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Thu 18 Aug 2016 09:30 AM

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Cereal Entrepreneur: the secrets to Airbnb CEO Brian Chesky's success

It's bold, disruptive, brilliant (and possibly illegal) – Airbnb has become the biggest lodging provider on earth. What's the secret to its success? According to CEO Brian Chesky, it's cereal…

Cereal Entrepreneur: the secrets to Airbnb CEO Brian Chesky's success

It's bold, disruptive, brilliant (and possibly illegal) – Airbnb has become the biggest lodging provider on earth. What's the secret to its success? According to CEO Brian Chesky, it's cereal…

Go on, admit it. When you first heard about people renting rooms in someone else's homes over the internet, you thought it was a crazy idea. Maybe a little creepy. It is one thing to participate in the sharing economy by using an app to order Uber, but it's another to open your home to a complete stranger.

"A number of people have said it's the worst idea that ever worked," says Airbnb CEO Brian Chesky, speaking at Stanford University. "At the time, a lot of people just said that it was the worst idea ever, and yet somehow it worked."

Saying it worked would be an understatement. The company has more than 2 million listings and a valuation of US$25.5 billion. That makes it bigger than Hilton Worldwide, InterContinental Hotels Group, or any other hotel chain on Earth.

CEO Brian Chesky and co-founders Nathan Blecharczyk and Joe Gebbia are credited with disrupting an industry, displacing the most established players in hospitality, and generated billions of dollars in revenue for themselves, and their users.

As with all good success stories, this one comes from humble beginnings. While Airbnb has changed many people's lives for the better, it was never something Chesky planned for, "Growing up I never really thought about being an entrepreneur. I didn't even know that existed. I'm not sure I had even heard the word 'entrepreneur'. It seemed like such an absurd statement to make where I grew up in upstate New York."

Chesky's parents were both social workers, and while he's said previously he didn't want for anything as a child, his family weren't exactly wealthy. "My mum used to have a joke; she told me "I chose a job for the love, and I made no money. You should want a job that makes you money". When I said, I wanted to go to art school.

Her reaction was, "Oh no, you have chosen the one job that will make less money than a social worker. You're going to get paid nothing!" Stability was important to the Chesky family. Before heading off to Art School in Rhode Island, Brian received one piece of motherly advice, "make sure you don't move back home and live in my basement. Make sure you get a job one day and make sure that job has health insurance."

But Brian Chesky would be the first to admit that his degree in art was pivotal in his success, albeit in a roundabout way, "I'm different than most technology founders in that I went to art school. I studied industrial design. If you know industrial design, you know that it's about studying everything, from toothbrushes to a spaceships, and everything in between."

 

Like any business that disrupts the old way of thinking knows, once you get big enough you're sure to butt heads with entrenched interests. The US Supreme Court declared television startup Aereo's business illegal, and regulators around the world have chastised Uber's operations. Similarly, Airbnb has also repeatedly found itself on the wrong side of the law.

The credit for that rebellious thinking, perhaps, goes to Chesky's education. "Growing up you're told to look straight ahead. You don't get rewarded for 'being disruptive', you just go straight to the principal's office. I was there quite often".

But his schooling in Rhode Island changed all that, "the teachers would say, "you're a designer, you can remake everything around you." Basically, what they were saying is that you can change the world. That's not something that most parents or schools tell their kids. You're told to behave."

It was in art school that Chesky was introduced to Airbnb co-founder Joe Gebbia. "Joe turned to me one day, and said "Brian, I think one day we're going to start a company together." But they didn't. Not yet.

Four years out of university, Brian Chesky was working as an industrial designer in LA. Realising that his monotonous days at his design firm were taking him nowhere in life, he decided a change was in order.

"One day, I went into work and quit my job. I was living in a house with a group of friends, and I said: "okay guys, I'm going to leave." They thought I was having some kind of early life crisis. I picked up an old foam mattress, rolled it up, and shoved it on the backseat of my old Honda Civic and with a thousand dollars in the bank I drove to San Francisco in October 2007."

"When I got to San Francisco, Joe told me the rent was US$1,150, and I didn't have enough money for rent. But that weekend, there was an international design conference coming to San Francisco. We noticed on its website that there was a hotels tab and next to every hotel was a sold out badge."

Realising there was an opportunity, the pair decided to start a bed and breakfast, catering specifically to the design conference. "Unfortunately, we didn't have any beds. Which is a problem, as that would make us a floor and breakfast? But Joe had three airbeds, so we pulled them out of the closet, inflated them and called it the 'airbed and breakfast' – and that's where the name comes from - airbedandbreakfast.com."

