Four Business/Startup Lessons From Airbnb

In 2008, three recent college graduates Chesky, Gebbia, and Blecharczyk, started a website called Airbed & Breakfast(which became Airbnb) to allow people to rent out part of their homes to travelers — An alternate for expensive hotels. The idea itself was not new, and the market already had similar websites — HomeAway.com, VRBO.com, Couchsurfing.com, BedandBreakfast.com, and Craiglist.

Though Airbnb was a late entrant, it began to climb up the ladder quickly. By 2016, within eight years, the valuation of Airbnb reached $30 billion whereas, HomeAway was at $4 billion. The new company had 140 million guest arrivals in that year. It was phenomenal growth.

What business lessons could we learn from the growth of Airbnb?

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Airbnb Office, Image source — Officesnapshots.com

1.0 TARGET NICHE MARKET

Most of us dream of building a company that would be called the next Amazon or Apple. However, we have to realize that Amazon or Apple started small before becoming influential in its field.

  • Macintosh began its business by targeting a niche customer base(Graphic Artists/Designers) and went on to dominate the market.
  • Sam Walton, initially, started Walmart in small towns that had a population not more than 5000.

Similarly, in the beginning, Airbnb targeted a niche customer base — The Millennials.

Why did Airbnb founders Chesky and Gebbia choose Millennials?

  • Chesky and Gebbia, being millennials themselves, had sound knowledge of the target customer’s needs, pains, and desires. A critical factor for succeeding in business is to have a thorough understanding of the proposed customer segment.
  • Millennials wanted a greater sense of adventure at an affordable cost. Most of them were comfortable with venturing into the home of someone they’d connected with online. It’s not the same for other segments.
  • An Airbnb report says that most millennials would prioritize travel over buying a home or paying off debt.
  • Millennials are also called as Digital Natives as they grew up interacting with the virtual world. They would be the ideal segment for a web platform like Airbnb.
  • And, the crucial one for business growth — Millenials are trendsetters. They are the early adopters. The Early Majority segment follows what millennials do and how they travel.

Airbnb also focused on another niche — In the beginning, the brand targeted hosts from cities instead of vacation destinations in resort areas. The company predominantly became an urban phenomenon — 70 percent of Airbnb’s full-home listings were studios, one-bedroom, and two-bedroom units.

Thus, Airbnb’s niche was millennials and urban destinations.

NICHE, THE SUCCESS MANTRA — So, the rule of thumb for business success is to “Start small. Find the target market with maximum pain. Focus on a particular need, work on it, make your product distinctive, and dominate the niche market. Once you become a leader in the niche market, you could move to the larger markets”.

2.0 SELL EXPERIENCES, NOT PRODUCTS

Every brand aims to build a long-term business. One of the ways to accomplish that goal is to try to maximize the benefits of an investment. It implies that a brand has to develop loyal customers who would purchase the product/service again & again without the brand prompting them to buy. In this way, the brand would gain maximum value without any additional investments of money, time, and effort on expensive marketing.

Developing Loyal Customers — One of the best methods to make a customer loyal to a brand is to entice him/her to spend more time with your product or service. He or she will allocate more time only if the product/service offers pleasant experiences.

The Decision-Making Mind — Research reveals that a person’s subconscious emotional mind was responsible for a large number of purchasing decisions. And, the product/service experience directly appeals to the emotional mind. So, the product experience matters.

The Viral Component — Experiences are also relatable and shareable. A customer may not talk about product features or benefits to his/her friends but would happily share his/her feelings about the product — the experiences while using the product/service. Stories are always appealing than listening to a list of features.

When Chesky and Gebbia developed the website for the first time, they thought from the customer’s shoes — Why are they coming to the design conference? What would they need to achieve their objectives? How could we help them to realize their trip goals? The questions helped Chesky and Gebbia to provide a pleasant experience to the customers.

When guests arrived, Chesky and Gebbia presented them with a welcome package that contained a BART pass, city maps, and spare change to pass out to homeless people. They served their guests breakfasts of untoasted Pop-Tarts and Orange juice. Chesky and Gebbia also showed their guests around the city — they took them to their favorite Taco place, Ferry building, and Stanford’s design school.

The guests loved their stay. They realized that they would’ve missed this experience if they’d opted to stay in a hotel. They were thankful to Chesky and Gebbia and became close friends with them. It shows how selling experience would convert a customer into a loyal one.

One of the ways to determine what experience a company should sell is to go beyond the present customer needs at each touchpoint.

