The VC Backed PM Company That’s Building a National Brand
In the first episode of The Profitable Property Management Podcast, we’re talking to a world class entrepreneur out of Detroit, Michigan. His name is Max Nussenbaum and he is the founder of Castle, a new property management startup that’s looking to change the industry.
In this interview Max shares their unique approach to the market and how they’re building the property management company of the future
- (01:35) – The ambition and growth goals for Max’s property management company, Castle.
- (01:40) – How historical trends in the industry helped shape Max’s vision.
- (02:14) – The ambition to create a national brand identity.
- (03:03) – Building ongoing relationships with their customers.
- (04:32) – The number of ‘doors’ necessary for this scale of vision.
- (05:06) – Baseline numbers Castle is striving for.
- (06:14) – Max’s background and how Castle came to be formed.
- (07:15) – Founder’s tech backgrounds and a shared post-graduate fellowship.
- (07:56) – The investors environment in Detroit compared with cities like New York.
- (08:08) – Opportunistic pricing.
- (08:30) – Castle’s first property purchase.
- (09:45) – Experiences with local property management companies.
- (10:01) – High maintenance markups.
- (10:59) – General unhappiness with the property management options available at the time in Detroit.
- (09:45) – Experiences with local property management companies.
- (13:33) – Recognizing the opportunities in Detroit for a new kind of property management company.
- (13:55) – Initial market research and first website.
- (14:10) – First 10 clients and validation.
- (15:01) – Confirmation of the demand for Castle’s brand of property management.
- (15:44) – Learned how to build a better product by doing everything themselves in the beginning phases.
- (18:13) – Keeping an open mind to the ongoing evolution of their product.
- (20:07) – Where Castle is today.
- (20:11) – Breakdown of team Castle; the investors, employees and founders.
- (21:14) – The role of stewards at Castle.
- (21:54) – The areas that Castle serves.
- (22:16) – The role of Castle’s Philippines team.
- (22:25) – Castle’s philosophy of segmentation, departmentalization and automation.
- (24:30) – Automated rent reminders for tenants.
- (24:12) – Maintenance specialists.
- (25:10) – Reference checking specialist.
- (22:25) – Castle’s philosophy of segmentation, departmentalization and automation.
- (27:12) – The number of ‘doors’ in Castle’s current portfolio.
- (27:22) – Breakdown of type.
- (28:25) – Managing Castle’s ratio of employees to ‘doors’ and how this fit may change with efforts to scale.
- (28:50) – Role of current operations team.
- (29:05) – Growth and software development.
- (29:57) – Formula for account manager’s effective capacity for managing units.
- (20:11) – Breakdown of team Castle; the investors, employees and founders.
- (31:15) – Castle’s strategy to scale.
- (32:48) – Technological shifts that allow for an expansion to a national level.
- (32:55) – How success starts with great service and a great product.
- (33:00) – Castle’s growth channels.
- (33:05) – Growth from existing customers.
- (34:13) – Traditional growth channels.
- (34:27) – Local real estate meet ups.
- (34:53) – Content marketing.
- (36:25) – Nurturing word of mouth and strategies to encourage referrals.
- (37:24) – Expansion of existing portfolios.
- (37:35) – Advice and recommendations.
- (38:05) – Building trust.
- (38:19) – Referrals and staying top of mind.
- (37:24) – Expansion of existing portfolios.
- (39:46) – What is the single biggest challenge you expect to face growing Castle?
- (40:31) – How much is too much to pay for a customer acquisition?
- (40:48) – Who do you learn from?
- (42:50) – What’s the number one thing that you see property management entrepreneurs doing wrong?
- (43:15) – Are entrepreneurs born or bred?
- (43:54) – Advice you wish someone had given you when you first founded Castle?
Where to learn more:
If you want to hear more from Max and the goings on over at Castle, head over to their website EnterCastle.com.
Jordan: 0:00:07.0 Welcome closers to the first episode of the Profitable Property Management Podcast. I’m your host Jordan Muela, CEO of LeadSimple, and this week we’re going to be talking to a world class entrepreneur out of Detroit, Michigan. His name Max Nussenbaum.
I’ve interviewed Max before and we are back to do it again. Today we’re going to be talking a little bit about some of the marketing processes, philosophy, culture, etc. Those, kind of, driving the growth within this organization. Max, thanks so much for joining me today.
Max: 0:00:45.0 Thanks for having me on, and thanks for the incredibly complimentary intro. I’ve now got to live up to it, a lot of pressure.
Jordan: 0:00:51.2 Well I’ll tell you, it’s all true. You know what’s interesting about your situation Max, is that you are kind of taking this angle and this play where there’s a lot of pressure for growth. Maybe there’s some folks listening, might fall more into the lifestyle entrepreneur type category, and as we know, is the nature with
It’s a recurring revenue business, so you get to 2, 3, 400, 500 doors at some point, there a lot of folks that just kind of want to take a breather, go sideways for a bit, and this industry and business affords you that luxury.
However, the context in which you are pursuing this whole property management empire is a little bit different, and I assume that you do have some pretty ambitious growth goals Max. Why don’t we start there. 0:01:35.1 What is the ambition and the growth goals for Castle?
Max: 0:01:40.0 Yeah, absolutely. So I mean, really, to get really big picture about it, when we look at the property management industry, historically, and even now, it’s a super fragmented industry. Most players are just local. A few regional. But there’s really no national brand for property management.
