23rd May, 2019

What founders can learn from the collapse of Purplebricks

Purplebricks, the UK based property listing platform, announced it would be winding up its foray into Australia after less than three years on the market. Here’s how things went wrong as well as some important takeaways to help founders avoid the same fate, writes Benjamin Kluwgant.

In April this year, UK-born property listing platform Purplebricks formally announced it would close its doors in Australia and that the global CEO would be stepping down from his role.

The announcement surfaced less than three years after the publicly listed British company brought its offering to our shores – a startling failure for an organisation of its size.

Watching a company lose its footing is never pleasant. Normally it means a loss of jobs, as well as the time, funding and emotions invested by those involved.

But, despite the unpleasantness of a ‘Purplebricks situation’, it’s also an opportunity for early stage business owners to critically appraise the event and learn whatever they can to avoid making those same mistakes.

First, let’s take a look at what caused things to come crashing down for Purplebricks Australia.

Purplebricks: A fixed-fee approach

In 2014, British entrepreneur and former CEO of Purplebricks Michael Bruce found a unique way to disrupt the property market by changing the way people buy and sell properties, while also changing how they pay real estate agent fees.

Traditionally, agents received payment as a percentage of the result that they managed to achieve. This dated approach is a very deeply intrenched in the real estate industry.

Purplebricks sought to change this process by cutting out the agent’s commissions and introducing a fixed-fee option for these payments, which was warmly welcomed and quickly adapted in the UK, seeing the business take off in a very big way within a very short time frame.

Australian expansion strategy: ‘Select-all’, ‘copy’ and ‘paste’

After experiencing such huge success in the UK, the company backed itself in and decided to launch a replicated version of its offering in Australia, investing millions of dollars in the process, causing plenty of excitement in the Australian property market.

Not long after their launch, it started to become clear that things were headed in a downward trajectory, causing pressure to mount for the company to make a U-turn right out of Australia.

Then, things went from bad to worse after the Australian entity reported an interim loss of $18 million, making it clear as day that it was time to jump ship.

Disproportionate marketing extravaganza

Part of the Purplebricks expansion strategy was to inundate the Australian market with huge amounts of promotional literature appearing across all digital and traditional platforms.

This cost the property brand millions, and as the tide began to turn on their newly formed Australian offering, they soon became strapped for cash while the return on investment was nowhere to be seen.

In addition to the huge marketing spend, they also used their marketing influence to mock their opposition, having a laugh at traditional real estate agents and belittling their services (not such a great look when your own business model is failing).

3 important takeaway lessons for founders

Naturally, after such a dramatic turn of events, there are plenty of things to learn and take away.

Here are the three overarching and fundamental messages that hungry startup founders need to keep in mind when laying the bricks for their soon-to-be global businesses.

1. The key to success is innovation

When it comes to scaling a business, it’s crucial that an innovative approach is taken. Pressing ‘CTRL-C’ and ‘CTRL-V’ just won’t cut it in a brand-new market.

READ: When and how to scale

Thorough research needs to be conducted – not only into the industry itself, but also (and perhaps more importantly) into the needs of the people you are looking to service.

The fact that a fixed-fee alternative works in one market is in no way an indication that a totally different market will adapt to the same pricing structure in the same way.

2. Take extreme care when marketing your product

Now, I know they say that you can either ‘go hard or go home’, but surely even that slogan comes with caveats.

Even after you’ve conducted research and are prepared to take on a new market, you still need to take a very calculated approach with your marketing spend.

Just like we saw with Appster late last year, you never know what you’ll need that extra cash flow for.

By all means, disrupt the market and make sure your presence is felt, but always remember that, when it comes down to it, a forceful marketing campaign’s only as good as the impact it has on the bottom line.

3. Never compromise on morals and values

Regardless of industry or country, one can always expect that running a business will involve some level of competition. Everyone is trying to create the next big thing and developing strategies to find a competitive angle that your competitors haven’t managed to capitalise on is a big part of running a successful business.

But taking an approach that involves belittling, undermining and smearing competitors in order to push your way to the front of the line is more likely to hurt your brand than help it.

Customers don’t buy from businesses – they buy from people. As people, attributes like integrity, fair play and sincerity are all cut from the cloth of positive business standards and are the characteristics that tend to stand out the most.