20VC Why Not Every Element of A Scalable Business Has To Scale, Why You Should Be Bearish on Retail & Why Fewer Businesses Are Getting Started Today Since The Great Depression with Brad Hargreaves, Founder & CEO @ Common

In a revealing interview on "20 Minutes VC," host Harry Stebbings discusses with Brad Hargreaves, founder and CEO of Common, the challenges and opportunities in urban housing and technology's impact on economic growth. Hargreaves, who previously founded General Assembly, highlights Common's innovative approach to shared housing, emphasizing the need for a multi-city residential brand that simplifies the roommate experience through technology and services. They examine the unsustainable rise in urban real estate prices, the potential effects of autonomous vehicles on urbanization, and the decline of retail due to e-commerce. Additionally, Hargreaves criticizes excessive occupational licensing for stifling entrepreneurship and suggests that high housing costs hinder millennials' wealth accumulation. Despite these issues, he remains optimistic about the United States' potential for innovation and growth.

• Brad Hargreaves is the founder and CEO of Common, a startup providing shared housing.
• Common has raised over $20 million in VC funding from firms including Mavron, Slow Ventures, Lowercase Capital, and Fifth Wall.
• Before Common, Brad founded General Assembly, a global school for technology, business, and design.
• General Assembly has raised over $140 million and is present across four continents.

"A serial entrepreneur in the form of Brad Hargreaves, founder and CEO at Common, the startup that provides shared housing for those that live in common." "Prior to common, Brad was the founder of General assembly, the global school for tech business and Design, which has to date raised over $140,000,000 and has locations across four continents."

The quotes introduce Brad Hargreaves as a serial entrepreneur with a focus on innovative concepts in shared housing and education, highlighting his successful ventures Common and General Assembly.

• Common aims to improve the roommate living experience.
• Brad does not have a real estate background; his expertise is in technology and education.
• The idea for Common emerged from observing that many people, including students and professionals, prefer living with roommates.
• Research showed that a significant portion of households in major cities are shared apartments.
• There was a gap in the market for real estate developers and property managers focusing on enhancing the roommate experience.

"It's really about making the roommate experience better." "We actually did the research and we realized that three quarters of the million households in New York alone are shared apartments, roommates of some sort."

These quotes explain Common's core mission to enhance the roommate experience and present the research findings that indicated a high prevalence of shared living situations, underscoring the market potential for Common's services.

• The vision for Common includes creating a multi-city residential brand, akin to hotel chains like Starwood or Marriott.
• Most people struggle to name a single apartment brand that spans multiple cities, indicating a significant market opportunity.
• The Trump brand is often the only one that comes to mind, suggesting a low competitive bar.

"So we really wanted to build a product that served this unmet need of roommates because there weren't any real estate developers focused on this building housing designed for roommates." "Name a brand of apartment building that spans multiple cities."

These quotes highlight the unique market niche Common is targeting by building a recognizable brand for roommate-designed housing across multiple cities, a space with little to no existing competition.

• Technology is integral to providing the flexibility that Common's demographic desires.
• Common's technology enables seamless moves between cities and homes while complying with various legal and financial regulations.
• In two years, Common has opened 13 buildings and established a strong community.
• Common provides services like cleaning, shared supplies, and furnished spaces to ease roommate living.
• There is a technology interface that facilitates interaction and community building among residents.

"There's actually a really complicated technology component to doing this well." "That kind of flexibility is extraordinarily important because people don't want to feel locked into a given city."

These quotes emphasize the complex technological infrastructure required to offer the flexibility and compliance needed for Common's business model, as well as the importance of mobility for Common's target demographic.

• Brad acknowledges the inaffordability of real estate in core urban areas.
• The conversation touches on the possibility of real estate prices either continuing to rise or correcting to the mean.

"Real estate in core urban areas is more expensive than it's ever been." "I'm intrigued then, do you think we'll see continued appreciation in these pricing, or do you think we'll see a correction to the mean?"

These quotes address the issue of high real estate costs in urban centers and question the future direction of these prices, which has implications for businesses like Common that cater to urban residents.## Residential Real Estate Market

• In major cities, a significant portion of income is spent on rent, often exceeding 50%.
• There is skepticism regarding the continuous appreciation of real estate without secular wage growth.
• Cap rates, the ratio of purchase price to income produced, are very compressed, indicating a potential limit to further asset value appreciation.
• The influx of both domestic and international capital into urban centers is affecting market dynamics.

"New York, it's between 55 and 60. In San Francisco, between 60 and 65 people just can't afford to spend, what's it going to go to? 70, going to go to 75?"

This quote expresses concern about the sustainability of the high percentage of income that residents in cities like New York and San Francisco spend on rent. It questions the limits of affordability.

"Very compressed cap rates in a variety of markets, which is partially just driven by the amount of capital that's out there, but partially also driven by a lot of international capital that's been flowing into big urban centers in the US."

