This Week in Startups - E1092 The Next Unicorns E12: Homebound CEO & Co-Founder Nikki Pechet is solving the home building process by increasing customer experience, helping victims of natural disasters rebuild efficiently

Episode Date: August 5, 2020

Check out Homebound: https://www.homebound.com Follow Nikki: https://twitter.com/NikkiPechet Follow Jason: https://linktr.ee/calacanis Thanks to our partners: Zendesk - 6 months free at https://www.zendesk.com/twist LinkedIn Jobs - Get $50 off your first job post at https://linkedIn.com/unicorn

Season two of the next unicorns is brought to you by Zendesk. Listen to Zendesk's new podcast, sit down, start up to hear conversations with Zendesk's leaders and the founders, CEOs, and makers on how to start up, even when the world goes topsy-turvy. Download and subscribe on Spotify, Apple, or wherever you get your podcasts. and LinkedIn jobs. A business is only as strong as its people, and every hire matters. Get $50 off your first job post at LinkedIn.com slash unicorn. Hey, everybody, welcome back to this weekend startups.

I'm your host, Jason Kalakannis. You can find me on Twitter at Jason Saturday nights. I pop open a bottle of wine and I do a drunk Q&A, so meet me there on Saturday nights. I'm kidding. I did that one Saturday night in the last 10 years. And we have a great Slack room. It's secret. So don't tell anybody.

But if you go to This Week in Startups.com slash Slack, you can join our Slack room where people come in and try to promote what they're doing and then we ban their account. But the people who are left are founders who are there to have conversations about building startup. So if you're building a startup, you're an investor, where you're just a fan of technology and want to talk about startups, entrepreneurship, capitalism, all the good things in the world, as far as I'm concerned, join us at This Week in Startups.com slash Slack. If you want to promote yourself, don't come.

It's not for promotions, for conversation. Disclaimer, disclaimer, disclaimer. We had great success with our last Sunicorn series, the next unicorns, and it's been a great effort by our team to look for companies that we think could become very meaningful and change the world. How do we do this? Well, there's a lot of different vectors you can look at. One of them is how many employees the company has, how much they've raised, who the investors

are maybe you see some growth in these things. And it's pretty easy to say, oh, other people have deemed this company worthy of being stewards of a capital allocation. In other words, a chunk of money. But we also look for things that we think are going to change the world. So it's twofold. If somebody's building a derivative SaaS product, well, maybe that's not worthy of being on the next unicorns series.

And our guest today is doing something. really, really fascinating in housing. And that is one of the stickiest, hardest, most regulation-dense areas you could pick. I always tell people, startups go to die in education, music, housing, and health care. Those are like the most difficult, the highest mortality rate endeavors. Of course, music's starting to work out. We saw it Spotify, but that gives you an example of how hard it is when somebody does get it right. Transportation used to be in that category as well.

but Tesla and Uber and some others have figured that one out. Our first guest on this series was Daphne Kohler doing in CITRA. What a great guest trying to solve, use machine learning to solve for big drug discoveries that would or even small ones that affect small populations that were relieved suffering. And today on the program, we have the founder of Homebound, which you can go see at Homebound.com. It's a really clever idea. and I'm really excited to have Nikki Peckett on the program. Welcome, Nikki. Thank you so much for having me.

Now, we have a little common ground. You worked at a little company called Thumbtack, which I was the second or third investor in, correct? I did work there. I spent four years there getting to scale it. Yeah, and tell us about that journey and what you learned at Thumbtack before we get into your new project. Yeah, so prior to Thumbtack, I had spent close to a decade, at Bain and Company doing strategy consulting. And when I was leaving, I wanted to find a place where I felt just mind-meld with the founders and where I felt like I was working on something that really mattered.

I don't have multiple work modes. I basically work constantly. And I wanted something that I just had my first kid. And I wanted something where I could tell my kid, I'm going to do something that matters for the world. And so I met Marco Zappacosta. And within minutes, I would have taken any job at them tack. I think he's a wonderful human being.

Yes, he is. The approach to building Thumbtack was one that I felt like I could not only be an important part of, but I would love every minute of. And the idea of helping people get started on projects was something that was near and dear to my heart. I've loved home improvement projects and working with tradespeople to get things done for pretty much my entire life. And so it felt like a mission that I wanted to be part of and a team that felt like home

from the instant I met them. And you spent 10 years writing research reports and doing consulting and reports that probably were not even read in some cases. How frustrating and educational was that 10-year portion of your career? A lot of people who get their MBAs or business degrees consider going and working at a consultancy, a consulting firm like Bain or Boston Consulting Group or whatever. Was that something that was a good idea for you? Do you regret it?

Or what did you learn there? No, I thought Bain was actually an incredible learning ground. And I would say that both at Thumbtack and at Homebound, I've built teams that have a lot of former Bainees. Bain versus other consulting firms tends to be more focused on impact. And so I spent the majority of the time that I was there working for companies that needed to undergo digital transformations, whether they were private equity backed and trying to hustle to change a company over the period of the investment or larger companies that were really motivated to change. But I actually got to have a pretty big impact across a range of consumer and retail companies. And I think the biggest thing I learned at Bain that I've brought to the startup world is how to build really incredible teams, how to manage those teams towards clear objectives and how to tie those objectives to an overall strategy that was really logically articulated such that when you hit a problem and something wasn't what you expected, you knew, okay, well, because we thought this was true and it's not true, we're going to take a logical left turn. And that means that we're going to go down this other path. And so those are skill sets that I found to be.

incredibly helpful both at Thumbtack and at Homebound. So it wasn't just having a strategy when you're unpacking what you just said and building a great team. It was the communication of that strategy so that people would remember it or be able to act on it. Yeah. It's the narrative around getting people on board with here's what we're going to do and why we think it's right. But then just as importantly, it's the ability to create a work plan against that that ties to clear objectives so that, you know, whether you've got 10 people in a startup or hundreds of people, you can articulate how the objectives of the company ladder up to the overall strategy, and then you can manage people against those objectives

so that you know you're creating high-performing company. So it's clarity. And when a private equity company buys, you know, a company, you may have a bunch of people there and that company might have just been growing on momentum for decades without much consideration or thought on it could have love, but maybe not so much consideration or thought on, is this the best optimal strategy, which is why the private equity firm had the ability to buy it in the first place, correct? Right, right. Yeah.

