Rocky Road from Nonprofit

Back in 2011, we wrote about the re-incorporation of Couchsurfing from a nonprofit to a for-profit B corporation.

Couchsurfing Goes From Nonprofit to Certified B Corp

In August 2011, the newly-formed company initially raised nearly $8M in venture funding from Omidyar Network and Benchmark Capital before it informed its member base of over 3M users worldwide about its shift.

It wasn’t a smooth transition.

The Couch Pulled From Under Its Surfers

Over the course of four years, there has been a impactful decline in engagement along with some major internal restructuring– which at first led to the hiring of new Apple and MTV Alum, Tony Espinoza, as CEO. He would resign 18 months later. Under his watch, it is said that registered users more-than-doubled to 7M, but many of the existing and new users were not actively engaging on the platform. Additionally, reports indicated that October 2013 also saw layoffs of 40% of Couchsurfing staff.

In fact, this Change.org petition was launched on September 15, 2011 protesting the change in legal structure. Notable excerpts include:

“We represent thousands of Couchsurfing (CS) members, donors and volunteers. We found meaningful work and global connections to each other through our commitment to the ideals of CS as a non-profit organization.

Couchsurfing Intl. was established as a non-profit corporation in April 2003 and registered with the state of New Hampshire as a public charity in 2007. It was dissolved and its assets were acquired by a newly-created for-profit C-Corporation with the name “Better World Through Travel Inc” in Delaware in August 2011. Since its inception, the organization received >US $6,000,000 in member donations and verification fees. Community volunteers freely donated volunteer labor, time and talent which created much of the network’s current value. (12) We find it difficult to believe that the verification income was insufficient to operate a travel website and disagree that these gifts should be sold to investors. We believe that these gifts belong to the community that created them.

We believe these changes betray the relationship the organization had with its network of volunteers and members, the relationship that shaped Couchsurfing into what it is today, and are concerned that its values will not persist.”

While the petition didn’t garner the 1600+ signatures it proposed, 882 supporters did sign as a show of dissatisfaction.

At Innov8Social, we caught scent of this too. Though very few people post comments to blog posts here, there were two lengthy and thoughtful posts by avid Couchsurfing (CS) aficionados challenging the change in legal structure.

Notably “CS host” said:

“Many people were surprised by this move as CS had always prided itself for being a non-profit organization which wanted to be a charity. For those who had seen how volunteers had been used and abused for years by Couchsurfing, how safety measures such as credit card “verification” have been misrepresented, how management covered up repeated sexual misconduct with volunteers by one of its own or how rarely promises were kept none of this should come as a surprise. Reality could hardly be any further from the offical Couchsurfing claim to “create a better world”….

Most will continue to offer their couch, just not for Couchsurfing International Inc. to resell it to travellers against verification payment or optional premium services, but in one of the other more democratic communities organised as non-profit organisations, such as BeWelcome.org or WarmShowers.”

Equally passionately, “Anonymous” noted:

“Couchsurfing and its ‘team’ or ‘board’ or whatever they have constructed now have never kept a promise, certainly not the one repeated for 5 years that “WE WILL NEVER BE A FOR-PROFIT CORPORATION”. Their skill lies in jettisoning devoted volunteers when they ask serious and professional questions.

Instead CS has taken ‘donations’ under the guise of a charity and published delayed audits that always showed they had made hefty margins and had cash in hand.. till suddenly they show up with a $3.9 MILLION debt.

And yes I am still trying to get some equity for my time invested in a proclaimed ‘charity’ -this is why i am ‘anonymous’.”

This is shaping not only in an incredible story of a social enterprise, but a rich opportunity for tomorrow’s social entrepreneurs.

Lessons in Honoring Your Mission and Members

Just as hindsight is 20/20, the story of Couchsurfing is ripe with lessons that seem so clear today.

1. Honor Your Mission. This is true especially when you have a broad membership. Here loyal donors, volunteers, couchsurfers, and couchsurfees were rebuffed in their belief of the mission of the nonprofit to connect travelers and hosts in a safe and meaningful way, without profit motive. With the major shift in legal structure, co-founders Casey Fenton, Dan Hoffer, Sebastien Le Tuan, and Leonardo Silveira took a risky bet that their users would stand steadfast even in the face of a major shift in purpose and profit.

The risk didn’t pay off here. Perhaps B corp was new and unknown—such that it didn’t inspire confidence in users in 2011 that the mission of the organization could be pursued meaningfully in a for-profit structure. Perhaps it was a lack of follow through or a case of “greenwashing” — i.e. in using B corp more as a PR move than to honor the initial mission. It is hard to say—but knowing that most co-founders are utterly loyal to their ideas—it seems likely that the heart of the mission was in the right place even with the shift of legal structure—but somehow the intent didn’t survive the transition in a way that made members, volunteers, and donors feel heard and acknowledged.

2. Honor Your Members. With the backlash of members, it is clear that the founders thought they could sidestep informing members and asking them if they would support the new organization. The goodwill created in establishing a global nonprofit seemingly dissolved in the face of the new goal of profit in addition to purpose.

Here, it may have been wise for CS to inform members, or inform power members and rely on them to ambassador the message.

3. Expect Failure, and Adapt. As we have learned in the “lean” method to startup and social enterprise—startups should expect failure. Here, the founders took a calculated risk (i.e. that members and networks would have no problem with the change) and that turned out not be the case. It was a small failure.

The larger failure came next, when the company couldn’t recognize and adapt to dissent and unhappiness from its target market. Here is where quick assessment and pivots could potentially have steered the company back on course. But, with four years to review, it doesn’t seem that the company was able adopt the ample customer feedback. Perhaps with the restructuring an influx of venture-backed capital, the founders were limited in the actions they could take to right the situation. Or perhaps, what was done was done—and beyond apologizing, the company didn’t know what definitive steps it could take to earn back the trust of its user base.

Couchsurfing in 2015 and Beyond

After the exit of Tony Espinoza, Jen Billock (formerly director of member experience) was tapped for the CEO role. Under her guidance, the site has seen a major re-launch which involved over 30 hours of downtime. Beyond front-end design changes, the re-launch featured improved search functionalities.

Perhaps in a nod to learning from the past, Billock was sure to include robust beta testers in preparation for the relaunch.

Considering the company has raised in excess of $22M in venture funding—there may be a vibrant second life ahead. However, unlike during its initial launch in 2003, it has to contend with neither being a novel concept, nor being the market leader. With rapid growth of companies like Airbnb, peer-to-peer sharing of space as an idea has been validated and perfected to a far greater degree than when CS first introduced the concept.

With innovation, honoring its mission and members, and being ready to pivot—it remains to be seen whether Couchsurfing can adapt and create unique value ahead.

Lost Roots: The Failure of For-Profit Couchsurfing [BootsnAll]
Why Couchsurfing Failed [The News Hub]
Couchsurfing Dilemma: Going for Profit [Inc.]
Unrest At Couchsurfing: CEO Exit, Layoffs, User Complaints [siliconbeat]
Couchsurfing CEO Tony Espinoza steps down, board searches for a replacement [VentureBeat]
Petition against the new legal status of Couchsurfing [Change.org]
Couchsurfing Raises $7.6 Million in Series A From Benchmark Capital and Omidyar Network to Expand Services and Fuel Growth in Cultural Exchange Network [BusinessWire]
She’s trying to turn Couchsurfing into a profitable business. And she’s got her hands full [Biz Journals]

(Note: Reading the comments for the articles noted is highly recommended. Many are thoughtful notes by former CouchSurfers and provide depth to story and evolution of CS)

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