Rich Dad Poor Dad

 

   The Airbnb Story. This book talks about the history of a global platform for short-term home rentals. At the end of 2021, this company had a valuation of up to 113 billion dollars. Airbnb is an abbreviation for "Airbed and Breakfast," which means 'air mattress and breakfast'. Why did they have such a strange name?

    To talk about this, we have to go back in time to 2007. At that time, there were two recent graduates from a design school who were unemployed. They were so poor they couldn't even afford to pay their rent. At that time, they received some news: a major design exhibition was going to be held near their rented apartment. This event was huge, lasting over two weeks, with a massive number of attendees, which created a problem. The problem was that the exhibition attendees had nowhere to stay.

    These two clever students suddenly came up with a solution. They went and bought some air mattresses, put them in their room, and rented them out to the exhibition attendees for $80 a night. They even included breakfast. They named this service 'Airbed and Breakfast.' Just by renting it out like this, within a few days, they earned over $1,000, which was enough to pay a month's rent. After the event ended, the two students discussed it: "This service received so much support. Could it be possible to turn this into a business, renting out houses or spare rooms that we don't use to people who need short-term accommodation?" That's when Airbnb began its entrepreneurial journey.

    Of course, going from a good idea to a successful company requires overcoming many obstacles and making many important decisions. How did the two co-founders, with their design backgrounds, who had no money, no reputation, and no knowledge of technology or management, manage to attract major investors in Silicon Valley to believe in their vision and dare to invest millions of dollars in them. Before Airbnb entered the market, there were already many large and small companies offering similar home rental services. How did they manage to do it better and stand out from their competitors?

    As a middleman platform, how does Airbnb ensure user safety, maintain quality, and protect the interests of both sides—both the homeowners renting out their space and the people needing to rent a place? They polished themselves, squeezed into a narrow market, and pushed a large ship through difficult and unpredictable storms. They experienced both success and lessons from failure. Starting out with just over five years, Airbnb had a valuation of over 3 billion dollars. At that time, the founder and CEO of Airbnb, Brian Chesky, said, "This company is only just taking its first step."

    Speaking of the author of this book, his name is Leigh Gallagher. He is the Executive Editor and head of content for Fortune Magazine. Since the time Airbnb was created, he has written articles about this company, from when it only had four or five people. He has close relationships with the top management of the company, which allows him to know a lot of inside information about it.

    Next, we will divide the summary of this book into three main parts.

Part One: When Airbnb was first created, after being rejected by investors more than 101 times, they met a famous tech investor in Silicon Valley named Paul Graham. How did they manage to seize this opportunity?

Part Two: As a global home rental platform, Airbnb was not the first in this industry. In this red ocean market, what special features did they have that made them stand out from the rest?

Part Three: From the very beginning until now, they have faced many obstacles and dangers. How did they solve these problems and navigate these obstacles?

    Let's start with Part One, the most important part: money.

When we have a great idea, if we're not lucky enough to meet an investor who understands us and can push us towards our goals, no matter how good our idea is, it's not easy to succeed. The "Unicorn" startup companies in the world, worth billions of dollars, that you all see in the market today, all have venture capital firms and powerful, experienced backers with brilliant people ready to help and support them.

    So, to say that having a good idea is enough for success is not entirely true. You need luck, great investors, and a lot of resources to make it. For example, if Jack Ma hadn't met Masayoshi Son, there would be no Alibaba. If Mark Zuckerberg hadn't met Peter Thiel, there would be no Facebook. Similarly, for Airbnb's founder, Brian Chesky, if he hadn't met the top famous investor, Paul Graham, there would be no Airbnb on the market as we know it today.

    In the world of investing in new business ventures, there's a saying: When an early-stage angel investor decides to invest in a company, it's not because the project is flawless. They look at the people who are the founders. Because people lead the business. If the people aren't capable, the business can't go far.

    Let's look at the Airbnb team. Who were the talented people that could attract the interest of big investors? The co-founders of Airbnb were a group of three. The two we mentioned earlier graduated from design school and had the idea of renting out their space for short-term stays. One was named Brian Chesky, and the other was Joe Gebbia, who were university classmates. The third person was brought in later. This third person was the only one with deep knowledge of the internet, who could write code, and could serve as the CTO.

