Airbnb: Joe Gebbia (2017)

We're hard at work planning our upcoming live show, so we bring you this favorite from the last year: Airbnb. A chance encounter with a stranger gave Joe Gebbia an idea to help pay his rent. That idea grew into a company that now has more rooms than the biggest hotel chain in the world. PLUS in our postscript "How You Built That," we check back with Michael Vennitti of TP Foam, a company that came up with a way to squelch the smell of trash. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Guy Raz?

  Hey, it's Guy here. So we've been super busy working on a bunch of live shows this summer. And in fact, this very Thursday, check your podcast queue for my conversation with the founders of Reddit. Alexis Ohanian and Steve Huffman are incredibly insightful and also very, very funny. You'll hear a lot of laughs from the live audience in San Francisco, so stay tuned for that. And for more live events coming to your cities and towns throughout the year. But right now, we've got one of our all time favorites from the HIBIT archives, so enjoy.

• 0:36Speaker 01

  We ended up going from zero to 800 homes in a matter of four weeks. And I have to tell you, I thought that this was it. Like, this was our rocket ship to the moon.

• 0:46Guy Raz?

  You thought, we made it. We're here. We got it.

• 0:48Speaker 01

  Right. If you build it, they will come. And look what's happening. And so we get introduced to 20 investors in Silicon Valley. 10 of them replied our email. Five of them met us for coffee. Zero invested in us.

• 1:10Guy Raz?

  From NPR, it's How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.

• 1:23Guy Raz?

  On today's show, the story of how a side hustle to pay rent led Joe Gebbia to build a company that now has more rooms than the biggest hotel chain in the world.

• 1:40Guy Raz?

  10 years ago, even five years ago, most of us would have thought the idea of renting out a room in our home to a complete stranger, a little creepy. Even spending the night in someone else's home you never met would probably seem weird, especially on vacation or a business trip. But now, it's not just normal. It's actually the preferred way to overnight for millions of people around the world. Even celebrities do it. And the company that made all of this normal, of course, is Airbnb. And the guys who started it had no background in travel, or hospitality, or even technology. Joe Gebbia graduated from art school at the Rhode Island School of Design. Brian Chesky, his co-founder, was Joe's college buddy.

• 2:25Guy Raz?

  They played pickup basketball together. And after they graduated in 2005, both Joe and Brian moved out west. Brian went to LA, Joe went to San Francisco. And in that first year, Joe, who was designing book covers at a publishing house, worked really hard to convince Brian to move up to San Francisco to start a business. And as Joe tells the story, after some prodding, Brian agreed.

• 2:50Speaker 01

  Both of us simultaneously quit our jobs. He left his-- I was at Chronicle Books full-time at that point. And I left to dream up something with him.

• 3:00Guy Raz?

  And you guys were like in your mid-20s or--

• 3:00Speaker 01

  I was 25.

• 3:05Guy Raz?

  So you didn't need a whole lot of money, presumably?

• 3:07Speaker 01

  At this point, no. We're just a couple of college grads, you know, eating ramen.

• 3:11Guy Raz?

  Yeah. Why does everybody eat ramen? Everybody eats ramen.

• 3:14Speaker 01

  It's so cheap.

• 3:15Guy Raz?

  There's like, ramen, ramen, ramen. I mean, you can get rice.

• 3:18Speaker 01

  It's rice, cereal, too.

• 3:20Guy Raz?

  Anyway, so you guys are there. You're eating ramen. And what, you're just like spitballing ideas?

• 3:26Speaker 01

  We're spitballing ideas. And that first week was so exciting.

• 3:29Guy Raz?

  You mean, the first week he comes, you're like--

• 3:29Speaker 01

  Oh, my god, yes. I mean, that first week felt like Rizzi again. This place was full of ideas. And then, something ominous happened. A letter came in the mail. I open it up. It's addressed to me. I pull it out, and it's from our landlord.

• 3:46Guy Raz?

  Yeah.

• 3:46Speaker 01

  Who politely states that our rent is now 25% higher than it was the month before.

• 3:54Guy Raz?

  Wait, just in one month, he raised it by 25%?

• 3:56Speaker 01

  25%.

• 3:57Guy Raz?

  And that's legal?

• 3:59Speaker 01

  It was not under rent control.

• 4:00Guy Raz?

  OK.

• 4:00Speaker 01

  Believe me, I looked into it.

• 4:01Guy Raz?

  Yeah. And so were you like freaking out?

• 4:04Speaker 01

  Of course. I went, ran to my online banking and was like, oh, my god, oh, my god. Can I make rent next month? And Brian did the same thing. And we realized that we almost couldn't. We weren't getting paychecks at this point.

• 4:15Guy Raz?

  Yeah.

• 4:16Speaker 01

  So this is a moment where-- Our backs are against the wall and I feel like all the creative training that we had received started to pay off because we started to think about, okay, well, how can we design our way out of this? And that was when I reflected on a previous experience that I had back in Providence. The day before that I drove cross-country, I sold off all my stuff. And when I was having that yard sale, this guy pulls up in the red Mazda Miata and he starts looking at my stuff. And I'm getting pretty annoyed because I'm ready to go home. But he ends up buying a piece of art that I was selling. So we get to talking and he tells me all about how he's about to go into the Peace Corps

• 4:58Speaker 01

  and he's driving cross-country and he doesn't know a soul in Providence. So I invite him out for a drink that night. And I make the mistake of asking him, so where are you staying tonight? And he makes it worse by saying, actually, I don't have a place. And I'm thinking, oh, man. I mean, what do you do?

