> New ideas often seem crazy at first (e.g. renting out an airbed in your apartment to a stranger)
N.B. I'm currently travelling and using Airbnb almost exclusively for accommodation, if that's somehow relevant.
Airbnb seems to have become the cliche example of a 'crazy idea' that turns into a unicorn and, honestly, I struggle to see why people think the idea, per se, was crazy or groundbreaking.
It's not a crazy idea. In fact it's a very natural, obvious idea, that has existed forever. People have rented, and sub-let, rooms for decades. The problem has always been high barrier to entry (on both sides) and therefore low liquidity in the market, such that short term 'holiday' type lets are too much of a hassle to be tenable, and only longer term lets have been feasible.
The idea has always been there, what's not really been there until Airbnb, and what is their remarkable achievement, is the building of a singular, reputable, trustworthy, easily accessible marketplace for this, to get the liquidity to where it needs to be to be workable.
It's the execution on this, not the idea itself, that's the remarkable thing. If it was such a crazy idea, it would have taken much, much longer (+10 years perhaps) to have truly caught on. The fact that they've had such rapid growth points to the fact that a lot of hosts and travellers were ready for it and just waiting for the opportunity to take part in the short term lets marketplace.
Agreed...I remember using VRBO before Airbnb was a thing. For historical reference, VRBO was purchased as an 11 year old company by Homeaway in 2006, 2 years before Airbnb was started.
Wasn't the airbed thing always just a cute, neat metaphor for the wider concept of renting out spare space in your home?
The founders literally rented an airbed in their apartment, which spawned their idea to create the service and inspired the name, but I don't know that they ever set out to create a marketplace for specifically this.
I could be wrong but nothing I've ever heard them say has suggested this was the idea, even in the company's very early days. Indeed I believe their early niche was renting out space for conference goers, in the homes of like-minded individuals, not renting specifically airbeds for conference goers - that'd be a bit absurdly niche, no?
Well then they were poor at marketing that. I remember seeing the site and thinking it was so stupid, until my friend pointed out that it could be used to rent out bedrooms, and then it made complete sense for me.
That'd always been possible on Cragslists, and in fact, AirBNB used Craigslists to bootstrap originally (and against the TOS if I may add).
What AirBNB has executed brilliantly are:
1. They offer the complete booking workflow: from initial contact to payment. They also offer feedbacks, reviews, rating, etc. to make the whole marketplace more credible.
2. They bootstrapped the market really well. Some of the early tactics were shady, but well, that's what you can do when you are a small start up. Offering free professional photographer service to the owner was a very good move: much better than spending that money on SEM or other marketing ploys.
Yeah, I don't get how it could possibly have seemed crazy. Sharing homes has existed as long as, well, homes. Vacation rentals have been around forever. You could find tons of share offers on Craigslist in any major city. Etc, etc. I guess they did step it up a notch on the couch-surfing and community front...the idea that a primary reason for engaging in it is to meet each other.
Lots of these lessons are missing the bigger point. The original investor rejections had it right on the business model, except missed the determination of the founders. Sleeping on airbeds and having hosts serve breakfast is a niche market.
Airbnb changed their name and pivoted into the vacation rental rental space, and now shared rooms and "bed and breakfast" are a tiny fraction of their listings, but this opened up a much bigger market. IMO, this is the big lesson.
I don't think it's accurate to say that Airbnb pivoted into a different market. They didn't discover that their original idea was bad. They followed a smaller stream to successively larger ones.
The apparent lameness of the initial niche doesn't let investors off the hook—ability to see beyond that to what a startup might grow into is a big part of being a good early investor [1]. Throw in not "missing the determination of the founders" and you may even have most of it.
By the way, Airbnb didn't seem lame to everybody. PG used to run a couple straw polls per batch asking founders who was most likely to succeed, and I recall Airbnb winning both the votes in the W09 batch by large margins.
> PG used to run a couple straw polls per batch asking founders who was most likely to succeed, and I recall Airbnb winning both the votes in our batch by large margins.
You're mixing up the idea (which seemed lame) with the founders (who seemed great). Presumably this happened also because once you get to know people (especially within 3 months) you can make a much better judgement about their potential. The VC/pitching situation is flawed in that you usually only get < 1hr to sell your vision. VCs love to say "we back teams" which is translation for (1) founders already did something significant (2) founders came from prestigious backgrounds (3) the investors personally know and have worked previously with founders. 3 is obviously ideal, but can be rare.
I don't believe I'm mixing those things up, but maybe my point wasn't clear. It isn't correct that Airbnb went from being a bad investment to a good one, and they didn't switch from a small market to a large one. The small market turned out to be the large one. It was the same guys working on the same idea the whole way.
