Nathan Blecharczyk & Sam Angus: How Airbnb Survived When It Almost Failed

It was unfathomable, frankly. I mean, it was really scary when the floor drops out from underneath you and you are sitting on $3 billion of other people's money that you suddenly have to return and you don't know if we'll make it out of this thing.

Yeah. I was born and grew up in Boston and my dad is an electrical engineer. So, you know, we had a computer at home and this is early '90s, right? So not everybody did, but we had a computer. I was of course playing games on it, but at the age of 12 I was homesick from school and I went to my dad's bookshelf and just took off a book and started flipping through it. And it was a book about the DOS operating system and how to create batch file scripts, which I thought was interesting because in order to play a game back then, it wasn't as simple as point-and-click. You had to type in a bunch of commands to make the sound work, to make your CD-ROM work. And so I started creating simple scripts just to help me get my games up and going. But that ignited in me a curiosity for learning how to program. And so that Christmas, a couple months later, I asked for a book on programming, which I received. And it was basically 'Teach Yourself QBasic Programming in 21 Days.' And it took me more than 21 days, about 30 days, but not bad for a 12-year-old. And it began a hobby of mine, coding.

Exactly. Never do that. No, never do that.

Well, no, but the way it all unfolded was I taught myself coding at the age of 12 through the books and I got that one book at Christmas and then thereafter each month I'd be going to Barnes & Noble and buying yet another book and devouring that. And so, I was posting my work on the internet and I was saying, 'If you like my work, please send me $5.' Well, nobody ever sent me $5, but at the age of 14, I got a phone call and this guy said, 'I saw your work on the internet and I'd like to pay you $1,000 to create something similar for me.' So, I told my dad, 'Hey, somebody from the internet wants to pay me $1,000.' And he just laughed. He said, 'Son, nobody from the internet's going to pay you $1,000,' especially at that time, right, in like 1995 or whatever. But I said, 'Whatever, Dad. Like, this is my hobby. I'll just do it and I'll see what happens.' And so, I did. And 30 days later, I made 1,000 bucks, which was super exciting for a 14-year-old. But also, more importantly, he introduced me to other people who needed similar things. And so, I met more people who needed contract programming done, and I did jobs for them, and I was making money doing contract programming. But I noticed like a lot of these folks I was being introduced to needed similar things. And I thought to myself, well, instead of doing a bunch of one-off jobs, why don't I try to create a software product and just simply sell licenses to it. So that's what I did. And it began a business that I ran for the next four or five years throughout high school and a little bit into college. Over this time, I made over a million dollars, so quite well. It was just me. I had no employees. And I think it was from that that I knew I wanted to be a lifelong entrepreneur.

Well, I mean, I still kind of wonder what they were really thinking because I would basically give them financial reports at the end of each week. And back then, these were like the early days of the internet. I couldn't even accept credit cards online. So, the way you would receive money was by printing off checks. So, people would enter in their checking account details and then I would print it onto a check and then I would just at the end of the week be showing them all these checks that I had printed off my printer for like $600 here, $800 here, and giving them these financial reports. And it just must have been pretty crazy because being 14, 15 and doing this kind of stuff is obviously unusual.

I certainly had to go to the bank. I don't remember exactly the account ownership structure, but certainly, yes. And then also another funny story is back then the connection to the internet was over the phone line, right? It was a dial-up modem. So the house had one phone line. And so when I was using it, which was pretty much all day after school, nobody could make a phone call and nobody could call the house. And I remember sometimes my mom would pick up the phone and it would knock me off the internet. And one of my clients was like, 'This is so crazy. You need to get another phone line.' And I'm like, 'Yeah, well, my dad doesn't want to or whatever.' And he's like, 'Put your dad on the line. I need to talk to him.' And so eventually we got a second phone line for the house. And then we got a third and before we knew it we had like 10 or 20 of these phone lines going to the house. And it was pretty funny because they would come up to install yet another phone line thinking it was a business and it was just a house in a neighborhood. And all the lines ran through my neighbor's backyard and at one point they had to install a new telephone pole in his yard to hold up all the wires.