    Based on the composition of these three people and their limited experience, it was really difficult to attract investors. That's why when they first launched their website, there was nothing appealing about it. Their business model wasn't new or something no one had done before. So, when they went around pitching to find investors, they were rejected for many reasons. Some investors said the team was not capable, others said there was no market demand, and some said the website was not engaging.

    But the most important reason, and the reason most investors rejected Airbnb's seed funding proposal, was because this business was a type that relied on short-term opportunities. As we mentioned at the beginning, the Airbnb founders created it initially to solve a problem: when there was an event and people lacked a place to stay, they could use their service. But those big events or exhibitions don't happen every day. So if there's no event, where would Airbnb get its revenue to sustain its operations? If you think about it for a moment, the investors' concerns on this point were quite reasonable. But Airbnb also managed to open the investors' eyes. They wanted to show that they didn't just survive on occasional big events.

    One of their successful examples was in 2008, when former President Barack Obama was nominated as the presidential candidate for the Democratic Party. They organized a speech event with over 80,000 attendees. But the hotels and guesthouses in that area could only accommodate just over 30,000 travelers. So where would the other people stay? This was a huge opportunity for Airbnb to showcase their capabilities to investors.

    Airbnb announced a call for hosts with the slogan: "Have an airbed and a phone, and you can become a host too." This slogan ran parallel to Obama's "Yes, We Can" campaign slogan. The founders of Airbnb knew very well that this business model, combined with this rare opportunity, could really attract media attention. During a time when the world was facing a global economic crisis, they seized this opportunity by inviting hosts to be interviewed on television and in magazines, with big headlines like: "How an ordinary person can survive the economic crisis."

    This story reached The New York Times. Because of this fame, Airbnb received over 800 new user sign-ups to become hosts on their website. And more than 80 people signed up to rent a short-term stay, and many people heard about Airbnb for the first time. Because so many people visited the site in a short period, Airbnb's server crashed and couldn't be accessed. What was embarrassing was that at the very moment the three co-founders were pitching their business to investors, the website was down and couldn't be opened, which caused them to miss out on getting investment again because investors didn't trust Airbnb's technology.

    This wave of fame happened at a time when they couldn't find investment, and the user growth at that time was only due to the election campaign event. So when would there be another big event with a massive crowd lacking accommodation like this again? No one knew. So if they couldn't seize this opportunity, getting seed funding later would be even more difficult. The three co-founders were each in debt for more than $20,000. If things continued like this, the company would surely shut down.

    To survive for another breath, the Airbnb team remembered something they hadn't given up on during this rare election campaign opportunity. They released a product called "Obama O's," which was a type of cereal and mixed grains to be eaten with milk for breakfast. They put a cartoon image of President Obama on the packaging with the slogan "Hope in Every Bowl." This cereal was meant to be sold to hosts on their website to provide breakfast to their guests.

    They also created a limited edition version of the cereal that sold for up to $40. The cost to produce it was only $1, meaning a 40-fold profit. In just three days, their cereal was sold out. People who couldn't buy it were willing to spend a lot of money to get it, making the product's price rise to $350 per box. This profit allowed them to pay off their debts and also showed investors once again that this success was not a coincidence. It was because they were smart, resilient, and knew how to seize opportunities. But this was just an unconventional opportunity. Looking at Airbnb's core service, it was still struggling. As time went on, it got harder and harder. They couldn't see a clear path forward, which made the three co-founders gather to discuss whether to give up or continue. Was this the right path for them?

    In this situation, someone suddenly came and showed them a way. That person said, "Why don't you try applying to YC to find help?" YC, or Y Combinator, is a venture capital firm in the United States that invests in new technology businesses, founded and run by the famous Silicon Valley investor, Paul Graham.

    Finally, they decided to enter the initial interview round of YC, just like other large and small companies. But because there were so many applicants, this venture firm received thousands of business plans and funding proposals every day. During the interview, there was no time for founders to introduce themselves. They just had to answer questions. And Paul Graham's first reaction to Airbnb was about their business model. He didn't understand at all why people would let strangers they'd never met sleep in their houses. Why would people even think of doing such a thing? Were they crazy?

