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Well, hello. Hello. This is Tim Ferriss. Welcome to another episode of the Tim Ferriss Show, where it is my job normally to deconstruct world-class performers through interviews, whether they're from business, sports, entertainment, military, otherwise to tease out the habits, routines, favorite books, and so on that you can use. In this episode, I'm going to let someone else do the heavy lifting. And he's very, very qualified. Reid Hoffman on LinkedIn and Twitter as Reid Hoffman. REI is a frequent flyer of sorts on this show. He is often referred to as the Oracle of Silicon Valley by tech insiders who look at his company building and investing track record with awe. The companies include Facebook, Airbnb, Zynga, Flickr, and many, many, many others. Reid is well known as the co-founder of LinkedIn, which has more than 300 million users and sold to Microsoft for 26.2 billion. Prior to that, he was exec vice president at PayPal, which was purchased by eBay for 1.5 billion. And at PayPal, he was nicknamed firefighter chief by the then CEO Peter Thiel, who's also been on the podcast. And Reid is widely considered one of the most successful angel investors of the past decade. He is now a partner at Greylock Partners, a top tier venture capital firm. And on my phone, there are very few podcasts that I listen to multiple times. There are very few podcasts that I recommend over and over and over again to other people, especially entrepreneurs. And what I'm going to showcase in this episode is a conversation between Reid and Brian Chesky, who is a co-founder and CEO of Airbnb. And there are a couple of other cameos, and I'm doing this for a number of reasons. Number one, if you want to learn how to scale your company from whatever the number might be to 100 million, 200 million users, paradoxically, you can increase the likelihood of success by doing things that do not scale. And this is a really critical concept to understand and it's best done through examples. And that is why I want to showcase this discussion which is from the first season of Masters of Scale and I really, really hope you enjoy it. I loved it and Joe Gebbia, co-founder of Airbnb has been on this podcast before and we covered his development as a designer and an entrepreneur leading up to the original development of the business model for Airbnb. That was part one and I promised a part two. So this is in some ways that part two exactly and Masters of Scale is a great show if you haven't seen it. It showcases famous founders and innovative leaders and so on sharing their lessons for success and there is a brand new season out right now. The new season includes episodes with founders of Spotify, Instagram, TaskRabbit, Shake Shack and Glossier among many, many others. You can subscribe to Masters of Scale on Apple Podcasts or learn more at mastersofscale.com. So without further ado, please enjoy this short episode with Reid Hoffman, Brian Chesky, and many others. And if you've heard me recommend 1,000 True Fans to you many, many times before as the article you should read if you're only going to read one article on marketing, which is by Kevin Kelly. You can find it on kk.org. This is the audio complement to that. So, with much further ado, much further ado. What? Much further ado, please enjoy.
Joe and I are broke. We're losing weight and I don't have a lot of weight to lose. You know those binders that you put baseball cards in? We put credit cards in them. At this point, I am $25,000 in credit card debt. Joe is tens of thousands of dollars in credit card debt. So, this is like make or break. We need a lifeline.
That entrepreneur in need of a lifeline, that's Brian Chesky, co-founder and CEO of Airbnb, a service that lets you rent a couch for the night or a cabin or a castle. Today, Airbnb is valued at $30 billion. 8 years ago, a very different picture.
We have this website and maybe 50 people a day are visiting it and we're probably getting like 10 to 20 bookings a day. So, and by the way, we've been working out for a year and a half. So, for anyone who's worried your company doesn't have traction, that was our traction.
It was 2008, an election year in the United States. Barack Obama is running against John McCain. You needed a tax cut. Brian was at the Democratic National Convention hatching a PR campaign for Airbnb, one that could rescue the company and their credit card bills.
Joe and I look at each other and we said, 'We're Airbed and Breakfast. The air beds aren't going so well. Maybe breakfast will.' As we thought, what if we could sell breakfast? Maybe we can make some money. What's a non-perishable breakfast? Cereal. And so we thought, the presidential campaign's coming up. We just launched with the DNC. What if we created a Barack Obama themed breakfast cereal? And we thought, what would a Barack Obama themed breakfast cereal be called? Obama O's like Cheerios, the breakfast of change. We thought, well, we want to be a nonpartisan website, so we'd also have to need a John McCain themed cereal. And that's a no-brainer. John McCain was a captain in the Navy. And so we came up with Captain McCain's like Captain Crunch, a maverick in every bite. We ended up making a thousand boxes of collectible breakfast cereal. We sold them for $40 a box. That's $40,000. Not bad for pocket change. And it got them through a cash crunch, but it came at a cost. We had to physically make the breakfast cereal ourselves. Meaning, we get a printed poster board and we had to fold it and hot glue it. No one told me I had to hot glue breakfast cereal. And they should call it burn glue because every time you get on you, you burn you. And I had a perfect 1:1 ratio of burn to box. And so I literally had to hot glue a thousand boxes of cereal. At one point in the middle of the night, I remember reading, 'I wonder if when Mark Zuckerberg started Facebook, he had to hot glue breakfast cereal.' The answer was no. And this was not a good sign.
