Worst. Idea. Ever.

At the sound of the alarm, Brian’s eyes snapped open. His heart pounded furiously. 

His first thought, the same one that had been assailing him every morning for months, came in the form of a question: “What have I gotten myself into?”

Short answer: Forty thousand dollars of credit card debt and a struggling start-up that most people thought was destined for an unceremonious burial in the cemetery of bad business ideas. 

While home for the holidays, he had informed the family that he was now officially an entrepreneur. His mother, however, had a different opinion on the matter:

“No you’re not. You’re unemployed.”

Rewind a couple of years. Brian had relocated to San Francisco to room with his friend Joe. The two met at (RISD) Rhode Island School of Design. Pre-graduation, Joe predicted that the two of them would one day start a business together and after some persistent prodding, he’d finally prevailed upon Brian to join him up North. The plan was to start a design company.

In the interim, Brian had become utterly disenchanted with Los Angeles and his job at a small design firm. The lofty notions inculcated at RISD about changing the world had given way to disillusionment. While he did not know what he wanted to do with his life, he knew he wanted out of L.A. 

Filled with uncertainty about his future, Brian rolled up his foam mattress, stuffed it in the backseat of an old Honda Civic and hit the road for San Francisco. 

He had $1000 in the bank. Rent was $1150. 

By a stroke of serendipity, there was an international design conference that week. Good networking opportunity. But all the hotels recommended by the conference were at capacity - not a single room was available.  

The enterprising roommates hatched a plan to rent out their unfurnished apartment, using three air mattresses Joe had purchased for a camping trip. There were three takers. By the end of the week, their rent was covered and and a new business idea was born.

Not long after that - at another conference, Brian spotted a well known designer whom he had long admired and shared the concept with him. The designer was unimpressed.

“Brian, I hope that’s not the only thing you’re working on.”

Launch(es)

For a year, Brian and Joe labored to bring their idea to fruition. The team became a trio when they brought on a Harvard educated software engineer to code the website.  

Then, they launched. 

Crickets.

South by Southwest, a massive multi-media festival held annually in Austin,Texas, was the birthplace for several high profile tech companies. They figured they’d follow suit. 

When it was over they had acquired 2 customers; one of them was Brian. After a year of toil, nobody was using the site.

It’s now 2008. The Global Recession. Venture Capitalists (VC's) were hitching their dollars to companies that satisfied one principal criteria: ability to survive. 

Drowning in debt, with no money to pay rent, the co-founders were in desperate need of a lifeline. They tapped into emergency reserves of resourcefulness and found financial salvation in the form of a cereal box. 

At the Democratic National Convention that year, Brian and Joe made hundreds of candidate branded cereal boxes and sold them for $40 a piece to raise funds. This is what they looked like.

With the massive assemblage of people at the convention, the team assumed it would be a great place to try another launch.  

Bad news: Third time was not a charm.

Good news: They raised enough money from cereal sales to pay off their debts.

Impressed by the grit the guys displayed, their mentor facilitated email introductions to 20 investors. Most did not bother to reply to Brian’s email.

Of those who did reply, the feedback was brutal. “This is a stupid idea that was never going to work”, they were told. It was the worst year of Joe’s life. As he later recalled:

“It was demoralizing to sit in their offices and hear the consistent refrain: “this is not gonna work.”

One potential investor they met at a local cafe ordered a smoothie, listened to Brian's pitch and then without uttering a word, got up and left.

Though the site was starting to attract more users, growth was at a snail’s pace. Eventually, even their mentor suggested they consider a pivot. 

Cut back to a sleep deprived Brian in his room - state of panic. He’d shed 20lbs (“best weight loss program ever!”) from all the stress and anxiety. But somehow, throughout the day, he would gradually gain in confidence, and by nightfall, he’d feel optimistic again about the company’s prospects. The cycle would then repeat itself.

At a lunch meeting, their mentor suggested they apply to a prestigious program for entrepreneurs called Y Combinator. It was a start-up school that provided small sums of early stage funding to a bunch of companies. The deadline was midnight, that day. They worked feverishly to complete the extensive application and were accepted.

At their first meeting with Paul Graham, the highly regarded and influential founder of the program, Graham asked the two co-founders where their customers were located. Some hesitation and stammering ensued before Brian and Joe replied that New York appeared to be showing some promise. Graham forcefully advised them to get on a plane post haste and meet with the people using the site.

Go East Young Men

The insights they gleaned from observing and listening to their users were game changing. Rather than fixating on growth, they began to put all of their focus into building something people loved. Ironically, growth began to accelerate once they ceased obsessing about it.

The team quickly implemented improvements that produced immediate results. Customers began flocking to the site.

Still, they struggled to find an investor willing to bet on them...

“Thank you for the introduction. Brian good to meet you - while this sounds interesting it is not something we would do here - not in our area of focus, do wish you best of luck.”

“Hi Brian,

Apologies for the delayed response. We’ve had a chance to discuss internally, and unfortunately don’t think that it’s the right opportunity from an investment perspective. The potential market opportunity did not seem large enough for our required model.”

“Brian:

...I’m not going to be able to proceed with an investment at this point. My biggest remaining concerns are..."

“Brian,

We decided yesterday not to take this to the next level…"

Vindication

But eventually one VC did and in 2010, Airbnb finally raised their first round of funding in the amount of $7.2 million.

In 2011, the company reached a milestone of 1 million bookings through the site. At the beginning of 2012, they hit 5 million bookings and by mid-year, it was up to 10 million. 

In 2016, Airbnb was valued at $30 billion dollars. 

Turns out their much ridiculed idea wasn't too shabby after all.

Reflecting on the enormous opportunity missed, one of the investors who passed on the company later wrote:

“We made the classic mistake that all investors make. We focused too much on what they were doing at the time and not enough on what they could do, would do, and did do...We don't always get it right. We missed Airbnb even though we loved the team. Big mistake. The cereal box will remain in our conference room as a warning not to make that mistake again.”

Takeaway: The value of a good mentor can be priceless.

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Sources:

• https://www.npr.org/2017/10/19/543035808/airbnb-joe-gebbia
• https://www.youtube.com/watch?v=vEcACMyz3Rc
• https://www.startups.com/library/founder-stories/brian-chesky
• https://medium.com/@bchesky/7-rejections-7d894cbaa0
• https://www.youtube.com/watch?v=GFMeuSIhIYg&t=683s
• Gallager, Leigh.The Airbnb Story. Marriner Books, 2018
• https://avc.com/2011/03/airbnb/
• https://getpaidforyourpad.com/blog/the-airbnb-founder-story/
• https://www.howwemadeitinafrica.com/airbnb-co-founder-brian-chesky-shares-how-he-built-a-25bn-business/50823/
• https://en.wikipedia.org/wiki/Timeline_of_Airbnb