We Study Billionaires - The Investor’s Podcast Network - TIP142: The Startups of Uber and Airbnb w/ NY Times Best Selling Author Brad Stone (Business Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey, everyone, I hope you're having a wonderful week. We are extremely excited about this week's episode because we have a big name author with us, Brad Stone. Brad wrote the number one selling book on Amazon called The Everything Store. He has personally interviewed people like billionaire Jeff Bezos and numerous other Silicon Valley Titans. Today we brought Brad on the show because he has a new book that covers a few exciting companies that have shot into the stratosphere in the last three years. specifically we'll be talking about Airbnb, Uber, and Lyft.

Starting point is 00:00:32 Brad has personally sat down with the CEOs and founders of Uber and Airbnb, and he talks about those engagements on today's show. You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. All right, so I am so pumped today to have. Brad Stone with us. And Brad, just so you know, Stig and I read your book on Jeff Bezos probably almost two years ago now, Stig. It was a while ago. But I find myself recommending

Starting point is 00:01:19 that book to so many people because it's like getting a master's in business after you read that book. You're reading this stuff and you do such a great job at capturing how brilliant Jeff Bezos is in that book. And so Stig and I were always looking for new books to read. And so is our audience. They're constantly sending us emails on what we should be reading. We got an email from somebody saying, Brad Stone's got a new book out. And it's called the upstarts. And of course, Stig and I immediately, and I mean immediately, this is before we even knew you were going to come on the show. We went straight to Amazon, purchased the book. So here we are talking with you. And we are so honored to have you with us today. Awesome. Well,

Starting point is 00:02:01 Thank you guys. Thanks for having me on the Investors podcast. All right, Brad. So let's start off with what I think was the first theme that I picked out of your book. And I absolutely love this thing. It was such an enjoyable read. The thing that I picked out immediately was this character, this Travis Halenick character. And recently he's been in the news a lot. And I think a lot of that even happened after your book came out here at the beginning of 2017, where I mean, he is just in the news and he's not in the news for, good reasons. But you have firsthand dealings with Travis. You've actually sat down with him. In fact, you talk about it in your book where he was really kind of giving you a hard time initially when you were talking about writing the book. And I loved how you kind of spun this during the conversation in the book. Talk to our audience about Travis. What is it like to deal with him on a firsthand account face-to-face basis? Yeah, well, you're right, Preston. The book came out at the end in January, and the news for Uber has really been relentlessly bad since then. They've had,

Starting point is 00:03:03 you know, the allegations of sexual harassment that wasn't addressed inside the company, the video of Travis arguing with a driver that my publication Bloomberg posted, all sorts of disclosures about ways they were avoiding regulators, and basically a hard-charging and kind of relentless and thankless internal culture that the company has been really criticized for, and that does start with Travis. Now, even though the book came out at the end of January, it's all in here, right? I like to think that the character of Travis, you know, that all these things aren't happening in a vacuum, but this was apparent very early on.

Starting point is 00:03:37 And, you know, not only reasons why, you know, the company is stumbling now, but really probably why it's been successful all along. Because here was a company that had so many obstacles to overcome an incumbent industry, very politically connected to navigate in the taxi industry. and Travis just charged across and over every barrier in his past. But to answer your question specifically, let me point out a couple of things. You're right. When I did go to ask him to cooperate with the book, his answer was, and I assume this is a family

Starting point is 00:04:07 podcast, so I won't use the swear words. But he basically says, there's no friggin' way I'm cooperating with a book on Uber right now. So he was combative with me early on. But, you know, I did sort of the same thing I did with Jeff Bezos, which is, you know, sort of war him down with the inevitability of the project and ultimately they kind of came around. But on the positive side of the leisure, I have to say that in my interviews with him, there's no one more enthusiastic, charismatic, and committed to the Uber business. Like, he is all in. He is very creative and energetic about the business.

Starting point is 00:04:41 He is really articulate about the changes that Uber can have on our world. And here's the key point. He's also competitive as heck. And this is, I think, a lot of the reasons why we see some of the behavior with regard to lift and regulators. He's really unwilling to see any inch of this transportation revolution to a competitor. I want to read you one note from my book, which is early on, it's when, you know, he had been an advisor and an investor to Uber. And then he sees his control of the company when he realizes, you know, A, it's going to be a huge success. And B, when he realizes it's a fight. And he's gotten the first subpoena served by the city of San Francisco.

