Wed, 1 April 2020
296: How Invitation Homes CEO Dallas Tanner Scaled a Multibillion-Dollar Home Rental Company at Breakneck Speed
CEO Dallas Tanner on the breakneck creation and growth of multibillion-dollar home rental company Invitation Homes.
Like a lot of successful businesses, Invitation Homes was a seemingly overnight hit that had been in the making for many years.
“We bought the first 30,000 homes in the first 18 months,” says CEO Dallas Tanner, of the single-family home rental company.
Based on that burst of early success, it might seem as though Tanner did the impossible—come up with a brilliant idea, instantly get buy-in from an investor, and reap immediate rewards.
But long before Invitation Homes launched in 2012, Tanner had already cut his teeth in the home rental business. During college, he bought a couple of houses with his dad and managed them while going to class. He later founded the Treehouse Group Companies, which focused on workforce housing in the Southwest.
So, when Tanner set out to start Invitation Homes, he did so with a large body of experience, knowledge, and accomplishments in his chosen field. That could have had something to do with the quick traction he got at Blackstone, his early capital partner and provider of funds for those 30,000 homes.
“High speed, low drag,” Tanner says of their initial goal. There was an intense focus on getting out there, scaling up, and achieving meaningful gain in as short a time as possible. Were they worried, though, that the swift pace might blind them to any turbulence ahead?
“If you’re building an airplane while flying it, there’s always a risk that you may miss a step. We were lucky to have no major issues and that’s because we were comfortable in the area we were building. We knew it and understood it.”
That early work and knowledge of the industry paid off. In 2017, Invitation Homes went public with an initial share price of $20. Two years later, it hovers between $29-30 per share, a 48% increase. Blackstone sold its remaining shares (11%) of the company in November 2019 for $1.7 billion, bringing Blackstone’s total profit from IH to $7 billion.
Systemize to Scale
Tanner attributes much of the company’s success to its fast, effective scaling. “Economies of scale give us a really strategic advantage in terms of the services we can provide residents, and establishing predictability of the experience.”
Cases in point: Each of the 80,000 homes in the company’s portfolio is visited by one of its 300 technicians every six months, whether there’s a known issue in the home or not. Customer care is offered 24 hours a day. Day-to-day management and communication are provided by local teams of 10-15 people or, as they’re called at Invitation Homes, “pods.” Each pod has 3-5 maintenance technicians to service its portfolio of properties.
And the system seems to work. On average, Invitation Homes residents stay for about three years. More than 80% of them take advantage of another system innovation—online auto-pay.
Tanner is constantly reviewing data, though, to ensure they’re being as efficient as possible.
“As we think about our business, we’ve gotten more and more efficient here in year seven,” he says. “We’re focused on the kinds of things that deliver a really good customer experience but make us as optimized as possible.”
For example, the inaugural days of the business found technicians switching out locks each time a home got a new resident. New tech eventually provided the option of electronic entry, which Invitation incorporated into its homes. Now, when a resident moves out and a new one moves in, only the code needs to be changed. This made the move-in experience that much smoother for new residents and saved time for the team.
Knowing What to Hold Onto
Crunching data is also how Tanner reviews the performance of each property and whether it’s time to sell. Their typical home is a three bedroom, two bath with 1,800 square feet, which will rent out for about $1,800/month, depending on the market.
Invitation Homes sometimes sells off certain properties that either aren’t performing or have experienced such increases in value that a sale presents a better gain for the company.
“Just like any good asset manager,” Tanner says,” you look at the data and make these decisions in real time.”
And, true to form, he’s even created a system that kicks in when the decision is to sell. The “Resident First Look Program” allows the home’s current resident to consider purchasing before the home goes on the open market.
Dallas Tanner’s Advice for System Creation
Tanner is firm in his belief that fine-tuned systems allow for the best customer experience and most efficient performance within the company. So what’s his advice for others who are looking to create systems that allow for scale?
