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Startup School Transcript
October 16 2010
Brian Chesky - Founder, Airbnb
Link to video: http://www.justin.tv/startupschool/b/272180383
[img 00:40] Brian Chesky: Hey, guys, can you hear me? Alright. Thank you for waiting it out, and today I’m basically going to talk about the first thousand days of Airbnb. When I got the e-mail from Paul Graham, he asked me to speak, and I said, alright, what should I talk about, and Paul said, you should talk about when you were powerless and obscure. So, I’m going to talk about when I was powerless and obscure. And a lot of those thousand days I was powerless and obscure.
[img 00:42, 01:07] So, let’s start. Two years ago I went to Startup School. It was in Stanford, it was in a different auditorium, and TechCrunch wrote a post here, Jason Kincaid did this story, and look at the photo, you’ll probably see if you can recognize somebody, so I’m going to blow this photo up. You probably still can’t recognize somebody, ((because)) it’s really pixelated. But now you can. [laughter] So that’s me, powerless and obscure in the audience, two years ago. And I guess the central theme of my talk today is, I mean, I really think it’s not impossible to be on stage two years from now, and you will see from my story, it’s not impossible. So, let’s start.
[img 01:28, 01.40] So, the story starts back in 2004, I went to Rhode Island School of Design, and I went with my co-founder and my best friend at RISD, Joe Debbia, and the day of graduation Joe looks at me and he says “Brian, I think we’re going to start a company together.” So I said, I already have a job, I’ll see ya. [laughter] So I went to Los Angeles. Poor Joe is stuck back in Providence, Rhode Island. But literally a thousand days to go, and it was weird when I was constructing the title, it was like a thousand and forty days, so, October 2007, a thousand days ago, he calls me up and says he’s got this apartment, his roommate has moved out, and he says “Brian, let’s start a company.” And I said OK, let’s start a company.
[img 02.27, 02.47] So I literally quit my job, I left my house, I left all my possessions, I even broke up my girlfriend, but I’ll (( )) one anyways, and I drove up to San Francisco and Joe tells me the rent in $1150. And I have a thousand dollars in the bank account. And I said, I probably should have asked about that before I moved up. So, it turns out that weekend an international design conference was coming to San Francisco, and all the hotels were sold out. In RISD, Rhode Island’s Art School, they really teach you that creativity can solve problems. If you’re creative and you identify an everyday problem that you deal with, you can actually solve that. And for us, this was a problem. And part of it was making rent, but part of it was we just wanted to solve a problem with a creative solution.
[img 03:14, 03:27, 03:38] And in literally thirty minutes we built this. As we were talking, and I don’t know, I’m not here to give lessons, except, if you have an idea, just put something out there in twenty-thirty minutes, don’t matter, don’t worry how bad it looks. And our first launch, our first of many, was this. And this is a site that two designers had built, looks pretty modest today. We ended up hosting three people from around the world. Amol actually came from India, Katherine was a 35 year old from Boston, and Michael - that’s not Michael, I just got a 45 year old guy from Google News, I couldn’t find [laughter], I couldn’t actually find a photo of Michael, but anyways, this guy, this 45 year old father of five from Utah slept on an airbed in my living room. When we came up the idea it would be an air, bed, and breakfast because, you know, all the hotels were sold out, it wasn’t going to be a designer, we wanted to originally do a design bed & breakfast, but actually didn’t have any furniture, remember I had moved up there. But Joe said he had some airbeds, so that’s where the name came to.
