From ‘ramen profitability’ to global scale: Airbnb co-founder on building a global giant

It was an existential threat. We told all our employees to stop what you're doing, go to the war room.

Oh, for sure. No, I really did not know if we were going to survive this.

It's the end of 2008 and we are on the verge of quitting because we have raised no money. We're in debt and the trajectory of the business has been flat.

Super app for travel that is of course AI powered.

We mobilize when we raise $100 million of new venture capital.

We had heard a quote. It went something like, bad companies are destroyed by crisis, good companies survive them, great companies thrive or come out better.

It's my pleasure. Thank you.

It's definitely surreal, and the numbers just keep getting bigger and in some ways are arbitrary. I think what I'm most proud about is the impact it has on individual people. I'll travel to a place like India on the other side of the planet and get some hosts together and I'll ask them, what does Airbnb mean to you, and you'll get the most heartfelt stories about how maybe not only did it help them afford their home but maybe start a business, meet new friends from around the world, give them a sense of psychological empowerment. So as an entrepreneur to know that you're impacting someone you thought you would never meet on the other side of the planet and doing that at scale is very rewarding.

Yeah. Well, I grew up in Boston and my dad was an electrical engineer and he would always be bringing things home from work and allowing me to tinker and take them apart. One year he brought home a Xerox machine, like a big huge photocopier, and I took that apart in the snow over the course of the winter. So early on I was tinkering a lot and trying to ask the question, how do things work? I was also playing a lot of computer games like a lot of young people, and that turned into a hobby of computer programming. One day at the age of 12, I was homesick from school and my dad had books about computers and I took one of them off the shelf and started looking through it. It had instructions on how to create simple scripts, which was interesting to me because to start my games back then, this is in the '90s, you had to type in lots of commands to get the CD-ROM drive to work etc. So I started creating simple scripts to play my games. But that then graduated to me asking for a book on programming that Christmas a couple months later, and I got a 500-page book on how to program in 30 days and actually 21 days and I finished it in 30 days, and this began a hobby that became a business throughout high school.

Yeah. So, it was a hobby at first and just completely self-taught. I was going to Barnes & Noble and buying another one of these books that was probably never meant to be read front to back, but I was devouring them. I was posting my work on the internet and saying, if you like what you see, please send me $5. Well, nobody ever sent me $5, but at the age of 14, somebody called me and said, I saw your work on the internet and I want to pay you $1,000 to create something similar for me. And so, I was super excited. I told my dad, somebody from the internet wants to pay me $1,000, and he's like, son, nobody from the internet's going to pay a thousand bucks, especially back in the '90s. So I was like, but whatever, dad, this is my hobby. I'm going to do it anyways. We'll see what happens. So I did it. And 30 days later, I got paid a thousand bucks. But better yet, he introduced me to other people who needed contract programming done. And so this began a business. And as I was creating these programs, spoke programs, I started realizing they had similarities. And I thought to myself, instead of reinventing the wheel each time and making a new program, why don't I create a software license and create one single program that I can resell. So this is really the beginning of the business that I ran for four to five years throughout high school into college, made almost a million dollars during this time period. But more important than the money was the lessons. The two lessons that I took away were one, I could teach myself all the skills, completely self-taught. And then two, I could create things that other people really valued. And that was really empowering. And that is kind of where I became or knew I'd be a lifelong entrepreneur.

It was email marketing. This was like before modern day web-based solutions.

Once graduating college, I kind of got a normal job as a software engineer, but I quit after seven months. The reason I quit was I wasn't feeling challenged. I had an office to myself. I could close the door. I had one meeting a week. No one knew what I was doing in there. And what I was doing was half the week I was writing code, half the day writing code, the other half the day I was trading stocks, reading blogs. And so finally I'm like, I'm not being challenged. I'm going to quit. My boss said, you can't quit. You're our most productive engineer. And that was very concerning because I was only working half the time. So, I really then knew I had to quit. And I think that's an important lesson. There's no wrong path necessarily as long as you're learning along the way. And when you stop learning, it's time to make a change. So, I chose to make a change through a friend of a friend. I got connected to a startup out here in the Bay Area and I moved from the east coast to the west coast. And yes, I like to say I learned everything not to do during this time, which only lasted about 12 months. But as soon as I joined, the two lead engineers quit. That was probably a warning sign. But it allowed me to partner directly with the founders and kind of take their big vision and break it down into a product spec, hire a team and actually build it, all in the span of 11 to 12 months. I had the opportunity to get my hands dirty and build. And so that was a huge learning opportunity, but it didn't turn out the way I expected because they were frankly burning too much capital, too much money. They had unrealistic expectations about how quickly they would succeed. Anyways, learning experience and it was through that and being out here that I then met my future co-founders for Airbnb.