• 5:18Guy Raz?

  You have to give him a place.

• 5:19Speaker 01

  Like, we've all been there, right? Like, do I host this guy? So before I know what I'm saying, I'm like, hey, you can stay on an airbed in my living room. So that night, I set him up in the living room and I go to bed and I try to fall asleep. I'm staring at the ceiling thinking, oh, my God. What have I done? There's a complete stranger in my living room.

• 5:40Guy Raz?

  Yeah.

• 5:40Speaker 01

  What if he's psychotic? So I get up, I tiptoe to my door and I lock my bedroom door. The next morning, we wake up, we get breakfast together. It turns out, he was not psychotic and the piece of art that he bought hangs in his classroom. He's a teacher now.

• 5:55Guy Raz?

  And he's still, presumably, you're still in touch with him?

• 5:57Speaker 01

  Yeah. His name's Joseph. We're still in touch.

• 5:59Guy Raz?

  So this is the dude that inspired what would eventually become Airbnb. So how did you, so you're in your apartment, your rent's going up 25% and what, you say, let's just rent out a room in our apartment?

• 6:10Speaker 01

  Well, I'm looking at my laptop and there's a design conference that's coming to San Francisco, the Industrial Designers Conference, right? And on the conference website, in big, red letters, it said, hotels sold out. And I'm thinking, oh, man, what a bummer. Designers want to come last minute, they're not going to have a place to stay. And in that instant, I look up and I'm looking around the living room and I go, wait, we have so much extra space here. And I have airbeds in the closet and the idea of hosting people on airbeds had gradually become natural to me. And the thinking is, there'll be more than just the place to sleep. We can cook breakfast in the morning. We'll pick them up from the airport. We'll give them a neighborhood guide and a map to San Francisco.

• 6:51Guy Raz?

  So how did you get the word out? How did the designers know that this was available?

• 6:56Speaker 01

  Well, we didn't want to use any of the classified websites because there's going to be people in our home. So we made our own.

• 7:02Guy Raz?

  What do you mean you made your own?

• 7:04Speaker 01

  Well, we designed our own website.

• 7:05Guy Raz?

  But so you designed your own website that said what?

• 7:08Speaker 01

  Well, it said who we were. It said about this concept of stay with us and we'll provide these things for you.

• 7:15Guy Raz?

  So this website was just for the design conference?

• 7:18Speaker 01

  That's it. This is meant to be for one weekend.

• 7:21Guy Raz?

  And what did you call the website?

• 7:22Speaker 01

  It was literally called airbedandbreakfast.com. And we start to get emails from around the world, designers who needed a place to stay. Emails from London, from Brazil, from Japan. People actually started sending us their resumes, their LinkedIn profiles, to vie for one of these limited three airbeds.

• 7:46Guy Raz?

  And for how much was it?

• 7:48Speaker 01

  For $80 a night. You could stay in San Francisco with Brian and I.

• 7:52Guy Raz?

  That's a great deal.

• 7:53Speaker 01

  It was an amazing deal.

• 7:54Guy Raz?

  And do you remember who your first guests were?

• 7:56Speaker 01

  Yeah. So it was Mole, Catherine, and Michael were the first three guests. And, you know, what happened next, I don't think we could have predicted. They stayed with us and we got to show them San Francisco. They got to feel like they belong there, in the sense that they didn't feel like outsiders. You know what I mean?

• 8:17Guy Raz?

  Yeah.

• 8:18Speaker 01

  And I'll never forget saying goodbye and watching the door click closed and thinking with Brian, wait, what if we made it possible for other people to also share their experience and to host guests in their home and show off their city?

• 8:34Guy Raz?

  Yeah. Wait, at what point did you and Brian look at each other and go, OK, man, I think this is our business? Was it like right after that door closed and clicked and they left?

• 8:43Speaker 01

  I wish it was, but I can't say that that was the case. So that December, we both went home for holiday. And at our respective New Year's years parties, everyone would ask, so what are you doing in San Francisco? Say, well, we're entrepreneurs. Well, what are you entrepreneur-ing? And we didn't really have very much, other than to say, well, let me tell you about this time where we hosted these three guests on air beds in our apartment. And one of two things happened. People either said, oh, my God, that's the coolest thing in the world. Where can I do that? Or they said, that is the most bizarre, creepiest thing I've ever heard, and they left the conversation.

• 9:18Guy Raz?

  Yeah.

• 9:19Speaker 01

  And I think one of the things that I've learned is that great ideas, I think they usually start out as polarizing. They're not kind of like, eh, that's kind of OK. They either really tug on somebody's emotions or a latent desire that they have that's never been answered before, or they really perturb them in some way. But as long as there's people who really gravitate towards the idea, to me, that's a signal that you might be on to something.

• 9:42Guy Raz?

  So what'd you do? How would you guys do next?