Starting point is 00:05:20 And he just goes to war. But I got a lot of the internal email from that time. And he sends this to one investor. Apparently there was someone on Twitter who was suggesting they might go into competition with Uber. And he writes back in this email, quote, they will be getting into one of the most complex businesses I've ever seen for all the wrong reasons. And they will sorely underestimate the pumbling that they will go through at the expense of my bare knuckles. End quote. So that's all you need to know, right?

Starting point is 00:05:50 he's accused of being a bit of a bro or creating a bro culture at Uber, but, you know, one, total passionate belief in the company and the cause, and two, just so competitive. And partly it's born from the hardship and failure that he had earlier in his careers and an entrepreneur. And it created this, you know, kill or be killed mindset that I think helped Uber, but also resulted in some of the problems that it has now. So based on what you're saying there, it seems to me like you kind of came around and kind of like them in a way. I'm not one of those guys who would really be in this business. If they weren't energized and really admire the people that I write about,

Starting point is 00:06:27 there are plenty of reasons to criticize Travis and Brian Chesky of Airbnb and Jeff Bezos of Amazon. And for that matter, Steve Jobs. And we'll get into some of the criticisms of Uber and Airbnb. But fundamentally, I believe that Uber has made the city I live in better. Airbnb has made the city I live in better. And it's partly as a result. of the determination and perhaps the ruthlessness of guys like Travis.

Starting point is 00:06:53 After reading multiple books about billionaires, for me and Preston, we kind of left with this feeling that the person in question has a unique skill set and drive that he or she would have found a way to become successful one way or the other. And clearly one book that comes to mind is The Everything Story about Jeff Bezos that you wrote. Because while Amazon might not have happened in another time and age, you know, his personality he just seems unstoppable. Now, I guess one could say the same thing about Airbnb and Uber

Starting point is 00:07:24 because they seem to be extremely lucky in the timing of the idea. You could talk about, you know, when Apple launched the iPhone, the application, the invention of Google Maps and Facebook. I mean, they were huge for the progress and the validation of these two companies. So having both arguments, Brad, how much of Airbnb and Uber success do you think can be attributed to luck in good timing? and how much to the unique personalities of the company's founders? Wow.

Starting point is 00:07:53 Well, good question, Stig. You know, I think, you know, Amazon, I would put 100% in the category of the grit, the determination, the unique skill and the genius of Jeff Bezos, right? I mean, he picked the worst business model of the age in online retail and through sheer force of will, you know, brought it to scale, made it efficient, and then leveraged it into other businesses like cloud services and AI. Like the story of Amazon, this is the story of a super genius, really. You know, Uber and Airbnb, I would put the percentage down and I'd say, I'm not sure that those CEOs succeed in other contexts. I mean, I think they're successful, but perhaps

Starting point is 00:08:34 not to this level if it weren't for the circumstance. And, you know, on the cover of my book, the Upstarts, you guys probably know there's a picture of a wave. And I play with the image of the Great Wave a little bit in my book. And you mentioned a couple of the factors. It's the launch of the iPhone, the App Store, Google Maps, yes, real identity with Facebook, the cloud, and then a unique capital environment where there are billions of dollars available in the private markets to these companies, all of these things, propelling a lot of the businesses, you know, that arise in this era in Silicon Valley and around the world to great success. And Uber and Airbnb certainly emerge as the kind of kings of this era.

Starting point is 00:09:14 But, you know, they start with the right idea. They're very much. at the right time. But look, I mean, Uber was founded and created by Garrett Camp. You know, Travis Kalinick's good friend, a Canadian who was an entrepreneur started to stumble upon and was inspired by a scene in the movie Casino Royale. So, you know, Uber doesn't happen probably without Garrett. Now, you know, Travis really made Uber and did so much, obviously pivoting into UberX when he saw he had to, in part because he was inspired by Lyft, and then putting the pedal to the metal and raising money when he could, maximizing the opportunity. Airbnb probably doesn't get to where it was without Nate Blacharset, the co-founder,

Starting point is 00:09:54 who as a high school and college student was an accomplished spammer. You know, his growth hacking techniques propelled Airbnb to early success and kind of got it out of the awkward early stages of any startup. So, you know, both of these CEOs were surrounded by good people. They had key advisors. You know, Greg McAdoo from Sequoia was a key early advisor to Airbnb, Bill Gurley from Benchmark key advisor to Travis at Uber. So, you know, it's like, I'm of course in awe, both of these CEOs, but, you know, they had a lot of help. They got had the perfect timing. They had great

