use Creativity to Turn a Failing Business into a $31b Company?
People still love to believe in the American Dream. If you can come up with a simple but brilliant idea, and hustle hard enough, you will make it. Well, the dream isn’t dead yet, but there is another, very important, ingredient.
Since its launch in 2008, Airbnb has hosted more than 400 million guests looking for an alternative to steep hotel prices. Originally named Airbedandbreakfast.com, roommates Brian Chesky and Joe Gebbia came up with the idea after moving to San Francisco in 2007.
Both facing large personal debts, they were very aware of how costly accommodation in their city was, so when the whole city was booked up during an important design convention, they decided to cash in by renting out an airbed on their living room floor.
It worked! Soon they welcomed their first three guests, offering a cheap place to stay overnight including a homemade breakfast. Charging $80 a night, they decided to try scaling their business in order to pay off their debts, joined by co-founder, Nathan Blecharczyk.
"The concept was simple and innovative, but naturally, most people were reluctant to let strangers into their homes."
Putting a team together was easy, but getting other hosts to sign up was harder. The concept was simple and innovative, but most people were reluctant to let strangers into their homes. Some even said it was a terrible idea, thinking people would might get killed in their houses.
Without any funding, the team made do with what they had. They started writing creative articles for small local blogs that charged little for ad space. Their unique story started to catch fire, its smoke attracting the attention of none other than The New York Times.
Another popular convention was coming up; the Democratic National Convention in Denver.
With 200,000 people attending, hotels booked up quickly. So, the team saw this as their next big chance. It led to 600 bookings, but these immediately nosedived again afterward.
After a steady period without bookings, the company starts racking up debt. The team realized they couldn’t just keep waiting for the next huge convention. They had to come up with new creative ideas. So, how did they keep Airbnb afloat?
By selling dramatically overpriced boxes of cereal. No joke!
Up until then, they had been focusing on the “bed” part of “bed and breakfast”, but Chesky wanted to focus on the “breakfast” part for a change, thinking of a way to upsell their services by offering branded breakfast items.
Remaining on-theme with the election craze, they started reboxing cheap cereals and selling them as limited edition presidential cereals.
For a whopping $40, you could get your hands on collector’s items ‘Obama-O’s: The Breakfast of Change’ or ‘Cap-N McCain’s: A Maverick in Every Bite’.
Besides earning the company some much-needed press coverage, the cereal box idea eventually made them more than $30,000. The story also reached Y Combinator owner Paul Graham, who initially shares the popular opinion that Airbnb is a bad idea.
However, impressed with how these guys got consumers to pay that much for cereal, he believed in their ingenuity and perseverance.
"If your company is profitable when you only survive on eating ramen, then your business is ramen-profitable."
Graham offered them a 3-month mentoring program, putting them on a mission to be ramen-profitable by demo day. This prepared them for the possibility that no investors will be interested, as expected in times of a lurking recession. If your company is profitable when you only survive on eating ramen, then your business is ramen-profitable.
With their funding from Y Combinator, the team traveled to their biggest market –New York City– and discovered something important; the pictures of their spaces didn’t do reality justice.
Buying a camera, they went door-to-door to set an example. This improvement, along with expanding the listings to all types of accommodation (complete private homes, cabins, luxury villas, cottages etc.) is what finally ignites their big success.
As of 2020, listings surpass 2 million, and the company is estimated to be worth 31 billion.
Not bad for a company that rents out airbeds and sells limited-edition cereal boxes. Who would have thought?
Certainly not the people who had already been using similar services like HomeAway.com for years already. With a similar idea, Airbnb relaunched a refined version of the recipe. And thus, the secret ingredient to the American dream turns out to be: creativity.