And there are still a lot of digital companies out there, companies that haven't made the digital transformation. I mean, are they running out of companies before we get to your company? Are they running out of companies to transform? You know, I don't think so. And I think that even for companies that feel like they've already gone through a quote-unquote digital transformation, the tech world moves so much faster in terms of what's possible than any Fortune 500 company.

And so there is constant work to be done to keep those companies moving. Got it. So tell me what was the, what is the basic idea for homebound? And when did you start it? Yeah. So in October of 2017, over 6,000 houses burned down in Napa and Sonoma County. It was the most destructive wildfire. in the history of California.

And in the aftermath, you had homeowners who had absolutely no idea how to get started building, even with million dollar insurance checks in their pocket. My co-founder lost his house in Sonoma. I watched the community around me in Napa burn down and then just be paralyzed. People didn't know what to do. And so as we started to try to figure out, what could we do to solve this problem? How do we get the community rebuilt? We realized that there were people across the,

the state and across the country who wanted to help. And they didn't know how. And there was technology that was available off the shelf, readily used in other industries that would have made the process so much better, but nobody was using it. And so we founded Homebound on the premise that through a better labor model, technology behind every step of the process, and a company built entirely around customer experience, we could change what felt possible in home building. And as we started building that, we realized it's something. that's really needed in disaster areas, but it solves the problems that are endemic to home building in the entire country. So we're starting in disaster areas, but you think of it as something

that could really help anywhere where you have housing shortages or labor shortages and need to build more effectively. So what are the key components of building a house that you solve versus, say, just going to a builder? Or are you just a builder? How do I think about it? What are the steps that you saw for me. If I have that million dollar check, whether I got it from an insurance company, or I just have, you know, 10 acres of land somewhere and I say I want to build a house here, how does that process actually work? There are a few things that are really important. And I'm going to step back for a second and just give you context in the industry. Because I think if you work in tech, it's really easy to assume, well, if you're going to build a

house, obviously there's a bunch of technology behind it and there should be some customer interface. And I'm just here to tell you there's none of that for the vast majority of people who build houses. You've got over 300,000 licensed home builders in the U.S., and the vast majority of them are building houses, even multi-million dollar houses using almost no technology. Maybe an Excel spreadsheet for the upfront estimate and a really high-level schedule, maybe quickbooks to be sending you invoices, but that's about it. And so if you have decided to build a house, you need to go through dozens of people, whether it's, you know, if you're in a disaster area, you need insurance adjusters, but for everybody else, you're still going through civil engineering,

structural engineering, soils engineering, before you even get to your architect, and then you're working with your architect, and then you need to get a permit, and then you need to get a builder. And so one of the first things that Homebound solves is everything you need under one roof. You have one single point of contact throughout your build. You come to us at the beginning. You can come to us in the middle if you want to, but we will take care of absolutely everything and streamline that process for you. And that's really important for somebody who's overwhelmed by the prospect of building a house and needs to get it done.

And our belief is it should help communities recover from natural disaster faster and help expand the custom home building market to more people. So in that way, just that first simple step of being essentially, if you were to think of a wedding planner or a concierge or a travel. not a travel agent in the way we used to think of it, but there are like these luxury travel agents who will do the entire itinerary for you. You have so much, so many little details,

so many vendors, just consolidating all of that into a SaaS interface is at the core of what Homebound is doing, right? That's exactly right. And so it's a combination of this network of people who can do everything that you need done on your house and then you combine that with a technology platform that enables coordination between all of the points on the project.

and then unprecedented transparency and visibility for a homeowner. So you think about the information asymmetry that you would get for a homeowner who's never built a house before and in many cases didn't want to build a house. And then builders who are amazing builders but are not customer service people or great communicators. Our platform helps bridge that gap to make it feel possible for anyone, anywhere to build a house and to enable us to create that network that can successfully come in and rebuild communities that need it. When we get back from this quick break, I want to know how you charge. for your services at homebound when we get back on this weekend startups. Everybody knows that Zendesk is the go-to tool for customer support. We all know that. It is the standard, the gold standard in fact. But what you may not know is that Zendesk also offers a suite

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So start building the best customer experiences with Zendesk. Okay, Nikki Peckett is with us. She is the CEO and co-founder of Homebound.com, which we just heard, acts in a way as some combination of concierge and SaaS software to help you rebuild or build a home.

You are not builders yourself. You're not general contractors, correct? We are. We are the general contractor of record on our entire projects. We subcontract all of the work to our network of builders, but we do act as a general contractor so that we have control over the entire process. What is a general contractor versus a builder for somebody who hasn't built a home? So general contractor is somebody who typically oversees a bunch of different individual trades or a bunch of other contractors. A builder is generally the same thing. I'd say those terms. are generally interchangeable. Who does the general contractor, so the general contractor is ultimately responsible for the outcome? Yeah, that's right. So a general contractor would hold liability for

things that go wrong and they're the one that's shepherding the overall project. Now, most general contractors don't do what we refer to as pre-construction, which is the entire period before you actually build the house. And that period is really complicated, designing something that actually fits your budget, getting all the engineering work done, making sure that it meets local permitting requirements. That's a really heavy lift. Who does that have? So typically a homeowner would do all that themselves, which is one of the things that really constrains the size of the custom home building market is that it's almost impossible. You've got to find land to build on. You've got to go get a construction loan, which is really hard to get. Then you've got to figure out how to coordinate

20 different people to figure out how to build a house. And generally those people are not awesome at figuring out how to build something within your budget because it's really hard. And so we streamline all of that process for you to make it possible for people to build a home. And over time, you know, the home building industry or the custom home building portion of the industry is over $100 billion today. My hope is we can simplify that process so much that we can triple that market in the U.S. alone. So you want to induce more people to build homes by making it less painful. That is exactly right. Got it. So there are general contractors. You are one of them who will manage the subcontractors, which might be a plumber or a carpenter or somebody who lays the foundation

or puts the HVag in, correct? Yep, that's right. But you don't do those things because you have a network of those. You wouldn't want to do those things. But you need to be the general contractor. Why? So we need to be the general contractor today because we want to make sure that these houses actually get built.

