How Clever Entrepreneurs Turned 3 Air Mattresses Into Airbnb, The Site That Makes Any Home A Bed And Breakfast

The founders of Airbnb are guys who couldn’t make rent a few years ago, but they kept turning desperation into creative solutions. In October 2007, eager to make extra money, they noticed that local hotels were booked up because of a conference. So they pumped up some inflatable mattresses and listed their place online as an “air bed and breakfast.” It was quirky and it worked. That little act of creativity became Airbnb, the (profitable) site that allows anyone to list their extra space for rent.

This interview is full of examples of that kind of hustle, like how they created and sold cereal called “Obama O’s.” That idea brought in a much-needed $30,000, but more importantly, it impressed investor Paul Graham of Y Combinator, who backed them. They jumped on that opportunity too, seizing every chance they could find to get Graham’s advice. His mentorship helped their company become profitable.

Along the way, they got impressive media hits by crafting interesting stories, improved their design by sleeping in their users’ homes and kept changing their product based on feedback. In this interview, they teach you how they did it.


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Brian Chesky & Joe Gebbia

Brian Chesky & Joe Gebbia


Brian Chesky & Joe Gebbia are two of the co-founders of Airbnb. (The third co-founder is Nathan Blecharczyk.) Airbnb is a marketplace for renting space. Their open platform accommodates a ‘couch to a castle’, including vacation rentals, bed and breakfast, private rooms, and entire apartments. Travelers typically save money and get a local experience, while hosts have an easy way to earn extra cash and meet new people.



Full Interview Transcript

Interviewer introduction: Before we get started, I’ve got to tell you that the interview you are about to watch was a bear to edit. You are going to have a little bit of hiccups throughout the interview. But, I tell you something; the content here was so good I did not want to let these guys off the phone. We went longer off the phone off Skype. We went longer than we ordinarily do because the quality was so good (the quality of the information, not the quality of the connection). In fact, pay attention to the serial story that they tell somewhere about 40% into the interview. You guys are going to love that.Alright. I should say that the editing and so much of the work here is sponsored for, paid by and supported by these three great companies: The first is Grasshopper, the virtual phone system that entrepreneurs love. Because with Grasshopper, you get the extensions and everything you that you want with a robust phone system. You can manage it online and use a regular phone with this system. So check out

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Thirdly, I want to tell you about Rich WB. If you go to Rich WB, you get a new theme for your website. I’ve said over and over again that just redeeming and rescinding my website helped me be a to get bigger and better interviews. Because it communicated authority and communicated that I was somebody with more than just a tiny, little blog. So, check out Rich Get your own theme and customize it and make it your own. Go out there and do incredible things so that I can come back and interview you.

Alright. Those are the sponsors. Here’s the interview.

Andrew: Hey world, it’s Andrew Warner, founder of, home of the ambitious upstart. And, of the upstart whose system just keeps having issues. But, we got it working now.

Andrew: So, today I’ve got with me Brian Chesky and Joe Gibba. In fact, Brian can you raise your hand so people know who you are? And, the other guy with the glasses right there, that is Joe. They are the cofounders of Air B&B, a site that Time Magazine called the “Ebay of space”. It is an online marketplace that allows anyone from a private residence to commercial prosperities to rent out their extra space. How many listings do you guys have on the site?

*Some silence and laughter from all three*

One of the two interviews: So, uh, yeah, its, um..while we know that we do not know the exact number of listings we have, we have listings in 2,200 cities and a 110 countries. And we’ve got about 75,000 travelers on our site.

Andrew: Ok, 75,000 travelers. Meaning people who are looking for places to stay, right?

Interviewee: Right.

Andrew: Ok. We have got a few issues here. People who are watching this live are telling me that it’s choppy.

Andrew: We’ve got a couple of issues. Number one: It’s freezing in here, which is why I am wearing this…this excessive sweater here in the summer of Buenos Aires.


Andrew: Number two: We have a couple of people here in the interview. Which I don’t really do much. But, I wanted to get to know the..uh, company as well as possible. There are three cofounders, right?

Interviewee: Right.

Andrew: And, today we are getting to know two. And, then, there is also some kind of lag. But, we will work with it, right? That’s what it means to be an upstart. If we were CNBC, this show, I don’t think, would have as much meaning. This is an upstart helping other up starters build their businesses by talking to guys like you who are building some interesting companies and getting traction.

Andrew: What amazed me about you guys is the way that you solve the chicken and egg problem. You know, you got a website that is supposed to have listings in order to get, uh..uh, travelers. It’s supposed to get travelers in order to get listings. So, I want to know how you guys did it and how you did it so well. That’s number one.

Andrew: Number two: Everybody knows my frickin’ fascination with Y Combinator and everything to do with the whole ecosystem there. I want to know how you guys won Y Combinator over. How you..what you got out of it beyond the money. And I want to know how it helped you build from there.

Andrew: I’m also fascinated by how a website like yours can get so much frickin’ press! I mean, I saw you in the New York Times. And then I saw Time Magazine on your website. And then I started, uh, doing some research and I came across the Washington Post. Then, I went to your press page which just had..*imitates big explosion with gesturing hands* So, there’s a lot for us to cover over here.

Andrew: Alright. Let’s go back to where this idea came from. In the conversation we had before the interview started, you said that you started off in your living room. At what point were you and your…

Interviewee interjects: Right. Which is only about 10 feet..(unintelligible). So, um…we’re going back to October of 2007. And, by the way, let me know if the video is going to be a problem. But, I’ll just keep talking otherwise.

Interviewee: So, October of 2007. And, actually the living room is about 10 feet away from where we are now. So, we’re in the original apartment where this all started. And, it happened because, umm, Joe here was living in this apartment in San Francisco with our other co-founder, Nathan Blecharczyk, and Nate eventually ended up moving out. And so, I was living in Los Angeles. Joe said ‘I got an extra room’. And so I said ‘Well, I’d love to come up to San Francisco. I, literally, was pretty impulsive, quit my job, move up here. Here we were in this amazing apartment that we have now and because it’s so nice, it was really, really expensive. So here you are, a couple of aspiring entrepreneurs, kind of unemployed. There is a fine line there.

Trying to figure out a way to make money and that was kind of a problem. We essentially have a problem and the problem was we need to make rent and we also want to meet people because we wanted to get our business going. So the opportunity came. It was actually literally that weekend. There was an international design conference coming to San Francisco.

And on the conference website, all the hotels they listed were sold out. See like they had hotel, hotel, hotel and it said sold out, sold out, sold out. Here we are thinking ‘Well, we need to make some extra money. We love to meet some people and we have all these people attending this conference that need a place to stay’. So that was kind of light bulb went off our head and we said we should create a little design bed and breakfast.

We pulled out a couple of air beds from out closet. Laid them out and we said ‘Oh, that is going to be. That is going to the air bed and breakfast’. It was not necessarily…It wasn’t like back into the reading hack news everybody. Hoping that one day. We, literally, were a couple of designers having a problem. We ended up hosting. Yeah, we put the sign thinking we had a couple of back packing kids use it. We figure a couple of guys our age or early twenties to fly up to the conference with us, really modest schools.

I remember us talking with our friends and family. People thinking ‘Well, I think maybe this is something young kids would do. I don’t really see older people doing it. I am not sure older people would use it.’ Well, we ended having three people stay with us. And the three people stay with us broke all assumptions. About the business, the market, everything. And ever since then, we have been thinking about differently.

The first person that stayed with us was a guy who is from India. So this guy literally track us down like he wanted to stay at our place so badly because we just create this little website. He thought it was so cool. His opportunity to finally stay in San Francisco for really cheap, meet people. The second person that stayed with us was a thirty five year old woman from Boston. So, here we go, not the demographic that we were expecting. Not from somebody from Boston and older. And the third person totally surprised us was a forty five year old father of five from Utah that stayed with us.