(From Reid Hoffman’s Blog) — Chesky says, “We basically took one part of our product and extrapolated — what would a 5 star experience be at that point? You knock on the door, the host opens the door and lets you in. You didn’t face any problems. That’s great. Would that be enough?”

Chesky, continues ‘What would a 6-star experience be?’

He imagined, “How about the host showing the guest around and welcome him/her with a gift that is to their liking. How about water in the fridge for them, toiletries in their bathroom?”

Would that be enough?

But, Chesky continued to ask himself, “What’s a 7-star experience be?”

“How about a host allowing the whole kitchen for the guest to use? How about organizing things a guest would like — For example, a cycle or a surfboard for surfing or special lessons or a car to move around or booking in a local restaurant. That could be way beyond.”

It is one of the ways Chesky and Gebbia brainstormed for new exciting experiences for their customers. Always overdeliver at each touchpoint.

What experiences did Airbnb sell?

HUMAN EXPERIENCE — One of the exceptional advantages of Airbnb was the human experience — the intimate interaction a guest has with the host that could not be copied by hotels. Usually, when people travel, they would feel alone. In Airbnb, the host becomes a part of that travel, helping the guest to immerse himself/herself in the local culture. It is similar to how Chesky and Gebbia became friends with their first set of guests.

Airbnb focuses on providing a human experience with personalized touches.

CULTURAL EXPERIENCE — The critical experience Airbnb offers for a traveler is to experience new places as the locals do. It helps a customer to have a personalized experience.

It was the underlying message behind Airbnb’s marketing campaign — Don’t Go There. Live There. It is an opportunity to immerse yourself in the local culture.

“The Live There campaign is about tackling the tension that so many people feel when they travel,” said Jonathan Mildenhall, Airbnb’s CMO. “We know travelers want more. People around the world have told us they want to live like a local. They want a deeper connection to the community, to genuinely feel part of the places they visit. At the heart of this campaign is our antidote to commoditized travel — the unique, human connections that happen when you truly Live There.”

Along with the guests, the hosts also gain cultural experience. They get opportunities to connect with people of different cultures across the world. They learn about their guest’s life and travel experiences.

SEAMLESS EXPERIENCE AT CUSTOMER’S VIRTUAL TOUCHPOINTS — Before Airbnb, the home rental market had similar websites — HomeAway.com, VRBO.com, Couchsurfing.com, BedandBreakfast.com, and Craiglist. So, Chesky and Gebbia’s idea wasn’t an original one. Yet, they cornered a niche, differentiated the brand from competitors, and grew. And, from the beginning, one component played a critical role in its initial success — It was Airbnb’s website.

Delivering a successful wholesome experience to a customer depends on identifying all the touchpoints where he/she would be interacting with the product/service. It’s not just physical but also virtual touchpoints.

For Airbnb, being a digital platform, virtual touchpoints are as critical as the physical ones because several activities happen over the website — Seeing ads, opening the webpage, searching a destination, booking it, paying, contacting the host, reaching customer care, and various other activities. The website is a critical part of the product experience. At each touchpoint, the founders wanted to make sure that the customer’s experience not only has to meet his/her needs but should go beyond his/her expectations.

Don’t ask -What specific experience would we offer at each touchpoint? Ask — What would delight the customers?.

Design Thinking — The Airbnb website’s success could be attributed partly to Chesky and Gebbia’s design background. From the beginning, they were determined to provide a seamless experience to a customer through the online platform. Their goal was to make it as easy as possible to book a room in someone’s house. Their field of knowledge became their biggest strength.

Chesky often told that when Steve Jobs conceived the iPod, he wanted never to be more than three clicks away from a song. He followed the same rule while designing the Airbnb website. It should not be more than three clicks away from booking a room. Save the user’s time as much as possible.

Airbnb’s digital experience played a significant role in its initial growth. It differentiated them from other brands.

3.0 UNDERSTANDING YOUR CUSTOMERS

“One of the reasons behind Walmart’s success was Sam Walton’s knowledge of customer’s needs, desires, wants, and pains. He lived among his customers as one of them.”

The foremost factor for a successful business is an in-depth understanding of its customers.

It is critical to understand the needs, desires, fears, wants, and limitations of your customers. To know them, we need to observe them. The more we discover them, the sooner we begin to think from their shoes. As we began to think from their perspective, we would sooner become one of them. We are them & they are us.

If you become them, you would be making business decisions from your consumer’s perspective or user’s perspective & your business would grow fast.

Airbnb Founders & Their Knowledge of Customers — A year after the first launch, Airbnb was struggling and was on the verge of collapse. Fortunately, at the right time, the company got selected for the Y Combinator Startup program. The scheme provided limited funding and also, mentorship. That turned out to be a blessing.

