Successful start-ups. Airbnb

Airbnb is a room-letting website. The opportunities it creates are seemingly limitless from both sides of the letting spectrum; you can instantly log in and book a night at someone’s house on the other side of the globe, while, equally, you can rent out a space in your house to keen travellers who, for one reason or another, do not find hotel accommodation suitable.

Having learnt a lesson (or rather lessons) from its past shortcomings, Airbnb now offers services of a professional photographer to its hosts and provides excellent customer support, which includes $1 million Host Guarantee. In 9 years from when the original idea was created, now every two seconds someone books through Airbnb.

How it all started

In 2007, Brian Chesky and Joe Gebbia could not afford to pay rent for their apartment in San Francisco. They came up with a simple and brilliant idea how to utilise the resources they already had to gain some extra cash. In the face of a design conference to be soon held in San Francisco, Chesky and Gebbia decided that they will put three airbeds into their apartment and rent the spaces out, additionally luring in potential guests with a promise of a home-cooked breakfast. The guys later admitted that since they did not want to list on Craigslist as they thought it too impersonal, their inner entrepreneurial spirit led them to setting up their own website: airbedandbreakfast.com. After they hosted their first 3 guests, they started receiving emails from people from around the globe in which they were asked when the website will be available in other major cities. This is how it all started. But, even though the original idea of flat-sharing to address the challenge of limited hotel space and growing hotel costs did not change, Chesky and Gebbia faced a variety of problems on their way to the top. As we know, learning from others’ mistakes and how they addressed them is the best way of learning; it allows you to avoid the common pitfalls and anticipate potential problems with solutions at hand.

Give away cereal, not equity

A year later, already with software engineer Nathan Blecharczyk on board, Chesky and Gebbia were thinking of ways how to raise capital. Taking advantage of the election season, they bought large quantities of cereal and designed boxes with presidential candidates’ themes; “Obama O’s” and “Cap’n McCain’s” which they then sold to eager supporters at convention parties for $40 each. They managed to sell around 800 boxes, raising almost $30k in funds.

This is not to say that Airbnb did not reach out to investors. When you take a closer look at how the company developed, the scale of funding is impressive to say the least. In the next year, the guys received first $20k in funding from Paul Graham, the co-founder of Y Combinator. Further along the way, Airbnb acquired $600k from Sequoia Capital and Y Ventures in the seed round and in November 2010 another $7.2 million was raised in Series A funding round. Series B round of funding, that took place in July 2011, brought Airbnb further $112 million from Andreessen Horowitz, General Catalyst Partners, Digital Sky Technologies, Ashton Kutcher, Jeff Bezos and CrunchFund, leading to a subsequent valuation of $1.3 billion. In June 2015, Private Equity funding round led by General Atlantic resulted in further $1.5 billion pumped into what originally started as 3 airbeds packed into a room. Nonetheless, it is worth bearing in mind that, in the face of adversity, the founders of Airbnb were not afraid to go the unconventional route and lift up the company with proceeds from cereal sales.

Photographers and Robbers

In the summer of 2009, when the guys were on a search for new office space, they stayed exclusively in Airbnb listings. They realised that the New York market was not doing too well and identified the major problem that was hampering their growth there; prevalence of bad quality photographs. What was supposed to distinguish them from Craigslist, higher credibility and less remote experience, was suddenly failing because booking users were not ready to pay for what the could not clearly see. Instead of sending emails to hosts, encouraging them to improve the quality of their listings’ photos, the guys rented a professional camera and took photographs of as many NYC listings as possible, almost tripling the number of bookings there in subsequent months. The visible success of this move led to launching of the Airbnb photography scheme in 2010.

In June of 2011, an Airbnb host wrote a post on her blog in which she described her house being devastated by a renter who booked it through the site. The story quickly caught the eye of international press and it seemed like it would be a difficult PR crisis to recover from for Airbnb. However, despite being widely reported, the event marked a beginning of a new successful Airbnb policy, $1 million Host Guarantee backed by Lloyds of London.

And they lived happily ever after

As of autumn 2015, Airbnb has 50 million users and 640 000 hosts offering their listings in 57 000 cities in 150 countries.

