Airbnb, Etsy, & Uber

Question 1

How did the founders of Airbnb solve their own problem?

Answer 1

They needed to afford their rent, and had the idea to rent the loft in their apartment with 3 air mattresses. They built their own website to advertise it.

Question 2

What is bootstrapping?

Answer 2

1. Finding creative ways to raise funds and/or to cut costs
2. Selling election-themed cereal at a political convention illustrates bootstrapping to raise financial capital.
3. Poaching posters from Craigslist illustrates bootstrapping to save on the costs of recruiting customers and suppliers (i.e., hosts)

Question 3

How did Airbnb use incubators?

Answer 3

1. Provide low-cost spaces for entrepreneurs to locate their businesses.
2. Often provide financing, advice, and other services (e.g., utilities).
3. Incubators sometimes take an ownership position in the resident firms.

Question 4

Equity financiers, such as venture capitalists, fund very few firms and often place immense
importance on the entrepreneurs.

Answer 4

1. At least one venture capitalist declined to invest in Airbnb.
2. The founders had limited business experience, which helps explain this decision.

Question 5

List the challenges Airbnb had with launch & growth

Answer 5

1. When expanding internationally, the firm essentially needs to “relaunch” its
   business model (e.g., recruiting hosts) in each country it enters.
2. The founders have found that face-to-face interaction is more effective than social
   media advertising in this regard; research suggests that face-to-face interaction
   (when feasible) is the richest form of communication and trust-building.
3. Airbnb faces pushback in many communities that are concerned about its effects
   on rental prices, the displacement of local residents, and over-tourism.

Question 6

Describe how Etsy came to be

Answer 6

1. The founder needed a marketplace to sell his own handmade goods. Thus, like Airbnb’s
   founders, he also was seeking to solve his own problem.
2. Storytelling is important in entrepreneurship (e.g., it helps firms motivate and identify with
   their stakeholders). There are multiple stories about the origins of Etsy.
3. The name Etsy was rarely if ever used in the English language.

Question 7

How did Etsy recruit early sellers?

Answer 7

Like Airbnb, the founders recruited early sellers through face-to-face interactions.

Question 8

How do startups sometimes benefit from a confluence of seemingly unrelated events

Answer 8

1. The rise in Indie art shows, and sociocultural pushback against large firms and
   mass-produced products and services (e.g., on Ebay), boosted demand for Etsy.
2. Etsy’s community is part of the customer experience. Many firms “sell” benefits
   other than those related directly to the focal products and services (e.g., in addition
   to coffee, Starbucks “sells” a space to meet, work, and study).

Question 9

Describe the challenges Etsy experienced

Answer 9

1. Etsy face competition from very powerful firms, including Amazon (Marketplace).
2. Many customers complain that Etsy has incorporated too many mass-produced
   items, which serve as low-priced competition for small, independent artists.

Question 10

How did Uber begin?

Answer 10

Uber began as a luxury car service.
1. The business model changed to provide lower-cost transportation.
2. Firms’ missions often change over time (e.g., 3M is a high-tech, innovative firm
today, but it began as Minnesota Mining and Manufacturing (hence “3M”)).

Question 11

How can alliances be critical to innovation and firm growth ?

Answer 11

1. Integrating the Uber app with Google Maps was critical to Uber’s success.
2. Partnerships with food companies are critical to the success of Uber Eats.

Question 12

How did Uber rearrange the value chain and use a simplified business model?

Answer 12

1. Uber cut out the dispatch service and connected riders directly with drivers.
2. Connecting the app to users’ credit cards simplified the payment system.

Question 13

List Uber’s challenges

Answer 13

1. Similar to Airbnb, Uber faces pushback from communities concerned about out-of-
   work taxi drivers and increased traffic on the roadways.
2. Uber also faces court challenges related to the classification of its drivers (i.e., as
   employees vs. independent contractors).
3. Uber has faced serious sexual misconduct and rider safety concerns.
4. Uber continues to lose money; it survives on cash from investors and by managing
   its cash flow well (e.g., revenues are received immediately; drivers are paid later).

Question 14

How has equity financing

Answer 14

1. Each firm relies mostly on intangible assets (and relatively few tangible assets).
2. Thus, they have less collateral available to secure debt financing.
3. Equity financing forces firms to relinquish some control, as is the case in most
   initial public offerings (IPOs).

Question 15

What are challenges of supplier recruiting?

Answer 15

Whereas traditional firms have products and services that they seek to sell, sharing
economy firms face the challenge of recruiting suppliers (e.g., hosts, artists, and drivers)
before they can have products and services to sell.

Question 16

List Network Effects

Answer 16

1. The benefits of some products or services increase as more customers use them
   (e.g., a social media platform is more valuable when more people use it).
2. Network effects are critical in the sharing economy and help explain the
   phenomenal growth of each firm.

Question 17

How do sharing economy firms help drive and benefit from the process of creative destruction?

Answer 17

1. The sharing economy is disruptive to many industries—including hotels, retail
   stores, and taxi services, among others.
2. The decline of firms in the disrupted industries frees up resources (e.g., financial
   and human capital) that other firms can use.
3. This process is one of the ways that capitalist economies evolve.