Real Estate and Skunk Works Departments

I’ve been working within the fast-paced, risk-loving, fail-fast worlds of four different real estate industry startups for the the last 10+ years. I founded them all but three were bootstrapped and one was VC-backed. And while two of them went nowhere and two others resulted in exits, in all four, there existed common themes and paradigms that allowed us to get a huge amount of work done with a tiny team and budget.

That’s nothing super novel though – all startups benefit from this type of efficiency. It’s one of the things that makes big companies fear startups and that’s because efficiency and appetite for risk-taking invariably fades once companies get bigger and more successful because of the need to protect progress, shareholders and current employees. It also makes thing precarious for them.

We all know the cautionary tales of Blockbuster, Kodak, travel agencies, Sony, Blackberry, Nokia, AOL, ect, ect, ect. These companies and thousands of others like them, were at one point, on top of the world with massive market share until some small team from a small company, shattered their universe.

All of my startups and a majority of my consulting work has been in the real estate industry so when I read a (admittedly cheesy sounding but surprisingly cool) book called “Bold” by Peter Diamandis and Steven Kotler, my thoughts immediately went to companies within the real estate industry and how my favorite principle in the book might apply to them: Self disruption and skunk works teams.

The question is: “Can larger, established companies do anything to prevent themselves from one day being disrupted by some small team in a garage?” The answer is called self-disruption and the best way to get that done is with an internal skunk works department.

The goal of a skunk works department is to operate like an autonomous internal-startup to rapidly develop and test products that have the potential to change the world in which you operate. As Diamandis says: “If you aren’t disrupting yourself, someone else is”. A company’s internal skunk works department should be working to build what comes next so that company can deliver it themselves, instead of being caught off guard by a future competitor.

I’ve been a massive fan of this concept for years and all of those days and nights that my team and I were working on our disruptions, I was always wondering why our big, established competitors in the real estate space, didn’t have their own internal version of my team and I, working in the same type of environment, to beat us to the finish line.

The first skunk works department was launched by the visionary leaders of Lockheed in 1943 when the US Defense Department made a desperate request for America’s first ever fighter jet. Long story short, the XP-80 was designed, developed, tested and delivered 143 days later. They got it done, in an otherwise impossible timeframe, with a small, internal team that later became the world’s first internal moonshot division, aka “Skunk Works”. Companies like Google would later follow this roadmap to internal disruption with their Google X department, Amazon has Lab126, Nike has the Innovation Kitchen, Walmart has Walmart Labs, and even Nordstrom has one called Nordstrom Innovation Lab.

How to go skunk:

There is a very fine line between a real skunk works department that can help a business and one that looks good for PR reasons but will never have the ability to do anything meaningful. Skunk works departments that have historically done great things for their companies share these common traits:

Small teams

If you want to get the results of a startup, you have to be like a startup – small and innovative. There is absolutely no room for bureaucracy or the loss of efficiency and diminishing returns that comes with the coordination of a big team.

Massive Goals

You do not want your skunk works team working on some incremental change to your property search interface. The team must be think big – moonshot big – knowing full well that most of their ideas will not pan out. But the fact is that if the team keeps trying moonshots, they will eventually find success and it will be on a seriously large scale.

Extreme Isolation

In “Bold”, the authors make a strong argument that true moonshot thinking within the a larger corporation must be done in complete isolation from the main company. Demandis says “Isolation stimulates risk taking, encourages weird and wild ideas, and acts as a counterforce to organizational inertia.” This key trait is shared by all successful skunk works departments and is completely necessary to realize the benefits enjoyed by disruptive startups. Steve Jobs did this when he formed his small, rogue “Macintosh Team”, in a separate building with a pirate flag proudly flying outside. They threw out everything they had done previously and built a personal computer from the ground up that shook the industry and even Apple itself. But that internal disruption allowed Apple to deliver their future. This simply would not have turned out the same way if the Mac Team was working inside the Apple campus, eating lunch together with other employees and contaminating the purity of a “pirate” department.

Report to the Top

The manager of the skunk works team must be able to report to the CEO himself. This requirement comes from the founder of the first Skunk Works team; Lockheed’s Kelly Johnson. He knew that fresh ideas emanating from this pure and isolated team, must be delivered without any other bias or outside contamination. CEOs need to hear these reports directly.

Build Incredibly Quickly

In order to do something meaningful, things must move at a breathtaking pace inside of one of these departments. Old adages like “fail fast”, “feedback loops”, and “no bad ideas” all apply but they must be amplified in this type of setting. Ideas should be pitched and selected for prototyping and then quickly built out so that they can be evaluated harshly and relentlessly – all by the internal team. Only ideas that that rise from the sea of failed concepts should make it out of your internal skunk works department. This is not a place to build polished, feature-rich masterpieces. This is a foundry of constant, rough creation of huge ideas, with the ever-present goal of getting to the evaluation stages.

Extreme Autonomy

While we’ve already discussed physical isolation, it’s critical for the skunk works team to feel free to innovate in any direction that the process takes them – even if it’s a disruption that might affect the main company itself. With obvious practicalities like a budget and legalities, in mind, the skunk works team should enjoy the autonomy required to develop things that can change the world. No idea should be too big if there might be a market fit for it.

Conclusion

Our industry has seen changes over the years and like any industry, will see more in the future. I personally haven’t seen much extreme innovation from established players and after researching more about skunk works departments and seeing how many large companies have them, I’m surprised that I’m unaware of any within the real estate industry. While all companies can benefit from “thinking like a startup”, nothing can come close to the benefit of actually running a “sky’s the limit” startup within your own corporation.

Disruption and change is always coming – if it isn’t coming from within your company, it’s probably coming from a future competitor. Which one would you rather have?

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