Miłosz Palej

Joining an Accelerator: Pros and Cons

What is an accelerator?

An accelerator is essentially a fixed-term programme, focused on mentoring a cohort, or a class, of start-ups, providing them with training, industry contacts and also often with office space. Aside from intensive mentoring, accelerators offer seed funding in exchange for equity, which, in Europe, usually is between £10,000 and £50,000. Admission to accelerators is usually extremely selective, yet open to all. Moreover, accelerators tend to focus on small teams, deeming individual founders incapable of taking on the variety of challenges and tasks that running a start-up company comes with.

The limited time and high intensity nature of accelerators has, perhaps undeservedly, earned them a label of an ‘assembly line’ for new ventures. This, however, in its pejorative sense, would imply some deficiency in quality of the start-ups that go through the process of joining and then graduating from accelerators, an inability of accelerators to reconcile a short time span in which the mentoring takes place with providing sufficient funds and expertise for how to utilise them effectively for the respective businesses to take off. Clearly, considering their very nature, repetition in the process is inevitable, yet the precise benefits that your particular start-up will acquire in the time leading to graduation will be highly contingent on the accelerator you join. Thus, while there are some characteristics that can be probably attributed to all accelerators, it will be eventually in your hands to continue with the research and choose what is suitable for your business.

Advantages

Mentorship is invaluable. Whether it is workshops or one-to-one sessions, the expertise and support you will have access to in an accelerator will allow for really in-depth and tailored advice that will mould and polish your business. Mentoring usually takes a variety of forms, usually not being solely focused on general business advice, but rather, teaching a broad spectrum of skills, like planning market strategy and conducting market research as well as providing the business with access to specialist legal and financial services.

The capital investment, on the other hand, obviously has two sides to it, with the benefit clearly being the cash injection. Nonetheless, considering the usually modest amounts invested by accelerators in return for equity, it is important for the funding not to be your sole guiding objective when deciding on the attractiveness or suitability of a particular accelerator to your business. At the end of the day, it is the mentoring and industry contacts that will push your business further and potentially open doors to new opportunities, including larger funding at later stages.

As mentioned, industry contacts can do wonders and the networking opportunities that accelerators create have an immense value. At the same time, it is important for you not to neglect engaging with other members of your cohort. Even though the programme is not a long one, they will be in exactly the same position as you, and it will be less troublesome to undergo the intensive process of learning and developing with a healthy dose of peer support.

With brand recognition come vast marketing prospects and thus this should be borne in mind when choosing an accelerator. Many programmes culminate in a pitch event or a demo day, but if your accelerator is held in high esteem in the industry, chances are you will have an even further opportunity to utilise this platform to gather media and customer attention.

Disadvantages

Despite the clear benefits that flow from joining an accelerator, it is a commitment that does not guarantee success. Many student-entrepreneurs, when presented with visions of growth and stellar contacts, do not think twice before joining and drop out of college, afraid the opportunity will slip as the programmes are immensely competitive. This, similarly, applies to other entrepreneurs who may not take into consideration all the consequences that come with joining; like relocation, or the need to sideline other commitments. Ultimately, however, it is in your hands to weigh up the pros and cons and make an informed decision.

Everything comes at a certain price and so does, unsurprisingly, joining an accelerator. The investment in return for equity means you are giving away a chunk of your start-up for the funding and services the accelerator provides you with. The scale and impact of this clearly depends on how much equity the particular accelerator is demanding from you. Even though the level of equity required is usually in the 5-10% range, some accelerators go much higher in their demands and thus, yet again, it is absolutely crucial that you know what you are signing yourself up to.

Choosing a suitable Accelerator for your Firm

Notable UK accelerators include London-based Seedcamp and Collider and Birmingham-based Oxygen, and you can find a comprehensive list here. It cannot be stressed enough that each accelerator is unique and particular attention needs to be paid to what they offer, their graduates, their industry focus and whether they take any fees for services. Some accelerators, like Seedcamp, offer open office hours, which you could treat as a first step to recognise the potential and challenges facing your business. Even though the application process is very competitive, do not accept any offer before examining it in detail as what seems to be a promise of success could easily turn into disappointment if does not suit your business. 

Miłosz Palej