First Time Founders with Ed Elson – How Airbnb Scaled from 3 Guests to 2 Billion

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0:43Welcome to First Time Founders. I'm Ed Elson. It started in 2007 with an air mattress in a cramped San Francisco apartment. The rent was due, hotels were booked up for a local design conference, and two roommates had an idea. What if they charged guests to sleep on the floor? That weekend, three strangers stayed in their living room, and an industry was quietly born. My next guest helps turn that idea into a platform that has redefined travel. Today, it has grown into a global network of over 8 million active listings and 5 million hosts, spanning more than 150 ,000 cities in 220 countries. It has welcomed over 2 billion guests, and in the process, it's upended the traditional hospitality industry and reshaped how people experience new places.

1:30This is my conversation with Nathan Blachosik, co-founder and chief strategy officer of Airbnb. Nathan, thank you so much for joining me on the program. Thanks, Ed. Really excited to be here on First Time Founders. So everyone knows what Airbnb is. And, you know, usually on this program, I feel like I need to give context for what it is you do and what it is you've built. I'm not going to do that because everyone knows what it is. and it's a testament to what you've built. So I just want to start with the beginning. We talked a little bit in the intro about how this all started, but I'd like to hear it in your words.

2:10How did this all start? I'll rewind just even a few months before October 2007, which you just kind of referenced, which was that I had moved to San Francisco to become an entrepreneur, and I'm a software engineer by background, and I needed a place to live. And I went on Craigslist and Joe became my roommate. Joe had a vacancy in his apartment and he put it on Craigslist and we just got connected through serendipity there. And so Joe would later become, you know, one of my co-founders in Airbnb. But we were roommates and friends before we ever started the company. And a few months go by and then suddenly the rent on our apartment is raised 25%.

2:55And I said, well, that's too expensive. I'm moving out. And so did the other roommate. But Joe wanted to stay in that apartment. And he convinced Brian to move out from Los Angeles and live in the apartment with him. But they still had a problem, which was that the rent had been increased 25%. And they had recently quit their jobs to become entrepreneurs, also known as unemployed. So they didn't have the money to pay the rent still, even with the two of them. and that's when they had the idea to rent out that extra room they are both designers by background they noticed that an international design conference was coming to san francisco in october and they noticed that all the hotels were sold out for this conference and so they got the idea to rent out that vacant bedroom my vacant bedroom to designers who might need a place to stay that one weekend this room uh had nothing in it you know i'd taken all my positions i had taken the bed, but Joe set up an airbed.

3:52And so instead of calling it a bed and breakfast for that weekend, they called it an airbed and breakfast. So airbed is short for airbed and breakfast. That's where the name comes from. They were expecting to host some guys like themselves that weekend. At that time, we were about 25 years old. And instead, they got a father of four from Utah, a 35-year-old woman from Boston, and a man from India. So a very eclectic group. Stayed there for$80 per person per night, four nights. I think that gets up to about$800 or $1 ,000, which meaningfully helped Joe and Brian pay the rent. Meanwhile, these guests had an affordable place to stay when hotels were otherwise sold out.

4:34But most interestingly, they all went to the conference together and had a great time. And Joe and Brian showed them around the town, gave them recommendations, introduced them to friends, went out to dinner. It was a whole social experience. And, you know, it really was going to stop there. I mean, it was meant to just pay the rent that one month, one weekend kind of thing. There was no further thought that went into it. You know, it wasn't until a couple months later that one of the guests pinged Joe and asked, you know, like, what's come of Airbed and Breakfast? You know, how's that concept going?

5:07And the truth was nothing was going because it was just a one-off. Meanwhile, I'd quit my job as well, and the three of us were brainstorming ideas. We spent two months brainstorming ideas of what we could do together without ever even talking about this story that I just shared now. But after getting pinged by one of the former guests, Joe and Brian shared what they had done back in October, and we reflected on that. We thought to ourselves, why don't we make it possible, you know, for people to stay with each other in association with events? And that's what we set out to do in early 2008. And your relationship with Joe, so Joe Gebje is the other co-founder and Brian Chesky is the other co-founder as well, is now the CEO.

