Going into 2020, Airbnb was growing at a rapid pace and aggressively expanding into new categories. So what could possibly go wrong?
Well, within a couple months, the Covid-19 pandemic would shutdown the travel industry. And suddenly Airbnb was facing an existential crisis.
By April, the gross bookings for nights and experiences plunged by 72% on a year-over-year basis. In fact, from March to April, there were more cancellations than bookings!
While the situation was certainly dire, the management team wasted little time in pursuing a major restructuring. The result was that—over time—the business started to improve. By June, there was actually a 1% increase in gross bookings.
Now this is not to say that the business is no longer under pressure. The fact remains that revenues are still well off the levels of 2019. But then again, Airbnb has weathered the pandemic relatively well compared to other major travel operators, whether hotel chains or online marketplaces.
So why is this so? What did Airbnb do? Let’s take a look:
Cost Cutting: The mantra of Silicon Valley is high growth. But this philosophy makes no sense when the market is experiencing huge problems.
In the situation of Airbnb, management initiated a layoff of 25% of the workforce. There was also a steep reduction in discretionary and capital expenditures, a slashing of executive salaries and a suspension of all facilities build-outs.
Airbnb CEO and founder, Brian Chesky, set forth this plan in a letter that was sent to employees and published on the company blog. He did not mince words, saying “I have to share some very sad news.” He would go on to be thoughtful, transparent and clear about the “hard truths.”
Chesky also set forth a variety of principles about how the restructuring would be handled:
- Map all reductions to our future business strategy and the capabilities we will need.
- Do as much as we can for those who are impacted.
- Be unwavering in our commitment to diversity.
- Optimize for 1:1 communication for those impacted.
- Wait to communicate any decisions until all details are landed — transparency of only partial information can make matters worse.
Focus On The Core Business: In the shareholder letter in the S-1, the founders noted: “When the pandemic hit, we knew we couldn’t pursue everything that we used to. We chose to focus on what is most unique about Airbnb—our core business of hosting. We got back to our roots and back to what is truly special about Airbnb—the everyday people who host their homes and offer experiences. We scaled back investments that did not directly support the core of our host community.”
This move proved critical. As the pandemic deepened, people were looking more at local stays—and this played to the advantage of Airbnb. It was one of the biggest factors in the turnaround of the business.
Creatively-led: When there are severe constraints and limitations, this can lead to even more inspiration. This was certainly the case with the Airbnb team. For example, when the in-person Experiences segment was suspended, this led to the creation of Online Experiences. It turned out to be an extremely popular offering.
Trust: This is the heart of any successful business. But during times of crisis, it can be tempting to make short-term financial decisions that ultimately undermine trust.
An example of this quandary for Airbnb was about the spike in cancellations. Keep in mind that many were non-refundable. But to bolster the marketplace, Airbnb used more than $ 1 billion of its funding to provide refunds. There was also a commitment of up to $ 250 million for those hosts that were impacted by the cancellations.
Long-Term Optimism: During the early days of the pandemic, it would have been easy to lose confidence in the vision of Airbnb. But the founders did not let this happen. They knew that the long-term prospects looked bright.
According to the founders: “A crisis brings you clarity about what is truly important. You become thankful for not only what you have in your life, but for who you have in your life. We are thankful for everyone who stuck by us during our darkest hours.”
Tom (@ttaulli) is an advisor/board member to startups and the author of Artificial Intelligence Basics: A Non-Technical Introduction and The Robotic Process Automation Handbook: A Guide to Implementing RPA Systems. He also has developed various online courses, such as for the COBOL and Python programming languages.