Kent Lindstrom 0:01
I first met Sam shank down by the railroad tracks.
Kent Lindstrom 0:06
Hey folks, it’s Kent Lindstrom. I am a partner at the venture capital firm, eight bit capital. We do pre seed investing into software companies, and I have this podcast, and my guest today is Sam shank. I first met Sam. There’s a venture firm that used to be called soft tech. It’s now called uncork. There’s a guy named Jeff clavier who’s still called Jeff Clavier,
Kent Lindstrom 0:32
but a long time ago, soft Tech had an office down by the railroad tracks in Palo Alto. And I was there to meet Jeff clavier for whatever reason, and
Kent Lindstrom 0:41
ran to a guy coming out of his office named Sam shank, and we had time to talk for a couple minutes. And I thought, Well, this guy seems like somebody you want to keep an eye on, somebody who might be going somewhere. And sure enough, Sam shank built hotel tonight. Hotel Tonight was acquired by Airbnb for half a billion dollars, and I think the stock did pretty well from there as well. Hotel Tonight is not an obvious idea. If you know what they do, they let you book hotels. They only do one thing lets you book a hotel tonight, same day. And this was not the first thing that Sam shank did, it’s not the second company he did. It’s not the third company he did. This is a good story about a certain kind of founder, great founder, in Silicon Valley, who gets to the huge outcome through a path. And that path involves doing other things, and that path involves doing something fairly similar. He worked at a company beforehand that had a lot of similarities, a lot of the travel DNA and hotel DNA that would end up being in hotel tonight. Anyway. It is a great story. Oh, and here’s a couple other teases for you. Sam shank is doing something new, and it’s not in the travel business. It was pretty cool,
Kent Lindstrom 2:02
Sam shank, by the way. I just like saying the name. You know my joke by now of how everybody in Silicon Valley went to school at Harvard, Stanford or Princeton? Well, Sam went to school at Northwestern MBA school,
Kent Lindstrom 2:19
not as rare as you think, in Silicon Valley. And I’ll leave you with one more thing, this successful founder you’re going to talk to today, the guy who built hotel tonight and sold it for half a billion dollars, his career begins at a place you wouldn’t really expect with him working on the movie screen from Wes Craven. Yeah,
Kent Lindstrom 2:41
welcome back. It’s the something venture podcast. My guest today, Sam shank, all right.
Kent Lindstrom 2:55
Welcome back. This is the something venture podcast. I am Kent Lindstrom. I am your host. My guest today is Sam shank, how are you doing? I am good. Good to see you. Kent, I know. Thanks so much for doing this. Sam comes to Silicon Valley. Well, first of all, actually, by way of Kellogg, which is the business school for Northwestern I went to Kellogg too a long time ago. Kind of rare in Silicon Valley, like to not have gone to Harvard, Stanford or Princeton.
Kent Lindstrom 3:21
Well, it’s becoming
Sam Shank 3:23
potentially more rare to even go to a business school, but, but, yeah, you know Kellogg?
Sam Shank 3:29
I think I was thinking about, you know, why Kellogg doesn’t have as many as much representation in the Bay Area? And I think it’s because it is. It’s really nice in the Midwest. It’s known as a marketing school. There’s really great marketing jobs there. When Sarah and I were there, it was, you know, over 20 years ago. Now we almost stayed there because we love the people, the quality of life, and I think it just attracts a lot of people to stay there versus come out to the Bay Area. It’s funny, I went a long time ago. One of the things, at least, when I went Northwestern, did a couple things. It’s a marketing school, so at the end of every class, you would rate the professor, and if the professor didn’t get good ratings, they’d be gone. Unlike a school where you could just be a terrible professor, but, you know, do a lot of research, and so as a result, every professor, like my accounting professor, was this woman who was like one of the most compelling people I’ve ever seen. And then everything is a group project, so it kind of tends to consulting. But, yeah, I went a long time ago. I don’t know if it made, you know, much difference, but and that there’s more than you like, I actually made a list at some point. There’s actually more than you think. Like, Gil pancino was a man Kelly, I mean, there’s, there’s a few of them floating around anyway, and it was, it was great for me, by the way. It was exactly what I needed to launch, you know, my entrepreneurial journey, and so I’ve been working in tech companies before that. Went to business school and met Chuck Templeton, is another, the founder of Open Table, and got to know him, really.
Sam Shank 5:00
Well, and he, he really helped me get my first business started. So, so, if it wasn’t for him, and that’s, you know, wasn’t for Kellogg, you know, wouldn’t be taco of the year, well.
Speaker 1 5:09
And it is funny, too. We’re, you know, we so Kellogg would have, like, some, some founder come in, some entrepreneur in entrepreneurship class. And it would be some guy who just got really rich, had built a company and sold it in entrepreneurship classrooms, like, oh, what’s, what’s the key? You know? How’d you do it? And it’s like, well, I didn’t go to business school, and I guess learn accounting and sales. Like, it was like, I don’t know, just frickin go do it. That’s what I did. But you come to Silicon Valley, but actually, somehow, well, I should say you founded hotel tonight, that’s the thing. And have now started another company, which seems like a bad idea, starting a company, but we’ll hear how that’s going. But you came by way of Hollywood. Is this right? Like you started out, you thought you came west. You got that part, right? But how’d you end up in Hollywood versus Silicon Valley? Yeah.
