PropTech startups around the world are leading the path in revolutionising the property sector. Particularly in the last couple of years, we’ve seen a significant amount of venture capital investment pouring into this exciting sector and propelling proptech startups. Property is such a huge sector that it’s no surprise the term ‘proptech’ is being coined to define the crossroads between real estate and technology.
With this evolution, however, comes a number of challenges – most significant being the conservatism and inertia in the property sector. Property is still a conventional industry and for most establishments, technology is unfortunately an afterthought.
We look at some of the biggest challenges facing proptech startups and try to highlight the fact that those very challenges can provide interesting opportunities for entrepreneurs. After all, we at Plentific don’t like to nag and complain, instead we try to see the glass half full. Ok, here we go:
Resistance to change
Traditionally a bricks-and-mortar industry, the property sector only recently began embracing technology to improve the way they operate their businesses and to better serve their customers. Since property companies don’t usually have internal technology capabilities – and by technology we don’t mean an IT team that runs the company’s WordPress website – startups that offer software-as-a-service (SAAS) solutions can plug the technology gap nicely.
Some of these SAAS solutions are sector agnostic, such as an online booking and payment system, a CRM system or a team collaboration tool, whereas some others are sector specific. Proptech players that provide SAAS-based solutions need to identify the underlying pain points incumbent firms face carefully and deliver products that can be adopted easily.
Unbalance in supply and demand, for technology that is
Advances in mobile technology and user interface design have made technology so accessible and addictive that people from all age groups and socio-demographics depend on their devices to function better. The ramifications of this dependency are very wide and beyond the focus of this article but what is evident is that people have much higher expectations from both product and service companies. The property sector failed to fulfill consumer expectations for years and now it’s playing a catch up game. Real estate incumbents that can adapt and innovate will survive and those cannot will either be disintermediated or replaced by newcomers.
Lack of investment
While we painted a slightly rosy picture about the level of investor interest in proptech startups, funding is still scarce, particularly in the UK. While advances in software technology, open-source tools and cloud-computing platforms have made it easier and cheaper to develop digital products and services, most proptech business models require large sums of upfront capital injection to succeed. Startups are not only competing against each other but also with incumbents who are willing, and more importantly capable, of spending large sums of money that startups don’t have at their disposal. This can be a real challenge for budding entrepreneurs.
Complexity of the property sector
The property sector is complex. There are way too many different players in the ecosystem who make a living selling their services to the property consumers directly or to other professionals within the wider sector. The economics of the sector are highly intertwined which most often require new businesses to tiptoe around existing relationships and partnerships. The challenge for proptech entrepreneurs coming from outside the sector is creating a clear mental map of the complex dynamics of the property sector or finding like-minded co-founders that come with sector expertise. Simply drawing parallels from other industries and applying those ideas to the property sector may not result in a suitable product-market fit.
Many of the challenges listed above are true for Fintech and Healthtech sectors as well. We’re of course biased but the proptech sector is hugely exciting and will continue to attract new entrepreneurs and investors regardless of the challenges.