The company built 10 homes and reached a $10 million contracted revenue annual run rate before shutting down in December 2022.2 The shutdown was attributed to not reaching profitable scale and having a fragile cash cycle, with all customers either receiving their homes or a full refund.2
Timeline
| Date | Event | Source |
|---|---|---|
| 2018 | Pippin / Rent the Backyard was founded by Brian Bakerman and Spencer Burleigh. | 123 |
| 2019 | The company participated in the Y Combinator Summer 2019 batch. | 13 |
| 2021-07 | Sumon Sadhu joined as a board member. | 8 |
| 2022-03-03 | NBC Bay Area published a story about the startup building ADUs fast and delivering them by crane. | 1 |
| 2022-12-21 | Spencer Burleigh published a blog post announcing the company's shutdown. | 2 |
Money raised
The company raised a Seed Round, but the amount is not disclosed in the sources.2 The company's sales were far greater than the money raised from investors.2 The company sought venture debt, inventory financing, accounts receivable financing, and other debt facilities but was turned down.2 The company spent considerable time raising equity financing but was far from most investors' typical focus.2
Investors named in the sources: Sumon Sadhu8.
What happened
Pippin / Rent the Backyard was founded in 2018 by Brian Bakerman and Spencer Burleigh.123 The company aimed to use California's new ADU laws to build homes quickly by helping homeowners make the most of their unused land.2 The company was part of the Y Combinator Summer 2019 batch.13 The company built an ADU factory and invested in research and development.2 The factory had high fixed costs that it struggled to cover with ADU production.2
The assembly line had only six stations, which limited worker specialization and improvement.2 The company hired labor that was much less skilled than typical construction workers, expecting to train them quickly.2 The company believed that workers with limited skills could be quickly trained and perform as well as more expensive workers.2 The company chose to focus on the middle of the market, selling to cash-flow-focused buyers who would allow efficient repetition.2 The company's sales were far greater than the money raised from investors.2
The company began making large purchases of materials to ensure production wouldn't stop and to limit the effect of inflation on margins.2 This pulled cash out of the company and destabilized its financial position.2 The company worked hard to maintain a backlog of orders for the factory to fulfill.2 Selling homes in advance compressed margins as material prices increased between sale and build.2 Some materials like cross-laminated timber panels, rigid-board insulation, and appliances increased by as much as 30%.2
Unit labor costs increased by nearly 50% over the two years the factory ran.2 The company projected needing much less money than it actually did when raising its Seed Round.2 The company was undercapitalized and couldn't afford promising investments like an overhead crane or hiring specialists for each trade.2 The company repeatedly sought and was turned down for venture debt, inventory financing, accounts receivable financing, and other debt facilities.2 The company spent considerable time raising equity financing but was far from most investors' typical focus.2
The company started to model what a shutdown would cost and what obligations to return customers' progress payments would be.2 The company realized that most of the money in its account would need to be returned to customers.2 Customers nearly always borrowed money against the value of their homes to pay the company.2 If the company was unable to deliver a home, customers would lose all the money they borrowed and entrusted to the company.2 Knowing the shutdown cost helped the company understand its cash position and make a more informed decision to shut down.2
All of Rent the Backyard's customers either received their home or received a 100% refund.2 The company built 10 homes over four years.2 The company reached a $10 million contracted revenue annual run rate.2 The company announced it was shutting down in December 2022.2 The shutdown was attributed to not reaching profitable scale and having a fragile cash cycle.2
The company's main costs were running the ADU factory and investing in research and development.2 The factory had high fixed costs it struggled to cover with ADU production.2 Nearly all research and development costs increased the company's burn.2 The company's rate of improvement was limited by its small size.2 Workers were not very specialized and did not get the chance to practice each step very often.2
A lot of the wages paid were for on-the-job training.2 The company anticipated specialization and its benefits would come as it increased in size.2 The lack of specialization and sufficiently skilled labor limited the rate at which the company could expand profitable production.2 The company made a very active choice to hire labor that was much less skilled than the typical construction site.2 The company believed that on an assembly line, workers with limited skills could be quickly trained and perform just as well as workers who would cost twice as much to employ.2
In hindsight, the company should have taken the short-term more painful and expensive path of hiring experienced leaders for each trade or station.2 Building the assembly line by starting with more experienced tradespeople would have helped the company more quickly reach the scale required to be profitable.2 The company considered the Tesla path of starting with a luxury product but believed it wouldn't work for homebuilding because luxury homes are defined by customization.2 The company wanted to make a quality home accessible to everyone.2 The company worried about the cyclical nature of custom homebuilding.2