Why does that matter? Because Airbnb was a fabulous investment when they got all those rejections, and that is the point of the story: getting a heap of rejections doesn't mean you're not a fabulous investment, despite the unbelievable pressure it puts on you to believe so.
What always gets me with this story is Couchsurfing, which had proved people were willing to host strangers years before Airbnb launched. I'm not sure why so many investors missed this data point.
But CouchSurfing didn't prove there was a profitable business there. And Airbnb is basically proof of that. If Airbnb stuck with the "stay in a shared room with strangers" approach they also wouldn't have figured out how to make money. As other commenters have pointed out, they shifted to a wholesale vacation rental model (ie HomeAway and VRBO) and that changed everything. They got the benefit of sticking to the "sharing" narrative while making money from the pure vacation rental market.
Couchsurfing is mostly relying on trust. I've couchsurfed quite a bit (stopped since Airbnb I must say) and every time, people were the sweetest. But that's a good enough situation for backpackers, Airbnb has nailed down the cheap hotel-level hospitality.
I used to think that but after looking a bit more closely found that the inventory and usage is quite different. VRBO users typically want an empty house set up for renting (i.e., not even any personal belongings except for necessities). With AirBnB, even the "Full Home" options are frequently/typically someone's house, including their belongings. And of course you would never see a share on VRBO.
It's actually sort of hard to find vacation rentals on AirBnB. There just aren't that many of them compared to VRBO and Flipkey.
Most investors are not that good. Look at the stats that show money mangers lag the market. I would have funded Air BNB because it's very scalable, it fills a large market, and seemed to have very low initial costs. It's not like they needed a huge infrastructure to get it going. Air BNB is like a middleman, kinda like Ebay.
"Don't worry about people stealing an idea. If it's original, you will have to ram it down their throats." -- Howard H. Aiken
The real difficulty seems to be to distinguish between ideas that genuinely deserve rejection and ones that are only rejected because they're new and seem crazy at first.
Anyone know why airbnb became so much bigger than flipkey, vrbo, and homeaway? Was it just being lucky to be being based in SF and the associated network effect? I.e. people could have theoretically used the aforementioned companies to rent their room in SF or NYC, but they didn't.
I have no experience with flipkey or pre-homeaway VRBO, but I can tell you that the smooth rental experience of AirBnB makes it much, much more appealing to use than VRBO. My VRBO experiences always involved strange inconsistent booking procedures and calendar management, and the website was clunky and old tech with lots of state-destroying page navigations. And one thing AirBnB has really nailed is that it can be really important to have great communication between the two parties in the transaction, not only through the mechanics of booking, but through your entire stay. There's a ton of redundancy in communication channels (email/sms/web/phone) for a transaction, and the result is that you never have to say "oh, I need to go run the app to send them a message" or log into a web page (oops I booked this on my desktop and I'm not logged in on mobile) or look up a phone number or anything like that. It's one big multi-transport conversation that is easy to use, so if you need to communicate, it just happens, rather than being something you have to work for.
These are tough lessons to take at face value. Unicorns are even harder to replicate so their path to success is also fraught with unique challenges. The whole "keep going" and "don't give up" mentality is admirable, but it's also admirable to know when your product-market fit isn't there, or when it's time to close up shop. A healthy dose of skepticism and reality is the needed yang to balance the yin of persistence and resilience.
It's true, not all ideas are good and it's important to be flexible-minded about these things. But as I mentioned, the Airbnb founders knew from their own experiences using their product and from their user base (albeit small at the time) that Airbnb felt like a good idea. I've seen founders give up based on the equivalent of these 7 rejections from investors so I wanted to remind people to persevere. I'm sure glad the Airbnbs did.
Indeed. One thing I've realized over time is how common it is to suddenly realize something, perhaps years later than you should, that should always have been blindingly obvious. I like to call such experiences "duh-piphanies". What's interesting is that this happens all the time technology and invention. Take something like the "hesco bastion", it's just a giant, foldable, wire reinforced cloth sided bucket that you put dirt and rocks in using earth moving equipment. It's something that could have been built a hundred years ago. But it wasn't invented until the '90s, and since then they've seen widespread adoption in a huge variety of uses. Similar examples exist in every industry.