One day, Y Combinator’s Paul Graham asked Chesky about the number of users Airbnb had. Chesky replied that only a hundred users were on board.

Graham continued, “Where were they exactly?”

Chesky answered, “They were mainly in New York City.”

Graham paused, then repeated back to them, “So, you are in Mountain View and your users are in New York? What are you doing still here? -Go to New York! Go to your users.

That was the bell that changed Airbnb’s fortunes.

For the next three months, Gebbia and Chesky flew to New York every weekend — They went door to door, met every potential user, and importantly, they observed them from close quarters.

Leigh Gallagher writes in his book on Airbnb, “Chesky and Gebbia learned a lot from talking to their customers, but they learned more by simply parking themselves in their living rooms and observing them as they used their product online.”

Chesky and Gebbia observed potential customers in a natural context. A naturalistic observation would reveal valuable insights about user’s needs, pains, or desires better than other research methods. It would be expensive and time-consuming, but it would help in generating innovative ideas. A naturalistic observation also lets us see what happens over a longer time.

Reid Hoffman, one of Airbnb’s early investors, says, “As co-founder and CEO of Airbnb, Brian’s early work was more akin to a traveling salesman. He went door-to-door, meeting Airbnb hosts in person, taking photographs of their space, and learning what they did and didn’t like about his product. Now, this may sound inefficient if you’re an entrepreneur with global ambitions. But I’d argue that painstaking, handcrafted labor is actually the foundation of Airbnb’s success.”

The observational research had helped Chesky and Gebbia to refine their website and several other customer touchpoints.

Let’s see a few examples of how the research had helped them.

From their research, Chesky and Gebbia identified two critical pain points — People had trouble pricing their properties and in taking/uploading photos.

  • The Visual Experience — The founders observed that homes that appeared lively in-person looked ugly or uninviting on the website. People were taking photos through their mobile phones & it didn’t turn out well. So, Chesky decided to offer to send professional photographers to every host’s home. They also simplified the uploading process. Once better photographs were uploaded, the founders were surprised to see that the signup rate went up by leaps and bounds.
  • Chesky and Gebbia also developed a program to help a guest in choosing the listing’s price by comparing neighborhood listings and market prices.
  • In the beginning, Airbnb had a rule that hosts had to rent out air mattresses, even if they had an actual bed to spare. The founders also observed that the compulsory breakfast rule was not feasible in many places. Airbnb removed those rules.
  • Chesky and Gebbia also discovered that several users could rent out the full apartment that the Airbnb site didn’t support at that time. They added an option to rent an entire residence.

The research had transformed Airbnb’s website and differentiated it from competitors.

Chesky and Gebbia continued to collect user feedback and made improvements/tweaks to the site & other customer touchpoints.

The founders also applied the user research in thinking every business decision from a customer’s perspective. Whatever the choice, ask whether it would add value to the customer — This thought had penetrated every aspect of their business.

4.0 INTERNAL CULTURE

When you observe ‘Good’ to ‘Great’ companies, you could realize that a strong ‘Internal Culture’ had played a critical role in differentiating the brand and in building a sustainable business.

From the beginning, Chesky and Gebbia believed that their company’s successful growth depends on its organizational culture. So, they became ardent promoters of building and maintaining a vibrant internal culture.

Chesky says that it doesn’t matter how good your original product is, but if you can’t build a great company around it, the product won’t endure. He further added, “The stronger the culture, the less corporate process a company needs. When the culture is strong, you can trust everyone to do the right thing. People can be independent and autonomous. They can be entrepreneurial.”

As the company began to grow, the founders took steps to build the right internal culture.

If the culture has grounding from the start, if it binds people together, you’re setting the company up for greater success in the future — Kip Tindell.

To build a sustainable business, the founders have to educate themselves about building a culture.

Chesky read several books about corporate culture. Through their investor Sequoia’s network, Chesky met leaders from Zappos, Starbucks, Apple, Nike, and other successful companies and listened to how they built the culture.

From his studies, Chesky observed that to build an exceptional culture, those great companies began by defining their Purpose and a bigger Vision. Their purpose went beyond just making money or being number one in the market. Those companies had an idea of the kind of future they want to be in & they could communicate it clearly to everyone in the organization. So, Chesky, Gebbia, and Blecharczyk began to define the company’s purpose, mission, and core values. The did that before hiring anyone.

