Start-up: Leadhome, South Africa
In November Marcél du Toit and Harry Hattingh launched Leadhome, a South African real estate agency that aims to revolutionise the industry. While most agencies earn a commission of between 5% and 7.5% of the property sale value, Leadhome charges a fixed fee of R29,995 (US$1,870) per sale. This means a home worth R1m will be given the same attention as one of R10m.
According to Du Toit, online portals like Property24 have lowered the costs that were traditionally involved in advertising and selling a property, but yet agencies have not adjusted their fees to reflect this. “In our experience it takes as much work to sell a R100,000 home as it does to sell a R10m home.”
Leadhome also operates from 6am to 10pm every day, while other agencies are typically only open from 8am to 5pm. The idea is to better cater for clients who are often only available before and after work.
The agency also uses an online platform which allows clients to schedule viewings and book meetings via their PCs or mobile phones.
At the moment Leadhome is only operating in Johannesburg, but Du Toit says the aim is to expand nationally. We asked him to share his start-up experience so far.
1. Give us your elevator pitch.
The real estate agency industry is fundamentally broken. Homesellers pay exorbitant commissions for bad service and an awful client experience, with the majority of the market disillusioned with the traditional estate agency industry offering.
Leadhome is a different type of estate agency. We are disrupting this established and stagnant industry by combining local expert agents, the longest working hours, the best service, and modern technology – and delivering this to our clients at a low fixed fee of R29,995 no matter the value of your property, because why should you pay more just because your house is worth more than your neighbour’s?
2. Do any other real estate agencies in South Africa offer flat rates? And what about other markets?
We are aware of two other agencies, one in Johannesburg and one in Cape Town’s northern suburbs, that offer flat rates of R50,000 (excl. VAT) per sale.
In international markets, flat rates are becoming quite popular for the online-only real estate agencies, and there are one or two players that have an approach similar to ours.
3. How did you finance your start-up?
Leadhome is completely self-funded. After receiving significant interest from both local and international investors, we are currently exploring opportunities to raise our first round of funding.
4. If you were given $1m to invest in your company now, where would it go?
People! [We would] grow our team by adding the best people in the industry to our already market-leading team, and build out our reach across South Africa.
5. What risks does your business face?
From an operational point of view we have the same risks as any start-up – things like sustaining our culture of client service, innovation, and teamwork in the face of rapid growth and roll-out; and ensuring our clients are happy and doing everything in our power to get them the best outcome possible. And keeping our focus squarely on our core value offering.
From a macro perspective, the housing market, driven by South Africa’s economic outlook, is the biggest risk. However we believe our value proposition is attractive both in bull and bear markets, and therefore it’s a question of disciplined management to ensure we stay on the right growth path.
6. So far, what has proven to be the most successful form of marketing?
Word-of-mouth has by far and away been the most successful form for us. What has been wonderful is how our clients have understood our value proposition, and once they experienced it, recommended it to their friends and colleagues. There is nothing more satisfying than giving a client the best service in the market, saving them a boatload of money, and getting them a wonderful result on the sale of their biggest financial asset – and then being contacted by their friend to sell their house too.
7. Describe your most exciting entrepreneurial moment.
I think it was the day we realised we had cracked the code to building this business and really disrupting the industry; that ‘a-ha’ moment people often speak about. We had spent six months looking at every possible aspect of the industry, speaking to hundreds of recent homesellers and homebuyers, and getting advice from some of the most respected people in the country, and were pretty close to giving up. Then we stood back, altered our thinking, and realised what the gap was. That was a pretty cool day.
8. Tell us about your biggest mistake and what you’ve learnt from it.
Thinking we knew what day-to-day skills are required on an operational level before we launched. Even though we are religious followers of the lean start-up methodology, it really is impossible to know what exactly it is that you need before you actually take the plunge and launch. We have learnt that the best way to validate your model is to test, learn, and improve – and then reiterate until you have the product that works. For any entrepreneur, this will save you a lot of time, money, and effort.
9. What are your expansion plans?
The demand from the public has been both overwhelming and exciting. Although we are only in Johannesburg for the moment, we have had requests to sell property all over the country – Clifton, Somerset West, Wilderness, Polokwane, Umhlanga, even Nieu-Bethesda in the Karoo – to name just a few. For the moment we’re focused on establishing ourselves in Johannesburg, [but] will expand to Pretoria by mid-2016, and then look to do a national roll-out. We are very focused though on ensuring our clients stay at the core of our service, and would rather take a phased approach to ensure quality.
Having said that, we are very excited about what the future holds. If I was a betting man I’d back Leadhome to become a leading international property sales business by 2022.