Starting point is 00:10:28 ideas and they lived in this remarkable period where you could raise a couple of billion dollars, you know, quietly, privately, and ride the wave. So all credit to them, but perhaps a little bit more a degree of good fortune and luck than folks like Jeff Bezos enjoyed back when he was starting Amazon. So, Brad, the thing that I took away from the book reading through it and then kind of, because I read this about two weeks ago, and, you know, whenever I finished it up, the thing that I just really walked away from was just this sharing economy and how thinking, okay, so we've done it with hotels, we've done it with cars. Where's this going next? And I'm curious because I know you're so attuned to everyone out in the valley there as to what the big ideas are coming next.

Starting point is 00:11:11 Is there other things beyond what we're seeing right now? And not only your answer to that, but I also want to give you the opportunity to talk about Travis's law, because this was another common theme that I found in the book to be really powerful. And it goes hand in hand with this sharing economy and that if you get enough people behind it, the government and people trying to stop this, the bureaucracy that stands in the way is just going to get crushed. Let me talk about Travis's law. I just turned to the page in the book where I describe it. And I'll just read it to you real quick.

Starting point is 00:11:42 It goes 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. And I think in the early years of Uber and Airbnb, this was important. We saw again and again, you know, people in cities loading the Uber app under their phones, trying out Airbnb, getting addicted to these services. And then when they were challenged by cities or by the incumbent industries, they would come out and make their voices heard.

Starting point is 00:12:16 They would protest. They would swamp the city council members or the state legislators with email. And we look across the country now. And in a lot of places, Uber is now legal. You know, and Airbnb is sort of getting there. And, you know, it's in large part because they assemble political coalitions. You know, ironically, something that Bill Gates or Mark Zuckerberg never had to do, right? these guys had to be politicians and coalition creators. It's interesting, though, part of that Travis's law says, well, two things. One, it says in places where the government has to be accountable to the people. And we do see, unfortunately, places around the world where maybe the taxi industries or the hotel industries have a lot of political power. And, you know,

Starting point is 00:12:55 ride sharing is still illegal. Parts of Spain, parts of Germany, parts of France. And, you know, there are other reasons the public transportation system is maybe better. The cities are harder to navigate and traffic can really shut them down. And so there might be other reasons to keep ride sharing out. But it also has partly to do with whether the city's being responsive. But the other important aspect that I was going to raise is these only work when these companies are kind of young, sympathetic alternatives to the status quo. And I would argue now that Travis's law doesn't apply to Uber anymore because it is the status quo. It's not the scrappy upstart. It really hasn't been for about a year or so. It is now the juggernaut valued at $69 billion.

Starting point is 00:13:34 So, you know, Travis's law kind of provides a blueprint for a lot of young startups to go and, you know, pay attention to your political, you know, support, your base to give your users tools to go and fight battles on your behalf. But, you know, there's only a period of time in which it's useful. I think, you know, in a certain point, you know, if you're not kind of humble about it, you suddenly are the man. You know, you're no longer fighting the man. And that's certainly where Uber is now. It would be interesting if they got into, you know, another political battle like some of their early ones. I don't think they would have much success now of getting people to kind of turnout on their behalf because they're wealthy, they're seen as a little arrogant,

Starting point is 00:14:13 and certainly what they've been through recently does not endear people to them. So yeah, that's Travis's law. And I think it's been a kind of key learning for a lot of young startups in Silicon Valley and around the world that we're getting to the point where every company now has to contend with the reaction of the industry that they're disrupting and perhaps politicians as they attempt to regulate. So that's Travis's line. I really did help these companies grow and now perhaps not as useful. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every

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Starting point is 00:18:41 That's Shopify.com slash WSB. All right. Back to the show. How about as far as other sharing economy type applications out in the valley? Are you seeing anything else beyond the ride share in the hotels? Yeah, I mean, it all sort of hit at the same time, and there were a lot of other ideas around it. And, you know, food delivery was one. And, of course, they're great businesses around the world.

