Aggregating Her Way to Riches: The Houzz That Adi Built

Israeli-born Adi Tatarko tells how she and husband Alon Cohen cornered the market on scouting out home renovations

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Adi Tatarko.
Adi Tatarko.Credit: Carla Duharte Razura

During a meeting of TheMarker tech readers last July, a strange thing happened. After the meeting was over there formed a long line of women seeking to be photographed with the special guest, and the venue remained open for at least another hour. The woman everyone wanted a selfie with, as if she was some rock star, was Adi Tatarko, the co-founder and CEO of Houzz. The Israeli-born Tatarko is the only woman at the helm of one of the world’s 25 highest-value private technology companies.

The start-up that she launched in 2009 with her husband, Alon Cohen, is a website and app offering everything imaginable related to home renovation – professionals, inspiration, guidance and products. One can browse through dozens of examples of living rooms, for example, save pictures that interest you in a personal file or show them to friends, make contact with the designer responsible for the living room you love or simply click on that great sofa to get a price and order it directly from the site. The app allows you to photograph objects you like and run a visual search to locate similar items in the Houzz store, or even see how items of furniture will look in your space before ordering by using its augmented reality tool.

With 2.4 million design professionals who have uploaded portfolios to the site, 19 million photos with home design ideas and a huge store of 10 million products from 20,000 retailers, Houzz has become a tool for spotting trends and even a market research company. Architecture and interior design schools have made the site part of their curricula and the company’s television channel, a kind of reality show for home renovations, has more than half a million subscribers.

Comments on the app stores indicate that for many people Houzz is also a hobby and a social community. App users often aren’t even renovating; they simply enjoy leafing through the world’s largest design magazine, scrolling through “before” and “after” pictures and answering surveys.

Today the company employs 1,800 people all over the world, 100 of them in Tel Aviv’s Azrieli complex. In its last round of fundraising in 2017 Houzz was valued at $4 billion, and the list of its investors include top investment funds like Sequoia, Kleiner Perkins and ICONIQ Capital, which managed the investments of senior Silicon Valley executives like Facebook CEO Mark Zuckerberg. All told the company raised $615 million. Its high valuation reduces the possibility of selling it. At this point, however, the company isn’t considering an IPO.

At Houzz's Tel Aviv office.Credit: Kfir Ziv

Houzz never had a problem raising funds. The reason has to do with the unusual way it was founded – as a family side project, with almost no outlays and with no plans to make a profit. In 2006 Tatarko and Cohen bought an old house in Palo Alto, California which needed a massive overhaul, and their efforts to renovate it exposed them to how complex and faulty the process was. They had limited access to good professionals, the initial plans they received (which took a year to draw up) were not to their liking and exceeded their budget. Cohen came up with the idea of putting all the professionals and potential clients in one virtual location, where they could talk and align their expectations. Tatarko lined up 20 parents from her children’s preschools who were thinking of renovating and the local professionals who could help them.

Tatarko was working in a small investment firm that she planned to manage once the owners retired, and Cohen was a senior development manager at eBay. They had two children at the time and referred to Houzz as “our favorite hobby.” In the evenings, after the kids went to bed, they would answer emails from people with complaints and questions. Users of Houzz were seeking more and more tools from the site, and growth was meteoric.

Houzz had 350,000 users and thousands of active professionals and craftsman on board before Tatarko understood that she had essentially founded a startup. The turning point came at a meeting at one of their kids’ preschools in Palo Alto, where one of the grandparents, Amos Vilnai, founder of processor maker MMC networks, which he sold in 2000 for $4.5 billion, heard the numbers and warned the couple that if they didn’t immediately raise capital and grow quickly, someone else would take the idea and run with it.

Today, Tatarko and Cohen’s work model has a name – bootstrapping – referring to the period in which a start-up is run and grown alone, with few expenses and in accordance with the entrepreneur’s own means. Entrepreneurs bootstrap to bring their companies to certain significant milestones before a round of fundraising that brings investors in. This way they will get a higher valuation based on the company’s financial results, and they can retain a greater portion of its shares.

Tatarko explains that working this way avoids the two basic questions that investors ask entrepreneurs – whether the product has a market and can succeed, and whether the founders are people who can win with the idea. In other words, are these people setting up the next Facebook or the next Friendster — the pioneering social networking site that failed?