And so we take responsibility for the entire house from beginning to end. And we subcontract to a combination of individual contractors. and we also use general contractor partners to help us scale more rapidly and make sure that we're managing our projects well. One of the things that I learned at Thumbtack was when you're doing really hard, complicated projects,

particularly that include a number of different trades, but also include complicated components where things are likely to go wrong. You need a lot of control in order to deliver a great customer experience, and that's something that the vast majority of marketplaces simply don't offer. And if you look at the evolution of other marketplaces

that offer complex transactions. You see places like Airbnb adding more and more and more services to ensure a great customer experience. And so that's something that when we started this and we said, look, we had to figure out how to rebuild these communities. We knew that the only way to do it

was to start with a tremendous amount of control over what was actually happening and to play the role of general contractors so that we could make that happen. Yeah. There is the concept that you could be asked at light and you could just match people with general contractors

but you made a decision, hey, this is too complex. There's too much at stake. We need to put more process. We have to put more friction to, you know, which is the opposite of what most people are doing is just build a marketplace, make it light. You're saying make it a little heavier because it is a heavier transaction. This is not a weekend away. This is the next decade or two.

And it's your, in most likelihood, the biggest purchase or effort your customers have ever done in their lives, correct? Yeah, exactly. And I will, one point I want to make is we still are asset light compared to your typical home builders. So you think about your big production home builders, Lenar, Pulte, those guys. They own massive tracks of land that they then turn into houses and sell them. We don't own land. So we're working with people who have land and want to build a house and we're overseeing the entire project.

We have more people on our team than we would have if we were a peer marketplace. But lots of people have tried to be peer marketplaces in very large home impoverty. improvements projects or in custom home building and haven't been successful. And so I think it's really important for you to actually own that experience and have tremendous construction expertise on the team to make it possible to really change what's happening in the industry. How do you make money? So we make money like any other general contractor, which is the spread between the price that we charge for a home and the cost of delivering that home. And is that a bad incentive because you're incented to spend as little as possible, which would mean less quality. And not just you,

but all contractors are incented to spend as little as possible and charge as much as possible. Why does the industry work that way? Isn't there a better model? Can I just pay you a fee? Wouldn't that be better if I just said, I just want to pay you $10,000 for your software and services? Yeah. So there's a couple ways that custom houses are built and contracted with typical contractors. One is a cost plus model where as a contractor you get some percentage of the overall build. And sometimes that works well. That can create misalignment of incentives around how someone's charged, kind of depending on the way that a company operates and the way that that's structured. In that case, you would be wanting to spend more so that what is the percent they get

plus 10 percent of the cost of building it or something? Yeah, 15 or 20 for better contractors. So you spend a million dollars on a house. You have to give $200,000 to the general contractor in that example. Yes. And then if you were, we go with fixed price contracts for the vast majority of our work, although there are some exceptions where it doesn't make as much sense. But for a fixed price contract, we want to give somebody a price for the scope of work. Now, if they change the scope of work, the price might change during the course of the build.

But the goal is we agree on the scope, we agree on the price. And then you don't have to worry as a homeowner about that price changing. And that's something that is massively different from the vast majority of, contractors today. So most people walk into a project and they expect, okay, this is going to cost twice as much and it's going to take twice as long. And the goal of what we're building is a system that can be much more predictable around the cost of a project, the timeline for a project. There are lots of things that we can't control around weather or COVID has been an interesting challenge there. But for the most part, we want to deliver greater predictability than absolutely

anyone else. And we're already doing that. We have a long ways to go to be where we want to be. But I want to make it so that if you're looking for, a house and you're on Zillow shopping for something. You might be looking at houses that you could buy and you have to renovate. But I want you to also be looking at land and choosing to build with homebound because while it might take you six months to buy a house and complete a renovation, I can build a house for you in six months that is perfectly tailored to everything that you need for your family. In six months. Wow. And on time and on budget. Right. Within reason of pandemic, once in a lifetime pandemic aside. So walk me through the economics. What is the, what's the median house?

you would build cost at the end of the day to build? Yep. So we build a range of kind of anything that would be considered a custom home. On the lowest end, we're talking about $3 to $400,000. Remember, we're building in California. So building costs are higher. Sure. And then up to multimillion dollar homes.

We got several of those as well. So if we picked, is there a million dollar home that you've done, something in that range? Yeah. A million or two. So if you had a million dollar home, what would the cost per square foot be? ballpark in that one in one of the projects you've already done. And then what would your profit be on that? So your fees, I'm sort of, yeah.

So in terms of cost of the home, it depends entirely on what you've designed as a homeowner. Sure. And so, you know, on the lowest end, sort of 250-ish, a square foot for reasonably basic design, architecture, flat lot, and, you know, great finishes, but more basic finishes, all the way up to, you know, we've got homes that'll be $600 a square foot. We would say most builders would probably build what we build for 600 a square foot for 800 or a thousand. But that's kind of the range for us. And homeowners have complete control over where they land in that range based on what they've designed. And one of the things that's really different about our process is we start up front with

a build strategy to say with a homeowner, here's the budget that you have and here are the things that you need. Here's a strategy for how we're going to get that done. And we embed all of that in our tech platform to say, you know, for any consultants that are working with us, here are the constraints. This person can spend a million dollars or $800,000 or whatever it is. And based on square footage requirements and finishes that they want to make sure that they include and topography of the lot, here are the constraints we need to put around it to help keep any consultant working on the project, making sure that the project actually turns out the way that a homeowner needs in order to make them able to build. So if you were building a million dollar home and you're

the general contractor, what would the amount you make be ballpark on a home of that million dollar home? So we don't share details of profitability. Got it. That's what I'm trying to get at is like, well, let's take another swing at it. What does the average general contractor home builder make on a million dollar home? What's their profit on building a million dollar home and just selling it for a million bucks. Yeah, so contractors range widely in profitability and I would say there's also a wide range

in how much they track profitability and things. I think the very lowest end ends up being 10%, which is really low. I think it goes up to we got lots of builders who build for 30% margins. Now that's some combination of an actual markup and then potentially making money along the way on other pieces of the project supplying materials and things like that. So there's a really wide range. Our hope is that we can offer homeowners the best value in the industry. So we can give them a price that's on par with what else they would get from a great builder in the market. But we can provide an experience that is dramatically better, that is more predictable, and that just takes a lot of the headache out of building. All right.