Starting point is 00:19:06 Some have, you know, seem to be stalling out. Others perhaps could be successful. Although you do get the sense that it's going to be Uber and perhaps Amazon dominating the kind of delivery and logistics space because they've got the scale. other sort of, you know, sharing economy type companies, you know, in things like babysitting and, you know, services like fixed stuff around your home. There's, of course, car sharing. There's office space sharing. There's warehouse and logistics kind of sharing of warehouse space. But, you know, at this point, it all feels sort of like these junior ideas. And the two big ones are home sharing and ride sharing. And, you know, and we're really on to the next thing. It seems to me like Silicon

Starting point is 00:19:48 Mali operates in eight-year cycles. And this last one was the one that was propelled by smartphones and broadband wireless and GPS. And we're entering into the next phase now, which is really going to be about artificial intelligence and machine learning. And I have an Amazon Echo in my house. And we're talking in a week where Amazon made voice calling on the Echo available and rolled out a new device that you could talk to, but also has a screen. It seems to me that these kinds of devices, and we'll see them soon from Apple and we already have one from Google are going to be everywhere. This is like a totally new platform. Tell me if you agree with that.

Starting point is 00:20:25 So I totally agree with you. And I've got a hilarious story. I've got to tell everyone that's listening. So we get one of these Alexa systems. So because we ran an app, we worked with some good friends and they built an app for our platform on the Alexa app. So I put this thing in my house and I'm playing around with it. I'm testing it out.

Starting point is 00:20:43 You know, it's really neat and it works really well, like way better than I had ever. expected. So I go into the kitchen and my wife and I have this thing set up in another room that's that's kind of far away from the kitchen. And I'm there telling my wife about it. And I said, all you have to do, you could actually make your shopping list with this thing. All you'd have to say is, hey, Alexa, add milk to the shopping list. And as soon as I was done saying this to my wife, and I'm serious, I'm like two rooms away from where this thing's at. We hear off in the distance it says, I just added milk to your shopping list. I looked at my wife and both of our eyes. is just about like bugged out like, oh my God, this thing's listening to every single thing we're saying in this house right now.

Starting point is 00:21:24 Well, Preston, the irony is that you just activated my Alexa behind me by saying, get out of town. Get out of town. So there you go. Like, I just set off his Alexa in the back room. And so you're right. This is getting crazy all this AI. And what I don't think people realize is that the software for this is being applicationized. And I just made up that word.

Starting point is 00:21:46 it's being outsourced to other people, programmers around the world so that if you want to set up an application on one of these platforms that every time your dog barks three times that a food dispenser will drop food up, there's somebody that can build an app for that. And so the whole piece of this voice activation stuff is getting really exciting because it's all being outsourced to third parties. You know, it's already in a really unsatisfying way in our cars. And, you know, we're going to bring Amazon or Google or Apple in there. It's going to be much better. And then our offices.

Starting point is 00:22:19 It hasn't even begun to come into the enterprise yet. And that's next. So that's the next wave. Yeah, no, I agree with you. That's a really exciting subject. So in continuation of this, guys, let's talk about the old companies. You know, companies like Uber, Airbnb, Tesla, Apple and Google, and so on. Because I think one thing I was thinking about whenever I was reading the upstarts was,

Starting point is 00:22:42 how does Brad see how Tesla, Apple, and Google might be making life difficult for Uber and Airbnb in the years to come? So now we have you, Brad. We're really excited about that so I can ask you directly. What are your thoughts about that? Yeah, well, I mean, SIG, let's take Uber because obviously Uber has an existential dilemma here. And it's called driverless cards. And at a certain point, we can argue when that is. I'm thinking it might be closer to 10 years than 5.

Starting point is 00:23:10 but we're going to see driverless cars en masse on our roads. And when that happens and when they're zooming around, picking people up, the price of a ride will fall. And we're going to have a lot more options. And so Uber really needs to lead in that revolution. It can't really even be second or third or at risk its entire business. And so the companies you mentioned, Google with its Waymo division, Tesla for sure, and all the automakers and some of the Chinese internet companies are furiously investing in self-driving cars, as is Uber. And so, you know, Uber faces a particularly large challenge. And of course, there's an intellectual property lawsuit now between Uber and Google,

Starting point is 00:23:48 which could determine some of the flexibility Uber has to use some of the lighter technology it acquired when I bought a company called Auto. And so it's got a problem. I think life will be made very difficult for Uber. Ironically, Google invested in Uber in a very crucial funding round. And yet now the companies really are arch enemies. So Uber has its work cut out for it. Airbnb, it's hard to say how the so-called juggernauts make life difficult for Airbnb.