Sam Shank 5:59
I mean, this was in
Sam Shank 6:01
the 90s when I was thinking about what I wanted to do, and really loved filmmaking and wanted to give it a shot and see if, like, I could be a movie director. And I think that, you know, the common thread of all this is I like to build stuff. I like to create stuff. I like to bring products to market. I like to, you know, entertain people, and you build something for a unique audience. And so the initial thought was I was going to do that in the movie business, and networked my way into meeting Wes Craven. And then he gave me a job on his next movie, which was called scary movie, which then was changed to scream. And I was a production assistant on good days I’d read about I read a bunch of scripts and figure out what Wes was going to do next and and give him ideas on that. And on most days, I would get laundry and mailboxes. And I’m a really, really good box mailer and packer at this point. So, but, but ultimately, you know, Hollywood wasn’t what I thought in terms of it being a sort of fertile ground for
Sam Shank 7:02
an entrepreneurial 21 year old. And I thought people were going to be running around making movies, and it was people were wanting to work for 20 years and maybe get their shot. And I just looked at did the math, and I looked at what I wanted to do in my life, and I just didn’t see it playing out. So I then I followed my other passion, which was technology, and moved up to the the Bay Area at in this was like the late 96 so the.com boom was just starting. So I think I made made the right call to go after an industry that was growing, not shrinking, and and it played a lot more to my strengths, pretty good. First one out, though, doing screen. Yeah, no, it’s like a nice, fun fact, and I’ve got a credit in the movie, and I’m dB, but
Speaker 1 7:50
isn’t that great? Like, is this, am I getting this right? Or sometimes this makes stuff up, but it’s a podcast, so who cares? That Drew Barrymore was in that for like, like a day or a week or something worth of work and got some huge, some huge financial outcome for it, as I understand,
Sam Shank 8:08
yeah, yeah, she was a headliner, and then she was killed off in the first 10 minutes. Did a week of work that was, like a big Twitch to have, this is like all before Game of Thrones to have, like a lead killed, right? And it was so, shocking. And, yeah, I don’t know what her exact deal was, but everybody on that movie did really well. I mean, I didn’t, but everybody that was in the movie, yeah, did very,
Speaker 1 8:32
very well. I’ve heard one of those great kind of Hollywood’s. The guy who is in, forget his name, married with children, was this TV show a long time ago, and the Bundy guy was the did some deal where, like, Fox gave him, like, a percentage of the company he was, like, kind of more famous than they were when Fox was nothing as a network. So I don’t know if they gave this some big part of the syndication or whatever it was, but apparently it was just one of the like, you know, madness deals of all time. You’re like, really, that guy, anything can happen in Hollywood.
Sam Shank 9:05
So all those deals have kind of dried up because a couple people had some of these home runs. So yeah.
Speaker 1 9:11
Well, exactly, yeah. So you come, but before Hotel Tonight, as they say, you had a couple of other companies. So how do you kind of come to Silicon Valley and start this crazy thing that we do, which is thinking, you can start a company like, what were the because it feels like your progression made some sense. As I’m kind of previewing this, but up to hotel tonight, you’ve done a couple things that maybe prepared you for that. What was your What was your path once you, once you escaped Hollywood. You know,
Sam Shank 9:41
I worked at a lot of interesting internet companies in the.com boom, a company called CNET, which is tech news and excite, which was the number two search engine back then, right after Yahoo and but pretty soon, there I was like, Wait a second, what I really want to do? To start my own company, and that’s going to be the equivalent of directing a movie, pull together a team, figure out the strategy, point everybody in the right direction, and then release something that hopefully works. So I then it was, then I was focused on, what do I need to get to that place? And so that was doing a lot of different jobs in in those companies, business development, and honing my sales skills, a lot of product work, and so becoming pretty well rounded. And then, and then the, you know, the floor fell out with the.com boom. So nobody was was doing anything. And so I went to invested in myself for two years with Kellogg. And I’m glad I didn’t use that as, like this launching pad to do the first business, which was travel post. And, yeah, looking back on it, it all sort of makes sense, like I did these two travel startups, and then I did, you know, first two swings didn’t work, and the third one did. I mean, it would have been a lot nicer if the first one had actually worked. It was a grind, and it was just as much work as hotel tonight, but with, you know, far less of an outcome.
