Behind the Houzz Acquisition of IvyMark: 6 Lessons for Founders
1 — Speed
IvyMark was the third pivot for this team. After we invested, we looked at their data with them, and just four days later, the team realized their second business was working a bit, but would never be significant. After identifying their most active customer cohort, they came up with a new plan in three days that included a “Market Network” network effect. They made their decision that day to pivot again, and had a V 1.0 of the product built three weeks later. On the same day, they also started testing the concept with customers to verify the market demand, using only mockups and ads, before writing any code. That speed continued with rapid iteration on every element of the business and is a key part of the IvyMark success. We often say that speed is the number one success factor in a startup — the IvyMark story definitely follows this truth.
2 — Network Effects
As IvyMark got bigger, the value of its Market Network was increasing geometrically. Houzz and others needed to move quickly or the valuation of IvyMark was going to start increasing 5X-10X per year. Network effects are the main defensibility for startups and in IvyMark’s case, its Market-Network network effect secured its defensibility which we believe led to the acquisition.
This Ivymark acquisition moves Houzz into more of a market network by adding the SaaS component of the Market Network model. Until now, Houzz has achieved a scale effect and a two sided marketplace network effect. This acquisition will help them build a direct network effect. (Very similar to Zillow’s acquisition of DotLoop and PremierAgent as Pete Flint discusses here).
Undoubtedly, Network Effects is the second greatest predictor of success we see in early stage companies.
3 — Founder — Market Fit
Lee and Alex were embraced immediately and vocally by their customers, the interior designer community. Given the mutual respect and understanding they had with the customers, and their commitment to the positive impact on their customers’ business, a deep sense of customer loyalty formed in the first 4 weeks. You could see it and feel it immediately. This caused word of mouth growth, high customer retention and solid decision making by the team. And it starts with a genuine fit between the founder and the market they’re serving. When we look at companies we always ask ourselves — is there a good founder-market fit?
4 — Founder Compatibility
It helps if you fundamentally like your co-founder. Ups and downs and pivots and financings and mistakes take their toll over the years. Liking each other can be the difference in keeping it together and enjoying the ride enough to keep going. Alex and Lee have that.
5 — Israel — US
Houzz and IvyMark are both US based companies with Israeli founders, Israeli investors, and part of their development team in Israel. This connectivity was important for this acquisition, and is part of the NFX story as well. With Gigi in Israel and with Pete and James in Silicon Valley, about 1/3 of our investments are with Israeli Founders. The Israeli startup eco-system continues to evolve positively to create powerful combinations like this.
6 — Great Investors
Having great, supportive investors who cover your back even at the toughest points and through pivots always helps…Tal Barnoach of Disruptive and Rami Beracha of Pitango in Israel invested early, invested significantly, and gave the team unwavering support. They worked with the team through multiple business models and several rounds of financing.
We have really enjoyed being part of IvyMark’s journey, and we’re proud to have them in the Guild. We’re huge fans of Houzz (we’re also investors and former advisors) and look forward to very big things from Houzz and IvyMark.