This quote explains that the real estate market is experiencing low yields on investments (compressed cap rates), influenced by the abundance of capital in the market and international investments.

• Price depreciation in real estate is not seen as a significant factor for the core segment targeted by Common (Brad Hargreaves' company).
• Common offers housing at a 20% discount compared to traditional studios, including services like wifi, utilities, and cleaning.
• The decision to move into Common's housing is driven by the value of community and convenience, not just affordability.

"I think it would have to drop precipitously to actually have a meaningful impact on what we're doing."

Brad Hargreaves indicates that a major drop in real estate prices would be required to affect their business model significantly, suggesting that current pricing strategies are somewhat insulated from market fluctuations.

• The retail sector, especially in urban centers, is expected to face significant challenges.
• Retail rents are often set at levels that are unsustainable for many businesses.
• The rise of e-commerce has made physical retail spaces less necessary and increased competition for traditional retailers.
• The retail landscape is expected to undergo a correction in both prime and secondary areas due to these pressures.

"Well, I believe, one, you have to look at the retail rents that a lot of these landlords have been underwriting, particularly in major urban centers, they've been underwriting retail rents that are almost impossible to break even on."

Brad Hargreaves suggests that landlords have set retail rents too high for businesses to be profitable, which is not sustainable in the long term.

"I think between all these forces, between the already very high underwriting that you've seen of retail rents and the coming of e-commerce, I'm just very bearish on it."

This quote summarizes the bearish outlook on retail real estate due to high rent expectations from landlords and the growing dominance of e-commerce.

• Amazon's acquisition of Whole Foods is seen as a strategic move to establish physical distribution centers close to customers.
• The prevalence of retail space in the U.S. is much higher than in other developed countries, indicating an overbuilt sector.
• The anticipated decline in retail space may foster innovation in retail by lowering entry barriers for new businesses.

"The US has somewhere between three and four times as much retail space per capita than most major european cities."

Brad Hargreaves points out that the U.S. has a significant oversupply of retail space compared to Europe, which may lead to a market correction.

"I actually, from a broader economic perspective, think this is a good thing because I believe it enables a lot of innovation in retail."

Despite a bearish stance on retail rents, Brad Hargreaves sees a potential positive outcome in terms of economic innovation resulting from the decline in retail space.

• The effect of AVs on urbanization is uncertain, with potential to ease commutes from suburbs and improve city living.
• Past technologies, such as video conferencing, were thought to threaten urbanization but ultimately did not slow the trend.
• AVs could make certain aspects of city life more convenient, influencing decisions on where to live.

"So hesitant to say, just given a lot of natural preferences that go towards cities, that avs are going to really disrupt things that much."

Brad Hargreaves expresses caution in predicting a significant disruption to urbanization trends due to autonomous vehicles, acknowledging the strong existing preference for city living.

"It just makes living in cities a lot easier too."

This quote suggests that AVs could enhance urban living by simplifying transportation within the city, potentially countering the idea that they would encourage a shift away from urban centers.## Impact of Autonomous Vehicles on Local Economies

• Autonomous vehicles in trucking could disrupt local economies, especially those dependent on truckers.
• Rural communities around gas stations and rest stops may become unsustainable.
• The transition to electric vehicles compounds the issues for these areas.

"I think gas stations, rest stops in particular, take a huge hit off of this between moving to autonomous vehicles and moving to electric vehicles as well."

The quote highlights the potential negative impact of autonomous and electric vehicles on businesses that cater to truckers, suggesting a decline in sustainability for rural communities that rely on such commerce.

• Millennials are the first generation in American history to be poorer than their parents.
• The rise of technology may not be solely responsible for this economic decline.

"This is the first generation in american history to be poorer than their parents from an income standpoint, from a wealth standpoint."

This quote emphasizes the unprecedented economic challenge faced by millennials, marking a significant shift from the financial growth experienced by previous generations.

• Occupational licensing has expanded significantly, creating barriers to entry in many industries.
• Licensing requirements can prevent small business formation and inhibit paths to the middle class.
• The slowdown in entrepreneurship in the US is linked to difficulties in starting small businesses due to licensing.

"Occupational licensing, I think, is one of the least addressed topics that is curbing economic growth in America today."

The quote identifies occupational licensing as an under-recognized factor hindering economic growth by limiting the ability of individuals to start businesses and enter certain professions.

• "Move fast and break things" is not viable for entrepreneurs facing personal risk and barriers like occupational licensing.
• The approach is more suited to venture-funded entrepreneurs with less personal financial risk.

"Move fast and break things works really well when you're dealing with a fairly privileged, venture funded entrepreneur who is not going to lose their house if the business fails."

This quote critiques the "move fast and break things" philosophy, noting that it is not applicable to small business owners who face significant personal financial risks, such as losing their homes.