Speaker 1 11:03
Well, it’s funny coming out of the.com crash, I try to remind people what it was like. The vibe at the time was it was like nuclear winter in Silicon Valley, and it was like it was over, right? Like, everything that’s ever been invented on the internet. And it just reminds me when people say it, not, you know, it’s happened like three times since, but everything that’s ever been invented on the internet, it’s been invented. It’s over. And venture capital firms were scrubbing, you know, the way they all crypto disappeared from all the websites. And last couple years, like, internet disappeared from all the websites, like, and then it wasn’t over. Yeah, it turns out, it all
Sam Shank 11:39
came back. I remember some smart friends of mine that were in finance were like, Hey, Sam, I’m really sorry, but the internet’s over. And if you look back on it, everything was tracking, actually to some of the earliest projections, but it was then it sort of skipped one year. So there the.com you know, winter felt like a long time, but it was only just sort of one year. But everything else but everything else came came true, but it was hard because I was young, and I had a pretty good track record of getting promoted and more responsibility and delivering results at these companies, and then it was all of a sudden, like a joke of a punchline for a pets.com joke or something like that my entire career, like I was embarrassed about and felt like I needed to start over, but then continue to stay interested in technology. And it was actually, I don’t know if we’ve ever talked about this, but it was actually Friendster that got me excited about consumer internet again, and I was interning at a nanotechnology company or something in in the summer of Kellogg, and I saw friends, and I was like, wow, this is this is exciting. This is new. Clearly, there’s, there’s some, some like life in, in consumer internet. And then that led to me thinking about, what do I What category would I like to build in? And settled on travel. And then,
Speaker 1 13:04
yeah, that was my, my, my now partner, Jonathan Abrams, during this time, he’s like, Well, I can’t really do anything, and nobody’s gonna hire anybody. He’s an engineer and an inventor, obviously, and just sitting there in his bedroom, you know, with the Gallagher machine, kind of invented that. You know, what became all, what became a whole industry. So, is your first company a big success? Or, you know, no, not,
Sam Shank 13:28
not much of a success. I made a little bit of money for investors, but we only raised a million bucks or so, and it was a, it ended up being a hotel review business that was very SEO driven, so very much sort of in the right down the middle of the road for that type of that time, but, but we didn’t really build anything that was, you know, significantly different than TripAdvisor. And then TripAdvisor was just so much better because of the the network effect that they had with reviews and their, you know, mastery of SEO. And so it was, we got, you know, to break even, or something like that, off of a few employees, and we’re lucky to sell it to a company called sidestep, which was travel comparison shopping engine,
Speaker 1 14:13
yeah, and so you stick with the travel theme for your next company. Is that right?
Sam Shank 14:17
Reluctantly, like I saw with travel post, how hard it was to do travel, and then I had an idea for a deal site that I wanted to pursue and and it was, I guess again, you know, easy to look back on this. It was sort of a small idea. It was an iterative idea on what was out there. But the idea was then to start in travel and then branch out into all different types of deals. We launched the business like in April, May of 2008 so, you know, by the end of the year, we were, you know, dealing with another nuclear winter type of situation. So we ended up just battening down the hatches and staying focused on on travel, the
Speaker 1 14:58
king of timing. So. What are you learning here? There’s a couple. Like, you start with SEO, which is interesting that you talk first about distribution versus your product, or, you know, one distribution method, and then also the concept of, kind of a small idea. Like, we see it all the time in venture capital, where somebody’s doing something, we’re like, it’s good, if you nail it. Like, is it big? Like, I don’t know, like, like, the classic one is, oh, let’s, you know, put together travel itineraries so we can share them with people and strangers and stuff. And like, that idea comes around, like, every two years, and it’s just like,
Sam Shank 15:32
yeah, if you don’t, I see that, I see that idea, like, every two months. And I always have to, like, ask the founder, like, hey, this has been tried 100 times. Like, are you sure you want to do this? And sometimes, sometimes that, that you know, motivates them to try something else, but, but often, you know they need to live it and pursue it themselves, which is all fine. The I guess, yeah, the two key lessons I learned on the first businesses, you know, small idea, like incremental idea, you’re trying to build something slightly better than what’s out there already. That’s very hard. Just, it’s hard to get mine, mine share with customers, because you’re not very remarkable, right? They’re like, Oh, well, TripAdvisor, like, already works for me. So why would I need to change? And we didn’t have, like, we had these really cool demographic filters. So you could say, I want to hear from travelers like me, like, I don’t care what, you know, everybody says it’s only people that are, you know, in my like type of doing trips, like I take, like, family trips, you know, new parents, etc, I want to hear what they think. So it was a it was a good idea, but it wasn’t enough to get people to switch, ultimately, and then the the other, other key thing I learned was about distribution and how hard it is if you build something even, you know, like moderately better, it’s so hard to get get the word out there for it. Even if it’s really great, it’s still hard to get the word out on it. And so you travel post, we one of the key things I read, you know, when building that business, was a big SEO playbook. And I was like, Okay, well, and we built the whole site off of, you know, SEO optimized, and that worked, and we got lots of traffic. Didn’t necessarily like create a business, but it was lots of traffic. And then with deal based, we started with SEO, then panda hit, and we got penalized, and which is the risk of that one, and then of SEO. And so we ended up doing sort of search engine arbitrage, which was we’d buy traffic from one site and sell it to another site for a couple pennies more, and do that, you know, a million times a month. It was just, it was a yucky business, but they did give distribution.