Just as he said this, the two founders were getting up to leave their chairs, but Joe Gebbia took a box of the "Obama O's" cereal and put it on Paul Graham's desk, and then they started telling the story of its origin. This time, everyone in the room listened with open mouths.

Paul Graham thought to himself, "These three are really tough." They were in such a difficult situation and still didn't die. And if they could sell a box of cereal that cost $1 for $40, what else couldn't they do? Who knows, if they could convince users to dare to sleep in a stranger's house, and convince homeowners to rent their homes to people they've never met, who could say?

    Paul Graham's attitude immediately changed. He began to understand this company on a deeper level and allowed the three of them to join the short-term training program provided by Y Combinator, with Paul Graham himself as their mentor. This was like receiving a golden ticket to Silicon Valley. Not long after, they received a $20,000 loan from YC in 2009, which was later converted into a 7% share of the company. YC then pushed Airbnb into the business world and the network of famous investors, who invested one after another, followed by Founders Fund with $200 million in 2013 and $1 billion from Silver Lake in 2020.

    The above is the story of how Airbnb navigated its way to meet famous investors in Silicon Valley, got out of debt, and eventually gained recognition on the international stage. After Paul Graham brought Airbnb into Silicon Valley, what did they learn? What capabilities and right decisions did they make that allowed them to stand out from their competitors at that time? This is the second important point that I will summarize for you.

    When the Airbnb founding team joined the Y Combinator training program, Paul Graham set a clear goal for them: In the next three months, they had to earn enough profit to be self-sustaining. This meant they had to have enough revenue to pay employee salaries and office rent. This theory is widely known as being "Ramen Profitable." It means having enough profit to buy ramen for the team to eat. When they have enough profit to buy ramen, it means they can sustain themselves without relying on investment from investors.

    This point is crucial. It showed investors that their team had the ability to make money on their own and manage money well. If investors put money in, they would likely generate even more money, rather than just scrambling for cash day after day. Among tech startups, most companies have users but no revenue yet. But Airbnb had revenue from day one. They took a commission from both the host and the guest. From the host, they took 3%, and from the guest, they took between 6% to 12%. Why did they take a larger commission from the guest than the host? Because in the beginning, what they lacked were houses for rent. Because people who own homes are not easily willing to rent them out to people they've never met. First is safety, second is cleanliness. As for guests, there was no shortage. They were just staying in hotels or guesthouses. But if there was an option for a rental that was easier and cheaper, they would surely stop staying in hotels.

    The founders of Airbnb confessed to Paul Graham that the number of hosts who had signed up at that time was only a little over 100. In terms of revenue, it wasn't even enough to buy ramen. But Paul believed that having 100 loyal customers was better than having a million scattered ones. He believed that small new businesses should focus on a small number of customers first and serve them well. Once they do a good job, have a mature operation, and a good reputation, then they can expand the market.

    This advice was another guiding light for the Airbnb team on how to take their next steps. Paul Graham asked them, "Where are those 100 people?" They replied, "Most of them are clustered around New York City." Hearing this, Paul told them, "If the guests are in New York, what are you all doing here? Go to New York immediately and meet them. Get to know them, build good relationships with them, and ask them what else we can do to help them."

    After receiving this advice, Chesky and Gebbia flew to New York City every week. With nowhere to stay, they stayed with the hosts who were listing their places on Airbnb. They experienced it for themselves to see if it was convenient or not, what was lacking, and then provided feedback to their CTO, who was waiting in Silicon Valley, to modify the website to make it more appealing and user-friendly.

    For example, when they stayed in a rental, they noticed two important problems that hosts were facing. First, hosts didn't know how to take good photos. The house could be beautiful, but if the photos weren't good, it wouldn't be appealing, and no one would even look at it, let alone want to stay there. Second, hosts didn't know how to set prices. The size of the room, the decor, and the location were all different, so pricing should also be varied. Hosts didn't really understand market prices. So how could they set a reasonable price?

The first problem was easy to solve. The company's CEO, Chesky, took a camera and a team of a few professional photographers to take photos for the hosts and then uploaded them to the website. They later found that houses with professionally taken, beautiful photos were booked 2-3 times more often than those with photos taken by a regular phone. This meant that well-arranged and beautifully photographed images were a very appealing factor for users. While other websites had many users, if the images weren't appealing, they didn't get many bookings either.

