Would you let a stranger stay in your house for a few days if I told you? No, I wouldn't. Likewise, most of us would be hesitant to spend even a few days in the home of a stranger. This is a virtue that has been embedded in us throughout childhood. However, the two founders, Brian Chesky and Joe Gebbia were able to build a startup generating $4.81 Bn with a customer base of approximately 150 million out of this business model. Let's crack the code!
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The Great Recession of 2008 affected not only the United States, but countries all across the world. It cost the world economy more than $2 trillion. This downturn lasted for 18 months. Many people lost their jobs, many businesses went bankrupt, and many financial markets saw substantial volatility. Getting three meals a day was difficult for many individuals at this time, let alone establishing a business and taking a risk. In reality, the founders themselves were in need of some instant money, which ignited the notion of establishing a venture that would someday have more rooms than all of the leading hotel chains combined.
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| (credit: https://fortune.com/2022/05/28/recession-predictions-not-great-financial-crisis-experts-say/) |
As every business requires capital to take the business to the next level and expand it, the two young men too, set out looking for funding from investors. But unfortunately, they fell flat on their faces. Investors refused to fund the business, claiming the founders were insane for thinking that such a business model would ever work. They soon realized that this task was not going to be a walk in the park.
Returning to the Democratic National Convention speech discussed earlier, while Airbnb had some success, it was inadequate. Brain Chesky was $20k in debt and decided to serve breakfast to conference attendees as a last desperate attempt to salvage the firm. But this wasn't just any typical breakfast. They decided to sell political-themed cereal boxes with the names Obama O's and Captain McCain's. Surprisingly, this concept was a resounding hit, resulting in the sale of 1000 boxes in less than 24hrs, yielding more than $30,000.
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| (credit: https://medium.com/@keagan.stokoe/selling-cereal-to-fund-airbnb-fdaf91cc1cf1) |
Soon after, they drew the attention of Y Combinator co-founder Paul Graham, who believed in the company's future, not because of its business plan, but because of the grit he saw in the two passionate founders. The fact that they were able to sell cereals for $40 per box gave confidence to the investor.
Despite the fact that Airbnb was not the first of its sort, it stood apart. The essential component was the customer connections. They discovered that describing the host of the house to the visitors made them feel considerably more at ease than simply knowing about the place. The addition of social reputation through reviews accelerated the trust process.
Market research is also a key factor in the organization's growth. After doing extensive market research, staying in Airbnb apartments for months, and holding several meetings with clients, they discovered two major issues that the hosts were experiencing. Hosts were unable to click and share high-quality photos of the houses, and they had no idea how to write a description of the house that would entice customers. As a result, the firm established a free photographic service and educated the hosts on how to create profitable descriptions, sometimes even writing the property descriptions themselves.
This is how Joe and Brian saw the opportunity in the 2008 subprime mortgage crisis and established a $38 billion corporation.
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