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Lecture 10 - How to Start a Startup

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Set the stage with a few slides and some comments. But, the main stage is gonna be with Brian. When he comes up and talks about how he built the airbnb culture. So you're here you, I've been following the presentations. And so, now you know how to get started. You've built a team. You start to sort of build your product. It's off the ground, it's growing. People love it, you figured out how to do that. You figured out how to create a very special one of a kind company with monopoly powers that's big, and the market that you're chasing after is slightly bigger than the paper air plane business so you're good, right? So, now what? So, we're here to submit that actually culture is the thing that's gonna be very, very important for you to be able to scale the business. As well as your team. And hopefully, after this talk you'll be able to know what, what is culture? Why does it matter? How to sort of create your core values and think about elements that sort of fit together for a core values in the culture that create a high performance team. And get some best practices for the culture. So, what is culture? Anybody have a, wanna take a guess at what, how one should define this? >> A set of values >> Yeah, that's good. Did you look that up on the, because you had a computer and Internet connection. Did you just look it up? So these are some definitions, that, you'll find, in, in Webster's dictionary. And. But that, that. We're at Stanford. This is kind of a trick question, it's a CS class. Questions are never straightforward. The real question is, what is company culture gonna be? You know, culture that we can generally talk about society. About groups. About places or things. Here we're talking about company culture. And so how do one define company culture? We can take the previous definition and modify it a little bit. And so every, this is a hint of how we may want to define company culture. Everyday blank and blank of each member of the team in pursuit of our company blank. And some people have filled these in with different sort of things. A, the first blank could be assumptions, beliefs, values. My favorite is core values. The second blank for the B blank. People have said behaviors. My favorite, sort of, answer to that is real action, how do you act? And in pursuit of goals, that's kind of weak. in, in, in pursuit of big and hairy audacious goals, that's a little stronger. But a better definition is in pursuit of the mission. So. Now that, sort of, we have that definition, what do we do with it and why does it matter? This is a quote from Gandhi, your beliefs become your thoughts. Your thoughts become your words. Your words become your actions. And your actions become your habits. And your habits become your values. Your values become your destiny. If you don't have a good culture in the company, you can't pursue your destiny. Why it matters is it, it becomes the first principles that you sort of go back to when you make decisions. It becomes a way to align people on values that matter to the company. It provides a certain level of stability to fall back on and it provides a level of trust that people can sort of trust each other with. It also give you a list of things that you should be able to. Figure out what to do and what not to do and what the more important thing about that is what not to do And then finally the other thing that is important is it allows you to retain the right employees. There are people in this world that are not gonna be a fit for your company but if you have good strong culture and good strong core values you'll know who you wanna retain and who you do not wanna retain. And if you took the, take the first words the first letter of those it happens to help you move faster. Another reason. You're thinking that's like all mushy stuff. This is actually more scientific stuff. So here are indices for, from 1997 to 2003 of stock market index of companies. And the S&P 500 and the Russell 3000 and then for the Fortune 100 best companies to work for. They survey all these companies out there and they've picked out companies that they believe are the best companies to work for. And, the returns, the stock market returns of those companies happens to be 11.8%, 11.08%, which is almost twice that of the other two indices. And so, there's real power in companies that treat their employees well, where there is a lot of trust, where there is a lot of strong culture. So, how do you sort of create a, a set of values, and, and sort of define the culture et cetera. I get asked that a lot. You got to start with the leader of the company, the founder. And, so ask yourself, what are the personal values that are most important to you? What are those things that are most important to the business? Who are the types of people you like working with and what are their values? And, through that, you sort of distill together what a set of values are. And think about all the people that you've never liked working with, what values they have. Think about the opposite of that, and maybe those should be considered values for, for your company. And, finally, remember this, the values have to support your mission. And, if it doesn't support your mission, you're missing something. And, and then the last, final chapter, they have to be credible and they have to be uniquely tied to your mission. So, at Zappos, in terms of uniquely applied to the mission, we're focused on creating a culture that was gonna provide great customer service. So the first core value we had was to deliver. While through service. We're very specific that we want to deliver great customer service. And it was gonna be a wild experience. And then, below that, we want to sort of add a paragraph supporting that. Talking about exactly what we mean by that. We want it to support them, deliver while through service, and support people, such as our employees, our customers, and our brand partners, and our investors. In terms of the opposite thing, we generally didn't like working with arrogant people. So, one of our core values that's that was, was to be humble. So those are two examples where we sort of create a core values in a way that sort of, sort of, became credible and uniquely tied to our mission. So, you go through this process, you come up with a few core values. These might be some of them. Whether it's honestly, integrity, service, teamwork and they might be a list of, you might start with three. You might end up with a list of ten. You might list, list of 30. It's a good start. And when Zappos went through this process we started with like, we asked all the employees at the time, what core values they wanna identify with, we came up with 37. We initially, we sort of whittled it down to about ten. And it took a year to do this. That's a long time and you might wanna ask why. Well, if you just come up with the word