Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

Can you provide some context to the history of Appfolio’s go-to-market strategy targeting SMB property managers back in the early 2010s? 

When we started, our approach was to target small companies and build a large customer base because there are more small customers than large ones. Our goal was to gain market share by targeting smaller companies. We were open to all, even those with just a few units. However, we found that there was a high churn rate among these customers. We had to prove our worth, and often people would start but not follow through. We were wasting a lot of resources on onboarding customers who weren't going to stay. So, we shifted to a minimum requirement of 50 units to use our platform.

Why was it challenging with smaller property managers?  

We often encountered individuals who expressed interest in starting a property management company, but were not serious about it. We found that these individuals were not likely to succeed, and their ideas often fell through. We also noticed that people managing small units, perhaps single-handedly, did not have the capacity to invest in a technology that requires a significant time commitment to function as intended. We discovered that we had a higher success rate onboarding clients with at least 50 units. Many of these individuals were also involved in real estate. They did not have the capacity to commit to a technology that could be beneficial, but they needed to be larger to truly see its impact.

How did you arrive at the 50-unit threshold?

Our implementation team found that we had more success with customers who had around 50 units compared to those with fewer units.

Could you describe a typical property manager with 50 units in terms of their business, staff, and who they typically are?

It varies greatly depending on their location and market. We worked with successful real estate companies that were quite sophisticated. The conversation differs when dealing with property owners versus third-party property managers. Owners of their own portfolio tend to be savvy and have the resources to make this work. It's challenging to standardize these conversations as we dealt with third-party managers, who have different needs and resources. Most of them are not using technology that can help. They're using QuickBooks, Google Docs, and various other systems.

How does it differ if you're an owner of 50 units versus if you're a third-party manager?

The primary difference would be the amount of money you have. As an owner of a shop, you likely have the capital to grow and expand, along with a strategic plan and business model. Smaller property management companies, on the other hand, often aim to secure more contracts, sometimes even at the expense of their management fee. They typically lack the resources to invest and strategize at a higher level, like an owner with a portfolio and a growth plan. This situation can vary by market, but often, they simply lack the funds. While technology sounds promising, they often don't have the resources to implement it.

For instance, if you're managing 50 units with an average rental of $1,400, which amounts to roughly $70,000 a month in rental income, what's the typical fee that a property manager of that size charges?

I believe it's about 10% of the income, so around $7,000 a month. They have overhead costs, they'll need a leasing agent, and maintenance staff. Sometimes these roles are in-house, other times they contract them out. They also need someone to manage the books, so the profit margins can be quite thin.

So, typically, they have one person managing the books?

Yes, usually one person, like an owner. They'll also have a head property manager overseeing things, and possibly a leasing agent. Sometimes, the property manager also handles some of the accounting. So, they'll typically have at least three people, plus maintenance staff. The staff structure can vary depending on whether they manage 50 single-family homes or a single apartment complex with 50 units.


It's certainly more efficient to manage one building, especially when it comes to maintenance. Staff aren't required to travel between locations, and you can have on-site maintenance. It's also easier to standardize processes like move-ins, move-outs, and maintenance. When you manage multiple units across a county or area, standardizing these processes can be challenging. Software can help, for example, by allowing you to send mass communications to all tenants in a multifamily unit, which isn't possible at the single-family level. So, having everything in one complex does offer some natural efficiencies.

But you still need a leasing agent and a head property manager?

Yes, you definitely need a leasing agent for a multifamily unit. If you're managing a lot of single-family homes, whether you need a leasing agent can vary. Because there isn't an office for someone to walk into, you need a staff person to guide them through the application process and show the unit. The flow is a bit different. Someone needs to fill that role, but it might not be defined as a leasing agent. If you're managing a lot of single-family homes, it might just be the property manager. However, a leasing agent at an apartment complex is different. When you have an apartment complex, you're going to have a leasing agent. They handle all the inbound traffic, which you don't really deal with in a single-family home. You might have to show the property, but you're not dealing with walk-ins and such. So, in a single-family setup, it's more of a title, like the property manager versus a leasing agent.

How would you describe the major differences between managing 50 single-family units versus 50 multifamily units?

I would say it depends on the type of company. If you're managing a lot of single-family homes, you're probably a real estate company that also handles sales. The way you're managing rental units is usually due to your client base. It's like, "Hey, could you manage this for me? I've worked with you on sales. I bought this home, but we're wanting to lease it long term. Could you handle that?" So, the primary business is typically different.

