The Upstarts: How Uber, Airbnb and the Killer Companies of the New Silicon Valley are Changing the World

by Brad Stone

Both startups offered age-old ideas (share a vehicle, rent your home) with new twists and ended up fostering a remarkable degree of openness among people who had never previously met. In a previous decade, most of us would have stayed far away from someone’s private car or unlit home, scared by headlines about crime and by our mothers’ earnest warnings to avoid strangers. Airbnb and Uber didn’t spawn ‘the sharing economy,’ ‘the on-demand economy,’ or ‘the one-tap economy’ (those labels never quite seemed to fit) so much as usher in a new trust economy, helping regular folks to negotiate transportation and accommodations in the age of ubiquitous internet access.

But he couldn’t shake the notion that it was all pointless and uninspired and that it wouldn’t lead to the promised life that he’d found so seductive at RISD, or in the movie Pirates of Silicon Valley, or in the pages of the Walt Disney biography that he was avidly reading. ‘People told me, you can change the world you are living in,’ he says. ‘Then reality set in, and reality wasn’t that. The reality was, I’m just making stuff.’

McAdoo spoke about why being a great entrepreneur required the precision of a great surfer. If you want to build a truly great company you have got to ride a really big wave. And you’ve got to be able to look at market waves and technology waves in a different way than other folks and see it happening sooner, know how to position yourself out there, prepare yourself, pick the right surfboard – in other words, bring the right management team in, build the right platform underneath you. Only then can you ride a truly great wave. At the end of the day, without that great wave, even if you are a great entrepreneur, you are not going to build a really great business.8

And, frankly, the idea itself seemed small. ‘We made the classic mistake that all investors make,’ wrote Fred Wilson, a Twitter backer, a few years later. ‘We focused too much on what they were doing at the time and not enough on what they could do, would do, and did do.’11

But after they turned to go, to Blecharczyk’s consternation, Gebbia brought out the two boxes of cereal and handed them to Graham, who was rightfully confused. Then the whole tangled story of the last year came tumbling out, from the inspiration at the design conference to the disastrous South by Southwest to the nominating conventions and the unlikely cereal gambit. ‘Wow, you guys are like cockroaches,’ Graham finally said. ‘You just won’t die.’16

Cockroach was Graham’s word for an unkillable startup that could weather any challenge, and it was the highest possible compliment in his startup lexicon.

Camp loved the movie but something specific in it actually got him thinking. Thirty minutes into the film, Bond is driving his silver Ford Mondeo in the Bahamas on the trail of his nemesis, Le Chiffre, when he glances down at his Sony Ericsson phone. It’s brazen product placement and by today’s standards the phone seems comically outdated. But at the time, what Bond saw on his phone startled Camp: a graphical icon of the Mondeo moving on a map toward his destination, the Ocean Club. The image stuck in his head, and to understand why, you need to know more about the restless, inventive mind of Garrett Camp.

Another reason they said no was that Uber looked nothing like what it would later become. This is the cruel reality of startup investing – financiers are betting on a future they can’t see.

SeamlessWeb contracted with hundreds of Manhattan restaurants and gave its corporate customers and their employees a way to browse menus and place orders over a website, expense meals to the company, and coordinate the flurry of deliveries.

After initially financing the company himself, in late 2009, Wolpert set out to raise capital. Three groups of Bay Area angel investors agreed to put in a total of less than a million dollars. That was another mistake; it wouldn’t be enough. Wolpert was being too careful. ‘We were bringing a knife to a gunfight,’ he says.

Wolpert probably should have taken Gurley’s offer, he mused years later, but it would have required ditching the investors that had already committed. In other words, he would have had to ruthlessly prioritize the best possible outcome for his company, despite his prior personal commitments.

An online home-sharing service called Couchsurfing won devotees and attention five years before the rise of Airbnb. It wasn’t bad timing, stubbornness, or chronic niceness that doomed it, but something just as deadly in the cutthroat world of business: idealism.

