“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.”

Thought Leadership

Airbnb’s floatation was a vindication of true entrepreneurial spirit

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.

Standing still is the biggest risk in today’s fast-moving business world

2019 has been a turbulent year for the global economy with the headwinds of Brexit, the fall-out from the US-China trade war and continuing tensions in the Middle East creating uncertainty in boardrooms. We live in an inter-connected world and it is hard for any business to ignore the impact of these momentous events.

So, the theme of the C & C Alpha Group’s 2019 annual conference, Business Sustainability, Emerging Risk Analysis and Growth in a Changing Climate, could not have been better chosen. Led by Professor William Kerr and Professor Juan Alcacer, from Harvard Business School, it addressed these issues head-on. Every challenge brings opportunities and the best business leaders don’t shirk from their responsibilities or find excuses for failure they seize those opportunities.

Harvard Business School’s classic definition of entrepreneurism is: The relentless pursuit of opportunity without regard to resources currently controlled. However, that is not an invitation to be reckless. Risk should always be managed. As an investor, I am always looking for new ventures that excite me, but, for every two or three opportunities we invest in, we will probably turn down 100. We minimize risk by going in small and increasing our investment incrementally. Once your base is sound, the time is right to take higher investment risks.

Many business leaders struggle with the dilemma of managing their company’s growth trajectory. One way of looking at this by asking: Have I earned the right to grow? Professor Kerr suggested a helpful four-question framework, which can be summarized as:

  • Is my business ready?
  • Do we have the resources we need?
  • Have the leadership team bought into the vision?
  • What is the cost of standing still?

Another useful way to approach the question is to ask: What was the first thing that worked for my business? Every business has core competencies, but what is your distinctive competency what do you do better than your rivals? Make growth decisions based on your distinctive competency, not on your core competencies.

Another important consideration is that cashflow is usually the biggest challenge to growth. Sometimes it is better to be less profitable if it allows you to keep hold of capital because raising capital yourself can cost you more than the profit you have sacrificed.

Adel Al Ali, chief executive of Air Arabia, who founded the Middle East’s first low-cost carrier in 2003 and has presided over its growth into a 50-strong fleet flying to 170 destinations, gave a fascinating insight into his strategy. He looks at profit, not growth or market share, arguing that if you are weak it is easier for competitors to damage you. Airlines typically have a three/five-year strategy, but invariably the plan changes every year, such is the speed of change in the industry.

His philosophy is not to worry too much about corporate secrecy or competitors trying to steal your business; he argues a good business should have the self-confidence to let the competition chase you, rather than chasing them. That approach has certainly worked for Air Arabia; whilst 17 airlines have closed globally during the last 12 months, Air Arabia is ordering 120 new aircraft and extending into new markets.

However, not every business leader can afford to be so sanguine. Profit draws a crowd; Netflix and Ben and Jerry are good examples of pioneers in their fields whose business models have been imitated and have had to innovate constantly to stay ahead of the competition. And competition is not always direct; arguably, the biggest challenge to camera manufacturers has been the advent of the smartphone.

As a business leader you need to be alive to risks posed not only by competitors in your own space, but by rapid technological change, which could make your own business model obsolete. The rise of Airbnb has changed the face of the travel industry and it is instructive to consider how Marriott International, which most people think of as an upmarket hotel operator, has responded to the challenge, rather than ignoring it.

The first Marriott hotel was opened in 1957; today, more than 1 million hotel rooms in 110 countries operate under the Marriott International banner, but within its collection there is a huge range of properties, from flagship luxury hotels to midscale brands, offering options to travelers on a budget. Bill Marriott Snr, who started the company in 1927 from a single root beer stand, had a motto: Success is never final and Marriott’s hotel innovation incubator has introduced the concept of apartment living and local experiences to some of its hotels in response to the live like a local phenomenon pioneered so successfully by Airbnb.

If you are running a successful business, it is tempting to think you don’t need to change anything about your business model. But in today’s fast-moving world, if you wait until you need to change it you will already be too late. The best CEOs anticipate disruption even before it has happened and are not afraid to change their business to adapt to it, however, counter-intuitive that might seem.

There is a well-known saying in the business world: Don’t let a good crisis go to waste. Rather than fearing radical changes in their market, or macro-economic factors buffeting their business, a good CEO embraces a crisis, seeing it as an opportunity for re-invention. And if there isn’t a crisis, one can always be created!

We need to inspire the next generation of pilots

The airline industry is facing a critical shortage of pilots. Simply put, airline customer demand is outpacing airline capacity. The problem is especially pronounced in Asia, where half the world’s growth in commercial growth will be located, but it is also a concern in the US. Projections suggest that if the industry continues to produce pilots at the current rate, the U.S. will only have about two-thirds of the pilots needed to keep the airline industry healthy 20 years from now.

The Federal Aviation Administration was so concerned it raised the maximum retirement age to 65 as a stop-gap measure, but that was a sticking plaster solution. The problem is not that pilots are retiring too young; it is that young people are not becoming pilots.

That might sound surprising. Hasn’t flying always been one of the most glamorous professions? Plenty of boys and girls dream of becoming pilots. True, but the cost of training is a major deterrent. Gaining the required number of flying hours to qualify as a pilot costs around $150,000 and starting salaries for entry level pilots are too modest to allow anyone to repay that investment in the first few years of their career.

A more flexible approach is needed. Using advanced flight simulators gives cadets the chance to learn in a dynamic environment, replicating in-flight emergencies and providing a wide variety of challenging situations to address. Traditionally, the industry has preferred to do its training in-house, but well-run pilot academies, boasting the most sophisticated simulators on the market, can become trusted partners to airlines, cutting the length and price of training without compromising passenger safety.

There also needs to be a more pro-active approach to encouraging women to join the industry. Only around 4,000, out of 130,000 pilots employed globally, are women just three per cent of the workforce. That can’t continue if we are to find ways of addressing the pilot shortage. The recent comments made by an airline CEO, that a woman would find it impossible to do his job were symptomatic of an attitude that has pervaded the industry for too long.

However, the outcry that followed his remarks and his attempts to disown them suggest the message may be getting through. The sky has no glass ceiling and nor should the airline industry.