Brian Chesky on Managing Through Crisis and Uncertainty
In this podcast episode, the co-founder and CEO of Airbnb discusses how to gain customer loyalty and offers lessons in crisis management.
In March and April of 2020, as shelter-in-place mandates swept the globe and travel halted, bookings on AirBnB plummeted. With an 80% revenue loss, the company had to lay off nearly a quarter of its workforce.
“When you’re our size, and the business drops by 80% in eight weeks, it’s is like being in an 18-wheeler going 80 miles-an-hour, and then you slam on the brakes,” Airbnb co-founder and CEO Brian Chesky said. “This is weeks after we were preparing for what was supposed to be one of the hottest IPOs in years. It was completely bewildering.”
Chesky was called upon to provide answers, guidance, and business decisions at a time when uncertainty ruled. But when ’s only a blank slate, Chesky says, it’s time to deploy creativity.
“The hardest thing to manage in a crisis is your own psychology,” says Chesky. “People look in your eyes, and if you think you’re screwed, they see it in your eyes. You need to be optimistic. But it can’t be optimism that’s delusional.… The optimistic mentality is the mentality you need to be creative. And you need to be creative because, in a crisis, you often have no good solutions.”
Stanford GSB’s View From The Top is the dean’s premier speaker series. It launched in 1978 and is supported in part by the F. Kirk Brennan Speaker Series Fund.
During student-led interviews and before a live audience, leaders from around the world share insights on effective leadership, their personal core values, and lessons learned throughout their career.
Brian Chesky: The hardest thing to manage in a crisis is your own psychology. People look in your eyes, and if you think you’re screwed, they see it in your eyes. You need to be optimistic. But it can’t be optimism that’s delusional. It has to be rooted in some truth, some reality.
The optimistic mentality is the mentality you need to be creative. And you need to be creative because, in a crisis, you often have no good solutions.
James Yan: Welcome to View From The Top, the podcast. That was Brian Chesky, Co-Founder and CEO of Airbnb. Brian visited Stanford Graduate School of Business as part of View From the Top, a speaker series where students, like me, sit down to interview business leaders from around the world. I’m James Yan, an MBA student of the class of 2023. I had the great pleasure of talking to Brian about the founding story of Airbnb, how to acquire customer loyalty, lessons in crisis management and more. You’re listening to View From The Top, the podcast.
James Yan: Well, Brian, it is a great pleasure and even greater honor to have you with us at Stanford GSB.
Brian Chesky: Well, thank you for having me. Wow, it’s a big room here.
James Yan: I’m pleased to say that you are seated in front of hundreds of globetrotting MBA students —
Brian Chesky: Whoa.
James Yan: — many if not most of whom are your most loyal customers. That I can assure you. [Laughter]
Brian Chesky: [Laughs] Thank you. Well, thank you. I’ve got to — I hope I do well.
James Yan: As I was gathering materials for this interview, Brian, I found myself transfixed by a certain photo in your high school yearbook.
Brian Chesky: Oh. [Laughter]
James Yan: What captivated my attention was not the photo itself, which was perfectly fine, but rather the caption underneath the photo.
Brian Chesky: Yes.
James Yan: Why don’t we take a look on the big screen.
Brian Chesky: I didn’t know there’d be visuals today. This is going to be — oh God. [Laughter] [Applause] Already. Oh my God [laughs].
James Yan: Brian, the good news is — [laughter] — as of the close of yesterday’s trading session, your prediction turned out to be slightly off the mark —
Brian Chesky: Yes.
James Yan: — by 8.4 billion dollars [unintelligible]. [Laughter]
Brian Chesky: My dad was not very happy about that. [Laughter] I remember I got home one day, and he’s sitting in the dining room with that opened. And it just — I — if you had told me when I was in high school that I would be here talking to all of you, I just thought it was — it kind of boggles my mind to be here right now, so —
James Yan: The founding story of your company, Brian, will be familiar to many in the audience. But as a quick refresher, could you walk us through the origin of Airbnb?
Brian Chesky: Yeah, I’ll do that. I’ll do the quick version. So I’m from upstate New York. My parents are both social workers. And I remember my mom telling me one day — I think I was like in high school — and she said, “You know, I chose a job for the love, and I didn’t really get paid any money. So you should make sure that you get a job that pays you a lot of money.” [Laughter] And so then one day, I was really interested in art and design. And then like I asked Santa for poorly designed toys so I could redesign them, like really peculiar things like that.
And then one day I tell my mom, I said, “I’m going to be an artist.” And she said, “Oh my God, you chose the only job in America that’ll pay less than a social worker. [Laughter] You’re going to get paid nothing.” And that was probably the pretext to that yearbook quote. And I said, “No, mom, I promise I’m going to get a job.” And she said, “A real job?” And I said, “What’s a real job?” She said a real job’s a job that gives you health insurance so you don’t have to live in my basement.” So that was the context. And I said, “All right, I’ll promise you I’ll get a real job with health insurance.”
I get to RISD, thinking I want to be an artist. And then I felt the moment I got on campus, I was born like a hundred years too late for what I wanted to do because I was like an artist, a painter, a drawer. And photography had replaced a lot of the need in society to do a lot of things I wanted to do. And I didn’t know what to do at RISD. And all of a sudden, you have to pick a major. And I was a freshman, and there was a department head, and he said, “There’s this field called industrial design. It’s a design of everything from a spaceship to a toothbrush and everything in between.” And I thought to myself, okay, that’s what I’m going to do.
So I got into industrial design. I graduate RISD. I’m now — I moved to California. I wanted to come to California. I was like — I didn’t really know the difference from L.A. and SF. I’d never been to California. So my friend was [wanting] to come to L.A. So I got my friend to come to L.A. with me. I get a job as an industrial designer at a design firm. I’m like designing products for like entrepreneurs. And I even — like the firm I was at was — they had like really small budgets. So I would do like products like all the different times. And so people would bring me ideas, and we’d think about, what’s the market strategy? How are we going to design this product? How do we manufacture it? Where do we distribute it?
