Reza Merchant: This 30 Year Old Created A $850 Million Co-Living Empire To Take On WeWork

Reza Merchant is the founder and CEO of The Collective which is a community of co-living, serviced living or co-working spaces. The company has raised over $850 million. The Collective currently has over 200 employees with locations in London, New York, and Berlin.

In this episode you will learn:

• Morning routines of successful entrepreneurs
• How to keep growing as a leader to keep up with your startup
• The 6 traits Reza looks for when hiring
• His one top piece of advice for new startup founders

SUBSCRIBE ON:

For a winning deck, take a look at the pitch deck template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.

Moreover, I also provided a commentary on a pitch deck from an Uber competitor that has raised over $400 million (see it here).

Remember to unlock for free the pitch deck template that is being used by founders around the world to raise millions below.

About Reza Merchant:

Connect with Reza Merchant:

• Website
• Linkedin

* * *

FULL TRANSCRIPTION OF THE INTERVIEW:

Alejandro: Alrighty. Hello everyone and welcome to the DealMakers show. Today, I think we’re going to learn about co-living. I think that we have a very exciting guest, and I think that the lessons learned and also the journey is going to be exciting to hear. Without further ado, Reza Merchant, welcome to the show today.

Reza Merchant: Thank you for having me, Alejandro.

Alejandro: Originally from the UK, but I understand that your parents moved from India to London. How was that experience for them, and also for you being a first-generation of immigrants?

Reza Merchant: My parents came to the UK about 45 years ago from India. I was born and raised in London, but I think my upbringing has shaped my perspective and attitude a lot because I grew up in a household where my father set up his own business and worked incredibly hard to provide us with a good life. Seeing that hard work and seeing that he would do whatever it took to provide for us, early mornings, late nights and taking risks. I think that really shaped me. It made me see that there is no shortcut. Hard work and persistent dedication through ups and downs is critical because as an entrepreneur, the world doesn’t wait for you. No matter what happens, you’ve got to keep on going and keep on persisting. I feel quite a bit grateful to have been exposed to that in my upbringing. I think coming from an immigrant family creates a certain hunger in order to make it and make something of your life.

Alejandro: I hear you. Look. I’m an immigrant myself here in the U.S., so I know the feeling. I know the feeling, Reza. Would you say at some point you made a decision, “I’m going to have a business for myself in the future?”

Reza Merchant: I studied at the London School of Economics in London. For the first couple of years, everyone around me was going down the investment banking route. That was just the norm. For a while, I was kind of like just following the herd. Not necessarily being aware of what it was that was going to fulfill me and drive me. It’s quite easy just to follow the herd. In the summer of my second year at university, I traveled. I went to Singapore, and I did an internship there. Then I traveled around Thailand for three weeks on my own. That was really a defining trip that I had. I came back realizing that I wanted to do something that would challenge me, fulfill me, and enable me to experience life to the max. There were so much more than being in London, doing a regular 9 to 5. I came back realizing that wouldn’t fulfill me and satisfy me. 

Alejandro: Just out of curiosity, Reza. Why did you go on your own?

Reza Merchant: At that point, I had just come out of a relationship which had its challenges. So, I was a little bit nervous, but at the same time I felt like it was the right thing to do to get some head space and feel a complete sense of freedom. It was, honestly, one of the best decisions I ever made because it really did enable me to get clarity and to shape my perspective on life and what was going to fulfill me. For anyone that is at a crossroads, I always encourage them to go traveling on their own to really understand what it is that’s going to make them tick in the next phase of their journey.

Alejandro: Very interesting. So then, you come from this journey, from this traveling experience. You go back to London. You start to see all your colleagues from the London School of Economics going either into banking, consulting, and so forth. What happened?

