Startup lessons from Airbnb founder Brian Chesky

So it goes. So there's so much I want to talk to you about. Yeah, absolutely. But before we do that, I think a lot of people in the room, I certainly am very familiar with your story, but I think a lot of people may not be familiar with just the story of your origin. So I just want to briefly touch on how you came up with this idea, just sort of the origin story. Can you just share that with us a little bit? Yeah, probably. Let's see. Probably begins with my mom, I guess. I guess all origin stories start with your mom. So, you know, growing up, I grew up in Albany, New York. So I actually think of myself more as a New Yorker. I was for 18, 19 years. And my parents are both social workers growing up. And, you know, my mom, I remember my mom giving me advice when I grew up. She said, you know, Brian, your father and I, we chose a job because we love it, but we didn't really get paid a lot. So you should choose a job for the money. And so, like, it was very obvious. And so, like, we're looking at, like, what jobs pay a lot of money. And so one day I told my mom, like, you know, I think I'm going to go to the Rhode Island School of Design. I'm going to become an artist. At which point she said, you somehow managed to pick the only job in the world that pays less than a social worker. You'll get paid nothing. And I said, I'll make an income. I'll get a job. I promise. And she said, well, I do want you to promise me that if you get a job, that that job has health insurance one day. And so this was the kind of beginning of my endeavor. I went to RISD and it was totally different because at RISD everyone was making stuff. They were, like, they embraced entrepreneurship. And I graduate RISD. I get this job at health insurance. I'm living in L.A. But one of my best friends at RISD was this guy named Joe Gebbia. And Joe Gebbia and I were, like, these kind of entrepreneurial people on campus. And, like, we both started sports teams at art school. That's the hardest marketing job in the world, get an artist to come to a sports game. And Joe lives in San Francisco at this point. This is, like, 2007. And he's trying to get me to come to San Francisco. Like, Brian, come to San Francisco. We're going to start a company together. And I'm, like, having this job in L.A. And I remember at one point my life was, like, I was in a car and the road in front of me looked exactly like the road behind me. And that kind of terrified me. And I wanted to take a detour. So I have this moment. I'm sure all of us have these moments in our life where we make a change and everything changes after that. I quit my job. And I have an old Honda Civic. I put everything I own in the back seat in the trunk of an old Honda Civic, including a rolled-up foam mattress. I have $1,000 at the bank. And I called Joe and I said, I'm coming to San Francisco. And, you know, it turns out that Joe said, well, the rent is $1,150. So I actually can't pay rent. It turns out that weekend, this international design conference is coming to San Francisco. We go to the conference website. All the hotels in the conference website are sold out. And we had this idea. We said, well, what if we just turned our house into a bed and breakfast for the design conference? Unfortunately, I didn't have any beds. But Joe had three airbeds. We pulled the airbeds out of the closet. We inflated three airbeds. We called it the airbed and breakfast. Yeah. I love that noise. And yeah, so that's how I started airbedandbreakfast.com. So I guess the answer is no. When I started airbedandbreakfast.com, I didn't think I'd be at the New York Stock Exchange. And we ended up hosting three people, a 35-year-old from Boston, a 30-year-old from India, a 45-year-old father of five from Utah. But what ended up happening was we ended up becoming friends and we made enough money to pay our rent. At this point, we say, you know, we're ordinary guys. I bet you there's a lot of ordinary people like us that want to make some extra money, meet cool people. I asked Joe, I said, well, who's the best engineer you know? Joe said, well, my old roommate Nate is. And so the three of us got together and we had a simple idea. What if you can book someone's home the way you could book a hotel anywhere in the world? And that's how it started. Crazy. We were trying to, in summer of 2008, I meet a guy named Michael Seibel. And Michael Seibel says, there are these people called angels and they'll give you money. And the first thing I thought is, I can't believe this guy believes in angels. That's how naive I was. And he introduced us to about 20 angel investors and a couple of venture capitalists. At that point, we were trying to raise $150,000 at a $1.5 million valuation. So we were to try to- Million with an M. Yeah. So 10% of the company. And 20, probably got 20 introductions. About 10 to 12 or 13 probably didn't meet us. We probably met a half dozen people. People mostly ran away from the idea. Everyone ran away from the idea. No one funded us. I guess three reasons or two reasons. The first reason was Joe and I were designers. And as far as they were concerned, designers didn't start companies. We didn't look like a tech founder, which I think is ridiculous because I don't think you should ever hire someone because they look like something else. You want a new thing, well, maybe they'll look different. But everyone was looking for either the Zuckerberg model or Harvard coder. If you didn't drop out of Harvard or you didn't drop out of a PhD program, well, you weren't going to be the next Google or Facebook. And the point was, well, the previous tech company founders didn't drop out of Stanford. So it was a little absurd. But the bigger issue was people asked, well, first of all, how many airbeds are there in the world? In fact, when we were trying to do our first investor deck, we had to create a total adjustable market. And so the first thing we thought is, well, how many airbed sales are there? And this was before we actually realized because one day somebody said, I want to rent my bedroom. And I said, well, all you have to do is get a mattress, inflate it and put it on your mattress. And I thought at some point we should open the model up. But the bigger problem was a simple idea. People did