Sometimes people start with 50 units, just doing property management, and they're looking to grow. That happens for sure. Usually, if someone's managing an apartment complex, the company is larger than that. It's pretty rare where it's like we just have one apartment complex that we're managing. Usually, those are bigger portfolios. They have units in more than one location. It's rare to have someone that was just like, "I only have one multifamily. This is it." I mean, it happens. And usually, that's more of an owner. "Hey, I'm an owner-operator. I bought this property. I'm looking to exit or whatever it might be." But usually, if you have a multifamily property, you have more than one.

Are the owners typically different? 

I would say they're different. If you're in the multifamily sector, you'll see more of that institutional type owner versus single-family, it's a bit different. Initially, it was uncommon for an owner-operator to purchase the software. The trend was for third-party management companies to make the purchase. Owners typically lacked the capacity to manage their portfolios or utilize technology to assist them. Hence, they required third-party managers to handle these tasks. However, over time, this trend has shifted. Many owner-operators now opt to buy the software themselves, oversee its use, and require the management company to use it. There has been a noticeable shift from third-party management companies buying the software to owners making the purchase.

Could you compare the incentives for asset owners to choose the software vs outsourcing decision making to the third party manager?

The primary incentive is transparency. Some owners prefer to find a management company and let them handle the operations. It largely depends on the sophistication and confidence of the management company. For instance, an owner might say, "Your portfolio is 500 units, and my specific units make up 350 of them. You will buy this software, I will use it, and I will have some control over it." The main motivation is the desire for transparency, and sometimes they can achieve that. I've definitely seen this shift. However, it also depends on the situation. Some management companies manage for multiple owners and won't purchase new software for each owner based on their preferences. They'll say, "This is the software we use." The owner gets a portal and some transparency, but not as much as they would as an actual user.

AppFolio now has a Core product for minimum 50 units. In your opinion, at what point does the workflow become unmanageable for portfolio managers, property managers, or owners?

Are you asking at what point they would need to have software in place?

Yes, at what point do QuickBooks, Google Docs, and Excel become insufficient?

I would say around 50 units, but definitely 100 units. It's not that it's impossible to manage without software, but there are much easier ways to do it. So, by 100 units, you're going to need to have something in place.

When you first started, you targeted the very small property managers that churned those with fewer than 50 units. As you focused on 50 units and above, what was the strategy to attract these users?

Our strategy depended on the competition and our ideal customer base, which ranged from 50 to 3,000 units. We aimed to provide the easiest and most inclusive software. We often heard about poor customer service in the market, which was largely due to clunky software or software that only provided one module, leaving other tasks to be managed separately.

In property management, all aspects from leasing, marketing, accounting, maintenance, and reporting are interconnected. It was difficult for our competitors to support a customer throughout this whole lifecycle. Many were using other technologies and there weren't many systems that were inclusive and easy to use.

Our strategy was to provide an easy-to-use, mobile responsive platform. We started as a mobile responsive platform, unlike others who had to convert their existing systems, which can be clunky and limiting. We aimed to be the best supported and easiest software to use, and it worked really well.

Who were your main competitors in the early 2010s?

Yardi was our number one competitor. Yes, I enjoyed competing against Yardi. While their accounting platform was strong, their end user experience was poor due to their antiquated system. The property managers and leasing agents found it clunky. Our system was a breath of fresh air for them, with easy navigation and fewer steps to complete tasks.

Who were you targeting specifically? 

We needed the involvement of the owner. Our marketing and sales process was very effective at creating campaigns and understanding our audience. We targeted everyone, but if it was an inbound lead, we would always need to involve an owner or someone from the C-suite to purchase the software.

So you targeted owners first?


The owners of the asset?

We targeted owners of the management companies, and possibly even owners of a property.

Yes, I am referring to the owners of the property management company, not the actual owner of the property asset.

I might. That's an unconventional approach, but it makes sense.

But does the owner of the asset need to approve if the property manager wants to onboard?

That decision is up to the management company and depends on their agreement. It varies. However, the owner and the director of operations are definitely key targets. The challenge is that they are often the busiest, but they are also the most affected by a software like ours. This is because they oversee every process from leasing, marketing, accounting, and maintenance. They are heavily involved in the software and also communicate with the owner of the management company and probably the owner of the asset too. They have a significant role. Sometimes, we target an owner for their approval, but they are not using the software daily. They might receive occasional reports, but they are more detached and therefore do not experience the challenges that a director of operations or a head property manager might face, as they use the software more frequently.

For those owners, what's the typical number of units they manage where they're not really using the software every day?

Yes, that's correct. It also depends on their other responsibilities. If they are involved in property management and also run a large real estate shop, their usage might be similar to someone who owns thousands of units. If property management is their sole focus, they use the software mainly for reporting. We definitely target directors of operations. The job titles can vary based on the size of the company. When I was working with our largest customers, we had vice presidents of operations, controllers, CFOs, and owners. Property managers are also potential contacts, but they usually don't make the final decision.

