You Only Have to Be Right Once (16 page)

Indeed, that war chest was an equal consideration. “Let's say you want to sell a million of these things,” said Luckey. “That means you have to have a few hundred million in cash just sitting around to build them.” Facebook, in other words, could actually make VR a mainstream consumer technology.

Facebook could also make Luckey rich.
Forbes
estimates that Luckey owned around 25 percent of Oculus VR, meaning the twenty-one-year-old was suddenly worth a half billion dollars.

• • •

SO WHAT STANDS IN
the way of making virtual reality a reality? First, a lawsuit: ZeniMax charged in May 2014 that its former employee, John Carmack, gave Oculus proprietary information (Oculus denies the charges).

Second, there's competition. In March 2014, Sony announced it was developing its own VR headset, codenamed Project Morpheus, for its PlayStation 4 video game console. “We see it first and foremost as another way of building vibrancy and value into the PlayStation ecosystem,” said Andrew House, president and CEO of Sony Computer Entertainment. “VR is very hot, and not just for games. Non-game people are just coming out of the woodwork because they're interested in this.”

Google and Amazon, meanwhile, wait in the wings. Google so far has shown more interest in augmented reality—inserting computer displays into the real world, à la Google Glass—than wholly virtual worlds. Amazon has been silent on the topic, but virtual shopping malls are one of the most obvious and promising applications of VR—instead of looking at a two-dimensional photograph of a product, you could pop on a headset and handle it, play with it, or try it on.

The final bit of caution: In 1985, computer scientist Jaron Lanier left his job at Atari to found VPL Research, the first company to ever sell a VR headset. It filed for bankruptcy two years before Palmer Luckey was born. “Recent events are weird for me in a way that the folks at Oculus couldn't possibly know, in that so many of the designs, the headlines, the little intrigues, and the chatter are similar to what I experienced over thirty years ago,” said Lanier. “All I can say is that I wish Mr. Luckey all the success in the world.”

Luckey is aware of this failure, and many others. This time, however, he thinks the technology is finally ready. “I don't think there are any comparable products right now,” said Luckey. “We've got the best team in the virtual reality industry, we've got a lot of the best people in the games industry, we've got big partnerships with hardware manufacturers and game developers. I think we're on the path of making the world's best virtual reality hardware . . . and I think the consumer product is going to be way ahead of anything anyone else can do for the next couple of years.”

And even if it's not, Luckey is determined to pursue his dream. Oculus has been in acquisition mode in 2014, buying Carbon Design Group, a Seattle-based product design studio, and RakNet, a game networking engine that, fittingly, is open-source. Cash is no longer an issue for Luckey. And he certainly has the time horizon. “Five years from now, I don't know if everyone's going to have a headset,” he said. “But I'll be doing this until it happens, or until I die.”

Adi Tatarko, Houzz: Breaking into the Boy's Club

Silicon Valley has a woman problem. The number of tech start-ups helmed by women is pathetic when measured against the potential talent. And the “bro” culture, an unfortunate by-product of a place and time where young men reign supreme, can be even worse. That's what makes Adi Tatarko especially interesting. Yes, she and her husband have, with far less fanfare than their peers, quickly built up a personal fortune approaching $1 billion, thanks to their ascendant home design site, Houzz. But George Anders details how Tatarko faces hurdles and dilemmas that her male peers simply don't.

 

S
ilicon Valley start-ups tend to get cranking in the rough-and-tumble domains of male engineers: garages, college fraternity rooms, or high-powered tech incubators. Adi Tatarko started Houzz, a Web-based home-design community valued in 2014 at more than $2 billion, in a beanbag chair in her children's bedroom.

She and her husband, software engineer Alon Cohen, had wanted to upgrade their kitchen and add an extra room to their sunny three-bedroom ranch house in Palo Alto. Yet after two and a half years of flipping through magazines and meeting with architects, they remained stumped, and were especially frustrated by the lack of an online one-stop shop of design ideas. So the couple decided to build one. He worked in a nook next to the kitchen, coding the site. She drummed up content, coaxing a former
Sunset
magazine editor, Sheila Schmitz, to join her. In one of their earliest chats, back in 2009, Schmitz recalls, Tatarko scrunched down on that beanbag chair and spelled out the guiding philosophy for a site that would ignore everyone else's proven formulas for e-commerce and opinionated blogging, in favor of a maverick approach that encouraged innocent window-shopping. Five years later, Houzz was one of the two hundred most visited websites in the United States, ahead of the likes of
People
magazine, United Airlines, and CNBC.