That last point is crucial. “If you’re not capturing data from an early stage, then you’re kind of playing with one arm behind your back,” Tanner says. That early information provides keen insight and helps you make sound decisions about best practices in years two and three.
Remember, though, that the quest for good systems shouldn’t overwhelm everything. “You’ve got to spend your time being as efficient as possible, but driving growth at the same time,” Tanner says. “It’s always a balancing act.”
For Invitation Homes, the priority is to find long-term residents and put them into homes in markets and submarkets that are the most appealing and as efficient to manage as possible. This priority steers decisions and interpretation of data at the company. It defines how the company and its people best use their time.
Finally, Tanner offered two key activities that he believes lead to success for startup entrepreneurs:
He acknowledges that it also takes some luck and good timing. “But, the only way those things go your way is if you’re head down and going hard.”
Interview by Nathan Chan, feature article reprinted from Foundr Magazine, by Rebeca Seitz
Wed, 25 March 2020
Believe it or not, there are many parallels between the world of boxing and the world of entrepreneurship. Tim West is familiar with both.
As the founder of the fastest-growing global boxing franchise, 12RND Fitness, West has had his feet squarely planted in both realms for many years.
He started his journey working in brick-and-mortar fitness centers before jumping into tech entrepreneurship, and eventually launched 12RND Fitness in 2014, which quickly exploded across Australia and is now expanding globally. In fact, West is in the process of opening up their first locations in New Zealand, Singapore, London, and Los Angeles this year.
In this interview, West dives deep into his thoughts on the franchising model, his biggest lessons from working in tech, and his approach to overcoming obstacles. Check out the full conversation below!
Sun, 22 March 2020
As a founder, you’re likely feeling a lot of stress and anxiety around the current situation with COVID-19. While we hope your business isn’t being too heavily impacted, we want to let you know that we’re always here for you and want to help in any way we can.
We’ve been mulling over how we could be the most useful to the Foundr community and decided it would be incredibly valuable to sit down and talk to Steve McLeod. McLeod is uniquely equipped to share advice about the current circumstances for many reasons: he’s a business coach that has guided thousands of organizations through challenging situations (including Foundr); he founded his own company called Fire And Safety, which is now a $20 million business; and he’s a former firefighter who dealt with many disasters during his eight-year tenure.
In this interview, we touch on many topics—from managing cash flow reserves to communicating with customers to adjusting your mindset—that we hope you’ll find helpful as we navigate this unfamiliar territory together. Whether you’re getting ready to launch a new business or are already running a seven-figure company, the contents of this interview should be applicable for entrepreneurs at every stage.
If there’s any other type content you’d like to see that would be valuable to you during this time, please don’t hesitate to reach out at email@example.com to let us know.
Thu, 19 March 2020
Jim McKelvey needs to solve problems. “It’s not about money. It’s not about recognition. It’s not about anything you can measure. It’s just this burning need to fix something.”
That burning need is what sparked the ideas for all of his startups, including the massive small business payments company Square, and now his current project, Invisibly.
“I look for a problem that I care about,” McKelvey says. “I look for something that bothers me, something that angers me, something I will get up and bend my life into a pretzel to solve.”
In fact, the problem that became the catalyst for Square—which, by the way, has grown to a $34 billion market cap—evolved from McKelvey’s first profession as a humble glassblower.
That same unstoppable drive is something he’s seen in so many successful startups around the world, and it’s now the subject of his new book, The Innovation Stack. Someone sees a problem and, without experience or previous knowledge, they set out to solve it. For McKelvey, this is what true innovation is all about.
Mira Publishing: Turning Failure Into Opportunity
McKelvey’s first company, Mira Digital Publishing, solved two problems, actually. First, McKelvey wanted to create image storage and recognition software, something that was still in its infancy when he founded the company in 1990.
Second, he needed a way to break out of his own rut. He had graduated from Washington University in St. Louis in 1987 with degrees in computer science and economics. At 19, he’d published a textbook called The Debugger’s Handbook: UCSD and Apple Pascal.
But after he graduated, he was running at what he calls a “high level of mediocrity,” freelancing for IBM, blowing glass, and running a company that built storage cabinets for CDs.
