Houzz: Adi Tatarko

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Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz, and on the show today, how a frustrating home renovation led Adi Tatarko and her husband to build Houzz, an online community for homeowners and remodelers that's grown to 65 million users worldwide.

I love stories about accidental entrepreneurs in part because I'm one of them. This show you're listening to started as a side project. I just really wanted to learn how ordinary people build extraordinary things and I thought there might be a small group of people who'd also want to hear those stories. But to my surprise, it took off in a big way. I was and still am genuinely amazed and delighted that millions of people listen to this show each week. It is mind-blowing to me. But anyway, the point of all this is to explain that I never intended to stop doing the other things I was doing at the time. How I Built This was a fun side project, but it soon became clear that this show was in fact the main project and it completely changed everything I do.

Now, in a much much bigger way, like to the tune of billions of dollars, this is a version of the Houzz story. Houzz, if you're not familiar with it, is a website, an app, and an online community for architects, interior designers, and people like you and me who are looking to renovate their homes. It's used by more than 65 million people. And it's the biggest home renovation community of its kind. Basically, it's a place to get ideas, to buy the materials you want, and to hire professionals to help you get the work done if you don't want to do it yourself. But this entire venture, last valued at over $4 billion, started as a hobby, a side project, a project to renovate Adi Tatarko's home in Palo Alto, California. At the time, she and her husband Alon thought there should be a simple and inexpensive way to design your own renovation project, something that could be done online. Back then, Adi was working as a financial planner. Alon was a software engineer at eBay and Houzz's first customers were other families at their kids' school. It was a website where they could post photos of their home renovations and also a place where local architects and designers could promote their work. But very quickly and organically, Adi and Alon started to get inquiries from designers and cities outside California and word started to spread through the community of people involved with the home renovation industry. And some of their friends practically shook Adi and Alon by the shoulders trying to convince them that Houzz could become even bigger, maybe even huge. But Adi held back. She already had a career and she had two young kids at home. But eventually she was convinced that Houzz had too much potential to treat it like a lifestyle business. So she walked away from a promising job in finance to become the CEO of Houzz and to help lead it to become the massive site it is today.

Adi Tatarko was born and raised in Israel where her parents worked together in the real estate business. The family was close and she lived in a tight-knit community. I was actually a guy studying with the same 38 kids in the same class from first to 8th grade and I'm very very proud to tell you that to date I'm in touch with the vast majority of the kids from that class.

How were you as a student in school? Were you a good student?

I know that in Israel, for the vast majority of teenagers, the path is pretty clear. You're going to do military service. For men, I think it's three years, and for women, too. So what did you wind up doing for your military service?

I'm assuming that given there's been a time lapse between the time you served and today, it's probably not classified what you did anymore. Can you talk a little bit about your experience?

Yeah, this is the sort of the late '80s when Israel was airlifting Ethiopian Jews out of Ethiopia and I think also Eritrea, these sort of midnight missions.

So, as I understand it, once you finished your service, you went to do a bachelor's degree at Hebrew University in Jerusalem. And I read that while you were there, you and some friends went on a trip to Thailand, like a backpacking trip. And it was actually on that trip where you would meet the man who would become your husband and eventually your business partner, Alon. So how exactly did the two of you meet?

You connected right away.

What did you guys talk about?

All right. So both of you presumably go back home to Israel and you stay together and you're basically a couple.

And from what I understand, Alon was still doing his military service and getting a degree in computer science. And I think at some point he starts a small business developing software. And I guess you're planning to go into international trade or finance or something like that. Is that right?

Right. And I guess not too long after, one of your clients came to you and proposed a merger with them. They had a similar kind of company and they wanted the two of you to run it out of the United States. Is that right?

So this is, I think you moved there in 1999 or 2000, something like that.

All right. So you move there and from what I understand, this arrangement doesn't really last very long. I think less than a year. And the two of you and Alon decided to leave this company, to move on, which presumably meant that you had to find another job pretty fast, right?

And I'm assuming part of you probably wanted to go home to be with your family, but he was a software engineer. I mean, this is what he had studied. And in 2001, even though the bubble had burst, Silicon Valley was still the mecca. It was still the place to go to if you wanted to get into tech.

So presumably he starts looking for jobs out there and he got a job at eBay, right? That was the job that the offer he got which enabled you to move.

Yeah.

