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.