Being Mission-Driven Sometimes Means Being Irrational

TL;DR

Being mission-driven sometimes means rejecting the most financially rational option to protect what customers value. Redfin’s analysis suggested its commission refund was not driving demand, despite returning hundreds of millions of dollars to consumers, while customers continued choosing the service after price increases. The company instead worked backward from customer needs such as on-demand home access and responsive support. Read on to see how it weighs purpose, service, and profitability.

Transcript

the strangest thing that ever happened to me in a board meeting at Redfin was when we talked about eliminating the Commission refund that we offer consumers we did the analysis and we came to the conclusion that the rational thing to do was to eliminate it then one of my favorite board members asked a question I'll never forget named one great bran... Read More

Key Insights

• 🛀 Redfin's analysis showed that customers value convenience and service over a commission refund.
• 🏂 Boards of directors may initially prioritize profits, but when presented with compelling data, they can support mission-driven decisions.
• 🐕‍🦺 Redfin aims to redefine the real estate industry by combining personalized service with on-demand convenience.
• 🗯️ In an industry driven by business-oriented decisions, there is value in following one's instincts to do the right thing.
• 🙈 Redfin acknowledges the vast potential for growth in the real estate market and sees it as an exciting challenge.
• 🥺 Taking a customer-centric approach can lead to business success, even if it means giving up significant profits initially.
• 🥺 Redfin believes that innovation and offering something unique in the market can lead to sustainable profitability.

Questions & Answers

Q: Why can being mission-driven require an irrational business decision?

Redfin’s analysis indicated that eliminating its commission refund was the rational financial choice because the refund did not appear to drive demand. However, its mission to put consumers first made that conclusion difficult to accept, leading the company to consider following its values rather than focusing only on profits.

Q: Why did Redfin consider eliminating its commission refund?

Redfin found that it was giving hundreds of millions of dollars back to consumers without evidence that the refund was growing demand. The company had also raised prices in various places while customers continued to choose its service.

Q: How did Redfin’s board respond to the commission-refund analysis?

Redfin’s leader expected the board to focus on profits after seeing the numbers. Instead, a board member challenged purely rational decision-making by asking for an example of a great brand built by someone who was entirely rational.

Q: What does putting the consumer first mean to Redfin?

Redfin works backward from the customer by asking what service its own team would want. That includes getting into a house at a moment’s notice and receiving answers online or by phone.

Q: What customer experience is Redfin trying to create in real estate?

Redfin wants to preserve the personal, relationship-driven nature of real estate while adding on-demand convenience. Its goal is to make home access and customer support available when consumers need them.

Q: Why is Redfin’s on-demand service expensive to provide?

The service faces substantial expenses because Redfin cannot predict when customers will want to see a house or ask a question. Despite that challenge, the company chose to define the desired customer experience first and then determine how to finance it.

Q: How does Redfin believe distinctive customer service can become profitable?

Redfin’s view is that a business can find a way to pay for something no competitor can offer, provided customers genuinely value it. This belief supports building the desired service before solving its financing model.

Q: How large is Redfin’s growth opportunity in the US housing market?

Redfin says it generates hundreds of millions of dollars in revenue at its current growth rates. Yet it has only 1% or 2% of the US housing market, which the speaker describes as both daunting and thrilling.

Summary

In this video, the speaker shares a strange experience during a board meeting at Redfin where they discussed eliminating the Commission refund offered to consumers. Despite expecting rational analysis to support their decision, the numbers showed that giving consumers a refund actually drove more demand. The speaker initially felt hesitant to present this information to the board, but ultimately learned the importance of following one's heart and doing the right thing. Redfin's challenge is to offer real estate services with on-demand convenience, financing it by working backwards from the customer's needs. The speaker emphasizes that Redfin is still at the beginning and aims to gain a larger share of the US housing market.

Questions & Answers

Q: What was the speaker's strangest experience in a board meeting at Redfin?

The speaker recalls a board meeting where they discussed eliminating the Commission refund offered to consumers. Despite anticipating a rational analysis supporting this decision, one of the board members raised a thought-provoking question.

Q: What was the question asked by the board member in the meeting?

The board member asked the speaker to name a great brand that was built by someone who was entirely rational. This question challenged their decision to eliminate the Commission refund and prompted deeper analysis.

Q: Is the Commission refund a significant amount of money?

Yes, the Commission refund at Redfin amounts to hundreds of millions of dollars. Despite this large sum, the analysis showed that providing consumers with a refund actually drove more demand.

Q: Why was the speaker reluctant to present the analysis to the board?

As a mission-driven company focused on putting the consumer first, the speaker anticipated that the board would prioritize squeezing profits once they saw the numbers. This was in contrast to the speaker's inclination to prioritize doing the right thing for the consumer.

Q: Why do people sometimes hesitate to do the right thing in business?

Often, individuals feel that they do not have permission to do the right thing in a business-oriented world. They may feel compelled to act solely as a pure businessman, even if they have the desire to follow their heart and prioritize the consumer.

Q: What does the speaker believe is necessary to do the right thing in business?

According to the speaker, one doesn't need much; they just need one person at the right moment to say, "Why don't you follow your heart?" This small gesture can provide the permission and support needed to prioritize doing the right thing.

Q: How does the speaker believe businesses can pay for doing something unique?

Throughout the history of business, whenever a company does something that no one else can, they will always find a way to pay for it. As long as the customer truly values the unique offering, there will be a means to finance it.

Q: What has been Redfin's challenge in the real estate industry?

Redfin's challenge has been to transform the traditionally personal and relationship-driven real estate business into one that offers on-demand convenience. They aim to provide accessibility, such as the ability to access a house instantly and have questions answered online or over the phone.

Q: How did Redfin approach the challenge of offering on-demand convenience?

Redfin decided to work backward from the customer's needs and desires. They asked themselves what kind of service they would want and then figured out how to finance it. This approach allowed Redfin to overcome the challenges they faced.

Q: What is Redfin's current market share in the US housing market?

Redfin currently holds only one or two percent share of the US housing market. While this may seem daunting, it also presents an exciting opportunity to expand and gain a larger market share in the future.

Takeaways

The speaker highlights the importance of following one's heart and doing the right thing in business, even if it challenges rational analysis. Redfin's journey involves offering on-demand convenience in the real estate industry by prioritizing customer needs. Despite currently having a small market share, Redfin sees tremendous potential for growth in the US housing market.

Summary & Key Takeaways

• Redfin analyzed the commission refund model and concluded that eliminating it was the rational decision, even though it involved giving back hundreds of millions of dollars to consumers.

• The board of directors initially questioned the rationale behind the business's mission-driven decision, but ultimately supported Redfin's dedication to putting the consumer first.

• Redfin aims to revolutionize the real estate industry by combining convenience and personalized service, offering on-demand house viewings and prompt customer support.