Bringing the Lean Method to Real Estate Development

By Matt McDonnell

Software and manufacturing companies have long used lean principles to systematically eliminate waste from and incorporate constant learning into their processes. But the fact is lean methodologies have been in practice on production floors since the 1950s.

Flash forward to the 1990’s, developers and entrepreneurs began applying lean methods to software development. Up until that point, software had been developed using what’s referred to as a “waterfall” or “top down” approach.  The project leader would come up with a list of requirements. From there, the team would build a feature-rich product before doing any sort of user testing with customers or trying to sell it, usually by some relatively arbitrary delivery date. 

But entrepreneurs who had raised capital or who were trying to bootstrap their companies noticed that this waterfall created an enormous amount of waste. From that moment, lean software development took hold and continued to grow, skyrocketing the success of software solutions we use everyday like Facebook and Google. 

What realizations led these entrepreneurs to adopt a completely new method?

The first insight was that by releasing software on an arbitrary timeline you create enormous amounts of waste in the form of software bugs, more QA cycles, shortcuts that will cost more in maintenance and additional releases down the road, not to mention scaling up a bigger team than you might otherwise need.

The second was that you should release just enough of a product to solve the desired problem at which point you should collect user feedback. Then, through a process of iteration, build the product from the ground up using that feedback as your guide.  

This is a gross oversimplification, but suffice it to say that lean production of software and the myriad techniques that that term “lean” encompasses, from kanban and kaizen events to user research and requirements gathering, has had a profound effect on the world. An effect that has led to our being able to produce cheaper solutions to customer problems, faster and better than ever. 

Why don’t we apply these same approaches in other industries like real estate development?

It’s a question I’ve asked myself a lot. It's also caused our team at Notley to start running lean real estate experiments and document our process of what it means to be "lean" in real estate.

Here is what we've learned:

First, as someone interested in developing, buying or leasing property, you need to identify your target market.

Remember to assess the demand in your market, and listen to your customers in order to understand their pain points. It's important to always be looking for patterns. You want to find an issue that a lot of people experience and that you can solve for with a single solution. 

Next follow these steps to start applying lean methods to your real estate-based solution:

  • Formulate your hypothesis and gather the list of requirements your solution must deliver to solve the problem. 
  • Identify a short list of possible real estate solutions.
  • Start small and pick the one that will require the least total risk to prove whether your target market, or a related one, will pay for the space. 
  • Commit in order to push forward and realize the opportunity. 
  • Constantly gather feedback from your customers.
  • Re-evaluate and either iterate or exit.  

How does this work in practice?

Our experience starting Owen's Garage, a coworking space in East Austin, proved to be the perfect first test.

At Notley, we work with nonprofits all of the time. From our experience, we knew there was a need for nonprofits to have affordable, flexible office space. We also knew early-stage technology companies shared this need. We liked coworking as a real estate solution, but believed there was a greater opportunity to build an ecosystem around a common theme with the potential for collaboration and serendipity. In this case the common theme was an affiliation with Notley and specifically, Dan and Lisa.  

So we leased a 6700 sf auto repair garage with the bare minimum amount of drywall to call it an office, made it our own and moved our people in. It worked. We’ve been full the whole time and our hypothesis was confirmed.

Along the way we had two major insights.

1. Understand The Less Obvious Needs

Everyone wants affordable and flexible space. We had to go even deeper to understand the non-obvious needs of our customers, including access to conference rooms and access to affordable large format meeting space. This realization set us off to scale our new vision, the Center for Social Innovation (CSI), after some valuable learning and product validation.

At CSI we will provide more than 61,000 square feet of space designed to serve the social impact community of Austin. Over 10,000 sf of coworking, 45,000 sf of dedicated offices in a range of sizes, and one multi-purpose meeting facility of about 5,100 sf. 

As for Owen’s Garage, the prologue is equally as exciting.  Scale Factor, which began as a two person accounting firm validating a software opportunity is now taking over the whole building due to their rapid growth. 

2. Build To You & Your User's Requirements, Not One Step Beyond

The meeting space is an interesting case study in requirements gathering. In this example, it's critical that you document what you want.

For CSI's meeting space, we knew we wanted to integrate the space with the outdoor common areas in our pedestrian campus underneath the pecan grove. We also wanted to provide a variety of programming to suit a broad range of needs, from workshops and conferences to fundraising events and parties. 

And that was it; that was our lean approach. We provided for all of the key requirements of the space -- from sound attenuation to appropriate restrooms to garage doors that we could roll up and allow access to the outside.

That is also where we stopped.

CSI will evolve, grow and flourish in ways we cannot even imagine once tenants move in this summer. It simply doesn't make sense to add features until people begin using the space and sharing invaluable feedback.

We cannot wait to have our users, an inspiring group of nonprofits, living and breathing within CSI every day and collectively working to do good in our community. We look forward to evolving and developing the CSI with you.

Looking ahead, we envision this concept of lean real estate holding potential for underserved communities all over the United States and the world. Do you have a community or project that should adopt a lean real estate approach? We’d love to hear from you.