Via intrepid startup blogger John Cook from his new weblog Where are John and Todd?:
Redfin today said it is cutting 20 percent of its staff as the Seattle online real estate broker prepares for what Chief Executive Glenn Kelman described as a “big dip.”
About 20 employees were let go, bringing total staff at the company to about 75 people.
Kelman said it was a difficult decision, but the right move given how the economic slow down is impacting the residential real estate market.
“Redfin’s whole business will struggle and fight and may yet fail,” Kelman wrote in a message to employees. “But the only way it is possible for us to succeed – and, even today, I believe we will – is if we adapt.”
In an interview, Kelman said that the company had been performing well up until about three weeks ago. Last month, he said executives even felt strong enough about the business to raise revenue projections for next year.
But once the economic meltdown hit Wall Street, Kelman said “deals started to fall apart.” And while October and November may still prove to be solid months at Redfin, Kelman said beyond that the outlook is dismal.
“As the stock market wiped out prospective down-payments, tours and offers dropped 30 percent,” said Kelman in his message to employees. “Transactions that were done came undone.”
More from CEO Glenn Kelman at Redfin’s weblog:
Today Redfin laid off roughly 20% of our employees.
Unlike other startups, our industry’s recession started a year ago, when home prices first plunged.
Since then, we’ve fought like starving animals, and with some success: while industry-wide transaction volumes dropped 33%, we grew revenues by nearly 50%. Traffic grew more than 300%.
Even a month ago, we were raising 2009 revenue projections. All our markets, now including Chicago, contributed profits.
But the past few weeks have seen a major reversal. As the stock market wiped out prospective down-payments, tours and offers dropped 30%. Transactions that were done came undone. October will still be pretty good, then we’re headed for a big dip.
Hence the layoff. Layoffs are painful for any company, but especially for a startup and especially, I think, for Redifn.
I’ve not been on a deathwatch — not so much because that’s morbid but just because I’ve been very busy with money work — but I would have bet on trouble coming sooner to the Realty.bots, rather than to Redfin. It could be, as Kelman writes today, that the company is exercising good management early enough for it to do some good:
The sky may be falling in financial markets but our competitive dynamics haven’t changed. We can become the #1 real estate search site because our data is better than the media sites’ and we think our engineers are better than other brokers’. We’re willing to share more data with the consumer than either one of them.
He also offers up this interesting little tidbit:
That means we have plenty of room to grow. But we won’t grow without taking big chunks of market-share, which also means we’ll have to keep tinkering with our offering so it appeals to the mass market. We’ve been planning a change to our service for months, which we’ll launch in November.
I sent a brief note to Redfin PR maven Cynthia Pang:
Who was let go? Primarily back office/developers, or was it people doing direct contact with the public?
This was the reply that came an instant later:
Cynthia Pang has left the company.
Glenn Kelman and I barked at each other for a good while, but he’s a Bloodhound to the bone. And Cynthia Pang is everything you could ask for in a benevolent goddess. It’s sad to see this happen. I still don’t know if Redfin has a viable business model, but today I’m rooting for the underdog.
Technorati Tags: disintermediation, real estate, real estate marketing, Redfin.com, technology
Cynthia Pang says:
Hi Greg,
Thank you for the kind words. I am sad to leave Redfin as I think the company is doing, and will continue to do, amazing things.
But, don’t fret, you didn’t lose a reader. I’ll keep lurking on your blog.
Regards,
Cynthia
October 13, 2008 — 1:52 pm
Greg Swann says:
> Thank you for the kind words.
Thank you for every kindness you have bestowed upon me. I wish you every good thing life can accord you. As a start, when next you’re in Phoenix, give us a call and we’ll take you out for some very savory High New Mexican cuisine.
