Every great startup starts as a side project that isn’t anybody’s main priority. AirBed & Breakfast was a way to pay our rent. It was a way to pay rent and buy us time and help us get to the big idea.
—Brian Chesky
The first guest to use Airbedandbreakfast.com was Amol Surve, a recent graduate of the Biodesign Institute at Arizona State University.1 He arrived at his rental late in the afternoon on Tuesday, October 16, 2007, fifteen months before Barack Obama’s historic inauguration, and was greeted at the door by the site’s twenty-six-year-old co-creator Joe Gebbia, who politely asked him to remove his shoes.
Gebbia gave him a tour of unit C on the top floor of 19 Rausch Street, a narrow, side-street row house in San Francisco’s chaotic South of Market neighborhood. It was spacious, with three bedrooms, two bathrooms, a comfortable living room, and, up the main flight of stairs, a roof terrace overlooking the golden city, which was undergoing its own momentous reinvention. At the time, the two men had no way of knowing that over the next few years, this apartment would be ground zero for a worldwide social movement and global business phenomenon called the sharing economy.
Surve, a native of Mumbai, India, had used the internet to rent an airbed for eighty dollars a night during the World Design Congress, a biennial conference held by the International Council of Societies of Industrial Design, or ICSID. All the hotels in the city that week were either booked or too expensive for Surve, so he hadn’t expected much. But what he saw in his temporary home was promising. There was a shelf full of design books and a comfortable couch in the living room. He was invited to help himself to cereal and milk in the kitchen in the morning, and there was a small bedroom with an inflated airbed, sheets, and blankets. His hosts were surprisingly thoughtful; Gebbia presented him with a small bag that contained, among other things, the house rules, a Wi-Fi passcode, a city map, and some loose change for the neighborhood homeless population.
But by far the most surprising thing Surve saw that first afternoon was an image on Gebbia’s laptop—a picture of Amol Surve himself. Gebbia and his roommate and business partner, Brian Chesky, were putting together a presentation about their new home-sharing service for a pecha-kucha (Japanese for “chatter”), an event in which a series of designers present their new product ideas by showing twenty slides apiece and discussing each slide for twenty seconds.
As the very first guest of this new service, Surve had been included in the presentation. His stay hadn’t even begun yet and here he was, grafted into chapter 1 of what his hosts were clearly hoping would be a very long story. “It was very strange,” Surve says years later.
Surve was happy just to have a comfortable place to sleep, but he ended up getting an education in the Silicon Valley startup scene as well. He spent lots of time that week on the couch with Gebbia and Chesky, talking about design and examining Apple’s new device, the very first iPhone. Surve hadn’t even heard of Steve Jobs, let alone the iPhone, and he was totally unfamiliar with the litany of motivational Jobs sayings that Gebbia and Chesky frequently quoted, such as “We’re here to put a dent in the universe.”
With another guest staying at Rausch Street, Kat Jurick, Surve attended the pecha-kucha, and later in the week, Gebbia took him on a tour of the city, showing him sights like the famous winding block of Lombard Street and the farmers’ market outside the Ferry Building. Gebbia, who liked to exhibit his design sensibilities with stylish items like colorful sneakers and trendy, oversize eyeglasses, sported an aviator hat with furry ears in the fall chill.
After the conference, Surve had an extra day in the city and wanted to see the famous d.school—the Institute of Design at Stanford University. Chesky wanted to see it too, so he offered to drive. At Stanford, the pair sat in the front row at a free lecture given by the Italian designer Ezio Manzini and afterward introduced themselves to Bill Moggridge, a co-founder of Ideo, the iconic design firm, and chairman of that week’s design conference.
It must have been an unusual sight: Moggridge, who passed away in 2012, was over six and a half feet tall. Chesky, who had the beefy frame of a hockey player and was a workout fanatic, was nine inches shorter. Staring up, the fast-talking Chesky launched into a description of AirBed & Breakfast, suggesting it could be the official accommodation for the Industrial Designers Society of America. As part of his impromptu pitch, he introduced Surve as the first guest, and Surve was once again conscripted into the story. Surve remembers Moggridge nodding without comment and looking skeptical.
Chesky would later say that AirBed & Breakfast was a lark and something of a side project at the time, but Surve remembers his new friend vibrating with enthusiasm for the idea on the forty-five-minute drive back to the city. “Amol,” Chesky told him in the car, “we have to put a dent in the universe with this concept.”