I have a very simple, basic, perhaps silly question that I want you to ask after we get back from this break, which is, if you are so good at this and there's so much opportunity, why not build the homes on spec when you find a great plot of land and then maximize your profits by just selling them to the public and just do it that way instead of waiting for somebody to come to you to say, I want to build when we get back on This Week in Startups. Come on, you all know LinkedIn Jobs is the way to find great talent, but I wanted to read for you today an amazing customer testimonial from somebody who's a member of the This Week in Startups audience.

His name is Aaron, and he is the founder and CEO of MAAI. And this is a startup that uses artificial intelligence to optimize travel time on your work schedule. Sounds like a pretty good idea to me. Well, Aaron recently hired a machine learning engineer, and they started in July, and they have hit the ground running, and they are making things happen at his company. He received 110 relevant applications in four days, and he got great value. That is why LinkedIn Jobs is the number one. way to hire. I tell all my startups, start with LinkedIn jobs, and then you're not going to need

to do anything else because LinkedIn has hundreds of millions of members, 690 million people worldwide. Your company is only going to go as far as the talent you are able to recruit. And the greatest recruiting tool on the planet right now is LinkedIn jobs. And you can put your job in front of qualified members every day. So it's seen by people who, who are looking for jobs like the one you have. So here is your call to action. Let me give you $50 right now. I'm going to give you the 50.

LinkedIn.com slash unicorn. You know, like the company you're going to build that's going to be more than a billion dollars? Well, we're going to start by finding you some amazing talent, and it's on me. Your boy, J-Cal got you 50, okay? So go get it right now and tell me your success story.

Go to LinkedIn.com slash unicorn. Get the 50. Terms and conditions apply, as always, because it's 50 bucks. and I want you to email me, Jason at calicanus.com, and tell me about your great hire. And I might include you in a future ad read, okay? How does that sound? Let's get back to this amazing episode.

We've got work to do people. All right, Nikki Peckett is with us. She is the co-founder and CEO of Homebound.com. And they, actors, your general contractor, concierge, software platform, and marketplace to build your new home in case your house got burned down, or you just found. to plot of land. And I guess the question becomes, why wait for people to come to you? Why not just start this process and buy plots of land yourself and be a homebuilder? If the system is so

inefficient today, wouldn't be most efficient thing to do to be instead of waiting for customers to show up to just kick ass and make great product and then put it on the market? Yeah, it's a great question. We're reasonably early. We're two years old and we're not perfect at all today. So what we're focused on is building what I call the homebound operating model, which includes both the entire tech platform that enables our system to work, plus all of the operational processes around exactly how that comes together. Now, once we perfect that system and we can prove both from a customer experience standpoint and from a unit economics standpoint that we are definitively superior, and we feel like that margin is significant enough, then there's a thousand ways that you could

scale this thing. Yeah, you could buy a whole bunch of land if you wanted to. You could roll it out to builders globally. There's a lot of different ways that you can imagine this being a absolutely massive business. But what we're focused on right now is perfect the operating model and then we can decide from there. Yeah. What have you learned about that operating model since you started? Because you were working at Thumbtack and then before that at Bain. Had you built your own home before? Or did you start as a founder with no experience in building homes and have to learn on the go? Yeah. So I've certainly learned a ton on the go.

I've been in and around the space for a long time. So at Thumbtack, I got to spend a lot of time with plumbers, painters, electricians, understanding kind of how their work happens and how they think about growing their businesses and how they work with general contractors. I've done a number of pretty substantial home renovation projects on tight budgets, it's managing them myself, either as general contractor or managing a general contractor to an aggressive schedule and budget. And so, from those experiences, I learned a lot about sort of what's possible. I managed a large renovation, largely in an Excel spreadsheet and had daily meetings

on site with my builder, who is amazing and tolerated that really well. That builder must have really gotten a big surprise when they found out you worked at Bain and they had just done the deal with that somebody from Bain was going to be managing the renovation. I think he knew going in. It was going to be that way. We are still great friends. He's done multiple renovations for me. He actually renovated Marco's house too.

He's amazing. But that experience, it was just brute force. There wasn't really any technology. It was just brute force. And so much of what I think about with Homebound is how do you translate that brute force into making it possible for just to be easier to build a home, making it possible for somebody who's thinking about it to. to be able to understand, well, what are the process? You know, what are the steps in the process?

What do I even have to do? How much does it cost? How much certainty is there at that? And then on the builder side, the lack of technology for builders also means that their life is harder. Communicating with homeowners is difficult. Tracking a project and knowing what's going on. Managing the financials of a project in the background is really hard. Managing a thousand different details of when are materials arriving on site. And if there's an error with materials that have arrived, how do you resolve that? And all of that can be held. by technology, which meets operational process that's really standardized. So I think biggest thing I've learned is what we're solving is not one problem.

It is a series of millions of problems. And what we need to do is build a platform that enables constant learning where we can figure out if something goes wrong on a site, you don't just solve what happened on that site. You solve the root cause of it. Was it a QC issue that we missed in architecture? Was it something in our estimating process where we have bad data or, or where we didn't have the complexity of data or structuring that we needed to get it right?

Is it that our network of builders has gaps in it or we've assigned the wrong type of builder to a project? We're constantly going through optimization on all of those different dimensions and trying to bake them into the tech platform so that whatever we're learning is sort of forced to be repeated as we start launching additional markets. Why is construction so hard at its core? like what is the is it regulation that causes the problem? Is it that construction people are a certain you know

unique group of individuals in the world who work a certain way as like you know the they're kind of small single operator businesses right? So operating businesses so they just don't have infrastructure. What's the what's makes this so hard at its core?

There are a bunch of things that are really difficult about it. I would say the biggest thing is just start with a perspective of what you're doing. So if you're building a custom home on a lot, that piece of land is unlike any other piece of land that you've ever built on by definition. The condition of the soils, the topography of the lot, what's been done there before. So it's by definition bespoke. Everything about it is bespoke.

