Forecast and Prediction
Forecast Analysis
Dig, LLC had a remarkable launch of their application in 2017. Their subscription rate grew an average of 201% or 11,053 active users while paid users increased to an average of 102% or 1826. With the estimated 480,000 (active) real estate professional in the Northeast Florida Region (myfloridalicense.com, 2017), Dig, LLC still has a lot of opportunities before they reach their goal of 80% of the market share of paid subscribers. They have captured only 2.88% and .048% of total active users and paid users, respectively. In 2018, Dig, LLC is focusing on continuing to grow their overall subscribers and paying users, adding one new feature in their application and increasing their relationships with the local real estate companies. Figure 1 illustrates Dig, LLC’s forecast for the upcoming 2018 calendar year. The company is confident that they will be able to continue their phenomenal growth targeting 75117 active users or 8,504% Year over Year growth and 7866 paid users or 1175% Year over Year increase for Q1 2018. Although the growth looks impressive, the gap between paid users and total subscribers is increasing. Calendar year 2017 finished with an average of 48% of total users are paying subscribers while the forecast for the calendar year 2018 is reflecting a decrease to an average of 6%. Dig, LLC has to keep a pace of at least 20% - 30% to continue to grow and innovate.
Figure 1: Dig, LLC Subscriber Growth Rate Forecast - 90% confidence (Tableau Model)
Risk Avoidance
With the rapid increase of subscribers in 2017, Dig, LLC’s operational expenses (OPEX) are also rising especially in their technology resources. The company’s cloud infrastructure automatically scales up and down based on the user’s demand requiring more compute, memory, storage, and bandwidth which in turn increases their monthly bill. Furthermore, Dig, LLC is going to add two more developers for 2018 to increase the speed of innovation in their application adding additional salary to their balance sheet. To keep up with the pace of subscriber growth and rising OPEX, Dig, LLC is targeting a 20% - 30% paid user subscription rate from their total subscribers to stay profitable and competitive. The estimated balance sheet illustrated in figure 2 displays the difference in estimated income between the 2% and 20% rate of paid subscriber acquisition. Figure 3 shows the estimated revenue between 2% and 20% subscription rate. In the upcoming calendar year 2018, the company’s leadership team will implement the following strategy to achieve the target subscription rate:
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Increase marketing activities on social media targeting active real estate professionals
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Provide a live presentation to introduce the application to all local real estate company during their monthly sales meeting
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Collaborate with Northeast Florida Association of Realtors (NEFAR) - sponsor one of their classes to promote the application
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Create a webinar and online video tutorial
Figure 2: Estimated Balance Sheet for 2018
Total Quality Control
Dig, LLC followed the Lean Startup principle when they launched the company in 2017. The company had put a process and methodology around the development of their application in the early stages of the startup. They quickly develop a minimum viable product (MVP) they shared with the real estate professionals to use. Dig, LLC then measured the efficacy of the application and took feedback from the sales agents and brokers to learn which features require improvements. This process and methodology have helped Dig, LLC validate that there is a need for their application and that it has solved real problems. Furthermore, it has eliminated any uncertainty around their business model without requiring a beta product to determine specifications for the application.
Dig, LLC provides quality software to their customer base. They have architected their application for continuous integration and continuous deployment model using Google Cloud Platform. The company deploys changes as they learn from customer's feedback. In addition to following the Lean Startup principle, Dig, LLC’s leadership team have also considered W. Edwards Deming’s 14 points for Total Quality Management. They have mapped out the similarities between the two concepts and use what would be beneficial to their company. Figure 4 illustrates their implementation.