5:56Talk about your relationship with those two. um it sounds from from your description that it was three friends who decided to collaborate together and start a company which i think is actually rarer than one would probably think in entrepreneurship i don't think usually i mean starting it sounds like a fun idea starting a big company with all your your best buds but oftentimes it doesn't work out so talk a bit more about your relationship the fact that you were roommates with joe how did how were you friends with joe what was joe's relationship with brian and so on yeah i think the part about being friends what's important there is you know we got to know each other well you know before making the decision to start a company together um you know obviously we all have lots of friends uh but we chose each other explicitly and we did that because while i was living with joe i noticed two things like one was that after work and on the weekends you know instead of chilling out or socializing and whatnot we were working on our passion projects.

7:00And so I saw in Joe and he saw in me an incredible work ethic and passion. And then we also started helping each other on our respective projects. I, by background, am an engineer. So I started doing coding of his websites. He's a designer. He started providing the designs for the things I was building. And we saw how our complementary skill sets allowed us to build products really fast. Because you really do need both. Meanwhile, Joe and Brian had gone to Rhode Island School of Design together. So they were friends from college and had really gotten to know each other well then and had worked on a number of projects there together as well.

7:39So I think we knew that there was a strong compatibility and that our skill sets were good complements. And I think that's why we were brainstorming ideas together. We didn't know what we wanted to work on, but we knew the team was a strong team. uh and that was really the basis of of of you know starting the company was was first and foremost the team and then we stumbled into the idea yeah i think one thing that people find quite inspirational about airbnb and the story is that it came from a design forward perspective which is quite rare um and you know when i think about what they saw in you i'd be interested to hear what joe and Brian saw in you, but I'm sure a lot of it was also your technical expertise.

8:25You're working as an engineer. You knew how to get this off the ground. I'd be interested to hear more about what you saw in them. How did you identify that these designers would have what it took to build this great company? In a way, it makes more sense to me what they're seeing in you, but less sense to me what you see in that well in parallel around this time in 2007 i was i was working on a number of other things on the side uh and one of them was a for example an ad network uh for facebook uh or that plugged into facebook uh creating social ads and you know i did all this technical work uh to you know make an ad server etc and i launched it i'm so excited and then i realized that you know the tech was was just a small small part of building a business i needed to go out and attract publishers and and advertisers and there's like all this other stuff that needs to happen um and i realized that's not my my passion doing those other things um and that it you know really does require a team so i had come fresh off that kind of learning or reflection of like you know wow i'm a great builder um but to build a real business is requires a lot of different skill sets.

9:47So that was one. I think also, too, just the camaraderie of it all. It's hard going it alone. It's a lot more fun to go with a team. So the idea of team and a team that kind of complements your skill sets. And three, I think, in them was just an incredible degree of passion, creativity, boldness. uh you know they were not shy about kind of going out and really you know talking about new things and getting attention uh in a way that maybe wasn't natural to me especially at the time uh and then there's the fact that we had lived together and so we we were we were quite comfortable with one another uh it wasn't like we were meeting for the first time yeah i feel like the passion element is almost the most important thing you could study anything but so if you don't have the passion and the energy and the drive, then you're going to go nowhere.

10:41I would also just say that this requires a great deal of evangelism, right? I mean, we were kind of pioneering a new human behavior in some ways that was counterintuitive. Right. And that story from October 2007, where they rented out the apartment, that took initiative. Evangelism, they did it. And that story continues in the early days where Brian was one of the first guests using the product. And they were going out into the field and meeting all the hosts and taking the photographs themselves. And I would later become a host. But I think all that is really important. And with their design background, I think they were intensely interested in interviewing all those early adopters and understanding their feedback, gathering feedback as part of the design process.

