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For the last few days I've been writing about Airbnb and lessons we can learn from it. This is part 3 in that essay series.
The Dumbest Startup That Ever Worked — What You Can Learn From Airbnb — PART 1
The Dumbest Startup That Ever Worked — What You Can Learn From Airbnb — PART 2
The Dumbest Startup That Ever Worked — What You Can Learn From Airbnb — PART 3
The Dumbest Startup That Ever Worked — What You Can Learn From Airbnb — PART 4
TLDR: Lesson 1: It’s possible for you to make things better. Lesson 2: Solve your own tiny problem. Lesson 3: Validate quickly and double down when it works. Lesson 4: It’s easy to connect the dots ex-post-facto. Lesson 5: Finding product/market fit from day one is fiction.
We’ll cover lesson 4 today.
Did you know that Brian and Joe sat on their idea for 4 months, after that initial SXSW event? In fact, they started working on a roommate matching website because Airbnb seemed too insignificant.
A month in, they noticed that the roommate idea already existed. And as their family kept asking what they were working on, they kept on explaining the Airbnb idea. Eventually, they decided to go back to working on Airbnb.
They launched several times at SXSW, getting hardly any traction and running out of money. Because fundraising wasn’t working either and they were in debt, they figured maybe we should focus on the breakfast part of Airbnb instead.
Photo of the cereal.
The idea was to give their hosts free cereal that they could then give to their guests. They called Kellog’s. Didn’t get called back. They called smaller manufacturers. Success… Except, they wanted to print a few 100K boxes if they paid $200.000 or something in advance.
So they turned to an old RISD buddy who owned a printing shop. He could print 500 boxes for free, in exchange for a cut of the sales. So they decided to change the idea to selling exclusive, collector edition, $40 cereal instead.
They got their 500 flat boxes, hot glued them together, and filled them with the cheapest store-bought cereal they could find. They shipped several to the press hoping they’d cover it.
It worked! They got massive press and completely sold out of Obama O’s. Many got resold on eBay for as much as $500.
2008 Techcrunch
They made around 20K and paid off their debt. But still… no traffic to airbedandbreakfast.com.
Essentially they weren’t much further along than when they’d first launched. Now, minus 1 co-founder. They went on to live on unsold Cap’n McCain’s for a while until Michael Seibel (Justin.tv, Social cam, CEO of YC), who they’d met at SXSW, recommended they apply to Y Combinator.
On the day of their interview, Joe wanted to grab one of the cereal boxes. Brian and Nate thought he was out of his mind and told him to leave it at home. He snuck it with him anyway.
The interview went terrible. At that time (and arguably still to this day) YC was mostly focused on technological innovation. Psychological innovation gets a bad rep in Silicon Valley’s engineering dominant culture where things like marketing, branding, and consumer psychology are typically sneered at.
More on psychological economic value creation here.
It didn’t look promising. But Joe grabbed the cereal (much to the surprise of Brian and Nate) out of his bag and handed it to the YC partners. He explained how selling cereal funded their company.
Ultimately, that was the reason why Airbnb got into YC. They figured, if you can manage to sell $! cereal for $40, maybe you can convince people to stay at strangers’ homes too.
It looks straightforward in retrospect. You notice hotels are sold out. Couchsurfing already showed there was at least some appetite. You quickly validate your idea and you’re off to the races. But at that time it was obviously far from obvious.
In fact, this is one of those areas where you can be too smart for your own good. Suppose, you knew with certainty that the free cereal would be a bad idea. Even if you were right, you still would have been wrong. Because there’s no way you could predict that the free cereal idea would lead to the selling limited edition idea (Brian and Joe).
Which would lead to taking it with you to an accelerator interview (Joe) which would turn out to be the linchpin.
Had they had the money to pay the manufacturers or had they been able to print a smaller batch, maybe they never would’ve thought of selling it. Had Nate been more persuasive, then maybe they would’ve never pursued the cereal idea. Had Joe given in, then maybe he wouldn’t have told the cereal story because it didn’t seem very Silicon Valley. [1] And maybe, we wouldn’t have had an Airbnb.
I made this same argument before with The Point. If you were so brilliant that you knew The Point was stupid, you would’ve missed the fact that the series of experiments in it are what led Andrew Mason to Groupon. [2]
I believe that in startups, a little ignorance is actually a strength which is why (empirically) many smart and cynical people never seem to make change happen.
