[MarkP]

My story as told by the Puget Sound Business Journal...

From the October 17, 2003 print edition
HouseValues overcomes investor skepticism

Four years ago, Mark Powell, founder and chairman of HouseValues.com, was out trying to raise money for the Internet startup and getting nowhere fast.

A residential real estate agent, Powell knew how difficult it was to get sales leads. His bright idea was to set up a Web site that offered visitors a free online valuation of their home by a local real estate agent, who could then follow-up with them to help sell their house.

For a monthly fee, agents could have exclusive access to all contacts for their geographic area and customized marketing materials.

The Bellevue-based company now tops the Business Journal's list of the state's 100 fastest-growing private companies, with an astounding 1,258 percent rate of growth the past three years. The firm has 150 employees.

The number of homeowners using the online valuation service has spiked upward from about 20,000 in 1999 to 600,000 in 2002. This year, with more than 1 million people are expected to use its valuation service.

Meanwhile, the number of real estate brokers paying a monthly fee for access to the Web site's sales leads has swelled to nearly 7,000 Realtors nationwide. With roughly a million real estate agents in the country spending about $11 billion a year on marketing, there is plenty of room for further growth. The company has been recruiting and retaining agents by beefing up the services it provides.

Back in those heady days, however, venture capitalists wanted "revolutionary" -- not "evolutionary" -- business plans, ones that promised to transform an industry, not just take it to the next step, Powell said.

"The traditional VC in Seattle is very IT-oriented," Powell said. "They all focus primarily on what is the proprietary technology behind the business model. HouseValues is a service model. It's built on a lot of technology, but it's all around how you get the job done more efficiently."

Making it worse, hundreds of real-estate startups were pitching for funding. Powell even found it difficult to hire a lawyer.

"They were so swamped and here we were trying to come in over the transom," Powell recalls.

After a year of knocking on doors, Powell closed a $2 million round led by venture firm Second Avenue Partners LLC. Even then, despite his now-growing company, Powell said fund raising wasn't any easier the second time around.

Powell recalls one VC saying, " 'Oh! I get this -- it's an execution play.' That immediately dismissed it in his mind from funding our business."

But looking back, Powell's difficulties raising money turned out to be a blessing. It laid the groundwork for the company's exponential growth, he said, "We had to get really efficient and good at what we do."

The company became profitable in March 2001 and has remained so ever since. Since venture backing was hard to secure, Powell funded growth from revenue, setting a cap on profits and funneling the remainder into expansion.

"The first two years were all about getting the business model precisely figured out." Powell said.

Additionally, the company built its own internal systems and software with substantial growth in mind.

With the business plan so finely honed, expansion into new markets has been almost "plug and play," Powell said, because management knows exactly how many new sales and support staffers are needed.

Chief executive Ian Morris joined the company in June 2002 as vice president of marketing. Morris, who helped launch MSN HomeAdvisor in 1997, has risen rapidly, becoming chief operations officer, and then CEO, in little more than a year's time. Powell said the series of jobs left Morris better prepared than if he had come into the top slot immediately.

"He had the opportunity to dig into the business at different levels. I had the opportunity to observe him, which built my level of confidence in him," Powell said.

In June, HouseValues acquired Soar Solutions of Naperville, Ill., for an undisclosed sum. Soar's software makes it easier for agents to determine what listings are available on the market.

Fast growth can be difficult for employees.

"It's grueling," Powell said. "You have to have a team of people throughout the organization at every level that understand that growth is hard. It means continual change."