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David Friedman has more than 15 years of experience starting and leading technology companies in Boston. In 2018 he co-founded Knox Financial, a fintech company offering homeowners a smart and frictionless way to build wealth. A homeowner who is ready to move, or a landlord who already owns rentals, can put their property on the Knox Frictionless Ownership platform. Knox turns these properties into passive investments, taking care of absolutely everything—financing and refinancing, accounting, tax, legal, insurance, tenant sourcing and communication, and property maintenance. The owner simply sits back and receives a check from Knox each quarter, and lets Knox handle the details. Prior to Knox, Friedman founded Boston Logic, and served as the company’s CEO for more than a decade. Friedman sold Boston Logic in 2016, and continues to sit on the board. Boston Logic now operates under the name Propertybase. Friedman received an MSME and BSME in Mechanical Engineering from Tufts University.
Lindsay Gearheart: Tell me about your background and what led you to co-found Knox Financial.
David Friedman: I’ve been in real estate and real estate tech for most of my career. Back in 2004 I founded a company called Boston Logic, which makes software for the real estate brokerage world. Twelve years later I sold that company to a private equity firm called Providence Equity and we started acquiring other companies in the real estate brokerage software world. We make software for the people who help you buy, sell, or rent a home. So real estate brokerages around the world use the software that Boston Logic makes. Boston Logic is now known as Property Base. That’s most of my career.
While I was there, Spencer Taylor (my co-founder) and I started noticing things about the data structures we worked with every day. We figured out that there were ways to use the data that we knew a lot about to identify opportunities for home owners and for real estate investors. We asked: Which of these has the opportunities to have a positive impact on the world for everyday people? That underlying opportunity is what Knox is built to deliver.
We started talking about that over lunch a few years ago. Then we sold Boston Logic, and we each worked for the private equity firm there for a while, until we decided we wanted to go back out and launch something new. A year-and-a-half ago, we launched Knox.
LG: For our readers who are unfamiliar, can you tell us about Knox’s mission and how you go about achieving it?
DF: First of all, the majority of wealth that most people build is built through the home or homes they own in their lifetime. I’ll tell you my own story.
Some years ago, my now-wife and I got engaged. We realized that we had too much stuff to fit in either her home or mine, so it was time to buy a new home that was bigger that she and I could both fit in. We did that, and I went to sell the condo I had lived in for 10 years. I go to put the home on the market, and I have this moment of, “What am I doing?” In that moment, I realized that my home was my best investment — I’d owned it for 10 years, it was a condo in the South End — and I was about to sell my best investment. What kind of investing idiot sells their best investment? And by the way, I live in real estate every day, that’s my day job, growing this startup. So I go through the mental exercise of what I need to do if I’m going to keep this thing. I need to find a renter, someone to maintain the place, I need to collect rent, figure out what a lease is going to look like, probably need to refinance, I need new insurance… I threw my hands up, and I sold the home. A year later, I’m having lunch with my realtor, and he says to me, “You know that place you sold in the South End? It’s now worth another $100,000 more than what you sold out it for.” Sure enough, four years after I sold it, the new owners sold it for $200,000 more than I sold it for. By the way, this is not a multi-million-dollar home, for a two-bedroom in the South End, it’s pretty average. I felt like someone had stolen $200,000 from me. And the fact was, it was myself. Four years younger David stole $200,000 from older David.
So I tell this story to a bunch of people, including Spencer, and he tells me the same thing happened to him in Burlington, Vermont. Missed out on a six-figure opportunity. Everybody had this story. So Spencer and I looked at each other and we said, “Ok, we know how to use data to identify all the people who own homes that are in this situation. We also can use data to figure out who’s likely to move. We can offer them an amazing investment opportunity if we can make the investment easy.”
One of the other fundamental ideas that the company is built on is that we, as humans, don’t like investing that takes work. A lot of people would love to own investment property, but they don’t want to take on the job that comes with it. That scares them away from better returns, a better investment. We believe, and the market has proven this to us, that if you can make the investment hands-off, or frictionless, more people will make better investments with their investable money.