When you approached a Property Manager and they were using Yardi, what was your strategy?

I would conduct extensive research on companies. ALN Data is a valuable resource. It allows you to see all the major players and dig into their properties and locations. I could determine their adoption rate for online payments, their occupancy rate, and then I would visit their website to evaluate the user interface. I would check how many steps it takes to apply or express interest and whether they can do things online.

Are you referring to a tenant who is interacting with the property management company's website?

I would conduct extensive research to understand the user experience, the sophistication of their website, and the features included in their price points. I would research the company itself and then develop a message based on my findings. I was aware that tenant portal adoption, online payments, and visibility into the company's operations were areas they struggled with.

Don't they receive these services from Yardi?

Yes, they do, but the experience is rather cumbersome, not only for the tenants but also for the company owners. Yardi is also quite expensive if you want all these features. I knew that our product offered better usability and could save them money. I was aware that they had an annual contract, so we would track contract dates and suggest it was a good time to explore other options. We knew our customer base well and could leverage our relationships, saying we worked with a company nearby.

We tracked how we were measuring up against the goals set by our customers after they signed up with us. This information was shared with the sales rep, which was very helpful. I could say, for example, that we worked with a company down the street and after they implemented AppFolio, we were able to achieve specific goals within a certain timeframe. I would then suggest that we could potentially do the same for them.

How much does Yardi cost? 

You have to pay for different modules. They also have various versions like Yardi Breeze and Yardi Enterprise. Each version has its modules. Generally, we were cheaper, but even if we weren't, we offered a lot of value in terms of efficiency, transparency, and ease of use.

Our universal search feature was a game-changer. Users were amazed by how they could get to a screen in fewer steps with AppFolio. Everything is linked together in our system, which is not the case with other systems. The universal search feature was a significant time-saver.

What does the universal search feature entail?

It's a large search bar at the top where you can search for a property, a tenant's name, or anything else. If you knew the owner but forgot the property name, unit name, or address, you could still find the information because everything is synced together. I believe this is due to the Ruby on Rails framework. The system is engineered to provide an easy-to-navigate user interface and is easy to onboard new hires as well.

How much cheaper was your product typically compared to Yardi for a couple of thousand units?

The savings also depend on their optimization of it. However, we're saving them at least $10,000 to $20,000 annually. Another advantage is that our functionality is included in the price point. Often, people would say the cost is similar, but they were planning to roll out a module in Yardi, which would incur an additional cost. So it's almost like a future cost analysis based on their plans.

So, Yardi was charging differently for various modules, and you had a bunch included?

Yes, we did have some add-ons, but our approach included some ancillary costs that they would have to pay extra for elsewhere, like screening, for example, or building insurance. However, the core functionality of a maintenance module, for instance, is included in our price.

If I'm a property manager using Yardi and you approach me with this new system, what is the biggest pushback you encountered?

The biggest pushback is the fear of change. It's a significant shift. This fear persisted because we didn't offer a module-based system. When you purchase our software, we replace everything. This impacts not only their business but also their tenants and owners. A significant change like this affects everyone. That's why having referenceable customers is so crucial. We had to leverage references on 80% to 90% of the deals we closed.

A property manager would want proof of who you've worked with before?


What kind of proof would they want?

They'd want to talk to them. We incorporated testimonials into our sales process. If you visit our website, you'll see numerous case studies broken down by competitor or location. We did an excellent job of maintaining this arsenal of testimonials to prevent stalling the sales process. However, the larger the client, the more likely they are to ask for references. They always want to talk to someone. So we adapted our sales process to be very hands-on. Even when they wanted to talk to a reference, I would be on the call and help set up questions.

They really wanted to speak to someone before purchasing?

Yes, many people do because it is such a significant change. They're changing everything.

What exactly would they want to know?

The adoption rate could vary depending on the market. For instance, in lower-income areas, the adoption might be different. The onboarding process and the rollout's impact on tenants and owners are also important considerations. Despite the sales process sounding great, what was the reality like? A significant part of it revolved around transition. How quickly could this be implemented and what was the impact on your clients? Did the owners appreciate it? Typically, for a couple of thousand units, it takes around 60 days.

After 60 days, the customer is fully migrated including all the processes and accounting?

That's the duration of the conversion process. But how committed are they to the training? To feel comfortable with this as your primary platform, to the point where you're not even referencing the other one anymore, it would probably take about a year. I would recommend that you give yourself two to three months after you're live on our platform just to have a reference point. Many systems out there allow you to have a read-only version. If you follow our process to the letter, you'll have all your data and accounting set up in 60 days. But every software is different, and the way you move someone in here is different than there. So there's a learning curve.

