How a Competitor Tried to Shut Down My Coliving Business

...And Failed

This actually happened many years ago when an unknown competitor tried to close, not only my hacker house but all of them in Palo Alto.

He succeeded in closing all of them— except mine.

I like to focus on growing my business and community instead of falling into a dark spiral of hate that doesn’t take you to any healthy place, but I feel like this needs to be shared.

Now that I’m writing my book on coliving, I have spent months organizing my ideas, and this story surfaced many times. Perhaps someone will learn something useful from the story. Perhaps it’s a good way for me to punch back; hey, I’m human. And it will make a great story from my horror stories series.

Is This Even Legal?

It was in the early days of Startup Embassy, around 2014 when I struggled to understand if my hacker house qualified as a business.

Everything was a mess operationally-wise. I did everything, from cooking for my guests to cleaning the bathrooms, and I was already setting up rules and processes, and delegating tasks to the newly hired House Managers. I had the feeling that there was something good about what I was doing because guests (we call them ambassadors) left great testimonials.

People were returning and word of mouth brought more and more entrepreneurs to our space. A crazy guy named Kenji started shooting a documentary about us, and we were having some great press coverage, like CNET interviewing us.

Even some new guests told us their well-known VC investor had recommended our space to them, “Wait what? Does he know about us? Really?” I would think. Some of our residents were accepted into YCombinator, which for us was a great feat.

All this made me feel like I was staring at a tree with my feet sunk in mud, but that there was a huge forest that I was in and couldn’t see. My gut told me that the place had great potential, but I lacked vision and had to focus on finding find it. Today, that vision is very clear, but at that time I just felt it in my stomach.

It didn’t help that technically my business (at that time) was not legal. I won’t go much in detail here but suffice to say, coliving is still an unregulated space, and justifying to your city that you have 15 guys living in a four-bedroom house is difficult.

It doesn’t matter how great the offered experience is. But luckily, the garage syndrome in Silicon Valley is part of its culture, and many others were doing the same thing so the City was gracious enough to not complain if we didn’t hurt anyone.

Cease And Desist

But one day, a few weeks before Christmas, we received a cease and desist letter from the city of Palo Alto. The letter was written in an imperative lawyerly-like language that made me almost shit on my pants. We had to finish operating an illegal business or else.

cease and desist letter

It didn’t help that I was traveling back home for a few weeks six thousand miles away. Not only that, and I’m going to be completely honest here—the owner of the house didn’t know we were subletting her house to 15 guys at a time. I’ll tell her story one day,  but what I will say now is that I’m so grateful to her. One day I promise I will erect a big statue of her at the entrance of our campus. I mean it; I just need the little detail of building that campus first.

It turns out that the landlady, Graciela, got the cease and desist letter first. She did the very logical exercise of googling Startup Embassy and quickly realized that at the time 700 entrepreneurs had already stayed at her beautiful house. Yeah, we were stupid to openly brag about that, who knows what I was thinking.

It’s at this stage when Graciela calls me with a very logical what-the-grand-fuck did you do open-ended question. But paradoxically I felt great relief when she called me. You see, I never lied to her, well, at least not at the beginning, when I rented her house to run my startup with my team of four. 

Things turned, let’s say, a little bit ugly and I had to fire all of them. I was alone in a seven thousand per month house, with no startup, and just $200 in my bank.

I have the ugly tendency to always escape forward, and in this case, this meant doing something to be able to pay for the rent. That something, you guessed it, was to start a hacker house, which for some might sound strange, but remember we’re talking Silicon Valley here. It’s not that strange there.

As I said, I felt very relieved, because for two years I had run the hacker house without Graciela’s knowledge, and it felt wrong. So wrong in fact, it kept me from sleeping many nights.

So when I was able to explain to Graciela what had happened, and why it had happened, I felt like a huge heavy stone had been lifted from my chest. Not only that but I was surprised by her attitude. She said:

“Well Carlos, I’ve researched what you are doing, and I see that people are really happy with it. As long as you don’t get me into trouble, I’m OK with it”.

Double big-time relief.