Well, first I had to meet my co-founders and that happened like you pointed out through Craigslist a couple months after arriving here. First I was staying with some friends but then I had to get my own place. I went on Craigslist and I found Joe and he had a nice place here in SoMa. So I became the roommate. While living with Joe, we noticed two things about each other. One was our work ethic. After work and on the weekends we would be working on our side projects late into the night. And second of all, he was a designer, I was an engineer. We had complementary skill sets and he would help me design websites. I'd help him build his websites. And so we saw the power of our combined skills. And so we kind of filed that in the back of our heads for like, wouldn't it be great to start a company together. But before that could happen, the rent on our apartment was raised 25%. And I said, that's too expensive. I'm moving out of here. But Joe wanted to stay. Also, Brian wanted to stay. Brian had been Joe's friend from university, from Rhode Island School of Design. So he was in the picture there, too. So they wanted to stay, but they had just quit their jobs to become entrepreneurs, also known as unemployed. So they didn't have the money to pay this increased rent. But they're both designers. And they saw that an international design conference was coming to San Francisco. And they saw that all the hotels were sold out. So they had an idea. Why not rent out Nate's extra bedroom to designers who might need a place to stay that one weekend for the conference? And so the bedroom was empty. I'd taken my bed. So Joe set up an air bed and instead of calling it a bed and breakfast, they called it an airbed and breakfast. So Airbnb is short for airbed and breakfast. And they were expecting guys like themselves to want to crash with them, but instead they got a 35-year-old woman from Boston, a father of four from Utah and a man from India. So a super eclectic group got an affordable place to stay that weekend. I think they paid 80 bucks a night times three people times four nights is almost a thousand bucks. So, it added up and they all went to the conference together and Joe and Brian introduced them to their friends, took them out to dinner. So, it was a whole social experience on top of having a place that was affordable to stay. And then that was almost the end of the story because it was just meant to pay the rent one weekend. And over the next two months, actually, I had now quit my job and the three of us were brainstorming ideas of things to work on. And this story I just told you never came up over two months of brainstorming. Never was the story shared. And so it's so obvious in retrospect, but in the moment, it really was not meant to be a business. It was just a fun way to earn some extra cash that one weekend. And it wasn't until January of 2008 that they shared the story. And we thought to ourselves, maybe we can do this for other people in other situations. Why don't we make a site to facilitate this on an ongoing basis?

A lot of them had to do with roommate finding services because that's a challenge that we had kind of felt earlier that year when we were finding each other. So not terribly different, but there was also apartments.com already so we weren't filling a hole in the market.

It was tough because you'd explain the idea, allowing strangers to stay with you, and people would have almost a visceral reaction. Like they would be like, someone's going to get hurt, how can you trust a stranger. And so it was just common sense that that was not a good idea. So frankly, we lost a lot of people necessarily in those early days. It was a funny situation. I think after the first year, I would send an annual update to my friends telling them about the year, kind of a year in review, and I wrote this long email about all the stuff that had happened that year and all the projects I was working on, and at the very end I mentioned, oh yeah and there's this thing Airbed and Breakfast but I don't think it's going to go anywhere. And I sent it to Joe and Brian and they were so upset that I had not put more emphasis on the idea and spoken about it more positively. It was very tough for sure. I think the only thing, there's a couple things that kept us going. One, Joe and Brian had seen the power of the idea that first weekend, real friendships were formed as a result. It wasn't just an opportunity to crash. We saw that a few more times when we launched the first kind of incarnation of this. It was at South by Southwest in I think it was March or April 2008. And again, a few people used it and they had amazing experiences. And so we'd have these breadcrumbs of people who said, wow, this is really great. Once you experience it, you're transformed. And so we saw the potential. It was just a question of how to recreate that and how to make more people take the leap of faith. So that was number one. I think number two was the partnership amongst the three of us. The fact that we were friends before we started the company because there's a lot of stress when you're working on something and it's not working. Meanwhile, you have financial realities. That whole first year, no investor would give us money. We were paying for the rent and everything else off our credit cards and accruing debt. So we had a lot of strain about whether we were on the right track and whether we should continue, but because we were friends, no one of us wanted to leave the other two hanging. So I think that kept us together as well.

