3 ms·

Lots of these lessons are missing the bigger point. The original investor rejections had it right on the business model, except missed the determination of the

by pdq 11y ago

Lots of these lessons are missing the bigger point. The original investor rejections had it right on the business model, except missed the determination of the founders. Sleeping on airbeds and having hosts serve breakfast is a niche market. Airbnb changed their name and pivoted into the vacation rental rental space, and now shared rooms and "bed and breakfast" are a tiny fraction of their listings, but this opened up a much bigger market. IMO, this is the big lesson.

onedev 11y ago
I don't understand how so many people are missing this
- justicezyx 11y ago
  That would be quite dull considering pivoting has always been one of the most important business practices of startups...
technotony 11y ago
What always gets me with this story is Couchsurfing, which had proved people were willing to host strangers years before Airbnb launched. I'm not sure why so many investors missed this data point.
- dougmccune 11y ago
  But CouchSurfing didn't prove there was a profitable business there. And Airbnb is basically proof of that. If Airbnb stuck with the "stay in a shared room with strangers" approach they also wouldn't have figured out how to make money. As other commenters have pointed out, they shifted to a wholesale vacation rental model (ie HomeAway and VRBO) and that changed everything. They got the benefit of sticking to the "sharing" narrative while making money from the pure vacation rental market.
  - bananaboy 11y ago
    CouchSurfing did prove that there was a market out there waiting to be tapped though. AirBnB were able to capitalise on it.
- pouzy 11y ago
  Couchsurfing is mostly relying on trust. I've couchsurfed quite a bit (stopped since Airbnb I must say) and every time, people were the sweetest. But that's a good enough situation for backpackers, Airbnb has nailed down the cheap hotel-level hospitality.
paulpauper 11y ago
Most investors are not that good. Look at the stats that show money mangers lag the market. I would have funded Air BNB because it's very scalable, it fills a large market, and seemed to have very low initial costs. It's not like they needed a huge infrastructure to get it going. Air BNB is like a middleman, kinda like Ebay.
dang 11y ago
I don't think it's accurate to say that Airbnb pivoted into a different market. They didn't discover that their original idea was bad. They followed a smaller stream to successively larger ones. The apparent lameness of the initial niche doesn't let investors off the hook—ability to see beyond that to what a startup might grow into is a big part of being a good early investor [1]. Throw in not "missing the determination of the founders" and you may even have most of it. By the way, Airbnb didn't seem lame to everybody. PG used to run a couple straw polls per batch asking founders who was most likely to succeed, and I recall Airbnb winning both the votes in the W09 batch by large margins. 1. http://www.paulgraham.com/altair.html http://www.paulgraham.com/altair.html
- mbesto 11y ago
  > PG used to run a couple straw polls per batch asking founders who was most likely to succeed, and I recall Airbnb winning both the votes in our batch by large margins. You're mixing up the idea (which seemed lame) with the founders (who seemed great). Presumably this happened also because once you get to know people (especially within 3 months) you can make a much better judgement about their potential. The VC/pitching situation is flawed in that you usually only get < 1hr to sell your vision. VCs love to say "we back teams" which is translation for (1) founders already did something significant (2) founders came from prestigious backgrounds (3) the investors personally know and have worked previously with founders. 3 is obviously ideal, but can be rare.
  - dang 11y ago
    I don't believe I'm mixing those things up, but maybe my point wasn't clear. It isn't correct that Airbnb went from being a bad investment to a good one, and they didn't switch from a small market to a large one. The small market turned out to be the large one. It was the same guys working on the same idea the whole way. Why does that matter? Because Airbnb was a fabulous investment when they got all those rejections, and that is the point of the story: getting a heap of rejections doesn't mean you're not a fabulous investment, despite the unbelievable pressure it puts on you to believe so.
pbreit 11y ago
I used to think that but after looking a bit more closely found that the inventory and usage is quite different. VRBO users typically want an empty house set up for renting (i.e., not even any personal belongings except for necessities). With AirBnB, even the "Full Home" options are frequently/typically someone's house, including their belongings. And of course you would never see a share on VRBO. It's actually sort of hard to find vacation rentals on AirBnB. There just aren't that many of them compared to VRBO and Flipkey.

