How Airbnb Became a $30 Billion Success! - A Case Study for Entrepreneurs

hi friends this week the topic is Airbnb and we are going to look at how important it is to be early to connect with your number one customers and also early to get some mentoring help along the way and maybe even consider joining an incubator and we are going to show you how that worked for Airbnb Airbnb who are well you're all over the world you should be familiar with them they connect people who have a room or an apartment or even a house to rent with people who want to rent those things out for a short time earn a little in the middle a little bit from the person who rents your room and they do a part of the transaction from the person who pays for the room or the house that is how they make their money and they are a global phenomenon and an assessment of staggering levels.

I'll take you through a start-up that set records for establishing a global company. Let's go back and see where it all started in 2007. This is the story of this company that started in 2007 and who now that 10 years later would have raised over $4.1

billion

and are spreading a marketing and brand message that promotes a sense of belonging and being very interesting in the way that they have, so it all starts with the gentleman named Brian Chesky and his friend Joe Gebbia had come from New York and were living in San Francisco and like most of the applicants to

entrepreneurs

, they were broke and they expected money to be tight and they say God, we have to pay our rent that we have to live on while they are trying to figure out life and they were looking for a way to earn some extra money and they realized that that all the hotel rooms seemed to be full in San Francisco every time there was a conference and there was an industrial design conference coming to town and once again he booked everything and said on listen, how about we put up a quick website called air bed and breakfast and get a couple of inflatable air beds, you know, air mattress? s with a sleeping bag or a blanket and we will sell people the opportunity to sleep in our living room here in our apartment they say seriously yeah let's try that so they bought some air mattresses and some other materials and they they set up and I put up a quick website just called air bed and breakfast sort of a take off on bed and breakfast but it was an air bed and it cost $80 and on that website the week of the industrial design conference I hosted three one two three visitors that was I was a gentleman from India there's a woman about 35 or 40 and a guy from Utah so it was a random bunch of people but they weren't 20 somethings looking for an accident Pad as if you were walking around Europe looking for a youth hostel.

These were people who were professionals over the age of 30 looking for a place to sleep and they paid $80 each. they found a harvard grad who would be a tremendous ous architect for the technical side of the site and the systems behind it to connect people who want to rent a room to people who have a room to rent and his name is Nathan with charvak and now they have the three guys who would become the trio of

airbnb

founders brian chesky joe gebbia and nathan blech they are zyk and they would make history so they went to south by southwest i don't know if they know what that is that's an awesome conference it's in Austin Texas every start of the year like a music conference but now there is interaction and education there are a lot of different topics that are there so they headed there because there are a lot of startups there there are a lot of venture capital people they headed to Austin, set up shop, announced. that air bed and breakfast is up there and it's going strong and they get two bookings one for that's

success

ful and they're thinking 'eh no this isn't working come all the way to South by Southwest' they said ok let's try again like this that there is something important to learn here: they were committed to their original concept and they stuck to it for as long as they had resources and the next thing that was coming up was in Denver and it was a Democratic National Convention in 2008 and this is where Obama spoke to where we and the world and the usa saw him crowned the democrat nominee for president it happened in denver and they're like looking at a bunch of places and people will be able to stay there cheap because the whole world and the media and press and everybody is gathering in denver and converging on Denver and there's going to be a shortage of hotel rooms let's see if we can do it there so they set up and notified the nine hundred delegates oh they sent them the notifications did everything or as much as possible to leave it. you know and they got fifty reservations which is better but it still wasn't enough down the road you may have remembered this little bit of news that went viral and it had cereal Obama owes and captain McCain's cereal was flagged for both candidates who are running in the united states presidential election john mccain and barack obama who would win and become president of course well they made thirty thousand dollars by taking cereal cereal was made by cereal compan I mean put in boxes marked for candidates by which they made thirty grand to put a couple bucks in their pocket to make up for the fact that they had booked a whopping 50 reservations there at the Democratic National Convention well at that point they were just suffering their weekly income at that time they were two hundred bucks that's not going to be enough he doesn't even pay his servers or anything these guys are starving for they earn t he puts a thousand dollars on cereal with the presidential election and they go and said ok maybe we'll try the inauguration so I'll stop here and give you a bonus point for this week and that is random event

success

is not a path toward sustainable success and I'm sure Paul is going up a bit of a chart there for that but here's my point you put up a website you're making videos for something you have a viral video that's a viral video success Sustainable is building a repeatable customer base, and right now, Airbnb did that. they don't have a repeatable customer base but nonetheless they said good we did good you know if 50 reservations is good let's go to DC for the inauguration because the press media and people will gather in DC to see Obama sworn. as president and you know we're going to set up there well they did a little better they got a hundred and fifty bookings and they come back to San Francisco and they're about to be shut down what do they do?

