Purplebricks founders Michael and Kenny Bruce grew up poor in a council housing estate about 30 minutes from Belfast, Northern Ireland.
Today they have a joint net worth of USD$250 Million. It’s serious wealth that lets them live an elite lifestyle to travel the world first class and invest millions in the Soccer team they followed as boys. I’m sure they won’t be lining up for food stamps any time soon, but this Australian exit has hurt them badly.
The official line coming out of Purplebricks is that they grew too fast and should have consolidated the growth of their UK home base before venturing across the Atlantic and opening in Australia.
Really? that old chestnut?
These are my personal thoughts on what went wrong and why the fall of Purplebricks (or at least the Australian exit) is good news for the real estate industry, albeit a timely call to arms and innovation.
I believe there’s an obvious reason why their model doesn’t work and it’s got nothing to do with low or fixed fees. For a new concept to work, it needs to solve a problem for consumers and clearly, real estate commission is not the problem.
Let’s remember that industries rarely lead the charge for change. Consumers do when they discover a better mousetrap.
Witness the new breed of digital disruptors like SpaceX, Tesla, Amazon and of course, Airbnb and Uber.
Consumers, not industries will decide if a new concept or model makes their lives better. And quite simply, consumers have spoken
Social Media blogs and pages around the globe are celebrating the downfall of yet another real estate services fee discounter that failed to connect with consumers. It’s now obvious that their pitch didn’t match their performance.
But I’m also inclined to pause for a moment and reflect on the failure of a bold attempt to build a global business. Jobs will be lost, lives changed and dreams shattered. These guys had a go and I respect that.
Take it from me, startups are hard work. They are expensive and will suck the daylight out of all involved if a rapid financial trajectory isn’t forthcoming.
Valuable years of your life can be sacrificed with no promise of any reasonable ROI. Early days are especially brutal with a constant tug of war between costs (mainly development) and revenue. Most startups crash and burn because of a lack of funding or because they were just a crappy idea or didn’t solve a problem.
I know all’s fair in love and war but I will always spare a thought for any entrepreneur who has a go at something.
While the UK based Purplebricks share price is said to have slumped some 65%, there is no indication yet, that the UK business is in any major strife.
But reports from the US where PB launched in 2017 are mixed. Investors must be skittish.
Perhaps it was a matter of expanding too quickly, or perhaps it wasn’t. Or perhaps the business model is totally wrong.
Then one might argue this ship wasn’t exactly seaworthy from the beginning.
To view it from a marketing angle, the brand, or should I say the insipid, god-awful marketing name (Purple Bricks) leaves me colder than Melania Trump’s side of the bed.
A brand and a name are meant to lift and inspire or at least stand for something. If I bought a house with purple bricks, I’d paint the thing before I moved in… or sell it to Cadbury!
So why is the company sinking?
There are a few reasons:
Reason #1. Consumers are better informed today than at any other time in history.
There are more real estate renovation and ‘flip for profit’ shows on TV than ever and I believe, at the end of the day, the astute or even reasonably well-informed consumer understands there is no recommended retail price on real estate.
This consumer also understands, that working with a competent agent, they have every opportunity to influence the sale price of their property and achieve an above-market result. This argument doesn’t need any support because it happens every day.
The Purplebricks model gives you a fixed price and sends the buyers to your door. If you’re prepared to pay more you get an agent.
Compass, the US rising star understands property sale prices can be influenced and you couldn’t find a real estate selling model more different to PB.
Compass will look at your home and suggest improvements to make sure it has the best possible market appeal to attract buyers and maximize price.
They will then finance said improvements, many of which are in the hundreds of thousands of dollars, and recover costs from the proceeds of the sale.
Compass understands great presentation, marketing and that hands-on management of buyer’s and seller’s expectations is a thing and a formula that works.
Compass also started in 2012 and have a valuation (at last funding) of USD$4 Billion!
A May 2018 valuation put Purplebricks at USD$1.76 Billion but that would be less today as the share price has fallen like a soccer player since early 2018.
Which begs the question… which model works best? The fee cutter or the value adder?
In attempting to manage the bushfire, these comments come from Purplebricks in the wake of the Australian meltdown:
“During the two and a half years that Purplebricks has been operating in Australia, market conditions have become increasingly challenging,” the company said in a note to investors. “This, combined with some execution errors, has resulted in the business not delivering the progress the Board expected.”
With the departure of global CEO, Michael Bruce, Vic Darvey, previously Purplebricks’ Chief Operating Officer, is taking the role of CEO and being appointed to the board of directors.
“Going forward, we have a very clear understanding of the levers available to us to achieve growth,” Darvey said in a statement.
Okay Mr Darvey, quick question for you… If you know which ‘levers’ to pull in order to achieve growth, why haven’t you pulled them already?
It’s news to me but Purplebricks say they have dominant market leadership in Canada after launching only a few months ago.
