Where Do Great Startup Ideas Come From?

**Michael Seibel** (0:00)
In all three of these cases, these folks had the problem, they had experience, and in hindsight, there was an obvious opportunity to make something 10x better, but most people thought they were idiots. And that's probably the overarching theme. They had to be contrarian. Hey, this is Michael Seibel with Dalton Caldwell. Today, we're going to talk about where do great startup ideas come from? We've picked three successful YC companies to impact this question, Airbnb, Coinbase, and Stripe. And there are three common themes that we've seen through all three of these companies. The first, timing was important. For each of these companies, there was a pre-existing product, pre-existing competitor, dominant, you might say, but there was an opportunity to make something that was 10x better than what existed.
Number two, most people, founders and investors, thought these ideas were horrible, either because they were too hard to execute or because they just were bad ideas.
And then number three, and I think the coolest one of them, is that each of these opportunities turned out to be bigger than the founders even knew when they started. They turned out to be way bigger. All right, so let's talk about Airbnb.
One of the things that I think is really interesting to set this up is that existing products did exist, right? Airbnb did not come up with this idea. So what were you using before Airbnb to Airbnb, Dalton?

**Dalton Caldwell** (1:27)
Yeah, for context, I think if you've only seen Airbnb, you think they came up with the idea. That's probably if I talk to my mom, she'd say, oh, Airbnb is a great idea that those founders dreamed up.
But back in the day, I was already using VRBO before Airbnb was even funded by YC or existed.
There was also a very popular startup called Couchsurfing, which was quite similar to Airbnb and it had a lot of mindshare, had a lot of, it was a big network. And so it kind of felt like the third rate entrant to a crowded space at the time. I remember when they were in YC, that was my perspective. Do you remember that, Michael? Had you used any of those? Because I'd used VRBO personally, and I thought it was pretty good.

**Michael Seibel** (2:12)
I had also used Couchsurfing. One of the reasons why I was actually excited about working with Airbnb folks was because using Couchsurfing was so painful.
And so I think that, you know, first thing when it comes to timing, I think they nailed this hardcore. They weren't first, but the existing products weren't great. And I think it's interesting to talk about why the existing products weren't great, because honestly, that's important. I would argue that like there were two fundamental facts that made the existing products not good. The first is that VRBO and Craigslist did not facilitate payments. So when you arranged in a house share with someone or staying in someone's apartment, you still had to pay them either in cash or check or wire. And there was a lot of friction because there's two people who don't know each other having to trust each other to transmit payments. I think the second problem that VRBO had was they charge hosts to list.
And if you think about the core insight of this market, it's that hosts are the game. If you can get the most hosts, you win. You have the best inventory. But if you charge them upfront to be on your site, like you're probably doing it wrong. So to me, timing was huge. Existing product did not, there were 10X improvements that can be made. And the second thing that was really interesting was that they were solving their own problem.
Like most people don't realize that Airbnb started because Joe and Nate needed to make rent money. And there was a big conference going on in San Francisco, and they basically rented out room on their floor to host people so that they could make some money. And it's funny, because we always talk about personal problems, but like not being able to pay rent, that's like, that's a real problem, right?

**Dalton Caldwell** (4:08)
And that doesn't sound like a vacation rental, which was what I was used to seeing on VRBO, which was vacation rentals.

**Michael Seibel** (4:14)
Exactly. Exactly. I think it was interesting at the time that a lot of people realized that they could use their property to make extra money. And it's not a coincidence that this happened around the same time as the OA crash, where a lot of people needed to make an extra buck. And suddenly they realized, oh, I have an asset right now, I can make some money on. Then I think the last thing is they used their own product. Airbnb didn't realize the insight around facilitating payments, around accepting payment when they launched.