Growth October 21, 2020

Taking over the world is a recipe for failure. Start tiny instead - Lessons from Airbnb Part 2

RJ Youngling @RjYoungling

Some lessons we should learn from Airbnb: https://www.younglingfeynman.com/essays/airbnb2

TLDR: Lesson 1: It’s possible for you to make things better. Lesson 2: Solve your own tiny problem. Lesson 3: Validate quickly and double down when it works. Lesson 4: It’s easy to connect the dots ex-post-facto. Lesson 5: Finding product/market fit from day one is fiction.

We’ll cover lessons 2 and 3 today.

P.S. This is part of an in-depth 4 part essay series. Part 4 ships tomorrow at noon (+1 GMT).

LESSON 2: SOLVE YOUR OWN TINY PROBLEM

When Brian moved to SF and decided to live with Joe to figure out what their billion-dollar startup was gonna be, he quickly learned that in order to make rent in SF, you have to sell a kidney. Probably both if you’re one of those fancy, pampered types that enjoys the finer things in life such as, you know, nutrition.
He didn’t have his part of the rent though ($1150).

But that weekend, there just so happened to be an international design conference at SXSW, and they noticed that all the hotels on the website were listed fully booked.

They figured: well, designers are gonna have to stay somewhere, we don’t have the money to make rent, so what if we made a makeshift Bed and Breakfast?

[Joe Gebbia showing the email he sent Brian that kicked off Airbnb, at his Ted Talk in 2016. ]

But Brian and Joe didn’t have any beds. However, Joe had some airbeds leftover from camping so they changed their idea to an Airbed and Breakfast (Airbnb).

They ended up hosting a 35yr old woman from Boston, a 45yr old father of 5 from Utah, and a 30yr old man from India. Oh… and they made rent.
If you just want to read about Airbnb, skip the following section and pick back up at: BUILD SOMETHING SMALL THAT YOU WANT AND THINK IS DOPE.

DON’T BUILD A UNICORN, SOLVE A TINY ANNOYANCE YOU HAVE

Notice that they weren’t trying to build a unicorn. They just needed to make rent and it seemed like a cool, fun thing to try.

UBER

This is a surprisingly common theme in startups. Travis made a similar remark about the origins of Uber:

‘’When we first started it wasn’t about taking over the world. It wasn’t about taking on corruption in every city around the world. It was actually just about being baller in San Francisco.’’

Because literally every POS article on Business Insider type websites doesn’t have the accurate quote and more annoyingly can’t be bothered with a source either, here it is:

[Travis Kalanick at Startup School 2012 (2 years after founding Uber).]

APPLE

Back when computers were expensive, Woz built his own because he wanted one for himself. That was the origin of Woz, Jobs, and for 12 days Wayne’s, Apple.

‘’I had no idea that I was taking exactly the right steps up this nice smooth ladder that leads up to the Apple II.’’

Notice the nice smooth ladder he’s talking about. You start small and incrementally work your way up. You don’t start with the vision of the trillion-dollar Apple we have today.

‘’I told my father: ‘Someday, I’m gonna own a 4K Nova Computer, so I can write programs.’ And he said: ‘That’ll cost as much as a house.’ And I said: ‘I’ll live in an appartment.’ I would rather have a computer in my life than a house.’’ 
[Woz at the Haas School of Business]

‘’I was giving away the schematics, passing them out. No copyright notices, no nothing. Passing out the listings of the code I wrote to other people in my club [The Homebrew Computer Club]. I was saying: ‘Here, you can build your own.’ And nobody really had the time to build it. And, so Steve Jobs came by and said: ‘Why don’t we make a PC board to save them the time to build it.’
[Woz on early Apple]

BUILD SOMETHING SMALL THAT YOU WANT AND THINK IS DOPE

There’s this idea that in order to change the world you have to start with the vision to cure cancer or build a quantum computer or something.

I don’t really like that approach. Maaaybe it’s useful for a second-time founder but for a first-time founder, I think it’s way too overwhelming.

When you’re ambitions are so grandiose, it’ll scare you into inaction.
We know from BJ Fogg’s work (2009) on behavior science that if ability is low (something is extremely hard to do), then even with high levels of motivation, behavior won’t occur. And reminders (called prompts) will just make you frustrated.

