Brad Stone’s “The Upstarts”: Book Review, Notes + Analysis

Poor Ash’s Almanack > Book Reviews > Business / Finance

Overall Rating: ★★★★★ (5/7) (solid for its category)

Per-Hour Learning Potential / Utility: ★★★★★ (5/7)

Readability: ★★★★★★★ (7/7)

Challenge Level: 1/5 (None) | 384 pages official

Blurb/Description: As Amazon puts it, “Ten years ago, the idea of getting into a stranger’s car, or walking into a stranger’s home, would have seemed bizarre and dangerous–yet today it is as common as ordering a book online. Companies like Uber and Airbnb have redefined the way we live.”  Brad Stone investigates how this happened.

Summary: The Everything Store” – Brad Stone’s previous outing on the rise of Amazon, is one of my favorite business books (TES review + notes).  As such, and especially because I’d never studied either Uber or AirBnb (private companies) in depth, I was excited to read The Upstarts.”

It’s a perfectly good book if you’re looking to learn about AirBnB/Uber, or businesses with network effects in general… and like Gregory Zuckerman’s The Frackers (Frk review + notes), it does a good job of highlighting the inherent luck involved rather than making it sound like AirBnb and Uber were destined for success.

Highlights: Like The Everything Store, The Upstarts is well-written; Stone (pictured at right) is a good storyteller and the book is quite engaging.  There also seems to be a lot of “proprietary” information/insights that you wouldn’t be able to get simply by reading articles on the internet.

Lowlights: There’s absolutely nothing wrong with this book, but there are a million and one books detailing the rise (or fall) of a given company, so it can be hard to stand out.  Having read dozens of them, the lessons start to sound very similar… and from a mental models / learning perspective, unless you’re looking specifically for information about Uber/AirBnb, there’s not a ton here that’s uniquely insightful.  It’s a solid book, one that I enjoyed and learned from, but not one you have to read.

Less importantly: no coverage of the sexual harassment… not Stone’s fault on timing, of course, but would’ve been interesting.

The hardcopy cover is hideous, maybe the worst I’ve ever seen.  It looks like it was designed by a six-year-old in Microsoft Paint.  I don’t know who thought it was a good idea. It is truly one of the ugliest books on my shelf.  Even I could make better artwork (and if you’ve seen the sketches accompanying the mental models, you know how unlikely that is.)  But everything inside the covers is pretty good, so that’s okay!

Mental Model / ART Thinking Points:  luckpath dependencytrait adaptivity, impostor syndrome,counterfactualsnonlinearitywin-win games, storytellingprobabilistic thinkingempathyfairness

You should buy a copy of The Upstarts if: you want a solid business book covering an interesting topic.

Reading Tips: none in particular

Pairs Well With: 

“Zero to One” by Peter Thiel (Z21 review + notes)

“Eat People” by Andy Kessler (no review on it yet… read it a long time ago.)

“The Everything Store” by Brad Stone (TES review + notes)

“The Frackers” by Gregory Zuckerman (Frk review + notes)

Reread Value: 2/5 (Low)

More Detailed Notes + Analysis (SPOILERS BELOW):

IMPORTANT: the below commentary DOES NOT SUBSTITUTE for READING THE BOOK.  Full stop. This commentary is NOT a comprehensive summary of the lessons of the book, or intended to be comprehensive.  It was primarily created for my own personal reference.

Much of the below will be utterly incomprehensible if you have not read the book, or if you do not have the book on hand to reference.  Even if it was comprehensive, you would be depriving yourself of the vast majority of the learning opportunity by only reading the “Cliff Notes.”  Do so at your own peril.

I provide these notes and analysis for five use cases.  First, they may help you decide which books you should put on your shelf, based on a quick review of some of the ideas discussed.  

Second, as I discuss in the memory mental model, time-delayed re-encoding strengthens memory, and notes can also serve as a “cue” to enhance recall.  However, taking notes is a time consuming process that many busy students and professionals opt out of, so hopefully these notes can serve as a starting point to which you can append your own thoughts, marginalia, insights, etc.

Third, perhaps most importantly of all, I contextualize authors’ points with points from other books that either serve to strengthen, or weaken, the arguments made.  I also point out how specific examples tie in to specific mental models, which you are encouraged to read, thereby enriching your understanding and accelerating your learning.  Combining two and three, I recommend that you read these notes while the book’s still fresh in your mind – after a few days, perhaps.

Fourth, they will hopefully serve as a “discovery mechanism” for further related reading.

Fifth and finally, they will hopefully serve as an index for you to return to at a future point in time, to identify sections of the book worth rereading to help you better address current challenges and opportunities in your life – or to reinterpret and reimagine elements of the book in a light you didn’t see previously because you weren’t familiar with all the other models or books discussed in the third use case.