honesty, I mean give me a break everybody wants the culture to be honest. Now you. Nobody is going to say I want to be lied to everyday. service. What do you mean by service? There's gotta be a lot more depth in this than that. And nobody, everybody talks about teamwork. But there's a difference in level of team work that you see in a intramural sports team as versus a baseball team. And so how do you sort of dive deeper into team work. What are the things that don't work on for a team? A lot of it has to do with communications. A lot of it has to do with things that people have studied. And you might want to go deeper into that. At Zappos we thought about well there are a lot of smart people in this room. When they're fighting with each and trying to figure out whose right and whose not. It's probably not the best use of time. And we want everybody to sort of riff off each other and help each other make any idea better. The result is that the company gets a better idea, not that any individual person is right. So we wanted to instill this idea that it's company first, then your department, then your team, then yourself. And how do you do that? Gonna go a, ano, a level a little deeper than that. There's another, there's a great sort of sort of element of high performing teams that I really like which is this pyramid that was created by Patrick Lencioni and he wrote this book The Five Dysfunctions of a Team and the reason this is interesting is he talks about the breakdowns of a teams. First of all if you don't. A lot of teams break down because they don't have any trust. Then, even if you had trust, why do you need trust? Well, then if you have trust you can actually have debates and conflict and get to the right answer. If you don't have conflict and debate, people are just, it's the blind leading the blind. How do you know you actually got to the right answer before you sort of commit to something? So, people are not actually willing to commit. They're afraid of committing. And so let's say you get to the next level and you are actually able to commit. Well what, what goes wrong then? It's usually because people are not held accountable to things that they committed to? And if people are not held accountable to the things that they've committed to, then they can't get results. And I would submit to you, if you think about the company as a black box, and results, whether it's financial, whether you produce a great product, or anything like that as the output. One of the major inputs is the culture of the company. So some other best practices we're gonna actually talk about during Q and A because I think this is gonna blend into the conversation is that you want to incorporate your mission to values we've talked about that. Performance, you gotta think harder, deeper, longer about your values than you might initially think you need to do. One of the things I think that a lot of companies don't actually do is they interview for a technical fit or skill fit or competency in that realm. But they don't actually interview for the culture fit, and whether someone will actually believe and follow the mission. I think that's a big, big no-no. Like I think you can have the smartest engineer in the world but, if they don't believe in their mission. They're not gonna put their, pour their heart and soul into it. And that's one of the things that where, if you actually sorta start thinking about culture from the interview process to performance reviews to making sure that it's a daily habit, you'll get a lot further with produ, with, making a great culture. The finally point on making it, a daily habit, I think. Culture, just like customer service or fitness, is like mother had an apple pie. Everybody wants to provide great customer service. Every company wants to have a great culture. What they fail to do is make it a daily habit. You just can't be fit if your, if you don't do it as a daily habit. Eventually you get out of shape, then you get fat, and then you're like, oh, I got to go on a crash diet to sort of get back into shape. That doesn't quite work. And the same is true with something like culture. So I think we checked all of these off, so we can go into Q and A with Brian. >> All right. Cool. >> Yeah, that's good. >> All right. Hello, everybody. It's quiet in here, I'll be honest. Now it's better. Now, I feel less on edge. Nothing worst than a room full of people really, really quiet, staring at you, but now I feel better. >> I'd say it for five, ten minutes. >> Yeah. >> You could bare for a little longer. So Brian. Talk about how the process by which you came to understand the culture was important. >> So Airbnb and then building the company. Yeah, so I think one of the things we realize is so just to give you. I won't tell the full story of everyone being some you may know it, but. The very short version of this story was that, Airbnb wasn't meant to be, like, the company we were trying to start. I had quit my job, I was complete, I was living in LA. One day I drove to San Francisco, became roommates with my, friend from college, I went to Joe Gebia, and I had $1,000 in the bank. And the rent was $1,150. So that weekend this international design conference was coming to San Francisco. All the hotels were sold out. We had this idea, let's just turn our house into a bed and breakfast for the conference. I didn't have any beds. Joe had three air beds. We pulled them out of the closets. We called it the air bed and breakfast. That's how the company started. I probably told that story 10,000 times, by the way. Some version of that story. And I didn't think I'd ever tell that a second time. when, I, I remember growing up, I, I also went to college, and my parents were social workers, and they had kinda been nervous about me going to art school. They kinda worried that maybe I would like not get a job after college, which is I'm sure a lot of parents are worried about, so she said, make sure you promise you get a job with health insurance. I ended up starting Air Bed and Breakfast.com was the original name. She remembered her telling me I guess you never got that job with health insurance. The reason I say this though is this. Airbnb was never meant to be the big idea. It was meant to be the thing to pay the rent so we could think of the big idea. And along the way by solving our own problem,. It became the big idea. So alongside that and, and I'm not gonna talk about like kind of how he built the product. That's probably another conversation that some other people were talking about. You have to build a team in a great company. And in the early days, we had three co-founders, Joe, Nate and myself. And I kind of think of one of the reasons we're successful was I was really lucky. And I don't think I was really lucky because we came up with the idea of Airbnb. I don't think we're really lucky that we became successful once we had the team. I think we could have come up with a lot of ideas, and been somewhat successful. I think