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One of my favorite personalities on Twitter is this guy called Nick Huber, a self-storage entrepreneur who shares insights on the ins and outs of the self-storage business. For example, here is a thread he shared on how to buy a storage facility:
There are many reasons to love this self-storage industry if you are a founder or investor.
First, it’s a massive market. According to Neighbor’s Self Storage Industry Statistics, it’s a $39.5B industry in the US alone. More than 10% of American households rent a self-storage unit and there are 49K+ self-storage facilities nationally, which account for close to 2B square feet in total rentable space. Despite the size of the market, the top 4 players represent less than 15% of the industry. Most facilities are mom-and-pop shops that have been around for decades.
In addition, there are clear growth levers that are highly favorable for the owner. Since the monthly rent is a lot lower than that of apartments or houses, you can significantly increase rent every 6-9 months without facing too much pushback from customers. For most people, the cost of moving outweighs the storage rent hike by quite a bit. You also don’t have to deal with eviction moratoria and rent control laws since no one is living in the storage.
Needless to say, I am a fan and I have been in a rabbit hole trying to understand different new models in this industry, specifically different types of storage marketplaces. Last time I wrote about Bounce, which is a luggage storage marketplace that helps small and median-size businesses to monetize excess space in their stores.
Today’s star is Neighbor which is a storage marketplace that helps individuals to monetize excess space in their homes and garages.
Neighbor is a scrappy startup based in Utah that’s been around for five years and is now the biggest geographically distributed storage platform in the US with listings in almost every city in every state. The company has raised over $65M from VCs like a16z, Fifth Wall, and the CEOs of DoorDash, Uber, Overstock, and StockX. In this piece, we will dive into:
The genesis of Neighbor
Growth hacks in the early days
Growth strategy pivot
Neighbor’s special referral program
Let’s get started.
The idea for Neighbor came from co-founder Preston Alder’s experience looking for a storage unit. In the spring of 2016, Preston and his wife were planning on moving to South America for a volunteering opportunity. Since they were moving out of the country, they were desperately in need of a storage unit for their items.
Similar to millions of other Americans, they turned to Google search to find a vacant spot among local storage facilities. However, most facilities nearby were completely full and the closest available one is more than two cities away—making it inconvenient and expensive to store their items.
“In an effort to solve his own problem, Preston turned to his connections and found a family friend who was willing to let Preston use their garage as storage. Preston and his wife quickly moved their items in and boarded a plane soon after.
Several months later, Preston and his wife returned to the United States ready to move into their first apartment and after picking up their belongings from their neighbor’s garage, Preston had the thought, ‘Why doesn’t everyone do this?’ And Neighbor.com was born.” - Joseph Woodbury, CEO of Neighbor
It was a great experience for Preston because not only was it cheaper to store his valuable items at his friend’s but he also had peace of mind knowing that his items were stored somewhere safe.
Preston shared his idea with his buddies Colton and Joseph, and the three of them decided to work on this business together. Colton was working a full-time job at the time while Preston and Joseph were classmates at Brigham Young University in the final year of their study. They were spending all their time outside of school/full-time job on this idea.
To fund their idea, they started going to all the business competitions they could find and won five-digit funding from the competitions. Their biggest prize came from the Miller New Venture Challenge, which awarded the team $15K and a small office at BYU.
Solve cold start problem
Their MVP tech stack was simple - WordPress website, survey, and Venmo.
To get the idea off the ground fast, they launched a WordPress website with an embedded survey to collect interest from both prospective renters and hosts. After the prospects filled out the survey, the three co-founders would call renters to see what they were looking to store and call hosts to gauge what space they had and how much they wanted to charge. They manually matched the supply and demand and dealt with the entire payment process on Venmo. It was not pretty but it got the job done.
They YOLOed all the business competition winnings in local ads spend. To maximize the ROI on the limited fund they had, they tried many experiments to crack the chicken and egg problem.
Supply-side strategy: doing the things that don’t scale
1. One-dollar flyer hack
To get their first 100 storage partners, they turned to flyers. However, they did it with a twist. One of the biggest problems with flyers is that nobody really reads them and most of them end up in the trash.
To get people to pay attention to the flyer, they paperclipped a dollar bill with a note saying ‘this is the first dollar you’ll make renting out your space on neiybor.com*’ to all the flyers they dropped off. Hundreds of hosts signed up via these dollar flyers.
*Used to be called Neiybor since they couldn’t afford the neighbor.com domain initially.
2. Event strategy
In the early days, the team had to be scrappy because they only had limited funding from business competitions. They tried to identify marketing channels that were mostly free regardless of their scalability. Event strategy was one of those free marketing channels. They would identify a neighborhood and attend all the events in that neighborhood with their company-branded t-shirts and pitch their storage marketplace.
3. Water bottle gift
They found that many of the early adopter hosts were young business tech professionals that just had their first home, wanted to earn some extra cash, and were comfortable with trying out new products. To get access to these people, their initial idea was to do ‘lunch and learn’ at tech companies. You buy lunch for a company and then pitch the product to them while they are eating lunch. Several companies they knew were having decent success with this strategy.