But what was a good sign was Brian's willingness to work with his hands, burns and all. I'd argue that painstaking handcrafted labor is actually the foundation of his success. In order to scale, you have to do things that don't scale.
This is Masters of Scale. I'm Reid Hoffman, co-founder of LinkedIn, partner at Greylock, and your host. On this episode, I'll make the case that the only way an organization can truly scale is to first do things that don't scale at all. I'll try to prove that theory through stories from some of the smartest entrepreneurs I know. Over the last 20 years, I've worked on or invested in many companies that scaled to 100 million users or more. But here's the thing, you don't start with 100 million users. You start with a few. So stop thinking big and start thinking small. Hand serve your customers. Win them over one by one. Now this may sound like odd advice if you're an entrepreneur with global ambitions. Mark Zuckerberg didn't personally invite 1.8 billion people to Facebook. He built a great product and the users just poured in. Right. Not exactly. On this show, I'll dispel that myth by talking to founders who fought to win their users. I'm starting with Brian Chesky, CEO of Airbnb, because he epitomizes the idea of handcrafting the user experience before you start to scale. It's a principle he first absorbed in design school.
I was doing medical design once. I had designed a children's ventilator. I had to sit in the shoes of the child and so I had to like imagine being a child, get in like the operating table and like you have to put yourself in the shoes of the patient or the person using your product. And if you're only doing A/B tests, like you're never designing with empathy.
But a funny thing happened to Brian when he moved to Silicon Valley. He sort of forgot about designing with empathy for a single user. It's a common mistake amongst entrepreneurs with global ambitions. They have to promise investors the world. Tens of millions of customers, billions in revenue. It's intoxicating. Just listen to Brian go.
This is a travel industry that is something like 7% of global GDP. Somewhere between five and 7 trillion, 10 times the market size of Google's market size.
And Brian might have stayed in the stratosphere if not for a fateful meeting with Paul Graham, the co-founder of Y Combinator. Y Combinator is a startup incubator which cultivates and invests in early stage companies. Brian was admitted to Y Combinator in 2009 and his first meeting with Paul was confounding. Paul tends to stump people with deceptively simple questions.
And he asked us, 'Where's your business?' And I go, 'What do you mean? Like, where's your traction?' I go, 'Well, we don't have a lot of traction.' He goes, 'Well, people must be using it.' I said, 'There's a few people in New York using it.' And he said something I'll never forget. He said, 'So, your users are in New York and you're still in Mountain View.' I said, 'Yeah.' He said, 'What are you still doing here?' And I go, 'What do you mean?' He said, 'Go to your users, get to know them, get your customers one by one.' And I said, 'But that won't scale. If we're hugely millions of customers, we can't meet every customer.' And he said, 'That's exactly why you should do it now because this is the only time you'll ever be small enough that you can meet all your customers, get to know them, and make something directly for them.'
Brian and his co-founders followed his advice to the letter.
We literally commuted to New York from Mountain View. So, we would be in Y Combinator for was it Tuesday night dinners, and then Wednesday, Joe and I would go to New York. We literally would knock on the doors of all of our hosts and we had their addresses and we say knock knock. Hello. Hey, this is Brian and Joe. We're founders. We just want to meet you. It's a little creepy just to knock on the door unannounced. We needed excuses to get in their home. So, they came up with an offer that the host couldn't refuse. We'd send a professional photographer to your home and photograph your home. Of course, we didn't have any money and we couldn't employ photographers. So, Joe and I, we'd show up at their door and they're like, 'Wow, this company's pretty small.'
These home visits became Airbnb's secret weapon. It's how they learned what people loved.
It's really hard to get even 10 people to love anything. But it's not hard if you spend a ton of time with them. So if I want to make something amazing, I just spend time with you. And I'm like, well, what if I did this? What if I did this? What if I did this?
From those questions, a handcrafted experience is born.
We'd find out, hey, I don't feel comfortable with the guest. I don't know who they are. Well, what if we added profiles? Great. Well, what do you want in your profile? Do I want a photo? Great. What else? I want to know where they work, where they went to school. Okay, so you add that stuff and then you literally start designing touch point by touch point. The creation of the peer review system, customer support, all these things came from us. Literally, we didn't just meet our users, we lived with them. And I used to joke that when you bought an iPhone, Steve Jobs didn't come sleep on your couch, but I did.
Yes. Was there a particular experience that has really stuck in your mind?
I remember we met with a couple hosts and it's winter. It's snowing outside and we're like in snow boots and we walk up to the apartment and we went there to photograph the home and we're like, 'Hey, I'll upload your photos to the website. Do you have any other feedback?' And he comes back with a book. It's like a binder and he's got like dozens of pages of notes and he ends up creating like a product roadmap for us like we should have this, this, this, this, and this. And we're like, 'Oh my god, this is our roadmap.' Because he's the customer. And I think that always stuck in our mind as the roadmap often exists in the minds of the users you're designing things for.