We had a first 60-day onboarding team. Most of the questions occur within the first 60 days. Once you're past that point, you're generally up and running. The questions become more one-off. So we invested in this onboarding team, and it really helped expedite things. That's why ease of use is so important, because of the onboarding and how quickly you're going to adopt it. The quicker they could adopt and use it, the happier they're likely to be. If someone is slow to give us data, and that data is old because tenants are always moving in and out, it can cause problems. So we invested heavily in onboarding and implementation for a reason, and it really helped our product adoption. It also helped reduce churn, particularly in the beginning.

What was the most common reason for churn?

It could be due to unclear expectations or time allocation. For instance, if someone is going through a significant event in their business, it's probably not the best time to implement this. It really needs to be their primary focus. So I think it's about setting expectations, whether it's on the salesperson or on themselves and their own staff. It was rare that we had an actual technical challenge. Maybe that happens once a year, because our sales process is very in-depth. If you sign someone on that isn't a good fit, it's just going to come back to bite you anyway. They're just going to churn and you'll probably lose money. So we did a really good job of setting it out.

So, you're suggesting that the churn typically occurs within the first 60 days. Could you explain how that typically works?

Yes, if customers are going to churn, it usually happens early on. However, our churn rate was extremely low.

What was average annual churn?

It was less than 5%. For the majority of customers who churn, it's usually evident within the first few months. There were instances where larger customers might churn after a year or two due to the complexity of their operations. They often need to analyze the benefits and drawbacks before making a decision. Even so, the churn rate remains low. For larger customers, it might take a bit longer, but generally, if they were going to churn, it would be apparent quite early.

You mentioned a difference in expectations. Are you referring to expectations in terms of improving occupancy or ease of use?

It's more about the expectations regarding the amount of work involved and the level of dedication required for success.

It's primarily about the implementation process?

Yes, and it's also about managing change. This process is akin to moving, which can be challenging. It also depends on how well the sales representative builds value. We often conducted in-depth cost and feature analyses to help customers understand that no software is merely a better version of what they already have. Each software is unique in its own way.

What were the key features that you typically emphasized during the sales pitch? What was the hook?

It largely depended on the customer's current processes. For those heavily reliant on manual processes, we highlighted the efficiency and time-saving aspects. The specific features would vary depending on the customer's needs. However, the ease of use, customer support, and high adoption rates from tenants and owners were standard selling points.

What features did customers typically appreciate from Yardi?

With Yardi, customers often praised the accounting functionality. That was always a significant aspect.

What made it so good?

Yardi has been around for a long time and accountants love it. It offers robust customization options. For instance, with AppFolio, you could delete a field or column in a report, but adding a custom field wasn't possible. This limitation affected updates and created multiple software versions. Yardi, on the other hand, allowed more customization and manipulation, which we couldn't offer.

And what about Buildium and RealPage? What were their standout features?

Buildium is more suitable for smaller players. One of the main reasons they succeed is their free trial feature. Some people prefer to try the product before making a commitment, avoiding interaction with salespeople. Buildium offers this feature, and I believe it has significantly contributed to their success. We, on the other hand, are very hands-on with the implementation process. We don't leave customers to figure things out on their own, especially considering the numerous settings, such as general ledger, account settings, management fee calculations, and owner visibility options. We ensure a thorough reconciliation process with them. To do this correctly, the numbers must be accurate from the start. So, Buildium won a lot of business because it allowed people to try it out. However, this led to issues for them down the line. They are also a bit cheaper, which attracts customers who prioritize cost when choosing a software. We tend to filter out such customers.

You don't target those who are trying to cut costs?

If cost is the primary factor, we might not be the best fit. There are cheaper solutions available. Yardi and RealPage are more expensive, but there are numerous cheaper alternatives.

Which cheaper ones are the best?

Among the cheaper options, Buildium is probably the best. However, there are others like PropertyBoss, TenantPro, and Rent Manager.

How did Buildium change under RealPage?

I'm not sure about any significant improvements. RealPage is a large company, and some people felt the support worsened after the acquisition. I'm not aware of any dedicated enhancements. RealPage also owns Propertyware, which is another smaller player. It's probably the only other one that also handles single-family homes, just like AppFolio.

Why is that?

I'm not sure. The industry as a whole was growing towards multifamily, which is where the big money was.

How is the workflow of a single-family property manager different from a multifamily one?

Yes, it is. If you have a system that isn't set up for single-family, you have to set it up as an apartment complex. The branding towards a tenant and owner might look a bit odd, and sometimes there's some manipulation they want to do. If you have an owner with many single-family properties, you would want to create a report for them. I know reporting was a factor in this, but I can't provide more specifics.