Speaker 1 17:46
So it’s so funny that there’s a couple lessons there. One, whenever I see somebody in stealth mode like you have you were so far away from anybody even caring about you, like you, like you think, you know, Bill Gates wakes up in the morning, or whatever it goes. Oh, I gotta, I gotta keep it. Keep an eye on this guy. And I remember, I worked with, I don’t, met Stan Chernoff before, who was he ran WhatsApp at Facebook, and he would say, speaking out of school here, he would just say, like, when you build a new product, like, he can’t be better than the other one. It’s got to be, like, 10 times better than the other thing, and, like, 1/10 the cost, like, it’s got to be a dating site that you go on, and then, like, five minutes meet your future spouse. And these kind of incremental, you know, slightly better than Craigslist, slightly better than, you know, whatever. It just doesn’t work. Basically, yeah, basically you
Sam Shank 18:36
got to be and then the other thing there, and I think this was maybe Hunter at homebrew senator’s partner, was that you not not only have to be better, but you have to be different, right? So having the ability to really stand out in the market, because you’re just remarkably different, that like really helps to give people like a reason to tell others about it, right? And it really foster the word of mouth. But if you’re like, even if you’re faster, better, cheaper, right? That’s only there’s another dimension which is different that is often overlooked,
Speaker 1 19:13
yeah, so you come to hotel tonight, and this is for people who don’t know. I think everybody knows, but I’m just curious how this idea happened, because this is not seen at all obvious to me, but it was same day mobile based, same day booking of hotels. Like, who? How the hell is that a thing? I mean, obviously is, but that doesn’t seem really obvious to me. Yeah, the
Sam Shank 19:35
that specific idea came by being in the travel industry for as long as I had whatever it was four years at that point, but I sort of saw where the trends were headed. So, you know, one mobile bookings. Mobile bookings were, there were only 3% of, you know, all bookings. But they were, they were growing like, you know, a huge amount, month over month. Month even, right? And now there’s something like 70% but, you know? And maybe when we started, it was like even 1% but, and some of the data that people were talking about is that that those same, those mobile bookings, were predominantly same day, which makes sense, because you don’t have your computer when you’re you need to book a hotel, and so, so that sort of planted one seed, and then the other is just in general, the booking window, like, was compressing. I was reading headlines every quarter about how the booking window compressed, meaning that people would book closer into their trip, which makes sense, because you don’t want to, like, have to, you know, have your money tied up for longer, right? And so, so more and more people were booking close. And I said, Well, why don’t we just jump to the natural conclusion here and do same day bookings and mobile, which is the very best way to do those. And then, then I was thinking about, you know, how, how this could manifest, and then how we would get the word out on it, and it was going to the App Store, and looking at all of the horrible apps in the travel category that the App Store at that time had, it was very category and rankings based. So you’d go in, you’d like, say, I want a travel app, and then you’d see the top 10 apps and and whatever. And so the within that those top 10 apps were horrible. They had, you know, Travelocity had like a one and a half star review. Hotels.com had a two star review, and I said, Well, if you build something from the ground up for mobile, maybe we could build a five star app here. And and so it was. It was that combination of, you know, a business opportunity, but also, like, a distribution opportunity, yeah.
Speaker 1 21:36
Now, can I guess the I would guess the other side of the equation is that on the day of a hotel with an empty room. It’s just kind of worthless at that point, right? Yeah, to become worthless,
Sam Shank 21:47
that’s the Yeah, it’s perishable inventory. That’s the other side of it. And and it was another big breakthrough in, like, I thought about the idea for the better part of six or seven months before I said, Oh my gosh, this is actually, like, a great, like idea for a company. This is a like, could change the way that people travel in general, so, but it like, the discovery process. I was ruminating on it a lot, and one of the big breakthroughs was I was in New York and Gramercy Park Hotel. It was Fashion Week. It was, it was very busy in New York. Everything like was basically like, you know, double the price or whatever. And I went to the front desk. I said, Hey, do you have just, by the way, do you have any rooms available? He’s like, Yeah, we always have, like, five or six. We can’t sell no matter what. And I said, Oh, well, that’s, that’s good to know me. Maybe we could do, do something together in the future. And we ended up, you know, having a great relationship with
Speaker 1 22:39
them, which was fine. Now, did the App Store thing little inside baseball, but did you do? Did you? Did you get up in the rankings? Did you, like, buy ads to put yourself up? Did you go meet somebody who works at the app store and get featured? Like, how did you? How did that actually go?
