Why Airbnb Failed To Gain Traction Twice Before Hitting It Big

by Tim Jahn on September 28, 2010

With rentals available in over 7,800 cities and over 160 countries, Airbnb sounds like an overnight success. Turns out, it was anything but. Nathan Blecharczyk and his two fellow co-founders launched Airbnb two separate times but didn’t gain much critical mass. The third time, the stars aligned a bit more.

Why did Airbnb fail to gain traction the first two attempts and finally hit it big on try three? Watch my video interview with co-founder Nathan Blecharczyk to find out!

Transcript

Nathan Blecharczyk:
So I’m Nathan Blecharczyk. And I’m CTO, and a cofounder of airbnb.com which is a marketplace where individuals can rent their apartment or any kind of space by the night. And we make it easy for travelers to discover, and book those accommodations.

So the original idea for airbnb.com came from my two cofounders Brian Chesky, and Joe Gebbia. Fast forward about two or three months, we were looking over a project together. They wanted to get into a web space. My background is in web development, I’m a software engineer.

And we’re kicking around a variety of ideas and they’re talking about this experience they had a few months ago and how their expectations had been broken and maybe we could do something similar for other events and conferences around the country. Situations where a lot of people are converging on a city and there might not be enough hotel capacity. And so, this was a very limited scale project.

And we decided to just go for it and to try to launch it by South by Southwest, which is this huge event in Austin Texas, about 100,000 people or more attend. And we decided to do this all up like a month before the event. So we didn’t have too much time to make this happen. Nonetheless, we were able to crank out a website in about three weeks, launch it about a week before the event. And this site is very straightforward.

It was a site where people could basically affiliate themselves with an event and say that they were offering housing or a room for South by Southwest and then people who were coming to this event could easily find the profile and contact the owner directly. There’s no transaction involved; it’s merely a directory service.

So we launched this for South by Southwest just in a matter of a week before and it was recently successful. We got about 60 rooms in just those few days and maybe a dozen people stayed with each other.

Tim Jahn:
So at South by, it didn’t quite meet the demand you thought it would? So you sat back down kind of to the drawing board so to speak and you rethought what would work based on that experience?

Nathan Blecharczyk:

Right.

Tim Jahn:
How — I would imagine the second time around as you are ready to implement the idea again with improvements based on what you learned, I imagine the confidence level would be a little bit lower. Was it harder that second time around when you were launching it like kind of hoping and kind of — what were you guys thinking at that point?

Nathan Blecharczyk:
We were excited that we had learned some things. And we were more confident about the second attempt than in retrospect we were about the first attempt. Although, for the first attempt we were probably overly confident. But definitely, it was something we thought a lot harder about than we did the first time for a variety of reasons.

One is, we had already “failed” or at least things hadn’t worked out the first time. And a period of time had gone by which whereby we weren’t having a job earning money. So financially, there’s some consideration there. And then also, this was a much bigger commitment. Whereas the first site took about three weeks to develop, this was going to take three months.

And this was probably going to take a lot more follow-through to test as well. So it really was a far larger commitment after we had already been disappointed from our, perhaps first thing. Even though we were excited to apply all that we had learned.

Tim Jahn:
So then you launch, after three weeks of development, you launch the site again new and improved and what happens?

Nathan Blecharczyk:
Right. So again, from the beginning we were wondering, how are we going to get critical mass? Right, now are we going to get a quick start when we launch our company; something that I’m sure everyone worries about. Now for the first iteration, the site was South by Southwest. And we decided to again leverage an event to launch with, even though our site otherwise had nothing to do with events anymore.

So the event that was in the news in the summer of 2008 was the democratic national convention that was going to be happening in Denver. This event was being talked about months in advance. And so we said, we want to affiliate ourselves or align ourselves with what’s going to be happening in Denver at the end of the summer. The timing is right and this event is going to get just national coverage. And so our strategy was to provide housing for this event.

Denver had had I think 18,000 hotel rooms available and there were estimated 80,000 who were going to be in attendance. So we said, “Okay, there’s going to be a shortage. There’s going to be an absolute need for this. And this would just be a great way to potentially pitch ourselves in a national event. There’s going to probably cover the fact that there’s a shortage of hotel rooms. Maybe we can get incorporated into their story.” So we launched about two weeks before this event, 800 apartments within the span of about a week.

And meanwhile the media coverage is building and they’re saying things like, “all these people are converging on Denver and they have no place to stay. They want to participate in this historical event and they’re being shut out due to cost.” So they were doing these stories. And we were able to just call up CNN and other major media which and say, “I saw this story, but the fact is, we have 800 rooms available on our website here. Perhaps you should incorporate this or at least let people know.” And they thought it was terrific, they really liked it. And so we got on CNN video essentially the day of launch or a couple of days thereafter. And from there, other national media outlets contacted us and did stories.

It was just amazing that within two weeks of launch, we had all this coverage on national media which was causing people to sign up all over the country and really build awareness. And we certainly sold a lot of rooms during the convention as well. But it was a really unique situation that I think we fully took advantage of.

