The inspiring story of Airbnb to learn from
Become a cereal entrepreneur is a core value at Airbnb.com, which means not only become an entrepreneur but also be creative and be scrappy. This became a big part of the foundation of Airbnb by three friends Nathan Blecharczyk, Joe Gebbia, and Brian Chesky. They were roommates at one time in an apartment in San Francisco.
In October 2007, the rent on the apartment (where Nathan, Joe and another roommate were staying in at that time) got increased by 25%. So, Nathan and another roommate decided to move out. Brian was in Los Angeles at that time, and Joe called Brian and asked, “Why don’t you come to San Francisco and become an entrepreneur?” So, Brian quit his job in LA and drove to San Francisco, where he was told that rent would be $1150. Now Brian had only $1000 in his bank account and quit his job that month itself. Spontaneity and little stupidity at the same time! Haha. Definitely, he had a “math” problem.
Now both of them are web designers, and it so happened that there was a design conference that was coming to San Francisco the following weekend. Here they had this idea to rent out one of the extra bedrooms as bed and breakfast. There was no bed in the bedroom; instead had an air bed in the closet. So they called it an air bed and breakfast (Airbnb) instead of just bread and breakfast (BnB). They created a straightforward webpage, a simple blog, using WordPress, and put up an advertisement. They connected to local bloggers who gave them links, and within a day, they had 3 people who wanted to stay with them. There was a 35-year-old woman from Boston, a father of four from Utah and incidentally a man from India. Everywhere in the world you go, you will definitely get an Indian or Indian influence.That weekend they not only made a $1000 but also showed their guests around the city and went to the conference together. They made beautiful friendships, so much so that the Indian guy invited them to his wedding two years later.
Fast forward, a couple of months, it is January 2008, and Nathan quit his job. Now three of them decided that they would start a company together after hearing the story, which happened in October. They reflected that there must be other people and situations where the concepts would be a good idea. A simple website was built in 3 weeks, very different from what we see today. It was basically a directory of events where locals could put up their spare bedroom for the game. People coming from out of town could look it up, and give the owner a phone call. They made a decision to launch it in March 2008 just because Twitter had started a year before and finished the site a week and a half before the event. A dozen properties were already listed on the website, and 2-3 people actually used it. One of them was Brian himself.
So, Brian flew down to Austin, Texas, and his host picked him up from the airport brought him to his house. The guy’s wife made him dinner really lovely. The airbed was setup with chocolate on the pillow. In short- Wonderful hospitality. At the end of the night, the host asked Brian, “Do you have the money?” (This is before they had started accepting payments on the website) Brian replied, “Oh! I forgot to go to the ATM. Can I bring it to you tomorrow?” The guy said, “Hey! No problem.” So the next night, the owner asked him again whether he could get the money, but Brian had yet forgotten to go to the ATM. Now, this is when the host started to get a little suspicious of Brian like – “Who is this guy whom I met on the internet sleeping on my bed?” and the hospitality began to wore off. Therefore they decided altogether that how good it would be that they could take care of the money upfront so the owner can focus on the hospitality. There’s another thing they learned from this event that many people who were not going to any event but still wanted to use their service. So, they, of course, denied because that is how you built trust. Because people don’t know why you are coming to town and will let outsiders let them into their house.
Then they came up with a new concept that why don’t they make it easy to book someone’s home like as enjoyable and as simple as a hotel with this model three clicks to book it. So basically, go on the home page of Airbnb, type in your destination, see some search results and hopefully find something you like and click to book it. This was prepared in the summer of 2008 and wondered how they would launch this concept and website. Then they decided why not to use an event once again. And that summer, everyone was talking about the democratic national convention going to be held in August 2008 in Denver, where Barack Obama would be receiving democratic party nomination for the presidency. It was a historical event, and they had upgraded the event to a stadium that could hold 80000 people. They checked that in Denver there were only 17000 hotel rooms and so there will be a problem and need for alternatives. So they rushed to build the website and launched it two weeks before the event. Many locals wanted to make some money too. So, in the first week itself, they got 800 people to list their properties on the Airbnb website.
Meanwhile, the news was circulating that so many people wanted to come to this historical event and participate. Still, there weren’t any places to stay. So, they wrote to the local newspaper that they had 800 new rooms confirmed to stay on their website. They thought that’s an exciting thing to cover. By the end of the week, it was being covered by CNN, International, and they were doing a video interview. Hence suddenly, everyone across the nation and beyond was hearing and buzzing about this new concept- Air bed and breakfast. This was obviously very exciting and everything one would want while launching a new company.
