Getting Out of the Building

by Kevin Casey, founder & CEO of New Avenue Homes

It took us three years to discover product/market fit and it all started with door-to-door research.

Our original idea for New Avenue was to transform the future of the American suburbs and we were going to do so by marrying crowd funding for real estate with modular infill housing.  The plan was simple – get small homes built in a controlled, affordable factory setting, and scatter them throughout existing suburban communities.  These small homes would be a great source for rental income and that income would secure crowd sourced investments from the masses.
Fortunately, in the spring of 2009 we did what Steve Blank always says to do… we got out of the building.  We took a random selection of neighborhoods within two hours drive of Berkeley and then took cross sections of those neighborhoods, created a survey about family size, income, housing needs etc. and we figured out that 30% of the homeowners had either tried to build a second unit and failed, or wanted to build one but assumed you couldn’t.
We didn’t understand exactly why they wanted our solution, (actually, we didn’t really have a solution, it was still an idea), but we now knew almost a third of the homeowners we contacted had a problem – they needed a second unit added to their single family home and they couldn’t find an architect or figure out the agonizing zoning codes.  We had the problem and we had the market… so we knew if we could figure out how to make it easy for them, then we we had a potential business.
We also managed to find our first client during our survey work as one of the doors we knocked on hired us to design a little backyard cottage for an uncle that lives with her for half the year.
Then we learned the tried and true maxim that no business plan survives first customer contact.  We toured modular factories from Scranton, Pennsylvania to Venice, California, and realized modular housing is a logistical nightmare, expensive and would be literally impossible for our market.  It turns out the client bought her home because it had eight beautiful trees and trees block access for modular homes… We also realized that crowd funding is a phenomenal idea but Fannie Mae was guaranteeing loans to homeowners at 3-5% which is extremely hard to compete with.
Most importantly, we learned that managing an architect and general contractor is something that a homeowner really values.   So we started building a process and standards for managing these service providers.   Once we started marketing our ability to integrate these challenging service providers more customers started signing up.
It Takes Time
We studied our early clients and worked extremely closely with the architects and contractors they hired.  While we all love innovation and Moore’s Law, city politics and human nature don’t necessary move as quickly and we spent 18 months moving the first project through the entire lifecycle of design, permitting and building.  This 18 month research process offered countless bits of information that guided our product design but it felt like a lifetime when we were in the middle of it.  Then we needed another two years to find and study the next 50 clients.  Once we had this set of clients we could segment our customers just enough to realize that the market was so much broader than we had imagined.  We learned that our customers are primarily baby boomers who want to share their homes and their lives with extended family.  They are building beautiful little retirement homes and family compounds.  They didn’t want the rental income that was our initial theory.  They want community and they want to help their children.
Because we had spoken to hundreds of homeowners at the very early stages of our idea, we had strong evidence that the market was huge, the problem was significant and that we had a unique opportunity to provide an answer to an almost overwhelming desire for more living space created by new buildings on existing properties.   That gave us the insight and confidence to push through years of refining the service model until we nailed a product/market fit.   Last month we were featured on the cover of the San Francisco Chronicle and a few months prior to that Page One of the Wall Street Journal as “The Latest Urban Trend” and cities across the country are promoting this model for housing.
Getting out of the building gave us a four year head start and the time to become a leader in this market before the papers picked it up.
Kevin Casey is an MBA ’09 of Berkeley-Haas and is founder and CEO of New Avenue Homes.  Find him on twitter @newavenuehomes.