The 2008 Democratic National Convention was coming to Denver, but there were only 28,000 hotel rooms available. The Democrat Party made the last-minute decision to move presidential hopeful Barack Obama's speech from the Pepsi Center (capacity 18,007) to the larger outdoor venue of Invesco Field (capacity 76,125). But the city wasn't ready to host 80,000 out-of-town attendees. The problem was obvious. And no one was doing anything about it.
Not too far away in San Francisco, Brian Chesky, the CEO of an on-the-ropes platform startup, knew that problems beget opportunities. He had taken advantage of a similar situation in the past to put together the money he needed to pay rent. By now, Brian knew what to look out for. In a video interview on the subject, Brian described his process early on, "We looked for high profile events and said 'We're going to solve a high-profile solution to a high-profile problem.'"
His startup was unintentionally launched when an international design conference came to San Francisco and there weren't enough rooms available for everyone attending. Struggling to make ends meet, Brian and his roommate, co-founder Joe Gebbia, decided to offer up three air mattresses along with a complimentary breakfast in the loft of their apartment. They set up a simple website and three conference attendees took them up on their offer for $80 per night. Airbnb was born. And the rent got paid.
So when 2008′s political convention came to Denver, Airbnb was ready to launch and capitalize on the opportunity. "In the summer of 2008, all anyone was talking about was Barack Obama. And the Democratic National Convention was coming up and they had moved him from the 20,000-seat Pepsi Center to the 80,000-seat football stadium where the Denver Broncos play. Suddenly, all these mainstream media outlets are saying, 'Where are we going to stay?' And we're like-lightbulb goes off-'They're going to stay at Airbnb! Obama supporters can host other Obama supporters all over the world. This is going to be a huge story,' " says Brian regarding the 2008 DNC.
Airbnb's platform had expanded to allow users from different cities to list and rent out parts of their homes. However, Brian and his team understood the "chicken and egg problem." They knew that no matter how good the platform was, Airbnb needed both consumers and producers onboard for it to work. So the company blasted bloggers in Denver with its marketing. It even sold $40 "Obama O's" and "Cap'n McCain's" cereal around town to raise awareness and startup funds. (Amazing, right?) The persistence and hustle paid off as Airbnb received news coverage for its alternative solution to the lodging crisis in Denver.
In the wake of the event, Airbnb started to gain traction. Just two years later in 2010 the platform had booked approximately 125,000 guest nights. Can you say product-market fit?
Although investors weren't as optimistic about Airbnb's growth potential, the company had experienced firsthand the demand for its product. For all of the no's Brian and company may have received from investors, they were certainly hearing a lot of yes's from their users. VC's couldn't understand where the company was headed. The idea of people renting out rooms from strangers was just too foreign. As Fred Wilson of Union Square Ventures later admitted, "We focused too much on what they were doing at the time and not enough on what they could do, would do, and did do." Airbnb and its co-founders were well on their way to building a platform business capable of disrupting the hotel industry and changing the way we travel.
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There are several Tipping the Scales platform lessons to keep in mind here:
- Focus: Solving for one thing is easier than multiple things. Brian knew that demand would be off the charts at the DNC convention. That means that they only had to focus on finding supply. By focusing all of their resources on getting access to inventory, they can isolate their variables and minimize the "chicken and egg" problem.
- Be nimble, collect feedback. "If there were two or three things I attribute our initial attraction to, the most top-of-the-mind thing is that we started meeting our users," says Brian. Your users will offer perspective that was previously unthought of. Dig hard to uncover those insights and then develop a course of action in response to them that will improve your platform's key metrics.
- Do things that don't scale. Just because you are a technology company doesn't mean that technology will solve all your problems. Particularly in the early stages. Use offline tactics and human effort to plug the holes till you can replace yourself with technology.
- Nothing wrong with starting on web then scaling with a mobile app. 2010 was a big year for Airbnb. They were close to product-market fit and raised their Series A. They knew the conditions were right to launch their iOS app. A year later, their bookings increased 500 percent from 2011 to 2012.
- And lastly, as a platform founder and CEO, focus on solving a problem personal to you. "I think for startups you should solve your own problem, not try to solve a whole high-profile problem. Try to solve something that's deeply personal to you. Ideally, if you're an ordinary person, ... and you solve your problem, you may have just solved a problem for millions of people, that no one's ever thought about before, they just take for granted," says Brian.