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In early March, Airbnb co-founder and CEO Brian Chesky was working on the company’s S-1 document, which was intended to be used in its much-anticipated stock market announcement, when the coronavirus pandemic struck and “complete madness” ensued.
“We were preparing to go public,” Chesky said, referring to March 3 or 4 when Safian visited the company’s San Francisco headquarters weeks prior to the podcast. “I was working on our S-1 document, and I was also working on a launch” before the crisis upended those plans.
Chesky added that “a really big launch” had been slated for June 4, but the Airbnb CEO offered no details about it.
Airbnb had stated in 2019 that it intended to go public in 2020. It didn’t really need the money up until coronavirus killed the travel business, and would have probably done a direct listing so employees could exercise their soon-to-expiring stock options.
In the interim Airbnb has seen its unicorn valuation fall from $31 billion to around $18 billion as of its new financing round in April.
“We were preparing to go public. We had a plan, and I felt great about the plan. And all of a sudden, it felt like I was captain of the ship and a torpedo hit the side of the ship,” Chesky said, referring to the crisis in early March. [You can read a transcript of the podcast here.]
Chesky said, “Everything broke at once, and there was this feeling of panic. I just remembered I had to breathe.”
Among the things that broke, he said, was that Airbnb had $1 billion in guest reservations in its kitty, guests were clamoring for refunds, and probably half of its hosts were dependent on payments from Airbnb that never came to pay their mortgages.
For health reasons, so guests wouldn’t feel compelled to travel, Airbnb offered them full refunds, outraging hosts. Airbnb eventually came up with a $250 million fund for hosts to get some compensation for cancelled bookings, and a $15 million fund for superhosts, which includes $5 million from new investors Silver Lake and Sixth Street partners.
The private equity companies chipped in $1 billion of financing, which Airbnb needs to repay at around 11 to 12 percent.
Airbnb Lost Its Startup Hustle
Chesky said the crisis has made Airbnb more scrappy, and he realized the company had begun to lose some of its original startup vibe.
“When you raise billions of dollars and then you hire people from other flush companies, maybe they came from Google or maybe they came from an like a consumer packaged good company, but that’s like 80 years old and they’re used to like having huge budgets, you kind of start to lose a little bit of that startup hustle,” Chesky said. “And then suddenly what used to take $10,000 dollars to do takes $100,000 or a million dollars.”
That comment came in the context of details about Airbnb’s 2019 financials emerging, with chatter that Airbnb’s expenses were getting out of hand.
He said that although the company did not turn a profit on an EBITDA (earnings before interest, taxes, depreciation and amortization) basis in 2019, Chesky said the company was cash flow positive, as it was during the previous three years.
As far as the future is concerned, Chesky said the company needs to get back to basics.
Chesky said he told his team: “We need to be scrappy and we need to simplify. We need to simplify how we’re run, so we can move very, very quickly. And what we’re going to focus on is anything that makes us different. Let’s make a list of everything we’re doing and at the top of the list, we’re going to double down to the things that make us most different.”
Chesky sees a silver lining growing out of the pandemic.
“When we started Airbnb it was about connecting with people and that’s what we’re meant to do,” Chesky said. “And if it took a crisis for us to get back to our roots, then a new, better Airbnb will emerge. On the other side of this, there is going to be a new day. The clouds do go away, and the storm will end.”
Given the proliferation of professional property managers with scores of listings pervading Airbnb, it will be tough for the company to get back to its roots. There reportedly have been rumblings from some investors, including perhaps some board members, that Airbnb requires new leadership, although the company vehemently denies it.
Getting through the pandemic will be Chesky’s biggest test — although redirecting the company toward a new strategy during a recovery may be even a larger one.