"Move fast and break things"
For legions of tech startup founders like me, this motto made famous by Facebook founder Mark Zuckerberg has been a guiding principle in our entrepreneurial quests to build new products and startup ventures. It speaks to how to build products faster and better than others. It speaks to how making mistakes is a natural consequence of innovation. It speaks to de-risking projects by taking more risks faster. It speaks to how, in order to achieve the right product solution as an outcome, we need to "move fast and break things" along the way.
If there was one industry where "move fast and break things" didn’t immediately apply, it would be real estate. As one of the oldest industries in the world, developing buildings has largely remained the same: design it, build it, lease it, sell it, repeat. The way we continue to drive development, construction, financing, and operations remain largely the same as it always has, with incremental innovations along the way.
Today, much of the innovation is focused on optimizing the buildings themselves, advancing construction techniques, and implementing higher-efficiency operating systems. But longer term, we need innovation in real estate to seek outcomes beyond improving delivery and reducing cost. Developers need to ensure that the products they’re building actually align with what the customer wants. That means developers now need to do more than just build buildings – but also need to know how to build brands, build communities, build experiences, and build a sense of place through their buildings.
In this way, the new breed of developer thinks like a technology company, understanding the interplay between physical assets (the hardware) and human experience (the software). And like a technology company, must possess the innovative traits of adaptability, flexibility, and speed in order to remain relevant in the new world of real estate development.
Enter minimal viable development
Startup founders need to excel at one thing: maximizing validated learning about our customers with the least amount of effort. We don’t have the luxury of access to capital early on, so can't afford to waste resources. We need to learn what resonates with our target customer and what doesn't as quickly as possible. We work to test ideas with real users before committing large budgets to our product's full development. We have to make more small bets that help us de-risk our businesses faster. We build "minimum viable product" (MVP) versions of our products that we can test and iterate with, understanding we need to adapt to the dynamics of ever-changing customers and markets. We see what works and kill what doesn’t, faster and cheaper, and build momentum from there.
Real estate development is very black and white – capital and resource cost versus profitability and returns. How we manage risk around real estate development projects before budgets are set, architectural renderings are made, and shovels go in the ground, is still the same. Projects only get greenlit if they provide a clear path to targets, and many development sites sit empty waiting for something in the market to move. But today, as square feet becomes a commoditized resource, and real estate becomes a service, the old model of “build it, fill it, sell it” isn’t quite that simple anymore.
I believe the challenge in real estate development stems from trying to validate outcomes too early, instead of gaining a clearer understanding of why to build in the first place. For startup founders, we understand that the number one reason our product fails is because we build the wrong product. We get distracted adding fancy features to our apps, burn time debating colors and fonts, and over-invest in getting a release perfect instead of getting it into the hands of our customers. We get focused on "what to build" instead of understanding "why should we build." And so we fail.
In real estate, we often see building developers get heavily focused on adding features and amenities to buildings thinking they’ll be competitive advantages, only to find out that those unique features have now become the standard offering in every building. Fancy renders start one way, visualizing beautiful architecture and vibrant placemaking, then the result is vastly different in execution. Worst is when brand new buildings get built, but sit empty waiting for tenants.
Think about how much capital and resources are invested along the way as a site goes from acquisition to pre-concept to design-development to construction and launch. But also think about how much capital and resources aren't invested in cities because developers, planners, and citizens get hung up debating big bet moves and consensus-driven approvals. This leads to no-decision, stalled project sites that become eyesores, or big swing, value-engineered projects that become white elephants. All while in the meantime, our populations continue to grow and evolve faster than ever before, placing pressure on the buildings and neighborhoods we need to build.
If more developers and cities took a minimum viable approach to building and neighborhood development, we could actually deliver physical spaces that fully align to what our users and customers want. How do we think beyond buildings as assets in our portfolios, but rather as living, breathing products that must constantly evolve and adapt to maintain product-market fit? Instead of just trying to value engineer projects around cost savings, think about how much more could be leveraged in the right ways towards the best outcomes. Through a minimum viable development approach, it doesn’t have to be a black-and-white debate between unified vision versus driving the math when it comes to investing in projects.
Build fast, build momentum, build long term
So what does a minimal viable development approach look like in practice during a real estate development project? Here is a set of guiding principles we’ve applied, particularly during exploration and pre-design phases of projects, where early decisions are critical to driving long-term success.
More small bets, faster. In minimal viable development, the objective is to break down big projects using the experimental method. The problem with most area development plans is that they don’t balance the need for vision and prediction. Vision drives experience and customer value. Prediction drives NOI and cap rates. Public and private tension gets focused on big problems and moves instead of advancing more small moves and answers. Proactively develop and fund smaller experiments aligned to a specific customer or problem hypothesis, designing a prototype or pop-up, collecting data, analyzing data, and reaching a conclusion to make a decision about projects as a whole. Ensure each experiment has a resource and time constraint (e.g. 30-90 days) that allows for meaningful insights that best inform development decisions that need to be made.
Momentum unlocks more resources. Relying on broad market research studies focused on area demographics, generic surveys, industry trends, and consumer spending reports tell only a portion of what’s actually happening in the area where you’re planning to build. You also don’t need to have full architectural drawings and renders in order to start building momentum. The first step in building development momentum is finding allies early on the ground (and not just political allies) without pushing your development agenda. Immense value and insights can be gained by actually spending time in the community, learning firsthand from current businesses and residents in the area what their challenges are, and truly understanding the pulse of a neighborhood you’re looking to add value to with your building.
Long-term value is driven by loyalty. Even before the pandemic, the real estate industry was undergoing massive changes – development cycles accelerating, term leases shortening, and value per foot becoming more important than cost per foot for tenants. As we emerge post-pandemic in our cities, the desire for many is to live/work/build closer to home than ever before – the ideal of the “15-minute city” experience. The challenge for developers and cities is how to incorporate more agile and flexible methods into the planning and development process, ensuring our neighborhoods can adapt as behavior and user demands keep evolving. It means breaking down the traditionally distinct roles of developers, planners, landlords, brokers, property managers, asset managers, and community managers. Everyone has a responsibility for placemaking, driving long-term customer loyalty to our buildings and neighborhoods.
As we’ve seen in many industries, incumbents are most impacted by the disruptors. Blockbuster before Netflix. The hotel industry before Airbnb. Taxi systems before Uber. They keep doing the same thing while startups innovate faster than they can align to what customers actually need and want.
The real estate industry is no different.
The good news is there's no shortage of space to build, combined with existing buildings ripe for adaptive reuse. The square feet exist but most developers and cities are ill-prepared to leverage these assets in a meaningful way. Because, even with plenty of economic opportunity and gains to be made in our cities, it makes a huge difference when the development approach is built to minimize risk instead of maximizing freedom and speed to fully understand what tenants, customers, and users actually want from our buildings.
As the great migration into cities continues, the responsibility and opportunity we have as real estate developers and city builders increases as we build the space and place infrastructure for people to live, work, and grow in our communities. Applying "move fast and break things" in real estate isn't about racing to build cooler buildings with fancy amenities and injecting smart technologies. It’s about understanding the interplay between the physical building and the experiences that can be enabled there. It's about applying a startup mindset and approach to fully leverage the square feet and capital resources we have in our real estate portfolios, towards the best outcomes for both our customers and shareholders long term.