But there’s another problem too. Namely, there are just so many examples of solutions to tiny irritations that escalate into big companies.

There are a few reasons for that but one of them is that it brings clarity, simplicity, and focus. My favorite example of this is The Point vs. Groupon. [4]
So be open to solving small problems in your life. Yesterday I saw Mikael Cho, founder of Unsplash, talk about this on Twitter. It’s a good reminder that small stuff really can become big.

[Cho's tweet. My $0.02.]

And if after that you’re still inspired to tackle the hard and obvious problems, you’ll be in a much more favorable position. [5]

LESSON 3: VALIDATE QUICKLY AND DOUBLE DOWN WHEN IT WORKS

They went from idea to execution fast. There was no complex infrastructure. No complicated back-end designed to handle the influx of millions of people. No, it was all very ghetto. We need to pay the rent, so can we get 3 people to pay us $80 to stay with us and sleep on our Airbeds during the conference?

Most of the time when founders do that stuff, it’s just another way to hide.
One of the best models we have today is the Kagan Validation Model: Get 3 paying customers in 48 hours without spending any money. (Sumo Group founder and early Facebook/Mint employee Noah Kagan.)

Sure, that might eliminate ideas that would’ve worked had you spend more resources (false negatives). But it also prevents you from spending months or even years on ideas that are never gonna work (false positives). 
Since the latter is a far more common problem, it’s more important to prevent that from happening.

By making the system overly sensitive, you’ll prevent wasting resources on ideas that’ll never work and the stuff that does make it through your filter is much more likely to succeed.

Think about it. If you can presell something based on a phone call then that leaves all the tools in your toolbox available to grow it. Whereas if you launch with the perfect product and marketing after years of refining it behind closed doors, then where exactly are you gonna take it from there? What’s left to optimize?

This does beg the question: ‘‘Why make the system overly sensitive in the first place? Why not adjust it so it’s perfect?’’ Because that’s not possible. There’s no way to create a system that will sort good ideas from bad ideas perfectly. So you’ll always have to be biased toward identifying good ideas and throwing away good ones that seemed bad (false negative) or identifying bad ideas and continuing to work on bad ideas that seem good (false positives).

This essay Paradigm Shift: Drastically Increase The Odds of Success goes into depth on how to think about false positives and negatives.

NOTES
[4] From The Right Way To Start A Startup:

Andrew at the NY Tech Meetup in 2008:‘’The biggest mistake we made with The Point was being encumbered by this vision of what I wanted it to be. And taking 10 months to build the product and making all these assumptions of what people would want, that we then spend the next 10 months backtracking on. Instead of focusing on the one little piece of the product that people actually liked .So, uhm, If there’s any advice that I have it’s you’re way too dumb to figure out if your idea is any good*. It’s up to the masses. So build that very small thing and get it out there and keep on trying different things and eventually you’ll get it right.’’*

[5] Elon Musk is a role model for many founders nowadays but what he’s doing now is much less accessible than what Jack Dorsey, Drew Houston, or Mark Zuckerberg have done. In fact, it was so inaccessible that he couldn’t raise enough from investors. Which is why half a billion dollars in loans from the government was required. As for the hundreds of millions to kickstart Tesla and SpaceX? His own money. Which he made from… yup… internet startups. His first project was a small video game called Blastar. After that, he created Zip2 (Internet version of the yellow pages telephone directory with maps included.), then PayPal.

Also, SpaceX grew in ambition. Originally the idea was just to use 100 of the 180 million dollar payout of the PayPal acquisition to eBay, to get people excited about space again. He wanted to land a miniature experimental greenhouse containing seeds with dehydrated gel on Mars to grow plants on Martian soil, “so this would be the furthest that life’s ever traveled” in an attempt to regain public interest in space exploration and increase the budget of NASA.
As for Tesla, that wasn’t even founded by Elon. Which most founders know but gen. pop. or the up and coming founder might not. The original idea came from AC Propulsion where Tom Gage and Alan Cocconi had built the t zero.
[ https://youtu.be/gb9E222QsM0 ]


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  1. 1

    But that's boring, take over the World, dream big!

