Houzz Executive Chair Adi Tatarko: We Bootstrapped to 350K Users, Now we are 70M | Builders Series

Thank you for having me.

When Alon and I moved to the Silicon Valley it was at the burst of the dot-com bubble and we were kind of questioning whether we should move back to Tel Aviv or stay in the Silicon Valley like Alon wanted or move to New York like I wanted. So it was a whole debate, what's the right thing to do? And it took a while until we settled. And there was a moment in time where Alon told me this story about two frogs that fell into a bucket of milk and they were jumping and one of them at some point got too exhausted and she gave up and died. But the other one didn't lose hope and she kept jumping and jumping and jumping until the milk turned to butter and she climbed and got out of the bucket. And he said, 'You know, if this is what we want, everything will make sense as long as we keep jumping.' And so this is what we did when we moved to the Valley. We had no idea. We knew zero people. And everybody told us that this is crazy to move there when the clock is ticking and we don't have much time to stay there. But it worked eventually and it became sort of the story of Houzz for every company. You have the highs and the lows and the good moments and the bad moments where you question yourself and what you do. And we just shared the story with the company and we said as long as we keep jumping together in the same direction we will get out of it and things will get better and we will see the light again and it happened. So it kind of became the story of Houzz and many Houzzers knew the story and kept jumping with us.

It started as a side project in the Silicon Valley and the first 20 users were parents from our boys' elementary school in Palo Alto and several designers and architects and other professionals from the Silicon Valley. We started it as our own project and opened it to them to give us feedback. But there was a moment in time when we started seeing numbers when we opened it to outside of our own circle. We started seeing numbers on Google Analytics then. But you don't connect the dots, right? You mainly talk to your own community and it was relatively small at the beginning. And then Katherine, one of my friends, one of the first users, a mom from our kids' school, called me and said, 'You don't believe what just happened.' And I said, 'What just happened?' and she said that her sister from Portland, Oregon, just called her and wanted to tell her about an amazing app that her realtor just introduced her. So her sister used to do Fixer Upper. She purchased a new home to renovate and the realtor as a gesture said, 'I'm going to introduce you to your new best friend' and showed her the access to our app on her iPad. So the sister called Katherine and told her, 'You have to see this. You're a house junkie. You're going to love this new app.' She showed it to Katherine over the phone and Katherine said, 'Are you kidding me? I know the founders. I'm one of the first users.' So I think at that moment when you hear that it's no longer just a local thing or a number that you see on the analytics that you have users starting to come from outside of your area. But when you connect the dots and you hear that actually a realtor just introduced the app to a client as a gift and the client is now telling others, now you realize that there is something going on. People are telling each other and something really good is happening here.

You're right. We bootstrapped without understanding the terminology of bootstrapping. We just did it. In retrospect, I think that this is a very smart idea for founders that can do it. Obviously, it's not for every kind of startup and if you need a lot of money to develop chips or hardware, it's a very different story. But with software, it's possible. And I always tell early stage founders that maybe it's a good idea that instead of spending the first 6 to 12 months of your company life chasing investors with decks and ideas of what you're going to do without actually doing it. And then you go to investors. They don't know you. And you need to prove that the idea is great and you are great and all this is going to work. And what you're telling them that it's going to work is actually true, the proof of whether it's going to happen or not is on you. And I think that when you choose to spend the first six to 12 months or more, if you can, by building something real and getting feedback from a community and showing something much more tangible than a deck to investors, then the proof that this product has a good market fit and people will use it and you could do it is no longer a question. So we did bootstrap and by the time we got to Sequoia, that was our first investor, it was much more prominent with hundreds of thousands of users and many thousands of professionals interacting with each other through the platform without having any investment in the company. It cleared the questions whether there is a need and whether we can do it right because we did it without the money and we were very lucky on that front to show something more meaningful than a deck. And then Sequoia was the idea that came 6 months after and invested the first 2 million. We thought that bringing a strong VC to the company would help us on other fronts. We didn't need the money, we needed the name and the power behind a strong VC in the Valley and Sequoia was truly an amazing partner and still is. So we were lucky on that front as well.

The mission has been the same for us since day one. It's a north star that everyone can really rally around. What are you doing? Why are you doing it? How are you doing it? If you look at it this way and then the fundraising whether it's private or public or this way or the other way is not becoming the goal itself, it's becoming a tool to support what you're trying to do. So sometimes it makes more sense to do it in one way and for another company it makes more sense because of timing and other parameters to do it another way. But from our perspective, what's the mission of what we're doing? What are we doing here is what's leading us in our decisions and it led to one decision we just talked about, you know, bringing a VC even though we didn't need the money back then. We're not bringing more money privately or publicly because we can actually do things differently and we have more power and more strength when we are more independent. I think that the mission is more important than this decision, obviously meeting with all the different players over the years and our shareholders. We can make decisions based on timing and what's right for the company as long as it serves the mission.

