What Not to Do in a Crisis – Lessons from the Airbnb Fiasco

The CEO of hot VC-backed startup Airbnb today issued a public apology for how the online home rental service responded when one of its customers had her home trashed and identity stolen by another customer. Chief executive Brian Chesky also announced new safety measures and a $50,000 “guarantee” to any customers who suffer property damage.

But is Chesky’s mea culpa too little too, too late? It comes more than a month after a blog post from aggrieved Airbnb customer “EJ” went viral and earned the Twitter hashtag #ransackgate. During that time, Airbnb made a number of missteps, appearing uncaring and keeping the story alive. This morning, before Chesky’s apology, 10 media outlets had covered the story, including CNN, Reuters and the Washington Post. That’s in addition to previous stories from popular tech blog TechCrunch, which were widely retweeted.

“I think this is the right response [from Chesky], but it took them too long to get to it and they’ve done a lot of damage in the interim,” says Steven Callander, an associate professor at Stanford University and director of the university’s Leadership and Crisis Management program. “It would have been nice if they had done this two or three weeks ago.”

Airbnb’s investors should be deeply concerned about all of this, particularly Andreessen Horowitz, Digital Sky Technologies and General Catalyst Partners, which pumped $112 million into the San Francisco-based startup on July 25. That Series B round valued the company at $1.3 billion, according to The Financial Times. Greylock Partners and Sequoia Capital led a $7.2 million round for the company in November 2010 and actor Ashton Kutcher invested an undisclosed amount in May.

The lesson here, not just for Airbnb, but for all startups is that “crisis is inevitable,” Callander says. “These things can’t be perfectly controlled; they take on life of their own.” Knowing that, every company should have some sort of crisis management plan in place. “You should brainstorm on what could go wrong and then have a plan in place to prevent the incident from happening or to react to it,” Callander says.

The professor was reluctant to offer a list of crisis management do’s and don’ts, for fear of oversimplifying the issue. But he did offer some suggestions based on what transpired with Airbnb.

For one, at the outset of the crisis, Airbnb should have released a formal statement “showing that they get it, that there is a problem, something went wrong here and they are going to fix it,” Callander says. “They don’t have to announce what they’re doing straightaway, but once they say they’re going to fix it people will give them the benefit of the doubt.”

Instead, Airbnb responded to the crisis by allegedly trying to convince the victim of the crime to pull down her blog post. EJ wrote on her blog that one of the company’s co-founders called her and spoke about “his concerns about my blog post, and the potentially negative impact it could have on his company’s growth and current round of funding. During this call and in messages thereafter, he requested that I shut down the blog altogether or limit its access, and a few weeks later, suggested that I update the blog with a ‘twist’ of good news so as to ‘complete[s] the story.’”

That alleged attempt to suppress the story “changed [Airbnb] from looking empathetic to looking like they didn’t get it and they didn’t care—and that’s where they lost control,” Callander says. “The lesson is, the story is going to come out and you have to have a plan for when it does come out.”

Another misstep was Airbnb investor Paul Graham blogging about the story on Saturday. Graham, founder of Y Combinator (which seeded Airbnb), said a story by TechCrunch founder Michael Arrington “about Airbnb not offering to help was bullshit.” Graham also implied that EJ wasn’t telling the whole story. “I’ve talked to the Airbnb guys and they are already doing everything they could be doing to help this woman,” he wrote. Graham’s post provoked an angry response from Arrington, keeping the story alive. Arrington followed up the next day with yet another story: “Another Airbnb Victim Tells His Story: ‘There Were Meth Pipes Everywhere.'”

Callander says Graham’s blog post was the “wrong move.” Investors should play a role in crisis management, but “it should very much be behind the scenes; they shouldn’t be the face on the response to a crisis like this,” he says. “[Airbnb] needs to show empathy, show they understand problem, that they care and are going to help. An investor isn’t going to generate empathy from customers. You want to keep the investors out of it.”

Now that Chesky has stepped up with his public apology, Callander predicts the story “will kind of fizzle and fade away now.” But he notes that it could sprout new legs if the company hasn’t spoken to EJ and addressed her concerns. “She has a voice and she has become prominent in this,” he says. “She has more sympathy than they do at this point. I hope they’ve managed to address her concerns sufficiently and she’ll react favorably.”

Even if Airbnb gets back into EJ’s good graces, the story won’t go away entirely. “This [crisis] has changed [Airbnb’s] reputation and public perception, so they’ll have a harder time doing other things in the future, like avoiding regulation,” Callander predicts. “The public will remember the negative part of story and that will be used against them when the legislative side happens.”

Callander was referring to the hotel industry’s successful lobbying to prevent services like Airbnb from operating in New York. Hotels will likely push for a similar ban in California and use EJ’s experience to bolster their case, he says.