Don't Throw The Baby Out With The Bathwater

In October, I wrote an editorial entitled "Lessons From Prior Downturns", in which I tried to outline what sorts of things guide our company and what we have available as experience to bring to bear on the current downturn.

In that article I also made a prediction, in big bold type, stating "Mark my words: Downturns like we're seeing today, and as we've seen before, will take out or critically injure one or more of the appraisal software firms out there. It's happened every time." And then Zaio promptly failed.

I usually feel badly about predicting things which would bring misfortune to someone. Other times I don't. This time falls into the latter category.

There was no love lost between Zaio and us. I couldn't stand the way they approached appraisers, nor how they handled business overall. They floated in on a bunch of borrowed money and acted as if they owned the world, when they'd really done very little at all to earn any right to have such lofty opinions of themselves. Yes, many of their execs had laudable resumés, but we've seen now that resumés throughout the financial world are worth about what it takes to blow them up. Actions speak louder than self-congratulatory words. But there was just no limit to Zaio's self-congratulation. (Until, of course, the lights went out.)

The schmooze factor reached comical heights when they released a YouTube video of a presentation at a Zaio conference 2007. Watch it, and then continue reading here after you wipe the tears of laughter off your cheeks. 

Click here to watch the video on YouTube.

I just watched it again right now, and I'm experiencing a combination of cackling and uncomfortable pain - that kind of knot in your stomach when you're truly embarrassed for someone. Beyond the absurdity of the video and the presentation itself, the woman doing the voiceover is so dramatic that... well, I can't even explain it. It's bad.

Really. I mean it. It's horrible. More excruciatingly painful than Tim McGraw's karaoke-style off key rendition of Elton John's "Tiny Dancer" while sloppy drunk at the Polo Lounge in Beverly Hills. I was there. I have pictures. This is worse, but only barely.

All kidding aside, I'm not doing this just to dance on Zaio's grave, no matter how satisfying that may be. (Very. Extremely.) There's actually a lot that's gotten swept aside in this failure due to all the other news going on these days, and because of the hostility Zaio engendered. It needs to be discussed.

First off, the general concept in Zaio's plan - that the appraisal industry's workflow could be re-engineered - is neither bad, nor hostile to appraising as we know it. But it was fatally flawed in execution, in pricing, in core cost to produce, and in scope. The sad part is, it appealed perfectly to venture capitalists, who love high burn rates and cheesy PowerPoint presentations promising to change the world. It just didn't appeal to lenders or appraisers, and that's what mattered. But the devil is in the details, and appraisers in my opinion shouldn't immediately vilify some similar model that may come along later as a ghost of Zaio past. And no, we're not working on any such thing. (pq)

Second, what's gotten lost in the analysis is that a lot of the fee appraisers who invested the most and got burned the worst were innovative believers in fundamentally making the market more efficient. On top of losing financially, they were so harshly treated by their peers that they retreated en masse from public discourse on the topic, and that's sad. The appraisers who invested and took chances are not the ones who marketed and ran Zaio like a late night infomercial, and drove it into the ground.

I for one hope that those same fee appraisers who were the risk-takers don't completely wash their hands of the notion of trying to apply new ideas and methods to appraising. We need their ideas and their willingness to break longstanding habits, now more than ever. Zaio was just the wrong horse to bet on, and I'm sorry that they lost their money on it.

For Zaio's management, I'm not sorry at all. Besides, their future is bright. Their resumés even say so.