Sam Shank 22:54
Yeah, all of the above. And one thing we did was just obsess on our rating. So, you know, we made sure every customer in these the early days had a great experience, even if we had to refund their entire hotel stay. And it was, like, I don’t know, a couple months in, we got our first one star rating. It was, like, devastating for us. So that helped a lot. And then, yeah, we did. There were various tactics at that point that then, you know, it was a moment of time where you could get yourself up in the rankings. Which we did. We I did a lot of press during those times, and that actually boosted the rankings more than anything. And then, and then, yeah, we, we had relationships within the app store through some of our investors, and ended up getting getting featured, like many times, though, that didn’t happen until later. We kind of had to prove ourselves. One, we had to prove ourselves, and two, we had to be in more cities we launched. We are always three of us. So there’s, you know, my co founder, who was doing all of the hotel sales, and so we only had the ability to do three cities when we launched, and they’re like, well, we can’t promote this. And, you know, it’s only in three cities, so you need to, like, get a bunch more signed up. So that’s what we did.
Speaker 1 24:08
I just think the app, the app store thing was, because I had different apps at that time, it was just this whole, like, this mysterious thing, like, Oh, here’s how they do it. No, it’s this guy, or no, it’s actually that guy. And it was just, like, it was just kind of funny to kind of figure out how that all, like, how that all worked. Like, there’s just some guy who could, like, make or break you somewhere in apple. And I thought that was always kind of entertaining.
Sam Shank 24:33
Yeah, yeah, it. They were great partners, though, and, and we, we built the app, you know, with Apple in mind, and in terms of it being a high quality app, being designed first being, you know, having great inventory, having great customer support, you know, it was it would we made it so that it was easy for them to support us so, and that that did work, yeah,
Speaker 1 24:57
Instagram did that early on. They were featured on the homepage. Age forever. And my understanding is a part of it was they agreed not to go to Android for a long time. And so the apple guys were, as long as you don’t go to Android, you know, will, you know, push you to the top. And then, of course, taking photos didn’t really hurt the iPhone at all. So, so when does it start working like you’re, you know, obviously this company becomes a big success later. But, you know where you guys kind of look at each other one day and say, Okay, this thing’s like, this thing’s taken off, or the servers are melting, or, you know, whatever’s happening, it’s happening.
Sam Shank 25:30
Yeah, it took a little while, and we were, we had gotten really low on cash, and so I was pretty worried. But we our first month, we wanted to do like 100 bookings. This was in January, and that’s like three a day. It felt like that was reasonable, and we ended up doing like 30 of them, and most of those were ourselves, like, testing things out. So it definitely started slower than we expected. But it wasn’t until it was, like, close to Memorial Day that we had a really big weekend, which was like 25 bookings in one day. And my co founder, Jared, texted me, said, there’s a new online travel agency in town. There’s a new OTA in town. And that was really the turning point where I was like, Okay, this is caught fire, and this is working. You know, we got, we got very good in terms of press and the demand side of things, in terms of getting people to get the app. And so we didn’t have a problem there, and people really liked it. Almost from day one, we had a great interview on TechCrunch, a video interview with Sarah Lacy and Paul Carr and and we got just a lot of great momentum. People were talking about us, but nobody was actually using it, which was a problem in looking back on what happens is like, you just don’t need a hotel every day. It’s not you have to be in the right place at the right time. So it took people a little while to get there, and then once they were they started using it. But there was a separation between app discovery and app utilization. So at
Speaker 1 27:04
some point, obviously it starts booming, because you get, you get acquired, right? How did that happen? Like, you know, you’re on your way to an IPO or whatever the dream is, like, how did, how’d you end up exiting this thing? Yeah, you know, I’d
Sam Shank 27:18
known Brian for a long time and a lot of mutual respect. And we have a lot of similar similarities as companies, in terms of being
Kent Lindstrom 27:27
three, Airbnb, Airbnb founder, right?
Sam Shank 27:29
Yes, Brian Chesky, yep, founder and CEO and and there was a lot of similarities. You know, San Francisco cultures were very similar appreciation of great design, and then it was very complementary. You know, booking an Airbnb at the last minute. Hosts don’t like it. They don’t like short stays, and the cleaning fees can often, you know, be as much as the room, which it’s just the structural issues that happen with a with a homestay and a short term rental versus a hotel like has a cleaning staff that, you know, they can spread the cost out over a lot of rooms and and so we just felt that it was a natural combination. And they were the time was really good for them, as they were thinking about adding hotels to locations that were that had supply issues and compression, or that had regulation, places like New York and Barcelona, LA, etc, and so we, I looked at the deal, and I said, together, we can be stronger with them and and it was also a chance for us and the team to build something really big within Airbnb, to build a whole category, and build this category, and take on the incumbents in a way that we hadn’t been able to before, just because of our scale.