And because we were so small budget, I got to actually do the entire thing. Now it’s 2006. One day, my boss comes to me and he says, “You’re going to be on a reality TV show.” And I said, “What?” And there was a precursor to Shark Tank, this show called The American Inventor. And it was a like spinoff of American Idol. And there were these contestants, and they would get 50,000 dollars, and they’d have to hire a design firm. And I was the firm that one of them hired. And so all of a sudden before I knew it, I was designing a toilet seat for a magician. [Laughter] And that’s kind of — and at that moment, it was a cool project. But I realized [that myself], what’s the difference between me and this magician?
And I thought to myself, the difference is they made the [chance] to be an entrepreneur; I didn’t. And I was designing other people’s products. So my life is like I’m in a car, and the road in front of me looks exactly like the road behind me. And all of a sudden, I get a package in the mail. It’s a package, and it’s a seat cushion. But it looks in the shape of a human buttocks with a handle. And it’s a product called [Crip Buns], and it’s from my friend from RISD. And he says, “I started this company. We’re manufacturing this product.” And by the way, the product’s beautiful. It ended getting sold in the Museum of Modern Art Gift Shop. So it’s a really nice product.
And he said, “Come to San Francisco.” And this was my call to adventure. And you know, like there might be a few times in your life where you make a decision, and everything about your life changes after that decision. And that’s what happened. I packed everything in the back of a Honda Civic. I have a thousand dollars in the bank. I get to San Francisco. And then Joe tells me the rent is 1,150 dollars. And I thought, wow, I should have asked that before I came up to San Francisco. [Laughter] But it turns out that weekend an International Design Conference was coming to San Francisco. All the hotels were sold, and we had this idea. We said, well, what if we just turned our house into a bed and breakfast for the Design Conference?
Unfortunately, I didn’t have any beds, but Joe had three airbeds. We pulled them out of the closet, and we called it AirBedandBreakfast.com. And at that point, my mom said, “So I guess you don’t have that job with health insurance anymore.” And I said, “No, mom, I’m an entrepreneur.” And she said, “No, you’re unemployed.” [Laughter] And that’s when I realized, when you’re starting, it’s mostly in your head. Wonderful. [Laughter] [Applause]
James Yan: Back then, the idea of renting out your bedroom to strangers sounded completely foreign —
Brian Chesky: Yeah.
James Yan: — [and even risible] to Silicon Valley investors. In 2008, you sought to raise 150,000 dollars for your budding enterprise.
Brian Chesky: Yeah.
James Yan: You approached more than a dozen investors —
Brian Chesky: Yeah.
James Yan: — all of whom sadly turned you down.
Brian Chesky: Yeah.
James Yan: In fact, I have here a couple of those rejection emails —
Brian Chesky: Oh [laughs].
James Yan: — that these investors sent you.
Brian Chesky: These exhibits are great. [Laughter] Slightly embarrassing, but [unintelligible].
James Yan: Would you be so kind as to read one of them —
Brian Chesky: Yes.
James Yan: — for our edification?
Brian Chesky: Yes. [Laughter]
James Yan: Thank you.
Brian Chesky: You want me to read them?
James Yan: Yes.
Brian Chesky: Okay. So we’ll read this one. Oh, I know this person. Okay. [Laughter] “Hi, Brian. Apologize for the delayed response. We’ve had a chance to discuss internally and unfortunately don’t think this is the right opportunity for blank from an investment perspective.” This is my favorite part. “The potential market opportunity did not seem large enough for our required model.” Now, it’s travel, about the same size as oil, but it wasn’t large enough. [Laughter] But imagine, they didn’t see travel. They saw strangers sleeping in other people’s homes.
Like I’ll give you an example. The first investor that Joe and I ever met was in University Café, this café. An investor walks in; he goes to get a smoothie. He sits down. He never picks his head up. He’s drinking a smoothie. He’s like on a straw, [picking] a smoothie. We’re pitching him. Halfway through the presentation, he gets up because he has to like move his car. We still haven’t seen him since. [Laughter] So that was our first pitch. We pitched Paul Graham at Y Combinator. We end up getting Y Combinator. The first question Paul Graham asked me is, “People are actually doing this, like staying people’s homes?” And I said yes.
So a second question was, “Well, what’s wrong with them?” [Laughter] The interview kind of went downhill from there. But over the course of this journey, we’re about to leave our interviews, and Joe takes out a box of cereal, and a box of cereal we designed. So I’ll take a quick detour. We’ve [unintelligible] housing in 2008 for the Republican and Democratic National Conventions. And you’ll remember, that was when Barack Obama was running for President. It was like a huge movement. And that weekend, we launched, and we got like 80 bookings. And I thought at this point, we’ve made it; we’re huge. Like a bunch of blogs covered us. I’m like we’re the Beatles of tech right now. [Laughter]
And all of a sudden, the next weekend for Senator McCain, we got two bookings. And then the week after, we got no bookings. And I realized if only there were political conventions every week, we’d have a business. So we were called Air Bed and Breakfast. The airbeds weren’t selling. So we said — I know what you’re thinking — why not breakfast? And so we created this Barack Obama and John McCain themed breakfast cereal. We called the breakfast the Obama O Cereal, Obama O’s, like little Cheerios, the breakfast of change. [Laughter] And we learned about John McCain, and he was a Captain in the Navy. And I thought, oh my God, Captain — Captain McCains, a maverick in every bite. [Laughter]
So we made these boxes. And at this point, my mom’s like, “Yeah, you’re definitely unemployed. [Laughter] Like this is just not a good sign.” And so we ended up designing these boxes. We called General Mills, like, “Hey, can you make a hundred thousand of these?” They’re like, “Please don’t ever call us again. [Laughter] If you do, we’ll call security.” So we ended up — I’m making that up; I can’t remember who it was, but some big cereal company. So we ended up getting like a thousand boxes of cereal. He hand-glued them ourselves. Like I remember hand-gluing cereal boxes, these collectible breakfast cereals, thinking I wonder if Mark Zuckerberg ever glued cereal boxes. [Laughter] And the answer was no, he didn’t. This is not a good sign.
