Success, failure… and innovation
Brian Chesky, the cofounder and CEO of Airbnb, has just published a small but impressive note here on Medium detailing how, in June 2008, he and his colleagues presented their idea to seven leading Silicon Valley investors, and were duly rejected by all of them: five emails saying no, reproduced in the piece, and two who couldn’t even be bothered to reply. They must be feeling a bit like the guys who turned The Beatles down…
That financing round was aimed at raising $150,000 based on a valuation of $1.5 million, and was a flop. Back then, $150,000 would have got you 10 percent of the company.
Today, Airbnb is valued at more than $24 billion, more than the Marriot hotel chain’s $21 billion. Those $150,000 would now be worth $2.4 billion. Thirty one investors have handed over $2.3 billion over seven financing rounds; not that there haven’t been a few problems during the last seven years of one sort or another.
The company, to which owners of accommodation pay 3 percent of each rental, and guests a commission of between 6 percent and 12 percent, now represents 1 percent of the total global night-stays market, and in five years is expected to have taken a 10 percent share. This is a story that began with two people who didn’t have enough money to pay their rent in San Francisco, and who set up a simple page to offer three inflatable mattresses for $80 a night.
The next time you think about entrepreneurship, remember this story. The only clue as to what Airbnb could end up becoming was by looking at the innovation involved: some people still think the platform is simply a place where a few misguided people rent a couple of rooms out, and where a few other dodgy characters can find a cheap place to flop for the night. But the idea has a little more to it than that: behind it there is value proposition, evaluation systems to reduce uncertainty, insurance to protect property, and other factors that as both owners as well as guests agree, justify the commissions they pay.
It’s probably true to say that most of the people who let out their properties on Airbnb wouldn’t do so if it didn’t exist, in the same way that the majority of those who stay in apartments they rent through the site wouldn’t have planned their holidays or business trips in this way a decade ago. Anybody who still thinks that this is about avoiding tax or simply finding somewhere cheap to stay are shortsighted in the extreme, and are failing to see that the whole operation is subject to strict controls, as well as the fact that there is just about every kind of accommodation on the site imaginable, from digs in the outskirts to elegant multi-bedroomed apartments with fabulous views over some of the planet’s most beautiful cities.
Those investors back in 2008 may not have been able to see it, but this is what innovation is about. Airbnb will do well, or it may not do so well in the coming years. It may or may not reach its goals: running a company is not easy, and particularly when there are so many new avenues opening up all the time. But the company is worth what it is worth, and those emails are there as a reminder of seven investors’ shortsightedness. The value of innovation… sometimes it’s almost impossible to see it!
(En español, aquí)