Brian Chesky grew up in an eastern suburb of Schenectady, New York: Niskayuna, a town no one had heard of located outside a city most people couldn’t find on a map. His family was solidly middle class and lived in a five-bedroom Colonial house with a dog and a large backyard. His mom and dad, descendants of Italian and Polish immigrants, respectively, were social workers who doted endlessly on Chesky and his younger sister, Allison. When they weren’t at their jobs (where they occasionally bent protocol by inviting the individuals and families they counseled into their home), they spent their time catering to their children. “We had no life,” says Brian’s vivacious mother, Deb. Adds his father, Bob, “Some people invest in their career. We invested in our kids.”
From a young age, Chesky gravitated toward drawing, paying frequent visits to the Norman Rockwell Museum, about an hour’s drive from his town. His parents marveled at his ability to sit and draw for long periods, and teachers favorably compared his style to Rockwell’s and made heady predictions about his future. “Your son is going to be famous one day,” one told them.
He also played hockey and imagined himself as the next Wayne Gretzky. He was quick and agile and drew recognition around the region. But after he broke his collarbone twice, his high-school coaches finally decided that he was too short and not strong enough to have a real future on the ice. His parents seemed to agree. “He was too small to be a star,” says Deb.
Unwilling to accept defeat, Chesky started working out and lifting weights, chugging creatine-and-egg-white shakes and adding muscle.
During his college years, he joined the bodybuilding-contest circuit, oiling up and flexing onstage in front of cameras and crowds at national bodybuilding competitions. “I did this before I realized the consequences of the internet,” he said later, sheepish about the photographic evidence from that period of his life.2
Chesky’s friend and co-founder Joe Gebbia was born in Atlanta, Georgia, the youngest child of two self-employed sales reps who worked with independent health-food supermarkets across the south. With his older sister he would accompany his father on long road trips into Alabama, Tennessee, and South Carolina, peddling fruit and organic juices and sticking around after meetings to help store owners restock their shelves. Like Chesky, Gebbia straddled different worlds growing up. He played tennis and basketball and ran track and field but also studied the violin until deciding that all he wanted to do was play jazz piano like his idol Dave Brubeck.
Then one summer in the middle of high school, Gebbia took art classes at Valdosta State University in Georgia and decided that he really wanted to be a painter. “You’ve got something there,” noted an instructor who admired his work, and he suggested Gebbia apply to one of the top art schools in the country, the Rhode Island School of Design. Gebbia spent the following summer taking classes at RISD and was enthralled by the majestic French and Neocolonial buildings clustered on the banks of the Providence River. Gebbia enrolled at RISD in 2000, a year after Chesky.
They met in classes and at student events and found each other easy collaborators. Chesky ran the school hockey team, the Nads (“Go, Nads!”), while Gebbia managed the basketball team, the Balls (“When the heat is on, the Balls stick together”). Running a RISD sports club was more a marketing challenge than a competitive one; the way they tell it, the teams cared less about winning than about using the games as excuses for campus high jinks.
Both gravitated toward the study of industrial design and the idea that they could make things that were as iconic and affordable as the classic Eames lounge chair. “You can live in a world of your own design,” their professors insisted. “You can change the world, you can redesign it.”3 The department pounded a kind of practical idealism into the students’ heads; during one field trip, they were taken in buses to the city dump and driven through the caverns of trash so they could see where wasted effort ended up.
Chesky and Gebbia teamed up one summer to work on a project for the hair-dryer maker Conair and on another idea that bodybuilder Chesky dubbed the Chesky Solution. He had a notion to use PalmPilots and other mobile gadgets, along with body sensors, to track people’s health. Neither project went anywhere, but the duo solidified their friendship during long creative brainstorming sessions. “Everything for me came together because we had such a fun time working on that project,” says Gebbia, who was always on the lookout for a business partner. “Our ideas were so original, and different than everybody else’s.”
Chesky was selected by his classmates to give the commencement address in 2004. In a video of the speech, he can be seen storming onto the stage to Michael Jackson’s “Billie Jean.” Full of charisma and confidence, he strips off his graduation robe to reveal a white sport coat and matching tie, does a few dance moves, and flexes his muscles. Then he cracks up the audience for the next twelve minutes. “Parents, I want you to know that investing in us is better than any stock on the market,” he said presciently. “Sure, you spent a hundred and forty thousand dollars so we could paint with Jell-O and roll around in Silly Putty. But more important, you knew we needed to be inspired and we found plenty of it here at RISD.”