At this point we were thinking basically, three different demographics. Absolutely passionate about this idea maybe there is a bigger market there. So we had posting this people. I think we make close to a thousand dollars in the course of a week. We had pay our rent. We met some amazing designers. Seriously and unbelievable time. Times realized and after something like that happens is that successful. The thing just started blossoming from there.

Interviewee2: Picture this Andrew. You are going to go to a conference in San Francisco City. You have never been before. Just between the difference between going back to the seclusion of a hotel room. Some backs connect you to the city where you are in to going back to somebody’s apartment with other people. It’s a very social environment and that was the feedback that we got from these three guests. They actually loved the social element that we brought to the table. In addition to saving money and in addition to getting to see San Francisco, see the eyes of locals.

Andrew: So this was just for your own place?

Interviewee: Right. This was just meant to be our apartment.

Andrew: That was not going to be meant beyond that? It was just you guys building a website, building these things just for your own apartment?

Interviewee: Right, for one weekend.

Andrew: And then it just because people like it, because …Sorry, go ahead.

Interviewee: I was going to tell you we start to get emails from other designers here in San Francisco. It says ‘Hey, can I do this too? How can I participate? I have some extra space. Can I rent it through your website?’ And at that time it was just us. We started to think why not?

Andrew: I see and the only other place that people can do this before. We got some kind of a lag over here. It’s all right. We are going to make it all work. People by the way in the chat room are speculating on the computer that you guys are on. Are you on a Mac book area?

Interviewee: Mac book Pro.

Andrew: Mac Book Pro, me too. The pro should be able to handle this. All right, we should toggle around here. By the way, I think the content of this interviews should be so good that if somebody in the background like your third co-founder Nathan was in the background scratching a record on a record player as we are all talking. That the content should be so freaking helpful.

Andrew: …that people should still be sitting there and almost squinting their ears trying to get every last bit of information. And that’s what we’re ñ that’s what I’m trying to bring out of this, something that’s that helpful. And, by the way, guys if some people are speculating that it’s the background effects, it’s not. It’s not the background effects on a live show. It’s I’m seeing that on Skype here we’ve got a bit of a delay. Let’s keep moving though. Okay. This is just happenstance. You built this thing for yourselves. You built it because you wanted to rent down some extra space that you had on air mattresses. How many air mattresses do you have? You own three air mattresses?

Interviewee: Yep.

Andrew: How do you end up with three air mattresses?

Interviewee: [laughs] How do we have three air mattresses?

Interviewee: We have a sizeable apartment. We love to host friends when they come to San Francisco. So, we always have extra accommodations, you know, just in case. This opportunity allowed us to actually monetize those extra airbeds that we had in the extra space that we’re already paying for. See, we’re already paying rent for this space. So, what this idea allowed us to do is actually use that space to help pay off our rent.

Andrew: Okay. Alright. Then what was the next step? You’ve got now a website that works just for you? What are you doing after that?

Interviewee: Right. So, here we are. It was back in October, 2007. We did it one weekend. No idea of doing business. All of a sudden, maybe there’s something bigger there ñ trying to solve our own problem. Then people are saying, ‘Well, I have the same problem.’ At that point, you know, a few months went by. We kind of had other things going on in our lives. And I remember, Joe and I, we went home for Christmas. You know, you talk to your families. Everyone’s like, you know, you go home for the holidays. People say, ‘What are you working on?’ We probably bolted some of our conversations, ‘Well, you know, I’m doing this project and that project. But, we also have this other thing, airbed and breakfast.’ ‘Airbed and what?’ And you get to the conversation, and we started realizing everyone was real excited. They would love to do it. We came back from New Year’s. And, you know, I remember asking Joe a question. We both designers by trade. I asked him, ‘Who’s the best developer you know, best hacker you know?’ And it turns out that Joe’s old roommate that moved out so I could take the room was our third co-founder, Nathan Boszarsic [spelling]. He’s a really, really talented developer. He’s from Harvard and he funded his education by a business he started in high school ñ very impressive. He had already done a start-up before this. And at that point we’re like, ‘Well, we absolutely have to get this guy.’

Interviewee: Well, we knew, Andrew, that if we were going to take this site to the next level, two designers couldn’t do that on their own. So, we needed some really good programming expertise and that’s where we filled that void with our third co-founder, Nathan.

Interviewee: So, yep, yep. And this is after New Year’s. And we said, you know, at this point we’re still thinking like ‘let’s do something kind of manageable.’ We said, ‘Let’s identify the next really big event where there’s going to be a housing crunch and let’s try to provide housing.’

Back in February of 2008 what event was coming up? Well, South by Southwest in Austin, Texas. We thought that would be great, you know, very kind of early adopters, pretty connected. So, I remember Joe and I went to Nate’s apartment and we basically pitched him the idea, let’s start working on this. And he loved the idea. And the next thing he goes, ‘Alright. Great. How many months do we have to build this?’ We said, ‘We’ve got three weeks.’ And the way we got it ñ convinced him to do it is we didn’t call it ‘Airbed and Breakfast.’ We said, we just said like to Joe, ‘As long as you put the word ëlike’ after it, it won’t seem that bed.’ So, he said, ‘We’re not building ëAirbed and breakfast. We’re building ‘Airbed and Breakfast Like and it will be just this little website.’ And he’s like, ‘Okay. Okay.’ And we literally worked our butt off for like just only a few weeks for this. Really, I recall the first like robust version of the site. And at that vision did not have online payments like it has now. It was merely to provide housing for conferences. And that was kind of the first entry into the market.

Interviewee: That’s where we thought the market was is housing for conferences. That allows people to connect with each other when they go to a city for a conference.

Andrew: Okay. Can you describe what it looked like? And the reason I’m asking is I can ñ what I know about you guys from the research that I did before this interview, what I know from you guys by the fact that you took the effort to put a map behind you for my little dinky interview here with my Skype video that can barely even handle a call like this, it shows me that you guys care about design. It shows me that you guys care about the looks. It shows me that you guys probably internally are laughing your asses off at my sweater here. And so I want to know…

Interviewee: [laughs]

Andrew: Apparently even not holding back the laughter. What I want to know is for people who really care about design, what did you put out there as that first version and then what did it feel like to put that out there?

Interviewee: Well, the very first version, Andrew, we made in one night. When we put up our first website, we made it overnight cause we had to. The conference in San Francisco was literally days away. And I’ll never forget when we put the website up, we immediately had something to talk about and to share. And so what we did, is we wanted to get the word out. So, we emailed the site to

Interviewee: We emailed the site to as many design bloggers that we possibly could. And, Brian and I will never forget the morning we woke up, and suddenly there we were on, there we were on, and some of these premier design blogs talking about this idea that, had only came to us days before. And here it was being broadcasted to the world.

Andrew: And that’s just because the first page looked so good, that they were all talking about?

Interviewee: I wouldn’t go that far. I would say the idea was so orginal. It was less about the form at that point, and more about the idea

Andrew: Ok, because already existed. Craigslist already exsisted. What was different about you guys was the air mattress part, that it was going to be Air Bed and Breakfast, right? And that what was so interesting that people talked about?

Interviewee: Well, what made our site different, even from that very first one night iteration, was that we had a profile element to the site. We really wanted to know the people who were coming to stay with us, and let them know who they were staying with. So, that one little spark of just showing our picture, along with pictures of our place, information about where we went to school, where do we work. Our biography basically.