In 1989, his mother died suddenly, and it made McKelvely reevaluate his priorities. “I just asked myself, do I want to be mediocre at everything? And so I decided that one of the things I had not done in my life was focus.”
So he gave up IBM and the CD cabinets (but not his glassblowing) and focused on starting Mira. Unfortunately, Adobe released Acrobat in 1993. “We got our heads handed to us by Adobe. … It was a giant mess.”
But while their imaging software failed, some good still came out of it all. That’s when McKelvey met Jack Dorsey, the future co-founder of Twitter.
The Entrepreneur and the Artist
McKelvey is a trained glassblower, who has even written a textbook on the subject. In the past, he’s used his studio to support himself while working on his startups.
“The cool thing about making a physical product is that you can do it whenever you want. So I could work on my technical companies during the day and head into the studio at night, make a bunch of work and stick it in galleries and make enough money to survive.”
For him, art and entrepreneurship go hand in hand, not just because one can fund the other, but because they are parallel endeavors that achieve the same outcome. McKelvey says he uses an archaic definition of the word entrepreneur, which broadens its scope beyond merely starting a company.
“The original meaning for the word entrepreneur was this crazy person who did stuff that hadn’t been done before.”
Square: Starting With a Problem
Dorsey started as an intern at Mira, and the two developed a bond that held fast over the years. After Dorsey was forced out of his position as CEO of Twitter in 2008, he reconnected with McKelvey and they decided to start a business together. They just had no idea what that business would be.
They brainstormed together and came up with a few ideas. They knew they wanted it to be something mobile. They started looking into a journaling app, until another idea came to McKelvey while in his glassblowing studio.
He tried to sell one of his glass pieces to a customer who wanted to charge it to her American Express card. But Dorsey couldn’t process her credit card.
He lost the sale.
“And so I called up Jack with the iPhone that I had in my hand and I said, ‘Jack, you know, it’s really stupid that this iPhone that does everything that I want it to do—it becomes a television, it becomes a book, it becomes a radio, a compass—but it couldn’t become a credit card machine. And this is stupid. We need to fix this.’”
And so, they came up with Square. They originally wanted to serve artists who couldn’t take credit cards or receive electronic payments.
“The tough thing about being an artist is, I make stuff nobody needs. Like, nobody has ever needed anything that I’ve made in the glass studio. So, you better be ready when they’re ready to buy and not make it too difficult for them.”
The challenge Square faced was serving a community that didn’t have the typical business setup.
“These little guys who didn’t have credit reports. Some of them didn’t have bank accounts. Some of them didn’t have credit scores. Some of them didn’t have mailing addresses. I mean they were weird outliers to the financial system.”
Even some of their bigger customers were still too small by the standards of the industry to process credit cards. So, they were forced to reinvent the entire process, from signup to hardware to pricing schemes.
And for McKelvey, that’s where real innovation comes from, when you are forced to improvise.
“Invention is something that has to almost be forced upon us. And people get inventive when they have no other choice.”
The Innovation Stack
A few years after Square launched, McKelvey and Dorsey learned that Amazon had launched a small business payments service that was nearly identical to theirs. For the second time, McKelvey thought he was done.
But then, an amazing thing happened. About a year later, Amazon shut down their service and sent all of their former customers a Square reader. For a long time, McKelvey couldn’t figure out how they had survived a direct attack from a giant like Amazon.
“I was like, well what’s special about us? What did we do to be still standing after Amazon comes after us? And I couldn’t answer the question.”
He talked to former executives at a number of companies Amazon had directly targeted. Some of them sold to Amazon, while others went out of business. None had survived.
“I was happy we won, but I couldn’t answer the question, why did we win? I knew we’d won, but I’d like to think it’s more than just luck, but I just couldn’t explain it. So I went on this two-year quest to figure it out.”
McKelvey found that Square wasn’t actually alone. Many companies had survived direct attacks from large competitors, and they all had one thing in common, what he calls the “innovation stack.”