0:01:59.8 And that’s actually, I think common across a lot of the real estate industry. Real estate has kind of lagged behind most other industries in this kind of trend towards larger and larger companies, companies that cover more area, national brands. 0:02:14.3 And so our goal – you know, we ultimately want to be to property management what Xerox is to photocopiers. Right.
We want to be everywhere, serving everybody. A national brand for property management. But we don’t just want to do that just for the sake of getting big, kind of in and of itself. A lot of it really is about – there’s all kinds of new opportunities, and I think awesome things you can do in the property management industry that are only possible – one, through some of the technological changes of the past era, but also really only possible at scale. Right.
0:02:45.1 So, I think about – and this is certainly farther off for us, but I think about, you know, we have a lot of investors who have properties in multiple markets, but right now they’re using a different management company in each market. There’s no way for them to basically view a highest level portfolio rollup. But really, from their perspective, it’s one portfolio. They want to see it all in one place.
0:03:03.8 Or to even go a step further and think beyond that, you know, I think there’s really a big opportunity, and I think this is how housing will work in the future — for tenants to have, effectively, ongoing relationships with housing brands.
0:03:19.8 If I lived in a Castle property in Detroit and I loved it, but you know, guess what, I’m moving to Phoenix next year. If it was an amazing experience, why wouldn’t I decide, “You know what, I’m looking at Castle properties everywhere I go, and I’m going to have this ongoing relationship with this housing company that can be maintained even as I move to these different places.”
0:03:39.5 So, that’s certainly far off for us, but for us it’s really about growing into a big company for sure, but not just doing it so we can say we’re big or so we can make a lot of money, but because I think there’s incredibly cool possibilities for transformation in this industry that you have to achieve a certain level of scale to unlock.
Jordan: 0:03:58.5 Wow. Lot of ambition there. I like how you’re orienting around the customer. That really takes it to a level that I haven’t even considered before. What you’re talking about there is brand bias. It’s the same idea behind saying, “Well, I want to stay in a vacation rental, but I’m going to start with Air BnB, because regardless of what their inventory looks like, the experience that they’re providing is top shelf.” Same thing with buying from Amazon.
Just having a brand bias. That is ambitious, but to actually get there, to fulfill that vision, mission, to be a nationally recognized brand. Put a number on it Max. Quantify it for me. 0:04:32.0 How many doors might we be talking about globally to fulfill that kind of a vision?
Max: 0:04:38.5 Well, a lot. I mean, if I was going to use like some rough numbers right there, in the US, let’s say – I would say the typical market – you know, it’s not like you need to control 100% or even close to that of the doors in a market.
I’d say probably with, let’s say 2000 doors per city is enough to have a broad enough base that, you know, with 2000 doors, let’s say you have 200 vacant at any given time, that’s a pretty good supply for someone if they were going to start their search on Castle to see 200 doors.
0:05:06.2 Let’s say 200 doors, and then let’s say top – let’s say 25 top metro areas in the US, that gets you like – excuse me, 2000 doors and top 25 metro areas in the US, that gets you like 50,000 doors. Is I think a lower bound baseline to achieve that full vision.
But that said, one of the things that I think is cool about what we’re doing and about this industry, and it’s something that we very consciously choose when we got started is, it’s not all or nothing right? I think you look at a business like a social network.
You know, you start a new social network, you’re either going to be in the top three or four social networks in the country, or in the world, or you’re just…
Jordan: 0:05:43.5 Or you’re Friendster.
Max: Exactly. Exactly. I think we could, you know – we can level up one at a time right. So maybe first it’s just we have really great supply and connection in the midwest, and we’re in Detroit, Cleveland, Cincinnati, Columbus, but no one on the west coast has ever heard of us, there’s still scale up opportunities on kind of a regional basis.
0:06:01.9 And you grow from there. Certainly ambitious, but it’s also not like our only way of succeeding is to get to those 50,000 doors, and if we don’t do it we’re in the trash.
Jordan: 0:06:14.4 Well, so we might be getting a little ahead of ourselves here. We have the big ambition, but let’s talk about the seed, the kernel, of how you got into this and the DNA of the company.
A lot of the clients that we interact with, a lot of the property managers in the industry got into it by self managing for their own inventory, felt the need, felt like they could do better, provide a better quality of service. Your story has some elements of that, but it also has some non-traditional elements. What’s your background, how did you get into property management?
Max: 0:06:44.9 Yeah absolutely. So you’re right, it is kind of a mix of that and some other things. My background, in fact all three of my cofounders backgrounds, none of us are – had backgrounds in real estate at all, although having now been very deeply embedded in the real estate industry, I think that’s pretty common.
In fact, I think that’s one of the coolest things about the real estate industry, is that so many people have come into it orthogonally. It’s not just like everyone studied real estate management at school and then went to do it right, so.
I actually have more of an arts background originally. 0:07:15.9 Always was kind of into tech on the side. My cofounders have more a traditionally tech background. Co-founders Scott and Tim, we – none of us are from Detroit actually, even though that’s where Castle launched and is based.
We all moved there right after we graduated college, which was about five, five and a half years ago, as part of a fellowship program called, Venture for America, which connects recent grads to startups in sort of emerging cities around the US.