I was lucky cuz I found two great people that I wanted to start a company with. People I admired, that almost intimidated me how talented, how smart they were. And I think that's one of the first things you got to build a team that is so talented that they kind of almost make you slightly uncomfortable because they know by being with them you're going to have to raise your game to be with them. And then when we were working together in the early days. This is like 2008. The first thing is we, we were like a family. You think about founders. Founders are like parents and the company is a child. And a child will manifest in many ways behaviors that parents have between their relationship. If the parents are dysfunctional. They're not working together. Then the child's gonna be frankly pretty fucked up. And so you don't want that. You want your culture to be awesome. And so Joanie and I, we're like total, total family in the beginning. We worked 18 hours a day, 7 days a week. I remember when we're white commentator. We like, worked together. We like, ate food together. We like, even went to the gym together. We may as well have gotten jump suits. We didn't go that far. But we were like. It was like we were on a mission. I felt like we were like special forces or something. And we had this like amazing shared way of doing things. Amazing accountability. And then we realized that was like the DNA of the company. And then, we started thinking at some point you go from building the product to phase two. Which is building the company that builds the product. And so a lot of the talk is about how do you build a product, how do you get product market fit. Once people start doing that now you've got to build a company. And it doesn't matter how great your original product or idea is if you can't build a great company then your product will not endure. As we thought about this and one of the things he realized is we want to build a company for the long term. The last thing is that I want to build something, I mean, think about it this way. If, if your company like your child, a parent wants his child to outlive him or her. It would be a tragedy to outlive your child. Also, I felt it would be a tragedy for us to outlive our company and just watch it rise and fall. We didn't want that. We wanted a company that would endure. And so to do that, we started noticing companies have something in common. Companies that were around for a really long time had a clear mission. And they had a clear sense of values. They had a shared way of doing something that was unique to them and was really, really special. And so, then, Joanie and I, when we were three people, decided to look around companies. I noticed Apple, you know, Steve Jobs talked about his core value as that he believed people with passion could change the world. And he said our products change but our value never had. And we learned about Amazon. We learned about Nike. We learned about companies in early days. You can even use this to talk about organizations you know even like a founding of a, a nation has a strong values and a declaration. Then the country might endure longer. As we started realizing like we need to have intention. Culture needs to be designed. And that's kinda how we got connected is because you know, when we were funded by Sequoia. Alfred Lin had just joined from Zappos Sequoia. And I was told Zappos had an amazing culture and we went to Las Vegas and met up with Tony and we learned about it. >> And so what did you learn. >> Well. >> You guys were crazy. I, the, the thing we learned. And we were three people with you need to have, like, if culture's a shared way of doing things, there's really two parts. One is behaviors and those can kinda change, and maybe 50 years from now there will be rituals and behaviors that will change, be different. But there has to be some things that never change. Some principles, some ideas that endure, that make you, you. And I think of core values as integrity, honesty, those aren't core values, cuz they're values everyone should have. They're, like, integrity values. But would there have to be like three, five, six things that are unique to you and you can probably think about this in your life. What is different about you than every single other person. If you could only tell somebody three or four things, what do you want them to know about you? And we realized that when Zappos has 100 employees, they wrote down these nine core, is it nine? >> Ten, ten. >> Ten, ten core values. And the only thing I learned from Tony is you said I wish I didn't wait until I was a 100 employees- >> Yeah. >> To write down our core values. So I think I was talking to Sam he says he thinks we're one of the only companies that wrote our core values down before we hired anyone. >> How long did it take you to hire a first employee? >> So our first employee was our first engineer. And I think we looked for him for four or five months. And I probably interviewed, I probably looked through thousands of people and interviewed hundreds of people. >> And by then, when you hired the pro, when did you write it? Did you write it? Did you write it on day one or did you, was it month three? >> I think we started working on it around the time of like culminator, which would have been January 2009. And it was probably a process that evolved over the course of six to seven months. We finished Y Combinator in April 2009. I think we hired our first engineer in July. Something like that. So it's probably like six months. And the rea. Cuz some people ask, like, why did you spend so much time on, like, hiring your first engineer? And here's how we thought about it. I kinda felt like your first engineer was like bringing in DNA to your company. This person was gonna, like, there were gonna be a. If we were successful, there were gonna be 1,000 people just like him or her in the company. And so, it wasn't a matter of like, getting somebody to build the next three features that we needed to ship for our users. There was something much more long-term and much more enduring. Which was, do I wanna work with a 100 or a 1,000 more people like this? Now you want diversity but you don't want, you want diversity of like beliefs, you want diversity of like backgrounds, age,. You don't want diversity of values. You want a very, very homogenous beliefs and that's the one thing that shouldn't be diverse. >> So what, what are Airbnb's values? >> We have six core values. I'll maybe talk about three of them. >> Okay. >> So our first core value that we talk about is champion the mission. And what it really means is that we want to hire people that are here for a mission. We don't want people here because they think we've got a great valuation, they like our office design. They need a job or they think it's hot. We want people to be here for the one thing that will never change, and that's our mission. And just to tell you a quick story about our mission. You know, Airbnb, you know, a lot of