The AirBnB story: Brian Chesky’s lessons for business startups

The AirBnB story: Brian Chesky’s lessons for business startups

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Every now and again you trip over something on YouTube that makes your day, your month, or maybe even your year. This talk is up there.

In this video Brian Chesky, the co-founder of AirBnB, is interviewed by Reid Hoffman, the co-founder of Linkedin, at Stanford University.

Chesky describes the humble beginnings of AirBnB and what he learnt as an entrepreneur along the way. I found what he had to say beguiling, insightful and inspirational. If you’re starting a new business or you have an idea for a business, you really need to see this.

And, just in case you’ve been living on the moon the last few years and don’t know, AirBnB is the site that allows people to rent out their place directly to other people (for a brokerage fee.)

In the talk, Chesky tells how the idea of renting your home out to strangers seemed “crazy” to investors and how they survived in the early days by maxing out their credit cards. It’s pretty interesting I reckon it wasn’t all that long ago – only 2008.

Now AirBnB is in 191 countries, 65,000 cities and the company has been valued at US$30 billion. With Chesky’s purported ‘net worth’ at US$3 billion. Not bad for someone who was broke a short time ago.

OK, it’s reasonably long this talk (at an hour and a half), but there are some gems of wisdom in it from the co-founder of one of the most successful startups on the planet right now. Plus Chesky is a charming speaker, particularly in this intimate class environment. And besides, when are you ever going to attend a class like this, at Stanford Uni? It’s right here for free.

Make some time in your down time – like lunch, in the evening, or over the weekend, to check it out.

If you’re in major scanning mode, I’ve summarised some the key things I took out of this talk below.

 

“Do things that don’t scale” (at first)

Chesky reckons the best advice he got was from Paul Graham, his mentor at Y Combinator:

“It’s better to have 100 customers that love you, than a million that just sort of like you.”

The idea being if you do things really well, those 100 people will tell other people and you’ll grow virally. As Chesky says: “almost movements in history have grown this way.” And goes on to talk about the importance of deeply passionate customers.

According to Chesky, this runs contrary to the general wisdom in Silicon Valley which he says is often searching for the key to big numbers straight away.

(* Y Combinator is a famous startup incubator that also helped the founders of Dropbox, Reddit and Weebly. Paul Graham is one of its founders.)

 

“You need to meet your customers. You need to understand their problems.”

In the early days, Chesky and his co-founders took the time to meet hosts in New York and live with them. They wrote their first reviews. Along the way, they realised many of the photos their hosts were using were letting them and AirBnB down. So Chesky borrowed a camera and photographed homes. (These first hosts were amazed when the co-founder himself appeared at the door to do it.)

“It’s easier to do something that one person loves first. Go person by person to 100. Then figure out how to scale that.”

The AirBnB founders decided to provide photographers for free. Initially, this seemed a non-scaleable, non-technical solution. Nor was there any data to back this decision. But it did end up marking a turning point for AirBnB. People started booking after that in 2009. And they picked up seed funding from a major investor.

Co-founder Joe Gebbia sums up how connecting with their audience was the major turning point for them:

“We had this Silicon Valley mentality that you had to solve problems in a scalable way because that’s the beauty of code. Right? You can write one line of code that can solve a problem for one customer, 10,000 or 10 million.

For the first year of the business, we sat behind our computer screens trying to code our way through problems. We believed this was the dogma of how you’re supposed to solve problems in Silicon Valley.

It wasn’t until Paul Graham at Y Combinator gave us permission to do things that don’t scale … that moment changed the trajectory of the business.”

 

“The difference between being unemployed and being an entrepreneur is in your head.”

Growing up Chesky didn’t even know what an entrepreneur was. His parents were social workers and wished only that he got a job with health insurance.

In the early days of AirBnB, before it got off the ground, his family asked him about what he was working on. When he told them he was an entrepreneur they said: “you’re unemployed aren’t you?” Chesky insisted he was an entrepreneur.

In fact, he says having to describe to his family the project he was working on, not only made him stand his ground and be an entrepreneur, it forced him to articulate and develop his ideas for AirBnB.

The point is: it’s a mindset. Be an entrepreneur in your head.

 

“Often big ideas sound like stupid ideas in the beginning.”

Chesky and his co-founder Joe Gebbia wanted to be entrepreneurs. They knew they needed a big idea for a business. But initially, they didn’t think AirBnB was it.

