AirBnB: From 0 to $10 billion in 8 years

The Wall Street Journal has reported that San Francisco-based startup AirBnB is being valued at approximately $10 billion.  CrunchWeek (TechCrunch) also has a report and video covering this story as well.

This is an amazing rags-to-riches story of two guys who couldn’t afford to pay their rent in San Francisco, started creatively finding a solution (that included renting out their living room, providing air mattresses and breakfast), and selling cereal boxes to bootstrap their venture.  The team attracted the attention of Y Combinator, which invested $20K, and the founders used the capital to go out and talk to and sell real customers. With the traction from this they were able to raise Silicon Valley venture capital, including Sequoia Capital, which is arguably the best (technology) venture capital firm in the world.   Seven years later they are in a position to disrupt the hotel industry itself.

“The rich price tag reflects Airbnb’s potential to disrupt the hotel industry. In six years, the company has become a required destination for millions of tourists looking for cheap rooms, while giving homeowners a new source of income. It is part of a trend of technology startups—including car-sharing service Uber Technologies Inc.—creating markets by letting people share excess resources.”

What does this startup story have to do with academic entrepreneurship?  For starters, such a simple concept could have, and probably was, cooked up by student entrepreneurs. One would have thought that such a startup would have arisen from the hospitality industry, or a student entrepreneurs from a school of hospitality management, but it wasn’t. Granted, execution is what matters. Ideas are a dime a dozen. But the fact that this and other huge disruptive hospitality and tourism technology opportunities were missed by the so-called “leading hotel schools of the world” is curious, and, the Academic Entrepreneur believes, a reflection of their entrepreneurship programmes and pedagogy. This includes his alma mater (and that of Paul Graham as well).  Something is not working but it is highly unlikely that critique will be welcomed by current administrations.

We can do a deep dive into AirBnB and its founding dynamics that led it to success. As a supply sider, the Academic Entrepreneur believes it has a lot to do not only with serendipity but also the raising of formal, professional and top-branded venture capital from firms that have former entrepreneurs running them, one of which was mentioned above.  Plenty of entrepreneurs work very hard, are smart, build good products and put in elbow grease to secure early stage customers. But most are not successful.

However, one of the points in the AirBnB story thus far is that the founders and investors were not afraid to break the rules. My experience in universities, including hotel schools, is that students are encouraged to follow the rules, not to break them.

Follow the rules, and you will get a good job when you graduate

-Modern university arm-twist that keeps the minions in line

while also thwarting innovation and creativity, and disruptive new ventures along with it.

Some hoteliers are arguing now that AirBnB has gone so far as to break the law; or, their suppliers are breaking the law. Despite this, the company is growing leaps and bounds and will probably launch a huge marketing campaign, shoring up their brand and establishing dominance. This might lead to an all-out battle with the incumbent hotel industry. According to the WSJ article, only the smaller hoteliers have spoken out:

 “These guys are scofflaws,” said Vijay Dandapani, president of New York hotel chain Apple Core Hotels. “There’s no reason why they should be subjected to a completely different set of rules than the legacy hotel businesses.”

AirBnB could have been started anywhere in the world, and grown there as well, as long as there was access to good talent, broadband, and venture capital. That is the good news. An AirBnB could have come from exceptional student entrepreneurs at almost any university in the world.

The bad news is that success can often mask potential success. Henry Etzkowitz has discussed this in his recent work on StartX at Stanford University.  Educational institutions of higher learning may be blinded by their own success, in a sense. Statistics pointing to the successful placement of students in career positions may be hiding the potential of innovation and entrepreneurial success that is much larger in terms of not only numbers but life satisfaction. The lack of adequate programmes and financing schemes, including acclerators, incubators, innovation grants, and university venture capital funds leads to unrealized potential from the student base.  Furthermore, entrepreneurship training and development iof the right calibre may not be available, even as an elective. Many programmes don’t give students good training in opportunity recognition, nor do they provide experiential entrepreneurship education; nor do they teach and allow students to actually build things.

Stay tuned as this drama unfolds.  Never underestimate the power of two guys in a garage; or a team of student entrepreneurs starting a new venture in their dorm room for that matter.


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