Reza Merchant: Then I came back a couple of months later. A few friends and I had this idea to do something in the housing market because we had firsthand experienced how difficult it was to find any sort of remotely decent and accessible accommodation. After two years, during university I had to find my own housing, bring a group of friends together, go through the nightmare process of trying to find something where the agents didn’t care about you, and they just wanted to charge you as high a fee as possible. Then when you do find something, it’s overpriced, terrible quality, it takes months to get basic utilities and internet sorted. You have to go and buy furniture which you’re going to give away in a year’s time. You have an agent which doesn’t care. So, going through that process for two years in a row, to me it was like, “How have we gotten into this position as a society where just a basic requirement such as housing just is not – most people do not have a decent enough option. The other thing, and this comes back to the trip to Thailand, was just a realization of how lonely and isolated big cities were becoming because I remember being in Thailand, walking down the street, and a stranger would walk past you and smile and say, “Hello.” That was a beautiful thing, but it was strange because you’re used to being in a big city, and no one does that. Everyone is in their own trip and own focus. Actually, if you do that, people probably thing you’re strange. It was clear to me that something needed to be done also about loneliness and isolation. So, combining these things was really the motivation to start what we did. At the time, we were a couple of fresh 21-year-olds. We took a 1,600£ overdraft out and set up what at the time was a brokerage where we were simply putting in top students with accommodation, and being the middle man, and try to improve that service. What we realized through that process was that the fundamental issues with just a lack of supply and just excessive demand, you have to create your own product to have any meaningful impact on the market. So, we started doing that. We started at a very small scale. In May 2011, a year after we started the business initially, we took on our first houses which were four to six-bedroom houses. We would take them on. We would lease them. We would put some nice furniture in. Some nice artwork. Rent them by the room in an all-inclusive package. Just seeing the demand for that product was phenomenal. Within days, we’d have these houses fully leased up to really good people; people like you and I that were good people that just wanted a decent place to stay, but were struggling to find it. I remember the course of the summer of 2011, we took on about 20 houses in this way and that paved the way for the next phase, which was going from doing those six-bedroom houses to then 20 to 50-unit projects. That was all in the space of a few months. At the end of 2011, we signed a deal on a derelict hostile in an area called Camden in London where the roof was hanging off. There had been a fire there five years before. No one had touched it. It was a huge jump from what we were doing in terms of the six-bedroom house conversions to basically replace all of the floors that you could see from the basement all the way through to the sky. It was a complete gut renovation. The building wasn’t even safe to get a structural survey done before we acquired it. But we knew that we could create something truly amazing here.

Alejandro: What was the founding team? You were mentioning that you were discussing this with some friends, and you guys went at it, but let’s take a step back here. Who was part of that initial team that helped you with this?

Reza Merchant: The business was set up with a couple of friends who are, today, still good friends. But in 2013, we decided to part ways in an amicable way. 

Alejandro: What was your big lesson from that?

Reza Merchant: I think the lesson from that was when you go into partnership with anyone, you have to make sure that your goals, and desires in life, and priorities in life are just completely 100% aligned. You have to spend time talking and thinking through that. 

Alejandro: Then, you converted. Now, you’re on your own. Then you started upgrading and working into these different apartment units making them look good. By the way, the style and the way that you guys decorate is amazing. Did you have like some background on this, or did you get someone to help, or how was that?

Reza Merchant: Design was always something that was really inspiring and important to me. I remember that back in 2011/2012, I would go to interior design fairs. In the project in Camden that I mentioned, it’s a unit one, I would actually walk around the site and measure out the rooms with a measuring tape, and actually draw them out. So, I was always very hands-on with design. Very early on, hiring interior designers and architects. So now, at the Collective, we have a large internal design team because it really is such an important part. The way you design a space can have a huge impact on how someone feels and how the space is used.

Alejandro: Got it. Was there for you, Reza, a moment? Like, this is scary. Right? You start with these people. Then you’re on your own. Now, you’re testing the waters. You have all this apartment now that you’re starting to put the decoration and transform to really start to realize your dream. At what point, do you really think to yourself or tell yourself, “I think I’m into something here?”