He describes the innovation stack as a series of interlocking inventions that create something you can’t attack. Instead of one big innovation, the companies that survive are innovative in several ways that all contribute to the overall success of the company.
And that series of innovations is almost impossible to copy in their entirety. For Square, it was easy to copy the hardware, but that was just one of 14 different innovations that made the company different in the online payments field.
“So I talk about 14 things that we did differently. Every one of those was necessary for the system to work. So, if we’d done 12 and we hadn’t done the 13th and 14th, Square wouldn’t have worked.”
One of the 14 was their system for handling fraud.
Since Square is a company that handles online payments, McKelvey says, it got hit from day one. Three years later, when Amazon came out with its product, Square had already developed unique processes for dealing with fraud, something Amazon couldn’t replicate.
But, McKelvey says, even if every aspect of a company’s innovation stack is visible, it’s hard for large companies to copy it all successfully. Why?
“Organizational culture,” he says. When a startup comes along with a new way of solving a problem, it’s difficult for a well-established brand to pivot, to change its ingrained processes to compete.
His example is Southwest Airlines. They revolutionized the boarding process, turning a 45-minute process into a 10-minute one. And they did it by rethinking the whole process, right down to cleaning the plane.
With Southwest, even the pilots helped clean the cabins before boarding new passengers, something McKelvey says United or Delta Airline pilots would not be willing to do because they were already used to a certain organizational culture.
Because Southwest was new, they could set their own culture. “Let me tell you that the Southwest pilots, you didn’t become a Southwest pilot unless you were willing to play their game.”
McKelvey writes about Southwest and several other companies who shook up their industries in his new book, The Innovation Stack.
No Experience Needed
As he researched his book, McKelvey noticed something else about these innovative companies. Companies from Southwest Airlines to the Bank of Italy all began the same way he did—by solving a problem for a previously ignored segment of the market and having no idea how to do it at first.
He came to the realization that starting a business isn’t about the market needs, but rather the needs of a small, even fringe group of people. “I don’t think you should choose a big market. I think you should choose a big problem,” he says.
From Southwest, which figured out how to make flying affordable, to the Bank of Italy, which started out giving loans to farmers and immigrants when other banks wouldn’t, they were all sailing in uncharted waters.
And because of that, none of their founders had any kind of expertise in their field.
“I looked throughout history and I saw all these people who had basically no qualifications for what they did.”
That included himself and Jack Dorsey. While McKelvey holds two degrees, he finds neither relevant to what he does today. As for Dorsey?
“So, like, Jack’s professional credential, he has one professional credential. He is a massage therapist. I mean, you’ve got a glassblower and a massage therapist and they start a payments company. We knew nothing about payments. We didn’t know a thing.”
The Innovation Continues
McKelvey still sits on the board of directors for Square, but his focus is now on his new startup.
With Invisibly, he wants to change the way publishers monetize their online content. The current model, where ads pop up in the right rail, across the top of the page, and even on top of the content you’re trying to read is infuriating to McKelvey.
“Our attention is being bought and sold without our permission or knowledge. So when you watch something or read something, you’re essentially trading your attention to advertisers in a system that is largely biased against you, and in many ways subverts your interests.”
And, he says, ad blockers are not the solution, which is essentially saying to journalists, “Starve to death, guys, because I’m not paying anything.”
So he and his team at Invisibly are working on a way to allow users to control the ad experience.
McKelvey has also founded a nonprofit called LaunchCode, which trains programmers for free and helps place them in jobs. Oh, and he’s also a deputy chairman for the Federal Reserve in his hometown of St. Louis.
McKelvey has built his success by solving problems. “If you have a problem that has never been solved, man you probably want me around.”
And he’s seen other people create world-changing companies by doing the same, and by building innovation stacks that all but guarantee their success.
He looks at entrepreneurship, not as the process of starting a business, but as an art form, a means to bend and mold an industry to create something no one’s seen before, something that makes life a little better for everyone.