Thirty-something percent of the population of Canada live less than 200 kilometers from where sitting and I’ve seen 2 PB For Sale signs this year. I’d be interested to see what they are comparing themselves to? I’d be interested to see the numbers supporting that claim.
Reason #2 The second problem they have is almost zero consistency of product. They charge a higher fee in London than they do in rural England regardless of selling price and there is no upfront fee in the US because consumers wouldn’t pay it but there is in other marketing centres. WTF?
And while I’m throwing darts at the PB model, a discounter is only as good as their competition and if you’ve made the dubious call to not add value, the only way left is a spiraling race to the bottom.
To succeed and thrive in challenging real estate markets, Purplebricks needs to solve a problem. They think it’s cheaper fees and a reduced level of expertise, experience, and service. Clearly, Australian consumers don’t agree.
Reason #3. How on earth, or perhaps I should be asking where on earth do you find top quality, experienced and highly trained real estate professionals when charging the lowest fees in the industry?
Who would you choose to oversee your open heart surgery? The first year trainee intern whose last patient was a rabbit in the lab, or a twenty-year veteran skilled in every possible contingency?
Doesn’t a real estate transaction deserve the same level of care? We’re only talking about your financial life!
So to take this a step further, I believe home owners selling through Purplebricks run the risk of underselling and here’s why:
Nobody will argue that there is no set price on real estate which lives in a free market economy subject to the whims of supply and demand.
Nobody will argue that a good agent, with a track record for achieving top market results for their clients, has the ability to apply their skills and record a top result.
But top agents expect top compensation and Purplebricks can only offer that if one of their agents can sell ten times as many hiomes becaise the fee for servce comparison kis probably more like $1000 for a PB agent per deal compared to (i don;t know) $10,000 for a top professional.
So who do ou want? The rookie or the pro?
Therefore, the chances of a PB listing selling about market value are seriously reduced
I think one is entitled to draw an obvious conclusion from this Australian exit that property transactions are much better performed by a hands-on, experienced professional.
It has to be a worrying sign for Purplebricks. Global real estate experts agree that Australia is one of the most sophisticated and well informed real estate markets in the world.
The next fixed fee enterprise to make a move for market share down under better have very deep pockets.
Reason #4. C’mon you guys seriously? If you suck, people are going to talk about it. This isn’t the seventies!
To back up Reason #3, I just Googled Purplebricks reviews UK and found this (see graphic below). This first 12 review are all 1 star out of 5. If you’re going for market share, you have to get really good reviews. Consumers won’t hesitate to tell you if you can’t cut the mustard. Click the graphic to see all reviews.
Reason #5. Purplebricks marketing culture is totally wrong.
The New Zealand Herald published an article this week that lead with the heading “Purplebricks $20 Million Mistake” and while PB blame a declining Australian property market for their demise, one would have to question the impact of their advertising campaign.
Their commercials, with the byline, “Save yourself from Commisery” focuses almost exclusively on saving money on agents fees rather than the result or solution the company might offer.
Marketing real estate services is tricky and in hindsight, we can see that whoever got rich giving them advertising advice, put their money on the wrong pony.
Call me old fashioned but isn’t the real issue here about trust? Isn’t the home seller more likely to say “Okay, I’m selling and I know I’m only going to get one shot at getting this right. Who can I trust to sell my home?”
Real estate is a business of relationships. The best agents will invest years of client care and value-adding communication before winning a client.
You can’t apply the same marketing formula for selling cars or holidays real estate services. It’s a totally different beast.
The question now is whether Purplebricks will learn from their Australian mistakes and tailor their marketing accordingly.
So what’s the lesson here?
It’s simple. The best marketing is word of mouth. Purplebricks poured millions trying to buy precious market share in Australia and were found wanting.
Sellers want three things: An above-market sale price, in a reasonable time and a rewarding real estate experience. Purplebricks couldn’t offer that.
Innovate and add value. Establish genuine relationships with your clients and look for ways to enhance client care. People do business with people they know like and trust.
Demonstrate your skill and experience while leveraging social proof with glowing written and video testimonials that provide social proof of your ability to deliver the above three seller wants.
Defending your fee is easy when you show success evidence of happy clients and make sure our sellers see you testimonials as part of your pre-listing kit. Don’t bother leaving them after your presentation. It’s too late. Ten bucks says they’ll be in the blue bin before you’re in your car.
Look for ways to be different in your market. Promote your community and champion those in business, politics, health, education, sport and public service that genuinely care and make a difference.
I’m stunned so few agents are doing this. One agent in my private client group has had his videos viewed almost 20,000 times And Posts shared more than 100 times since launching only a few months ago. He already has close to one thousand followers on his community page and by the way let me know if you’d like to know more about this.
When you turn the camera away from you and your logo, amazing things can happen.