But we ended up making like 30,000 dollars of collectible breakfast cereal. So we basically said at that point we’re cereal entrepreneurs. [Laughter] And that was how we funded the company. So we are in this interview with Paul Graham. He’s like, “What’s wrong with you? Like these people, why are strangers staying together?” And we — when we leave the interview, we give him these boxes of cereal. And he said, “What are these?” And we said, “We made these.” He goes, “Why’d you make these?” And we said, “Actually, this is how we funded the company because no other investors gave us money.” And he said, “Well, if you can figure out how to get people to pay 40 dollars for a four-dollar box of cereal, maybe, just maybe you can figure out how to get strangers to live with each other.
So that’s when we entered Y Combinator in 2009 after a couple of dozen investors just thought this was not for them.
James Yan: So now that you get your cash infusion from selling breakfast cereal —
Brian Chesky: Yeah.
James Yan: — you pivoted back from breakfast to beds.
Brian Chesky: Yeah, we realized the market size for housing was probably better than breakfast.
James Yan: And one of the keys to Airbnb’s initial success was its emphasis on accuracy over speed to market.
Brian Chesky: Yes.
James Yan: Instead of targeting millions of potential customers at once, you focused on converting 100 people at a time.
Brian Chesky: Yeah.
James Yan: What gave you that discipline?
Brian Chesky: Okay, so it’s the first day of Y Combinator. It’s January 2009. By the way, I want to set the stage for you. Do you remember what was going on in January 2009, like the economic crisis, the great recession? The economy was so bad, and Y Combinator has this thing called Demo Day. So the end of three months, all these investors come. Paul Graham sends us an email before Y Combinator starts. He says, “The economy’s so bad we don’t know if any investors will show up for Demo Day. So if you want to defer, you can defer.” That’s how bad it was. And so we said, “No, we’re going to do this.”
So we get to Y Combinator. It’s the first day. And I get the worst piece of advice I ever got and the best piece of advice I ever got. The worst piece of advice I ever got was Paul Graham, “You have to move to Mountain View.” We never did. I’m like, you don’t need to move to Mountain View. You can be anywhere — although it’s cool in Mountain View [laughter]. But then I got the best piece of advice I ever got. He goes to the whiteboard, and he draws — like it’s all hard to visualize, but he draws like imagine if you were to take a section plan of the Washington Mall, that like — that long — like it’s just like a little stream of water.
And then he does another section of what would look like a well. And he said, “These are the same volumes.” But he said, “It’s better to have a hundred people that deeply love you if this axis is number of people and this axis is love. Focus on a hundred people that love you rather than getting a million people that kind of like you.” And I think this was a profound piece of advice. It may have been the best piece of advice I’ve ever gotten. And it actually runs counterintuitive to almost everything that everyone says. Everyone focuses on scale. But scale requires people to have a deep passion because if you focus on a hundred people who love you, there are two things that happen.
The first thing is how do you know how to make something for a million people? I don’t know where to start. But if I pick one person in the audience and I study you, and I take your journey and say, how do we like improve this part of the journey, how do we improve that part of the journey, you can actually do something really personal. And if you design something, keep iterating until they love it, and don’t stop improving until that one person loves it. And you’re not allowed to get the second person until the first person loves it. And then you get the second person, and you keep iterating until they love it. And then the third person.
And what ends up happening is two things: One, you design this perfect experience, which is a different part of your mind than the industrial part of your mind that has to figure out how to scale this. And the second thing is when people love your service, they become your marketing department. They tell other people. So the first day at Y Combinator, they give you this t-shirt. And on the t-shirt, it says, “Make Something People Want.” And we thought what if we went even further: “Make Something People Love”?
And so we’ve now done these exercises. We had this process I named after the movie “Snow White.” I learned that Walt Disney in 1937 created “Snow White.” It was one of the first uses of the storyboard because it was like this really long, feature-length animated movie. And he storyboarded the experience. And I thought to myself, what if we storyboard the perfect experience for Airbnb? We actually hired Pixar Storyboard Artist to do this. And then we — what we like to do is like pick one frame of the experience. So the moment of truth in Airbnb is when you check in, right? You’re like, is this going to be what I think it is?
And there’s a really bad version of check-in, like the host didn’t show up. And there’s kind of a good version of a check-in — they showed up. But we wanted to think to ourselves, what would make the experience something people love? And so we created this exercise. We thought, you know when you go on Airbnb — this is also true of Uber — like a five-star mostly means like nothing bad happened. And we thought, well, what if there was like a sixth star? What would that be when you check in to Airbnb? And the sixth star is you get to your Airbnb, and there’s like a bottle of wine waiting on the table, and there’s like some fruit, and they have like a handwritten note to you. I’m like, okay, that’s like really nice.
And then I thought, well, what would a seven-star experience be? A seven-star experience is they get a limo, they pick you up at the airport, and there’s this like whole curated experience. You get to the house, and they know you like surfing, and there’s a surfboard there waiting for you and all that stuff. So then I thought, what would an eight-star experience be like? [Laughter] An eight-star experience, you get to the airport, there’s a giant elephant [Laughter] — and you get on the elephant, and there’s a parade in your honor, and you go to your Airbnb. [Laughter]
So what would a nine-star experience be? [Laughter] The nine-star experience is the Beatles check-in. You land, and there’re 5,000 teenagers cheering your name, and you get to your Airbnb and do a press conference on the front lawn. So what’s a ten-start experience [Laughter] — I’ll keep going. A ten-start experience, you show up and Elon Musk says, “We’re going to space.” [Laughter] And you do get back eventually. And the point of this story is that you maybe can’t make an eight- , nine- , or ten-star experience. But most people try to design something that’s just good enough.
But if you can add that sixth or seventh star, if you can design something really amazing, and you use the part of your brain, the handcrafted part of your brain to create that perfect experience, then you can reverse engineer how to industrialize this millions of times over. And what happens is people love your product, and they tell everyone else about your product. And what ended up happening our business is Hilton was started in 1919, over a hundred years ago, and we were able to have the entire growth of Hilton in ten years. And this is how you do it without — we had some marketing, but initially not a lot.
James Yan: As you said, word of mouth marketing really helped Airbnb get off the ground in major cities around the world. Yet one corollary of your newfound success is that government regulators and the powerful hotel lobby were now breathing down your neck. How did you deal with those regulators?