Before Chesky left town to go back to Niskayuna, Gebbia took him for pizza and shared a prediction: One day, they would start a company together and someone would write a book about it. “I saw this gift he has, to be able to get people excited,” Gebbia says. “I would have felt incomplete if I didn’t express to him what I was feeling.”
After graduation, Chesky spent a few months living at home, then he decamped to Los Angeles, moving in with former classmates in a Hollywood apartment amid the tourists and costumed panhandlers a few blocks from Grauman’s Chinese Theatre. His parents, still doting, bought a Honda Civic from an L.A. dealer and had it delivered to him at the Los Angeles airport.
He was living his college dream. He had a real job, earning forty thousand dollars a year as a designer for the consultant shop 3DID in Marina del Rey, working on toys for Mattel, guitars for Henman, medical equipment, footwear, dog toys, and handbags. “When you are a designer at school, especially an industrial designer, you just dream of getting something on the shelf,” Chesky says.
But somehow that first job never quite matched his expectations. There was a ninety-minute commute each way in the suffocating gridlock on the I-405. Most of the projects he worked on never made it to stores or, if they did, ended up in landfills.
In 2006, Chesky’s firm was invited to participate in the Simon Cowell–produced reality-TV show American Inventor. His team was tasked with aiding a husband and wife with their concept for a bacteria-free toilet seat, called the Pureflush. The couple was competing against a dozen other inventors for a million-dollar grand prize. Chesky and his colleagues from 3DID were there to help them conceptualize the product and produce a prototype.
The episode aired on May 4, 2006. Chesky’s presence was largely edited out of the show, but you can see the future billionaire sitting quietly with colleagues in design reviews. In retrospect it is easy to see why the experience might have propelled Chesky farther down the path of youthful disillusionment. The husband, a part-time magician with a volcanic temper, started screaming when 3DID revealed its mock-ups of the toilet seat.
“This one is way too small. That one is obviously way too big! End of story! This bullshit stops right here!” he yells in the episode, to the shock of the designers (and, no doubt, the delight of the show’s producers). “You are not here to make it better! You are here to take our dreams and put them in physical form!”4
For Chesky, that unhinged criticism was cutting. At the time he was obsessively following the story of the fantastically successful founders of the video-sharing site YouTube; he was spending hours on the site as well as watching Steve Jobs’s keynote presentations and the television film Pirates of Silicon Valley. This was a universe where new things really did change reality. “I got kind of obsessed,” he says. “I was living vicariously, escaping to a world where someone could build something and actually change something. I was not doing that. I was sitting in a dark office making stuff for closets and landfills.”
By early 2007, Chesky was antsy. He had moved to a two-bedroom apartment in West Hollywood with four friends and cut his hours at the firm to focus on making his own furniture. He designed a fiberglass chair with curves inspired by the hood of a Corvette Stingray, as well as a portion-control plate, a dish with an elevated center that could hold only a moderate-size, three-ounce piece of meat.5 Desperate to start something of his own, to make a mark and see his name in lights, he toyed with creating a design firm called Brian Chesky Inc.
But he couldn’t shake the notion that it was all pointless and uninspired and that it wouldn’t lead to the promised life that he’d found so seductive at RISD, or in the movie Pirates of Silicon Valley, or in the pages of the Walt Disney biography that he was avidly reading. “People told me, you can change the world you are living in,” he says. “Then reality set in, and reality wasn’t that. The reality was, I’m just making stuff.”
Then one day in the summer of 2007, Chesky got a package from his old college friend Joe Gebbia, who was living in San Francisco. The package inspired him to escape his brewing malaise.
Gebbia had fared only slightly better than Chesky in his post-RISD career. During his freshman year at college he had hit upon what he thought was a novel idea. At RISD, during marathon reviews called Critiques, students often had to sit for hours on metal benches and hard wooden stools that were covered in charcoal dust and paint. When they uncomfortably lumbered to their feet at the end of these sessions, the seats of their pants were invariably stained. To address this scourge, Gebbia designed a colorful foam cushion with a handle and the imprint of a rear end. He called his invention CritBuns.
After graduation, Gebbia financed the manufacture of the cushions with the proceeds from a RISD design award and stored eight hundred units in the basement of his Providence apartment building. Then he naively set out to sell it to stores at $19.99 apiece. The first stop was the Brown University Bookstore. Gebbia wore his best suit and made an impassioned pitch to a store buyer, who let him talk for a minute, said “No, thanks,” and walked away. Buyers at the second and third stores gave him the same response. “I met the face of rejection,” Gebbia told me later. “You can say that rejection slapped me in the face.”