So you didn't go out there with a job in hand. He just said, 'Let's go out there and figure it out.'

Okay. I should mention that a lot is happening around this time, right? And I'm sort of fast forwarding just a little bit here, but the two of you decide to start a family and then you also go back to school to study financial planning and then you pursue a job in finance, right?

Right.

In which way? What do you mean?

And did that annoy him or did he like that?

Wow. It's a pretty great offer. I mean, for somebody who knew nobody in the area, who did just learn how to do financial planning a year or two before, the fact that he's really kind of taking you under his wing and saying, 'I think I want you to run this place.' That's pretty great.

Was Alon coming home and talking? Were you talking through ideas? I mean, this is the period of like 2002 to 2006, 2007. Was he constantly coming up with ideas or were you not really talking about specific ideas?

Yeah.

Wow.

All right. So Alon has this career at eBay, clearly with an eye to starting something down the road. You have a great career and are starting to earn decent money. You're mainly on a salary, but you could see a future where you could actually make a lot of money running this business when Phil, your boss and mentor, retires.

Mhm.

And this house is going to play a role in what's going to happen because I guess this was a kind of an old-fashioned house. It hadn't really been remodeled when you bought it. It was sort of dated, like '80s decor.

Untouched from the '50s too. So it was not just built in the '50s. Nobody updated it from the '50s.

And when you bought it, presumably like most people who buy houses, you thought, 'Oh, we can fix it up. We can do some things here and there.'

If it goes down, we're broke.

And I think that you guys were so busy. You have two kids, you've got busy jobs. You can live with an ugly ceiling or a linoleum floor. You can live with that. It's fine. And I'm assuming you did live with it.

Did you ever start to actually look for somebody to help you or a contractor or anything like that?

When we come back in just a moment, how Adi and Alon channel their frustration into a side hustle until an expert tells them they're crazy for not turning it into something bigger. Stay with us. I'm Guy Raz and you're listening to How I Built This.

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Hey, welcome back to How I Built This. I'm Guy Raz. So, it's around 2008 and Adi and Alon are having one of those classic entrepreneurial moments where they realize that the problem they have is also a problem that lots of other people have. Finding good ideas for a home renovation and getting them to fit your budget.

And Alon kept saying, 'It doesn't make sense. It doesn't make sense that it works like this. There must be a better way of doing it.' I'm trying to figure out at what point do you remember you or Alon saying, 'Maybe we should just build a website to make this easier.'

Right? Because if you look at a picture in a magazine and, by the way, this has not changed because I follow a bunch of design things on Instagram just to keep my head out of the craziness of the world and I'll see, 'Oh, we just did a simple renovation project in the middle of Sweden,' and it looks great, but then you realize that it was probably like 2, 3, 4 million. But you wouldn't know that from just looking at the picture, right? And certainly not looking at a magazine.

All right. So just some nuts and bolts questions. So, for example, in 2008 when you start talking about maybe we can kind of tinker with this, you could pick up Architectural Digest, which you can still do today, right? And you can open a page and see a beautiful renovated room, but you can't obviously tap on the magazine and know what the paint is or the color is or the brand is. What you guys were trying to do was to essentially put that view of that room on a web page, but that every part of it had a tag where you would know that, 'Oh, that towel holder is called X,' or 'There's a fixture,' I don't even know the name of that fixture.

But so when in 2008 you and Alon are talking about how to solve this, what was the next step? Did he start to build a website on the side and at night?

But just let me want to slow it down a little bit because this is important, some of the details. When he started to build the website, right, you had to get photos up and the idea was presumably to get photos of completed renovation projects. So where did you go? Who did you ask for photos from?

And just for context here, you are still going to your job. You're still working as a financial planner. Alon is still going to his job at eBay.

The name Houzz. Did it have a name already at that point?

Because it's a made-up word.

35 bucks.

But I'm assuming once you got to that headspace where you're like, 'I'm going to work during the day and then I'm going to work at night on this thing.' I mean, you knew that your husband had this dream of starting a business, but this is the first thing in like seven years that got you excited, too, to help him start it. So clearly you must have started to think in your head, 'Maybe there's something here. Maybe there is a business here.'

Right. But when, because I know you sort of launched this in 2009. The two of you launched it in 2009 and you started out really with photos from local architects you knew.

And when you could refer other people, once they were in, they could upload pictures without you. They could just upload it and fill in the data themselves.

