A while back I attended a workshop on “Global Strategies for Ambitious Entrepreneurs” delivered by Professor Joe Lassiter from Harvard Business School and Ken Morse the chairman of Entrepreneurship Ventures Inc. The session was based on a case study of AirBnB, which so happens to be one of my favourite companies. Having followed them for the last 2-3 years after they first appeared on TechCrunch all of my friends have heard me banging on about how cool they are. I loved their entrepreneurial spirit to overcome all of the odds. On several occasions when all seemed lost they designed, innovated and sold their way out of trouble (at least in the short term).
Let me summarise how the concept of AirBnB came about (one of my favourite parts). First let me introduce the 3 founders of the company Brian Chesky, Joe Gebbia were collage buddies at Rhode Island School of Design (RISD) and Nathan Blecharczyk, a software engineer who graduated in 2005 from Harvard with a Computing Science Degree.
After a couple of years out of colleague, Chesky and Gebbia decided to start a business together. Chesky moved in with Gebbia, and the two immediately focused on solving their most pressing issue: “I had no idea how expensive rent was in San Francisco,” said Chesky. By happenstance, a major international design conference was scheduled to take place in San Francisco the next weekend. Gebbia recalled, “I had just read that all the hotels were completely booked out for the conference, and that people were having a hard time finding rooms. I happened to walk down the hall past an empty bedroom, and I stopped dead in the hallway, looking at the space.” Gebbia and Chesky decided to see what they could make of the room shortage and quickly built a website to help them rent rooms in their apartment. “We coded it up in a day,” says Chesky. “We were offering full bed and breakfast service, but we didn’t have any beds, so we called it Airbedandbreakfast. We sent it around to the design bloggers we knew, and got the convention website to link to us.” Ultimately the two ended up hosting three people for the week, and made $900. “We really became friends with our guests.” Recalled Gebbia: “watching them go down the stairs, with the money in my pocket, I was just overwhelmed by the size of the opportunity we’d discovered.
This is the story that compelled me to follow the company, and gave me the desire to continue to find new ways to solve real world problems that I face. Today’s discussion focused on them being on the brink of failure until they presented at Y-Combinator, a high profile startup incubator. The question asked related to an inital seed investment offer from Sequoia of $610,000. To me it seemed like a no brainer. The company valuation had gone from $0 to $333k given the initial $20k for 6% Y-Combinator investment in only 12 weeks this seed funding offer from Sequoia represented a valuation of $3,050,000. With this investment they had the capital to grow their team, grow their customer based and improve their technology. They were presented with the offer prior to a presentation with one of the largest gatherings of VC’s from across the US. Even so the risk of saying no in the hope of a better deal was not worth taking. Sequoia had the right investors and the money on offer would enable AirBnB to achieve everything they needed to build the business and get to series A investment. However,fFrom my subsequent research of the company, while legal, their method for bootstrapping and building their user base was questionable and often frowned upon within the developer/tech community.
By web scrapping other property listing sites and contacting individuals who had posted adverts they were able grow their user base. However, this was done under the guise of individuals giving feedback and advice to other peers not as an official message from the company. By spamming these users they were able to convince them to sign up to their service. By presenting the messages from peers they were able to prevent their service being blacklisted by the major search engines and preserve the good name upon which to build the brand. While a clever approach to growing you audience my dilemma or question to other Entrepreneurs out there is what is acceptable when building your business? Should we use any means we can to get up and running, provided it is legal? Can we do more ‘good’ when we are larger than we ever did ‘bad’ as a smaller company?
It is an interesting dilemma and has not been one I have considered until now, hopefully there will be some interest around this question and I can post a follow up with my take once I have considered the discussion further.