For Start-Up, It’s a Tweak Here, an Experiment There
This is the third in a series of three articles about start-ups and their founders’ hopes for the year ahead. The first appeared Dec. 13 and the second on Dec. 19. This column will return to all three after six months, and again after one year, to compare their achievements with their original goals.
Jeff Takle’s philosophy about starting a business comes down to this: Take your time.
He and a friend officially formed a company, RentingYourHome.com, at the end of 2006. Ever since, they have been tinkering with it, learning the laws in more and more states as they expanded the company’s Web-based tools for property management for landlords.
“We viewed 2007 as a trial period, a time to experiment and refine our product,” said Mr. Takle, who is 33.
At the start, investors showed scant interest in their company, and potential customers were wary. Revenue for the year will be well below $50,000. But Mr. Takle says he has learned enough lessons in the last year to write a book. This coming year will be the real test of his product, he says.
Other people in the property management software business are not as optimistic about Mr. Takle’s business plan. Janet Portman, managing editor of Nolo, a provider of legal information for consumers and small businesses, and the author of several books and a column about real estate issues, said she believed he would have a hard time expanding his offerings to all the cities and states he is aiming at. His goals for the year ahead struck her as optimistic, at best.
Mr. Takle remembers taking only one entrepreneurial initiative as a child — pestering his pastor to let him do more around the church. But his drive manifested itself at Boston University, where, he says, he was one of the smallest wide receivers in the school’s history, and in the Marines, where he commanded a platoon.
He started a business, HGrail, in 2003 while still in the service, to manage half a dozen rental properties, having learned the basics from handling several he had accumulated as the result of job transfers.
“I tried to come up with solutions to the most annoying aspects of being a landlord,” he said. “I came up with a customized lease template,” he said, unlike the generic versions on the market. “I wanted a water bed addendum.”
At some point, he decided that instead of managing properties for other people, he should develop Web-based software for them to do it themselves. So he closed HGrail and teamed up with an old Marine friend, Daren Dewbre, a code-writing whiz, to create RentingYourHome.com in Somerville, Mass., aimed at owners of one to 20 rental units.
His software, he says, helps them do advertising, run credit checks, collect rents, find good plumbers and perform other once time-consuming chores at the click of a button and at a fraction of the fees charged by traditional property managers.
Property management software has been around for 20 or 30 years, Mr. Takle says, and landlords have hundreds of programs to choose from. But until now, it has not been economically feasible to provide such a wide array of services to small-scale landlords at a profit, he says. Rapidly evolving technology has changed that, providing an opening for upstarts like himself.
“Millions of homes are not managed profitably or efficiently,” he said. If his software catches on, he said, he hopes to increase revenue to $10 million to $15 million within three to five years.
Mr. Takle acknowledges that that is brave talk. But, he adds, that is where the importance of tinkering comes in. The lessons they learned, he said, are invaluable.
He noted, for example that he and his partner spent a lot on direct-mail advertising and got almost no reaction. They then turned to the Internet to advertise their software, and quickly acquired customers.
Perhaps their biggest challenge was their expansion from their home base of Boston to 35 states and many more cities. Suddenly, they faced a mind-boggling (and often shifting) jumble of regulations on tenant rights, rent limits, security deposits, lease clauses and eviction procedures.
His solution, he believes, is strategic alliances.
“We have formed relationships with people who are familiar with all the different state and local regulations and codes — law firms, property-management companies, real estate brokerages, real estate advertising companies,” he said. “For legal help, we have partnered with a national law firm and with a national collection agency.”
The value to those partners, he said, “is the prospect of teaming up with a company that has intimate knowledge of tens of thousands of landlords.”
Through trial and error over the last year, he said, he and his partner have also gained other insights about running their business, like agreeing on a division of labor and farming out accounting and other tasks outside their expertise.
Mr. Takle plans a marketing campaign in the spring, and expects to increase his business from managing “several hundred” properties to 1,000 by the end of June. Then, he said, he hopes to be able to leverage his company’s size to cut deals with other companies, like steeper discounts from Roto-Rooter for providing plumbing services.
Already, he says, previously reluctant investors are beginning to show interest, putting him on track to raise at least $500,000 in 2008. But Ms. Portman of Nolo sounded a note of caution. “He’s not the first one to do this sort of thing,” she said. “There’s lots of software out there.” And none except her company offers a lease that is complies with state laws in all 50 states — meaning, she says, that Mr. Takle’s effort to create a leasing product in all the areas he is aiming at may be an insurmountable task.
“He says he’s consulted with national firms, but you aren’t going to find a law firm that has a presence in 35 states,” she said.
Ms. Portman also questioned RentingYourHome.com’s assertion that it can eliminate “landlord headaches.” The biggest headaches are tenants who have sterling credit but a history of making trouble, she said, and the only way to identify them is to pick up the phone and call their former landlords, she said. “I think he overpromises,” she said.
Mr. Takle conceded that he will not be able to update the leases he offers on a day-by-day basis, as Nolo probably can, but said the law firm he is working with, its partners, state and local Realtors associations and Web sites that offer legal forms like uslegalforms.com can provide him with sufficient material to offer state law-compliant leases anywhere in the country.
As for resolving all headaches, he said, “she makes a good point.” But he said he believed his company had streamlined the most onerous tasks and provided sound advice to landlords on the ones they have to do themselves.
Even so, he said, his year of experimentation has taught him is that the best-laid plans can go awry if the money runs out.
“Let’s just say I’m encouraged by stories of other entrepreneurs who tear their hair out,” he said. “It’s part of what being an entrepreneur is. Sure, it’s fun, it’s exhilarating. But when you see money going in one direction, out, and not in the other direction, in, it can be tough.”
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