Zoopla founder Alex Chesterman on the steep growth of his property intelligence website
Alex Chesterman is talking about risk. Specifically, the kind of risk that comes with starting a property firm in the middle of a housing slump. Investors could have run a mile when Zoopla launched in February 2008, admits Chesterman, the company's founder and CEO. "You're looking at a drought of capital and a property related business. [It's] what some might think of as a toxic combination."
That didn't stop Zoopla, an online intelligence site for buyers, sellers and "voyeurs", from raising £5.5m of venture capital. And despite the downturn, the company has grown beyond expectations, attracting five million unique visitors in its first year.
In August, Zoopla capitalised on its quick start by swallowing up rival propertyfinder.com for a rumoured £1.5m from joint owners REA Group and News International. It was a deal that not only underlined Zoopla's lofty ambitions but also sped the fledgling business towards break even.
Among Zoopla's key investors is the venture capital firm Atlas Venture, which specialises in backing early-stage companies. Fred Destin, a partner in the firm's technology group, says the VC's original investment was in "two people and some PowerPoint slides." But Zoopla's subsequent steep growth, and its aggressive acquisition trail, has vindicated Destin's faith. "It was 'seat of the pants' three years ago, now it's a £7m revenue, nicely managed, real business," he says.
Entrepreneur and investor are agreed on one thing: the best time to start a company is often in the midst of a market meltdown. "It's bravado to some extent," says Destin, "but we're happy about the crisis because it forces people to rethink about the value proposition, and if you're differentiated and you're not competing on the same basis as established players, then you have a real shot," he says. "My job is not to take inconsiderate risk, we take risk, but we do it with smart people who can navigate their way around complex markets. That's what the venture industry needs to do is to take, in the early days, 'seat of the pants' risk. It doesn't do enough of that."
Zoopla has thrived because of the downturn rather than in spite of it, agrees Chesterman. "We've proven that actually, incredible businesses are built in hard times. If you look at the acquisition of PropertyFinder, that's a business [News International] bought for £21m. They invested £15m on top of that over the last three years. The opportunity that a young company like us would have to purchase that would not have come about during the good times."
It was a deal that attracted attention largely because it was so unusual. Young start-ups are not meant to behave this aggressively. As Chesterman recalls, the company had previously limited its aspirations to matching its rival's traffic. Now the founders were negotiating a takeover. It was "a big deal for a start-up like Zoopla," says Destin, "but with the right management team: absolutely, go and do it. We saw it as a commercial acceleration."
The deal provided Zoopla with an instant revenue boost, and access to an extra two million unique users. It was a crucial leg-up in what has become a crowded marketplace. Chesterman, an experienced entrepreneur, says he is more comfortable focusing on established markets. He prefers to correct poor models, making life easier for the customer. "Some people are great inventors and can come up with something completely new that hasn't been thought of before," he says. "That's not me. [Making] a space better is where I think my personal skills are."
There is plenty of room for improvement, adds Chesterman. "The property space is unique in that it hasn't changed that much since the internet became mainstream." The newspaper model simply moved online, he says.
Chesterman started Zoopla alongside Simon Kain, with a vision to create a property portal that did more than just aggregate listings. Zoopla taps into what its founders call the "national obsession", allowing its community to create and edit the site's content. "Knowledge is power in terms of staying in touch with the market," says Chesterman. "We have huge numbers of users who come back to look at the value of their own property, but also there's the curiosity factor of looking at neighbours' homes."
Zoopla monetises its traffic by selling leads to estate agents, charging £1 for every possible buyer and £5 for a potential vendor. Chesterman says Zoopla's true value is less tangible. The site, he says, creates "conversations, whether they are peer to peer or whether they are peer to professional conversations. There's a brick wall between consumers and professionals in the property space in that they only interact at the point of transaction"—an obvious point, he admits. "The idea of you walking into your local estate agent and shooting the breeze over what's going on in the property market—that just doesn't happen." But with Zoopla, he says, "you can [encourage] that dialogue."
Ever the improver, Alex Chesterman began his entrepreneurial career with an attempt to make bagels better. Resigning from an executive position at Planet Hollywood in the US, he returned to the UK looking for a quick-start business. Chesterman launched Bagelmania alongside his father, opening nine venues across London. Investors included Marco Pierre White, and both father and son had plenty of experience in the food industry. But the timing was wrong, says Chesterman. In 2000, the proliferation of high-street coffee shops was approaching its peak. As landlords cashed in on the growing demand for space, it became increasingly difficult to "cover the head-office costs" of what was essentially a niche business.