Most of us, if we have an investment portfolio, it’s filled with stocks and bonds and mutual funds, and often it’s under the care of someone at Fidelity, Merrill Lynch, UBS, or some major financial institution. We trust them to make sure that our investments are performing towards our financial goals. That didn’t exist for property investment, until Knox.
LG: That’s a great point. I don’t think a lot of people think of that often when they’re thinking of investing.
DF: Most people sell because they’re moving. You don’t sell your Apple stock because you’re moving. You don’t sell your bond portfolio because you’re moving. Why is my biggest, best performing investment coupled geographically with where I need or want to live? There’s a million other circumstances where one should not need to sell in order to move.
LG: What kinds of unexpected challenges have you faced in your first year after launching the product?
DF: I’d say the most unexpected things have not been “challenges,” but it’s been a long time since I launched a brand new product and brand. Experienced entrepreneurs will tell you until you actually put your product on the market, you don’t know anything. Until the market sees your product, users touch your product, and customers buy your product, everything is a hypothesis, everything is fiction. Then you go into the market and you get real data, you get real customers, and they give real feedback. Some things you get right, and some things you get completely wrong.
I’ll give you an example. One of the things we offer is financing. We can do a refi, a second mortgage, a HELOC. We thought a majority of our customers would need some form of financing. What we didn’t account for was that the financing industry bombards consumers with marketing. So everybody knows they can refi because if you watch television for 12 minutes you see a commercial for a refi. Banks have retail locations everywhere advertising their rates. So our customers have been reached by that marketing from an entire industry of banks and mortgage brokers. When they finally get to us, a small minority of them need refinancing, and that was a surprise. So we spent a lot of time building a mortgage function into the product that we use rarely. I wouldn’t call that a challenge, but it’s one of many surprises you learn as you roll out a brand new product
LG: Is there anything you learned from running Boston Logic that’s influenced the way you’re running Knox?
DF: Oh, about ten million things. When I started out with my entrepreneurial career, one of the old adages was, and it’s still true, is that people like to do business with experienced founders. Also, once you’ve been in business for about five years, you can stay in business. When I was very young, I thought those were silly, and I’ve learned they’re completely true.
One of the things we did at Boston Logic was delay the implementation of technology to save money. Here, we’re leading with the implementation of technology. The idea was let’s spend more money on technology and less money on bodies.
Another example, we went for a far more advanced accounting package than one normally would day zero. What I learned was that you get to a point in the growth curve of a business where you have a bunch of disparate pieces of technology that don’t talk to each other, and that lack of data sharing holds the business back. We said, “We’re going to invest in technologies that integrate with one another from day one, and we’re going to have better data than anybody who comes along and tries to challenge us.” Not only that, but when the world looks at your data, and they have to look at it through some kind of interface, if it looks more professional, the world immediately knows that you mean business. The augmented budget you put in that line item is not so great, but the money-saving, the time-saving is huge.
Finally, I over-hire. A lot of people would say to hire the cheapest employee to stretch your startup dollar as far as you can because you don’t have a lot of dollars in a startup situation. But I’ve found that you get so much more out of a more capable, more experienced employee. And I don’t want to use the word employee, I want to say teammate. If the person sitting next to you is a lot better, then you might be spending one-third more on their salary, but you’re getting 50 or 100 percent more production out of them. That investment, especially early on, I find to be really critical. Maybe that’s one of the biggest lessons I learned over the years.
LG: You’re based in Boston. Are there plans to expand to other cities?
DF: Absolutely, we are planning on launching our second and third markets in the coming months. We did a pilot in Boston, and now we’re actively planning on markets two and three in the first half of this year.
LG: Any final thoughts you’d like to share?
DF: I’ll say that Knox and our team have a belief that people are going to change how they view home ownership. They’re going to change it from, “I buy this place, I live in it, if it goes up in value when I sell it, great. I want that to happen, but I’m going to sell,” to a different paradigm. That paradigm is, “When I buy a home, I plan on keeping it for generations. My grandchildren will inherit it and my family will build passive wealth and cash flow from it.” That’s a very different way of looking at home ownership, and that’s our goal.
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