The rise of Google is a true Unicorn tale. The story of hardcore CS nerds rebuilding a product that was already ubiquitous with a crowded market and re-inventing it down to the algorithmic level, defying every norm on the way there. But most innovative products have some element of blinding obviousness about them. Uber? Maybe we could use the worldwide communications network that every has a constantly connected terminal to in their pockets at all times to dispatch cabs instead of, you know, telephones or just having cabs circulate in high-demand areas. Dropbox? Network file storage that leverages the speed of the modern internet and modern storage technologies to remove the hassle of dealing with networked files. Square? What if people could just run an app on their portable computing devices which are already vastly more powerful and constantly internet connected instead of using crusty custom-built PoS hardware and systems? Stripe? Imagine if banking embraced the technology of the late '90s. And so on.
90+% of the "Unicorns" are just the sensible application of technology to already well-known problems, and just doing it well and monetizing properly. That shouldn't be so exceptional, but somehow it is. I think that's more an indictment of the silicon valley way of doing things than anything else. And the thing is, the rate of return to VCs when a Unicorn hits is so big that it covers the losses from all the bozos.
Investors like to categorise ideas into macro tech trends and hypotheses. There's a good reason for this but it also means you can miss the biggest ideas (the space-defining ideas).
I imagine a lot of investors looked at Airbnb and thought, "cute". Then someone coined the phrase, "sharing economy", in the wake of its growing success and a lot of other "cute" ideas raised money.
From my experience, what investors often lack is an understanding of the vision. I remember someone describing Airbnb to me back in 2010. I said it would never catch on for XY&Z obvious reasons, including it sounded like a bad experience. That's because I wasn't pitched the vision correctly. I bet the Airbnb guys took a long time to figure out the right way to pitch it.
Investors like to be objective/data-driven and therefore don't spend too long building an emotional relationship with the product. Again, there's a reason for that, but sometimes founders have products that don't look like anything that exists elsewhere, so it's super important to convey how it really works.
There's encouragement here for entrepreneurs to persist in the face of rejection.
It's hard to say the investors did anything wrong however. Anyone can pick a winner in hindsight. May as well make a list of winning lotto numbers and say "see the ones you didn't pick"?
This principle is similar to concepts in data science and medical statistics (esp patient reported outcomes). Take the answer as fact (you can worry about outliers later), and take the reasons and justifications with a grain of salt.
Well written!
Thank you Jessica for sharing your thoughts.
My personal note on rejections:
When I decided to step up and found, I've made a decision to stop asking for permission from others and build something by myself. I remind myself of that on every rejection.
No rejection will define what I'm going to be. Rejection only define how better I'm going to become next time, until no investor/partner/person will wanna miss-out.
> When investors aren't sure what to make of these ideas, they write them off as inconsequential. Don't be misled by this into thinking your idea actually is inconsequential.
And perhaps that means it's time to change-up your pitch?
What about if your idea will never succeed? You also need to understand when to stop and move on.
With airbnb, there were rejections, but there were also two facts that makes me believe it was a different story:
* They could already make it profitable by just starting to use their own service
* There was an idea of making the world a better place by doing this. This might sound cheesy but I truly believe airbnb, couchsurfing, blablacar and others have really changed the world and how people travel/interact with each other, in a good way. I'm sure I'm not the only one who can see that.
Agreed with all of this! Understanding when to stop/failing fast needs to be accepted. I was worried that these articles could be taken the same way as the guy who hacked a VCs voicemail because he was told he needed to 'hack stuff' and 'hustle'.
My last round of warm intro (thanks sam) VC partner talks had 100% failure rate too. There's no pattern you can draw here. I had great talks with some two-partner firms. Other two-partner firms did the whole "yes, but only if you're more successful in another 18 months." I did get one absolute "not this time, but stay in touch" decline that was exceedingly professional. SV Angel was the nicest in that they further warm-intro'd me to another 3-5 people. The worst contact was a16z actually. Go figure?
Ok. But be honest, were you pitching something as good as AirBnB. We can be passionate about what we are building and try to raise capital without thinking our concept is as good as AirBnB. Given that, I would have suspected a warm intro would have done the job. My guess is that the founders (if you gave them truth serum) would say that they thought AirBnB was going to be huge all along.
Let's not be revisionist. The original Airbnb concept was actual air beds and hosts that would actually make breakfast. That was the business. That is what the VCs passed on because it's kinda crazy. VCs can't pre-detect when founders will be willing to sacrifice their original cute, but untenable, ideas and move to where demand actually sits.
This whole massive illegal sublet renting thing isn't what those VCs passed on. Those VCs passed on literal air mattresses on floors.
Sidenote: it looks like the mark is now officially "Airbnb", but their logo says "airbnb", even though it was originally AirBnB? No company with multiple capital letters is ever presented correctly.
> Let's not be revisionist. The original Airbnb concept was actual air beds and hosts that would actually make breakfast.
