Scaling Airbnb from the Living Room to Across the Globe

Joe Gebbia , Co-Founder and Chief Product Officer, Airbnb

We have to say that Joe Gebbia, Airbnb's co-founder and chief product designer, is a great storyteller. He practically held court when he dropped by last month for his soapbox. Everyone was captivated as Joe told the story of Airbnb.

But Joe wasn't just spinning a yarn. He was laying down some solid insights, well-earned from the challenges Airbnb faced in scaling into an international service. He told us how his background in industrial design paid off when it came to building Airbnb and why it's OK to do things that don’t always scale.

Feel free to listen to the podcast as you read through the summary of the event below.

grayscale photo of Airbnb Joe Gebbia

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Put Yourself in the Other Person's Shoes

Joe trained in both industrial and graphic design, eventually getting degrees in both. When he told folks that he was going to do an internet startup, he would get asked how his background in physical products would pay off. However, as he said:

There’s this physical world and this virtual world. Surprisingly enough, the principals are pretty much the same.

He said he was trained to think about every moment of a user’s experience with a product, from the moment you open a package to the actual use of the product. Which is an approach that Joe takes with Airbnb.

Think about medical equipment, Joe gave as an example. You would go out into the world, into a hospital and observe the patients, nurses and doctors interact with that product. Then you would become the patient, the user at the end of the device. It’s something that he did while training to be an industrial designer.

We would put ourselves in the shoes of the person we were designing for. And I think that’s a universal principal whether it’s in the physical world or whether it’s online.

Put Us In the Same Room

The tale of Airbnb began 12 years ago when Joe meet his eventual co-founder Brian Chesky in design school. Joe said they realized early on that if you "put us in the same room at the same time that we could solve really tough problems together."

One day over pizza, Joe told Brian that they would eventually start a company. Brian thought Joe was a bit crazy, but years later that prognostication would come true.

Network in Your Jam Jams

When Joe got to San Francisco, he realized that he arrived at the land of opportunity, so to speak. The culture was perfect for young entrepreneurs. Eventually, Joe was able to persuade Brian to leave LA for San Francisco. The year was 2007 and both men left their jobs.

As soon as Brian hit town, an unfortunate bit of news hit Joe in the form of a letter. The rent on his San Francisco apartment was skyrocketing up by 25%. With dwindling bank accounts, both men found themselves unable to afford rent. But they didn't let them stop them from find a solution. Remember, put them into the same room at the same time and they could solve tough problems. And that’s what they did, sketchbook in hand.

Exploring crazy ideas to save their apartment, both men had opportunity practically hit their front doorstep. A design conference was blowing into town and every hotel in town was booked. Looking around at all the empty space in the apartment, they realized that they could toss down a few air beds and rent them out to attendees needing a place to stay.

But it was more than just the air beds. It was an entire experience that they would provide, making a home-cooked breakfast, providing BART passes and even change to give to the bums on the street.

This wasn’t a bed and breakfast. This was an air bed and breakfast.

They bought three air beds tossed them down and threw together a site in a day. Then they blasted every popular design blog they could think of. And the idea blew up with headlines like "Wanna Network in Your Jam Jams, Stay with Joe and Brian."

By day six, there were three people staying in our living room. That’s how fast all this happened.

They thought that their first customers would be college students, strapped for cash. But that was hardly the case. They were all over 30: a graduate student from India, a 38-year-old woman from Boston and a 48-year-old family man.

The assumption that we had made was totally inaccurate. We were like, "wow maybe there's a wider audience out there, that’s international." That’s men and woman. That’s an older demographic than we originally thought.

And the entire experience was magical, said Joe. They all shared meals, saw the sights of San Francisco and exchanged ideas. To give an idea of how profound the experience was, the grad student invited Joe and Brian to his wedding two years later.

The Light Bulb Goes Off

It was that combination of the financial and this amazing social experience that we had that you could see the light bulb start to glow. Wait a second, we're just two ordinary guys and we’re having this amazing time. We’re willing to bet there’s tens of thousands … hundreds … millions of other people around the world that would want to participate into this.

But it was a long road ahead to the Airbnb that exists today, including a pit stop at South By Southwest, where they ate their own dog food using their own service to stay in Austin. An important lesson they learned: a better payment system. Up until that point, all payments had been made on arrival.

So they set out to change the payment system and rebuilt the site for a global platform. They really didn’t have a lot of money during these early days. But the 2008 Presidential Election turned out to be a real boon for Airbnb.

The Democratic National Convention had the entire city of Denver pretty booked. There were talks of opening up the parks so that people could camp out. That's because then-Senator Barrack Obama was drawing huge crowds, the largest for a presidential candidate. So Airbnb decided to ride the coattails, so to speak, and solve the boarding problem in Denver.

They tried to get the attention of the top tier press, but no one was biting. No one cared. So they went to local bloggers, which the papers use to get their story ideas. Eventually, their story was picked up by the national media. However, the interest in Airbnb was short lived even with a major article in Techcrunch.

The Trough of Sorrows

The novelty had worn off. People went about what they were doing long before they heard of Airbnb. The service entered what Joe calls the "Trough of Sorrows."