Reza Merchant: Yeah. Look. I think very early on, in 2012, we finished this 50-unit project in Camden. I think that was a key moment because it was a huge step to going from doing six-bedroom houses to a 50-unit project with no experience doing it. There had to be financing strategy there because there was little or no financing available and because we had no track record, it took a bridge loan secured against my family home, 18% per annum. It came down to having complete self-belief in the outcome, and in what we were doing, and just not succeeding was just not an option. It wasn’t a potential option in terms of the range of outcomes that could happen. I really believe that if you want something to happen, you’ve got to have 100% belief that it will because your beliefs and your thoughts become reality.

Alejandro: Yeah. I think that’s so powerful, Reza, because I find that being able to visualize and just being super focused on really creating whatever picture you’re visualizing as reality is the way to go. That’s why I always say that entrepreneurs are like artists. They’re like painting on a canvas and making sure that canvas gets a life of its own.

Reza Merchant: Yeah. I agree. Actually, I have a morning routine which I try to do on most mornings. What I do is a sort of meditation. Often, part of the meditation is to visualize and think about goals that you want to achieve, and actually put yourself in a position where you’ve achieved them, and you feel them, and you see the outcomes of it. So, yeah. I agree with you about that kind of visualization is really powerful.

Alejandro: So, for The Collective. Now, you were testing all this. Now, you finally have all these units that you’re putting together. What is the business model?

Reza Merchant: Ultimately, we are creating co-living spaces. Our purpose is to build and activate spaces that foster human connection and enable people to lead more fulfilling lives. We’re creating environments that at a basic level have the basics covered in terms that you have a place to stay. It’s convenient. It’s flexible. It has all of the basics that you need, but at a deeper level, what really gets us out of bed is to create environments where people can connect with like-minded people. People can learn. People can evolve, and people can ultimately achieve their full potential and obtain fulfillment because that’s ultimately what we all want as human beings.

Alejandro: For the people that are listening, Reza, how would you define or explain what co-living looks like?

Reza Merchant: You have well-designed and compact private living space where you have all the conveniences and basics like furniture and so on. But life is really lived in the shared spaces. It’s the physical shared spaces. In our buildings we have gyms, cinema rooms, game rooms, swimming pools, night clubs, co-working spaces, artist studios. You’ve got this range of shared spaces that are then activated. So, it’s not just a roof over your head, but it really is an environment where you can connect with others, grow, and evolve, and ultimately achieve your full potential.

Alejandro: Very nice. It’s interesting now because we’re starting to see this trend now where people want to be part of a community, want to be part of something else. How do you see this trend evolving?

Reza Merchant: Yes. I think there is a massive need for forms of community and ways of bringing people together that actually meet the needs of society today. Like, urbanization for all of its benefits is creating isolation because our cities get bigger, but by 2050, 70% of the world’s population will live in cities. They get less intimate and more isolated. So, it becomes harder to get that strong sense of connection with others. Our belief is that every human being from the moment they’re born to the moment they die needs human connection in their lives. It’s just a fact. It’s a given. It’s like a fundamental human need that we all have.

Alejandro: There’s actually, Reza, a very interesting study that came out of Harvard. I don’t know if you saw this, but it was focusing on really understanding what makes a human being having a fulfilled life where they’re really happy. Like, what really creates that happiness? What the study really came to share or to tell was that really having a fulfilled life meant having really meaningful relationships around you.

Reza Merchant: Yeah. I couldn’t agree more. I think that is a fundamental requirement to have a fulfilled life. I grew up and was kind of raised as a Muslim. I remember going to the Masque at a young age, and I would see so many people standing outside the whole time. They wouldn’t go in, and I just didn’t understand it because, “Okay. You come here to pray and to listen to the sermons. Why would you stand outside all day?” It didn’t make sense to me. But the penny dropped a couple of years ago, and I realized that actually, they were there primarily because of the community and to feel part of something, and to connect with others, and feel that sense of belonging. I think religion, historically, has been that for many, many people. But I think that this generation now gets that same fulfillment less and less from religion. I do believe that we need to create new ways of giving people that sense of belonging that are truly relevant for today, and respond to just how quickly things are changing and evolving.