Unfortunately, this was a typical lifecycle emotionally of a startup. It starts with a lot of excitement, climaxing when you launch your company. You get so much press coverage, and you feel you are on top of the world, but that quickly wears off, and for the founders one week later, the crickets started chirping. Nobody cared about them, they weren’t relevant anymore, and that began a very long period called the trough of sorrows. No matter what you did, it didn’t get any better and actually went worse. Eventually, if you are lucky, things do get better. But during this period,, they had to find some solutions to finance the company, generate media coverage. So after the convention, having many contact information for recorders whom they had contacted or featured with, and they thought how they could leverage those political reporters’ contact details to get more press coverage.
The election was coming up very shortly in November (two months away). Before this, they started thinking that they had done a lot on the airbeds why not do something for the “breakfast” part. They came up with the concept of presidentially themed cereal: Obama O’s and Cap’n McCains. Brain and Joe designed the artwork and printed the boxes, bought cereals, and stuffed it in the boxes to send it to the reporters. They had in their mind that if they email them, they might just delete the email. But if they carried them a box of cereals, they might start asking questions and turn curious, then would want to hear their story. And sure enough, it worked, and within a week they were on CNN again talking about the breakfast cereal. This became the number one political video of the day and featured on their homepage. They had made about 400 cartons of breakfast cereal boxes and sold it on their website for $40 each. They started to get orders for the cereal boxes roughly every 3 minutes, and within a week, they sold $30000 worth of cereal. This is how they financed the company in the early days. Not ideal- but this is how to be a cereal entrepreneur comes from. “ Be scrappy, think creatively, and think entrepreneurial.”
Of course, they had tried to raise money traditionally as well and reached out to many angel investors, venture capitalists during the summer. Still, investors ran away as if they were like a plague. One amusing incident happened in a café in Palo Alto where they were pitching to an investor, and halfway he just got up and walked out. His smoothie was half-finished, and they thought that he would put some money in the parking meter and come back, but he never came back. On another occasion, they were pitching to a venture capitalist and the night before they were discussing to change the projection numbers on the slide deck. Nathan being an analytical person, said that its impossible that they could make Airbnb a $200 million revenue in 3 years and wanted the number to be $20 million instead. But Brian and Joe, being designers, wanted it to look prominent. So the next day, they changed it to $20 billion instead of a million and pitched it to the investor. Nathan had no clue and later asked- why did they do that. Brian and Joe said that a trusted advisor told them that investor is interested in b’s not m’s. Lol! Logical but stupid.
Times were beginning to get worse, and it was the beginning of the recession as well. Fall of 2009, 9-10 months without jobs and without being able to raise any money except for the $30000 from cereals. Sequa capital made this presentation that good times are over and its time to keep capital secured because it might be tough to raise funds again. This was the point when they were basically asking themselves when they should give up or quit because it had been a year by then. Despite whatever they did, they could raise only $200/week and weren’t able to increase that.
Mission: Ramen-Profitable by Demo Day
So one of their trusted advisors told them that you should do the Y Combinator accelerator program run by Paul Graham because he had done it himself. It might help them to pull them together, be more focused. They realized up until now that they had worked really hard but haven’t given their 100% because Nathan was doing it on the sides in Boston. In contrast, Brian and Joe were in San Francisco had other commitments too. Hence finally, they thought that before they could quit, the best shot was required to be given for sure. They then registered for the program and got an invitation for a preliminary interview for 5 mins. When they went for the meeting, and basically in 2 mins, Paul Graham was suggesting them to do something else. The meeting wasn’t going well and ended in 5 mins. While walking out, Joe took out the Obama O’s and gave it to Paul. Paul said, “Hey! Did you buy this for me?” They said, “No! We made this.” Paul was astonished and couldn’t understand, and then they shared the cereal story. Paul loved the story so much that it proved to him that Nathan, Brian, and Joe were scrappy and resourceful creatively. Paul had this very well-known quote of the importance of being a cockroach, which basically meant being unkillable and very scrappy. Because of the story, Paul let them into the accelerator program, and things began to change. Nathan moved to San Francisco, lived together, and all of them became hyper-focused with their daily routine synced to each other. Now because of the recession, Paul told everyone that revenue is going to be very important. So, after 13 weeks, when they pitch on the demo day to investors, it is required to show them that they were profitable. So, they developed a concept of “Ramen” profitability (Ramen the soup noodles), which basically meant that $1000/ week revenue (i.e., buy enough Ramen to pay the rent). They created a graph of their income- a red line (the goal), pasted the picture at every place to remind them and updated it every week. This kept them hyper-focused, and they couldn’t get away from what they wanted to achieve.