One day they had the idea of hosting travellers on air mattresses in their apartment. It came to them when there was a shortage of places to stay for people going to a major conference in town. They thought it was a good lark to try and it might just help them pay the rent. (But they didn’t think it was the big idea.)

Once they experienced hosting people in their home, they realised there was something more to it. That it could have a significant impact on people’s lives – like the friendships with strangers that formed in a short space of time.

It’s something that stuck with them and is even part of AirBnB’s mantra today – the notion of “belonging” (by staying in locals’ homes.)

But it took awhile before they could convince others (including investors) of its potential.

Many people thought it was a mad idea. Even Chesky’s mum at one stage told him: “If you need money Brian, you don’t have to have strangers stay in your home.”

“It turned out the crazy idea that no-one else would do became the big idea.”

In fact, he reckons it was good that others couldn’t see the merit in it because it meant no-one would copy it. (At least for the first few years.)

“Don’t worry about anyone stealing your idea. If it’s any good, everyone will dismiss it.”

A lot of successful business ideas started with someone solving their own problem or frustration. Something that was a nuisance to them. The big idea may, in fact, appear insignificant to others in the beginning.

 

“If you launch and no-one notices, keep launching.”

When you hear the story of AirBnB one of the things you have to admire is the funders’ perseverance, stubbornness and ‘hustle’.

AirBnB didn’t get anywhere initially. The founders launched but barely anyone noticed, and they got next to no bookings. Their earnings at that stage was $200 a week.

So they launched again. And again.

They got so few bookings, they even wondered if they should focus on the breakfast part of the concept rather than the beds. Partly as a publicity stunt, they created ‘Obama O’s’ breakfast cereal to go with the Democratic Convention in 2008.

They managed to make $30,000 by selling the cereal at $40 a box – which cleared the credit card debt they’d been living on.

But it was a tough time for them in 2008. They had few customers despite launching 3 times and finally picking up publicity. They had no money and they’d been rejected by 15 investors.

Chesky talks of how in November 2008 he woke every morning with his heart pounding – worried about their financial position and whether their startup was going to work.

One of his mentors at the time said to him: “I hope this isn’t the only idea you’re working on.”

 

“You need conviction to keep going.”

In the video Chesky talks about what kept him going when things got hard:

“You have to have a deep reservoir of passion. I had a deep conviction AirBnB would work. It was the very first weekend we hosted three people. I saw how my life changed. And how my guests’ lives changed. I thought if other people could experience this, it could be an idea that could spread.”

This was the unique and motivating insight he had that others had not realised.

“Sometimes you hack a problem of your own and accidently discover it’s really cool. My unique discovery was staying in other people’s homes was deeply rewarding and saved money. At the time it wasn’t obvious to other people.”

Chesky is fond of quoting Steve Jobs who he obviously admires. On why you need conviction, he paraphrases Jobs:

“You have to be passionate about what you do because there’s going to be days that are so hard it’s easy to stop believing in it.”

You can see the original in this short clip:

 

 

“Conviction happens from investigating the idea, exploring it and going deeper.”

Chesky’s reflection on how their idea evolved shows you have to trust your intuition and take action:

“Conviction happens by thinking and talking about the idea, by working it out with other people. The more I talked about the idea, the more excited I got. It developed with more and more physical experiences of staying and getting to know the problem. I built a reservoir of conviction.”

Interestingly, he also reflects on how that conviction helped draw in other people:

“Leaders are people that other people follow. A leader has to have conviction.”

Later he relates how this conviction led to the next key ingredient in the firm’s success – building the company’s culture.

 

“15 investors rejected us”

When you look at the success of AirBnB now it seems remarkable that the founders couldn’t find investors. At one stage they offered to sell 10% of the business for $150,000. At that point the firm’s estimated value was $1.5 million. Now it’s $3 billion. So your $150,000 would have turned into $300,000,000 if you’d given Brian Chesky the money back in 2009.

According to Chesky, of the 15 investors they were introduced to at that time, half didn’t reply to them and the rest passed. Including some investors that had already seen the potential in the likes of Google and Facebook. Chesky was told AirBnB wouldn’t work, that people wouldn’t let strangers into their home.

The insight that Chesky had – the experience of having people to stay – was something investors couldn’t see.

“The enemy of a startup is everyone else’s life.”

