When COVID struck in 2019, Airbnb's business was decimated. Global travel plummeted, and, in eight weeks, Airbnb lost 80% of its revenue. By May of 2020, earnings were forecast to be half of what they were a year prior.
This is probably not the prelude you would expect for the biggest IPO in history. But Airbnb has always defied expectations.
On the surface, this is the story of three guys: Brian, Joe and Nate. Their unique chemistry and leadership built one of the world's great companies, but a handful of global phenomenons also played an underreported role. Phenomenons that would serendipitously reoccur twelve years later and save the company from disaster.
Founder stories tend to come with a healthy dose of PR spin and Airbnb's is no different: three roommates put their bedrooms on the internet to pay the rent and then go on to build a world-beating business. Brian and Joe bring the vision, and Nate builds the platform. There's nothing wrong with this, but there's also nothing to learn from it.
Brian, for instance, does not consider himself a visionary; he calls himself an expeditionary. None of the founders were Silicon Valley insiders; they were East Coast carpet baggers. Angel investors considered Brian and Joe to have no credible skills, and Nate, the one who did, moved back to Boston because the business was floundering.
To really learn something from the Airbnb story, you need to know what the founders were actually like in the early days; what problem they initially tried to solve and what problem they solved instead; what resources they stumbled into; and what was happening in the world around them that became an accelerant for their business.
Each of these elements give a more complete picture of how Airbnb became Airbnb.
Roll Back the Tape
It's February 2007.
The global financial markets are in turmoil. After years of relaxed lending practices and record breaking property ownership, home values across the U.S are plummeting. As borrowers get upside down on the mortgages, defaults start rolling in, and, in quick succession, twenty-five subprime lending firms declare bankruptcy.
Wall Street is heavily leveraged and overexposed to a toxic asset called a credit default swap–a wildly popular derivative packed with festering subprime mortgages. Bear Stearns collapses and sells for parts to JPMorgan Chase. Lehman Brothers then files for bankruptcy, and the Dow promptly drops twenty percent.
Banks, hedge funds and insurance companies start running out of money due to their exposure to the imploding housing market. The Fed and the FDIC, along with their global counterparts, decide many of these financial institutions are 'Too Big to Fail' and roll out unprecedented rescue plans to stem the bleeding.
All told, Congress and the Fed deploy more than 3 trillion dollars over the next 18 months to prevent the the world from slipping into a Depression.
Oh, the Irony
Yes, that's correct. Airbnb, the short term home rental app, was conceived as the U.S. economy was entering the Great Recession–an event triggered, in part, by the plummeting value of homes.
From the outset, this did not seem like a great time to start a business. Hedge funds and banks were illiquid, VCs were tightening their belts and unemployment was at an all time high. Homeowners were getting the worst of it, and the search for ways to cover their losses was about to start.
Now, zoom out for a moment. Imagine you have a tremendous amount of money tucked away in, say, a venture capital firm. You observe these trends, and you begin to think through the impact this will have on consumers.
And the following question comes to mind: What do you get when you combine an underutilized asset with high unemployment and unsustainable debt? Today, we call it the sharing economy, and the market size is roughly 400 billion dollars. But, by 2007, it didn't have a name. It was just a crisis and an unrealized opportunity.
As for Brian Chesky, he was really not thinking about any of this. In fact, he was lost. His dream of being a designer in LA was not panning out, and his buddy from art school, Joe Gebbia, was feeling the same way.
And that's when Brian got a package in the mail. It was a rubber seat cushion with a note attached that read, "Come to San Francisco. - Joe"
The Basement
In 1999, Brian was accepted to Rhode Island School of Design. His father, a social worker, had some concerns about art school, so when Brian shared the news, he said, "I'll support you, but make sure one day you get a job with health insurance." Brian was thrilled and promised not to return home to live in the basement.
The pressure to conform dogged Brian throughout high school. His teachers were always telling him to keep quiet, sit down, stop drawing, pay attention and do his homework. But, this didn't come naturally; Brian was more of a dreamer and a misfit, and he often rebelled against those expectations in goofy and sarcastic ways. His high school yearbook photo had a Seinfeld quote under it that read, "I'm sure I'll amount to nothing."
