Airbnb is the biggest hotel company in the world, yet doesn’t own a single property. Its business model truly changed the game, helping usher in the birth of the sharing economy and paving the way for other giants such as Uber. Here’s how they made it.

Solving their own problem

The idea for Airbnb didn’t come about in a glamorous way – it was born out of necessity. The founders were trying to solve the problem of how to pay the rent on their San Francisco loft when they realised that a major design conference was coming to San Fransisco, and all hotels were booked up. By putting three airbeds on their living room floor and offering a bed-and-breakfast service, they managed to both pay their rent and hit it off with their guests, who enjoyed being showed around and living like a local. Validating their idea before they even had one, they recognised that renting out homes wasn’t just a model to be applied to expensive San Francisco at certain times of year – it could work anywhere, and any time.

A cereal-based startup on the side

Renting out their living room could only go so far in terms of funding the launch of Airbnb. To gain traction for the development and launch, the founders took the unusual step of creating limited edition breakfast cereals featuring on presidential candidates – “Obama O’s” and “Cap’n McCains”. At the time it was the Democratic National Convention in Denver, Colorado, an event that was heavily oversubscribed - yet Airbnb were finding people unwilling to rent rooms from strangers, as the concept was so new. To gain visibility for their brand, and to raise much-needed cash, the co-founders drew on their design background to create their side-product. It was a huge hit, selling for $40 a box, and raising the team $30,000 in order to keep Airbnb afloat. It also gained them interest in the tech world, as the founders used the cereal as gifts to send to journalists in this space.

Building the right team

Airbnb hire everyone based on six core values, values which have remained unchanged since the company’s inception. These values are at the heart of employment interviews, which are an integral part of the process rather than prior employment experience. The team are most interested in potential employees reactions, and what they would bring to the team.

From lean startup to global brand – how Airbnb made it

Innovating responsibly

Pioneering a new business model (although Airbnb argue that actually they’re operating on an old business model, harking back to a time when people opened their homes as boarding-houses and shared things with their neighbours) throws up new problems. Discussions have been started about the ethical and legal ramifications of renting and sub-letting, new laws have been introduced, and the hotel industry hasn’t exactly welcomed the new competition. Second apartments solely set up in order to rent out on Airbnb are subject to heavy fines in some cities, such as Paris.

It’s important to the Airbnb team that it has a positive impact on people and places alike. When it comes to the cities themselves, Airbnb actively work to help cities find a balance, and to limit the effect on house prices. When it comes to people, the average Airbnb host makes £3000 a year, and tourists are able to engage with the city the way a local would. Which brings us onto the final point…

The power of trust

Airbnb is a business powered by trust – trust on the side of the host, and on the side of the hosted. What at first seemed an impossible idea in the early days of the presidential candidate cereal boxes – paying to stay in a total stranger’s house - has rapidly become completely normal. In order to ensure safety, reviews, verification and personal information gives more than a baseline of trust.

Like with another innovative business changing the game, Brewdog, Airbnb’s growth has been powered by the people. Buzz grew by word of mouth, passed on by early-adopters not afraid to try new things, and acting then as advocates for the brand. The future of business lies in putting power in the hands of the customers.


Get the Virgin StartUp Business plan