A lot of investors or would-be investors never get their businesses off of the ground because of lack of funding. Nathan is here to tell us how to compete with other businesses that do have a lot of business. Nathan started Rentec Direct with no outside funding, or inside fundinge – other than minimal fees to set up the actual business, and grew it organically, to $3 Million in revenue for 2018. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Nathan Miller Real Estate Background:
- President at Rentec Direct
- Since 2009 has grown 100% organically & debt free, now a well known solution to landlords nationwide
- Bought his first property at 21 and leveraged that first investment into a multi-million dollar company
- Provides tenant screening and software solutions to over 13,000 landlords
- Based in Grants Pass, Oregon
- Listen to his previous Best Ever Advice: JF1164: Software Engineer & Investor Builds Amazing Tenant Screening Software with Nathan Miller
- Say hi to him at https://www.rentecdirect.com/
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I'm Joe Fairless, and this is the world's longest-running daily real estate investing podcast. We only talk about the best advice ever, we don't get into any of that fluffy stuff.
With us today, Nathan Miller. How are you doing, Nathan?
Nathan Miller: Doing good. Thanks, Joe.
Joe Fairless: I'm glad to have you on the show again. A little bit about Nathan - well, he is a returning guest; he gave his best ever advice in episode 1164, titled "Software engineer and investor builds amazing tenant screening software." Today we are gonna be talking about how to build a business with no startup funding, and compete against those who do. And because today is Sunday, we're gonna focus this on the particular skillsets of starting something with little to no funding, and competing against others...
Certainly, there are parallels that we can draw from it with real estate investing, with starting a fix and flip company, or a wholesale company, and competing against others who have larger budgets. We're gonna learn how Nathan was able to do it, and then we'll see what we can apply from his experience to our experiences as we're competing with some of the more capitalized competitors. With that being said, Nathan, do you wanna give the Best Ever listeners a little bit more about your background, just a refresher before we dive into it?
Nathan Miller: Of course. My background - for the past 20-ish years I've been a software developer, and that's kind of my passion. I love writing things and creating things, and I call it my little mini electronic invention... And fortunately, as I've made enough inventions, some of them worked out, some of them haven't, but I also have some real estate investments that I've done, so I've got some experience there, which is what brought into probably my latest hobby/company, Rentec Direct, which is writing software to help me manage those rentals.
This company has kept me very busy, and having a good time running it for -- we're coming up on ten years in business now.
Joe Fairless: Well, congratulations on that. With the 10 years in business - because you started in 2009, so you're coming on a decade of having the company... It's grown organically 100% and is also debt-free. When I say organically 100% - that's in your bio - you've never spent $1 on any form of advertising?
Nathan Miller: No, we do spend money on advertising. What I mean organically is we've grown our business from -- people like to refer to it as a bootstrap business. We got no outside investment, and in fact no inside investment - no investment whatsoever. We started just like an organic plant starts - it starts at nothing and it grows and blooms into something on its own merits, versus requiring outside fertilizer, or funding, as the case of most businesses are.
Joe Fairless: Okay. So then the question becomes how much funding did you put into the business originally?
Nathan Miller: It's all sweat equity, aside from probably the $150 to register as a business, and a few hundred dollars to set up the original LLC paperwork, there was no personal investment that I had to bring into the company.
Joe Fairless: Wow, that's great.
Nathan Miller: There's probably a couple hundred dollars in used servers, but for the most part... It's probably less than $2,500 of my own money that went into the company to get everything off the ground before the company started paying for itself.
Joe Fairless: That's incredible. And now what is your annual revenue?
Nathan Miller: We're gonna be topping three million this year.
Joe Fairless: Congratulations. Bravo! I'm clapping right now, but I'm not doing it too loud because I don't wanna be annoying in the microphone. Okay, so from $150 to three million dollars in revenue, there are clearly lessons that we can learn for how to grow a company with pocket change, relatively speaking. $150 is a lot of money, but relatively speaking it's small to create a big company.
How should we approach our conversation so that we can learn as much as we can for how to replicate something similar in the real estate field?