Brian Chesky: Oh man. Yeah. I — there were some things that were initially out of my depth. Like they did not teach you at RISD how to work with government regulators [Laughter]. So I always grew up thinking if like people don’t like you, you should avoid them. That seems kind of intuitive, right? Or you should fight them and like disagree with them and they’re your opponent. And then in 2011, I hired an executive — my first executive. Her name is Belinda Johnson. She was our Chief Legal Officer. Then she became our COO. And she told me something that was counterintuitive to me. She said, “If people don’t like you, you should meet with them.” And I said, “Really? Why would I do that? Wouldn’t it go horribly wrong?” And she said, “No, because it’s hard for people to hate you up close.”
And I think that’s a really important lesson. So I said, “Okay. Well, who doesn’t like me?” And it turned out a lot of people. [Laughter] And so instead of me having a tour where I went on tour to meet everyone who liked me, I told our team, I want to meet everyone who doesn’t like me.” And it turned out they kept me busy for a long time. But I would meet with these government officials. And sometimes the meetings would start a little hostile — they were a little hostile at first. But I had a rule that I’d always listen first and seek to understand them. And I think — my dad used to say like 90 percent of life is just showing up. It’s actually not true in tech. But when it comes to showing respect, 90 percent of life sometimes is showing someone respect and listening to them.
And if you just get in the mindset of listening to people, then through creativity you can decide — you can realize a win-win. And I realized they — like I would hear from them. We’d tell the story. And then through that, I had this image that we’d create this model city, and we’d roll out the regulation everywhere. And I did it in one city. And I get to the next city, and they’re like, “Yeah, but we’re different. We’re not Portland. We’re not San Francisco. We’re not Los Angeles.” And so then I realized we had to treat every city personally. So we actually started meeting with like hundreds of cities. We have now 90 percent of the top 200 markets have a regulation in place. We’ve collected six billion dollars of [Trans E Ox B] tax since we started.
And I think maybe the final lesson, I’ll just say, to this is somebody asked me, what is the biggest thing you’ve learned, or the biggest surprise that you’ve learned starting Airbnb? And I’ll tell you what it is. And this is proven from firsthand experience and from data. You know, Airbnb’s been used more than a billion and a half times. It was like the worst idea that ever worked. It wasn’t supposed to work. In fact, the first time I told [unintelligible] the idea, he said, “Brian?” I said, “Yes?” And he said, “I hope that’s not the only idea you’re working on.”
But a billion and a half times later, what I’ve realized is the thing that surprised me is not how different people are; it’s actually how similar people are. I think we live under this illusion that we’re so different from everyone else. And I think we tend to focus on the one percent that makes us all different. And that’s really good. There’re really positive parts of preserving our culture and understanding our diversity. But when you start to think the other is so other from you, that gets very, very pernicious. And having met with people all over the world, I realize that people with the strongest opinions of other people are the ones without passports. And the people that have strongest opinions about business people or government are people that have never worked in those businesses.
And so if we can build bridges, meet people, bring people together, we will realize the other is not so other, that we’re 99 percent the same. And actually, through creativity, you can actually find win-wins through everyone. So that’s probably what I learned from that lesson.
James Yan: At the same time that regulators were encircling you, you had to navigate internal growing pains. In short order, you found yourself at the helm of a multinational company with many hundreds of employees around the world. As you mentioned earlier, you are a designer by trade, not an engineer.
Brian Chesky: Yeah.
James Yan: How did you leverage your background as a designer to inspire loyalty and followership among your employees?
Brian Chesky: Whoa. [Laughter] Wow, loyalty and followership — I like that. Well, so let’s go back to RISD. When I got to RISD — I’m 41, so I was there in the early 2000s — there was this huge obsession with the idea of designing — design kind of like having a seat at the table. You know, there’s this kind of thing that like artists and designers are usually not in positions of power. I mean, you take the Fortune 500. How many CEOs of Fortune 500 companies went to design school? I don’t know if there are any — very few. So how many board members — there’s probably an average of like 12 members or 10 to 12 members per board, so maybe approximately 600 board members in the Fortune 500. How many of them are creative people or designers? Not many.
Okay, let’s go down the list. How many executive teams do you have designers or creative people on the executive team? And even today, not very many. And so at RISD there was this whole movement. Well, how can we get design in the boardroom? And Joe and I had this kind of audacious, almost arrogant thought: Why would design be in the boardroom? Why wouldn’t design run the boardroom? Why don’t we start a company? And I think I’ll just stop by saying, to me, design — I think a lot of people think of design as how something looks. And to me, design is a much deeper idea. Design is how something fundamentally works.
I think design makes the complex simple, and it focuses on every single detail. Design is really about understanding the essence. I think it was Steve Jobs who said design is the fundamental soul of a manmade creation that reveals itself through subsequent layers. And so I think of design as not just how something looks; it’s how — a way to think about the world and a way to simplify. And engineers, I think, tend to want to narrow in, reduce — like my cofounder Nate likes to narrow in and get very focused on a problem [you can contain] because you’ve got to build it.
And designers, we tend to want to zoom out to the frustration engineers and be very, very holistic. But I do think that that holistic thinking affected everything. I think it changed how we ran the company. I can talk in a second about how we run the company; it’s really different from most other tech companies. At RISD, you have to tell a story constantly. So we had to learn how to be really good storytellers. A lot of people build products; they don’t understand stories. It helped understand how we design our products, how we make our products. So it was really kind of everything. And it’s weird. It’s almost like I’m an anomaly that I’m even here. Like the fact that I went to a design school and I ran a giant tech company, it is kind of a weird anomaly.
And if you imagine like a human body, there’s the head and the heart. And if you were to cut off the body at the head and take the head and you cut it off and take the left side or whatever, that’s kind of the world of business. We don’t usually use our full minds to like run companies. And I think we tend to get very myopathy-focused near term on that which is extremely measurable. Not everything that counts can be counted, and not everything that can be counted counts. And so that was a quote by Linus Pauling, a Nobel Prize-winning scientist. And so I think that’s kind of how I think about design is just really trying to understand the essence of something and really distill it down.