RISD widened Brian's perspective and channeled his renegade energy. He was encouraged to look up, draw more and consider how much of his own experience was shaped by designers. This idea made an impression because it meant he had the power to reshape the world around him.
Of course, like all artists, he needed time to play with that idea–time to get weird with it.
Pranks
Brian met Joe Gebbia at RISD, and they hit it off right away. They both had magnetism, a knack for leadership and a love of sports. Brian had a passion for competitive body building–a fact that would nearly blow up the internet fifteen years later. However, he also had a love for hockey that he shared with his father.
Joe's first sport was tennis–a game his parents pushed pretty hard. Apparently, the Gebbia family practiced together and competed throughout his childhood in Georgia. However, he also loved baseball, cross country and basketball. He was even a ballboy for the Atlanta Hawks.
So, this love of sport and competition gave Joe and Brian some common ground, and, although the two would go on to lead different club sports on campus, their heads were in a similar place. When Joe learned that Brian's hockey team was named "Nads", he decided to name his basketball team "Balls".
When Brian heard about this, he commissioned a mascot for the Nads and named it "Scrotie." who made many appearances at their big tournament, The Supportive Cup.
Aside from giving them a blank canvas for juvenile pranks, these teams gave Joe and Brian a great introduction to entrepreneurship. In fact, Brian likes to call it his first startup:
“We had to form a team; we had to raise funding; we had to create a budget; we had to put a schedule together, call other teams, and get uniforms. Actually, I think it was one of the hardest marketing challenges that you could ever face: How do you get art school students to a sporting event on a Friday night?”
News about the team names traveled quickly around RISD. Flyers featuring the "Nads" mascot, "Scrotie", made an impression. His paper mache costume made an even bigger impact. Before long, his RISD classmates were in the stands chanting "Go Nads" as often as possible.
Joe and Brian would eventually start working on projects together at school, and Joe was just blown away by Brian's ability to come up with solutions that were wildly different than the others. He also noticed how people responded to Brian. He was very charismatic and endearing.
Joe says that he started to have this feeling that there was something unique and unusual about Brian. He had a real gift of rallying people together and getting them excited. He also liked to shake things up.
Cut from the Same Cloth
Joe was a natural prankster and brilliant creative thinker. The year before attending RISD, he reached legendary status in his hometown of Lawrenceville, Georgia for his senior class prank. After many failed attempts, Joe hijacked the intercom system in the principal's office and routed it to a cordless phone.
He then blasted School's Out for Summer and We Don't Need No Education to roughly 4000 students, and, of course, mayhem broke out. Although he endured hours of community service as punishment, it was a personal triumph.
Brian had reached a similar legendary status at RISD. He was so well loved, the senior class chose him to deliver remarks at graduation. Fast Company unearthed the video of his remarks which shows his self-effacing, brash and charismatic personality.
Brian jogs on stage and rips off his cap and gown, revealing a white tuxedo. Michael Jackson's Billy Jean is pumping through the loudspeaker, and he then proceeds to dance in front of thousands of people before approaching the lectern.
The speech is packed with inside jokes, turns of phrases, a few muscle flexes and a crowd pleasing reference to "Scrotie". It's the kind of speech you might write down, but then decide it would be impossible or inadvisable to actually deliver. Not Brian.
This creative, quirky, contrarian spirit ran deep in Joe and Brian. Of course, it's just one dimension of their personalities, but it's significant because it drew them together. And, it would bring them back together years later thousands of miles away.
A few weeks after graduation, Joe invited Brian out for pizza. He said, "Brian, I just want you to know, I think we're going to start a company one day, and I think they're going to write a book about it."
Brian just laughed and took a bite of his pizza.
Back to the Basement
With his newly minted degree in industrial design, Brian found himself in breach of contract. When admitted to RISD, he promised his father that he wouldn't be the guy who went to art school and ended up living in his parent's basement. Yet, there he was–jobless with no health insurance. It was depressing.
"My childhood bedroom had never felt so small. I’d wake up every morning, look at my old Jim Morrison poster on the wall, and I’d wonder, “How did I end up back here?”