• 9:46Speaker 01

  Well, we knew that we needed a great technical expertise. And funny thing, the roommate who moved out so that Brian could move in was a guy named Nate Blacharsik. Nate was an engineer who found me on Craigslist. And as we lived together, there were some similarities in how Nate and I worked, which is that we'd come home from our day jobs, and in the evening, we would both work maniacally on our own projects. And I'd look over my shoulder, I remember thinking to myself, this guy has a work ethic just like I do. If I ever need an engineer, I think I'm going to call Nate. So here we are, January of 2008.

• 10:30Speaker 01

  So I meet Nate for a drink, and I tell him about this weekend experiment with these three guests. And Nate loved the idea. He's like, we can use the internet to actually get people off the internet. How cool is that?

• 10:43Guy Raz?

  And he had these, like, this coding experience that neither you nor Brian had.

• 10:48Speaker 01

  He has a computer science degree from Harvard. Yeah, he sure did.

• 10:51Guy Raz?

  So I guess at this point, you have your team assembled, you've got your idea, you have your website. So when do you really decide to launch it?

• 10:59Speaker 01

  We all agreed that we would launch the next version of our site, Airbed and Breakfast, at the next big tech conference. Because actually, we thought the original opportunity was housing for conferences.

• 11:10Guy Raz?

  Right.

• 11:11Speaker 01

  So the next big one that was coming up was South by Southwest.

• 11:16Speaker 01

  And every year, the same thing happens. Hotels sell out months in advance. People scramble for housing. And it's also the place where some of the tech greats had launched before us. Twitter had launched, there were Foursquare and others. And we thought, well, this is perfect. We're just going to follow the rocket ship that all of them did.

• 11:32Guy Raz?

  Yeah.

• 11:33Speaker 01

  So at this point, we have about three weeks to build before South by Southwest. I'm doing design, Nate's doing the coding. We're just pulling the pieces together.

• 11:41Guy Raz?

  And no money at this point?

• 11:43Speaker 01

  Oh, no money at all.

• 11:44Guy Raz?

  Just doing this, just like on shoestring?

• 11:47Speaker 01

  Half a shoestring.

• 11:48Guy Raz?

  Yeah.

• 11:49Speaker 01

  So we get it out just in time. We ship it.

• 11:52Guy Raz?

  When you say you ship it, what do you mean?

• 11:54Speaker 01

  We release the next version of the site.

• 11:56Guy Raz?

  OK.

• 11:56Speaker 01

  And we think this is the next greatest thing.

• 11:59Guy Raz?

  And at this point, there's not a single listing on it, right?

• 12:01Speaker 01

  Not yet.

• 12:02Guy Raz?

  OK.

• 12:02Speaker 01

  We actually had six people put up listings in Austin, and we had two people book those listings.

• 12:09Guy Raz?

  Oh.

• 12:09Speaker 01

  One of them was Brian.

• 12:11Guy Raz?

  Wow.

• 12:15Speaker 01

  So it was not a smashing success at all.

• 12:17Guy Raz?

  Did you get, were you guys sad, or were you laughing about it?

• 12:21Speaker 01

  No, this was completely demoralizing.

• 12:24Guy Raz?

  Yeah.

• 12:24Speaker 01

  Here was this idea that we were so excited about, and nobody took us up on the idea. So we learned two things from Austin. The first was that exchanging money in person is really awkward, especially inside of a home. So we thought, well, why do people have to exchange cash in person? What if we just bring the transaction online? What if we allowed people to seamlessly pay with their credit card, same as you would for traditional accommodations on the internet? But instead, you get somebody's home.

• 12:58Guy Raz?

  Right.

• 12:58Speaker 01

  And suddenly, we realized we had a business model. We said, well, maybe we'll just take a transaction fee as we flow the funds from guest to host. The second thing we learned is that there were people who did want to travel where there weren't conferences taking place. They're emailing us, including our first three guests, Catamol and Michael Remus. Hey, I'm going to Vancouver next week. How do I stay in somebody's home? I had such a good experience with you guys. And we're like, well, is there a conference going on? And we said, well, why does there need to be a conference? Maybe this is just a travel site. So we went back to Nate, and we said, well, Nate, let's add payments, and let's make this a travel site. And Nate started to warm up to the idea,

• 13:39Speaker 01

  but it had some real questions about how to get a marketplace like that started.

• 13:44Guy Raz?

  So he started to build something even more ambitious?

• 13:47Speaker 01

  Well, actually, he moved back to Boston to be with his girlfriend. And so kind of, you know, the band's falling apart a little bit. And that's when we had an idea, which was, what if we relaunch this new version of our service and we do it at the crest of a tidal wave of press? Which, in summer of 2008, was Barack Obama. And specifically, Obama speaking at the Democratic National Convention in Denver, Colorado.

• 14:15Guy Raz?

  Yeah.

• 14:16Speaker 01

  Where there was a housing crisis because 100,000 people were anticipated to see Obama speak and there were less than 30,000 hotel rooms, most of which were picked up by delegates. So this was a real problem. In fact, the mayor of Denver, at one point, thought about opening up the city's parks so people could camp out.

• 14:37Guy Raz?

  Hmm.

• 14:38Speaker 01

  And we thought, well, what if we timed the relaunch of our service? This'll be the third launch. During the DNC, we can ride the coattails of all the Obama press to bring a lot of awareness to this marketplace. And so that's exactly what we did. We hustled, we flew to Denver, we met people on the ground, we got local press, which turned into regional press, which turned into the national press, and eventually international press.

• 15:00Guy Raz?