Alejandro: Absolutely. I think that with technology, it has really separated us, and I think what you guys are doing is really interesting in a way to bring us back together and to erase that type of friction. We were speaking before about the early projects that you guys were developing. So, how big is the business now, Reza?

Reza Merchant: Just going back to the story, September 2012 completed the 50-unit project and it was a huge success. In 2013, we were like, “Okay. In order to really deliver our dreams and truly create a ground-breaking environment way of living, we’ve got to do this on a much bigger scale. That was the year we started to acquire pieces of land and develop from the ground up. The first one of these projects was launched in May 2016. That’s the Collective Old Oak in Northwest London. That’s 546 units. Then about 40,000 sq. ft. of ancillary space and shared space. That was a real marker in our journey because it was a completely different scale. That’s where the product really starts to come to life in terms of the well-shared space that exists in the building. Also, just having the human resources and be able to provide an amazing service and activate spaces. So, by the end of that year, we were full in terms of occupancy, and we proved out the model of that scale. That has paved the way for the international growth. In the last 12 months, we’ve set up offices in Berlin and in New York. We’re now approaching 9,000 units that are up and running or under development. We now have over 200 people in terms of employees, and we’re going to be 300 by the end of this calendar year. Every year we sort of double in headcount over the last four years. So, it’s been a truly amazing journey and constant learning and growth.

Alejandro: Talking about the number of employees. I’m sure that for you, this is your real first professional experience because you went at it right after school. Having all these employees and having experienced this level of growth, from a business perspective, you probably also need to grow at the same rate or even faster from a leadership perspective and all of these different skill sets to be able to manage this hyper growth status. How do you grow yourself as a leader, Reza? What have been the learnings and what have you done?

Reza Merchant: You know that in order to keep up with the growth of the business, you’ve got to grow at the same rate if not faster. I’m a big believer in personal growth and development. There are many different ways in which I do that. I think the first is having a real curiosity and realizing that there is no end to how much we can grow and evolve. I think listening and being a good listener because you don’t learn anything by speaking. You learn by listening to people. When I’m in meetings, I’m often the one that is speaking the least and just listening and absorbing the information that’s coming out. I’m fortunate enough to have great people around me who have great experience that I’m constantly learning from and they’re constantly pushing me to grow. That’s in the form of full-time colleagues as well as advisors like some really fantastic strategic advisors that have been around the block. I’m always looking to learn from those that are more experienced. Why make mistakes yourself if you can learn from people that have already been through elements of what you’re going through and absorb those learnings? Not to say that everything they say you have to do to the T, but you’ve got to let that inform and evolve your perspective. I do a lot of inner work. The last couple of years, I’ve been spending time in Costa Rica where I go on retreats, which are all about inner exploration and expanding awareness about yourself because there’s no end to how aware we can become about ourselves. We go through life, some things happen to us, and we pick up baggage. We pick up some limiting beliefs. So, I’ve spent a lot of time really diving into what those are in me and peeling those layers back to not let them hold me back. I think often, that baggage and those limiting beliefs can really hold us back and get in the way of our growth.

Alejandro: I love the fact that you’re saying this. I think listening is everything. For the people that are listening, Reza, what kind of recommendation would you give them in order to really expand their awareness, or at least to trigger that to happen?

Reza Merchant: You’ve first got to start with understanding yourself in the same way that in order to love others, you’ve got to love yourself first. So, I think it’s about understanding yourself, and just accepting things about yourself, and be willing to dive a bit deeper into your past, into your upbringing, and face some difficult moments or difficult things that may have happened. Become aware of them and just accept them. That’s what it all comes down to because when you don’t accept things and we carry things around, that just gets in the way of our judgment, maligns our actions, and it’s about letting go of those things, so that as little and as few things as possible get in the way of our judgment and our ability to do.