The Trough of Sorrows is, I feel like, where your passion is truly tests. The Trough of Sorrows is where you will truly be pushed up against the wall and say do you really want to do this.

It could last weeks, months. For Airbnb, the Trough of Sorrows lasted a long time. The founders' savings were evaporating. Investors hadn’t shown the slightest bit of interest. They were doing a Visa round of founding, pocketing more and more debt in the process.

The only way out of the Trough of Sorrows is your creativity.

Once again, the Presidential Election provided an opportunity.

The Breakfast of Candidates

Late one night, to keep their spirits up, Joe and Brian joked about sending out a special Airbnb breakfast to their hosts. And maybe it should be tied to the presidential election. You know, "Obama-Os, the breakfast of change," they joked. And if there was an Obama cereal, there had to be a John McCain one too: "Cap’n McCain, a maverick in every bite."

And that’s just what they did. They had 500 boxes printed up and they charged $40 a pop for them. Their gamble paid off. They sold 500 boxes of Obama-Os. More than $20,000 worth.

Airbnb was funded by breakfast cereal.

Do Things That Don't Scale

The stunt got the attention both the national media and Y Combinator. Soon they were part of the now-famous incubator. One day, Paul Graham took a look at their plans for Airbnb and told them plainly that they weren't going to work. Then he asked the founders a simple question: "Where is your market?"

The founders said that New York seemed promising. To which Paul, gesturing wildly with his hands, said, "Your users are in New York and you're here in Mountain View."

The founders were dumbfounded, saying they were in Mountain View for Y Combinator.

Paul repeated himself. "Your users are in New York and you're here in Mountain View." After a pause, he added, "What are you still doing here?"

At that moment, the duo realized that they didn't have to do things just to scale. Up until then, they had the mentaility that things that scale were the only things worth pursuing.

It wasn't up until this moment that Paul Graham gave us permission to do things that don't scale. It was in that moment that everything changed. He taught us the beauty of doing things that don't scale.

They went to New York, visited their hosts and learned how to make the service better. One host sat down with Joe, serving him tea. That's when his design training kicked in and he conducted user research, going through the site with the host and taking plenty of notes. They found that other hosts had a slew of features they wanted, which they'd never have learned if they stayed put in Mountain View.

And they started making money after implementing the features. Of course, Paul told them why weren't they still in New York. So they made several trips back to New York, doing the same thing.

His message was go meet the people.

The lesson learned, however, was that you have to give yourself permission to do things that don't scale. A philosophy that continues to this day at Airbnb.

Our convesation with Joe continued as he took audience questions. We'd like to thank Joe for coming down and sharing his experinece with us. We'd also like to thank everyone who attended.


Soapbox transcript

Ryan: All right. How many of you use Airbnb? Nice. Sweet. It's a good thing you guys are here then, right? OK. Just to start off in 2007, Joe left his job at a San Francisco publisher to start a business with his former classmate and friend Brian Chesky. Soon they found themselves unable to pay rent on their apartment but opportunity came in the form of a design conference.

They hit up on the idea that they could rent airbeds, prepare a home cooked breakfast, and still make rent. In that moment Airbnb or Air Bed &
Breakfast was born. Within a few short years Airbnb raised one hundred and twenty million and is valued at more than one billion dollars. Want to get into all that but please give a warm welcome to Joe Gebbia co-founder chief product officer of Airbnb.

Joe Gebbia: Thank you. Thank you. Yeah, you make it sound so easy when you give the intro. Yeah, in a couple years there is a lot of money, no big deal.

Ryan: Yeah, yeah, yeah, no big deal. No big deal. No big deal but I'm glad to have you here. One of the...

Joe: It's good to be here. Thank you.

Ryan: One of the things I want to get into because I'm very much into people's secret origins and you kind of have a varied background in product you've industrial design, print, web, and I kind of wanted to get into just how does that varied background kind of influence how you approach designs and problems and how does it influence you're work?

Joe: My background I did a double degree in industrial design and graphic design and people often ask well my god you're doing an internet start-up how on earth does an industrial design education apply to the internet. This physical world and then there's this virtual world and surprisingly enough the principles are pretty much the same. You design a consumer product.

The way that we were taught and trained to think about how to design consumer product is to think about every moment of the user experience. From the packaging to the unboxing to the first time you turn whatever it is on to the whole kind of user experience from beginning to end and it's actually... It's very similar to how we think about Airbnb and our user experience online. Actually there's another really cool thing that applies I think to the internet.

When we were studying industrial design the way that we started was to go out into the world and to go understand how people were using the existing product today and great example is if you're designing medical equipment we would go to the hospital. We'd leave the studio, we'd go out into the world, we'd go into the hospital and we'd observe.

We'd go look at how patients and nurses and doctors were dealing with whatever it was we were trying to solve and not only that but then we became the patient and we would actually lay down in the bed and get the device applied to us and we would put ourselves in the shoes of the person we were designing for and I think that that is a universal principle, whether it's in the physical world or whether it's online.

Ryan: Awesome. That product design experience obviously has come in to some play and some use and I kind of want to get into kind of the origins, if you will, of Air Bed & Breakfast. You left your job at Chronicle Books, one of my favorite publishers I've got to say, so I'm like super stoked to meet you just for that. Airbnb, what's that? No, but it kind of just started. You guys kind of plunged in and kind of how did that idea initially form and how did you guys kind of really start that up from your living room?