  Wow. And so this is still weeks before the convention, right?

• 15:02Speaker 01

  Yeah, this is like July 2008.

• 15:04Guy Raz?

  And what happened?

• 15:07Speaker 01

  Well, we did a live interview with CNN from our living room, and we had about 100 people actually book and pay with a credit card through our service, which this was like the first sign of a working viable marketplace, even to the point where we were getting customer service calls for the first time.

• 15:27Guy Raz?

  Yeah. And that just like was your cellphone?

• 15:30Speaker 01

  Yeah.

• 15:33Guy Raz?

  How did it go?

• 15:35Speaker 01

  It went great. We ended up going from zero to 800 homes in a matter of four weeks.

• 15:41Guy Raz?

  So 800 homes are on this site called Airbed and Breakfast.

• 15:45Speaker 01

  That's right. And I have to tell you, I thought that this was it. Like, this was our rocket ship to the moon.

• 15:52Guy Raz?

  You thought, we made it. We're here. We got it.

• 15:54Speaker 01

  Right. If you build it, they will come. And look what's happening.

• 15:57Guy Raz?

  And they came, yeah.

• 15:58Speaker 01

  And then the convention ended. And all of those numbers came crashing right back down. So here we had a dilemma. Because at this point, we'd also started talking to investors. We thought, well, this is a great time to talk to investors. Our numbers are up.

• 16:13Guy Raz?

  Yeah.

• 16:13Speaker 01

  Look, it's actually working. We have stories that we can share. We've got press. We get introduced to 20 investors in Silicon Valley. 10 of them replied to our email. Five of them met us for coffee. Zero invested in us.

• 16:28Guy Raz?

  Wow.

• 16:29Speaker 01

  It was completely demoralizing.

• 16:30Guy Raz?

  Yeah.

• 16:31Speaker 01

  Like, 2008 was the worst year of my life.

• 16:33Guy Raz?

  Really?

• 16:34Speaker 01

  Oh, my gosh, yes. Because you've put so much into this thing, right? Like, I didn't have-- there was nothing else going on in my life, except this. And to put it in front of very credible investors, the guys that have picked the Googles and PayPal's and YouTube's of the world, and for them to look you square in the eyes and go, well, this is weird. I'm not investing in this.

• 16:52Guy Raz?

  What did they say? What-- why?

• 16:54Speaker 01

  Well, they didn't say this, but here's the underlying reason. It's because we've all been taught since we were kids that strangers equal danger.

• 17:02Guy Raz?

  Right.

• 17:02Speaker 01

  No one in their right mind would invest in a service that was based upon this pitch that we want to build a website where people publicly post images of their most intimate spaces, their bedrooms, their bathrooms, the kinds of rooms that you usually close when people come over. And then, over the internet, they're going to invite complete strangers to sleep in their homes. It's going to be huge.

• 17:25Guy Raz?

  So this is like, after the conventions, you're thinking, we got it. We're going to get all this, make all this money and all-- or raise all this money. And all of a sudden, you get back to San Francisco, and nobody wants to give you any money.

• 17:36Speaker 01

  Exactly. Nobody.

• 17:39Guy Raz?

  So how are you keeping the business going if you didn't have any cash?

• 17:43Speaker 01

  We did raise a round of financing. We call it the Visa Round.

• 17:47Guy Raz?

  Which means you maxed out your credit cards?

• 17:51Speaker 01

  You know those binders where you keep baseball cards?

• 17:53Guy Raz?

  Yeah.

• 17:54Speaker 01

  I had one of those, except there weren't baseball cards in it. There were credit cards. We would go through Visa after Visa to MasterCard, and then finally to Amex, just maxing out credit cards. And that's how we funded ourself. And I can tell you, like, there's no worse feeling than getting a credit card statement that's only going up with no hope of ever paying it down.

• 18:14Guy Raz?

  Yeah.

• 18:14Speaker 01

  There's a name for this, by the way, in the startup world. There's a name for this phase of a company where you have a product in the market, but they don't fit yet. It's almost like two gears that don't touch. There's this mysterious gap between these metal gears.

• 18:29Guy Raz?

  Yeah.

• 18:29Speaker 01

  That you can't figure out how to close the gap. And they call this the trough of sorrow. It's this long period of time where you don't have product market fit. And in the data or the analytics, it looks like the Midwest of analytics, because it's perfectly flat. There's zero growth.

• 18:49Guy Raz?

  And this is when people tend to quit?

• 18:51Speaker 01

  This is when people tend to quit.

• 18:57Guy Raz?

  In a moment, when we come back, how Joe Gebbia and his partners eventually climbed their way out of that trough of sorrow. I'm Guy Raz, and you're listening to How I Built This from NPR.

• 19:19Guy Raz?

  It's How I Built This from NPR. I'm Guy Raz. So it's 2008. Joe and his partners have no investors and a lot of credit card debt. And they're trying to figure out how to raise cash.

• 19:33Speaker 01

  It was at this point that Brian and I are in the kitchen late one night. It's like 2:00 in the morning, and we're just trying to keep each other's spirits up. And it's during the peak of Obama versus McCain. This is like September of '08.

• 19:46Speaker 01

  And we're riffing on this idea of being airbed and breakfast and providing, maybe we gave our hosts some breakfast cereal to give to their guests. Wouldn't it be funny if it was politically themed? Oh, yeah, we could call it like, uh, Obama O's, the breakfast of change. Or maybe Cat McCain's, a maverick in every bite. And we actually ended up making breakfast cereal.