Tim Jahn:
So the first time around, 100,000 people in Austin for South by — you get maybe what did you say like 60 rooms were listed? And then the second time around, months later, the Democratic National Convention in Denver, you just call up CNN and get on the news?

Nathan Blecharczyk:
Yeah, well, you have to — one of the key things we learned along the way that you got to understand everyone’s motivations, right, and why they might do what you want them to do. So, we didn’t tell CNN to do a story about the hotel shortage, they were going to do that anyways. Right. But we also understood that they probably wanted to differentiate themselves and incorporate something new into the story so that its such that they’re angle wasn’t the same as Fox News as everyone else who was covering this event.

And so when they saw this really interesting, almost human-interest story, that played into what they were already talking about, they wanted to incorporate it. After this tremendous event in august where we got all this press and things just seemed amazing, about two weeks later, it was as if we had never got any of that press coverage. It was a big bang and then there was essentially silence. It’s true that a lot of people signed up in the process.

But they were spread across the country. We didn’t really have critical mass. And our business is all about building critical mass of accommodations in various cities. And we hadn’t achieved that, except for in Denver. But that wasn’t quite the right city to perhaps to launch it beyond just taking advantage of the press.

So for the next four months, we really worked hard to add new features. But it was slow moving and it was a really tough time for us because now we had been working on this for as much as ten, eleven, twelve months without making any kind of income. And we’ve been working hard and there’s just no sign of really growing the numbers. And so we were really starting to get at the point where well, when are we going to draw the line? Are we going to do this forever?

We’ve got to do something differently. What are we going to do differently and how are we going to judge success? And so one of the things we decided to do differently was to enroll in Y Combinator. We had been getting advice along the way from the Justin.tv guys and they had come out of Y Combinator. And they thought it would be really good if we enrolled in the program. They thought it would help us really get focused, that we’d get a lot of great feedback and just all around it would be a great experience for us even though we had already had launched. But we did this.

It was true that we hadn’t been entirely focused up until that point. So there’s three of us founders and we hadn’t been focused on this 100%. We were doing a little consulting on the site. I was in Boston and they were in San Francisco. It wasn’t 100% yet. And we said, “Well, before we had decided whether to give up, we really need to give it 100%.” And Y Combinator is only a three-month program. We’re told that this has helped so many people in the past, we should do this. And then, only then at the end start asking ourselves this question.

So we went to the program and the short story is we never had to ask ourselves that question at the end. That when we came out of Y Combinator, things were just so spectacular in terms of over a week of growth and we were able to raise a seat around that shortly thereafter that we never had that discussion. So that was in January of 2009. So fast forward now at least a year and a half and we have almost 30 employees. And if you look at our website, you’ll see that we have tens of thousands of properties available all around the world. One hundred and sixty-two countries, 7,500 different cities.

If you search in New York, we now have 3,600 properties, in Paris we have 1,300 properties. So we’ve achieved critical mass in cities worldwide. And you can read the reviews. There’s a lot of people who are having the airbnb experience.

Tim Jahn:
So, first time it doesn’t work. Second time, you guys learn, you’re like, this is going to happen, you get big press coverage; it doesn’t quite work still the way you want it. Third time, you hunker down in a Y Combinator entrepreneur program and it works.

What was it about that third time? I’m familiar with Y Combinator. Was it just Y Combinator that made this happen for you or what changed that third time that you guys said, “This is going to happen”?

Nathan Blecharczyk:
Sure. Well, Y Combinator’s a great program. And I would say the most value comes at the end of the program when you get to get in front of a whole bunch of, a room full of investors that you wouldn’t otherwise be able to approach and really share your vision, your idea, your progress with them and potentially get an investment around.

Throughout the course of the program, you also get a lot of good advice, feedback from guest speakers and in a particular polygram, there’s a lot of good insight. That being said, I think what we needed the most at that moment in time was to get the same room together and really just work 110%. So like I said before, I had been in Boston, my partners had been in San Francisco. During Y Combinator, we were living in the same apartment, we all woke up at eight am and we worked until midnight six days a week. And we took about three hours off over the course of the day to basically cook, shower, and go to the gym together.

So it was extremely regimented. And we made a lot of progress, a lot more than we had before. And I also think the first time, you have to try two times, three times at least before things start to click. I think is really just par for the course. Every time you make a mistake or you fail, you learn and then you try to solve those problems that led to failure.

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  • local law

    Why doesn’t anyone even mention the fact that they are violating the real estate brokerage laws of nearly every state that requires a license? Do they not receive a commission every time something rents? Are they not acting as an agent without a license? I think the Realtors association will have something to say about what is happening.

    • Dh356

      They will have an army of enthusiastic antitrust attorneys that would defend them against the colluding real estate associations – a license for what? “now this is a bathroom
      … An right here a bedroom” LOL

  • http://www.facebook.com/rmandrade Ramon Andrade

    I can’t tell how excited I am to start working for Aibnb Brazil!
    You’re all very inspiring!!

    Thanks for the video!

  • LongTimeObserver

    Their “service” is for the most part illegal in NYC.

  • Bbarlow2005

    I just have to say… People.. Don’t be assholes. These guys are geniuses and that’s all there is to it.