Joe Gebbia and Brian Chesky founded AirBnb to help pay the rent while they searched for the “big idea.”  They were apparently fond of quoting motivational sayings by Steve Jobs; Chesky and Gebbia were both artistic growing up and met at the Rhode Island School of Design, where they both ran sports teams (hockey and basketball respectively… throwaway joke on page 21 that I totally laughed at) and ended up studying industrial design.  

They bonded over working together on design projects, both for companies and on their own (none of which seemed to go anywhere, but they enjoyed it nonetheless).

Chesky found a design job in Los Angeles but found it unfulfilling; he was inspired by YouTube, Steve Jobs, and Silicon Valley – he couldn’t shake the notion that [design] was all pointless and uninspired and wouldn’t lead to the promised life that he’d found so seductive at RISD.”  Cross-reference Don Norman talking about how design has been perverted from what it should be thanks to Apple and others.

Gebbia, meanwhile, designed a foam cushion that didn’t work out and then started working for an indie publisher in San Francisco; Chesky eventually moved in with him, but both of them were broke.  They came up with the idea of AirBnB to make some rent money by letting young designers coming to town for the World Design Congress stay with them.

While the mythology is perhaps a little overstated, Chesky and Gebbia utilized former roommate, Harvard-educated programmer Nathan Blecharczyk, to code a site for the upcoming South by Southwest (SxSW) in Austin.  (Blecharczyk, reportedly, didn’t think the TAM was that big.)

The original tagline: “A friend, not a front desk.”  They only got two reservations (of which one was Chesky’s), but Chesky met up with a former roommate of Gebbia’s, who introduced him to a “well-connected entrepreneur” called Michael Seibel, who co-founded a company (Justin.TV) which would later spin off Twitch.  He offered to introduce Chesky to angel investors. (Chesky was hardly a Valley veteran at this time.)

As they tried to prepare the site for then-senator Obama’s upcoming speech in August at the Democratic Convention, Chesky and Gebbia didn’t have much luck with VCs, who (a la Starbucks) questioned the size of the market and the founders’ nontraditional background (design vs. computer science).  Fred Wilson of Union Square Ventures later wrote:

“We made the classic mistake that all investors make… 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.”

That was actually an interesting bit that resonated with some of the (much more mature-company) public-markets stuff I look at.   I think there is a name for this but I’m not sure where it fits in my latticework… maybe  trait adaptivity?  Also nonlinearity .  Need to think about it.

With funding continuing to be elusive, Chesky and Gebbia were maxing out their credit cards.  Eighty reservations were booked for Denver and around a thousand hosts signed up in August, but then things quieted down.  In their interview with Y Combinator, as they described the home-sharing concept, Paul Graham asked them:

“People are actually doing this?  Why? What’s wrong with them?”  

The interview was just about over when Gebbia brought out two homemade boxes of cereal (they’d bought Cheerios from the grocery store and put them in self-designed “Obama’s O’s” boxes) – and after telling the story of the past year, Graham decided they were “cockroaches” – his term for unkillable startups.

Around the same time, Garrett Camp, who had just sold StumbleUpon to eBay for $75MM, was frustrated by the lack of cab supply in San Francisco, resorting to taking unmarked, semi-illicit “gypsy cabs” – and a moving dot on the map in James Bond’s Casino Royale inspired him to create a service using Apple’s new iPhone and App Store.  

Camp brainstormed about the idea with Tim Ferriss, who promptly forgot about it then heard from Camp again a few months later, by which time Camp had done an incredibly deep dive and fleshed out the idea.

Camp went to Paris to meet his friend Travis Kalanick, and Paris became the “origin story” that is often cited (though it is untrue, per Stone).  Kalanick, at the time, had sold “Red Swoosh” to Akamai and was sort of in “take a break” mode, although he did actually have the idea for an AirBnB-like startup.  

He convinced Camp not to own actual cars but rather just develop the app; they paid engineers in equity to code an early version, and spent a year working out kinks.  Wireless coverage and battery power were major limiters on the quality of the service.

Naval Ravikant (yay! – see this awesome interview here) let Kalanick use AngelList to email 165 prospective investors in June 2010; 150 didn’t respond (as is typical in these stories – see Howard Schultz’s Pour Your Heart Into It (PYH review + notes) for my favorite example thereof).  Ravikant himself “begged” and eventually got to put in $25K (now worth… a lot). On the topic of luck, the always-wise Ravikant:

I’ve made peace with the fact that Silicon Valley is so random.  You have to make peace with it or otherwise you’ll never get a good night’s sleep in this town.”  

Ultimately, thanks to its founders’ connections, Uber had a much easier time getting funded than AirBnB.  

Two notes – first, there’s an interesting bit about female employee #1 and “impostor syndrome” on pgs 62 – 63.  Second, nice use of “information gap” on pg 64 – Stone hints at the start of Uber’s legal troubles but leaves you on a cliffhanger.