That's a funny story, right? So again in 2008 during that first year we were trying to raise money from investors and we never succeeded in getting a second meeting. I mean the first meeting was hard enough. So during this time I was mostly in Boston. They were here and I would hear about this stuff secondhand, but it so happened I was going to be out here one weekend and be able to participate in one of these pitches. So, I was super excited and the night before we're reviewing the pitch and we're going through the deck and we come to the slide and the slide says that in three years we're going to make $200 million per year, and I run some quick math and I'm like, that's just totally unrealistic. At our price point, whatever, it's like 30,000 transactions a day. There's no way in three years we're going to be doing that. So that's my mindset. This kind of pragmatic analysis of the slide. And so I'm like, this is not realistic and not credible. So we should change it to something credible. So Brian says, okay, we'll change the 200 million to 20 million. I'm like, okay, that's realistic. I can stand behind that. Yes. So the next day we're in the pitch and we come to the slide and indeed the slide has been changed. But the 200 million is not 20 million, it's now two billion. So he changed in the other direction. And so afterwards I asked Brian, why'd you change it? And he said, well, after we spoke, I called up Sam Altman, who is someone we knew through Y Combinator, and Sam told me that investors don't want M's, they want B's, baby. Which Sam is right, you know, investors want home runs and they want ideas that have the potential to create a billion dollars. That's what they want to bet on, even if it's unlikely or risky. But on the other hand, we had not painted a credible path how we were going to get there. So that meeting did not go well.

Yeah, I know. It's crazy. The same names keep coming up over the time.