Joe: Sure. I need to give some background first before we get into like the 'aha' moment of how this all kind of came together. About 12 years ago I met a guy named Brian Chesky. We were industrial design students together at the Rhode Island School of Design and it was while we were on campus that we started to realize that if you put us in the same room together at the same time we could solve really tough problems together in a really creative way. The feeling was so strong that before we graduated, I actually invited him to get a slice of pizza.

I said Brian I think one day you and I are going to start a company and he kind of looked at me with this funny face. He goes "Ah, that sounds weird."
I go, "No, I think one day we're going to start a company they're going to write a book about it. I have no idea what it's going to be but it's just this premonition that I have." He graduates, goes off to Los Angeles. I move to San Francisco and it was pretty, you know, being is San Francisco, it was pretty quick to identify that it was the hot bed for entrepreneurship that I always imagine it would be.

I immediately pick up the phone and call Brian. "Brian what are you doing in LA? You got to come up to San Francisco. This is where all the action is." He's like "No, no, no I like my lifestyle down here."

Two years of recruiting, finally get Brian to move up to San Francisco. It was at this moment in our lives we realized that if we were going to fulfill our dreams of becoming entrepreneurs we would need to create the space to do that and at the time I was working at a publisher in San Francisco and Brian was doing design in L.A. We simultaneously quite our jobs. We didn't know what was going to happen but we realized that if we could create the space, put us in the same room we'll figure it out something out together.

It's completely ironic that this same weekend he moves up is the same weekend we quite out jobs unbeknownst to us our landlord was preparing a letter and we got the letter a few days later and when I opened it up it said dear Joe your rent is not 25% higher. Suddenly the rent is going like this and our bank accounts are going like this and Brian and I look at each other and we go "Uh-oh". We have a problem on our hands and we literally have days to figure out how to solve this problem.

We pull out our sketch books. We're in our living room and we're coming up with all of these crazy random ideas of how to make some extra cash and we have our laptops open and we notice that there's an industrial design conference coming to San Francisco. It's the IDSA 2007. They had their international conference in San Francisco and it was so big the hotels had completely sold out. We're thinking "Huh, that's terrible. The designers are going to have to stay by the airport if they want to come to the conference."

It's kind of at this moment we're looking around the apartment and we're like wait a second what about all this extra space. What if we were to blow up an airbed on the floor and rent it out to a designer and we realized like well yeah we could do that that'd be cool but what if we made it more of an experience.

What if we provided a BART pass? What if we provided a map to the city?
What if we cooked breakfast in the morning and we live in south of market so what if we gave them some change to give the bums outside of our apartment? It's kind of like the full experience of San Francisco. We actually did do that and there was quite an experience but...

This kind of like concept that we had on the first day was something that this wasn't a Bed & Breakfast this was an Air Bed and Breakfast and we realized pretty quickly after we inflated the first airbed that we had room for two more. We went to the store and we had three airbeds. By the end of the night, we had this idea called Air Bed & Breakfast that was day one.

Day two, we get the domain and we make the website airbedandbreakfast.com which was probably the longest URL you've ever heard of, it's 18 characters and we make this website in literally a day. It's four pages, super simple, pictures of us, pictures of the apartment, did a neighborhood guide, and we realized at the end of day two that cool we have a website but nobody knows about it. What are we going to do?

We had never gotten any press in our lives. We didn't even know how you get press how to get on a blog. That was like so foreign to us. That night we kind of threw a Hail Mary and we e-mailed all the top design blogs that we read everyday Core 77, Swiss Miss, Design Observer, and so on and it was kind of like we're just going to tell 'em what we're doing maybe they'll like it maybe they won't.

The next morning we woke up and it was like Christmas morning. We opened up our laptops and there at the top of these design blogs that we admired so much were headlines like "need a place to stay, crash with Joe and Brian in there summer loft" these like kind of crazy headlines. One was like "want to network in your jam-jams, stay with Joe and Brian."

It was like it was kind of crazy this idea that we had 72 hours earlier was now broadcast to the world and by day four the world was e-mailing us. We had designers from England, designers from Brazil, designers from Japan, designers from India that needed a place to stay for the conference. Suddenly we were innundated with more applicants than we had air beds for.

By day six there were three people sleeping in our living room. That's how fast all this happened at the beginning.

A couple things happened. First let me ask you, think for a minute. What type of person do you imagine is the demographic that would sleep on an air bed in somebody's living room? What comes to mind? College, yes, Young folks, yes, what else? OK. Frequent travelers like [inaudible 09:48]
probably male, probably some young college guys. This is the image that we had in our mind of the kind of people we'd be hearing from. It turns out that all three of our guests were over the age of 30.

One was a guy from India 32 year old grad student studied industrial design, one was a 38 year old woman from Boston, and our third guest was a 45 year old husband and family man who slept on an air bed on our kitchen floor and so suddenly when our guest arrived we realized it was like this kind of like, "Whoa, wait a second". These assumptions that we had made were totally inaccurate and we're like, "Wow, maybe there's a wider audience out there that's international that's men and women that's like an older demographic than we originally thought".