Perhaps riffing off Ravikant’s observation on luck, Stone segues into an overview of some of the failed or almost-were competitor… counterfactuals, in a way.  The Seamless founder (Jason Finger) had an idea to broaden “SeamlessMeals” into “SeamlessWheels” but rumor has it that the Russian mafia is involved in the black car business in NYC, and Finger received a threatening phone call when he was pitching the idea to investors.

Meanwhile, “Taxi Magic,” backed by expense-account software vendor Concur (CNQR later sold to SAP for a giant number), was already running, but only worked within the existing yellow-cab system in each city, and Stone points out some of the problems with that system: lack of technology, and no one cared much about riders… there were no penalties for bad service.”  

Bill Gurley of Benchmark offered to invest in Taxi Magic, but wanted it to transition toward the black-car market; the founder declined.  Similarly, IBM veteran John Wolpert, the founder of “Cabulous,” another yellow-cab platform, turned down Bill Gurley because, according to John Wolpert:

Wolpert was conceiving of a service that empowered those yellow-cab drivers.  It would make the traditional taxi businesses more efficient and help drivers boost their earnings.  THis was his fatal mistake […] Cabulous was doomed by civility. 

“I tried to be the nice guy.  was very into the win-win in those days.  To a fault. I’ve learned a lot about negotiation since then.  [Gurley wanted to invest but the round was already full.]  I was a Boy Scout.  I was going to go with the date that brought me.”

Kind of an interesting criticism of win-win games, and a nice example of dose-dependency. As well as trait-adaptivity: Uber is, in some senses, clearly a bully, and it is difficult if not impossible to play nice with bullies.

Similarly, AirBnB was predated (by five years!) by a firm called “CouchSurfer,” which unfortunately was a nonprofit (idealistic founder) and didn’t seem to be set up all that well, though it did presage a lot of AirBnB’s innovative features.  Interesting quote from Chesky re: this:

… there could be fifty companies that make chairs but it doesn’t matter.  The one who wins is the one who makes the best one.”  

(Is this a design ideal a la Apple… or the worldly truth?  Unclear, but probabilistically not true.  See path-dependency and MusicLab in Mauboussin’s The Success Equation (TSE review + notes) as well as much of McArdle’s The Up Side of Down (UpD review + notes), such as the bit about capitalism.)

And then there was Zimride, which became Lyft, and of course Stone leaves the chapter off there (p 88).  He is really good at storytelling

Another cool Paul Graham quote: “startups usually die of suicide, not homicide.”  

AirBnB, under the advice of Graham, figured out that hosts needed to put up attractive pictures (similar phenomena apparently apply to dating apps), but was still facing the chicken-and-egg problem.  

Interestingly, Chesky also references the nonlinearity of value creation:

When you’re starting a company it never goes at the pace you want or expect.... you start, you build it, and you think everyone’s going to care. But no one cares, not even your friends. - Nate Chesky, cofounder of AirBnB Click To Tweet

The fuller quote includes the words “you expect everything to be linear.”  Reality, sadly, doesn’t comply.  Blecharczyk (who had an interesting background as a teenage spammer before it was illegal) devised a way for AirBnB hosts to cross-post on Craigslist, which essentially amounted to free advertising for AirBnB in front of a large audience.

Nice example of “stunt marketing” on pg. 103 – somewhat exaggerated targeted Facebook ads that likely had lower costs and higher click-thru… ethics though?  Anyway, AirBnB started to take off, and they visited the Zappos offices (see Delivering Happiness) to learn about customer loyalty (Zappos COO Alfred Lin eventually became an AirBnB board member.)

At this point, Stone delves into Kalanick’s background.  A chronically “non-lucky” entrepreneur, Kalanick went through a phase of depression where he “slept fourteen hours a night” after the record-industry crushed his Napster-like startup Scour; after a lot of blood, sweat, and tears, he managed to refashion Scour’s code into Red Swoosh, which was eventually sold to Akamai for $18.7 million, netting Kalanick a few million.

Kalanick, who apparently viewed himself as a Wolf-like mentor from Pulp Fiction, offered the advice (on advice):

Ask for the story behind the advice.  The story is always more interesting.”

Kalanick eventually got bored of mastering Wii Tennis and Angry Birds (honestly the fact that this is what he spent a lot of his “gap year” doing makes me feel better about myself) – and Uber seemed like an interesting math/engineering problem – but it seemed to be the threat of a legal fight that got him really excited (perhaps I’m falling for storytelling here, but – to avenge Scour being taken away from him?  Not explicitly stated by Stone, but that’s how I’m connecting the dots…)

Cute prank on pg. 126 (seems VCs have a sense of humor).