Looking back, there’s always this inclination to fall victim to hindsight bias: the common tendency for people to perceive events that have already occurred as having been more predictable than they actually were before the events took place. I.e. It’s easy to predict the past when you’re living in the future.
Of course, the Airbnb fundraise rejections and the fact that the founders themselves almost gave up, demonstrate that these things do not occur anywhere as linearly as the media would have you believe. As a result of this misguided belief in certainty, we tend to discard seemingly bad ideas for ones that appear to us as obviously good.
More on this in Why Your Business Needs More Weird Ideas—Part 1
I’m sure this will remind some of you of Peter Thiel’s theory, from his lectures and his book Zero to One, that competition is for losers.
He proposes that you actually don’t want the good ideas because when they’re obvious, everyone will be pursuing those. You also don’t want the bad ideas for obvious reasons. What you want are good ideas that are disguised as bad ideas. [3] That way, you’ll have a headstart because it’ll take a while for the world to catch up. Especially considering how risk-averse people are.
Thiel on competing
Then there’s the issue that no one can really tell you how big or small something is gonna be. Investors will pretend they know. They don’t. If they really did, they would be like you, a founder. In my experience, investors are usually a good 6-12 months behind in ‘‘seeing the matrix’’.
That’s not because they’re not as smart. But rather, because they aren’t in the trenches. You are.
There are so many founders I know or whose stories I’ve heard of, where investors didn’t want to invest because the market seemed too small. But for them, it’s an intellectual problem. Whereas the founder has first-hand experience dealing with the problem and the solution for its users.
That doesn’t guarantee you’re always right, but it does give you a much better perspective. In good marketing (which is rare these days), qual is where you start. Qual informs quant. [4]
More on this in: Should You Worry About TAM And SAM?
The following is from Steve Jobs’ 2005 Stanford Commencement Address:
Jobs' Commencement Address
And that’s true. Usually, founders present us with these amazing stories because it makes for good PR and it boosts their ego. Who doesn’t want to be perceived as the Matrix’s almighty Oracle?
But this stuff’s messy and literally everyone is making it up on the fly.
John Collison (Stripe Co-Founder) said the exact same thing about companies whitewashing their history at Stanford in 2015:
Bottom line: When something is validated and you enjoy it, don’t be hesitant to push it because you believe the market might not be big enough. Things are only clear looking back so ‘‘trust that the dots will somehow connect in your future’’.
[1] Brian said that he thought about Mark Zuckerberg and how he’d probably never glued serial boxes together, ‘‘so maybe that was a bad sign’’.
[2] From The Right Way To Start A Startup:
[3] I do wanna reiterate the point I made in part 2, you have to start small and take baby steps. Just like you don’t start with a 500lbs deadlift, you shouldn’t start with the most ambitious idea ever. You should give yourself wins, feel shine, and gradually ‘‘graduate’’ to more ambitious endeavors.
If you’re a successful founder then the context changes. You have money to fall back on, your family is taken care of, investors will write significant checks, almost without hearing your pitch. I mean look at Parker Conrad’s Rippling. After Zenefits he was able to raise a 17M dollar seed round. Rippling was Conrad and 40 engineers and almost no revenue for 2 years. That’s just not a situation most founders can relate to. Which is why you should start small initially.
Conrad on Rippling
[4] Qualitative research refers to non-scalable, hard to quantify research. Talking to consumers, potentially focus groups (although I’m not a fan of that), spending time with the user in their environment, watching them use your product, ethnography, and so on. Quantitative research refers to the stuff that you’re probably familiar with, analyzing numbers, using mathematics, creating models, and identifying trends based on that.
The problem with our quant heavy world is that all data comes from the same place, the past. Nothing pointed to the iPhone being a better phone than all the others. Nothing pointed to the market being willing to spend significantly more on soft drinks (Red Bull) and vacuums (Dyson).
And on top of that, significantly more people use those complex mathematical tools even though they’re woefully unqualified. Not good enough to be right, not bad enough to lack confidence, but in that middle ground where they mistakingly believe they know what they’re doing.
Rory on data analysis
------------------------------------------------------------------------------------------
Pfew, that was a big one. Hopefully, you learned a ton. I got a newsletter: The Younglings. The best methods and models to help you grow your company like hell. Want in?
