We’re not typical founders,” says Adi Tatarko, poking at a paper-plate lunch of diced tomatoes and cucumbers. “We’re simple people. We don’t come from privileged backgrounds.” The chief executive officer of Houzz is doing her best to dodge any discussion of the economic gains that she and her husband, Alon Cohen, have created with their home design website. He’s mum on the topic, letting her talk while spearing some falafel with his plastic fork.
Just five years after starting Houzz at their kitchen table, the two Israeli immigrants have produced one of the top 200 web properties in the US. If you’re a homeowner looking for dreamy new ideas for your kitchen remodel or if you’re a designer wanting to drum up business, Houzz may well be your happy place. Each month Houzz draws more than 25 million visitors to its endlessly shoppable photo galleries, more traffic than retailing giants such as Nordstrom, Gap and Staples enjoy. Venture investors, betting that Houzz will capture big chunks of the $300 billion global design and decor market, now value the company at more than $2 billion. To the founders’ professed astonishment, their combined stake of nearly a third of the company puts their combined net worth meaningfully north of $500 million.
In Silicon Valley’s bro-coder culture, it’s rare to find a female executive at the top, let alone a couple who started dating in the 1990s and still share take-out lunches most days of the week. Among venture-funded companies, only 13 percent have a female co-founder, Pitchbook reported last year. Even when funding occurs, women-led startups often make do with less capital than their male-run counterparts. Yet Tatarko and Cohen have raised more than $200 million in venture capital, including a $165 million whopper of a round negotiated earlier this year. Tatarko runs Houzz with a style that makes no apologies for her gender or her nontechnical background. Instead, she blends razor-sharp strategic thinking with down-to-earth gestures that help rally other people to her way of doing things. Houzz’s first client was Tatarko herself, trying to get ideas for remodeling their four-bedroom ranch house in Palo Alto, California. Even today Houzz avoids talking up trophy homes in favour of showing people ideas that feel right for their own neighborhoods. “We like founders who build companies to solve problems in their own lives, even if they aren’t experts in the field,” says Alfred Lin, a Sequoia Capital partner who began funding Houzz in 2011. “They unpack issues in a way that people in the industry have never unpacked them. They see things that everyone else misses.”
So far investors have been eager to bankroll Houzz on the expectation that the site’s huge consumer base is bound to pay off somehow. With just over 300 people on its payroll Houzz has largely covered costs to date without rushing into an aggressive moneymaking strategy. One handy source of cash has been the annual listing fees—typically $2,500 to $4,000—paid by several thousand architects and designers for extra visibility in Houzz’s regional directories. A bit more money trickles in via paid listings for big manufacturers and retailers, such as Kohler and Ikea.
In late September Houzz unveiled a test of its big-league revenue play: A marketplace in which consumers can click to buy whatever bathtubs, sofas or other delights they see on the site. That’s likely to put pressure on existing online retailers of home decor such as Wayfair and One Kings Lane. The incumbents spend a lot on marketing to woo customers, while also enduring the hassles of overseeing supply chains. By contrast, Houzz keeps increasing traffic by word of mouth and has attracted 1 million listings by acting strictly as a go-between. Instead of stocking inventory, Houzz routes orders to the appropriate manufacturers or retailers while collecting a 15 percent commission. Houzz’s customer-service team will patrol vendors’ ability to make good on customers’ orders. With far more traffic than the incumbents, Houzz could reach $1 billion in sales easily in the next five years—if it can turn all those browsers into buyers.
Once Tatarko and Cohen break from their lunch, they head to separate corners in the company’s big, open-plan offices in Palo Alto. Company President Cohen sits in the heart of engineering-land, obsessively tweaking the website and tablet app. He and developer Guy Shaviv have filed a patent on some of Houzz’s features, such as little green information tags that are attached to buyable products in millions of photos, inviting viewers to click for more details. To avoid having the tags look like aggressive advertisements, Shaviv arranged for them to sway like tiny Christmas ornaments in the mobile version. Hidden algorithms create dozens of pendulum arcs that can govern each tag. No two wiggle at the same rate.
Venture capitalists followed later; so did individual funders such as David Sacks, the co-founder of office-productivity tool Yammer, who fell in love with Houzz while gut-rehabbing a San Francisco town house. “We’d start scrolling through pictures, and we couldn’t stop,” he recalled.
(This story appears in the 28 November, 2014 issue of Forbes India. To visit our Archives, click here.)