Navigating competitive markets: insights from Zillow co-founder Spencer Rascoff

MVL Managing Director Mike Fridgen recently sat down with MVL Advisor and Investor Spencer Rascoff, co-founder of Zillow and Hotwire, to discuss his perspectives on tackling competitive markets. They explored the evolving landscapes of real estate and travel and the principles of democratization driving Rascoff's entrepreneurial ventures.

‍Our conversation has been condensed for readability.

‍Mike: At earlier points in your career, you took aim at two of the largest markets, real estate, and travel, as co-founder of Hotwire and Zillow. How did you build conviction in these ideas, considering the competitive landscape of the industry at the time? If you talk to founders, they're obviously reluctant to take on incumbents. They're reluctant to go after these big categories where so much competition arises. How did you get there?

‍Spencer: In both cases, we thought we had an angle. We thought we saw something that others didn't. In the case of Zillow, the category leaders seemed insurmountable but had an obvious Achilles heel: they were "for the industry, by the industry." One was controlled by the trade association supporting the industry, and the other competitors were primarily real estate brokerage websites. We thought we could be a consumer-focused, consumer-oriented competitor and disrupt those legacy incumbents by putting the consumer first.

It's hard to imagine another category in 2024, as we're having this conversation without an obvious consumer leader. So, I'm not sure that the playbook necessarily still works, but that's what we saw in 2005.

For Hotwire, we had a similar angle. The category was mature with established leaders like Priceline, where consumers bid on tickets or hotel rooms. We innovated on that model by showing the winning price upfront, keeping other attributes of the transaction the same to offer great savings. In this case, it was about standing on the shoulders of incumbents, whereas with Zillow, it was disrupting from the side with a more consumer-oriented approach.

‍Mike: Interesting. Diving into real estate for a minute, I can't help but think that this might be another inflection point with this recent N.A.R. settlement and anticipated disruption to agent commissions. What advice would you have for founders exploring this category? This seems like an interesting opening for startup innovation.

‍Spencer: The current changes are being misreported, in my opinion. The mainstream media says commissions are coming down and predicting massive industry changes. It's actually more complicated, and I think a lot less will change about the commission structure than people anticipate.

Listing agents will still be able to share their commission with buyer's agents, so the general industry structure will stay the same. Commissions might come down a bit due to consumer negotiation spurred by media attention, but the industry won't get nuked, as headlines might suggest.

In terms of innovation, it's a tough time to build a consumer startup in real estate. You've got strong category leaders like Zillow, Realtor.com, and Redfin, and others like Homes.com backed by significant resources. It's hard to imagine a consumer-facing startup gaining traction in 2024, even with some industry changes. There are opportunities for software solutions targeting aspects of the residential real estate transaction, but building the next Zillow today is very challenging unless there's a platform shift we can't conceive of yet, like the shift from desktop to mobile.

‍Mike: As this settlement is happening and commissions are receiving more attention, along with the rise of AI agents who know users deeply and have long-term memories, what do you think about this direction for innovation in real estate?

‍Spencer: I think it's more likely that software solutions will empower real estate agents to appear more personalized rather than consumers gravitating directly to a software solution. Infrequent, expensive transactions like real estate are too important to screw up. Consumers will still want human agents, though these agents might use software to enhance their service.For example, an M&A advisor will likely still be a human, even if they use software to be more efficient. Real estate transactions are similar – they're significant, infrequent, and complex. So, while AI might assist, the core service will still be human-led.

‍Mike: Bringing it up to a thematic level, I've heard you describe your guiding thesis as a founder and investor as revolving around democratization. Could you share more on that and what it means to you?

‍Spencer: I like taking things that are only accessible to the few and using technology to make them accessible to the many. This concept resonates with consumers and motivates employees. At Hotwire, we democratized access to cheap travel, making vacations affordable for more people. At Zillow, we democratized access to real estate information, which was previously only available to professionals. My newer company, Pacaso, democratizes access to second home ownership through co-ownership.

‍Mike: You've transitioned from founder to mentor and coach through 75 & Sunny, backing over 50 companies and incubating six. How did you arrive at this transition, and how does it bring meaning and fulfillment to your life?

‍Spencer: I played at the professional level for almost 20 years. The highs and lows, the focus and energy required, are intense. Now, coaching from the sidelines, I get to oversee multiple teams and fields, offering broader leverage and intellectual satisfaction. It allows me more personal latitude and time with my family. I also enjoy teaching entrepreneurship at Harvard, which is another form of mentorship.

‍Mike: One of the companies we worked on together is heyLibby, an AI sales assistant for SMBs. If everything goes right, what do you see as the BHAG (Big Hairy Audacious Goal) for this company?

‍Spencer: Every small business will have an AI version of themselves presented through various channels. The BHAG for heyLibby is to provide that, empowering millions of SMBs with AI for top-of-funnel lead qualification. Imagine AI interacting with prospects, summarizing conversations, and drafting follow-ups. One of the good use cases of Libby is to create an AI assistant on social media as your link-in-bio. I have my own Libby on LinkedIn, Instagram, TikTok, and Twitter. It engages with people on my behalf, asking relevant questions and summarizing interactions. This not only helps with lead generation but also integrates into my CRM, drafting action items and follow-ups. We're building Libby to empower millions of small businesses with their own AI assistant, handling these interactions efficiently.

‍Mike: That’s great. You get a ton of inbounds for investment. Beyond the merit of the idea, what do you look for in founders?

‍Spencer: I'm looking for founder-product fit with a history of success, grit, the ability to attract others to the mission, and strong sales ability. Charisma is crucial – a founder needs to sell their vision to candidates, employees, VCs, partners, and even their own family. Technical genius is important but often overemphasized.

‍Mike: Last question: what advice would you give to aspiring founders considering taking the leap right now?

‍Spencer: Figuring out when it's the right time to take that leap and start a startup is very dependent on a person's career, life, and family needs. It's a tough time out there. The environment is much harder for startups or series A, B, or C-stage companies than it was during the zero interest rate period two or three years ago. Prospective founders should know that going in, it's going to be even tougher sledding than normal. If you have the right idea, the right fortitude, the right team, and the right investors or studio to back you, the results can be extraordinary. But it is tough. 

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