The Dumbest Startup That Ever Worked — What You Can Learn From Airbnb — PART 1
The Dumbest Startup That Ever Worked — What You Can Learn From Airbnb — PART 2
The Dumbest Startup That Ever Worked — What You Can Learn From Airbnb — PART 3
The Dumbest Startup That Ever Worked — What You Can Learn From Airbnb — PART 4
TLDR: Lesson 1: It’s possible for you to make things better. Lesson 2: Solve your own tiny problem. Lesson 3: Validate quickly and double down when it works. Lesson 4: It’s easy to connect the dots ex-post-facto. Lesson 5: Finding product/market fit from day one is fiction.
We’ll cover lesson 4 today.
LESSON 4: IT’S EASY TO CONNECT THE DOTS EX-POST-FACTO
Did you know that Brian and Joe sat on their idea for 4 months, after that initial SXSW event? In fact, they started working on a roommate matching website because Airbnb seemed too insignificant.
A month in, they noticed that the roommate idea already existed. And as their family kept asking what they were working on, they kept on explaining the Airbnb idea. Eventually, they decided to go back to working on Airbnb.
They launched several times at SXSW, getting hardly any traction and running out of money. Because fundraising wasn’t working either and they were in debt, they figured maybe we should focus on the breakfast part of Airbnb instead.
FUNDING AIRBNB WITH CEREAL
Photo of the cereal.
The idea was to give their hosts free cereal that they could then give to their guests. They called Kellog’s. Didn’t get called back. They called smaller manufacturers. Success… Except, they wanted to print a few 100K boxes if they paid $200.000 or something in advance.
So they turned to an old RISD buddy who owned a printing shop. He could print 500 boxes for free, in exchange for a cut of the sales. So they decided to change the idea to selling exclusive, collector edition, $40 cereal instead.
They got their 500 flat boxes, hot glued them together, and filled them with the cheapest store-bought cereal they could find. They shipped several to the press hoping they’d cover it.
It worked! They got massive press and completely sold out of Obama O’s. Many got resold on eBay for as much as $500.
2008 Techcrunch
They made around 20K and paid off their debt. But still… no traffic to airbedandbreakfast.com.
Essentially they weren’t much further along than when they’d first launched. Now, minus 1 co-founder. They went on to live on unsold Cap’n McCain’s for a while until Michael Seibel (Justin.tv, Social cam, CEO of YC), who they’d met at SXSW, recommended they apply to Y Combinator.
On the day of their interview, Joe wanted to grab one of the cereal boxes. Brian and Nate thought he was out of his mind and told him to leave it at home. He snuck it with him anyway.
The interview went terrible. At that time (and arguably still to this day) YC was mostly focused on technological innovation. Psychological innovation gets a bad rep in Silicon Valley’s engineering dominant culture where things like marketing, branding, and consumer psychology are typically sneered at.
More on psychological economic value creation here.
It didn’t look promising. But Joe grabbed the cereal (much to the surprise of Brian and Nate) out of his bag and handed it to the YC partners. He explained how selling cereal funded their company.
Ultimately, that was the reason why Airbnb got into YC. They figured, if you can manage to sell $! cereal for $40, maybe you can convince people to stay at strangers’ homes too.
20/20 HINDSIGHT
It looks straightforward in retrospect. You notice hotels are sold out. Couchsurfing already showed there was at least some appetite. You quickly validate your idea and you’re off to the races. But at that time it was obviously far from obvious.
In fact, this is one of those areas where you can be too smart for your own good. Suppose, you knew with certainty that the free cereal would be a bad idea. Even if you were right, you still would have been wrong. Because there’s no way you could predict that the free cereal idea would lead to the selling limited edition idea (Brian and Joe).
Which would lead to taking it with you to an accelerator interview (Joe) which would turn out to be the linchpin.
Had they had the money to pay the manufacturers or had they been able to print a smaller batch, maybe they never would’ve thought of selling it. Had Nate been more persuasive, then maybe they would’ve never pursued the cereal idea. Had Joe given in, then maybe he wouldn’t have told the cereal story because it didn’t seem very Silicon Valley. [1] And maybe, we wouldn’t have had an Airbnb.
I made this same argument before with The Point. If you were so brilliant that you knew The Point was stupid, you would’ve missed the fact that the series of experiments in it are what led Andrew Mason to Groupon. [2]
IGNORANCE AS A STRENGTH
I believe that in startups, a little ignorance is actually a strength which is why (empirically) many smart and cynical people never seem to make change happen.
