Deciding not to do HOAs

(Email sent to the VCs we pitched for Dials.)

Quick reminder, Aishanou and I were pitching Dials — the property management platform, focused on self-managed HOAs as our first customer.

“GTM in this market will be difficult, and slow”.

We heard this near-verbatim from ~10 funds. We’ve decided against pursuing this particular market, and in the spirit of learning and growing (as both investors and operators), I want to share a couple things you might find useful for future strategy/investment decision-making.

One, broadly, you were right — there wasn’t a venture business here. Good investment judgment saying no to this, you’ve done right by your LPs.

Second, thank you for steering us away from this tar pit — we spoke to a company yesterday trying to do something similar 6 years ago — 3 founders, 1.5–2 years, several hundred K in personal savings lost (in addition to foregone earnings).

Third, a couple specific observations I’ll share about the market (long but hopefully dense — maybe copy into your own notes / email archives in case you’re doing diligence on this market in the future and want to search back)

Broadly, there are three customer profiles when you sell into HOAs: boards, managers, and developers.

Boards are volunteers and elected by their communities. Boards further segregate into self- vs. manager-managed, depending on whether they hire outside management (about 50% do) or do everything themselves. Broadly, boards want the job to be low-hassle, and to serve their communities, BUT are typically doing the job as #2 or #3 which makes selling to them extremely difficult (they’re busy, hard to locate, and face minimal urgency to do things). The most effective marketing channel to reach boards seems to be direct mail, but the overall struggle isn’t creating awareness — it’s activation, moving them down the funnel, as many go months without meeting, face a lot of pushback on even reasonable spending decisions, and rarely can rally their communities to replace something if the existing alternative (e.g. payment by check) even remotely works.

More than anything, the consensus sale dynamics, and overall lack of urgency, was the deal-breaker in this sub-market (boards). We had numerous examples where a customer expressed a lot of enthusiasm, even met in person, began onboarding, and two months, 20 emails, and a site visit later…still isn’t through the process.

Managers are classic local small businesses — 7–10 people, low-margin, most purchasing done by a unitary owner who personally signs the checks. It’s a low-margin, not-very-competitive business which means there isn’t much push for differentiation/new tech adoption, and in fact, the default selection criteria seems to be “lowest price” which even further discourages tech adoption. There might be a full-stack PM company to be built Amazon-style, with heavy capex used to drive down labor costs, but truthfully, such a thing rhymes with self-driving trucks in my brain, an area where I spent some time just before this company, and has a pretty checkered track record generally (Ike merged into Nuro, Waymo still isn’t far toward commercialization, Starsky shut down, Embark’s market cap has fallen 97% after its SPAC deal to 180 million…as a public company)

Developers (real estate) are an interesting area we may further explore — creating the LegalZoom of HOA docs — but it’s just not that large of a market (< 6k created across the US annually) with tons of idiosyncratic differences between states. The theory here would be bundling management (the original Dials product) in with document creation, getting associations “set up properly” from day 1.

A few other specific things we learned:

• A lot of HOAs are PUDs — probably 50% or more, planned unit developments (houses, not condos) which tend to assess only once/yearly, meaning their bookkeeping and general financial workload is a lot smaller than an 340-unit condo (my building), hence less pain / push for automation (another important factor in deciding not to go further with HOAs)
• We had a difficult time translating our skillsets into meaningful product differentiation. There are already dozens of tools in the market (PayHOA, Monthli, Town Square, Frontsteps, Condo Control) without an obvious path to creating something 10x better.
• HOAs aren’t a high-growth market. There are plenty of companies that have effectively resegmented a large market without tons of growth (Gusto comes to mind) but it’s always harder than riding a huge wave.
• Ultimately, if someone wants to run a good HOA — a lot of good, convenient tools are a Google search away, all the board has to do is care enough to adopt them.

We’re looking at other ideas now — I’ll be in touch if I reach sufficient confidence on anything.

Thanks again for everything.