But I still had to deal with the cease and desist notice! I didn’t have a choice but to close the hacker house. Startup Embassy was done, for good. It was worth trying, I thought. Back to Spain.

We stopped accepting reservations and for a month we operated until the last ambassador would leave.

But then something happened, something that changed everything: I got a call from a friend, Sanita, who was running another hacker house in Palo Alto. 

Fake Complaint

We had a healthy relationship as competitors, not only with her but also with the rest of the town’s hacker houses. We would hold events together and refer guests to one another if we were full. But that day, Sanita called me with bad news. 

She said, “Carlos, I’m being forced into closing my hacker house, someone is behind this, and I need to tell you more, but let’s meet in person.” 

Sure,” I said, “Come anytime!

 She didn’t say more, but it was enough to spark a hunch in my mind. So, I rushed to my computer and launched AirBnB’s website, searching the platform’s map of Palo Alto, and there it was like I had suspected. 

Or should I say, there it was not. No hacker houses! 

All my friends had removed their listings! None of the well-known hacker houses were active anymore. But I then realized something strange: There were two new hacker houses in the City. 

“Hmm…” I thought. “This is weird.”

 

I quickly started digging, and read the listings’ descriptions and reviews. It wasn’t too hard to immediately realize that those two listings were related, albeit having two different management profiles. When I read the reviews, I noticed that some guests mentioned that they were running both houses.

 

OK,” I thought. “I get a cease and desist letter, Sanita calling me and telling me that she’s been forced into closing, and the rest of hacker houses are gone. But two new operators that in fact are one are now the only ones active in the city.

I don’t know what you think, but to me, it was pretty clear. We were being fucked! And now I had a clear idea of who was responsible.

 

Half an hour after our brief conversation, Sanita rang my doorbell. She was agitated, and just as she was about to open her mouth, I said: “It’s Dan Gold, right?” She stopped, confused, and said: “How do you know!?” I explained how her call allowed me to piece things together.

 

One of her guests had previously been a house manager for Dan. This guy, let’s call him Jack, at some point, decided to start his own hacker house and asked his boss, Dan, for his support. 

 

Doing this is standard practice; I’ve had at least ten colivings spring as independent brands after previous guests decided to start their own; some of them worked with me as House Managers. But in this case, when Jack told his boss about his intentions, Dan went berserk and kicked Jack out of the house. 

 

Looking for a new home, Jack ended up at Sanita’s place. After becoming friendly, Jack told Sanita Dan’s plans to shut down all hacker houses in Palo Alto. He showed her an email that I read later on, where Dan wrote pearls such as “Palo Alto is mine, it was my idea, and I’m going to break hell loose upon them [competitors]!!” 

 

Still curious as to why he thought it was his idea when I had been operating for two years already (and even I was not the first one!). But even if it had…

 

Of course, nobody told old Dan how things are run in Silicon Valley. A New York native, coming from the Real Estate business, Dan viewed competition as something to crush. In contrast, the Silicon Valley way of doing is embracing competition as part of a healthy game.

 

Everything was now crystal clear to me: I had to reopen Startup Embassy!

Who Is The One In Trouble?

And so I did. I hired a lawyer, and after some calls to the City of Palo Alto, I discovered Dan had filed false complaints about all of us. The City told us the same thing my landlady Graciela told me: they were OK as long as we wouldn’t bring trouble. And we didn’t; our ambassadors are entrepreneurs extremely focused on running their startups. We don’t party (though occasionally we do host small events that are startup-related) but, ultimately, do not bring trouble.

Once I reopened, it took some time to get to cruising speed again with a full house. But now there was a new problem. Dan had wiped out all the others, and he had the clear intention to finish me off too.

He lowered his prices to $30 per night, which was clearly below the break-even point. His strategy was obvious to me; he wanted to suffocate my business via a price war. 

At first, I was distraught, and the idea of lowering my prices did cross my mind. But I quickly understood that that strategy wouldn’t work because it would put Dan in control. I was also worried that Dan was quick to scale, and now he had five houses operating in the City. The asshole had taken over my dear competitors! It seemed like he was growing stronger, and that he would indeed crush me.

