AirBNB Case History How 3 guys turned renting air mattresses in their apartment into a $31 billion company, Airbnb Rebec

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AirBNB Case History
How 3 guys turned renting air mattresses in their
apartment into a $31 billion company, Airbnb
Rebecca Aydin
Updated
Airbnb co-founders Brian Chesky (right), Nathan
Blecharczyk (center), and Joe Gebbia (left). Airbnb
Airbnb announced it plans to go public in 2020 on
Thursday.
Long before Airbnb persuaded strangers to sleep in one
another's homes and became a $31 billion company, it was just
an idea to earn a bit of extra money to make rent.
After their first guests, Airbnb's founders realized they were
on to something bigger than a stopgap for rent. They faced
rejection plenty of times — and created their own version of Obama
O's cereal — but the three founders of Airbnb have built a big
business in the past nine years.
Here's how they turned their idea to rent out an air mattress
into a business that has the hotel industry running scared.
This post has been updated from an earlier version written
by Biz Carson.
The year was 2007, and roommates Joe Gebbia and Brian
Chesky couldn't afford their San Francisco rent.
San Francisco. Robert Galbraith/Reuters
The pair knew a big design conference was coming to San
Francisco, and it was making hotels hard to come by.
And so it all started with an email: Gebbia wrote Chesky
with an idea: What if they made turned their loft into a designer's
bed and breakfast, complete with a sleeping mat and breakfast? It
was a way to "make a few bucks." 12 years later, that idea is worth
$31 billion.
The duo, who had met at college at the Rhode Island
School of Design, thought acting as tour guides to designers would
be a fun way to make money.
They created a simple site, airbedandbreakfast.com,
bought three air mattresses, and arranged them in their
loft.
Their first guests, two men and one woman, showed up.
Each guest paid $80 to stay on the air mattress. One guest, Amol,
was another designer who actually helped Joe and Brian on their
presentations. "Being one of the first Airbnb guests feels like
being on The Tonight Show, but I didn't know I was on The Tonight
Show," Amol said in 2012.
Gebbia and Chesky soon realized how big their idea could
be. They got together with their old roommate, Nathan Blecharczyk,
to build it into a business.
They actually worked on a roommate-matching service for
four months until they realized Roommates.com was already a thing.
Then they went back to working on Air Bed and
Breakfast.
The company launched a second time and no one noticed.
The third time was at SXSW in 2008, but they only had two
customers, and Chesky was one of them.
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.
Chesky, co-founder and CEO of AirBnb, attends the Reuters Global
Technology Summit in San Francisco Stephen Lam/Reuters
See the seven rejections here.
Broke and in debt, they decided to launch Air Bed &
Breakfast (again) at the 2008 Democratic National Convention in
Denver. As they had learned from their first time hosting, a hotel
room shortage meant people would be looking for other
options.
Since the site wasn't making money, the guys transformed
cereal boxes into Obama O's and Cap'n McCains and sold them on the
streets for $40 bucks a pop. Each one came with a limited-edition
number and information about the company. Their bootstrapped
marketing strategy netted them $30,000 to put toward the
company.
Airbnb
The one VC who did take notice was Paul Graham. Graham
invited the guys to join Y Combinator, a prestigious startup
accelerator that doles out cash and training in exchange for a
small slice of the company. The company spent the first three
months of 2009 at the accelerator, working on perfecting their
product.
Even during Y Combinator, they still got rejected
famously by investors. Fred Wilson of Union Square Ventures
admitted in 2011 that he had failed to look past the Air Bed and
Breakfast name and see the business.
"We couldn't wrap our heads around air mattresses on the living
room floors as the next hotel room and did not chase the deal.
Others saw the amazing team that we saw, funded them, and the rest
is history," Wilson wrote.
The company continued its scrappy business-building
techniques. Channeling their design backgrounds, the founders
launched an ambitious project to get its hosts to love the company.
They visited all of their hosts in New York to personally stay with
them, write reviews, and professionally photograph their
places.
In March 2009, the company finally scrapped the Air Bed
& Breakfast name and simplified it to "Airbnb." No more
confusing associations with air mattresses.
A month later in April 2009, Airbnb finally picked up a
$600,000 seed investment from Sequoia Capital. Chesky describes it
as going from only eating leftover cereal to
"ramen-profitable."
That's when the company hit the accelerator on growth
and learned a bunch about their business. Chesky famously lived
exclusively in Airbnbs for a few months in 2010 when their
employees crowded out the bedroom space left in their
apartment.
By 2011, four years after the first air mattress guests,
Airbnb was already in 89 countries and had hit 1 million nights
booked on the platform. It also finally won the break-out mobile
app award at SXSW — a definitive success after its lukewarm launch
at the festival in 2008.
That 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.
Soon after, the fast-growing startup hit a snag. One
host had their place completely trashed. Other hosts started
complaining about guests throwing ragers or leaving their place in
disgusting shape the following morning. The company started
implementing a coverage policy, upping it to a $1 million "Host
Guarantee" by summer 2012.
The company also had a growing problem of people getting
fined or evicted from renting their place out on Airbnb. Cities
soon had a growing problem with Airbnb rentals, and the company's
regulation headaches began.
With legal battles (and unruly guests) plaguing the
home-sharing platform, Airbnb decided to do a redesign in 2014. The
new logo, called the Bélo, was immediately criticized for looking
more like genitalia than a symbol of belonging.
Despite its focus on belonging, cities started to reject
Airbnb rentals. New York threatened to ban Airbnb and short-term
rentals in 2014 and fine every host. Many city laws made it illegal
to rent out your unit without being present for less than 30
days.
Even Airbnb's hometown in San Francisco wasn't happy.
The company spent more than $8 million in the fall of 2015 to
combat a citizen-led ballot initiative meant to limit the Airbnb
rentals.
In spite of the regulatory headaches, the company tried
to act on its "belong anywhere" promise. It started collecting
hotel taxes and remitting them to some cities. It's also pledged to
give cities some of its data as part of a "community
compact."
In July 2016, Sen. Elizabeth Warren urged the Federal
Trade Commission to look into how websites for short-term rentals,
like Airbnb, were exacerbating housing shortages.
Democratic presidential candidate Sen. Elizabeth Warren,
D-Mass., speaks during the 2019 California Democratic Party State
Organizing Convention in San Francisco, Saturday, June 1,
2019. Associated
Since 2016, Airbnb has been expanding its services
through a series of high-end launches and acquisitions adjacent to
its main service.
Here's the running list of Airbnb's strategic launches and
acquisitions since 2016:
In September 2019, Airbnb announced its plan to go
public in 2020.
Airbnb on Thursday announced it plans to go public in
2020. The startup did not specify a timeline beyond "during
2020." Airbnb has not clarified whether it has confidentially filed
its S-1 IPO paperwork, which would include basic financial
information for potential investors to consider. An Airbnb
spokesperson declined to comment when asked whether the paperwork
has been filed.
Axel Springer, Insider Inc.'s parent company, is an investor
in Airbnb.
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