This weeks collapse of flat-fee real estate firm The Joneses bears several lessons for entrepreneurs.

How can a high profile business be talking about listing on the stock exchange one week and then be in liquidation the next? Ironically the company that positioned itself as the one everyone else was trying to keep up with, was brought to it's knees by falling victim to its own game of "keeping up with the Joneses".

So what can we learn from this episode?

First lets look at some of the many things The Joneses did right.

1) They had a unique and valuable offering.

This is the most important element to get right. If you're going to start a business you must ensure you're offering a product or service which the market will value. Home vendors have long been complaining about the high commissions charged by real estate agencies and The Joneses flat-fee ($8995) promised great savings for vendors, when compared to the traditional percentage based commission model. The Joneses unique offering was not that they were good at selling houses (all real estate firms claim this so it doesn't differentiate you from your competitors) but that they could save their clients substantial money.

2) They created a new category.

The best strategy when launching a new business is not to compete. What do I mean by that? When you think "real estate agency" chances are that the first name that springs to mind is "Barfoots" or "Bayleys" real estate. Trying to knock these two out of these positions in the mind of the market is just going to be hard work. It's a bit trying to take on Coca-Cola and Pepsi at their own game - next to impossible (just look at what happened to Virgin Cola and a whole host of also-ran "cokes". Instead The Joneses created their own category to compete in - the flat fee real estate category. Who owns the market position "flat fee real estate" in your mind? No one. (While there are firms that offer alternatives to the traditional real estate sales model I can't think of any that offer a fixed fee for full service house sales).

3) They had a great name and well executed brand visuals.

"The Joneses" - cheeky, clever, short, memorable. The name translated well into a logo too - much more interesting than the boring and staid logo's of the dinosaurs of the industry.

4) They made great use of PR to build their brand.

Whether they planned it or not, The Joneses got themselves some great PR. Right from the start Murray Cleland and the real estate industry's unofficial "talk-up-the-market" body, the Real Estate Institute of New Zealand (REINZ), came out swinging, predicting the demise of The Joneses and dismissing them as just another wanna-be, while patronisingly wishing them all the best. As the saying goes though, "even bad publicity is good publicity" with these comments to the media bringing The Joneses name to light. Chris Taylor from The Joneses then made a great move by making a controversial statement about what was wrong with the real estate industry, saying that percentage based commission was the "root of all evil" in the real estate industry. And better still, the REINZ took the bait, charging  Mr Taylor with bringing the industry into disrepute and pulling Mr Taylor and The Joneses in for a disciplinary hearing. After much media attention, the REINZ subsequently cleared The Joneses of the charges.

The following quote from Mr Taylor (again in the NZ Herald) highlights just how beneficial good PR can be for a new business:

"Mr Taylor said his company had been "overwhelmed" by the level of support it received since the issue "blew up in the media"."

5) Good advertising campaign.

The Joneses spent $3.2million dollars on advertising and promotion in their first year. What more can you say?

Unfortunately though, in business you only need to get one element in the execution of your strategy wrong, to bring the whole house down - regardless of all the things you may have done right.

So where did The Joneses go wrong?

1) Timing of the market was a little late.

In hindsight the entrepreneurs behind the Joneses may have launched a little too late. While we've just gone through one of the biggest property booms NZ has ever experienced, the market was almost at the top of the cycle by the time The Joneses joined the party (late 2006). With only a year to get the operation up and running and to get the cash coming in before the market softened, The Joneses were unable to really capitalise on the sellers market.

2) Failure to secure revenue streams or funding for growth before spending so much.

But the biggest mistake The Joneses made was spending too much too quickly. With The Joneses (unproven) business model of low flat fees for clients and paying their sales people a salary instead of on commission, they may well have had no choice but to get as many sales people on board as quickly as possible to try and get the sales they needed to cover their overheads, and to make the most of what was left of the property boom. But while the $3.2 million dollar advertising campaign may have been a good one, certainly getting them the attention of the market, the timing of such a huge expense probably wasn't. Nor was the establishment of flash offices in four cities within 12 months, or the hiring of 80 full time salaried staff before the cashflow was there to sustain such a pace.

With their unproven business model a better strategy would have been to scale down the size of their operations, maybe just getting one office up and running and ensuring it was making a profit before expanding into other centres. And rather than relying on such an expensive advertising campaign to generate business, adopting some good old fashioned sales and lead generation techniques, capitalising on all the PR and using the cash to support the team during the slower times ahead as they built up their business organically.

The real pity is that The Joneses low fees might actually have insulated them somewhat from the effects of the slow down in the property market. With a lower fee for selling, vendors may have been able to reduce their asking price to meet the buyers at their level.

Note that had The Joneses had the necessary cashflow, whether through sales or through additional debt or equity funding, the outcome may well have been different. Their attempted back-door listing on the stock exchange came too late and no doubt the directors had done everything in their power to raise the finance needed to keep going.

But that at the end of the day the responsibility lies squarely with the entrepreneur and this is a risk entrepreneurs must be willing to take. Indeed had the entrepreneurs behind The Joneses not taken that risk there wouldn't be a company to write about in the first place!

For this reason I commend the team behind The Joneses.

They came out with good intentions, looking to create real value for the market and to shake up a desperately flawed industry. They took the risk willingly and while their game wasn't quite up to scratch in this instance they did many things right. While the setback will undoubtedly have created a few economic hurdles for the founders, I hope the experience doesn't put them out of the game for good.

Richard Liew started his first business at the age of 23 and founded the Rev Sales Network, a personal and professional development network for salespeople when he was 27. Along the way he has helped develop sales strategies for several startup’s, helped extreme sport ‘le parkour’ (freerunning) find it’s feet in NZ, and is a regular newspaper and magazine contributor on the topics of sales and marketing. He is currently working on a recruitment related internet business. Email Richard here.