From the family setting to soft-sell strategy, it was an unusual start. But Houzz is an unusual company. Of the 150 largest companies in Silicon Valley in 2013, according to a study by the law firm Fenwick and West, more than 43 percent didn't even have one woman on the board of directors (versus just 2 percent of the S&P 100), and over 45 percent had nary a single female executive (S&P 100: just 16 percent). Company founders? A rough survey indicates that just one in twenty venture-backed start-ups is woman-run, and those that get off the ground raise perhaps two-thirds as much money. Some of that bias stems from an education system that dissuades girls from science and math; some of it comes from Silicon Valley's geek-cool “bro” culture. Yet all of it seems to work as an advantage for Tatarko, a verbal tornado who is less likely be talked over than even the most garrulous, deep-voiced man. For the Houzz CEO, her gender helps her understand her market, and create a culture that's at once rambunctious (“She has no boundaries,” whispers one of her male investors) and inclusive (she serves cake for each of her two hundred employees' birthdays).

“I'm a woman, so I'm more emotional,” said the forty-one-year-old CEO. “I need things here and now.” Her employees sometimes do impersonations of Tatarko, declaring some big new business goal, while her forty-three-year-old husband, the president and chief technologist, frets that she has promised too much. These skits (and reality) always end the same way. The deadline arrives; Houzz's performance surpasses even Tatarko's ambitious forecast, and the CEO rises to her feet to gleefully declare: “We did it, even though Alon said we couldn't!”

• • •

IT'S NOT A COINCIDENCE
that one of America's most successful women tech entrepreneurs hails from Israel, a country correctly dubbed “Start-up Nation,” its tech dynamism fueled in part by the training and maturity forged from mandatory military service—for men
and
women. Growing up in Israel in the 1980s, Tatarko drew inspiration from a mother who was a real-estate broker and a grandmother who had been a prominent fashion designer for decades, who flew to Paris on her own for exhibitions when women simply didn't do such things. “I remember coming to my grandmother's home and being fascinated that she was juggling everything so well,” Tatarko recalled. “She had great support from the rest of the family, and I was so proud of her.”

An international studies major at Jerusalem's Hebrew University, Tatarko graduated in 1996 with hazy plans to travel abroad and “make ugly places beautiful.” Rambling through Thailand with two girlfriends, she ended up on a fifteen-hour bus ride from Bangkok to the island of Koh Samui. (“We didn't have enough money to buy plane tickets,” she recalls.) She sat in the front, keeping her distance from three young Israeli men in the back of the bus. But the driver wanted the front seats empty, so he tugged her toward the back and deposited her next to a tall redhead, Alon Cohen.

“We talked nonstop for the whole bus ride,” Tatarko recalled. “It was like four dates, one after another. It was wonderful.” They stuck together for the rest of the vacation. When they got back to Israel, they opened a small tech-services company together, PROmis Software. In 1998, they married, and shortly afterward, they moved to New York, where both saw better career opportunities. The kept heading west: By 2001, they were in Silicon Valley, where Cohen had landed an engineering job at eBay.

Cohen wound up heading up engineering teams that worked on everything from monetization strategies to application programming interfaces, or APIs, which make it easier for outsiders to work with eBay's data—skills that would eventually accelerate Houzz. Tatarko's ambitions took a backseat: Her first son was born in 2002, and two more followed. She worked part-time as an investment adviser for Commonwealth Financial, coaching clients on how to manage their money.

Then Houzz started to take shape, proving the core truth of this latest gold rush: Even after a twenty-year stampede to create consumer Internet start-ups, plenty of big, unexplored opportunities still exist. The richest cluster of this latest digital boom involves community sites like Pinterest and Twitter, which nimbly connect the curious with the sharers. Such start-ups are hopelessly unsuited to bringing in revenue at first. But if they can grow to attract millions of users, all the usual opportunities to sell ads, data, and goods spring to life. With $150 billion spent each year on home improvement just in the United States, Houzz was an especially fruitful example of how this dynamic plays out.

The new company began imperceptibly in 2006, when Cohen bought the rights to www.houzz.com for twenty dollars. “We wanted a five-letter domain name that had something to do with home improvement,” he explained. The natural choice, www.house.com, was long gone. But he and Tatarko decided that their concoction would suffice; it combined the terms “house” and “buzz” in a way that they hoped would seem clever. They hardly used the domain name until 2008. That's when Tatarko started collecting designer photos and asking other parents at her boys' schools if they might want to look at home-improvement photos, too.

Think of Houzz as the triumph of the innocents. The site lacks the trend-spotting insistence of an architecture magazine; it's missing the “buy now” exhortations of a big-league e-commerce site. But those omissions mean Houzz sidesteps the egos and pushiness that usually plague interior design. Houzz is an explorer's haven, letting jittery homeowners browse for as long as they choose, gradually sharpening their tastes and budgets until they can say with confidence: “Here's what we want.”

While the traffic originally came mostly from the Bay Area, the site quickly attracted a global following. More unexpectedly, architects and interior designers began serenading Tatarko and Cohen, out of the blue, clamoring to post photo albums, giving the site a seemingly unlimited supply of free content and ideas. “Houzz has become as much of a tool in how architects communicate with clients as a pencil or a T-square,” said Richard Buchanan, a high-end architect near Philadelphia, who took early note when his clients began showing up at his office with tidy digital “IdeaBooks” from Houzz.