Brian recalls making an escape plan with a fellow RISD grad who was in the same situation. When they both finally landed full time positions in LA, they moved across the country together. Determined to make good on his promise to his dad, Brian started working for a small design firm...with health insurance.
Unfortunately, health insurance does not equal happiness. Brian recalls one of his early design assignments–a toilet seat called a Pureflush. It was supposed to magically whisk away the odor every time you flushed the toilet.
The concept was brought to their firm by a magician who wanted to take a prototype of this design onto a television show where the idea would be judged. The magician ended up hating the design and unleashed his fury on Brian in every design review.
If this was the world his dad wanted for him, he was not liking it one bit. Around this time, Joe Gebbia was up in San Francisco questioning his life decisions as well.
The Chronicles of Boredom
Joe had landed a job at Chronicle Books in San Francisco. On the surface, this was the kind of place a guy like him would flourish. Chronicle designed beautiful limited-edition books for top tier clients around the world. Joe had left RISD with a joint degree in industrial and graphic design, so, on the surface, this was a perfect match. However, there was another side to Joe.
He was an aspiring entrepreneur, and, in the evenings, he was working on two companies, CritBuns and Ecolect. While at RISD, he'd also taken several business courses from Brown and MIT and had become known for his hustle and fierce work ethic. He especially thrived when people told him something couldn't be done.
At school, he'd famously up-leveled an assignment where he was tasked with building a miniature version of a celebrated designer's work. Joe wanted to create to-scale versions, but his professor said that would be impossible on the timeline allotted. Joe doubled down. Even though, he didn't have any experience with woodworking, he delivered a full collection of the artist's furniture collection to-scale.
Just before he left RISD, he had won a prestigious competition to design the senior class gift. After sitting through years of grueling design critiques, called 'crits', he noticed noticed how physically exhausted he and his classmates were by the end each session which could last more than four hours.
So, he designed a portable rubber seat that you could carry with you to cushion rigid seating environments like stools, floors and wooden chairs. They had a distinct tush-shape, so he named them CritBuns.
After talking with manufacturers around the world, he was told it would be impossible on the timeline he proposed. True to form, Joe was not deterred. He spoke to his friend Steve from the RISD metal shop who connected him with a buddy upstate that owned a fabrication business. Sure enough, his friend agreed to make the cast, and Joe found a pool float manufacturer to produce 600 of them just in time for graduation.
His classmates loved their CritBuns, so when Joe headed off to his first job at Chronicle Books in San Francisco, it lingered in his mind as a business opportunity. One night, while Joe was working on his CritBuns idea, he pulled one out and sent it to Brian down in LA with a note attached asking him to come to San Francisco.
Joe needed a new roommate fast because his current one, an engineer whose startup just imploded, was moving out, and soon he'd be on the hook for the full rent. Maybe this was the moment he'd predicted over pizza back on the east coast.
Of course, Joe's vision of building something great with Brian was about to come true, but it was missing a key detail: the third man.
Craigslist: The OG Matchmaker
In early 2007, Nate Blecharczyk was scouring Craigslist for a roommate across the country when he came across Joe's apartment on Rausch Street.
Like Brian and Joe, Nate's first job was a bust. He'd taken an engineering role at an enterprise software company based out of Boston. Overcome with boredom, he'd spend half the day writing code and the other half trading stock.
When he learned that he was the most productive engineer on the team, he knew he had to leave. Just a year prior, Nate had graduated from Harvard with a degree in computer science, and he was quite entrepreneurial.
So, he did what all hackers with a head for business do: he quit his corporate job and joined a startup in San Francisco. Moving in with Joe would allow him to reduce expenses and focus on building a company.
Unfortunately, the timing wasn't great. As soon as Nate arrived, the two lead engineers for his new startup quit. But, this wasn't Nate's first tech venture, and he'd never been one to back down from a challenge.
First Rodeo
As a kid, Nate's father, an electrical engineer, would bring old Zerox and soda machines into the garage and encourage Nate to tinker. Initially, he was lost, but, over time, he began to get comfortable taking these big machines apart and putting them back together. Eventually, Nate built up an unusual level of autonomy and self-confidence which transferred from equipment to other complex tasks.