It started to plant the seed and the four or five days that they stayed with us for the conference I have to tell you we proceeded to have the time of our lives. You know, we did this for financial reasons because we had to pay a rent check to get out but what we quickly discovered is that the social experience of sharing San Francisco and our apartment with our guests was so much more enriching than the thousand dollars that we made.

Of course, it was nice to save the apartment but this kind of social experience was completely unexpected and it was somewhat magical that we could take three people into our home who'd we'd never met before and they left as friends. In fact the guest from India, his name was Amul[SP], he two years later invited us to his wedding. Just to give you a sense of how profound that interaction experience was because we took him to you know the ferry building for the farmers market, to the Golden Gate Bridge, to
[Ridos], to parties that our friends were throwing that otherwise never would have access to and think about the experience that they had.

At the end of the conference every night majority of people went a hotel in Union Square kind of bod of a room it's kind of probably maybe by themselves kind of disconnected from city from the culture of San Francisco. Contrast that with our three guests came back to our apartment, we cooked dinner together, we music playing, there was conversations, we were sharing ideas.

The web designer, she worked at Razorfish at the time, she was giving us tips on how to make the website better. Amul from India was sharing his thesis project about artificial intelligence and it was just these fascinating conversations and it was so social and lively that it was like the complete antithesis[SP] of traditional accommodations. It was both this combination of financial aspect and this amazing social experience we had that you could see the light bulbs start to glow.

It was like, "Wait a second, we're just two ordinary guys and we're having this amazing time. We're willing to bet there's tens of thousands, hundreds of millions of other people around the world who would also want to participate in something like this". That was the spark. That's what got the ball rolling but it certainly didn't provide all the answers. It was a very long road ahead of us and where we started and where we are today are two very different places.

Ryan: Speaking of that long road, how do you start to scale from like a living room to now. I know that's like a few years but where do you first decide hey we have to scale? I know you guys kind of did some things with a cereal box to raise money and then you got the attention of [inaudible 13:18] community. Tell us...

Joe: Sure.

Ryan: ...a little bit about that and kind of take us to some of the issues you encountered while scaling.

Joe: What's kind of cool is this week five years ago was the conference. It was October of 2007. this experience happened pretty much five years ago to this week. Afterwards Brian and I kind of look at each other and we're like, "What do we do with this?" We're just designers we made a really simple html website but if we want to build a really robust service we're going to need some true programming expertise.

Brian asked, me who's the best programmer you know? I said, well actually the guy that used to live in bedroom before he moved out, former roommate Nate. He's a Harvard Computer Science graduate and Nate had this amazing work ethic because we'd always be up late working in the living on our side projects.

We go and we meet up with Nate. Nate here's what happened. We tell him the experience and he had just left the start-up that he was working at, looking for the next thing to work on, and he loved the idea of how we were starting to bridge online and offline even back in 2007. He could see this future where the internet and offline world would start to converge.

He got real excited. He joined us and we made the next version of the site just in time for South by Southwest in 2008. We figured here's another event that's a hundred thousand people going to Austin. Hotels are going to sell out. Let's go help solve that problem.

In February pulled a bunch of all-nighters, we were up late getting the side done, and we re-launched for South by Southwest. We figure this is, you know, this is where Four Square is this is where Twitter launched, like this is going to be a big splash and we had all of about 15 people list and exactly two bookings for South by Southwest. One of those bookings was us.

We go to Austin and this is by the way linking it back to industrial design and going out to the world and studying how people use a product and then becoming the patients, this was us becoming the patient. We were guests using our own service and we stayed with a guy out in Austin. He was a graduate student out there and when we went in there was a... He had the air bed set-up, the towels, he had a mint on the pillow, he's cooking dinner for us. He was taking it more seriously than we were.

The whole experience was great, up until the point where he says "by the way, where is my money" because at the time it was just you pay when you're on arrival. There's no payment system. This wasn't very fancy and suddenly we're like oh right the money. Then we pulled out our wallets. We actually didn't have enough cash on us. We had to go to an ATM. We come back with a bunch of twenties. We didn't have exact change. Do we tip him? The whole thing was like super awkward and we got back from South by Southwest in 2008 and we debriefed, the three of us, in our apartment.

We said, "Well here's what worked with this experience here's what didn't and the number one thing was the whole money issue. It was like God well there's got to be a better way". What if people could pay online with their credit card prior to taking the trip? Huh, that'd be interesting. Payment would be a lot easier, you could just remove this whole awkward cash in person thing, it'd be much cleaner kind of in person interactions. So, we started to rebuild the site with a payment system.

The other thing is that we... The original opportunity that we thought was housing for conferences. We thought that across the United States people would blow up air beds in their living room when conferences came to town because hotels sell out.

Well, it turns out that people wanted to use the service to go anywhere at any time regardless of events. So, the summer of 2008 we completely rebuilt from the ground up with a payment system and a global platform where you could travel anywhere at any time and while we're building in 2008 and this was around June we start to see some headlines about a gentleman named Barak Obama.

Barak Obama was the king of the headlines in that summer and the headlines were reading about the amazing crowds that he was drawing to his talks. In Portland, Oregon he had 75,000 people attend his speech. Never before has a presidential candidate drawn that many people to Portland. We started to look into it a little bit deeper and we realized that he was going to be speaking a couple months out in Denver at the Democratic National Convention.