Interview by Nathan Chan, feature article reprinted from Foundr Magazine, by Laurie Mega
Tue, 10 March 2020
292: From LearnVest to Inspired Capital: Alexa von Tobel’s Mission to Help People Find Financial Stability
We’ve all heard the motivational mantra that if you love what you do, you’ll never work a day in your life. But Alexa von Tobel sees things a little differently.
“If you love what you do, you’ll work every day of your life,” she says, “and it’s because I’m so passionate about what I’m doing.”
The mission that gets von Tobel jumping out of bed every morning is one that impacts every one of us—finding financial stability. Without it, whether you’re a working family or a creative new startup, it’s near impossible to plan for the long term and ultimately thrive.
Von Tobel came to this understanding after graduating from Harvard and beginning a career on Wall Street, when she realized that, while she was great at managing the business finances of others, she was woefully unprepared to manage her own. And she quickly discovered that she was not alone.
That lit a fire underneath her to improve financial education, inspiring her in 2008 to launch LearnVest, a digital financial planning business that teaches investment and finances. The award-winning company became wildly popular, especially among women.
She ended up selling that business, but in 2019, van Tobel decided to take her passion for financial advising in a new direction. Today, she manages Inspired Capital, a $200 million investment firm that’s supporting early stage startups.
This massive new undertaking is all rooted in van Tobel’s desire to support ambitious entrepreneurs and help people achieve financial stability. That, and a deep love of math.
Freedom to Think Bigger
Von Tobel says she was an entrepreneur from day one. She’s always been drawn to the toughest problems, outside-the-box thinking, and bringing joy to others. And when she recognized her own problem with managing her personal finances, she suspected that this could be a cause worth taking on.
Von Tobel says that 78% of all Americans live paycheck to paycheck and that the average person doesn’t even have $400 in a savings account. And the crippling anxiety that comes from mountains of debt and living one medical crisis away from going broke? She firmly believes it holds people back from concentrating on something bigger.
“If you’re living for tomorrow, you can’t think long term,” she says.
Despite her lifelong love of math and her driven personality, she’d never been taught how to manage her personal accounts, invest her money, or plan for retirement. It became clear that many of her peers had not either.
“I think it’s insane that it’s not taught in every high school, college, and graduate program in America,” von Tobel says. “I mean, it’s not that dissimilar to basic hygiene.”
From von Tobel’s perspective, money is a basic lifeline that enables people to care for themselves. Therefore, she believes everyone should learn how to intelligently manage it.
That’s what drove her during her years as founder and CEO of LearnVest—the unwavering belief that financial education was a key to happiness.
“If you can create real financial stability for a family,” she says, “you can help a family thrive.”
Among the strategies she taught through LearnVest were how to grow a successful savings account by setting aside 20% of each paycheck, no matter what, and the benefit of establishing firm ground rules for financial health. She taught when to begin investing (yesterday), preparing for retirement (the day before yesterday), and how to plan effectively for the ebbs and flows of life.
But what about the people (like, oh, I don’t know, the writer of this article, for instance) who are deeply terrified of math? Von Tobel says that’s not a problem.
“Personal finance is basic math,” she assures. “It’s not complicated math. It’s really straightforward math—what comes in, what goes out, is there something left, and are we saving it properly? Really, it’s more organization than math.”
After more than a decade spent as a financial educator and the sale of her business to Northwestern Mutual in 2015, von Tobel decided it was time to give something new a try.
And when her husband pointed out how many hours she had spent financially advising entrepreneurs for free, she realized she may have inadvertently stumbled upon her next big project.
Shooting for the Moon
Inspired Capital was born from von Tobel’s passion for financial education, combined with her desire to help entrepreneurs reach their goals. The result is an early stage and seed investment firm, driven by women (also led by former Secretary of Commerce Penny Pritzker) and funding startups nationally.
Von Tobel now meets with at least 75 founders each week in pursuit of new investments of all shapes and sizes. From tech to product-based business, von Tobel is interested in all of it, provided they have a good idea and a plan.
