The chances are that when you first heard people renting a place in someone’s home over the internet with just an email, you thought it was an insane idea. Perhaps even a little creepy.
Getting your phone and calling an uber is one thing. It is another to go to a stranger’s home and stay in their bed. Or even worse, to give a stranger from the internet your house keys. However, Airbnb founders – Joe Gebbia, 33; and Brian Chesky, 33 – have managed to convince 10s of millions of people to do just that.
How Did Airbnb Start?
When you think of entrepreneurship, you think of someone who had this amazing light bulb moment while sitting down in a Chili’s, and upon having the idea come to them, they grab a napkin and quickly start to outline their business model.
Movies are cute, right? Well, most entrepreneurship doesn’t happen in such a cliche fashion. Sometimes, great ideas don’t come from a stroke of inspiration, but rather desperation.
In 2007, the Airbnb founders were unemployed and had recently rented an apartment in one of the world’s most expensive cities. They felt demoralized and were consistently late on their rent.
At that time, they were not looking to launch a billion-dollar business. Their only focus was figuring out a way to not lose their home.
While looking for ways to make money, Joe came up with an idea. They realized that if San Francisco was too expensive for them, then chances are it’s too expensive for others too, espicially tourists and travelers.
The “Aha” Moment…
He realized that there was an upcoming design conference in their city and knew that some people would be struggling to get reasonably priced accommodations. Both Joe and Brian had extra space in their home and thought they could potentially get people to stay at their place for a small fee.
They knew they would encounter some barriers to convincing people to stay in their homes. So, they addressed this problem by creating a great web page showcasing their homes and its amenities.
The website wasn’t intricate or fancy. Nothing like the clean layout we see today. No location selection, calendars, or schedule. The web page was built to do only one thing: build trust to convince people to stay at the home of a stranger.
Guests were offered an air mattress in their living room, free breakfast, free WIFI, and a promise of networking with friendly people. All this for a much lower price than a hotel in San Francisco.
The idea was a success! Not only did it help them pay their rent, but it did something even more powerful. It validated their idea that there were people out there willing to pay money to stay in a stranger’s house.
The Genesis of Airbed and Breakfast
Even though they didn’t plan on becoming entrepreneurs, they ended up growing what would later be known as Airbed and Breakfast. By 2014, around 7 years later, Airbed and Breakfast had surpassed major hotel chains as the preferred one-night booking app. By spring of that year, Airbnb had about 10 million guests and over 550,000 listings worldwide. They also had a $10B valuation, which made the company worth more than competitors like Hyatt and Wyndham.
I already know what your thinking, “But what led to the growth of Airbnb? Joe and Brian didn’t just go from a few air mattresses and Wifi to becoming a famous anecdote for startup growth hacking.” Your right. Let’s backtrack.
How Airbed & Breakfast Transformed To Airbnb
After the first event went successfully, they started receiving emails from around the world. People wanted their services to be available in other destinations. So, they reached out to their former roommate, Nathan Blecharczyk, to help create the technology that would be needed to grow their business.
It appeared that many travelers across the world were totally fine staying with a stranger. We can check off step 1. Now onto step 2. Were there people around the world willing to let random people stay in their homes?
To test this, Airbnb looked for a major event where a lot of people would need reasonably priced short term housing. Luckily, around that time in 2008, the Democratic National Convention was being held and they saw a perfect opportunity to test their idea.
About 80,000 people were expected to be there. But there weren’t enough hotel rooms around to meet the demand. Airbnb saw a perfect opportunity to test their platform, considering that attendees might get desperate. Two weeks before the convention, they updated their site to include a map of all the potential places attendees could get rooms.
This was costly for the team to do. To raise money for this new addition of their website, they came up with an idea to design election-themed cereal boxes. They sold over 500 boxes during the convention at a price of over $40 a box and netted over $30,000!