They in fact they moved him from the 20,000 seat Pepsi arena to the 100,000 seat Invesco stadium field and that meant that they had a lot more seats to fill in Denver. The problem is there's only about 25,000 or so hotel rooms in Denver. Most of them were booked by the delegates already. So, in advance we said we need to re-launch just in time for the DNC. Maybe we can ride the coat tails of this major housing problem. In fact, the mayor of Denver was like he's prepared to open up the city parks so that people could camp. That's how urgent this problem was for housing during the DNC.

We launched just in time. We get 800 listings in Denver. Obama supporters opening up their homes to other Obama supporters and we sure enough the story of what we were doing went local to regional to national to international in a matter of about four weeks. That was actually a really good learning for us because when we launched, re-launched, the site in August 2008, we pick up the phone we called the top tier press. We wanted to tell them about our shiny new website and they didn't really care.

To be honest they didn't care. They didn't return our e-mails. They didn't return our phone calls. So, we said OK that approach isn't working let's change tact here. So we said, "Who will return our phone calls?" We started to find the local bloggers in Denver and we contacted them and they loved the story. They started to write about it.

It turns out that the Denver Post looks to local bloggers for story ideas. Here we were at this bottom of this pyramid of press at the lowest level, the local bloggers. We got the story seeded there and then we get a call from Denver Post. We heard about your story, we want to do a follow-up, interview one of the host so we said sure great. So, we did a story in the Denver Post. Then it turns out that the local news looks to the Denver Post for ideas.

We get a call from CBS and they say we want to do a local news piece on you guys and interview one of your host. We're like great. Turns out that if CBS does a story ABC and NBC also want to do a story too. So, we get calls from them and then when it becomes a local broadcast story then we got a call from the Boulder Press, "Hey we heard about what's going on down there what's going on in Denver. We want to do a story here in Boulder." Then it started to become a regional story.

Then we get a call from CNN so we moved up the pyramid here because CNN looks to regional stories to make the national stories and it became a national story. We did a five minute live interview with CNN from our living room and we were... It's funny because during the summer we were three guys with no money and no users and no product to suddenly we were three guys with no money and a product and suddenly we're on national television, like in our living room, but we still had like nothing. Like, it was really funny.

We're doing this interview and then we get a call from the Guardian in England. It's like the whole story matriculated its way up but we couldn't have started at the top. We had to start at the bottom with the people who returned our phone calls and the power of the story of what we were doing was strong enough to work it's way all the way up. That was a big learning for us because we did this without any money. This was just us digging into Google news, finding reporters names, and contacting them. We had no resources except our time and our ambition.

The story became national. We actually used to go back to Denver. I had a great experience and as fast as the graph went like this it went right back down like that and we witnessed what's called in the start-up world the TechCrunch of Initiation where you launch and you get all this publicity. People think "Oh you get on TechCruncher you're all set" beause it goes like this through traffic and it's like "Yes" but it turns out that there is this other phase called the 'Wearing Off of Novelty' where you go right back down like that. And when it comes back down you enter this period in the start-ups life called the 'Trough of Sorrow'.

[laughter]

How many people have heard of the Trough of Sorrow?

Ryan: How many are currently there?

Joe: I have a lot of respect for you. The Trough of Sorrow is where I feel like your passion for your idea is truly tested. The Trough of Sorrow is where you will truly be pushed up against the wall. Say, like do you really want to do this because that time in a start-ups it could be weeks, the trough it could be months, it could be years. For us it was a very, very long time.

People would say like why are you still doing this basically because at this time we're basically we're running out of money like our savings are dwindling. We get introduced to 20 investors 10 return our e-mails, 3 meet us for coffee, 0 invest. This is now like this is August 2008. This is before the economy tanked.

Here we are we have this product and this concept no traffic no funding what are we going to do. Well, we like to joke that we raised around... We call it the VisaRound and we funded the company on our credit cards for the first couple of years and it was around this time the Trough of Sorrow... I think the only way out of Trough of Sorrow is creativity, to be honest with you. That's all you have.

We had this product but there was... What happens in the Trough of Sorrow is you have a product and a market but they don't fit yet. You don't have product market fit which is why the traffic is basically flat. So, I remember late one night Brian and I were trying to keep our spirits up trying to keep our humor alive and this was around probably around October of maybe end of September 2008. We're in the kitchen it's 2:00 in the morning and things aren't looking very good for the company and we kind of start joking. Wouldn't it be funny to send our hosts breakfast cereal, riff on the breakfast side of Air Bed and Breakfast? They could give that to their guests.

We start to joke, wouldn't it be funny if that was Obama themed and we go well what would that be called. Hmm, let's call that Obama O's The Breakfast of Change. We had a good laugh. It kept our spirits up and we realized well if we're going to make a... If you have an Obama cereal you have to make a McCain cereal. What would you call that? It turns out, we went on Wikipedia looking at his bio and he was as officer in the Navy. So, clearly Captain McCain's, A Maverick in every bite.

This is where things get kind of took a turn down a weird street. We end up making this breakfast cereal maybe... How many people have seen Obama O's?
Right. Awesome. Awesome. How many people have tasted Obama O's? OK. Cool.