Finally a boutique in downtown Providence agreed to stock four cushions. Gebbia ran home, brought them back, and that night pressed his face to the glass window and gazed at them admiringly.
CritBuns didn’t fly off shelves or change the world (he says he only sold a few batches). But it did command a prime position in his portfolio and helped to score Gebbia a coveted internship at Chronicle Books, a large independent publisher in San Francisco, where he moved in 2006 to design books and gift packaging. After he settled into his adopted city, he sent his old friend Brian Chesky a package. It contained a CritBuns cushion.
To Chesky, the ridiculous foam seat represented something profound. Gebbia had started something—a real company with a real product! He had made an impact. That summer Chesky visited Gebbia for his birthday and found San Francisco enthralling. When Chesky woke up the next morning on the sofa, one of Gebbia’s roommates, a tall, lanky programmer, was hunkered over his laptop, his hands flying over the keyboard writing computer code. People were actually making things here and trying to change the world.
That fall, that tall roommate moved out of the apartment on Rausch Street. Gebbia needed to replace the contribution to the monthly rent as soon as possible. He asked Chesky if he wanted to move in.
Chesky toyed with the idea of living in San Francisco over the weekends but keeping his life and a new part-time teaching job in Los Angeles. He asked Gebbia if he could rent the couch in the living room for five hundred dollars a month instead of paying more for the entire bedroom. Gebbia told him flatly that unless Chesky fully committed, he was going to have to give up the apartment.
Then one day in early September, Chesky woke with his mind made up. Walt Disney himself had taken a huge risk by moving from Kansas City to Hollywood in 1923, and his life had changed. Chesky would take a chance too.
Of course, by moving into Rausch Street, Chesky wasn’t solving the quandary of how to pay the rent. He still didn’t have meaningful employment, and both RISD graduates were, essentially, broke. So a few weeks later, on September 22, 2007, with the World Design Congress coming to San Francisco and the city’s hotels either overbooked or overpriced, Gebbia sent Chesky the e-mail that would change their lives:
Subject: subletter
Brian,
I thought of a way to make a few bucks—turning our place into a designer’s bed and breakfast—offering young designers who come into town a place to crash during the 4 day event, complete with wireless internet, a small desk space, sleeping mat, and breakfast each morning. Ha!—Joe.
It took Chesky and Gebbia three days to put together the first Airbedandbreakfast.com website using the free tools on the blogging website WordPress. Their site was basic, displaying the service’s name in blue and pink cursive font and with a brief description of a concept that had preciously few defined rules. “AirBed & Breakfast is an affordable housing resource, social networking tool, and an up-to-the-minute guide” to the conference, they wrote. “Designers can choose which designers to meet, stay with, and at what price. The terms are up to you!”
The founders e-mailed their site to the city’s design blogs and got their first taste of publicity from writers who were bemused by the concept. “If you’re heading out” to the design conference “and have yet to make accommodations, well, consider networking in your jam-jams,” one wrote.6
Much later Chesky would weave a handy mythology around the stay of Amol Surve and two other guests at his Rausch Street apartment during the design conference. When the three travelers waved good-bye, his story went, the co-founders not only were able to pay the rent but were struck by the depth of the bonds they had forged with their guests and realized that their absurd idea was the seed of a much larger business. But that story, like all such startup mythologies, is not entirely accurate. The co-founders didn’t need to pay rent as much as they needed, desperately, to find a business idea, validate their potential, and fulfill the promise of their RISD education. When Surve and the others left, Chesky and Gebbia returned to their daily lives and their attempts to find meaning in their mundane, post-RISD reality.
Part of that process involved meeting regularly with one of Gebbia’s former roommates, that tall programmer who could type remarkably fast: Nathan Blecharczyk, a Harvard-educated engineer, only twenty-five but with a colorful entrepreneurial history that a few years later would prove valuable.
Blecharczyk had moved out of the Rausch Street apartment but had stayed in close touch with Gebbia. They had worked together on various projects, realizing that their programming and design skills complemented each other. Over the next few months the three young men met frequently and brainstormed ideas for new companies. One early notion was a roommate-matching service, combining elements of Facebook and the online-classifieds site Craigslist. A few weeks into developing the idea they discovered such a site already existed and was called Roommates.com.