One day, when he was twelve, he stumbled into a book on computer programming in his garage. He read it cover to cover and slowly started teaching himself how to code in his spare time. He then started offering his services on the internet when someone approached him with his first paying gig.
Nate recalls telling his father that a guy on the internet offered to paid him $1000 for a piece of software, and his father said, "No one on the internet's going to pay you to write software." Nate took the job anyway and wrote code for a month. Sure enough, the guy paid him.
By the time he was fourteen, Nate was writing programs for a bunch of businesses online. As his pipeline grew, he pivoted to a software subscription model, and, by the time he started college, he'd already earned $1M from his endeavor.
However, Nate's first post-grad startup adventure was not working out. After months of toiling, he had learned a lot of useful lessons, but the company just couldn't find market fit. His Silicon Valley dream became vaporware in less than a year.
So, he broke the news to Joe, packed up his furniture and headed back to Boston.
Two Out of Three
Joe's CritBuns note had worked just in time. Brian said goodbye to his health insurance and the tedious job that went along with it.
He jammed his foam mattress into his Honda Civic and puttered up to San Francisco with a thousand bucks to his name. That's all he would need to get through the first month at Joe's place. None of that really mattered, though. He and Joe were about to do something great, they just had to figure out what that thing would be.
When Brian arrives, the apartment was empty. Most of the furniture belonged to Nate, so aside from a few chairs and a table, it was a blank canvas. Brian and Joe had bigger priorities, though. They were planning to do a marathon spitball session to figure out what their new venture would be.
They were brimming with ideas, so they brainstormed for a couple of days. Joe had imagined that they might build a design studio together and wanted to get Brian's take when something came up. The mail had arrived, and as Joe sifted through it, he noticed a letter from the landlord notifying them that rent had increased by 25%.
Since neither of them had any extra money tucked away, this became a real problem. Suddenly, Joe and Brian's brainstorm session shifted from solving a career problem to solving a rent problem.
Don't Panic
"if you're thinking one day of starting a startup, the way to start a startup is by not trying to start a startup. It's just, you build stuff, you just build stuff, just do stuff, make stuff. And the very best ideas will be things that are so freaky that you yourselves don't believe them." - Paul Graham, Y Combinator Co-founder
Joe liked to read the paper every day.
As he and Brian's rent crisis loomed, he skimmed past the news about the cratering financial markets and saw that a design conference was coming to town. Apparently, the hotels were completely sold out. Joe thought about what a bummer that would be for designers who decide to come to the conference at the last minute.
That's when it hits him: this could be the answer to their rent problem. You have a big event driving all these people to San Francisco, and there's nowhere to stay. Surely some of them would be willing to pay for a room at our place. After all, the apartment was walking distance from the conference.
Brian was on board, but he pointed out that they had no furniture. Joe, however, happened to have a solution. He'd just returned from a camping trip with some friends where they used air mattresses. He had three in his closet.
If You Build It
Brian and Joe spend the next three nights designing a WordPress site. They conjured up the name AirBed and Breakfast and offered three air mattresses with a home cooked meal for $80 per night. In the 'amenities' section, they highlighted a roof deck, motivational posters and a design library.
Then, they asked a few design blogs and the conference itself to promote their site, and all of them did–presumably because it was such a weird idea. One of the blogs said, "Think of it as Craigslist meets Hotels.com, but a lot less creepy." Not exactly a ringing endorsement, but it worked. Within a day, three guests had emailed, asking to reserve an air bed.
Brian and Joe were floored. Not only did it happen quickly, the guests were not at all who they expected. Brian just assumed they would be a surfer or a smelly back packer from LA or something.
Instead, they got a graduate student from India, a father from Utah and a single woman from Boston. Complete strangers with vastly different backgrounds were converging on their little apartment in San Francisco.
Over the course of the next week, Brian and Joe hosted their first guests. Not only did they provide food and a place to sleep, they attended the conference together and showed them around San Francisco.
Brian noticed something unusual was happening; something that didn't happen on a typical trip that involved a hotel:
In the process of living with them, we became friends with them. It turns out an Airbnb interaction basically takes the length of a relationship with a person and compresses it to a few hours.