I'll give you something from obviously Houzz that's been there for a while. This brand is very well known by both the professional community and homeowners. But I'll tell you the story of the software because we're very close to our community and we keep getting feedback from them about the business and how it's doing and how it's growing and what else they need and how they operate. We've heard from our professionals how software can help them put together more accurate estimates. And you remember that Houzz has a lot of data coming from our homeowners and professionals and we know what materials and where and how it's being used and how people are renovating. We collect a lot of data that we can give back to our community. And so when we know for example that this is a very critical point for the professionals where they are able to put an accurate estimate when they propose something to a client. This is important for the client, then it's important for the professionals to win the business but also get the credibility when they're doing it on a budget and they can provide a very accurate or very strong estimate with everything connected to it. So then we started integrating AI and we wanted a tool that will be AI-powered estimate that will give a lot of power to our professionals to generate something very quickly relying on all this data and win the clients and manage it with a lot of credibility when they are winning these projects. So it's a very impactful tool but it was led by a need that came from the professionals and said this is what we need, we need to win and this is how we need you to develop it. So we have the ability to connect the dots, get the data and what they need from them and then bring the right technology for them and this is how the software evolves constantly.

From pretty early days, we had in-person events. I remember traveling everywhere. Me, our marketing team, our sales teams, product people would meet with professionals and we would create that trust between us and many leaders in the community, on the professional community, where they can provide the feedback and we brainstorm with them and bring it back and develop for them. So lots of in-person events in the early days. We have professionals helping us through an advisory committee navigate through the right technologies and how we should think about what we're planning to do. Obviously, it's a combo of us leading what's the next thing technology wise that would enhance the platform and the needs of our professionals, but also taking the feedback from them and choosing the right path of how to develop it. And obviously the surveys, we have surveys for the professionals and the community from the get-go. We participate in very, very large panels in the US with the LIRA report, the leading indicators of remodeling activity. That's been part of our process across the board, whether it's online or offline or in person or through committees to get this feedback and lead the growth this way.

First of all, I said already and I'll say again, I think we were very lucky to build Houzz at the right time in the right place with the right people with us. People will say, 'Well, that's obvious.' But it's not so obvious to people when they're building companies. If you have a true flywheel where people want to be part of the community because they are not just giving but also getting something out of it and there is a certain dynamic between the different players that are coming into your community, you're going to be able to navigate and build something real for them. It needs to be a true flywheel. In our case, if you think about the professionals, they mainly operated offline. Technologies were very, very absent from their world if they had any technologies tailored for their needs. And to connect to clients, they had to go pretty much offline by word of mouth, yellow pages, and many other old school tools and connections to homeowners. And here comes the brand. Now I'm talking about the flywheel and why they want to be there and the homeowners are there. So now they have homeowners where today they don't just get the software, they get to use the software with the homeowners that are part of the community and provide from the estimates in the get-go to working on projects afterwards to connecting all the dots visually for them with 3Ds and etc. So the homeowners were a big, big incentive for the professionals to come to Houzz and talk to them and work with them. For the homeowners it was vice versa, right? They actually got a place where they can not just visualize everything. They can get a lot of professional support for what they're trying to do. 12% of the people over the years build homes from scratch. A big part of the community is going towards big massive projects of building kitchens and bathrooms and navigating through big remodeling activities. You need tools for it and you need knowledge for it. You need people that know how to do it and you don't necessarily want to go and work with one or two people that you randomly heard about or even proof, right? They may not be the right people for you. You want the ability to see who is right for you and work with tools that will provide lots of transparency. And so I think that that flywheel for the homeowners from the get-go, having the professionals there, the professionals having the homeowners and Houzz being the brand that brings the technology to connect the dots for everybody did the trick, did the magic. And today, this is what's doing it. This is how we got from Alon and I being the first two users to 70 million users that you mentioned or three million professionals because there is a flywheel there and the interest is there. We are providing the platform but they have an interest to be there not just to give but also to get back something that is very meaningful for them.