Starting point is 00:24:15 I think you have to look at the big travel companies as their potential largest rivals. So I'm thinking of Expedia, which acquired Home Away, but also the price line group, which has many, many assets. And then the big hotel company is like Marriott and Starwood, which merged. And, you know, Airbnb wants to be more than a lodging company. It wants to be a full-fledged travel company and facilitate various experiences for people. So, you know, that's a big market. It's going to have lots of competition. But, you know, it comes at it from a position of great brand reputation strength.

Starting point is 00:24:49 You know, it really does have a great brand among a kind of millennial travel set. So that it could use that as a base to expand into other things. So, Brad, when we're thinking about the driverless car piece and I think about Apple and Tesla involved in that, I understand the Google argument. I think that from just my intuition and kind of the little bit that I've read on it, it seems like Google really has a strong claim against Uber and it's probably not going to be good for them. But whenever we incorporate Apple and Tesla into this, whenever I look at Apple, they're just sitting on so much cash. It's astronomical. I read something in the Wall Street Journal just a couple days ago that said that their cash reserves were the same level as the UK and Canada's foreign currency reserves.

Starting point is 00:25:31 They're a company. I mean, it's just totally crazy. So what they could do with all that capital is just mind-boggling. And then when you look at Tesla, you got Elon Musk who's like making all this stuff real. I mean, he's doing it in time now. I guess for me, I'm very pessimistic of Uber's ability to go toe to toe with these really big players, especially because they're not the experts at manufacturing these cars. They don't have an assembly line.

Starting point is 00:25:57 They've got an app. So do you share this pessimism that I have for them going forward in the next five? or 10 years, or do you think that they might come out of this? You know, it's hard to argue with anything you've said. You know, Apple has stumbled so far with what it calls Project Titan, its internal autonomous car project. We've reported on that quite a bit at Bloomberg. They've sort of rebooted the effort a couple of times, and now they seem to have narrowed

Starting point is 00:26:23 their ambition, no longer creating an actual car, but more just an autonomous driving software platform that they might license out to a company like BMW. you know, Tesla obviously, you know, is a tough company to contend with. The only thing I would say, the only thing I can think of to say is, you know, to never underestimate a company whose very survival depends on pivoting in this direction. And that does have tremendous access to the capital market still, you know, and we've seen that in the quality of folks that Uber has hired and the tenacity with which it's gone after the driverless car space.

Starting point is 00:27:00 You know, Apple, if it doesn't win in driverless, cars will be just fine, right? The company is a cash generating machine with a basis of strength in the smartphone business. And Tesla, you know, it is the future of its business, but perhaps a far-out future. Does it need to lead in self-driving cars? I mean, certainly, you know, it's leading in like the development of cruise control systems and, you know, great automobile electronics and software. But I don't, you know, I don't know that sales fall if it doesn't put the first generation of driverless cars on the road. But, you know, Uber really. does need to get there first. And they do have the resources to go and spend and get there. And of course,

Starting point is 00:27:37 they're private. So they've got a little bit of that currency that does value it to very, you know, high class world-renowned AI engineers. And they've used it. So I don't know. That's what they have going for them. And then, you know, they're not underestimating the challenge or the opportunity by any means. You know, Travis said a couple of years ago that it was existential for Uber. So half of the battle is figuring out what you're fighting for. And I think Uber does see the risks. their awards. So, Brad, I've got to ask this question because I'm such a huge fan of your first book as well. But Jeff Bezos, whenever you were talking with Jeff Bezos and you think back to those interviews that you were conducting, what's the one thing that really sticks out in your memory

Starting point is 00:28:19 about Jeff? What were you awestruck by? Well, I mean, of course, the laugh is the thing that you can't believe that. This hearty, somewhat maniacal and jarring. laugh that, you know, is incredibly endearing and also unsettling. Because sometimes it emerges when something isn't, you know, noticeably funny, or he's laughing at his own joke, or he's just kind of, you know, it's like throwing you a brushback pitch in baseball. He's kind of weaponized the laugh. But, you know, two things. Fierce discipline. It is so hard to get Jeff Bezos to go, you know, off script into a revelatory anecdote. He says a lot of the same things. He says, You can see it in any public speech.