They had a chance. meeting with Paul Graham, who is the founder and entrepreneur behind the Y Combinator incubator, it was an incubator where you could get some money, you could get mentoring from people, and most importantly, it was an intensive three month program and four months that ended with what's called a demo day where you would present what you've been working on hatching and improving with all this great mentoring you would present it to venture capitalists to see people go hmm maybe I maybe give you did your first round of capital so they did that and in the winter of January of 2009 they went into the Y Combinator incubator and so they're often learning and things like that and they had a budget of about $20,000 to work through that that little phase there just a few months in the incubator and they went away with a new and different logo that you may recognize right here it

became

the Airbnb logo and I drew it there and eventually something happened a V C from Sequoia said the day of the demo I think there's something here and they were given six hundred thousand dollars in seed money so now they had mentorship they had refined their idea and they had the trust and belief of Sequoia Capital and like very interesting Brian Chesky at that time i would say these are the most important three months in the history of the company let's take a look at that when at the beginning of this video i talked about i talked about being early but be early about getting mentors Mentors early on find people to know what they're doing in mentoring and if you're in a town or city that has a start-up environment, get involved in that environment or find an incubator and see if you can apply. for admission so your idea is good enough to get you in the door where you'll get a little money, you'll get resources like servers and bandwidth, but more importantly, you'll get mentorship from people who've been through that road before and that's exactly what happened here and it led to them getting $600,000 and seeds also talked to legendary venture capitalist Fred Wilson he's a great guy he's made a lot of great investments but as they say even Babe Ruth gets he struck out every once in a while and said this problem of connecting free rooms and people is a problem and you won't solve it and it's going to kill you right Fred was wrong but he's been right about a lot of other things but he's always a badge of honor for new companies can do it. say this The guy was wrong but we still made it anyway and yet I think Fred today will tell you hey you win some you lose some you're right you're wrong and he moved on and they moved on , so the boys are a trio headed to New York. and they start talking to people one of those points i mentioned get closer to your customers they start talking to people they call hosts the people who are renting the rooms started talking to people who are the guests they were renting asking you questions one way and back and what they found was a lot of the photos taken by hosts maybe like you and me they got a room to rent we're terrible so they said look this is all part of the branding and marketing huh? why would anyone say yeah i want to stay there one night in nyc if it doesn't look good so they started a program where they sent a professional photographer to take quick shots of these places and guess what they noticed right away.

Ja d the best photos older than a week were rented two to three times more often than the others, so there you have it getting closer to the client, who is the host and the guest, and refining your marketing with something they learned. in the incubator and they were iterating very, very fast and before you know it all of a sudden they were at $400 a week and they were growing. A big hit happened when Barry Manilow's drummer rented out a whole house now if you don't know anything about Barry Manilow he was kind of a pop star in the 70's and 80's in the United States and the word Manilow in Swedish which actually means man is lame, I'm going with it and don't send me any notes, that's what I'm going with you' I ever listened to Barry Mann all his music and I tortured him like that.

You will know that man is earth. it was a turning point d During that time period and they came out in 2010 so in one year they raised 7.2 million in one round of Sequoia again teaming up and Greylock, well now they're pretty sure they've got a good hit on their hands, so let's talk. about the challenges going on and the incredible statistical and valuation growth so at the time they were well on their way and a year later in 2011 look at this they hit their millionth booking this white line here are the bookings and they raised One hundred and twelve million dollars in a series B of the Horowitz raise, you know Marc Andreessen, the founder of Netscape, one of the first browsers a long time ago, well, one hundred and twelve million dollars from him and others, that's a valuation of

billion

dollars. two years before they were going into the incubator because they had almost died $200 a week selling cereal at the Democratic National Convention and look at that two years later a trillion dollars v Valuation and in dreesen Horowitz Sequoia and Greylock The pillars of the capital community of risk are on this fantastic deal.

It is now what we call a unicorn. Tom led a new company that gets a billion dollar valuation. early Twitter or users like the first ones on Instagram it was based on money it had a business model I want to rent a room you want to rent me that room they take a part of both it was a business model so from the beginning they were generating income and they were making a profit, we went down and at that point, you know, their first controversy came up and they got past the first controversy and that was what had to happen.

Someone comes home to find their entire house vandalized and everything stolen. as a young company sometimes you know what to do sometimes you don't and right now they refuse to help you know you rented this at your own risk the publicity and backlash was terrible and th finally came out and said wait wait wait wait wait we'll help you we didn't get it right but we will we weren't there for this but we get it we got to put something in place so they launched a fifty thousand dollar insurance program for the people who were the hosts who were renting and they also reached out with the woman when all those things happened and they helped her a little bit and worked with her there was another incident where someone rented their place and they came back to find all kinds of drug paraphernalia, meth pipes and some other stuff left there, so people obviously rented it to meet a group ofpeople, having a party and getting seriously high and some really dangerous drugs so nonetheless there is some protection that he put in place and before long you know this hundred and twelve million dollars he has taken them and they have their reserve five million and what it was very interesting here at the end of 2012 they had sold that year more nights than Hilton more nights than Hilton sells a company of three years more nights than Hilton, one room at a time, there was only one word for it and that is incredible, and of suddenly they were doing more per night me reynolds then hilton was thats amazing well they continue to expand they continue to push forward and in 2013 they raided 200 million dollars in their ciri fee and that involved the founders fun peter thiel someone i have amazing respect for a book admiration zero to one if you haven't read i mentioned it in some of my other

