The recent pandemic has affected countless businesses worldwide and resulted in many layoffs globally. It’s hard or near impossible to prepare for such an unexpected world-altering event, and many companies were caught off guard. Recently, a proptech mortgage company based in the US hit world news. CEO of the mortgage company ‘better’ dismissed 900 employees over an awkward Zoom call. So, why was this particular case so polarising, and has it affected the industry?
What is proptech?
It’s worth providing an overview of the proptech industry to give context to the environment in which Better operates. If you’re already familiar with the concept, you should jump ahead to the main section of the article.
The real estate market has perhaps one of the most outdated operational models in business. You lose money on commissions and stamp duty, not to mention the amount of red tape and delays involved. Proptech, or property technology, aims to minimise these issues by providing product solutions that simplify the property market for consumers. Whether they’re taking out a mortgage, looking to rent, or wanting to sell a property.
The proptech sector has grown some 300% in the past decade to around 8,000 companies. Highlighting the robustness of the industry and the necessity of its solutions.
Better’s bad news delivery
Better is an online mortgage proptech firm that aims to simplify the mortgage lending process for Americans. A quick look at the company’s site, and you’ll see an array of statements that highlight the company’s aims. These include improving outdated traditional models that incentivise sales over supporting the customer.
In December 2021, already a difficult time to dismiss workers, the company’s CEO Vishal Garg announced to 900 workers over a Zoom call that their contracts would be terminated effective immediately. This, of course, was recorded and uploaded online before it started making the rounds.
It drew criticism from media outlets and industry professionals alike, primarily due to the timing of the dismissals and the way it was conducted. Understandably, it would be difficult telling 900 people they’ve lost their jobs. But, the delivery was awkward, like a train wreck that wouldn’t end.
Why did it attract so much criticism?
Other than dismissing 900 people near the Christmas holidays, many reasons gave this story the traction it received. Firstly, the company had reportedly been approved for a $750mn (£566.44mn) cash infusion from its backers, including the giant Japanese conglomerate Softbank, and was reportedly valued at $7bn.
After the dismissals and media attention, Garg doubled down by reportedly accusing up to 250 of those employees of stealing from the company by working an average of 2 hours per day and claiming over 8 hours on the company worksheet.
Current employees also claim that the CEO held another company wide Zoom call where he stated employee productivity would be monitored closely in what was described as a “threatening” manner.
In addition to this, the company’s plans to IPO in the near future could be delayed until its corporate image is restored. Although, the company is yet to comment on these plans.
What caused the dismissals?
The company’s official statement, made by CFO Kevin Ryan, read – “A fortress balance sheet and a reduced and focused workforce together set us up to play offence going into a radically evolving homeownership market”. It could be that the company’s aggressive hiring process, which started back in April 2020, backfired. It was implemented to meet demands for a rise in remortgaging in the US due to historically low interest rates.
So, can Better be to blame? Many companies have had to conduct mass dismissals during the Covid-19 pandemic. Some of which have let go of thousands of employees. The way the situation was handled certainly didn’t help the case. The CEO’s delivery and timing were unprofessional, especially since the holiday season is right around the corner.
There’s also the fact that the company received sizeable financial backing before the dismissals. Which could mean that Better mishandled its aggressive hiring strategy in early 2020 and expanded too quickly, a common problem for start-ups.
Some industry professionals predict that the company is simply covering its own back before the US mortgage market is expected to contract significantly after 18 months of solid growth.
How does it affect the company and current employees?
As a result of the backlash, many high-level executives have reportedly handed in their resignations. Understandably, some workers would rather not have a part to play in such a high profile case. As for current employees, it must be tough. Can the same happen to them?
As previously mentioned, the company seems to be monitoring employee productivity closely, which can be positive in terms of identifying work trends. Still, it can create a ‘big brother’ feeling among the workforce, which isn’t great for innovation and incentivises employees to try and fail.
There’s also the question of how the company’s backers will react to how the company conducted itself and the backlash received by the media. Since making the statement, Garg has announced he will take some time away from Better due to his poor handling of the situation.
Have there been other similar cases?
Better isn’t alone in regards to being in the spotlight due to mass dismissals. In 2019, US flexible workspace start-up WeWork was embroiled in a series of lawsuits, which resulted in a failed IPO and the dismissal of 2,400 workers at the time. The company’s backer, which is also the Japanese conglomerate Softbank, reportedly paid the company’s co-founder around $1.7bn for stepping down from the company’s board and severing ties with WeWork.
Naturally, this caused a stir in the media since so many employees were affected, yet there were enough funds to pay off the co-founder. As of 2021, the company has reportedly reduced its workforce by 67% since 2019.
Is proptech to blame for the dismissals?
There seems to be a correlation between Better, WeWork, and other industry disruptors that end up having to lay off employees to better handle finances. The proptech industry itself isn’t driving these dismissals; as highlighted by the figure provided by JLL, which calculates that the sector has grown 300% in the past decade.
