Illustration by Jon Krause

Illustration by Jon Krause

Brendan Kennealey (MBA 2006) wasn’t even searching for a business idea. A couple of years ago, the Wilmington, Delaware, native met up with an old friend who’d bought a new house. Over dinner this friend enumerated the long list of unexpected home repairs he was having to undertake. Then president of a 115-year-old independent Catholic school for boys, Kennealey had managed construction projects and budgeted for aging buildings’ capital expenses like boilers and HVAC systems; he was all too familiar with the average life expectancy of a roof and when it’s time to start saving for the next one. With that frame of reference, Kennealey listened to his friend over dinner and realized the systems he was having to replace weren’t lemons. They had simply run up against their useful life.

“It didn’t make any sense to me,” Kennealey recalls. “Here’s a smart guy who had an actual home inspection, so why didn’t he have visibility that these systems were about to fail on him?” It’s standard practice in commercial transactions, and there also are capital reserve requirements for such situations. There must be a better way to help residential buyers make informed decisions in similar circumstances, Kennealey concluded.

So he launched Nester in the beginning of 2023. The service projects 15 years’ worth of maintenance and repair costs based on data points found largely on a listing sheet or seller’s disclosure form. Nester’s report, with a schedule and scope of future expenses, can equip the buyer with clearer expectations about a home’s total cost over time, Kennealey observes. “You may want to put down a big down payment, but if you know you have a new roof coming, then you might adjust the down payment. It gives you more levers to pull, rather than taking out a loan at a higher interest rate later to pay for a new roof.”

So far buyers have loved it. They say it helps them look at a prospective purchase with a broader perspective, beyond just countertops and closet space. Nester also offers the service for free to sellers, so they can present a report up-front to potential buyers. Over time, Kennealey hopes that it would ultimately be incumbent on the seller to provide this information, similar to the evolution that’s happened in used-car sales. A few decades ago, the buyer had to shell out for a CARFAX report to make sure they weren’t getting a dud. “Now it’s a red flag to try to sell a car without proactively offering a CARFAX report. That’s how we’d like to see this go,” says Kennealey.

Nester has received zero pushback on its $87 retail fee, but an early challenge has been the fleeting window of time in which Nester can engage a customer: A prospective buyer tours a house, gets serious about it, and decides to put in an offer—and now they need Nester.

To reach more buyers, Kennealey started offering an enterprise package to real estate brokerages. There’s a bit of hesitancy to overcome, he concedes, because brokerages are mainly focused on closing deals and intent on avoiding any speed bumps, but the service also got more traction than anticipated. Now Kennealey wonders if they should offer the service to brokerages for free, to boost the user base more quickly. There’s a big data play that could be associated with this, he says: Imagine having 500,000 users and granular data on the systems in their houses. Rather than projecting the average lifespan of a furnace, Kennealey says Nester could give users actual data on how long different products have lasted within particular zip codes. “Combining that with pricing data would be a valuable tool as users make decisions about replacement,” he says.

The challenges of going those routes, of course, include postponing revenue—and the risk of devaluing what Nester is offering by giving it away for free. Is it worth pursuit, for faster adoption? Kennealey is convinced that advertising—as easy as it would be in the short-term—is the wrong path. “We see ourselves as the independent voice at the time of transaction,” he notes. Given that Nester is committed to the long game, how should the company best penetrate the market and charge for what it does?

The debate between free vs. fee models has been settled by capital markets in the past 12 months. With record-high interest rates, unknown future revenues are heavily discounted by investors, shifting the tide in real estate against “big data” ventures that prioritize scale for short-term losses. When I look at the top 10 proptech IPOs from the last five years, many touted big data as a unique advantage but have share prices today 90 percent down from their IPO. Venture investors and public markets no longer favor the strategy of rapid scaling without immediate revenue generation.

My advice is to prioritize solid unit economics from the outset and build steadily, without compromising for rapid scale. This doesn’t mean you can’t be innovative in your scaling approach. Various partners (inspectors, agents, brokers, home-insurance providers, and homebuilders) could be interested in offering your product as an add-on in exchange for revenue-sharing agreements. Presenting a higher initial price and then offering fee rebates through such partnerships increases scalability without cheapening your price signal as a valuable service.

—Needham Hurst (MBA 2016), COO, UP&UP

Nester is off to a great start, in an area where there’s a lot of uncertainty, high-ticket values, and information asymmetry. From my previous experience at Angie’s List, I foresee a couple of issues to get ahead of.

First: aligning value creation, incentives, and who’s paying for it. There’s an argument that large, tech- and data-savvy brokerages like Compass would spring for the service to build brand loyalty and trust. But it seems like Nester’s information could dissuade purchases, or at the very least decrease bids for prospective homebuyers. Other players would be interested in understanding the current and future states of big-ticket items inside the homes, from big-box retailers and interior designers, to property-insurance companies and credit-card processors. The trick here is maintaining independence and transparency. Angi (known at the time as Angie’s List) constantly struggled to find balance here, against its ad-based revenue model.

Secondly, Kennealey needs to figure out how to make the offering sticky and recurring. Buying a home is a monumental but infrequent event for an individual. Surely Nester’s data has ongoing value as a homeowner repairs, replaces, and improves their property. Ensuring their data has sufficient unique IP in its granularity is key! The team needs to think about what would prevent adjacent competitors like Angi and Thumbtack from using their customers’ data to offer their services, even if it’s not quite as accurate.

—Dennis “DJ” DiDonna (MBA 2010) senior lecturer at HBS, where he teaches the first-year course The Entrepreneurial Manager

Your giving things away for free to brokerage firms involves the free part of a free-mium strategy, but without a strategy to get the brokerage firms to pay. How about exploiting a Nester report’s connection to a mortgage’s residual income analysis? Residual income is the amount of disposable household income left over after paying for all costs of living. That analysis doesn’t include car-repair expenses that are anticipated by a car’s age, make, and model, but perhaps it should since this is the next-biggest surprise household expense after a new roof.

I was once told that bankers are conservative because they make 10 loans to compensate for every bad one, so getting residual income wrong because of the death-by-a-thousand-cuts aspect of unexpected expenses is very detrimental. Nester could help avoid that.

If the lenders offer buyers/borrowers a faster, easier, or cheaper loan when the buyers/borrowers gets a Nester report that shows some material increase in a Nester residual income score, then you’ve got the lender doing your marketing for you, and the buyers/borrowers, lenders, and Nester all win.

—Reed Benet (MBA 1991), founder and CEO, HeroHomes.com

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