Figure 4: Mapping of Startup Lean Principle and Deming's 14 points
Six Sigma
References
Buchanan, L. (2016 Jun 9). Why 138-Year-Old GE is Embracing Lean Startup Principles. Retrieved from https://www.inc.com/leigh-buchanan/lean-startup-versus-six-sigma.html
Maxwell, S. (2014 Sep 28). David Vs. Goliath: Your Startup’s Guide to Giant-Killing. Retrieved from https://labs.openviewpartners.com/lean-startup-advantages-david-vs-goliath/#.WhF-4hNSw6g
MyFloridalicense.com (2017). Real Estate Public Records. Retrieved from http://www.myfloridalicense.com/dbpr/sto/file_download/public-records-RE.html
Dig, LLC have embraced the Lean Startup principle instead of Six Sigma since the birth of the company. The founders of the company like the disciplined process that embraces experimentation, rapid prototyping, and constant learning from customer feedback. According to Buchanan (2016), even the 138-year-old General Electric is embracing lean startup principles to be more innovative trending away from old-school Six Sigma. Six Sigma strives for perfection. Lean embraces failure. Six Sigma is more formal; Lean more improvisational. Six Sigma emphasizes accuracy; Lean, speed. Six Sigma requires planning. Lean thrives on the pivot. Buchanan (2016) further claims that the new experimental culture at GE may produce faster, smarter innovation. Figure 5 represents the Lean Startup Principle use by Dig, LLC.
Figure 5: Lean Startup Principle
Process Analysis
Figure 3: Estimated Revenue for 2018
Dig, LLC implemented the lean startup principle that attributed to their successful launch. Their explosive growth was due to the process of quickly building a product, measuring the efficacy of the product, and learning from customer’s feedback to remediate issues and make an improvement. Figure 6 illustrates the lean startup process. As a startup, Dig, LLC has the agility and speed to pivot if the business required it. To compete with the giant like Zillow, Dig, LLC can leverage the advantages that lean startup principle offers. Maxwell (2014) explains six of these benefits:
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You’re Closer to Your Customers. As a startup, you have the huge natural advantage of a) having more direct access to input from your customers; and b) having the ability to implement changes based on that input much more quickly and efficiently.
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You Can Turn on a Dime. As a startup, you can pivot and react to market opportunities in the time it takes big companies to organize a conference call.
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You Can Develop an Intense Focus on a Target Niche Market. You can devote everything you have to develop a laser focus on one very specific target segment. That gives you a powerful advantage. Not only can you develop a rich and in-depth understanding of your customers - their pain points, wants, needs, and buying process - you can also get incredibly clear and concise with your messaging.
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You Can Go After Smaller Opportunities. The key for startup entrepreneurs is to identify and attack markets/demographics that may be small now, but are on an upward trajectory and have the potential for growth. While this might pain you into a smaller corner, to begin with, the upside is that you should be able to establish yourself and grow relatively undisturbed, after which you can look to expand.
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You Can Innovate Much More Quickly and Effectively. As a startup, you don’t have to be restrained by established systems and processes.In fact, the more innovative and disruptive you can make your business/solution, the harder it will be for bigger companies to copy, catch up, or compete with what you’re doing.
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You Can Run on Next to Zero Sales and Marketing Costs. Make it your mission to operate as a high-efficiency profit machine. The basic idea is to make everything you do - your product, pricing, customer service, etc. - so compelling that you can convert your target customer with little to no sales and marketing expenses on your part.
Figure 6: Lean Startup Process
Conclusion
Dig, LLC has the potential to disrupt the real estate market industry. Their product targets a niche market that no other company offers even the likes of Zillow and Realtor.com resulting an explosive growth in their first year of business. Although the company had a phenomenal growth, they still have a massive opportunity in Northeast Florida (NEFL) market as they have only captured less than one percent of the market share for their paid subscribers - NEFL has an estimated 498,000 active real estate professional according to myfloridalicense.com (2017). Their strategy of targeting the NEFL market may pay dividends as they improve their product before expanding to another market. Only time will tell if this approach is the best decision for the company. As Dig, LLC matures, they will encounter some challenges and growing pains. The upcoming calendar year 2018 will determine if Dig, LLC can keep its current pace of growth increasing their total users along with the paid subscribers. Their culture of innovation, speed, and agility, using the lean startup principle, will give them the ability to compete with the giants.