Couchsurfing opened in 2004 and drew a young, itinerant crowd that was less interested in accumulating wealth than sharing it. Like Airbnb years later, hosts and guests wrote their own profiles on the site and reviewed each other after a stay. One ingenious element of the service was how the company confirmed people’s identity in the years before people could use their Facebook profiles. Couchsurfing asked for a user’s credit card and sent a postcard containing a verification code to the address associated with the card. When the user typed the code into the site, he or she was verified. The company charged twenty-five dollars for the service, and for years it was its only stream of revenue.

Across the country, a recent graduate of Cornell saw the app and was fascinated. A student at Cornell University’s school of hotel administration, John Zimmer had learned that the key to running a profitable hotel business was high occupancy and great hospitality. The transportation status quo offered neither. ‘If you take public transit and taxi and think of that as a hotel, those would be hotels you would not want to stay in,’ he told me later. ‘They would be failing businesses.’ Inspired by Zimride’s Carpool app, Zimmer (the similarity of the company’s name to his own was coincidental) got a friend to introduce him to Green and they decided to team up in a virtual cross-country partnership.

‘You want to back entrepreneurs who, even when the chips are down and things aren’t working and everyone says this isn’t meant to be, have so much love for the idea and so much passion that they just persevere,’ says her partner Mike Maples Jr. ‘Startups are very romanticized and most people are completely clueless about how you just have to will it into existence.’

Internet marketplaces thrive when buyers and sellers are matched in ways that wouldn’t otherwise be possible, saving everyone time and money. Even the most enthusiastic carpooler used Zimride only a few times a year. And the service was helping them find fellow travelers, essentially replacing Craigslist and the old cork bulletin boards in the university quad, but not doing much else. ‘It was a big vision but it wasn’t the right execution,’ Green says.

In early 2012, the founders and their engineers met frequently over a three-week period to discuss what to do next. Impressed by the success of Uber’s black-car business, they got excited about a mobile version of Zimride that would let regular people share their vehicles not on long trips or daily commutes but every day, anytime, from one point to another within big cities. Inspired by a giant orange felt mustache that decorated the cubicle of an employee, John Zimmer decided to give every driver a pink mustache to put on his or her car fender; the mustache would make the car stand out and appear friendlier to those who might be wary of climbing into a car with a stranger.

At the time, the global economy was cratering, unemployment was skyrocketing, and Graham’s advice was more sobering than usual. At one point he warned Airbnb and the other fifteen startups in the program that investors were spooked, so they should all make sure they had a graph in their presentations with a single line racing up and to the right, demonstrating increasing profits. The Airbnb founders, who hardly had any revenue, let alone growing profits, mocked up that hypothetical chart and taped it onto the bathroom mirror at Rausch Street.

In the parlance of the Valley, this kind of activity did not ‘scale.’ It was a wildly inefficient use of their time. But it helped the founders tune in to the needs of their earliest users and to recognize that large, rich, colorful photos of homes and good profile pictures of the hosts would make the experience on the site more compelling. ‘Paul was the first person to give us permission to say, It’s okay to think about things that may not scale, to break away from the mythology of Silicon Valley,’ Gebbia says. ‘We could actually think creatively around how to grow the business.’

Greg McAdoo was also getting excited about the concept. Nobody else in the vacation-rental market had taken the time to visit the actual hosts and survey their needs, and no one else had the three men’s facility with the emerging tools of social media, like community meet-ups, online ratings, and Twitter.

The founders worked seven days a week but there was a spirit of camaraderie and plenty of goofy fun. They would break occasionally to go to the gym or hang out on the roof. Once a week, they went to a nearby park on Folsom Street for ‘recess,’ to play kickball or even a game of tag. On Friday they usually went to a bar for happy hour.