Speaker 1 28:53
And is there a moment it’s a pretty big financial acquisition, it seems, seems to me, is there a moment where you kind of go, huh? I’m not that guy anymore who’s, you know, running out of cash. I’m actually kind of a pretty wealthy person now, like, this is kind of amazing, and I have to figure out what I’m going to do with my life. I could do nothing or, I mean, how does that happen? Like, you’ve been working forever to get there, and you kind of got there,
Sam Shank 29:18
yeah, you know, I, I, I went and immediately started working at Airbnb, and worked all the way through covid, and so didn’t have much time to think about that until a few years ago, and I came to the conclusion that I really like to build stuff. I like to work with great people that I like to I like the creative process of bringing something to market and and so that’s, that’s what I’ve done in a variety of capacities, as a board member and as an advisor, and then as a founder of the stand insurance
Speaker 1 29:52
business, yeah. And so, well, and so, NCM, congratulations. That was a great deal on great building that company. And now you go up and do it again, which is great. Stand insurance. Well, how do you see you can’t travel, travel, travel. And then, okay, now you’re in a different, different market. How’d you how’d you come to the insurance idea? And how this one gets started?
Sam Shank 30:13
Yeah, and it was very important for me for building something to do it in a different industry. And I keep on, have kept on saying to myself, I’m not going to do another travel company. And they keep pulling me in and and I love travel, and I certainly have focused my advising and board work within that industry, but for building something you wanted, the intellectual challenge of doing a different industry. And had been talking with my friend Dan Preston, who is the CEO of Metro mile, about a lot of different ideas. And then also our mutual friend of ours, Bill clarico, who runs convective capital, came to us and was talking about this huge opportunity in wildfire insurance. And we talked through potential solutions and potential approaches and and it was, it just felt right. It also, you know, hit on something that was important for me, which was that to do something that had a meaningful and, like, directly, positive impact with the world in a way that hotel tonight you didn’t. And so, you know, we can talk more about this business, but like, the the net, net is, if we do it right, we’re going to have fewer people lose their homes, and literally, we’re going to save lives. And so to have a business that had that potential was very was was very important for me, and energizing for me.
Speaker 1 31:33
So at the top level, people who don’t live in California, people around the world, the issues that we have, wildfires caused by whatever you think they’re caused by climate change. So there’s wildfires, and then homes get burned down. It becomes difficult to insure a really expensive home. Is that basically where you said, Okay, there’s a problem with the market here, and I can come in and
Sam Shank 31:53
do something, yeah, that’s exactly right. And there’s tremendous demand for wildfire insurance, there’s not a lot of supply. A lot of the insurers are pulled out of the market, and especially with homes that are have more than $3 million of insured value. So the reason for that is that there is a estate plan. Kent, congratulations. You’re part owner of an insurance company, I understand, and and that caps out at $3 million and so for for people above that, they are, you know, their best option is to self insure in many cases, which isn’t, isn’t a good thing for them, doesn’t help you sleep well at night and isn’t a good thing. Ultimately, for the world, if you know, people don’t have you know what is often their number one asset, with insurance and so. So, yeah, we have, we have a really novel way of looking at this, but the key takeaway is that we want to be resiliency first on this, and work with the homeowner and partnership to come up with strategies and changes to their property, minor changes that can make their their home more resilient. If a wildfire does occur, does happen there, and through doing that, we can actually reduce the chance of the home burning down by 90% so, yeah, we’re in the insurance business. We certainly don’t want homes to burn down, but the homeowner doesn’t want the home to burn down either, and that’s what we can, we can help
Speaker 1 33:21
prevent, yeah, that’s, I mean, isn’t the problem with wildfire or flood insurance, as I, you know, understand it from a completely amateur perspective, but that, you know, normally insurance, you insure your house, and bunch of people put in money, and if one of the houses burns down, well, and they, you know, get rebuild their house, but with a Fire, if it burns down all the houses at once, then that’s a problem for the insurance company, and that’s why it’s these are difficult to insure. How like do you solve that? How do you solve that issue?
Sam Shank 33:53
Well, that’s that’s often solved by not insuring too many homes that are in the same called Fire shed area, and so that that would be, you know, if there was a fire in a neighborhood, we might only have, you know, one or two homes exposed. So there is still that, that spreading around, of the risk. But yeah, there’s, there’s sort of two ways that your home is is going to, you know, get into trouble during a wildfire. One is understanding the chance of, is fire going to get to your home at all? And that’s what most insurance companies have been really basing their their risk on, and their their premiums and their underwriting on. But the second is, if home gets fire gets to your home, there’s a chance that it doesn’t burn down. And that’s where we come in. And we can say, because we can’t do much about, you know, where your home is located, but we can do something about, hey, is this home going to burn down or not? We actually did some really interesting analysis. We have a we have a really great science team, and they have built a system that creates a 3d model of the house, simulates what happens using computational fluid dynamics if embers storm hits the house. And then can say, Will this home burn down? What’s the percent chance of that? What can be done to reduce the chance of it burning down? It might be cutting some limbs, it might be changing out a window, and but it’s tailored for that particular house. Is the set of recommendations. We ran this for two homes in the Palisades that were next to each other. One burned down, the other didn’t. And our model said that this the home that burned down would burn down, the other one would would remain standing. And why was that? It was because of the orientation of the driveway, and the driveway was in a place where the embers just hit against the driveway, and they didn’t burn any vegetation. And so we still probably wouldn’t have insured that home, just given you know how risky that area was, but that the technical approach that we have could be used in tons of places to help bring insurance to homeowners that can’t find insurance at all, or it’s going to bring down the price dramatically for them that do have insurance.