Nathan Miller: Well, I think I've kind of thought through my process in creating Rentec Direct, and it's a software company, a little bit different from a real estate company, but I've looked through what has created the success and how I was able to start it from nothing, and how that kind of applied to almost any industry in the world, including real estate... So I'll just start with maybe a little more background - what I forgot to mention earlier is our competitors, just to give you an idea of who we compete against and what kind of pressure we have. There's about ten other software companies that do very similar things and work in the same market as us... Just like real estate investors are gonna have other investors bidding for the same properties, and such... Of those ten, there's two that really we ran across all the time.
Joe Fairless: Who are they?
Nathan Miller: The two we hear the most of - a company down in Santa Barbara called Appfolio, and then one based in Boston called Buildium.
Joe Fairless: Okay, got it.
Nathan Miller: There's a few others out there, but I would say nine times out of ten if someone's comparing our product to another product, it's gonna be one of those two. And both of those companies started out with approximately -- I think Appfolio was about 75 million in investments, and then Buildium was 85 million in investment.
Joe Fairless: [laughs]
Nathan Miller: Now, here's the fun thing, here's what I love explaining - we started with zero dollars in investments; now, the last I saw on their published numbers, Appfolio had about 10,000 clients; Buildium has about 14,000 clients, they've just said about two weeks ago. We have 13,700 clients right now. It's like, how are we doing this, how are we competing so head to head with these companies that have 100 million dollars of investment? Back to your question, how do we do this...?
Joe Fairless: That's fascinating... Thank you for talking through that; that's really fascinating.
Nathan Miller: Well, I love it, and it's mind-boggling to me that this little company in Oregon is competing so well with these behemoths in big cities. I'll have to go back ten years here to explain where we came from and how I pulled it off...
Joe Fairless: Sure.
Nathan Miller: When I started Rentec I was working a full-time job, I was working as a systems administrator and a software developer for an internet service, and that job provided me my support to support me and my family... And I think anyone who's going out to start something new, you have to have a support system that's paying the bills before you devote your full attention to it.
In my case, having a full-time job and then start this new project - it was a 4 to 8 AM thing. I'd wake up early, make coffee early, and just hit the computer and start programming.
Joe Fairless: 4 AM to 8 AM thing?
Nathan Miller: 4 AM to 8 AM.
Joe Fairless: Okay, got it.
Nathan Miller: After that, in an hour I'd go to my real job at 9 AM. So I tell people this a lot - cool new companies and cool new inventions don't come from your day job, they come from your hobby, what you do after, or in my case, before your day job. I encourage my employees, and my friends, and everyone - if you have a passion and you wanna do something, just try it out; go after work, spend an hour a day doing it, and see what happens. So anyways, if you're gonna start something new, definitely have a support system to pay the bills.
The second thing that I think is really necessary is you don't just have to have a skill. I was a developer; I think that helps, having a skill, but first off, you have to love that skill, and then you have to have a vision to use that skill for. In my case, my skill is development - and I do love developing - but my vision is, like, I drive to and from work, but we're always going on trips, and I go up and down I-5, and I see these hundreds of thousands of cars on the road, and I see people going North, and people going South, and there's companies that are sending people North to sell to people in Seattle, and there's companies in Seattle that are sending people South to sell in San Francisco... And I think about the inefficiencies in that. Why don't the San Francisco salespeople just sell to San Francisco, and vice-versa?
I'm seeing this every day, and what I see in my mind is I just see that mankind is pretty inefficient. That's one very small example. But I try to think "How can I help? What can I do to make things a little more efficient?" and I feel like I'm not quite as cool as Elon Musk, who's building rockets and sending them into space, and making electric cars - I think that's awesome, but what I can do is I can write software to save people time.
Joe Fairless: Hey, don't sell yourself short, that's incredibly cool.
Nathan Miller: Well, what I love about it - and now I look back on it and it gives me chills when I think about it now, because we have almost 14,000 people that every single day log in and use our software, and I'm saving them an hour or two a day, and if you add that up, it's like success (I love it!). When I started it was one or two people, so it wasn't quite as meaningful back then, but I had the vision that I wanna make that happen. So it's not your skill or my skill that drove me, it was that vision that drove me to keep doing that. Let's keep on with this hobby, and keep it going.