AppFolio performed well because it allowed for property groupings. This meant that a collection of single-family homes could be grouped into one. This was particularly useful for bill payments and reporting purposes, as you could group by the owner. This was a significant functionality that single-family homeowners found very useful.

So, instead of sending individual bills for, say, 20 units that one person owns, they could send just one bill?

Exactly. In terms of accounting and reporting, having the ability to categorize single-family as an actual property type and group it for owners was a functionality that others didn't have.

If you were competing against Yardi, and clearly gaining market share from them over the last 10 years, how did you see them react?

They tried to respond. It's amusing that even on the sales side, they'd say, "Oh, you're competing against AppFolio. You should probably just reach out to them." Yardi has some really large customers too, that are kind of out of our reach. For example, AppFolio is not really for affordable housing, but Yardi had an affordable housing platform. There aren't many good providers out there that do it.

Why hasn't AppFolio got a good affordable housing offering?

The last I knew, the CFO that was hired was a big advocate for affordable housing and we were rolling out affordable housing. I think that's still the case. I did a little bit.

They have got affordable housing now.  

I did some of the market validation with AppFolio for that. And affordable housing is just so different. I mean, it's like government language and there's so many acronyms and terms. It's like a different language and just the requirements and the RFP process is kind of painful to sell into that space. There's just so much regulation that goes into that. And so sometimes the sales process just seemed like a nightmare. But I know, like, Yardi had affordable housing. They always have. And so sometimes people are like, well, I have to be on this because they're the only one that really does affordable housing. So I had to be there.

If Yardi was more expensive, wouldn't they just cut the price for their current customers to prevent them from switching to Appfolio?

They launched several versions, such as Yardi Breeze and Yardi Genesis, which was outdated and targeted at smaller customers. These versions were typically based on the size of the company they were selling to. Yardi Genesis, in particular, was clunky and outdated. It affected the user experience and overall perception of the software. They introduced Yardi Breeze, claiming it was a simple upgrade, but customers still had to go through a full implementation process. It wasn't as robust or efficient as our software. Despite their attempts to adapt, our product remained superior.

If you were in charge of Yardi today, how would you regain market share from AppFolio in the 100 to 3,000 units segment?

I would emphasize our track record. Yardi has been in this space from the beginning. I would highlight our experience, our large customer base, and the number of units we manage. I would also point out our adaptability and the fact that we launched a product specifically for this type of customer. I would focus on our longevity in the industry as a key selling point.

What about the product itself?

I would argue that it's comparable to AppFolio's. Many people are already using Yardi, so we could easily upgrade them from their current version. We designed this product specifically for smaller companies. We've been in this business for a long time.

So they were essentially copying your features to retain their customers?

Yes, and one thing that AppFolio lacks, which I believe will eventually become a requirement in the industry, is revenue management. AppFolio was working on this, but the lead person on the project left.

Why did he leave?

I'm not sure. His company was acquired by AppFolio, and he left at some point after that.

I've noticed they're focusing on revenue management, which is primarily for larger customers, correct?

Yes, and you might be more updated on their progress in this area. They were developing it, but I believe it was put on hold when the lead person left. I'm not sure about the current status, but I think it's a significant aspect.

What was the name of the company that the person who left was from? I remember them making an acquisition.

The company was Dynasty.

You're saying that Yardi was potentially replicating AppFolio to retain their customers. Did they significantly change the price for their existing customers, making it harder?

I'm sure they did over time. Sometimes, to win business, they would do anything. Another challenge with Yardi was that they charged for the year upfront. This made it easier for us to compete on price. Even if we were a bit more expensive, customers didn't have to pay the entire amount upfront. I believe we kept Yardi on their toes. They had to be creative and crafty to compete with us or retain their customers.

Regarding the churn, was there a specific type of customer that churned more? You mentioned affordable housing didn't work well.

We did a good job of preventing early churn because we wouldn't close the deal in the first place. It didn't happen often. However, depending on the representative, they might have pushed something through in a pinch. A segment that was challenging for us, which might have changed now, is student housing. Entrata is really good at student housing. There are certain complications in the accounting when you're dealing with mass move-ins and move-outs. That's one example. I had a large account that I'm pretty sure churned and I think they went to Entrata; they came from Yardi. They had some issues with the robustness of our system as they grew, particularly related to accounting. I don't know the main reason, because they churned after I left.

AppFolio has added a student housing feature in the last year. I'm not sure how it compares to Entrata, though.

I appreciate that AppFolio is a remarkable company. I have learned a lot and I believe they adapt well. When faced with a significant problem, they strive to solve it. There was a significant shift in our approach. Initially, we offered an all-in-one, all-inclusive solution, which was highly valuable. However, it became challenging to sell to larger customers due to the involvement of more decision-makers.