Yeah. Well, my parents, I think, they were just very supportive and open-minded. Like, one of the things they said was, 'Hey, you know, this is clearly quite impressive what you're doing and if you don't want to go to college, if you just want to lean into this, that's okay, too. It's up to you.' So, they gave me the option of getting an RV and putting it in the driveway and having my own space and doing my business, but I was like, 'No, I'm interested in continuing the academic pursuits.' I graduated top of my class in high school and ended up going to Harvard, studying computer science there. And at first, I tried to do both. I tried to continue my business and do school. And for the first year, that was fine. But by the second year, things got tougher. It got real. And I decided to shut down my business and just do the college thing and I was confident that there would always be new entrepreneurial activities that I could get back into.

Yeah. Well, first of all, there wasn't much entrepreneurship happening at that time in Boston or at Harvard. So, I wasn't getting that kind of inspiration or seeing those pathways all around me. But I, through a friend of a friend, get connected to an entrepreneurial opportunity out in Silicon Valley. So, I moved to San Francisco and I came out on very short notice. So, in two weeks notice I made the decision to move and I showed up in San Francisco. For the first month I stayed actually with the parents of my college roommate. So I was kind of crashing with them. But very soon I needed to find my own place. And so I went out on Craigslist looking for places to live and I found this apartment in SoMa of San Francisco. And Joe was one of the housemates who had posted the ad. And so I went and saw it and said I was interested. And Joe called me the next day and said, 'Sorry, we gave it to somebody else.' There was another person, a designer, and yeah, we had to choose, so we chose the designer. So, I was bummed out, but a couple days later, Joe called me back and said, 'Well, actually, that other person fell through, if you're still interested, we'd love to have you.' So, I said, 'Yeah,' I moved in with Joe.

Yeah, basically I'm living there at first from April 2007 through August 2007 and over this period of time two really important things happen one after another. One, after work, nights and weekends, both Joe and I are working on our passion projects. You know, we're not off socializing or hanging out, we are hard at work doing what we're passionate about. And so I noticed that about Joe and he notices that about me, that we have a similar work ethic. Second of all, he's a designer, I'm an engineer. We start helping each other out on our projects. So, he's creating marketing materials for me and I'm helping him code his website. So, we start to see that our skill sets are complementary. And so, I think, out of that there's a mutual respect and a realization that we can make a good team. Then, it's now late August 2008. Joe calls me to tell me that the rent on the apartment has been raised 25% because the landlord has realized that all the original signers of the lease are no longer living there. So, he can just jack the rent. So, it's going up 25%. I say, frankly, that's too expensive. I'm moving out. This place is not worth that to me. So, I bail. So does the other roommate. But Joe wants to stay. And Joe calls up Brian who's living down in Los Angeles. And Joe and Brian know each other from university and convinces Brian to quit his job and come to San Francisco to be an entrepreneur. So Brian shows up and I don't know, I guess they didn't really talk about how much the rent was going to be because the rent was too much for Brian and was still too much for Joe. Both had quit their jobs to become entrepreneurs, also known as unemployed. So they had no money but as designers they knew and saw that an international design conference was coming to San Francisco. And they saw that all the hotels were sold out for this. And they thought to themselves, why not rent out this extra bedroom to designers who might need a place to stay during the conference. And so they set up a simple blog and emailed it out to some other bloggers. And they were just expecting guys like themselves to want to crash there. And instead, they got a father of four from Utah, a man from India, and a 35-year-old woman from Boston. So, kind of an eclectic group, all different backgrounds. The guests got an affordable place to stay. I think it was like $80 a night times four nights times three people, almost 1,000 bucks. So that was meaningfully helpful with the rent for Joe and Brian. And they all went to the conference together and had a great time and Joe and Brian introduced them to their friends. They went out to dinner and so it was a whole social experience on top of just a place to stay. And so it was a great win-win. But funny enough, that all happened and that was almost the end of it because there was no aha moment that this was a bigger idea than a one-off way to earn some extra cash that weekend. And to kind of prove it, for the next two months, at this point, I'm quitting my job. And the three of us get together trying to brainstorm startup ideas because we know we all want to work together. We think we're going to make a good team. Having gotten to know one another, we just had to figure out what the idea was. And so for two months we sit around in the apartment brainstorming all kinds of ideas like roommate finding services and other things without ever talking about this story that I just shared with you. So I tell this story and it's so obvious how this one inspirational moment leads to the founding of the company, right? But actually in the moment it was not obvious and two months elapses before in January 2008 Joe and Brian share this one-off weekend project that they had done and how maybe we could do this for other events, which is what we set out to do in early 2008.