And I guess what would motivate an architectural firm or an interior designer to put their stuff up on your site was it was free advertising for them.

That didn't exist before. So here's my question. I mean, you know, you've got a website and you know, both of you have steady incomes and stuff, but as people were using it, did it cost a whole lot of money? I mean, I guess it was like not that expensive to actually keep this up.

Right? And that was what, 2 or 3 months in?

It's pretty great. 20,000 users and you were not advertising.

They didn't want you to make any money off of it.

And obviously that would make zero sense. I mean,

And did that begin then a surge of new users?

Okay. Here's a question for you. How are you doing that and also keeping a full-time job?

When we come back in just a moment, how Adi and Alon continue to grow Houzz without paying to market it and how the pandemic totally changes the trajectory of the business. Stay with us. I'm Guy Raz and you're listening to How I Built This.

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Hey, welcome back to How I Built This. I'm Guy Raz. So, it's 2010 and Adi Tatarko has just quit her job in finance to be the full-time CEO of Houzz and investor Orin Zev has just put in the first big chunk of money. And of course, at some point down the road, Houzz will monetize through commissions on its marketplace and a subscription service for homebuilders and designers. But at this point, Alon and Adi are not really thinking a whole lot about the business model. We felt it's so early and there is so much to do in terms of building the product and user experience that it would be wrong to tilt our attention to monetization at this stage. And we actually told that to Orin before he invested and Orin said, I'm with you. The one thing that Orin did change our opinion about when he invested, we told him that we probably don't want to talk to VCs for a long long time, probably not until the point that we will be ready for monetization. And six months in, Orin changed our mind. He said, look, if you want to bring top talent, top engineers, compete with companies with a lot of money, it would be very helpful for you if you have a top tier VC backing you up. That's my opinion. If you don't want to do it, that's fine. If you do, I'm happy to make some intros. And you ended up getting money from Sequoia Capital, which is one of the top venture firms in the world. Yeah, I feel very fortunate because we didn't even, again, no deck, no numbers, no imaginary things. Meeting at the office, showing the website, showing the numbers and tea at a local place in downtown Palo Alto. And in that meeting, they looked at each other and they said, we're going to give you an offer. Wow. Adi, when you after that round, I think it was almost $12 million. You had money. This is December of 2011, you had real money to hire really presumably really great engineers and designers. And I think by 2012 you had about 26 people working for you. But how are you, I mean how are you growing the site? Was it still growing organically? Because it is a tribe, right? I mean designers, architects, they're I'm assuming that people heard about it through them, but you also needed ordinary people who are not designers and architects, people like us to go to the site to start using it for their home renovation. So was it word of mouth growth or did that money also allow you to start to do paid marketing? No, it was for years until we even started with the paid marketing. We were very fortunate on that front. The expansion kept happening organically by word of mouth. We didn't have to pay for it and we could only focus on bringing the talent. Invested a lot of our money and time and energy finding these talent. In fact, Alon and I for years spent 50% of the time interviewing people. That's what we did in the first few years. And we did it across the board. When we decided to build the sales team, then I interviewed all candidates until we got to 150 solid salespeople on the ground. And when we decided to expand internationally, every engineer, every product manager, every designer, we interviewed them all. And it took a while until we said, okay, we have a solid foundation here. I'm wondering, Adi, behind you, which is a giant, right? And that sends a signal to pretty much everyone else that this is a force to be reckoned with when they back a company. But still, you know, I wonder, I mean, you know, I wonder why like Facebook didn't just try to do something similar. I mean, were there other companies or any of the giants out there trying to compete with you early on? Not specifically Facebook that you mentioned, but there were definitely attempts by different players with much more money and recognition and well known in the industry. Lucky us, it was not all the way and too little too late and these initiatives were shut down. Did you get nervous? I mean, did any of them ever make you nervous that we got to hurry up and get ahead of these guys? They're coming after us. I think that the mindset was always we are very unique because we have that robust enormous global community that has both the homeowners and professionals. Right. Today we have 65 million homeowners in the community and 2.7 million professionals. And we are very deep. We're the only ones who can first of all introduce them to each other and this is like a flywheel. One is bringing the other and that is a huge differentiation when you are the technology platform and you're providing tools to both sides and both sides come to you. There will always be others and the fact that there is interest in this industry and somebody wants to copy something from us, it's actually flattering. Adi, who helped you and Alon see this as a really big thing? Because you even up