247: Develop a Startup With Bo Abrams

28
Sep

Bo Abrams, Co-Founder of Kommu, is passionate about creating solutions that empower people to develop a startup and share their homes with trusted friends and communities.

We discuss his Marketplace Blueprint framework, which includes recognizing a personal problem, evaluating its impact on others, researching competitors, identifying gaps, and developing a viable business plan. Bo highlights how his own frustrations with the affordability of short-term rentals inspired Kommu’s development. By building a platform centered around trust and personal networks, Kommu offers an alternative to traditional short-term rental platforms like Airbnb, making travel more accessible for Millennials and Gen Z renters.

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Listen to the podcast here

 

Develop a Startup With Bo Abrams

Good day, dear listeners, Steve Preda here with the Management Blueprint podcast and my guest today is Bo Abrams, the co-founder of kommu, a connected home sharing and travel platform that links users with their personal network and empowers them to host trusted friends, interest groups and communities in their home on their own terms. Bo, welcome to the show.

Steve, thanks so much for having me.

Well, that’s a really interesting business you have there. So what is your personal “Why” and how do you manifest it in this business or through this business?

Yeah, I mean, I would say my personal “Why,” and it really starts with me as an individual, was to say that if I saw an opportunity where I thought there was something that needed to be built that I believed had the potential to go impact the world in that way, that I would go forward and build it and try my best at trying, so to speak. So for me, moving back to what happened, I basically took the GMAT seven times to try to get into business school. I paid for the business school consultants because I didn’t get into the great undergrad schools even with great scores and everything else because I didn’t run that process. I didn’t know how to play the game to get into great colleges. So for business school, I spent all the money I had trying to get in. And I finally got in, ended up going to UCLA. It’s where me and my co-founder are from. We’re both from LA. We both were supposed to go to other business schools, ironically. Covid hit, we didn’t want to leave our families. And right in that moment, I decided to take a trip because I worked so hard to try to get into school and I go to Montana to clear my head, Whitefish, Montana. It was beautiful. And I could only afford four nights in a pretty crappy Airbnb in Montana. And that was half my rent for the month in Los Angeles. And as a renter in LA, I’m not able to list my home on a platform like Airbnb, a short-term rental platform for good reason. And beyond that, at that moment in time, and still today, travel had fundamentally changed. People could now live and work anywhere and the demand for travel in the post-Covid era was surging. And so what did that do? It caused the pricings of these short-term rental platforms to skyrocket. And so, I remember trying to get a car, couldn’t find one, we used Turo. I’m thinking, man, if people are able to list their cars in a peer-to-peer marketplace, why can’t I do that with my home? And everybody would say, well, that’s Airbnb. And I thought, well, that’s unacceptable that there’s this huge group of users, people like me, that cannot afford Airbnbs now, they’re more expensive. They’re not the economical version they used to be, and cannot list to recover any value while they’re gone. And it’s really as if, I say this all the time, it’s as if UberX moved to just being Uber Black now, that professionalization problem. So in my case, I go and I meet my co-founder, Gus, in business school, and we were just talking as friends. We were literally talking about how we were remote capable workers at our previous jobs before business school, but that we didn’t travel a lot, because, secret’s out, a lot of people go to business school to travel. And we were like, why is that possible if we had all the freedom to do that before the pandemic? Like, why didn’t we take advantage of that? And we realized it was because we couldn’t afford to. And so, we started doing this research and we found this website, homeexchange.com. It’s been around for a very long time. It’s a home swapping platform purely. And we thought it was built for older homeowners, not the people that have a need, millennials and Gen Zers that are renters in these cities. And we said, this company is doing $30 million in recurring revenue a year. If you build that for young people, you have a hundred million ARR opportunity. And so that was that moment, back to my “Why,” of when Gus and I saw that, we were almost frustrated because we’re like, we have to go forward and do this thing as scary as it is. It would be dangerous to ourselves and our identities not to go forward and try. We would always wonder, what if we went forward and built the thing that we really believed in? And so that is really, getting back to it, why I started kommu in the first place.

So you started it because you had a personal frustration and you figured out a potential solution and then you just couldn’t resist jumping in and trying to build it?