11:29So I think all that was really beneficial. I feel like all of this was almost perfectly encapsulated in this very famous serial stunt, which I'd love for you to explain the story of, just to set it up. Airbnb, you guys are starting to get going, but you are running out of money, and you're trying to think of ways to make money, to keep the business alive. And you come up with this idea that has to do with cereal could you explain what happened there and the story of of the cereal stunt so just in terms of the timeline here you know october 2007 is when we rent uh joe and brian rent out the extra room a couple months later in basically february of 2008 three of us you know start building you know air bed and breakfast as you kind of start to know it today um we launched that in August of that year, so several months later.

12:28And now we have launched it and that was exciting, but no one's really using it after launch. And it's coming up on a year now and we haven't made any money and we've had the expense of the apartment and all this. So we're getting kind of desperate. And I guess I should add that when we launched in August of 2008, it was during the time of the Democratic National Convention and the Republican National Convention And specifically, this is where Barack Obama received the nomination of his party to be the first African-American presidential candidate. And it was a historic event. And it was going to be held in a stadium in Denver that helped 80 ,000 people.

13:06And we looked up that Denver only has 17 ,000 hotel rooms. So we knew there was going to be a need for extra accommodation. And so we focused on this moment as the right launch opportunity. And it was very successful. We got hundreds of people staying on Airbnb in the span of a couple of weeks. and we were on TV, on CNN, talking about what Airbnb was in connection to the DNC event and Obama. So it was tremendously exciting. But a few weeks later, it was gone. It was a flash and nobody cared anymore. And yet we had all these political reporters that we had met. And we're thinking to ourselves, how do we generate some more attention for the company?

13:50We have all these reporters that we met. how do we make ourselves relevant to them again and you know somehow brian and joe have this crazy idea one night that we should create a presidentially themed breakfast cereal again our name at the time was air bed and breakfast so they're thinking breakfast let's do something fun with the breakfast concept and do something that would be relevant to all these reporters we met and somehow basically do a stunt okay so um they come up with this concept of creating obama owes uh and captain mccain's these are breakfast cereals and they come up with a tagline for each obama owes is uh hope in every bowl captain mccain's the maverick in every bite as he was a kind of a i think a navy uh captain or something uh in his past and they come up with artwork for these physical cereal boxes that they're going to create and a lot of witty humor on it yeah uh and they use their contacts from rhode island school of design to get the boxes printed officially at a printing press free of charge actually and they do this whole thing to create it and i remember first of all when they told me about this idea you know my response was if you want to do this promise me you're not going to spend any money because we didn't have any money and this sounded like you know a whole whole effort to create cereal and it was going to potentially cost money.

15:10So I said, do whatever you want to do, just don't spend any money. Meanwhile, I'm going to stay focused on building the website for air bed and breakfast. So they go off and they actually create these really compelling, funny cereal boxes without spending any money because they're very scrappy. And we send the first 100 boxes of each to those political reporters that we had met. And the idea was we could email them, but they get emails all day long to probably delete them. If they received this physical box of a mail, they're going to have to call us back and want to know more about it. And so that was the idea.

15:44And we did it. And it worked. We sent out these boxes. And soon enough, as soon as they were received, we ended up being on Good Morning America. We were back on CNN, talking about the serial, talking about its connection to the company. And we also, we had extra boxes printed off. So we had 500 boxes would be. So the first 100 we sent to the reporters, the other 400 we numbered and called them like limited edition collector's items. And we created a little website for them where we sold boxes of cereal that you could buy and we priced them at$40 a box. Anyways, when we were on CNN International, that became the number one political video of the day, us talking about the cereal.

16:21Wow. And we sold a$40 box of cereal every three minutes until we sold out. And so we made about$30 ,000 selling these cereal boxes in the span of that week. And we like to say that that's more money than we made all year on our core business. And it materially helped us to pay the rent and a few bills. And so that was kind of funny and kind of cool. And we thought to ourselves, maybe we should become a cereal company, except if only there was a presidential election every month to generate that kind of interest. So we knew that wasn't the answer. But the truth is also, it didn't really help our core business, right?