• 20:08Guy Raz?

  Wait, you made breakfast cereal? Like, actual cereal to eat?

• 20:13Speaker 01

  Well, it's a good question, which is, how do you make breakfast cereal?

• 20:17Guy Raz?

  Yeah.

• 20:17Speaker 01

  And how do you do it with, not at zero budget, but a negative, you're in a deficit, by the way?

• 20:21Guy Raz?

  Yeah.

• 20:23Speaker 01

  So, you know, I picked up the phone, I called Kellogg or General Mills, and started going through the pitch, and then I go, hello? Hello? They had hung up on me. And then it dawned on me, well, maybe we don't have to make cereal. Maybe we can just go to the grocery store, buy some cereal off the shelf. We could design our own box and, and put the bag of cereal in our own box, seal it up, and, and sell it that way.

• 20:47Guy Raz?

  Just sell it on the street?

• 20:48Speaker 01

  Well, maybe we'd make a website. We know how to do that.

• 20:51Guy Raz?

  So this would be, this would be instead of Airbnb, or in addition to it?

• 20:54Speaker 01

  No, at this point, we weren't really sure.

• 20:56Guy Raz?

  Yeah.

• 20:57Speaker 01

  Then the question was, well, how do you make the boxes? So I found an illustrator, I did the art direction, pulled all the pieces together, and I found a RISD alumni in the East Bay, here in San Francisco, that... I went in, and, you know, I poured it all out to this guy. I said, you know, here's the idea, the concept we're really excited about, here's the mockups and sketches. And he goes, all right, here's what I'll do. I'll make 500 of each box. You guys don't have to pay me upfront, but pay me a commission based on every sale. And it dawned on us that with 500 of each box, well, that was a limited edition. That was a collector's item. We could number them on the top of the box out of 500. And suddenly, we decided we could sell a box of Obama Os and Cat McCain's for $40 a box.

• 21:43Guy Raz?

  What? This is just a crazy story. I don't even, I don't even, I've forgotten about Airbnb. Where, where are we going? What's going on with this interview?

• 21:53Speaker 01

  So we made...

• 21:55Speaker 01

  Look, it's an entrepreneurial bender going on here. So, we make Obamos.com. We get the boxes of cereal. We put 100 boxes together and we mail them out to all of the press that we could mail to. Every morning show had a box of these. So, we ended up getting featured on all of these different shows. CNN did a live interview with us about breakfast cereal. And we were the number one politically themed video on CNN.com for an entire day. And after that CNN interview, we ended up selling out of Obamos, which is incredible.

• 22:29Guy Raz?

  But where did you think you were gonna go from there?

• 22:32Speaker 01

  Well, it almost didn't matter because at $40 a box, times 500 boxes, we made $20,000 in breakfast cereal.

• 22:39Guy Raz?

  Yeah, that's a lot of breakfast cereal.

• 22:41Speaker 01

  Which was barely just enough to pay off our credit cards.

• 22:43Guy Raz?

  All right, so you pay off your credit card bills and then, what, you go back to Airbed and Breakfast?

• 22:48Speaker 01

  Well, we got to this sort of fateful dinner one night with one of our mentors. It was Michael Seibel and Justin Khan. And so, we're out to dinner with them and they had been helping us the last couple of months and we're kind of like at the end of the rope and they can tell and they're like, "You guys need some help. You should participate in this incubator program called Y Combinator." So, we're at dinner and we look it up on our phones and the deadline was the night before. So, we're like, "Ah, come on." But they end up emailing the guy who runs it, a guy named Paul Graham, who they knew. And they say, "You know, hey, Paul, there's these guys, they've got this concept and they'd really benefit from being in your program. Would you take a look at their application if they send it to you?"

• 23:32Speaker 01

  And Paul writes back and says, "Yeah, if they get it to me by midnight tonight."

• 23:34Guy Raz?

  Wow.

• 23:35Speaker 01

  So, Brian and I race home. It's like 10 o'clock at this point. We start to fill out the application. It's pretty intense.

• 23:40Guy Raz?

  Yeah.

• 23:41Speaker 01

  So, the next day, we get this callback that our application got accepted. So, we got to the next round, which is an interview. So, we prepared in advance. We would grill each other with all of these really tough questions. "What's your growth rate? How do you plan to expand internationally? What's the next big feature you're gonna build?" Et cetera, et cetera. And so, we go into the interview. It's in a small, tiny room at the Y Combinator office. And there's four partners around the table. We sit down and the very first thing out of Paul Graham's mouth is, "You mean, people actually use this?" And we go, "Yeah." And he goes, "Well, that's weird."

• 24:18Guy Raz?

  Wow.

• 24:19Speaker 01

  Well, you say that's not a great way to start an interview of any kind. It kind of went downhill from there. We're walking out of the room, kind of thinking like, this is our last chance effort, and it didn't go so well. And that's when I remembered that I had brought a box of Obamas to give to him as a gift. So I go running back into the room. I whip out the box, I hand it to him, I go, hey, Paul, we got this for you. He goes, oh, where'd you buy this? I go, well, we made it. He goes, what do you mean, you made it? And I told him the story in 60 seconds, and he goes, wait, so you guys funded your company based on selling breakfast cereal? And he immediately turned around and put the box of cereal on the shelf behind his desk.