And even if you look at production home builders who are building, you know, 10,000 houses in one area at once, every piece of land is still different. And you run into problems. And so the way I think about our platform is, we have to figure out how to solve problems faster than anybody else. You can't avoid problems. There are going to be problems constantly. But knowing what the likely problems are, trying to do everything we can to mitigate them from happening,

and then learning how to solve them faster on site every day than anybody else. Like that is what I think needs to happen to transform the industry. And I would say people in the industry in general are some of the grittiest and most resilient people I've come across, which has been so awesome to sort of dive in and build this construction. team where something goes wrong, like, you know, pour a foundation in the wrong place, which happened on one of our first houses. Oh, my Lord. And I mean, I almost had a heart attack. I could not believe it. I didn't know what we're going to do. And I talked to the area manager on it, who was 35 years of experience in the industry. And he was like, it's not that big of a deal. We're just going to dig it out

tomorrow and we'll report the next day. We've lost two days on the project. I'm going to make them up when we get to this stage of the project. It's totally fine. And it was totally fine. And so it's actually really fun to get to build a company with a group of people that are just used to things going wrong and they're used to solving it and they're used to letting it roll off their backs. And so what I'm trying to do is partner those people with an engineering team who are saying, okay, that went wrong. Why did that go wrong? What was it about site markings and how do we make sure that the details of site markings

are embedded into the platform or that we have a QC process that's embedded into the platform to make sure that doesn't happen again? So it's just putting some standardized process on what they're already doing. and this is a group of people who are just not innately embracing technology because they just haven't had to, right? You're building one. It's not like they show up with like some large amount of technology, but the SaaS revolution and software eating the world

is fighting its way into every niche. What about materials? Are materials and the prefabrication of stuff like this is like fancy polyform stuff where you can just like pop in an entire kitchen or cabinetry? How is the materials business? changing. So before we jump to materials, I just want one more point on the question about software. So you think about software investment and software has, or technology and R&D in general have had the lowest percent of industry revenue going into construction of any industry globally.

And so you have effectively zero technology investment. And then, you know, there's lots of like prop-tap investments and new investments that are starting to go into the industry over the last five years. But you think about the spectrum of construction and where they're going. It's all going into commercial or large multifamily. It's going into the opposite end of the industry from where we are. We're talking about custom homes being built by people who build one or two custom homes a year. They inherited the business from their dad. They've been doing the things the same way forever. And so this is like the darkest corner of the darkest industry. And the impact of people not being able to build those homes means that because they don't have software that makes their lives easier,

communities get rebuilt after disaster more slowly. The customer experience is terrible. The industry is smaller than it should be. And so that's why, that's why we're focused there. And our belief is, if we can create software that makes it so easy for people to do their jobs, they'll adapt it. And so far, that's what we're seeing with our builders? Makes total sense. Now, what about materials? Because that seems to be, I get pitched a lot on this. I had one company that was pitching me that in Japan, when you order, you don't order appliances in Japan. You just say, I want, I want this kitchen or I want this bathroom. And it comes as like one or two modular pieces that just go dunk and they plug in And it's all like everything is already one piece, right, as opposed to when we build something here in the United States where it's bespoke, right?

Or then there's something in between. Like I mentioned polyform is like, I guess they're Italian or something like that. That's like the higher end of the spectrum where it seems like all these homes are using some of the similar cabinetry. Has that changed the industry a whole bunch? Can you speak about that? Yeah. So people think about prefab as being this huge part of the industry and it gets a lot of play because it's cool to talk about like, I can just like, I can just order a house online and get it delivered to my lot.

And so there are places like Japan is the most heavily penetrated for prefab of almost any country. Germany has a fair amount of it as well. But we're still talking in general about low single digits, even in places where it's heavily penetrated. And so in the spectrum of building houses, I think that fully prefab houses are going to be for many, many years, a really small portion of the industry and maybe forever a small portion of the industry. Why is that not happening in America? the way it happens in Germany, the Nordics, or Japan? So it's happening, even in those places, it is still a small percent of everything that's being built. So it's not like everybody does everything prefab there. It's just more

penetrated than here, but still very small percentage of total. There are a bunch of reasons in the U.S. for it. Some of it is permitting complications where things need to meet certain code and it's harder to deal with them. There are other, you know, you look at, like, we look at often people will come to us and say, well, I really want to do a prefab home. And we're super happy to install prefab homes for people and we have several of them underway. But many times when we look at the plan for what somebody wants to do in terms of a prefab home, we can stick build on site for just as fast and cheaper than many prefab home manufacturers. And so today it's really a cost thing, but it's also, you know, you're paying a lot for it and people generally aren't getting the

customization that they need. If you have any complexity around the topography of your lot, it gets even harder. So we're building a bunch of houses in Malibu, and it's just hard to get a prefab home there. So when I think about the importance of prefab and other materials technology or building means and methods that are changing, there's tremendous opportunities, but I think the bigger opportunities are in components. So you think about, you know, you can build roof trusses and you can build entire walls in a panelized way in a factory, and then you can bring them on site and you can erect them on site much faster than if you were doing that just, in a stick-billed fashion on-site.

I mean, they're laser-cut. They're using materials that can't be cut on site, right? And those materials then are, you know, you don't need to do a redo because a computer cut it. And I know a lot about this because we're investors in Blockable, which is doing like manufacturing of modular units that then stack, but it's for multifamily, which is completely different than what you're doing. When you think about this pandemic occurring, construction stopped.