Well, to some extent, yes, it started with my personal frustration. That piqued my interest into researching the market. And again, I will say I went to business school to go into venture capital. I did work in venture capital. And I was obsessed with it. I still am. The idea of investing in early stage tech startups. And as I went through the checkbox of things that I believe in would lead to $100 billion outcomes, Gus and I both said to ourselves, this is one of those opportunities. This is one of those moments in time that we can actually go and build this thing. And so the research and the first principle of saying, oh, well, here’s competitors in the market that are not solving the solution appropriately. Here’s the market itself that we’re getting a lot of user feedback from an interviewing and asking questions and testing with. It was that idea of, oh, we have to go do this because we will always regret it because we know on first principle, we believe there’s a huge opportunity here and somebody is going to win big.

So how is kommu different from Airbnb? What is the unique difference that prevents Airbnb to just own your market as well and which allows you perhaps to get around some of the challenges that Airbnb is facing?

Yeah, I mean Airbnb obviously is facing a tremendous amount of challenges right now. Local ordinances and laws are cracking down on Airbnb. And it really, this actually gets back to even the similar, same origin story of being in business school. We used to be a company called Swapped. It was a home swapping platform, swap apartment. And we entered into the largest business plan and pitch competition at UCLA, where we had to work with UCLA law school students in that competition. And we reached out to the cities, LA, New York, SF, and we were like, hey, we have people swapping homes. Sometimes they do it with a point system, at this moment in time. We take a small fee for facilitating that. Like, we’re good. And the cities were like, no, if you take any transaction fees for facilitating these stays, that’s commercialization. That is exactly what these ordinances exist to prevent. And that brought us back to our research and also all the conversations we were having about essentially preferences and trust. People were constantly asking, like, how do I trust this person? And obviously you can do things, like you can verify users, you can make it a very exclusive network, whatever it might be. But we realized that people trust most who they know and through who they know. They prefer to do these exchanges with people that are friends of friends or groups that they might've gone to school with. Share on X And we went back and we’re like, wait a second, why is it right now, if I were to log on to Facebook Marketplace or go in on Instagram and get the data of how many people are sharing their homes that are not able to be listed on Airbnb, if Airbnb is one, why is that happening? And it’s because what Airbnb built does not service those core users. It now services professional hosts that are focused on maximizing profit. If I had an Airbnb, which I wish I did have, it would be a second home in a target city where I would be listing it for as much money as humanly possible. And it would be an investment property. But that means these primary homes, people like me that maybe want to recoup our sunk rent, maybe want to swap homes, maybe you want a pet sitter or a house sitter, we have no other options. We’re turning to these antiquated social platforms to list. And so fundamentally, we’re different than Airbnb in two ways. One is they’re a traditional open marketplace. You’ve facilitated transaction of value, take a fee, assurances and insurance and whatever on that platform to make sure and reviews to cover that network effect, the Airbnb story. For us, we’re saying, charge a subscription model for access to these wider networks. To say, if you want to get to friends of friends or groups, people listening to all of kommu, that requires a subscription model where we put you in the flow of ID verification, home and address verification, a protection plan, customer support. But if you just are somebody that wants to share their home and their travels with their 10 to 15 closest friends to let them know ahead of time, hey, I have a spare room in LA that’s available to you or I’m going to be in New York, I’d love to see you, it’s free. And so that subscription model in and of itself is impenetrable by Airbnb because it basically eliminates the need for an Airbnb. If you and me both know that we’re connected in some way and we have that trust, we have a mutual friend and we met on Airbnb, we would disintermediate and we would book directly. We’re facilitating that per subscription fee.

And then you don’t have to be a member in order to do a runoff swap? How does that work?

So on kommu, I would say, just to lay it out for where we are now today, we are a social marketplace that lets anyone share their home on their terms with and through the people they trust. That means sometimes it’s people gifting their homes to their friends. Sometimes, people are subletting to a friend of a friend to recoup costs, to recoup your rent or mortgage. Sometimes, people are swapping homes, and sometimes, people are actually pet sitting or house sitting. You choose how you list your home. You choose what availability is and if you want to do a swap versus sublet, however, on that trip. And in that model, obviously we’re saying it’s free if you add friends and you want to basically do this with the people you know and trust through your contact book. But when you want to actually access that exponential network of second degree and third degree connections, you have to then go through the process of adding a paid subscription fee. But plenty of things to do there in terms of like how we actually gamify that to show you the value of what we created and keep you there for your life, ideally.