Chesterman decided to switch his attention to film rental. In the US, Netflix had already begun its attempt to unseat market leader Blockbuster. With its ability to offer a far bigger back catalogue and greater convenience, the online upstart stood every chance of success. Chesterman wanted to emulate and improve the Netflix model, ideally before it was able to launch a service in the UK.
"I was the traditional renter of videos at Blockbuster," he recalls. "I was the guy that got the 40 quid parking ticket while delivering the film back. I was the guy that put the video on the car seat then found it three weeks later when I had the car cleaned... As a consumer you think, 'this doesn't fit, there's got to be another way'."
Chesterman launched Screen Select, alongside fellow entrepreneur William Reeve. The business grew rapidly, merging and acquiring its way to critical mass, joining forces with Video Island and then Lovefilm in 2006 to create the UK market leader, with 400,000 subscribers and combined revenues of £25m. Three years on, Lovefilm has over a million subscribers in the UK alone.
Chesterman says he's proud of his contribution in building such a respected brand, but his interest these days is purely financial. "I remain a shareholder," he says. "I am a classic entrepreneur in that I love to start with a clean sheet of paper, create a business, see it become successful... [but] to run a large organisation in multiple countries requires a completely different skill-set. Entrepreneurs are great to get companies to a certain point. Successful ones know when the time is right to back away."
He says the development of Zoopla is "in many ways" analogous to that of Lovefilm: "speed of growth, mergers and acquisitions to create a larger player, and transformation for the better of the model." He says Zoopla was also born out of consumer frustration. While house hunting, he remembers building an Excel spreadsheet from Land Registry data to calculate the prices of comparable properties. "I'm Excel savvy, but the average punter doesn't have the time, inclination or maybe even the skill to do that." He thought there had to be "a better way to provide the house buyer with the information that's going to help them—and make it available, and free."
Not all of that information is as accurate as it could be. Zoopla aims to provide the user with a real-time valuation of every home in the UK—at last count, around 27 million properties. Because the content is community driven, users with a special interest in a particular property, for example past or current owners, can add granular data that helps refine Zoopla's valuation.
But by the company's own admission, its software doesn't always recognise similar properties, such as purpose-built flats, even if they are next door to each other. This can lead to the occasional polar pricing of seemingly identical properties. But as Destin points out, the site is pure in its interpretation of the classic Web 2.0 model: the more people that use it, the better it gets.
Chesterman defends Zoopla's algorithm, the software responsible for calculating property values, calling it "sophisticated". And in many ways it's easy to side with him, particularly when you take into account the software's architect: former Amazon.com software manager and Lovefilm CTO Simon Kain, whom Destin calls "the best internet tech in Britain". But highlighting the sophistication of a proprietary algorithm is a bit like lauding a secret recipe. Fine when it works, but if the food tastes funny, what is there to blame it on?
Chesterman says Zoopla's algorithm not only calculates property values accurately but also helps to identify "any data that look suspect." Of his contributors, he says "the vast majority of people play by the rules and are honest, but there are a few, as on all community sites, who either try to game the system or upload offensive content." Zoopla's software is automatically able to identify prices that don't "smell right". He says Zoopla employees also make "manual" checks.
Zoopla's acquisition of PropertyFinder and Thinkproperty (from Guardian Media Group in July) has consolidated the market into three main players: market leader Rightmove, DMGT's The Digital Property Group, which owns Findaproperty and Primelocation, and Zoopla. "Rightmove has a significant lead," says Chesterman. "We are focused on closing that gap."
Despite notable success interrupting established models in the past, he insists that online portals will never replace estate agents. Their role will always be to make agents' jobs easier, he says. "There was a good reason for Lovefilm to replace the video store model," says Chesterman. But estate agents provide an essential service. Of course, "there's a range of good and bad agents, but at the fees that are paid, which are relatively small in this country, and the services provided, it's still an essential part of the market and I don't see that going away at any time. Our place is to help connect customers and professionals, not to replace the professionals."
Posted 13 October 2009 : Director.co.uk