17:01It wasn't helping us to rent more rooms in that moment. It was a funny story. It sold a box of the cereals. It allowed us to earn$30 ,000, but it wasn't selling more rooms on airbedandbreakfast.com. Where this story becomes transformative in terms of what it did for us is a few months later. A few months later, it's now the end of 2008. 2008. It's been one year. We're about to give up. And we say, before we give up, we have to give it one last chance. We had gotten some advice that we should apply to Y Combinator, that that would be a great way to re-energize ourselves and recommit and give it one last chance with some good mentorship.

17:46But before you can do Y Combinator, you have to get into Y Combinator. And Y Combinator is incredibly selective, incredibly popular, and has a very low acceptance rate. Yes, this is the exclusive startup accelerator. Very, very much exclusive at the time too. Absolutely. Right. And so we managed to get an interview, which is incredible. So we go into the interview and the interview typically lasts about five minutes, very quick. And you're in there at least at that time with maybe four other people. One of them was Paul Graham, you know, the founder of the program. And I remember we go in there for the interview.

18:21Well, I'll back up before leaving the apartment to go to the interview i see joe putting a box of obama's into his backpack to bring to the interview and i said joe what are you doing why are you bringing the obama's to interview um i said don't do that that that to me was an embarrassment that we had spent so much time on obama's i mean it's a funny story but it had nothing to do with our business being a likely success in my mind at least because to me it represented distraction as an engineer i saw it as having been a distraction because it's a cool story, but it honestly took about two months of time to pull all that off.

19:00So Joe says, okay, I won't bring it. So anyways, we're now at the interview. We go into the room. We have five minutes. Within two minutes, Paul Graham says, what? Strangers staying with other strangers in people's homes? I would never do that. That's strange. That's weird. You know, I don't like that idea. He had a really negative reaction. And then he kind of pivoted the conversation towards like, well, you know, you guys are handling money and payments. Like, maybe you should start a payments company. And he basically went on to describe Stripe. So the last few minutes of the interview were basically spent with him pitching us on what we should be doing.

19:38And then the interview was over. And we knew that, you know, that was not a good outcome, right? Like that interview had gone off the rails. And so we're walking out the door. And suddenly Joe pulls out of his backpack a box of the Obama-os. and he says oh paul uh before we leave we wanted to give you this and paul looks at him he says what you guys bought me a gift he's just looking at it mystified and we said and joe said no we we made this as uh and he's still looking at it he says well sit back down and tell me how you made this and so we get five more minutes with him and we tell him the story of obama's and captain mccain's uh and you know the whole kind of stunt we pulled off and selling thirty thousand dollars worth of cereal.

20:19And then we leave the room, and later that day, we get a call. And the call was that we were accepted into Y Combinator. And he later told us that we were accepted into Y Combinator not because he liked Airbed and Breakfast, the idea that we pitched him on. He actually really did not like that idea at all, which was clear. He accepted us into Y Combinator because of the serial story. And what was powerful about the serial story to him was it represented how scrappy we were and how we would never give up, right? With our backs up against the wall, needing money, we come up with a very creative idea to generate publicity and earn some extra dollars, you know, really quick.

21:00And he said, you know, he needs to hire or not hire, but, you know, led into YPOMator, those who can actually build and execute. And so we demonstrated that we could build, that we could execute, that we were scrappy, and that we were not ones to give up even when things were tough. And he said, especially at that time, this was now end of 2008, the financial recession had begun. He was looking for founders who were really tough, who would have the perseverance and never quit. And so that's what he saw in us when he heard the serial story. And so that's the real power. of the story of Obama's and Captain McCain's.

21:38It demonstrated our scrappiness and our perseverance. It's so interesting because to your point, when you were going off to the interview at Y Combinator, it's true that what you did was maybe a waste of time. Maybe it was a distraction. Maybe, you know, you should have been spending more time figuring out the idea. But at the same time, it had this incredible payoff because it demonstrated the grit, the determination, also the creativity, the excitement, the energy. There was clearly just this spark that you decided in that moment, or perhaps maybe Joe decided in that moment, that he was going to follow.

22:20And it's interesting to me because both of you were right. You were right in the fact that it's a distraction, but he's also right in the fact that sometimes these things are important. It's important to follow whatever the passion is and whatever the spark is. And so I'd be interested to hear how you view that as you sort of scale a company. Like, how do you balance those two competing narratives where on the one hand, maybe we should be focusing on what really matters logically. But on the other hand, maybe we should just be spending frivolously on things that excite people and capture their imagination.