people describe it as a way to book a room or book a house when you travel around the world. And that's what we do. But that's not at all why we do it. And to answer the question of, like, what, what our mission is, I'll just tell you a quick story. And this, I think, describes it. In early 2012, I met a host named Sebastian. So we do these meet-ups around the world where you meet with hosts. And I meet this host named Sebastian. He's probably, like, late 50s. He lives in north London. And Sebastian looks at me. He says, Brian. There's this word you never use in your website. And I said, what's that word? He said that word is friendship. I would love to tell you the story about friendship. I said, okay. Tell me the story about friendship. He said six months ago, the run riots broke out in front of my home and I was very scared. And the next day my mom called my to make sure I was okay. He said yeah, mom. I'm okay. He said, what about the house? And he says well yeah, the house is okay as well. He said, here's the interesting thing. Between the time the riots broke out. And the time my mom called me, was a 24 hour window of time. And in that period of time he said, seven of my previous Airbnb guests called me. Just to make sure I was okay. He said, think about that. Seven of my guests called me before my own mother did. I don't know what that says about our guests or his mother more but- >> But in this summer. On a typical night or a peak night we would have 425,000 people, 25,000 people staying in homes and living together. And they were coming from 195 countries in the world. Which is every country but North Korea, Iran, Syria and Cuba. So when you hear that story, at our core what we're about, that's much more than just booking a room or traveling. What we are about is we wanna help bring the world together. We wanna do that by giving a sense of belonging anywhere you go. So our mission is to belong anywhere. So five years from now, 20 years from now, maybe we're still selling rooms and homes but maybe we're not. But I can guarantee you what we're always gonna be about. It's a sense of belonging and bringing people together and that's the more enduring idea. So when we hire people the first thing we need to make sure is if that's our mission you need to champion that mission. You champion the mission by living the mission. Do you believe in it? Do you have stories about it? Have you used the product? Would you bleed for the product? I used to ask like, crazy questions like, one of the, the cra-crazy question Sam reminds me of is I used to interview people. So, I interview the first 300 employees at Airbnb which people think I'm like neurotic and that may also be true. But and I use to ask them a question. Which I've now amended. I use to ask them, if you had a year left to live, would you take this job? And actually, the people who say yes to that, you probably don't want. Cuz that's, like, they should spend time with your family. >> So I amended it to ten years.' Cuz I feel like you should, you, whatever. If you knew you had ten years left to live. Whatever you want, you would do in those last ten years, you should just do. And, and I really wanted people to think about that. That was enough time for, like, you to do something you really cared about. And the answer doesn't have to be this company. I say, fine. If the you're meant to do is to travel, or if you're meant to do is start a company, you should just do that. Don't come here. Go do that. And so there's this old kind of parable probably many of you heard of it. About like two men are laying brick. Somebody comes up to the first man says what are you doing? He says I'm building a wall. He asks the other guy what are you doing? He says I'm building a cathedral. There's a job and then there's a calling. And we want to hire people that aren't just looking for jobs. They're looking for a calling. And that's, that's kinda the first value and that's to champion the mission. I'll just, maybe, cuz I don't want to just take all the time up. I'll, I'll talk about, I'll talk about just one more, just so we don't talk the whole thing up just about values. The second value relates to being kinda creative and frugal, and I'll tell you a story. Our company was like. By the way, all the founding stories in your company end up becoming the things that people repeat and talk about when you're a 1,000 people. And it kinda embodies, right, its kinda like your childhood. These things kinda come back later in life. Same thing with a company. So Airbnb, I think Mark said in the last talk that was like the worst idea that ever worked and. It, it, it really probably was the worst idea, I mean, people thought we were crazy. I remember telling people about the idea. And I remember actually telling Paul Graham, we have this idea, in our interview, we have this idea, it's called Airbnb. He goes, people actually doing this? I go, yeah. His follow up question was, what's wrong with them? So I knew the interview wasn't going well, And in the, at the end of the interview, Paul Graham, I think, wasn't going to accept us. And, but we told him the story of how we funded the company. And here's how it goes. We were introduced, Michael Siebel, who I believe he's a partner of Y-Com. To let people know, introduced me and Joe to like 15 investors in the Valley, including some of the ones that have been here. And all of them like said no to the company. They could have bought 10% of the company for like 100, $150,000. They all said no. They thought it was a crazy idea. No one would ever stay in someone's home. So we ended up just funding the company with credit cards. And you know those binders pe, kids use to put baseball cards in? So we put credit cards in those. >> Cuz we had to put them all somewhere. That's how many credit cards we had. And we were completely in debt. And in the fall of 2008 we provided housing for the Democratic and Republican national convention and. We had this weird crazy idea cuz we weren't really selling a lot of homes. So basically Airbnb launched and a year after we launched I think we had a hundred people a day visiting our website and we had like two bookings. Which is generally bad. It's kinda like releasing a song and a year later like three people listen to it every day. Like it's probably not going to be a very popular song. So, but I believed in it and Joe and Nate believed in it but And so we were completely in debt, we don't know what to do. And so we get this idea well we're air bed and breakfast, we're providing housing for the Democratic and Republican national conventions. What if we made like a collectible breakfast cereal for like the Democratic national convention. And we came up with this Obama, Barack Obama theme cereal. We called it Obama-Os the breakfast of change. And then we came up with a Republican theme, so for John McCain, we found out he's a captain in the Navy, so we came up with? Captain McCain's. A maverick in every bite. And we had 0 dollars, and