[img 04:10, 04:31] So I decided I ((would)) chronicle our thousand days through traffic, and so this was our first launch. And a couple of months later South by Southwest was coming up, and we decided, why don’t we build a site where you can basically provide airbeds for conferences all over the United States. We’ll do what we did for that conference for conferences all over the country. And it turned out that launching for South by Southwest, we thought, would be the best time to do it because that is basically one of the preeminent tech events in the country. I asked Joe, I said, who’s the best engineer you know. He said his old roommate Nate is
[img 04:48, 04:56, 05:09] And so in March of 2008 we did our second launch, and it looked like this: airbeds for conferences. And that’s our traffic. [laughter] So that was our second launch, you know, a few months had gone by, and three things happened at that conference. The first is, I show up - by the way, we didn’t have payments at the time - so, I show up and I forgot to go to the ATM. So I show up to this guy’s house, he lets me in, we have dinner together, and then he says, he’s kind of uncomfortable, alright, it’s going to be $200. And I’m like, oh, can I get it to you tomorrow? It was really awkward, and here I am, a guy, some stranger, and I’m sleeping in his living room, and he’s like, what the hell did I give myself into here? [laughter] The second thing happened is I met a couple of people, and one of the people said, Brian, I’d love to go use your product, I’m going to London, but there’s no conference. So we said, that’s kind of limiting, why should it only be for conferences? And the third thing is we met this guy right here, Michael Seibel. Michael Seibel is the CEO of justin.tv. You know, before we came up here, I didn’t know anything about even Y Combinator, TechCrunch, I was an industrial designer working in Los Angeles, and Michael basically and formally brought us into the YC community. I’m not sure if I should tell you to reach out to YC alone without going through the program, but I actually did, it worked out really well. Michael basically channeled us into Paul Graham, he was basically giving us advice, taught us the YC methodology, we called him the godfounder [laughter].
[img 06:22, 06:27, 06:33, 06:37] And so, in the summer of 2008, we did a third launch. And it’s kind of similar to what you see today, you type in a city, you find a listing, you find it on the map. In fact, that was ((a)) room photo, you noticed it was the same size as the person. Well, (( )) photo was that size and we figured, well, there is a reason they have them that big, I mean, people don’t want big photos, we didn’t know any better.
[img 06:53] And the Democratic National Convention was coming up, we built this amazing product, or what I thought at the time was a pretty innovative product. In other words, you’d be able to book an average person’s space the way you could book a hotel room, ((but)) you get an authentic space. The problem is that no one want to list their space if no one’s going to book it. And I can’t, I’m li-, I can’t put mp3’s on the site, it’s like- [laughter]. Actually, we should have done that, and maybe we would have got more traffic. You know, I can’t tell people, go to this website when no one is listing. It’s a chicken and egg problem. Well, it turns out that making things for press is a really good idea. Barack Obama announced he was going to speak in this eighty thousand seat football arena, over the Denver ((Broncos’ Peak)), and their twenty seven thousand hotel rooms. So, we’re doing the math, and we realize there’s an opportunity here. And this was going to be what was going to put us on the map, so, we started noticing Fox News, CNN, MSNBC, this entire 24⁄7 news cycles, obsessed, they’re looking for stories. People started writing about the DNC housing crisis. So how did we get press? We typed in “DNC housing crisis” in Google News, and we e-mailed every single person that wrote about it. Now, if you e-mail CNN, they’re not going to write you back, but if you e-mail a blogger, they’ll probably write about you, and then you go to local news. And the local news will then google you, and they’ll see that bloggers are talking about you so then they’ll do a story about you. Then, the Denver Post and the Rocky Mountain News are going to google you and see that all these people are talking about you, and eventually CNN is going to be following their own keywords, notice you and then cover you. And that’s what happened. We got eight hundred people to list the rooms, and this event and this press tactic was really the thing that got us over that initial hump.
[img 08:38, 08:55, 09:06] [laughter, applause] It gets better. [laughter] Two months later we realized if only (( )) conventions every week [laughter], we’d be huge. So we’re sitting in our apartment and we realized, well, I don’t want to wait until 2012 to get more reservations. And this is where the story kind of goes on a sidetrack, so I just want to warn you now. We had a lot of time on our hands, let’s just say that. In other words, when you build a product, a market place, and no one uses your market place, you have a lot of time. [laughter] So we had a lot of time on our hands, and we’re sitting in the kitchen one day and, by the way, we had also provided housing for a Republican National Convention. Um, no one went to that. [laughter] We had, I think, one booking.
