Entrepreneurs

How the co-founder of Airbnb went from $25,000 in credit card debt to running his $30 billion company

Co-founder and CEO of Airbnb Brian Chesky speaks during an interview in Langa township, Cape Town, South Africa March 17, 2017.
Mike Hutchings | Reuters
Co-founder and CEO of Airbnb Brian Chesky speaks during an interview in Langa township, Cape Town, South Africa March 17, 2017.

A decade ago, in 2007, then roommates Brian Chesky and Joe Gebbia rented air beds to three guests in their apartment on Rausch Street in San Francisco, because a local design conference had booked up all the rooms in local hotels. The cash the roommates made went toward rent.

Now, in 2017, the accommodations-rental platform they went on to found with Nate Blecharczyk, has raised almost $3.5 billion from investors at a $30 billion valuation. There are currently 3 million Airbnb rentals across the world in 65,000 cities and 191 countries.

But Airbnb almost wasn't. It took some quick thinking and stunts to build the company users know and love today.

Saved by Obama

Before Airbnb, there was Airbedandbreakfast.com, which Chesky and Gebbia used to book those first guests in 2007. But hardly anyone else was using the site, says Chesky, in conversation with LinkedIn co-founder Reid Hoffman, on his podcast, "Masters of Scale."

By the fall of 2008, after a year and half of work "maybe 50 people" a day were visiting the site resulting in about 10 to 20 bookings a day.

"So for anyone who's worried their company doesn't have enough traction, that was our traction," says Chesky.

The co-founders had also gone into major credit card debt for the business — Chesky owed about $25,000 and Gebbia was in for tens of thousands, too. "You know those binders that you put baseball cards in? We put credit cards in them," says Chesky.

The "bed" part of their "bed and breakfast" model wasn't selling. So, desperate for cash, Chesky and Gebbia decided to distinguish themselves based on the "breakfast" portion of their business plan.

At the time, Presidential candidates Barack Obama and John McCain were squaring off in Denver at the Democratic National Convention. Chesky went to try spread the message about Airbnb.

"We thought, 'What would a Barack Obama themed breakfast cereal be called? Obama O's like Cheerios, The breakfast of change.' To be nonpartisan, they also came up with "Cap'n McCain's, like Cap'n Crunch: 'A maverick in every bite.'

"We ended up making a thousand boxes of collectible breakfast cereal" by hand, says Chesky. "I literally had to hot glue a 1,000 boxes of cereal."

The cereal sold though — for $40 a box. The co-founders made tens of thousands of dollars with the hail Mary stunt. The money "got them through a cash crunch," says Hoffman on the podcast.

Subversive market research

The breakfast incident helped turn the tide. Not long after, the Airbnb founding team was admitted to the start-up accelerator Y Combinator in Silicon Valley.

Y Combinator co-founder and start-up savant Paul Graham gave the co-founders simple and what would turn out to be profound advice: "He said, 'Go to your users. Get to know them. Get your customers one by one,'" says Chesky.

"And I said, 'But that won't scale,'" recalls Chesky. "'If we're huge and we have millions of customers we can't meet every customer.' And he said, 'That's exactly why you should do it now because this is the only time you'll ever be small enough that you can meet all your customers, get to know them, and make something directly for them.'"

For the duration of the accelerator, Chesky would commute between Mountain View, Calif., and New York City, where most of the site's users were located. In New York, the co-founders would pretend they were professional photographers as a way to meet their customers.

"I remember we met with a couple hosts. It's winter. It's snowing outside and we're in snow boots. We walk up to the apartment and we went there to photograph the home. And we're like, 'I'll upload your photos to the website. Do you have any other feedback?' He comes back with a book, it's a binder and he's got dozens of pages of notes," says Chesky on "Masters of Scale."

That early adopter's notebook of feedback ended up being the inspiration for the company's product road map for what would become Airbnb.

Unicorn status

As Airbnb grew in popularity, it launched internationally and built an iPhone app (Nov. 2010).

"We had a saying that you would do everything by hand until it was painful. So Joe and I would photograph homes until it was painful, then we get other photographers," says Chesky. "Then we'd manage them with spreadsheets until it was painful. Then we got an intern."

In 2011, Airbnb raised funding valuing the company at $1 billion, says Chesky.

But things had started to go wrong, too. The apartment of a host was trashed, and Chesky had to make a very public mea culpa. "[W]e have really screwed things up," the CEO wrote in a blog post at the time. He alluded to other maladies experienced by hosts, too.

The co-founders had to build in 24/7 customer support, a logistics and compliance team and local teams to manage the issues unique to each city.

"We are just this little company in our apartment, but as far as the world's concerned, we have a giant office building and we better be grownups," says Chesky. Airbnb had 50 and then 100 employees, but no professional leadership.

"There's no management, there's no company meetings, and there's no communication so no one knows anything, literally nothing. I don't even know how we ran the company. So I instituted some basic things like I have to have an executive team," he says.

"It's like a video game. You slay a dragon. You think you've completed the board game, and then you have the next level and all of a sudden the dragons get really big."

VCs throw money at Airbnb

From the $20,000 seed funding Airbnb received from Y Combinator in January 2009, the accommodations booking company went on to raise a total of 10 rounds of funding. They have raised $4.4 billion in capital from highly esteemed venture houses including Sequoia Capital, Greylock Partners, Andreessen Horowitz and Founders Fund.

Airbnb says it is now more deliberate and measured in its growth.

After all, there are some issues: It has to be careful in negotiations with local regulators to do things like collect and remit the appropriate taxes. Airbnb's short-term rentals are also illegal in some places (though Airbnb has been fighting that in court). And hoteliers that are getting squeezed are not pleased to be losing business.

Still, Airbnb continues to expand. But the San Francisco-based travel tech company isn't looking to go public just yet.

"We don't have any plans for an IPO," Blecharczyk said to CNBC in May. "We don't have a need for that capital right now. We've raised a lot of private capital. We have a few billion dollars in the bank. And so it would need to serve a purpose when it comes time to do that."

And while of course it's any entrepreneur's dream to have the kind of run Airbnb has had in the last decade, CEO Chesky says there's a bit of magic that he misses from the start-up days.

"I tell a lot of entrepreneurs who don't have traction, I miss those times. Yes, it's exciting to have traction, to have a company that's huge scale, but the biggest leaps you ever get is when you're small," he says.

"The most innovative leaps you'll ever make, especially if you're a network, are going to be when you're really, really small."

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