How did Airbnb become a multi-billion dollar company?
The protagonists of this story are Brian Chesky, Joe Gebbia, and Nathan Blecharczyk, three young Americans who decided to join efforts and talents to build one of the most important technology companies of our time.
Brian Chesky was born in Niskayuna, New York, and attended the Rhode Island School of Design, where he received his Bachelor of Fine Arts in Industrial Design. It was there that he met Joe Gebbia, who is originally from Atlanta, Georgia, and graduated with a Bachelor’s Degree in Graphic Design and Industrial Design.
After graduating, the two young men went their separate ways, with Gebbia getting a job in San Francisco at an American publisher called “Chronicle Books ,” while Chesky moved to Los Angeles to work as an industrial designer and strategist at a product development consultancy called “3DID”.
In 2007, Gebbia managed to convince Chesky to move with him to San Francisco and start something together. There they shared a flat with another young man named Nathan Blecharczyk, who had a degree in Computer Science from Harvard University and was dedicated to software development.
At the end of that year, they received notification that the rental value of the apartment they shared would rise by 25%. Nathan considered that the new price was too high, so he looked for another much cheaper apartment, leaving his roommates in a huge mess.
Brian and Joe, worried that they were barely making ends meet with their current cost of rent, began looking for ways to earn extra money.
Brian Chesky, Joe Gebbia, and Nathan Blecharczyk, the founders of Airbnb
An idea that was born from a personal need: “Air Bed and Breakfast”
After several days of thinking, they found out that a convention of the Society of Industrial Designers of America would soon be held in the city, which would be attended by a large number of people from all over the country, so the hotels would not be able to cope and they They would fill up quickly. Gebbia came up with the idea of buying some inflatable mattresses and offering lodging plus Internet and breakfast in her small apartment, taking advantage of the room that Nathan had vacated. He pitched the idea to Chesky and they immediately launched the initiative.
They nailed down some details, bought three air mattresses, and created a simple website under the name of “Air Bed and Breakfast”; a name that summed up his idea of providing an air bed and breakfast to foreigners.
His first three customers (two men and one woman) each paid $80 to stay one night and receive their breakfast. During the time the convention lasted, they earned close to $1,000, enough to pay their rent, plus they got to meet people from different states and make new friends.
Motivated by the results obtained, they thought that perhaps their idea could become a great business, allowing many people like them to earn extra money by sharing their homes with visitors who were looking for low-cost lodging; however, they would need help to achieve it. They sought out Nathan to tell him about the idea and try to get him on the team. Nathan accepted and together they began to work to make it as easy to rent a house as it is to rent a hotel.
“When we started Airbnb, everyone tried to talk us out of it. They told us it was the worst idea we could have come up with. I think the general feeling was that no one would trust bringing a stranger into their home.” –Nathan said in an interview for GQ Magazine .
With Nathan on the team, they began to develop a much more complete, intuitive, and functional website. Based on their initial experience, they defined a three-step process to help visitors find accommodation: find your event, search for an available room, and connect with your host.
The business model was simple: the owners or hosts published an ad offering their available rooms; people who had to attend an event would have the possibility of finding cheap accommodation with breakfast close to their destination; and the web would charge a commission for each reservation that was made. In addition, as a differential element concerning traditional lodging, they gave a community approach to the service, setting themselves the objectives of making strangers become friends and helping people feel at home anywhere. This approach would become one of the fundamental pillars of the company’s value proposition.
On March 3, 2008, they relaunched the site to take advantage of the South by Southwest (SXSW) convention that would take place a few days later. Unfortunately, they only got 2 reservations during the event.
They tried to get financing to be able to invest in the project, but they were unsuccessful. They went to 15 investors, of whom 8 turned them down and the remaining 7 ignored them completely.
Without sufficient income and with a platform in which few saw potential, Air Bed and Breakfast seemed to be doomed to failure, but the 3 young people were not willing to give up so soon.
As the Democratic Party convention to elect its presidential candidate would be held in Denver in the summer of 2008 and many people would attend the event, they thought it was the ideal time to make a new relaunch. They began to promote the platform as “an innovative and affordable accommodation service for those looking for an alternative to the already saturated hotel market”. The relaunch strategy was a success, allowing them to receive 80 bookings in a few days and getting the startup featured in the national news.
After the event, the reservations on the platform fell and the financial problems returned. Despite the notoriety they gained thanks to the media, Air Bed and Breakfast was no more than an interesting story on the news.
Using creativity to survive
Amid this crisis, it occurred to them to take advantage of the political context to earn some extra money for the company. They created cereal boxes with the faces of the two strongest candidates for the presidency of the United States of that year: Barack Obama, elected by the Democratic party; and John McCain, elected by the Republican party. The entrepreneurs prepared 500 cereal boxes with Obama’s caricature, in blue, and another 500 with McCain’s, in red. They hand-glued the designs to the 1,000 boxes themselves, then filled them with generic cereal packets from the supermarket. With this idea, they managed to earn 30,000 dollars, which they used to pay off their debts and invest in the development of the project.