Then people realized, hey, there's no reason for construction to stop. In fact, there might have been an argument that construction should go seven days a week since, you know, it's not going to be disturbing people as much. What happened to your business during the pandemic? And then what do you think it would seem to me that people moving to the burbs, infill, and the country even is going to be a boon for your business? How do you think about it? And how do you measure your, how do you measure your potential enthusiasm for this trend, not knowing if it's going to be sustainable? Yeah. So there's three different things that I would say were impacted by COVID. First, you think about actual on-site construction. And we were able to largely continue building all of our houses. We were exempted because many of them were fire rebuilds. And then construction was allowed to continue rebuilding. So we got to keep building. But there was a lot of sort of red tape to get through of, well, what are the guidelines and how do we, you know, above and beyond guidelines make sure that our sites are safe. And so there was a lot of that at the beginning. Now we've got really clear process in place. And, things are working really well. The second piece of it is around sort of the macro impacts,

how people feel about construction, how people feel about where they're living, certainly a flight to less urban areas. And we're also seeing people like what you need in a house suddenly went from you need bedrooms and bathrooms in a kitchen and a living room, but you don't really need a bunch of offices. And now you have a dual working family and you need two offices in a house. And so people are thinking about customization and how do I create a home that's going to work for this new normal that may persist forever or we're not really sure. And so there's certainly an opportunity for us to be building more for people who are trying to move to the suburbs when there simply aren't enough houses there. And so I think there's this macro opportunity for us to build more. But then the most important

transformation that I think has happened and has really accelerated the way that we're doing things is thinking about this shift to Zoom being an okay form of interaction for people. So the vast majority of people before all of this happened would strongly prefer to come into our offices. We've got design studios in person, your meeting and reviewing, you know, paper plans. And we've always talked about how we want to do sales entirely virtually. And we want to do design selections and architecture meetings entirely virtually. And we felt like, well, it's going to be a couple years before our systems are good enough and we can really convince people to do it.

And that happened overnight. And so the acceleration in our ability. to sell people houses entirely virtually and finding the right technology to do that. So, you know, we're doing drone photography and Matterport walkthroughs and all sorts of things that help people understand. We know everything that we need to know about your lot. We have the vision for what it is that you want to build and we're going to be able to execute has really made it possible for us to separate ourselves from lots of other builders who just don't have that infrastructure. And so we think that the expectations and the abilities for homeowners

to interact in a truly virtual environment while building a house has just been massively accelerated and we're really well positioned for that. So we're excited about that future. Well, I mean, it's, you know, the, a crisis like this forces everybody to reexamine the questions that they thought they had already answered. One of them was, of course, like, this job can't be done remotely or we will never buy a product. You've got to get on a plane and come here and pitch us, you know, or we will never invest in a company, in my case, like we'll never invest in a company unless I can look the person in the eyes and we've made 25 investments since the pandemic occurred and we've we've adapted right you have to adapt so

this pushed everybody into the deep end of the pool huh they weren't able to meet with the architects therefore guess what interior decorators architects are going to start meeting virtually and it then you recaptured half your time those those things went three times faster right totally yes meetings that used to be three hours of plan reviews and looking at finishes We now have sort of pre-work that our homeowners do to think about what they need and to answer questions and get prepped for the meeting. And then the meeting is one hour. And we're getting absolutely everything done. It's really cool. So our team gets time back. Homeowners get time back. The process is more seamless. And then it's also forced everybody to be using our tools more frequently.

So our homeowners who might have preferred like, yeah, yeah, you've got this tech platform. But I'm just going to come in the office and I want to talk to my concierge. Well, no, actually, you don't want to do that anymore. And so everything's happening in the platform. And so it's really accelerated what's possible from design selections and architecture, capturing every interaction that we have with homeowners and embedding it into the platform so that they can see like, oh yeah, in that meeting, I said I wanted to do this. Let's actually change that. And we have great tracking around it. So we know sort of this continuous conversation that we're having with homeowners in pursuit of building. You could just record the Zoom and just drop the file in there so people can go back and listen to it.

Do you do that? Yes. We record all the conversations that we're having with homeowners throughout the process. And then we also pull in, you know, if they want to text our project managers or concierges, they can do that. All of our emails are embedded so that they see every communication and they can have it. It's multi-channel, but it all lands in one place so that people know. It also forces people to make decisions, right? Isn't that a big problem is that the homeowners don't make the decision or like you talk about something, some misunderstanding? When you put it on a platform, it becomes binary. Like you either want the shelves or you don't. Click the button. Yeah, that helps a lot.

What about ADUs, accessory dwelling units, in-law units, I guess they call them? This has become something where I think the regulation issue can't stop somebody from putting this on their property in all of California now. They changed the regulation. And I know Blockable was looking at in the early days, but they just got too deep into multifamily. And in fact, a lot of the fires create a lot of opportunity for them to display the technology as well. but ADUs and building the two offices, you know, on the property somewhere in the back acre or something for people is going to become a thing. Are you getting a lot of demand for that? And is that something that is alluring to you? Because, man, people would pay $100,000 to put

a thousand square feet in their backyard if they could have two offices and get away from their kids during the pandemic and get on a Zoom and have a conference room. Yeah. So it's a great question. I would say the surface area of the opportunity around home building and construction, including ADUs, is massive. And so I will do all of it over time. We're going to sort of step by step do the things that we think are most important and sort of endemic to the strategy that we're going after right now. We do have a fair amount of inbound interest in ADUs and we're building several of them or working with homeowners and development of them. There's a bunch of companies that you see going after this opportunity,

specifically with prefab options that are less expensive and you could drop it into your backyard really quickly, the challenge is for the vast majority of people in California who have the space to put an ADU and therefore a reasonably large property where they have, it's probably a more highly valued property. Most people don't actually want an ADU dropped in their backyard that doesn't look like their main house. Correct. Correct. That's a huge challenge. Yes. So we build custom ADUs for people. And so we'll build something that, you know, you can manufacture something that looks a lot like the main house. We're getting started on a barn project to do something that looks like a really cool

barn but could work as an ADU. And so that's the end of that market that we're playing in. But I think the change in regulation in California, but really across the country, trying to use ADUs as a way to create more housing is absolutely something we're seeing and something that will participate in. It's such a no-brainer, too, because you just think about aging populations, these ADUs, I mean, they call them mother-in-law units for a reason. is, you know, we may all have to take care of our parents or multiple people might be living together.

