Zillow co-founder Spencer Rascoff and Dotloop founder Austin Allison first joined forces when the real estate industry giant acquired Dotloop in 2015. Five years later, these two serial entrepreneurs are teaming up again for a new venture.
Together, they’ve created Pacaso, a company that’s aimed at making the dream of owning a second home a reality for more people.
First Republic recently caught up with both of them to talk about building great companies from the ground up. They shared their thoughts on everything from raising capital to taking companies public and knowing when to use an exit strategy. Plus, they gave some insights into the unique experience of launching a real estate startup in a moment of disruption and evolution.
What are the primary lessons you've learned about building great companies from the startup stage to post-IPO?
Spencer Rascoff: Prioritizing the consumer is critical. In the case of Zillow, we said, “Look, if we can build a cool product that will attract a large enough audience, the professionals will follow." There have been many business model pivots along the way, but focusing on the consumer is something that has never changed.
Can you walk us through the process of raising capital, building a great company, and then selling or partnering with another firm, from an entrepreneur’s perspective?
Austin Allison: As far as raising capital, the answer depends on the stage. In the very early days, I’ve found that it's about the team, the idea, the market size, and the timing. As the business evolves, it becomes more about the business's results on a small scale and the ability to predict how those results can be amplified and scaled up in a larger way.
In terms of the exit, people often ask, “Does Zillow just call one day and say, 'We want to buy your company?’” No, it usually starts years before the actual transaction.
I would encourage people to open up the lines of conversations with potential strategic partners, and even with companies that might appear to be competitive. In today's environment, you never know where those conversations may play out.
How does a founder shape and maintain a company culture when a company is purchased and the founders are kept on?
Rascoff: It depends on the specific company. Dotloop had very clear core values, which were different from Zillow’s. The question becomes: Do you scrap them and jam the acquired company with the core values of the acquirer or not?
At Dotloop, we kept it relatively independent. They have their own signage, their own core values, their own T-shirts and brands, and email addresses. There were other companies that were smaller and had a less well-developed employee culture. In that case, we rebooted it as Zillow.
How does the small guy protect against getting copied or squeezed by the large guy if the potential partner is also a potential competitor?
Allison: My answer is just execution. I've never found it really productive to obsess over the competition. In fact, I often find it to be a bit distracting.
A book that was recently referred to me is called "The Infinite Game" by Simon Sinek. In that book, they talk about competition, but they reframe it as a worthy rival. The theory is that you should look at your competition to learn from them. You should not look at your competition and let it get you off track or distracted.
What are your thoughts on the current real estate market?
Rascoff: This is supposed to be a slow time in the real estate industry — but it's not. Real estate is on fire right now.
The most recent data from Zillow shows that pending sales are now up 19.7% year-over-year, and inventory is down 37% year-over-year. As a result, when demand is up and supply is down, prices go up. Median prices are up 11.8% year-over-year.
Do you think brick and mortar real estate brokerages are on the way out?
Allison: No, I don't. I think there will be less brick and mortar as time goes on, but I don't think that traditional real estate brokerage is going away. If you look at the data, great real estate agents add a lot of value to the transaction.
However, I think we’ll see more digital tools. They'll continue to transform the way we do business, but agents will be part of that transformation.
What inspired you to start Pacaso, and how does it work?
Allison: The whole concept behind Pacaso is the idea of co-ownership. Whether you're an owner of a second home that you don't use or you're somebody who aspires to own a second home but doesn’t need to own 100% of it, Pacaso enables you to right-size your ownership and benefit from much less cost and hassle.
Rascoff: For example, if you own a second home, you could sell a quarter of it off. It would still be your home. You would still own it. You would just use Pacaso as a property manager and to schedule visits. In return, somebody else would shoulder the burden of 25% of the ownership cost.
How has your team dealt with the challenge of scheduling times to use a second home, especially during the most popular times?
Allison: We've come up with a really innovative and dynamic scheduling tool that we call "Smart Stay." It’s available through an owner app that each owner downloads via iOS or Android and it enables you to block time in your calendar with as little as two days' notice or as much as 24 months.
What's the process like if someone wants to sell? Is this possible?
Allison: It is possible, absolutely. It's an important part of the value that we provide. After a one-year period, you're free to sell.
Pacaso is building a dynamic marketplace and network of partners with real estate agents, which empowers people to sell their Pacasos in a really streamlined way. The way that it works is quite analogous to the way that you would sell a whole home.