During the Y combinator, they learned from the creator of Gmail that – it is better to have 100 users that loved you than 1000 users who liked you, whereas Paul Graham told them that it is ok to do things that don’t scale. This was counter-intuitive because the whole idea of being online is to be able to scale. Paul asked them where were their most users. They said most are in New York. Paul advised them to go to New York and meet all their users, which again was counter-intuitive because they had no money. There were about 30 users in New York at that time, so it wasn’t that hard. During the visit, they understood that the users had a terrible photo of their apartments- Really low resolution. This was the time when camera phones were just starting to come up. So they had an idea and called all the users and asked whether they would like to have their rooms photographed by professional photographers for free. They were a little confused, but since it was free, they agreed (something we Indians love too). Hence the owners got a knock on their door and guess who they saw? Joe and Brian- founders of the company. They took pictures from the camera they hired, opened up the website, told them how to use it, and get feedback. Later that evening, the owners were invited for beer too. This built up a relationship or rapport, they shared their stories, made them interested in turning them into their company’s evangelists. (Ohh. I love this word “evangelist” such a subtle yet powerful and magnetic word) This relationship helped them a lot because when they went back to San Francisco, they could call them up for a change in the rental fees or maybe change in the description of the property. If they had not met these people and built a relationship, they wouldn’t have been able to ask them that. And because they had heard their stories and wanted them to be successful, they were very co-operative.
Due to all of these, they had a really nice product, and people started booking these properties. The property owners started making money, the users had a great experience, they would then tell their friends because of the quality standards maintained and emulate the same to list their properties. So people started coming from around the world to New York, stay and went back to their hometowns. Often guests became hosts themselves. And very quickly, this idea started to cross-pollinate. Properties started coming up at various parts of the world, and today (as in pre-COVID-19), it has exploded. So it took them 4 years to get their first 4 million guests, but in 2013 alone, they served almost 7 million guests. Classic Hockey stick growth! So, to give statistics, there are about 180000 guests per night living in other people’s homes. This made them realize that it goes way beyond hospitality, and they had created a new generation of cereal entrepreneurs. A survey done in Spain itself said that about 25% of the users were entrepreneurs themselves and were responsible for about 40000 jobs. These were new companies, half of them less than 5 years old, 25% of them were less than a year, and third was headquartered in Barcelona. But it is not the money that is helping them succeed, but they are using this platform to network, i.e., meet new people. 55% use it to meet new people, 33% use it to meet clients, and 25% use it to get opinions on their work. This is how Airbnb started, struggled to survive, and then became a billion-dollar company that not only revolutionized and disrupted the hospitality industry but also created jobs and a source of income for many people around the world.
Hearing this story makes me wonder that startups or starting business ventures are obviously exciting and fulfilling in the long run but has its own set of challenges and rejections. Founders go through an incredible amount of emotional roller coaster, and there comes a time where they are on the verge of quitting. But the entrepreneurial mindset is all about finding solutions, trying out new things, be bold and creative. We are going through some unusual times where people are apprehensive about investing money or look for alternative sources of income but be it the 2008 financial crisis or be it the current situation, it’s the crisis times which became game-changers for many new and existing businesses. Mostly all the billion-dollar companies today started or went through an evolution during times of crisis. The story of our community is people with average income are dependent on the money by hosting and its average income group who are rating properties on Airbnb. With the real estate and hotel prices in major cities shooting up, making it increasingly difficult to buy and furnish a home or a one night stay. Airbnb is definitely a solution to all these problems. When we were young, our dream was to one day have a house, a car, but with the advent of social media in the last 10 years, people have started valuing experiences more. And with the launch of experiences on the Airbnb portal, people have transitioned from just spending a holiday to meeting new people, sharing stories and experiences as well as creating memories. From a company that struggled to survive, Airbnb has undoubtedly become a visionary company that is here to stay. All these excellent ideas or big ideas often sound stupid ideas initially, so never dismiss anything. And sometimes the problem you are solving is mostly your problems and not some life-changing problems. So important thing is what is the question you are answering. Today Airbnb has over 6 million listings over 65000 cities in about 191 countries around the world. Airbnb doesn’t own any properties and nearly twice the value of Hilton worldwide. Interesting Right? What did you take back from the story and the survival mindset? Let me know in the comments.