Really? I would have guessed that the "and breakfast" part just came from the common English term "Bed & Breakfast", which is to me synonymous with motel, hotel, hostel, inn, etc. I wouldn't expect breakfast to be a bigger feature at a bed & breakfast than at any similar business that went by a different word.
Not at all. But these guys were pitching AirBnB and they are considered some of the most impressive executing founders on the planet. Law of averages would get them one "yes."
the most impressive executing founders on the planet.
Big note: after-the-fact. They aren't gods. You're seeing post hoc fanboy hero worship of single-unit success. Sure, celebrate accomplishments, but don't elevate people to being more-than-people.
There was a time from 2008-2011 or so when Airbnb was just another YC startup that got funny headlines now and then. Casual observers didn't know that they were growing very big and were going to be a big big business.
The lesson it seems to me is that that is not the correct way to go about raising a small, $150k round. Founders should be able to round that up from friends and family.
"Probably don't have enough wealthy friends & family" you mean?
Actually re-reading your comment I'm still not sure what you mean? If you're not willing to sacrifice relationships to start a company, then you're not cut out for founding? Isn't that a pretty unhealthy position to take in life?
Resourceful people should be able to find people relatively close to them that could kick in $5-50k x 3-10. You don't need to have a wealthy family or circle of friends.
The potential to sacrifice relationships is the complete wrong way to look at it. Investing is not only opportunistic, it can help someone realize a dream.
Correct, if these are your first thoughts, you are going to struggle mightily as a founder.
It's really not naive. Starting a startup is hard. If you and 1-3 others are not resourceful enough to round up $150k from your networks, no matter what you're financial means, you are going to have a very difficult go of it. This is not the hard part.
Yes, but how is that a "friends and family" round if none of it is raised from friends and family?
EDIT: If you assume your friends and family can each spare $500 (which given a median household income of $51,000/year or $3,500/month after federal taxes... Maybe half the U.S. Population in a given month can spare that after rent, food, childcare, auto, and debt repayments.) then you need to get 3000 "yes"s to get to 150k. At a 20% yes rate, that means you are asking 15,000 people for money. It makes far more sense to ask people in the upper decile, who make $145,000 per year of household income and who might have some investment income that they can throw at you. Alternately, to raise from people who regularly invest in early-stage businesses. If you don't have any such folks in your social circle, you are going to be busting your ass and trying to make cold intros.
2-3 resourceful founders should be able to find 3-15 people to kick in $5-50k each. A friend could be a former boss, a customer, the owner of the local coffee shop, a mentor, a classmate, a teacher, whatever. Don't start quoting average incomes and such. This is not about average. If you really want to talk about average, the average coffee shop, pet store, hair salon, restaurant, raises $150k.
All those businesses have well known models and physical assets that can act as collateral for a bank loan, possibly through the SBA.
> This is not about average
That is my entire point, that you are speaking from not from the perspective of a person whose connections are of average wealth. If you have a close enough relationship with that many people who have 10k (that is, 2 months pre-tax income for most people) they can just put into a highly risky venture, you are starting from a position of economic privilege: wealthy people trust you with their money.
Is it possible to build a consulting practice and thereby build relationships with people who will then be confident in your ability to execute? Sure. Is it possible to go to a college with wealthy professors and inordinately impress them? Sure. It is possible in the United States to work yourself into a higher class. All I'm saying is that being able to collect $150k from your connections certain things from your social position.
I don't doubt it's easier but if 2-3 co-founders not able to round up $150k from your network to start a business then you are not cut out for such a thing. Building a startup basically consists of constantly persuading people to do things. You have to be able and willing to do this without tossing out the "woe is me" card.
N.B. I'm currently travelling and using Airbnb almost exclusively for accommodation, if that's somehow relevant.
Airbnb seems to have become the cliche example of a 'crazy idea' that turns into a unicorn and, honestly, I struggle to see why people think the idea, per se, was crazy or groundbreaking.
It's not a crazy idea. In fact it's a very natural, obvious idea, that has existed forever. People have rented, and sub-let, rooms for decades. The problem has always been high barrier to entry (on both sides) and therefore low liquidity in the market, such that short term 'holiday' type lets are too much of a hassle to be tenable, and only longer term lets have been feasible.
The idea has always been there, what's not really been there until Airbnb, and what is their remarkable achievement, is the building of a singular, reputable, trustworthy, easily accessible marketplace for this, to get the liquidity to where it needs to be to be workable.
It's the execution on this, not the idea itself, that's the remarkable thing. If it was such a crazy idea, it would have taken much, much longer (+10 years perhaps) to have truly caught on. The fact that they've had such rapid growth points to the fact that a lot of hosts and travellers were ready for it and just waiting for the opportunity to take part in the short term lets marketplace.