It’s kind of similar to LinkedIn, where if you are just a regular member, then you see your first and second level connections, perhaps, but you get third level connections. And if you are a member, then you get to see a much bigger network.

Yeah. And it really is to say, like, I think if you look traditionally at Airbnb, right, most people, we know this to be true, you would log into Airbnb or check out the app maybe a few times a year. Maybe you book once or twice a year. The average user does about two times per year. That leads to a business that has created $10 billion in revenue a year, $100 billion market cap company. What we’re saying, Millennials and Gen Zers make up 75% of global travelers. They cannot afford to live in these major cities. They are as broke as ever before going into record amounts of consumer debt. And they are traveling and spending money on their experiences and to be not stuck in a cubicle for their lives more than ever before. The demand is at such an all-time high that a subscription model takes all of that market share away from Airbnb to the point where even if you got 1% of Airbnb’s market share, you’re a billion dollar company. But you make your money back on kommu as a host or a guest with two nights booked per year. And so that’s when I was on HomeExchange, that home swapping website, I was on it for four years. I had one trip, I went to Jackson Hole. It was amazing. Like I stayed with somebody, she had a spare room. I could not afford to go to Jackson Hole in the summer otherwise, right? But I kept that subscription, and that’s a closed network. That was, you have to pay a subscription to see anything. Because every year I was like, well, what if I do more swap? Like, what if I end up finding something? And eventually I realized it wasn’t servicing me. It was the wrong people on the platform that were not people I wanted to swap homes with as mostly older families and whatnot. I’m an apartment in LA. And that was where I was like, this model can disrupt the disruptor of Airbnb.

Love it. That’s fascinating. That’s a great idea. And I love how you guys implement it. So let’s granularize a little bit this approach that allowed you to discover this opportunity. It’s kind of a framework that we discussed that you would be sharing on the show. And I think we called it the Marketplace Development Framework or something like that. So what are the steps in getting there? And I know that starting from a personal problem is like a classic entrepreneurial venture. It was Bjorn Borg who retired early as a tennis player and then he had children and he developed this baby carriage, whatever it’s called, the BabyBjorn, I think he named it, and that started the same way. So what was your process of getting from a personal frustration to a business?

Yeah, I mean, business school, I would not recommend going to business school to necessarily start a company. And especially, by nature, business school applicants and students and graduates were very risk averse. That’s like why we go to business school in the first place. And I will say it is a very unique opportunity to have two years, if you’re going full-time, of essentially freedom to research and explore ideas, to meet other people that might also similarly be at the same point in time in their careers and their lives. And so in our case, right, first and foremost, you’re right, it was identify that personal problem, which all of us do every day. I think a lot of us have ideas that we're interested in exploring. Share on X And then if you do decide to explore them, if you’re just naturally curious, which in this case I was, you start to have to figure out what does it mean to identify a substantial opportunity. And in my case, it was really seeing what else is in the market, seeing how others are trying to solve this problem. I call it the despite test, but being like, why on earth are there 24 to 35 year olds who we know do not use Facebook at all in any social capacity, but they are paying to join Facebook groups explicitly for home sharing? That was the kind of aha moment for us. But it is to say, business school forced us to basically research all of this, partly because we had to think through a business plan. And the business plan itself became somewhat useless because if you’re really doing, I think tech entrepreneurship. You are essentially iterating on a product and getting feedback and figuring out what’s working, what’s not. And if there’s an opportunity through that thing in people’s hands. But in the midst of that, when you talk about everything behind that, the financials, the market research, who’s tried this before, talking to like vendors about what it’s gonna cost, you start to realize that all of that can come together into what you would say is an opportunity. And then you decide if you on first principle are gonna go forward and build it. And if you’re gonna build it, are you gonna raise outside capital? Or are you gonna finance it through other means or bootstrap it and start your own company? And that was what we did.