She says that the best founders who have pitched her get to know her firm before reaching out. They also don’t get discouraged by rejection. Von Tobel says that just because it’s a no today, doesn’t mean it’ll be a no tomorrow.
And while founders are waiting for their yes, von Tobel says there are many things they can invest time in learning. She says that the biggest mistake she sees founders make is running away from the aspects of the business that make them feel inadequate, passing it off to others before even giving it a try.
“I think it’s the typical kind of head-in-the-sand ostrich move,” she says. “You’ve got to lean into the things that make you nervous.”
She believes this is what enables businesses to address issues before they reach critical mass, while also making founders feel capable and bold.
“If you want to build a really good business—if you want to get really good at being an entrepreneur—you’ve got to get good at everything,” she says. “And I don’t mean you literally have to hold every job, but you have to take the job, get pretty darn good at it to the point where then you know how to hire for it, and then you can pass it off to somebody better at it.”
Once the machine of a new business really starts whirring, von Tobel says that it’s essential to have an eye on building up the reserves.
“You want to make sure you are never within nine months of running out of cash,” she says. “Because if you need to go fix that, putting a plan together to go fix that can sometimes take three to six months, and you don’t want to be in a position where literally you can run out of money.”
While she acknowledges that smaller businesses can get away with slightly less in the bank, she wouldn’t recommend leaving the stability of a company to chance or dependent on a tight timeline.
And ultimately, von Tobel believes these healthy savings accounts are what embolden business leaders to take new and exciting risks.
“I’m not risk-averse,” she says. “I shoot for the moon, but I have a plan B that has enough cash...that gives me enough confidence to shoot for the moon. Having a good solid financial plan gives you the comfort to take more risks.”
And the best part of all is that von Tobel believes there’s never been a better time to launch a business than right now.
“Every year it gets less expensive to stand up a company,” she says. “Every year there are better online resources to make it easier to do.”
From free online resources to highly affordable software for startups, she says founders need only do a light Google to find a flood of resources at their disposal.
As an investor passionate about the startups and founders of tomorrow, she can’t wait to see what thrilling new business plans come across her desk next. And that’s why she encourages struggling founders to keep pushing, keep growing, and keep pursuing their dreams.
“You’re building something new. You’re building something special that serves a purpose,” she says. “And that’s pretty powerful.”
Alexa von Tobel’s Tips for Building a Successful Business
Von Tobel says that entrepreneurs can be distracted so easily by the task of building a business and marketing a product that they forget to perfect the product. Talk to the customers. Find out what works and what doesn’t, and make adjustments. Before diving headfirst into marketing a product, she reminds entrepreneurs to really nail product-market fit.
Rather than sinking tons of cash into a paid marketing strategy up front, von Tobel recommends that founders begin by delighting their customers and encouraging them to share their experiences with the brand. She reminds entrepreneurs that word-of-mouth marketing is free and often more effective than traditional marketing for startups.
Once revenue is climbing and there is a little more wiggle room, von Tobel says the time has come to give paid marketing a go.
Above all, von Tobel reminds entrepreneurs that the constant pursuit of growth without fear of negative feedback is essential to success.
“I think the best founders are learners,” she says. “They are comfortable with negative feedback. They want to make it better, and they are constantly just listening and learning obsessively.”
Wed, 4 March 2020
When Peter Diamandis was a kid, there were two life-changing moments that shaped him into the person he is today: the launch of the Apollo space program and the release of Star Trek.
These two events inspired Diamandis’ love of space and taught him to always keep his eyes on the future. It’s no surprise then that Diamandis went on launch over 20 companies in the areas of space, longevity, venture capital, and education.
Diamandis has also dedicated himself to supporting others who make an impact on the world, which is why he founded the venture fund BOLD Capital Partners, the X Prize Foundation, and Singularity University—all organizations focused on promoting technologies that have the potential to improve society.
In this interview, he shares his thoughts on what it takes to build a sustainable business, his predictions for industries like education and healthcare, and what he’s most excited about in terms of future innovations. This is a conversation you won’t want to miss!