From a mail to a company - Airbnb
The story of two roommates who couldn't pay their rent.
Introduction
This is the story of two roommates, Brian Chesky and Joe Gebbia, who met at the college in Rhode Island School of Design, who could not pay their rent, created the First Airbed and Breakfast and invited three people who have never stayed in their house for a fee. The year was 2007. Each guest paid 80 Pounds to stay the night. The small money made from the guests changed the minds of the hosts and led to what we know today as Airbnb.
The Story
On September 22, 2007, Joe sent a mail to Brian titled “subletter” sharing a thought about turning their place into a “designer’s bed and breakfast”. The brain behind it was simple – offer young designers, who come into town, a place to stay. This was revealed by Joe in his TED talk in 2016.
However, the following series of events had the boys begging for help. They were rejected by serial investors as they could not understand how a bed and breakfast business was going to compete with hotels. Business Insider revealed that by summer 2008, the founders had finished a final version of Air Bed and Breakfast and went to meet investors. The whole experience had been redesigned around taking only three clicks to book a stay; otherwise, it was too hard. Investors weren't convinced. Introductions to 15 angel investors left them with eight rejections, and seven people ignoring them entirely. In a desperate attempt to keep the company afloat, Brian & Joe come up with the idea for Obama O’s and Cap’n McCain’s and sell $30K worth of cereal.
Paul Graham took an interest in the founders and business model and was invited to Y Combinator ( An accelerator program for startups). After much rejection, they were accepted into the program. Y combinator first invested $20K for a 6 percent stake. A month later in April 2009, Airbnb finally picked up a $600,000 seed investment from Sequoia Capital. With the cash, they launched their iPhone app and instant book feature, generating 160,000 cumulative guests in 2010. By the end of 2011, they had crossed over 1 million cumulative guests. The same year, some of the valley's biggest VCs put $112 million into the startup, valuing it at over $1 billion. That makes Airbnb a "unicorn" in Silicon Valley. A decade after, they had grown to more than 300 million cumulative guests around the world. Business Insider
The growth was not without legal battles, unruly guests, regulatory troubles, and city laws making it illegal to rent out units for more than 30 days without being present. Despite these challenges, Airbnb launched Airbnb Experiences in 2016, Airbnb Plus, Niido, and acquired Hotel Tonight. Press Airbnb
In September 2019, Joe announced Airbnb plans to go public in 2020. This generated a lot of noise in the media. As with WeWork, Airbnb made a loss in 2019. The report said Airbnb lost $322 million, compared to a $200 million profit during the same period a year prior, and that costs climbed faster than revenue in its third quarter. The pandemic also compounded the woes as its bookings dropped by 70% and cut in half its valuation. Forbes reported that the company was buoyed by its $1 billion lifeline from private equity firm Silver Lake back in April. It also wisely cut nearly $1 billion in marketing costs and slashed executive salaries by half.
Q4 2021 has been the best for the team as they recorded $1.5 billion and $55 million in revenue and net income. Guests are returning to the cities, planning more travel, and living on Airbnb. Airbnb.com
What went right and the lessons
1. Resilient and forward-thinking management: “Chesky and his executives understood customers would be reluctant to make new reservations given the uncertainty of travel restrictions and potential pandemic surges. So, they decided to institute a blanket refund policy offering last-minute cancellations and full refunds.” This report by Forbes clearly shows how the management thinks.
2. A shared cost and profit business: The business was built in a way that everyone benefits. Also, they were wise to use people’s accommodation instead of undergoing the costs to build the accommodation.
3. The change in name: The Change in the name from “ Air bed and Breakfast” to “Airbnb” switched investors’ and customers’ mindsets and opened the business to many possibilities.
4. Strategic acquisitions and launch: Airbnb has acquired 15 companies and the largest was the acquisition of Hotel Tonight for $400m. The partnerships and acquisitions, though with their regrets, have benefited the business more.
Airbnb is registered under the ticker NASDAQ: ABNB. Its stock opened at $68.00 in its Dec 10, 2020, IPO and currently trades at $216 per share at the time of writing this story. The stock is up a solid 3x since its IPO.
Have you ever used an Airbnb? How was the experience? What do you think of the business?
The solution Airbnb offers today started because of its founders’ pain points.
Cheers to a profitable lifestyle,
TL.