23:00Well, I think from the beginning, the whole team was formed on a respect for one another's strengths and the value of different perspectives. And this was reinforced by us getting into Y Combinator based on the serial box experience. And so, you know, we're becoming to really realize that, you know, although we see things differently, that, you know, the different perspectives are super valuable. We have real, real value that we're each bringing. And we want to preserve that going forward. And we've always felt that Airbnb is kind of like a three-legged stool. And, you know, if any one of us were not a part of it, you know, the stool would have tipped over.

23:43and that Airbnb is also kind of the marriage of art and science. And both those things are equally important. And so, you know, I think what that allowed us to do as we went forward was just make sure, you know, each of our voices were heard as we made important decisions and respect. And I would say that, honestly, it led to a lot of conflict because when you see things differently, you disagree. but because we respected the value of each other you know based on the experiences we have had thus far the friendship you know we we had the patience to listen and find compromise and you know compromise was always always the best outcome because compromise meant we were taking into account different perspectives and meeting in the middle and and i think that was just a really powerful thing and, you know, it's really become a neat part of the company's culture.

24:42We'll be right back.

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26:06We're back with First Time Founders. Just going back to what Paul Graham thought about the idea itself. He thought that having strangers live in other people's homes was not going to work. He didn't want to do it himself. Bad idea. but he was betting on the creativity and the determination of the founding team. Maybe he was right, but I kind of think he was wrong. I think in hindsight, I mean, hindsight's 2020, I think your idea was correct and you'd proven it. So tell me more about what Paul might have gotten wrong. And I'd be interested to know if you feel, as I do, that you guys actually were correct from the very beginning, that this was something that the market always needed and that you provided.

27:02Well, clearly we were ultimately correct. I think the biggest kind of, you know, on-companel ideas tend to be ones that are non-consensus, where it's not obvious, right? right um and so this was obviously not an obvious idea and that doesn't mean that all non-obvious ideas are good ideas but why was this one a good one and how did we know well i think it's because we we experienced it firsthand right we joe and brian were the first hosts and they viscerally felt the power of the experience right it wasn't just an economic transaction like they met people and it was really transformative and like friendships arose out of that the guy from india who stayed with them you know two years later invited them to his wedding like it's hard to capture the power of that when you relay it um as part of a pitch or whatnot so so there was that i think as we started building the product and using the product uh again we were we were you know very close to to the experience and the customers uh brian was amongst the first guests using the product and many learnings came out of that.

28:10We were interviewing all those first users and understanding why they were doing this, what their questions were, what was powerful about the experience. And all that really, I think, gave us conviction that we were onto something special. Maybe most people didn't see it, but those who were brave enough to try it and were actually using it were coming away transformed. And so the only question was, how can you get people over that initial hump, that trust hurdle? How can I trust a stranger? Once they trusted the stranger, once they trusted Airbed and Breakfast or Airbnb, then they were transformed.

28:49And it was hugely successful and they were huge advocates. So it was just about that initial hurdle on how to get over it. And this is where design comes into play again, right? It's kind of a design problem. How do you create trust? And I remember one of the things an early host said, and he said, all my friends think I'm crazy allowing strangers in my home. And he said, I see it as a stranger is just a friend I haven't met yet. That's a really beautiful thing. And we also noticed that when you talk to people about this idea and you framed it as strangers, of course, they hated the idea. But if you framed it as, would you like to host a guest who is from your alma mater, who is from your university, or in your professional field?

29:37Or if you added some context to it and demystified who this person was, people would actually get really intellectually interested and be like, yeah, I would like to consider that i would be interested and so as we started to design the website you know the the three kind of core pillars to creating trust or just three things one was rich user profiles so we're going to show you a picture of the guest and of the host and you know who they were and like where they went to school what did they do professionally like we try to you know build out an image you know in relative to something like craigslist where you know you had no idea who was posting the advertisement.