On December 10, Airbnb went public in an IPO that valued the company at a whopping $47 billion, according to The Wall Street Journal. That number turned out to be underpriced; the company finished the day trading at $145 a share, with a market cap of more than $86 billion.
It’s a stunning turnaround from where the company was just nine months ago. When the pandemic hit the U.S. in March, Airbnb suffered a plunge in demand that sent its private market value tumbling. Rather than be paralyzed by the pressure, CEO Brian Chesky changed Airbnb’s course and turned Covid-19 from a headwind to a tailwind. He raised capital, cut a quarter of the company’s employees, and sold “noncore operations.” This caused Airbnb’s value to plunge 24 percent, from $31 billion in 2017 to $18 billion.
Airbnb’s short-term pain yielded surprisingly strong results. In the third quarter of 2020, the company enjoyed a growth spurt — accompanied by a $219 million profit — due to unexpected demand from people in cities seeking to stay in nearby suburban locations, noted the Journal.
A deeper look at Airbnb’s response to the pandemic yields four insights for business leaders.
1. Closely monitor how your customer needs are changing.
The pandemic abruptly changed the way people live their lives. The best business leaders were paying close attention to those changes, and followed with actions to limit the damage and capture the opportunities presented.
That first quarter 2020 plunge in Airbnb’s valuation was the price Chesky paid to keep the company alive. As the Journal pointed out, he realized that unless he cut costs and borrowed money, the company would be in danger of burning through its dwindling cash hoard.
The lesson for leaders is clear: A sudden plunge in demand requires clear thinking and quick action. Leaders must identify the most critical problem, decide what needs to be done, and execute quickly and effectively. For Airbnb, the most critical issue was to halt its cash losses.
2. If customers stop buying, quickly find out why.
Solving that first challenge merely buys business leaders time to overcome an even bigger challenge: how to find a new source of growth that will boost the company’s value.
Chesky was up to the task — he paid attention to what was causing people to stop buying Airbnb’s services and looked for signs of new demand from its customers. What he found was not surprising — people were not traveling nearly as much. Indeed airline demand plunged about 90 percent.
Chesky also noticed that city dwellers were looking to get out. They were searching for vacation rentals in nearby towns, and they wanted to book entire homes instead of staying in hotels so they could avoid close encounters with potential spreaders of Covid-19, according to The Wall Street Journal.
The most successful business leaders are able to track their customers’ use of their company’s product in real time. If your company can’t do that, it will be at a competitive disadvantage when times change.
3. Imagine a new strategy to satisfy evolving customer needs.
The best business leaders are mentally nimble enough to realize that insights into changing customer needs represent an opportunity — rather than a threat to the status quo. Weaker leaders resist the effort needed to forge a new strategy and execute it quickly.
Chesky did not make that mistake. Instead, as I wrote last month, he captured a new revenue stream by ordering the redesign of Airbnb’s app and website to respond to that new source of demand.
4. Execute the strategy quickly and adapt the results.
Of course, given the huge pressure on Airbnb, it was essential that the redesign be executed quickly. Such rapid execution can make the difference between prospering and shutting down.
Airbnb executed rapidly. By June, prospective travelers who visited Airbnb were shown everything from “cabins to lavish beach houses near where they lived,” noted the Journal. And by July 8, guests were booking stays at pre-pandemic rates. By August, half the stays were within 300 miles of the guest’s home.
“I did not know that I would make 10 years’ worth of decisions in 10 weeks,” Chesky told the Journal. And those decisions paid off in a much slower rate of revenue decline in the third quarter. While Airbnb’s second quarter revenue was down 72 percent from the year before, its third quarter revenue fell a less severe 18 percent.
Chesky has demonstrated that he has what I call in my new book, Goliath Strikes Back, a “create the future” strategic mindset. What he has demonstrated with his strategic agility during the pandemic is that he is able to respond effectively to serious business challenges. In so doing, he boosted Airbnb’s value by more than 300 percent in nine months.
Though you may not do as well as Chesky, these four lessons should help you improve the value of your company as well.