Customers were often satisfied with specific functionalities and might use a point solution. There are many point solutions for leasing and maintenance workflows. Although we had these functionalities, they might not have been as robust. Convincing someone to fully commit to everything was becoming difficult. For instance, if a company was using a leasing solution that worked well for them, they would be reluctant to switch if they couldn't retain that solution.

Around the time of the new CEO change, there was a significant shift in our approach. We decided to find a way to accommodate these customers and let them keep certain point solutions. This meant we had to figure out a way to communicate with these other point solutions, which was a significant shift for the company.

Regarding the management, I noticed there have been a few CEOs over the past 10 years. Can you shed some light on why?

The paradigm shift was one of the main reasons. The former CEO, Jason Randall, was excellent, but the company has changed significantly over the past five years. This change is evident in the C-suite. The shift in our market approach contributed to this. We initially offered an all-inclusive solution, but we had to change. Many of the people who built the product and the business around a certain direction didn't align with the new direction.

So, you're referring to the shift towards becoming more open and integrating with other applications like App Stack and now App Max?


When you've signed an account, how do you aim to grow the account value? Let's say you've onboarded a property manager with 1,000 units. Do they start on the Core or Plus plan? How do you look to grow that account value?

Usually, at 1,000 units, you'd start with the Plus plan.

Why is that?

That's the higher price point one. They have AppFolio Core and AppFolio Plus. AppFolio Stack was brand new when I left, so I don't have extensive knowledge about it. AppFolio Plus is aimed at anyone with over 500 units, especially if they have multiple sites or locations. It offers increased visibility, insights, workflow creation, and a way to standardize your business, which isn't possible without Plus.

Is there a discount on the headline unit rate? Is there room for negotiation or is the pricing firm?

It depends on the size of the client when we started. Initially, our stance was non-negotiable; everyone pays the same price. However, this has changed over time. If you're getting Plus and spending a significant amount, there's usually some room for negotiation.

This was a shift in our approach. I was part of the New Logos team, which focused on outbound sales to new customers. We also had a sales team, possibly referred to as the Value Added Sales Team or the Growth Sales Team. They were responsible for selling add-on features such as our screening, insurance, websites, payment setups, and other ancillary costs that customers were already paying extra for elsewhere.

If a client has more than the minimum unit, do they have to upgrade to Plus? I see here there's a $900 monthly minimum on Plus today?

They don't have to. We aimed to steer everyone towards Plus because our product updates and enhancements were different for Core versus Plus. The direction of the company, in terms of enhancements and market validation, was geared towards a company of a certain size. So, if a company has over 500 units, multiple locations, and multifamily properties, they're more aligned with our product development on the Plus side. That was our pitch. Our sales process involved a thorough cost analysis. We didn't just tell them it would be worth it, we took the time to understand their current costs, workflows, and areas they wanted to improve.

How would you conduct that cost-benefit analysis? Could you walk me through that process?

It can be challenging to get team buy-in when the buy-in is leaving. Our approach was more futuristic, focused on accomplishing challenging tasks with current resources. We aimed to show companies how they could grow without adding staff. The pitch was, you can double your portfolio without adding anyone else. If you didn't switch, you would need to add someone else.

How would Yardi and RealPage present a similar proposition?  

They could make the claim, but justifying it might be difficult. Our strength was in efficiency, transparency, and ease of use, which was hard for others to match. When you compare it with a RealPage or Yardi demo, you can see that they are not as user-friendly. AppFolio did well with class D, C, and possibly B properties. However, class A properties, like skyscrapers in New York City, demand more. RealPage could offer a platform that provided everything, from concierge to package deliveries, which our model didn't approach and would require using an external service.

So, for those large customers with skyscrapers, they couldn't use AppFolio. They would need to use a point solution, correct?

Yes, and that's a hard sell. Some clients with all class A properties might not be interested in saving money. They have the type of portfolio where saving isn't a big deal to them. That's a situation where we couldn't win. RealPage, I believe, has a robust revenue management system. Once you're using it, you're not likely to give it up.

When you mention revenue management, what is the core functionality of that?  

It's about pricing. For instance, if you're running a vacation rental or a hotel, the rate for July 4th would be different from February 2nd.

So, they can do that because they have the scale, data, and analytics?

We had a wealth of data from a previous colleague who had left. We were discussing a deal that I had churned, and revenue management was a significant aspect for them. They had been using it before, and we were in the process of developing it. There are numerous factors and philosophies regarding what is most important. It ranges from the number of guest cards, website visits, and other data points they're pulling from. There are a few different philosophies about which levers to pull. It's almost like selling another software in itself. However, those who have it and have figured out the levers are seeing significant benefits.

