In this occasional series, we talk with people and companies breaking new ground in construction.
You can call it a “Home Depot for hipsters" or the “Whole Foods of home improvement.” What Texas-based home-improvement retailer TreeHouse isn’t, however, is just one thing. “We're neither just a service company nor just a retail company,” says its CEO and co-founder Jason Ballard. “We’re product-plus-service, a hybrid model.”
The construction industry is, in many ways, a world divided. There are the people and businesses that sell building materials, and there are those that install them. Though there is some overlap, the shift toward green construction has caused those lines to blur further, and it’s at that intersection that TreeHouse found its purpose.
Even amid the housing crisis and general decline in brick-and-mortar retail in the late 2000s, the potential for green construction was strong enough for TreeHouse to capture the interest of key investors.
Since its launch in 2009, the company has raised $30 million in private equity. It opened its second and now flagship store in Dallas earlier this year, following its first location in Austin in 2011 and ahead of its planned opening of a Plano, TX, store this fall. It wants to become a net-zero energy company. The 27,000-square-foot Dallas store helps in that aim by being energy-positive, meaning it generates more power than it uses — a world first for the big-box category.
We talked with Ballard about why he took to construction, how TreeHouse swayed investors to buy in at a tough time for the industry, and the company’s big growth plans.
This interview has been edited and condensed.
When did you start thinking about the need for a place like TreeHouse?
BALLARD: I moved to Boulder, CO, after college. One of my first jobs was working for a guy who was doing a sustainable home remodel, including solar panels, Cradle to Cradle carpet, cork flooring and passive heating. It never occurred to me that you could approach homes that way, so I started reading and learning a lot. I wanted to work for any green builder, installer or developer that would hire me.
I realized they all had the same set of problems. There were plenty of people and homeowners thinking about homes this way. The big linchpin was access to the products and to the services that would support those products. Subcontractors usually weren’t sure how to approach such novel materials and technologies.
How did you come up with the business pitch?
BALLARD: A college friend of mine at the time worked at an angel investing network and previously worked on Wall Street in home improvement M&A. I figured if anybody would know if this is a good idea, he would. We wrote a one-pager outlining the business idea and then he shopped it around in the Northeast. He called back a few weeks later and was like 'Bingo, Ballard, this is a good idea.' He left his job and we started raising money.
What was that process like in 2009?
BALLARD: It was very challenging. Here we were trying to raise money for a retail company to support the home-improvement industry, which already had two or three well-established players. We went after private equity, not venture capital, because we knew this was going to take some time to figure out. People told us to hit the road. It took two years to raise the money to open the first store.
What was your pitch to investors in those early days?
BALLARD: We made a business case: This is a gigantic industry and we're still operating on business models from the 1970s and 1980s. But the heart and soul of the pitch was and still is that this is an urgent mission — that we need to shelter ourselves in a way that doesn't ruin our own health and the health of the world around us. We want to know that anyone who invests in TreeHouse is committed to that mission.
How does that mission take shape in TreeHouse?
BALLARD: Home-improvement products are terrible — they're low-quality, toxic, wasteful and ugly. So, we filled a store with better products. But we realized that just playing the product game meant going head-to-head with Home Depot and Lowe's. We needed to offer services. The more services we offered, the more services our customers asked for, and before we knew it, without even advertising it, most of our business was coming from helping people tackle bigger projects. It took us about three years to realize — slowly at first and then rapidly lately.
BALLARD: We’re happy if somebody comes in and buys an LED light bulb and changes one light bulb in their house. But if you think about the mission of the company, it's going to take a million years if we do it like that. We need to make radical changes to homes and we need to do it fast. So, we needed to set up our business to support people throughout that journey — insulating their home, replacing their roof, getting solar power, remodeling their kitchen, repainting their house — not just changing one light bulb.
Yet you’re still very consumer-focused.
BALLARD: In the early days of the company, homeowners were some of the only ones with enough financial and emotional commitment to a building to care about what was in their paint. Since we opened the Dallas store, we've had a lot of attention from the pro community because we have products that they can't find anywhere else and because they also have trouble finding reliable subcontractors and support services. We're going to start testing programs to support the pro community in the coming year.
How do you pick your products?
BALLARD: We ask four sets of questions. One is about the product’s lifecycle. We ask similar questions about its health impact. We don’t sell products with Red List chemicals and if an unknown chemical can be avoided, we try to do so. We have another set of questions dealing with the treatment of people [in the supply chain]. Finally, and this is the most esoteric one, we have an aesthetic filter. It’s hard to define because we want to be approachable to all tastes, but we have a sense that there’s a strong correlation between sustainability and beauty. If something is ugly, it's a lot more likely to be torn out and thrown away.
Has there been a change in how vendors address those facets of accountability?
BALLARD: We’ve seen a much better response throughout the years. We hope we can drive the kind of change we want to see throughout the industry. As we get larger, that's starting to happen more.
Was it a goal to push suppliers to change the way they were doing things?
BALLARD: Absolutely. When I was working in construction in Boulder, these products didn’t even really exist yet. We had to create a market for them. If you think about all the companies that could not exist if Whole Foods didn't exist, and how now almost all grocery stores have some thought about agriculture and human health — that's a beautiful outcome.
Do you expect a similar outcome for TreeHouse, with retailers like Home Depot and Lowe's becoming closer competitors in the future?
BALLARD: I think they'll continue to do what they do well, which is to sell products. I would love what we do to become completely ubiquitous. Being the best home-improvement retailer right now means having better products, but it increasingly means having better services, too. That’s how we differentiate ourselves, mission-wise. There are operational differences, too. Competition is healthy.
Your Dallas location is net-positive energy. How did that come about?
BALLARD: We got the Austin store to a place where it was profitable, we had iterated on the business model multiple times and then we realized it was time to start growing. When we opened in Austin, we felt lucky that anyone would let us sign a lease. So we kind of took what we could get.
Our brand is about the built environment, and with the new store we wanted to practice what we preach. Additionally, we wanted to use residential design language and, as much as possible, our products. The landlord at the Dallas site was building new, and together we decided to go for a very sustainable structure. That was the challenge we gave the architects, Lake|Flato, and they delivered in spades.
Where do you see TreeHouse five to 10 years from now?
BALLARD: I’d like to expand geographically and technologically so that most homes in America have access to a TreeHouse. Physical stores will be the heart of that strategy. The number we have in our head right now is about 300 stores. The current drive time for a TreeHouse customer is 22 minutes, so we would be in range of 80% of homes in America.
We're treating Dallas and Plano like experiments No. 2 and No. 3. Our Austin store is at the ring of the city, the Dallas store is in the heart of the city, and Plano is a suburban store. We'll have three stores in three very different kinds of markets. We’ll see how we adapt the model as we go into different kinds of communities.