At this point I am living in the neighborhood but not at the apartment. I don't move back into the apartment till much later. Actually, it gets complicated because I had been doing long distance with my girlfriend for three years at this point. And she was in medical school at that time and thinking about where to apply for residency. And so she was looking for some commitment from me before making this big decision. And so I knew that I need to get serious about coming to a resolution, making a commitment. And so I go back to Boston actually in spring of 2008 to be with her and figure out my personal life. Meanwhile, I'm still working on what was then Airbed and Breakfast. But from afar and this was obviously a strain on the team dynamics because Joe and Brian were designing and coming up with all these things that they wanted implemented and things take time of course. And I was wondering to myself, should I continue with this thing? I had a lot of other opportunities as an engineer. There were other ideas I had, other people wanting me to do things for them. And so I was doing a bit of both, frankly, for a while there.

Yeah. Well, obviously they knew each other for, let's say, at least five years, more than I knew them. So yeah, they had a deep friendship already and familiarity and had gone to RISD together so had a shared experience and done projects together at RISD. And yeah, so they knew each other deeply and had a lot of trust and they're both designers too so they got excited about a lot of the same things. You know, I was frankly a little apprehensive. Especially back then, it was kind of unusual for a founding team to be only one engineer and then two non-engineers. And I just felt a little bit outnumbered. But I'll tell you what, living with Joe, I had respect over the work ethic and the passion. I remember having this conversation with Michael Seibel in the summer of 2008 and also with my wife about what should I do? I'm here in Boston, I have all these options, should I double down on Joe, Brian, and Airbed and Breakfast or go some other way? And I think one of the things that stood out was their level of commitment. They were clearly going to try to go do this and I think that really matters because in so many cases teams fall apart. There's different life dynamics, spouses, partners, finances, that tear the team apart. But in this case, I think knowing that the team was committed to one another and committed to the idea is what held us together. But if we fast forward, it wasn't until the end of 2008 when I agreed that I would come back to San Francisco and move back into the apartment and we would not have any side projects or any other distractions in our lives over the span of Y Combinator, which is a 13-week program with a hope of really moving the needle. Because at the end of the first year, we were basically on the brink of giving up and we said if we get into Y Combinator, then we'll give it all our best for 13 more weeks and if the situation doesn't improve, then we'll quit and we won't hold it against one another because we were all friends. We didn't want to let down the others.

Yeah. Well, first of all, it was all inspired by our own experience that happened very naturally, not because we wanted to build a big business, but just because we were solving our own problem one weekend. So, we knew that this could happen. Meeting somebody new and having a place to stay and having an experience, I think that was our north star amidst everybody else in our lives saying, 'This is crazy.' Like staying with a stranger, someone's going to get killed, right? Like that was the common wisdom and it's the reason why I think so many investors had zero interest. They couldn't see themselves using this product. They probably didn't think it was a big market too as a result, right? But yeah, it was common sense that this was a bad idea. Not just a bad idea, people had a visceral reaction like this is terrible.

