Every week, it seems, a new marketplace or services business is born. Some of the hottest companies of 2012 — after photo-sharing apps, of course — were online and mobile marketplaces and services-based companies, pioneered by the likes of Uber, for instance, and all the way to a newer company (with a common investor) to help you find someone to watch your four-legged friends while you’re away from home.

Cherry, the service to book a car wash for your four-wheeled friends, fit in this category. In December 2012, Cherry announced it would shut down its service after raising venture funding. I used Cherry a few times throughout the year and it worked great for me. I know Cherry was, at one point, booking a lot of car washes in and around the Bay Area, and I always assumed that, eventually, the purpose of raising venture capital was to expand their labor force and upsell other car-related services to become a more diversified business. This makes sense particularly in urban areas, where the real estate and infrastructure needs of a physical car wash operation aren’t practical. So, why not bring the wash to the car instead? (I’m not sure what Cherry’s future plans are as they raised a good chunk of money, but I hope they find a new angle and keep going.)

When TechCrunch’s Anthony Ha reported on Cherry’s shutdown news last month, I was surprised at the negativity in the comments section, a place typically reserved for a congratulatory chorus. Forget about the fact they’re coordinating car washes for a minute, and Cherry is not all that different than many of the other emergent services companies to pop up in this golden, overstuffed age of startups. That said, they provided more of a service rather than a marketplace, and that is a big distinction.

The demise of Cherry’s car washing operation is a failure that the Bay Area ecosystem can draw many valuable lessons from, which is important to the ecosystem right now given the sheer number of startups trying to harness the web and mobile to provide services or build new marketplaces. Companies such as Postmates, Exec, Lyft, Sidecar, TaskRabbit, Zaarly, Instacart, SWIG!, and so many more all fit into this broad category.

The lessons from Cherry listed below are written from a “venture-scale lens” because the company did raise institutional funding and others will as well, but of course, venture capital is certainly not a prerequisite to starting a new service business or marketplace and not all new endeavors need to be at venture-scale to be valuable. With that disclaimer and context, here are the three key “venture-scale” lessons we can draw from Cherry:

• Transaction Volume: Cherry customers probably didn’t need a car wash every day. Maybe every week, at best. Therefore, to maximize revenue in the Bay Area, where they started, Cherry would have had to either begin to upsell other car-related services to be delivered at the time of a car wash and/or to maximize the number of bookings made through its service. Now, on the other hand, a marketplace for town cars like Uber is something users could do daily, or even multiple times a day, assuming they have the budget. Uber’s transaction volume is high on two dimensions: repetitive use and high-ticket sales. Companies in these categories looking at venture-scale opportunities will most-likely need to show robust figures in at least one of these two dimensions.
• Profits Margins: Revenue may be en vogue again, but all revenue isn’t created equal. The real metric of interest is the profit margin. Venture-scale businesses need to have tremendous leverage in their revenue models. Consider the crown jewel: Google. Each Google search is a mini-auction for advertisers to bid against that search, lining Google’s pockets with $100M+ revenue….per day! By contrast, many of today’s new services have models which require the organization of excess labor supply, training that labor, and supplying it with materials and/or information in order to carry out the mission. Each step between point-of-sale and point-of-completion puts more and more pressure on the model and most likely compresses any margin. Through this lens, we may see why Cherry couldn’t justify their financial model. In venture-scale businesses, investors will want to model out the likelihood that any business could apply leverage on the revenue to extract margins, which creates the real economic value they seek.
• Scaling In The Real World: Suppose Cherry worked so well in the Bay Area that they began a plan to expand to other cities. My sense is that in the SF Bay Area right now, and for the past year or so, many folks around here have a tendency to assume “scaling offline” is complex but as controllable as “scaling online.” While scaling an infrastructure and system online is certainly difficult, I would say right now it’s much harder, more expensive, and more time-consuming to scale these types of business offline and into new locations. Each company in these categories would need to build their own playbook in their test market (usually the Bay Area) and then execute against that plan to expand their reach while maintaining quality. And, even if these conditions are met, a VC may be reluctant to invest given the minefield of operational risks any team will surely endure. Pulling of a business like this takes serious time and effort. There may be a Starbucks in every town in America, but keep in the mind the company was founded in 1971.

It’s easy to mock Cherry as a small idea, but I give them credit — and hey, they could still do something new and interesting. They went out, delivered a service, and while there were some hiccups, their shutdown creates a learning opportunity for the ecosystem which is especially timely given the companies I’ve mentioned above, and the venture capital (and time) needed to make these things spread offline with real margins. In the past few months, I’ve grown concerned that these offline, non-technical, and operational elements aren’t taken into humble consideration or waved off as being “easy” to execute on. Too many people think to themselves, “Hey, we’ll do what Uber did, no problem.”