October 13, 2008 — 1:58 pm
Michelle DeRepentigny says:
I don’t have to compete with Redfin in my market, yet 🙂 so I’ve watched their business model and thought it was an interesting concept. I hate to hear of anyone having to make cuts in employment, as that prolongs the market issue we are facing, but I understand. I merged my company into another company a few months ago in order to reduce overhead. My thoughts are with those now searching for employment – best wishes.
October 13, 2008 — 2:05 pm
Bob says:
“Transactions that were done came undone.”
I hear you Glenn. Got that call twice lst week.
October 13, 2008 — 3:13 pm
James Hsu says:
My thoughts go out to the people who were let go. I hope they are all quickly able to land on their feet.
October 13, 2008 — 3:14 pm
Glenn Kelman says:
Thanks for the kind words Greg, for Redfin and especially for the people we had to let go.
It means a lot to all of us here in Seattle and in the other Redfin offices.
October 13, 2008 — 3:33 pm
Sean Purcell says:
It is tough to see anyone lose a job, especially in our current market. Just the same, I am curious Greg, why you expected the Realty.bots to see trouble before Redfin. Is it a matter of degree or did you expect Redfin to actually weather this storm well?
I have not had the pleasure of meeting Glenn Kelman, but by all accounts he is a genuine and nice person. I imagine the same could be said for the majority of those who work at Redfin. (Of course, I believe that can be said about the majority of people in general.) Still, has Redfin’s model changed so much? I mean that with all seriousness. I have not had much chance to watch them; I have been overrun with my own work.
In easy markets discount models do well. When times are tough though, people need full service agents and they do not have an issue paying full (or close to full) commission. Last I can remember, I was stuck by how much Redfin was moving to a standard brokerage model. Have they completed that transition and so are expected to weather trouble better than the Realty.bots? Of do they still base their buying program on using the listing agents’ time?
October 13, 2008 — 3:50 pm
Greg Swann says:
> It means a lot to all of us here in Seattle and in the other Redfin offices.
Tonight we’ll lift a glass to better days.
October 13, 2008 — 3:56 pm
Greg Swann says:
> I am curious Greg, why you expected the Realty.bots to see trouble before Redfin.
Because the Realty.bots are selling advertising into a market where no one is buying — I don’t mean real estate but ancillary products. The advertising model Zillow built around the Mortgage Marketplace is killer — except that consumer spending is flatlining. My expectation is that many of the ad-supported Web 2.0 business models are going to have a bad Q3 and an awful Q4. If we get 12 years of ObamaCain injections instead of the short, sharp pain of a recession, the ad-biz is going to be nothing but pay-for-performance for quite a while.
On the other hand, Redfin has a very good value proposition for buyers, a rebate of two-thirds of the buyer-broker’s commission. The loss of down-payments shouldn’t matter long-term, except that Redfin lives in that dead-zone where VA and FHA won’t go. That won’t last as prices decline, but those price declines will hit the margins hard, since Redfin sees one-third the income other buyer-brokers see.
(I will confess that even with increased volume, our checks lately are often underwhelming.)
> Or do they still base their buying program on using the listing agents’ time?
My understanding is that Redfin agents handle showings through their tour plans. This was an unanticipated cost imposed upon them by their buyers, who might be radical, but not that radical.
> In easy markets discount models do well. When times are tough though, people need full service agents and they do not have an issue paying full (or close to full) commission.
That’s a profoundly valuable argument on the listing side, and you and I are living proof of the proposition. On the buyer’s side, Redfin is only a discounter in the sense that it rebates commission. They may streamline parts of the process, but they’re undertaking most of the tasks we would identify as being full-service. This may be a real problem, in the sense that full-service on the buyer’s side is hugely and unpredictably labor intensive.
My take, and Glenn can jump in to correct me: On the buyer’s side, Redfin has a killer web site and the rebate as very powerful USPs. These work together to attract a certain type of buyer, who will come to Redfin fairly tightly glued on with no additional acquisition costs. The servicing cost of that buyer will not be appreciably lower from the point of first contact on.