So what could be the problem?
In the case of Better and WeWork, it’s mostly down to mismanagement and trying to expand too quickly. Investment in the proptech industry continues to surge, so it’s not due to a lack of funding. Often, start-ups take on more than they can handle and overestimate their growth potential.
By going on aggressive hiring sprees company’s run the danger of overloading their teams, which in turn has a range of cascading effects on the business. This includes losing track of company finances, bureaucracy, ineffective management, silos, and not scaling management teams properly.
As a result, when going through a downswing, such as a mortgage market contraction expected in the US, companies like Better are left with no choice but to cut jobs on a mass scale.
Could mass dismissals become more popular?
Vishal Garg noted that some of the dismissed workers had been inputting minimal hours during the day, as low as 2 hours and then claiming 8 on the paysheet. So could a mass culling system that removes underperforming employees become popular?
Russian software firm Xsolla did precisely that. The company fired 150 of its 450 employees based on calculations done by artificial intelligence. The company’s financial situation or the Covid-19 pandemic did not seem to influence the decision, but rather just underperformance.
Better’s case took place in the US, where employment laws differ from the UK. Glaisyers has a fantastic article on why this type of mass dismissal over Zoom would be complex in the UK and why it’s never a good idea to conduct the process that way.
Has proptech reached its peak?
Mass dismissals from highly valued proptech companies, both at the time of potential IPOs, pose the question – does proptech growth have its limits?
Like any other tech industry, proptech is constantly changing, with new players introducing exciting solutions that change the real estate market for the better. That drive to create new ways to break slower, traditional models will ensure that the proptech industry continues to grow.
The traditional model is still the most popular way to rent, buy, and mortgage property. Therefore, we could say the proptech sector is nowhere near its limits. In fact, people are just starting to realise proptech firms create solutions that solve real problems.
Will proptech employment go down?
Predicting sector employment is extremely difficult for any industry. Despite the dismissals by Better and WeWork, the sector is set to keep rising mainly due to sector competition which will drive companies to find new and better solutions.
This is evidenced by the fact that proptech start-ups in the UK raised some £1.60bn investment in 2021, up 360% year-on-year. There are no signs that this type of growth will slow down, resulting in new players entering the market.
How should clients approach proptech companies?
Some of the reports on the Better dismissals state that the company’s CEO had a previous history of questionable behaviour and a series of lawsuits due to “improper activities” at two previous ventures. That might raise concerns among new customers that haven’t used proptech companies before.
It’s important to research companies beforehand. Like using any service, especially a new and exciting solution that aims to disrupt an outdated market. Better is one case out of 8,000 proptech companies that have grown in the past decade. The vast majority of firms are concerned with finding the best way to improve the real estate market, reduce fees, and break down bureaucracy.
What would an ideal situation look like?
Regardless of the reason behind mass-firing 900 employees, having to do so must’ve been difficult for Better and for Vishy Garg. It’s hard enough to fire one person; now imagine 900 online. It’s likely that pressure got to him, resulting in the awkward and poorly conducted announcement video.
It’s becoming increasingly important to think of timing and when dismissals should be done. Right before the holiday season is probably not the best time to tell 900 people. Merry Christmas, you’re out of work! It also doesn’t help if you’ve recently received a significant cash injection from your most prominent financial backer and you’re planning an IPO.
It’s understandable that business is for-profit and that cuts are at times a necessary evil. However, implementing better strategies and carefully considering future consequences before going on a mass hiring spree would help better handle such situations.
Companies must identify where temporary contracts are beneficial or perhaps bring in freelancers. As previously mentioned, trying to grow too quickly has consequences that could eventually affect the entire business.
Will the proptech industry be affected in 2022?
The industry as a whole won’t be affected by the poor handling of a terrible situation by one company. The sector is expected to continue thriving in the new year. Especially with a series of market trends to look forward to, including:
Demand for virtual viewings is likely to continue to rise. With companies expected to roll out new solutions that can provide clients with a better experience. Even if restrictions continue to ease, customers will still want the convenience of viewing properties virtually from any location.
One of the most significant downsides to traditional real estate is the amount of paperwork usually signed in person. This can be an inconvenience for customers and result in delays.
Property management automation
Property management automation solutions is another area of proptech that will continue to rise in popularity. A technology which works by improving and tailoring services for property owners. Issues are resolved quicker and landlords can maintain better relations with their tenants.
To conclude, young people’s interest in tech will continue to drive demand for smart home innovations, with Gen Z leading the need for ‘techy’ solutions.
Keeping up-to-date with changes in legislation and property can be tasking as a property owner or tenant! At Oasis Living, we use tech and automation to make the letting process more efficient and less hassle for all involved. We offer premium property management, FAST tenant-find service and even free maintenance call out as a standard. Contact one of our property letting experts today to find out more. Alternatively, you can read more about our mission to improve the property letting experience, on our about page.