case

studies here get a copy of that book and be sure to take notes on it, yes, bookmark the book and it stays on your shelf because it's exactly what you need in the beginning and if you can get it into an incubator at the Down the road so much the better but now the fun of Peter Thiel and the deal founders is in the deal and they're headed for ten million dollars in bookings a short time later a year later they suddenly raised five hundred million dollars in a series D has a valuation of ten billion dollars so now their valuation is in the Club of the double digit billion and along the way you may have seen another controversy with you in the media if you've studied Airbnb a New Yorker was fine twenty four hundred dollars for letting people stay in his apartment and they called it a business renting without a license or things like that but Airbnb jumped on it and they said timeout we're going to help defend this guy and we're going to help pay his legal fees because I don't like that law that doesn't pe Let people like you and me rent a room.

I mean, oh my gosh! I rented a room from relatives when I was in college and I was a relative and I was paying three hundred bucks a month and you know I had a room nd board well why not get 50 bucks for someone staying in an extra room and in In many ways, New York law is wrong, but nonetheless, Aaron B&B joined because that's the kind of legislation that can get in the way? Go check out the

case

study

I did on uber and see how they dealt with legislation and governments and trying to stop the hand of capitalism and startups there's some great points in that too so here we go club of ubers ten billion dollars here and we went ahead and in 2014 they changed their and that was also controversial because a lot of people thought that this logo could be interpreted in many ways in a kind of feminine interpretation.

They thought it was you. they went with it and the controversy just came ashore and then went back into the sea as they continued to grow and cross ten billion excuse me ten billion would be there paul look at this me have 5 million reserves 10 billion reserves that would be 1 .1 reserves for every person on earth and you know what that would be a lot of reserves, but that's a mistake, it should be 10 million so I'll leave it there. so 10 million bookings so in the middle of doing a case

study

now i find a bug but anyway it goes from one to five to 10 million bookings now you can see things are crazy and going very very well everything the money raised they are expanding internationally and along the way here they also expanded that insurance program from $50,000 to $1,000,000 again doing the right thing trying to set things up so that you and I can feel safe renting our house or a room in our apartment or our blueprint so we fast forward here to 2015 and they raise 1.5 billion dollars of capital from general atlantic hillhouse and the big kleiner perkins so now they are series v is in the bank and the valuation is now twenty five billion dollars and t hen eight hundred and fifty million mid 2016 from capital G which is Google Capital and that's how they work that's their new brand capital G so now i You even have Google in the game so if you think about searching and searching tech and finding places to stay now you have the world's largest search company on your dashboard and with a great skin in the game so you're all set to go to the next level and right now it's very worth noting that there's a thirty billion dollar valuation that compares favorably to Hilton which has a twenty eight billion dollar business valuation so now these guys are worth as much as Hilton, amazing stuff, so what follows is they're sitting here, well there's a couple of things, it's all there, there are still challenges in the regulatory environment. in fact, not too long ago, Governor Andrew Cuomo of New York tried to implement another bill trying to fine Airbnb hosts if they do certain things and therefore have to fight regulation. ry battle also have something coming up called experiences where maybe a local person, since you use Airbnb to stay in New York, a local person could give you a tour of the neighborhood and maybe some of the coolest sites to expand the way that people like you and me could use our room that we rent and our local knowledge to make a little bit of money and most recently recently closed in February 2017 bought luxury retreats that are outside of Canada they had two rounds 16 million dollars of what I know through capital here's a little lesson for you I know through almost I think two or three years ago luxury retreats were renting villas all over the world and now they're talking about using the Airbnb engine as a way to connect the people who want to rent those villas with the owners or the host of those villas, so two rounds of capital in just a couple of years from my girlfriend cap capital and Airbnb buys them for two hundred million dollars so they use part of the st ate one hundred and fifty million dollars to acquire a high end company that had a ton of villa properties for sale so here's another lesson investment for those of you who earn at home. a 10x return so they did 10x so again for those who are scoring at home trying to figure this out I know through the capital investment and I probably got 10x back that's pretty amazing and for those of y'all who don't score at home rent a room on

airbnb

then download tinder maybe that will help you stream b&b second most valuable private company in usa the stunt scene second only to uber making money off a estimate just came out this incredible estimate that in 2020 people think these guys could have two to three billion dollars in profit in just a few years customers early like they did in New York and take pictures and improve it and connect early with the mentoring and if you have an opportunity to take your idea and pitch it to an incubator to do a 90 day program or something like that go do that because what you will learn and a little c apital is awesome thats this week hope you enjoyed it subscribe to value entertainment for more biz doc case studies and the best content on the internet for

entrepreneurs

until next time im tom miller and i hope i left you better than I