Every month or so, I try to highlight some of the case studies that others have written about how companies got their first 1000 customers. Sometimes they’re just so good I feel selfish not sharing it with all of you. Today is one of those days! Here is how Airbnb got their first 1000 customers, written by some of the brilliant folks @ HBR.
In 2007, designers Brian Chesky and Joe Gebbia could not afford the rent on their San Francisco apartment. To make ends meet, they decided to turn their loft into a lodging space, but, as Gebbia explained, “We didn’t want to post on Craigslist because we felt it was too impersonal. Our entrepreneur instinct said ‘build your own site.’ So we did.”
A design conference was coming to town and hotel space was limited, so they set up a simple website with pictures of their loft-turned-lodging space—complete with three air mattresses on the floor and the promise of a home-cooked breakfast in the morning. This site got them their first three renters, each one paying $80; after that first weekend, they began receiving emails from people around the world asking when the site would be available for destinations like Buenos Aires, London, and Japan. Gebbia explained:
At that point we started to brainstorm what a larger, international version of the site would be. That was basically our market research. People told us what they wanted, so we set off to create it for them. Ultimately while solving our own problem, we were solving someone else’s problem too. We were at a point professionally where we were very ready to pursue our own idea. We were anxious though, like waiting in line for a roller coaster. We didn’t know exactly what was ahead, but we knew we were in for a ride.
The following spring, Chesky and Gebbia enlisted former roommate and engineer Nathan Blecharczyk to help them get AirBed & Breakfast off the ground. They planned the launch around the Democratic National Convention in order to capitalize on the resulting lack of hotel space.
Fast forward eight years to 2015, and AirBed & Breakfast, renamed Airbnb, was a household name. As of fall 2015, the platform had annual revenue of approximately $900 million, extensive user growth, and over 1.8 million properties listed worldwide.
With a $25.5 billion3 valuation, Airbnb was worth more than legacy players like Wyndham and Hyatt. This tremendous growth helped the company receive over $2.39 billion in eight rounds of funding from 32 investors, such as Y Combinator, Sequoia Capital, Keith Rabois, Andreessen Horowitz, and TPG Growth.
Early Growth of Airbnb
“Pure Unadulterated Hustle” in the Face of Initial Resistance
In the summer of 2008, the founders needed a way to raise money. They bought a large amount of cereal and designed special edition election-themed boxes, released that fall—Obama O’s and Cap’n McCain’s, which were sold at convention parties for $40 a box . They sold 500 boxes of each cereal, helping them to raise around $30,000 for AirBed & Breakfast.
Despite raising some initial capital, the site did not gain much traction initially, and the founders resorted to living off of leftover Cap’n McCain’s (the Obama O’s sold out)—a time they refer to as a real “low point.” This low point did not last for long, however, as the following spring they had dinner with Paul Graham, founder of startup incubator Y Combinator. Despite recognizing the startup’s potential, Graham admitted to having some initial doubts, explaining, “I thought the idea was crazy. . . . Are people really going to do this? I would never do this.” Nevertheless, AirBed & Breakfast joined Y Combinator’s 2009 winter class, receiving $20,000 in funding. It renamed the business Airbnb, and received another $600,000 in a seed round from Sequoia Capital and Y Ventures.
Not everyone was as impressed with Airbnb’s business model, however, and the young startup was also notoriously rejected by Fred Wilson of Union Square Ventures—a decision Wilson later admitted was not a good one. Wilson claimed in 2011 that Union Square kept a box of Obama O’s in their conference room to remind themselves not to make the same mistake again. The cereal also served as an example of an early-stage startup doing everything necessary to get off the ground. As Wilson explained: “Whenever someone tells me that they can’t figure out how to raise the first $25,000 they need to get their company started I stand up, walk over to the cereal box, and tell this story. It is a story of pure unadulterated hustle. And I love it.”
