When you think of Airbnb, does home-sharing and vacation rentals come to mind? Or do you think of hot glue guns and $40 boxes of cereal? If the latter has you scratching your head in confusion, stay with us. We’ll explain.
In 2008, Brian Chesky and two co-founders, Joe Gebbia and Nathan Blecharczyk launched Airbnb to fill the gap in available accommodations. The idea was dreamed up after the founder’s decided to rent out air mattresses in their San Franscisco apartment during a major design conference to make some extra cash. (That’s a longer story for a different series.) What matters here is that an idea that flipped the hospitality industry on its head was saved by cereal.
What the funding!?
Betting on Breakfast, Cereal-ously
Airbnb was a platform where people could rent out their entire home, a guest house, or even a spare room to strangers for overnight stays. The host could make a little extra cash and the renter could skip the stress, and sometimes steep price, of hotel stays.
Investors were skeptical. The idea came with a whole list of concerns, and many major investors gave them a “thanks but no thanks” during the first year. The rejections caused them to rely heavily on credit cards to keep the lights on.
Armed with a short list of actual customers and a panic-inducing amount of credit card debt, the team decided to get into the cereal business. But this wasn’t just any cereal. These were self-designed, limited edition cereal boxes featured then-presidential candidates Barack Obama and John McCain. Obama O’s and Cap’n McCains were the ultimate collector’s item and the ultimate money maker. What cost them about $4 and an evening spent hot gluing boxes together on the floor of Chesky’s apartment ended up selling for $40 a box. It was a hit. The group ended up selling more than 1,000 boxes and raked in about $30,000 for the company.
But the Story Doesn’t End There
The cash made from their short stint in the cereal business helped keep them afloat, but by the end of 2008 their bank accounts were dwindling again. In a last-ditch effort, they applied to Y Combinator, a startup accelerator, and pitched the Airbnb idea to its co-founder, Paul Graham. The pitch alone wasn’t enough to move the needle. But then they pulled out the cereal.
When they showed Graham the $4 box of cereal they sold for $40, something just clicked. According to Chesky, Graham told them: “If you can convince people to pay $40 for a $4 box of cereal, maybe you can get strangers to stay in other strangers’ homes.”
Snap! Crackle! Believe!
Airbnb secured a spot at Y Combinator and once the program ended, they managed to secure $600,000 of funding by Sequoia Capital, a firm with previous investments in Google, Paypal, and LinkedIn. Today, Airbnb has a market capitalization of $75.13 billion.
Not bad for a company that once kept the lights on with breakfast cereal.
Airbnb is a reminder that success doesn’t happen overnight. The idea investors laugh at today might be the one worth billions tomorrow. At Gibraltar Business Capital, we know that the best businesses aren’t always the ones that look perfect on paper. Sometimes they’re the ones with a scrappy founder, a creative solution, and the sheer determination to keep going when the easy path disappears. That’s the kind of story we love to be part of.