by pdq 11y ago

onedev 11y ago

I don't understand how so many people are missing this

justicezyx 11y ago
That would be quite dull considering pivoting has always been one of the most important business practices of startups...

technotony 11y ago

What always gets me with this story is Couchsurfing, which had proved people were willing to host strangers years before Airbnb launched. I'm not sure why so many investors missed this data point.

dougmccune 11y ago
But CouchSurfing didn't prove there was a profitable business there. And Airbnb is basically proof of that. If Airbnb stuck with the "stay in a shared room with strangers" approach they also wouldn't have figured out how to make money. As other commenters have pointed out, they shifted to a wholesale vacation rental model (ie HomeAway and VRBO) and that changed everything. They got the benefit of sticking to the "sharing" narrative while making money from the pure vacation rental market.
- bananaboy 11y ago
  CouchSurfing did prove that there was a market out there waiting to be tapped though. AirBnB were able to capitalise on it.
pouzy 11y ago
Couchsurfing is mostly relying on trust. I've couchsurfed quite a bit (stopped since Airbnb I must say) and every time, people were the sweetest. But that's a good enough situation for backpackers, Airbnb has nailed down the cheap hotel-level hospitality.

paulpauper 11y ago

Most investors are not that good. Look at the stats that show money mangers lag the market. I would have funded Air BNB because it's very scalable, it fills a large market, and seemed to have very low initial costs. It's not like they needed a huge infrastructure to get it going. Air BNB is like a middleman, kinda like Ebay.

dang 11y ago

I don't think it's accurate to say that Airbnb pivoted into a different market. They didn't discover that their original idea was bad. They followed a smaller stream to successively larger ones. The apparent lameness of the initial niche doesn't let investors off the hook—ability to see beyond that to what a startup might grow into is a big part of being a good early investor [1]. Throw in not "missing the determination of the founders" and you may even have most of it. By the way, Airbnb didn't seem lame to everybody. PG used to run a couple straw polls per batch asking founders who was most likely to succeed, and I recall Airbnb winning both the votes in the W09 batch by large margins. 1. http://www.paulgraham.com/altair.html http://www.paulgraham.com/altair.html

mbesto 11y ago
> PG used to run a couple straw polls per batch asking founders who was most likely to succeed, and I recall Airbnb winning both the votes in our batch by large margins. You're mixing up the idea (which seemed lame) with the founders (who seemed great). Presumably this happened also because once you get to know people (especially within 3 months) you can make a much better judgement about their potential. The VC/pitching situation is flawed in that you usually only get < 1hr to sell your vision. VCs love to say "we back teams" which is translation for (1) founders already did something significant (2) founders came from prestigious backgrounds (3) the investors personally know and have worked previously with founders. 3 is obviously ideal, but can be rare.
- dang 11y ago
  I don't believe I'm mixing those things up, but maybe my point wasn't clear. It isn't correct that Airbnb went from being a bad investment to a good one, and they didn't switch from a small market to a large one. The small market turned out to be the large one. It was the same guys working on the same idea the whole way. Why does that matter? Because Airbnb was a fabulous investment when they got all those rejections, and that is the point of the story: getting a heap of rejections doesn't mean you're not a fabulous investment, despite the unbelievable pressure it puts on you to believe so.

pbreit 11y ago

I used to think that but after looking a bit more closely found that the inventory and usage is quite different. VRBO users typically want an empty house set up for renting (i.e., not even any personal belongings except for necessities). With AirBnB, even the "Full Home" options are frequently/typically someone's house, including their belongings. And of course you would never see a share on VRBO. It's actually sort of hard to find vacation rentals on AirBnB. There just aren't that many of them compared to VRBO and Flipkey.