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A big part of the discourse around inflation is about what is going on with rental prices and whether they are accurately reflected in the inflation numbers. Maybe you are not a nerd like me and aren’t interested in that.

You likely have rented an apartment and transacted online. Or, maybe you are interested in marketplaces and company-building. Today's chat with Zumper CEO, Anthemos, covers it all. Zumper, founded in 2012, is in the second era of startups in real estate that go beyond rental listings and want to get involved in transactions. It recently announced a $30 million round led by Kleiner Perkins.

In this chat, Anthemos and I talked about:

Inflection points in the past decade
Going through an existential crisis in 2021
Inflation discourse
Shortcomings and progress so far
Difficulty in winning over landlords
Balancing strategy and opportunism
Building a marketplace
Managing an executive team
Disagreements with the board
Importance of All-Hands
Reflections on being a CEO

Sar: Can you distill down the journey to five critical inflection points?

Anthemos:

1. First 10 hires. Despite a candidate funnel almost entirely sourced late at night from AngelList, four of our first ten hires became C-level at Zumper, two of whom are our current CTO and CPO. Whether self-selecting because they were attracted to the startup journey or just insane luck, these first hires changed everything.

2. The first $s into the company. I had never raised capital before. I raised the first $1m for Zumper during business school, and when that hit, it was the single biggest leap in the % probability that we’d succeed or at least not die.

3. Getting to >85% of supply liquidity. When our rental inventory tipped over 85% of a city’s estimated available inventory, we saw a near overnight hockey stick on demand. We tipped most of the US into 85% or higher in years 3 or 4.

4. Our first 1 million MAU month. Not only did this feel emotionally important to show the team of 14 at the time, but it also was a critical supply/demand liquidity turning point, where the growth flywheel started spinning on its own.

5. Surviving 2021. We had a good 2020 but a very difficult 2021 (and early 2022) - rental occupancy rose by 3 standard deviations to the point where there were almost no vacancies in the US, which meant little to no new advertising revenue for us. Weathering this headwind was painful, existentially important, and perhaps our biggest win to date, though it will not look pretty on a chart.

Sar: Do you have a memorable story of going through that existential crisis?

Anthemos: Not only did we face an enormous macro headwind, but we also suffered an organic traffic loss due to an algorithm update in mid-2021. It felt like all our luck was out after a great run. Our #SEO Slack channel went from a much-needed daily dopamine hit to a dreaded alert that would flash white every morning to remind us how much we sucked. How much were we down again today?

We were painfully intellectually honest with ourselves. We tracked even more metrics, even though it made us feel worse daily. We put in 12 months of engineering, product, design, and growth work without a single signal it was working - made our web pages lightning fast, added content to improve our user experience, and went after content marketing wins. One morning at the end of this summer, we popped. The macro headwind dissipated. We live in a simulation.

Sar: The discourse around the rental market is confusing and borderline funny. There’s a raging debate around how government inflation numbers don’t account for falling rental prices from sources like Zumper. Do you have any thoughts?

Anthemos: Haha, agreed. Suppose the government numbers accurately reflect the monthly rent checks of 110 million renters. In that case, there will be a significant lag until the rent price drops we’re experiencing will show up in inflation numbers. Zumper publishes “asking” rents, the market price for the minority units available for rent today, every month. This is as close as you can get to the current ‘market clearing’ price for new units, so it’s a great indicator of today’s market.

But it’s not a great indicator of what the average American renter is paying today. You can only get to this by estimating the “in place” rents of currently occupied units, whose price was set in the past 1 to 100+ months. This is highly likely to be a well-intended but manufactured number, given how the government estimates it for their CPI measure. Given 1/3rd of Americans rent, this number matters a lot. When the “asking” number falls, it will take a long to bake into the “in place” number. So you can argue that US inflation may not come down for a long time.

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Sar: What ideas were you right about? What did you underestimate?

Anthemos: We were 100% right in 2012; renters wanted to transact and pay rent online. That is as true today as it was then. We underestimated how difficult it would be to convince landlords – both enterprise & long tail – to alter how they ran their business to accommodate our consumer vision. As an asset-light marketplace, the vision only worked if we could bring the B2B side along for the ride, and they weren’t having it for a long time

Many landlords just wanted leads interested in leasing their property and would then deal with those leads offline. In the early days, we failed to give them sufficient incentives to come online for the rest of their business. It wasn’t enough that their tenants were the “Venmo” generation. They didn’t care and needed a value proposition that was 10x better than paper applications & checks. The online versions didn’t solve enough of their problems (and in many ways still don’t).

Sar: What convinced the landlords to transact with the leads?

Anthemos: I wish my answer were our tools - like AI pricing, tenant screening, or lease signing. As a marketplace, you needed to become such a major driver of their business that it made sense for them to move to your tools (like Airbnb’s host software), but this took us several years and many VC rounds to realize. We had over 70 million users last year, so most landlords now get most of the value from our firehose of users. Marketplace liquidity is a beautiful thing when you have it.

Sar: You closed your series A in 2014. How do you assess your impact so far?

