The inspiring story of Houzz, a $4 billion Silicon Valley company that wants to remodel India
Anushree Singh | Oct 12, 2017, 08.00 PM IST
In 1995, Adi Tatarko, a college student from Israel, boarded a bus in Thailand with a few of her college girlfriends. They were headed for the islands - a 15-hour ride from Bangkok. The bus was crowded, so the bus driver directed Tatarko to an empty seat in the back next to another foreigner. This stranger's name was Alon Cohen and he would soon become her husband and later co-founder of Houzz, a $4 billion home renovation and design company that has global ambitions. On October 11, 2017, Houzz announced a strategic partnership with Times Bridge, the investment arm of The Times Group, to dramatically expand its footprint in India (disclosure: Business Insider is a strategic partner with Times Bridge) . If the relationship between Tatarko and Cohen led to the catharsis that is Houzz, then one could view their rapid expansion in South Asia as a homecoming of sorts.
For Tatarko, Houzz can be broken into four phases: side project, company, monetization and expansion.
A SIDE PROJECT
The idea for Houzz emerged sometime during the three years when Tatarko and Cohen were struggling to get their four-bedroom ranch house in Palo Alto renovated. Several months went by as they scanned through magazines and books looking for pictures that could match their vision. Once they found a design, they then had to search for the right products and professionals to turn their dream house into a reality. Each and every effort made reaped no results - Google was barely three years old. Facebook did not exist (Mark Zuckerberg had not even been accepted into Harvard yet). While it was disappointing and frustrating, they were quick to spot the underlying opportunity. Despite the mad rush in the consumer Internet startup space, no one seemed to have noticed the same problem they had.
Houzz's first users were 20 parents from the school that their kids attended, and a few architects and designers from the Bay Area. At that time, Tatarko was working at an investment firm and juggling the demands of work and home, managing two young children. Cohen was leading teams of developers at eBay. While the early days gave the couple the time to focus on building a great product and user experience, stacking this work onto their full time jobs it was very easy for them to lose work-life balance, and their kids would often notice it. "We sat down as a family and figured out together how we could make things right. Now, we have regular check-ins to assess where we are and adjust as needs change both at work and at home," says Tatarko.
While the personal concerns were being taken care of, challenges on the professional front were increasing.
Both Tatarko and Cohen quit their jobs. They also realized more money needed to flow into Houzz if it had to expand. They opted to put in personal money - the idea of approaching venture capitalists was dropped for the time being. Instead, the couple focused on the quality of the services being offered on Houzz and continued bootstrapping in favour of providing jittery homeowners with exactly what they wanted so they could build their dream homes. Turns out a moral call they took years back is one of the major reasons for the success of Houzz today.
Tatarko feels proud to share that bootstrapping ended up being one of the best things to have happened to Houzz. "By the time we decided that we should turn Houzz into a company, we already had a product that many people used and loved using. In retrospect, we didn't realize that what we were doing was bootstrapping but it enabled us to take our time and build the company from the ground up the right way," she says.
But not every feature they created was perfect. "For a long time, I asked Alon to kill the 'Buzz' section and to launch an 'Ask A Question' section on Houzz instead. He delayed it for a long time as he was working on other site functionalities," says Tatarko. Alon was the only developer for Houzz at the time. When he eventually flipped the switch on "Ask A Question," Houzz immediately saw hundreds of questions every day from homeowners accompanied by responses from professionals.
"It was a lesson well learnt," Tatarko says jokingly, adding what Cohen often says about the incident: "Sometimes small changes can have high impact; and sometimes you should listen to your wife."
But for all the focus on user experience and feature improvements, people could still not buy anything on Houzz.
"I remember taking calls to the office from people asking where the 'Add to Cart' button was on our site, or whether we could ship a freestanding bathtub they saw in a photo to their home. People saw the green tags we had on photos with product information... but still had to go to many different places to purchase the products they liked." recalls Tatarko. This burgeoning demand from the fast-expanding community led the couple to introduce a home products marketplace in October 2014.
The beta version of the Houzz Marketplace was launched in the U.S.. This closed the loop for people and became their one-stop solution where they could get everything they needed to renovate or design their home in a single place.