AirBnB, meanwhile, faced two separate crises: first, host “EJ” having her home trashed and possessions destroyed; second, the “Samwer” brothers from Germany essentially cloning their site.  Good quote for entrepreneurs on page 143 about risk management and growing up… they dealt with the “EJ” issue by adding a guarantee, and the German threat by hiring an experienced partner (Oliver Jung) to set up international offices, which were shipped a ping-pong table, a copy of Delivering Happiness, and (oddly) a Dr. Seuss book.  

Eventually they won, with Chesky joking, The worst thing you can do to a cloner is to let him keep his baby.  The cloner doesn’t want his baby.”

Uber, meanwhile, going viral with a nearly infinite LTV/CAC (it seemed like new riders were annuities, and also telling friends), was developing SWAT teams and playbooks to enter new markets, although like every company, they learned the importance of local customization, a form of trait-adaptivity / context-dependency:

“we learned that you can’t bring a San Francisco solution to New York and expect it to work,” said then-CEO Ryan Graves.  To solve the chicken-and-egg problem, they started off by offering drivers guaranteed minimum payments, then switched to a commission model.

Surge pricing was embraced en masse, and Kalanick did not take the Dale Carnegie approach, sending out a few tweets to customers that, while perhaps correct, were hardly good for popularity.  (See pgs 168 – 171 of the book, as well as the fairness mental model.)

Kalanick once forgot to take the tag off the sleeve of his sport coat (yes, that was my most important takeaway from p. 186).  As the company continued to expand, it became noted (as we all know) for its fierce, uncompromising anti-regulatory stance: D.C. councilwomen Mary Cheh compared Uber’s reaction to the stubbornness of the gun lobby, with its unwillingness to yield even an inch.”  

Uber recruited users to tweet/email/call regulators with overwhelming force.  Uber’s reputation became such that the city of New Orleans eventually sent Uber a cease-and-desist letter… when Uber wasn’t even operating in the city.  Much of the resistance to Uber was driven by a desire to protect the taxi-cab owner rather than the consumer – huge parallels to “ The Great A&P” GAP review + notes) here…

Around this time, UberX had launched, though initially only as a way to incorporate yellow cabs.  Meanwhile, ZimRide (later renamed Lyft) and Sidecar were popularizing “ridesharing” – i.e. going along with normal people who were unlicensed driver – which, at the time, was likely illegal.  Eventually it started to be approved by regulators, and Uber joined in the fun. Uber had higher-margin product lines and was able to subsidize UberX, which put competitive pressure on Sidecar and Lyft.

Interesting “get-a-job” strategy top of pg. 213.  Also interesting note on page 230 about Chesky becoming self-confident and collecting high-profile mentors (also a “Warren Buffet”with one T  sighting – c’mon man.) Anyway, cross reference hero vs. circumstance models…

AirBnb faced similar regulatory challenges as Uber, except in terms of hotel law… they were more cooperating.

Nice quote from Stone on p. 242 that applies to way more than just VCs – “Investors tend to ricochet between dueling anxieties: fear of losing money and fear of missing out.”  Um, yeah.

Zero to One ideas pop up on page 251 “Uber wasn’t just taking passengers out of yellow cabs, it was growing the overall market for paid transportation.”  

Note that Thiel references Uber specifically as a company built on “secrets” in Zero to One… (see also price elasticity of demand; UberX seemed to be a major driver.  Pun intended.) [Thiel later invested in Lyft, which is interesting in and of itself given that at this point, Lyft was hardly a monopoly… ]

  1. 256 – Kalanick’s lack of awareness of how his comments come across to others is almost alarming.  A profound lack of empathy.  Yet P. 265 – he handles that situation pretty deftly… not clear what happened in between.  Meanwhile, some additional suggestion of Chesky having at least impostor syndrome lite on page 280.

Meanwhile, AirBnb moved into a lavishly equipped office… some of the VCs expressed concern over the burn rate, but as Alfred Lin (formerly of Zappos, now on the board) noted: growth covers a lot of sins.”   They continued to take more of a cooperative approach with regulators, becoming a tax collector in exchange for legalization of short-term rentals.

  1. 296 – nice quote about historical knowledge of London streets (“The Knowledge” test – interesting piece in NYT here) being disintermediated by GPS… see also Shawn Achor’s “ The Happiness Advantage – THA review + notes – see page 28 – 29 – London cabbies’ spatial portion of their brains actually increases in size… interesting tangent.]

“Didi” = “honk honk.”  Another competitor (Alibaba backed…) they merged when they saw Uber coming… Uber got to 30% market share… then Uber and Didi got into an arms race, both realized they couldn’t win… Uber left China but got some ownership in Didi (which by this point had an investment in Lyft – interesting?)


First Read: summer 2017

Last Read: summer 2017

Number of Times Read: 1

Planning to Read Again?: no


Review Date: summer 2017

Notes Date: summer 2017