We end up making breakfast cereal and the thing is this is the one of the craziest moments I think in our history because here we are in debt, we have tens of thousands of dollars of credit card debt at this point, nobody's investing we have this internet service but we wanted to spend money to make breakfast cereal. It totally didn't align at all.

We really wanted to make this cereal because we could picture the boxes with like Obama with like his funny character of him with a spoon and like, Captain McCain with this big grin and like the whole suit, the uniform and the hat and we end up finding the character artist. We end up finding a printer who would print for us on spec so he didn't charge us anything up front.

He said, "As you guys sell these you can pay me back. It turns out he's like I'm not going to make thousands of boxes for you but I'll print 500 of each." Suddenly, it's like "Wait a second, 500 of each, that's a collector's item. We're going to number them on the top 1 out of 500, 2 out of 500." It turns out you can sell collector political breakfast cereal for
$40.00 a box, which we did, and we sent the boxes to CNN, to The Wall Street Journal, to Jay Leno, to Good Morning America.

Imagine you're a reporter and every day you get hundreds of press releases every e-mail and then one day you get a box on your desk that's like this big and you open it up and there are these two hilarious characters of Obama and McCain staring back at you in the face. You're going to follow-up with whoever made those boxes of cereal and they did.

The cereal was all over the news and we ended up, after it was on CNN, we ended up selling out of Obama O's. Five hundred boxes, forty dollars a box, it was over $20,000 to help fund the business. Airbnb was funded from breakfast cereal.

Ryan: How much does a box of that go now days?

Joe: It is on eBay. If you still want one, I think the going rate is upwards of $400.00.

Ryan: That's a little expensive for breakfast cereal. It's probably stale by now, too.

Joe: Probably is.

Ryan: That kind of got you guys some notice and you were able to actually get into an incubator and from that incubator when was kind of like the moment when you guys decided we need to scale we need to expand we need to make this bigger and better?

Joe: Right. This is now, we're getting towards the end of 2008. The economy has now tanked. Lehman's has gone under. The investment community calls it a nuclear winter. There's going to be no investments, certainly not for a crazy company like ours, and we have one... There's one last hope for us because we're having conversations about whether this should continue or not.

If you made decisions based on numbers you would not continue Airbnb at this point. Thank goodness we had the experience of the guests in our apartment to return to and we always said like no, no, no like we know what it feels like for this to work. We have to keep going. It was our three guests that kept the passion going for us in the Trough of Sorrow.

So, we end up getting into Y Combinator and... Is there anybody... Everybody knows Y Combinators? Yeah. Cool. It's a great seed program and its 2009 it was kind of just starting to emerge. It was like this really interesting program and we get in. There were only 16 companies at the time and we... On the first day we have our meeting with Paul Graham, he's the guy that runs the program.

We present these 12 different strategies of how we want to spend the next three months and Paul looks at 'em all and his very discerning face and, I'll try to do my best Paul Graham impersonation, he goes these aren't going to work and he kind of like throws them off the table and Brian, Nate and I are looking at each other like what are we going to do.

He asked us a really simple question. The question was, where's your market, and we look at each other and we're like well you know the sites not really working anywhere but New York has promise. So, Paul goes, he has this thing with his hands, so he goes so let me understand this. Your users are in New York City and you're here in Mountain View? And we're like
"Yeah, we're here for Y Combinator, and he goes, your users are in New York City and you're here in Mountain View? There's this long pause and he goes,
"What are you still doing here? Go to New York City."

He points at you like this he goes, "Go to New York City". We're like,
"OK." That doesn't scale because you know what this whole time up until this moment in our young entrepreneurial lives we had this mentality that you had to do things in a scalable way. We thought that because it's the internet we had to solve problems from behind our computer screen. The idea of leaving our apartment and going out to the world traveling across the country was just totally ridiculous because that doesn't scale.

You can't do that forever and so it wasn't up until this moment that Paul Graham essentially gave us permission to do things that don't scale. It was that singular moment that everything changed and he taught us the beauty of doing things that don't scale.

How did this play out. Well, were looking through search results in New York City. We had a total of 50 hosts at the time, 50 people renting out their space, anything from a private room to the entire apartment, and as we're going through we have an observation. We realize that the photos that host had of their apartment were not very good. They were taken at night. They were blurry. They were just not great images.

Brian and I look at each other and we realize we know how to take good photos. Let's just fly to New York and solve this problem ourselves. We're going to rent a really nice camera, wide angled lens, it was like a Nikon D 5,000 or something it was like the best of the best, and like... So, that weekend we get on a plane. We fly to New York. We go door to door throughout Manhattan and Brooklyn taking photo of hosts' apartments and I'll never forget the first apartment I shot. I had taken the pictures and I showed the host. I'm like, hey what do you think and they're like oh my god, like, the apartment looks so good, I didn't know my apartment looked that great. She's like, do you want to stay for coffee and tea. I'm like, sure.

We sit down on the couch, I pull out the laptop, and suddenly all of the training or design research kicked in and suddenly I realize I'm sitting here with one our customers and we're about to walk through the product. So, I pull out my sketch book and I go right into design research mode.