Well, I have many because I think that every time I went to meet with professionals in our community around the world, I came back with a few very powerful stories. There is one that was pretty early on and I'll always remember it. It was when we launched Houzz in Australia. Far enough for you, I hope. They flew all the way to Sydney for the launch party and to meet with professionals in the community that we had in Australia. An architect named Dominic came to our party in Sydney and he said he flew all the way from Melbourne just because he wanted to come and say thank you and share his story with me, which was surprising because that was an event for the pros in Sydney. So I was kind of okay, I would love to hear the story. And he told me the full story about him being also like my co-founder, you know, he's an architect, his wife is an architect, they share the business and he unfortunately got very, very sick and she had to take care of him and the family and they barely worked. It was very, very stressful for them. A long story short, he discovered Houzz while he was resting and recovering and Houzz was only in the US. But he thought this is a very cool idea. So he played with it and uploaded his portfolio and one of the projects he uploaded to Houzz US was a beautiful church that was converted to a home in Australia with permits of course and everything. And he did a remarkable job and so he uploaded and the team in Palo Alto discovered it and thought that this is a very unique project. They reached out to him and they said, 'Wow, we never saw something like this. A church becoming a home, you know, tell us more about materials. How did you use it? How did you build it?' They asked with his permission to share the story and the details with the entire Houzz community that was sent out and it completely changed his life because the story got a lot of reach and from there he started getting clients outside of Australia hiring him to do work for them as they were planning to move to Australia. He got collaboration with professionals in the US where he started exporting special materials from Australia to the US and work with colleagues in the US. He got a lot of publicity and he really leveraged the different tools and the reach really expanded. He said, 'You completely changed it for me. You don't even understand.' And I had to fly to say it in person to say thank you. So I remember every story but that was really striking to see how impactful it can be when you provide the right tools. The reach can change the way you work with clients, can change your entire business, can change.

We were always looking from the get-go, getting the feedback both from professionals and homeowners, ways to make construction and design more fun and more productive for everybody involved in our community. And we realized that while we had made things significantly better in the early stages of the project, finding professionals, getting the inspiration, understanding the data and how to do things, and we were solving many, many challenges. We also realized that professionals were spending too long on back office work. Lots of trouble communicating with teams and clients, juggling multiple disconnected tools just to manage one job, competing with others on how fast they can respond. It was really stressful, right, with the way they managed the businesses. And homeowners felt the stress too. It was difficult to visualize the project outcome, not receiving the progress, not understanding the estimates, lack of transparency. As a homeowner before we even started Houzz, we felt the same challenges, right? And so the Houzz Pro software with the CRM built into it as one tier of the software was able to bring the whole management of the process to life but in a way that is tailored to the design world and the construction world and how they're doing business. So it was truly the feedback of okay we have all this, we took it to the next level. It's not all offline anymore. We are talking to the homeowners but how do we make sense out of all this and the software and the CRM inside the software we're helping to take it to the next level.

Listening to our community is very, very important. You're developing for someone and in our case for many people and you have to take this feedback. We are community and this is one of the core values of Houzz and listening to our communities, which means the homeowners and the professionals when we develop, is very, very embedded in the culture at Houzz. You have to do that because if you don't do that and you just fall in love with whatever you did years ago, you're going to lose it, right? Technologies are changing, needs are changing, businesses are evolving, and the feedback keeps coming. And if you listen to your own community and you truly embed it, that's the culture in the company, it helps to balance.

At the core, there are many things that are common, right? At the end of the day, you have community members. They are the professionals with the knowledge that are doing the work. They're the homeowners with the needs and there is what you are building and giving. I do think that having the US and North America in general as the core first market is important because first of all, it's a very big market and we are seeing lots of things. We're developing first for the core market. Many times we can test things in other smaller markets and get the people there, but at scale you want to be able to do something that would be applicable. And there are some things that we discovered over time that are a bit different culturally in terms of how people are using tools and how they are thinking about tools. Having the community on the ground in every single location where we want to operate with one product or the other is very important to embed for the reason of embedding the feedback and tailoring it and customizing it. But when you're thinking global, you have to think of where is the first core important market where you're going to launch and scale and then continue from there. It's impossible to go and understand the nuances day one in many, many different markets. It's not for every tool. It's not for every technology. You have to do it smartly. And the way we're doing it since we started in the US and we get a lot of feedback from our growth there is helping us to also expand to other communities and markets.

We integrated AI directly into our software. We wanted it to be very, very easy to adopt. So it's not just a name, what are you doing with it, how are you taking it and embedding it in a way that will be very, very easy to use. We use Houzz Vision AI to automate time-consuming tasks for example for the professional and reduce the errors. We want the professionals to do what they love to do, what they are here to do, and all the back office stuff that leaves lots of room for errors, errors that can go away when you do it and you generate everything automatically with AI. The schedules for example that convert estimates into a structured timeline. This is very important. If you ever renovated or built a house, you know how many little tiny tasks that involve many different professionals and many different to-do lists every single day and materials and labor and many people that need to coordinate. Now imagine that we're using the tool and basically we estimate the entire chart, how it's going to happen, the whole timeline. We're saving hours of coordination. Everybody knows everything is aligned between teams. The professionals can send the detailed estimates of everything twice as fast when they're using AI. And then a contractor can tell you I can do in 20 seconds something that used to take me hours to do. Right? It's very important when you can save time in the right places and allow the professionals to do what they are here to do. Without it, it's going to cost a lot of money and time that nobody wants to pay for, neither the professionals nor the homeowners. So it's perfect and I think looking ahead there is so much more you can do with AI technologies for our industry.