Yeah, so there's a few parts of this story to understand how it played out, but it's all very interesting. We set out to launch what you see today in August of 2008. We kind of settled on this idea in June, which was facilitating the payments and the reviews and like what you know Airbnb to be today. We scoped that in June and set out on a three-month journey to launch in August. And the whole idea was to leverage the Democratic National Convention, something that we knew everyone was going to be talking about and where we knew there was going to be a need for our product. This is when Barack Obama received the nomination of his party to become the presidential candidate. So, historic event, first African-American presidential candidate, and it was going to be held in a stadium that holds 80,000 people. And we searched Denver, and we found out there's only 17,000 hotel rooms. So, we said, there's going to be a need for extra accommodation. And we know this three months ahead of time. We're going to build like crazy to launch just in time to participate in this cultural wave or moment that's happening. So, that's the windup. And sure enough, we launched like two weeks beforehand and sure enough, this news is doing stories how people want to attend. There's no place to stay. People are going to be camping out in parks. Meanwhile, there's locals who are looking to get out of town to avoid the traffic. And some people are renting their rooms on Craigslist. So, we created this website dedicated for this purpose and we were able to convince a lot of folks on Craigslist and elsewhere to rent their homes on our site. So, within a week or two, we have 800 homes on our site. We reach out to the news and we say, we saw your story saying there's no place to stay, but guess what? Did you know there's 800 homes available on our website? And they said, we did not know that. That's really interesting. Why don't we write a story about that? So, we got all this publicity in the leadup to the DNC. Met all these political reporters who were covering it. And it was very successful, not just in terms of publicity, but actual bookings. The only problem was after the event was over, we were no longer relevant, right? It was back to square one. There was like zero bookings. And so we were asking ourselves, we met all these reporters. How can we get them to write about us again? They're political reporters though. How do we make ourselves relevant to them? And I'm not sure how it happened, but Joe and Brian got this crazy idea to create a presidentially themed breakfast cereal. Again, our name at the time was Airbed and Breakfast. So I think they were reflecting, instead of doing airbeds, let's do breakfast. So they had this idea, presidentially themed breakfast cereal, and they were going to make a box of two different boxes. One was going to be called Obama O's with a tagline of hope in every bowl, and then Captain McCain's. John McCain was the other candidate. And his tagline was a maverick in every bite. And they created original artwork for each of these boxes, lots of witty humor on it. Got them printed up. We went to the supermarket and bought cereal and restuffed it into our boxes and hot glued the boxes. The idea was that the first 100 of these boxes we were going to mail to the political reporters. We thought to ourselves, we can email them, but they'll just delete the email. But if they received a box of Obama O's in the mail, they're going to want to call us back and ask us what is the story behind this breakfast cereal. And sure enough, they did. We mailed out a hundred of these boxes and we got all these phone calls and we were on Good Morning America that week and CNN. That day we were the number one political video of the day on CNN. And with the other boxes of cereal we had, we had 400 boxes of each left over after mailing the first 100. We called those other boxes a limited edition collector's item and we numbered them and we had a website where we were selling them for $40 a box. And when we were the number one political video of the day on CNN, we sold a $40 box of cereal every three minutes until we sold out. We sold $30,000 of cereal that week, which was more money than we made all year. And so that was super exciting. Got some publicity again but again was kind of tangential to our core business and we were still at square one, no one's booking an airbed and breakfast. And so this brings me to the final leg of the story, which is it's the end of 2008 and we are on the verge of quitting because we have raised no money. We're in debt and the trajectory of the business has been flat. It's not growing. And one of our mentors suggested that we apply to Y Combinator. Y Combinator is an accelerator program that's very well known here. And so we managed to get an interview and the interview is just five minutes so it's very quick. So we go to the interview and within two minutes into the interview it goes off the rails where Paul Graham, who's the founder of this program, says, strangers staying in other people's homes? I hate that idea. And then he spends the rest of the three minutes talking about something completely different and we're now walking out of the room knowing it's gone terrible. But 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 looks at it and he says, what's this? Did you buy me a gift? And we said, no, we made that. He looks at us some more. He's like, I don't understand. Come back in and tell me how you made this. So, we spent five more minutes talking to him about how we made the breakfast cereal and what we accomplished with the breakfast cereal. And then we go home and we get a call later that day from Paul saying, we've been admitted. And he later told us that he admitted us, not because he liked our idea of airbed and breakfast. He hated that idea. But he loved the story about the cereal because to him this was at the start of the financial recession and he was looking for super scrappy founders who would just not give up under any circumstance. And he said that story about the cereal showed me that you were so scrappy that you could create things and that you would just not give up, that you were resilient. And so that to him was more important than the idea, was that capability and quality of the founding team.

It might not have worked out. No, it might not have. You know, if we hadn't brought that cereal.

Well, as I mentioned before, the friendship amongst the three of us, there's a strong loyalty and respect, and no one of us wanted to leave the others. And I got to be honest, I was probably the one most tempted to leave because as the engineer, I had all these other opportunities that were teasing me. So, there was a real opportunity cost that I felt. And when we applied to Y Combinator, one of the things we agreed was that if we get in, we'll give it our everything for these 13 weeks that the program goes on for. But if we're not in a material better place at the end of 13 weeks, then we all agreed to quit, to give up because it had been a year and no one wanted to disappoint the others, but we also wanted to be rational about it. So that was the agreement, that if we got in, we would do it, give it everything, but we would quit if it didn't change the trajectory of the business. Now luckily we never had to have that conversation because as you pointed out, everything changed over the course of 13 weeks.