“To be successful, you have to be a ‘cereal’ entrepreneur; that is, not only being an entrepreneur, but also being creative, a fighter and willing to take risks.” – Said Blecharczyk in the 4YFN of 2014.
This idea, in addition to demonstrating the creativity and persistence of the three entrepreneurs, attracted the attention of the media such as CNN, and important groups of investors, such as the startup accelerator Y Combinator, led by Paul Graham, which decided to support Air Bed and Breakfast with its initial financing program. Through this program, the boys received $20,000 in capital and three months of support to perfect the product.
With funding and support from Y Combinator, the startup began to grow; however, the results were still well below their expectations. His income was only about $200 per week, an insufficient amount for the platform to be profitable.
They didn’t know what was happening. Each time they managed to attract more traffic to the site and the platform worked correctly, but the number of reservations was too low. They decided then to “put themselves in the users’ shoes” and take a closer look at the booking process, focusing specifically on the ads published by hosts from New York, which was the city where most of their clients were. They realized that there was a common pattern in the 40 published ads: the low quality of the photographs. The photos were taken by the owners with their mobiles (which at that time did not have as good cameras as current mobiles), and they did not allow a detailed appreciation of the important areas of the lodgings, causing users to distrust the publications.
After identifying the problem, they rented a camera and traveled to New York to spend time with the hosts, chat with them and help them revamp their ad photos.
This process of getting closer to its users and customers and empathizing with them was decisive in the success of the company. Within a week of renewing the photos, bookings and revenue on the platform doubled.
“You have to be flexible and listen to your users. They will always be in events and places you cannot predict, and your success may come in unexpected ways. For example, at first, we never thought of offering professional photographers, until our users in New York told us so. We were able to implement it quickly, and it has been one of our most successful programs.” –Chesky explained in an interview.
Reinventing itself hand in hand with users
Thanks to this process of interaction with users, they also identified other elements that were preventing them from fully developing.
For one thing, the company name was very long and some people had trouble spelling it correctly. In addition, they felt that the name was not very attractive to investors; So, so in March 2009, they renamed the company “Airbnb”, a portmanteau of the previous name.
And, on the other hand, they realized that the musician Barry Manilow had rented an entire house while he was on tour. Until then, the platform required a host to be present to provide the guest with breakfast, which meant never offering a full house. This self-imposed limitation prevented them from exploring other hosting options. They made some adjustments to the business model and Airbnb stopped being a page to book rooms, to become a platform for booking different types of accommodation, such as apartments, houses, and vacation rentals.
Within a month of making these changes, they raised a $600,000 investment with Sequoia Capital, a Menlo Park, California-based venture capital firm.
Interestingly, it was around this time that successful entrepreneur and venture capitalist Fred Wilson, co-founder of Union Square Ventures, had the opportunity to invest in Airbnb, but turned down the startup because his business model was not very convincing. Years later, he confessed that he regretted passing up the opportunity and that he now has a box of the cereal that the Airbnb founders sold in their early days in his office as a reminder not to make the same mistake again. According to Fred himself, his mistake was to focus too much on what the startup was doing at the time, and not enough on what he could do.
Thanks to the investment from Sequoia Capital, Airbnb accelerated its expansion process, reaching hundreds of new cities in the following months.
By 2010, more than 1,300 reservations had already been made through the platform; and the number increased week after week without stopping.
Later, it was discovered that, during that year, the company had implemented various hacks and dubious practices to fuel the growth of its platform. One of the most well-known of these hacks was to create a bot that would visit Craigslist, a classifieds website with millions of users, to fill in the base information for a listing in the “properties” section, and then send an email. Airbnb users with a link to republish their ad on Craigslist, thus massively increasing traffic to properties listed on their platform. It was also found to send automated emails to property owners on Craigslist .inviting them to register on Airbnb, thus attracting large numbers of potential users.
In November 2010, Airbnb raised $7.2 million in investment funds, thus taking the final step towards its takeoff.
By 2011, the company already had a presence in 89 countries and managed to exceed the first million reservations. In addition, it received financing of $112 million from various investors, including actor Ashton Kutcher, thus reaching a valuation of $1 billion.
With a business model growing exponentially and a company with a multi-million dollar valuation, it seemed that success was finally assured; However, just at that moment, all kinds of problems began to arise…
Airbnb’s legal and security issues
In July 2011, a host filed a claim that his apartment was robbed by an Airbnb guest. The company was slow to rule on this fact and assured us that it would not be liable for the damage caused. This response caused great controversy in public opinion, so they had to retract and reconsider their security and user protection policies when they saw that, after the incident, many other hosts exposed similar problems.