So, places like Detroit, Columbus, New Orleans, Providence Road Island, and we were working at different tech startups in the city, but you know, one of the things that’s cool about Detroit is, when you live in Detroit, you can’t help but getting – get interested in real estate.
0:07:56.4 It’s kind of sort of like the antithesis of New York right? Where everyone in New York is talking about real estate, but it’s, “Oh my god, I can’t believe how much I’m paying for this closet.”
And Detroit is totally the opposite. 0:08:08.9 Everyone’s talking about real estate, but it’s, “Oh my god, I can’t believe all of this cool stuff is going on.” “Wow, I can, you know, actually own a home for, you know, $50,000 dollars or I can buy one for even less than that and get involved in refurbishing it, rehabbing it myself.”
It’s like the ultimate, kind of, open to anyone DIY world and that’s exactly what happened to us. 0:08:30.0 We ended up buying at auction, a completely, sort of, trashed mansion basically. Seven bedrooms, 3500 square foot home that had been abandoned for about ten years before we bought it. Spent about a year and a half working nights and weekends fixing it up ourselves.
0:08:47.8 Knew nothing about construction going into it, but we were able to learn from YouTube, but also from this incredible real estate investor and rehabber, and DIY network that’s evolved in Detroit. Lot of friends and neighbours who sort of took us under their wing and taught us a ton of stuff. 0:09:04.8 We’d go help our friend build the porch on his house and in exchange he’d teach us how to refurbish hardwood floors in our house right.
And after a year and a half, that was up and running, we moved in ourselves, but also started renting out the other rooms and, you know, that was kind of when we started looking at the property management industry.
Because we thought, “Look. We live in this house now, so it’s really easy for us to manage, but this is a long term viable investment for us. We’re not going to live in a shared, seven bedroom house with a bunch of 20 somethings for the next decade, so what are we going to do when we leave?”
0:09:45.8 And, you know, we just looked at a bunch of management companies and on a personal level, there wasn’t any that we really felt like we would be comfortable handing the keys to our property to. 0:09:50.8 Both on sort of a practical level, you know, we felt like a lot of the business models of these companies made it so that their interests were not aligned with the interests of the real estate investors who were their customers.
0:10:01.8 I think maintenance markups were the most obvious example of that. If you’re charging a 10% markup on maintenance, then you’re obviously not incentivized to reduce costs, because the more you can bill us, the more you’ll make.
But I think it was also just kind of a gut feeling level, you know, working in the startup world you encounter people who are just really jazzed about what they’re doing, and seem excited to come to work every day and who often have some kind of real personal connection to what they’re working on.
By and large, the property management industry, the places we talked to, it just seemed like a lot of people who were not excited about what they were doing, didn’t – maybe didn’t really want to be managing properties and, you know, there are certainly management properties that doesn’t apply to.
0:10:41.3 I’m sure that’s not the case for many listeners of this podcast, and we’ve met a lot of awesome management companies too. But, you know, by and large, it certainly is not an industry where I would say you can say, “Wow, like everyone in this industry is just super jazzed with what they’re doing and really excited.” I think that plays a role too.
0:10:59.8 And, you know, as I mentioned, we had gotten really deeply involved in this real estate investor community in Detroit and we started talking about this to other people and we heard the same complaints from everyone right.
0:11:08.8 So many people we knew were managing portfolios of ten, fifteen units themselves and to a dime, every single one, no one said, “I’m doing this because I love managing properties myself.” They said they were doing it because they couldn’t find a property management company that they trusted, or that gave them the right level of transparency, or that – whose pricing made sense for them.
And, you know, coming from the tech world, we were looking at these companies and kind of thought, “Hey, there’s a real opportunity to do things differently here.” Not just on the level of, “Ok well we could use technology to make a lot of this product better” but I think also, kind of, on the one level up where we thought, you know, “Look, there’s, kind of, culture and values that we’ve taken from the startup world,” and maybe just stuff that we’ve internalized that we feel like are really missing from a lot of traditional real estate industry and had the potential to change how things were done. So, sort of one thing led to another, and you know, two years later here we are.
Jordan: 0:12:08.5 So let’s just fill in on some of that one thing led to another.
Max: 0:12:14.0 I glossed over a lot of ups and downs and bumps in the road to one thing led to another.
Jordan: 0:12:17.3 Yeah, well you definitely did. But this whole, kind of, you’re mentioning startup, technology, etc. Bring it home for me Max. Is this a guy that just – a young guy that’s ambitious and cocky and saw an opportunity, or is this a situation where the DNA of the company is rooted in that true startup culture that comes with all of the good and bad that we typically see in valley tech companies?
Max: 0:12:46.9 Yeah, so I think it’s a mix. I think one of the things that I’ve always loved about startups and business, and that is so interesting to me coming from, you know, the art world historically, is in the arts world, you are 100% about expressing something that you deeply feel inside, and you can, you know, you can write a play that no one comes to see, and that doesn’t mean that it wasn’t a good play. Right?
And in the business startup world, if you make a product that no one wants to use, like, I don’t care how much it expresses something deep and true within you, it was a failure. But at the same time, you’re also never really going to build a great company or product just by – well, I shouldn’t say never. 0:13:23.1
Maybe there are people who do this, but it’s certainly not something that I could deal with it – I’ve seen successfully, just by doing some analysis of a market and thinking, “Hey, there’s an opportunity here, right?” And I think the 0:13:33.8 Castle story is, you know, the business – the story I’ve just told you up until now, was an idea for a company that evolved from a very, sort of, organic natural place, based on our own lived experience.
