CEO Series: Adi Tatarko, Houzz

Sarah Chen-Spellings (Intro):

Welcome to Billion Dollar Moves—where we dive deep into the journeys of unicorn funders and founders who have turned their dreams into multi-billion-dollar realities; all across the globe.

And yet, many of them underestimated long before they became iconic.

Many of them, unexpected leaders, just like you and I.

I’m Sarah Chen-Spellings, now let’s get started.

You’re tuning into a special feature of the Billion Dollar Moves CEO Series: Adi Tatarko.

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Sarah Chen-Spellings:

Alright folks, today we have an extraordinary story that perfectly encapsulates resilience, innovation, and the power of community. We're talking about Adi Tatarko, the co-founder and CEO of Houzz.

Adi, along with her husband Alon Cohen, transformed a personal frustration into a global powerhouse in the home renovation and design industry, building a multi-billion dollar business in just seven years. What started as a side project, has now grown to a platform used by more than 3 million construction and design industry professionals and over 70 million homeowners and home design enthusiasts around the world.

In 2014, as revealed in a Forbes article, the founders' who often dodged questions about their economic gains were astonished to hear that their estimated combined stake of nearly a third of the company puts their combined net worth meaningfully north of $500 million.

But hold up, how did we get here? Here are Adi’s #BillionDollarMoves deconstructed.

Lesson #1: Don’t underestimate the power of being open to opportunities

Adi Tatarko was born and raised in Israel. Growing up, she studied with the same group of 38 kids from 1st grade through 8th grade,

After completing her required military service in the Israeli Air Force, Adi pursued a Bachelor's degree in international studies at Hebrew University in Jerusalem. A chance encounter (yes in a bus!) in Thailand with Alon Cohen, who would become her husband and business partner, that marked the beginning of a lifelong partnership.

After starting ProMIS Software, a tech-services company in Israel, Adi and Alon decided to move to the United States in 2000. They initially settled in New York before moving west to Silicon Valley, where Alon got a job at eBay following the dotcom crash.

Adi:

Alon said, I have a better idea. I'm about to finish my service in the Army, and I got a few clients that want me to build systems for them, program for them. And why don't you come and partner with me and you'll deal with everything related to the business side? He already had IBM and other big tech companies asking him to develop systems.

If there was something obvious in our life, it was that Alon is entrepreneur, want to be in tech. He at some point will start his own company. I had no doubts it was me that experience tech for years, both in Tel Aviv and later on, you know, for another year in New York. That said, it's too intense for me. It's not something that I can imagine alongside with having a family. And it wasn't an option for me not having a family.

2001, everybody is getting out of the Silicon Valley. Lots of jobs are being cut. Lots of startups are shutting their doors. And everybody's telling us that we're crazy.

Alon, however, had a very different idea in his mind. He wanted to move to the Silicon Valley.

Sarah Chen-Spellings:

Adi left tech to become a financial planner, but fate had other plans. They bought an untouched 1955 house in Palo Alto that needed significant renovations. The frustrating renovation process sparked the idea for Houzz.

In 2008, struggling with their home renovation, Adi and Alon realized many others faced the same challenges. They decided to create a solution, building Houzz as a side project while working full-time jobs.

Adi:

Alon kept saying, it doesn't make sense. It doesn't make sense that it is that it or it's like this. There must be a better way of doing it. So it started with a website and he started programming. It was not yet opened to the outside world.

We worked in the morning, came home spend time with the kids, put them to bed, and then our second shift started at night when the kids were sleeping.

Sarah Chen-Spellings:

Houzz started as a community platform with just 20 parents from their kids’ school and a few local professionals. It quickly, however, grew through word of mouth, attracting tens of millions of users worldwide.

Lesson #2: Bootstrapping in the Beginning Is Not The Worst Idea

A common question I get from founders is “To Raise or Not to Raise”— and if you tuned into our last episode with Johanna Smaros: remember she bootstrapped RELEX Solutions for close to a decade before raising external capital to fuel their expansion in the US.

For Adi, they bootstrapped for over a year, but not without frustrations:

Adi:

We don't want to find VCs or investors that will tell us what to do. We are really on a path here and we want to invest in that product and user experience and expand this community significantly before we even think about the business here and how to make money.

I didn't want to put imaginary numbers on a deck where all what I wanted to put on the deck is how much fun it is to grow a community that is adopting it and sharing it with others by word of mouth and our product roadmap and how big that can be given what we're seeing now.

Sarah Chen-Spellings:

Despite initial struggles, including being stuck at 20,000 users, Adi's conviction kept them going. They bootstrapped Houzz for over a year, focusing on building a robust product and community without outside funding.

By necessity in those early days, just as a picture, they worked out of their home. When they hired their first few employees for the home-design-and-renovation upstart, the new staffers also came over to work from their house.

Adi:

We bootstrapped it without even understanding that what we're doing is bootstrapping, right, because we built it for a long time without bringing investors on board.

And then by the time we decided to turn it into a real company, we already had an established community traffic product that people loved and investor that came to us and loved to invest in the company. So that was a good experience.

Sarah Chen-Spellings:

For Adi, a conversation with Amos Wilnai, a successful entrepreneur In 2010, convinced them to raise funds. By July, they secured $2 million from investors, including Wilnai and Audible founder Donald Katz. This enabled Adi to become CEO and Alon the President of Houzz.

Adi:

I was so certain that we have to bring the right investor that would really let us do it our way, that it doesn't matter what's the valuation or how much we need to give that person. If it's the wrong person, it will kill everything and if it's the right person, it can change everything.

