Posted over 7 years ago

Why Zillow Group CEO Spencer Rascoff is a Rockstar

READ TIME: 5 Min

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I attended a fireside chat featuring Spencer a couple wks back. He's a real estate rockstar who preaches servant leadership, & is an extreme positive force for Zillow & the RE industry...i.e. he's the living manifestation of my BETWEEN TIDESnewsletter.

Strong mentorship is critical to personal growth, & I've been personally challenged in consistently surrounding myself with A+ professional mentors. This write-up therefore hits close to home, as I deem Spencer a highly compelling exec study from which I can learn a tremendous amount, even if from a distance. His RE knowledge base and leadership principles are extraordinary and the extent of this write-up surprised me in the end, but it was well worth it. Excited to share it with you all.

(NOTE: The below is paraphrased from Spencer's fireside chat hosted by , & is supplemented by online research. Fast Company had some great articles on Spencer and ).

ORIGINS

ENTREPRENEURSHIP IS A FAMILY AFFAIR: Mother was a RE agent. Father was a famous entertainment biz mgr who redefined the artist touring model, in which artists are hired talent by a production co that assumes the tour underwriting risk.
IDEA INSPIRATION: Spencer & co-founders observed 900+ MLS networks where all data was in a B2B format. Vision was to bring this data layer & use-ability to the consumer (similar to how travel aggregators like Hotwire disrupted travel agencies...Spencer helped co-found Hotwire pre Zillow).
NEW DATA: Before Zillow, only avail value data was the sale price, NOT mkt value. Early on Zillow focused solely on the latter, didn't even feature listings.
PRODUCT FOCUS: Spent first 2-3 yrs solely on product, did no traditional mktg. Exceptional product was 100% of early mktg efforts.

BUSINESS MODEL

ZILLOW = WEB MD: WebMD is not a healthcare co but a media co; it publishes content to drive site traffic, & then sells ads against that traffic. Similarly, consumers go to Zillow for its data, & agents buy ads on Zillow to generate new customer leads...i.e. Zillow is the "park bench" of the Internet.
WORLD'S LARGEST AGENT CRM: 70% of revenue is from individual agent ad sales.
MOBILE EVERYTHING: Optimized for mobile a few yrs back, as consumer behavior shifted to on-the-go research (75+% of traffic).
MASSIVE RE HOLDING CO: Owns Hotpads, Dotloop, Trulia, Hutch (investor), Naked Apartments, RealEstate.com & much more.

ZILLOW AS A "WEAK AGGREGATOR": Ben Thompson of Stratechery (an incredible tech & strategy blog, & the only daily newsletter I subscribe to) describes the Zillow biz model via the following framework (paraphrased): Zillow is a "weak aggregator", in that the Zillow platform brings on users (home buyers), suppliers (housing inventory / listings) & revenue (agent ads) on a zero marginal cost basis.

This value chain position is a powerful place to be (e.g. GOOG & FB), though Ben notes Zillow's challenge is that it is excluded from the RE transaction VS the agents & other service providers who still command all transaction fees (agent commissions, title fees, insurance premiums, mortgage, etc).
CE NOTE: I wonder how much upside exists in solely growing agent ad sales. Curious how Spencer thinks about this vs re-positioning Zillow for greater fee participation. It's a unique challenge considering Spencer's "need for humans" note farther below.
Ben has written extensively on aggregation theory, which he coined back in 2015 & which describes how platforms (i.e. aggregators) come to dominate the industries in which they compete in a systematic and predictable way. Worth a further read.

ZESTIMATE

(Zillow's Mkt Value Estimator)

CONSISTENT: Within 4% of purchase price (on avg), with same over / under ratio. Regularly publish accuracy data on website.
ASK THE PEOPLE: The Zillow Prize is a crowdsourced campaign to improve the Zestimate algorithm. 2,500 teams submitted using the LA data package.
SHADOW INVENTORY: Can impact pricing, and it's hard to account for in models. Explained here.
DATA IS NOW A COMMODITY: Products like Zestimate and RE agent reviews are differentiating.

INDUSTRY NOTES

NEED FOR HUMANS: Despite all the "tech disruption", believes home-buying will always include 1-2 human intermediaries because: (1) Massive emotional decision (2) Often the largest single lifetime purchase (3) Many components to transaction (title, mortgage, negotiation, insurance, etc)
CROWDFUNDING: Feels "bubbly".
BEARISH ON BLOCKCHAIN: Wants to wait & see regarding impact on RE.
NO FORAYS INTO COMMERCIAL...yet, but that may change. Current dominant player is CoStar group which owns Loopnet (largest commercial marketplace), and MUCH more(ForRent.com, Apartments.com, WestSideRentals, etc).

TOP 5 RE PRICE DRIVERS

(Zillow data shows US appreciation is slowing, but is not predicting a recession)

FOREIGN BUYERS: Spencer told a story of an agent friend who has a Chinese buyer client. Over the past yr, this client has bought 20 homes at $1mm each in the Bay Area, sight unseen.
LOW INTEREST RATES: Many conventional loans still under 4%.
STRONG LOCAL ECONOMIES: Many mkts are under 5% unemployment
LOW HOUSING STARTS: Lack of development / housing starts post recession (2007-2012) have materially impacted supply / demand dynamics.
SPRAWL DYNAMICS: Markets with limited sprawl potential like LA (ocean, mountains) vs Phoenix / Denver have different price dynamics.

LEADERSHIP STYLE

DECISION-MAKING EXEMPLIFIES CULTURE: At Zillow, it's a data-driven meritocracy.
NODE-BASED DECISIONS: Old school leadership often meant that only execs had access to complete data set; subordinates only had pieces. Spencer believes in pushing decision-making to the nodes to be closest to consumer and client data.
CEO = HR EXEC: (1) Sets strategy (2) Defines mission (3) Recruits, retains & motivates
CORE VALUES: (1) Move fast, think big (2) "Turn on the lights" (empower RE consumers w/ data) (3) Winning is fun (4) Own it (5) Act with integrity (6) Z is a team sport. NOTE: Spencer waited a couple of yrs till culture was firmly established until they codified it. Doing so too early can be a misstep.
KNOW EMPLOYEE ENERGY: HR uses a program called Insights to profile each employee's energy & communication style, & managers are directed to communicate with direct reports as appropriate (in fact, there's a 10-page leadership playbook all managers must read). Spencer is red..."Be brief, be bright, be gone".
ZALL WALL: Staff profiles on the company intranet feature personality test results & "karma points", which are good deed shout-outs by fellow employees.
THE HARDEST PART: Managing career development. Lots of ambitious team members. Hurts the worst to fire / lay off.
"HR DEBT": Extreme growth can lead to toxic and destructive cultures (e.g. Uber, SoFi). Be wary.
WORK / LIFE BALANCE: No email from Fri night to Sun AM, & goes offline from 7-9pm every night for family dinner time...sets tone for overall org.

WORDS OF WISDOM

BE LIKE YOUR BOSS? Ask yourself, do you want to be like bosses 15 yrs ahead of you? Spencer started at Goldman Sachs; his answer was no.
BIG EXPECTATIONS: If you raise $10mm at a $60mm valuation, know your investors likely won't want to sell for less than $100mm. Know the expectations you're set up for with that *big, sexy* round of financing.
CAREER MIRROR: Spencer's wife gut checks him regularly to assess if he's truly happy or not.

ANGEL INVESTING

Spencer looks for the following:

Strong co-founder dynamics
Product-first focus
Content marketing
Company vs a feature
Minimal "tech debt" (clean up old, messy code as you grow)

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Thanks for reading!