James Yan: Brian, let’s fast forward to the pandemic.
Brian Chesky: Yeah.
James Yan: Airbnb lost 80 percent of its revenue over eight weeks in March and April of 2020. You had to lay off nearly a quarter of your workforce. That’s nearly 2,000 employees. What lessons in crisis management can you impart to us?
Brian Chesky: Oh geez. Well, let me just — let me start by saying this. For many years, I would tell the founding story of Airbnb. I’ve literally told it now like thousands of times. And I remember saying to myself, I’ll probably never have a crazier chapter in my life than starting Airbnb. And little did I know about a pandemic that was about to come that would turn our entire world upside down. But let me actually go to a few minutes before — a few months before the pandemic. So Airbnb, we started — we go on a rocket ship. It’s amazing. And it’s late 2019, and we’re preparing to go public. And I go on a hike in Bolinas, California. It’s like a couple of hours north of here. And I go on a hike with my cofounders Joe and Nate. And we’re reflecting on this amazing company [we built]. It was like at the time valued at 30 billion dollars, and we’re feeling really proud of ourselves.
But something is gnawing at us. And the thing gnawing at us is — maybe it’s like Airbnb was an adolescent, and it was about as awkward as my actual adolescence — you saw that photo. And you know, we kind of looked like a human — like an adult. But we — like we had the body of an adult, but we were like kind of still kids. And it was like I realized that like the company was like — we were like growth was slowing; costs were rising. We had ten divisions at Airbnb. It’s like a Homes division, Experiences. We had a Transportation, a magazine. And then each division had subdivisions. We basically had like ten marketing departments.
We were building software the way most tech companies do, which is you try to kind of decentralize as much as possible, allow people to move quickly. Every person is like a cell in a body. You have individual tasks. We have the information [on our] company. We democratize data. And you do a lot of experimentation, an A/B test to figure out like what you want to do. We were spending a lot of money on [performance] marketing. In the aggregate of this, I felt like we had lost that magical like ten-star experience. It was starting to become like another company. There was a bit of bureaucracy. It was difficult to get work done. And I just — I didn’t know what to do.
And I remember telling Joe and Nate, “I feel like I had a dream that I left the company, and I just came back.” And they said, “What’d you find?” I said, “I was kind of horrified because this is not quite the company that we set out to build.” But we had an IPO coming up, and they’re like, “What do you do?” And I said, “I don’t know. I mean, we have an IPO; we’re not going to rebuild the company.” So we’re going into the new year, and I’m like thinking we need to make some changes. But I don’t know what we’re going to do. And all of a sudden, the pandemic hits. And our business drops by 80 percent in eight weeks. And we were doing tens of billions of dollars.
And when you’re our size, and the business drops by 80 percent in eight weeks, that is like being in an 18-wheeler going 80 miles an hour, and then you slam on the brakes. Nothing good happens. And this was like — I’ve never had — within weeks, journalists were predicting, “Is this end of Airbnb?” This is weeks after we were preparing for what was supposed to be like one of the hottest IPOs in years. And it was completely bewildering. And you know, I’m lucky that I’ve never had like a near-death experience. But what it’s been described to me, it’s like your life flashes before your eyes.
And I think we felt like we had — at least felt like at the time a near-death business experience. And at that moment, we realized not everything mattered. And it was like if you have to go into a house and your house is burning and you can only take half the things in your house, what would you take? And that was the exercise we had to do. And you can learn a lot about people in a crisis. And the person that I think you sometimes learn the most about in a crisis is yourself.
And the hardest thing to do in a crisis — there’re a few things you need to do in a crisis, but the hardest thing to manage in a crisis — do you know what the hardest thing to manage in a crisis is? What I found the hardest thing to manage in a crisis is your own psychology because people look in your eyes, and if you think you’re screwed, they see it in your eyes, and they say, “Well, you have the most information.” And so you need to be optimistic. But it can’t be optimism that’s like delusional. It has to be rooted in some truth, some reality, that people still want us to exist. And this is why.
And so that optimistic mentality is the mentality you need to be creative. And you need to be creative because, in a crisis, you often have no good solutions. So the first thing is you need to be optimistic. The second thing in a crisis that I’ve found is that you need to be decisive. And I think this is a struggle for a lot of data-driven people because there’s not a lot of data in a crisis. All the data is out the window. And what do you do when there’s no data? You have to lean on something. You need to have courage. But what does courage lean on? Courage has to lean on principles. In other words, in a crisis, I don’t think you make business decisions as much as you make principle decisions.
And a principle decision is like if I can’t predict the outcome, how do I want to be remembered? And I think if you think of yourself as this is our defining moment, how do we want to be remembered? That is the mentality that you need to navigate out of the crisis. And so we used those principles, and we basically — a thousand of us got into a foxhole and rebuilt the company from the ground up. We had to reduce the size of our company and do a layoff. That was the hardest thing probably I ever had to do. We reduced the pay of all the executives. We were spending nearly a billion dollars on marketing. We took it to zero.
I became our marketing department. I started just doing press interviews. I did a hundred interviews that year. And we just really got focused. And we actually changed how we ran the company. And I’ll just say for a second how we now run the company. So most large companies are divisional, right? So you have like a — whatever. Like if you’re a company, you may have like a bottle division and you have like a snack division. So you’re like a divisional structure. We got back to being a functional organization. So we have a design group, a marketing group, a finance group, an operations group. We basically reduced all the things we [were working on] in the company to just a few things.
And then I decided I wanted only leaders that were going to be in the details. I didn’t want anyone that was just a manager of people. It was like if you’re like a general in the cavalry, you have to actually know how to ride a horse. And so you had to actually have your hands dirty. And so we had a team of experts, and we all huddled together. And we basically said we’re not going to do just this agile, continuous shipping of features every single hour of every single day. And I’ll give you a sense of what I think is wrong with software development in Silicon Valley. The general premise of software development in Silicon Valley is to like democratize data, and anyone can ship anything.