I think it was a convergence. On Couch Surfing, you saw the photo of the person. On Craigslist, you saw the photo of the place. But, on no website did you see both, like the person and their place. I think that was one really important ingredient that made it really compelling. I think the other thing that makes it compelling, was that especially the way we launched, we identified events. So, such that Craigslist, you may or may not have anything in common with the person. On Couch Surfing, you both have a common interest in couch surfing, but maybe not specifically in the conference you are going to. And that’s a really focused interest. I think

because of the those two reasons, you saw the designer, their place, and they were going to the same conference you were, and of course you were saving money but, you were getting a real accomodation. You weren’t necessarily getting a couch, you were getting a whole bedroom. They were making money. It was a great networking tool. I think all these things kind of made it very compelling

Andrew: Ok, by the way, I’m reading the chat room as we are talking and, AndrewSG, apparently it bothers him, that you guys are leaking linkjuice, that you are not maximizing your search engine optimization. Do you guys put any effort into it? And by the way, I understand, he’s a guy who’s passionate about that, and he must look at websites all day long and just freak out at the opportunities people are missing out. Do you guys do any search engine optimization? Is he right?

Interviewee: I admit, it’s a very new initative for us, and we think he is totally right. There alot of room for us to improve it. Our strategy, from where we came from it kind of explains. We started off just getting a lot of press. And we relied on press, and word of mouth to grow. Now that we are growing a bit more, we are having to get more serious about SEO, search engine optimization, and we’ve been having discussions very recently about improving that.

Andrew: Alright. Good observation Andrew. Ok, so, you guys are going to down to South By Southwest. You’ve built a site that looks a little bit better than that first site, what did second version, that what you call Lite version look like?

Interviewee: Well, it was pretty lite. It was pretty lite. We only had three weeks so, it had to be quick. We couldn’t spend a lot of time, you know, debating certain things, we just had to make quick decisions, get the site out there, get people using it.

The first version wasn’t much more than a quick little blog, kind of make-shift thing. The second version was a very very quick web app. I would consider it a web app but, very very quick. It certainly wasn’t a robust website like you see now. It had like five more pages that were key to the use, you know it had a little bit of content but, nothing too substantial. And at the history of our company, we never really went for the private beta, or the stealth mode. We’ve done a very mini series of iterations, and this only a second, and of course there are many more to come. So, we provided housing, I think we had like, 40 or 30, 30, 40 people listed…

Yeah, we had 30, 40 people list in Austin, and these are complete strangers by the way. This is the first time, these are not friends and family that want to help us out, these are people we never met before.

Andrew: Ok, let’s stop there. How did you get those people?

Interviewee: So, from the very beginning, we always try to get a lot of press. We tried to leverage the fact that people started talking about our story. And so, I believe that we have gotten a mashable blog post. It was a very little one. And the website wasn’t very substantial but, we did get blogged and…

Interviewee 1: … Mashable. We got a number of the old design press so all of our presses always started from a pyramid. We always get the smallest blog that anyone who wants to cover us to cover us and then go to the next guy and say well they covered us and you kind of like move up the ladder. So what we did is all the original blog posts, design sites, we tried to get them to mention us again. Of course, it wasn’t totally efficient, right. We had to get a number of blog posts just to get a couple users.

Later on we started to realize it’d be better to get more specific in targeting people and going to the city. At this point we didn’t know that. So this point, all we knew was people seemed to like to talk about us on the Internet. We should just keep getting people talking and people will find out more about us. So our strategy was to get a number of people to blog about us and of course we’re talking about 30 users. We’re not talking about thousands of users so the goals are pretty modest and we got pretty good press.

We’re able to get enough people – like 20 or 30 people, maybe 30 or 40 people – to post in Austin. This is about two years ago and we had a few people book rooms. One of the real turning points of the company is that Joe and I went and we used the site. It was the first time that we really started putting ourselves in the perspective of the user, using your own product. When we used the site, it changed everything. It changed the perspective about what a website like this should be and we totally changed all of our assumptions.

The first thing we changed was the idea that this should not be like Craigslist, that you should not exchange cash in person. And the reason why was because I had this amazing experience. I show up at the airport. The host was so generous because he decided to pick me up from the airport cause he figured well don’t bother getting a taxi. I know you’re coming in. I’ll come by. I’ll pick you up. His girlfriend was making us a Vietnamese dinner and he was a PhD student at the University of Texas at Austin. They had like a nice airbed laid out in the kitchen – in the living room, sorry.

They had this amazing dinner set up and at some point he turned around to me and said alright well where’s my money. It wasn’t like quite that direct but suddenly everything was cool and all of a sudden it wasn’t cool. It felt like very shady and we started to think to ourselves we can’t have people all over the world exchanging cash like this. It’s just gonna be really, really awkward. I believe maybe I had to like go to an ATM to get the cash and everyone’s kind of uptight. I remember coming back and telling [xx] we have to automate the payment process.

Now this is back in early 2008, right before people started worrying about websites making money. So of course for us, we’re just trying to have fun. We weren’t, of course, worrying about a revenue model. So it turned out that this was a revenue model, taking a transaction fee and facilitating payment through the site. But the reason we did it was truly from a user experience. We saw it was a horrible experience to have to pay cash.

The second thing we started realizing at the event was people started saying I love to use you to go to London but you don’t have an event on the website for London. Or I want to go use you guys … We talked to people at Austin, right, at the conference South by Southwest and they’d say I love your site. I want to use it to go to wherever next week or … There was no conference on our website to do that. So we started thinking to ourselves: a) maybe there should be payment through the website and b) maybe this is bigger than conferences.

And it never occurred to us before that. I mean it kind of did but not really cause we started thinking well the real problem is conferences because hotels get sold out and people want to know who they’re staying with.

Interviewee 2: The turning point Andrew was when people started emailing us from London, from Tokyo, from Vancouver, from Miami. They either were writing cause they wanted to travel through our service or they wanted to host through our service but at the time we were just housing for conferences. You had to list a room to an event. When the event was over, the listing went away. So those two fundamental changes have altered our direction of the company. Online payments. This is the first time you can book a listing online with your credit card and it’s now a travel site. You can travel anywhere in the world regardless of an event.

Interviewee 1: So this is back in … Now we’re right around April of 2008. So here we were. We built a first version that was like a one-day website and the second version was like a three-week website. Then we went back to Nate and basically went to the drawing board and said all right we’re going to start over one more time. At this point we didn’t have very many users and we said let’s start it all over and we’re going to do two differences now. Now, you can book a room on the site. So you can put in your credit card and we had a saying: three clicks to the book-it button. Had to be three clicks to the book-it button.

Andrew: Let’s say that slowly so that I hear it and also the transcribers hear it. Three clicks to what?

Interviewee 1: The book-it button.

Andrew: Three clicks to the book-it button. So I land on the homepage, I don’t click more than three times before I get to the book-it button so that I can book the room.

Interviewee 1: Right and that was unique because on our site previously you had to sign up, find your event, add your profile, contact people. There was this long flow. We decided that what would make our site revolutionary and different than Craigslist were …

Andrew: Alright, let me dig into what you just said right now. First of all, Brian, I think I saw your personal email address and your personal phone number on the press page of Air B&B. So, you’re the guy who’s handling all the press up until now?

Interviewee: Joe and I have done a lot of the press together.

Andrew: But you don’t have [sounds like edr] person. It’s in-house. It’s done the way that you’ve described?

Interviewee: Exactly, exactly. And we try to be extremely accessible to press. Like, we don’t want put up, we never really put up press releases. I think we tried to put out one when we first launched, but ever since then that really didn’t lead to anything. We always try to go directly to people. We’ve always tried to work our way up the kind of pyramid. That’s our general philosophy. Start with bloggers, once they cover you ñ Usually what happens is the mainstream media seems to want to type in like a Google or in the sea of other people I’ve already covered. For big, big stories they want to be the exclusive. But for a story like ours, they want to first see if other people are covering it. And if other people cover you, and, you know, the smaller the blog, the more likely they are to cover you and the more they appreciate you reaching out to them. And you just kind of work your way up. And, you know, any relationship we have which I’m going to call today. So, we always try checking anyone who’s written a story about us, check in with them, say, ‘Hey, you wrote about us in Austin for South by Southwest. We’ve got something really cool we’re working on now.’ So, we just kind of follow up.

