Airbnb: How rent payment struggles can give you an idea for a billion-dollar company
The story of how Airbnb started is a great example of “how startups learn by experimenting”. As the founders stumbled upon the idea of Airbnb because of financial problems that they were facing.
The idea of Airbnb
In 2007, two of Airbnb’s founders Brian Chesky and Joe Gebbia moved to San Francisco. They had no jobs, so they had some struggles in paying their rent. They were looking to make some extra money when they noticed that all the hotels were fully booked as a consequence of a conference that was organized nearby. They saw an opportunity to make some extra money. They pulled out some airbeds and placed them in their rooms. The idea was to offer people a sleeping place and give them breakfast in the morning, in return for some money. They quickly created a website (which was just a WordPress blog) and named it Airbed and breakfast. They ran some ads, which resulted in 3 customers. They made 80 dollars per person per night, and also friends for the rest of their lives.
Even though the intention was to make some money, they had unintentionally ran their first successful startup experiment. They learned that big events caused a high demand for sleeping places and that they had an idea to solve it.
The start of Airbnb
They reached out to Nathan Blecharczyk (the 3rd founder) and told him to move to San Francisco to help them build a company. Together, they created a website where people could put up available places and their phone number. Users were able to search for sleeping places on the website, and contact their owners via phone. The website was more like a directory than the all-in-one platform it is today. It was initially for participants of events only. They thought that a level of trust was needed before someone let strangers into their house. They believed that the fact that someone had a specific reason to come to the city (due to an event) would create that trust.
After the website was built, they ran a second experiment. This time at an event in Texas. As the event took place, only two people used the site and one of them was Brian Chesky himself (one of the founders). Nevertheless, they had valuable learnings, as brian found out that paying upfront would be handy. He forgot to get the money for his hostess for two days in a row, as a result, the service quality fell off. Paying upfront would get that all out of the way, a lesson that Airbnb still values today.
The founders improved the website, particularly the user experience. They added paying upfront and made it so that people could book a room within three clicks, just like a hotel room. They relaunched the website in October 2008, two weeks before a big conference for Obama’s election. The conference once again attracted more people than Hotels could facilitate. This time, Airbed and breakfast took it big. The website had over 800 rooms to offer within 2 weeks. Eventually, there were 600 people that had used the platform during this conference, Airbnb’s first real success.
A funny side note is that Airbnb funded itself by selling election-themed cereal during the elections. With products like Obama O’s and Cap’n McCains they eventually made 30.000 dollars.
Although the cereal did well, they needed more money. So they sought an investor but it was hard. No one saw a future in their product, and the financial crisis wasn’t making it easier. They were just about to give up when an accelerator (Y Combinator) was willing to invest 20.000 dollars into Airbnb. The owner believed in their entrepreneurial spirit. The accelerator trained the founders for 3 months, taught them some startup principles such as talking to customers. They went to New York (their biggest market) to do customer interviews, they really bonded personally with the users of Airbnb. The bond ensured that the users were willing to make Airbnb a success. During their talks, they learned that most of the properties had bad quality pictures. So, they rented a camera and shot the pictures themselves. They placed them online, together with some other changes. And it worked, the platform started to get more users. As the property owners started to make real money, people began to offer more types of accommodations. Finally, Airbnb was growing, and eventually, their business model was validated.
The key lesson from Airbnb is that no matter how many bump roads you will face, by continuously experimenting and improving, the best possible business model will be found. Airbnb eventually found the business model that is groundbreaking in offering people sleeping places and Spotify changed the entire music industry (as you can read in our previous blog). When looking back at these processes, it is safe to say that continuously building, measuring and learning is required for a startup to succeed. At GroundControl we believe in this approach. Our software system is built to make startups work like this and to make sure that innovation has the highest chance of succeeding.