Well, there's a lot of things that lead up to setting the table for this moment, right? We eventually align on this idea to make it just as easy to book someone's home as a hotel. This idea is meant to be not just about events or conferences anymore, but we still think conferences and events are a good catalyst, a good way to launch and get publicity. So, we start thinking like what's the biggest thing that's going on in the world in the summer of 2008. That's an event that we could basically launch at. And it's the Democratic National Convention and it's going to be held at this stadium that holds 80,000 people in Denver. We look it up and Denver has 17,000 hotel rooms. So, we're like perfect, hotels will definitely be sold out for this thing. And so, we figure this all out three or four months beforehand. So, we build it in three months. We launch a week before the event and sure enough, all the locals looking to get out of town make a buck. They're posting their stuff on Craigslist and we message them and just say, look, there's this site dedicated for this purpose where you can also advertise your homes. Within a week or two we have 800 homes on our website in Denver. And meanwhile the newspapers and whatever are doing stories about how it's a historic event but people have no place to stay. They're camping out in parks. So we write to the newspaper and just say, look, we have a website with 800 confirmed available homes and they say, well, that's interesting, we'll do a story. And so they do a story and very quickly it snowballs into us being on CNN International talking about Airbed and Breakfast and the conference and what we're trying to do. And so we get this huge publicity, hundreds of people book on Airbed and Breakfast. And actually, it's through Sam Angus that we got connected with one of his contacts who was working on the campaign and kind of helped clue us in to how big a deal this was going to be.

So that all goes super well. But the week after the conference, the crickets are chirping. Like there's no business. Nobody books at all on our website. We're no longer relevant to anybody. And this is where we get really creative, or frankly Joe and Brian get really creative. At our time our name was Airbed and Breakfast. Somehow, don't ask me how, they start thinking about the breakfast part of our name and they're thinking to themselves, how can we reach back out to all the political reporters that we met during the DNC? And so they come up with this idea to create a presidentially themed breakfast cereal, Obama O's and Captain McCain's. And we fill the boxes with cereal that we bought at the store and hot glue the boxes together and we mail the first 100 of each of these boxes to the political reporters and it worked. Sure enough, we get huge coverage again. But, that moment passed and once again we're back at square one. And the question is when do you know it's time to quit, right? And this is where a mentor of ours encourages us to apply to Y Combinator. And so we get the interview. It's a five-minute interview. Two minutes into the interview it goes off the rails. Paul Graham was like, 'What?' You know, strangers staying in other people's houses. That's crazy. That doesn't sound safe. I wouldn't do that. And then he starts trying to tell us about some other idea that he's excited about. So that clearly didn't go well. We're walking out of the room and as we're walking out, Joe takes out of his bag a box of the Obama O's and gives it to Paul Graham. And Paul Graham says, 'What? What's this? Did you buy me a gift?' And Joe says, 'No, we made this.' And he's like, 'I don't understand.' He's like, 'Sit back down and tell me how you made this.' He's looking at it. So, we spend five more minutes telling him the story about the cereal and why we did it and how we did it. And later that day, we get a call back saying we've been accepted into Y Combinator. And later on, Paul Graham told us he accepted us not because he liked our idea, he hated our idea, but he knows ideas can change, but he knows founding teams don't really change. And he said, 'The cereal story demonstrated to me that you as founders were incredibly scrappy and creative and what he called cockroaches, meaning like you just couldn't kill us because we would just never give up. We would just come up with some wild idea to keep surviving.' So he's like that's what I wanted to fund in this kind of environment where it was a financial recession.

Yeah, totally. I mean, we met Sam, I think it was probably around April or so of 2008, but super early on, we're just three or four months in. This is like eight months or so before Y Combinator, because he seemed to like our idea and was willing to spend the time with us at a time when nobody else at that point had recognized that this was going to be anything other than a bad idea.

I mean, this was like pre-YC, he was all in there for us. And then, as the company progressed, he was really the only professional person we had to talk to, right? Like, we didn't know any other professionals in this industry. Very quickly we became, I'll say, friends. We would host these parties at the apartment and he would always show up. And I think we weren't normal startup founders, the three of us are all very different and obviously Joe and Brian were bringing a lot of creativity and a lot of zany ideas to the table. And I think he liked that energy and so he spent the time with us and by spending time together we became very much friends and he became a trusted adviser to us. We were talking with the company on almost a daily basis during those years. And then throughout that time and even through today I've had a personal relationship with him. We go grab dinner, we hang out together, we go work out. So I consider him a friend really more than a client.

