In 2007 Brian Chesky and Joe Gebbia were roommates in San Francisco, and they had a problem…they couldn’t afford their rent.
The roommates had met in college at the Rhode Island School of Design, so naturally they knew about the design conference taking place in San Francisco later that month.
Hotels were booked up and attendees who hadn’t booked early were struggling to find rooms.
Joe had a crazy idea. He sent the following email to Brian on September 22, 2007:
Brian, I thought of a way to make a few bucks – turning our place into “designers bed and breakfast” – offering young designers who come into town a place to crash during the four day event, complete with wireless Internet, a small desk space, sleeping mat, and breakfast each morning. Ha! Joe.
Joe was joking but Brian took it seriously, so they devised a plan and executed on it fast.
A few days later they published a website-AirBedAndBreakfast.com
Within 24 hours all three air mattresses were “booked” through their website for $80 per night. They made an extra $960 during the four day conference.
Encouraged by the result, they reached out to business savvy friend Nathan Blecharczyk to help them turn their idea into a real business.
By the summer of 2008 the trio had finished the design for a new website. They officially launched it on August 11 and started pitching it to investors, touting their new business model as “taking only three clicks to book a stay.”
After presenting the concept to 15 investors, eight said no and the other seven ignored them completely.
Then in 2009 venture capitalist Paul Graham took notice of their “crazy idea.” He invited them to join Y Combinator, a “startup accelerator” that provides money and expertise to nascent entrepreneurs in exchange for a small slice of their company. That was the springboard they needed.
Over the next few months Joe and Brian reached out and identified others who wanted to make extra money renting a spare bedroom, offering to post their condos and homes on the new website.
They also did three things that catapulted their business:
Started soliciting and posting reviews from guests who stayed in these properties.
Traveled to New York to personally stay at each one of their host’s properties to get the experience first hand.
Shortened the name of their website to Airbnb.com.
A month later they landed a $600,000 seed capital investment and the company’s growth exploded.
By 2011 Airbnb was operating in 89 countries and boasted 1 million nights booked. That same year, some of Silicon Valley’s largest venture capitalists injected an additional $112 million into the company, giving it a valuation of over $1 billion, making it a rare “unicorn startup.”
But as with many fledgling companies, big and small, there are growing pains. Some hosts complained that their guests were throwing all night ragers, upsetting neighbors, and trashing the homes. This caused the company to offer a million dollar “host guarantee” insurance policy in 2012.
Another problem surfaced when lease tenants who didn’t own properties rented them out by the night, essentially subletting in violation of their lease agreement with the owner. The tenants started getting fined (or even evicted) for renting out properties they didn’t own without permission from their landlord.
Then as Airbnb’s business grew, hosts who did own their properties started getting fined by cities (and HOAs) with ordinances and/or covenants that restricted short term rentals, typically requiring a rental period of 30 days or more.
And, of course, hotels lobbied against the Airbnb business model, seeing the threat (and lost revenue) of this fast growing lodging alternative for travelers. In response, Airbnb started collecting “hotel taxes” to remit back to cities.
Fast forward to 2020. Airbnb had been planning to go public, but then the pandemic hit in March. What did they do? They forged ahead and went public in December in spite of COVID.
Fortune ran an article, saying, “Airbnb sold 50 million shares on Wednesday at a reported price of $68 each, valuing the company at $47 billion.” As I write this article the company’s stock price is $165, giving it a $104 billion valuation.
Three blow up mattresses. Two guys strapped for rent. One joking email.
The lesson learned?
“Your big idea may look crazy to others…until you prove them wrong.”