At the time, I didn't expect it to be a company, I just expected it to be something that was gonna help people, and I never thought I was gonna make any money or anything, but it turned out to be a success and people ended up wanting more, and it ended up turning into a company. So yeah, having the vision and the passion to accomplishment I think is cool, and necessary.
The third of my 420-point bulletpoint here--
Joe Fairless: Okay, so you said third - I've heard one, vision, and two, find efficiencies... Did I get those first two correct?
Nathan Miller: I think have a way to support yourself so you're not stressed about cash while you're developing your venture... And then have the skill and vision to do it.
Joe Fairless: Okay, got it.
Nathan Miller: Once you've started something, I think the next most important thing - as soon as you can pay for it, and whether you're using your own funding, your savings, or your company has started to make some profits, is you want to hire and delegate as soon as possible. You wanna look at the things first that you can't do - mine, for example, I can't do customer service. If someone calls and yells at me, it's over, I'm done; I lost that customer, because I just can't handle that. [laughs] So the first thing I had to do - hire someone that can gingerly handle someone who's upset.
Then second is delegate everything that's taking your time. If you're creating a company, you need to have free time every single day to grow that company. If you get buried in the paperwork or buried talking on the phone, your company is not gonna grow; you'll get stalled immediately. So as you can get that off your plate - and of course, it goes without saying, hire good people, trustworthy people; I think everyone knows that line.
The next thing I think that really helped our success - and I was talking about those numbers with our competitors earlier, and I think one of the reasons we're so successful compared to them is we don't have 300 employees doing small, menial tasks. Our competitors, and most companies in the world, they've got an accounting team, and they've got an HR team... You add these groups together, and I know our competitors - they have about 300 employees each... And they're doing the same things as us, but we're doing it so much more efficient, and the reason I believe that's happening is the heart of our company is automation... From accounts receivable, to payroll, billing, collections - everything is automated, and even if it costs us a little bit to automate it, I do it.
An example of that is some people nowadays charge to automatically bill your credit card - 3% is a pretty common fee these days... If they also accept checks -- well, I don't like writing checks, because it's a piece of paper, and it's time, whether it's my time or someone else's time... It takes probably 5-10 minutes to pay a bill, mail it and send out the invoice with the check to the vendor. So I'll set all those up on credit card; if I have to, I'll pay the 3%.
Joe Fairless: Okay. Interesting.
Nathan Miller: Bonus there is you get the miles, and you get to go on cool trips... [laughter] So I think next on my list is avoiding distractions. What I mean by that is especially as your company grows, no matter what kind of company this is, you're gonna get distracted. It's gonna be in the form of spam in your mailbox, it's gonna be people showing up to your business wanting to sell you this or that, it's gonna be these amazing pitches from other companies or other people that want you to pivot your software in a little bit different direction, and I think one of the important things to do is remain laser-focused...
Going back to the second thing I talked about, your vision, is remaining laser-focused on your vision... Not someone else's vision, and not this company who wants to give you money so you tailor your software for them, and not for maybe a single customer..
Let me give you a real-life example here. We cater really well to property managers that have 200 to 1,500, maybe 2,000 units. But all the time we get calls from property managers that have 4,000-5,000 units, and they'll have specific requirements. They'll be like "Your software needs to do this, because we've always done accounting, or payroll, or something, this specific way, so if we're gonna switch to you, we need you to make your software do that." And the power of saying no is the power of success in cases like this. As much as we'd love to bring in a client that large, that would divert our focus from all of our existing clients and our target market.
Joe Fairless: Can I ask a follow-up question?
Nathan Miller: Yeah, you bet.
Joe Fairless: Your target audience is 200 to how many? 1,500? Did I write that down correctly?
Nathan Miller: Yeah, 200 to 1,500 units.
Joe Fairless: Okay, and in your example where someone wants to come in, add some different functionality was 15,000?
Nathan Miller: I think I said 4,000(ish).
Joe Fairless: 4,000, okay. What if it was 15,000? What do you do then?
Nathan Miller: A 15,000-unit customer we know is not our target market, and we'll escort them right over to Yardi, or something like that. There's no sense in us wasting our time and their time, because we know down the road there's gonna be something we don't have that they need. We'll just escort them gently and say "Hey, we just know we're not gonna be able to handle you as a client, so we're gonna do you a favor and give your referral to someone who can work with you better."
