The Alchemy of Airbnb — Entrepreneurial lessons from Airbnb’s journey

Composite by Steven Cardinale, Image from Shutterstock

Airbnb’s IPO of last week has set the entrepreneur world on fire. Airbnb set their initial stock price at $68/share, which gave them a $47 billion valuation. When they finally went public, the price soared to $165/share and eventually settled down to $140/share today which give the company a valuation of around $84 billion.

What entrepreneur doesn’t dream of taking their company public and being part of such a fantastic journey. While the public Airbnb and the Airbnb securing huge private funding such as their $200 million Series C round, $519 million Series D round or $5.2 billion in total funding rounds is interesting to explore, analyzing the Airbnb journey from start to unicorn provide learning that can be applied to entrepreneurs at all levels.

You may have already heard Airbnb’s origin story of founders Brian Chesky and Joe Gebbia needing extra money to pay rent. So they started by renting out air mattresses in their apartment during a local Industrial Design conference. Those initial air mattress rentals (which is how Airbnb got its name, originally being Airbed & Breakfast) back in 2007 blossomed into 2 million stays per night in 2020.

That rags to riches story is one of the most inspiring stories of this generation. Inspiration is wonderful. What lessons can entrepreneurs learn from this journey?

The Airbnb entrepreneurs went through all sorts of ups and downs. The downs included getting only 2 bookings at SXSW when they launched, to being told “pray this remains underground, that’s the only way it can survive.” The ups included being accepted into Y combinator with a $20,000 investment and then a $585,000 investment from Sequoia venture capital.

To be sure Airbnb benefits from tremendous network effects. The supersized benefit when the number of buyers and sellers of your product is amplified whenever the number of buyers and sellers increases. For Airbnb guests are the buyers (guests buy stays) and hosts are the sellers (people with places to stay sell those stays). The more guests are on the platform, the more valuable the platform is to hosts. And visa-versa. The more hosts that are on the platform, the more valuable the platform is to guests.

If you can win network effects, go, go, go (think eBay). But being the one winner who accrues all network effects is incredibly difficult to predict in advance. So are many of the other steps that drove Airbnb to a $80 billion valuation

Although there are steps to simply marvel at with Airbnb, there are real lessons that can be learned.

By applying the three steps of the Alchemical Transformation from Synaptic Alchemy, there are concepts worth teasing out and nuggets of gold to extract from the Airbnb journey

1. Nigredo — Get rid of an old rule

Nigredo is the first step in the Alchemical Transformation. The phrase for Nigredo is “Destroy Something.” Sounds harsh, but it really is talking about destroying an old rule, an old way of thinking.

Airbnb’s Nigredo was based on two pillars:

1. Old Rule: The only place you can sleep/stay when you travel is at a hotel or a friend’s house
2. Old Rule: People will never be comfortable staying in a stranger’s home

Those are two very powerful and very pervasive old ideas that were firmly implanted in the general social consciousness. That was the vision of Airbnb that made all the difference and allowed them to grow through all the ups and downs.

What the founders of Airbnb hit upon is that those two old rules were really just old ideas and they were very quickly falling out of fashion. But why?

1. Hotels are expensive, can get completely filled up and are hard to book around events (not easy to expand/contract supply), accommodations can be small, rooms typically only serve as a bedroom (no kitchen/fridge)
2. People you don’t know aren’t always strangers. In fact, as the sharing economy exploded, being able to build a virtual relationship with a stranger by looking at reviews, statements, videos means not all people you don’t know feel like strangers.

Ooooooh those were hard rules to break. And oh did Airbnb get a bunch of push back as they were breaking those rules. However, that’s what happens when we try and dissolve an old rule: We get a ton of pushback. In fact, that’s how you know it’s an old rule worth dissolving. You’ll get a ton of pushback.

For your own entrepreneurial journey What Old Rule(s) are you looking to break? Try and find entrenched old rules and see if they can be broken.

2.) Albedo — Create a new rule

Albedo is the second step in the Alchemical Transformation. The phrase for Albedo is “Create Something.” It sounds simple. Kind of sounds just like brainstorming. It might be simple but it’s not easy. It requires coming up with a new way of thinking, a new rule, that fills the space left by the vacancy of the old rule.

Airbnb’s Albedo that filled the two spaces left by destroying the old rules are:

1. Hosts will be glad to earn extra marginal income on a part time basis that they didn’t have access to before, and consequently will charge prices well under hotel rates while giving people access to bigger more well-equipped spaces. The real Albedo idea here: Airbnb enables hosts the opportunity to become on-demand micro-entrepreneurs.
2. People can build meaningful relationships with others they don’t know through safe virtual tools (eg. reviews, profiles, photos/videos, guarantees from 3rd parties). The real Albedo idea here: Virtual relationships can enable and nurture real world relationships (eg. from URL to IRL).

It takes time to establish new rules. Instantaneous adoption of new rules rarely happens. Airbnb’s guest stays during New Years Eve over the years shows just that:

• 2009: 1,400 stays
• 2012: 108,000 stays
• 2015: 1.1 million stays
• 2017: 3 million stays
• 2019: 4.5 million stays

As you can tell, the numbers grow at a pretty astonishing rate. However, that growth required building systems to ensure the Albedo idea #2 of safety was well cemented and to educate their customer base about both ideas

For your own entrepreneurial journey What Rule Rule(s) can you discover that can grow over time. Try and find new rules where you can be in charge of the education of your customer while growing your customer base at the same time.

3.) Rubedo —Standardize

Rubedo is the final step in the Alchemical Transformation. The phrase for Rubedo is “Scale Something.” Rubedo really talks about putting the blood into an idea. Coming up with solutions that breathe life into the intellectual exercises of Nigredo & Albedo. In Synaptic Alchemy we have a saying for Rubedo: “make it simple enough for anyone to use, and easy enough for everyone to find”

Airbnb applied Rubedo to their two pillars:

1. Create a web site that standardized how to list your home and what was necessary to create a good listing. This included a standard way to get reviews along with timing (14 days from the completion of a stay). They created a structure that was easy to follow and understand for hosts (eg. these are where pictures go, this is where a description of your area fits, etc). Standardization allowed for the Airbnb idea to scale because everyone knows what is required to become a host.
2. Reviews, ratings, and a protected way to communicate and get paid that are all standard is critical to building virtual relationships that can cross into real life transactions. That is critical to turning people you don’t yet know into something more than strangers. That is critical to building community which is what Airbnb is all about.

In hindsight, standardization and scale might seem obvious. But in the moment when you are building things they are not. Many times entrepreneurs end up customizing their offerings to solve the problems of a few large or vocal clients. That’s a trap that has had many companies fall into the chasm so well documented by Geoffrey Moore in his book “Crossing the Chasm.”

For your own entrepreneurial journey what Systems Could You Put In Place? Try and come up with a rule you can use to apply to any decision you have to make to customize. If it is a one-time request see if it can be generalized. If it can’t then maybe you should say No. No can be very powerful, but frightening at the same time.

Those are just some of the Alchemical lessons that you can take away as an entrepreneur from Airbnb. The lessons that last all the way from the start of a company until its IPO and beyond.

If you’d like to learn more about the Art & Science of Turning Ideas Into Gold, I invite you to take the free mini email Synaptic Alchemy course here.

Always available for questions and comments at steven.cardinale
@synapticalchemy.com