[img 10:24] So, we have a lot of time on our hands, we’re in the kitchen, we’re like, what if we made a cereal, a breakfast that we could send to the people hosting, you know, it’s like a nice exchange. Well, we’re not going to send them eggs, it’s not going to be a perishable. And so, obviously, we thought, let’s send them a breakfast cereal. We’re just having fun, by the way, as I said, we had a lot of time on our hands, and we’re thinking what would an Obama themed cereal be called. And we’re just like basically joking around, and we decide, we come up with this name, we think it’s hilarious. It’s a hilarious name, and we launch, we create this product we call Obama O’s, the breakfast of change. [laughter] We also had hope in every bowl, I like that one too. So we designed this box, mostly, as I said, we had a lot of time on our hands, but then we started realizing, this is a really cool design, we want to sell this. But we needed a gimmick so people would find out about this. So we made a video and we actually got a guy that would make us a jingle. Shall I play you the jingle? [audience: Alright! Yeah!] Alright, here is the jingle. [plays jingle] [applause] So, by the way, I know you’re thinking, we had a web startup and now we’re making cereal. Yeah, well, you know, we had no traffic, so… [laughter]
[img 12:32, 12:43] So, you know, a company from San Francisco that wants to be an open platform, you’ve got to be very careful if you’re doing things only for democrats, right, we wanted people from all over the world to use us. So we said, if we make a Barack Obama themed cereal, we have to make a John McCain themed cereal. And we’re thinking what would a John McCain themed cereal be called. We’re reading about him on Wikipedia, we find out he was a captain in the navy, and that’s when we came up with Cap’n McCain’s, a maverick in every bite [laughter]. And, as you can predict, we got a jingle made for that as well. [plays jingle] So we made these boxes of cereal, we think, maybe this could be the solution to us not having any money or any traffic. We still believed in Airbnb, but we had no traffic, and we thought if we can make like a hundred thousand boxes like these and sell them for two dollars a box, that would be ((able)) to fund our company. We had this thing we knew people wanted, they didn’t want the website, but they wanted the cereal [laughter]. Unfortunately, I think I was fifteen or twenty thousand dollars in credit cards, I had like maxed out five-, four different cards, five thousand dollars each, so we certainly couldn’t pay for cereal.
[img 13:39, 13:52, 14:20] We meet this guy in Berkley, he turns out to be an alumni at RISD, he says, I’m not going to make you a hundred thousand boxes, but I’m willing to print you - because I like you guys and I want to help another alumni - five hundred boxes each of John McCain cereal and Barack Obama themed cereal. So we realized, well, we’re not going to make a lot of money unless we charge a lot. So we said if we call it a limited edition, we can charge a lot. [laughter] So we charged forty dollars a box, and we literally got a thousand boxes printed. They’re just flat, right, you’ve got to assemble them yourself. Joe and I assembled them in our kitchen, and I’m not joking, I mean, we actually went to the grocery store and bought a thousand boxes of cereal. [laughter, applause] We would buy [sound missing] just the look she would give us, it was the person behind me in line [laughter]. And I’m just like, I just love honey (( )) O’s.
[img 14:35, 14:50, 15:10] So we put up this website, the jingles, and CNN discovers it, and CNN runs the story about Obama O’s and Cap’n McCain’s. And we end up selling out in like two days twenty thousand dollars worth of Obama O’s and not very many Cap’n McCain’s [laughter]. People started reselling the Obama O’s on Craigslist and eBay, and we realized, Joe, we didn’t charge enough, damn it. [laughter] So, some time passes, we pay out our dept, but our web site still has no traffic. [laughter, applause] This is where people make a pivot, and we’re like, this is working, but we don’t want to make cereal for the rest of our life, so we’re going to go back to the website. We’re running out of money again, and this is a low point for me, I’m just going to make a confession, because I haven’t really talked about this before, we’re in our kitchen, we had no money, we had no food, and I wake up one morning, and I go into the kitchen, and I have no food, I have no money, and I’m like, what am I going to do? I have to eat. Well, luckily, we didn’t sell that many Cap’n McCain’s [laughter]. So for two or three months we lived off Cap’n McCain’s [laughter, applause].