not think strangers would stay with other strangers. They thought it was crazy. In fact, I remember you've written about this, but one person told me, he said, Brian. I said, yes. I said, he said, I hope that's not the only idea you're working on. And at some point in late 2008, one of the investors told us because the financial crisis hits and he goes, listen, the financial crisis is hit. The stock market's cratering. I can't even invest in good companies. You're going to invest in airbeds? And so that kind of hit home. So we ended up not raising money and we ended up providing how like we say we did the visa round is the joke Joe says, which is basically we got those binders who put baseball cards in, we just put credit cards in them. So we probably each of us rack, I think I racked up like $25,000 of credit card debt. So we just, you know, until they stopped giving us credit cards. And then late 2008, we provide housing for the Democratic National Convention in Denver. And then we didn't make a lot of money with airbeds. So we thought, well, if we can't sell money with airbeds, we're airbed and breakfast. Let's go into the breakfast business. So we took a weird detour and we ended up making collectible breakfast cereal, Barack Obama-themed breakfast cereal for the Democratic National Convention. We took Cheerios, we called it Obama O's, the breakfast of change. And we had a John McCain-themed cereal, Captain McCain's, a Maverick on every bite. And we basically handmade like cereal box in our living room in 2008, made $30,000 selling collectible breakfast cereal. And this is actually how we funded the company. At late 2008, my mom asked, are you a cereal company now? And you didn't know how to answer her. Well, no, because technically we were actually. That's where we made most of revenue. And so at some point, I'm like, well, cereal seems like a good business for now, but I want to have a cereal company. And so, you know, those were kind of the dark times. So what's the lesson in there for other entrepreneurs? Well, I think there's two things. I mean, first of all, I, you know, a lot of entrepreneurs meet me and they say, I need to have investors. I need to raise capital. And I think like we were, the first round we raised was $20,000 of capital. Like that was the first round we eventually raised. I think that startups today are overcapitalized. I mean, easy for me to say now, but like things get expensive with scale, but you don't need millions of dollars to start an idea. And actually we almost have a rule that unless you have fixed costs, like you're in a hardware, you have fixed costs. Ideally, you don't need any capital to create a prototype. Ideally, your co-founders all with sweat equity can create the product themselves. But there's a bigger lesson there, which is this. I think we just didn't quit. And I think a lot of people who try to do what we did or try to do other things, they quit, they stop short. And a lot of people ask, well, why didn't you quit? And the reason we didn't quit is if you start a company, very simply, you have to know something no one else knows about your business. Otherwise, why are you doing it? And why doesn't it already exist? So the big question is, what do you know that no one else knows about your business? You need to have a unique insight. And we had a very simple, unique insight. It was totally by happenstance. In other words, we randomly rented our home one weekend. And so our unique insight was, it's actually not weird for strangers to stay with other strangers. And you can make a bunch of money and the people who travel there can save money, have amazing experience. If people could just experience what we experienced that one weekend, this would be an idea that would spread around the world. And again, maybe thousands of people one day would use Airbnb. And that was our unique insight. And so that was kind of on our star. And so we just kept thinking that first week. And that's why we kept going. So you spread very fast, very far and wide. But that's sort of when, you know, it hasn't been easy. Because as soon as you started to get a sizable size, you know, all opposition started to come out. And we became disruptors. Then you became disruptors. But you... Which I was growing up. And that wasn't a good thing. I was always in the principal's office. Yeah, you don't like that word. But it is... You are sort of exhibit A of disruption that we can talk about a little later. But, you know, your end user likes you. That's very clear. But many other stakeholders have not. And that's because the core business of renting out a home for short term violates local laws in many markets. And you've worked to turn those over in many, many places. But there are some markets that just won't budge. And New York is one of them. This has been a big source of opposition for you. So talk about that a little bit. Why has there been so much pushback? And what's the end game? Yeah. So maybe to back up for a second. When I went to RISD and we designed products. Before I got to RISD, good design was if somebody who used the product liked it. And when I got to RISD, suddenly there was this thing called green design. Sustainability. And the idea was it can't just be your product. People like your product. It has to be good for the world. And so we call these externalities. So it's not just a guest and host. When we started Airbnb, we didn't fathom millions of people doing this. So I did not consider landlords. I didn't consider cities. It was so bigger than what our idea was. Our idea was just to bring two people together. It grew so fast. And I came from the school thought like Craigslist that the community is an immune system. And bad people would get ridden from the site by the review system. And I think a few years in, it became very clear that we had to be much more mindful of how we designed the platform. We hired some great people. One of the people we hired early on who had a huge influence on me was Belinda Johnson. She's our Chief Business Affairs and Legal Officer. And she's a lawyer by training. And she told me something very simple. See, growing up, I felt like if people didn't like you, you kind of stay away from them. Because you're going to get in a fight and that's really bad. And she said, you have to