Even though the three had been meeting often, Blecharczyk heard of AirBed & Breakfast only in January 2008, when Gebbia and Chesky visited his new apartment and asked him to join them. “You were really excited to tell me something but you wouldn’t tell me what it was. You were being very secretive,” Blecharczyk said to his co-founders during a joint interview years later. They went out for drinks and Chesky and Gebbia spilled their experience of the design conference and their idea—allowing people to share their homes during conferences and big events in major cities. They described a long list of features they wanted to build, including member profiles and ways for guests and hosts to rate each other. Blecharczyk, who was involved with a number of other projects at the time, was wary. It sounded like a lot of work, and as the only one of the three who had actual technical skills, he would be doing most of it. The pitch “left me with a fair amount of concern that this was not a realistic undertaking,” he said.
A week later they met again at the Salt House, a new downtown restaurant, and Gebbia and Chesky presented a more modest version of their plan that could be completed by the upcoming South by Southwest Conference, a few weeks away.
Blecharczyk had downed a few drinks at dinner and impulsively agreed to build the site. But it still wasn’t a priority for him.
Later that month he sent one of his semiregular group e-mails to friends and family, updating them on the projects he was working on. He listed a Facebook advertising network that he had conceived and another tool for the social network that allowed members to see which of their neighbors were using it. At the end of his e-mail, he noted as an afterthought that there were a few minor projects he was also working on, including a site called AirBedandBreakfast.com.
“I think it’s a cool idea but probably not a big market,” he wrote.
Chesky and Gebbia were among those who received the message. “We got that e-mail and we were like, ‘What the fuck?’” Chesky recalls. Gebbia says it was “a punch in the stomach.”
Nevertheless, Blecharczyk came through with a new version of a site on March 3, a week before the annual conference in Austin, Texas. The new slogan was “A friend, not a front desk.”
There were of course no actual properties listed on the brand-new AirBed & Breakfast. So Chesky e-mailed anyone he could find in Austin who had listed rooms on Craigslist and invited them to post on the site. There ended up being two reservations for the conference—and his was one of them. He stayed with Tiendung Le, a Vietnamese PhD student who was studying construction engineering at the University of Texas and who lived in a two-bedroom apartment with his girlfriend in Austin’s Riverside neighborhood.
Chesky stayed there for two nights on an airbed, which Tiendung Le and his girlfriend nicely furnished with a mint on the pillow. They also made him an espresso, which they remember he downed in a single gulp, and a bowl of Vietnamese noodles. But Tiendung Le, who now lives in Melbourne, remembers Chesky as distracted and jittery that week, often standing on the balcony and staring wistfully toward downtown, as if all the action were there and he was far from it. “He was not very much present in the place, in the sense that he seemed to be thinking about something else,” Tiendung Le told me.
On the second morning of his stay, Chesky planned to hear Mark Zuckerberg speak at the conference, and Tiendung Le gave him a ride. On the way they talked about the young and successful Zuckerberg, who was rocketing to fame. Chesky bristled with excitement at the opportunity to hear him speak. (The talk, with blogger Sarah Lacy, was considered something of a famous bust when attendees started Tweeting angrily that the conversation lacked substance.) Along the way, Chesky thanked Tiendung Le for being “open-minded” and agreeing to try the apartment-sharing website. Tiendung Le was surprised by that and recalled it years later. “I was not aware of the fact that I was open-minded. We were students in Austin. We tended to be open to new things.”
The next day Chesky left the apartment and decided to stay in Austin to meet one of Gebbia’s former roommates, a man who worked for the video website Justin.tv and had a room at the Hilton. Somehow, there was a miscommunication—Chesky couldn’t find him, and late at night he ended up preparing to sleep in the hotel lobby.
But the friend and his colleague, a well-connected entrepreneur named Michael Seibel, finally found him and invited him up to their swank hotel suite. It was there, recovering after his brush with a night of inadvertent homelessness and somehow undeterred by his failure to drum up new business at the conference, that Chesky saw his luck finally start to change. It was late, and Chesky later recalled that Seibel was wearing only his underwear and that a TV program on the assassin John Wilkes Booth was playing in the background. But he started to pitch the AirBed & Breakfast concept again with renewed vigor. Seibel listened with curiosity and perhaps a bit of compassion. He would become the founders’ first mentor, introducing them to investors and counseling them on how to draft their slide decks and polish their pitches.
“I know people who can write you a twenty-thousand-dollar check over dinner,” Seibel boasted, and then he told him about angel investors, the class of financiers who got Silicon Valley tech companies off the ground. Chesky, still a tech-industry novice, would later say that he briefly thought Seibel was talking about actual angels.7
Chesky returned to San Francisco full of ideas for improving the website. He hadn’t brought enough cash to Austin, and the awkwardness of paying Tiendung Le got him thinking about a way to introduce credit card transactions into the service.