That then led us to a point where we said, “Ok, hey, we believe there’s something here, now let’s do some research and analysis to make sure we think this is a real opportunity.” 0:13:55.7 And we did a lot of, like, book and internet research, but really the best way to do that is, we literally – we through up a marketing site, we started reaching out to people, and we just tried to get people to let us manage their properties.
0:14:10.1 And they, amazingly, did. I remember our first ten sales calls. The first ten sales calls, because I was doing all the sales. 0:14:15.1 I was just praying that the person on the other end wouldn’t ask how many other properties do you manage.
Because if they asked, I was going to have to say, “Oh, we don’t manage any, you would be our first customer.” And just somehow, amazingly, we got to ten customers with no one asking that question. I think because our website looked sort of professional.
And then by that point, if someone said, “Oh, you know, how many properties..”
“Oh, you know, we only have ten customers, we’re a brand new startup.”
But we seem more legit. 0:14:40.3 And in those early days, literally it was, we had a website, but it was a – we were doing everything 100% by hand. You know, we would just manually update — every owner had what they thought was a live dashboard, and was really us manually updating all the information.
And through that process though, we learned, kind of, two things. 0:15:01.5 One is, we learned that there actually was demand for this, and I think a great, a kind of great proxy for startups is like, if you are going to build a successful startup, you have to be making something that people want so badly that they will hire, like, people with no experience and no product to do it.
0:15:18.9 And that’s what we discovered in property management. In many cases, the status quo was so bad that the fact that we were just a couple young guys, who didn’t really have anything to offer except that we would be really dedicated to you as a customer and we would do everything we could to go above and beyond for you. 0:15:34.1 That was actually more appealing, I think, to people – at least a base of people, who’d had bad experiences with traditional management companies than the alternative. And it was enough to, kind of get us started.
0:15:44.2 And then second thing that we learned though, is that we were able to build a way better product by, you know, we just did all the management by hand ourselves, so we learned exactly where the pain points were, we knew exactly where to focus our energies on making that process more efficient, because it would just be like, what’s making us the most insane. And we were very close to our customers, so we were getting a lot of real time feedback, and they were not shy about sharing it.
0:16:09.7 And I think, ultimately, that let us build a much better product than if we had sat down and been like, “Alright, well before we take on any properties, we better figure out what kind of platform to build. Let’s do a top down analysis of how property management works, you know.” That’s never going to compare to just experiencing it first hand.
Jordan: 0:16:27.9 I love it. So, you start off going to the typical customer discover process, uncovering who are your customers, what are their needs. You’re dog fooding along the way, scratching your own itch, and then you’re finally – you’re getting validation both in the form of dollars, which is the ultimate form of validation, but also in finding how felt is the need. Ideally, product market fit looks like the product being pulled out of you. In this case, starting from scratch with no background.
That obviously is a categorically different situation than saying, “Hey I’ve been doing this for 30 years, I have a ton of industry context, but now I’m starting off and doing it on my own.” As opposed to, “Never done it before. Young, couple of guys that are just, kind of, figuring it out as they go.” And yet, you got traction with that. So, pretty good sign.
Max: 0:17:20.4 Absolutely. You know, I think there are – first off, I love that quote that you’re referencing about the market pulling product out of startups. I think it’s very true. And I think there are certainly pluses and minuses to both approaches.
0:17:29.3 I know a lot of founders who have been heavily experienced in, you know, the trucking logistics industry, and they discover these problems, and they say, “Hey I’m going to start a company to, kind of, solve this.” There’s definitely benefits you gain from experience.
0:17:42.3 I think on the flip side, the benefit of a lack of experience is, you don’t know what you don’t know. You don’t know that a thing “won’t work” when really it just didn’t work like that in the past, but maybe it would now. And so you have that, kind of, beginner’s mind.
0:17:54.6 So, there’s a lot of, I would say, unforced errors that we made from being new and inexperienced, but I think we also got a lot of value because we didn’t come to the market with a lot of the preconceptions that most people have.
Jordan: 0:18:04.4 I love it. So, the question why just comes a lot more naturally, because you don’t have a long list of reasons why not.
Max: 0:18:11.7 Yeah.
Jordan: 0:18:12.4 Makes a ton of sense to me.
Max: 0:18:13.0 And it’s funny, because we now – we see that now even within Castle, where I look at some of the people on our team who joined in, let’s say, the past six months, and you know you look at internally, I would say about half the stuff we do, we do and there’s a really good reason. Right?
0:18:26.8 We tried a bunch of alternatives and this thing worked the best, we really thought about it and decided we’re going to do things this way. The other 50% of things, we do a certain way just because someone did it that way once and then you just, kind of, keep doing it, because you’ve gotta do it and suddenly it’s a year later and we’ve “always done it that way.”
0:18:43.7 And making sure that people who are joining the team, post the era of us always doing things a certain way – one of the hardest challenges is making sure that everyone understands that, like, half this stuff we just started doing and keep doing a certain way, for no reason. 0:18:57.2 And, like, you should be aware of that, and don’t act like this is – don’t in your mind think this is how we have to do things, because it was literally a random choice that is for sure not the optimal way. 0:19:09.1 It’s hard to maintain that mindset, both in myself and in other people.