I start asking questions. Show me how you check your messages on the site. How do you update your calendar? If this product could have anything for you, what would it be, like if you could name the top three pin points three features that you want?

The cool thing is that these early hosts were the early adopters. They were doing this on other websites before us Craigslist and Sublist.com and Homeaway and others and so by the time we arrived some of them actually had lists of features that they wanted in a product that they had been saving for the day that a co-founder would come into the living room.

Ryan: It happens all the time I hear.

Joe: It was like gold. It was like they would just rattle off all these things that we never knew they were problems or issues because we were stuck behind our computer screens in San Francisco and it wasn't until this moment when we got into the real world sitting face to face with our customers in their apartments talking about the product that we started to see where our product market fit was missing.

Brian and I have these sketch books full of notes from these early hosts and we come back after that weekend we show Nate, who is back in San Francisco programming, and we say, "Nate look at this feedback we got".
Nate looks at it. He goes wait, guys, this stuff isn't that hard to do. So he actually starts to code some of the changes that night and by the next day we send an e-mail to the host we met. "Hey, it was so nice to meet you. The photos are live. Click here to see your new listing and by the way the idea that you had for the calendar it's also live. Click here to check it out". The early hosts on Airbnb they fell in love with us. Never before had a company cared so much to solve the problem with photos, to listen to their problems, and then fix their problems in almost real time.

A crazy thing happened, revenue which was all of $200.00 a week in fees, that's how much we were making not a very successful business, revenue in one week... So $200.00 it had been like that for months flat lined $200.00 a week $200.00 a week suddenly it goes from $200.00 to $400.00.

We take the graph to Paul Graham. We're like, "Paul look what happened!"
It's weird and we checked we made sure there were no bugs in the metrics. We're like OK, OK this is actually happening. There was an extra $200.00 in our account at that week. Paul looks at it and he goes, "What are you still doing here? Go back to New York City."

It was kind of like, "Duh, OK." Brian and I we book another flight. We go back to New York and do the same thing. We take more photos. We get more feedback. We fix a product and guess what happened? The next week it went from $400.00 to $800.00. At that point Paul Graham didn't have to tell us what to do. We repeated this going out into the world of becoming the patient of talking to our customers for about five or six weekends in a row flying out to Manhattan and Brooklyn.

I'll never forget the moment when I'm like I'm lost in the middle of Brooklyn, it's late at night, it's snowing because remember this is February, it's like sub-freezing temperatures, I had like 30 pounds of camera gear on my back, I'm by myself, my iPhone is dead, and I'm standing in this intersection in Brooklyn thinking like, "God, I never thought this was the life of an internet entrepreneur."

Ryan: Oh the places you'll go when you found a company...

Joe: Yes.

Ryan: ...right? I'll kind of ask... We're kind of running a little bit out of time and I want to get some audience questions before we end.

Joe: Sure.

Ryan: Is that kind of where Brian gets that thing that he said in that magazine interview, "Do things that don't scale we start with the perfect experience and work backwards. That's how you're going to continue to be successful." Is that kind of, that Paul Graham moment, kind of, still in your ears, what are you doing here go there?

Joe: His message was go meet the people. Go meet the people. In our case it was the people who made up our service and it was that formative moment of doing things don't scale having permission. So the minute that happened our heads exploded. It was like, wow what are all the possibilities of things we could be doing to grow the business if in the early days it doesn't matter if it scales or not, which is in fact the way that it should be.

In the early days, it truly doesn't matter if you're coding something so I can accommodate 10X or 100X the user base. You'll never get there, I don't think, if you don't take care of the things that don't scale first. It's a concept that lives and breathes every day inside the company today. Everyone in company has permission to do things that don't scale.

A great example of this by the way... These photos were a huge success and we realized that well we can't actually scale and travel around the rest of the country taking photos but what if we started to hire photographers who could. We, over the last couple of years, have built out this photography program where we now have 3,000 photographers all over the world shooting pictures for hosts apartments.

Today it's a very scalable operation. It's managed by a couple of people. We built a really powerful tool to manage all these photographers and images coming in. We now have hit over a million images photographed on the site, but we never would have started there. We started with by us going out and doing it ourselves. So, started there and then we had figured out over time how to scale it.

Ryan: Awesome. Very good. Well, thank you very much for answering my questions. I want to get a get a couple of audience questions here...

Joe: Sure.

Ryan: ...because we're running out of time here and we have to get you out. So, can take a couple of questions. Yes.

Audience member: [inaudible 36:43] going to people's homes and it was a great experience.

Joe: Cool. Thanks for using the service. How did we scale?
Well, here's the funny thing it turns out that New York is an incredibly international destination and so while we were in New York we're making the quality of listings better, we're building up love with our customers who basically started our... Our early hosts started telling their neighbors, their co-workers, their family members, their friends, and we started to see inventory increase organically purely through word of mouth. There was no advertisers, no press at this time.

With more inventory that's a higher quality, it started to attract people from around the world and suddenly we started to see listings pop up in Berlin, and Rome, and Vietnam and we're like what on Earth. How are people finding out about us in these far corners of the world and we go into the account we look in the admin and we see like oh look at that. Interesting, they stayed in New York two weeks ago.