Interviewee: Then people in Denver saw the news. They started to listening to The Room. NBC covered us. Then the local CBS saw the NBC piece. So, then they wanted to do a story with us. And then, I think, The Rocky Mountain News and a couple, The Denver Post saw the TV news. So, they wanted to do a piece. So, all of a sudden we’re starting to get interviews. In the meantime, we created a really funny, viral kind o video on YouTube. There was like basically an Obama like song that we created. And it turned out that CNN had seen that video. And I think they had been hearing about the press just from the local news in Denver because some of this stuff, at this point, was going out the wire.

And then one day we get an email from CNN saying that they want to do an interview with us. And it was actually not much different than what we’ve done now was through this Skype connection or remote interview. And, you know, as soon as we did that interview, we went from literally a couple of guys, a few guys in an apartment, no money, no real like traction to all of a sudden like being in the New York Times, CNN. It really just snowballed. It started with a low press blogs. It branched out to local news, local newspapers, then, I think, TechCrunch had covered us. We sent an email to TechCrunch saying like, ‘All these people are covering us. You should cover us.’ They did. And then we worked all the way up to CNN and New York Times. At that time, you know, a lot of people had heard about us and we got on many newspapers.

Andrew: Alright, let me dig into what you just said right now. First of all, Brian, I think I saw your personal email address and your personal phone number on the press page of Air B&B. So, you’re the guy who’s handling all the press up until now?

Interviewee: Joe and I have done a lot of the press together.

Andrew: But you don’t have [sounds like edr] person. It’s in-house. It’s done the way that you’ve described?

Interviewee: Exactly, exactly. And we try to be extremely accessible to press. Like, we don’t want put up, we never really put up press releases. I think we tried to put out one when we first launched, but ever since then that really didn’t lead to anything. We always try to go directly to people. We’ve always tried to work our way up the kind of pyramid. That’s our general philosophy. Start with bloggers, once they cover you ñ Usually what happens is the mainstream media seems to want to type in like a Google or in the sea of other people I’ve already covered. For big, big stories they want to be the exclusive. But for a story like ours, they want to first see if other people are covering it. And if other people cover you, and, you know, the smaller the blog, the more likely they are to cover you and the more they appreciate you reaching out to them. And you just kind of work your way up. And, you know, any relationship we have which I’m going to call today. So, we always try checking anyone who’s written a story about us, check in with them, say, ‘Hey, you wrote about us in Austin for South by Southwest. We’ve got something really cool we’re working on now.’ So, we just kind of follow up.

Interviewee: Well, the thing about this, Andrew, going back to that summer of 2008, we didn’t have the money. And all we had was our time. So, this was the most frugal way that we could think about in press is just hustling, you know, digging into Google, finding reporters who are writing stories about his problem, you know a very high profile problem. And we offered them a very high profile solution. And they absolutely ñ they bit into it.

Andrew: By the way, thank you guys for your hooking up the Ethernet. It’s so much clearer now. And now I feel like we’re having a real conversation.

Interviewee: There we go.

Andrew: Alright. Something that you guys told me in the email before the interview was that you have multiple launches. What do you mean by that and how does that help you get press?

Interviewee: Right. So, you know, we’re only like halfway through the story of the launches. And it was funny, cause we spoke at [sounds like Why Commondator] and, you know, the kind of thing we tell people whenever we’re giving advice is, ‘Don’t go for the superbowl launch. Don’t go for one single thing. You don’t have to worry about exclusive story.’ You think about it, we had our first launch, the one day website; the second launch was South by Southwest. That was like the three week website. The third launch was in August of 2008. It was this thing we’re just talking about. And we actually had like three or four kind of like launches after that as well. So, you know, when you’re a very small company like you have the opportunity to retell your story many, many times, as long as every time you tell it, there’s something different about it. So, for us the first story was in our apartment. That was a different story right. Then our story was regarding housing for conferences. The next story was we’re solving this crisis. After that, what did we do next? Well, logically, the D&C worked so well, we did the same exact thing in Washington DC for the inauguration. And, it turns out that the people that covered us in CNN did another piece on us, and then even more people covered us. We got on New York Times, Wall Street Journal,

Interviewee: …the Guardian, international press this time, all around the world. We did a live interview with the CBC in Canada. So…

Interviewee: Yeah, and it was just about building relationships, following up, getting more stories. And, you know, we’re also extremely aggressive about the press. Every, every corner, we try to contact as many people as possible, and just tell our story in a really interesting way.

tell our story in a really interesting way. And I think people really responded to it.

One other thing we’re leaving out that was totally off the wall, it’s going to seem like it’s coming from left field right now, so I’ll just kind of set it up a little bit, because it has nothing – it doesn’t have seemingly anything to do with our business.

We had this really, really crazy idea, so here’s kind of what happened. This is maybe one of the most remarkable parts of the story. So here we were. We had been working the site for close to a year now, like eight months, nine months, and after nine months we had gotten a bunch of press at DNC. We still didn’t have a lot of users. We started to get some. We weren’t making a ton of money, and you can only go so long without. We hadn’t taken any investment money and so at this point, you can only go so long without any money. At this point we’re like we need to start making money. Instead of going right after trying to get investments, we decided let’s try to do something resourceful within ourselves to make money.

We were brainstorming originally at the Democratic National Convention and maybe even for the Republican National Convention. What would be something we’d give to host so that they could give to their guests as like an exchange? Be kind of a fun social interaction. We were thinking it would be cool if it were airbed and breakfast, if they could give them breakfast. We could send them a breakfast to give to the travelers. But of course we’re not going to mail them eggs or anything. We’re going to have to send them a non-perishable. So we thought what would be a non-perishable that was easily brandable? And of course to use that seemed like cereal. It was the kind of thing that you’d leave out on the table in the morning.

So we started to thinking let’s do an air B&B, DNC and RNC themed cereal. And because of our design backgrounds, we really, really had fun with this project. It was kind of a diversion that turned into a huge sensation, or at least way beyond what we ever expected. So we created Obama themed cereal and a John McCain themed cereal.

I can even tell you, Obama themed cereal was ObamaOs. We got basically Cherrios. We just called them ObamaO, the breakfast of change. And for John McCain’s cereal we called it Captain McCain’s, a maverick in every bite, because John McCain was a maverick and a captain in the Navy. And actually we have the boxes.

Andrew: Captain McCain and ObamaOs. There’s an ObamaOs box and a Captain McCain cereal. All right.

Interviewee: A maverick in every bite.

Andrew: That’s awesome. A maverick in every bite.

Interviewee: So the thing about these cereals, Andrew, we did it for mainly one reason, and that was to get press. We thought that this would be a really unique item to send out to media outlets during the height of the elections, right. Everybody was talking about Obama. People were reporting on really fun stuff like this, but the other thing that it got for us besides press is if you look on the top, you’ll see that each box is individually numbered out of 500. So we did a limited production run to make it a collectable item and we actually sold these through the website.

It just so happens that we ended up selling out of the ObamaOs. Each box sold for $40. It was a collector’s item. People we so enthusiastic they were willing to pay $40 for these. They’re beautifully, really it was like we tried to pay attention to every little detail, so even the bar code –

Andrew: [Laughter]

Interviewee: Really tried to pay attention to all the details to make it really beautiful.

Andrew: The bar code looks like, I guess, an elephant or a donkey.

Interviewee: The donkey, exactly.

Andrew: There’s the donkey.

Interviewee: So we ended up funding the company in these early days through the sale of breakfast cereal. And we ended up close to

Andrew: Are you guy in the live audience, are you as excited as I am about this? I love you guys. Now that we can actually talk and hear each other, this is awesome. This story’s incredible.

Interviewee: Yeah.

Andrew: For any company, for any group of guys who are worried about making money to come up with one of these ideas that you guys had is tremendous, but to come up with them one after another after another after another makes me say how? How are you able to come up with all these ideas while, by the way, you’re not just in college. You’re not just smoking a bong. You’re not just hanging out. You’ve got responsibilities. How do you do it? I’d like to be able to crank out great ideas like this.