• Escalating housing costs have made the first rung of the property ladder unattainable for many young people.
• High down payments and rent make saving for a home unrealistic, leading to a sense of learned helplessness among millennials.
• Policies like California's Prop 13 disincentivize selling homes, potentially creating a "landed gentry" class.

"Owning a home has always been, once again, a path to the middle class and a path to creating sustainable wealth."

The quote discusses the traditional role of homeownership in achieving financial stability and the middle-class status, which is now threatened by prohibitive housing costs.

• There is concern that property ownership may become exclusive to those who inherit homes or have foreign investment.
• The American dream of homeownership and economic mobility is at risk.

"You pretty much can't own a home in California unless you make it big in tech or parents own a home."

This quote expresses the difficulty of achieving homeownership in California without significant wealth or inheritance, indicating a shift away from the ideal of widespread property ownership as part of the American dream.

• The quick fire round is a segment where immediate thoughts are shared on various prompts.
• The host and guest agree to participate in this rapid-response portion of the conversation.

"Sounds great. Let's do it."

The quote signifies the guest's willingness to engage in a quick fire round, setting the stage for a series of rapid exchanges on various topics.## Lever of Riches by Joel Mokyr

• Discusses the impact of technological advancements from the Middle Ages to the Renaissance.
• Highlights how incremental improvements in agriculture technology freed people to pursue non-agricultural work.
• Compares technological utilization between the Renaissance and ancient Rome.

"It's a pretty dense book, but it really tells the story of how technology, particularly from the middle ages into the renaissance, have marginal improvements on technology in the agriculture sector, freed up more people to do non agricultural work, and does some comparison as well."

The quote explains the book's focus on historical technological advancements and their societal impacts, particularly in freeing labor from agriculture to other sectors.

• Brad expresses a positive outlook on the United States despite recent political events and negative sentiment.
• He is optimistic about the opportunities in the U.S. for business, investment, and entrepreneurship.

"I'm actually extremely bullish on the United States. And I feel like people have gotten, and particularly after the political events of last year, people have gotten very, very bearish on the US as a whole."

Brad's quote indicates his contrarian optimism about the United States' future, countering the prevalent negative views.

• Brad is excited about the potential secondary effects of autonomous vehicles (AVs).
• Believes there is insufficient exploration of the impact AVs will have on the economy, cities, and lifestyles.
• Sees opportunities to build businesses around the changes AVs will bring.

"I see the secondary effects of avs being something really that nobody is thinking about right now."

The quote reflects Brad's anticipation for the broader, less-discussed implications of AVs and his interest in the entrepreneurial opportunities they may present.

• Brad has shifted from traditional blogs to Twitter for insights.
• Recommends following Stephen Smith (@marketurbanism) and Kim-Mai Cutler for thoughts on the housing space.

"I usually just open up one of my favorite or some of my favorite tweeters in the housing space who always have interesting things to say."

The quote indicates Brad's preference for Twitter as a source of current and specialized commentary, particularly on the housing market.

• Emphasizes the importance of perspective: situations are never as extreme as they seem.
• Brad's experience with startups has taught him to manage stress and maintain a balanced outlook.

"It's never as bad as it seems, nor is it as good."

Brad shares a personal mantra that has helped him maintain equilibrium through the ups and downs of his entrepreneurial journey.

• Brad discusses the growth and scaling of Common, a community-focused living space company.
• The business model is profitable, and the focus is on expanding and becoming a global brand.
• Acknowledges that not all aspects of the business need to scale, but emphasizes the importance of owning scalable online distribution channels.

"I think it's really about scaling it and growing this into a global brand around community-focused, convenient and flexible living."

The quote outlines the strategic goals for Common, focusing on scaling the business while maintaining core values and profitability.

• Discusses the scalability of certain business aspects, like property management versus online distribution channels.
• Points out that even highly scalable businesses have components that do not scale perfectly.

"It does. I think there are some aspects that scale and some aspects that don't. And not everything has to scale."

Brad acknowledges the complexity of scaling a business and the reality that some parts of the operation may not scale as efficiently as others.

• Brad expresses affection for London and reveals it was the second city opened by General Assembly.
• Harry encourages Brad to expand Common to London by 2018.

"I love London. It's a wonderful city. It was actually the second city that we ever opened for general assembly."

Brad's quote shows his positive regard for London and hints at the potential for Common's expansion to the city.

• Harry and Brad share recommendations for following insightful figures and organizations on social media.
• Harry endorses Wepay and Pipedrive as valuable tools for online platforms and sales CRM.

"Yeah, absolutely. I'd also add fifth wall. Do a fantastic newsletter."

The quote is an endorsement for Fifth Wall's newsletter, suggesting it as a valuable resource for readers interested in the space.

• The conversation concludes with acknowledgments and thanks between Harry and Brad.
• Harry teases future episodes and promotes his social media and partner services.

"So fantastic to have Brad on the show there and such exciting times to common in the years ahead."

Harry wraps up the interview with positive sentiments towards Brad and Common, looking forward to the company's future developments.