Matriarchal mentors

Tatarko was born and raised in Ramat Gan. Her mother was a teacher who switched careers to become a real estate agent, and her grandmother was a fashion designer who would fly to fashion shows abroad at a time when this was less acceptable for married women with children. She often mentions both women as being inspirations.

When she was recently asked what an entrepreneur’s first steps should be when trying to build a start-up, she jokingly responded, “Get on a bus in Thailand.” She met her husband on a bus from Bangkok to Koh Samui while on a post-university trip in 1996. The driver insisted that the first row of seats remain empty and ordered her to the back, where she sat next to a tall red-headed guy. By the end of the 15-hour journey, they were a couple.

Couples that start and manage a high-tech company are pretty rare, but it seems as if more and more Israelis in the United States are doing it successfully, including Oren and Roni Frank, founders of the online psychological services company TalkSpace in New York, and Oz and Naama Alon, founders of HoneyBook, a Silicon Valley company that provides client management software for small businesses. Incidentally, the three companies founded by these Israeli couples have an exceptionally high percentage of women working for them. In Houzz, Israel women account for 50 percent of the employees and 37 percent of the developers, while the average in the Israeli tech industry is 35 percent of the employees and 24 percent of the developers.

“Do you know Roger Kornberg?” Tatarko asks. “He’s the Nobel Prize winner in chemistry for 2006, an enthusiastic Zionist who teaches at Stanford and at the Hebrew University in Jerusalem. He works in the lab with his wife, Yahli Lorch, who is also a scientist, and his father, who won the Nobel Prize in medicine in 1947, worked with his mother in the lab. When I heard from them how scientists work together, actually standing next to each other and doing research together, I said, ‘Fine, so what are we doing already? One is on one floor, the other is on a different floor, sometimes we see each other during the day and sometimes not.’ People ask us, ‘How can you work together?’ but if you have a good relationship then this is the person you rely on most in the world; there are no conflicts of interest or ego issues.”

Big in Japan

Houzz’s income sources include selling annual subscriptions to the professionals active on the site, which gives them focused advertising to clients where they are located; regular advertising based on context and photos of brands like the Kohler company, makers of kitchen and bath products or the DIY chain Lowe’s. It also takes a 15% commission on the sale of items on the site. With the acquisition of the Israeli firm IvyMark in 2018, the company now also sells project management tools for designers.

Houzz is currently optimized for 15 different countries and is global expansion is determined organically, according to site searches and the local professionals who use the platform in English. For example, it entered Japan in 2015 after an accumulation of 1,000 Japanese professionals who provided services to Americans interested in Japanese designs. It was also linked to a business opportunity.

“The Japanese, unlike Israelis or Americans, don’t generally buy second-hand homes from private people, but new apartments directly from monopolies that build buildings and neighborhoods,” says Tatarko. “As a result, all the professionals – contractors, architects and designers – work with these monopolies and have almost no interaction with private clients. This creates a situation in which many young couples can’t afford to allow themselves to buy new homes, while 14% of older homes in Japan are empty because no one is interested in them. The Japanese prime minister decided on a reform that gives significant tax breaks to anyone buying and renovating an older apartment, which created an exceptional opportunity for Houzz.”

Houzz’s growth potential seems vast. The renovations industry has a turnover of $430 billion annually in the United States alone, according to a Harvard study, and an estimated similar scope in Europe. Houzz also benefits from changes in consumer habits, as indicated by market surveys conducted by the company.

During the early years of Houzz, the main reason homeowners cited as the motivation for renovating was to improve the value of their home before selling, and the main source of funding for the work was loans. A decade later, the primary reason for renovating is to make a dream come true (57%) or to improve the functionality of the home for the owners’ benefit (16%), with 83% of homeowners saying they were financing the makeovers with savings, and only 11% taking loans. The significant increase in the renovation of rental apartments also contributes to Houzz’s business.

“It’s a story that doesn’t end – another child is born and you have to reconfigure the room; your taste changes and you want to freshen up the place,” says Tatarko. “When you have access to technology and information, people start thinking different and that increases demand.”