So what did it take for you to get some kind of traction with this? So you had the idea, you realized there was a gap, you did the research, you verified it, that it’s a need that other people have as well. There was homeexchange.com, whatever this company was called. So it was a viable thing for other people. You realized that even by getting 1% market share, you could be the unicorn. How did you actually move the needle on this idea so that it became an enterprise that had financing and support?

Yeah, I mean, ultimately, a couple of things. One is when you start to research where the behavior is already happening, you first have now identified a group of users trying to solve their own problems as well, the one you identify for yourself. So first and foremost, at least like when you start to interview those users, I think it is important to try to interview them in a very, in a way that doesn’t guide them to the answer of what you think, it’s more to be asking these open questions of how do you travel? Like where do you stay? How do you book places to stay? Are they hotels? What else do you look at? That’s all to say we knew where they lived. Like we knew that we could reach them in these different groups. We could try to pull them over and we could say, hey, even for free, we’re just trying to learn. We will help you solve this problem better than you posting every day in this Facebook group. And so we put up a website, we put up a type form in that website, and we did everything hand to hand, so to speak. We just were brokering these exchanges and helping people find those days that they were looking for when we were swapping platform and learning from that and seeing what was working and what wasn’t. That to us was like one of the key ways to solve the cold start problem that any marketplace has was to say, okay, you have supply being enlisted in these platforms all the time, like Facebook marketplace, we can go get users. We post users from WhatsApp groups, from competitors, even from Airbnb hosts that are not able to list on the platform anymore because they’re renters or they’re regulated for whatever reason. You’ve got the supply. Now the challenge, obviously, the second part of the challenge where we are today is scaling the demand. To scale the demand, you really need to reach that audience of core users. And a lot of that is first and foremost just about being the best at helping those hosts get their places booked and showing them, hey, the more friends you add, the more groups you join, the more likely you’re going to get booked. But then on top of that, now that’s the moment in time we are at now of how do we hyper grow the demand, expose those hosts to the right group of users or target psychographic and users so that they realize, oh, I could be booking a kommu in New York for $90 a night instead of a hotel, which the average daily rate of a hotel now with Airbnbs pushed out of New York, $600 a night. I mean, that’s to show them that there’s value in what we’re doing right in this moment.

So you referenced the cold start problem, which is also a book that I also read and it talks about the author, I can’t remember his name, but he was a former Uber executive and he talked about how Uber had to launch in every single market separately and what a heavy lift it was and how much it cost. And that’s why Uber bled money for years because they were raising all this money to launch in these different markets and try to connect them and they had competitors. So what, how does that translate to kommu? Do you need a lot of money to launch as well in different markets? Is it somehow analogous to that?

It is totally analogous. Andrew Chen is the author, is now a partner at Andreessen Horowitz, and he’s leading the LA office of all people. And that is to say, Uber and Airbnb, Gus and I talk about this all the time, how that was almost Web 2.0, like those stories that they had, how much it took in terms of time, resources, and money was intense to say the least. I mean, Airbnb and Uber both almost failed multiple times. Even recently, Airbnb struggled through the pandemic. It’s pretty amazing to see how they came out of that. But that is to say, yes, I think Uber was like this idea of geo-concentration is one that does matter a lot. In our case, the social component of what we’re doing makes it a little bit easier, but also a little bit more challenging in that a real differentiator and a real belief that we have is no category is won until the social product is built, until the consumer social product is built. And that’s because it creates these viral loops, it creates these real network effects where people are getting their friends onto the platform and tremendous staying power. So in our case, we’re saying if we can have Steve’s network on kommu, the people he went to school with, the people that he trusts, and then through them reveal all of the inventory available to him at a moment in time, he will choose us because we will provide more value and be cheaper and more affordable and more trusting than the alternatives. In our case, the launching has been about finding those groups where this is happening already. So, even for us, we were lucky that business school students were a natural first group to target because over the summer, when they have their summer internships, they often are in LA, New York SF, and they have to go be in another place for three months, and they’re all on 12-month leases, they’re not in student housing. Let’s see if we can solve that problem. And that’s what we did this last summer. Took us a while to really figure that out and how to like get the ambassadors to talk about kommu to get enough people critical mass onto the platform to optimize the platform have enough hosts You know exposed to that group at the right time. We did wait lists. We did the whole thing

So if someone is that business school student and they go at this internship, can they swap their dorm or whatever their their rental in college, which they couldn’t sublet, but can they swap it?

