[MUSIC] I'd like to welcome to our MOOC, Nitzan Yudan. Nitzan is the CEO and founder of FlatClub, a London based business that rents flats, apartments as they call them in some other places, to people who need the money on a short-term basis. So Nitzan, welcome, fantastic to have you here, thank you for coming. >> Thank you very much. >> So, wasn't this market already saturated? There's lots of ways you can rent a place to stay online. >> Yeah, so we founded Flatclub five years ago, and back then, it was not as saturated, and I'm talking about the holiday type of stays, but what happened next is a lot of new competitors came into the market with a lot of money. So we had to stop and say- >> Like Airbnb? >> Like Airbnb, like Priceline who entered the market, like Expedia, HomeAway in the market, but changed their model. And we had to stop and say okay. We don't have 100 million. Other competitors have more than that. How are we going to compete? And by then, we started to look better in what actually we have. What is special in our business, how are our customers are using our product? And we identified an opportunity to slightly change what we are doing and move away from holiday rentals to what we call medium term stays, which are stays for a few month where the people are looking for the solution on a budget. That would be similar to the long term process, long term renters. And by focusing on that, we realize that there is a huge market that is under served and we decided to focus on it and manage to grow it, and go in it very fast. >> So that sounds like a classical pivot in today's entrepreneurial lexicon. How did you know that you had to pivot? >> So, well, the warning was really to see what competitors are doing, and understanding that what we felt is going to be our unique differentiator is not enough. And definitely not enough with the amount of money we had needed in order to be competitive. So we decided to just, as I said, talk with our customers. That was the best sign, and we asked customers, hey, other providers with much more money, better selection, and nicer website, why are you using us? And from the answers we learned a lot. We learned back then, our average stay was 16 nights, which was interesting because the average stay- >> 16 1-6 or 6-0. >> 1-6. because the average stay a platform, on Airbnb for example, it's five nights. >> Right. >> So we thought, hm, maybe there is something there. And as many times, when you look at averages, it means nothing. Basically we recognize there are two groups who are using our site. One group was using it as holiday stay like on Airbnb, and another group was using it for around three to six months. And we talked to the group that was using it for holiday and we realized that it's almost they use. There's nothing. There's no reason for them to use us and not Airbnb, or very few with us. So we decided we're not sure we can actually win this for the long term. But when we talked to those who were looking for a few months, their answer was shocking. They were telling us we had no other options. We used your product, we know it's not the most beautiful. We know it's not the best, but it's the only. That's why we use it. >> [LAUGH] >> So in that aspect we decided all right, maybe the opportunity is here. Let's try to better understand who else is using who needs accommodation for a few months. How do we get to the source of these customers? And how do we actually go on focusing on these type of stays? >> A-ha, so let's go back to the very beginning. You began this business without going to any vent angels, no VC. You said I'm going to do this entirely on a bootstrapped and customer funded basis. Could you talk us through how that worked in the first several months? >> Yep, I was very lucky to launch the business while I was still a student at London Business School, which provided me a very good safety net. I could still go to corporate when I graduate and I can spend my second year, which is quite laid back, in building a business. And that's exactly what I did. I said, if I want one day to go and raise money from investors, I need a few things. First, I need to be sales. I need to be super sure of what I'm doing so I can actually make investors go and invest and trust me. And for me to be 100% sure, I wanted to see traction first. So I'm looking at myself as the first investor. And I have to convince myself first that this is actually viable business, that we can actually get customers to use it, pay us money, and then you will be in a better position to go and talk with investors, not only because of evaluation, but also because we're going to know the market better, we're going to have answers to questions that will come. And that's why we started like that, on a very, very low budget, very lean, to try and see how we can get customers to use our product, to pay so we can focus on our customer. The second main reason to do that is that fundraising takes time, a lot of time. When I'm doing rounds of fundraising, I spend sometimes 60, 80 hours a week on fundraising. And there's still a business to run. >> And there is a business to run on the side. >> Exactly, exactly. So it's very, very challenging. It's almost impossible to do both. I wanted to make sure that I'm actually focusing on proving there is a business before. >> First. >> Exactly. >> Yeah, so did you know how to write code and build the website when you started? >> I did the basic, but we need more than basic, so we outsource for a developer to help us- >> So you need a little bit of cash to pay a developer to do stuff. Where did that come from? >> Personal savings, but again small amount- >> Small number. >> Comparing to the tuition fees I pay for 12 years. Right, okay so then you gotta initial website built and you began to get a little bit of traction. >> Yep. >> And when did you get paid? What was your model to get paid by your customers? >> We were getting paid when a booking was made, so when a payment was done on the platform between a guest who found accommodation, who booked accommodation online, or we're getting a fee out of this payment. >> And you got that fee and then when did the person with the flat get paid? Do they get paid by you or do they get paid- >> Yes, they get paid by us. So we process all the payments the guest is paying only to FlatClub and FlatClub pays to the host three days after the guest move in. >> After the guest moves in, but the guest may have booked couple of months in advance sometimes? >> Correct. >> Who gets to hold that money for a couple of months? >> FlatClub. >> FlatClub? >> Yeah. >> So there is your cash to begin growing the business. >> Yes. >> Yeah, now how far did that process take you before you said, now maybe I have enough traction and maybe I should raise some more capital? >> So it took us about six months to initially do that and break even. And we were actually making enough money to hire the first employee. Everything was very lean so it was not that hard to break even, but enough money to hire the first employee and start to grow that. So we were without funding, without proper seed funding for a bit more than a year. >> Yeah, so when you went and then went out to raise your first seed funding, you already had paying customers, you had an inventory of flats people could rent. So how did the investment community, the angels you approached, how did they view that? >> I think investors, they are looking for track record. Right, so when they invest in an entrepreneur. If you already sold three businesses for 100 million each, it's much easier to waste right? >> [LAUGH] But you hadn't done that. >> I hadn't done that, so I had to build a track record. In that case my my track record was actually the fact that the business was already there. And the fundraising process also is about building relationship. It's less about going and making an amazing pitch and bam, collecting the money and going. No. >> No, doesn't work that way. >> So it takes, exactly, it's a lot about building relationship. I got that from one of the investors I met. He says, I like to invest in lines, not in dots. I want to see progress. So a lot of the times, what I do is to come and ask for advice which is always better than ask for money. You kind of say, here's what you plan to do in the next three months. And then coming back, what do you think we should do in the next three months or six months to make it interesting for you to invest in? And, then we would come back, after a few- >> And, then you go do it. >> And, then we go do it, and we're going to come back, ideally, even before the deadline, saying, we said we did it in three months. >> Look what I did! >> Exactly, exactly, and that's how we build the track record and proving that, yes, maybe the market will change, maybe we will need to, a little bit people, as you said, but the right thing is in place. >> Yeah, so in the early days, in a business like yours, you need two things. You need flats to rent and you need renters that need flats. But there's a bit of a paradox here, isn't there? If you have a whole bunch of flats and no renters, the flats probably aren't going to be very happy. But if you have a lot of renters and no flats, they won't come back. How did you solve that? [MUSIC]