without any money, we were able to, we tried to call, like, General Mills. And they told us to, like, stop calling them, or they're getting restraining orders, so that didn't work. But we found a local alumni of RISD; he made 1,000 boxes of cereal for us. And we end up sending them to press, and eventually, within a week, we got on national television, national news. We made $40,000 selling breakfast cereal. And that, the year 2008, we made $5,000 from our website, and we made $40,000 selling the breakfast cereal. And I remember my mom asking me, so are you a cereal company now? And that wasn't the bad part. The bad part was the oddest answer. Which was well, but the reason I tell that, is our second core value is to be a serial entrepreneur. I'm sorry for the cheesy pun. I'm sorry. But be a serentrepreneur. And we really mean that we believe constraints bring out creativity. And when you raise like $800 million, suddenly all that scrappiness. It's easy to lose that scrappiness. It's easier for people to tell you, you know, I just need this like $50,000 contract or I need this or I need that. And whenever somebody just,is just being a little bit not, like frugal and not being creative. Or they tell me they can't do something, I'll just take a box of cereal. And, like, even just a suggestion of Obama knows they need to be scrappy and frugal. And so again, a lot of the founding DNA of your company becomes these values, these principles. And so, everyone knows, if you don't give a crap, you shouldn't be here. And it doesn't mean you have to give a crap. It just means you have to, to be here. And you also have to be creative and be like, kinda like an entrepreneur. Super scrappy. And these are some of the values we learn. >> Cool. So you guys should start, start thinking about questions. I'm gonna open up to questions from the audience. But I have a few more questions for you. >> Yeah. >> So,. This all sounds nice. The stories are great. >> Yep. >> People here are a pretty skeptical group. >> Yep. >> It's a CS Department class. >> Yep. >> Probably left brain focused. >> Yep. >> Feels like a softy kinda right brain focus. >> I'm a total softy. Sorry. >> But how has having your strong culture helped you make important tough decisions? >> Well, I think that having a, so here's the thing about culture. There's three things they never tell you about culture. The first thing is they never tell you anything. In other words, no one ever talks about culture, and no one ever tells you you need to have strong culture. And so, like there's tons of articles about building a great product. There's tons of articles about like growth and adoption. And there's very few things about culture. It's this like mystical thing that's like kinda soft and fuzzy. That's the first problem. The second problem is it's hard to measure. And things that get, are hard to measure often get discounted. And these are like two really hard things. But the third thing is the biggest problem. The biggest problem of culture, is it doesn't pay off in the short-term. In fact, if you wanted to, in one year, build a company and sell it as quickly as possible. The number one piece of advice I give you is, fuck up the culture. Forget about it, just hire people quickly. Culture makes you hire really slowly and makes you be deliberate about decisions that in the near term can slow progress. It's kinda like putting an investment into the company short-term. And so, these are the things people never tell you. So it, it's really about building a company for the long-term and to endure. Now, some of the things about culture. The first thing is you need to like be very clear about like. What's unique to you, that you stand for? Once you do that, you need to make sure you hire people that believe in that. And so we interviewed hundreds of people. You need to make sure that you hire and fire based on the ideas of these values. And, and, you know? One of the things we do is we constantly repeat over and over again. So we interview. Like, when we interview, we wanna make sure they're world class and they fit the culture. So, the first thing I used to ask people, I had at the end of an interview sheet. Is if you can hire. This is a functional question. If you can hire anybody in the world, would you hire the person sitting accords from you. And if our, our vision if become like the best of what we do why dont we hire the very best in the world. So, every single person is meant to hire a person better than the previous people. You're constantly hiring, raising the bar. You're constantly hiring world class people. Then we have separate people called core value people. Who aren't in the function. So if you're an engineer, the core values engineers interviewers are never engineers. Because we don't want them to be biased and say, oh, I know how good they are. And they interview just for values, to make sure that people care about the same thing. And we've said no to a lot of really great people. Because we just didn't feel right about them being with us long term. So that's one of the things. I also think that maybe some other examples of when we kind of had hard decisions. In mid 2011 we had this. So we were mostly in the United States. And we had this internet clone funded by these guys called the Samwer brothers. Has anyone heard about the Samwer brothers? They basically, they clone. Yeah Rocket Internet, they just went public. And they basically copy American websites quickly, and they try to sell it back to you. And if you don't, then they just try to, so it's kind of like putting a gun to your head. And so, and they had basically done this to Groupon. Groupon at this point was like the fastest growing company in the world ever. First company to, fastest company to a billion dollars in revenue. And then they stopped doing Groupon. This is when Groupon was on top of the world. And they cloned us. And we had 40 employees. We had raised $7 million. They cloned us, and they raised $90 million. And, in 30 days, they hired 400 people. And they wanted to sell the company and if they couldn't, they were gonna destroy us around the world. And the problem with Airbnb is if we're not everywhere around the world. Like, a travel site not being in Europe is like your phone not having email, it doesn't actually work. So we were kind of in trouble. And we had this conversation and there was the pragmatic decision of should we acquire them and then there was the values decision. The pragmatic one should've probably have said buy them because you can't risk losing international. So just guarantee you're gonna get international. But we ended up not buying them. And the reason we ended up not buying them is I just didn't like the culture. I didn't wanna bring in this 400 people. I felt like we were missionaries and they were mercenaries. I didn't think they were doing it for the beliefs. I thought they were doing it to make a lot of money very quickly. And I believe in a war on missionaries would