It is typical to get very detailed feedback from some of your early users. And if you're not getting some people who say, 'This is super important to me. I love this. I really need this to work well,' it usually means you're off track. Passionate feedback is a clue that your product really matters to someone. And one passionate user can turn into many if you listen to them carefully. It's essential to get this kind of feedback early while you're still defining the product. It's like setting a foundation as an architect. You wouldn't build a skyscraper before you've built a solid foundation. User feedback ensures you won't build a dozen floors on an unstable swamp. Brian has a simple method for extracting detailed feedback from users. He doesn't ask about the product he already built. He asks about the product of their dreams.
We'd ask these questions like, 'What could we do to surprise you?' like what could we do not to make this better but to make you tell everyone about it and the answer is different. If I say what could I do to make this better they'll say something small. If I were to say Reid what would it take for me to design something that you would literally tell every single person you've ever encountered. So you start to ask these questions and it really helps you think through this problem.
It's essential to seek out and listen to user feedback. But the caveat is you have to figure out which users to listen to. You're gonna have different kinds of users giving you feedback and some of it will take you in the wrong direction. So you need to exercise judgment in discerning will this particular user and particular feedback lead me to the mass market or is it an edge case? For example, at LinkedIn we had one group of users who invent a name for themselves. They called themselves LIONs, which is LinkedIn Open Networkers, because their theory of the world was that everyone wants to directly connect to everyone else in the world because that's the way they wanted it. But they're actually not the majority case. A lot of people who are very busy, who have access to resources, who have some celebrity status do not want that. And if we followed their feedback, LinkedIn would not be where it is today. We had to steer away from a bunch of passionate users who told us very explicitly that we were fools for not following their advice.
If you want to build something that's truly viral, you have to create a total like mind experience that you tell everyone about. And so we basically took one part of our product and we extrapolated what would a five-star experience be and we went crazy. So a one, two or three star experience is you get to your Airbnb and no one's there. So you knock on the door, they don't open, that's a one star, you know, or maybe it's a three star. If they don't open, you have to wait 20 minutes. And if they never show up and you're pissed and you need to get your money back, that's one star. You're never using those again. So a five-star experience is you knock on the door, they open the door, they let you in. Great. That's not a big deal. You're not going to tell every friend about it. You might say, I used Airbnb, it worked. So we thought, what would a six-star experience be? A six-star experience. Knock on the door, the host opens. Hey, I'm Reid. Welcome to my house. You're the host in this case. And you would show them around and on the table would be a welcome gift. It would be a bottle of wine, maybe some candy. You'd open the fridge, there's water, you go to the bathroom, there's toiletries, and the whole thing is great. That's a six-star experience. And you'd say, 'Wow, I love this more than a hotel. I'm definitely going to use Airbnb again. It worked better than I expected.' What's a seven-star experience? Knock on the door. Reid Hoffman opens. Get in. Welcome. Here's my full kitchen. I know you like surfing. There's a surfboard waiting for you. I've booked lessons for you. It's going to be an amazing experience. And by the way, here's my car. You can use my car. And you know, I also want to surprise you, but I got you there's the best restaurant in the city of San Francisco. I got you a table there. You're like, whoa. Like, this is way beyond.
Adding stars clearly excites Brian. It took some time to run through this mental exercise. We'll skip ahead to the 10-star experience. So, what would a 10-star check-in be?
A 10-star check-in would be the Beatles check-in in 1964. I'd get off the plane and there'd be 5,000 high school kids cheering my name with cars welcoming me to the country. I'd get to the front yard of your house and there'd be a press conference for me and I would be just a mind experience. So, what would an 11-star experience be? I would show up to the airport and you would be there with Elon Musk and you're saying you're going to space. The point of the process is that maybe 9, 10, 11 are not feasible. But if you go through the crazy exercise of keep going, there's some sweet spot between they showed up and they opened the door and I went to space. That's a sweet spot. And you have to almost design the extreme to come backwards suddenly. Doesn't just like having like knowing my preferences and having a surfboard in the house seem like not crazy and reasonable. It's actually kind of crazy logistically, but this is the kind of stuff that creates great experience.
But how far do you go toward the 11-star experience to create the Nirvana product? All successful entrepreneurs at some point have to come back down to earth. There's really two stages of a startup's product. The first design a perfect experience and then you scale that experience and that's it. But which part of the perfect experience do you scale? So the most ambitious entrepreneurs, let's call them the Elons after my friend Elon Musk, probably get there through raw energy because they're convinced they need to solve a problem. And the unscalable thing is one step that they have to push through on the way. The Elons say, 'I'm going to Mars, but first I've got to solve this problem right in front of me. First, I need to get that rocket launched, and I need to have a business model for that first rocket, and that looks like satellites.' Okay, I'm going to try satellite launches. And how do I get my first rocket? I need to create a scalable rocket platform, but unless I get the first rocket up, it doesn't matter. And you kind of work back to that. Then you've got folks like Brian who say, 'I realize that to get this awesome experience, I have to ratchet back to something that still seems like magic, but is totally doable. And then I need to design the elements that get me into the totally doable thing.' So, how does Brian decide on the doable thing? He settled on a service with the appropriate level of magic and started building it. And here's the next thing to notice. They didn't launch perfectly scaled services. They built everything by hand.