But then, out of nowhere, Blecharczyk announced that he was moving back to Boston to live with his girlfriend, Elizabeth, a fourth-year student at Harvard Medical School. “I was excited about AirBed and Breakfast, but to me it was a side project, and one of a few,” he says.
Between April and June of 2008, almost nothing happened with the fledgling business. Airbnb was very nearly stillborn. Then the idea dawned on Chesky and Gebbia that presidential candidate Barack Obama was set to talk to eighty thousand people at the Democratic nominating convention in Denver that August. The Mile-High City did not have nearly enough hotel rooms, and the eyes of the world would be on the convention.
From Boston, Blecharczyk recognized the unique opportunity and agreed to work on yet another version of the website between his other commitments. In the site’s third iteration, the founders endeavored to make renting a room as easy as booking a hotel room. There was a search box that asked travelers where they were going, a large green book-it button, and sizable photographs of the hosts and their residences.
Every Friday that spring, Gebbia and Chesky brought mock-ups of the new design to Michael Seibel at Justin.tv. Seibel and his Justin.tv co-founder, Justin Kan, observed their progress, identified problems, and sent them away to make improvements (the early payment mechanism, they recalled, was a particular mess). Seibel and Kan weren’t paid for this and received no equity in the fledgling startup. It was simply how things worked in Silicon Valley’s cliquish network of founders. “On the East Coast you give money to charity,” Seibel says. “On the West Coast in the startup world, if you want to give back, you help young founders. This is a game where karma matters.”
By spending time at Justin.tv, the Airbnb founders got to see what a real tech startup looked like, one with real offices, real employees, and actual venture capital in the bank. (Justin.tv later spun off a video-game service, Twitch.tv, which was acquired by Amazon in 2014 for $970 million.) Continuing this education, they attended a one-day event called Startup School, organized by the startup incubator Y Combinator and hosted by Stanford University. The speakers that year included Amazon CEO Jeff Bezos and the investor Marc Andreessen, an inventor of the web browser. But the speech the founders remembered best was by Greg McAdoo, a venture capitalist at the top-tier VC firm Sequoia Capital, a man whom they would soon get to know well.
McAdoo spoke about why being a great entrepreneur required the precision of a great surfer.
If you want to build a truly great company you have got to ride a really big wave. And you’ve got to be able to look at market waves and technology waves in a different way than other folks and see it happening sooner, know how to position yourself out there, prepare yourself, pick the right surfboard—in other words, bring the right management team in, build the right platform underneath you. Only then can you ride a truly great wave. At the end of the day, without that great wave, even if you are a great entrepreneur, you are not going to build a really great business.8
Early that summer Seibel finally came through on his boast and introduced the founders to seven angel investors. Chesky wrote to them, told them who he was, pitched the company, and asked for a hundred and fifty thousand dollars to bootstrap it. He received five outright rejections and later published these e-mails online.9 Two investors didn’t even bother to write him back. “Very few people even met with us,” Chesky says. “They considered us crazy.”
There were several in-person meetings, but those fared just as poorly. One investor, a former Google executive, met Chesky and Gebbia at a café in Palo Alto, ordered a smoothie, and began to listen to the pitch. Then he walked out in the middle of it, his drink practically untouched. Gebbia and Chesky were left sitting there, wondering if the investor would return.
In early August, Chesky and Gebbia were invited to the Palo Alto offices of Floodgate, the angel-investor firm that had backed Justin.tv. Even though only a dozen reservations a week were booked on the site, Chesky felt confident: AirBed & Breakfast had caught the attention of the influential industry blog TechCrunch.10 Instead of giving a slide presentation, Chesky planned to demonstrate the site live. But when he stood up to talk, he realized with horror that traffic from the TechCrunch article had crashed the website. He ended up making small talk while Gebbia tried desperately to reach Blecharczyk, who already knew about the outage—the engineer had set up a service that sent him a text message with a single word—AirbedDeflate—every time the site went down. But it was too late. Chesky bombed, and Floodgate passed on the deal.