But it was not just Airbnb’s business model that posed a concern. When Gebbia and Chesky—both Rhode Island School of Design alums—were initially seeking funding for their startup, potential investors didn’t know what to make of a company with two designers, despite the fact that Blecharczyk, with a solid background in tech, had already signed on as an engineer. Chesky explained that it was hard for many in Silicon Valley to see the company’s potential because “they thought we just made things pretty.”
Yet it was most likely this design background that helped Airbnb find such innovative, unexpected solutions—such as the limited-edition presidential cereal campaign—to the very real problems that all early-stage startups faced. It was this ability to innovate that informed much of Airbnb’s growth strategy when it came to acquiring its first thousand customers.
Craigslist Platform Integration
When exactly Airbnb implemented what has become its most famous growth hack is unclear, but there was evidence of the Craigslist platform hack as early as 2010.Though the startup worked hard to distinguish itself from the more impersonal, scam-filled classified-style platform, Craigslist had one thing that Airbnb did not—a massive user base.
Airbnb knew through both market research and its own experience that Craigslist was the place where people who wanted something other than the standard hotel experience looked for listings—in other words, Airbnb’s target market.
In order to tap into this market, Airbnb offered users who listed properties on Airbnb the opportunity to post them to Craigslist as well, despite the fact that there was no sanctioned way on Craigslist to do so. Though fairly straightforward in hindsight, the execution was not simple.
In essence, Craigslist saved listing information using a unique URL rather than a cookie. Because of this, Airbnb was able to build a botb to visit Craigslist, snag a unique URL, input the listing info, and forward the URL to the user for publishing .
Other aspects of the integration also proved to be challenging. The bot also had to fill out a handful of forms, the simplest of which was the Craigslist category. The specific region proved a bit more of a challenge since there were hundreds of different versions of Craigslist, some much more specific than others—for example, six sub-regions within a region for the Bay Area, yet one Craigslist for the entire state of Maine. This meant it was necessary to visit every Craigslist and scrape the names and codes for every region.
Furthermore, there was the issue of the anonymous email assigned by Craigslist. This function had to be turned off and replaced with a link to the Airbnb listing. And to ensure that the listing stood out among the standard Craigslist fare, the platform’s limited HTML support had to be taken into consideration as well. As writer and entrepreneur Andrew Chen explained:
This kind of integration is not trivial....I wouldn’t be surprised if the initial integration took some very smart people a lot of time to perfect. A traditional marketer would not even be close to imagining the integration above—there’s too many technical details needed for it to happen. As a result, it could only have come out of the mind of an engineer tasked with the problem of acquiring more users from Craigslist.
The benefits of the Airbnb-Craigslist integration were numerous. Not only was it the sheer volume of potential users accessible via Craigslist, but the fact that Airbnb listings were far superior to the other properties available—more personal, with better descriptions and nicer photos—made them more appealing to Craigslist users looking for vacation properties.
Once those Craigslist users made the switch, they were more likely to ignore Craigslist and book through Airbnb in the future. In addition, those with properties listed on Airbnb ended up making more money on their listings, which kept them using the service again and again.
While the first integration got much needed traffic to Airbnb listings, in Craigslist Airbnb saw another opportunity for getting more users to list their properties on Airbnb in the first place. Dave Gooden, who worked in Craiglist’s vacation rental sector, said that in late 2009, he began looking into Airbnb’s mysterious growth. He explained:
When a competing company comes on my radar, I always do my due diligence. In my Airbnb research, I didn’t find great SEO results or a gazillion followers on Twitter or any massive advertising spends on Google or Facebook. I looked everywhere but I couldn’t find any rational or traditional reasons for this type of growth. All of these Airbnb users can’t be coming from tech blogs, can they? Word of mouth? I didn’t think so. After thinking on it for a day or two, only one possible answer popped into my head: “These guys are black hats!”