Starting point is 00:29:03 If you were to watch a couple of them, you'd see some of the same points repeating themselves. So the discipline. But, you know, on the other side, like, he's so personable, and he does really devote his full attention to you when you're in the room with him. And, you know, and that's something that you don't always see in interviews with CEOs. So despite the millions of things that must be on his mind, he really, you know, you really do feel like you are in the room with him and you're getting his full attention. And, you know, I always enjoyed talking to him. And then the intellect is obvious. And he's a great CEO.

Starting point is 00:29:37 And you know what's funny? Since he bought the Washington Post a couple of years ago, the class of things he can talk about now is so expanded, right? Because he's now not just, he used to be the CEO of an online retailer. Now he's, you know, the CEO of one of the most diversified technology juggernauts of our time. He has a space exploration company. And, you know, he's a man of the world that owns a newspaper. And so all matters of international and national news kind of fall under his bailiwick.

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Starting point is 00:33:24 in the income funds prospectus at fundrise.com slash income. This is a paid advertisement. All right. Back to the show. Was there anything that he ever said to you that was just, like, you just never would have expected that he would have said something like that? This is in the context of what I just said, which is he seems like he's so consistent and he does play it safe with the media. But do you remember in the introduction of my book, when I'm pitching the book to him and he suddenly, you know, leans forward and says, Brad, what do you think of the narrative fallacy? That was, you know, threw me off because I had no idea what he was talking about.

Starting point is 00:34:00 It felt like a pop quiz and I felt like I was failing. So that one, you know, and it was a little bit of like a challenge, which of course I failed, of like, how are you going to deal with the messiness of events and don't conform to a straight line? And, you know, I had to go back and think about that. that's the thing that pops into my head as being sort of surprising and off script. But let me be frank here. Also, that book came out at the end of 2013. The reception from Amazon, as you might recall, was not glorious. And they didn't like the book much.

Starting point is 00:34:31 And I've seen Jeff at a couple of conferences, but I haven't interviewed them since. So it's been a couple of years. Wow, I'm really surprised that they didn't like it because after I read it, I had such a favorable opinion of Jeff, first of all, and a favorable opinion of of Amazon. I was just so impressed with how operationally sound and intellectual the company was. I guess I remember some pieces in the book kind of getting at the employee relations and how it's also customer focused and kind of the employees take a second seat to that. But I mean, that's the fact of the matter. I think anyone that would work there would probably

Starting point is 00:35:05 tell you that too. Well, there was also my exploration into his family history, which they might not alike. And the depiction of Jeff is as someone who can be a little bit. like Steve Jobs a little bit, maybe unintentionally cruel to colleagues who aren't meeting his standards of excellence. And, you know, there are a bunch of anecdotes like that throughout the book. But when the book came out, Jeff's wife, you might recall, gave me a one-star review on Amazon. I didn't. Oh, really? Yeah, you can go check that out on my Amazon page. But I like to say it's the most famous review in Amazon history, which I don't think is, I really don't think it's a decoration, because it really, it made the rounds. It was quite ignominious, even though it was good

Starting point is 00:35:45 for book sales. But no, there's a sparkling one-star review there. But, you know, I mean, I'm going through it with this book, too. Airbnb, I don't get the sense, love this depiction. Perhaps they don't like being grouped together with Uber in the upstarts. But, you know, these companies, you have to understand, particularly technology companies, they invest so much in cultivating and protecting their brands. And, you know, I like to think that I kind of, you know, paint outside the lines. And, you know, there's always going to be. tension in that relationship. Yeah.

Starting point is 00:36:17 And I guess at the end of the day, it's also a question about values. If you read UpStars or read Everything Store, these guys are really, really hardcore. And I guess if that's also how you feel like good business person should be, you might have a very positive impression. But definitely also when you talk about some of the more personal aspects and I guess also in your research, it must be hard, I guess, to be a multi-billionaire and not have someone say something bad about you. And then when that needs to be covered one way or the other, I guess.