[img 16:48] So this is actually from Paul Graham. He’s got this graph on Y Combinator, and he says, basically, after your launch, you think you’re going to make it and then you crash, and you’ve got this long (( )) of sorrows, and that’s what happened with us. And it was a few months later, I’m sitting with Michael Seibel, and Michael Seibel, of course, is channeling his inner Paul Graham, he’s like, you guys, what are you doing, you should do Y Combinator. And I said, Michael, we’ve already launched, you don’t do Y Combinator if you’ve launched. And he says, you guys are dying, do Y Combinator. So we meet with… [laughter] Here’s-, by the way, I’m going to give you some inside things about Paul Graham right now. So we meet with Paul Graham and I don’t know how much he liked the concept at first, but he liked us. And I don’t know if he liked us-, he liked us for a very specific reason. In november of 2008, you know, Sequoia put out that thing on TechCrunch ((R.I.P.)) good times, it was basically an investment (( )) winter. It wasn’t clear that anybody would be funding people, so he was looking for people that wouldn’t die. In fact, Paul Graham says, you guys won’t die, you’re like cockroaches [laughter]. And so I think that’s why he funded us.
[img 17:35, 17:59, 18:03] So we decide, let’s give it three more months. And, by the way, at the time, our poor engineer (( )) running a cereal company, he moves back to Boston, he’s like, alright guys, good luck with the whole cereal thing, so he’s in Boston, Nate, consulting. Nate comes back, we do Y Combinator, and, you know, Nate unfortunately is 6’5”, and he sleeps on this tiny airbed, I think it’s a bed for children, actually [laughter], and it was in our bedroom. And we would be up late into the night. Paul Graham says, you need to be profitable by Demo Day. We don’t even know if anyone is going to be at Demo Day (( )) investors. I mean, it was a very different environment only two years ago.
[img 18:39, 18:47] So what we did, and this is how we succeeded, we realized whatever you focus on, you get. You should focus only on one thing, and that’s being profitable. So we printed out an imaginary revenue graph, and we pasted it to the bathroom mirror. We said this is the first thing we’re going to look at when we wake up in the morning, and this is the last thing we’re going to look at before we go to bed. We are going to be dreaming about revenue. And we really did. We put it up on the wall, on the bathroom mirror, and we were literally up late at night, and this is halfway through Y Combinator, we meet with Paul Graham again, and he gives us another amazing piece of advice. He says, your users are meeting in person, and you’re here in mountain view, what are you still doing here? And I was like, what do you mean, what am I still doing here? And he says it again, your users are in New York, they’re in DC, they’re in LA, go to your users. And we said, but that doesn’t scale, we can’t do that. He says, don’t worry, do things that don’t scale, it will teach you. So that’s exactly what we did.
[img 19:19, 19:45] We started going to New York City, we went to Washington, DC, we went to Denver, we went literally door to door, basically signing people up for our website. I would just know, I mean, we knocked on some doors and said, hey, do you know how much your bedroom is worth? [laughter] Not really, but we basically were saying things like that, we’d be in coffee shops, in conversations. I just want to point out this listing right here. What’s notable is before this we were a market place for people to list their bedroom on our website. And this guy, David, basically changed our business forever. Do you know who David is? He looks kind of like a musician, doesn’t he? So David is Barry Manilow’s drummer. Barry Manilow’s drummuer forever changed our business when he decided that he was going to rent his entire apartment on the website while he was on tour with Barry. And before that we had this rule, you had to be in the place with them, you couldn’t provide breakfast otherwise. [laughter] Seems so silly now, I know. And this opened up a whole new market, but how did we know? Because we had met him. I had no idea until I find out, and, by the way, it was amazing when I get a call a couple of weeks later, he’s backstage on tour, I hear, Barry, Barry, and he’s complaining to me that he can’t log in to his account. [laughter] I just thought that this was amazing.