As a solution to this problem, they established a policy called the “ Airbnb Host Guarantee”, which is a property protection program that covers up to $50,000 for loss or damage caused by vandalism or theft by guests. In addition, the company launched a 24-hour customer service, set up a department to review suspicious activities, and put in place a set of security measures.
In May 2012, Airbnb took out insurance at Lloyd’s of London and was thus able to extend the guarantee to $1 million in property damage, at no extra cost to the owners of the properties listed on the Web.
After solving this problem, other problems arose that put the company’s business model at risk. Airbnb‘s rapid growth began to worry the traditional hospitality and leasing industries, who filed unfair competition lawsuits arguing that the company evaded taxes and did not meet the requirements to be a tour operator, causing many hosts to be fined and prohibited from renting their properties. Also, complaints arose about the influence of Airbnb on the increase in the cost of housing. These situations led to the establishment of regulations in some cities that significantly affected the platform and its users.
Despite everything, the company has managed to deal with these legal situations, reaching important agreements with regulatory entities and town halls to continue operating without a problem. The partners are aware that their activity must be regulated, but they want to make sure that the law is not so restrictive that it causes collateral damage to the people for whom home sharing is important.
In July 2014, Airbnb revamped its image and introduced its new logo called Bélo, which was built by connecting the key elements of its value proposition. Although most users liked the new logo, there was also some controversy because some people saw sexual connotations in the symbol and because it was similar to the logo of the Automation Anywhere company.
By 2015, the company had already surpassed 30 million bookings since it began operations and reached a total valuation of $25 billion in its latest investment rounds, making its founder’s billionaires before their 35th birthday. age, with a personal fortune of more than $3.3 billion each according to Forbes Magazine.
In 2016, Airbnb Experiences was launched, a new section within the platform that allows travelers to access different types of activities proposed and guided by locals. The types of activities include gastronomic experiences, workshops, and tours to enjoy learning about the culture of the places that are visited.
By 2017, Airbnb received an investment of 447 million dollars and reached a valuation of 31 billion dollars, thus consolidating itself as one of the most important technology companies in the world.
In 2018, the company showed its interest in entering the long-stay market by buying the Urbandoor platform to integrate its accommodation offer with Airbnb.
During the following years, the company continued to grow at a steady pace, reaching new countries and expanding its accommodation offer considerably; however, this growth would be interrupted by a global crisis at the beginning of 2020.
Will Airbnb be able to survive the current global crisis?
The expansion of a virus of Chinese origin called SARS-CoV-2, also known as COVID-19 or Coronavirus, would make all nations take preventive measures against the spread of the virus that was being deadly in much of Europe and Asia.
With the need for preventive isolation and the closure of air and land borders, Airbnb was seriously affected, as millions of tourists around the world were suddenly forced to cancel their trips. The company’s value fell by about 16% and its revenues were down to historic levels.
Faced with this situation, the first thing the company did was make its cancellation policy more flexible so that users could easily modify their reservations without suffering penalties for it. Later, it announced that it would receive an investment of 1,000 million dollars from the funds Silver Lake and Sixth Street Partners; and introduced two new functionalities: long stays and online experiences. It is already possible to find hosting offers with a monthly charge on the platform, which will surely be a key element in the evolution of the company in the coming years; and you can also access experiences on the Internet that allow users to learn from all those cultures that have always interested them. Despite the difficulties, the company continues to innovate and reinvent itself as it has done since its inception.
Currently, Airbnb is positioned as a revolutionary company. Throughout its 12-year history, it has managed more than 750 million reservations. The platform has more than 7 million accommodations in 100,000 cities and offers more than 50,000 experiences around the world. Their business model has completely redefined the relationship between guests and hosts, building a strong community around elements such as trust, culture, and the pleasure of discovering new places. It was estimated that the company would go public in 2020, but, due to the situation that the entire world is experiencing, these plans will surely be delayed a bit.
Brian, Joe, and Nathan, for their part, are close to turning 40 and continue to hold management positions within the company. The 3 are part of the Forbes list of the 1,000 richest people in the world, with personal fortunes of more than 4 billion dollars; and they continue to work every day with the same passion as the day they first put their platform online.
Thus we conclude the inspiring story of Brian Chesky, Joe Gebbia, and Nathan Blecharczyk, three successful entrepreneurs who, with vision, innovation and determination, tirelessly fought to take a need of their own and turn it into a multi-billion dollar company that has revolutionized the global tourism industry. . In the words of Brian Chesky, the CEO of Airbnb :
“Starting a company is more art than science, because it is uncharted territory. Instead of wanting to solve all the problems in the world, try to solve the situation that is most personal to you. Ideally, if you are a normal person and resolve the situation that makes you uncomfortable, you will have found the answer for millions of people.”