From Selling Cereal to Changing Travel: The AirBnB Story

On September 22, 2007, Joe Gebbia sent his friend Brian Chesky an email titled ‘subletter’, with an idea to turn their apartment into a bed and breakfast for designers.

That email would change the travel industry forever.

Both Brian and Joe were students at the prestigious Rhode Island School of Design at the turn of the millennium. Chesky ran the hockey team, Gebbia founded the basketball team. The two became fast friends.

After graduating with fine arts degrees, Gebbia moved to San Francisco and Chesky took up an industrial design job in Los Angeles. The two had always dreamed of starting a company together. In 2007, Gebbia felt the time was right, and invited Chesky to relocate to SF.

Chesky agreed, and the duo rented an apartment in SF, quitting their jobs to work on building a company. The timing wasn't great. Their landlord raised the apartment rent by 20%.

Hustle to survive

Broke and bleeding money, the design graduates took note of a major design conference coming to SF. Realizing that hotels in the area were completely booked and many attendees would be looking for cheap lodging, the duo decided to cater to the demand.

The plan was simple.

Inflate an air mattress in their apartment and offer it to visiting designers with the added perk of breakfast cooked by the hosts. They created airbedandbreakfast.com and got some design blogs to write about it.

Besides getting written about, the founders hit the streets as tour guides for visitors, drumming up publicity for their fledgling venture. It was a shot in the dark, but it worked. They ended up buying 2 additional air mattresses to host guests and managed to pay rent.Two desperate designers had stumbled across a business idea. Now they needed technical help.

Enter Nathan Blecharczyk.

Nathan  joined the team in February of 2008 as the third co-founder of the venture.The team briefly worked on building a roommate matching platform but realized it was futile as other alternatives existed. They dusted off the bed and breakfast idea and got back to work.

Instead of just being one rented apartment, the team reimagined their venture as a platform where others like them could list their space and earn some money on the side.

It had worked for them, surely it would work for others, they reasoned.

By August 2008, the website was back online. The team hit the streets, and even tried to capitalise on event demand again during SXSW.

Nothing worked. They were losing hope and not able to grow listings. Even Blecharczyk decided to move on to other things.

To the brink and back again

2008 was tough. A Presidential Election was underway amidst a financial crisis.

Chesky and Gebbia were out of options, so they fell back on what they knew best — design. They bought boxes of cheap cereal and redesigned the covers themed after the candidates — Obama O's and Cap'n McCains.  The boxes were pitched as 'limited edition', and sent to the press and existing hosts to drum up publicity.

Obama O's and Cap'n McCains were priced at $40 a box. They ended up selling 800 boxes of cereal. The gamble had worked. The team had gone from their last few cents to having $30,000.

The venture was not on the verge of bankruptcy anymore, but growth was unremarkable.

Meanwhile, entrepreneur and current Y Combinator partner Michael Seibel – whom they'd met at #SXSW – introduced the team to multiple investors, most of whom declined to invest.

The road to Y Combinator

The money was running out again, and Chesky and Gebbia were surviving on unsold Cap'n McCain boxes when Seibel suggested they apply to Y Combinator. Chesky resisted, but Seibel insisted:

"You guys are dying"

The deadline for the next batch had closed, but Seibel and his then Justin.tv co-founders personally pitched Paul Graham to give them a shot.

Chesky and Gebbia scrambled to complete the application on time, even calling up Blecharczyk and rousing him from his sleep to put his name on the application.  A bleary Blecharczyk agreed, the application was submitted, and the team was called for their interview.

While Graham was impressed by their knowledge of the market, he wasn’t keen on offering them a spot. As a Hail Mary, Gebbia pulled out a box of Cap'n McCain's he'd brought without telling the others, offered it to Graham, and told him how they used cereal to raise funds

The gamble worked. Graham was impressed by the team's tenacity.

Shortly after, he offered them a spot on Y Combinator's winter 2009 batch, with $20,000 in funding.

“You guys are like cockroaches. You just won’t die.”

Shortly after, the company ditched the 'airbedandbreakfast' name and took on the moniker that would carry it to become one of the most successful companies in the world — AirBnb.

The brand was taking shape. But the scale wasn't.

Airbnb's customer growth happened through a mix of good old fashioned hustle and ideas derived from the founders' design sensibilities.

Do the things that don't scale

Upon visiting New York — one of their biggest hubs — the founders realised hosts weren't showcasing their spaces well in pictures. They hired professional equipment and individually helped hosts take high quality images and improve the quality of their listings.

This initiative would grow to become Airbnb's photography program, which has helped local photographers help Airbnb hosts across the world.With high quality listings, Airbnb targeted users and hosts from Craigslist — which had a massive user base but inconsistent listing quality.

(Chesky and Gebbia considered listing their original airbed offering on Craigslist, but decided to be entrepreneurial instead).

They built bots that would automate the process of sending hosts on Craigslist emails about listings on Airbnb. Meanwhile, Airbnb hosts were given the option to cross-post to Craigslist with one click, with their Airbnb optimised listings standing out on the platform.

These tactics worked. In the post-2008 world where many young millennials could not justify paying exorbitant room rates to travel, this startup that promoted discovering communities (at a much cheaper cost) struck a chord.

User numbers started going up. And funding starts flowing in.

After Y Combinator, Airbnb raised more money in 2009, and did a Series A round in 2010. By 2011, the platform had done 1 million bookings.

A major turning point for Airbnb was when the founders realised how big it could get. They'd always thought of a solution for renting out personal space, that they could go after the entire vacation rental market only occurred to them later.

The founders never imagined how big Airbnb would become.

Chesky once told former Fortune editor Leigh Gallagher — who wrote the book The Airbnb Story — that he used to think: "Wow, if we’re really successful with this, someday *hundreds* of people might use this."

Airbnb quickly expanded across the globe, capitalising on smart acquisitions and rising demand to 'experience places like a local'. The team designed the app experience to amplify this, leveraging social connections through referrals and encouraging wishlist building.

Just like their cereal experiment, Airbnb became known for doing things that don't scale. They sent people out to new markets to get new hosts, organised local events, and doubled down on 'community'. Even their current logo 'Bélo', is meant to symbolise 'Belonging'.

As they grew astronomically, Airbnb faced pushback from cities and large hotel chains, whose market was being eaten up. Even New York and SF pulled up the company for operating outside legal frameworks in this new, unregulated market they had created.

While it navigated these new challenges, Gallagher talks about how Chesky was inspired by Amazon and Jeff Bezos for their staying power. Of the many tech giants from the 90s, Amazon is one of the few that thrives today, owing to how big it became. Today, Airbnb is charting a similar story. The company first became profitable in 2016, and even after getting hit by the COVID19 pandemic and having to lay off thousands of employees, still managed to IPO in late 2020, hitting a valuation of $100 billion.

From air mattresses and cereal boxes to a billion dollar company — the story of Airbnb is one of the greatest startup stories of this generation.

Proof that a good idea, innovative execution, design thinking, community focus, and hustle can change entire industries.

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