outlast and out-endure mercenaries. And I also felt like the best revenge against an Internet startup, Internet clone was just to make them run the company long term. It's like you have the baby, now you gotta raise it. >> So. >> That's what we ended up dong. And that was a very controversial decision. A lot of people are telling me, you should buy this company. We didn't. And I think it worked out. >> Let's see, the last part being how. What percentage of revenue comes from Europe? >> More than 50%. >> I think it worked out. >> Yeah. >> All right, anybody have any questions? I can keep going. Yeah, so one other question, one other statement we had at Zappos was that culture and brand were two sides of the same coin. >> Yes. >> Airbnb has a great culture and also a great brand. You wanna talk a little bit about branding, since that's actually a kind of a weak thing in Silicon Valley. We don't tend to focus on this, on culture and brand. >> Yeah. Yeah, that's what I actually just said that to Sam Altman. I think Silicon Valley is not historically really strong, or we don't talk about culture and brand very much. They are two sides of the same coin. So cultural like the principles and the beliefs you have inside the company that you want people to be aligned with long term. And whatever happens inside the company eventually comes out. You can't hold it in. And brand is really the promise outside the company that everyone identifies with. And so I think, having a clear mission, and making sure that you know that mission, and making sure that mission comes through the company is probably the most important thing you can do for both culture and values. And then, the second thing you need to know is that your brand, the way people think about you as a company, is often decided by your, you know, your brand evangelists are your employees. And so you have a weak culture. And we often think that companies that hire employees or people that are deeply passionate, create companies that customers are really, really passionate about. And those are the companies that have strong brands. And so, Zappos had a really strong brand because they have strong culture. And a lot of companies, Google, they care deeply about the culture. They actually have a question, is this person googly? And it's meant to be like, a catchall for do they fit the Google culture. Google's a very strong culture. It's unique to Google. And, by the way, there's no such thing as a good or bad culture. It's either a strong or weak culture. And a good culture for somebody else may not be a good culture for you. So, I think brand is incredibly important as well. And brand is really the connection of you with your customers. And so, if you have an incredibly strong culture that can be a whole talk and brand. But if you have a fairly strong culture, then the brand will come through. The final thing to say about brand is, a lot of people when they talk about their brand, they talk about what they sell. So if you're Apple, one way of doing it is to say, we sell computers. And like, our new screens are larger and it's faster. And they talk about bits and bytes. And I remember Steve Jobs had this really important talk where he says the way to win, this is 1997 when he first came back, wasn't to talk about bits and bytes. The way to win is to talk about what we value. And our core value is we believe people with passion can change the world. And that was how we introduced the Think Different campaign. And so Apple before they had this huge renaissance, which became the most valuable company in the world. They did the Think Different campaign, which is basically saying, this is what we believe in. And if you buy an Apple computer, you're also saying, I believe in this, too. And there would have to be, I think, a deeper core belief and if that doesn't happen, you're a utility. And the utilities get sold at commodity prices. >> Go ahead. >> How did you know how to communicate this idea? >> How? The question is how do you know how to communicate this to the company? The culture or the core values. >> To the employees. To the outside world. >> The culture? The values. The brand? >> How to communicate what Airbnb does >> Well, so the question is how do we communicate what Airbnb does early in the days? Well, we learned a lot because in the early days, we communicate like a utility. We actually said Airbnb is a cheap, affordable alternative to hotels. And we had a tagline of forget hotels, save money with Airbnb. And over time we felt like that was, I mean this was in really early days. And we felt like that was way too limiting. That undercut the idea. And so, we then eventually changed our tag line to travel like a human. Which we haven't kept. But it was basically meant to say that we believe in a certain kind of world and we really feel like travel is mass produced. You feel isolated, you feel like a stranger. And we want to bring the world back to the place where it's a little bit like a village again. Where the service is coming from other people. You have this feeling like you belong and you're actually treated like a human. You know, no matter how successful you are in life, often travelling will remind you, you're not that successful. Go through TSA, stay in a typical hotel. Sometimes you'll have some problems. And so we really want to make people feel special. And this was kind of some of the stuff we did in the early days and we did a lot of storytelling. I mean, I probably told the story of Airbnb like 10,000 times. And this is something that's kind of related to culture. But one, somebody asked me the other day like what's the job of the CEO. And there's a number of things a CEO does. But what you mostly do is articulate the vision. So you articulate the vision, you gotta develop a strategy and you gotta hire people to fit the culture. If you do those three things you basically have a company. And that company will hopefully be successful. If you have the right vision, the right strategy and good people. So what we end up doing is articulating the vision over and over and over again. Whether you're hiring people or recruiting them, talking to investors to raise money, doing PR interviews, if you're speaking at a class. You're always reinforcing the values. You're doing it in email to a customer. And so you just do it thousands of times. And if you do something thousands of times it will change and get better every time. So it's just kind of, evolved. >> Yeah, question. >> So you are interacting with the host, somehow you're in charge of the host and reinforcing the parts of Airbnb? >> Very, very good question. How do we make sure the hosts are reinforcing the culture of Airbnb? So when, the answer to that is, we do a pretty good job but not yet an amazing job at it. When we first started Airbnb, I kinda took the Craig Newmark school of thought. Craig Newmark's the founder of Craigslist. And I said, anybody should be able to use Airbnb. You didn't have to apply. If you wanted