In other words, I would be very surprised if Redfin’s costs per closed buyer were anything like one-third — or even one-half — of yours or mine or Coldwell Banker’s. But that doesn’t mean they cannot be profitable on a volume of sales you or I or an ordinary chain brokerage could not sustain. But: It is all about volume. Redfin is looking for the kind of margins that work in retail or fast food, not the kind that either work spectacularly or fail miserably in ordinary real estate brokerage.
October 13, 2008 — 4:21 pm
Eric Blackwell says:
@Glenn- Here’s to better days to one and all. I have had to make some of those decisions and I know how hard they are. Best to you.
@Greg- Your point about trouble in Realty.botsville before Redfin-burg…I think based on my (addmitedly internal) estimates of their burn rates and lack of revenue production, the bad news and tought times may just not have surfaced there yet. Yet bots like Trulia are actually ADDING staff and in some unique places. Post coming on that.
October 13, 2008 — 4:27 pm
Eric Blackwell says:
And not as an afterthought, but more as a separate, heartfelt wish:
My best to those who are without work and who are re-grouping and re-engineering their lives at this time.
Eric
October 13, 2008 — 4:29 pm
J Boyer Summit NJ says:
Here’s to better days from me as well. I feel for those who have lost their jobs and must regroup. I know what you are feeling.
October 13, 2008 — 5:32 pm
Smithers says:
I am pulling for Redfin to survive, since their search site is superior (SDLookUp may have them beat for San Diego, but RF is best in SF Bay area). Depending on the circumstances, I would hire RF to be our “buyers” agent if we find a place in RF territory, and decide we want to use an agent. But, we may prefer to go agent-free, and use the 3% co-op for the seller and/or listing agent to keep for themselves, to thereby slightly sweeten our otherwise sour lowball offer. In that case, we are RF freeloaders, and that does not help them stay in business.
October 13, 2008 — 5:34 pm
Thomas Hall says:
I am very sorry to hear about the tough times at Redfin – I am a big fan.
October 13, 2008 — 6:52 pm
Bob says:
Smithers, unless you have a broker’s license, you wont get the co-op. It belongs to the listing agent and is shared via the mls with the buyer’s agent. If no other agent is involved, it belongs to the listing agent.
October 13, 2008 — 8:47 pm
Smithers says:
Bob, I did not mean that I “get” the co-op. Whether the un-used co-op stays with the listing broker, or he/she agrees to modify their deal with the seller to take less, does not matter to me; either way – my offer is better off if I do not bring another mouth to feed. I want the sellers’ agent to be “motivated” to convince the seller to take my offer. What better way way than to double his/her pay?
October 13, 2008 — 9:54 pm
John Wake says:
Hey, what’s going on here?
Last time I checked, Kelman was the cocky deathwatchman of those greedy traditional real estate agents.
October 13, 2008 — 9:59 pm
Marlow says:
It appears he is doing quite a bit of breast-beating about the bad economy so when Redfin fails, he can point to market conditions instead of a bad money-losing business model or poor management.
The traditional real estate firms will survive because they make money no matter what the economy and the smaller one-person discount maverick guy will make it because he’s fast and lean.
All the fancy search gizmos and plat maps and data centers and virtual tours, those cost money to create and maintain. Again and again I see the technologically illiterate but well-connected and sociable agent run circles around the discounters and techies. As long as there are cocktail parties, golf games and charity luncheons, these people will out-earn and out-perform even the most dazzling real estate 2.0 brokerages.
October 14, 2008 — 2:29 pm
Cheryl Johnson says:
If Redfin fails as a brokerage, I sure do hope it will continue to exist as an information portal, since I really like the Redfin format of mashing up all previous listing and previous sale data along with the current listing into one record.
The local MLS doesn’t give me that without performing multiple, separate searches.
Maybe Glenn could build out the information portal a bit further, and charge a small monthly member access fee similar to Property Shark.
October 16, 2008 — 6:08 am