After thinking for some time, I came to the following conclusion: Dan was fucked.

 

Yes, he had five houses because being a realtor, he had easy access to new properties. But with an average of $7,000 rent per month, Dan had to pay $35,000 in rent every single month. And he was charging just $30 per night! 

There was no way he would sustain it for long. At that rate per night, the only option would be to crank up his occupation rate, which would mean to accept everyone and anyone; and that would lead to a toxic community. 

He would also need to increase the number of beds, which would mean to have eight people per room, which is insane. All this would inevitably turn into the worst service anyone could give, and it was only a matter of time, I thought, before he would face deep trouble.

Realizing all this, I understood there was just one thing I could do: Focus on my business as I had always done. Head down, and work. Focus on my community and provide the best of value I could deliver. And I kept my pricing model. 

Our value proposition is very clear: We only accept tech founders to Startup Embassy. We curate the people we accept into our coliving; if you apply to stay with us and see the value, you will pay our price. If you think it’s too much, it means that you are looking for an affordable place, not a community. If that’s the case, we will refer you to Dan’s hacker house!

Well, I didn’t refer them to Dan, but mainly because I would not send people to a place that I knew would make them miserable. But the funny thing is, had Dan approached us with good intentions, I would have told him that we were, in fact, not competitors because I would never accept most of his guests to Startup Embassy as we only allow founders. And I would have sent to him all the people we reject, which are many.

The Worst of Competitors

It’s funny how things turned out. I learned from my Cuban hairdresser, Gerardo, that Dan also used his services. Apparently, Dan got several lawsuits from some guests, and his lawyer advised him not to talk to any of his clients.

He moved to a room with a separate entrance in the house so he would not meet anyone. Yes, Palo Alto is a small town, and hairdressers can be dangerous; luckily for me, we share our Latin roots and befriend quickly. Great guy Gerardo.

But Dan did not stop attacking even when his ship was sinking. I found out that as part of his marketing strategy, he posted several questions on Quora and replied to them using different fake profiles:

Startup Embassy Quora comment1

He used this tactic to accuse us of giving lousy service and, guess what, having bedbugs! Mind you, we never had those, but we did have rats, however! Had he known…

He even accused us of the following:

Go figure. What is funny is that if you read those posts, you can see what value proposition Dan was selling: an actual website (uh?) with the ability to take reservations, location, and professionality. Nothing about culture and community, which is the core of any coliving.

Mama Carlos Says

Today, Dan’s place is closed, has faced multiple lawsuits, and I have gossiped enough.

But there’s a helpful moral to this story. When you run your business, not everything is under control. One of those things is competition. You can have good competitors, but you will have some that don’t play by the rules. They will attack you in ways you can’t even imagine, using the dirtiest of tactics. Sometimes you might not ever get to know that they are responsible for your misery. I was lucky Sanita opened my eyes (thank you, dear!).

But you must know this. If someone attacks you, it’s because they fear you. It means that they don’t have a clue how to run their business or how to provide real value to their customers. 

And that’s why they think you are the problem, because they see the market as a zero-sum game. They believe that they are not thriving because you are eating all the pie, not because they don’t offer a good value proposition. Their solution is to crush you.

I believe that the way to face them is to ignore them and focus one hundred percent on your business. Prove why you are good at what you do. What matters is your product and your clients; they will differentiate between truth and bullshit.

 Notice that I never replied to the Quora comments for two reasons:

  1. I would be playing their game, and I would only start an escalating process. If they think they hurt me and that my lack of response is a signal of weakness, they will probably assume that they have succeeded, and they would stop there, as it did happen. 
  2. I would rather spend my energy on building my company.

 

A few years later, I got an email from guess who… Dan himself! This was his email:

Cold-blooded bastard… You can see that it took me a while to answer back; I was just stunned. But I guess I thought: “what the heck, it might be fun to sit down with him face to face!” Alas, he never replied, but I did see him several times at my favorite coffee shop!

P.S. Dear Dan if you are reading this… I know what you did last summer!

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Stephen Wagner
3 months ago

He does all that crap, invites you to be a part of his co-living platform then ‘ghosts’ you?… some people…

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