And this initially is faster. But when you start adding thousands of people, this slows you down, and I’ll use an analogy. Let’s say we’re all making a car. And one team is designing the tires, and they design this new type of tire. But now that tire has to fit on a wheel. So you have to work on the wheel team. The wheel team’s like, oh wow, we need to actually make the wheels bigger to work with this tire. But to do that, then that actually changes the shape of the car. So now you need to update the body of the car. But maybe that makes the car heavier, and so maybe you need a different battery. And to manufacture a different battery, you need to actually capitalize that. But the finance team needs to like set different expectations of investors. And do you see how everything starts to tie together?
So we basically had this idea that, what if we thought of the entire company as just one continuous — like one fluid organization? I don’t push decision making down. We pull it in. We try to pull as many decisions in to us as possible and be in the flow, almost like an orchestra conductor. Each executive doesn’t have their own swim lanes. We all work together on a few discrete things. Every project in the company — every major project we review either every week, every two weeks, every four weeks. We have these two releases a year. These releases are where all the work together converges to make sure everyone’s coordinated. We make sure that product and marketing are in lockstep.
At most companies, product people are like chefs, and marketing people are like waiters. And if the waiter goes in the kitchen, the chef yells at them. And there’s just no collaboration. And I thought, well, what if product and marketing were like working in tandem with each other? So it was just like a really different way of working. And I think the way to summarize it is we took the best of software and the best of hardware development and we put it into one system, because the problem with software is there’re no constraints sometimes, and so things can be a bit of a free-for-all, and the free-for-alls can slow you down.
So we basically rebuilt the company from the ground up. And to give you the punchline, before the pandemic, that year before the pandemic, we lost a couple of hundred million dollars. There was a question of could we be one-day profitable. And fewer than three years later, we have now done 3.4 billion dollars last year in free cash flow. Nearly 40 percent of our revenue becomes free cash flow. So for every dollar, almost 40 cents becomes free cash flow. And the amazing thing about this whole system is we never even focused — I never focused on trying to make a lot of money. I just focus on being as efficient as possible, obsessing over the experience, focusing on every single detail, and getting really, really detailed.
And we would immerse for hours on a certain topic. We wouldn’t — we didn’t have strategy sessions. We lived with the strategy. We would have like 20 conversations, not one deep dive. And I think that way of working, which I think came a little bit from my design background, really helped us create this huge business turnaround.
James Yan: I’ve got two more questions for you, Brian, before we turn it over to the audience. I’ve got an easy one and a slightly tougher one.
Brian Chesky: Okay.
James Yan: Why don’t I give you the more difficult one first, if that’s okay.
Brian Chesky: Great. Let’s do it [laughs].
James Yan: One longstanding criticism of Airbnb is that it might be exacerbating unaffordability in densely populated cities like San Francisco by diverting housing stock that otherwise would have been made available to long-term tenants who reside in those cities. Is there any merit to those concerns?
Brian Chesky: Yeah, there absolutely is merit to the concerns. And let me just zoom out for a second and back up. When we started Airbnb, we started it — the origin story is Joe and I couldn’t afford to pay rent. In other words, Joe and I couldn’t afford to pay for our housing. And in 2008, many people turned to Airbnb — 2008-2009 during the financial crisis to put their homes on Airbnb. But over the time, I learned a lesson. You know, when I came to Silicon Valley in 2007, the word tech may as well have been a dictionary definition for the word good. And if you were in tech, you were taking a step forward for humanity and, therefore, making the world a better place. And so therefore, if you grow and what you’re doing is virtuous, therefore, you’re making things better.
And I think 15 years later, we’ve now realized another truth, that if you create something really powerful, a tool or a platform, and you put it in the hands of hundreds of millions of people, they’re almost always going to use it, and there are going to be unintended consequences, things that you didn’t foresee. And the faster something grows, the more it can hit you very quickly. And I think there is a concern about how fast technological process is going. And so this was a huge issue, that Airbnb wasn’t designed for people [that remove] housing from the market.
So this kind of coincided with our working with cities. And we meet with regulators, and they said, “We have these concerns.” And we said, “Well, how can we fix it?” A lot of them would say, “Well, we want to know in our city that people who are renting their homes, this is the home they live in, or at least they live there some of the time.” So we said, “Okay, how will we solve that?” And we ended up coming up with a registration system where they would register. They may have an available number of nights they can rent a year. Maybe have to show proof of residence. We will handle like hotel packs that will go to bettering cities.
But I think again it’s all about working with cities, not believing that your product is inherently like virtuous. Maybe your idea is, but always knowing there’re unintended consequences. And that’s what we’ve tried to do. And I’ll just say again, the heart and soul of Airbnb still lies in the everyday people. Ninety percent are individuals. And that’s kind of mainly where most of our activity is. That’s a great question.
James Yan: For those entrepreneurs and aspiring entrepreneurs in the audience, what are some post COVID trends in travel that have captured your attention?
Brian Chesky: Well, I want to — can I talk about a travel trend and then I think a driver of the travel trend?
James Yan: Sure.
Brian Chesky: I want to talk about like two trends. Okay, so when the pandemic occurred, people had to shelter in place. And suddenly, people were doing their jobs on a laptop. And then many people realized, well, I can take my laptop anywhere. And so suddenly, people were untethered from the place they lived. And so we started noticing that Airbnb’s were starting to being booked for like 30 days or longer. Last quarter, a fifth of our nights booked were stays for longer than 30 days. Nearly half our business is now longer than a week. Very few people stay in a hotel for a week or longer.
And so it’s actually become a fundamentally different use case. In other words, people are living on Airbnb. That was a really big trend. And the other trend that happened was because people weren’t going to cities, because many things in cities were closed, they couldn’t cross borders; they couldn’t — there wasn’t really urban travel available across borders, people started going to small towns, rural communities, national parks. In other words, they started going from a hundred cities to a hundred thousand places all over the world. So the two pandemic trends were people staying longer and going everywhere.
We’ve now seen a rebound of a lot of people — and now this goes to my other point. So the other trend is that a lot of people have been like kind of stuck in a house or landlocked for the last few years. And they want to get out. And the pandemic is ending — who knows when exactly it’s over, but the pandemic’s ending. And I think there are a lot of people that have pent-up demand.
