By Dileep Rao – Guest Contributor
Has Airbnb succeeded because of its terrific idea? Or is it because of the entrepreneur’s ability to encapsulate his idea in a fantastic pitch and attract VCs? Or is it because of the entrepreneur’s skills in finding the right strategy and executing it to perfection?
A number of entrepreneurs, business schools and pitch competition sponsors may assume that Airbnb succeeded because of its terrific idea, and a pitch that was able to encapsulate its brilliance in 2-3 sentences and get VC. Not!
4 reasons why the idea was not the key
Here’s why the idea was a small part of Airbnb’s success.
Reason #1. After Brian Chesky and his partners got the idea, they tried to get angel financing. They invited 15 angels from Silicon Valley – the greatest place in the world to get angel capital. No one was impressed with the idea. None showed up.
Reason #2. According to Brian Chesky, it was his need for cash that led to the concept of Airbnb. When he moved to San Francisco at the urging of friend and Airbnb co-founder Joe Gebbia, he had $1,000. His first month’s rent was $1,200. Taking advantage of a designers’ conference nearby and fully booked hotels, Chesky and Gebbia decided to host people in their apartment on inflatable air beds they owned. And they added breakfast. They got 3 customers, which was full occupancy. But this event – and the idea – did not lead to take off.
Reason #3. They had a second launch for their idea. Again – no customers. Zero. Nada.
Reason #4. At their third major launch at SXSW, Chesky and Gebbia got somewhat lucky. One customer showed up – if you don’t count Chesky himself. Not a ringing endorsement.
The net-net. In the first year after multiple “first” launches, their daily reservations numbered about 10-20 (New Tricks for an Old Unicorn, Biz Carson, Forbes, October 31, 2018, page 40). And anyone who thought the idea was great could have stolen it and started a competitor.
What Chesky thought of the Airbnb idea!
Not only did investors and consumers not think much of the Airbnb concept and pitch, but Chesky and his partners did not either. They were hoping that Airbnb would “pay the rent until we could think of the big idea.”
And then they fine-tuned their strategy.
Persistence helps. Chesky and his partners stayed in the arena and fine-tuned their strategy:
- Strategic Fine-tune #1.Competitors were doing most of their payments via third-party companies such as Paypal. Airbnb decided to do it themselves and add a “reputation system” for all customers and hosts.
- Strategic Fine-tune #2.To make its site user-friendly, Airbnb allowed people to book with 3 clicks, imitating Steve Jobs who created the iPod to be 3 clicks from a song.
- Strategic Fine-tune #3.Chesky started staying with Airbnb hosts to figure out ways to improve guests’ experience and came up with the rating system based on peer reviews. Chesky also helped the hosts to take photos and upload the pictures onto the site.
- Strategic Fine-tune #4.Initially Airbnb was organized around conferences. This changed when a customer traveling to London wanted to know why. The company pivoted.
- Strategic Fine-tune #5.Initially Airbnb insisted that guests sleep on air mattresses. Naturally someone questioned it. The company pivoted.
- Strategic Fine-tune #6.To generate publicity, Airbnb started to sell cereal with John McCain and Barack Obama on the cover during the 2008 presidential election. The cereal producer was willing to accept a portion of sales (since Chesky and Gebbia did not have the cash to pay for the product). They sold $30,000 worth of cereal and funded the company.
- Strategic Fine-tune #7.Airbnb realized that it could attract hosts more easily than guests. Therefore, it targeted about 90% of its ad spend on finding guests. This focus helped it grow from 100 guests in 2008 to 3.5 million in 2018 (New Tricks for an Old Unicorn, Biz Carson, Forbes, October 31, 2018, page 40).
After Airbnb took off, it had no shortage of VCs willing to fund it – all claiming to be early investors in a “startup” having recognized a diamond in the rough. Right.
And here’s a prologue that suggests that skilled entrepreneurs may do better than executives in emerging industries and chaotic times. While other travel companies, including airlines and hotel companies are hoping for better days, Chesky has adapted the model and focus, and positioned Airbnb to take advantage of home rentals near customers’ residences – so they don’t have to risk flying in potentially viral airplanes or stay in potential viral hotels. He is catering to people who want to travel close to home.
MY TAKE: Ideas are a dime-a-dozen. No one has been able to consistently recognize the brilliance in ideas until after the venture takes off. Until then, you and your idea are on your own – unless your idea is proven to cure cancer. Pitch competitions don’t identify winners consistently because the roots of success are in the strategy and in the entrepreneur – not in the idea or the pitch. Unicorn-entrepreneurs succeed because they have the passion and the persistence to find the right strategy – and then the skills to execute that strategy better than competitors under all scenarios, including pandemics.
This column was first published in Forbes.
Dileep Rao is the author of Finance Secrets of Billion-Dollar Entrepreneurs (FIU Business Press, November 2020) and teaches entrepreneurship, unicorn-entrepreneurship, and venture financing at Florida International University. He is a former venture financier.
READ MORE from Dileep Rao:
WHY 100% OF VENTURE CAPITAL CAN BE EXPLAINED IN ONE 4-LETTER WORD
HOW FINANCE-SMART ENTREPRENEURS FIND FINANCING IN A FINANCE-SHORT WORLD
GRIT V. GLAM: THE 2 FACES OF BILLION-DOLLAR ENTREPRENEURSHIP