  2. 1

    There's no definitive set of rules for composing exciting music or writing interesting books... It depends.

    The first rule of creativity is not to follow every rule. Some systems are just too complex to be explained with rules, blueprints and guidelines -like the chemical reactions that make someone find something exciting.

    We can try to produce recipes for everything and ignore the fact that, if they don't work every time, it defeats the purpose.

    1. 1

      Thank you for your generous comment.

      I think you bring up some excellent points. However, I would respectfully disagree if the argument is that we, therefore, shouldn't try. (I don't want to accidentally strawman you, so just consider the following as my argument against that proposition, instead of your comment.)

      Fighting is one of the most complex things we can do. With thousands of years of fighting experience, we're still learning new things. We can absolutely do better than ''it's complex so just do whatever.''

      And while there are essentially anti-network effects at play here (effectiveness declines as adoption increases), learning the rules gives you the structure to know what to throw out. I.e. Even though the system is complex, there's not a single person that wouldn't be a better fighter with 6 months BJJ or MMA training.

      While the application in the micro is near infinite, in the macro there's a certain structure.

      Take the field of modern behavior science for example. We have extremely useful, yet simple models that help us design recipes. Then those recipes need to be tested by the subject in order to determine effectiveness.

      Now, while there's a lot of unpredictability in the recipe itself. But that's not the case for the way you arrive at one.

      I believe there's no reason other than hubris, laziness, and the status-quo bias that we shouldn't try hard to create such models for the world of entrepreneurship.

      NOTES
      In this essay https://www.younglingfeynman.com/essays/artofbusiness I wrote:

      ''Innovation is always new and therefore never formulaic. There are certain guidelines successful businesses seem to use but in the end, you’ll still have to go with your gut and make a judgment call according to your own ethical values.''

      So I think our viewpoints only differ in the nuances.

      1. 2

        Thank you for the link, I read your essays a few weeks ago. Very informative and intellectually challenging -that's why I follow you.

        We agree on the fact that marketing is more art than science because the environmental constraints are in perpetual motion. What works today may not work at all tomorrow, and the way someone made it yesterday may not be today's correct answer. Those who can think outside the box and adapt quickly can find a way to achieve their goals in today's world.

        You are right, we should strive to study and understand complex systems, it's one of the founding principles of modern culture. However, I think it is important to be cautious about sounding like we have found anything like a magic formula when it comes to building startups.

        It's important to remind people that building startups is a creative field, and when the going gets tough thinking outside the box will help us find a new way to prevail -or die.

        Creativity is the remedy to the anti-network effect.

        Cheers.

        1. 1

          Yeah, fully agree with that. Appreciate your thoughtful comment. Thanks for following btw. :)

  3. 0

    An interesting business analysis is pof.com vs match.com .... They have the same amount of customers but pof had 4 employee and match had 400 employees. I prefer the pof approach. Same when airbnb was going nuts. Spending a billion on 'experiences' Just rent your damn rooms, I don't want to be sold an 'experience'.

    www.leagueofstartups.com

    1. 1

      That's a very interesting insight. Thanks for sharing it.

      This is actually something I've heard my peers start to be more vocal about in the world of marketing, branding to be more specific.

      Marketers that are formally trained tend to get taught the why ladder. You start with the company's mission and then keep asking why?

      E.g. Starbucks: We make great coffee and focus on the UX. Why? To give our customers a great start of the day. Why? So they can do their work more effectively. Why? Because if they can work more effectively, their contribution to society will be greater? Why? Because if people contribute more, the world becomes a better place.

      The problem with this is that literally, every brand ends up at the same destination. Reminds me of Gavin Belson of the HBO show Silicon Valley.

      That being said, I do believe the pendulum has swung out of whack. Too far in the direction of technological innovation. One way in which this can be seen is that the terminology for a founder is binary. You're technical or non-technical. That implies you're technical or defective.

      IMO that's shortsighted, and I expect significant growth in the solution space for psychological approaches. That implies those people will become more important. Of course, I'm biased because much of my work revolves around psychological economic value creation.

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