Chesky was moving slowly, but at the same time, he was frustrated that his imagined success wasn’t arriving quickly enough. ‘Every day I was working on it and thinking, Why isn’t it happening faster?’ he told me.4 ‘When you’re starting a company it never goes at the pace you want or the pace you expect. You imagine everything to be linear, “I’m going to do this, then this is going to happen and this is going to happen.” You’re imagining steps and they’re progressive. You start, you build it, and you think everyone’s going to care. But no one cares, not even your friends.’

In late 2009, a few months after it had graduated from YC, Airbnb appeared to create a mechanism that automatically sent an e-mail to anyone who posted a property for rent on Craigslist, even if that person had specified that he did not want to receive unsolicited messages. If the apartment was listed in, say, Santa Barbara, the e-mail would read: ‘Hey, I am e-mailing because you have one of the nicest listings on Craigslist in Santa Barbara and I want to recommend you feature it on one of the largest Santa Barbara housing sites on the Web, Airbnb. The site already has 3,000,000 page views a month.’ All these e-mails were identical except for the city, and they typically emanated from a Gmail account bearing a female name.

Other growth hackers noticed this and applauded it as a sophisticated technical achievement. Craigslist has different versions of its site in hundreds of cities, each with different web domains and menu formats. Blecharczyk had designed a way to make it simple for Airbnb to post seamlessly onto the right site. ‘It’s integrated simply and deeply into the product, and is one of the most impressive ad-hoc integrations I’ve seen in years,’ wrote Andrew Chen, a fellow growth hacker who would later work at Uber, in an admiring blog post. ‘Certainly a traditional marketer would not have come up with this, or known it was even possible. Instead it [would] take a marketing-minded engineer to dissect the product and build an integration this smooth.’10

What he failed to recognize, he said, was that investors would be seized by a wave of euphoria around the upstarts, and that three billion dollars would end up being a radical underestimation of Airbnb’s eventual worth. ‘You can make lots of little type one mistakes all day long,’ he says. ‘They are not fatal. This was a type two mistake, which is the one mistake you can’t afford to make. Entire funds are made often on one deal. If you pass on it, you are not doing your job as a venture guy.’

They also vigorously fought efforts to mandate credit card readers in cabs because the transaction fees would come out of their pockets, plus their income would be documented and reportable to the government.

He fashioned himself a hands-on mentor to young CEOs, the Silicon Valley version of the Wolf from Pulp Fiction, who could drop into tricky situations and help raise money or negotiate deals.5 ‘His skill was taking a messy hard problem and being a facilitator, willing and ready to roll up his sleeves,’ says Olonoh. ‘He had a lot of pride in being the type of investor who helped his companies.’

Kalanick discovered another startup, CrowdFlower, which relegated menial business tasks to independent workers over the internet, by cold-calling its customer-support line and striking up a friendship with its CEO, Lukas Biewald. For two years, they spoke a few times a week, and Biewald was a frequent guest at the Jam Pad. ‘He helped me when he had no reason to,’ Biewald says. Kalanick was full of tips on how to deal with investors, hire top execs, and negotiate with prospective partners. ‘Lukas, everyone is going to give you advice,’ Kalanick told him. ‘Ask for the story behind the advice. The story is always more interesting.’

He had lived at his parents’ house for a year and had gone without regular paychecks while pursuing deals with companies like Microsoft and AOL, only to watch them invariably fall through. ‘Imagine hearing “no” a hundred times a day for six years straight,’ he told me years later. ‘At some point even your friends are like, “Dude, you need to do something else.” To keep going in the face of that can be a lonely existence.’

Uber was turning out to be a company rooted in complex math. Its biggest challenge, and where he found himself already frustrated with the performance of the startup, was finding ways to attract more drivers during peak times and to route cars into the areas of highest demand. Uber had the data to make those kinds of prescient decisions. In fact, it was slowly dawning on the founders and board members that Uber was going to have more data about how people moved around cities than just about any other company in history.