That could indeed make all the difference. Pricing a room or a rental differently per month could be more important than the software itself.

It also created a sales process for leasing agents. For instance, if you do this today, the price could increase tomorrow. It's typically a weekly change, but that's essentially what it is. It's similar to what's done with vacation rentals and hotels for property management.

How important were the value-added services in your sales pitch?

They weren't a significant part of our sales pitch, but they were crucial for our company's profitability. They made up a large portion.

About 60%to 65% of the revenue today?

Yes, a substantial amount. Sometimes we'd include them. The sales process is quite complex with many aspects to discuss. We tried our best to avoid delaying the sales cycle and wouldn't delve deeply into a subject unless necessary. If it was a crucial part of what they were using the other software for, we had to. It wasn't a significant part of our sales process. We knew enough at a high level to discuss it, pricing, functionality, and so on, so we often didn't need to go into in-depth demos.

Was there a specific one, like insurance, or screening, that was the most differentiated?

It usually wasn't those. We had a maintenance contact center and utility billing, although I'm not sure if we still have that. We also had something called Lisa, an automated leasing attendant, which was the core functionality that Dynasty brought to AppFolio.

Why is that so good?

It was like replacing a person with AI. It was highly customized and handled everything from vetting the lead to scheduling appointments on the agents' calendars. So, a leasing agent would simply show up to already vetted appointments.

So, it took over all the administrative work that the leasing agent would typically handle.

The highest turnover is in leasing and maintenance. Therefore, we had a significant push for automating leasing and maintenance. We introduced Lisa and the maintenance contact center, which were value-added sales with lower adoption but higher profits if adopted. However, these would typically require a demo. Leasing, screening, applications, and websites are pretty standard in the sales process.

So you’re suggesting payments and insurance are similar to those offered by Yardi and RealPage?  

Yes, they are. However, it wasn't a significant part of the sales process. The question was usually whether we have it and if it's the same.

You mentioned Lisa and the maintenance contact center as differentiators, but sometimes they wouldn't be necessary.

Correct. We wouldn't delve too much into those if the client didn't have them already. It's beneficial for you to know that we have these features when and if they make sense.

So, the key selling points were price and ease of use?

Yes, and scalability.

How much pricing power do you think exists in the Core and Plus tier? Currently, it's $1.40 per unit per month for the Core and $3 for Plus.  

It would be cheap for someone using RealPage or Entrata, but expensive for someone trying to use QuickBooks and Buildium. It depends on the client's current software. If they're using Rent Manager, this would be expensive. The cost also depends on the location. For example, in Kentucky, where the rent is $600 a month, it's expensive. But in New York, where the rent is $5,000 a month, it's cheap.

Can't they have different prices for different locations, like Kentucky?


Why not?

I believe it would be fair to base the pricing on what they were bringing in. However, automating this on the billing side would probably be difficult for our team and costly in terms of technology. I'm not sure it would be worth it. We never had to do that. Sales reps would have territories, and sometimes it's harder to sell into because they're making very little on each unit. So, we had to get creative in those situations.

How much do you think they could increase the price before they see significant churn?

When I was at AppFolio, they prided themselves on not changing the pricing. We were transparent with our pricing, and it was very rare that we changed it. In my 11 years there, I think the pricing changed three times, and it went from $1 to $1.40 on the Core. That was before we had Plus. So, unless that's changed, AppFolio tries to set the pricing in a way that we're not having to change it much over time.

If they were to add another dollar, say it was $2 on the Core, do you think the churn rate would change significantly? If so, by how much?

I'm not certain. For those customers who are struggling to make ends meet, we might lose them. However, most of our customers have grown because of our services. We monitor statistics such as their growth rate and profitability increase. These metrics assist us in our discussions, but I can't predict the exact impact of a price increase. It would definitely affect some customers.

How difficult is it to switch from the Core service? How long would it take and how much would it cost to transition to Yardi or Buildium?

I believe we offer the best onboarding experience, and it takes us 60 days.

Do you think it would take at least three to four months to switch to another service?

That's my estimate, although I'm not entirely familiar with their processes.

So it's not as lengthy as switching to a large-scale system like SAP or Oracle, which could take a year. Is it feasible to switch every few years if desired?

Yes, it's possible. However, the implications for an organization can be significant. It's a complete overhaul, and the larger the organization, the more extensive the overhaul. People generally don't switch often. We've found that they typically try to stick with a system for about a decade. The evaluation process is in-depth, involving a lot of time and team participation. Some of our sales cycles can last up to eight months.

What is the average sales cycle, typically?