It takes a massive amount of time, effort and energy to launch a startup. If you’re launching a new business it’s the same thing. One of the biggest challenges is juggling other commitments in your life.

When they started, like most people, the AirBnB founders had other things going on. Getting into the Y Combinator program helped them focus and create a structure to work on AirBnB full time. According to Chesky they worked on AirBnB from 8am to midnight for 4 months which created a productive rhythm free of distractions.

Chesky quotes Paul Graham to highlight how distractions bury startups:

“Startups don’t die, they often just fade away.”

 

“Events and PR were the main ways we bootstrapped.”

The AirBnB founders had a chicken and egg problem. They needed properties to showcase on their site, but people wouldn’t list their homes if there were no people in the market for it.

So they knew they had to get exposure. They tried media outlets to no avail. So instead what Chesky did was start with the small fish and try to get anyone to write about them.

They reached out to bloggers. The idea was that if some people wrote about them, bigger press would follow. Which is what happened. Articles about AirBnB started turning up in search results and mainstream media picked up on the idea.

“If you’ve got an idea that’s noteworthy the more people will talk about it. The more absurd the better because it’s worth writing about.”

Journalists want a story that’s unusual, different and interesting. AirBnB had something new and unusual so eventually they got there.

The other thing AirBnB did was events. In the early days, it focused on big events where accommodation was clearly needed – like the Democratic Convention and music festivals. But once AirBnB started to grow they “turned on” markets in new cities by going there and hosting meetups with hosts. The idea being to generate word of mouth.

 

“We wanted to build a product you loved so much you’d tell everyone about it.”

Chesky has what he calls his ‘7 star design principle’:

“People expect to have a 5 star experience. Instead we aim to give them 7 stars.”

I use AirBnB myself – to both host and stay in places. I’d challenge you to find a better-designed site than AirBnB. It really is good. I’ve thought that ever since I started using it in 2012.

Some years back I was asked at a course which social media platform I thought was the best one. My gut response was AirBnB. It’s not strictly social media I know. But I don’t think any platform is nearly as good design wise. I actively tell other people how good it is. Which is what Chesky is talking about. Plus AirBnB does seem to get better and better.

“To build something people love, you need to do something more than they expect. Every moment is an opportunity to do something more than people expect.”

“AirBnB think about how they can make every frame of the travel experience better. People expect a 5 star experience. AirBnB think about how to make it a 6 or 7 star experience.”

 

“The product is whatever the customer is buying. The website is a communication storefront.”

Despite having an awesome website and all the work that goes into it, Chesky knows the site isn’t really his product. What he’s really selling is the experience of hospitality.

What makes it even more interesting is that AirBnB now has more “inventory” of accommodation than the biggest hotel chains. (Even though they don’t own any of it.)

Chesky reckons there have been waves of the internet. First people buying things online (e.g. on Amazon and eBay), then people connecting together (on Facebook), and now people using the internet to go back into the real world. As he says: “we are an online to offline business.”

 

“Everything can be re-invented. You can design your company.”

Both Chesky and his co-founder Joe Gebbia went to design school together. Design thinking plays a big role in how AirBnB approaches things.

Chesky says the design approach means they’re constantly looking at how they can do things better – going beyond how things look.

He likes to paraphrase Steve Jobs to explain what this means:

“Design isn’t how something looks, it’s how something works.”

And it’s not just the website.

You can also apply design thinking to everything – including and how you hire people and the office.

 

“People need to be in the mindset of the product. You need to put your product in the building.”

This design approach led Chesky to re-think their office:

“I realised there was a huge opportunity to re-invent the space we worked in. It could give us a big advantage in hiring people.”

One of the things he did was to physically re-create some of AirBnB’s best homes as meeting rooms in their office.

“People need to be immersed in the world they’re working with it.”

As Chesky says:

“You spend more time in your office than your home.”

And this could be a chance to do things differently:

“Almost everything is a creative opportunity”

 

“This is not a job, not even a career, this is a calling, this is a passion.”

In the early days, AirBnB worked out of Chesky and Gebbia’s apartment.

At one point they reached 15 staff all working out of the apartment. Chesky’s bedroom became a meeting room. Out of necessity Chesky went and stayed at different AirBnBs – for almost a year.

Now AirBnB send all new staff to stay at AirBnBs for their first week at work.

Chesky thinks a strong company culture is when people believe in what you’re doing and they use the product:

“You’re not building financial systems, or a website, you’re building a mission, you’re creating a world.”