Joe Fairless: I think we've identified how you've been able to stay laser-focused, because I'm gonna go out on a limb and say more people than not, if they had a portfolio of 13,700 customers logging in, and a new customer that could double their portfolio ask for some things, you're not even thinking twice about it; you're just saying you're gonna escort them to someone else, versus wanting to double your company... So can you elaborate a little bit more about that? Because -- let me just say one more thing, and then please, take it... You could implement some things to add on to what you've got going on, and then you could support this new customer, double your size... It probably wouldn't double the amount of employees, because of how efficient you are... So please, I'd love to hear your thought process.
Nathan Miller: Okay, sure... Let me clarify a couple numbers real quick. We currently work with 13,700 property managers, each of which may have a few hundred to a couple thousand properties they manage.
Joe Fairless: Got it.
Nathan Miller: All in all, we would need someone to come to us that had 400,000 properties to double us as a company, which there's no [unintelligible 00:16:42.02] right now, so I know that's not gonna happen. But to your point, if someone did come in and said "Hey, I've got 15,000 properties...", and regardless, it's not gonna double our company, but if it boosts us 2%-3%, that's huge for one customer to come in and boost our overall size that much... I'll have our sales department, and they'll just be begging me, like "Please, please, PLEASE, let's do this."
Joe Fairless: Yeah, they are! Commission, baby! They want that -- I would say commission check, but you probably pay them on credit card with 3%.
Nathan Miller: [laughs] That's a great idea. So it's a compelling idea, and I've worked in companies in the past who will drop everything and do that, and I think I've seen what happens when a company does that. They drop everything, they stop developing their features for their other 13,000 clients in order to focus on this one client, and you end up alienating the people that really have supported you, and your customers for a long time in the market that you want.
Another aspect of that in our industry is working with mom-and-pop property managers that have just a few employees, and they manage a few hundred units - I love those people. They are so fun to talk to, they're passionate about their business because they're doing it themselves, and they love what they're doing. In contrast, if you step down into San Francisco and you walk into a big apartment management complex that manages 10,000 apartments, no one there likes their job. And if you call them and talk to them, they're just not happy... And they want things, they want them now, they're very demanding... It's just a very different market when you're dealing with these small companies versus the giant companies.
Joe Fairless: Any other things that you have implemented along the way to help compete with significantly more funded companies?
Nathan Miller: Yeah, I'll tell you probably the biggest thing I look back and I see "Why do people choose us over someone that does ten times as much advertising as us?" and I think the answer is to compete on service. We don't have the advertising budget that Appfolio or Buildium has. They're putting out tens of thousands of dollars weekly; it's just not practical. So we compete on service.
If you go online, there's a company called Software Advice. They do independent reviews, and it's where a lot of people find out independent reviews about property management software... And you look at ours compared to theirs, and you can just see that it's nearly impossible for big companies who hire hundreds of customer service agents to maintain a level of quality... And as a small, agile company that has a small group of very well trained customer service people, we get amazing reviews, glowing reviews. I think that's somewhere where a small company competing against the behemoth can always shine, and there's always a section of clients out there that value customer service over everything else.
Joe Fairless: What are some ways that you're able to go above and beyond what is typical?
Nathan Miller: I think we're able to train better, we also have longer retention... We have a total of 12 employees, and of those 12 employees, we've only had one person ever leave. It was because they were moving.
Joe Fairless: How long have they been employed, on average?
Nathan Miller: On average about five years.
Joe Fairless: Wow, that's excellent.
Nathan Miller: Yeah, our first employees are still here.
Joe Fairless: They're all local?
Nathan Miller: Yeah, everybody's here in Grants Pass.
Joe Fairless: Okay.
Nathan Miller: That is another competitive advantage, I think. You're not gonna run across it in the real estate market, but in the software market, most software companies outsource their support to the Philippines, or Indonesia, or somewhere... Whereas everyone when they call us, they're guaranteed to get someone right in our office here in Grants Pass.
Joe Fairless: As far as the training better, do you do anything in particular there?