Jordan: 0:19:13.3 Yeah, that makes a ton of sense. One thing we’ve done internally at times,
When we first launched LeadSimple, we actually called Lead Connector, because we had thought that that was such a horrible name that it would force us – we would feel a really strong urge to change it sooner rather than later. Whereas if we had settled on something we felt was, kinda so so, we could’ve prolonged the disaster.
Max: 0:19:45.9 That’s a great idea. It reminds me of whenever we do a team or company-wide brainstorming session. I will always start out by saying a couple of intentionally terrible ideas just to set the bar really low so people – no one thinks, “Oh man, my idea isn’t as good as that” because the ideas that I said would be impossible for anyone’s ideas to be worse.
Jordan: 0:20:07.1 So, on this point of culture, what’s the head count within Castle right now?
Max: 0:20:11.0 So, we are, sort of – kind of depends
This is not something that we’ve outsourced to an agency or a call-centre
And then we’ve got another 15 or so, we call them stewards, but those are basically 1099 independent contractors who do in – onsite, not maintenance jobs, but sort of unskilled onsite jobs like helping a tenant with a move out, or picking up keys, or dealing with that one city agency where you have to show up in person on the ground jobs that – at properties.
0:20:59.5 So yeah, kind of a sliding scale team depending on how you interpret it. Feels – doesn’t feel right to say we’re just a team of 18 and leave all those other people out, but it would also be very misleading to say we’re a team of 60 given the varied employment statuses.
Jordan: 0:21:14.4 Very, very interesting. Ok, so the stewards, this is kind of like on-demand labour
Max: 0:21:25.7 Yeah, exactly. Pretty much. And I think the cool thing for us is, there aren’t a ton of those tasks that need to be done, because they really mostly take place when a property is vacant, so we’re able to serve a pretty large base of customers – of properties with a pretty small base of stewards.
And, our actual number one lead generation channel for stewards, is tenants in Castle properties. So there’s a nice, kind of, cycle vibe going on there, where we have tenants who have a relationship to
Jordan: 0:21:54.0 And what are the service areas that you guys are – what’s your service area?
Max: 0:21:57.8 Yeah, so we are, you know, based in downtown Detroit. Well really at a new centre neighbourhood, but very close to downtown area. We go up 45 miles outside of Detroit, so basically the entire southeast Michigan area. And we’re just in Michigan right now, we’re prepping for a launch in our second market, either late this year or beginning of 2018.
Jordan: 0:22:16.4 Fascinating. Ok, and so you talked a little bit about the segmentation of the types of tasks that stewards handle. Over in the Philippines, what types of tasks do you have the VAs over there doing?
Max: 0:22:25.8 Yeah, so basically – I’ll kind of start by talking about it at a very high level. Basically, a big believe of ours around property management is that historically, management firms have over invested in – it sounds dumb until I explain it – over invested in actual property management, meaning they are spending, let’s say 90% of their time, like, actually taking care of specific properties and only 10% of their time on customer relations.
And really, our belief is that, actually, what most investors want out of their management company is – sure, obviously you have to do a competent job actually managing the properties, but managing your relationships with your clients is also really important.
0:23:06.2 And so our, kind of, big high level goal with Castle is, we want our account managers, you know, these are like, very smart hardworking people who graduated from top colleges, like, we want them working on the highest leveraged tasks they can be.
0:23:22.2 And if one of our account managers is driving out to a property to look at, I don’t know, just make sure that the grass doesn’t grow to far, or if they are filling out some form, or if they are, you know, calling someone else to figure out where the keys to a new property are. That’s not a good use of their time.
0:23:39.8 We want them focused on providing the services to our customers that only someone who’s really deeply embedded can provide. And that means everything else, we want to either automate with technology, break it down into its small component piece so that someone in the Philippines can handle it. Or, maybe eliminate completely if it’s not necessary. Right?
0:24:00.8 So that could be anything from, you know, for example, when a maintenance issue comes in, 90% of issues, it’s very straightforward to figure out which contractor to assign them to. Right?
0:24:12.6 So we have a group of maintenance specialists on our Philippines team who are taking calls from tenants to report issues, documenting those issues, assigning them to contractors and then sure, occasionally you have the rare, super complex issue where maybe someone higher up needs to take a look.
0:24:30.8 You know, same thing around rent. We’ve got automated reminders to tenants before rent is due. If someone needs to call and say, “Hey can you give me an extra day. Rent is going to be a little – I need an extra day this month.” Or, “Hey I’m confused about how I can make a payment.” That’s a perfect kind of call for someone on the Philippines rent team to handle. And then, occasionally, you’ll get the really more complex issue that can be booted up the chain.
0:24:55.0 So, that’s kind of how we’re structured internally, and a key part of that is our technology, where what our system does is, it basically breaks property management down into its smallest component tasks, so that they can be dealt with in the most efficient way possible. Right?
0:25:10.5 So, reference cheques are a great example. We have someone on our Philippines team who’s entire job is checking landlord references from previous applicants. The technology just basically queues up the next reference for her automatically, and also, she’s way better at checking references because it’s all she does.
She’s way better than an account manager would be at this point, because she’s really learned, “Here’s what you look for, here’s what you ask for,” just by nature of we all get much better at something when we do it a lot. 0:25:37.2 So, that’s kind of how we’re structured and how we think about it.