Interviewee: How do we do it? Well, so we have a background in design and I remember we used to be in studios together and we would literally just – I think what happens is, we don’t just sit around and have a light bulb idea. This idea came from a conversation. It actually very much evolved. So the first thing was it would be cool to be able to give a breakfast to somebody. And like, okay, that’s cool. We’re talking about it for a while. We’re brainstorming. We don’t immediately have the brilliant idea. It’s kind of, you know it takes a bit of time for us to realize that we should end up doing a cereal, a non-perishable that we can brand. Okay, we’re going to do a DNC cereal, RNC cereal. As we’re talking about this, then we start saying, well, there’s all this Obama propaganda materials. We should treat an Obama themed cereal

Interviewee: McCain theme cereal. At that point we’re like, OK, we’re creating an Obama theme cereal, a McCain theme cereal, we’re brainstorming. At this point, we were just brainstorming names. But, I guess the key was, we didn’t just one day we’re going to create oh, Obama O.’s. It was very evolutionary. We were then brainstorming names for Obama O’s, names for Cap’n McCain’s. I think it’s a constant conversation that we have. It goes back and forth, back and forth, and as you’re talking about things you basically get excited. And, as you get excited, new ideas pop up.

Andrew: And, how do you figure out where to have this stuff made? And how do you go through the trouble of having it all made? Sometimes, I get too into the tactics but, I’ve got to tell you, you have these ideas, they seem great, you go and try to execute them and you realize it becomes a big diversion to your regular business. Which is getting people to actually use the site. I’m wondering how you guys got over that hurdle?

Interviewee: Well, at the time Andrew, our big problem was awareness. We built the product, the product was great, it was working fine. We just needed to let people know it existed. And so this cereal was just an answer to that question. How do we let people know about us, in a really unique way? Because, here in San Francisco, everybody is starting a startup. Everybody has a company that’s trying to get press. So, how do you rise above the noise level of hundreds of thousands of companies all contacting the same reporters. Well, you do it through something that’s completely original and completely unique. And that like, they get this and they’re captivated. They’re telling everybody in the office about it, they’re calling to interview us. So, the cereal’s really just answering that question of how we create awareness about the site, through a really fun, creative way. Tactically speaking, I think the cereal and a lot of elements of the website go back to where Brian and I went to school. We studied and we met at the Rhode Island School of Design in Providence. And, RISD has a tremendous workload that, if anything, you graduate with an amazing work ethic and the ability to just take this abstract problem and turn it into something tangible. And so …

Andrew: I’m sorry, go ahead.

Interviewee: I was going to lead into Y Combinator, now.

Andrew: Before you get into Y Combinator, let me make sure that I’m checking out the chat room. Rob in the chat room is saying, 40 bucks a box. So, you sold it for 40 bucks a box on the website, but you gave it to reporters for free. He’s then doing the math and saying, I think you guys said that you sold 1,000 boxes. Does that mean that you brought in $40,000 from these things?

Interviewee: Like maybe 800 boxes, around. So like, $30,000.

Andrew: $30,000 came in to you guys just for this cereal?

Interviewee: Right.

Andrew: Were you guys what Paul Graham calls, Ramen profitable? Were you guys Ramen profitable before the cereal?

Interviewee: No.

Andrew: No. It was still your own money that you were pouring into the business. Were you Ramen profitable after the cereal?

Interviewee: I would say no. I would say the cereal only basically helped us keep going. But, it was a temporary injection of capital.

Andrew: Why? Where was the money going? You had three guys who were working on the site, each coming at it from a different direction. What else did you need financially?

Interviewee: Well, really, it was just supporting three people to work on a website for a year without any salary.

Andrew: So, to be able to pay your rent, to pay your food. So, when guys who go through the Y Combinator program tell me that they needed the money in order to live while they were building their business, you really do need the money in order to live.

Interviewee: Right. You’ve got to pay your rent, you’ve got to pay your food and, at this point, we’d been working on the site so long. I didn’t have savings, at this point, I was literally living week by week.

Interviewee 2: I think we both racked up substantial credit card debt that year.

Andrew: How much credit card debt did you guys rack up?

Interviewee 2: Let’s just say thousands of dollars.

Interviewee: Thousands of dollars.

Andrew: I personally got into personal debt starting my first company of $70,000. And, even when we had money, and my brother told me, pay it off, I refused to pay it off because my ritual was, once a month, sitting with all these credit cards and paying one card off with another. And, I said, that’s grounding me, that’s reminding me to not get carried away when I see these huge sales numbers and to think like a human being and to feel a little bit of pressure about smaller dollars. So, I see. You guys were in a similar situation. You’re now running a business that’s got a little bit of traction, you need to take it to the next level, how does Y? Oh, one more thing before we continue. Back story. We refer to this business as AirBed and Breakfast or Airbnb. A couple of people in the chat room didn’t hear of the site, before. So I want to make sure that they know it used to be called AirBed and Breakfast. You simplified it, now it’s called Airbnb. Ok, so how does Y Combinator fit in?

Interviewee: So, after we did the cereal, here we were. We had a lot of confidence. A number of people knew about the website but, it wasn’t even close to Ramen profitable. We still had the Chuck and Nate problem. People are listing the rooms.

Interviewee: …in the room, some people are booking but clearly we still didn’t have enough momentum to keep going. We needed something from the outside to like kind of keep us going. And it wasn’t just the money. We felt like we really needed a great coach or mentor, somebody to get involved. By the way, after a couple months after selling these boxes we literally were in such financial hardship that I started literally eating the Cap’n McCain’s because we couldn’t sell all the Cap’n McCain’s. So I was just eating those.

Interviewee 2: I woke up one morning and one of these boxes was ripped wide open on the kitchen table. I’m like, ‘Is there a rat in here?’ Ron’s like, ‘No. I got hungry for dinner last night…’

Interviewee: That was what I…no food, no money at that the point, that’s what we’re eating. So we’re pretty desperate again and we decided on a whim to just apply, last minute to Y Combinator. We had already launched, you know. Plenty of perspectives on if you’ve already launched should you do Y Combinator? Long story short is we ended up getting in Y Combinator. And I remember on the interview we brought the cereal. And Paul Graham said, do you remember him saying like he wasn’t entirely sure of the idea? He said, while it sounds different but you guys sound like ñ I think he said ‘animals’. He’s like, ‘Relentlessly resourceful is another way of putting it.’ He said, ‘You guys just seem like you’re going to do whatever it takes to succeed.’ We basically said, ‘Well, yeah absolutely. And hopefully we’ve proven that so far.’ So we went into Y Combinator and there was a real turning point for us. Paul Graham really helped us focus on a single market. So while we’re all over the world, I remember Paul Graham…we’re sitting in Mountain View California and this is the very beginning of Y Combinator at this point and he basically asked us, ‘Outside of events where’s the majority of your business?’ And of course we didn’t have a lot of business but the little business we had, the majority of that was happening in New York City, for various reasons, right? The hotels were really expensive in Manhattan so our business was in New York. And so we told Paul, ‘Well, Paul the majority of our business is in New York City.’ And then Paul looks at us and he says, ‘Well you’re here in Mountain View. The majority of your business is in New York City. Why are you in Mountain View? Why don’t you just go to New York City?’ And we’re like…it was kind of a profound idea at the time. We’re like,’Really? We should go to New York City?’ So we ended up literally like booking a flight and Joe and I went to New York City and we decided to hit the ground and ju