until the middle of 2010, it sounds like the two of you were not sure what this could be, but like you raise money in 2010, $2 million. By 2014, the company has done a funding raise at a $2.3 billion valuation like three and a half years in. I mean, that is crazy if you think and did you, I think admittedly you didn't see that in 2010. You didn't see that it could be that big. I think that first of all in the first few years we realized that this is a huge industry. Okay. And home is such an important thing for people and you know the second expense after they pay for the house is to actually customize it and build it and renovate it for themselves. And we realized along the way there is so much more. We are barely scratching the surface in terms of the product we can develop for our community and for both sides of the equation here. But I don't think we ever sat there because we never created these crafts saying and this is what it's going to be. You know, it's always very down to earth. That's what we deal with right now. Yes, there are lots of different opportunities down the road. There can be expansions in so many different directions, but right now what we're dealing with is so big and so changing the industry that this is what we want to do. Adi, I'm curious about working with your husband and I say this, I should say in all being candid here, I work with my wife, she runs our production company. How do you kind of divide and conquer? I mean do you both have your sort of areas of interest and focus and or do you also, and this is not I mean it wouldn't be surprising, but do you also areas where you just really disagree and have arguments over? So it's everything. I think day to day obviously we're both involved in everything. We don't always agree and sometimes Alon will convince me that something is better this way versus the other and sometimes I will convince him and sometimes we let other folks in the company convince both of us that there is another way of doing it and that's better and it's okay also to make mistakes and then realize that maybe there is a better way of doing it and change things. What is it about Alon that makes it work that the two of you actually not only have created this business but seem to really like to work together? I will start with the end of it. I would never do it with someone else for sure. This is crazy enough and I need to have somebody that I truly and fully trust 100%. When founders are strangers that can work as well but many times what I see is we had different point of view or we were in different stages in life, one wanted to just sell and move on, the other one felt like can do it forever. We're hearing sometimes founders that are coming from the same background. So there is a lot of ego of who is going to dictate what. We just don't have these things and while it comes with other challenges like balance of home and kids and the company and as Orin once told me and I really remember that conversation when I not complained but I vented. I said it's such a crazy time or I don't know what I'm doing. You know it's so crazy with the kids. The kids were young and he said you're very fortunate Adi because all the good things that can happen in life are happening to you and you choose to embrace them. So just choose to enjoy them. You can't be at the peak of your career when you are 20 and probably not when you are 70 or 80. And you also can't raise your family and your young kids at these two extreme ages. For most people, it happens at around the same time at your age. And you decided which is a choice that you want to have both and you are juggling between. So embrace the fact that you are fortunate to do it, enjoy it. And he was so right, so right about it. You've been quoted talking about this sort of work life balance thing in previous articles, but I wonder and you've talked a little bit about some of those experiences that you had around just like the kind of this pressure that you felt, but did Alon also feel that pressure as a father? I think that there is a difference between in society between mothers and fathers and Alon is an amazing father. But I will say mothers and fathers either by nature or society expectations or both are wired in a different way. And I think at least I can talk about ourselves. It's almost like the child is born with that potential baggage of guilt. You know, I'm not doing enough. I'm not there enough. I need to do more. I need to do more. And I think mothers have more in this bag than dads in general. I'm generalizing. And again, not to take a thing from him because he's amazing. And meanwhile, I mean, Houzz was just on this growth tear. I mean from the time that you launched until you know just every year it was growing and new products were being created and it spread internationally and then the pandemic hit and yes and like a lot of companies you guys struggled at first. You I think you even had to do some layoffs but then pretty quickly things started to turn around right people were starting to use their homes working from home and they were starting to renovate their homes because of that. You actually had like crazy record growth in I think in late 2020, 2021. Is that right? Yeah. So what happened is we indeed faced all these challenges at the first few months of the pandemic but then several months later when things started opening up, some trends that we saw prior to the pandemic started accelerating big time. Right. So there were three trends, big ones that we saw in the industry prior to COVID, especially in the US but some of them were very relevant in other markets too. And what were they? Okay. The first one was the baby boomers. That's the generation that is heavily remodeling and preparing their homes for the next phase for retirement. Correct. And