Yeah. So it happened during YC over these 13 weeks. Going into YC, Paul Graham had told us that this is the financial recession. Investors are just going to want to know that you are profitable before they invest in you. Like that will be a powerful thing to be able to say 13 weeks from now. So he said the good news is though you can define profitability however you like because technically you don't really have any expenses. So he said, just figure out how much revenue that's going to be and what your minimum set of expenses are and set a profitability goal. So we said, okay, our basically our only cost is paying rent. And then we joked maybe buying some soup noodles to eat. So we came up with this definition what we called ramen profitability, which was $1,000 a week, enough to pay the rent and buy soup noodles. So that was our goal. We were starting from a place of making basically $200 a week prior to YC. We want to be every week increasing that number, get it climbing to 1,000 a week. And we would print out this revenue graph and place it all over the apartment, including in the middle of the bathroom mirror. So, it was the first thing you saw when you woke up. It was kind of the last thing you saw before going to bed. And we were hyperfocused on making sure that that bar chart every week increased. So, how did we do that? We got some advice from Paul Graham that we took to heart. One was he said that it's okay to do things that don't scale. We said, that's kind of counterintuitive. We're building internet companies. It's all about scale. He's like, no, it's better to have a hundred users that love you than a thousand or a million users that just kind of like you, that don't really care about you. So you need to have some really passionate evangelists who will champion your product and give you feedback and show you that you have product market fit. So, okay, how do you find those people? He said, go meet your users. Go figure out who those people are. And we said, he said, where are your users? We were like, well, they're everywhere. He's like, well, where are most of them? We said, New York. He said, well, go to New York. Which it's not something we had done because we had no money, right? We were paying off credit cards. We didn't have money to go fly to New York. But YC as part of this had given us $20,000, which in retrospect is not a lot of money, but it was enough to buy some plane tickets for a few weekends in a row. And we go to New York and meet our users. So, how do you meet your users when you are an internet company that no one's heard of or really has paid attention to?

Well, we would call up our early users and we would say, we notice that your apartment on our website doesn't have photos or the photos aren't that great. Would you like a professional photographer to come to your home and take free photos? And people were a little surprised by this offer, but usually would kind of relent and say, sure, why not? And what would happen is Joe and Brian themselves would actually rent a professional camera for the weekend, fly to New York, and take the pictures themselves. So, knock knock on the door. It's actually Joe and Brian, the founders, and they take the pictures, but they'd also sit at the computer with them and give them a tutorial, get product feedback, and also invite them to come get beer later on together with a group of people. And then over beers later on they would share the story of the last 12 months and the entrepreneurship journey we've been on and basically build a rapport with those early folks such that those early folks really loved us and they were rooting for us so much so that we could ask them to adjust their prices, for example. Their prices at the time, they wanted $400 maybe a night and we said, well, we're a website that no one's heard of, that might be a little steep for your extra bedroom, maybe start at $50 a night and if you get too many inquiries, you can always raise it. Now, if they hadn't met us and didn't like us, they would have totally ignored that request. They would have said, who are you to ask for that? But once they got to know us and liked us, they're like, well, sure, for you, for a friend. Why not? We'll try it. And so anyways, we basically managed to get nice photos of properties at very attractive prices that were very well described because now these people who met us put more effort into their profiles. And turns out, everyone in the world wants to go to New York, but it's an expensive place. So once we had an attractive product, it started getting bookings and suddenly hosts began making money and telling their friends. I hosted somebody from Paris and it was an awesome experience and suddenly their friend in New York would want to do the same thing and would look to our website and emulate what they saw, which was really high quality listings. And so that started happening. And then meanwhile, the person who came from Paris went back home and thought to himself, I can do this here. And they became host there. And so there started to be this word of mouth and global cross-pollination that started happening very quickly. And so over the course of those 13 weeks, the numbers went up every single week and surpassed $1,000 a week. Actually 13 weeks later, we got to $4,200 a week. And we also over that period got introduced to Sequoia Capital. They came as a guest speaker to dinner and were very impressed by our growth and our novel concept and they ended up investing in us at the end of the program. And so we never had that difficult conversation because Sequoia Capital, frankly one of the best firms in the world, invested in us. So we were suddenly realizing that we were on a whole new trajectory.