That also depends on the size of the company. We would want to get within one quarter, which is realistic. They'd probably want to shoot it like to two months or something. But that just depends on how much of a need are they have. Was this just like, hey, I'm kind of curious, or was this like, hey, we're making a switch. Is it you or someone else? Those are all different factors, but I would say average is within three months for those larger ones. But you'd have some that you're getting all the team members involved. So even if you could, in theory, change every couple of years, you spent a lot of time. You don't want to go through another huge change because it's exhausting. It's a lot of work.

As a sales representative, did you have a target for net new sales? How were you evaluated?

Yes, we had a quarterly revenue goal.

Was this goal for the Core and value-added services, or just for the Core?

They would occasionally push for certain value-added services. At times, we would receive a larger kickback if we could secure the sale of the maintenance contact center or lease at the outset, which would contribute to our revenue goal. This certainly incentivized us. However, with larger customers, we were often just trying to get the deal started, so we didn't want to complicate matters. The extent to which each representative would maximize this varied, but we were often just pleased to secure the deal.

Can you estimate how much longer a 2,000 unit sales process might take compared to a 20,000 unit process, in terms of time, people, and cost?

The largest deal I've closed was around 5,000 units, so it's difficult for me to say. However, a larger deal would require triple the resources from the AppFolio team. You would have the CEO and everyone else involved in that sale.

Do you mean the CEO of AppFolio, or the CEO of the Property Management portfolio?

I'm referring to the CEO of AppFolio.


Yes, it's about building trust and credibility. It's a way of showing that the client is important enough to warrant direct communication with the CEO. It's a significant portfolio. I believe they secured a large one recently. However, such deals require a lot of resources and trust-building, including numerous on-site visits. The sales process and implementation are vastly different. One of our key selling points on Plus was our ability to onboard clients within 60 days, regardless of their size. However, for some of our larger clients, our team would work 14-hour days on-site to meet this deadline.

The sales process for larger clients could last up to a year, as opposed to three to four months for smaller clients?

Yes, unless they had previously evaluated us and were already familiar with our services. If the timing was off, the sales cycle might be slightly different. But for a new client who has heard good things about us and wants to learn more, the sales cycle for a 20,000 unit deal would be at least a year.

How much more room is there for AppFolio to grow in the 50 to 2,000 unit manager market?

That's a good question. I believe there's still room for growth. Our move into affordable housing opens up a large market for us. If we can solve the student housing issue, we could secure more deals. We often lost deals due to timing or a lack of key functionality, usually related to accounting, revenue management, student housing, or affordable housing. If we can address these issues, it might just be a matter of time before we see growth. So, yes, I believe there's still room for growth.

Is this growth primarily coming from Yardi, or is it from all of them?

We could potentially win clients from all of them. In the larger space, our biggest competitors are Yardi, RealPage, and Entrata.

RealPage currently manages around 19 million units.  

Indeed, they have major clients like Greystar, among others, and they treat these clients as key accounts. These key accounts get whatever they need. However, I wonder how many units are not getting prioritized by them. Smaller companies, which are not as significant to them, are definitely overlooked.

Buildium has made significant infrastructure changes. From what I know, once a company scales to more than one location, it becomes challenging to implement the right processes with Buildium. They lack the infrastructure to support larger customers effectively. For instance, a leasing agent could potentially access sensitive information like owners' Social Security numbers and bank account details. Buildium doesn't have the control capability to prevent this. It's not designed to support larger customers. If they've changed this, I'm not aware. If they haven't, I don't see them as a significant threat to AppFolio.

In my personal opinion, Entrata is one of the biggest threats. They're not outdated; their system is user-friendly and robust. They originated from Yardi. Yardi started as an accounting system, then added a feature called Property Solutions for tenant applications, portals, and maintenance. This feature eventually split off and became Entrata after a significant lawsuit. Entrata has a more forward-facing technology approach. They're the ones we rarely beat and never took customers from.

So, Entrata covers everything, like multifamily, student, affordable, and military housing?

Yes, Entrata was one of the few competitors we struggled to beat. We never managed to take a client from them.

Why couldn't you beat them when competing head-to-head?

We usually came across Entrata when dealing with larger customers. In the smaller space, not so much, as they are more expensive. However, they offer robust features that customers seem to prefer. I couldn't pinpoint exactly why, but if I saw a potential customer using Entrata, I wouldn't target them.

I noticed they prominently feature revenue management on their website. 

Yes, I believe they do. They were a tough competitor for me, and I think for most of the sales org when I was there.

But is there enough room to win on RealPage and Yardi?

Potentially, yes. I believe so. If they're addressing major issues that we lost to, such as an open API and functionality around affordable housing and student housing, I think there's definitely an opportunity to grow there.