To test his theory, Gooden set up a “mouse trap” by posting a couple of rental properties to Craigslist, both using Craigslist’s “anonymous” email option and clearly specifying that he did not want to be contacted about other offers. Within a couple of hours, Gooden says he received an email from a “young lady” who really liked his property and wanted him to check out Airbnb. He claimed that this email alone was 99% of the evidence needed to support his Airbnb-Craigslist spam theory. However, he wanted to be sure the email wasn’t simply from an excited Airbnb user, so he decided to dig a bit more.
Over the next weekend, Gooden built a site that used Craigslist email harvesting technology and mass-mailing technology to target Craigslist users with vacation rentals. The result was over 1,000 vacation rental owners who signed up to list their properties on Gooden’s test site. He then re-listed one of the properties on Craigslist, and within a day he received an email complimenting his property and suggesting he list it on Airbnb The next week, he listed two more properties and received two more emails. The week after that, he listed yet another property, and received two more emails. As Gooden explained:
When you scale a black hat operation like this you could easily reach tens of thousands of highly targeted people per day . . . and quickly gain 60,000 members on the supply- side, which again, is the hardest and most important part of growing a market place. I am pretty sure that Airbnb isn’t the only company that has used this strategy or technique, but I think they are the first to turn it into a one hundred million dollar investment at a one billion dollar valuation.
Though this hack was not as clever as the Craigslist platform integration discussed previously, it helped Airbnb to grow its listings quickly and at almost no cost.
International Expansion: Restarting at Every Country
From the earliest days of AirBed & Breakfast when the founders received emails from people around the world requesting the site’s expansion, international users played a significant role in Airbnb’s growth. In May 2011, Gebbia told GigaOM’s Colleen Taylor:
This year is about international growth. I mean, some of our biggest cities are in Europe and South America, and they are just starting to emerge. China and Asia are really interesting to us. . . . It’s about localizing the site and making it really easy, bringing the simplicity that we brought for people in the United States to these other countries.
In August 2014, Airbnb’s Rebecca Rosenfelt gave a talk entitled “Going for Global,” in which she outlined some of the company’s international growth strategies. Rosenfelt began by pointing out that though people in Silicon Valley think of Airbnb as a mature company, in other parts of the world, it was still more of a “scrappy startup.” She explained, “We’ve had to crack growth over and over and over again as we break into new regions.”
Part of the struggle, according to Rosenfelt, was that Airbnb was a two-sided marketplace, meaning that in every new market it attempted to enter, it had to grow both the demand side (travelers) and the supply side (hosts) from almost nothing. As it turned out, the supply side was much harder to grow, as it was difficult to get people comfortable with the idea of opening their homes up to strangers.
One market in which Airbnb knew it needed to grow was France; although people were traveling to typical tourist locations in France using Airbnb, not many people were using Airbnb to vacation within France. The company decided to take two approaches to growing, setting up an A/B test in which it chose several small vacation markets within France that it thought would be popular. It randomly selected half of the locations to physically visit, and half to target using Facebook ads.
In the markets the company physically visited, teams of two to three people would talk to the few users already in that market to get an idea of what was going on. They would also throw parties and info sessions, set up booths around town, post flyers, and, as Rosenfelt said, “do whatever it takes.” They also made sure to get contact info for everyone they talked to who showed interest in hosting, and they followed up later with more information, an offer to create a listing for them to review, and the like.
Airbnb kept meticulous track of what it cost to visit people (including the cost of throwing parties, setting up booths, and other “on the ground” activities) and the listings that resulted, and compared that to the Facebook ads and resulting listings in the markets it did not visit. It turned out that cost per acquisition was five times better for actually sending people into markets.
After kick-starting these markets with a human presence, Airbnb kept growing two times faster by itself. Based on Airbnb’s experience, Rosenfelt claimed that sometimes it was beneficial to do things that did not scale, because a non-scalable tactic might be more scalable than initially thought, as was the case with sending teams into new markets. At the very least, these initiatives resulted in valuable feedback in terms of what was going on and informed other, more scalable opportunities for growth.
Hope you enjoyed this as much as I did,