st basically go practically door-to-door ñ not quite, but pretty close to door-to-door, like meeting every single one of our users in New York. We met them, we’re talking about the website, we brought cameras with us. We took like…we’re designers so what we consider professional or very high quality photos of their places. We held a party where they could all come meet us, get them really excited about the business, tell them, get them to bring their friends then we’d tell their friends to join the site. And the first trip we went we came back from New York and revenue, which was super, super flat, went up. It still wasn’t substantial we came back from New York and all of a sudden all of our bookings in New York went up. The quality of listings were better, more people listed and all of a sudden our bookings went up. And we started thinking to ourselves, ‘Well, it seems like every time we go to New York, the revenue goes up. So we should go back to New York.’ So we literally we go…we come back to Y-C for the Tuesday night dinner, work for a few days, Nate would be back here doing all the real work on the website, and then Joe and I would fly back to New York. We’d fly back again. Do the same thing. Throw a bigger party. Photograph more properties. Meet more users. Kind of really working the grounds. And that was really, really important early days. The other reason it was important was we started using our site. We started realizing all the things we thought were awesome about our website were terrible. And we had no idea. But now we’re trying to book we’re like, ‘Oh my God! This is annoying.’ So we started realizing I want to see bigger room photos because I can’t really get a sense of where I’m staying. And so we basically redesigned the website. We really put a lot of time into design and we just kept going back to New York. We kept meeting our users. I think there’s a really important lesson here and that is if somebody watches will

say ‘Well, that sounds really cool but that doesn’t scale.’ Like, if you’re going to have a million people on your website, if this is going to be a really interesting business one day, you’re going to want a million people and you can’t go door-to-door and meet everyone, all a million people. The answer is, right. It doesn’t scale. And the lesson that came from Paul Graham was do things that don’t scale. Do things that don’t scale. And for us that was our version of do things that don’t scale. Why? Because that was our one opportunity, while we still were small, to meet our users and kind of instill our values and the vision we had to the early people. And also learn from them.

Interviewee 2: It was weird. Up until this point, Andrew, we’d be here in the apartment in San Francisco and making decisions about things to do with the company and if the discussion ever came up, ‘Does that scale?’ If the answer was, ‘No,’ we didn’t do it. And we thought that everything that we did here had to someday support hundreds of thousands to millions of users. And it wasn’t until Paul Graham essentially…I feel like he gave us permission to go out and do things that absolutely don’t scale at all. It was the fundamental thing that changed our company.

Interviewee: And it was a fundamental thing that that changed our company.

Andrew: You know what? I saw that in our email exchanges and I wanted to come in here and talk to you about it, because I thought you guys were going to say do things that scale and then come up with a cute way of really telling me to do things that do scale, because it didn’t seem logical. You’re building a growing business. Why would you want to do something that doesn’t scale? So, I get a better understanding of it from what you’re telling me now, but I want to challenge that a little bit to get an even clearer understanding. What’s the purpose of doing something that doesn’t scale when you’re trying to build a business that grows?

Interviewee: Well, I mean, I think, if you don’t, if you’re not willing to do things on a different scale, you may never get to the point where you have to scale to begin with. Alright, I think at such an early stage in the company, it’s so important to be in touch with your user base. I mean, the conversations that we’ve had with our hosts in New York City shaped our business, shaped the design of our website, it shaped the policies on our website. They told us what they wanted, and this goes back to another Paul Graham, you know, quote is, make something that people want, and so those, by going door to door, by sitting down having coffee and tea sometimes for hours with our hosts, they told us exactly what they wanted, they said, hey if your guys added these features, if you added this button, this function, I would love your website, and all of the things that they told us actually weren’t that hard. So we come back to San Francisco, we make the updates to the website, and people would just be so happy back in New York, they’d go, oh my gosh, the cofounders flew out to see me, they listened to what I had to say, they changed the website to accommodate me, I love these guys, I’m going to start using them even more than I have been.

Interviewee: Right, and one of the other really important things is that we didn’t really until we started meeting people, what it would take to make this idea interesting. I’ll give you a specific example, when we first created the website, we had really small room photos, the room set up photos were probably like maybe three inches by three inches on the screen, that, two hundred pixels by two hundred pixels, something like that, they were really very, very small. We started, we’d see a small photo, then we would go to the apartment and we’d go wow, this place is beautiful, I would have never known the apartment, I would have never booked it unless I showed up here and realized how beautiful it was. So we said, we should take photos of this, we took photos of it and we went back and we realized, we should be showing bigger photos on the website. We would have never known that, had we never done that, and the other idea, this is actually something that Paul Bookite who’s one of the speakers at Why Conner as well, he said, he said, make something that a hundred people love and it may take a year, it may take two years for a hundred people to love it that that’s the biggest, you know, the hardest thing to do, not to get, not to make a million people fall in love with you, but make a hundred people fall in love with you. Because once a hundred people fall in love with you then, if you are in a market where like there’s many more people like them then you’ve basically solved the problem. It’s, but for us, we had to meet people one by one until they literally, like fell in love with our website, and we’d spend as much time, until a hundred people in New York fell in love with our website, and the idea was, if a hundred people in New York fell in love with our website, then a hundred people in Paris would, a hundred people in Boston would, all the people in New York, their friends would. We’d rather have a small base that really was passionate and loved us and the only w

as to do that was to like basically live with our users, many people say talk to your users, we literally booked rooms and stayed with our users, we’d live with them, we visited all of them, we had parties, we’d observe all the problems they were having and one other interesting thing happened when we did that. So, you remember, our website was still called Air Bed and Breakfast, we thought our niche was to provide like air beds and bedrooms, that was kind of what we thought about it, couches, airbeds and living rooms. When we met people, we realized, people said, you know I really would like to rent this whole bedroom out or this entire apartment and it actually turned out that our very first power user was a musician, this is actually an unbelievable story, so we go to this guys apartment and he lives across, he has a beautiful place across the street from Carnegie Hall, this guy turns out to be Barry Manilow’s drummer and Barry Manilow’s drummer changed the course of our company forever. Because we met Barry Manilow’s drummer and we realized that he didn’t he didn’t want to just list his bedrooms, he wanted to list his entire apartment. Why? Because he goes on tour with Barry and they go to Providence, he goes to Boston, they’ll be away for a week at a time, and suddenly we found ourselves in a situation where we had a user, a really passionate user, that wanted to, you know, list his entire apartment on our website. That was an entire user base that we didn’t even realize wanted to use our product. As soon as we did that, we decided, why don’t we add the option to rent out your entire home, your entire apartment on our website. It turns out that that’s a huge portion of our business now, we made not have even known that. We opened that new case up and it really started to change things in the course of our ‘Whycominator’.

Andrew: I see, alright, that’s really intense user experience, that’s really intense, well I did an interview with Eric Stephens who did, who does listening labs for companies

Andrew: He brings users into his office and he watches them interact with websites. He watches them interact with random sites, with Google, with his competitor sites, with his own site and, just by watching them, he’s able to see where they stumble. Seems like you guys did that to a much more intense degree.

Interviewee: Right.

Andrew: And maybe this doesn’t scale, but I can see how this could continue being part of a company, part of a growing company. You can always send people in to watch your users. You can always send people in to use your site. You guys can always keep experiencing it.

Interviewee: Right. We still use a product. We still host people. We still travel and we just came back from, New Year’s Eve, where we had a meet up in New York City. And, I think, 150 people came. Our very first meet up in New York was another crazy story. A long story short, we had, I think, one person come to our meet up. And it was really awkward because it was like me and this other person. That was like the big meet up. Me at a bar with all these shots and then one other person. I thought like a hundred people were going to be there. But, on New Year’s Eve, this year, we had 150 people. So, the community’s super important. The reason why is that our users are meeting in person. We’re very sensitive to that. And so, we want to be able to be in touch. We don’t want to be in the ivory tower or, over here in San Francisco, when people are meeting in Buenos Aires and meeting in Paris and meeting in New York. We want to go to these places. We went to Paris. We’ve been to London, Miami, Vancouver, LA, Chicago, DC, Boston. We have already traveled to a significant number of cities and we plan to visit more, as well.

Andrew: I hope you guys come to Buenos Aires, where I am. I’m not listed, but if you guys come, I’ll list myself just to have you guys over. Alright?

Interviewee: Deal.