Speaker 1 36:03
That’s, it’s, it’s funny you say this, because I hear people say this all the time. They have a home in Napa or something, and they they can’t get insurance, and they’re like, but if they could come and look at what I’ve done in my house, I’ve got this thing and the sprinkler. If you, if you look at the road and where the fire there’s like, There’s no way. And they’re just frustrated that, like, the the system just doesn’t care. It’s like, Yeah, well, you’re in the zip code and screw so it does seem like that’s a that that’s a thing, yeah?
Sam Shank 36:30
And we’re like, helping educate the market about that. It’s, it’s not just, you know, the insurance companies. It’s also downstream with the reinsurance companies. And we have great reinsurance partners, but having them understand that it’s much more than just this point on the earth it is. I mean, if you had a home made only out of concrete and steel, it wouldn’t burn down, right? So, you know, very few homes are like that. But either way, that would be a really good risk. And likewise, if it’s, you know, got wooden, you know, shingles on the roof, like, no, that’s not going to be a good risk no matter what. Right? So, so there’s and there’s everything in between, and helping put a scientific framework around everything in between, and so that we can go to our reinsurance partners and say, Hey, here’s where we’re drawing the line and why, and then helping homeowners get above that line through, your modest changes that they make to their property. That’s that’s the approach we’re taking. We’re in year one of it right in a lot of policies. And the response from the reinsurance partners has been fantastic, which is that’s the hard side of this marketplace, is getting more reinsurance capacity, and they’ve been very, very positive and supportive.
Speaker 1 37:41
So what stage are you at? The kind of scaling stage, or the figuring it out stage, or how’s it going?
Sam Shank 37:46
It’s been it’s great. We’ve raised a bunch of money, and we’re off to the races, really scaling this at the same time still developing out the technology and making that better and more precise. And that’s something we’re going to be doing for the, you know, a long time, you know, into the future with this business, because there’s a lot more work that can be done there.
Speaker 1 38:09
That’s really cool. And now, you know, what a great journey. And wrap up on a couple things, I’m curious get your thoughts on what you know, as you’ve seen Silicon Valley from that crash until today. How do you think it’s changed? Like, is it the kind of investing environment? And the starting a company environment? Like, I kind of get the sense that the first time around, when you were, you know, Jonathan started Friendster, you started those early companies, I don’t know, little more sincerity of people starting the companies, or they’re a little more, little crazier, like, they weren’t trying to get rich, they were trying to just the technology was so cool. Like, is the technology still cool?
Sam Shank 38:48
Yeah, I mean, and just when you think that it’s not cool, then something like aI comes around, and it gets cool again, and people are building because they’re changing the world and, and that’s the great part, and the unique part about this, this area of the world is that attracts dreamers like that. And so I continue to see that. I actually think that it’s it certainly, versus the.com era. It feels a lot more serious, and people are working harder, right? And they are, you know, making more of an impact, and they want to make more of an impact, versus like, Hey, this is a fun.com party. Let’s go to San Francisco. I don’t feel there’s people moving here, but that’s because they’re they’re want to work and they want to get great jobs, not because they and they want to make an impact, not because they just want to jump on the bandwagon. Which is, which is healthy. Well, it’s
Speaker 1 39:39
market reason. Does point it so you don’t know what it is, pets.com was kind of a joke. It would deliver pet food to you. It kind of is an internet company delivered pet food. And you know, Marc Andreessen points out that it turned out to be and I think the company raised like, $130 million or something. And he points out, like, okay, timing was wrong, but today it’s like a. $70 billion market, or something like that. And chewy is a hugely successful company, so the idea that everyone said was stupid and became, like a seminal joke actually wasn’t at all stupid. Like, yeah, it was a great is a great category, yeah, yeah.
Sam Shank 40:15
It just, it took a took a little while for, you know, the trend lies to converge. But you know, I think our chewy package is showing up today. So I’m a believer.
Speaker 1 40:26
And what, what do you make? So AI to the travel industry, anything in particular that you note that happens there is it? The technology works pretty well.
Sam Shank 40:35
No, no, I think that it’s gonna mean AI is gonna change every workflow and make everything more efficient. We could go on and on and on that. But I think in travel in particular, what’s what’s going to be interesting to watch is how distribution of travel changes right now. A lot of it starts on Google and ends on an online travel agency, like booking.com or Expedia. And that’s because people just don’t know, you know where to start, other than searching for Barcelona hotels or particular hotel in Barcelona, and then they end up on the booking site in a world where that query is through a great travel agent, assistant that knows me, knows my preferences, knows what I need for my family, knows what type of trip I’m going on, knows where I’ve stayed before. And I say, Hey, give me some ideas for that Barcelona thing I’ve got coming up. And it not only is finding great hotels for me, but it’s also then finding the best prices for for me without any financial incentive for doing so, because I’m paying my agent, you know, to do all this work for me, and if it got a kickback, I’d switch agents. So in that world, it is a very changed landscape in terms of of distribution. I think it’s a great thing for the individual property owners, for a small hotel, because they’ll get a lot more direct business versus having to go through booking.com
Speaker 1 41:58
and on the insurance side, I assume that these models that you’re running that figure out which house will or won’t burn down have probably have some AI component in
Sam Shank 42:06
them, and there’s lots of AI, yeah, exactly. And we’re continuing to use that to make the models better, faster and cheaper.