Jordan: 0:25:41.5 I love it. So one of the things that I’m hearing there is, you’re doing a lot of segmentation, what some people might call departmentalization, but what’s interesting to me about departmentalization and segmentation of tasks, is that it doesn’t even require having dedicated personnel.
The value of segmenting the work and the opportunity there is to be able to define both the value and the cost associated with a given task. To look at the constituent pieces across the business and decide what kind of specialized – what kind of labour
And either – obviously if it at scale, if you can departmentalize where it makes sense, but even if you don’t go through that process of having different, separate departments, the exercise of understanding and isolating the value and the cost with each, not only unit of the business, but sub-tasks within the business, makes a ton of sense. So that’s really cool, that’s a…
Max: 0:26:39.7 That’s exactly right, and I think it’s worth pointing out, you know, clarifying. The way we did this, just like you’re saying, the compartmentalizing and specialization, that came first. Right.
So even when it was just me, Tim and our second higher, Amanda, managing all the properties, we were compartmentalizing and breaking things down, and that’s what taught us, “Ok, as we build up our organization, how do we divide it up? How do we structure it?” We were able to get there because we started with the compartmentalizations. So I think you’re exactly right there.
Jordan: 0:27:12.0 How many doors are you guys managing right now.
Max: 0:27:12.1 We are currently managing about 700 doors.
Jordan: 0:27:17.2 And is the vast majority – what percentage of that is not single family?
Max: 0:27:22.6 About 15% not single family, but even there, you’re looking at mostly duplex up to quadplex. And then we have a few medium sized apartment buildings. But really our sweet spot is single family home all the way up to a small apartment, maybe 15 or 20 units.
Above that, you start to get into sort of custom territory where things aren’t as one-size-fits-all. And just by the nature of the housing market in southeast Michigan, that’s mostly single
Jordan: 0:27:52.0 So what’s interesting, is that when you mention that door count, I know some people are going to hear that, and they’re also going to hear the 18 full-time staff, 30 VAs in the Philippines, 18 or so stewards, to some that’s going to sound like you’re over hiring, over staffing, etc.
I know that what you’re doing, in terms of structuring, organization, is not just for today, but for tomorrow. 0:28:25.0 Do you expect the ratios, in terms of people to properties to change significantly over time, or do you think that those ratios will hold constant as you add on another 1-2000 doors?
Max: 0:28:31.9 It’s a mixture. So I think, kind of, first off the way we kind of look at it is, we look at our team in two, sort of buckets. Right. One is – ok, our operations team – what is strictly necessary to keep all of – keep these properties managed. Right?
0:28:50.4 And our current operations team is 11 people, and that’s split between dedicated account managers who are actually overseeing units, and people who oversee parts of our network by, you know, we have a head of contractors, someone who runs the steward program, etc.
0:29:05.4 And then, you know, the other chunk of people on the team are people who are working on either growth or on software development.
So, you know, their real job is really 100% about investing in the future and then the operations team is mixed. 0:29:19.1 What we’re really looking at is, we, you know, what we’re really thinking about is, “Ok” — well, it started out being, “Ok, how many properties can one account manager oversea?” Because that was the clear opportunity where we thought technology could make people a lot more efficient.
We’ve actually now changed that where it’s not really just the number of properties, we actually have, sort of, a fairly complex equation that takes into account the number of properties in an account manager’s portfolio, the number of customers, because working with one customer with 100 properties is obviously much less time consuming than working with 100 customers each of them has one property. And various attributes of the properties.
0:29:57.5 So, are there, are there open listings of — vacant properties are usually more work. Are the customers brand new? Because customers tend to need more support early on, etc. And all of that is basically building a dynamic formula that – so that we can assign new customers and new units to the account manager, who, one has the right mix of workload and also just is the best fit for that customer. And that’s getting a little complicated, but high level basically.
0:30:23.4 This formula spits out a number that is that account manager’s essentially effective capacity for managing units. That’s something that’s been going up over time since the start of Castle and it’s something that we want to keep driving at.
We ultimately believe that,no where
Jordan: 0:30:43.6 Makes sense. So globally, more efficiencies as you scale, but additionally, you’re also segmenting your current labour
We talked about some of your ambition, getting to 50,000 doors at some point. Hopefully beyond that mark. 0:31:15.0 But the question becomes how do you do it? You’re clearly investing in service, you mentioned previously with the example of maintenance markup, that you want to have alignment of incentives. I interviewed Noel from Renters Warehouse the other day, they mentioned that as well.
And when people hear alignment or words like empathy, it can sound like it’s really pointing at altruism, which hopefully to some degree is the case, but in large part, it’s about value. And alignment of value keeps everybody happy, and keeps the dollars flowing.
0:31:48.8 So presumably, you’re focused on providing a higher service level which translates to happier customers, which translates to more referrals. How do you think about the growth of getting to where you want to be long term? How does word of mouth, how does organic, how does paid, how does all of that fit in to doing, what to date, no single property management company has done, in terms of achieving that kind of sales?
Max: 0:32:15.8 Yeah, absolutely. So I think a couple pieces. First off, well I don’t mean to downplay our ambition in any way, I do think it’s important to point out that for a many, many – in fact
So, I’m certainly not sitting here and saying, “Oh my god, there’s 100,000 management companies, they’ve all tried to do this and failed, but we can do it. Like, we’re smarter and better than those guys.” I think property management companies have historically, they’ve been trying to build a different kind of business and haven’t even attempted to go down this road.
