Eye Opener - Redfin Model Numbers vs. Reality

Guy Kawaski posted an insightful post comparing Redfin's financial valuation numbers to reality during two years of operation, courtesy of CEO Glenn Kelman.

I was surprised to see how accurately the model predicted some of the costs associated to operations, taxes and services, and in contrast how far off it was when it came to HR/ recruiting. and recruiting.

If you can’t build an engineering team through your own network, recruiting fees can become a significant expense at an early stage.

In the second part of the article, Glenn provides the lessons learned for building a financial model. I recommend reading the full post, but in the meanwhile here's the abbreviated version.

1. Focus on headcount.
2. Plan slow, run fast.
3. Run top-down sanity-checks.
4. Forget economies of scale.
5. Admit that revenues are a mystery.
6. Build from building blocks.
7. Take out "hope".
8. Flag your assumptions.
9. Hit $100 million in revenues within five years.
10. Keep market-share under 20%.

According to alarm:clock, since Redfin's last round of financing in May 2006, it claims to have completed more than $350M in real estate transactions, saved its home-buying customers nearly $6M in commissions, and increased revenues by more than 2,000%. They've raised three rounds totaling $20.8M to date.

Redfin combines MLS listing information (homes for sale) with historical sales data (homes already sold) into a single map. I mentioned Redfin in my post on Real Estate tools as one of the leading players in the market. Thanks for sharing Glenn and good luck.