PDF Summary:The Upstarts, by Brad Stone

Curious about how Uber and Airbnb grew from seedlings to internet juggernauts? In The Upstarts, journalist Brad Stone covers the history of both companies, from their founding in 2008 to 2016. Each company started as just a side project, gathered momentum, and grew exponentially throughout the world.

In this guide, we’ll see that neither Uber nor Airbnb was the first idea of its kind, but through strategy and will, they came to dominate. We’ll also cover how Uber and Airbnb attracted the ire of the government, those who were the collateral damage of their success, and their own customers.

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Empire of Airbnb

Like Uber, Airbnb also got its start in San Francisco. In Sept 2007, roommates Brian Chesky and Joe Gebbia hatched a plan to make some extra money from an upcoming design conference by turning their place into a designer’s bed and breakfast. They launched airbedandbreakfast.com and circulated the site to city design blogs. In October, they got their first guest. The “airbed and breakfast” idea didn’t immediately strike them as the idea that would make their careers, so they continued brainstorming ideas for new companies over the next three months.

They launched a new version of the website in March of the following year for the South by Southwest music conference in Austin, Texas. Hoping to attract more hosts, they emailed anyone in Austin who listed their room on Craigslist to sign up for Airbnb, but they only got two reservations. Going deeper into debt, they launched a third version of their platform (with an easier search feature) in advance of the 2008 Democratic National Convention in Denver. This time, 80 people used their service to book rooms, and Airbnb got mentioned in the press, but after the conference, the number of reservations per week dropped under 10.

Friction and Growth

In what is now part of startup lore, in the winter of 2008, Airbnb noticed that hosts in New York weren’t advertising their properties appealingly. Constrained by their budget, Chesky and Gebbia personally visited hosts in the guise of professional photographers and took photos of their guest rooms to improve their website’s listings. Within a year, they’d started two more deliberate growth campaigns centered around Craigslist: 1) They’d email anyone who posted a rental property on Craigslist and invite them to Airbnb, and 2) they allowed Airbnb users to cross-post their Airbnb listing to Craigslist.

In 2010, Airbnb’s growth finally took off, but not without dealing with hurdles. By the fall, they’d introduced an iPhone app and booked over 700,000 stays in 8,000 cities, but they’d also faced challenges from city governments (such as a New York City law against short-term subletting) and a German competitor with a clone of their product. Airbnb hosts were having issues too: In July 2011, one published an account of their home being seriously damaged by a guest: Airbnb responded with a host of improvements, including a $50,000 damage guarantee, a 24-hour customer service hotline, and a new trust and safety department.

Legal Battles

In 2012, Airbnb crossed the “10 million nights booked” line, but its legal woes in New York City were increasing. One of its hosts was fined $40,000 by the city, and though Airbnb gave little help at first, they eventually provided legal assistance to protect their business. A year later, New York subpoenaed Airbnb to give contact details and earnings reports for all Airbnb hosts in the state. Airbnb fought back by commissioning a survey of Airbnb’s economic impact, arguing that it had generated over $600 million in economic activity in a single year. Its case was that Airbnb guests stay longer and spend more money in the city than traditional hotel guests do.

Portland would become the first city to strike a deal with Airbnb, legalizing short-term rentals in 2014, but requiring registration with the city. In return, Airbnb would collect an 11% lodging tax from its guests. After that deal, Airbnb rolled out similar structures with cities worldwide, offering taxes as an olive branch, though they’d do little to enforce the regulation. San Francisco was the next to fight back with a ballot proposition (that failed) that would have seriously crimped Airbnb’s business model. San Francisco and New York City both passed ordinances to hold hosts and Airbnb itself accountable for violations of local laws.

In the face of these frictions, Airbnb had become ubiquitous by the middle of 2016, booking an average of 1.3 million guests each night, rivaling the Marriott hotel chain for the number of rooms available.

What Uber and Airbnb Have In Common

In his analysis of these two companies, Stone goes into detail about their common factors to identify patterns that helped contribute to their success.

Both Started as Side Projects and Faced Early Rejection

The founders of both companies were occupied by other business ventures when they started work on their new projects. At Uber, Camp and Kalanick had both recently sold their other companies, and while Camp was still busy at StumbleUpon, Kalanick was enjoying his time away. Over a year passed before they hired a CEO and invested real time of their own into making Uber work. Likewise, at Airbnb, Chesky and Gebbia started it as a way to pay the rent while working other jobs. It was months before they latched onto it as their main business idea.

Both companies also had a hard time finding capital. Uber’s potential investors often questioned the size of its market, not predicting how it would eventually grow, while others knew Uber was going to run into hostile local transportation laws. Airbnb’s investors were similarly concerned about the size of the market, the legal liability of injured guests or destroyed homes, and the fact that its founders didn’t fit the traditional Silicon Valley mold.

Both Underwent Viral Growth

Uber had natural local virality—back then, if you stepped out of an Uber “black car” in front of your friends, they’d wonder what you were doing. Plus, as Uber added more drivers, wait times and fares went down, bringing more riders to the app, which fueled demand for more drivers. Meanwhile, Airbnb had international virality—travelers who used the service would consider listing their own places on the app. More users encouraged more inventory, which encouraged lower prices, which attracted more users.

Both companies boosted their viral growth with aggressive marketing tactics. For instance, Uber would call competitor cars, send their drivers invitations to join Uber, then cancel the rides they’d ordered. Airbnb used Craigslist, one of its main rivals, as a way to leverage and cross-post its own business. Craigslist eventually sent a cease-and-desist in 2012.

Both Skirted Local Laws with the Help of Popular Support

Most cities regulate taxis and restrict the number of cab medallions available. Uber bypassed this regulation with the argument that it was merely an intermediary between drivers and riders. Similarly, Airbnb let large-scale property owners circumvent hotel laws requiring registration and taxes if they didn’t live in the unit being rented out for most of the year.

As discussed earlier, Uber and Airbnb faced numerous legal challenges to their business models, and they both fought local legislators by mobilizing users. Uber published the phone numbers, email addresses, and Twitter handles of local politicians and asked users to make their voices heard. Airbnb created a group called Peers to hold meetups among hosts to influence lawmakers.

Uber and Airbnb were able to lean on their users so well because they both built trust into their system through the form of reviews and reputations. The star rating on both services neutralized the trust advantage that traditional taxis and hotels had always enjoyed.