Anthemos: There’s a common saying amongst early-stage investors that many of their portfolios end up going half as far in twice the time they estimated in their first pre-product deck. That’s not a million miles away from our experience.

On the underwhelming side, I thought we’d have a higher % of our platform transacting online, even a majority. The reality is that it’s still a minority % and even though the pandemic accelerated some ‘go online’ trends, landlord behaviors in an infrequent transaction marketplace do not change as fast as I expected.

On the plus side, we are beyond my expectations of the consumer platform. Last year over 70 million renters used Zumper, which still blows my mind, especially when you consider our brand awareness is still under 20%. Years of compounding supply & demand gains paid off eventually, but we have much more to do.

Sar: How do you think about balancing strategy and opportunism?

Anthemos: I made a very ugly slide that I sometimes pull up for my team when we need to tack the ship in a new direction, and that’s been effective.

I talk to the team about how the “Vision” of our company – “make renting a home as easy as booking a hotel” – is the destination port. We are currently on the yacht sailing there, but to get there, the yacht doesn’t sail straight; you have to tack it left and right, which is the “Strategy,” but eventually, you aim to dock at the port.

An opportunistic tack often comes during a fundraising cycle. Fundraises get done on momentum, not absolutes. And so, as we prepare to raise a round, it’s obviously critical to have strong revenue momentum going into it. We have had quarters where we postponed the long-term product roadmap (the port) in favor of forensically delivering and beating our revenue plan to deliver this (the tack).

Sar: What’s a challenge you try to mitigate actively with your exec team?

Anthemos: So much of my personal impact happens through our Executive team. I spend a lot of time worrying about whether we have the right people and set up, and – equally importantly – about the morale and happiness of the crew. If I can’t sleep because of work, 99 times out of 100, it’s because I’m thinking about who’s stressed, burned out, and needs to be challenged in a new way. Finding brilliant executives, building rapport, showing them the ropes, and backing them to execute is time-consuming, expensive, and risky. I have always preferred tenured home-grown talent, even if less experienced.

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Sar: Does that work against you?

Anthemos: My biggest disagreements with my board have been around this philosophy. They remind me I was missing out on the more experienced talent who would level up our organization and attract top-tier ICs. There have been times when we’ve done that, but I’m delighted our C-level is homegrown for the most part. Loyalty, institutional knowledge, and worth ethic are second to none this way.

Sar: Any learnings from deciding who reports to you over time?

Anthemos: Allowing someone to report to you as the CEO as a vanity optic never works, even if it helps you hire them in the first place. Build the right org structure even if some people don’t feel the love. My optimal number of reports has been 6, with my two cofounders on the side as my peers.

Sar: How important are town halls?

Anthemos: I’m a little OCD about this one. We have had a company-wide All Hands at 12.30 pm PT every Monday (except holidays) for ten years, without fail.

Over the years, dozens of colleagues have proposed making them less frequent, but it’s been one of the rare issues where I have put my foot down and pushed us to continually evolve and improve the content. We present every key number in the business, and we rotate the teams in and out each week, so the company gets to hear from everyone. The fact that we have been there every Monday lunchtime in good times & in bad has been accretive to the culture. It’s one of those ‘family’ traditions, without ever needing to say it aloud or write it all over the walls.

Sar: Are there things you are glad you didn’t know earlier?

Anthemos: First of all, holy shit, it takes SUCH A LONG TIME to build scale in a marketplace. Airbnb is a rare example that took off in under 5 years (years 3-4 were their true inflection points). Most successful marketplaces I know only start to perform in years 5-10 and many $s later. If I knew how hard it would be, I honestly don’t think I would have started Zumper; I’m delighted I did.

Amazon doesn’t need to show you every TV; they just need to show you enough so that you feel you have enough choice to drop $300. Home rentals are the opposite. You’re going to spend 1/3rd of your income on this decision, and you’re not going to make this decision very often. So when you’re searching, you need to see EVERYTHING, or else you’ll bounce to a platform with more. Having almost every listing in every US geo took 4-5 years of relentless work.

Sar: What have you learned about yourself running the company over the years?

Anthemos: I came out of business school into Silicon Valley at the peak of MBA ridicule (much of it deserved!). I was almost conditioned to believe that MBAs didn’t have the resilience required to run a company. I’ve learned the hard way that I’m more resilient than I gave myself credit for.

I was a shy, only child who grew up in London and went through pretty big trauma as a teenager when I lost my mother to cancer. I didn’t realize it at the time, but the emotional process of dealing with that and eventually picking myself up was a good life lesson that serves me well now. I have a million flaws as a CEO, but I’m both resilient and optimistic, and I think you have to be both to do this job.

Sar: That’s a wonderful reflection to end this chat with. Thank you for sharing that!

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Secureframe helps companies achieve fast SOC 2, ISO 27001, PCI, HIPAA, NIST, and GDPR compliance.

Click here to chat with their team. Mention “Sar” during your demo to get 20% off your first year of Secureframe. Promotion available through December 31st, 2022.

For further reading on the innovation history in real estate, I recommend my previous chat with the VP of Communications at Notarize, Cristin Culver, who has seen it all through a decade spent across Trulia, OpenHouse, and Opendoor.

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