Airbnb Was Selling Cereal to Survive

In the fall of 2008, Brian Chesky and Joe Gebbia were $40,000 in credit card debt.

Their startup, then called Air Bed and Breakfast, was making about $200 a week. Not $200,000. Two hundred dollars. Their third cofounder, Nathan Blecharczyk, had left for another state. They didn't have enough money for food.

Every investor they pitched said no.

The idea was simple. People with extra space could rent it out to travelers. Air mattresses, spare bedrooms, empty couches. Strangers sleeping in strangers' homes.

Investors thought this was insane. Who would let a random person from the internet sleep in their apartment? Who would pay to sleep on someone's air mattress when hotels exist?

The answer, apparently, was almost nobody. The platform had zero growth. The founders were weeks away from giving up.

Then they started selling cereal.

Obama O's and Cap'n McCains

The 2008 presidential election was everywhere. Obama versus McCain. Hope versus experience. The biggest political story in years.

Chesky and Gebbia were designers. They'd both graduated from the Rhode Island School of Design. They understood that people would pay for things that felt special, limited, collectible.

So they designed two cereal boxes.

"Obama O's: The Breakfast of Change."

"Cap'n McCains: A Maverick in Every Bite."

They weren't cereal manufacturers. They were two broke guys in a San Francisco apartment. But they had a connection from design school who could print boxes, and they had credit cards that weren't completely maxed out.

They ordered 500 boxes of each design. They went to the grocery store and bought the cheapest cereal they could find. Cheerios. Cap'n Crunch. They filled shopping carts.

Back in their apartment, they hand-folded each box. They sealed them with a hot glue gun. Assembly line of two.

Total cost per box: about five dollars.

They priced them at forty.

The Democratic National Convention

The timing was intentional.

The Democratic National Convention was happening in Denver. Thousands of Obama supporters descending on a city where every hotel was booked. This was actually how the whole Airbnb idea had started. Conferences that overwhelmed hotel capacity.

They brought their cereal boxes to Denver. They pitched them as limited edition collector's items. Only 500 of each. Get them before they're gone.

People bought them.

Katy Perry bought one. Perez Hilton bought one. CNBC covered the story. A startup selling political cereal boxes to fund their dreams of strangers sleeping on air mattresses.

The absurdity was the point. Nobody writes a news story about a startup raising a seed round. Everyone writes about two designers selling forty-dollar cereal out of their apartment.

In a few weeks, they sold out. Thirty thousand dollars.

It wasn't enough to make them rich. But it was enough to pay off some debt and buy a few more months.

The Cockroaches

After the cereal money ran out, they applied to Y Combinator.

Y Combinator is the most famous startup accelerator in the world. Companies like Dropbox, Stripe, and Reddit came through their program. Getting accepted is like getting into Harvard, except the acceptance rate is lower.

Airbnb applied late. Their interview didn't go well. Paul Graham, the founder of Y Combinator, told them straight out that he thought the idea was terrible.

Who would stay in a stranger's home? It made no sense.

As the three founders got up to leave, Joe Gebbia handed Paul Graham a box of Obama O's. He explained how they'd kept the company alive.

Graham's response changed everything.

"If you can convince people to pay forty dollars for a four dollar box of cereal," he said, "maybe you can convince strangers to stay in other strangers' homes."

He called them cockroaches.

This was 2008. The financial crisis was hitting. Lehman Brothers had just collapsed. Graham called it an "investment nuclear winter." Nobody was funding anything.

"The only people who will survive are cockroaches," Graham told them. "And you're cockroaches. You just won't die."

Y Combinator invested $20,000 for six percent of the company.

What the Cereal Proved

Paul Graham didn't invest because he loved the Airbnb business model. He invested because of what the cereal revealed about the founders.

These were people who would do whatever it took.

They didn't have product-market fit. They didn't have traction. They didn't have a clear path to profitability. What they had was an unwillingness to quit.

Most founders, when faced with failure, either give up or keep doing the same thing harder. They stay in their lane. They work on the product. They refine the pitch deck. They act like proper entrepreneurs.

Chesky and Gebbia did none of that. They identified a completely unrelated opportunity, designed a product in a completely different category, manufactured it by hand in their apartment, and sold it at a 700% markup.

This is not normal founder behavior. This is survival behavior.

Graham had seen thousands of startups. He knew that the ones who succeeded weren't necessarily the ones with the best ideas. They were the ones who refused to die.

The cereal was proof of refusal.

The Investors Who Passed

Fred Wilson is one of the most successful venture capitalists in history. His firm, Union Square Ventures, has invested in Twitter, Tumblr, Etsy, and dozens of other major companies.

Paul Graham tried to convince Wilson to invest in Airbnb. Multiple times. Wilson kept saying no.

The idea was too unconventional. Strangers in strangers' homes. It didn't make sense.

Years later, after Airbnb became worth billions, Wilson had a chance to meet the founders again. He asked them for one thing: a box of cereal.

He wanted it as a reminder. A physical object on his desk representing the biggest mistake of his career.

The cereal boxes that once funded a dying startup had become artifacts. Proof of something that almost didn't happen.

Be a Cereal Entrepreneur

Airbnb went public in December 2020.

The company was valued at over $100 billion. The six percent stake Y Combinator bought for $20,000 was now worth billions. Brian Chesky became one of the wealthiest people in the world.

But Airbnb never forgot the cereal.

"Be a cereal entrepreneur" became one of the company's cultural values. It means doing whatever it takes. Finding creative solutions. Refusing the obvious path when the obvious path isn't working.

Every batch of startups that goes through Y Combinator now hears the Airbnb founders speak. They stay for hours, answering questions. They tell the cereal story every time.

The lesson isn't that you should sell cereal. The lesson is that survival requires creativity, and creativity requires letting go of what you think you're supposed to do.

Chesky and Gebbia were building a home-sharing platform. When that wasn't working, they didn't double down on home-sharing. They made cereal. They did something that had nothing to do with their core business but everything to do with staying alive.

The Real Funding Round

Here's what most people miss about the cereal story.

The $30,000 wasn't really about the money. It was about the signal.

Thirty thousand dollars doesn't build a tech company. It barely covers a few months of expenses in San Francisco. The cereal money bought time, but not much.

What the cereal actually bought was a story.

When Airbnb walked into the Y Combinator interview, they weren't just another startup with a weird idea. They were the guys who sold political cereal at forty dollars a box. They were the cockroaches.

The story gave Paul Graham a reason to look past the idea and see the founders. It gave him permission to bet on people instead of product.

This is what most entrepreneurs get wrong about fundraising. They think investors are evaluating their business model. Sometimes they are. But often, especially at the early stages, they're evaluating the founders.

And the best way to show what kind of founder you are is to do something that shows it.

Not to say it. Not to put it in a pitch deck. To do something undeniable.

What We Do at Soar

We think about this story constantly.

Not because we're planning to sell cereal. Because it illustrates something fundamental about building a business.

When things aren't working, the answer isn't always to do the same thing better. Sometimes the answer is to do something completely different. Something that seems unrelated but reveals something true.

Airbnb's cereal boxes had nothing to do with home-sharing. They had everything to do with demonstrating who the founders were and what they were capable of.

We help brands find their version of this. The unexpected move that changes the story. The creative solution that signals something about who you are.

If you're stuck, if the obvious path isn't working, if you need someone to help you think differently about the problem, book a call with our team.