All these investors had concerns about the size of the market, about the absence of any real users, and about the founders themselves, who didn’t resemble the wonky innovators who’d created great Silicon Valley companies, people like Mark Zuckerberg and Steve Jobs. Design students seemed risky; Stanford computer science dropouts were considered a much better bet. And, frankly, the idea itself seemed small. “We made the classic mistake that all investors make,” wrote Fred Wilson, a Twitter backer, a few years later. “We focused too much on what they were doing at the time and not enough on what they could do, would do, and did do.”11
The year 2008 was also an anxious time in Silicon Valley. The tech industry had recovered from the devastation of the dot-com bust a few years before and had been buoyed by the Google IPO in 2004 and the budding success of Facebook. Yet the global economy was teetering, with problems mounting in the real estate market and an economic collapse just months away. In October of that year, Sequoia distributed a presentation, commonly referred to as “R.I.P. Good Times,” advising its startups to drastically cut back on spending, lower their risk, and reduce debt. Investors didn’t believe in Airbnb, but more than that, they were wary in general.
Even when Airbnb seemed close to obtaining capital, things had a way of going awry. Paige Craig was a Los Angeles–based angel investor and former member of the Marine Corps who had been looking for opportunities in the hospitality market when he stumbled upon Airbnb that summer. He was impressed with the diligence and work ethic of the founders and was primed to make a $250,000 investment. They agreed on a valuation and even met for dinner in San Francisco to close the deal early that fall, but the next day, Chesky declined to sign the deal documents, and he later declined to say why. A person close to the discussions, however, said that at drinks after the dinner, Craig gave Chesky the impression that he would make a difficult partner.12 In Silicon Valley it was orthodoxy that the right investor could empower a company but a difficult one would cause unending problems.
Years later, Paige Craig heard through another investor that the founders had concluded he was a “crazy marine” and gotten cold feet. “I’m not upset and understand where they were coming from,” he e-mailed me when I asked him about the missed opportunity. “A Google search on me back then would have clearly painted me as ‘dumb money.’ It motivated me to work on building up my experience, building a founder-friendly brand and working my ass off to win future deals. But damn that was an expensive lesson.”
For Chesky, the money must have been difficult to turn down. He says that at the time, he had never felt more like a failure. Among the co-founders, Blecharczyk had his personal projects, and Gebbia had CritBuns and work as a consultant. Chesky didn’t have anything except his old furniture designs and the fervent belief that a great wave of connectivity and sharing was gathering momentum and that people were ready for this strange brand of internet-facilitated intimacy.
If Airbnb was going to take off, it needed to happen quickly. Chesky had spent his life savings and both he and Gebbia were getting deeper in debt. Certain they would raise money, they had been accumulating credit cards and blowing through the spending limits. Chesky kept his maxed-out credit cards in a shoe box, while Gebbia slid his into the plastic sleeves of a folder meant to hold baseball cards.
Their situation was precarious and Chesky knew it. “I woke up every morning with my heart pounding,” he says. “I would convince myself over the course of the day that everything was going to be okay and I would go to bed feeling good. And I’d wake up every morning with my heart pounding, Groundhog Day, asking, ‘How did I get into this situation? What did I do to myself?’”
The conventions that summer only temporarily allayed his anxiety. About eighty people used the service to stay in Denver and there were articles about it in U.S. News and World Report13 and the Chicago Sun-Times.14 About two hundred new hosts signed up every week in August, and Airbnb collected a commission of around twelve dollars for each hundred-dollar-per-night booking. But then, after the conventions, things quieted down, the number of new reservations booked each week dwindled below ten, and once again Chesky was waking up early, staring at the ceiling, and marinating in dread over his unfulfilled potential.
Silicon Valley’s startup scientists have a name for this phase in a company’s gestation; they call it the Trough of Sorrow, when the novelty of a new business idea wears off and the founders are left trying to jump-start an actual business. Gebbia and Chesky experienced a deep trough that would have swamped most founders. They responded in a characteristic way, digging back into their RISD past and tapping their penchant for reckless, silly creativity.
Talking over their dismal prospects one night in the Rausch Street kitchen during the presidential debates, they started riffing on the idea of making breakfast cereal and offering it to guests. It could be presidential-themed breakfast cereal! One could be called Obama O’s: “The breakfast of change!” And the other Cap’n McCains: “A maverick in every bite!”
“This is probably where it should have ended,” Gebbia says. But for some reason, mired in the Trough of Sorrow, they couldn’t let it go. Gebbia called Kellogg’s and General Mills; employees hung up when he excitedly described the concept. He called the local cereal distributors and got nowhere there either.