Unfortunately, that was the only success they saw. They didn’t get nearly as much traffic to their website as they had hoped, and it demoralized the entire team. Growth stagnated and the founders kept selling what had remained of their election-themed cereal boxes. Then, a miracle happened. The team happened to get the attention of Paul Graham, Founder of Y Combinator, a startup accelerator based out of Mountainview, CA. In 2009, they had an opportunity to join a winter class with Y contributor, and the team received $20,000 in funding. The team changed their name from Airbed & Breakfast to Airbnb and received another $ 600,000 from Y Ventures and Sequoia Capital.
How Airbnb Stole Customers From Craigslist
When Joe and Brian first had the idea to list their apartments for rent for the upcoming design conference, they both agreed that they shouldn’t do it on Craigslist. Both founders didn’t want to be associated with the impersonal and scam filled platform. However, as they were growing Airbnb they noticed Craigslist had something they didn’t: users.
Craigslist was full of people who were looking to rent out their house. The issue was that Craigslist had no trust. No one wanted to stay at a house that was listed on Craigslist.
So, Airbnb reached out to the listers of the properties on Craigslist and offered the homeowners a chance to list their homes on Airbnb.
The founders developed a bot to visit Craigslist, create a unique URL, add the listing information, and send it to a user for publishing on Airbnb. It wasn’t perfect and there were some bugs, but the process was seamless enough where many users of Craigslist also listed their properties on Airbnb as well.
How The Integration With Craigslist Led To The Rapid Growth of Airbnb
Because Brian and Joe come from design backgrounds, Airbnb listings were superior to Craigslist in every way. They had better descriptions, better photos, and made the experience much more personal. They also took a smaller fee for listings than Craigslist, incentivizing the listers to only put their listings on Airbnb’s platform.
By integrating Airbnb with Craigslist and stealing Craigslist visitors, Airbnb grew enough to get traction in the rental sector. Once they saw their growth start to pick up, Airbnb doubled down on providing great customer value. They went as far as offering free photography services to bring legitimate pictures to every NYC listing and even optimized their listings so they could be found much easier than listings on Craigslist. This act of bringing in photographers is said to be their tipping point as the graph below shows.
To top it all off, Airbnb launched a referral program and offered travel and host credits every time someone referred somebody to the platform.
The story of Airbnb is taught in business schools all across the country. Their idea was great, but what’s really impressive is the various strategies they implemented along the way to help them grow. Here are the most important:
- Validate before you launch: Many entrepreneurs now in days will have an idea and just build it. They may have a course, product, or service that they want to launch and instead of testing demand for it, they will just launch it. Airbnb validated their idea first, and then once they saw demand for their product, went on to launch the platform.
- Understand supply and demand: Airbnb understood what factors they had to overcome to achieve growth. They had to make sure there was a strong enough demand of people wanting to stay in strangers’ homes, and there was a strong enough supply of strangers willing to let people stay in their homes. If just one part of this equation isn’t there then the company fails. Check out our piece on Porter’s 5 forces to learn more about analyzing competitiveness in an industry.
- Building a balanced team: The team was originally made up of two designers, Joe and Brian. When they looked to hire more people, they didn’t just pick a friend. They picked a friend who complements their skill set. Nathan Blecharczyk was a great addition because he added a strong technical foundation to a not so strong technical team.
- Establishing trust with users: Peter Drucker is often quoted as saying, “You can’t manage what you can’t measure.” Although there is truth to this, it doesn’t mean you shouldn’t focus on things that you can’t measure. There is no way to measure how many more users Airbnb got because their website was designed better than Craigslist, but it surely was a factor in establishing trust with its users.
- Give more than you ask: Finally, and possibly most importantly, give more than you ask. Airbnb did everything they could for users in its early days. They helped them optimize their listings, gave them free photos, gave them ways to get travel credits, provided a seamless way to transition from Craigslist to Airbnb, and much more. By focusing on the customer instead of revenue generation they were able to rapidly increase their user base and escape their competition.