But I’ll just end with one last trend, a trend I’m actually concerned about, and I think we can maybe help a little bit. So during the pandemic, we hired the now Surgeon General of the United States. He was also Surgeon General for Barack Obama, Dr. Vivek Murthy. And he said something to me that — and we hired him, by the way, because COVID had occurred and we wanted to keep the homes safe. And so we designed this like [cleaning] protocol. And he said something to me I’ll never forget. He said, “Do you know what the number one killer in America is?” And I said, “Hm, I don’t know. Is it heart disease? Is it cancer?”
And he said, “No. In a larger sense, the number one killer in America is loneliness. There’re a lot of studies that show that people who are lonely, the pernicious health effects are equivalent of smoking a pack of cigarettes a day. And people that are chronically lonely live 15 years shorter than people who aren’t.” And I always thought, okay, that’s really bad. But I had this image in my mind of like maybe elderly people being lonely. And so I started looking at the cohorts, and it turns out that the loneliest people in America are not senior citizens; they’re teenagers, that depending upon the stats you see, somewhere like two out of three teenagers are chronically lonely. That correlates to feelings of hopelessness and depression.
One out of three adults in American are lonely, but two out of three teenagers are lonely. One in five teenagers has made a suicide plan in the last year. And I said, why is this happening? This is so crazy. And I think what’s happening is I think modern life is making us lonely. And I think what’s happening is like 10 to 15 years ago, we had these amazing, magical devices where they brought us to this world and we could connect with everyone. But social networking, which was two-way friends, became social media, which was an audience and followers and you’re performing.
And the thing about — and it’s not that social media’s causing this. I mean, fewer people have families. Fewer people go to a church or a bowling alley. There’s less physical proximity. Now the office is Zoom. The mall is Amazon. The theater is Netflix. The grocery store is Instacart. And all these things are a forward step for humanity, and I think they’re all really great inventions. But they’re like ingredients. You can’t — we’ve got to balance people being online and connecting with people having meaningful physical interaction in the real world.
And this is something that I think we’re not going to solve. I’m not under some delusion that we’re going to solve this problem. But I would like for us to be able to focus on helping because I think travel is a great way for people to connect. And I want to move Airbnb even more towards a platform where it’s either a way to do reunion trips with your friends, because a lot of people now, their friends don’t live in the same city. When you guys graduate, many of you are going to live in different cities than your friends, and you’ll never see your friends again unless some of you travel.
And the other thing is how do people meet each other these days? And so I’m thinking a lot about how can Airbnb’s platform be used to bring people together, to make the world feel a tiny bit smaller, because we verify the identify of more than a hundred million people on our platform. And if we could bring people together, make things feel a little bit more intimate, that’s something that I think I’d be very interested in. So it’s like if I’m a designer, it’s almost like we’re designing how people connect together.
James Yan: Excellent. Well, thank you very much for sharing with us your insights today, Brian.
Brian Chesky: Thank you.
James Yan: Would you like to take a few questions —
Brian Chesky: Yeah.
James Yan: — from the audience? [Applause] Please.
Florian Donal: Thank you so much for sharing your stories, Brian. My name is Florian Donal, and I’m a second-year MBA student here. And I would love to understand a bit more about the cofounder dynamics. I find it really interesting that in Silicon Valley, so many cofounder stories end with conflict or lawsuits. But you at Airbnb seem to be one of the companies where cofounders have stuck together through thick and thin. So I would be curious to understand what the secret to the cohesion between you, Joe, and Nate was.
Brian Chesky: Oh man, that’s a great question. I like to think like why am I on stage right now and not the person I thought maybe I would be in my high school yearbook. And the answer, in addition to a lot of hard work, is a lot of luck. But I don’t think of my luck as that we came up with this idea at this time. I think the luck I have is having met my cofounders Joe and Nate. That is what makes me so lucky. You’re kind of like the [average of] the people you surround yourself with. And I remember when I met — I knew Joe from RISD. But Joe and Nate are really special. Each of the had businesses in high school.
I think that it’s really important that when you pick partners, they’re people that you can be friends with. They’re people that you can imagine spending more time with than your spouse, because you’re going to probably spend more time with your cofounder than your partner, actually. And they’re people that are so good they almost intimidate you. They challenge you. But they’re also complementary. One time like a decade ago, we each did like some kind of personality tests. I don’t — it wasn’t like an [anagram]. It was like one of those kinds of things. And there’s like — the personality tests are on like a wheel, right, and they kind of put you in a wheel. And it turned out that when they plotted our three personalities, they formed a perfect equilateral triangle.
It was like — and it made so much sense that it’s about this sense of mutual respect, people that are so good they almost intimidate you, but they’re so complementary. And there was such a deep respect. And we had a rule, and the rule was that winning an argument was never more important than preserving the relationship. And the reason that’s important is because, if you start a company, you’re going to have to debate like a hundred thousand things, at least ten thousand, right? You’re probably debating like three things a day, and so it’s like a thousand things a year. Ten years is 10,000 things.
So no one argument can be the thing. There has to be this larger sense that we’re a band. And I think you’ve got to really work hard at the relationship, almost like exercising. If you don’t keep exercising, you lose — you get out of shape. And so we worked really, really hard. And one of the things we did in 2009 is we said every single Sunday we’re going to meet, no matter how busy we get. Now it’s like sometimes Sunday becomes Thursday, but we basically meet every single week.
And to this day, we still do those calls. And I think a lot of human connection requires constant contact, constant connection, a deep sense of respect, a sense that like I’m only here because of them, a sense of humility and gratitude, and the sense that I’m never going to try to win because, if I win alone, I’m not going very far.
Tomo: Hi. My name is Tomo, MBA 1. I was curious to learn about the principles you mentioned when you’re talking about COVID response. What are your current principles? Have they changed a lot? Are there any design processes or redesign processes when you’re thinking about principles you operate on?
Brian Chesky: Sir, when you say principles, can you elaborate? Tell me a bit more?
Tomo: Yeah, you mentioned in the COVID response section that everything comes to the principles —
Brian Chesky: Oh yeah.
Tomo: — that you rely on. So I was wondering what are those, and how it has [been helpful].