to rent your place, you could rent your place. And it turned out that many of the people believed in our values because we talked about it and we tracked them. But there were people who rented on Airbnb not because they believed in values, but because they realized they can make a lot of money renting their home. And not everyone really was a great culture fit. And these people actually did cause us a lot of problems. So, that was actually a bit of a lesson for me. And I didn't think our host had to, it didn't really occur to me in the early days. The host had to completely fit the values, that we met them, we attract people like us. And so, over time, we've realized host or partners, and so they need to believe in the same values we do. And so now we have a program called the Superhost program where they have to demonstrate values to reach this kind of badge, which gets them kind of priority customer support and distribution. We are having this host convention where you bring all the hosts in. We're gonna be talking about and reinforcing the values. We're moving towards the place where they have to apply to list. And we don't test them the way we test an employee but we're starting to get more rigorous about it. So the answer is, the answer is we were really late but we now do it by gradually moving towards apply to list and reinforcing it every step of the way. >> Go ahead. >> When Airbnb has made some great contributions to the open source community. Do you have any thoughts on how that contributes to the culture of your development team? >> Yeah. I think, just in general, and it may be related to two things about Airbnb. We tend to be a pretty open culture, just in general. We communicate a lot. And we generally believe in the idea of like, a shared world where people are giving back and contributing, making communities and industries stronger. So, just my one philosophy on communication is, we basically communicate and talk about everything internally except for things that relate to employee or customer privacy. So, if it doesn't relate to those two things, we'll basically talk about it. As far as open source culture and engineering, we wanted to make sure that we had a really strong identification of the team. And so we really felt like a lot of source codes shouldn't be, you know, we felt like every company needs a moat. Some kind of moat that protects you from your competition. We thought some technology would be, but we also felt like we wanted to be able to get back from a technology standpoint. And we preferred our moat to be that we provide the very best experience in the world when you use Airbnb. We have the biggest network effects. And we thought that kind of took precedent over having certain technology that only we could use. And so we decided to try to share some of that out to people. And I think, again, it does relate to the values. Now one other thing is I never one day recommended. Hopefully, if you have a strong culture, I didn't recommend we do any of that. We hired engineers that we felt like fit the values. And it just independently occurred to them they should do that. They felt like that was the right thing to do. >> All the way in the back. >> You talked about how during the conventions you didn't have any money and only a couple people visited your site. What did you do to increase the number of users that came to your site? How did you scale that out? >> So the question was, Brian had talked about that there weren't that many visitors to the site when they were trying to sort of get off the ground. How did they get users to the site? >> So this is actually not about culture but I will answer it anyway. So, you know a lot of people, this is not even a culture question, but the best advice I ever got was probably from Paul Graham. And Paul Graham basically said, I remember he had this line. He said it's better, he may have even talked about this at a talk, he said it's better to have 100 people that love you than to have a million people that just kinda sorta like you. It's literally better to have 100 people love you. And the reason why, if you have a million costumers or a million users and they just kinda don't care about you but they kinda use your app and you're okay. To get them to care is a really, really hard thing. In fact, I don't know how to get a million people to all of a sudden care. What I do know is if you get 100 people that love you, those people if they feel incredibly passionate, each of them will tell 100 people. And in fact all movements typically start, or companies or ideas that are really powerful, start with just 100 people. So the reason this is so critical is he gave us another lesson. Which is if all you need to do is get 100 people to love you. Then what you need to do is things that don't scale. So it's hard if you have a million people you can't meet all of them. But you can meet 100 people. You can spend time with them. So that's exactly what we did. Joanie and I, we would go door to door in New York City or in Denver where the Democratic National Convention was. Literally meeting with, staying with and living with our users. I use to joke that when you buy an iPhone Steve Jobs didn't come and sleep on your couch but I did. And that, that was really critical, living with your users. And by living with our users and spending time with them, all we had to do is give them enough time, attention. And get them to get to the point where they were deeply passionate. And if you work backwards from 100 people or even one person. Without even technology, imagine what would be an amazing experience for just this one person. And walk through the journey from the time they, whatever your service is, right? And make it perfect for that one person. Once you make a service perfect for one person, it's actually really easy to make almost anything perfect for a person. It's not actually that hard. The hard thing is then how do we scale this to millions of people. Where everyone gets in trouble is they try to solve both at the same time. So, the first thing we do is get the perfect experience for one person. We went door-to-door to do this, we won over their love. Then we use a separate part of our brain to imagine, now how would we achieve that at scale? And I'll give you one example before I stop talking about this. Right now on Airbnb you can, if you put your home on Airbnb, you can click a button and it kinda works like UBER. And we did this before UBER, a professional photographer comes to your house and they'll photograph your homes for free. We have 5000 photographers around the world, and we photographed hundreds of thousands of homes. So it's probably one of the largest on-demand photography networks, if there was such a thing, I guess probably the only one in the world. And that started with Joe and I. We were living, we were staying not living, staying with this one host in New York City. And her house is amazing, but her photos were terrible. And we said, why don't