While there are many success stories of start-ups in the recent past, one particular story stands out. In the year 2008, when start-ups were still not the in thing, and when Venture Capital funding was more towards conventional business ideas.
The story in question is the inspiring AirBnB success that surmounted all odds and moved from being in debt to global success. How the struggles behind the undervalued start-up idea could benefit society with the help of a digital platform.
What is AirBnB all about?
It is a complete travel platform where one can select a homestay, reserve a local tour for that authentic experience, and order local cuisine online. With 150+ million users, 31 offices globally, and a track record of having hosted more than 400 million guests since 2008, AirBnB brought a new concept to the hospitality segment and is one of the most talked-about businesses today.
Two young roommates, Nathan and Joe, left their apartment in San Francisco after the owner increased the rent by 25%, and they could not afford it. Around that time, Joe’s friend named Brian was shifting from Los Angeles (LA) to San Francisco aspiring to be an entrepreneur after leaving his job. He was looking for an apartment on rent, but the rent was $1150, and Brian had only $1100.
The two friends, Joe Gebbia and Brian Chesky, who were designers, tried to earn some money by taking part in a design conference in San Francisco. During the conference, they saw that all hotels affiliated with the conference were sold out. The thought of providing an air bed and breakfast to the event participants struck their minds.
They initiated airbed&Breakfast.com that was solely to cater to the participants of listed events. The webpage created by them was simple, with only a blog to advertise along with a link building with other bloggers. This effort earned them three guests who booked the airbed and breakfast. This was a great start as they earned $1000 and at the same time took the guest on a city tour.
The next stage of the BnB success story was when they made the idea go live. In a couple of months, Nathan also quit his job, and all three friends decided to start a business. But the mind was still on-air bed & breakfast business, and they thought of considering many people outside events who could be looking for a similar arrangement. They then developed their existing website with more web pages. The website had a directory of events that hosts can look up and spare their bedrooms for outsiders coming to town. Around a dozen of properties got listed, and a couple of people booked their homestay.
This low phase was a big push for AirBnB’s success story. The founders did not give up and made changes in the payment system. This time they made the booking payments upfront, which made the hosts secure about the payments as they went ahead with the hospitality for the guests. Bookings were made simpler with a three-click process that was open to all and not to events only.
The struggle for seed funding
This is one of those rare start-ups where the founders had to use credit cards to initially fund their operations. Despite running into heavy debts, the founders stayed positive. This was one of the best examples of staying positive while struggling to set things right.
The three founders focused on a political event as means to come out of debt. It was 2008, and the Democratic National Convention event was supposed to be held for Barack Obama’s Presidential nomination. This event was to be conducted in a stadium with a holding capacity of 80,000 people even as they found that the event had only 17,000 rooms in the hotel. This was an excellent time to fill up the accommodation gap and opportunity to raise the necessary funds and get rid of heavy debts.
The revised version of the website launch saw around 800 properties getting listed for homestay. Even this was not enough as the number of people increased for the event. The three founders of AirBnB then wrote to the reporters about having 800 (eight hundred) listed properties on their website so that people can book a homestay; and soon this became a big story. The founders came live on the CNN interview. The business got a great response from the event participants, with almost 100 people booking a stay on their website.
The business, however, was back to zero after the event was over. The expected bookings were not there, and the company was in a pool of debt. The most challenging struggle started now. The press had to be activated before the November 2008 presidential elections. To survive, they came up with a new offer which offered breakfast along with airbeds. They designed a themed cereal ‘Obama Oats. The process was simple. Go to the supermarket, get cereals, and refill it in Obama-themed printed boxes. Instead of sending emails to reporters, they sent them cereal boxes. This strategy worked, and the founders were back on CNN live. Each Obama cereal boxes was sold for $40 each, whereas the actual cost was only $1 to $2 per box. And this paved way to earn $30,000 within a week from which their outstanding debts were paid off.
This one-time sale of cereals was not the solution, however. The debts were still there, and the natural way to sustain the business was to get money from venture capitalists and investors in a conventional manner, but this effort failed. The global recession of 2009 was starting, and things were bleak. In this situation, they had a 90% chance to give up and only 10% to try again to raise funds.
Luck Favours the Brave
One of their advisers told the founders to apply for Y Combinator, a seed funding program for start-ups. They applied, gave interviews which did not turn out well. While leaving after the interview, Joe gave a box of Obama Cereals to the owner of Y Combinator, Paul Graham. After listening to the Obama Cereals story, Paul Graham liked the concept and invited the three AirBnB founders into the incubator program.
The Turning Point
This is where things started going well. During the incubator program, the AirBnB start-up developed connections and got mentors who led them to get first-round funding of $5,85,000. This was in 2009. This funding was done by Sequoia – one of the leading venture capital firms, which led to other VC firms taking an interest in AirBnB. This new homestay concept disrupted the existing vacation rental business, monopolized by hotels and resorts earlier.
The founders did not bask in their newfound success but instead went to New York to meet the users of AirBnB. The feedback they got was that the website had blurred pictures of the properties. Taking this on their chin, the founders went back, clicked a beautiful picture of the properties, and re-uploaded on the website, with profile descriptions and prices. The new product was a success as users of these facilities went back and listed their spare properties on the website.
It took four years to get the first one million guests. By 2013 they had 11 million guests. Today AirBnB has 6,00,000 properties in 192 countries listed on its website.
The Timeline of AirBnB Success