0:32:48.9 There’s also one that I don’t think has been possible really until the past few years with a lot of technological shifts. So, we kind of look at it in a couple ways. 0:32:55.6 One, you’re absolutely right, it starts with providing a great product, a great service.
0:33:00.6 Our number one growth channel has been referrals and word of mouth, and we aim for that to continue.
0:33:05.5 The second big piece there is, it’s not just about signing up new customers. Anywhere from 20 to 50% of our growth in a given month comes from existing customers expanding. Adding more properties with Castle. And we love that because 0:33:23.3 one, obviously it’s just way easier to help a new customer – an existing customer expand than to close a new customer.
But I think more importantly, you know, we are in this business to help other real estate investors. There’s nothing better than when someone comes to us and says, “Hey look, like, working with Castle is going so well that I’m able to expand my portfolio and I’m really excited about doing that.” Like that’s just a sign that we’re doing our job right.
0:33:46.3 And we’re – we do everything we can to help our existing customers expand their portfolios. Now, you know, we have a fairly large network of realtors and other sellers than we connect customers to. 0:34:00.2 We help customers sell their properties to other Castle customers.
And something that we’d love to do down the road is actually use more of the data that we’re collecting in a really smart way, to give people intelligent recommendations about expanding their portfolio.
0:34:13.2 And then the last piece is, you know, kind of other traditional growth channels right. We get a lot of stuff from organic search. We get a lot – a small amount, but it’s not nothing from Adwords and other types of online advertising.
0:34:27.7 We do – we have a big presence at a lot of local real estate meet ups. This is a pretty local business, and it’s funny, that’s something I originally thought we’d have to move past as we scaled, but I’ve actually talked to a lot of pretty big companies like Instacart is a great example where it’s still local for Instacart. They launch a new market, they’ve got a dude running around building relationships with the groceries.
So you can really scale a company even – and maintain that kind of local involvement which I think is really cool. 0:34:53.3 And we’re just starting to get into content. Haven’t done a ton of it yet, but we’ve collected a lot of expertise and knowledge that isn’t available anywhere else, in any kind of convenient form.
And so we’re not trying to do the, you know, top ten recommendations for writing a lease. The kind of landlord focused content that’s everywhere, but trying to think where we can add unique value.
0:35:16.0 So a great example is, we have a compliance guide that’s basically a two-page document and it lists every city in southeast Michigan and what their rental registration requirements are. So, do they require registration? Is there a fee? Do they require inspection? If so, is there a fee? How often do you have to redo the inspection? Can you pay online? Etc.
0:35:36.0 And that’s the kind of knowledge that – I mean, that knowledge all exists somewhere online, but I don’t know any other way to get it rather than contacting those registration departments one at a time. Some of which don’t even have their information online and that’s stuff that we had to pull together just to run our business, and if there’s an opportunity to release that to our customers and other people in a way that would be valuable to them, then, you know, it’s why not do that. We’ve already, kind of built the knowledge base.
Jordan: 0:36:03.9 Yeah, that makes sense. You know, I find that people think about content in one of two ways. Most folks tend to think about content as a net new lead gen strategy, but of course it can also be used for lead nurturing, for conversion. And i.e., sending value added information to your existing subscribers, increasing customer sat, customer referrals, etc.
0:36:25.3 For you guys, since word of mouth has been a meaningful part of your growth, both in terms of taking on new properties for existing customers as well as referrals, how do you actually tease those out? It would be ideal to say, “Just have great service” and everybody just sends them your way, but are there any specific tactics or strategies that you guys use to actually get people to proactively hand you more properties or send you referrals?
Max: 0:36:54.0 Yeah absolutely. So you’re right, it starts with building a great service, but you need – it’s not if you build it they will come. It’s a little more complicated than that. You know, it’s interesting, we do offer – there’s
People are motivated to refer because they want theirus
So for expansion, existing customers adding new units, the biggest thing that we try to do is just start by providing value rather than creating an 0:37:35.1 [Inaudible]. Right. So if we have a customer who’s looking at new purchases, we’ll advise them, we’ll give them some insights on what neighbourhoods
We’re only going to benefit directly from that if the customer actually goes through with the purchase and that property comes onboard to us and, you know, a lot of times they don’t go through with the purchase or our advice is, “Hey, it’d be great if we could say you should buy this property because then we would get to manage it and we’d make the money, but our honest opinion is you actually shouldn’t buy this, so that’s what we’re going to tell you.”
0:38:05.4 But, I think that ultimately that builds trust and it also means that our customers, when they’re thinking about buying a new property, they’re going to come to us. They’re inclined to come to us first just to get knowledge and advice, and it’s not immediately a transaction, which I think helps.
0:38:19.7 On the referral side, I think the most important thing for us is just having a lot of touch points and then staying in the back of someone’s mind. Because most people are not going to be ready to make a purchase decision right away. Right. It’s very common for us to – somebody hears about Castle, and they’ll say, “Look, you guys seem really cool, I’ve 0:38:38.2 [Inaudible] management company, I don’t love them, I wouldn’t choose them again if I was starting from scratch, but things are going fine, I don’t want to rock the boat.”
But then, you know, four months later there’s some disaster and that’s when they think, “Alright, it’s time to give Castle a try.” 0:38:53.4 And that’s where we see, I think, being really present in the local community that has the most value.