Andrew: Let’s see, let’s see what else I’ve got here in my notes. I wanted to find out about how your design is just so intuitive and now I’ve gotten an understanding of it. Ad buys. A couple of people … Oh, actually, before I go to my question. AndrewSG, in the audience, is saying, Really? You guys didn’t understand that bigger pictures and better descriptions would lead to more bookings? Now, in retrospect, it seems obvious. Why do you think that at the time it didn’t seem as obvious as it does now, to us, in retrospect?

Interviewee: Well, I think that you can answer that question by saying that, in retrospect, our business seemed obvious. Right? You’re looking back. Didn’t this business seem entirely obvious? Well, at the time, all our friends, they’re really smart, they didn’t really piece it together. In fact, our photos were still bigger than craigslist photos. Craigslist, they have four tiny little photos. Our room photo was the same size. We thought that was OK. On CouchSurfing they had a big profile photo, but there was no listing room. So, we figured, we took the photo from CouchSurfing, the photo from craigslist, put them together, that was interesting to us. And, I agree that looking back it seems so obvious, except that we talked to so many people and our entire business, not just the room photos, our entire business didn’t seem obvious. Until we started doing it. Now, everyone looks back and says, why didn’t I think of that. But, it turns out, as you can see for us, it wasn’t like we had this brilliant idea one day. It was very [xx].

Andrew: Alright, let’s go back to what was the year that you guys presented to Y Combinator?

Interviewee: So, it was exactly a year ago. We did the winter of ’09.

Interviewee 2: January of 2009.

Andrew: OK, let’s say this. Let’s go back in time, you guys get the OK from Y Combinator, they say, Yes, we’re going to give you the money. They tell you what share of the business they take. Let’s assume, five minutes afterwards, Andrew Warner walks up to you and says, Guys, I’m gonna give you the exact same money as Paul Graham. I’m gonna take half the equity, but I’m gonna live in Buenos Aires where I’m gonna do my interviews. I’m going to be hands off, I’ll check in with you guys later. Remember, half the equity, same amount of money. What do you say? In retrospect, even.

Interviewee: In retrospect, I wouldn’t have done anything differently than working with Paul Graham. The value wasn’t the money.

Andrew: Tell me about that. That’s what I’m getting at.

Interviewee: Right, right. The money, in fact, I don’t think we used a good portion of that money from Y Combinator. Because, over the course, within the first few weeks in Y Combinator, we started going in to New York. Also, we actually became profitable, over the course of Y Combinator. The revenue we were making was then funding our operations. The money became the least significant part of Y Combinator. And, I hear discussions on [xx] or other websites, debates about whether Paul Graham gives a good valuation, or whether it’s worth the money. And, the thing I can tell you is that Paul Graham, for us, and this is our personal experience. We made sure that we knew when we were giving away the equity and we were going to Y Combinator, the value wasn’t the money, the value is Paul Graham. We were sure that we wanted to get as much time with Paul Graham as possible. So, we took the opportunity. We met with him numerous times before Y Combinator even started. It was over the Christmas holidays we were meeting with him. During Y Combinator.

Interviewee: During Y Combinator, even though we’d be in New York City, we’d be the first ones at Y Combinator dinner. We were almost always the first ones at every Y Combinator dinner. We met him once a week, sometimes twice a week. We spent a lot of time with him. He was one of the people that inspired us to do certain things; like show big group photos on the home page in really nice places. At the time before that, we didn’t even do that. Maybe that also seems obvious looking back, but he was really providing guidance. He was the one that gave us permission to do certain things. I think he’s seen so many startups, that he knows patterns. He can’t motivate you. He can’t do that. That’s not what he does. But if you are already motivated, he knows. He’s seen enough startups that he can start to pick up patterns. And for us that was super, super important.

Interviewee2: Any problem that you’re going through during Y Combinator, there’s a very, very high percentage, or high probability that he’s seen it before and he’s seen how other people have solved it. He’s just full of so much information and great advice and if he doesn’t know the answer to it, the other value behind Y Combinator is the comradery that you have with the other twenty plus companies that are sitting next to you ñ to your left and your right- people who are really, really smart, and really, really ambitious and they are in the same boat that you are. They have a great idea for something and they’re just trying to get traction, trying to get it off the ground to the next level. So there’s a great team mentality of all these really smart minds during the Y Combinator class.

Andrew: I’m using to broadcast this live and I’m having a little bit of issues with it. I think they made a change and maybe my system is not ready for their change. People can’t hear us live for some reason. I’ll reboot the live stream for them. Sorry guys. Let’s give them a little bit of sound. Now I see why people like the transcripts. The transcripts don’t have any of these bugs. Actually, no. The transcripts also have their own issues. I use Mechanical Turk for that and Mechanical Turk is done by strangers who sometimes do a great job and other times just flub it on purpose. Alright, almost ready. I’ll just tell them it crapped out. Okay, alright, we’ll just go right back into it. Alright, we have a little bit of an edit here. Had some trouble with the live audience. I needed to work on the feed. Let’s get back into the interview and I had another question about Y Combinator. I don’t want to make this into just a Y Combinator interview, but I’m fascinated and I’ve talked to so many entrepreneurs who that just by going through the process have told me that their whole business turned around. You guys are telling me that it turned profitable just through the Y Combinator process. I’ve talked to several startups that have gone through it who’ve said that guys like you who have already built your business before going through Y Combinator, have an advantage over people who in the short period that they are in Y Combinator have to come up with a business, get it off the ground, launch it and then present it to investors. What do you think about that?

Interviewee: I totally agree. In fact, I think that there’s this kind of misconception of Y Combinator, that you enter Y Combinator with an idea and over like a few months, you build a product and it gets traction and then by demo day it’s suddenly a viable company. And I don’t think that’s how it works. I go back to us ñ it took us a year just to figure out what we were doing. I think that had we entered Y Combinator back in even March of 2008 or the year before, we would not have been where we are now. My advice is for people to have already kind of figured out…already have something going. They’ve already kind of struggled through an idea and figured it out. I think those are the people who have the best advantage. I wouldn’t use Y Combinator to necessarily figure out what you want to work on. I’d use Y Combinator when you know what you want to work on and then Paul Graham can help you and steer the right way. I think it was a huge advantage. And the other advantage was we had something. We met with Paul Graham, I think maybe more than anyone else in Y Combinator…

Interviewee: …or as much as anyone else. We met him a lot. The reason why is on Day 1, you know a lot of other people they don’t have a product done, they’re like, afraid to talk to him or there’s not really much to talk about. Even before Y Combinator, we had already launched. So we were meeting with him like, many times before it started. And then, on the first day we’re at comment, we’re having meetings about users and bookings. We’re going thru the site and spending a lot of time. It wasn’t like we had the last 2 weeks to show him our product. We were, you know…..We had the entire course of Y Combinator to have all the people and our group test it, Paul try it. We were like changing things. I think that was a huge advantage. And I recommend people, if they are considering Y Combinator, you really need to invest the time upfront before you enter. I think you get more out of it.

Andrew: Now I want to understand how he does this, and I’m gonna have Paul Graham here on Mixergy soon. We’re just picking out a date right now. What can I ask him that will give me insight into his process? I want to learn the way that you guys want to learn from him.

Interviewee: Hmmm. Hmmm. That’s a good question. Yeah.

Andrew: You know what? You want to give it some thought offline? And if you have any ideas of what I can ask or what kind of insight I should be pulling from the interview, let me know by email. I want to get as much value from that interview that I can.