 

The first customers of Airbnb were a 35-year-old woman from Boston, a 45-year-old father of five from Utah, and a 30-year-old man from India. They stayed in the living room of Gebbia and Chesky's small apartment on Rausch Street, in San Francisco.

But was started as a means to make rent, quickly became something more, "There's something that happens when somebody lives with you. It's kind of like the arch of a friendship gets contracted from a year to a day.

In other words, a friendship that would take a year to develop now takes a couple of days. So these people came as strangers, and they left as friends. We kept in touch with them, and one of the guests even invited me to his wedding. That's when we realised there was a bigger idea here."

Mark Zuckerberg boasts that the idea for Facebook was conceived over 20 minutes. But it wasn't the same for Chesky and his co-founders.

"The thing no one talks about is that after we had those guests, we did nothing for about four months. In fact, we were trying to build this roommate matching website because we didn't think the airbed thing would work. It was going to be Craigslist meets Facebook, for roommates with profiles. Then one day we typed roommates into Google and realised that someone had already built that site. And this was like four weeks after we started working on it".

Deciding to stick with the 'airbed thing' Chesky asked Gebbia if he knew any coders. That's when Nathan Blecharczyk got involved, and the trio decided to go all in on airbedandbreakfasts.com.

"We decided to do a big launch," says Chesky, "at the time of the Democratic National Convention. Barack Obama was coming to Denver, and 80,000 people were expected to visit, but there were only 27,000 hotel rooms." That weekend Airbnb received 80 bookings from those going to the convention. The weekend after, they received no bookings.

The same pattern repeated itself for months. "I probably got to about US$30,000 in credit card debt. I would go and get credit cards and max them out, and then I would keep getting more credit cards until the bank stopped giving them to me. Joe did the same thing. We were tens of thousands of dollars in debt in 2008."

 

They say everyone hits rock bottom and for Brian Chesky this was it. "We were desperate; it was late and night, and Joe and I thought that if we're doing airbed and breakfasts, and the airbeds were not working out, then maybe they should sell breakfasts. Everyone needs to eat. So we thought we'd get into the breakfast business."

They managed to get a thousand cereal boxes printed for free on royalty. "One day, Joe comes in with a thousand pieces of giant cardboard – no one told me we had to fold and glue them into boxes. So, to fund the company, we had to fold a thousand boxes, pack cereal in them, and sell them for 40 dollars a box. We thought, 'who is going to pay 40 dollars a box' but they were limited edition, and we ended up selling about US$30,000 worth of this cereal. That's actually how we funded the company." To this day, one of Airbnb's core values is to be a 'cereal entrepreneur'.

But the money they earned only went so far, and in November 2008 the company was broke once more. According to Chesky, "It got to the point where my mum called me and said, 'look, if you need money I will send you money. You don't need to have strangers in your home to make money'. It got to the point where I started to question the decisions I made in life to get me here. I didn't feel successful, or smart, or talented. I felt that the world was against me."

Desperate for money and ideas (Airbnb was puttering along on about US$200 a week), Chesky applied to a startup incubator in 2009. "We met with founder Paul Graham at Y Combinator, and he thought the idea was absolutely terrible. In fact, he said, "People are doing this? What's wrong with them?"

"So I thought this was a awful interview, but at the end Joe handed him a box of Obama O's. Paul Graham thought we had just bought this stupid box of cereal, and then we told him that the cereal was how we founded the company. He said, 'If you can get people to pay 40 dollars for cereal, then maybe you can get strangers to stay in other strangers homes".

Paul Graham gave them support and pivotal advice: travel to New York City. It was already the company's most popular market, popular with tourists and overflowing with starving hipsters. It was also a chance for the founders to get to know some of the earliest Airbnb hosts. Over the course of 2010, the site's weekly revenue doubled. Then it doubled again.

 

After two years of confusion, debt and selling cereal. Chesky's Airbnb had gone big time. In 2011 it closed a US$112 million round of venture funding. Three years later, it received US$475 million more. In 2015, it collected another US$1.6 billion dollars in the financing alone.

Chesky is now worth about US$3.3 billion, but he hasn't let it go to his head. He still lives with his housemate and cofounder Joe Gebbia in the original Rausch Street apartment.

Their spare bedroom contains an air mattress – they still rent it out from time to time. But on top of the bookcase, in the same living room that slept Airbnb's first guests, are two limited edition boxes of cereal.