In 2009, the couple faced a crossroads. Houzz couldn't be a weekend hobby anymore. The fast-growing company needed twenty servers to sustain its expected data load. It needed full-time engineers and full-time editors. Houzz also needed far more cash than the $2,000 a month Tatarko and Cohen were dribbling into it.

Where to turn? “Adi and I were scared of venture capitalists then,” Cohen recalled. It was clear that the couple could turn a small profit in a hurry by jamming the site full of ads, or by setting up some pay-to-see features that would make it harder for architects and clients to get connected on their own. But neither of them wanted to do so. Tatarko was especially adamant. She wanted to spend at least a year or two making Houzz the friendliest, smoothest site possible, before worrying at all about what the business model should be. Neither of the founders wanted to take money from a financier who might arm-twist them to put profits ahead of quality.

Safety arrived in the form of Oren Zeev, a Silicon Valley angel investor who was recommended to Tatarko and Cohen by a mutual Israeli-born acquaintance. He promised the Houzz founders that they would stay in charge. He would only look for ways to make their vision come true. In November 2009, he led a syndicate of investors that took a 35 percent stake in Houzz for $2 million. Other investments began streaming in, including $1 million–plus from David Sacks, the founder of office-productivity tool Yammer, who came across Houzz while gut-rehabbing a San Francisco town house. “We'd start scrolling through pictures, and we couldn't stop,” he recalled.

Those investments proved quite astute. Houzz doesn't disclose its operating results, but people familiar with its books say the company has operated at a very modest burn rate since 2011, in spite of making only modest attempts to monetize its business. The site could take a cut of commerce or referral revenue; it also could step up what right now are fairly tiny efforts in preferred listings. Today, many thousands of architects and designers pay about $2,500 a year, each, for premium listings in Houzz's regional directories. “I don't think we could get that many business leads any other way,” said Mike Close, who runs Spinnaker Development, a luxury homebuilder in Orange County, California. “In fact, we're now updating our Houzz profile even before we add something to our website.” They could increase their push among major manufacturers and retailers, with the likes of Ikea and Kohler already on board.

Instead, they continue to focus on site quality. And investors clearly buy into the money that will follow: Tatarko and Cohen have raised nearly $200 million in venture capital, culminating in a $150 million round that was negotiated in the first half of 2014. “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 led an initial venture investment in 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.”

Such vision can prove highly lucrative. This most recent round values Houzz at about $2.3 billion. Tatarko and Cohen's stake likely approaches $1 billion.

• • •

NOBODY ASKS MALE EXECUTIVES
about work-life balance. But when Tatarko, while running one of the world's fast-growing start-ups, had a third son in 2013, it weighed on her. “I'm trying, I'm trying,” Tatarko exclaimed at one point, in the midst of an interview mostly about Houzz, before remarking to no one in particular: “I hope I'm doing the right thing.”

“There are things I can't do anymore. I used to cook every night. Now, someone else is using my recipes to cook for us.” She's been reading Harry Potter novels to her second son as a bedtime treat for both of them, and that makes her smile. Still, she says, there are times she wakes up at 2:00 a.m., with the twin pressures of parenting and corporate leadership weighing on her. “I'll think: Did I schedule that playdate yet? And then I'll suddenly realize that there's another slide I need to make for the next board meeting.”

And having a cofounder that doubles as your husband represents a dynamic intense even by Silicon Valley sleep-in-your-office standards. “This is hard,” said their original financier, Oren Zeev. “They're juggling. Other than work and family, they really don't have a life.” Other Silicon Valley CEOs take the work-hard, play-hard ethos seriously, weaving in conferences in Davos and Aspen with charitable boards and vacation homes. Not Tatarko or Cohen. They run a company, they connect with their kids, and they catch a few hours of sleep. That's it. Some nights Tatarko works late and Cohen dashes home to join the boys for dinner. Other evenings they reverse roles.

Even in the office, there's a sense that Tatarko and Cohen are constantly trying to fit thirty hours of activities into a twenty-four-hour day. Her sparse white desk sits in one corner of the company's giant, open-plan offices. Surrounded by editorial employees, she focuses on international expansion. Nearly 30 percent of the site's visitors already are from outside the United States, most of whom arrived by chance. In 2014, Houzz was in the process of opening offices in London and Sydney, and translating the site into German and French. Great design, Tatarko argues, can happen anywhere in the world, and good ideas are good ideas, no matter what time zone they come from.

Cohen, meanwhile, sits off in another corner, in the heart of engineering-land. Yes, it's a pretty site, but there's obsessive technology behind it. 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 sinks, light fixtures, and the like, which offer viewers a chance to click for more details. To avoid having the tags look like aggressive advertisements, Shaviv arranged for them to sway back and forth in the mobile version, like tiny Christmas tree ornaments. Hidden algorithms allow for more than a hundred different pendulum arcs that can govern each tag, and no two wiggle at the same rate. Cohen's latest obsession: a new version of their iPad app, which already allows designers and architects to leave their binders at home.