And then you also have the use as office space. I mean, all this becomes incredible. Do we have a shortage of great construction people? Because in working with Blockable, I remember at some board meeting or, you know, at some meeting with one of the founders, they were lamenting how few plumbers there were. And that the age of the average plumber was now over 50 years old. Like young people don't want to take on these jobs is what I've heard. Is that true? yeah, there's absolutely a shortage of skilled labor in construction. And it's something that's been

happening as sort of an overall trend of people, fewer people going into it. But there's also this chasm that was created by the recession in 2008 and 2009 where tons of people went out of business. As you have all of these builders that completely went out of business and just disappeared, went into early retirement or people who went to do other things. And then at the same time, nobody was going to start a construction business in the middle of that. And so you have many years where people failed out of the industry and then nobody was entering. And so there is a really big generational gap in building. And I think there's lots of people who are going after trying to create more skilled labor. That was something we talked about constantly at Thumbtack. The other thing that's

really interesting, though, when you get in and you actually see the data of supply and demand for particular trades or for builders overall by region is it's not even. It's not like everybody needs 20% more labor, people need 50% more labor or 200% more labor in certain areas. And in other areas, they actually have solid labor. And you can see that in typical hourly rates for workers across the U.S., which is partly driven by cost of living in those areas, but it's also partly driven by demand. And so one of the things that is really important for us is creating a network that's wide enough geographically that when we have a major shortage, and I'll give you the example of in northern California after the fires, there just weren't enough people to do soils engineering because

suddenly you need soils engineering for 6,000 lots and typically do 400 custom homes a year in Sonoma. And so there just wasn't enough to do that. And so you go to the rest of California or you can go out of a state and find soils engineers who are super happy to come into the market and, you know, spend however much time doing a bunch of concentrated work, but you got to be able to find them and you got to be able to vet them. You basically have to import them. Yeah, you're And then they're state by state. So bringing somebody from Washington to Oregon or Wyoming's not going to work, you need to get somebody from SoCal or the middle of California to come up to your Cal, right? There are a number of states that have licensed reciprocity.

So you can go to places like Oregon or Louisiana. But it's a limited number of states. And then you've got to deal with the complexity and the logistics of transporting them and lining up enough work that it makes sense for them to come. And so that's also a big part of what we had to do in early days. Is tearing a house down or renovating a house more expensive than today because of the advancements in technology and your platform? Is it just easier to just start with an open lot? It totally depends on the situation on a particular lot, the condition of a particular home. There are certain places where it would only make sense to renovate.

There are other places where it would only make sense to knock a house down. If you've got a lot that has utilities on it already, then it might be the easiest to start with something like, that, but if you have no utilities, then you might spend a lot of money getting it ready. So that complexity is part of what we're trying to smooth out so that we can make it possible to have a really clean estimating process for somebody to say, hey, I'd really like to build a house, but I don't know what that looks like. Should I buy this lot or that lot? Should I buy this house and tear it down? And so that information- You'll actually answer that question for people. Yeah, exactly. That's right. Do you have to go visit the lot then to do that?

Yeah, generally we'll visit lots. We're using a lot more drone footage right now to under understand damage on particular lots or look at the location of septic systems or things like that, particularly for harder to access lots. So we use that type of technology, but still you generally want someone in a market to go walk the lot and get a sense of what's happening. If I start having this idea for a lot I have, how do you start making money? Because if I'm asking you to start doing this stuff, what if I don't actually build a home? Are you just doing all that work for me of like trying to figure out if I should do it or not, you know, just as part of your top of funnel and you're willing to do it? Or do I have to engage you and pay you something for doing all that

front-loaded work? So it depends on the scope of the work that you're looking at. If you are, if you're coming to us and you're saying, I want to find a lot, and I'm going to look at a bunch of different lots and I need estimates on it and I want to start thinking about architecture that fits on that lot, we get you into a pre-construction agreement and we would have a set of services that you need either to look at multiple lots or to have us guide you through that process. And so you generally enter a contract with us to help with that. If you already have a lot. So you pay for that. Pay some amount hourly or something? Yeah, depending on the setup of the contract. You pay for the services that you need around it. What would it cost me if I was like,

hey, I'm going to go try to build a place in Tahoe and just find me five lots and, you know, speck it out and just tell me where to build and have that like sort of dialogue. I'm speaking for a friend of mine. That's a good question. I don't have a specific price on that. Everything is a little bit bespoke when it comes to that type of an approach. We have a couple customers that we've done that with. But thousands of dollars or tens of thousands of dollars, something like that? Depending on, like, if you're looking at doing engineering work and soils testing and all that to really get to a firm like exactly what's it going to cost, you probably end up spending, if you're looking at five lots, probably tens of thousands of

dollars to do all of that work. But happy to put together a proposal for your friend. Yeah. Well, it's interesting. Like a lot of, are we overbuilt in the country or are we underbuilt in the country? Because this is a question I always get confounding data. People say we have to build seven million more units, but then other places are giving discounts on rent and trying to get people into homes. Is it impossible to paint a picture of the entire United States right now because of this massive migration pattern that's happening?

Yeah, I think nobody has any idea what's happening with actual long. term COVID impacts. Like, yes, there's migration behavior happening, but you look at, you know, in the microcosm of San Francisco or L.A., which everybody's talking about flight to suburbs, except houses are still selling in record time over asking throughout the city of San Francisco when then, you know, prices are getting driven up even further elsewhere. Clearly, we have a housing shortage here and in many other of the most developed cities in the country. There are certainly places where there is more housing than demand for it, but the story overall in the U.S. is we have housing shortages in almost all of the places that people want to live. And we need to

figure out how to solve both the shortage of housing, which is partly an issue of labor. It's partly an issue of the customer experience of building the housing is incredibly difficult. There are regulation issues. There are labor shortage issues. All those things need to be solved to solve that. Yeah, it's really fascinating when you think about it on a macroeconomic basis. We are going into this recession. We're in a recession, clearly, of some type. Who knows the duration of it. We'll certainly find out shortly if it's going to be

two, three, four quarters or six, seven, eight, who knows. We have all these people out of work and then we have all these people moving and cities may, people may not go back to cities because every company is saying, you know what? Or not every company, but at least

half the companies where you can work from home are saying, yeah, you can keep working from home. We're going to embrace this. Just like people are willing to take Zoom calls with you, people are going to be moving to a permanent work from wherever you want approach in many cases, that could actually be the solution to our unemployment problems and actually be the path out of this, is that this migration to the suburbs and people leaving to work from home and have a more beautiful life on a bigger lot,

that could actually solve our problem. Yeah, I think there is some, there's some ability for that to happen, although I'm really skeptical that this permanent work from home thing, even for companies that have said permanent work from home forever. Yeah. I just don't. I'm skeptical of that being the reality that people want. You know, I see what's happening on my team, and I'm looking at research from my investors across their portfolio companies about what people are saying they want.

