“Unless a company has a clear point of differentiation it does not have a strategic vision. Setting a strategy, rather than deploying a series of tactics, is the biggest challenge for any new business.”

Entrepeneurs & Business

Airbnb’s floatation was a vindication of true entrepreneurial spirit
21.12.2020

Airbnb set new records when it floated on Wall Street with a valuation of more than $100bn, making it the biggest company to double its value on the first day of trading.

One can only imagine the thoughts of the 15 A-list investors who passed up the opportunity to buy a stake in the fledgling company when Joe Gebbia and Brian Chesky pitched to them in 2008.

Some commentators worry about an overheating market and that Airbnb’s flotation is further evidence that tech valuations are simply too high. After all, Airbnb has never made a profit on an annual basis and it owns no properties.

But, as an entrepreneur, I can only applaud the vision, persistence and ingenuity of its co-founders, who piled up $20,000 in credit card debt when they started out because they could not find angel investors. They believed in their busines model even when they were only making a couple of hundred dollars a week and they have been vindicated.

And as an investor in hotels and hospitality, I admire their achievement in re-fashioning the industry, successfully competing with traditional behemoths and forcing them to question the way they operate. The Harvard Business School has a case study on Marriott, which in 2017 had more than one million rooms and 7% of worldwide room supply; its leadership team realized that they needed to respond to Airbnb’s ‘live like a local’ approach, which has proved popular with younger travellers. Courtyard by Marriott, a chain of modestly priced hotels, was one example of its response to the competition.

Like all start-ups which have successfully forged a position in a crowded market, Airbnb operated under the radar initially. It did not seem to be a threat to its competition because hoteliers did not realize they were competing in the same market for the same customers.

But just because Airbnb started life as a budget solution for travellers, and a way for property owners to make a bit of money on the side, it did not mean that it would retain a low-cost, high-volume model for ever.

It succeeded because rather than assuming it knew what its customers wanted – which hotels are sometimes guilty of – it took the trouble to ask them. It then adjusted its model accordingly.

The sharing economy is commonplace these days, but Airbnb were the pioneers. They created a new type of consumer behaviour, persuading travellers it was safe to stay in strangers’ apartments and encouraging home owners to open their doors to people they had never met. By doing this, they created an inexhaustible supply of properties, becoming the first global property sharing app.

At the heart of the sharing economy is trust, whether it is sharing a car, a parking space, a yacht or a home. Airbnb’s founders were designers and their eye for design is obvious in the way the platform is curated; it is a simpler user experience than rival platform Vibro, for example. Simplicity and transparency ae crucial to build trust in the host/renter relationship.

In the third quarter of 2020, Airbnb made $219 million, and although it was badly hit by the Covid pandemic and laid off one quarter of staff, it fared better than most in the hospitality and tourism industries. It acted decisively to retain the confidence of its users, refunding travellers for cancelled holidays, even if it meant penalising hosts. Their rationale was that, with a strong customer base, hosts will remain invested in the platform; without one, they will begin to question its usefulness.

Airbnb is expected to make about $4.2 billion sales in 2021, a far cry from the days when its founders were so desperate for cash that they invented two branded breakfast cereals, Obama O’s and Cap’n McCain’s, to sell online during the 2008 US election. The gimmick caught the eye of broadcasters, making them $30,000 and keeping the company afloat.

Like all the best entrepreneurs, Gebbia and Chesky have proved agile, inventive and adaptable. They may once have been shunned by investors, but now they can justly claim to have changed the face of the travel industry.

Back

Let's have a chat

If you have an investment opportunity or I can help you develop a strategy in any of my sectors of expertise
please fill in your details below: