Transcript

The Social Radars S2: Brian Chesky

The Social Radars

Brian Chesky, Co-Founder & CEO of Airbnb.

"Every entrepreneur desires to have growth and to have scale and grow as fast as possible. And that's awesome, obviously, because if you don't grow, you die. The problem is, I like to tell entrepreneurs “you should be grateful before you have any traction.” Because before you have traction is the moment you can change your product the most. - Brian Chesky, C.E.O. of Airbnb."

Summary

In this episode, we once again talk with Brian Chesky, co-founder and CEO of Airbnb. YC funded Airbnb in 2009, when the company was at death's door. This episode today picks up where we left off in Brian's incredible story of startup survival.

Brian had some counterintuitive ideas not only about later-stage startups, which he learnt through trial and error because there was no equivalent of Y-Combinator to guide them there, but also the early stages.

• Before you have traction, you have the affordance to change your product and iterate rapidly. When you're in hypergrowth you spend 90% of your time preventing things as you grow.

• A lot of innovation comes from a vision of something just beyond the horizon of what's possible. That vision comes from the interplay of observing users in obsessive detail and inspiring them in turn.

• Inspiring users is easier when you have a unique insight to show them, something grounded in first principles and your own frustrations.

• And users can show you how to turn your small idea into a big idea: that's how AirBed and Breakfast realized users didn't need airbeds or breakfast, turning them into Airbnb.

• While you don't have to be young to found a startup, you absolutely have to be young at heart.

• Great companies are defined by crisis, as are leaders. COVID was Airbnb & Brian's crisis.

• One of the redeeming features of crises is that they make flaws clear, at least once you slow down and breathe.

• Airbnb's flaw was it had lost focus of the reason why they deserved to exist: there weren't enough people building communities in the physical world. A lot of what they did had nothing to do with that.

• They had lost the startup spirit, which is common amongst late-stage startups. There was no Paul Graham to give them the principles they needed to avoid decay, to point out that the processes used to develop software fast cause larger companies to slow down etc.

• Airbnb survived the crisis by going back to basic principles: focus, speed, and obsession over details etc. That is, they rekindled the startup spirit.

• A core part of that was creating concentric circles of shared consciousness, starting with the top 30 people who work on everything together.

• The leader's role, then, is to act like an orchestra conductor, keeping everyone marching in lockstep. Which naturally requires them to be present. And people like that, actually, because the alternative, the absence of a leader, just leaves a vacuum for politics and bureaucracy.

• So the crisis forced the company to grow stronger.

• After going through that, like pushing a boulder up a hill, everything just started flowing. At that point, going public was easy. So one of the lessons is: just don't stop. The faster you go, the more balance you have

Highlights

"And that's the reason why I think investors should invest in entrepreneurs, not markets. Like Apple, the most valuable company in the world started in a market that was tiny. The computer industry was nothing in the 1970s. A great company creates a market, and by definition, if you're creating a market, it's nothing when you first invest in it. But it's part of a larger ecosystem, which is travel. And travel is a market the size of oil. So actually that's a big market. It's just that the category was tiny and nonexistent within a large market."

"And I realized the most important lesson in a crisis. This is surprising. Do you know what the hardest thing to manage in a crisis is? This is not intuitive. The hardest thing if you're a leader to manage in a crisis is your own psychology. It's not the people, it's not the market, it's not your money. It's your own psychology."

"And I think that right now, I noticed some entrepreneurs have an instinct to freeze, just stop, to worry. But the best way to keep balance is to keep going. And the faster you go, the more balance you have. And I think that's not totally intuitive, but I think that's the best advice I'd give to people."

"I always, in a crisis, say, do more than is expected of you. I think a lot of times in a crisis, people do half measures or they do what people expect. A crisis is the one moment you have permission. It's your one time to be bold. A crisis is your defining moment. And if you just imagine, “What do people expect of me? Okay, I'm going to do more than that. The world's paying attention. You have that opportunity.” And that's always been my guiding principle."

Topics

• Recap of last episode (00:00:01)

• The roots of Airbnb’s culture (00:02:23)

• You are most flexible before you have traction. (00:05:51)

• Where innovation comes from (00:10:51)

• You have to have a unique insight (00:19:47)

• How AirBed and Breakfast became Airbnb (00:26:07)

• Follow the users (00:28:04)

• COVID strikes (00:31:19)

• The hardest thing to manage in a crisis. (00:35:37)

• Why you need principles to weather a crisis (00:39:13)

• Doing more than is expected of you in a crisis (00:42:40)

• Embracing details and marching in lockstep (00:48:10)

• Moral of the story: Stay a startup. (00:54:32)

• There’s no Paul Graham for late stage startups, so everyone makes the same mistakes. (00:58:21)

• Going public is easier than staying private at late stages (01:03:54)

• Carolynn and Jessica review the conversation (01:09:46)

Transcript

Recap of last episode (00:00:01)

Jessica Livingston (00:00:01)

I'm Jessica Livingston and Carolynn Levy and I are the social radars. In this podcast, we talk to some of the most successful founders in Silicon Valley about how they did it. Carolynn and I have been working together to help thousands of startups at Y Combinator for almost 20 years. Come be a fly on the wall as we talk to founders and learn their true stories. So we are here, Carolynn, with Brian Chesky for part two of Airbnb. Yay.

Carolynn Levy (00:00:34)

Welcome, Brian.

Jessica Livingston (00:00:35)

I'm so excited. Hi, Brian.

Brian Chesky (00:00:37)

Thanks for having me back, it's just too much fun. I had to come back.

Jessica Livingston (00:00:40)

I know there were so many questions we had, and we just didn't get through everything. So that's why we wanted to get back and pick up where we left off. So what I just want to do for the listeners is to just quickly summarize the situation where we left off. So in 2007, you and Joe hosted three people at your apartment in San Francisco for a design conference going on. You knew you were onto something because both you as the hosts and the guests had this sort of magical, unique experience. So you knew there was something there. You start the idea for AirBed and Breakfast, and you struggle for a year to sort of get the marketplace going. Can't find many guests to rent, and you try to raise money, and you get tons of noes, and you're really kind of bouncing along, I guess, the Y axis of growth not making much progress in terms of consistent growth. As a last ditch effort, you decide to apply to YC in the fall of 2008. You get Nate, the technical co-founder, to agree to participate in YC and move to the Bay Area from Boston for three months. And he says, “okay, if this doesn't work, we're officially done." So you start YC. You talk to Paul Graham. He says, “where is your growth? Is anyone buying this because you're having a problem with people staying?” And you say, “well, we can tell from search results that people are searching in New York City. We have some hosts posting in New York City, but it's just not sticking." And when he says “well, then get to New York City” you decide to go meet with hosts there, I think. Could we kind of pick up there and talk about how you got airborne?

The roots of Airbnb’s culture (00:02:23)

Brian Chesky (00:02:23)

Yeah, absolutely. So I remember, you know, we're in and, you know, PG has these office hours, and you'll recall that we were pretty shameless. This is the other way we were shameless. We always tried to be the first people at every dinner, and we'd always try to be the last people to leave, which is possibly annoying, and maybe that's not the advice people want to hear, because maybe everyone will do it, but we were just like, this is our one last shot. It was like that Eight Mile movie. Like, this is our last shot. So we’ve to do this and so we're going to get the most out of this experience and we'll hang out with PG and just get his advice.

Jessica Livingston (00:03:00)

That was the most impressive thing about you guys. We still say to this day, the Airbnbs were the first group to every dinner and the last to leave. We found it impressive.

Brian Chesky (00:03:09)

Before I go into that story, can I just do a quick detour? Because it made me think of a concept I think is really important for founders. I'll be honest, before YC, we were kind of a kind of sloppy, chaotic company. Like everyone, we were just kind of like, we get up, we do work. There was really no rhythm. We worked all the time, but we weren't really that organized. And because Nate was living in Boston with his fiance and it was a big ask to have him come to Francisco, because imagine you get engaged and you tell your fiance you're not going to see him for three months. And by the way, there's revisionist history. Well, of course you're going to start Airbnb. No, you're going to start a company that is probably not going to exist in three months. So that's the context, right? Because you can't assume it's going to be Airbnb.

And so it was a big ask. And so we wanted to, first of all, make the most of the experience. And when we started, we said that we would have a conversation at the end of YC about if we should keep working on the concept because it wasn't clear it was going to take off. And so we said, well, we're going to give it our best shot. So we basically created an agreement that we would have a consistent schedule. So we all lived together at the apartment. We had a schedule where we'd basically all wake up around 08:00 a.m. We'd work, we'd go to the gym together to exercise so we'd like, not get super unhealthy. We'd go grocery shopping together. We would stay up working till midnight. Every Sunday we would meet and recap everything we did last week and everything we would do the following week.

We took like-Paul Graham said that we got to be ramen profitable. And I'm like, “what does that mean?” And he goes, “you're profitable if you live on ramen.” We lived on like, the equivalent of Ramen. I didn't really like ramen, but something like that. And we took a revenue graph, like an imaginary graph, and we put a red line at the threshold of Ramen profitability, which is like the minimum level of subsistence we could do to keep the company going where we were basically default alive and we didn't need funding. And we put that on the bathroom mirror so that when we brushed our teeth, it would be the first thing we'd look at in the morning and we'd be the last thing we looked at before we went to bed.

And then the other thing we said is we're going to be the first at every dinner and the last at every dinner. And the reason I tell you that story is I think that that discipline has now to some extent permeated thousands of people. That the habits you have when you're three people, subtle habits like what time do you get up, what time do you go to bed, do you do these things together, do you communicate? Extremely subtle habits became the habitual habits of thousands of people. And when 1000 people do something a thousand times, that's your culture. So I just think that was like an interesting aside.

You are most flexible before you have traction. (00:05:51)

Jessica Livingston (00:05:51)

Can I make an aside on your aside though, Brian?

Brian Chesky (00:05:55)

Sure.

Jessica Livingston (00:05:57)

I have numbers. I know that in the first week of February you hit $468 in revenue.

Brian Chesky (00:06:02)

Yeah. Wow.

Jessica Livingston (00:06:02)

The next week it was $897 and the third week of February 2009 it was $1,428. And at that point you were ramen profitable. And just to define it, that was Paul's phrase for basically you're making enough money that you can at least pay your rent and eat cheaply e.g. the ramen and you can keep working on your startup.

Brian Chesky (00:06:26)

Exactly. By the way, if I was a founder today, I would definitely need more than $1,400 a week for the three of us to live. Isn't that crazy? That was about 2009, that gives you a sense of how much things have changed in 14 years. So yeah, PG says your “users are in New York, you're here in Mountain View. What are you still doing here? Go to New York, go to your users.” Now, this was counterintuitive to us and the reason why is because we said, well that doesn't scale. We can't go to meet every user. And I remember PG saying “that's exactly why you should do it now, because this is the only time you'll be able to do things that don't scale.” As one more aside, because I'm now suddenly realizing all these- I know I'm barely getting the story.

Every entrepreneur desires to have growth and to have scale and grow as fast as possible. And that's awesome, obviously, because if you don't grow, you die. The problem is, I like to tell entrepreneurs “you should be grateful before you have any traction.” Because before you have traction is the moment you can change your product the most.

And once you're in hypergrowth, you stop creating new features and you're mostly just trying to keep up with growth. And that part's exhilarating and awesome and like wow, we have an idea that works. But the most you can ever change your product is before you have traction. Because once you have traction, you spend 90% of your time just growing and trying to keep things from breaking.

Jessica Livingston (00:07:51)

That’s an excellent point.

Brian Chesky (00:07:53)

And I think people should just remember that if you don't have traction, what you have is nimbleness and boldness and you can try lots of things and that everyone thinks they can do bigger things later. I like to tell people the day you start is the day you can do the most. And every time you hire more people, you can do less. It's counterintuitive. When you open an app, like a mature app that's been around and it's really popular: has it changed much in the last year? Probably not.

During YC, the app changes completely because it's just a very light code base. And so this is the thing. So we go to New York, we start like literally - and I used to joke that when you bought an iPhone, Steve Jobs didn't come and sleep on your couch, but I did. And we went door to door meeting our host. I remember knocking on their door and they'd be like, “hello." And I'd be like, “yeah, I'm with Airbnb." They're like, “oh my, like you're a really small company."

Before we had online [payment], we used to pay people either by PayPal, a host or they could get a check in the mail. I would carry a bank ledger in my backpack, like a binder with checks. And every day I'd get an alert of who I should write checks to. This is before we automated online banking. And so I would be at the host and sometimes the host would be like, how do I get paid? And I would take a binder out of my backpack.

So my backpack I used to walk around New York City with a toothbrush, underwear, socks, like a change of clothes and a giant binder. Half of my backpack was a binder. And like pens to write checks to and envelopes. The point is though, that you do everything unscalable before you scale it.

So in other words, you'd ask, well, why didn't you set up online banking? Well, when you're writing five checks a day, it's actually easier to just write the checks and at some point it's unscalable. So then you set up online ACH through your personal checking account. Then that gets to a threshold where now you need to create a corporate account and now you can't do that manually. So now you got to write code to actually wire ACH into your platform. So everything was like very hands on, very non technical.

And we only usually use software to typically automate things. I mean, some businesses, like a camera company, like, you need software even to prototype. Our business, it's an offline business. So we would use software to scale things once we validated it by hand, we called it like doing things that are handcrafted. So we would meet with hosts and as we met with the hosts, we noticed things.

Brian Chesky (00:10:09)

Like one of the things I'd noticed is the photos online were horrible in 2009. Camera phones were horrible. So you would never want to post a photo taken from a phone in 2009. But most hosts did not know how to use a DSLR and connect it with USB to their laptop, process the photos and orient them, and then color correct them and put them up on Airbnb. People just didn't really know how to do that. So we thought, what if there was this magical service where you could press a button and a photographer magically showed up and photographed your home?

Jessica Livingston (00:10:50)

Yeah?

Where innovation comes from (00:10:51)

Brian Chesky (00:10:51)

And they said, “oh my God, that'd be amazing." So we sent them this email: “click this button, and a photographer will show up." And they would click the button, and then I would show up, or Joe would show up. And we'd show up with rented cameras. And then eventually, we hired contractors to take photos for us, and these subtle things became all the difference. And then we started noticing, wait, if we have really big photos, we can make the photos really large on the Product Description page.

Now, again, today, we take all this for granted. Back in 2009, there were no large photos of homes on the Internet. They didn't exist. Craigslist was the predominant format. It was a two by two tile, and the photos were two inches by two inches, and they were horrible, and they looked like they were like out of a horror film.

We were also the first site, to my knowledge, that I'm aware of, where you could book something with somebody else and pay them online through the app, because before us, there was Etsy, there was Ebay, there was Alibaba, Etsy. And ebay used PayPal - ebay owned PayPal, but it wasn't integrated in checkout. You had to go to PayPal to sign up. So it was like, this is crazy. And so throughout this process, we would often suspend disbelief, and we'd imagine, what's this magical thing? We would never start - like, Steve Jobs used to have a saying, you've got to start with the customer experience and work backwards to the technology. You can't start with the technology and work forwards to the customer experience.

Jessica Livingston (00:12:18)

Which a lot of founders do.

Brian Chesky (00:12:20)

We're like, “well, what can we do with this technology? What are our limitations?” And that's where a lot of innovation comes from, is that you have a vision of something that reaches just above the horizon of what's possible technology, and that's the art. The art is reaching for what's the cusp of impossible, but just in the grasp of possible. And that is what we would probably call innovation. It's magical, and it just reaches. And if it's too far, it's impossible, and you can't do it. And if it's too obvious and it's too incremental, then no one cares, and you've probably not added any value.

Jessica Livingston (00:12:57)

Would you take photos of the host, too? Like, you'd take photos of their apartments to make them attractive?

Brian Chesky (00:13:03)

Yeah, and we would often take photos of the host as well. And actually, Jessica, Carolynn, I believe we also built one of the first on demand platforms, like, before Uber. I think Uber started in 2010, and this was a year before. It was basically - in 2009 there were no on demand services. There was no like, hit a button, the app, and someone shows up to your house. Now, we take that for granted, yes, but back in 2009, that was another thing that was like, seemed crazy. You're going to hit a button, someone's going to show up at your house. How's that going to happen?

And so we built a network, even back then, of thousands of photographers. But we had like, interns that were managing people in Google spreadsheets. And eventually now we have an automated system where we literally take hundreds of thousands, I believe, [of] photos a year for people. And it's like a pretty robust on demand operation. But these were some of the things and I would literally like - I remember Joe [Gebbia] told this famous story of meeting with a host. He had like a binder worth of notes. And we would basically take the user feedback and we'd incorporate it. And actually we do this today. This is a practice we still do today.

Our simple idea is- I think a lot of founders focus on growth. And growth is the output that everyone wants, right? And you're ultimately measured by your growth. But customers generally don't like things because other people like it. I mean, there's a little bit of that herd mentality, but mostly they like it because it's really great. It's a great product. You have a mantra in YC which is, make something people want. Well, how do you know what they want? You have to talk to them. You have to observe what they're doing, and you have to obsess over every single detail. And so that's what we've tried to do. It's a systemized feedback.

What ended up happening is we would basically photograph their homes. We would give them guidance on their price. And we just work city by city or block by block, home by home, just getting enough homes on Airbnb. And then we didn't have a marketing budget, so we just used PR to get traction. We’d do lots of stunts. Constantly doing crazy things in press. We have to always remember that reporters have like - their job is hard because they have to find out something to write about every single day. And so if you can make their job easy by giving them something to write about, they are predisposed to want to talk about you because they have to do something right ? Every day you have to wake up and report on something that's new. As long as it's worth remarking about, they'll write about it.

And then we also built this tool where you could repost your listing on Craigslist. Nate hacked this thing together, which was really great, where you could take your listing and you could post it onto Craigslist. And so then people would see these beautiful, basically Airbnb list widgets inside of Craigslist you could click and it would basically take you to Airbnb. So we had, like, a lot of different - that was a really, I think, clever distribution.

Carolynn Levy (00:15:45)

Yeah, really smart.

Jessica Livingston (00:15:46)

I never knew that.

Brian Chesky (00:15:47)

Yeah, that was something Nate built. It was pretty clever. So we did a lot of different things like that. But I don't think there was a silver bullet. I usually tell people that there's usually not a silver bullet. That's usually like pushing a rock up a hill. I think there's this revisionist history where people assume, and this is true of some apps, but there's generally this assumption that things just take off. And I guess there are some things, like Chat GPT that take off if it's like a truly magical technology, but mostly when you're building an MVP, it's kind of a little bit rough, and it's not going to take off right away because you just shipped it and you don't even really know what people want.

And you have to use the process of shipping and iterating and discovering and continuing to add enough features, and eventually it's a tipping point. We used to say people have to travel, they want to travel, they have to sleep somewhere. Eventually, this is going to be so compelling that there's going to be a tipping point and people are going to want to do it. And sure enough, they did. And you're right. One week we did, what, like $400 in revenue. Next week, $800, $1,500. Here's the incredible thing. I felt like we joined YC as like the Bad News Bears.

We were a ragtag team. People didn't really want to fund us. We were trying to raise $150,000 at a $1.5 million post money valuation. Nobody took that deal. We were desperately selling collectible cereal. We were, like, living off credit cards. And I think we exited YC feeling kind of like winners, like, successful, and we took off. We were doing a few thousand dollars at one point a week in revenue, which was like, a lot back then because it was like, okay, we actually have revenue. We have something, and you start somewhere.

And then Sequoia came to a dinner. It was a partner from Sequoia. And the big problem with Airbnb was like - here's another lesson. A lot of reasons why investors didn't invest in Airbnb is because - here's the thing that a lot of investors say. We invest in markets. We invest in large markets. And the problem is, when your name is AirBed and Breakfast, it doesn't sound like you're in a large market. What's the market for airbeds? At one point, we actually did research how many airbeds are sold a year to figure out how big our market is. And the reason I like to tell people, don't invest in markets, invest in entrepreneurs, is a great entrepreneur can find a very large market within their idea. And so airbeds were small. Sleeping in people's extra bedroom was a medium sized idea, but it turned out there was a really big idea, which was vacation rentals. And this partner of Y Combinator came to me from Sequoia, Greg McAdoo. And I remember at this dinner, we could never describe how big our market was. And everyone's like, oh, there's no market. And Greg McAdoo came up to me and he said, “do you know the vacation rental industry is a $40 billion industry?” And I'm like-

Jessica Livingston (00:18:33)

Because he had studied it.

Brian Chesky (00:18:35)

And he had studied for years, and he was looking to invest in vacation rentals. And all of a sudden- I barely heard that term vacation rentals, like, now, vacation rentals kind of like a common term. And again, 2009, it wasn't popular. People stay in hotels and hostels, in bed and breakfast. Vacation rental was kind of like a weird thing, it was offline. There were, like, classified sites and very offline, but Verbo was like, kind of a classified site, practically. There was no online payment system. And so he's like, “this is a $40 billion market." And I'm like, "oh my God. And so suddenly, Sequoia funds us.

And I remember the incredible thing was Joe and I and Nate never had to have the meeting about whether or not we should keep working on Airbnb. It was a rocket ship. It had taken off. And at that point, Y Combinator was truly the turning point. We entered it with no traction, feeling, like, beaten down, and we exited like a rocket ship with the seal of approval of YC, the seal of approval, which was big back then, of Sequoia, a huge amount of momentum. And then that began the next chapter of my life.

You have to have a unique insight (00:19:47)

Carolynn Levy (00:19:47)

When you were thinking about your market, did you guys just never think of hotel replacement or the hotel market was never something you anchored off of?

Brian Chesky (00:20:00)

We looked at how big the hotel market was and the hotel spending, but I think that today it's kind of intuitive that you could stay in an Airbnb or a hotel. I'm trying to think of a good analogy. Our original tagline was a cheap, affordable alternative to a hotel. In other words, when we first started the site, I mean, we had this idea that there was this community, but we mostly didn't think anyone understood it. And they kind of initially didn't. And so we marketed this as, “if you can't afford to stay in a hotel, you would stay in an Airbnb." And so we didn't position it as a replacement for a hotel. We kind of positioned it as for those people who couldn't afford to stay in a hotel. So we kind of looked more at bed and breakfast, although they're kind of expensive, or hostels, budget hotels. But it was not intuitive that anyone that would stay in a hotel would stay in Airbnb.

So again, now it's like, mainstream. It's been used almost 2 billion times. It almost sounded as crazy as if I were to pitch you, like, we're going to do this peer-to-peer surgery model where you can go to a stranger's home and they can perform an operation on you. However you feel when I tell you that idea, that's the reaction we got about this idea. Now, this idea is not crazy, but I used to joke to people, like, “Elon's idea of going to Mars seemed more plausible than our idea of sleeping in people's homes." We can imagine living this way on Mars more easily than imagining living differently on this planet. We have these social moors and constructs.

And this is also why I think, as entrepreneurs, you have to go back to first principles. You think by first principle, not by analogy. And if you actually look at the roots of the hospitality industry, it kind of started with homes. It got industrialized. But I remember talking to my grandfather about the idea before he died, and he used to say, “this is how I used to travel when I was a kid.” And I was like, “what are you talking about?” But again, there were a lot of boarding homes and guest houses and things like that. I think that with every technology platform shift, there's a new change of behavior. I think that you just need to act by first principles.

“It's crazy. No one will ever stay in each other's homes.” Well, why wouldn't they? Oh, because we now live in a world where people are afraid of hitchhiking and they don't trust anyone and they don't like strangers. And so we just had the simple insight, well, what if they weren't strangers? Oh! Like, I would say, “would you want a stranger to stay in your home?” They say “no.” “Well, what if they were like, a PhD student from Stanford and they're, like, studying whatever, and their name is this or she is doing this, and she's doing” and they're like, “oh, I’d host her." And so we kind of realized when you describe an abstract person, it's scary. When you describe a specific person, it's not scary at all.

And so that led to the insight that we just need to build a system of trust to take the strange out of the stranger. And it's just like these subtle things. I know that you and PG, you guys talk about [how] founders have to have a unique insight to start their company that no one else has. And because we had no experience, it wasn't like we had studied aeronautics and we knew about rocketry, our unique experience was we were naive 26 year olds. We didn't know any better. So we had no predisposition of what was weird and cool or uncool. And we had this crazy experience this one weekend, and we thought if people could experience what we experienced that weekend, that this would be an idea that spread around the world. And so we weren't really visionaries as much as we were kind of like expeditionaries. We had discovered something. We discovered an experience. And if I was a little bit older, I might not have been open to doing it, and I might have known better.

And I don't think you have to be young to start a company, but you absolutely have to be young at heart. And I think that a lot of the challenges people have when they get older is they lose the ability to suspend disbelief. But as long as you can remain curious, remain light on your feet, remain focused on first principles of, like, well, why wouldn't someone want to sleep in a home? They freaking live in homes. Of course people like homes. They live in them.

Jessica Livingston (00:24:04)

I think also, Brian, if any other person who wasn't interested in bringing people together, which you inherently are interested in connecting people and that connection, they might not have seen the promise in the idea and you could.

Brian Chesky (00:24:16)

And this is another interesting idea, like, just to contrast us with Uber, because when we started, us and Uber kind of rose up and we were practically interchangeable in the 2010s, like the gig economy, sharing economy. And the difference between us and Uber- and not to say one's better than the other, but when uber started, the two founders were fairly wealthy. They were millionaires, and they started as riders, right? They wanted to get black cars. They couldn't get black cars themselves. So they basically created the equivalent of, like, a timeshare black car, where them and 100 friends could have a critical mass of black cars they could get on demand.

It's important to remember that when I started, I did not have a particular passion for traveling more than anybody else. I had a passion for hosting, and Joe had a passion for hosting. And we like to host people, and we like to show them around. And paradoxically, I don't like traveling in the classical sense. I hate traveling. When I say traveling, I mean tourism. I'm actually anti-tourism. The whole ideology of Airbnb was you have to travel to get there to have the experience. But we're not about tourism, which is doing things locals would never do. We're about community and connecting, and we just happen to travel to do that. But I don't love the idea of traveling and being an outsider and taking photos in front of landmarks. I care less about that. We really were about hosting, and so I think our passion was about hosting people, bringing them to their homes and connecting.

And so people say we're like a travel company. We're probably now the biggest, or one of the biggest, travel brands in the world. But to say we're a travel company: we're not expedia, we're not booking.com, we're not delta. We're a member of a travel community and much more of a local community company, and I think that comes from the founding ethos.

How AirBed and Breakfast became Airbnb (00:26:07)

Jessica Livingston (00:26:07)

I quickly want to talk about another pivotal moment, before we get to COVID, is when you realized that the host didn't have to be there and you could actually rent out an entire apartment. Because that was huge.

Brian Chesky (00:26:22)

Yeah, no there was this crazy thing and I think this was during Y Combinator too. So just to go back. It started as AirBed and Breakfast, renting airbeds. Then in 2008 Joe and I went to South by Southwest, which I think was March 2008. And at the time you could only rent airbeds. You couldn't rent mattresses, only airbeds. Because the name was AirBed and Breakfast and we thought it was cute and funny. And I met somebody in South By and he said “I love this. I want to rent out my extra bedroom.” And I said, “do you have an airbed?” And he goes, “no.” And I remember thinking to myself at first “well you can buy an Airbed and you can inflate it and you can put it on your bed.” Seems crazy now but you can get very stuck on an idea quite literally.

Jessica Livingston (00:27:05)

It does seem crazy. I had no idea.

Brian Chesky (00:27:07)

So then we're like, “wait a second. I guess we're called Airbed and Breakfast but I guess you could rent out your extra bedroom so you could sleep on a real mattress. We will condone real mattresses but you have to make breakfast because we're Airbed and Breakfast. So we're going to at least keep - the name will be at least half true.” So then one day somebody who was a drummer for Barry Manilow, and he wasn't the only one but I noticed him, he wanted to rent his whole house because he would go on tour. And at first this is a huge debate inside the company. Would we allow somebody to rent their whole home? How could that be possible? If you rent your whole home you're not there to make them breakfast.

Jessica Livingston (00:27:53)

Right.

Brian Chesky (00:27:53)

So then first we started thinking well maybe you can rent your whole home but you have to come back in the morning to make them breakfast each morning.

Jessica Livingston (00:28:00)

Oh my.

Carolynn Levy (00:28:00)

Oh man.

Follow the users (00:28:04)

Brian Chesky (00:28:04)

Then we're like wait a second, maybe we let go of this idea that you have to be there with them. And that literally led to what most people know of Airbnb today, which is, okay, let's open up the platform. Let's let you rent an entire home or entire apartment. Now this was only in urban areas so there wasn't any vacation rentals at this point. So this is like an apartment in New York, an apartment in San Francisco, an apartment in Boston and this seemed totally crazy to people. And once we launched that part of the business where you can rent an entire home, that's where the idea went from an airbed, which was like a small tiny thing that was probably not fundable, to extra bedrooms, which was fundable but probably not a billion dollar company to suddenly Airbnb.

And pretty soon then people wanted to rent like extra bedrooms and then apartments. And then one day - I remember this story, this guy tells me a story how he built his daughter a tree house while growing up. The girl grows up, moves out of the house, and he's got this treehouse in the backyard. He doesn't know what to do with it. The daughter says, “why don't you put the treehouse up on Airbnb?” He puts a treehouse on Airbnb, and then suddenly the treehouse makes enough money to pay the mortgage on the actual house. The treehouse generates more income than the actual house. And so people put up treehouses. They put up like, somebody put up a castle, somebody put up a private island. There was an igloo. So at some point we're like, let's ride this.

So we used to have a saying you can rent anything from a couch to a castle and everything in between. And we'd have this thing called a Top 40 list, like a radio Top 40, where you go down the home page, you see the most unique Airbnbs. And the reason even today we put unique homes on Airbnb is we're constantly trying to expand people's imagination of what to do with the platform.

You often want to follow the users. The users will take you places, but you also have to inspire them. You have to push them. It's a push and a pull. Like they put up a treehouse. You're like, “wait a second, we could put more treehouses. And what about tiny homes? What about igloos?” And you push, and then they see it, and then they inspire. So it's this constant back and forth, and you're constantly basically trying to make your platform more extensible. So it starts with the airbed, then it's a bedroom, then it's an apartment, then it's a castle, then it's a treehouse. Now it's all spaces.

Then you're like, “okay, what else can we do with it?” And you just keep making it more and more extensible. And that's the reason why I think investors should invest in entrepreneurs, not markets. Like Apple, the most valuable company in the world started in a market that was tiny. The computer industry was nothing in the 1970s. A great company creates a market, and by definition, if you're creating a market, it's nothing when you first invest in it. But it's part of a larger ecosystem, which is travel. And travel is a market the size of oil. So actually that's a big market. It's just that the category was tiny and nonexistent within a large market. So it's not to say that entrepreneurs should go into small markets, but you have to think differently about the market. Yes, you can't defy human nature, but you have to think differently.

COVID strikes (00:31:19)

Jessica Livingston (00:31:19)

I want to fast forward, Brian. I know there's so much interesting stuff that happened between YC and 2020, but I want to fast forward because I'm so fascinated personally to hear about what happened when the Pandemic struck. You were making $35 billion in bookings a year, and you lost 80% of your business in eight weeks, you said on the last podcast. So I want to know what was going on, what happened?

Brian Chesky (00:31:49)

I remember it was the holidays between 2019 to 2020, and we went away for Christmas, the holidays. And I actually had, where I'm sitting right now, for the holidays I got a stack of s1s. S1s are these, as you know, [but] for people listening, documents that you have to file at the SEC when you're going to want to go public. And they're typically 00:00:00 pages long. It's a disclosure of every single thing that an investor would need to know about your company to invest in to go public. And I got a stack of, like, ten of them. And the reason why was because over the holidays, I was working on finishing our s1 to go public.
And so I had Dropboxes s1, Pinterest’s s1, Spotify’s s1, Squarespace’s s1. I was just looking at them for reference. And that's how I spent my holidays, thinking that my life would go in one direction. I came back in January, and it was probably late January, and we had business in China, or we did. Now it's just outbound, but we had a lot of homes in China, and we started noticing the business precipitously falling. And the business in China fell, like, 80% over the course of February because of COVID.

But at this point, COVID is like this weird thing happening in China, and it's not even outside of China yet. This is mid February or something like that. And it hadn't occurred to people this would be like a global pandemic. And I remember innocently saying, “wow, if this thing spread outside of China, it's going to be really bad.”

And yet we were doing about $35 billion a year. To put that in perspective, Starbucks that year, 2019 I think, did like $25 billion in sales, and Nike did around $35 billion in sales. Now, that wasn't our revenue. Our revenue is 15% of that. But that was the booking volume. That's how much people were paying on Airbnb every year. So it was a business approximately in the vicinity of Starbucks or Nike as far as, like, customer sales went. And to be that big- by the way, that's pretty crazy, right? Company where I'm, like, writing personal checks for my backpack, doing $400 a week, and that same idea is now doing 35 billion a year. It's a giant operation. We're preparing to go public. And as you know, we were one of the probably two or three hottest companies in 2010, us and Uber. Instagram was already sold to Facebook. So it was really a success story.

And then all of a sudden, we lose 80% of our business in eight weeks. And when you're our size and you lose 80% of your business in eight weeks, it's like an 18 wheeler going 80 miles an hour on a highway and slamming on the brakes. Nothing good happens. And I remember it was March 15, which I believe is the Ides of March. And that was the day, I think, or around that week, the world shut down. I remember symbolically the NBA stopped their season, and that was kind of - I'll never forget that, because you kind of got a sense that, “okay, like, everything's going to stop.” And so everything stopped.

We started sheltering in place, and we had an emergency board meeting. It was a Sunday. And before the board meeting, my lead independent board member named Ken Chenault, he calls me. Ken Chenault was a CEO of American Express for, like, I don't know, 00:00:00 years. He was CEO during 911 and 2008.

Carolynn Levy (00:35:18)

Wow.

Brian Chesky (00:35:19)

Now, if you're a CEO of a company like Amex during 911, and they did a lot of travel, or 2008, they're a financial services company. Those are two big crises, right?

Carolynn Levy (00:35:27)

Yeah.

Jessica Livingston (00:35:27)

Yeah.

Brian Chesky (00:35:27)

And Ken calls me and says, “My intuition is this is going to be ten times the size of 911 or 2008.”

Carolynn Levy (00:35:36)

Wow.

The hardest thing to manage in a crisis

Brian Chesky (00:35:37)

And it was. It was about ten times as bad as either 911 or 2008 in travel. And those two crises were devastating to travel, and this was ten times the size. Nothing had been this disruptive since World War II. And in World War II, companies weren't really that global back then. We didn't know what would happen, as you have to understand that… there wasn't certainty that we would survive. People were using words like bankruptcy. Now, this is eight weeks after we're preparing for the IPO, and I spend ten years now convincing myself of how successful we are.

I'm telling stories like this, which you only do when you're successful. I told the founding story a thousand times, thousands of times, which is basically like, I'm successful. Let me tell you how I got really successful. And now I'm about to lose everything. And it was very harrowing.

And Ken Chenault calls me and he says, “This is your defining moment as a leader.” And I remember this quote by Andy Grove: “Bad companies are destroyed by a crisis. Good companies survive a crisis. But great companies, they're defined by the crisis.” And that rung in my head when Ken said “this is your defining moment.” And I said “This is not going to kill us. We're not going to go bankrupt. We were not killable in 2009.” That's why you and PG funded us, because we were cockroaches. Well, we're going to be cockroaches again. We are unkillable.

And I realized the most important lesson in a crisis. This is surprising. Do you know what the hardest thing to manage in a crisis is? This is not intuitive. The hardest thing if you're a leader to manage in a crisis is your own psychology. It's not the people, it's not the market, it's not your money. It's your own psychology.

Jessica Livingston (00:37:31)

I was going to say your employees' morale but it's your own psychology.

Brian Chesky (00:37:35)

You need to keep the employees hopeful. In a crisis, what do people look to in a crisis?

Jessica Livingston (00:37:41)

The leader.

Carolynn Levy (00:37:41)

Yeah.

Brian Chesky (00:37:42)

People don't look to data. No one looks at data in a crisis. It's happening too quickly. There's a fog of war. So in a crisis, we tend to look to a leader and we look at their face and if they're confident and they're optimistic and they say, here's where we're going and people want us to exist and maybe we won't be as big as we used to, but here's why, then that creates hope and optimism.

And not optimism that's blinded by some delusion, but optimism that's rooted in some fundamental facts of why we deserve to exist and we're going to get through it. That then creates the mentality that you need in a crisis, because you need to be optimistic, you need to be resilient, you need to be creative. It's super hard to be creative when you're pessimistic. And you need to be creative because often you have two bad choices and you want to find the third path and you need to keep going.

It's a ship and it's got a lot of water in it. There's a hole in it and you got to bail the water out, plug the hole and then steer the ship. And what you need people to do is to keep going. Keep going. Don't stop. See, we went from this mantra that every week counts, to every day counts, to every hour counts, to every minute counts. A thousand of us got in a foxhole. I had intensity that I hadn't had since Y Combinator. That intensity of Y Combinator? I recreated Y Combinator with 5000 people.

Why you need principles to weather a crisis (00:39:13).

Jessica Livingston (00:39:13)

How'd you do that? Tell us how you did that.

Brian Chesky (00:39:17)

The first thing we did is I stepped up communication. I was totally open and transparent. I told people that people were predicting that we're going to go out of business. And instead of hiding the fact, I embraced it. Then I said “But we're not going to go out this way.” And I basically told them “We're going to survive or we're going to die trying.” I did weekly all hands Q &As. Which I was advised by some people not to do because it seemed like we were going to do a layoff. And people are like “Well, why would you do all hands? Every week you're going to get asked about layoffs.” And I said “Let them ask and I'll tell them what I really know.”

And so I decided to be totally open, to take the employees on the journey of the crisis. I remember watching leaders in crisis and the best leaders in crisis are present and they're taking you on a journey every single day. I said, I'm going to do that as well. And I was really supported by my co-founders, Joe and Nate. The next thing I did is we did a daily stand up every morning and every night with my executive team, which we did during Y-combinator. Every Sunday, I did a board meeting. Every single Sunday. Like during Y combinator. We stepped up communication. I called every board member every week, every executive, every day. I was on the phone from probably 08:00 A.m to 01:00 a.m. the following morning. Right. Probably worked 18 hours a day. Every single moment, every day.

We had a bias for action. When we did this board meeting, the first thing I did is- okay, so how do you make decisions in a crisis? The problem with crises is people get paralyzed because they don't have data. And so you have to lean on something in a crisis. Well, what do you lean on? You have to lean on principles. In other words, in a crisis, you make, I don't think, business decisions as much as you make principle decisions. Because a business decision is like, here's the data. Here's what the data is saying, and so based on this data, here's the decision we should make.

You don't have that in a crisis. A crisis is like, the building is burning. And there's something incredibly clarifying about a crisis where all the distractions - like, a lot of founders do fake work. Like, you do meetings, and the meetings don't really matter, and they're like, you meet external people, and you do, like, internal things. There's something about a crisis where suddenly only what matters becomes really clear. And I remember staring into the abyss and imagining us not existing.

And the first thing I realized is, I think the world would be deprived if we didn't exist. Because I like to ask entrepreneurs, “Why do you deserve to exist?” And the best answer I've ever heard is “because if I don't do it, no one else will.” And I felt like within travel, at least, if we didn't do this, the rest of the industry was moving towards mass tourism, and there really weren't a lot of people trying to build community anymore in the physical world, and that's why we exist.

And the next thing I realized is, “Oh my God, a lot of what we do has nothing to do with that. We have a magazine division. We're doing transportation and flights, and we have a business travel division.” And so then I said “We need to focus.” And so if your house is burning and somebody says, you can only take a few things out of the house, what do you take? I had to do that. We had to do that.

Doing more than is expected of you in a crisis (00:42:40)

Jessica Livingston (00:42:40)

Okay, so you got your hands dirty into every single thing, every line item. Right?

Brian Chesky (00:42:46)

I would do ten hour Zoom calls.

Carolynn Levy (00:42:48)

Wow. What?

Brian Chesky (00:42:51)

Oh yeah. I would do a meeting on Zoom, and it was a 1 hour meeting, and it would sometimes go as long as 10 hours. One meeting. Sometimes I'd have to go to the bathroom. I'd hold it for hours.

Jessica Livingston (00:43:02)

Oh man, that sounds terrible.

Brian Chesky (00:42:51)

Which I don't advise doing. Like, crazy. But remember, if somebody told you that you're going to lose everything, that's the context. And everyone's fearful. Investors are freaking out. Not everyone, but a lot of investors are freaking out they're going to lose all their money. Employees are afraid they're going to lose their jobs. Hosts are freaking out that they're not going to get paid. Guests want refunds. And so every stakeholder is kind of like freaking out at the same time.

And suddenly in a crisis, you feel your responsibility like you've never felt before. It's not like I had more responsibility. It's just that when everyone is depending on you, you suddenly feel it. And the thing about that is that was a growing up experience for me. I felt that- honestly in hindsight, I was pretty mature before the crisis. And I felt like now I'm like 41 going on 61. Because that crisis really made us grow up. And I decided, like, “Why come here? What kind of leader do we want to be? What kind of company do you want to be?”

And the first thing I said is, I'm going to embrace getting back into the details, because I was really removed from everything. So I sat with our CFO and we would go through, like, thousands of light items of expenses. I went through thousands of employees by name. When we ended up doing a layoff- we didn't do a systematic layoff. I reviewed all, like, I think it was 7000 employees.

Carolynn Levy (00:44:28)

Wow.

Brian Chesky (00:44:29)

One by one. And I said, if you get laid off, it's because I knew who you were and I made that decision. I know that can sound heartless, but I think it's more heartless to be separated from your decision. I'm going to get emotionally invested and I'm going to make my best decision, and I'm going to live with that decision, but I'm not going to get emotionally detached from this. I'm going to be totally focused. We shuttered 80% of our products.

We end up turning over half our executive team, like half my exec team left. And we brought in, obviously, new people. And we removed our salaries. We refunded a billion dollars of customer deposits, though people couldn't get refunds. We overwrote cancellation policies. Then the hosts were pissed off at us. So we took $250,000,000 off our account in our bank and we sent it to hosts when we're burning money Then we raised $2 billion emergency debt financing. A lot of people were recommending either we sell the company, or not a lot of people, but some people recommend you either sell the company or we raise emergency financing: equity at like 10 billion or 15 billion.

But that would have had extremely onerous terms in it. Basically the equivalent of like, a really big down round, which is extremely dilutive to the existing shareholders, a recapitalization of the company. And so we took this really big gamble to do debt, which you're usually advised not to do, unless you're really bullish about the future. And I said, I'm so bullish. This is temporary, that we're going to do debt, which saved [us] a huge amount of dilution in the company. We got Silver Lake to do it. They got warrants. They ended up doing really well, Silver Lake and Six Street Partners.

And then we obviously had to do a layoff. A layoff is really hard to do. I remember a CEO once telling me, “The hardest thing you'll ever have to do as a CEO is a layoff.” And everyone has to do it at least once. For a company like ours, though, our mission was belonging. Like “you belong”, and now you're doing a layoff. And so that was very difficult for me and for us. But we had to do it, and we tried to do it with compassion. We tried to do it uniquely. I wrote this letter that was just maybe uncharacteristically open.

I always, in a crisis, say, do more than is expected of you. I think a lot of times in a crisis, people do half measures or they do what people expect. A crisis is the one moment you have permission. It's your one time to be bold. A crisis is your defining moment. And if you just imagine, “What do people expect of me? Okay, I'm going to do more than that. The world's paying attention. You have that opportunity.” And that's always been my guiding principle.

And then I wrote out a bunch of principles like: act fast, preserve cash, act with all stakeholders in mind, don't be villains, win the next travel season. I got everyone rallied around these principles. And then the reason, the way I keep employee morale high is every week you're reselling the vision of the company. Whatever you sold for people to join, now, you're reselling that vision. You're reselling that dream, and you're embracing the pain. You're reminding people of people through history or companies through history. I'd retell the story of Apple. They were 90 days from bankruptcy.

And I said “It's up to us. If you've ever wanted a chance to affect the outcome of this company, this is your chance. If you ever felt like you joined Airbnb too late, after the glory days and after the founding? I want you to know that you're back at the founding of the company.”

Carolynn Levy (00:47:55)

Wow.

Jessica Livingston (00:47:55)

Powerful.

Brian Chesky (00:47:54)

“This is like a refounding. This is our chance. And if this company survives, it's going to be because we built it together. And if we go down, we go down together.” And you imagine now what you feel. You feel like, well, I have ownership. We're going to do this. 

Jessica Livingston (00:48:09)

Chills. Goosebumps.

Embracing details and marching in lockstep (00:48:10)

Brian Chesky (00:48:10)

And people started working day and night. We restructured the company. We got back to basics. We got back to the founding ideals of regular, everyday people hosting. We shuttered most of the divisions. We're now a really focused company. Now we restructure how we run the company. So let me tell you the next chapter. Most startups start and they're functional. And what I mean by that is: you're an engineer and so you write software. You're a designer, you design software. You're a finance person, you essentially are responsible for the money. You're a lawyer, you're responsible for protecting the company legally, making sure you have reasonable contracts and things like that. And so you're a functional organization.

What happens in most companies is they want to move fast and so eventually they realize a lot of decision making is becoming a bottleneck at the top of the company. And so to move fast, they divisionalize the company. And literally, divisionalize the company is exactly what it sounds like. You divide it and then you subdivide it and you subdivide it and you decentralize decision making. And in software and this is a big thing, I would just say to people listening, that sounds like a great idea when you're small. Things that you do to move fast when you're small usually slow you down later.

And I'll give you an example: if you subdivide the company in ten divisions like we do, we had a China division, we had a homes division, we had a pro host division, we had an experiences division, we had a lux division, we had an Airbnb.org division, we had a transportation division, we had a magazine division. I could go on and on and on. And then they subdivided. And we had this culture where everyone could do anything. People could own their own projects, people picked the teams they worked on, which is like a Google thing. And you democratize data and you basically share the values of the company.

You hire smart people and assume that they'll make the right decisions for the company and you want to get out of their way and you want to empower people and hire great people and trust them to do their job.

It turns out, in my opinion, that is all wrong. It sounds great. And it is right for some people, it was wrong for us. And actually people want constraints. They want to row in the same direction. And so we did. And I studied Apple, and Steve Jobs came back to Apple and he shuttered most of the divisions and he went from a divisional structure to a functional structure.

So I said, “we're going to go back to being a startup. We're going to have a marketing department and an operations department, an engineering department, a design department, and then everyone's going to work on everything together. There are no longer swim lanes. There's one roadmap and no one ships anything unless it's on the roadmap. And then I'm going to review every single thing in the company before it ships. And I'll have these things I call CEO reviews and I review everything every week, every two weeks, every four weeks, or every quarter. And if I don't review it, it doesn't ship. And nothing happens without me seeing it.”

And I'm not there to micromanage as much as I'm there as an orchestra conductor to make sure that it plays one cohesive sound. And we're going to totally be in lockstep. And what we created was this shared consciousness. And I've never seen people do this that often. I know Apple did it. I know Disney did it in the 50s and 60s. Instead of giving people different swimlanes and different priorities, the top 30 people work on everything together. We're not going to do anything more than we can personally focus on. So if I can't personally focus on it, we won't do it. And that means that instead of pushing decision making down, I pull it in. And this shared consciousness of 30 top people in the company becomes concentric circles. And then the next 300 people create a shared consciousness. Then the next 3000 people create a shared consciousness. And it's like a solar system rather than a pyramid. And that was the way we rolled the company.

I also embraced getting in the details. I lost the sense of the details. I would spend like 10 hours in a zoom going into the finest details. When we did the s- one, I personally wrote 14,000 words of the s1 myself. At some point, somebody made the joke that “If I keep editing the s1, I'm going to turn it into Catcher in the Rye, that it was going to be like a required reading in high school at some point.”

It was about embracing the details, that I only hired experts, that no one was just a manager. That if you're an engineering manager, you had to code. And if you can't code, it's like being a cavalry general and you can't ride a horse. And so if I am in a meeting with you and you don't have the answer and you need to ask somebody in the meeting, then your scope is probably too wide. And so I created these verticals and basically I guess what I'm getting at is I basically ran it like a hardware startup. I ran a giant software company like a hardware startup in one sentence. Or the marriage between hardware and software.

Because in hardware you can't just ship anything all the time. You have to be thoughtful. You have to know what you're building. You have to make sure you build the right thing because you have to invest in tooling. You have to manufacture it. And then if you make it, you have to market it. Because if you don't market it, it's going to be on a shelf and no one's going to buy it. And actually, it turns out this discipline is great for software because why is it that when you look at apps and we feel like, I want to move fast. I know, okay, you want to move fast. Well, how come?

Open your home screen, look at all the apps in your home screen and ask how much they changed in the last year. And the answer is that hardly any of them have changed. Not to pick anyone specific. Why is that? Because the processes people use to develop software to move fast eventually become the reason they're slow.

And then eventually people do a thousand things in a thousand directions. And then what happens is there's no accountability because no one knows what anyone's doing. So people become complacent sometimes. There tends to be bureaucracy because there's chaos and everyone's hitting certain teams and they feel like a deli with a line around the block. Like infrastructure teams or whomever. And then there's politics because you have to advocate because the way to get ahead is to get headcount and get resources.

Jessica Livingston (00:54:18)

You have your own fiefdom.

Brian Chesky (00:54:20)

And you have your own fiefdom, the people with the biggest- and so we killed all of that by being totally integrated, being totally into details, having this rhythm.

Jessica Livingston (00:54:29)

You emerged stronger, you emerged as a stronger company.

Moral of the story: Stay a startup. (00:54:32)

Brian Chesky (00:54:32)

The moral of the story is in the beginning of the pandemic - this is a great parallel to YC. At the beginning YC we are the Bad News Bears. People said- I remember before YC, I tried to get an investor to invest in the company and he said, “why would I invest in Airbnb?" This is 2008. “The economy is so bad, even good companies I wouldn't invest in, why would I invest in Airbnb?” AirBed and Breakfast, actually. And when we exited YC, we were voted the best company in YC. As you remember, they did that voting. We were voted among our peers, funded by Sequoia. We never looked back.

At the beginning of the crisis, people were writing “is this the end of Airbnb? Will Airbnb exist.” People are using words like bankruptcy. We exited the pandemic. Long story short, before the Pandemic, we were basically losing money. We're losing $250,000,000 a year, which at our size wasn't bad, but we were basically just below break even. If you include stock based compensation, we're definitely losing a bunch of money. And last year we did $3.8 billion in free cash flow. So you know, I have like, unicorns by market cap, a billion dollar market cap, and then you got unicorns by revenue. A billion dollars revenue. We were a unicorn by profit four times over. And we now generate more profit for every dollar we earn than Google or Apple.

Carolynn Levy (00:55:52)

Impressive.

Brian Chesky (00:55:53)

$0.44 for every dollar we earn goes to free cash flow. And so this is the crazy thing. I never was trying to become profitable. I was just trying to become incredibly efficient. I felt like the analogy is like we were the startup equivalent of the Navy Seals, not the Navy. That no one wanted to work in the Navy. We wanted to be the Special forces. So we embraced having as few employees as possible. We kept the headcount flat for years basically. If you don't include a call center in India, we still have like 5500 employees doing, like, probably like, three quarters of a million dollars free cash work per employee.

And it's not because we're trying to be profitable. It's because we're trying to make it a fun environment to work at. We're trying to move fast. And one of the best ways to slow a team down is to add a person to it, because they bring a communication layer, they bring a tax to it. And so all this stuff was counterintuitive. We've never looked back. Just like Y Combinator. If Y Combinator was our first defining moment that left indelible marks for the next ten years.

But then what happened after Y Combinator? We raised too much money, and most startups raised way too much money. We hired too many people. We did too many things. We slowed down our pace. And the pandemic brought us back to Y Combinator, but this time with thousands of people. And we said, we're going to be the world's biggest startup, but we're going to stay a startup. And I don't think we ever looked back since.

And my job now is not to have to wait for another crisis ten years from now to remember those indelible marks and to make sure that we continue to have hunger, that we remember that every minute of every single day counts, that we're in the details, that we're obsessing over what we're making, that we're one orchestra playing one sound. We're not going in a thousand different directions. And that is now the culture of the company.

Carolynn Levy (00:57:49)

Amazing.

Jessica Livingston (00:57:50)

Wow. I think you've successfully silenced Carolynn and I because my mind's blown. I don't know about you, Levy, but actually, wow.

Carolynn Levy (00:57:59)

I was just thinking, Brian, Jessica got a request the other day for a transcript. I don't even remember who it was, and I was just thinking to myself as you were talking, I'd actually really appreciate a transcript. I want to stare longer and think more about all the stuff you just said, because it is really-

Jessica Livingston (00:58:14)

I know, it's profound.

Carolynn Levy (00:58:16)

-and it resonates on a lot of different levels in a lot of different ways.

There’s no Paul Graham for later stages.

Brian Chesky (00:58:21)

I think the principles are simple, right? They're simple, but not obvious. And I like to say it's kind of like if it was obvious, everyone would do it, and it's not obvious. So there's all this- like I think one of the brilliant things about Y Combinator is, like, you guys and PG. One of the great gifts PG had is you had all these essays, and these essays were really, in some ways, counterintuitive. Like, do things that don't scale, make something people want. And when you say them, they kind of seem obvious, but they're not totally obvious. If they were, the essays wouldn't be so viral. And I think there isn't a Paul Graham for later stage. There's a lot of books, but there's not really all this wisdom. And so what ends up happening is we all make the same mistakes. We make mistakes. Like, we hire people and we abdicate responsibility to them, and we think our employees are our customers, and we try to negotiate with our own employees about how to run the company.

Jessica Livingston (00:59:19)

Yes.

Brian Chesky (00:59:20)

And what ends up happening is if you're a founder like me, and you've been doing this for 15 years, all the people that you're trying to appease will eventually, most of them, will eventually leave you. Not to be dark, but ultimately you run the company a certain way to appease people that will then not even be there in the future. And you're like “But I'm the one stuck doing this the rest of my life.” And so ultimately, you have to not apologize for how you want to run the company. You have to go back to first principles.

And I think that if I asked people what they wanted, they would have said, be less involved. Let us go in more different directions, give us more headcount, give us more money. And so what I did is the opposite of every one of those things. And the result for the people who stayed now, maybe there's survivor bias, but is that they were probably happier. Because ultimately they just wanted to move fast. And now everything we green light, we ship because we only commit to things we can do. And so I just think there's a lot of these lessons where people raise too much money, they hire too many people, they go in too many directions, they have too many projects, they defer too much to their team. I'm not saying be a tyrant, but I'm just saying leadership is presence, not absence.

And I think so many leaders are absent because they think that's what people want, because they call that, quote, empowerment. And I put the word empowerment in quotes because if you empower people by leaving them to their own devices, which sounds great when you're an entrepreneur in a large organization, what you're really doing is letting them manage their bureaucracy and the politics. And that's like Game of Thrones. That's actually not fun.

Carolynn Levy (01:01:00)

Yeah.

Brian Chesky (01:01:01)

And that's why - why do people say big companies are so dreadful? It's not because of the presence of leadership. It's often the absence of leadership. And that's the paradox. People think leadership is a problem and we need less of it. And actually the answer is we need more of it because the vacuum gets filled with all these things that we call bureaucracy, politics, and complacency. And I think ultimately, the most important job of the leader is to lead by example.

And so when I was working day and night, other people work day and night. I don't ask people to work day and night. I just model behavior. I don't ask people to be in details. I just model behavior. And I never ask somebody to do something I would try not to do myself. And we all model that behavior, and it becomes a cascade of concentric circles of change.

Jessica Livingston (01:01:46)

I am so impressed with you and what you did and the whole pandemic story. I didn't know all those details. I mean, I knew that you had come in, taken charge of the situation and gone through all the line items, but I did not know the level to which you did.

Brian Chesky (01:02:00)

And I just want to add one last part of the story, just one thing, because I said the word I a lot, and I should have just said it was really we. Like, I would have never done this without the team. I stood on the shoulders of the team, starting with Joe and Nate. They had my back. We were in it together. They gave me permission to be bold. The board was really amazing. And the employees rallied. And almost no one resigned during the Pandemic. Isn't that crazy? People thought we were going out of business. Recruiters were pinging our company to poach people.

Carolynn Levy (01:02:31)

Wow.

Brian Chesky (01:02:32)

And I don't recall one person of significance who resigned during the pandemic. They stuck with us. It was counterintuitive. And I just want to thank everyone that was a part of it, because without their help, I wouldn't be telling you this story. I'd be telling you about a story of a company that I used to have. And I think it's an incredible journey. It is, actually. I think the pandemic was even a crazier story than the founding Jessica and Caroline. I never thought I'd have a story crazier than Y Combinator.

Carolynn Levy (01:03:06)

Yeah.

Brian Chesky (01:03:07)

And actually, this was crazier because you got to remember during YC, as crazy as it sounds, we had nothing to lose because we didn't think it would be big. Now you have everything to lose, and that is emotionally intense. And yet it wasn't a terrifying period for me. That crisis makes me so present. And I know crisis can seem paralyzing, but if you ever go through it, if the people listening ever go through it, mostly what's going to happen is things are going to slow down. Initially, it will seem like a fog. If you just slow down and breathe, you're going to start to see things really clearly. And you just trust your intuition and there's a way out. And as long as you don't quit, you don't die.

Going public is easier than staying private at late stages (01:03:54)

Carolynn Levy (01:03:54)

I have a quick question. When you became a public company CEO, because this was post crisis-

Brian Chesky (01:04:01)

Yes.

Carolynn Levy (01:04:02)

I'm guessing, tell me if I'm wrong, that transition was probably much easier for you than it might have been otherwise.

Brian Chesky (01:04:09)

Yeah. Being a public company CEO was the least dramatic thing in my life because I like to joke that if you think being a public company CEO is hard, try running a travel company in a pandemic.

Carolynn Levy (01:04:23)

Exactly. Yeah.

Brian Chesky (01:04:24)

Try going public in a pandemic. Try going public where we have to rewrite your s1, because the document you wrote is not even the business you have anymore. Like you're not even in that business. And I'll say one other thing. If somebody's running a late stage company and they aren't public, in my experience it's easier to run a public company than a late stage private company.

I was at a Sequoia retreat with, like, 200 founders last Friday, and they asked me a question, because a lot of founders are, like, deferring going public. And I'm not saying it's awesome to go public. It was harder for me to be a late stage private company because you have all the downsides of being public. My financials leaked and all this and that, but yet there's this perennial sense that you're hiding something, and there's this insatiable need for more information.

And I think being a public company, it's actually shockingly less dramatic than I thought. The stock price goes up and down every minute of every day, but therefore, you just live with it. And it's like you don't think about it. If you're worried about your employees focusing every day on the stock price, there's an old saying you can't get people to stop a habit. You can only get them to replace a habit. And so instead of saying, don't look at the stock price, I have to give you something to look at. And so we do these product releases.

This is the last thing I left out. Twice a year, we do these giant product releases like a hardware company, which sounds totally counter to our software company, but again, it's a way to keep the whole company rowing in one direction. And that's the thing that people focus on, I hope, just as much as the stock price. And it's just like a discipline. I gravitate to pressure. Not everyone does. But I think if you get to our stage, you probably thrive in high pressure environments, so most people listening, you'll be fine in pressure. I think initially it's a little scary, but if you just slow down and breathe, you get adrenaline. And that adrenaline gives you courage.

Jessica Livingston (01:06:15)

Well, I'm glad you had the courage. You certainly rose to the occasion as a leader and made Airbnb emerge as a stronger company. The bottom line is, like, COVID almost showed how robust Airbnb is. It's something that the world needs.

Brian Chesky (01:06:32)

Well, the last thing I'll just say again is I didn't think I would like running a public company. If you asked me in Y-Combinator when I'm 40, am I still running Airbnb, I'm not sure I would have predicted if I would. If you told me it would be fun running a public company with thousands of people I would have been totally afraid of this big corporate entity. And what I would say now is I have more energy when I wake up today, and I enjoy the job today more than I did when I was in YC. And it's because I've got this incredible canvas now with my team. I get to surround myself with people that I've chosen to work with, and we work together, and we just get to make stuff all day now.

And we're on the other side of all that corporate BS, like that horrible shit that you have to deal with when you're like a big company. If you embrace it rather than avoid it and just get in the mud, there's another side of it. You get to the other side, and it's like pushing a rock up a hill. Then you get to the top, and then one day, everything just starts flowing. And that's what it feels like.

From a product perspective, I feel very lucky. And one of the lessons is just don't stop. Just keep going. Albert Einstein had a saying, the best way to keep your balance on a bicycle is to keep moving. And I think that right now, I noticed some entrepreneurs have an instinct to freeze, just stop, to worry. But the best way to keep balance is to keep going. And the faster you go, the more balance you have. And I think that's not totally intuitive, but I think that's the best advice I'd give to people.

Jessica Livingston (01:08:16)

Awesome. That's a great place to end. I know you have to get on with your day. That was amazing. I can't believe all those details.

Carolynn Levy (01:08:25)

I just think [there are] so many interesting, like you said, counterintuitive lessons and advice that just seem to go against the mainstream, but obviously really powerful for you.

Brian Chesky (01:08:36)

I enjoy this. I love talking to you guys. And there's something about the YC energy that brings me back to a special place. And I do think that YC really helped me during the pandemic, because I think, again, we learned process instincts back then. You don't lose those.

Jessica Livingston (01:08:56)

Yeah. I'm glad that you reverted back to the focus and simpler times of YC. Like that's so cool to hear.

Brian Chesky (01:09:05)

Apply the YC process to a giant public company.

Jessica Livingston (01:09:10)

A new application for YC.

Brian Chesky (01:09:12)

There you go.

Jessica Livingston (01:09:12)

Awesome. Well, Brian, I hope I get to see you sometime soon.

Brian Chesky (01:09:16)

I'm going to be in Europe this summer. I know I have this goal to visit you, but when you are back here, I'd love to see you guys.

Jessica Livingston (01:09:24)

Okay. It's so nice to see your face. You look great.

Brian Chesky (01:09:27)

Oh, thank you.

Jessica Livingston (01:09:28)

Healthy and all of that. And I'm so happy to talk.

Brian Chesky (01:09:32)

It hasn't killed me yet. Hasn't killed me yet.

Jessica Livingston (01:09:35)

All right, Brian. Thank you for everything.

Carolynn Levy (01:09:38)

Thank you Brian.

Jessica Livingston (01:09:38)

Bye.

Carolynn Levy (01:09:39)

See you soon.

Jessica Livingston (01:09:39)

See you later. Bye. Wow. Carolynn.

Carolynn and Jessica review the conversation (01:09:46)

Carolynn Levy (01:09:46)

Yeah, wow. That was similarly intense to part one, when he was talking.

Jessica Livingston (01:09:52)

I was literally almost dumbstruck through the whole COVID thing. That was insane.

Carolynn Levy (01:09:56)

Yeah. I do remember a lot of the press at the time - I was thinking to myself, when he was talking about the layoff thing, I felt like so many CEOs that did these public layoffs just got trashed in the press. It was like there was no right way to do that. And so damned if you did, damned if you didn't. You couldn't win because it was a layoff. And so no matter how gracefully or thoughtfully you handled it, the press was going to trash you.

Jessica Livingston (01:10:22)

But I mean, he went through every single person at the company. He went through every line item and cut things just left and right to stay focused.

Carolynn Levy (01:10:33)

Yeah, just the thought of that is, like, amazing to have the energy, but then you think, well, the reason he had the energy is because he cared that much. That's pretty powerful.

Jessica Livingston (01:10:44)

That is a next level sort of determination and perseverance. And he's always been like that. He's always been, I mean, in the face of a lot of adversity, he's always emerged stronger, and he sorts it out and figures it out. But man, that is like, next level.

Carolynn Levy (01:11:01)

Yeah. That's like one of the, probably the most intense, pandemic story I think we will be able to dig up. Maybe we'll be surprised, but.

Jessica Livingston (01:11:10)

Maybe. All I could think of when he was talking about rising to the occasion in a crisis, all I could think of is that I often tell people, like, I am not the person you want if there is a crisis. It's so embarrassing. I feel like such a huge loser. But I panic. I don't think calmly. I don't sort through things in a reasonable-

Carolynn Levy (01:11:27)

That’s OK. It's OK to know your limitations.

Jessica Livingston (01:11:31)

Actually, that's a major limitation.

Carolynn Levy (01:11:32)

This is not related to the pandemic story at all, but I'm still laughing at “take the strange out of strangers.” That's a great expression I'm not sure I ever heard. I'm sure he said that before, but I love that “take the strange out of strangers.”

Jessica Livingston (01:11:46)

Well, actually, I was struck by something he said right before that, which was, “oh, how do you feel about having a stranger in your house?” “No, I would never do that.” “Okay. How do you feel like having a Stanford PhD in French literature?” “Oh, okay. I'm interested in that.”

Carolynn Levy (01:12:04)

That would be I think that's literally taking the strange out. Right. Like, suddenly you humanize the person. And so yeah, they're not strange anymore because they actually are. They have characteristics and attributes and all that.

Jessica Livingston (01:12:16)

And it all boils down to that weekend, I think, when Brian and Joe hosted those people and they had such great connections and such great experiences, and Brian and Joe were able to make some cash to pay their rent. And these three strangers to San Francisco who were designers came in and had that wonderful sort of authentic experience of understanding the city and getting to know the hosts. And they knew they felt so strongly that there was something to this that it forced them to ask questions and get past the original barrier of everyone saying “no way. I wouldn't stay at someone's house”, or “I wouldn't host someone in my house.”

Carolynn Levy (01:12:59)

Yeah, I think there's just this powerful connection between what your origin story is and scratching your own itch or being super passionate about that topic and then building something successful. It's kind of an obvious thing to say, but that's, I think, why things fail is maybe when you don't have those connections to fall back on.

Jessica Livingston (01:13:20)

Yeah.

Carolynn Levy (01:13:21)

I mean, things fail for a lot of reasons.

Jessica Livingston (01:13:22)

And you give up. How many times could they have given up? 500 times in the past whatever years. Oh, man. He is just an inspiration. I have to say. Brian is just an inspiration, and I think a lot of people can learn from him and the whole Airbnb story, so I thought it was awesome. It was awesome.

Carolynn Levy (01:13:43)

I'm really glad he came back for part two. That was really great, because it definitely was a cliffhanger last time, so that was great.

Jessica Livingston (01:13:50)

Yeah. Awesome. Well, wow. Yeah. I'm still, like, recovering from how intense that was. It was so interesting. But can't wait to see how this is when it comes out, and we'll talk again soon.

Carolynn Levy (01:14:06)

See you soon.