They also gave it a try but quickly found that it was too expensive to buy everyone lunch and too time-consuming to set it up. To solve this problem, instead of doing lunch and learn they decided to send branded water bottles to offices. Water bottles were a lot cheaper to buy and easier to distribute than lunches.
“We were able to get these nice labels printed on the water bottles in big graphics, which explained exactly what Neighbor was and how it benefitted the user. We would take a box of these water bottles, go to every office building in the area, drop it at the reception desk saying here’s a gift from your neighbors, and leave.
Unlike the rest of the junk mail that the receptionist gets that they could easily throw away, you can’t throw away a case of water bottles. So the recipient would put it in the company fridge and people would drink them and leave them in conference rooms and different areas of the office.” - Joseph
It worked so well that they distributed more than half of a million water bottles during the first few years of the business.
Demand-side strategy: start with a specific customer
In the early days, Neighbor’s demand side strategy was to first focus on a specific customer that was easy to access and had lower standards and then move up the market over time.
To understand this idea, let’s take Airbnb for example. Airbnb started with couchsurfers who have very low-quality standards, and are looking for a very low price. However, it is not a big market. At some point, they had to capture a larger market, which meant they needed to raise the quality standards of the platform and raise the price point. After couchsurfers, maybe they went after cheap business travelers who are going to have a higher quality standard than a couchsurfer. Then, maybe they went after the higher-end business travelers or high family vacation market. Today, Airbnb has properties that rent out for $10,000+ a night— a lot more than the 30 bucks a night in the beginning.
Neighbor started with college student renters that needed a place to store their stuff when they went on their internship during the summer months. It was accessible because they were college students/recent grads themselves when they started the business and students tend to have a much lower standard for the storage space. From there, they started looking into residents in the community that also might have longer-term storage needs. Today, all kinds of people and businesses use Neighbor while the initial student segment accounts for less than 1% of the total users.
Uber playbook to national strategy
One of the biggest strategic decisions the Neighbor team made on the growth side is to switch from the regional growth strategy to a national growth strategy.
In the early years, they followed the Uber playbook. They would launch each market one by one. It worked for them. For example, when Neighbor launched the LA market, they got as many hosts in the first seven weeks in LA as they had gotten in the first year and a half in Utah. They did this for several cities in the US. For each market, they had a general manager and they had tremendous growth on the supply side.
Over time, Joseph and his team noticed that they were getting strong organic growth in non-target markets, which they had never formally launched before. This organic traction led them to rethink their strategy and reevaluate their assumptions around market liquidity.
“We had anticipated Neighbor being a hyperlocal marketplace and thought we needed to launch each market one by one and really build up the liquidity. But what the numbers showed us was that we don't need as much liquidity as that of Uber, where you have to have your drive pickup time be like five minutes or less. It turns out even if we get a handful of hosts in a market, those hosts will get rented.” - Joseph
In other words, density can certainly help Neighbor to drive more conversions and bookings; however, unlike Uber, this density is more like a luxury than a necessity.
Instead of pursuing a logistics-heavy regional marketing launching strategy, Neighbor can instead pursue a more efficient national strategy. They pulled all the GMs/market launchers back to headquarters and shifted the marketing focus to the entire US. They can now focus on building the brand and position the company as the leading US self-storage marketplace—investing more into content and SEO that will have compounded impact on driving demand.
Growth loop - Vouch program
Neighbor has several unique growth loops. The obvious one is the content and SEO growth loop. The more people join as hosts, the more populated Neighbor’s landing pages are. The more populated the landing pages are, the better they rank on search engines, which means the faster the spaces get rented, leading to more hosts.
The one that really caught my eye was Neighbor’s unique referral growth loop. Most referral programs are relatively standard and follow the format of “give $xx get $xx”.
Neighbor has a unique referral program called the Vouch Program. During the host sign-up process, the host is encouraged to obtain vouches/recommendations (similar to those on LinkedIn) from their friends using a special “vouch link”. Upon clicking on the link, the friend will be prompted to enter the recommendation along with their name, email, phone number, and profile picture.
For the new host, it is a great way to use social proof to increase the likelihood of their space being rented. For the friend, they are doing a favor while learning about this new way to earn some extra income. Making it easier to convert these friends in the future since they have a friend benefiting from the platform and have already given Neighbor some basic information during the vouch submission process.
Neighbor is killing two birds with one stone. Not only are they helping the host to increase earnings potential, but they are also acquiring new users along the way at zero cost.
Big shout out to Joseph for chatting with me about this journey. I have personally learned so many new growth hacks and new ways to think about growth loops. Neighbor’s vision is to build the biggest hyperlocal marketplace that connects “Neighbors” together in communities across the globe. Storage is just the beginning and I can’t wait to see the next phase of this journey.
That’s it for today. See you soon 👋,