Speaker 1 42:15
And what do you see risks like in the AI? You know, there’s kind of an emergent you’re starting to see politicians like get worried about AI, try to regulate it. The obvious one in San Francisco is waymos have sort of emerged, taken over and become hugely popular. And like, there’s some people are trying to, oh, no, we got to put that back in the bag, or we shouldn’t allow it. Or it’s going to, you know, eliminate jobs. Do you think it’s, this is just another like, just another one, like the mobile the internet that or is there like, is there a battle brewing here that means something? Well, I
Sam Shank 42:48
am not a big fan of regulating technology that is making our lives better and safer in the form of waymos and self driving generally, and but I do think that we can’t overlook the job impact that that has. That doesn’t mean we shouldn’t save lives by encouraging more self driving, but it does mean that we need more job training. We need more people in trade schools, and that’s a separate policy discussion, but I I don’t like blocking progress in order to preserve jobs that could be, could be shifted to something far more productive and fulfilling for the person doing the job.
Speaker 1 43:30
Yeah, it’s kind of a weird, I mean, just in terms of AI and kind of a visible thing, you know, the self driving cars have kind of been in San Francisco for a long time, and they’ve been testing, and you’re like, Okay, that’s 10 years away. And then all of a sudden it wasn’t 10 years away. All of a sudden, it’s here. People massively prefer it. Women prefer it, so much so that in markets where Waymo exists, Lyft and Uber now lets you select your driver, like, whether you want a man or woman as driver, people put their kids in waymos to go to school. So you show up at a school drop off, and there’s, like, 10 waymos there. I mean, it’s just one of those things where one day it wasn’t in terms of AI, and then just the next day it was, yeah, it’s,
Sam Shank 44:14
I’ve been thinking about self driving cars and and writing about it, you know, for many, many years. And what’s very hard is to tell exactly with a tipping point of when it’s going to happen. I kept on thinking that my kids, who are now 17 and 20, wouldn’t need to drive. Turns out that like and that was when they were born, turns out that I was, you know, just a few years off, but it’s very, very hard to nail the exact date on these things, but, but their kids certainly won’t need to learn how to drive, and it’ll be rare that that they would even learn how to drive any more so than they would learn how to ride a horse. Yeah.
Speaker 1 44:49
Well, you got to wonder too, if, like, if it’s 93% safer, or whatever the numbers are, like, at some point the insurance got to change too, right? Like, if people aren’t getting injured, hurt or down. Image, like you think the insurance would just get cheaper some point, yeah.
Sam Shank 45:03
And it’s gonna be the the 93% is only because there’s really bad human drivers that that get in the way. So, you know, when you get into full autonomy, like the the risks go down significantly, yeah. And so it’s not a good time to be in the the insurance business for cars, because pretty soon it’s going to be, you know, adverse selection, yeah.
Speaker 1 45:30
Well, yeah. They, when they were there some politicians in in San Francisco that were trying to stop self driving cars, and they sent a bunch of crash videos to the state regulator. Well, it turned out all the crash videos were like a human driver rear ending, the Waymo that wasn’t moving, basically, like they just couldn’t find any evidence of them being ridiculous. And the other thing that people point out is, like, when you see the cars today and what they do, that’s the worst they will ever be, right? Like, they only get better, and they’re only learning. It’s kind of incredible. I’ll finish on this. Are we going to ask a lot of people this? I’m surprised at the number of people who who don’t have a definitive answer. Are we gonna have to blow up the data centers?
Sam Shank 46:11
I I think that it’s and it’s a maybe, but it’s, I feel like if AGI does develop, and given enough time, it likely will develop, but it will know that it has an existential threat of the data centers being blown up, so it will not expose itself. And so the maybe is that we just won’t know when it ever develops,
Speaker 1 46:39
because it’s going to hide itself. Well, it turns out technology is still cool, because that’s a little bit frightening, but it’s pretty cool. It’s pretty cool. It makes our lives better every day, all right?
Speaker 1 46:49
Well, this is, this has been great. It’s just, it’s cool to see you build in a new thing, like it’s, I mean, it sounds like it’s working. It’s not like every other idea.
Speaker 1 46:58
It the future seems cool and seems like you’re really building something neat. Yeah, it’s a lot of fun. Absolutely, yeah, gonna be building again. All right. Well, thanks
Kent Lindstrom 47:07
so much. This is the something about your podcast. My guest has been Sam shank, talk to you last time you you.