When the guests finally went home, Brian and Joe had not only fixed their rent problem, they realized they may have stumbled into their big idea.
Brian turns to Joe and asks, "Who's the best engineer you know?" and Joe says, "My old roommate, Nate."
The Third Man
Brian and Joe return home for the holidays, and Joe grabs a drink with Nate. He tells him all about their home sharing experience and proposes that they team up and build something together. To his surprise, Nate loves the idea. In particular, he likes the concept of using the internet to get people off the internet.
In upstate New York, Brian fields questions about his job. Unsure how to answer, he just starts telling people he's an entrepreneur, and his mother says, "No, he's unemployed." But, when he then starts sharing more about the idea he's exploring with Joe, he notices the responses are pretty polarizing. Some of his friends immediately understand and love the idea, but many others thought staying with a stranger from the internet would be weird, creepy or even dangerous.
After the New Year, Nate, Brian and Joe reconvene and start hatching plans to launch a full site. At this point, they believe they're building a website to help conference attendees sleep on airbeds in people's spare rooms...a pretty narrow market, frankly. Nonetheless, they see that South by Southwest is only four weeks away and all agree that it was the right venue.
After all, the festival had launched Twitter, Foursquare and many other startups into the stratosphere. Maybe it would work for AirBed and Breakfast.
Dude, Where's My Money
Nate, Joe and Brian got to work. It was a delirious string of all-nighters. Nate was building out the site, Joe was helping with design and Brian was trying to raise awareness in time for the big event. There was a buzz of excitement and a real sense that they were about to do something big.
A week before to the festival, they publish the site. Sure, it had Craigslist vibes and looked a lot like a classified ad, but it had all the core functionality they needed to list and book a home. They didn't have long to promote it, but they hoped the 'Keep Austin Weird' crowd would be quick to adopt their 'airbeds in spare rooms during conferences' idea.
By the time SXSW started, hotels had been sold out for weeks, and the city was overrun with people. AirBed and Breakfast, on the other hand, had just five hosts, two bookings and one mention on Mashable. One of those guests was Brain whose sole reason for going was to drum up press and show investors how great they were. It was a massive belly-flop, but there were more coming.
When Brian arrives at his AirBed and Breakfast, he was very impressed. The room was clean and well appointed. The host inflated his air mattress right in front of him and placed little mints on the pillow. Brian was thinking, "Wow, this guy is more into AirBed and Breakfast than me. And I'm one of the founders."
Brian settles in, and the host asks if he has the money. For a second, Brian didn't know what he was talking about, and then he realized he hadn't paid for the room. He'd completely forgotten, so he apologizes and promises to get the money that night.
Brian was in a bit of a hurry because he had a meeting across town with Michael Seibel, a startup advisor. Michael was well known for founding a company called Justin.tv which became Twitch, and he was a partner at Y Combinator. When Brian arrives at the hotel, he's directed to Michael's hotel room where he was lounging on his bed eating chips and watching TV. Brian proceeds with his AirBed and Breakfast pitch, and Michael says he'll introduce him to some angels who might help. Brian recalls thinking, "Oh, my god. This guy’s crazy. He believes in angels."
Michael sees that Brian is confused and explains that he'd just need to go out for dinner with one of these guys, and maybe they'd write him a check. Brain gets even more creeped out and says he's not that desperate. Michael then says, "No, no. That's not what I mean. You give them a deck. You know, a slide deck." Brian's next thought was, "What the hell is a slide deck?"
When he returns to his airbed, Brian has a sample slide deck from Sequoia Capital, but he also has a nagging feeling that he's forgotten something. His host welcomes him back, engages in a bit of small talk and then asks Brian again if he remembered to bring the money. From there, it got a little awkward. The host's stranger-danger antenna was going up, so the next morning, Brian went straight to the ATM.
When he returns to San Francisco, he debriefs with Nate and Joe. They had big user problem to address and a power point deck to build. But, there was another problem.
Nate was out.
Coming soon...
We always talk about founders as if their success was inevitable. In Part 2 of this series, you'll learn why the founder of Y Combinator, one of the most celebrated startup incubators in Silicon Valley, came to see Brian, Nate and Joe as cockroaches.