It’s very rare that we will be at a real estate event and we’ll meet someone for the first time and they’ll immediately become a customer. But what is common, is that we’ll be at one of these events and people will come up and say, “Oh, you guys are Castle, my friend told me about you guys,” or “I’ve been reading about you guys online,” and then they’ll start a conversation with us, and then we’ll be able to nurture that lead and they become a customer down the road.
So, it’s kind of about making sure that we are in
Jordan: 0:39:29.5 Ok. Now, that totally makes sense. So it’s the long play, it’s the snowball effect. Takes time and patience. I want to transition now to wrapping
Max: 0:39:45.4 Alright, I love it. 0:39:44.4 [Inaudible] for this part.
Jordan: 0:39:46.9 Alright so Max, first
Max: 0:39:52.2 So, my – I’ve kind of got a bit of a different take on this question. I think the single hardest personal challenge of being a founder, of being a CEO, is managing your own psychology.
That’s like one level up from all the other challenges. Challenges with growth,
Jordan: 0:40:17.6 The inner game. I love it. Ok. Totally makes sense. I very much agree with you. I hired a business coach a number of months back. It’s made a huge difference for me, and really, it’s largely just about that. Managing the inner game and mindset.
0:40:31.0 Question number two Max, how much is too much too pay for a new client? Let’s take your average customer profile, how much is too much to pay for a customer acquisition?
Max: 0:40:41.2 So for us we don’t want to be spending more than $400-450 on acquiring a new customer.
Jordan: 0:40:48.4 Alright. Who do you learn from Max? Who’s advice has made an impact on your life as an entrepreneur within the last few years?
Max: 0:40:56.3 OK, can I shout at a couple of people here? Number one I would have to say, far and away most influential, or my cofounders Scott and Tim and our team. I learn more from them than from anyone else. They push me in ways that no one else can.
0:41:10.8 Other than that, definitely we have a couple of investors who have been super valuable to us. I’ll shout them out in case they’re listening to this podcast, all the partners at Y Combinator, David Wydam at Echo for Ventures, 0:41:15.0 [To Be Confirmed] and Eric Ford at GMOVP have been hugely influential.
And then last, I just try to read a ton. And I try to read not just, yes like startup news and the articles about business, but also stuff that has no obvious connection to that. But that I think can be reallyfact
Jordan: 0:41:48.0 Oooh, orthogonal fields. Cross application, I’m tracking with you man. Any books you would shout out that you’ve read over the last year?
Max: 0:41:54.6 Ooh, there is actually a startup book, but for sure, the “Hard Thing About Hard Things” by Ben Horowitz 0:42:00.0 [Inaudible]. It’s a super common recommendation, but I found it super valuable. Definitely
I also would say I really enjoy reading biographies of other entrepreneurs,
And Ron Chernow has a biography of Andrew Carnegie, that I also thought was awesome. It’s reallyera,
Jordan: 0:42:40.2 Absolutely. Common traits, common patterns. Don’t aggrandize your own unique situation and problems. People have solved many of these same issues before. Next question, 0:42:50.6 What’s the number one thing that you see property management entrepreneurs doing wrong?
Max: 0:42:58.9 Not existing? Does that count? They’re just – I think there aren’t nearly enough property management entrepreneurs out there. It’s an industry that people do not think is exciting or sexy, and I think there’s a lot of opportunity
Jordan: 0:43:15.0 Are entrepreneurs born or bred?
Max: 0:43:18.7 I would say, like everything I think it’s a mix. I think being good at it is definitely bred. I was not born being good at this. It’s something you can learn. I think wanting to do it, and finding the life of an entrepreneur enjoyable is probably closer to born, because like, it’s not very fun or appealing from an objective standpoint, and I think you have to be someone who – the thing is, I describe it – you have to be someone who values the high peaks, regardless of how deep the lows are, over like, the average. If that makes sense.
Jordan: 0:43:54.9 Yeah. That actually does make a ton of sense. I like it. I like it. Alright. Last question man, what is the one piece of advice that somebody had given you on day one of founding Castle?
Max: 0:44:07.5 That someone has given us or that I wish someone had given us?
Jordan: 0:44:10.2 That you wish someone had given you.
Max: 0:44:11.6 Chill out. Don’t worry about it so much. For sure – I wouldn’t have listened to them, but if I had listened, would have made a big difference. Most things that we were super worried about turned out to not really matter, and I’m sure most things I’m really worried about now will turn out to not really matter as well. Doesn’t mean you can’t worry about them at all, that worry is part of what gets you there, but I think I was way more stressed out than I needed to be in the very early days.
Jordan: 0:44:33.8 Man, entrepreneurship is a head trip man.
Max: 0:44:35.5 Absolutely.
Jordan: 0:44:36.8 Hey Max, where can folks go if they want to read a little bit more about Castle and what you guys are up to?
Max: 0:44:42.0 Absolutely. So bestis check
If you put in your info and you just say, “Hey look I’m not even going to be a customer, but I want to learn more about what you guys are doing,” we love that, so please reach out.
Jordan: 0:45:06.5 Well guys, this was a great interview. Max and Castle are one to watch. A lot of ambition, a lot of hustle and execution here. Max, I really appreciate you taking the time to talk with me today. It’s been a lot of fun.
Max: 0:45:20.1 Jordan, always a pleasure. This is a blast!