• 24:58Speaker 01

  On the ride home, we get a phone call from Paul Graham to inform us that he'd like to offer us a spot in the Y Combinator program. And we later found out that the reason we got in wasn't because of our idea. It was because through the breakfast cereal, we had proven to him that we had hustle, we had grit. If we could figure out how to sell breakfast cereal for $40 a box, we could figure out how to make our website work.

• 25:29Guy Raz?

  All right, so you get into Y Combinator, and what does it do for you guys? What happened there?

• 25:38Speaker 01

  Y Combinator was a game changer for us. And I'll never forget the first office hours that we had with Paul Graham. He sits down with us, and he goes, where's your market? And we look at each other, and we're like, ah, we don't really have a market. No one's really using the website. But we go, you know, New York is showing some promise. We have 30 hosts in New York who are renting their extra rooms out in their homes. And he goes, so let me understand, your customers are in New York City, but you're here in Mountain View? And we're like, yeah, we're here for your program. And then he goes, what are you still doing here? Go to New York City. And he points his finger at you.

• 26:22Speaker 01

  He's got this thing where he looks at you and points his finger. And it was in this moment, sitting in this room, this tiny room, where something profound changed for us. Because up until this point, we had subscribed to the mythology of Silicon Valley.

• 26:38Guy Raz?

  Yeah.

• 26:39Speaker 01

  Which is that you have to solve things in a scalable way.

• 26:42Guy Raz?

  Right.

• 26:42Speaker 01

  Because what happens when one day, the rocket ship takes off? You don't want to get left behind because your code held you back. And so, we had tried to solve our problems by coding our way through it. And if you remember, that didn't get us anywhere because we were in the Midwest of analytics.

• 26:59Guy Raz?

  Right.

• 27:00Speaker 01

  And so, here comes Paul Graham, who gave us permission to do things that don't scale, such as fly across the country and meet the early adopters of your service.

• 27:09Guy Raz?

  Yeah.

• 27:10Speaker 01

  And it was in that moment that we felt so much more free to think even more creatively about how we could get our service off the ground. If you could do things that don't have to scale, what else could we do? And as we start going through the search results and looking at the hosts, we identified a pattern. And the pattern was this. People just generally didn't know how to take a good photo of their home. So the photos were really bad.

• 27:36Guy Raz?

  So the photos that you had on the site at that time were just crappy photos?

• 27:41Speaker 01

  Well, you know, people were using their camera phones. At the time, it was like flip camera phones, which is even worse. They were taking pictures at night. It just wasn't, they weren't merchandising their home in a way that you would want to stay there. So therefore, no one was booking them. And we thought, you know, I went to art school. I took some photography classes. I've done photography my whole life, in fact, as a hobby. I'm willing to bet, if we just flew out there for a weekend, we could probably take some nicer photos. And we wouldn't charge them for it, we'll do it for free. So that weekend, we bought plane tickets. Brian and I flew to New York. We emailed our hosts, all 30 of them. We rented a really nice camera and went door to door throughout Manhattan, Brooklyn, and other parts of New York. And it's funny because I'd knock on the door and then they'd open the door

• 28:26Speaker 01

  and I'd introduce myself as, hey, I'm Joe. I emailed you from Airbnb. And they're kind of like looking over my shoulder. So yeah, where's the professional photographer you promised? I go, well, that's me, too. I'm also going to take the photos for you.

• 28:38Guy Raz?

  Yeah. So you're the guy taking the photos?

• 28:41Speaker 01

  So yeah, I'm taking photos. And what's cool is that the photos are looking pretty good. I'm getting the lighting right, the composition. You know, I'm kind of staging the place a little bit, just fluffing the pillows and making sure that the place doesn't look cluttered. And I'd show the photos on the back of the camera, say, hey, what do you think? Do you like these? And these hosts were like, oh, my God, my apartment looks amazing. I can't believe it. Do you want to stay for some tea or coffee? And so I'd end up spending a few hours sometimes in their homes just talking with them. And this is where instinctively, we went into design research mode, which is going out and talking to the people you're designing for

• 29:24Speaker 01

  such that you can understand the world from their point of view to inform your point of view.

• 29:30Guy Raz?

  Yeah.

• 29:30Speaker 01

  And so I call this enlightened empathy, which is seeing the world so closely in the shoes of the person that you're creating for that you can see the world the way they see it. And you bring those insights back and you combine it with your own design point of view to create something new.

• 29:50Speaker 01

  So here we are in the living room. They pull out their laptop. I say, could you show me how you check your calendar? Show me how you message with guests. And in those moments, we saw how our perfectly designed interface completely and utterly failed.

• 30:08Guy Raz?

  Why?

• 30:08Speaker 01

  What we thought took two or three clicks to get done, people were taking 10, 12 clicks. They were stumbling around, getting lost within our own website.

• 30:17Guy Raz?

  And you guys did not know that up until that point?

• 30:19Speaker 01

  We had no idea. And so it wasn't until we actually sat down next to our early adopters, some of our most passionate early customers, and they revealed to us the mysterious gap between our product and our market was the inefficiencies of our user interface.

• 30:38Guy Raz?