Nathan Miller: Well, I think anyone who comes in new gets trained from our senior staff, who have been using the software for up to ten years... And I don't know if this is gonna be any different from any other company, but I do know that we spend weeks getting someone up to speed and testing them, and then pairing them up with someone who is senior to them, who in general is gonna know the software very well.
Another thing we're able to do in a smaller, leaner organization like this is we're hiring for customer service for software... However, what we usually draw from is from people who have been in the property management industry. So they don't just know how to support our software, they know how to run a property management company, which I think helps a lot.
Joe Fairless: Oh yeah, absolutely. Help me understand one thing, because you said "Find efficiencies." You have to be as efficient as possible, and that has to do with automation, but yet you don't automate customer service, which I imagine takes up a large amount of your employee hours.
Nathan Miller: I think so, and there's maybe a conflict in goals there a little bit... But one of the things that I feel we have to do is always be -- we need to be the best at servicing our clients in the industry, and you can't do that by outsourcing it, or fully automating it. We do some stuff... There's a knowledge base, we have online chat, which will give automatic answers, stuff like that, which saves us a little bit, but for the most time, our clients enjoy calling us. We have just a handful of customer service reps, so when they call, they're talking to someone they've probably talked to in the past a few times already, so there's a bit of a relationship there.
Joe Fairless: So we have identified a lot of things, and I'll summarize them in a second... Any other tactical tips before we wrap up? Especially thinking about it from a real estate, or really entrepreneur's standpoint, who is building a company - anything else you wanna mention before we wrap up?
Nathan Miller: I think just the benefit of starting your company without funding is you get to make your own decisions. You don't have investors saying "No, you have to do it this way" or "We demand this much profit" or "You should be investing in this instead of this..." I don't have any of that; you get to make your own decisions, which is if you enjoy sleeping well at night, I think it's [unintelligible 00:22:58.12]
Joe Fairless: [laughs] Well, some might say if you get 75 million dollars in funding, like one of your competitors, you're no longer worried about if you can have dinner tomorrow night, because you know that your company is funded... And I think they get salaries; I don't know, I haven't been part of something like that. But they probably get a salary, right?
Nathan Miller: Oh, I'm sure. Yes.
Joe Fairless: Yeah, so then you can probably sleep better at night, but it's not all your company too, so I guess it just depends on how you look at it. How can the Best Ever listeners get in touch with you?
Nathan Miller: The best way to find me is hop on our website, which is www.rentecdirect.com. You can click on the About Us and you can find a picture of my ugly mug up there. I'm also on Twitter, twitter.com/hitechlandlord.
Joe Fairless: And you said everyone who does have a customer service question should tweet you, so that you will follow up with them, because that's your favorite thing to do.
Nathan Miller: I love customer service. That's the best thing. Just hit me up.
Joe Fairless: [laughs] Lessons learned that we can apply as real estate investors to compete with other companies that are more established or are better funded - one is have a vision for the company.
Two is find a way to have a support system which is - in your case, you were employed; there's two sides of the argument there, because if you're pushed in a corner, then you're forced to do some things and you go above and beyond what you likely would have done if you weren't in the corner, but on the flipside, it can be really stressful... So figure out what's right for you on that one.
Three is find efficiencies, so you can be as efficient as possible. You talked about how you pay via credit card so you can automate it, even though you have to pay a 3% fee... I actually wrote down in my notes, in my little notebook to-do list, "What can I automate in my business?" and one of them is check writing. I need to get rid of that, so... Selfishly, thank you for that tip.
Another is avoiding distractions... You talked about your thought process for why you would turn down a customer that potentially could give you all a significant increase in business if it isn't the right fit for you... It would sacrifice for your base. That reminds me of when I was reading Tools of Titans; Tim Ferriss interviewed someone and they talk about your 1,000 true fans - have 1,000 true fans who are loyal and you add a lot of value and you love what you provide, and that's all you need. It's being selectively famous within that group, versus generally famous, which has much more liability than it does positives.
And then lastly, find what you wanna compete on, find what you wanna hang your hat on, what's your unique selling point - in your case, it's customer service - and go all-in on that. And then have a local team, too. I believe in that. I believe having a local team helps for many direct and indirect ways.
Thanks for being on the show. I hope you have a best ever day, and we'll talk to you soon.
Nathan Miller: Thanks, Joe.