[img 20:47, 20:53, 20:58, 21:06, 21:21] So this was our fifth launch, on demo day, and we started getting what Paul Graham calls your wiggles of hope. And we finally reached profitability, ramen profitable, but we looked at that graph every day, and we hit it a couple of weeks early. And over the next couple of months people started to list their places all over the world, and today we’re actually in 8200 cities, in 166 countries, and the reven-, the traffic, I only show the traffic, but everything has been taking off, you know, but very recently, only basically the last three, four, five months, so it looks like, you know, maybe an overnight success, started literally a thousand days ago.
[img 21:38, 21:46, 21:48, 21:55, 21:58, 22:02, 22:22] And we now have really interesting spaces, we have this amazing apartment in Paris, this is pretty similar to what we’re expecting. But we also have things like a tree house. This is actually one of the most popular listings on our website. We have igloos. You can actually stay in this igloo. We have boats. Twenty-three people have stayed in that boat this summer. We have water villas. We have castles. And, in fact, the amazing thing about this castle is people are actually throwing events here, because you’re not just going to rent it out for two of your friends, but if you have a-, or maybe you will, some of the speakers might, but you, you know, people have weddings here. So we’re not facilitating not just spaces to stay, but spaces to do activities, to experience. And this was pretty amazing, we actually are now getting private islands, and people are booking, we have an entire collection of private islands on our website.
[img 22:39, 22:51] So, basically, what we are today, is a community marketplace for space. It’s a really big idea, but if we, back in 2007, said we were going to create that, it would have been impossible. So, basically, it started with an air bed, in our living room, to solve our own problem, and now people are listing all types of spaces, all over the world. And there’s a big party tonight, make sure you come! [applause]
Audience: So you said you went to your users. How did you know who to go to, (( ))
Brian Chesky: When you have fifty users, it’s pretty easy to know who to go to. [laughter]
Audience: (( ))
Brian Chesky: Right, right. So what we would do is we would find people who were already on the website, we figured, we just need to find a few more people like you. And so basically we wouldn’t just go to random people, we’d meet the few people that were on our website, and we want to know do you have friends, who is like you. [laughter] Luckily, yes, and that’s what we’d do, so we’d go to Barry Manilow’s drummer, we realized, okay, that means there’s a whole bunch of musicians, where do they talk, and that would give us the idea that there’s a whole bunch of musicians, and things like that.
Audience: (( ))
Brian Chesky: Oh my god, we had no idea. It seemed so scary at the time, and you know it’s kind of like that, that dogma, it’s like, you deliver the results other people ((are)) thinking. Everyone said you’d be insane to process payments through your website. You can’t book a normal person’s space, and for a while, I think they proved right. We tried Amazon Payments, and that was a nightmare. We wanted essentially to do something where we could split the transaction, and we only collected our 10% fee, and the other money would go straight to the user. Eventually, we decided to bite the bullet and collect 100% of the money. I mean, at the time-, now it seems like a great idea, you know, but at the time, like when you’re a couple of guys working in an apartment, that ((seemed)) really, really scary. And we essentially started with PayPal, and now we work with Chase and other banks.
Audience: What were your most effective strategies (( )) acquiring listings and users to rent those listings?
Brian Chesky: So, we did a number of things, I think, doing kind of things, leveraging press was our most-, our best strategy. So, (( )) noticed we leveraged a conference where there was already a blog, right. So that original design conference, the reason designers knew about it is we put up this little logo, and they said-, they would post about it. The DNC, we put-, the way we worked with the DNC is we launched this website, and then we wrote, we started with the Denver bloggers. We didn’t want to get national bloggers, we needed to get the listings first. We started with the Denver bloggers and said, now, this is a new place to list your place. You always focus on supply first, and you get press, or you get people talking about the supply, once that is at a certain threshold, then you shift the press to the demand. And so, Denver, that’s what we did. Inauguration, same thing. [pointing to the audience] The front.