  Yeah, I mean, what's interesting about this is that you don't strike me as like an egomaniac or somebody who doesn't like feedback. You strike me as somebody who really wants it. And it's surprising that it took you guys so long to discover this.

• 30:50Speaker 01

  I know.

• 30:51Guy Raz?

  Right?

• 30:51Speaker 01

  I know. But once we did, it was like a jackpot.

• 30:56Guy Raz?

  Yeah.

• 30:57Speaker 01

  So we came back with all of our discoveries. Something interesting happened. Our numbers that second week went from $200 a week in fees, which is what we were making for six months, right? Which is not sustainable. Three guys cannot live off that in San Francisco.

• 31:16Guy Raz?

  Right.

• 31:17Speaker 01

  Our numbers jumped to $400 in one week.

• 31:21Guy Raz?

  In one week, just from pictures and making a couple of simplified changes?

• 31:25Speaker 01

  Well, I looked at Nate, I said, Nate, is there a bug in the system? Because that's just, that's just crazy.

• 31:29Guy Raz?

  Yeah.

• 31:30Speaker 01

  How did we double in a week? And sure enough, we had done more reservations with the hosts that we had met. And what's, what's very interesting, Guy, is that we didn't know this at the time, but because New York is such an international destination, we had guests coming from Berlin, we had guests coming from London, from Sydney, from Vancouver, who were coming as guests, experiencing this new service of staying in somebody's home. They'd go back to where they came from and they'd have this epiphany moment, this aha. They'd go, wait, I have an extra room. Why don't I rent that on the site?

• 32:04Guy Raz?

  And they would sign up.

• 32:05Speaker 01

  And they would sign up.

• 32:06Guy Raz?

  Yeah. So, so at what point did you, were you able to actually attract money from investors? Was it around that time?

• 32:14Speaker 01

  It's precisely around this time. So what I've learned is that when the gears start to click, investors can hear that. And they actually, this time, they came to us. And we had offers coming in from a variety of different groups. And the one that shocked us the most was Sequoia Capital, which was a, is a preeminent venture capital firm in Silicon Valley that we thought, well, maybe one day, like a year from now, we'll go talk to them. But actually, they were knocking our, our door to talk to us. And we ended up closing a deal with them. We got our first round of financing, which was a huge relief. We could pay rent comfortably and we could hire, start to hire a team.

• 32:59Guy Raz?

  I'm wondering, at what point do you remember sort of sitting with Nate and Brian and saying, I think this is going to be really big?

• 33:06Speaker 01

  Well, one night, this is in 2010, it was probably like 11:30 at night, I was really tired. At this point, we have an office. And I used to look at every listing that got added to Airbnb. I would go through it at night and just click through each of them. And I come across this one that says Fiji Island. And I'm like, hmm, what's that? I click on it, and sure enough, somebody out in the South Pacific listed a five-acre private island on our site.

• 33:38Guy Raz?

  Wow.

• 33:38Speaker 01

  Complete with personal chef, complete with water sports. And I'm looking through the photos of this thing going, holy cow, this is incredible. And it was in that moment where I realized the power of this platform is that we put it out there and the creativity of the people who have contributed back to it has gone beyond any of our expectations.

• 34:10Guy Raz?

  So you guys have obviously grown much, much bigger since then, bigger than most or all hotel chains. And you have some similar challenges to companies like Uber with some cities saying, hey, you know, you guys should be regulated like hotels. So how do you respond to that?

• 34:29Speaker 01

  I think about that question in the context of innovations over the last 100 years. And there are three examples that come to mind of new ideas that entered the world that had a pretty rough start but are now so commonplace in every day that you'd laugh if you thought like, oh, wow, like, people were against that at one point? So ATM machines at one point, and I think it was in the 1970s. Had a lot of criticism. And I think there were actually laws being written against them in certain states throughout the US. Because it was this new and different way of banking, where you didn't have to go inside and talk with a person behind a desk who could maybe upsell you on other services. You just went to a computer and a wall and retrieved your money.

• 35:14Speaker 01

  But of course, can you imagine today without ATM machines?

• 35:16Guy Raz?

  No.

• 35:17Speaker 01

  The VCR, I think, is another great example. It was first patented in the mid 20th century, but didn't really become a product until the 80s, early 80s. Because it was met with such resistance from incumbent industries that didn't want people to watch movies at home. The car is another example, where when the Model T came out in 1908, it represented a new way to travel, a new way to, a new form of transportation. And there were certain cities that were against the car. And there were actually laws drafted to outlaw cars. But after a year of trying a new, more efficient way of transportation, the people demanded

• 36:01Speaker 01

  that they didn't want to go back to horse and buggy. And so the policymakers had to modify the laws to what the people wanted.

• 36:09Guy Raz?

  Yeah.

• 36:10Speaker 01

  So I think the world is ready for our invention, given that there's been over 100 million people that have stayed in homes all over the world. And the good news is that as cities come to learn about what we do and what we offer, they tend to want to work with us. Because they see that there is an economic impact that allows people in their cities, in different neighborhoods, to benefit.

• 36:32Guy Raz?

  When you, I think last year Airbnb was valued at like $20 billion and probably more today. I mean, does that, is that crazy to you? Does that shock you when you think that you just started this thing as an idea that really went nowhere for the first couple of years in your apartment in San Francisco? And it's now worth like billions of dollars, like with a B. Does that mean anything to you or to you, is it just a number on a piece of paper?

