Silicon Valley Says ‘People Don’t Scale,’ But Even Tech Companies Can’t Grow Without Them

December 11th, 2013
Written by: Elizabeth Richards

I loved reading the article in Monday’s Wall Street Journal titled, “Real-Estate Firm Gets Cold Shoulder in Silicon Valley: How Online Company Is Overcoming Tech VCs ‘People Problem,’” which describes venture capitalists’ reactions to the fundraising pitch of Glenn Kelman, CEO of online real estate firm Redfin:

“To tech investors, companies that depend on…people are old-fashioned. People are unpredictable and hard to manage. They are costly to hire and train, and their path to success is difficult to set into an algorithm. People don’t scale.”

The article goes on to say that:

“Yet Redfin is one of a handful of startups showing that people can make a big difference. Mr. Kelman believes that improving the real-estate business takes more than just better code. It takes better people, specifically, better real-estate agents. Consequently, Redfin has hired hundreds of agents on staff, people to whom it pays salaries, benefits and on whose work the company depends. (Redfin’s) path suggests that businesses that try to improve workers—and not just code—can be better for customers and, in the long run, better for the bottom line. After years of slow growth, Redfin is poised to hit it big. It’s on track to book $100 million in revenue—and turn a profit—next year.”

So even in the bottom-line, ROI-driven world of Silicon Valley, where rapidly scalable technologies are the holy grail–and where venture capitalists that don’t deliver expected returns in the expected amount of time fall by the wayside–people remain a key investment for differentiating the product and satisfying the customer.

Redfin is trying to “disrupt” (a great Silicon Valley word) the real estate business by using technology to make the process more effective. But because they are competing with a very people/relationship-oriented industry, people and expertise are still critical to Redfin’s model. As a result, investors who used to think “people don’t scale,” are realizing that in some businesses technology alone won’t be enough to win.

You can see the Wall Street Journal article here (login required): http://online.wsj.com/news/articles/SB10001424052702303330204579246194038162628