2023 – the beginning of the end or the end of the beginning?

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David Oates, PropTech Adviser


“If history repeats itself, and the unexpected always happens, how incapable must Man be of learning from experience.” George Bernard Shaw


At the turn of the year, I sat and reflected on 2022 and what we might see in 2023. A crash in the UK economy; political chaos in our government; rising capital costs along with inflation rates; unrest amongst public sector workers and specific to our industry, a decline in transaction volumes in commercial real estate to some of the lowest ever seen. (Colliers December UK Property Snapshot report stated that November’s transaction volumes were the 2nd lowest since data records started in 2000). The New Year was not looking positive! Indeed, as we approach the end of January, this is looking to be true, as we hear of restructuring of Proptech businesses leading to significant job losses; valuations being massively down and funding becoming harder to access.

However, is this the only picture? I believe not. Having lived through the dot.com crash of 2001/2, the fiscal crisis of 2008/9 and more recently the pandemic, I am certain of one thing and that is that I fundamentally disagree with George Bernard Shaw and his quote above. We are capable of learning from the past and indeed we have. Most investors and CEOs now recognise the signs of a slowdown much earlier and Boards are more skilled at understanding both the macro and micro views of the world in general and their business specifically. This has allowed them to move faster and more decisively than previously to course-correct before disaster hits.

As with any problem, it is accepting the issue and reacting positively to it that is the key. As a result, from the conversations I have had, the scale of job losses is far less than it could have been, and most companies have been able to keep the core of the business intact which bodes well for when we come out the other side.

Whilst I have felt a groundswell of discord from founders over business valuations over the last 6-9 months, I feel the resetting of the baselines from investors is a positive thing in the long term. It has forced CEO’s and Boards to revert back to sensible and proven metrics when analysing the progress of their businesses. A renewed focus on EBITDA and good cash management will inevitably lead to stronger, more sustainable companies and a more realistic view of top-line growth. We must remember that it is not that long ago that 30% growth in annual revenues was seen as impressive!

Just as executives have had to examine the way they operate within SaaS businesses, so have our customers. For many of them, funding discretionary spend is now a challenge and therefore, as in previous downturns, value is king. And even more so, the definition of value has changed. It is no longer a case of how a solution MAY help the customer. Instead, the focus is now on what the solution will add to the business in terms of the things that really matter such as profit; regulatory compliance; increased revenue or decreased cost – subjective benefits such as timesaving will not be enough to unlock the corporate coffers.

So how should founders and CEO’s look at their own futures if they haven’t done so already? I believe that 3 core principles will be critical as we move through what we all agree is going to be a difficult few quarters.

1. Be willing to be flexible in both structure and approach. Don’t assume that what worked this time last year will work in the first half of 2023. For many, not shrinking in 2023 may well be enough.

2. Understand the real value of your solution. For every supposed benefit stated on your collateral, ask yourself one critical question – “so what?”. Identify what the features of your offering add to the customer’s top or bottom line.

3. Focus on customer retention. I passionately believe that over the next 6-9 months, gross and net retention rates are going to be more important than new business as we all fight to survive.

In summary, we do need to be wary of 2023. However, with a strong grasp and management of the traditional fundamentals; a detailed evaluation and understanding of where we can add true value and a laser-like focus on our customer base, I am confident that the Proptech community will come out of this downturn leaner, stronger and better equipped to take advantage of the upturn. Because the one thing history has taught us is that the most certain thing in any recession is that it will end.

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