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I sat down with Ben Miller, CEO & Co-Founder of Fundrise, the largest direct-to-investor alternative asset manager in the US, that has grown from an idea to a platform with over 2 million active users and $3.3 billion in real estate private equity, private credit, and growth-stage venture capital.
In this episode, we discuss:
How a product pivot cost Fundrise half their customers, but set them up for future success
“If you're going to do anything, don't start with the solution, start with the problem… First, figure out what are the big problems. The bigger the problem, the bigger the opportunity.”
Fundrise initially pioneered the idea of Real Estate crowdfunding, allowing users to invest in individual properties. Despite the initial success and many copy-cats entering the market, they realized this model had many operational limitations. So, in 2015, Fundrise transitioned to a funds-based model, which initially resulted in losing half their customers but later unlocked vast digital marketing opportunities, changed their fundraising dynamics, and catapulted the company to cross many billions of dollars invested by their customers.
Why he’s not optimistic about many tech companies worth billions and believes they will continue to struggle to turn a profit
“The winner is the one who sees the brutal reality as fast as possible”
According to Ben, the tech industry has shown a consistent bias against tackling tough challenges and decisions. A culture that evolved from around 2005 to 2022 discouraged conservative approaches and punished restraint, pushing towards a mindset that avoids difficult choices and trade-offs. We are now seeing the long-term consequences of these decisions. Many tech companies, especially some worth billions, are struggling with profitability. While their gross margins might be high, net margins are often negative. This indicates a fundamental issue in their business models and Ben believes most will not be able to turn around this reality. A notable portion of the tech industry's cost structure is dominated by sales and marketing expenses. For some leading companies, this accounts for up to a third of their costs, hinting at a race-to-the-bottom strategy where acquiring customers can be so expensive that individual customer profitability is questionable.
How rapid growth impacts your culture
“When do we celebrate the wins? When is it going to be fun? And the [Fundrise] core team is like… what fun? That's just fake stuff. We don't care about that, we care about doing interesting things that are hard.”
Fundrise experienced explosive growth in 2021, growing from 100 to 300 employees in 24 months. This fast expansion, coupled with the shift to remote work, challenged the company's ingrained culture. Fundrise differentiated itself by operating outside the typical tech ecosystem. They are not based in San Francisco and never aggressively chased venture capital. Initially, this made them feel left out, especially compared to popular competitors, but over time, many of these "in" companies went out of business, validating Fundrise’s differentiated approach.
The initial core team at Fundrise took pride in tackling tough, unglamorous tasks. This "collective ditch digging" ethos, where top team members would handle even mundane tasks like buying toilet paper, became a core value. However, this relentless focus on challenging tasks has downsides: employees often feel there is little time to celebrate successes, and avoiding industry "hype" sometimes conflicts with the wider tech industry culture.
Why the best innovation happens at the intersection of multiple specialties, the importance of staying true to your mission… and a lot more!
"We had to combine three to four different specialties to create our product."
Fundrise had to blend three distinct specialties to create its product: technology, regulatory understanding (specifically regarding the SEC), and knowledge of real estate finance. These domains typically operate in isolation, and individuals deeply entrenched in one often lack expertise in the others. To innovate, it's crucial to meld these separate areas of knowledge.
Polymaths, individuals with knowledge in multiple domains, play a pivotal role in synthesizing information from diverse specialties. The "bedrock principle" or "why principle" Miller mentioned underscores the importance of understanding the fundamentals in each area. Instead of solely relying on domain experts like lawyers or consultants, innovators should delve into the primary sources and rules themselves, ensuring a firsthand understanding, as this mitigates risks and facilitates innovation.
The current education system has, for over a century, emphasized specialization, leading to significant technological advancements. However, the drawbacks of this approach are becoming evident as the returns from hyper-specialization start to diminish. Many of today's innovations arise from intersections between specialties, and the challenge is finding specialists willing and curious enough to venture beyond their primary domains.
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Miguel Armaza is Co-Founder & Managing General Partner of Gilgamesh Ventures, a seed-stage investment fund focused on fintech in the Americas. He also hosts and writes the Fintech Leaders podcast and newsletter.
Ben Miller, CEO & Co-Founder of Fundrise – Serving 2 Million Clients, A Tough Business Pivot That Led to $3.3 Billion AUM, Building a Lasting Culture