up industry...so there is enormous opportunity. I just looked for points of differentiation that would get the business closer to "the way things should be" from a consumer perspective.
One of the main problems is the incentive structure in real estate, and that's one of the first things I look at in any industry. I like performance-based incentive structures whenever possible. (And we tried a true performance-based incentive scheme first, but it confused too many customers.) Real estate agents, on the other hand, are almost always paid a percentage of a property's sale price - a commission. So all agents are rewarded if you pay more for your home, even when they are theoretically supposed to be helping you BUY a home for less. Our firm instead does everything for an hourly fee, like an accountant or attorney, but with a maximum cap on what the consumer pays - so there is no incentive for us to entice anyone into spending more on a home. We usually save customers at least $1000 in 'commissions' over what the 'discount' and online brokerages like Redfin and ZipRealty charge. And we don't artificially limit consumer choice to protect our pocketbooks (most discount/rebating/online brokerages will not help you buy short sales, for example, because they are more work and the transactions take longer. Many of these brokerages will also not help you buy a house for under $200K because their minimum commission would not be met, etc. We help you buy the best home for you. Period.) Agents are usually paid way too much for what they do, but sometimes they are underpaid for what they do. Consumers should pay for what they use, and no more. That is fair to both parties. VERY few existing full-service brokerages charge hourly fees. Less than 1%. Anything other than commissions is uncommon except for (limited service) flat-fee MLS listing agencies. That is a point of differentiation for us, but it's not enough.
Another issue in the industry is the principle of agency. This would take some time to explain, but basically consumers are often UNKNOWINGLY represented by agents that have no fiduciary duty to them (and/or agents that have other biasing factors that might affect the transaction outcome.) It's like Little Red Riding Hood having the Big Bad Wolf as an agent, while thinking that it's her Grandma. We represent buyers exclusively. Less than 1% of brokerages in the US are exclusive buyer agencies. That, coupled with the fee-based compensation, puts us above all but a few agencies in the country. But we need more differentiation, so we have to drive further into the "way things SHOULD be."
So we use technology that even some of the largest brokerages in the US don't have. We have a Microsoft Surface-like device that helps clients find their new homes. We have an augmented reality app that helps them find their new homes. We commissioned a traffic study ($50K+) for our area and we layer that onto our maps so that people could see actual commute times. We've hired outside consulting firms to audit local schools, etc. etc.
Another issue in the industry is the degree of education and training agents have. We require our agents to get certain industry certifications in buyer's agency and negotiation, etc. Less than 1-3% of agents in the US have each of these certifications...and very few agents have all of them. Another point of differentiation.
Most agents are concerned about how much money they can make off of you, first and foremost. As a consumer, that sucks. So we focused on how to make the experience better. We have full-time, trained financial planners that will work with you on deciding if you should even buy a home at all...or if it makes more sense for you to rent. You meet with them first, of course, and that first meeting is free. (We're probably one of the only real estate brokerages in the US that turns people away and tells them they shouldn't buy a home.) The same financial planners will help you figure out the best way for you to use the 'extra' money we would've been paid in commission that we refund to you. Would paying off bills be best? Investing it? A mortgage buy-down? Closing costs? Some combination of these? We help you figure out what is the smartest course of action. We also have trained credit counselors to help people fix certain credit problems so they can get better mortgage rates and/or qualify to start with. We have attorneys on retainer to help with certain issues. Most things are included within our fees. We have an in-house lending department that will help you get the best mortgage for you. Period. If you go with another lender for some reason, we'll help you analyze their offer to make sure there aren't any junk fees or hidden gotchas. We have free classes on this sort of thing, as well. We have a negotiated discount with a title company, so our clients pay less than most for their title insurance. Etc. Etc.
We focus on providing a superior customer experience. We act in the consumer's best interest, even if it means we lose money on a specific transaction. And we do make less PER TRANSACTION than our competitors, but the LIFETIME value of our customers is much higher because they stick with us. By the time they're done, they want to use us for everything they can. Which is cool, because we own a bunch of other businesses (asset management,etc.) I've even had a customer try to pay me more at closing because he felt guilty about taking advantage of me.
In taking off our rose-colored glasses, we had to be very particular about what type of client we could serve profitably. They had to be tech-savvy and they had to be qualified to buy within a certain time frame, for example. So we pre-qualify like crazy. The free financial planning is primarily for our customers, but it also helps us not waste time on people who shouldn't be buying, can't buy, or that would be unpleasant to deal with. Even people we turn away tend to send us referrals, so we don't hurt too many feelings. We essentially have a marketing budget of zero. Right now, we have a waiting list of clients because we can't ramp up fast enough to serve them while still maintaining quality standards. Did this example help any?
greatly. wow. You're my hero =P. I am seriously amazed that you can be profitable for doing so much. You're based in Chicago, right? I might have to hunt you down sometime =).
