Riley, a tech-oriented lead-qualification startup that had raised millions in funding, announced this week that it was closing down and returning what remains of its cash to investors.
The CEO and co-founder of Riley, Daniel Ahmadizadeh announced the shutdown in a detailed LinkedIn post:
Hi everyone,
We made the difficult decision to shut the company down. I want to thank you all for believing in me, our team, and our vision for Riley. Over the next month, we will go through the dissolution process. We estimate to be able to return 20% of each of your initial investments and hopefully a little more.
Thank you all for the opportunity. I wish we had a better outcome.
What happened with Riley?
We started the company four years ago to offer an alternative solution to leasing real estate in NYC. After four years of evolving and over a dozen different iterations and products later, which included our lead-qualification product that took off in early 2017, we were unable to land on making a scalable, high-quality solution, that users love in real estate.
Our insights in real estate were that despite high ad-spend, realtors would not respond to 50%+ of their leads. The study from MIT that proved that fast response time leads to 21x conversion was our core stat. Our thought was that if we could solve that problem and be the first point of contact for leads, that could have led to becoming the platform that eventually handles all lead communication. We would become the CRM of real estate without the high switching costs that are traditionally faced by CRMs (since our product was CRM agnostic).
The value proposition to respond to all leads within 2min, 24/7 via a human rep proved to be true. Real estate agents were signing up at a pace that was breaking our operation, seemingly daily. Users loved the fact that they had an inside-sales rep, whose scripts they could customize, at a fraction of the cost.
At just over 400 users, we were north of $80k in MRR. Despite fast growth, customers were beginning to churn just as fast and soon even faster. Our team worked for thirteen months to solve our churn problem. We moved our human-operations to the U.S. and built automation to improve the consistency of our experience, amongst other attempts and reasons below, yet customers continued to churn. Reasons included:
- Our customers did not find value in standardized conversations and insisted on custom and personalized conversations that we found only humans could do
- We did not have a moat and the barrier to entry to start a human-chat center was low
- 83% of real estate agents stop being agents within 5 years. We failed to focus on the 17% that succeeded and allowed all agents to use our product
- Quality inconsistencies of the conversations and onboarding
- Competitors offered more human-powered services (ex. calling leads) which led to perceived value issues
As you see above, core issues included quality, defensibility, user experience, and an inability to address value propositions offered by new competitors in a scalable way. In hindsight, we could have focused more on the 17% of real estate agents that survive and better understand their emotional motivations for using our product. That way, we could double down to see if there was a tech solution that would work for them.
With that said, I am less convinced that real estate lead qualification, and more specifically real estate CRM, is a billion dollar opportunity. I believe that the only way to create a mountain-moving business in real estate, one needs to change the paradigm of what it means to be a brokerage. More specifically, the transaction itself is where the value lies and opportunities exist.
What’s next for us?
Our team, Alvin (engineer #1, full-stack eng + mobile dev) and I, will be to looking to land roles at companies with teams in New York City (their HQs could be elsewhere).
Ask
Who are 3 growing companies in your portfolio and/or network that you would be able to make an introduction to?
Looking forward to the journey ahead and wishing you all good health and success,
Daniel Ahmadizadeh