Starting point is 00:36:45 Yes, it's hard not to probably read that over a hundred times instead of all the good things that you're also include in your book. It's a good point. Like, they can control everything in their world except how they're depicted in the media. And that probably does get frustrating. Yeah. So just around this discussion off with Amazon, I just want to point everyone at episode 11, where we've discussed the Everything store that Brad wrote. And it was one of the very first books we actually did this year on the podcast to study,

Starting point is 00:37:15 billionaires. So I definitely recommend everyone to pick that on up. And also we'll provide a link in our show notes. But Brad, one of the things I would really love to talk about is these stories you have about raising venture capital in UpStarts. And in your book, you really are taking us through all the power struggles between founders, billionaires, venture capital. Could you come up with just one? I know this is probably an ungrateful question. Could you come up with one of your favorite stories that you really feel catches the very soul of one of the companies. Let me give you one for each of them, okay? And I'll go quick. But, you know, I'm banking off the notion here, perhaps celebrated in the press, that investors and venture capitalists are

Starting point is 00:37:58 like the soothsayers or the fortune tellers of our age, right? They're supposed to see around corners, and they always know what's coming next. So for Uber, a fundraising email went out in the very earliest days of Uber to the 165 members who were on an angel investing list called Angel List. And it talked about the company. It offered the opportunity to invest in it. And 150 of those 165 people who got the email did not even respond. And the head of Angelus, Naval, told me the one person actually unsubscribe. So only 15 people thought Uber was a good idea out of 165. and then some fraction of that actually invested. And then the Airbnb story is similar,

Starting point is 00:38:42 and the Airbnb founders like to tell this story, but apparently Joe Gavia and Brian Chesky, two of the Airbnb founders, were meeting with investors, and they were meeting with one investor in Palo Alto, and they were telling them the idea for this service and then called Airbedded Breakfast.com, and halfway through a coffee,

Starting point is 00:38:59 the investor stood up, turned around, and walked out. And they didn't know if he was coming back or not, but he thought it was such a bad idea. And I think the moral of story is, it's like these guys, you know, and unfortunately, they are mostly men, they often have no greater idea of what's coming next than anybody else. And the best ideas often look bad. And these ideas were, you know, they were unconventional founders. The Airbnb guys came from design school.

Starting point is 00:39:27 At the time, Travis Kalanick wasn't even going to run Uber. They were going to deal with heavily regulated industries, you know, and they were based on, you know, in the case of Uber, smartphone technology that was still immature. So there are a lot of reasons not to believe. And, you know, it just turns out that the stories of these companies getting funding early on are really the stories of how hard it is to be a venture capitalists and what good investing looks like.

Starting point is 00:39:50 Because in the case of both companies, as I mentioned earlier, they found sponsors that kind of had been investigating these industries and believed in the businesses, perhaps more than even the founders themselves. And I talk about that a lot in the book. And I think you get a picture for what good venture capital looks like and what bad venture looks like. Yeah. And what's really the picture?

Starting point is 00:40:09 I mean, one thing is how it would look at the very beginning. But also, like, if you look at some of the later rounds, I think Uber's latest valuation was around $60 billion plus. I mean, they lost $1 billion in last quarter. How much money would you pay to lose a billion dollars a quarter? How do you come up with a valuation like that? Well, it's really, I mean, Stig, it's even crazier than that. It's close to $70 billion.

Starting point is 00:40:31 But it has nothing to do with the numbers that are out there now, certainly not the losses. They're looking at the top line growth, which is still remarkable. And it's interesting because they may not get there. The strength of lift in the U.S. and D.D. and China does suggest that Uber no longer has the landscape to itself. And then, of course, the questions that we've already raised are on driverless cars. So the profitability isn't worried to me. perhaps having studied Amazon so much, I think Uber will get the leverage it needs over its own business model and can cut its costs and get to profitability. But how big the market is is really

Starting point is 00:41:08 the question and whether Uber can dominate it in the way that its investors perhaps expect it. Just to put this conversation in the context for the people listening, I want to say off the top of my head, isn't GM and Tesla hitting around $50 billion in their market cap or somewhere around in there. And what was the number you just said, Brad? Yeah, $69 billion around there for the last round of Uber. For Uber. So this application, which is helping people, you know, get around via taxi service that they don't even own. It's outsource, you know, drivers that are, they're stepping up to the plate here. That app is valued at $70 billion, and you got GM valued at $50 billion, and you also

Starting point is 00:41:49 got Tesla valued at $50 billion, which is a whole other conversation that. you know, it's also an incredibly efficient business model, right? They don't own any of the cards. Yeah. We sort of think of that as well, it's a, it's a defect, but they have no factories, you know, they, the employee to revenue ratio is, I don't know what it is at the top of my head, but something that GM can only dream up. And it's a severely cash generating business, you know, it's taken a 25% commission for every ride where really, what's the variable cost of that ride? The app is running and maybe there's some wireless charges and there's the subsidy perhaps that they pay to sign up the driver in the first place. But like it's a pretty efficient business.