The company compromised in the middle of the market selling to cash-flow-focused buyers.2 This worked pretty well; customers were very easy to service relative to the size of their purchases.2 The company's sales were far greater than the money raised from investors.2 It became very difficult to order items with long lead times without credit facilities or more equity financing.2 The company began to make large purchases of materials to ensure production wouldn't stop and to limit the effect inflation had on margins.2
This pulled cash out of the company and destabilized its financial position.2 The company worked hard to maintain a backlog of orders for the factory to fulfill.2 Having a lot of sales and accompanying customer deadlines was exciting and motivating for the whole company.2 Selling so many homes in advance began to compress margins as the price of materials increased between the time a home was sold and built.2 While the company was able to collect some money from customers when they purchased a home, most customers took months to finalize financing.2
Some materials increased by as much as 30% and unit labor costs increased by nearly 50% over the two years the factory ran.2 When the company raised its Seed Round, it projected needing much less money than it actually did.2 Raising too little money led to a low margin for error and an extremely high hurdle rate for investments and experiments.2 The company wasn't able to afford many of the most promising ideas like buying an overhead crane or hiring specialists for each building trade.2 The company repeatedly sought and was turned down for venture debt, inventory financing, accounts receivable financing, and other debt facilities.2
The company spent considerable time raising equity financing but was far from most investors' typical focus.2 As the company became more concerned about its financial situation, it started to model what a shutdown would cost.2 The company realized that it is very expensive to close a factory and that most of the money in its account would need to be returned to customers.2 Customers nearly always borrowed money against the value of their homes to pay the company.2 If the company was unable to deliver a home, customers would lose all the money they borrowed and entrusted to the company.2
Knowing the shutdown cost helped the company better understand its cash position and make a more informed decision to shut down.2 All of Rent the Backyard's customers either received their home or received a 100% refund.2 The company's points of failure were exacerbated by not having a more specific plan for how to open and run a profitable factory.2 The company was very eager to move fast and break things by starting to build as quickly as possible.2 The company learned that opening a factory is not as iterative as building a software product.2
The company spent significant time discovering industry best practices from first principles instead of paying a specialized consultant.2 The company saw a giant problem, iterated for a way to approach it, found one of the most interesting and underdeveloped markets in the world, and built a business with an annual run rate of over $10 million.2 The homes built around the San Francisco Bay Area are a legacy smaller than hoped, but they will have an impact on their owners, tenants, and communities for generations.2
Where the founders are now
Brian Bakerman is the co-founder & CEO of ArchiLabs, a YC F24 company.110 Spencer Burleigh previously founded Rent the Backyard and is now an anchor.110
Lessons, as others put them
"Our company died from not reaching a profitable scale and having a fragile cash cycle."Spencer Burleigh2
"Lesson 1: Do many repetitions to improve quickly"Spencer Burleigh2
"Lesson 2: Pay for the right expertise when you start"Spencer Burleigh2
"Lesson 3: Consider existing frameworks. But don’t be dogmatic"Spencer Burleigh2
"Lesson 4: Selling something you can’t deliver for a while is dangerous"Spencer Burleigh2
"Lesson 5: Overcapitalize companies that move atoms instead of bits. Budget as if you will never raise money (even debt) again"Spencer Burleigh2
"Lesson 5a: Be mindful of where the money you have needs to go"Spencer Burleigh2
"Lesson 6: Planning is often the highest leverage work"Spencer Burleigh2
Sources
- Pippin / Rent the Backyard: Autonomous homebuilding factory for the $1.7 trillion housing crisis. | Y Combinator, Y Combinator
- What happened to Pippin / Rent the Backyard · Spencer Burleigh, Spencer Burleigh, 2022-12-21
- Pippin / Rent the Backyard YC Application (Summer 2019), Reconstructed, Round Funded
- Sumon Sadhu — growth-stage VC, United States | gritt.io, gritt.io
- Pippin / Rent the Backyard Founder Genealogy | FounderTrace, foundertrace.com
How this case file was put together
Every statement on this page carries a numbered note, and every note points to a court record, a regulatory filing or a named publication in the list of sources. Each statement was checked against the text of the sources it cites before it was published: a figure, a date or a name the cited source does not contain was cut rather than kept. Allegations are shown as allegations, with their status at the time of the source (filed, charged, convicted, pleaded, settled, dismissed or pending). Quoted lessons are the words of the person or publication named with them, copied from the cited source; nothing here is our own opinion of why the company failed.
If a fact on this page is wrong, use "Report an error" below and attach the record that shows the correct fact. Every report is reviewed by a person before anything changes, and a corrected page says when it was last corrected.
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