Alejandro: I’m right there with you. I’m a big fan of personal transformation as well, and I find that a big issue is that if you don’t get complete with things that have happened in the past, whether your personal relationships in business or whatever that is, you’re going to always project that into the future. So, it’s just the same pattern happening over and over again.

Reza Merchant: Yeah.

Alejandro: So, Reza, for The Collective, how much capital have you guys raised to date?

Reza Merchant: To date, we’ve raised about 850 million dollars across all of our projects at the corporate level. It’s a capital-intensive business.

Alejandro: What is the process of the capital because, obviously here, we’re talking about perhaps a real state play. How is this different from perhaps a tech play? How is the fundraising process, and how do you typically allocate the proceeds?

Reza Merchant: Most of the capital gets allocated to the project because these are big projects and they require a lot of capital and resource. I don’t really label us as a real estate company because ultimately, what we’re creating are environments and experiences for people to ultimately achieve fulfillment and growth. The real estate is the vehicle through which you do that. That’s one of the elements that you have to deliver to a really high standard.

Alejandro: What would be the category, Reza? How would you label The Collective?

Must Read: Osama Elkady On Being 20 Years At Oracle And Then Raising $70M To Reinvent How Companies Analyze Their Data

Reza Merchant: We’re building a global platform and a global network of spaces, which is responding to the needs of people today, which is to have a global access to a home, which gives you a true sense of belonging and a sense of meaning. The world is no longer split up into specific countries where you live in one place 12 months of the year, and that’s where you’re from, and that’s where you identify with. We’re becoming citizens of the world. Like, lower-cost travel and technology means that we can spend time almost anywhere and still be connected and still be doing what we need to do. I think there’s nothing more fascinating and evolving than to experience different cultures by spending time in places. We’re creating the global network of home that’s required.

Alejandro: For something like this, Reza, for people that are part of the The Collective and that really want to experience this, what’s the typical profile?

Reza Merchant: It’s actually pretty broad. Our average age is 29, but our age range is 18 to 65, and 25% of our members are over 35. It’s a very broad age range because it’s a mindset that we’re tapping into non-age. It doesn’t matter what age you are. Nowadays, people are settling down much later. They’re getting married much later and having kids much later. So, age is not really a consideration; it’s about mindset. It’s about having an open-minded approach to life where you want to connect with others. You want to grow. You want to evolve, and you want to achieve your full potential.

Alejandro: Got it. So, in a world where the vision of The Collective is fully realized, what does that world look like?

Reza Merchant: It’s being in major cities across the world and having these cultural destinations in the cities that they’re in, in terms of our spaces and buildings. That’s in terms of art, food, music. These are all big elements in our spaces. Ultimately, this being the global network that people can call home and where people can have truly amazing experiences in and forge amazing connections with people. It’s broad because we want people to learn and grow, so there’s an educational piece to it in terms of the content that we’re putting on. We want people to be comfortable and have all their basics be taken care of. So, there’s that highly seamless and convenient offering. But then there’s also like a license of having fun and just having a great time, and sort of letting your hair down. There are entertainment and music pieces. Critical for that.

Alejandro: Right. One thing now that comes to mind is, how do you guys think about technology to enhance the experience?

Reza Merchant: Technology is hugely important. Really, I think about it in two ways: 

1. As a business, make what we do and make our processes as efficient as possible so that we can do what we do better, faster, and more effectively. That’s one thing.
2. The second piece is around customer experience and to significantly enhance the customer experience through the use of technology. 

Both of those are big focuses for us. Ultimately, in the long run, we are working toward creating emotionally intelligent buildings.

Alejandro: Got it. It’s incredible, the journey that you’ve had. Now, when you’re looking back – there’s no such thing as a straight line when you’re an entrepreneur, so I’m sure that there have been some bumps along the way. During those bumps is where you really get to learn the most. As you’re looking back on this journey that you’ve had, what would you say has been possibly the biggest breakdown that has led to a major breakthrough?