Meanwhile, money was being poured into Houzz by investors. This had begun in July 2010 with a $2 million investment. By late 2014, Houzz had closed a $165 million Series D round led by Sequoia Capital valuing the company at $2.3 billion. More recently, Houzz raised a $400 million Series E round of funding nudging the valuation up to roughly $4 billion. With funding and revenue came expansion. "The third phase [of Houzz] would be establishing the infrastructure to be a global company and the beginning of monetization. We expanded beyond our small office in Palo Alto to other locations, including our first international office in London," says Tatarko.
They made money mostly through paid listings for local home professionals and service providers, and through the product marketplace. "We are now monetizing in many of the countries where we operate," says Tatarko. In India, however, she says revenue taking off will happen later; right now Houzz is focusing on spreading its wings.
While the deal with Times Bridge was only announced yesterday, Houzz's footprint in India is a bit older. A million customers and more than 50,000 service providers signed up from India on Houzz even before it was launched in the country. Indians were using the international site to build their brands, collaborate with clients and connect with homeowners globally. The Houzz team then decided to launch a custom site for the Indian market in January this year.
This comes at a time when the Indian home design and decor market is poised to grow from $13 billion in 2010 to over $45 billion by the end of this year. The boom in the residential real estate industry over the last few decades has given impetus to the home decor market. Also driving the growth of this sector is an increased consciousness among homeowners about stylish interiors coupled with the means to actualize that desire. According to National Council of Applied Economic Research, it is estimated that the size of India's new middle class will run as high as 11.38 million by 2025-26. This year alone, as many as 4,00,000 new homes will be bought across just the major cities and the vast majority of them will need to get their home designed.
When it comes to India market competitiveness, Houzz already dominates the online interior design and furnishing space globally and is quick in embracing new technologies to enhance the user experience, something Indian startups lack at the moment. "Designs from across Asia are some of the most popular and in-demand styles among the global Houzz community," says Tatarko. "People are eager to learn from, buy from as well as hire talented Indian professionals. We're excited to make Indian design and talent even more accessible to Houzz users around the world."
Regarding technology, Houzz came out with the initial version of View in My Room 3D within its iPhone and iPad apps this past May. Users can use it to preview hundreds of thousands of home furniture and decor products from the Houzz Shop in 3D, within their own homes, before buying. Last year, it introduced a deep learning tool to scan more than 15 million retina-quality home photos on Houzz to identify furniture and decor in living spaces and surface visually similar inventory from the Houzz marketplace. It's also applying deep learning technology to natural language understanding to improve things like search, ads and recommendations.
While a few Indian start-ups like Lenskart and Caratlane have invested in Augmented Reality to offer users enhanced experience, the home remodelling and design market in India is slow in adopting newer technologies.
"Each market has unique challenges, which is why our focus first and foremost is on tailoring the experience and building our community the right way, based on the needs of the industry in India. This focus on first localizing our platform and building our local content and community is the approach we have taken in every market where we have launched, including the United States, and it's working," says Tatarko.
But with so much going on, could this new phase of global scaling affect work-life balance again? Not according to Tatarko: family is never going to take a backseat. Whenever the parents get time off, they like to spend it as a weekend away together or just spend quality time at home. They are particularly fond of holidaying in Tel Aviv for its great food, beach, nightlife, culture, architecture and people.
As the unlikely Thai bus pair turned Silicon Valley power couple makes mistakes, learns and moves ahead, Tatarko remembers what she said to her husband years ago when they started a life together: "When I married Alon, I told him life with me would be one big, fun, crazy ride. I think it has been! We've been together for more than 20 years now and our relationship has only gotten stronger. The truth is, we really enjoy working and building things together."
"We ended up talking throughout the entire 15-hour bus ride and spending the rest of our vacation together," recalls Tatarko. She describes it as feeling like four dates at once. Three years later they got married. Shortly thereafter, they moved to New York City and, in 2001, to Palo Alto where their quest to decorate their new home led to the first iterations of what would become Houzz. It was a project built organically from need, a trait investors love because it reveals a true consumer pain point. Houzz lets homeowners browse and save design ideas by architects and designers, connecting professional and consumer so people improving and designing their homes can buy what they like from anywhere.