Looking back, there’s always this inclination to fall victim to hindsight bias: the common tendency for people to perceive events that have already occurred as having been more predictable than they actually were before the events took place. I.e. It’s easy to predict the past when you’re living in the future.
Of course, the Airbnb fundraise rejections and the fact that the founders themselves almost gave up, demonstrate that these things do not occur anywhere as linearly as the media would have you believe. As a result of this misguided belief in certainty, we tend to discard seemingly bad ideas for ones that appear to us as obviously good.
More on this in Why Your Business Needs More Weird Ideas—Part 1
I’m sure this will remind some of you of Peter Thiel’s theory, from his lectures and his book Zero to One, that competition is for losers.
He proposes that you actually don’t want the good ideas because when they’re obvious, everyone will be pursuing those. You also don’t want the bad ideas for obvious reasons. What you want are good ideas that are disguised as bad ideas. [3] That way, you’ll have a headstart because it’ll take a while for the world to catch up. Especially considering how risk-averse people are.
Thiel on competing
NO ONE KNOWS THE FUTURE MARKET CAP EX ANTE
Then there’s the issue that no one can really tell you how big or small something is gonna be. Investors will pretend they know. They don’t. If they really did, they would be like you, a founder. In my experience, investors are usually a good 6-12 months behind in ‘‘seeing the matrix’’.
That’s not because they’re not as smart. But rather, because they aren’t in the trenches. You are.
There are so many founders I know or whose stories I’ve heard of, where investors didn’t want to invest because the market seemed too small. But for them, it’s an intellectual problem. Whereas the founder has first-hand experience dealing with the problem and the solution for its users.
That doesn’t guarantee you’re always right, but it does give you a much better perspective. In good marketing (which is rare these days), qual is where you start. Qual informs quant. [4]
More on this in: Should You Worry About TAM And SAM?
STEVE JOBS ON CONNECTING THE DOTS LOOKING BACK V. FORWARD
The following is from Steve Jobs’ 2005 Stanford Commencement Address:
Jobs' Commencement Address
And that’s true. Usually, founders present us with these amazing stories because it makes for good PR and it boosts their ego. Who doesn’t want to be perceived as the Matrix’s almighty Oracle?
But this stuff’s messy and literally everyone is making it up on the fly.
John Collison (Stripe Co-Founder) said the exact same thing about companies whitewashing their history at Stanford in 2015:
Bottom line: When something is validated and you enjoy it, don’t be hesitant to push it because you believe the market might not be big enough. Things are only clear looking back so ‘‘trust that the dots will somehow connect in your future’’.
NOTES
[1] Brian said that he thought about Mark Zuckerberg and how he’d probably never glued serial boxes together, ‘‘so maybe that was a bad sign’’.
[2] From The Right Way To Start A Startup:
[3] I do wanna reiterate the point I made in part 2, you have to start small and take baby steps. Just like you don’t start with a 500lbs deadlift, you shouldn’t start with the most ambitious idea ever. You should give yourself wins, feel shine, and gradually ‘‘graduate’’ to more ambitious endeavors.
If you’re a successful founder then the context changes. You have money to fall back on, your family is taken care of, investors will write significant checks, almost without hearing your pitch. I mean look at Parker Conrad’s Rippling. After Zenefits he was able to raise a 17M dollar seed round. Rippling was Conrad and 40 engineers and almost no revenue for 2 years. That’s just not a situation most founders can relate to. Which is why you should start small initially.
Conrad on Rippling
[4] Qualitative research refers to non-scalable, hard to quantify research. Talking to consumers, potentially focus groups (although I’m not a fan of that), spending time with the user in their environment, watching them use your product, ethnography, and so on. Quantitative research refers to the stuff that you’re probably familiar with, analyzing numbers, using mathematics, creating models, and identifying trends based on that.
The problem with our quant heavy world is that all data comes from the same place, the past. Nothing pointed to the iPhone being a better phone than all the others. Nothing pointed to the market being willing to spend significantly more on soft drinks (Red Bull) and vacuums (Dyson).
And on top of that, significantly more people use those complex mathematical tools even though they’re woefully unqualified. Not good enough to be right, not bad enough to lack confidence, but in that middle ground where they mistakingly believe they know what they’re doing.
Rory on data analysis
------------------------------------------------------------------------------------------
Pfew, that was a big one. Hopefully, you learned a ton. I got a newsletter: The Younglings. The best methods and models to help you grow your company like hell. Want in?