That’s the thing So colleges and we have competitors that have done this, we really don’t want to go after college students during the college internships because exactly that. Many of them live on campus and on campus housing, and that’s an area where, like, we think that that is its own demon, so to speak. And also, when those kids come back to school after their summer internships, they’re pretty much stuck on campus versus business school students, they are on 12-month standard leases in these cities. They do travel all the time throughout the school year. And in this moment, we’re saying, well, they’re about to lose their rent for three months if they don’t sublet it or swap it. So, ultimately—

But can they legally swap it?

Yeah, you have a right, actually, to have a person in your home as a renter. And obviously, our big fight that we will be fighting through the career of kommu and our competitors are as well, is to say consumers deserve options. It cannot be that the only options are I can’t list my home to anybody and I can’t afford Airbnbs and hotels that are now at record high average daily rates. So, that is to say we think we’re providing this alternative that doesn’t have that same effect. We don’t let people list their homes for a profit on combat. We have the data to actually see what your rent or your mortgage is or what the fair market value is of your home. And we think that’s an incredibly empowering thing for consumers, including these business school students that could not afford three months of sunk rent and then to go pay three months of rent in New York City while they were gone.

I got it. Okay, so that’s a good way to discover a problem and to create the business. And you have raised money already for kommu, right? And how hard is it to raise money for this business opportunity?

Hardest thing I’ve ever done in my life, to some extent, and in a professional capacity, I would say. We graduated business school in June of 2022, right before business school graduation, about three months before, two of our biggest competitors that were sort of very similar models to some extent, raised $6 million and $8 million from some of the top VCs in the world, which was very validating that there was an opportunity here and it was also like that moment of, wait, we think our product is technically ahead of theirs and we’re about to graduate, like we will go raise our $6 million, get our team. This was the ZIRP era. Money was very much out there and ready for founders like me to even go get as a first-time founder. And in June of 2022, the market took the biggest dive in the last 15 years. And Gus and I thought, what are we going to do? We’re coming out of business school. We’ve got credit card debt. We’ve got student debt. I do. Gus has got a full ride to UCLA, so he doesn’t have that problem. But that’s all to say, we thought, well, we’re going to figure it out. And we started raising where we could, friends and family, various networks, and we built started building kommu. And we thought if we could just beat those competitors to the app store. Ultimately, this downturn still speaks to why there’s an opportunity, like basically, like we’re going into a recession, our users are looking for affordable options, like we need to just work through this. I mean, you might know that you remember that Airbnb was born out of the 2008 recession. So in our case, that’s what we did. And it’s been this sort of like brutal rolling close until recently where we closed the VC. But that is to say, like, there’s a process to run fundraising. I’ve now learned it the hard way. It is definitely not the way that I ran it the previous year at a business school. I learned by doing. But ultimately, to say you want to invest in a first-time founder in a consumer social marketplace, those are three things that investors are basically scared of, because yes, if they work, they’re the biggest companies on earth. And if they don’t work, they fail very quickly and very miserably, because you don’t get the network effect. And they were all flying to safer B2B SaaS, or now AI companies that create these bubbles that I think technically, ultimately, don’t have the moats that we will eventually have, but it took 10x as much effort as I could have ever imagined. And every day I’m still fundraising to just get our team of five to go do our job as a small organization. That being said, it made us the founders that we are today. So we, for instance, came up with a very unique business model from talking to a lot of founders saying, hey, can you introduce us to these people? Fundraising is really hard. Why is it so hard? And they were saying, Bo, we’re series A companies, like we’re not hitting our targets, we gotta cut costs right now. And we came up with this model where they were saying, oh, we can help you cut your travel costs significantly. To say, if you’re an employee of this company and you’re traveling for work, maybe you’re a B2B salesperson, what if you stayed with a friend, somebody like a direct friend that you knew and trusted, and you said, hey, my company will pay you, will gift you $100 a night, instead of you taking that hotel for $400 a night in New York to go close that client. The companies are like, as long as you handle liability and payment, we’re game. And in that model, we actually can take a transaction fee, so to speak, of like percentage dispersed of gift, dispersed to host. And that was only born because we had to figure out creative ways to solve our problem. But in that model, I get to go sell to companies instead of trying to get a network effect from individuals. I can get people to invite their friends to kommu naturally, and it’s a win-win-win across the board. And us making money, the company saving money, you putting money in your friend’s pocket. And again, it’s good that money wasn’t just thrown at us. We would have spent it all very quickly, probably, if it was just thrown our way.