    Seizing this opportunity, for the first two years, Airbnb created a team of professional photographers that hosts could use to have beautiful photos taken for their listings. This new service not only generated a stream of revenue for the company but also made the entire website look beautiful and trustworthy. With more views, the percentage of bookings increased significantly.

    The second problem was a bit harder to solve. Traditionally, pricing in the hotel industry is already complex. It depends on location, decor, hospitality, cleanliness, season, and whether there are any major events or holidays. Therefore, Airbnb had to build a very sophisticated calculation system to help hosts set prices and create a comprehensive and secure payment system for users. This task was a bit big for a small company like Airbnb at the time. But they knew that they had to get this right to have an advantage over their existing competitors in the market.

    To this day, Airbnb has a large team of engineers and programmers, and their system and data are the key assets that make it difficult for other companies to compete for their market share. Three months after joining the Y Combinator program, they did indeed generate enough profit to sustain their operations. And they had a remaining profit of about $1,000 every week. This showed that their product was truly gaining traction in the market. And from that moment on, various venture capital firms started to take notice of this small-but-mighty company in Silicon Valley.

    Starting from the initial capital of $20,000 provided by Paul Graham, followed by $600,000 from Sequoia, a year later the co-founder of LinkedIn invested over $7.5 million, and by 2011, Airbnb received another round of investment of $112 million, valuing the company at over $1 billion, becoming a "Unicorn" in just a few years. After receiving a large amount of investment, Airbnb began to focus on two important things: company culture and creating an ecosystem within their industry. Big brands in the world like Apple, Starbucks, and Tesla don't just sell products; they sell a lifestyle. The target customers of Airbnb are people born between 1980 and 1990, a group of people who enjoy simple, natural travel. They can travel around the world with just a backpack. They want freedom, convenience, and to understand the life and culture of the local people in the places they want to visit. They do this through the experience of staying with a local host.

    What they did next was to create an ecosystem for their users. They knew that hosts were a crucial resource and the source of content on their website. Therefore, they did many things to promote sales, generate profit, and foster growth for the hosts. For example, they invited experts from the hospitality industry to create lessons, share experiences, and write guidebooks to help hosts, turning their small homes into potential hotels. They created groups for hosts to discuss and share experiences with new members and had incentive mechanisms for hosts who provided excellent service.

    As of now, there are over 6 million homes listed on Airbnb, making it the largest accommodation management company in the world, without owning a single property itself. Of course, no business is perfect. Airbnb has also faced numerous obstacles. So when they encountered problems, how did they solve them? What did they learn from those problems? This is the third part that we will discuss. The first question that they worried about the most regarding Airbnb's business model was, "Who would be willing to rent their house to a stranger they've never met?" And "How could a traveler dare to sleep in a stranger's house?" If it's not a hotel with proper management, who guarantees the safety of both parties?

    Like the case of a female host who posted on social media about a guest who stayed at her place through Airbnb and had malicious intent, causing damage to her property that was unbearable. These images were shared widely on social media, severely damaging the company's reputation. CEO Chesky heard about this and sought advice from his board and advisors. Some advised him to admit fault and compensate the guest generously. Others said doing so was not possible, as it would encourage more people to do the same, leading to a never-ending cycle of problems. Some advised to do nothing, let the issue die down, and solve the problem later. Later, Chesky issued an official apology and, to regain the trust of hosts, they established a $1 million guarantee to cover damages in case of problems. They also doubled the size of their 24-hour customer service staff and created a system to protect the safety of both guests and hosts.

    Even though they did all this, they still couldn't guarantee the safety of their users. For example, the case of a host raping a guest that occurred in 2015 in Spain. The female guest called her family, and her mother contacted the Airbnb team. But due to user privacy laws, they couldn't provide the guest's accommodation details to a third party. This later incident led to a storm of criticism and attacks against them. It was only after this that they underwent a major restructuring, changing both their terms of service and their management structure. They also created a special team of over 250 people, including a hotline, to ensure user safety and protect the property of hosts. This finally helped them regain the trust of their users. The key takeaways from "The Airbnb Story" that we have summarized for you this week have come to an end.