You know, I think as a company the most important thing we did was realize that this was a true crisis and not just try to manage it away, but actually use it as an opportunity to make us into a better company. There was a situation without disclosing too much where there was some claims being made against the company by some people who had rented an Airbnb and the person who owned the Airbnb wasn't representing what the accommodation was really all about and they threatened to go to the press. And that was at a very vulnerable point for the company because this was early on when they were starting to scale. And so what we famously did was basically stop everything and tell everybody stop what you're doing and start thinking about ways to make the site more trustworthy, more safe. And we do this epic brainstorm, come up with all these projects and over the course of two weeks we implement about 40 of them. And that's powerful because while this PR crisis was playing out, two weeks later, we were able to come back and say, 'Hey, look, we acknowledged this thing happened and we made some mistakes and we're incredibly sorry for what happened here, but we also are excited to share that there's 40 new trust and safety features that we're launching.' And that was probably more than what anyone would have expected us to be able to do or do in the situation. And so, I think at the end of the day, we were scrappy once again and creative and seized the moment and were all in.

Oh, for sure. Yeah. I think in a crisis you get so many opinions and a lot of people are acting out of fear and telling you, oh, be careful, don't do that. It could create a new problem, right? And so there's a lot of people telling you what you shouldn't do and can't do. Not a lot of people saying what you actually can do to make the situation better. You know, I think one example of this that's noteworthy. We came up with this idea of a host guarantee. If anything went wrong, Airbnb would cover the damages up to a certain amount. And we were thinking that we would make it $5,000. That seemed like a lot of money at the time or enough money to replace a piece of furniture or whatever. We were scared though, because this would be coming out of our pocket and we weren't sure how many people might file complaints and maybe they were legitimate complaints, maybe they weren't, right? And then Marc Andreessen came over to our office and he had just funded the company and he was the lead investor in our $100 million round and he said, 'You should add a zero to that.' So the 5,000 instantly overnight became $50,000 and we just said, well, if our lead investor is comfortable with us making this offer, well, frankly, it's kind of his money. He just gave it to us. That's where the money's going to come from, so let's go with it. He kind of gave us permission to think boldly. And fast forward later on, that eventually became a million-dollar guarantee. And I think it might even be 3 million now these days. But that was the catalytic moment. And ultimately, I can't say it's right in every situation, but the human thing to do is usually the best thing to do from a PR perspective. And the other stuff will work itself out. And if you do right by the people, then I think some of the other risks kind of evaporate.

In my teenage years when I had the business and I was also top of my class and I was also running track, I had a lot going on and I had to be very disciplined about time management but also just balancing all this stuff. And so I think I got just very good at staying calm and taking one thing at a time and working through what needed to be done whether it was solving a problem or just load balancing across a lot of chaos. That's one thing I think. Second, in running my business back in high school, I was dealing with a lot of people. I had probably a thousand clients and I was doing customer service and everything, right? If they were upset, they would call me up on the phone and I would talk to them. So, here I am as a 15-year-old talking to someone who's probably three times my age, four times my age, who's super unhappy and trying to calm them down and commit to them that I was going to make the situation right or whatever. And so, I think I got a lot of practice working it out with people. And my demeanor at that time in my first business was the customer is always right. So, I was always trying to lean into whatever their emotional state was and figure out how to work with them to get them to a better place.