• 37:01Speaker 01

  I don't think about it too much. I mean, those things can change. If you look at the first dot com. You know, when I was growing up in Georgia, I was so enthralled by every day there was a new story of a new company that started in Silicon Valley or San Francisco. And that planted a very deep seed with me that one day I wanted to be a part of that. And so I also remember in the first dot com of companies that were here today, gone tomorrow. There's a list of 10 of the hottest companies from the 1990s, one of which you would still remember. It's because technology moves so quickly that if you're not thinking about what's next, the world around you can change faster than you do.

• 37:45Guy Raz?

  Joe Gebbia, co-founder of Airbnb. Since this episode first ran last fall, Airbnb's value has jumped to $31 billion. And in the second quarter of 2016, the company finally turned a profit. By the way, that company he first tried to build, CritBuns, which is a butt cushion for art students? This was a real business for a while. There is still a website for it.

• 38:11Speaker 01

  And every now and then, an order still comes in, and I still run down to the garage and pack them up.

• 38:16Guy Raz?

  Wait, how many CritBuns do you have in your garage?

• 38:18Speaker 01

  I think there's a few hundred.

• 38:20Guy Raz?

  Wow, you have a few hundred CritBuns still in your garage?

• 38:23Speaker 01

  You know, it's like, it's a funny thing because it reminds me of like where I started. And it's very grounding.

• 38:29Guy Raz?

  Wait, what's a website? Is it CritBuns.com?

• 38:32Speaker 01

  Literally CritBuns.com.

• 38:33Guy Raz?

  OK, we're going to plug this. Go on to CritBuns.com and order your CritBun. Only 600 left.

• 38:55Guy Raz?

  And please do stick around because in just a moment, we're going to hear from you about what you're building.

• 39:04Guy Raz?

  Hey, thanks for staying with us because it's time now for How You Built That. And we're going to check back with the very first startup we had on this part of the show, a company that is taking on a very tough problem.

• 39:17Speaker 02

  We could actually refer to it as trash juice.

• 39:19Guy Raz?

  Trash juice?

• 39:20Speaker 02

  Juice, J-U-I-C-E.

• 39:23Guy Raz?

  Which is the runoff from dumpsters and garbage trucks.

• 39:27Speaker 02

  If you're an urban dweller, you walk by and you smell it and you do not want to go anywhere near that.

• 39:32Guy Raz?

  OK, so Michael Venidi and his partners came up with a device to put a stop to trash juice before it even starts.

• 39:39Speaker 02

  Think of it as a utility cart. There is a 100-foot hose on it. And when you pull the trigger at the end of this hose, foam comes out. Think of it scrubbing bubbles times 1,000.

• 39:51Guy Raz?

  And these scrubbing bubbles are kind of like the secret magical ingredient here. Michael says they're full of bacteria that eat up all the junk in dumpsters and in trash chutes. And then the foam kind of evaporates, so you don't even need water to clean it up. And no water, no trash juice.

• 40:07Speaker 02

  We tested out the product. We got incredible feedback. And the maintenance guys, they were like, you guys just cut my cleaning time in half.

• 40:17Guy Raz?

  Michael's company is called TP Foam. And since we spoke with him last year, he sold about 200 cleaning carts and gallons and gallons of the garbage-eating foam. Most of his customers are property managers across the country. And Michael says the company's doing well, but it's costing him a lot of money to get the word out.

• 40:38Speaker 02

  I mean, a perfect example is we have a really big customer, one of the largest real estate developers and property management companies in the entire country. And they invited us to come to an event in September. It's very expensive and very far out of our budget, but if the biggest person on the block invites you to come... You have to say yes, and you just have to figure out how to do it.

• 40:58Guy Raz?

  That event he's talking about, it's a trade show in Texas, and Michael's company is in New Jersey.

• 41:05Speaker 02

  And to ship one piece of equipment might cost $2,000. So that's the big thing for us, because we're in equipment sales, it's not software or anything that fits in a little briefcase. We have to be kind of very strategic where we're going to go.

• 41:20Guy Raz?

  But so far, Michael says TP Foam is doing a pretty good job at managing cash flow. Since January, the company's done about $400,000 in sales. And he's now turning a profit. But if you ask Michael what he thinks about the whole thing?

• 41:34Speaker 02

  It cracks me up a lot, because I used to be in the modeling business. I was never a model, but I used to be on the business side of it in a very glamorous world. And now I hang out in the trash rooms. But I love every second of it.

• 41:50Guy Raz?

  That's Michael Venidi of TP Foam in Mount Laurel, New Jersey. To hear more about it, head to our Facebook page. And of course, if you want to tell us your story, go to build.npr.org. We love hearing what you're up to. And thanks for listening to the show this week. If you want to find out more, you can go to howibuiltthis.npr.org. Better yet, subscribe to us on Apple Podcasts or however you get your podcasts. You can follow us on Twitter, it's @howibuiltthis. Our show was produced this week by Ramtin Arablouei, who also composed the music. Thanks also to Neva Grant, Sanaz Meshkhanpour, Claire Breen, and Jeff Rogers. Our intern is Lawrence Wu. I'm Guy Raz, and you've been listening

• 42:34Guy Raz?

  to How I Built This from NPR.