meet with people. You have to meet with cities. And even if they don't like you, if they hear your story and you hear their story, you can come to resolution. You have to partner with cities. And so we decided that we would have a principle that we would partner with cities. Now, it didn't go totally smoothly. And I wish it was much easier here in New York City. But we started meeting cities, city by city. Over the period of time, what we've been able to accomplish, I'll say this and I'll get to New York in a second, is we now have agreements with 200 cities in the world. We collect room and hotel tax. We have typically regulatory schemes. Those regulatory schemes often involve a registration. I just came from London. London has their own scheme where if you rent your entire home, it's limited to 90 days. So you don't take housing off the market. You can rent bedrooms. And every city's got a different process. In New York City, I think there were a number of things going on. I think the first thing is that we were slow to be here. I think we didn't get our story out early. So there was a bit of misinformation about who our company was. But I also think there were some substantive problems. There was a phenomenon that occurred where landlords decided you can make a lot of money by taking units off the market and just renting them on a short-term basis. And though I think the scope of it was overstated in our platform, this was a real problem. And people were doing this. And I would consider this to be a very bad negative externality. So we were a little behind in this and we've had to play catch-up. And so in New York City, we've done a number of things. We've made clear we want to pay collecting room and hotel tax like we do in San Francisco and Chicago and all these cities around the world. We want to limit hosts to one home. So just the home you rent. And I think the basic premise we want is if a city is in a housing constraint, San Francisco is in a housing constraint, New York City is in a housing constraint, we want people to rent the homes they live in, not take off units off the market. And so right now, San Francisco instituted a cap. They figured after X number of days, you probably don't live there. And so we work with those caps. And this is how we've decided to use it. The last thing is landlords. I know there's some major landlords in this room. And I know not all of them love to have this activity in their building. And so we're instituting and the process of instituting a friendly landlord program where landlords can sign up and we can allow them to get information about who's in their building using it. They can even get a revenue share of the income and they get the peace of mind knowing the rent check's probably going to come. And we're trying to get much more tight around people understanding the rules and regulations of their city and their buildings and to, I think, get a bit more hands-on. And so you have to do these kind of counterintuitive things. And this is what Jeff Bezos did. This is what Steve Jobs did. This is what Walt Disney did. I mean, Walt Disney bet the entire company on Disneyland. It seems obvious today. And he took the very best animators and the studio was really angry. So one of the things that's interesting to me about this move for you is that your first product, the way that Airbnb was created and became viral and became huge was almost by accident. I mean, you had this idea, you didn't think it was going to work and lo and behold, it was transformative. And so now you have kind of the opposite of that where you spent the past few years sort of developing this product in the Airbnb lab and now released it onto the marketplace. This is what we made for you. So how is that better or worse or just different? I say different, unclear if it's better or worse. I think there was an element of luck involved with the founding of the company. I mean, we're lucky that we chose homes first and not like if we chose chips or experiences first, it wouldn't have worked because you need demand and people aren't searching for experiences. They're searching for places to stay. So it was better as an add-on to start. The major thing is that you launch, you get a lot of user feedback. So I don't think it, I think both are fine. Like Amazon, Apple, they all were very intentional about their second or third, fourth products. Everyone's first product was totally by accident for the most part. So that's, I don't find that being a defining factor. I think the key is, do you put the best people on it or really talented people? Does the CEO spend more of their energy on the new stuff, not the mature stuff, which I think is important? And are you constantly testing? And the other thing is a lot of, one of the reason companies fail is a great story of why did like California Venture not succeed for Disney. So Disneyland, next to Disneyland is a thing called California Venture. It's actually now doing pretty well, but initially was a huge failure. And the reason it was a huge failure was it was like 50 executives who went to an offsite and they were basically trying to figure out what a new park should look like. They basically violated most laws of how to build a great product. They realized, well, actually we make a lot more money on food and beverage than rides. So we're going to have way more restaurants. We're going to serve alcohol so parents can drink. We're going to do a California theme park in California. Even though most people visit from California. So it was basically created in a business plan. It was actually an amazing business plan. The only problem is people don't want it. And so then they had to basically redo the park with a multi-billion dollar renovation. A lot of products fail because they start as business plans. And the problem is the only thing that really matters that people want it and your customers do not care that you're successful. In fact, sometimes they do not want you to be too successful because they want to know that they got the value. And so I think the key thing is, are you making something that people want? And if you're starting it because it's a good revenue generator, like, well, your customer doesn't care about that. And so it might be a great business, but not if no one uses it.