Well, what Uber did and is doing is really, really hard, and they still have a long way to go. It’s also important to recognize that Uber is mostly a marketplace and doesn’t handle labor as much as some of the other companies. Managing and training labor is time-consuming and expensive, and can negatively impact all three dimensions listed above. When Uber was raising their early venture and growth rounds, some investors still passed on the deal because while they liked the transaction volume and offline scaling proof points, some questioned the robustness of margins. To each his/her own. That said, if Uber had such a tough time and fought through it, I’d imagine everyone else in this broad category will go through as much pain or more in order to get a peek to the promised land in the horizon. Yes, it’s a fight worth fighting for, but as we see with a company like Cherry, which probably had enough cash to keep going for a bit longer, there should be no illusions in how hard it will be to get there.

Photo Credit: knottboy / Flickr Creative Commons

• CHERRY

The carwash that comes to you: Park anywhere, check in online, and Cherry will wash your car right where you left it.

? Learn more

Article source: http://techcrunch.com/2013/01/13/iterations-lessons-we-can-draw-from-cherry/

Chinese interest in U.S. real estate began climbing during the U.S. housing meltdown, when plunging property prices made the U.S. a magnet for global buyers. Today, interest is growing as a rising yuan — up more than 8% since mid-2010 — gives the Chinese greater purchasing power, and the mainland’s restrictions on property purchases encourages them to look overseas. With U.S. single-family home prices a third lower since 2006, the U.S. also compares favorably with other top markets for Chinese investment, such as the United Kingdom, Australia and Canada.

“For China, the world is an emerging opportunity,” says Andrew Taylor, founder of Juwai.com, a real estate site based in Hong Kong that was launched in 2011 to match Chinese buyers with U.S. real estate. “We’re talking about a huge chunk of people with cash and the desire” to invest overseas.

In the U.S., the Chinese are now the second-largest foreign buyers of homes, behind Canadians, accounting for $7.4 billion of sales in the 12 months ended March 2011, up 24% from the previous 12 months, according to the National Association of Realtors. Buyers from China and Hong Kong also spent $1.71 billion on commercial property in the U.S. in 2011, more than quadruple their investment in 2008, says Real Capital Analytics.

Those numbers likely understate Chinese investment, as investors may buy property under business entities they’ve set up in the U.S., says Patrick O’Neill, founder of ONeill Group, a Hong Kong-based company that helps Chinese buyers find U.S. property.

Roughly 40% of Chinese buyers want property in the U.S. as investments, while 60% are buying in anticipation of their children going to school here, or for business or immigration purposes, says Steven Lawson, chief executive of Windham China, a firm that helps match Chinese buyers with U.S. sellers.

Lily-Sui Zhang, 30, says her husband’s Beijing family bought a house in South Pasadena, Calif., last year so her three young children would have access to good public schools. The family thought investing in the U.S. was “probably more stable than in Beijing” due to concern about a Chinese real estate bubble, Zhang says.

Some Chinese buyers also see the U.S. as an attractive place to invest because on the mainland, Chinese never own land — they just lease it from the government.

While mainland China allows each citizen to exchange only $50,000 of yuan into foreign currency per year, wealthy clients often do business overseas and have offshore funds they can use to buy property, says Alan Liu, managing director of North Asia for Colliers International, a brokerage and real estate firm. The currency restriction doesn’t apply in Hong Kong, a special administrative region of China.

Hong Kong residents Lillian and Frank Yan say they bought a condo in Honolulu this year because U.S. property prices are relatively low compared with major cities in Asia. They plan to stay there two to four weeks a year, and rent it out the rest of the time.

“The majority of our equity is tied to the Hong Kong or Chinese economy, so we wanted to diversify our portfolio,” says Lillian Yan, 42.

A multitude of millionaires

China has more money to invest than ever. Mainland China now has 960,000 millionaires — defined as individuals with residences, private businesses and investable assets of more than 10 million yuan or $1.5 million, according to the Hurun Report, a Shanghai publisher of magazines for China’s wealthy.

Nearly half of those millionaires are considering moving or getting permission to reside overseas. Their top country of choice? The USA.

In the year ended Sept. 30, Chinese applicants accounted for 78% of the 3,805 EB-5 applications in the U.S., up from 35% four years before, according to government data. In that program, foreign investors can get permanent resident status, or “green cards,” in exchange for investing $500,000 or $1 million, depending on the part of the country, in ventures that create or sustain at least 10 jobs within two years of the immigrant investor’s admission to the U.S. as a conditional permanent resident.

Some lawmakers also see foreign investment as a way to boost the U.S. housing market.

Legislation proposed last fall by Sens. Charles Schumer, D-N.Y., and Mike Lee, R-Utah, would let foreigners get a three-year resident visa if they invest $500,000 in U.S. real estate, including $250,000 for a primary home. They’d have to live at least 180 days a year in the property and pay taxes here.

California dreamin’

The New York, Los Angeles and San Francisco areas are most popular with Chinese home buyers, according to Realtors and data from real estate website Trulia.

East West Bank, a regional bank heavily active in California with branches in China and Hong Kong, says U.S. home buying among mainland Chinese has been “stable” in recent years as buyers wait for prices in various markets to hit bottom.