And for the vast majority of my team and some of the stats I've seen are of millennials, 75% of them are asking to go back to offices, people want to be together. It's, you can be productive and you can have a lot of flexibility at home. And that's awesome. But people crave social interaction and they want to be at a whiteboard, working through issues together or getting to share jokes about something as you're dealing with a really difficult issue. And so I don't believe that we're going to shift to this totally remote culture in mass. I think that what'll happen is people, you know, start to trickle back into offices or maybe it's not offices. Maybe actually it's not five days a week in an office. But,

I do socially distant one-on-one meetings in my front yard or people meet up for socially distant walks with masks on. And what we're finding so far is that's really transformational for how people feel when they're, you know, working through difficult things. And so I would be very surprised if you have everybody who works at Facebook or Twitter or the places that have articulated that you actually can work from wherever, actually moving to absolutely anywhere they want and not wanting to be clustered in the same kinds of places they wanted to work before. Yeah. I think you're right that there'll be some hybrid where people say, you know what, if you decided to move to the country and you're an exceptional employee who brings it, we will

allow you to remain in that. But if you're anybody else, you know what? Yeah, we want you in the office. I think that's what's going to happen. It's like some high performers will be allowed to work from home, some number of jobs that are commodified or less important or entry level. Maybe they'll let some of those people work around the world? Because, you know, like, once you figure out how to manage remote people, you know how to do it, right? Yep. That's a matter of, is this psychologically what the person wants or what I want as the founder? You are an extrovert, clearly, from my conversation with you. You're an ENT, I think, on your Myers-Briggs. Am I correct? E. NTJ. You're in E&TJ. Your JP is probably kind of right on the spectrum, I would say.

Am I right or no? Bain sort of trains you to be a major J. So I probably would have been more I'm a P before that. Gotcha. Yeah, I was a J my whole life, and then now people tell me I'm a P, so I don't know. That's cool. You can look up your horoscope later, folks. But for, I think that this is actually going to be the manifestation of Myers-Briggs and, or as we say, like horoscopes for guys.

If you're an extrovert, you know, this is torture, right? This is torture for you to work from home, correct? So I'm sort of borderline E&I, and I always thought I was more introverted than it turns out that I am. I need people. You're an extrovert. Particularly in, you know, when you're building a company and, you know, from lots of exposure to startups, like, things go wrong all the time. And so to be able to be in person with people who you think are amazing. I think our team is amazing. I love spending time with people. It's awesome to be able to be together, solving problems. Yes. Reminded, you love the people you work with. They're the most incredible people that you

could possibly work with. And that's just easier in person. And so I do think it has to be a hybrid. And there are certainly people on our team who are great at working entirely remotely. But even for those people, doing whether it's a quarterly trip to spend time with other people or maybe just a couple times a year, there's something about being in person that Zoom's never going to replicate. And so at least for homebound, we're going to have a hybrid model for a really long time that includes letting people get together and making it possible to get together just to enjoy the interaction. I think it's going to be the leader thing. So since you're an extrovert, but I can tell you're an extrovert because either you had a lot of coffee at the

start of the program or your energy's been building through the interview. And I always note that because I can tell what I'm dealing with with the subject. But the extroverts are going to want to be in offices. I think somebody like Jack at Twitter and Square, he's very introverted. So for him, his energy and his effectiveness, since he stopped coming to the office, has probably increased. And so that's going to be, I think, the weird thing that's going to occur. And then you're going to have to decide as an employee, do I want to be in a company where, you know, I don't get my extroversion fix. I don't get my socialization fix on the regular that I need.

Or do I want to be in a company run by introverts? And it's going to be a very interesting split. Also by who wants to be closer to the crown, right? Like, if you're the queen or the king and like you're, you get to sit near them and you get to have lunch with them, you're at a massive advantage to the person who's, you know, working by a lake somewhere, they may get the better lifestyle, but they don't get to be at the right hand of the king or the queen, right? Yep. That's exactly right. I think that what I hope this new era ushers in is the ability to accommodate the work styles and preferences of more employees. Because you're talking about it as, you know, now suddenly people up to choose, extra.

or introvert, but what used to happen is everybody had to go to the office. And so you automatically were forced to be an extrovert, even if you worked at Twitter where your leader was an introvert. And so my hope is what we can do is really customize the way that people are working to optimize both the needs of the individual and the needs of the company and the role. One thing that's been really cool for us is our team is quite distributed. So we have an office in San Francisco. We're building in Sonoma, Napa. We've got an office in Santa Monica. We've got a Denver tech office. and then we got a bunch of remote people all over. And for the first time, for everybody who's not in San Francisco,

they feel like the playing field is totally level. So my executive team spread out across all these different offices with a couple of people remote on the East Coast. Now suddenly, we have these amazing Mondays together doing leadership meetings where everybody's in the same spot. And we've been able to really connect and solve problems remotely in a way that takes a dramatically smaller amount of everyone's time because you don't have to travel from the East Coast or from L.A.

to be sitting in the room having those conversations. So we're permanently moving those types of meetings to remote so that everybody's in the same spot. See, this is interesting. When you say spot, you mean they each get the same number of pixels on the screen in a conference. And I had somebody who used to remote in to our accelerator class to meet the companies. And they said, you know, you'd always have like 10 investors there in the front of the live event. I always felt like we were an afterthought.

now because we're all equal in the Zoom box, you know, we each have our own little box. Like my box isn't any bigger than yours or, you know, the entry level employee has the same box as the VP as the president, right? It's actually very interesting how just that modality defines the interaction, right? Yep, that's right. I think there are so many great things about that, leveling the playing field for everybody to feel like they have an equal spot. Yeah, it's really fascinating. Well, listen, continued success with the company. My friend might be contacting you shortly if he doesn't find the perfect place and he decides to build the place on a lot. And I'm assuming you're hiring

now. Who are you hiring for? Plumbers? General contractors, developers? So we're primarily hiring for engineers, incredible experience project managers. Lots of people who are really passionate about the operations of building a home building company, whether they come from construction or lots of people from tech wanting to jump in and solve really hard problems. And then our network is always expanding. So general contractors and all of the trades that you need to build a house, they can come to Homebound.com and find their way into our network. All right, Nikki, thank you so much for taking the time, continued success, and we'll see you all next time. Bye-bye.