Yeah, so after Y Combinator, everything was kind of up and to the right, growing very quickly and going very smoothly. And we were just letting it grow organically. But that all changed in 2011 when competition emerged. One thing I noticed was suddenly my day started, each day, I was originally the only engineer, built a lot of the early website, eventually hired a team at this point but still part of my routine in the morning was to go look through all the activity on the website and see what happened overnight and just look for things that looked out of place. And I started noticing all these stays that were for just one night popping up across Europe with guests with German surnames. I said, this is strange. Where are all these German surnames coming in? Why are they all staying just one night at all these different random places? And so you start digging around on LinkedIn and you start realizing that they're connected to Rocket Internet. And so what's this all about? Well, Rocket Internet is a company that clones a lot of Silicon Valley companies and tries to bring them to Europe faster than they can expand organically there, kind of beat them to the European market. And so that's what was happening. They had basically built a clone and they have a whole apparatus for quickly standing up large teams. And so soon thereafter they reached out and they said, look, we admire what you do but we think we can do it better in Europe and faster in Europe and you can buy us now for 10% of your company and we can team up and we can do this together and wouldn't that be great? But otherwise no worries, we'll just take the European market. That was kind of the pitch and we had to take that seriously. So we went out to Berlin and we met their team and we go into their office and mind you at this time we had 40 people in our company. So we walk into their office that for this company that literally has existed for a couple months and they have 200 people because they've repurposed people from other projects in the span of just weeks to work on this. And each of these people are basically dissecting our website. They have the source code up. They're copying the CSS. They're logging into our website sending messages to our hosts basically booking reservations so they can stay one night and meet the host and try to convince them to come to their product instead. So they're effectively a traveling sales team army they had going. So this was like a big threat and concern. And so we met them and one of our reflections was if we team up I'm sure we can win but also we felt like they were mercenaries. They were just motivated by fast growth and they didn't actually really care about the concept. They didn't have any personal connection to it or any heart. We just felt much more strongly about what we were doing and wanted to build a team and a culture of missionaries. And so we said, we could win if we join forces, but we might not like who we become. And so we said, we want to build this our own way, but we can't just continue on the path that we've been on, meaning taking our time. We got to go into wartime mode, from peacetime mode to wartime mode. So we mobilize, we raise $100 million of new venture capital. Then our competition in Europe claimed to have raised $100 million too. So that was no longer an advantage. But we started going across Europe hiring country managers and opening offices in each of the important markets and building a local team. We said we can't, they were claiming to be the Airbnb of Europe and we were like, well we have to be just as local as they are. So we need to have local teams, local country managers, offices and make our community there feel like we are present and just as local and just as legitimate. That's what we set out to build. And that year we went from 40 people to 400 people in the span of 12 months. So it was a really crazy year racing around the world building teams launching new markets. And over the course of the next 18 months we succeeded. I think what people realized was that we were really committed to building a high-quality product and a real sense of community and that the other company was really just a hyped up sales operation, but didn't necessarily have the substance to follow through on the quality of service.

Yeah, it was exciting and terrifying all at the same time, right? Because it was an existential threat. And it was also at this time that we had our first real kind of trust and safety incident that kind of reaffirmed what a lot of people felt, which is how can you trust a stranger? Someone's apartment had gotten vandalized on our platform and it was a highly public event. Meanwhile, you just raised all this money. You're getting ready to expand globally and suddenly the underpinnings of what you're all about is being questioned. Can you actually even trust a stranger in the first place? Is this even a viable model? Is it not going to scale? And the way we overcame that was to take that crisis very seriously. We didn't just try to manage our way out of it. We really tried to take it to heart and surpass expectations. We had heard a quote, I think it's from Andy Grove, the former Intel CEO. It went something like, bad companies are destroyed by crisis. Good companies survive them. Great companies thrive or come out better. And so we said, well, we want to be a great company. This is a crisis. We want it to make us better. How can it make us better? We told all our employees at that point, which is halfway through the year, we had 200 people. We told 200 people, stop what you're doing. Take two weeks to brainstorm and build any type of trust and safety feature you can think of. We just told everybody whether you're an engineer or not, just stop what you're doing and figure out some ideas and build it, make it happen. So, two weeks later, we launched 40 new trust and safety features. And I think that got everyone's attention. People were not expecting us to really innovate and surpass what they were expecting. And so I think that kind of reset the narrative and showed that there are ways to create guardrails and safety nets and take these things seriously and that's how we moved beyond the crisis.