Interviewee: Yeah

Andrew: You know what, because here’s the thing. He’s very thought out and very methodical, but at the same time, a large part of his process seems mysterious. Like he’s thinking through how…how many computers he has at his office. Or he has one that’s offline and one that’s online so that when he’s doing work and doesn’t want to be distracted he can go to his offline computer (according to one of his essays). He’s thinking through a lot of things very methodically. But a lot of times when I talk to guys like you…you tell me that he came up with an idea that changed everything but that idea seemed to come out of thin air somehow. It’s not like he said, ‘We have this 5-step process. Go do the 5-step process, trust me. C’mon guys, you’re young, you don’t understand it, this process works for all my companies, go do it.’ No, he’s saying, ‘I got the idea for you. Go fly to New York. You guys came all the way here…get out of here. Go fly to New York. That’s my idea.’ BOOM! And I’m gonna interview so many other Y Combinator companies, not one of them is gonna say, ‘He told me to go fly to New York.’ There’s no formula here that I can pick up on.

Interviewee: Right, there is no formula. I think what he does is he listens very well to exactly, like, what your situation is, what your problem is, he’s very imaginative and like he’s not gonna, the thing is, like he’s not gonna think of the idea of your business. He’s gonna think of like, things that you haven’t thought of, to tackle a problem. And for us, our problem was, we had to get to better know our users, we had to, right, that’s what we needed to do. And so he thought of the idea to go to New York. How does he think of these ideas? I mean, I think that he’s just….maybe that’s one of the questions to ask him. Like, you can ask him specifically in our situation. How did he know to tell us to go to New York? When a lot of other people would have said, ‘Are you seriously going to fly all the way to New York to like meet, like, 10 different people for a weekend? Like why would you think that’s a good idea?’ No one else thought that was gonna be a good idea. In fact, I think we totally went off. They said that would be a terrible idea. We said, ‘Well, Paul Graham said to do it.’ So we’re like, alright well, we’ll give it a try. How did he know to tell us to do that?

Another thing to ask…what does he look for in people? Because a lot of times I think that Y Combinator will actually take a company on not necessarily because of the idea but because of the team behind it. So I think he has some intuitive sense of like, what makes a great team that can tackle any idea. It really doesn’t even matter what the idea is. They can take on any problem, the team is there, the chemistry, the ambition, the drive…he’s got a really good insight into that.

And I think in our case, he invested in the team. And I think that, you know, after we showed him how passionate we were; showed him what we went through making Serial , I think he saw a certain quality. So, understand what qualities he sees in founders.

Andrew: He’s the one that turned you guys profitable?

Interviewee: Maybe he would say that he helped us do that. But I do think that….Without Y Combinator we would not be where we are today.

Andrew: You haven’t lost the profit? You’re still profitable today? You haven’t lost it?

Interviewee: Yep

Andrew: Ok. In the chatroom, I’m getting a note here saying, ‘Andrew…’ Basically what this one guy’s saying, is that ‘My love for this whole conversation is getting a little bit weird.’ Alright, let’s move on.

I’m fascinated by Y Combinator. You can’t keep doing interview with entrepreneurs who are just, who are just hitting the ball over and over or who are doing well, over and over, and keep telling you that it’s because of this one program and not say ‘Wow. There’s something to this friggin program. There’s something amazing here.’ If people told me there was something else, I’d be just as passionate about that something else.

Alright. Ad-vise. I did some research for you. I Googled you guys. I Googled all kinds of words that would lead me to you guys and I saw that you guys were buying ads in Google. Right?

Interviewee: Yep

Andrew: How big a source of traffic is that for you? What percentage of your overall business is coming from Google now?

Interviewee: There’s maybe like 4 fundamental ways that we get traffic, but theres many others

One is just word of mouth. People use this: press. Press is like the thing that starts it. Then after people use it, word of mouth kind of keeps that going. And the other two big things are, they’re very unique to travel. They’re uniqe to every sect but travel is specific. SEO and SEM and they’re becoming more important to us. We can’t disclose exactly the amount of revenue coming from them, but as, I think Andrew had mentioned SEO, we have alot of work to do. I would agree. We have a lot of work to do with SEO. And with SEM we also have alot of work to do. But we know that in our key markets it makes sense because our traffic is monetizable and our business model is very simple. We take a 10% transaction fee, so if we can aquire a user for a certain dollar, we know exactly the conversion rate we need to have in that user to be able to afford those keywords. And so we go after our key markets, our key cities. You probably typed in New York, maybe you typed in a couple other ever popular cities. We buy up the common keywords people are searching in those cities and as long as the conversion rate is high, then SEM works well for us. And SEM in the travel space is of course an important factor. Though, it’s just one piece. I think ultimately word of mouth has been the thing that’s helped us by far the most because we don’t pay for that. And those are the most passionate users.

Andrew: We went way over with this interview. But Joe, let’s end it with this. What’s next for you guys, Joe?

Interviewee: Well, 2010 is going to be a big year for Air B&B. I think 2009 we used to figure out a lot of the parts of the product, a lot of parts of our customer service. We’ve kind of built our operation now. So I think 2010 is really the year where you’ll see Air B&B in more international cities all around the world. I think there’s just so much opportunity, not only in the United States, but abroad as well. So I think you’re going to see Air B&B in just major major cities all around the world. Paris, London, Madrid, Barcelona, Rome, Berlin.

Andrew: Buenos Aires.

Interviewee: Buenos Aires. We’re San Francisco Bay’s company so obviously we started in the United States and we have substantial traction here now. But I think really just going worldwide with this, really taking the success we’ve seen here in the US to the countries that have the key cities all around the world.

Andrew: And you guys venture backed. Did you need any funding after YCombinator?

Interviewee: Yeah. After YCombinator, we were able to reach profitablility and we’ve used our revenue to fund our operating expenses.

Andrew: Ok, so you don’t have to sell at any point soon to satisfy investors.

Interviewee: No, No.

Andrew: You can just continue at your own rate.

Interviewee: Right.

Andrew: And Rob in the audience is saying, did he say earlier that there was a… no not Rob, somebody else is asking “”Was there 10% margin?”” No, it’s 10% of the transaction cost, right? If I spend 100 bucks to rent a room through you guys, you guys end up with 10 bucks from that.

Interviewee: That’s right.

Andrew: And did you guys tell us what the revenues were for the business?

Inteveiewee: Yeah, we’re not disclosing that.

Andrew: You didn’t. Can you give us a sense of where they are? Are we over a million a year yet? Are we over a million a month yet?

Interviewee: Yeah, we can’t disclose that.

Andrew: Ok, fair enough.

Inteveiewee: So if that’s cool.

Andrew: I’ve got to ask.

Interviewee: Yep.

Andrew: But I understand completely that you wouldn’t say it yet. 10 years when we look back on this I’ll come back. I’ll do another interview.

Interviewee: Then we’ll tell you.

Andrew: Then you can be more open. Alright, any last words? Anything else? Any other advice you want to give entrepreneurs who are starting out?

Interviewee: Oh yeah, we have one. We would like to end with one email that a user… So this is our advice and then we’re gonna end with the email. Our advice is the polygram says to make something people want and be kind of tweaked out a little. Our kind of saying in the company is make something people need. You absolutely should make something people need. Joe’s gonna read an email from a user.

Interviewee 2: I’m just going to show you the subject line of this email. Can you see that? It says: You saved us. So this is from an actual user and they go on to write “”Hi Air B&B. I’m not exaggerating when I tell you that you literally saved us. My husband and I, married last May, after having lost both of our jobs and our investments in the stock market crashing last year, we slowly watched our savings dwindle to a point where we didnt have enough to pay our own rent.

At that point, I had recently listed our New York City apartment on your site and was receiving so many requests that we decided to rent out our place and seek low cost vacation accommadations for ourselves elsewhere. We saved enough money to rent another apartment across the hall that we now have listed on your site as well. You gave us the ability to keep our home, travel together, and gave us the peace of mind knowing that we are going to make it through this challenging time in our life. Thank you so much.

Andrew: Oh wow. That’s awesome, so you guys are making them into hoteliers.

Interviewee: There’s many many stories like that from all around the world.

Interviewee: but there’s many others. One is just word of mouth. Press is like the thing that starts it. Then after people use it, word of mouth kind of keeps that going. And the other two things are,

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