Well, obviously we surrounded ourselves with many people personally and also professionally. I think that as founders, having founders and you mentioned Sequoia before, I think that they were very good at matching founders with others that are one step ahead or two steps ahead. When you are just starting, you don't really need to go and talk to somebody maybe for inspiration it's okay to go and talk to somebody that built already a huge company and is public for many years, it's less relevant to you when you just start building. But it's very important to you to hear something from people that did it a year ago, two years ago, they're ahead of the game, right? And I think talking to other founders that are a step or two ahead of you, or they've been through what you're trying to do now, they did it last year or two years ago and they are willing to share. By the way, we're sharing our experience with others now, right? So I think meeting with other founders and we were lucky to build Houzz in the Silicon Valley. So we were surrounded by many founders and lucky we had great investors to introduce us to great founders. So that was one and we got lots of great advice from founders. At the end of the day you take what's relevant to you and you do it your way but hearing the stories unfiltered, not from the paper, and talking to other founders is very important. Other than that, hearing the feedback from successful people in other fields is always very, very interesting and we grew Houzz because we are kind of an intersection that is lifestyle and homeowners and many people that are so in love with the idea of making their home amazing. We got through that to meet with lots of different successful people in different fields that wanted to help us rebuild lots of things with them. So that was interesting. And personally, I think seeing role models around us in our families you can find people to give you good advice even how to manage work-life balance, having kids and having a company is an important thing that you want to find the right mentor, how did you do it questions. So I think we were very lucky and we're trying to give back as much as we can from things that work for us and things that not so much when you share it and you pay it forward.

I think that understanding that you can't do it all. There is no such thing and even the word balance is not really for me at least. I cannot say there is such a thing as balance. What you have is the understanding that you can't do it all yourself. There are some things that you're going to define to yourself that are very important to you that you're going to do at work and other things that you can delegate to others. And same at home and in your personal life, especially if you have kids. But even if you don't, you can decide what are the things that are very important to you to keep on an ongoing basis for your mental health, for your physical health, for your family's health, relationship. And then you focus on these things and you let go of others. And by the way, you need to reinvent yourself, right? Because the company is changing and your household is changing and if you have kids they are growing and what they need from you is very different when they are babies versus when they are growing and becoming teenagers and so on. So for me, finding which sport, you know, it was kickboxing and lots of running, but having that scheduled sport time, having special times that are dedicated to the kids no matter what, special things that I always do with them and I don't want anyone else to do with them. And same at work, things that related to the brand and building it. And we talked a lot about connections to the community. The things that you define are the most important to you when you build the company or the product or the brand or you grow as a person in your personal life, you define. And then this is part of your calendar. And yes, it's not going to be everything under the sun that you did before. You run a company, but it's going to be the most important thing that you decided that you want to do, you don't want anyone else to do. And I think that's how you create it. I always say I don't feel a bag of guilt with me because it can become very easily something that you constantly feel. I didn't spend enough time with the kids or I didn't do enough at work. But if you define what is the most important thing to you, including outside of work, and you stick to it and you do it, then you're going to be happy with it. I'm happy.

I really like Tom Hanks, so I'm a big fan of Tom Hanks movies. We had just before COVID, we took the kids to Castaway Island. By the way, I'm a big fan of family time without other people, just you because it's time to connect to your kids. Whether it's just a very simple, not a fancy vacation, even close to home or something far away, but this is a vacation we will always remember because I love the Castaway movie. I would say top, but it's one of my favorites and I thought he's such an amazing actor when I watched this movie originally and going to the actual island and imagine everything together with the kids was really fun. But Tom Hanks is yeah, one of my favorite actors of all time. He's great.

This is amazing. Amazing Forrest.

Yeah, for sure. And I just reimagine all of the different history events during the movie. So, it was incredible. Thank you so much for answering all of our questions. It's been really a pleasure. And for everybody else in the audience, stay tuned. We have other amazing episodes from the chairman of Qualcomm, CEO of Cohesity and other VC guests from inside Index and Andreessen Horowitz. So stay tuned and thank you.