Eventually they just decided to produce it themselves. Gebbia found an alumnus of RISD across the bay in Berkeley who owned a printing shop, and he somehow convinced him to print a thousand boxes in exchange for a percentage of the sales. The boxes advertised themselves as limited editions and had playful games on the back along with information about AirBed & Breakfast.
Then Gebbia and Chesky went to a local supermarket in a low-income neighborhood and bought dozens of boxes of cereal (Honey Nut Cheerios for Obama O’s and Fiber One honey squares for Cap’n McCains), maneuvering past the puzzled looks of cashiers. Back in their kitchen, they assembled the cereal boxes, scalding their hands with a hot-glue gun, and transferred in the sealed bags of cereal.
“As if it couldn’t get any more ridiculous,” Gebbia says, one day they got an e-mail from a host, a professional jingle maker, who offered to compose accompanying songs for their website. The jingles are still on YouTube:
Well, there’s a really cool cereal that you ought to know
Everybody is talking about Obama O’s,
In just one bite you will understand,
’Cause every single O sings, Yes, we can!15
Their collaborators did not react well to the cereal gambit. “Nate was in a state of disbelief” when they told him about it, Gebbia says. Michael Seibel was furious. “That was the first time I was really worried about them,” he says.
Somehow, it paid off. Once again demonstrating a flair for showmanship, the founders mailed boxes to every media outlet they could think of, right at the height of the presidential news cycle. Sensing an eclectic story, reporters called them back. Orders for the cereal poured in and they sold out of Obama O’s in three days.
The cereal operation allowed the founders to pay off the Berkeley printer and resolve most of their credit card debt. It did not propel the company to immediate success or generate any significant wealth; in fact, they were still barely making ends meet and began subsisting on the surplus Cap’n McCains. But it did demonstrate an extreme level of commitment and an ability to think creatively that, ultimately, would lead to their long-awaited break.
A few weeks later, Chesky decided that the founders of the struggling company should apply to the prestigious Y Combinator startup school, which invested seventeen thousand dollars in each startup, took a 7 percent ownership stake, and surrounded founders with mentors and technology luminaries during an intense three-month program. It was a last-ditch effort and Chesky actually missed the application deadline by a day. Michael Seibel, an alumnus of the program (and later its CEO), had to ask the organizers to let the company submit late. They got permission, and the co-founders were invited for an interview. Blecharczyk flew out to San Francisco and crashed on the living-room couch on Rausch Street, and the three co-founders gathered themselves for one last try.
“If we didn’t get in, we would not exist,” Gebbia says. “The business was just not working.”
Before they left for the interview, Gebbia went to grab boxes of the cereal. Blecharczyk snapped at him. “No, no, no,” he said. “Keep the cereal at home.” Gebbia pretended to acquiesce, then surreptitiously slipped two boxes into his bag anyway.
The interview at Y Combinator’s offices in Mountain View was practically hostile. “People are actually doing this?” asked Paul Graham, the program’s legendary co-founder, when the three men described the home-sharing concept. “Why? What’s wrong with them?” Graham, then forty-four, later admitted that he didn’t get it. “I wouldn’t want to stay on anyone else’s sofa and I didn’t want anyone to stay on mine,” he says.
But after they turned to go, to Blecharczyk’s consternation, Gebbia brought out the two boxes of cereal and handed them to Graham, who was rightfully confused. Then the whole tangled story of the last year came tumbling out, from the inspiration at the design conference to the disastrous South by Southwest to the nominating conventions and the unlikely cereal gambit. “Wow, you guys are like cockroaches,” Graham finally said. “You just won’t die.”16
Cockroach was Graham’s word for an unkillable startup that could weather any challenge, and it was the highest possible compliment in his startup lexicon. A few weeks later, after the founders had learned they had gotten into the program, and after they’d visited Washington, DC, for Barack Obama’s historic inauguration, they arrived at the offices of Y Combinator. Graham was there, speaking with Greg McAdoo, the Sequoia venture capitalist who had delivered that memorable speech about great waves the previous year.
McAdoo and Graham were discussing that most essential characteristic of great entrepreneurs: mental toughness, the ability to overcome the hurdles and negativity that typically accompany something new. McAdoo and his partners had identified this kind of true grit as the most important attribute in the founders of their successful portfolio companies, like Google and PayPal.
Scouting for new opportunities despite the gathering economic storm enveloping the world, McAdoo asked Graham: “So, who in this class of startups is the most mentally, emotionally tough?”
“Well, that’s easy,” Paul Graham responded, and he pointed across the room at two designers and an engineer, all hunkered over their laptops. “Hands down, it’s those guys over there.”