“They want to buy at the lowest” price, says senior vice president Emily Wang.

In the affluent Southern California city of San Marino— where the median price of a home sold in January was $1.6 million, according to MDA DataQuick — Chinese buyers are looking for high-end homes in good school districts and neighborhoods likely to see stable home values, says Linda Chang of Coldwell Banker.

One of her recent mainland Chinese buyers paid $5 million for a 5,000-square-foot home in Pasadena that the family expects to occupy for one month a year, she says.

“They treat it like a hotel without room service,” says Chang, who estimates that a quarter of shoppers in the $3 million-plus market in her area are from mainland China.

Mainland Chinese also account for a third of the buyers at luxury home builder Toll Bros.’ new home development, The Heritage in Vista Del Verde in Yorba Linda, Calif., southeast of downtown Los Angeles.

In the San Francisco Bay Area, Realtor Stanley Lo of Green Banker real estate says mainland Chinese — a third of his clientele — are looking for homes priced at $800,000 and up. Most of his clients are Chinese business executives, who can afford second homes. They follow friends, relatives or work colleagues to the suburbs between San Francisco and the Silicon Valley.

One recent rainy afternoon, Lo showed a six-bedroom $4.5 million Hillsborough home to Lee Xiao Jun, from Hubei Province in China. Her husband works in manufacturing and makes frequent trips between the U.S. and China, so they want a home in a good location close to the San Francisco airport.

“The prices here are more reasonable than in China,” she says, standing under wood-beamed ceilings overlooking a garden terrace.

In New York City, mainland Chinese are increasingly paying cash for $20 million “trophy apartments,” says Pamela Liebman, CEO of The Corcoran Group, a residential real estate brokerage company.

Based on current trends — and the increasing numbers of mainland Chinese buyers — Liebman expects they’ll account for one in 10 uber-luxury buyers in the next year or two.

New York, New York

New York City is also popular with a growing number of Chinese investors looking for commercial property. Last year, China’s HNA Group, which owns Hainan Airlines, paid $265 million for 1180 Avenue of the Americas, a 23-story office building in Manhattan, and $126 million for the luxury Cassa Hotel and Residences near bustling Times Square.

Hong Kong billionaire Cheng Yu-tung’s family also bought five U.S. luxury hotels in 2011, including Manhattan’s iconic Carlyle, for $570 million. Chinese investors are looking to buy hotels as a growing number of mainlanders travel overseas, says Chris Brooke, chief executive of broker CBRE, Asia.

Yet, unlike the Japanese, who were criticized for overpaying for high-profile U.S. assets in the 1980s and 1990s, many Chinese investors “do not care about the image of a building and usually do not want to pay a premium for such image,” says Allen Wu, chairman of Wu Kao law firm, which represents HNA Group.

The rising numbers of Chinese investors are hard for U.S. developers and real estate agents to ignore.

LA Urban Homes, which is selling a development of 125 new homes in Southern California’s San Gabriel Valley, recently added a Chinese language section to its website to lure the mainland Chinese, says President Jeff Lee.

Corcoran is working with partners in China to bring potential buyers to New York.

Last year, Corcoran brought one group of 11 Chinese buyers, four of whom bought properties. This year, it plans to do at least four such events, maybe six, Liebman says.

“Five years ago, developers were coming to me about opportunities to invest in China, and now, they’re coming to me to try to get Chinese to invest” in the U.S., says Patrick Randolph, a professor of real estate law at the University of Missouri-Kansas City and a co-director of the Real Estate Research Center at Peking University in Beijing.

Zhuang Nuo, president of SouFun International, a Beijing real estate company that brings dozens of mainlanders to the U.S. each year to tour new and foreclosed properties, says he expects the U.S. to remain the top choice for clients buying overseas.

“The U.S. is always the Chinese people’s dream,” says Zhuang.

Article source: http://www.usatoday.com/money/economy/housing/story/2012-04-03/us-homes-lure-chinese-buyers/53977638/1

“This week the cost of buying a home is coming down, way down,” begins the radio ad.

The big home builders do it all the time; holiday sales, weekend sales, special end-of-the-year clearance. Now the state of Maine is doing it.

With the Spring season kicking off with a whimper, the Maine Association of Realtors is taking a cue from the builders and launching their own one-week “Clearance Event.” That’s right, at least $10,000 off of participating existing homes. They started the week with 115 sellers signing on, and within a few days that grew to over 900. Some discounts are even larger.

“We’ve been on the market for a couple of months, so by joining the clearance even, it puts us back out in front of some of those people that maybe weren’t thinking about it a few months ago, but are now,” says seller Lisa Lee, who dropped her five bedroom, Cumberland home’s price $10,000 from $507,000. “You’ve got to be competitive, again, it’s a high price point in this market, so it was worth taking the loss.”

The median price of a Maine home is $159,450 according to the MAR, so $10,000 is a big chunk, especially for first-time buyers who are fighting a very tough credit market.

Realtors in Maine, and pretty much everywhere else in the country, will tell you today’s market is all about price.

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