this definitely accelerated big time during the pandemic. The second one was home equity that was at record high. People taking out home equity loans. Yes. And the third was especially in the US, lots of aging homes that are 40 years old or more that need massive repairs, buildup and renovation like our house when we got it. And so these trends were there prior to the pandemic. And the reality was not just that these three trends accelerated. I think many homeowners wanted and still want to re-imagine their home and the functionality of this home. Now that COVID created a different reality. We used to work from the office. I didn't have a home office at home, Guy. I didn't because I didn't need one. But all of a sudden, not just that I needed one, Alon needed his space and my kids studied from home the whole year. And many homeowners wanted to leverage every single inch of their home and they wanted it now because they needed it now. And professionals need to keep up with this space. So yeah, it really changed the dynamic and I think it's here to stay because our mindset about our house completely changed. Yeah, Adi, you've been at this now for 12 years, and it's pretty clear. There's been talk about an IPO and it'll probably happen at some point, maybe even this year. You are young. I mean, you're not yet 50. You have you can do another company. You could run a foundation. There's lots of things you could do. You could do pretty much whatever you want. Do you are you excited about the idea of running a public company and doing quarterly calls with investors and reporters? Is that something that appeals to you? I think that the next phase or level of a company should not be a goal or a mission by itself. Different milestones of raising funds privately, publicly, adding partners, investors are just supporting avenues along the way to make sure that your path is conquered there and you are getting to the place you need to get. So when I put myself in all this and say am I excited about it? I'm not excited. I don't think it's relevant. You know, I once was interviewed by a reporter and just before me in New York, they interviewed someone about parenthood and a research that was done among many many parents. What are the ages of your kids that makes you more excited about and which ages you're kind of not excited about or prefer to forget? And I take the whole package and whatever is needed in order to provide what I need to my kids at every age including the less compelling ages and I look at all the beauty that comes with each stage. And this is how I see my role as a founder of this company. At any stage there were many different challenges and at any stage there were so many great things to be inspired by, to look forward to, to be happy about. You know, we grew from being the first two homeowners to 65 million homeowners that are using Houzz today. Unbelievable. So it's unbelievable for me to even say it but I'm still a user and I feel very grateful and fortunate but I'm not the story. The story is, you know, how do you take this fortune and what do you do with it? I just feel very lucky on that front. Yeah. I mean, let's talk about luck. Because, you know, there's always I think I believe there's always an element of luck, but I'm wondering how much of that you think is a factor. You know, you met Alon on a bus. You were there was a seat next to him and that was the seat you took. You know, you met this guy Amos on a kid one of your kids field trips or school trips and that led you to a group of investors. How much of the journey of Houzz, what you guys built, do you think has to do with those lucky breaks and how much do you think has to do with just the work that you guys put into it and your intelligence and hard work? I think that 90% of it is, and again some people describe it as luck, others will say coincidence, being in the right place. The way I see it, I think we all have different opportunities surrounding us every single day. Tons. We just need to open our eyes and look and be fair with ourselves because many times we think that we walk in a certain path. And I'm saying it because I can complain to you until tomorrow about I didn't want to live in the suburb. You know, I feel that we were very fortunate that we moved here because lots of amazing things happened in the Silicon Valley for us that I'm very grateful for. And I could tell you that, you know, oh my goodness, I choose to stop financial planning after investing so much in it. But I feel so fortunate that I did because see what happened.

That's Adi Tatarko, co-founder and CEO of Houzz. By the way, did you ever finish renovating that house or did you just give up on it and move to a new house?

Still in the same house.

Renovated now.

Got it done.

Hey, thanks so much for listening to the show this week. By the way, if you want to hear every episode one week early, check out Amazon Music. And if you want to listen one week early and ad free, subscribe to Wondery Plus in Apple Podcasts or on the Wondery app. And please do follow us on your podcast app so you always have the latest episode downloaded. And another way to support our show is by filling out a survey at wondery.com/survey. If you want to contact our team, our email address is [email protected]. If you want to follow us on Twitter or Instagram, our account is @howibuiltthis and mine is @guyraz on Twitter and on Instagram.

This episode was produced by Josh Lash with music composed by Ramtin Arablouei. It was edited by Neha Grant with research help from Margaret Serino. Our production staff also includes JC Howard, Liz Metzger, Alex Chung, Carrie Thompson, Katherine Cipher, Elaine Coates, John Isabella, Chris Mascini, and Carla Estrada. I'm Guy Raz, and you've been listening to How I Built This.