Audience: As far as the (( )), is there one specific demographic (( ))?
Brian Chesky: That’s funny. Is there a specific demographic? Well, you noticed the three people that stayed with me: I had a thirty year old from India, a thirty-five year old woman, and a fourty-five year old father of five from Utah. There is this - I think you can call it a misconception - that it’s young king of people in their mid-twenties, who don’t have a lot of money, and use Airbnb as an affordable alternative to hotels, and I would say those types of people exist on our site, but you know we have a third of our users who are over the age of forty. AARP did a huge story about us because a lot of retirees, like, you know, once they retire, the baby boomers (( )) retire and they want to travel, and you know, it’s kind of a drag to be going to all these hotels, they kind of done that, they want a new adventure. So I would say the demographic is pretty expansive. I would say the demographic (( )) are pretty open minded, they’re willing to try something new.
Audience: (( ))
Brian Chesky: Absolutely, absolutely. So, you know, we agree with the spirit of the Bill in New York. And the spirit of what’s happening in New York is that they want to be able to protect travelers, and this is a debate that happened in 2003, well before us, and the idea was that, if there’s no big hotel brands, how do you know that somebody’s legitimate? How do you know they’re going to provide a good experience? And that’s fundamentally the opening question. And we believe that through things like reputation online, you can actually do that. And it’s funny that you ask about New York because, you know, the bill-, or the situation that happened in New York, once we actually met with the Bill sponsors, they actually said, no, this isn’t-, you’re not the intended target. And, actually now, we’re looking forward to be on the work with them, to figure out a way that we can both live together, and I think we will, because, ultimately, I think we’re good for the community, and, you know, most of these (( )) people are going after the professional property group, so what they don’t like are people that are buying up entire buildings (( )) permanent residence, and that’s really not the culture of Airbnb.
Audience: (( ))
Brian Chesky: OK, so, oh, that’s another really good question. How do we scale, we’re in 8200 cities, and we basically made a decision early on. You can either provide a really good, focused, user experience in one city, or you can decide to be global from day one. If you’re global from day one, you could have a bad user experience, and we did for a while. What happened is we had a search bar in the homepage, the problem is anything you search for, we hardly had anything. Though I (( )) super good, so the classic theory would be just start city by city, and limit what cities you can post to. At the time, a couple of other companies tried to do that, and I think, it looked like that was the winning strategy. But once we got enough critical mass, it was-, it turned out that we had the right strategy. And how do we do it, we allow you to list any space, as long as you can find it on a Google map. And that’s simple.
Jessica Livingston: Last question.
Audience: So how did you built the critical mass in these new cities, did you use advertising, or did you just survive with PR and viral effects?
Brian Chesky: So it was literally just PR and viral effects. OK, so this is a really cool thing about starting a travel company. So, we have a two sided market place, and a two sided market place is really, really difficult, because, I said, buyers want to go where the sellers are, sellers want to go where the buyers are. The other good thing about being in that business is you have natural moat, because this is really hard to get started. But this other thing that happened was, when you’re a travel site, the ideas tend to spread, right, a lot easier, it’s a natural spreading by people traveling, so when we focused on the DNC, what happened is people came to Denver, literally from all over the world. I mean, it wasn’t just the United States, they actually came to DNC from all over the world. Same thing with the Inauguration. After Inauguration, we focused on New York. So, basically, we focused on international destinations like New York. Travelers come from all over the world to come to New York, then when they left and went back home, we would focus and re-target to them and say, hey, now you can list your space, it’s free, there was no friction. How did we focus on Lake Tahoe? It probably only would be popular in California, or wherever people are coming from. So, I think, being focused on international destinations where now we’re very popular, and even Tokyo, because people from Tokyo are coming to New York, and (( )) market to them when they go back. Alright. [applause]