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.

Learning from other people's mistakes

Talia Aben from Gemini funds caught my attention reading her blog -"Israeli VC on Sand hill Road". In a recent post she listed five rules for entrepreneurs trying to reach VCs. I recommend reading the full post, but here's the gist of it:

Rule #1: Don’t send a “Dear Sir” email just out of the blue

Rule #2: Find somebody that can make a personal introduction to the venture firm. (...especially in Israel!).

Rule #3: Research the venture capitalists background.

Rule #4: Do not approach 20 funds at once.

Rule #5: Keep your opening pitch short.

Reading this post really reminded me of Guy Kawaski's post - "top 10 lies of entrepreneurs". One of my favorites mistakes was this common cliche:

“Hurry because several other venture capital firms are interested.” The good news: There are maybe one hundred entrepreneurs in the world who can make this claim. The bad news: The fact that you are reading a blog about venture capital means you're not one of them. As my mother used to say, “Never play Russian roulette with an Uzi.”

To see the flip side of the coin, I suggest reading the "Top Ten Lies that VCs Tell". It never hurts to learn from someone else's mistakes, right?