Airbnb – the Story of USD 31 Billion Start-up

Posted on April 19, 2017

The story of 3 guys from renting airbeds to building a 31 billion dollar venture

AirBnB founders describe their company as an online community marketplace where people can list, discover and book accommodations from around the world. However, the company was not always as famous as it now, and the story of AirBnB can be described as the story of dedication, hard-work and is one of the most inspiring stories of the digital era. The founders had to sustain on breakfast cereal during the first few years, were thousands of dollars in debt and had to sell breakfast cereals to keep their company afloat.

Brian Chesky and Joe Gebbia shifted to New York in 2007, and found themselves unable to pay rent as they were unemployed at that time. One day, they realised that all the hotels in New York are booked because of the local Industrial Design Conference. Seeing this as an opportunity to make some extra cash, they bought a few airbeds, and quickly launched a website called “AirBedandBreakfast”, now known as AirBnB. The idea was simple – to provide visitors with a place to sleep in the night (airbed) and breakfast in the morning. This idea attracted 3 customers – 2 men and 1 woman, each paying 80 dollars, and thus started what AirBnB is today.

Soon, the team was joined by Nathan Blecharczyk, a Harvard graduate and technical architect. Even though AirBnB was generating revenue, yet the real issue was they had limited number of users, and the number was not increasing at the rate that they hoped it would. So, the team decided to re-design the website, and launched it before the Democratic National Convention of 2008. The revamped website helped them to book for 600 customers, however the success was short-lived, and they were losing money at a rapid pace. To raise money, they come up with an innovative idea – to sell limited edition election themed breakfast cereal boxes – Obama O’s and Cap’n McCain’s, which fortunately was a success, and helped them raise around USD 30000. The money was invested back in AirBnB, however, there was not much traction, and the founders had to live off on the breakfast cereal that they were not able to sell.

Their luck changed soon when they met Paul Graham, a Venture Capitalist and co-founder of Y Combinator seed capital firm. AirBnB was able to get into the 2009 winter class of Y Combinator, an accelerator. They were also able to get USD 20,000 from Y Combinator as their first funding. However, the main concern was that there was no growth in the number of users and the revenue was just USD 200 per week. The three founders decided to do market research, and found that users are shying away from renting because of bad quality pictures of listed properties. Thus, the founders hired a professional photographer, and went around New York to take high-quality pictures of all the listed properties. This event actually helped the company to grow, and they started making USD 400 in a week. At this point, the company had started to approach various investors, and were famously turned down by Fred Wilson, who still repents that he did not invest in AirBnB. However, the founders were not disappointed for a long time, as they were able to raise USD 600,000 from Sequoia Capital in April 2009. Since then, the company has been able to raise USD 4.4 Billion in 11 rounds from 41 investors, with the last funding valuing the company at USD 31 Billion. They have more than 2 million listings in over 190 countries, and are present in 34000 cities across the world.

So, what makes AirBnB so successful? It is just offering people place to sleep which hotels have been doing for past so many centuries. Yet, if you will look closely, the company is offering more than that, and thus have been able to disrupt the established lodging market. AirBnB is much cheaper than the hotels, is easier to book, and is a trusted place to stay. Through ingenuity and sheer hard-work, 3 people have created a brand which is easily identified and is successful in 190 countries in the world.

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