The purpose, vision, and core values guided the organization’s decision making. It also helped the employees to clearly understand how they would have to behave in various contexts, the type of relationship with customers, what sort of decisions they need to take, and the type of people they need to hire.

A founder alone cannot raise a sustainable brand. He or she would build a great company if he or she could find a colleague who had ‘shared common interests’ and who could bring different strengths to the company.

The Importance Of First Hire — Chesky believed that building an organizational culture begins with the first person the company hires. He felt that if all went all, that person would bring in hundreds of people like him or her. His earlier research has helped him to understand the type of people he should hire. His team took more than six months to recruit the first person after a thorough vetting process.

Chesky and Gebbia involved themselves in every step of the hiring process so that they could meet the team-building goals. It is crucial to spend time and effort to hire the right people.

Airbnb’s Global Head of Employee Experience, Mark Levy, says, “Every candidate that makes it through to an interview goes through a set of interviews related to their role, and they have two additional interviews related to core values.”

Levy also notes that Airbnb is looking for missionaries, not mercenaries. He also adds, “The minute people start talking about job titles or are more interested in the equity over changing the world through connecting people via local and authentic travel experiences, we know that they are probably barking up the wrong tree. We’re very true to our core values in the hiring process.”

Culture change begins when the brand’s leader breathes and lives by the core values. Chesky and Gebbia worked/lived/behaved in a way they wanted their organization to emulate. They respected people, customers, and other stakeholders. They treated everyone equally.

The founders saw their colleagues as partners in the company and not as employees. They listened to everyone — They loved spending time with customers. The employees followed them unconsciously.

Chesky and Gebbia trusted their people. They believed that everyone wanted to do a great job, provided he/she has enough freedom. The founders despised micromanagement. They treated people as responsible people, interested in the company’s growth.

This autonomy made employees perceive that they are valued in the company. They felt free to use their talents. Freedom encourages risk-taking, creativity, and experimentation. This resulted in innovations, helping the growth of the Airbnb business. People also grew professionally and personally. They became loyal to the company.

Chesky and Gebbia shared every information with all the stakeholders and employees — revenues, profits, strategic decisions, the reasons behind the choices, plans, and all other necessary details. It built trust between employees and management.

The founders believed in open communication — They encouraged an open door policy. Anybody can go to the head of the company and talk about his concerns/ideas. The founders believed that a company could progress only if the people aren’t afraid of bringing out the issues for public scrutiny.

Airbnb’s Global Head of Employee Experience, Mark Levy, says, “To encourage people to be open and honest, Joe Gebbia, threw out this idea that he called “elephants, dead fish, and vomit” — a nomenclature the company has adopted to open up a dialogue. Elephants are the big things in the room that nobody is talking about, dead fish are the things that happened a few years ago that people can’t get over, and vomit is that sometimes people just need to get something off their mind and you need someone to just sit there and listen,”

Airbnb’s founders have created a fearless environment where people would feel free to open up and be honest in their opinions.

Great brands find a way to add fun and little weirdness in their culture. Being formal all the time seems to be boring and uncreative.

To bring the culture alive, Airbnb encourages frequent, fun meetings among its employees — birthday celebrations, anniversaries, baby showers, creatively themed events, new launches, business achievement celebrations, cookie time Tuesdays, new-hire tea time, hosted bar, human tunnels, and other rituals. Airbnb’s culture motivates employees to think up all crazy ideas to fight monotony and have fun.

Those functions and rituals had not only brought fun to the workplace but also strengthened the bonds between the people. Every person felt that he/she is part of a big community.

Chesky and Gebbia, believe that becoming a culture-first organization has helped in stabilizing the Airbnb during its viral growth.

CONCLUSION

To build a sustainable brand, start targeting a niche market, understand your customers, sell experiences, lay groundwork for culture at the start, educate yourself, define the purpose, vision & core values, communicate them, hire right people, give employees freedom, maintain transparency, and create a fearless environment.

REFERENCES:: The Airbnb Story by Leigh Gallagher, Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne, Positioning: The Battle Of Mind by Al Ries and Jack Trout, What is Strategy-HBR Article by Michael E. Porter, Good To Great by James C. Collins, Principles by Ray Dalio, Radical Candor by Kim Scott, Crucial Conversations by Patterson, Grenny, McMillan, Switzler, The Fearless Organisation: Interview by Amy C. Edmondson, Reid Hoffman’s Blog, How Airbnb is building its culture through belonging-Article in cultureamp.com.

Written by

Secular Humanist, Business Growth Consultant, Design Thinker, India. Reach me at mmshah8@gmail.com. or https://www.shahmohammed.com

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