Rich Barton and Spencer Rascoff talk about starting Zillow, 10 years of progress and the state of investing in startups and young companies.
Rich Barton tested the waters in 1994, when he started his first company within the much larger company he worked for — Microsoft. Now, his first venture, Expedia, has grown to be a powerhouse in the travel industry and a leading company in the Puget Sound region.
Barton’s other creations aren’t far behind. The serial entrepreneur also co-founded Zillow, a Seattle online real-estate company, and employer-review site Glassdoor, based in Mill Valley, Calif.
Barton rarely serves as CEO of the companies he creates, rather, he has a knack for finding leaders to pass them on to. One is Spencer Rascoff, now CEO of Zillow Group, who met Barton when Expedia acquired Rascoff’s company Hotwire.
Zillow Group is marking its 10th anniversary on Wednesday. It’s been a decade since the Zillow website launched.
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The company has expanded rapidly inside the Russell Investments Building, now occupying 12 floors with nearly 1,000 employees in Seattle, and 2,200 overall in the U.S. Zillow rebranded as Zillow Group last year as its acquisition of rival Trulia closed. The group now owns five consumer websites and a handful of companies that help real-estate agents do transactional work.
The Seattle Times sat down with Barton and Rascoff to discuss the company’s aggressive company growth, buying houses and zombie unicorns. Here is an edited excerpt of the conversation:
Q: Zillow doesn’t keep track of vacation time and has extended parental leave. Do you make use of those benefits?
Barton: Spencer sets an aggressive pace when he’s at work. However, I get a frequent email from Spencer that’s like, “All right, for the next 48 hours I am literally off the grid, I’m not checking email, I’m not looking at texts.”
And that sets a very strong signal that it’s OK to be gone and in fact it’s healthier for the company when you do wring the sponge out and disconnect and clean your brain out.
Rascoff: I came from investment banking where you’d work until midnight and when you finally left at midnight you’d leave your sport jacket on your chair and then walk down the fire stairs to a different floor so no one would see you leave. And that is not Zillow.
Q: Why did you leave Expedia and start Zillow?
Barton: It was kind of a logical follow on to what we built at Expedia. If you step back and you kind of blur your eyes up, you can see some common themes between that and what I’ve created with other Expedia alums.
That is what we call power to the people. We believe that connected computers and smartphones have enabled the little guy, the person on the street, to be able to be super-empowered by accessing information and tools that they had not been able to access in the past.
(Zillow co-founder) Lloyd Frink and I were shopping for houses and we really couldn’t believe how bad and how disempowered we felt. We had to hire a professional and get a little drip-drip of information.
We kind of had an epiphany. We were like, “Oh my god, this is so hard. It’s 2005 and the Web has been around for 10 years. Why isn’t it easier for us to get basic marketplace information?”
Q: How did you know you would pass the CEO reins to Spencer?
Barton:You know it when you see it. It’s like great art. Spencer is one of those guys that has the ability to communicate inspirational messages and stories and attract great talent. He’s a leader.
I’m a big believer that leadership is not granted. It’s earned and it’s earned from the people around and below you and not from above. So when you’re looking for leaders you don’t have to look too far. You just have to look at who people are looking to.
Q: What has been the biggest change at Zillow in the past decade?
Rascoff: The size and scope of the company and the influence we have in the real-estate industry and in the American economy have far exceeded my wildest expectations. We probably haven’t exceeded Rich’s expectations because he dreams very, very big. But it’s quite unbelievable how far we’ve come in a really short period of time.
When we first started the company, there was a lot of fear and trepidation about what Zillow was going to do. It took us a couple of years to demonstrate to the industry that we were friends, not foe.
Fast forward to today, we have partnerships with 13,000 brokers, 400 MLSs (multiple listing services), every major real-estate franchise and brand, and we’re widely accepted in the industry.
Q: How did you get on the good side of agents?
Barton: People want the information. It doesn’t matter what anybody thinks. And once they have it they want more. It’s kind of like gravity.
The more forward-thinking of the industry said, “OK, this is the gravity, and we can do our jobs better if we have a smarter customer.” A few started coming in and then more and more.
Q: What technology is coming next to the industry?
Barton: How would it be to be able to strap on the Oculus (virtual reality) goggles and take a spin around some apartments or houses? That’s a whole interesting technology vector that we’re pushing on.
Then there’s the basic mechanics of home shopping and the way documents are transferred. That’s going to change. We are going to be leading on all of it.
Q: As part of the housing industry, what are you doing about the issue of homelessness?
Rascoff: We did a housing hackathon event, which was really interesting and helpful. Then on rental listings, we let property managers indicate that they will take tenants even if they don’t meet a certain criteria. There are homeless people or veterans or people who can’t do the traditional down payment or first and last month’s rent.
Q: Is the technology ecosystem in the region growing fast enough?
Rascoff: Amazon, Microsoft and Boeing and Expedia have done an amazing job growing the ecosystem. There’s a vibrant startup community and Founders Co-op and Techstars have helped that a lot.
From a technology-landscape standpoint, I’m pleased with the vibrancy of the startup community. I still think, however, that Seattle needs more institutional venture capital. The fact that we have really only a handful of venture-capital firms based here is going to hold the region back from fulfilling its potential.
Barton: You have to go out of town.
Rascoff: You can raise a couple-million-dollar angel round here just as readily as you could in the Bay Area. But when you get ready to seek institutional venture capital, if Madrona, Maveron, Ignition and Vulcan all pass on you for one reason or another, then you go to the Valley and try to raise money, … you’re viewed as sort of tainted because the perspective in the Bay Area is, “Well, why did all those Seattle firms pass on you?”
Barton: Money’s pretty damn portable, honestly. For good ideas and good companies, it’s decently portable.
It’s kind of unfortunate we don’t have late and midstage venture-capital superstars here, but I don’t know. We didn’t have any trouble raising money.
Q: Venture-capital funding dropped dramatically here and everywhere last quarter. Will that continue?
Barton: The public-market valuations have come down.
Rascoff: If you’re a startup, VCs are going to (compare) you to those publicly traded companies. So the fact that these publicly traded companies have come down so much really hurts venture capital.
Barton: As the comps in the public markets have come down for private rounds, people have sharpened their pencils a bit. And when you sharpen your pencil in a private-company setting, really funky things can happen.
If you try to raise money and it has to be at a lower price than your last round, all kinds of badness kicks in. Bill Gurley at Benchmark calls (those companies) “zombie unicorns.”
They are kind of still walking the earth. They’ve brought expenses way in but they can’t raise any more money. They don’t have a profitable business model and they’re just kind of haunting the landscape.