Uber’s financial results also looked promising. The company was exhibiting an elusive phenomenon called negative churn, in which users who joined the service were more likely to stay with it and gradually increase their frequency of use than they were to leave. In other words, once customers joined Uber, they turned into a sort of high-yield savings account. The lifetime value of a user seemed unknowable, perhaps unlimited. When someone signed up, according to an early internal estimate, he or she was worth forty or fifty dollars a month in gross revenues and eight to ten dollars in gross profit – for the foreseeable future.

First, though, Kalanick had to address some of Uber’s early problems. At the time, the Uber app was showing users how many cars were available in their area. Users opening the app and seeing no cars available, an all-too-frequent occurrence the founders started calling ‘zeros,’ had always exasperated Kalanick and Camp. That, in their minds, was not an ‘Uber experience.’ To fix it, Uber had to add new drivers, predict when and where spikes in demand would occur, and encourage drivers to flock to those neighborhoods.

Despite this optimism, Jordan and his partners identified four risks to their investment: Safety: What would happen if a guest trashed a home or apartment? International competition: Would overseas entrepreneurs clone the site? Regulation: Would cities allow hosts to continue to rent their homes without restrictions? Executive recruitment: Chesky, Gebbia, and Blecharczyk were running the company as a triumvirate – a council of equals. It was an arrangement that couldn’t last. Could they find new executives they trusted?

Airbnb furnished each new manager with a set of online tools to monitor the health of the business and with something Chesky called an ‘office in a box.’ It contained a guidebook to setting up an Airbnb-like working environment and included various props, like a portable Ping-Pong table and the books Delivering Happiness by Zappos founder Tony Hsieh and Oh, the Places You’ll Go by Dr. Seuss. ‘Brian was always worried about how do we scale our culture – how does every Airbnb office feel?’ says Dubost, who joined Airbnb’s business travel team and left the company in 2016.

Wimdu stuck around but would become an inconsequential player in the home-sharing market. In 2013 it shuttered Airizu, the Chinese subsidiary, and pared back its ambitions outside Europe. Airbnb had shown Silicon Valley that it was better to fight cloners than to accommodate them. ‘The worst thing you can do to a cloner is to let him keep his baby,’ Chesky joked to Oliver Jung. ‘The cloner doesn’t want his baby. They build the baby to get rid of it.’ Meanwhile Airbnb continued to gain altitude. In January 2012 it announced that it had booked a cumulative five million nights since opening for business, and by June it had already updated that figure to ten million.24

‘This is when I became CEO in a meaningful way,’ he told me years later. ‘I changed my style. I hope jerk isn’t the first word they use. But 2011 was the year I really had to become a CEO, to become a champion of Airbnb, to get people to want to believe in it, to raise money, and to get us out of a true crisis. We came out of EJ and the Samwers stronger than when we came into it.’

Kalanick’s first target was New York City, home to half of all cab rides in the United States. Unlike sprawling Los Angeles, his hometown, with its unrepentant car culture and freeway gridlock, the Big Apple was the country’s densest metropolitan area, where most residents avoided owning a car. If Uber could make it there, perhaps it could make it anywhere.

With a limited number of cars, Uber wait times in New York were unacceptably long.

Uber basically broke New York City into a series of targeted micro-cities. The execs called it ‘the SoHo strategy,’ and it would be a key element of the upcoming global blitz. Sending drivers to the places they were needed most would ensure a good experience among the social groups most likely to use Uber; they would then tell their friends, generating demand that would in turn make the service more lucrative to drivers. ‘We learned that you can’t bring a San Francisco solution to New York and expect it to work,’ says Ryan Graves.