Yeah, necessity is the mother of invention. So it does happen. So how do you then compete? I mean, your necessity is bigger than your competitors. You mentioned the two that raised six and eight million dollars. So how do you use this to your advantage that you maybe raised the less money and they were flush earlier than you were? How do you capitalize on that?

Yeah, again, I will say every day I’m thankful that they exist, that there’s this group of us moving into disrupt this market. And it’s not too many, but it’s just enough that there’s an opportunity. One of them is very high brand in the sense that they’re very exclusive. You have to get off a wait list, it’s members only. And we think, yeah, that kind of works with millennials and Gen Zers, like who doesn’t want the FOMO, like you can control a lot, but they’re struggling to scale, in my opinion. And so they’ve now raised 27 million, I believe. And from what I know, it’s on a valuation where they’ve already given up more than half of their company. And so, they have a target now to hit that if they don’t hit it, they might get ousted as founders from their own company and replaced, which is just part of the game that we play if you raise that outside capital. And the other company also has a very high brand. I will say on that first company, we can coexist with them. So again, it’s still to say like the fact that people are coming from that company over to kommu, like we see them coming and using our platform instead, still shows that we are right there and what we believe is a better product and value prop. The other competitor, also very high brand, is going after, again, I would say like an elevated millennial that has like these nice homes that are in these great cities. And it just doesn’t feel like it’s addressing the needs of the market. Like we are out there solving for budget conscious millennials and Gen Zers who are in need of a solution or they will not be able to take that trip. It’s not, are we going to be the, you know, for a week it’s, or am I going to be able to go see my friend in New York? And by being focused on that and being a brand that isn’t associated with cheap and isn’t budget rent-a-car and is really high brand like those other two companies are, we can create a moat that they cannot in that we can basically have a home swapping network on our platform, have that high elevated brand experience for that millennial if they want to build their network on kommu, but we can address the needs of our core users first and solve that booking problem first. And we’re open for anybody to download and join. And that has been a huge advantage for us and not gatekeeping the network. There’s trade-offs though, I will say that.

Yeah, okay. Well, maybe we get into it in the next episode of this podcast. Excellent, so you found the market, you’re building a company on it, you are undercutting your competitors in terms of addressing a bigger market than they can, or they are targeting and you’re kind of moving forward. So if people would like to learn more about kommu and maybe they want to get a membership, they want to get online and want to see all these homes or just test drive it with their friends, where should they go and how can they perhaps connect with you to learn firsthand more about what to do?

Yeah, so kommu is completely free right now. It’s in the app store. We’re working on getting the Android version out and the web version, but for now it’s in the app store. You can download it. You’ll see hundreds of hosts that are listing publicly on the platform, including myself in Los Angeles. And that is the best place to reach out to me. Anybody that signs up right now, that is either a host or that is active as a guest, gets an opportunity to book a meeting with me at 15 minutes. And we use those as user interviews and guiding lights towards where we need to go with the product. So you can always just DM me on kommu or book a time with me in my Calendly. And we’d love to talk with anybody that’s interested in utilizing our product.

Awesome, I’m going to check it out. I travel a lot on business and maybe that’s an alternative to hotels and it’s a better way to experience the city anyway. So I’m going to check it. And for those who are listening, if you enjoyed this episode, then leave us a view, follow us on YouTube and stay tuned because every week we have one or two entrepreneurs building exciting businesses and sharing their frameworks here with us. So thanks for coming, Bo, and thanks for listening.

Thanks so much for having me, Steve.

 

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