One of the main problems is the incentive structure in real estate, and that's one of the first things I look at in any industry. I like performance-based incentive structures whenever possible. (And we tried a true performance-based incentive scheme first, but it confused too many customers.) Real estate agents, on the other hand, are almost always paid a percentage of a property's sale price - a commission. So all agents are rewarded if you pay more for your home, even when they are theoretically supposed to be helping you BUY a home for less. Our firm instead does everything for an hourly fee, like an accountant or attorney, but with a maximum cap on what the consumer pays - so there is no incentive for us to entice anyone into spending more on a home. We usually save customers at least $1000 in 'commissions' over what the 'discount' and online brokerages like Redfin and ZipRealty charge. And we don't artificially limit consumer choice to protect our pocketbooks (most discount/rebating/online brokerages will not help you buy short sales, for example, because they are more work and the transactions take longer. Many of these brokerages will also not help you buy a house for under $200K because their minimum commission would not be met, etc. We help you buy the best home for you. Period.) Agents are usually paid way too much for what they do, but sometimes they are underpaid for what they do. Consumers should pay for what they use, and no more. That is fair to both parties. VERY few existing full-service brokerages charge hourly fees. Less than 1%. Anything other than commissions is uncommon except for (limited service) flat-fee MLS listing agencies. That is a point of differentiation for us, but it's not enough.
Another issue in the industry is the principle of agency. This would take some time to explain, but basically consumers are often UNKNOWINGLY represented by agents that have no fiduciary duty to them (and/or agents that have other biasing factors that might affect the transaction outcome.) It's like Little Red Riding Hood having the Big Bad Wolf as an agent, while thinking that it's her Grandma. We represent buyers exclusively. Less than 1% of brokerages in the US are exclusive buyer agencies. That, coupled with the fee-based compensation, puts us above all but a few agencies in the country. But we need more differentiation, so we have to drive further into the "way things SHOULD be."
So we use technology that even some of the largest brokerages in the US don't have. We have a Microsoft Surface-like device that helps clients find their new homes. We have an augmented reality app that helps them find their new homes. We commissioned a traffic study ($50K+) for our area and we layer that onto our maps so that people could see actual commute times. We've hired outside consulting firms to audit local schools, etc. etc.
Another issue in the industry is the degree of education and training agents have. We require our agents to get certain industry certifications in buyer's agency and negotiation, etc. Less than 1-3% of agents in the US have each of these certifications...and very few agents have all of them. Another point of differentiation.
Most agents are concerned about how much money they can make off of you, first and foremost. As a consumer, that sucks. So we focused on how to make the experience better. We have full-time, trained financial planners that will work with you on deciding if you should even buy a home at all...or if it makes more sense for you to rent. You meet with them first, of course, and that first meeting is free. (We're probably one of the only real estate brokerages in the US that turns people away and tells them they shouldn't buy a home.) The same financial planners will help you figure out the best way for you to use the 'extra' money we would've been paid in commission that we refund to you. Would paying off bills be best? Investing it? A mortgage buy-down? Closing costs? Some combination of these? We help you figure out what is the smartest course of action. We also have trained credit counselors to help people fix certain credit problems so they can get better mortgage rates and/or qualify to start with. We have attorneys on retainer to help with certain issues. Most things are included within our fees. We have an in-house lending department that will help you get the best mortgage for you. Period. If you go with another lender for some reason, we'll help you analyze their offer to make sure there aren't any junk fees or hidden gotchas. We have free classes on this sort of thing, as well. We have a negotiated discount with a title company, so our clients pay less than most for their title insurance. Etc. Etc.
We focus on providing a superior customer experience. We act in the consumer's best interest, even if it means we lose money on a specific transaction. And we do make less PER TRANSACTION than our competitors, but the LIFETIME value of our customers is much higher because they stick with us. By the time they're done, they want to use us for everything they can. Which is cool, because we own a bunch of other businesses (asset management,etc.) I've even had a customer try to pay me more at closing because he felt guilty about taking advantage of me.
In taking off our rose-colored glasses, we had to be very particular about what type of client we could serve profitably. They had to be tech-savvy and they had to be qualified to buy within a certain time frame, for example. So we pre-qualify like crazy. The free financial planning is primarily for our customers, but it also helps us not waste time on people who shouldn't be buying, can't buy, or that would be unpleasant to deal with. Even people we turn away tend to send us referrals, so we don't hurt too many feelings. We essentially have a marketing budget of zero. Right now, we have a waiting list of clients because we can't ramp up fast enough to serve them while still maintaining quality standards. Did this example help any?