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12/16/2014 DotCom Survivor BuildDirect Bets The House To Battle Lowe's and Home Depot Forbes
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FORBES 12/10/2014 @ 6:00AM 16,106 views
DotCom Survivor BuildDirectBets The House To BattleLowe's and Home DepotComment Now
Online home improvement retailer BuildDirect, led by cofounders Jeff Booth (left) and Rob Banks, recently raiseda $50 million round of investment led by the Bank of Montreal. (Photo: Rick Dahms for Forbes)
Jeff Booth is struggling for breath. Sweating through his beer league hockeyTshirt, he’s gasping for air to talk about his company as we make our wayup the Grind, a grueling 2mile hike up Vancouver’s Grouse Mountain.
It’s the second time in ten years that Booth, 45, has done the climb–a localpastime that’s become billionaire Lululemon founder Chip Wilson’s favoredway of taking business meetings and part of the offseason fitness regime ofthe Vancouver Canucks. Booth is struggling to lift his wiry legs over the icyboulders and jagged branches on the peaceful November afternoon. “SteveJobs would have loved this meeting,” I yell back at him. “Yeah,” he responds,before taking a gulp of air. “Except he would have been able to talk.”
Despite his lack of chatter, Booth knows that there is no better time to tellthe story of BuildDirect, an online home improvement retailer he cofoundedin 1999. The company, which sells hardwood flooring, patio furniture and
Ryan Mac Forbes Staff
I cover technology and billionaires for the rest of the 99.9999999%.
12/16/2014 DotCom Survivor BuildDirect Bets The House To Battle Lowe's and Home Depot Forbes
http://www.forbes.com/sites/ryanmac/2014/12/10/builddirect50millionbattleloweshomedepot/print/ 2/3
marble tile, has been on a startandstop schlep through the dotcom bubble,the housing collapse and plenty of skepticism. After 15 years BuildDirect isfinally the overnight success story CEO Booth and cofounder Rob Banksenvisioned it would be.
In peddling tons of granite pavers and bamboo hardwood, much of it at up to80% off typical retail prices, their company will almost double yearlyrevenue in 2014 to $150 million on its way to assaulting a $500 billion U.S.building product market currently dominated by Home Depot and Lowe’s.
BuildDirect’s biggest advantage is its ability to undercut everyone on price byobtaining inventory direct from manufacturers. Jenny Clark, a 36yearoldnewlywed from Easley, S.C., found the website via Google ads and orderedfree hardwood floor samples . After three months of deliberation she ordered3,700 pounds of flooring, which arrived in four days and cost half that of asimilar product from Lowe’s.
BuildDirect’s growth has investors biting. Even though the “startup” raised$30 million in early 2014, it closed a round of at least $50 million inDecember led by the Bank of Montreal. FORBES estimates the company isworth more than $350 million. It’s well positioned to capture more than itsshare of the industry as home improvement shopping inexorably movesonline. In 2013, 18% of building products were purchased online, up from15% the year before, according to the Home Improvement ResearchInstitute.
Though some have described BuildDirect as the Amazon of buildingsupplies, Booth and Banks wince at the comparison. Amazon, whichtypically deals with packages around 5 pounds and ships through FedEx andUPS, has never had to deal with the challenges that its Vancouvercounterpart has faced. The typical order on BuildDirect is $2,000 and 2,000pounds, and people expect the experience to be seamless. “Now I know whyJeff Bezos started in books,” says Booth.
To deliver bulk orders affordably, BuildDirect had to create software tocalculate the most efficient shipping rates and routes for overweight freight.The company must also manage its $40 million worth of consignment goodsefficiently across 12 warehouses, which constantly feed data intoBuildDirect’s inventory prediction system. That setup tracks sales trends andtells manufacturers like Carolina Stone’s Carl Toop where to place theirproducts. For example, BuildDirect can show Toop “what people are lookingat online and what people are sampling” and suggest that he place hisfabricated stone products in Los Angeles as well as Atlanta. “They’ve benttowards big data and have cut out seven to eight middlemen in the process,”says Mohr Davidow Ventures’ Katherine Barr, who sits on BuildDirect’sboard.
12/16/2014 DotCom Survivor BuildDirect Bets The House To Battle Lowe's and Home Depot Forbes
http://www.forbes.com/sites/ryanmac/2014/12/10/builddirect50millionbattleloweshomedepot/print/ 3/3
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Booth dropped out of the University of British Columbia in 1989 and madehis first million flipping Vancouver homes. It was after he started acontracting business that he had the epiphany for BuildDirect. A supplierstuck him with a seriously late delivery that forced him to put a family in ahotel for a month while their house was completed.
Booth convinced his housemate and hockey teammate Banks that they couldimprove the process by using the Internet to remove intermediaries in thebuilding materials industry. It took two years to create a website that couldhandle sales, and by then Sept. 11 and the dotcom crash had dried up anypotential funding. It also didn’t help that Booth was going into investormeetings with broken front teeth after taking a slap shot to the face in ahockey game. “He looked like the guy from Deliverance,” remembers Banks.
For most of the next decade the pair scraped by on $10 million cobbledtogether from private investors, family and their own bank accounts. Whenthe markets bottomed out in 2009, Booth, in a lastditch attempt to fund hisbusiness, sold his home and moved his family into a rental.
What saved BuildDirect was the decision in 2009 to stop relying onmanufacturers to ship their own orders. Instead the company housed theirinventory on consignment in new warehouses spread across the U.S. andCanada. That allowed BuildDirect to expand its selection, ship faster and sellin smaller quantities to consumers short on credit. That change in modelwas “core to our business,” says Booth. Sales have since soared, enabling thecompany to close its first round of institutional funding in 2012.
BuildDirect hasn’t yet turned a profit, according to sources close to thecompany, due to high spending on search ads and sample shipments, whichcost as much as $10 per package. Booth says there are plans to rein inmarketing costs and points out that 55% of customers are now repeats orreferrals. He also says warehouse inventory will grow to $60 million by early2015, allowing the company to decrease its dependence on flooring, which isstill 80% of sales, and add new products such as washers and dryers.
Booth says his bigbox rivals are still lagging in the online game, and acouple of them have made acquisition overtures. The CEO isn’t consideringit. He’s literally bet his house on the venture. “If it was just for the money Iwould have done something else a long time ago,” he says.
Follow me on Twitter at @RMac18 or email me [email protected].