Reza Merchant: I think the last nine years have been full of amazing learnings and things that in hindsight could have definitely done better. I think it all comes down to people. I think business is all about people. If you bring together a group of people that are really aligned with the same mission and are highly driven, capable, and have the right experience, and are driven by a bigger purpose. I’m not just making money, but to really change the world, you can do truly remarkable things. Because people don’t see it as a job. People see it as a calling in life and something much deeper than a job. That’s something that I think we’ve been able to create is The Collective for the team. Here, it’s not just a job, it’s a calling, and we put a lot of love and heart into what we do and that shows in every aspect. That creates a real magical feeling for people. I think realizing that early on and focusing on that is definitely something I would have liked to have done. Also, making sure you have the right people in the right positions with the right level of experience. If possible, you want to avoid learning and doing things for the first time without having people that have gone through it in some way before. Bringing in experienced people is a hugely positive impact on our business. It’s keeping that I look for and people that have the right mindset and the right experience for it to evolve.

Alejandro: This leads me to one question. What is your mindset or your approach on when it comes to recruiting? Also, how do you thing about things? Are you more hire fast or slow, and fire fast or slow? What’s your approach?

Reza Merchant: When I’m interviewing people, I look for a mix of the following traits:

• Highly ambitious
• Hard working
• Has the right experience
• Has the right intellect
• Driven by a deeper purpose than just making money and wants to do good for the world.
• Really humble and down to earth.

It’s that mix of things that I’m looking for. I think, obviously, sometimes things don’t work out. Sometimes, it might not be right for someone when you thought it was. In those situations, I think it’s really important to make the decision that is best for the business. It can be emotionally challenging to do that because you build very strong relationships with people. That can be emotionally tough, but you’ve got to do what’s best for the business in those situations. Sometimes, that means making tough decisions.

Alejandro: 100%, and I think that making the hard decisions during the hard moments is one of the scenarios that is going to determine the A+ entrepreneurs from the B-type of entrepreneurs. Then the other thing here is that one of the mistakes that I see is that founders, when they see that someone is not working out, then they try to shift positions, and then that creates a little bit of toxic mess in the culture. So, it’s just better to just let it go. You’re doing a positive thing for that individual because that individual is then going to go and it’s not going to be a lost opportunity type of thing.

Reza Merchant: Yeah.

Alejandro: Cool. So, Reza, I want to ask you something, and this is a question that I typically ask the guests that we have on the show is, you’ve been at it with The Collective for a while. Knowing what you know now if you had the opportunity to sit down and have a chat with your younger self, with that Reza coming out of the London School of Economics, perhaps when you were just arriving back from Thailand from your trip, and you were able to give that younger self one piece of advice, what would that be and why knowing what you know now?

Reza Merchant: I would say if it was just one piece of advice, I would say really push to hire the best person in the market for every role.

Alejandro: Got it. That reminds me of the book, Good to Great, from Jim Collins where he says that startups are like a bus without a direction, but as long as you have the right people seated on the right seats, you would eventually the successful road.

Reza Merchant: Yeah.

Alejandro: Very cool. Reza, for the folks that are listening, what is the best way for them to reach out and say hi?

Reza Merchant: That’s to send me an email.

Alejandro: What’s your email?

Reza Merchant: It is [email protected]

Alejandro: Amazing. And are you on social media as well, Reza?

Reza Merchant: I’m on Facebook, but no other social media.

Alejandro: And you’re on LinkedIn as well?

Reza Merchant: Yes. LinkedIn as well.

Alejandro: Okay, fantastic. Reza, thank you so much for being on the Dealmakers show today.

Reza Merchant: Thank you. Thank you for having me.

 

* * *

If you like the show, make sure that you hit that subscribe button. If you can leave a review as well, that would be fantastic, and if you got any value either from this episode or from the show itself, share it with a friend. Perhaps they will also appreciate it. Also, remember, if you need any help whether it is with your fundraising efforts or with selling your business, you can reach me at [email protected].

Podcast: Play in new window | Download

Subscribe: Apple Podcasts | Google Podcasts | Spotify | Stitcher | TuneIn | RSS | More