From renting mattress to establishing a $31 billion company: Success story of Airbnb
This post is all about AirBnB. How a mattress sharing idea turned out to be a very good business opportunity.
Table of Content:
- The Idea
- Initial Days
- When Survival seemed dificult
- When hard work paid off
- The Glory Days
- Moral of the story
Airbnb, one of the biggest and most successful tourism and lodging company, is a San Francisco based company founded by Brian Chesky, Joe Gebbia and Nathan Blecharczyk. Shortly after moving to San Francisco in October 2007, roommates and former schoolmates Brian Chesky and Joe Gebbia came up with the idea of putting an air mattress in their living room and turning it into a bed and breakfast. During those days, a conference was going on in San Francisco, due to which all the hotels in city were fully booked. It was at this very situation, when an idea struck their minds to let the visitors stay in their apartment and cook them breakfast. Unaware to what was coming, all they knew the next day was travelers demanding their services.
In February 2008, Nathan Blecharczyk, Chesky's former roommate, joined as the Chief Technology Officer and the third co-founder of the new venture, which they named AirBed & Breakfast. They put together a website that offered short-term living quarters and breakfast. They decided to target conferences and festivals across America, getting local people to list their rooms and travellers to book them. Thus they were able to achieve some success.
When survival seemed difficult
In summer 2008, Barack Obama was due to speak in Denver at the Democratic National Convention, and 80,000 people were expected to be there, but again, there was a shortage of hotel rooms. Gebbia, Chesky and Blecharczyk had just finished the website . Within a week they had 800 listings. But the site wasn’t making any money. Taking advantage of election fever, they bought bulk quantities of cereal and designed packaging branded as ‘Obama’s O’s’ and ‘Cap’n McCain’ cereal. It was initially meant to be a PR stunt, but they sold 800 ‘limited-edition’ boxes at $40 each and made more than $30,000. However this strategy didn’t work out as they couldn’t make as much money as needed. Hence they were at loss.
One night in November 2008, Chesky and Gebbia were having dinner with Michael Seibel, then the CEO of Justin.tv, who’d been acting as their sole advisor since they first connected with him at South by Southwest months earlier. Seibel suggested that they consider applying to Y Combinator(a start-up mentoring programme). Hardly did they knew that it was going to be the turning point in their lives.
Seibel sent a message to Y Combinator founder Paul Graham, who said he’d consider them if they got their application at the earliest as the deadine had already passed. They applied and got an interview. After several hours of prepping and mock-interviewing one another, the founders were ready to leave for the interview(On the way out, Gebbia went to grab a box of Obama O’s and Cap’n McCain’s to put them in his bag). The interview didn’t go as planned, as they were about to pack up, Gebbia pulled out the cereal boxes(which he had sneaked in). He walked over to Graham, who was by then talking with his partners, and handed him one. Graham thanked him, awkwardly — he thought they had bought some cereal for him as a gift. They told him the story behind the Obama O’s. The founders were told to expect a call from Graham very shortly if they were accepted. And surprisingly they did! They cracked the interview.
When hard work paid off
In early 2009 they received $20,000 of funding from Y Combinator, which led to a further $600,000 from venture capitalists. That was just the start of the money trail.
With the website already built, they used the Y-Combinator investment to fly to New York to meet users and promote the site. They returned to San Francisco with a profitable business model to present to West Coast investors. By March 2009, the site had 10,000 users and 2,500 listings. In March 2009, the name of the company was shortened to Airbnb.com, and the site's content had expanded from air beds and shared spaces to a variety of properties including entire homes and apartments, private rooms, and other properties.
In April 2009, the company received seed money from Sequoia Capital. In November 2010, they raised financing from Greylock Partners and Sequoia Capital in a Series A round, and announced that out of 700,000 nights booked, 80% had occurred in the previous six months. In May 2011 the actor Ashton Kutcher invested a ‘significant amount’ and now sits on the board as a strategic adviser. Then in July 2011 the company received a further $112 million in venture funding, and was reportedly valued behind the scenes at $1.3 billion.
Chesky and his co-founders’ first “sources of guidence” were their earliest advisers and mentors, tech entrepreneur Michael Seibel and Y Combinator’s Graham. Chesky devoted much of his time to books in order to gain knowledge in this field. His primary book source on management technique is Andy Grove’s High Output Management. To learn the ins and outs of hospitality, he went to the Cornell Hospitality Quarterly, a scholarly journal published by the Cornell University School of Hotel Administration. He considered Walt Dianey and Steve Jobs as his inspiration.
As the company became more prominent, so did Chesky’s sources. Soon came meetings with Facebook’s FB 3.27% Mark Zuckerberg, Amazon’s AMZN 1.05% Jeff Bezos, and eBay EBAY 152.47% CEO John Donahoe. He went to Bob Iger and Marc Benioff to ask how they push their executive teams to do more. From Facebook’s Sheryl Sandberg he picked up tips about efficiency in scaling internationally. To learn how to become an elite recruiter, for example, Chesky might skip talking to an HR exec and instead seek out a sports agent, whose business lives and dies by attracting talent. Similarly, Chesky reached out to Tenet not for tips on global security, but for corporate culture. One of Chesky’s biggest source triumphs was his audience with Warren Buffett. Chesky reached out to him and asked if he could travel to Omaha to have lunch, in part to talk about how Airbnb might help expand the number of rooms available in town during Berkshire’s annual meeting weekend. The discussion ended up lasting 4½ hours. For his part, Buffett said he sensed in Chesky a genuine passion for building his company. Although Chesky had natural leadership potential, however communicating with various pieces of wisdom and learning from them is a key part of Chesky’s management style.
The Glory Days
Airbnb has come a long way from when CEO Brian Chesky and his friends converted the living room of their San Francisco apartment into a bed & breakfast with the help of an air mattress in order to help pay the rent. As of writing, Airbnb has close to 650,000 hosts using it’s platform and around 6.1 million listings. Compare that to June of 2018 when there were about 4.4 million listings on Airbnb and you can see that Airbnb has continued to grow it’s inventory at a remarkable pace of almost 40% in the last year alone. In 2019 alone, travelers used Airbnb’s platform to book almost 100 million room nights. Airbnb’s revenues are growing pretty spectacularly – close to 40% year-on-year growth from 2018 to 2019. In 2019, Airbnb reported that it had made more than $1 Billion in revenue. It’s current valuation being an astounding figure of $31 billion.
Moral of the Story
This story is definitely about how passion, perseverance and the desire to thrive against all odds can lead to success. It’s just a story of 3 ordinary guys with the dream of innovating something extraordinary. AirBnB brought the whirlwind of change in the hospitality sector and become one of the most curious data discussed across the globe. The journey was never easy. However persistent efforts and determination made it what it is today. It took them 4 years to establish themselves. But it was worth the patience, as the result is visible to the world today. Airbnb is one just story. There are numerous success stories out there. This story inspires us to dream big and work hard towards achieving it.
There is an amazing book, The AirBnB Story by Leigh Gallaghar. It houses alot more detail about, how AirBnB started?, how it survived in the initial days? How Brian and his mates went of to became on of the best leaders in the town? and a lot more. Do read it. It's awesome.