@BrianFeroldi recently shared that he had added a new category to his investing framework, counter-positioning. Counter-positioning, part of a moat, is when a company adopts a business model that would be costly for its competitors to adopt. (Thread) https://www.lukethomas.com/counter-positioning/

One example of this is Tesla. For a long time, car dealers have operated under a model of massive dealerships, where customers come in, try out cars, and choose from a huge, expensive lot of cars. $TSLA sells all of their cars online. This is enormously disruptive to the industry

And, this model would be costly for any competitor, $F, $HMC, etc, to adopt. They cannot simply close their dealerships and move to an online model. Doing so would be difficult, would costs tons of people their jobs, and would be very expensive.

While I thought this was an interesting point and certainly a valuable asset to look for in a business, especially a disruptor, I couldn’t come up with many examples of this strategy. But today, I realized another company using it: Redfin $RDFN

For a long time, the real estate industry has operated under a model where agents are essentially independent contractors. They partner with a broker to help gain branding and clients, and in return they pay a broker a portion of their commission.

Real estate commissions are typically around ~3% of the total sale for the buyer’s agent and ~3% for the sellers agent. This means that on the sale of a $300,000 home, the seller is paying almost $18,000 is agent fees. $RDFN aims to change this.

$RDFN is counter-positioning itself to the real estate industry in two big ways. First, Redfin’s agents are actually full-time employees of Redfin with a salary. This means that they exclusively hire people who are committed to real estate as a full-time job

Traditional brokers hire tons of employees, some of whom are dedicated, 24/7 agents, but many of whom are simply doing real estate as a hobby or part-time thing, selling a friend’s home here or there and taking time off whenever they feel like it.

There is no problem with this, but it would be very costly for a competitor to $RDFN to simply eliminate all of these people AND completely alter their entire agent payment model.

The second, and even more important way in which $RDFN is counter-positioning itself to the real-estate industry is through its commission model. As mentioned above, a traditional home sale ends up with ~6% or more in realtor fees.

Even if the home is sold by owner, which is significantly more difficult, oftentimes the seller still has to pay a 3% fee to the buyer’s agent. These fees cost sellers tens of thousands of dollars.

$RDFN, however, has significantly lower fees. For Redfin to sell your house, you pay just a 1.5% fee, and only a 1% fee if you use them to buy and sell your home! On a $300,000 home, this can save a seller over $5,000 and over $10,000 if the buyer also uses Redfin.

If your house isn’t in the best shape, they’ll fix it up for you and then list it for only a 2.5% fee, still less than the competition. And finally, if your house is one of those that sits on the market for months without a buyer, Redfin will buy it from you for a 7% fee.

That means that for someone who normally would rack up months of years of maintenance or mortgage payments on a home they don’t even live in, they could get rid of it for only 1% more than it would have cost them to use a traditional broker in the first place.

Traditional brokers simply cannot adopt $RDFN ‘s model. They rely upon 3% commissions to operate, and the majority of them do not have the capacity to flip or buy homes.

$RDFN, therefore, has counter-positioned itself in such a way that its model would be almost impossible for a traditional broker to replicate. Even if that broker could replicate it, they would be fighting an uphill battle, as $RDFN is quickly gobbling up market share.

Think of what $NFLX did to blockbuster. Sure, others have since replicated Netflix’s model, $AMZN, $DIS, and others, but $NFLX is far and away the leader because they built a strong first mover advantage through counter-positioning.

Would love to hear anyone’s thoughts on this!! @BrianFeroldi does this fit within your understanding of counter-positioning? And for fans of $RDFN like @RedCoatChicago and @BahamaBen9, what do you think about this?