“Everyone of us has to be a product person – we need to be deeply passionate about everything we’re doing with the product. Staff need to use product when travel. They should be hosting. They should become an expert in every part of the product.”

“The companies where their people are disconnected from the end customer – those are the ones that get disrupted.”

 

“I wanted to have a strong culture where people were deeply passionate and on a shared mission.”

Chesky says the most important cultural event is every time you hire somebody – because they become the people you surround yourself with. Chesky thought it so important he interviewed the first few hundred employees.

And now even with thousands of staff, AirBnB put potential recruits through ‘cultural’ interviews as well as ‘functional’ interviews for jobs. On the cultural side, AirBnB test for important values e.g. staff need to be passionate about giving and hospitality – a core idea for AirBnB.

Chesky says even if the technology changes, there are governing ideas that won’t change in the firm. Those beliefs are at the heart of the firm’s strong culture.

“Culture is about repeating over and over the things that really matter. It can all be designed.”

 

“Starting a company and managing a company you need to be a different type of person.”

In the early stages, Chesky used to do everything but code.

Once their website got traction, Chesky went from building the product to building the company that makes the product. The company, of course, is mostly its people.

He’s had to learn how to hire and manage. And now he’s also responsible for the long-term vision and being the face of the business through public speaking and writing.

 

“You’ve got to be shameless about learning.”

Chesky is shameless about getting feedback because he wants to do things better. He says it’s surprising the help you get if you just ask.

“Most people will help you if you ask them a question. You’ve got to have the courage to ask people and seek out knowledge.”

He’s also built expertise around him:

“I’ve surrounded myself with people smarter and more experienced than me.”

 

“I’ve had to learn how to learn.”

AirBnB has had to deal with raft of unique challenges. (Like the problem of governments trying to restrict AirBnB.) Chesky says: it never stops, there’s always new things to learn when you’re building a startup.

“The biggest thing I’ve had to do is learn how to learn.”

“You can’t learn everything about a topic, so you have to shortcircuit it by learning from the definitive source on the topic. You have to go to the right source. I’ve learnt to seek out the experts.”

And says to scale a business you need to be curious and adaptable:

“We have to be kids at heart in startups – in the sense that you’re curious, open minded, adventurous, welcoming, and not a know it all.”

And backs up his argument with something Picasso said:

“It took me 4 years to paint like Raphael. It took me a lifetime to learn to paint like a child.”

 

“The best way to become an entrepreneur is to just start.”

Whilst the AirBnB founder says he didn’t ever think of himself as an entrepreneur when he was young he says:

“I was always creating things and starting things when I was growing up. It was usually outside of school, usually slightly mischievous.”

After college, he went and got the safe job his parents his parents wished for him. But he quit his job and took the leap into the unknown of becoming an entrepreneur because:

“At my job, everything in front of me looked like everything behind me. It terrified me.”

“Design school taught me I could do anything. I could change the world.”

His advice for would-be entrepreneurs now:

“Even more useful than going to university is to just start something, immediately. Not learn how to start it, just start it.”

 

“Almost all great companies have created the market.”

Toward the end of the talk, Chesky touches on the idea of “disruption“.  The success of AirBnB is often quoted as a great example of how a market (the accommodation industry) was disrupted by a whole new thing enabled by the internet.

But Chesky reckons for any business:

“You have to be able to foreshadow emerging markets, rather than just look at existing markets.”

AirBnB is also cited as a great example of something else we’ve seen emerge thanks to the internet: collaborative consumption and the sharing economy.

 

At design school, Chesky learnt it’s possible you can change the world. You could argue that AirBnB has already done that. If you watch this talk you get the sense there’s more to come.

 

 

Links to more info

AirBnB’s home page

About AirBnB

About Brian Chesky

About Reid Hoffman’s course at Stanford University

‘How Design Thinking Transformed Airbnb from a Failing Startup to a Billion Dollar Business’

Other talks by Brian Chesky (I reckon I’ve nabbed you the best one here already, but there are others here, and new ones may come into this list.)

I suspect we’re going to see more of Brian Chesky.

Phil Stubbs About the author
phil@mediaschool.com.au

Phil Stubbs is Founder and Principal Trainer at Media School in Sydney, Australia. Phil launched Media School to help people like you learn how to use new media to achieve your goals.

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