Is Darwin’s Theory of Evolution about to be seen in practice in the PropTech world?

Charles Darwin famously said :

“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”

This has never been truer than it is today in the unprecedented situation we find ourselves in.

When we finally emerge from the clouds, blinking into the sunlight, one thing will doubtless be true – the world as we knew it will never quite be the same again. That’s not to say it will be bad, just different. We will have accepted homeworking as a workable concept; the race to digital transformation will be accelerated; certain market sectors will be damaged beyond recognition and finally, PropTech companies will have to re-evaluate their strategies. And this is where Darwin’s theories will be seen in full.

The growth in PropTech companies and the subsequent investment in those companies has grown inexorably in the last 3 years, almost doubling between 2018 and 2019. This growth has spawned dedicated investment funds such as Surplus Invest and Roundhill Ventures; PropTech communities in most countries in the western world and generated real interest amongst property firms of all sizes. However, the actual adoption of those emergent technologies has still been comparatively slow. As an industry, we have been talking about digital transformation for several years. However, often, even many of the largest players in the space haven’t yet seen wide deployment of a transformation strategy.

It is likely that the Corvid-19 crisis, once under control, will make everyone look at how technology can help to ensure that the market and everyone in it is better prepared to cope with similar situations if they should arise in the future. This presents opportunities to PropTech companies IF (and only if) they have a solution that solves a specific and clear problem. I have been arguing for some time that there are many visually sexy technologies out there that are looking for a problem to solve. I firmly believe that this will not be a sustainable model in the short to medium term as potential customers become very focused on solving specific issues and also become more cautious in their spending patterns.

This is where Darwin’s theory of evolution comes in. PropTech businesses are going to have be adaptable to their new surroundings. They will have to be laser-focused on forming development plans that are reactive to the needs of their target customers. And those needs are going to change rapidly. For example, less than a month ago, the CRE funds were focused on traditional issues including deal progression, reporting processes etc. The funds I have talked to in the last couple of weeks are focused purely on risk as rental streams become less predictable due to defaults and tenants, in some cases, struggle to survive. As a result, those companies that can demonstrate clear and provable value in addressing a specific challenge, such as PRODA in rent roll data management; Coyote in managing both assets and deal flows and VTS in lease management have a massive opportunity in the immediate aftermath of the crisis. So those PropTechs that operate in that space are going to have to react to that change or find themselves left behind (or worse!).

Darwinism in action was never better illustrated than in the case of Nokia. In 1999, Nokia was the best-selling mobile phone brand in the world, having seen growth in their revenues from $1Bn to $4Bn since 1995. However, they refused to acknowledge a fundamental change in the marketplace to iPhone-style devices. In just 6 years, their market value declined by 90%, leading to a decline in market cap from $250Bn in 2000 to a current cap of around 5% of that number.

PropTech is not protected from this type of dramatic market change. Whether it’s in the tenant experience market; the short-term rental space (both of which have been very attractive to investors in the past); the construction space or the institutional commercial real estate market, then the key to survival and subsequent growth is to change in line with the soon-to-emerge ‘new world order’. Now is probably a good time to reflect on what you are. Ask yourself a very simple question: do we solve a problem and create very clear value? Do our customers and prospects recognise that value? If the answer to either is no, prepare to change and adapt or prepare to become the proverbial Dodo.

Written by David Oates, Chief Revenue Officer, PRODA Ltd