So just before we closed that round with with Orrin, Alon and I had that conversation. He said, Adi, I know you have this deal with Phil. I know that you invested a lot of time, energy effort studying in this, but I think you love doing Houzz more.

And I think that you should seriously consider quit your job too, as I'm going to do. Come and do it with me. And I also think that you should be the CEO.

I think for many people, including myself, I'm not any different. It's very hard to stop the way you were thinking until now and completely change direction without digesting it all the way.

But the honest truth was, when I asked myself, what would I be more excited to do when I wake up in the morning? It was definitely that.

Sarah Chen-Spellings:

Houzz's growth continued, and in December 2011, they raised $11.6 million from Sequoia Capital, recognizing the platform's unique content, passionate community, and commerce potential.

By 2012, Houzz had 26 employees and over 65,000 design professionals.

Adi:

We learned how to do everything by ourselves. By the time we've got the investors, we were so knowledgeable, which was amazing.

And again, we were able to pick the best investors because there were no doubts anymore that we know what we are talking about, that we really have something good in our hand and we can execute.

Lesson #3: Build for scale AND RESILIENCE by focusing on sound foundations

In 2013, Houzz's global potential became evident. With 30% of users from outside the U.S., Adi and Alon decided to expand internationally.

Adi:

When we started that Alon and I, it was a very local project for us which obviously over time expanded tremendously to all over the US, but today, more than 50% of our new users are coming from countries outside of the US.

We expanded all over Europe and we started the expansion to Asia as well. This is very, very meaningful for us because the market itself, when you look at it, we're talking about $1.2 trillion market just between North America and Europe, with Asia aside, which is another enormous opportunity. And so the ability to go and localize it based on the needs of each industry in each country was tremendous for us.

Sarah Chen-Spellings:

By 2013, Houzz had 150 employees, over 2.4 million high-quality images, and a mobile app with 12 million downloads. The decision to delay monetization allowed them to build a platform perfectly aligned with their community’s needs.

[Music Effect] FAST FORWARD ANOTHER 7 YEARS.

The pandemic brought yet another challenge.

Her little startup had grown into a $4 billion company with over 1,000 employees worldwide. But during this time, Adi had to lead the company through unprecedented uncertainty. In March 2020, Houzz's business seemed on the brink of collapse as contractors couldn't work in people's homes.

The toughest moment came when Adi had to lay off 155 employees—about 10 percent of the staff then—and cut executives' salaries. However, within months, Houzz experienced a dramatic rebound.

Adi:

So we had to do lots of difficult things, make difficult decisions in order to support our clients, to support the professionals, to support the entire industry. We were very fortunate that we were able to go through it, support everybody and come out of this situation stronger on the other side.

The fact that during this time we developed more tools and technology and software, which was part of the plan beforehand, really helped us because now there is much more demand.

Sarah Chen-Spellings:

Through this period, Adi learned perhaps her biggest lesson from the pandemic: Never say never.

She explained how the restructuring was the low point of the year, but that a rebound took shape afterward, driven by a surge of interest in home renovations.

Houzz saw 60 percent growth in homeowners seeking professional help in 2020. Although the company scrapped its initial plan to design and sell its own furnishing line, it launched a new revenue generator: Houzz Pro, a software tool for home-remodeling businesses to manage communications, projects, and billing, enhancing their remote-working capabilities.

Adi:

We're very proud as a technology company. We can always be in front of, you know, the best technologies and apply them very deeply into our own industry. So View in My Room 3D is basically an ability to use your mobile device to empower you and envision everything how it's going to look like in your own room.

Since we introduced that tool, we had over 2 million people that used it in order to make decisions for their home remodeling and design. And these people were 11x more likely to purchase the product and materials that they saw using these technologies.

Sarah Chen-Spellings:

Adi attributes much of the growth to the realities of pandemic living: families needing to create spaces for work, study, and privacy during the day.

Adi:

These trends were there prior to the pandemic. I think many homeowners wanted and still want to reimagine 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. I didn't because I didn't need one. But all of a sudden, not just that I needed one. Allen 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, professionals need to keep up with this.

Sarah Chen-Spellings:

Houzz also saw increased demand for outdoor-space renovations and investments in maximizing property use.

And let’s just say this trend isn’t going anywhere.

And there you have it, to make Billion Dollar Moves like Adi. Here are three actionable questions you can ask yourself today:

1. What personal frustration reflecting a common pain point can I turn into a business opportunity?
2. Instead of thinking “I need capital to do this”, how can you focus first on building a strong product and community? Recall Adi and Alon started with a frugal approach, spending $2000 on the project at their kitchen table, before leaving their full-time jobs.
3. And when you’re ready for funding, who represents strategic capital for me? Aid raising money strategically, when necessary, allowed them to scale without compromising their values.

Adi’s story is a testament to the power of resilience, community, and strategic thinking. It’s a reminder that even reluctant entrepreneurs can build billion-dollar companies with the right mindset and approach.

Sarah Chen-Spellings (Outro):

Thank you for joining us on this episode of "Billion Dollar Moves." I hope Adi Tatarko’s journey has inspired you as much as it has inspired me. Remember, every big move starts with a small step, and sometimes, personal frustration can lead to world-changing innovation.

Don't forget to subscribe, rate, and review our podcast. Join us next time for more stories of entrepreneurs who’ve made billion-dollar moves.

Until then, keep dreaming big and making those moves!