Brian Chesky: Yeah, I mean, I think that like I like to come from a sense of first principles. And every — I think every different situation I actually — like there are some universal principles for the company. But like say the crisis — we wrote down a number of principles. The first principle we said is act fast. And that’s why we said we have to intuitive, we have to be courageous, we have to move very quickly. A lot of people — it’s like imagine being in a car chase and you like pause — where should I turn — you’re dead. So we had to act fast.
The second thing is we had to preserve cash. Cash was like oxygen. The third is we said let’s act with all stakeholders in mind. So we didn’t want to be villains of the crisis. And the fourth principle I said is we want to play to win the next travel season. So even when everyone’s retrenching, we were thinking about kind of going forward. And I think that principles are really important because they become like your guiding light in the sky. And they also — I remember going to the board. We had — when the crisis was going on, we would have Sunday board calls because it was almost like three months was happening every week.
And instead — and I told them I’m going to make like a thousand decisions. I can’t run every decision by you. So here are the principles I’m going to use. Let’s align on these principles, and if I stick to those principles, we can then stick to this. And I generally think — that’s just one example, but every project I do, I try to identify what are some immutable foundational truths that you couldn’t further distill down than those things, and make sure that you communicate them to people.
Roman Scott: My name is Roman Scott. I’m a sophomore studying political science. And I just want to ask, for somebody who’s aspiring to be an entrepreneur, if there was one thing you could tell yourself when you were growing up or one piece of advice you could give yourself, what would that be?
Brian Chesky: One piece of advice. I would say just start making something. For example, I went to RISD, and I took all these classes. But it’s funny enough, one of the things that probably prepared me more for entrepreneurship that RISD is that Joe and I both ran like student organizations. So I ran like a club hockey team. Joe ran a club basketball team. And Joe and I had the hardest marketing challenge in the world: How do you get art students to go to a sports game? [Laughter] And we had little budgets, but the point is like I think that a lot of the — I think there’s going to be a temptation for people in this audience — for you all in this audience to seek prestige because you’re at a prestigious school.
I think the problem with entrepreneurship — and it summarizes my mom’s story — is when you’re starting out, the line between being an entrepreneur and being unemployed is kind of in your head. And so you have to be very careful about seeking prestige because seeking prestige sometimes means you won’t get your hands dirty. And if you don’t get your hands dirty, you don’t actually learn the underlying principles: How do you make something? How do you struggle through something? How do you describe a story? How do you convince someone else? And so I think making something. It could be like a little toy — I mean, not physically a toy but like a thing for fun.
And I think just the other thing I’d say if somebody asks, like how do you start becoming an entrepreneur, so you start. You just start. You start. You don’t think. You act. You start. Very few entrepreneurs make plans. Like the business plans like expire the moment you do the first thing. And so instead of making plans, I would just make something. And make something with the resources you have with you and your friends — anything. That process of making something is great. And by the way, the other trick I’d say is make something for yourself. Solve your own problem.
The first weekend, Joe and I were like, wait a second, let’s make a little website so we can rent our apartment and make some extra money. That did not seem like a billion-dollar idea, renting three air mattresses in an apartment. And so there’s a lot of investors that say we like to invest in big markets. Well, what’s the market size for people sleeping on air mattresses? So the problem is that like I wouldn’t focus on markets. I’d focus on solving a problem for yourself or somebody in your life. It doesn’t even have to be a big problem. It could be something kind of fund. And just start making. Just start doing something.
James Yan: Brian, before I let you go, it is a view from the top tradition to end each session with a number of rapid-fire questions.
Brian Chesky: Uh-oh.
James Yan: May I invite you to play along?
Brian Chesky: Yes. Let’s do it.
James Yan: When was the last time you stayed in a hotel?
Brian Chesky: Um — [Laughter]. When I had these fake glasses and fake mustache, I think I stayed in one I think it was like last year for an event.
James Yan: And what is the most memorable Airbnb you’ve stayed in?
Brian Chesky: Whoa. I stayed in a treehouse in Burlingame, California, by this couple, Doug and Linda — it’s a very quick story. This is not rapid fire, so maybe I should not tell the story. Well, anyway, I will tell the story — [Laughter] — because now I’ve half started telling the story. So this woman named [McKenzie], her mother and father were Doug and Linda. The father built her a treehouse in the backyard. She plays in the treehouse growing up, then she graduates high school, goes to college, and they have this treehouse in the backyard. And they’re like, “What do we do with the tree house?”
And one day, McKenzie’s like, “Why don’t you put it on Airbnb?” The house ended up paying for the mortgage, and it was just an amazing experience.
James Yan: And finally, I learned that you — your own apartment in San Francisco is listed on Airbnb. How much do you charge per night and —
Brian Chesky: [Laughs] [Laughter] Well — [Laughter] — it’s free, but boy, do I have some cleaning fees. No, just kidding [Laughter]. It’s free, and when you stay with me, it’s a pretty cool experience because it’s me and my cohosts, Sofi Supernova, who is my 18-month-old Golden Retriever. And I make what I call Chesky’s chips. Chesky’s chips are an old family recipe of chocolate chips that I got actually off of Google. [Laughter] And then we make dinner together, and then I take them on a tour the next day to the office where I tell them the story of Airbnb.
And I think I’ll just end by saying this: You know, I think on the surface, Airbnb is about space. And it’s [like oh] stay with me. But I think below the space is — the thing about Airbnb, when it works the best, it’s really about people. It’s really about connecting to one another. It’s the idea that the best way to change someone’s mind about someone else is to walk in their shoes. And the best way to walk in their shoes is literally to be in their home. And I think that if more people could live together, then I think obviously a lot of minds would be changed. And so that’s kind of what we’re trying to do.
James Yan: Perfect. Thank you for making the time today, Brian. It’s been a great pleasure.
Brian Chesky: Thank you. Thank you. [Applause]
James Yan: You’ve been listening to View From The Top, the podcast, a production of Stanford Graduate School of Business. This interview was conducted by me, James Yan, of the MBA Class of 2023. Lily Sloane composed our theme music and Michael Riley and Jenny Luna produced this episode. You can find more episodes of this podcast at our website gsb.stanford.edu or wherever you get your podcasts. Follow us on social media @stanfordgsb.
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