Startup Costs. Problems with investors only looking for great ideas?
In the past few weeks our blog has been focused on some of the more mainstream ways to fund a business (startup costs). But these routes aren’t always taken. In fact “mainstream” VCs only fund 20% of successful growth companies in the US, with that figure lower. Banks are almost, if not more reluctant to lend to SME’s despite government and EU pressure. While we hope we see this figure rise, current times haven’t been too encouraging.
Another potential problem, and the reason we’ve written this piece, is that the idea behind the business is one of the top priorities on the checklists of VCs and Angels. The bottom line here being unless you have a great idea, go home. Our question is, what if you’re prepared to do anything rather than fail, what if you have a brilliant team behind you?
Our example showcases that sometimes businesses are built on teams, not just ideas. In the summer of 2008, with no funding and credit card bills of nearly $20,000 AirBnB (dubbed the “ebay of spaces”) were in trouble. Still in its infancy, AirBnB had to act quick, so they hatched a plan. The plan had little to do with their business, but it worked nonetheless. They designed and manufactured a limited edition cereal box for both presidential candidates: “Obama O’s” and “Cap’n McCain’s”. The idea might seem off the wall, but 1,000 boxes later and $30,000 in profit, you can’t argue with the results. These guys never imagined themselves packaging and selling cereal, but in order to save the company they did whatever necessary. This move alone convinced Ycombinator founder Paul Graham to accept them into the accelerator programme, as Brian Chesky points out:
Paul Graham heard that…and he thought we’d a lot of imagination.
Zoe Gebbia and Brian Chesky (The two original co-founders of AirBnB) are both in agreement that some of the most valuable lessons came from using AirBnB themselves as customers. In 2009, they decided to take a step back from the day to day runnings and travelled across America meeting their users (not something you see most executive directors doing everyday). According to Joe Gebbia:
They gave us some of the best feedback we could ever have gotten.
It illustrates the team’s understanding that, in order to succeed, the product must serve the customer. Feedback from these trips was followed up on, expanding the marketplace and making sure to continually improve AirBnB.
But at the end of the day nearly all investors will ask about the money. It’s reasonable enough to be skeptical about AirBnB, as they admit themselves, initially thinking the idea was “absurd”. Fred Wilson of Union Square Ventures was so skeptical despite encouragement from Paul Graham, he passed on the chance to invest, and regrets it to this day:
We missed Airbnb even though we loved the team. Big mistake. The cereal box will remain in our conference room as a warning not to make that mistake again.
Our point here is, sometimes you have to believe in the people behind the idea to make it work, not the idea itself. If you’re still concentrating on just results; last year AirBnB was valued at 1 billion. This year 1.3, with growth on the up. Lessons learned?