Domus Analytics

How to Choose a Vendor

May 04, 2023 09:36 AM Comment(s) By Amy

Important things to keep in mind

With NAR just around the corner, you may be planning on visiting the vendor Expo.  Whether you're exploring options to replace an existing vendor, or you just like to keep abreast of current trends, there are several things you should keep in mind.  In no particular order...

  1. Length of Time in Business:  Approximately 20% of small businesses fail in their first year.  It usually takes another couple of years to become profitable, or at least breaking even.  Even so, 45% of business fail within the first 5 years.  Those aren't great odds.  In real estate especially, those percentages feel even higher.  It's no wonder that hardly anyone would talk to us when we first started marketing our product.  Why risk choosing a new vendor who might be gone in a few years?  There are lots of reasons for that level of churn.  Some vendors aren't prepared for the extremely long sales cycle; some vendors have a good idea but fail to execute; in either case, they run out of money.  Other vendors are quickly acquired by larger companies, leaving their clients in a contract with a company they didn't anticipate doing business with.  Whatever the case, decision makers need to balance the risks of engaging with a new business against the potential benefit of having the "newest" or "prettiest" technology.
  2. Financial Ownership & Stability:  Who owns the company with whom you're speaking, and how is it funded?  Is it privately-owned?  Is it corporate owned?  It may even be "owned" by a conglomerate of MLSs these days.  Is it self-funded, debt-financed or backed by venture capital?  It's important to know where the money came from, because that drives the business goals.  If it's debt-financed, the company is on a payback schedule to meet those liabilities, although the debtor has no inherent control over the company.  A self-funded company (e.g. selling stock rather than taking on loans to fund operation) may or may not have a certain runway to turn a profit, but has no outsiders controlling the direction of the company.   A company funded by capital investment has a certain length of time to meet the financial goals of the investors.  For those companies, making the sale and closing the deal is the primary goal.  And in today's environment where capital is drying up, there is no more money to go around if those goals aren't met.  Companies more likely to be around for the long haul are the ones that are already successful, with their operations paid for with existing revenue, and not reliant on future growth targets to remain in business.
  3. Quality & Maturity of the Product:  If you've never heard Jerry Orbach sing Razzle Dazzle, take a listen before you walk the Expo floor.  Then ask yourself if you're being shown a flashy, curated demo, or actual product deployments for real customers?  One of those is a more reliable way to evaluate technology.  Ask to see several customer deployments, too.  Many a pretty demo results in a signature on the dotted line, but it's what comes afterwards that matters.  Is the product actually built and running in production, or are there a lot of features still in development?  It's a concept known as "hyper growth" in Silicon Valley, where the proof of concept is built quickly, but the  engineering resources to build what was promised in the sales cycle aren't allocated until the deal is closed.  As a side note, growing too fast like this is widely cited as another reason why businesses fail (lookin' at you, Webvan).  The moral of the story is don't get distracted by "bling".  If you're reviewing actual customer deployments, you'll get a much better idea of what's in store for you.
  4. Recommendations:  While we're talking about actual deployments, let's talk about recommendations from actual customers.  Get lots of them!  You wouldn't dare hire an employee without lots of positive recommendations, so why would you choose a vendor without the same level of due diligence?  I'm not talking about marketing materials with quotes on them.  With AI taking over the world, I wouldn't rely on video testimonials, either.  Just pick up the phone and call your colleagues at other MLSs or Associations.  Ask about their experience with various vendors.  Ask why they were chosen.  Ask about the ongoing relationship and service delivery.  Ask all the questions.
  5. Price:  You're probably rolling your eyes right now, but keep reading.  Of course you're going to consider the price!  But price is important not just because you don't want to pay too much, but paying too little can also be a problem.  Remember the saying "if you aren't the customer, you're the product"?  If you're getting something for free, you aren't the customer.  Ask yourself what that company is getting that makes it worth it for them to give you the product for free.  Maybe it's your data, maybe it the ability to use your name in their marketing.  Whatever it is, they're getting something.  Yes, this includes all the cheap or "freemium" models out there that upsell to your users.  In that case, your users are the customers - you (the MLS or Association), are just a pass-through at best.  So think of price not only in terms of raw numbers, but in the value you're getting for that price.  A cheap product with zero support and no ongoing development is far more expensive in the long run than a more expensive product with excellent service and a reputation for quality delivery. 
In summary, there are a lot of things to keep in mind when reviewing and choosing vendors.  This is by no means an exhaustive list, as it doesn't even go into how to evaluate product features.  (Hint: rank your requirements by Must-Haves, Nice-to-Haves, and Could-Haves-but-not-needed)  At the very least, this should give you a good starting place.  Changing vendors doesn't have to be hard, as long as you go into it with your eyes open and your research done.  Happy hunting!