These are the sort of headlines that every founder most fears when they lay awake tossing and turning at 3am, publicity so bad it could spell doom for a fledgling startup. This nightmare scenario became very real for Airbnb back in 2011.

At that stage the company was still a small but buzzy marketplace with just 10,000 or so listings concentrated in a few locales. It was far from clear that it would become the billion dollar success story it is today. And when these stories first surfaced in the summer of 2011 and listings plummeted, it looked increasingly unlikely that the startup would survive, more or less grow to behemoth proportions.

So how did the Airbnb team rescue the situation? That's the story early employee Jonathan Golden tells as part of a long, fascinating Medium post detailing the lessons he learned helping to scale Airbnb to 100 times its size when he joined. It offers an important lesson in risk for other founders in the early-stages of building their businesses.

An entrepreneur's worst nightmare

When photos of trashed Airbnb rentals hit the media, it became immediately apparent how the company should respond, according to Golden. Hosts needed some insurance to cover possible damages, and they needed it, like, yesterday. The only trouble? None of the 20 underwriters the team spoke to wanted to touch the company with a ten foot pole.

With all the company's important metrics in free fall, the team had to take action, Golden relates:

Three days into the crisis, Brian [Chesky] and I huddled in the office at 1 a.m. with employees sleeping on air mattresses around us. I was out of options. The time had come to take a leap, and I proposed a $5,000 guarantee, backed by Airbnb itself with no insurance to backstop us. Brian, with advice from Marc Andreessen, said, "Can we go bigger?" Brian didn't want me to edit my imagination even in this stressful time. I tried to calculate all the risk scenarios in my head. But the decision suddenly seemed simple: the risk of doing too little was greater than the risk of doing too much.

We decided that $50,000 was our number. I quickly drafted the ten key markets where we'd launch and what we'd cover (theft and vandalism), then started frantically dialing our outside counsel for his approval. Brian wanted to make the announcement in a few hours. On August 1, 2011, we announced the $50,000 Host Guarantee.

No one with even the least head for business needs to be told what a humongous risk this was. Airbnb was potentially on the hook for up to $500 million in losses, but it soon became apparent that the worst case scenario of gargantuan claims wouldn't materialize.

"The announcement had put out the fire, and more importantly, we felt proud of what we had offered to our community. It felt as though we had pulled off the impossible," writes a relieved-sounding Golden.

Trust begets loyalty (which kill risks)

What was the essential takeaway from this experience? That companies should take "seemingly extreme risks for your users when necessary," according to Golden. But wait, you might respond, don't entrepreneurs need to be smart and limit their exposure to at least non-existential amounts?

Managing risk might be smart, but as Golden points out, taking a risk to trust people actually changes your relationship with those people. Customers are less likely to take advantage of a company they feel is in their corner, fighting for their own best interests. That means that if the risk is to radically trust your users, you're mitigating the risk even as you take it.

"Believe in the good of people, not that the worst case will always happen. When you lean into fostering trust, your users will in turn have trust in you," Golden believes.

Trusting your customers, in other words, isn't as risky as risky as it first sounds, and often it's actually less risky in the longer term than looking out only for your own interest. That's a lesson plenty of other startups could learn from.

How Airbnb's Early Adopters Saved the Company
Published on: Oct 5, 2017