Conrad Whelan, the company’s first engineer, recalls spending every day in the office, from 7:30 a.m. to midnight, including weekends, for three weeks straight before the Paris launch. ‘This is the biggest thing I will say about Travis,’ he told me years later. ‘He came to us and said, “Look, we are internationalizing and launching in Paris,” and every single engineer was saying, “That is not possible, there is so much work, we will never be able to do it.” But we got it done. It wasn’t perfect. But that was one of those moments where I was like, “This Travis guy, he is really showing us what is possible.”’

The term surge pricing, he believed, was more accurate, plus it sounded slightly foreboding, which was precisely the point. ‘It was supposed to be a little bit scary,’ says Graves, to encourage some passengers to look for other transportation options.

But Kalanick’s stubborn defense of surge pricing impressed at least one observer. ‘Travis is a real entrepreneur,’ Amazon CEO Jeff Bezos told board member Bill Gurley after a surge fracas, according to Gurley. ‘Most CEOs would have caved.’

Kalanick eventually put an abrupt end to the discussion with a pointed insight about why Uber was successful in the first place. ‘I’m going to literally flip this table if anyone says one more time they are worried about destroying the brand,’ he said in a meeting, according to Penn. ‘The luxury of Uber is about time and convenience. It’s not about the car.’

‘We thought we would be getting displacement business – people who would stop hailing off the street and start using the app,’ he told me. ‘What actually happened was that people stopped driving their cars and renting cars during travel and instead started using ride-hailing apps.’ As demand boomed, yellow-taxi apps couldn’t keep up supply – just as Kalanick had predicted.

Kalanick had broken every rule in the advocacy handbook. Nevertheless, Uber’s lawyers and lobbyists, who had begged him, unsuccessfully, to seek compromise and testify with humility, began to whisper in reverent tones about a new political dictate that contravened all their old assumptions. Travis’s Law. It went something like this: Our product is so superior to the status quo that if we give people the opportunity to see it or try it, in any place in the world where government has to be at least somewhat responsive to the people, they will demand it and defend its right to exist.

Was this even legal? Kristin Sverchek, a partner at the law firm Silicon Legal Strategy and Zimride’s outside counsel at the time (she would join the company a few months later) could have stopped the whole thing. She didn’t, pointing out that taxi regulations had been crafted decades before smartphones and internet ratings systems were invented. ‘I was personally always of the philosophy that the great companies, the PayPals of the world, don’t get scared by regulation,’ she told me. ‘I never wanted to be the kind of lawyer that just said no.’

The Lyft founders devised a sort of mating dance for strangers sharing a car. Riders were told to climb into the front seat, not the back. They were instructed to exchange a fist-bump with the driver. Conversation was encouraged – everyone here was a fellow passenger on a new internet wave that was connecting people and communities through supposedly superior transportation alternatives. ‘Getting into someone’s Honda Accord was not a normal thing to do,’ Zimmer says. ‘It’s the thing your parents told you never to do. We had to think about the whole experience.’

Uber had survived its most serious challenge yet, pivoted (albeit reluctantly at first) into what would prove to be a much larger business, and shown itself to be a flexible player unwilling to surrender leadership in the field of transportation apps for smartphones. It had Sidecar and Lyft to thank, which Kalanick was inclined to admit when he was in a charitable mood. ‘The one area where they brought some thunder was on that regulatory piece,’ he told me in 2014. ‘I look at entrepreneurism as risk arbitrage. You are basically looking at risk and saying, “I think people are misunderstanding it and I’m going to go after it.”’

Uber was the first to encounter this towering wall of skepticism. Kalanick and his colleagues were flying high after the introduction of UberX in 2013. Their continued success bred a sense of invincibility and fortified the arrogance that had already permeated their dealings with competitors and regulators. Uber’s executives looked down from their perch and, seeing the historic opportunities before them, tried to conquer the world. The world looked up and, for a long moment, wasn’t so sure that it liked what it saw.

Uber had a more established brand and more money in the bank as well as upscale product lines, like Uber Black and Uber SUV, whose profits could be used to subsidize UberX rides and offer financial incentives to new drivers.