Failing At The Speed Of Light

New tech startups are moving with the speed and force of tsunamis. And a few crash that way, too. Airbnb is the latest example of how rapid growth demands rapid response to failures. Top VC Mark Suster tells Fast Company what Airbnb did right--and what it should have done better.

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Airbnb, the social accommodations startup, raised $112 million in funding and promptly started long jumping before it even learned to crawl. Just two years since launching, it has listings in 13,000 cities, in 181 countries. Its backers at Andreessen Horovitz want to leap way beyond the competition.

And then came the blog post by one renter, whose apartment had reportedly been badly vandalized and ransacked by an Airbnb guest. The story spread as fast as those about Airbnb's success. It went viral, sparking a Day After Tomorrow-size wave of bad press from outlets such as TechCrunch and The Washington Post. But Airbnb's response to the incident, haphazard as it was, serves as a valuable lesson for other startups on how to react to public setbacks--beyond just good PR--in the race toward unabated growth.

As soon as the initial news hit, the PR nightmare began to snowball. The blogosphere piled on, churning out story after story describing the victim's plight. The public quickly joined in, spreading vitriol in article comments and on Twitter under the hashtag #RansackGate. What's worse, Airbnb's response was far from coherent. Media comments from the company and company spokespeople were inconsistent; CEO Brian Chesky wrote a vague blog post that he later admitted "didn't reflect his true feelings." At the same time, Y Combinator founder and Airbnb investor Paul Graham attacked the dramatic news coverage, calling it "bullshit." There was widespread confusion over whether the company was or would actually help the victim. And still, the question lingered: How would Airbnb solve the problem in the long term?

Eventually, however, Airbnb's CEO took to the company's blog again, this time to give a sincere and overdue apology. He quite eloquently summarized the incident, explaining concisely the wrong that had occurred to the victim and how the startup was trying to rectify the situation. Additionally, Chesky offered the Airbnb community systemic solutions: implementing a $50,000 liability guarantee, creating a 24-hour customer hotline, doubling the customer support staff, and more.

"I thought the eventual mea culpa was great," says Mark Suster, the veteran entrepreneur and VC of GRP Partners. "Clearly that's what they should've done originally, but they're young and they learned--it took them some time, but for their age and the short time the company's been around, I'm impressed to where they got to."

After multiple requests for comment, both Airbnb and its lead investment firm Andreessen-Horowitz declined to comment. Suster says non-response can fuel a crisis. But he recognizes that this situation is in no way unique to Airbnb: just look to similar crises hitting Groupon, eBay, and most every innovative startup. To avoid such disaster, Suster has a few tips for up-and-coming CEOs and entrepreneurs.

1. "Sitting back is not an option"

When the story first hit, there was a sense that Airbnb thought it could simply weather the storm. "I think the strategy of saying, 'This will blow over, just move on, let the next news cycle come, people will forget this,' is always wrong," Suster says. As an investor in a slew of startups, he always recommends that companies get in front of the story, for fear that it'll seem executives have a "tin ear for the reality of the problem." "If you don't dictate the story, someone else will," he says.

Indeed, that's exactly what happened to Airbnb, which became overwhelmed with negative press after it sought to let the situation take care of itself, at least publicly. (The victim has said that Airbnb requested she take down her blog post, worrying about bad press.) And the longer a startup waits, the worse a situation can become. "The problem is that Airbnb waited, and its [apology] comes across as less genuine," Suster says. "It feels like they're now only responding because everyone pressured them into it--they're only reacting to it because it affects their brand. It's hard to feel like the ultimate apology was genuine as it would've been if it came on an unprompted basis."

2. "Don't attack the press"

As the news reports rolled out, it became tempting to chastise the press, instead of addressing the problem. The blogosphere was certainly relentless, preying on every detail, police report, and victim emotion to dramatize headlines and goose traffic. But regardless of whether or not the press is truly engaging in link-baiting, Suster tells his startups to deal with the situation, rather than the TechCrunch sensationalism.

"People have mixed views about whether [TechCrunch editor] Michael Arrington made a mountain out of a molehill," Suster says. "My view is that attacking the press is never the right answer--it never goes well."

Indeed, as soon as investor Paul Graham attacked Arrington, it spawned a new series of articles attacking the company, especially from Arrington. In other words, it made the situation worse.

"I think the biggest mistake they made was attacking the press," Suster adds. "It's the wrong approach--my problem with the Airbnb story was that the people involved attacked the messenger."

3. "Address the fundamental problem"

When does public outcry affect a company's business model? When is it safe to issue a corporate apology, and simply move on? For Airbnb, the negative press was indicative of a larger problem with the company: It did not have enough safeguards in place to protect its renters.

"I think the litmus test for an entrepreneur is, 'Is this a legitimate concern for our customers?' Let's say you were a financial institution and you had a security violation. Well, you might say to yourself, 'No one's written about it, let's bury it.' Or you might think, 'Crap, this happened, let's get ahead of this story. Let's put it out there, and tell people what we're doing about it.' I'm always in favor of the latter," Suster says. "If you had a security violation, you have to make a change to your business."

But there is a time to draw a line in the sand, and decide whether one customer complaint is a sign of a larger issue. When one of his startups, Ad.ly, was hit by a negative blog post from Robert Scoble, an influential tech evangelist, Suster took a different route than Airbnb did. "I didn't sit around," he says. "I had the CEO [of Ad.ly] on the phone that night, and I said, 'Let's get a plan ready.'"

First things first: nobody bad-mouth Scoble--he has the right to his opinion, Suster told the CEO. "But someone is getting on an airplane, is going to sit down with him in the next five days, and walk him through the produce and why his understanding we believe is incorrect," Suster recalls.

He went on to write a blog post himself, too, addressing Scoble's concerns.

The point is, the company got ahead of the situation, it didn't attack the messenger, and it took an honest look at its own practices to decide whether there was "a fundamental problem with our business that needs to be addressed."

Investors who sunk $112 million into Airbnb likely wish they could say the same.

[Image: Flickr user mary_gaston22]

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