you just put up better photos? And this is before, you know, iPhones had great cameras, this was 2008. And she said, well, I can't figure out how to get photos from this camera, onto this computer. She wasn't very technically savvy. And we just said well, we'll just take photos for you. Or actually I said, what if you can press a button and somebody just showed up at your door and took professional photographs. She said, that would be magic. So next day, I knocked on her door and said I'm here. And I photographed her home. And then we sent emails to people saying, we have this new magical photography service. And if you want you can press this button and a professional photographer will show up at your home. Somewhere just press this button and just send me an alert or Joe an alert. And we'd rent a camera in Brooklyn. In January of 2009 walking through snow, photographing people's homes. We did this by hand without any technology. We managed it with just spreadsheets. I wasn't gonna burden Nate with trying to build something we designed before we had photography. Then we started hiring contract photographers. Then eventually we got a intern to manage all the contract photographers. Then we got a intern to become a full-time employee managing other interns to manage the contract employees. >> And at some point, this is before we built anything. And at some point there were too many, like people to manage. Like, there were like hundreds of photographers. And then we finally built all of the tools to manage all the photography. But we did it only after we knew exactly what the perfect service was. >> How about one more question? >> One more question. >> So a lot of people say that when, when the hardest part isn't the technology. Here the marketing, the communication is the hardest part there would be. And a lot of people say it's not the technology >> So do you wanna repeat the question? >> So the question is a lot of peop in this particular situation with Airbnb, a lot of people think that this is not necessarily a technology company, but it's more of a marketing company. >> Good question. So I'll, well, I'll tell you, I'll answer the question with a story. >> Okay, let me, let me, let me, let me just, let me preface that question by a set of questions. Do you have, do you today have proprietary technology? >> Yes. >> Do you have a moat? >> Yes. >> Do you have network effects? >> Yes. >> Do you have pricing power? >> Yes. >> Do you have a good brand? >> I think so. >> Are are you a monopoly? >> I'm not gonna answer that. >> But, but I think similar to the question just forgetting about all of that. It, companies that have network affects and sort of get off the ground based on. >> Yeah. >> The fly wheel is going. >> Yep. >> People just think that you're lucky. >> Yeah, let me, let me. It's a totally fair question. And people have said it. So, I wanna answer it. You guy that runs the Sequoia Capital now, his name is Doug Leoni. >> Yep. >> One day, I think it was a year, year and a half ago, Doug Leoni says, your job sucks. >> And I was like, what the hell does that mean? Like this is like, you've got the worst job of an CEO in my portfolio. And I said, tell me why. And this is what he said. He says, well, let me, here's how I think about it. First of all, you're a technology company. And he thought we were a technology company and I would say, at our heart, in many ways we are a technology company. And so, we have all the challenges of all my other portfolio companies. But beyond that, you are in 190 countries. And so, you have to figure out how to be international. We have to hire people in countries all over the world. We're literally in every country but North Korea, Rio, Syria, and Cuba. You're a, basically a payments company. We handle billions of dollars through our system every year. And we had to get money transmitter licenses in the state of California. So we actually are a payments company, and we have serious fraud and risk to, to, to warrant, and needs to be locked down like Fort Knox. He said, that's, that's usually where companies end. But you've gotta worry about all the other crap. And he says, trust in safety. You know we have 425,000 people staying in other people's, under, in other people's beds, in their sheets. >> Think about a woman from Texas staying in the Middle East or vice versa. The cultural conflicts that could happen and misunderstandings and, you know, you have 425,000 people a night. It's like being the mayor of Oakland. Now, imagine if you're the mayor of Oakland, all these things happen in Oakland tonight. >> So you've got trust in safety. Now, we have regulatory problems. You know, we are in 34,000 cities. Every city has a different law, different rules. And many of them were written in a different century, before you had any of this technology. So you've got to deal with that. Then you've got issues like search and discovery. So, Google's got this brand about being really important about search. The thing about search, though, is usually if I have a question, if Google can give me 40,000 results, but it's probably clear that there's like one or two best options for everybody. So if I wanna know a question to an answer, these are usually my best answer. We have 40,000 homes in Paris. There is no best home in Paris for anybody in this room. So we have to be really, really great at matching people and technology. We have to be a company that's just, you know, another example. Facebook, for example, is a digital product. Their product is their website. Our product are these experiences you have in the real world. So, we're not just an online product. We have to be an offline product. And we need to transition from when you're in your app, through cities. And these are just some of the examples why technology, design. So basically, the long and short of it is we have to be world class at technology. We have to be world class at design. We have to be world class at branding, because we've got to convince people this isn't crazy. You're not gonna die when you use it. We had to convince governments, this is good for neighborhood. What happens if the internet moves into your neighborhood? That's what people call it. It's a good thing, hopefully. And you've got to make sure trust in safety is really world class, that we handle all these payments and not have problems with risk. And I can kind of go through, and this is not even to do with culture. I didn't even mention culture. So, that's how I describe it is like, I think great companies are companies that are probably really strong at everything. But you know, we have, we try to hire the very best engineers and technical talent in the world and I definitely don't see us as a marketing company. >> Thank you. >> Thank you. >> Thank you, guys. >> All right, thank you sir.

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Posted by: pulak on Oct 24, 2014

Lecture 10 - How to Start a Startup

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