Lessons from Airbnb's Rejections
foundersatwork.posthaven.com
foundersatwork.posthaven.com
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.
I think VCs would have understood the potential better if they were sparebedroom.com instead of airbnb.com.
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?
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.
3. A lot of luck.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Hat tip to the AirBnB guys for finding a way to make money out of that idea.
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.
And perhaps that means it's time to change-up your pitch?
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.
What's being ignored is that the odds of your company becoming the next Air BNB or even 1/100 as successful as Air BNB are pretty slim.
I dunno what the stats on y combinator is, but I imagine the vast majority of start-ups are will never be sold for over $100 million
But I wish I were there, no doubt. I like the idea and I would have pitched then $10k as throwaway money and be a millionaire 100 times over.
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?
I could be wrong on that.
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.
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.
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.
Great way to destroy your most precious and important relationships.
Never borrow money from friends, be extremely careful when borrowing money from parents.
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?
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.
Not everyone's family or social circle is in that financial position.
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.
> 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.