Yeah. Well, 2019 I think we probably raised roughly $3 billion up at that point. Like a lot of money. Things were going pretty well. We had had basically a decade of growth, right? Because the growth took off in 2009 and 10 years later we were now ubiquitous in every country of the world and things seemed pretty good for the most part. I think there were some challenges underneath the surface. I think the fact that we had had access to easy money and had $3 billion in the bank account meant that we hadn't needed to be very rigorous with our P&L and our investment choices and managing people. We were also in the midst of writing our S-1 for the IPO. So we were planning to go public in March. And so at the end of 2019, we clearly had a draft of that ready to go and very real plans to go public. And then the pandemic starts to happen and by the beginning of March it's a worldwide pandemic and our business drops 80%. In the span of just a few weeks all these people were canceling their reservations. So to navigate all this we came up with a bunch of principles. One of them was for example this is a public health emergency so we should do what's right by public health, forget about the business or whatever, let's acknowledge the reality which is this is a public health crisis for the world. Two, we were going to be bold, we weren't going to take half steps. There were a lot of companies that were playing this like a couple weeks at a time and doing small layoffs over and over again and things like that. Three, we were still going to when we made trade-offs think with a long-term mindset about what's most important in the long term and try to preserve that. So these principles were helpful because there was a lot of decisions we were going to have to make really quickly. Also, these decisions were going to be controversial and so we needed to communicate them effectively to our employees. And so it was easier to start with the principles and educate them about the principles and the why behind the principles and then use that to segue into the hard decisions versus just dropping a hard decision on them. And so we ended up refunding the guests because we didn't want them to be financially incentivized to have to travel when it wasn't in the best interest of public health. We had to cut a lot of expenses, lay off 1,800 people, which was one of the hardest things we've ever had to do. But by a few months later, in the summer, it turned out people were eager to get out of their houses and they still wanted to travel even though they couldn't get on airplanes and they were traveling to rural areas and creating their own bubbles. And it turns out staying in a home was great for that. So, our business ended up bouncing back sooner than we would have thought and sooner than the rest of travel. And later that year, we were actually able to resume our IPO and go public in December. So, kind of remarkable in retrospect how quickly we worked through that period. And it was just a financially much more fit company.

I mean, it was unfathomable, frankly. I mean, it was really scary when the floor drops out from underneath you and you are sitting on $3 billion of other people's money that you suddenly have to give out at return and you don't know how that's going to go down and you have to let go 20% of your employees and these are really scary sad things. They're emotional. So, that part was really terrifying. And you're just kind of wondering will the world ever go back to the way it was? Will we make it out of this thing? Or are we forever going to be 1/10th or 1/100th our original size. But it was a very successful IPO, right? The stock price, I think we were supposed to open up at between 60 and 80, something like that, but it ended up closing out at 135, I believe, or something like that. So it basically doubled over the course of that day. And that was a huge validation that the market saw that Airbnb was going to be an exciting company in the future despite all that had happened over the last 12 months.

Yeah. Yeah. Right. So, again, a lot of things, we sort of stumbled into the idea. It wasn't meant to be anything big. It was a one-off. We saw on Twitter one of our users during Hurricane Sandy was offering her home for free, and we thought, that's so generous, so kind-hearted. You know what? Actually, I bet there's other hosts who are just like her, right? And so over 24 hours we made this functionality where people could opt in and offer their home for free. And a thousand people pressed that button or more to offer their home for free. And we were just blown away by how a disaster could be a way to galvanize generosity. And so that was completely inspiring. And so when that was all over, we made sure we saved the functionality. And when things came up in the future, we rolled that functionality out again and we started to make it really easy to roll this stuff out on short notice, like 30 minutes notice, we could get it up and running, have a landing page and activate the host community. So, we continued to refine this muscle and challenge ourselves, well, how big can it get? Because the Airbnb community is pretty big. And then, most recently for the fires down in LA, we were able to host 25,000 people who were displaced, whose homes had burned down. And so, I think it's a really unique capability. There's no other lodging provider that can rapidly scale up accommodations that quickly. I think it's something we can uniquely do. And we should strive to use technology to do good in the world.

Yeah. And once again, finding the opportunity within what is otherwise a terrible situation, right? Which is that these tragedies in some ways bring people together because of our humanity because people want to help when they see others suffering and with technology and creativity we can actually orchestrate that. So, I think we can do more around connecting people and creating the trust necessary to connect people, which is really the mission of the company, is to create connection and belonging, whether it be between people or people and discovering places.