Starting point is 00:42:30 So I think investors fell in love with the business model and then the way it ported so quickly around the world and the way it really did change cities for the better. And now they're facing some of the blowback in terms of all the industry issues that we've talked about. You have a wonderful quote in your book and I'm going to mess it up severely. So if you could help me correct this, but it goes on the lines of the largest car company in the world doesn't even make a car and the largest hotel company doesn't even have a hotel room. Really makes you think. Although now actually it's sort of not true, right? Because Uber does own part of its fleet of experimental self-driving cars and it's rolling out some self-driving trucks. And Airbnb is actually building some very experimental kind of hostels to kind of control the experience.

Starting point is 00:43:17 but it's minor stuff, and you're right. These are these hyper-efficient new-age businesses that don't own much in the way of assets or the responsibility that comes with it. Now, the dark side of that is that they can't control the experience. And you might have a bad experience at an Airbnb or a bad experience in the back of an Uber. And, you know, leaving a one-star rating is only going to be so satisfying.

Starting point is 00:43:39 So they've got to deal with the downside as well. That's true. That's true. All right. So, Brad, this is the last question that we have. you. And usually we ask people to talk about a book. But the thing that I really want to extract from your knowledge here is who's a person out in Silicon Valley that is just not somebody that anyone else talks about, but is a huge resource or somebody that we could turn to either a blog or a book that you think is way underrated that a lot of people don't know about

Starting point is 00:44:11 that you put in very high regard. Well, I don't know that this will be a surprise. or an unknown name to some of your listeners. But I really have recently become quite enamored with an Israeli author and academic. You've all known a Harari who wrote the incredible book Sapiens or a new book, Homo Deuce, a subtitle, A Brief History of Tomorrow. The first book is a history of humankind and evolution and, you know, the kind of exploration of the natural laws and why human society developed. But the new book really does project forward to look at some really important

Starting point is 00:44:47 issues, like what automation will do to human labor, how people can occupy themselves in a world where perhaps their labor isn't needed. And he draws such interesting comparisons between things like virtual reality and religion. To me, he's like asking and answering some of the most interesting questions of our age. What is our future when, you know, we start to create machine intelligence that's smarter than us? I mean, if you just look at the number of American males who are occupied by driving in some respect, you just... You know, you start to get really nervous for their future and for the political implications because so many people will be out of work in our lifetimes when the technology does get good enough. You know, machine automation, the stuff that Amazon is working on for their warehouses.

Starting point is 00:45:32 All right. So Brad's new book is called The Upstarts. This thing is flipping phenomenal. It's all about Uber, Airbnb, the whole sharing economy. It is fascinating. and I can't promote this book highly enough for our audience to go out and read this. And also, not just to read this book, but go back and get his book, The Everything Store by Jeff Bezos because, wow, I mean, Goldman Sachs, it was their book of the year. The Financial Times was the 2013 winner of the Financial Times in Goldman Sachs business book of the year. So if that gives you any inclination as to how good the book is, then Stig and I can absolutely attest.

Starting point is 00:46:11 It's just amazing. So we are starstruck to have you here because no, I'm not even, I'm not even making this up. I'm not even making this up because I've recommended your book so many times to various people that to have you here and to have this conversation. It's really exciting for us. Awesome. Well, guys, I appreciate it. I appreciate the kind words.

Starting point is 00:46:30 And it's great talking to you. Okay, guys, that was all that Preston and I had for this week's episode on The Investors podcast. We see each other again next week. Thanks for listening to TIP. To access the show notes, courses, or forums, go to TheInvesterspodcast.com. To get your questions played on the show, go to AskTheInvesters.com and win a free subscription to any of our courses on TIP Academy. This show is for entertainment purposes only.

Starting point is 00:46:59 Before making investment decisions, consult a professional. This show is copyrighted by the TIP network. Written permission must be granted before syndication or rebroadcasting. I'm

We Study Billionaires - The Investor’s Podcast Network - TIP142: The Startups of Uber and Airbnb w/ NY Times Best Selling Author Brad Stone (Business Podcast)

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