We saw the beginning of a network affect were people travel as a guest, they experience the product, and when they come home they sort of have an epiphany. They're like wait a second I have some extra space too. Why don't I list that on the Airbnb site? We started to see the beginning of this really powerful network affect. This still happens today because now we had listings in Berlin and Vietnam and Rome and so people were going to stay in Berlin and they go back to London and they put up a listing in London and it started to... It all started in New York and worked its way up.

I think that there's a couple other things that were a little more formulaic[SP] than that. There's three things that make this all work payments, profiles, and reviews. These are the three core ingredients that make a social sharing economy site like this work. Payments, knowing that your payment is safe and secure so when you pay on Airbnb you actually pay us and we hold the money until 24 hours after you check-in, which ensures to the host that they're going to get paid and it ensure to the guest that when they show up it's going to be as described.

If it's not the host isn't going to get paid. The other thing is we make it really easy for people to pay in their own currency. So, we just want to remove all possible friction for payments. If you're traveling from say San Francisco to Paris you could pay in dollars and the host in Paris should get paid out in euros and nobody knows the difference. Super frictionless.

Second thing is profiles. Knowing who it is that you're corresponding with is in incredibly important and we're able to pull-in a lot of Facebook data overlapping with our existing data and reveal what we call social connections so that we can show you how you're already connected to the people on Airbnb. We can show you if you have a mutual friend in common with a host. We can show you if a friend of yours that's already stayed with a host and left a public review. We can show you if you went the same university, if you're in the same alumni network. So

We just crossed 500 million social connections on the site. There is a very good chance that every single person in this room, when you got to Airbnb, there's at least one connection in every major city on the planet. It's actually like this concept of 'They're not strangers, it's someone that you trust but you haven't met yet'. Go ahead.

Audience member: You had some competitors in this space [inaudible 31:51]
Couch Surfing [inaudible 39:52] what did they do wrong? What did you do right?

Joe: We had some competitors in this space. We never really saw Couch Surfing as a competitor mainly because they were non-profit for a while and there was no transaction involved. What was important to us was to create a service where people could simply list and simply book and what happened is that you know we started with private rooms, then it became entire apartments, and then somebody listed a bed and breakfast, and then somebody listed a tree house, and somebody listed a castle, and then somebody listed a villa, and somebody listed a boat.

We actually had to have like real conversations about, should we let people list boats on Airbnb because the platform... We created a platform but the creativity of the community was really surprising to us in the early days. People were listing private islands. There were so many private islands we had to create a category for them.

[laughter]

Ryan: Mine is one of them by the way.

Joe: I think for us it was just about creating a really open platform where the interpretation of space was really up to the community. We have teepee's on the site, we have igloo's, believe it or not, there's a whole category just for igloo's. It's crazy.

[laughter]

Ryan: That's not mine.

Joe: At one point you could rent Conan O'Brian's couch on stage down in Burbank, California. He rented out the couch that the celebrities sit on when he interviews them. It's a fold out couch and three lucky guests got to stay on it last year for a $1.00.

Ryan: Wow.

Joe: They actually slept on stage.

Ryan: Amazing. One more.

Audience member: You guys have raised quite a bit of money [inaudible 41:40] recently I guess is what we're hearing. Can you share with us like what that money is being used for, how you guys are leveraging that those investments, and why or just because they're want to give you the money or what, where are those funds going towards?

Joe: Right. By the way think when you start a company on credit cards you're incredibly frugal and thoughtful about what you do with money which is still in our blood today. The investments that we've taken have been very strategic. Last year something crazy happened. What happened is that the business tipped. Last year more business more transactions took place on Airbnb outside of the United States than domestically, 75% of our business happened outside of the US.

Suddenly we found ourselves an international company, whether we liked it or not. We suddenly had to service people in other countries with other currencies in other languages and we had tried to do it from San Francisco as long as we could and I think we hit a wall. The lesson for us was that it's really hard to localize without a local. We said, "OK, we need to be closer to our community and closer to where our business is". The last 12 months have been all about international.

Earlier this year we rolled out a series of offices in Europe and South America so that we could have coverage in our market so that when you sign-
up as a host in any of these markets, say it's in Paris or Rome or Copenhagen, you actually get a call from us from somebody that speaks your language in the, perhaps, the right dialect calling from the country code so the caller ID says a local number and somebody who knows the local geography where you are.

These are all, these critical little touch points along the way as you build trust with a customer to use a service and so the last 12 months has been basically building out this international operation.

Ryan: One more question. I believe you had your hand up.

Audience member: Just a quick one, do you still do stuff that doesn't scale? Do you still go visit your users or did you abandon [inaudible 43:40]

Joe: The question was do we still do things that don't scale?
Absolutely, every day there's teams in marketing there's teams on product that will start things and they'll start as experiments that don't scale at all, so it's like kind of almost like a little bit of hack nature, kind of where you just hack things together. We'll figure out how to scale it afterwards. Yeah absolutely.

Ryan: Very good. We're just about out of time. I apologize for not getting to everyone's questions but please give a warm round of applause for Joe and thank you once again Joe for coming down.

I just want to say before we go that if you guys are using foundation we're going to have a little bit of something special this afternoon. Keep your eyes out on the blog. All right. Thank you very much and have a good day.

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