Brian Chesky and Airbnb: The $100 Billion Bad Idea

[00:00:09] Morning folks and welcome to today's episode. It's called Brian Chesky and Airbnb, The 100 Billion Bad Idea. And look, I'd be lying if I said that I'd always wanted to cover Chesky and Airbnb. I hadn't really read much about either of them and the business itself. It sounds pretty humdrum. You know, people renting out rooms and apartments, nothing really new or exciting

[00:00:35] there. Chesky himself, he's always flown under the radar. But just I suppose to give you an idea of why or how I pick every story, it really depends on what catches my fancy. And last week for whatever reason, I thought, you know what? I know absolutely nothing about Chesky or Airbnb. So I just wanted to dig into it. And what a story. Because Chesky and his co-founders, they basically took

[00:01:04] one of the crappiest business ideas, renting out airbeds on apartment floors. And then through their tenacity and also what I found out through their really fantastic understanding of how a product should work, they turned it into a 100 billion dollar company. But it's really the stories behind

[00:01:27] this business that make it so good. You know, it's the story where they're selling their own cereal to clear their debts. The story of them not even knowing what a sly dick or an angel investor was. And then when they come up against the king of clones, the dreaded Samwer brothers from Germany. That is a great story. Then also losing 80% of our business when COVID hit. It all makes for just a cracking story.

[00:01:55] Enjoy. So Brian Chesky, born 1981 and grew up in Niskayuna. I hope I'm pronouncing that right. A small town in upstate New York and both his parents were social workers. Chesky wasn't an exceptionally bright kid. He was pretty normal, really. He had two big interests, hockey and art. And it's the art part that ends up having a huge bearing on this story. In 1999, he finished high school, goes to the Rhode Island

[00:02:24] School of Design or RISD to study industrial design. And this is where he meets Joe Gebbia. And the two of them, they work really well together. As Chesky said, we kept building on each other's ideas. When we get together, typically ideas get bigger, not smaller. And at one point during their college days, Gebbia says to Chesky, one day we're going to start a company together. So very prescient. Now after they

[00:02:50] graduate, they go on their separate ways. Chesky moves to Los Angeles, joins a product design consultancy. And interestingly, as a side note, around this time, he also gets into bodybuilding and becomes a bodybuilder. And you can Google photographs of him from this time. So while he's working in this company, he's producing sketches and products for companies like Mattel. But pretty quickly, he starts

[00:03:16] to realise that this career, it's just not for him. As he said, I knew this whole thing of getting a job, health insurance, it wasn't all it was cracked up to be, because I just wasn't happy. Now around this time, we're talking 2007, Chesky reads a biography of Walt Disney called The Triumph of the American Imagination. And Disney fascinates him because here was an artist, a creative person, just like Chesky,

[00:03:44] who ended up building this enormous business. And Chesky would go on to treat Disney, as well as Steve Jobs, like his mentors. He would study how they ran their companies, and he'd take management ideas from both of them. And he credits that book, The Biography of Disney, with helping him decide to quit his job and move to San Francisco, where Joe Gebbia is living. And the two of them decide to start a company.

[00:04:10] But the problem is, they don't really have a very good idea for their business. I mean, it is a crappy idea. So for context, there's an international design conference coming to San Francisco, and the hotels are booked out. So Chesky and Gebbia think, well, maybe we can turn our apartment into a bed and breakfast. The problem is they don't have beds, what they have instead is air mattresses. And as for breakfast, they are going to provide pop tarts. And they call their business Air Bed and Breakfast.

[00:04:38] They put together a basic website, and eventually three people stay, paying about $80 per night each. Now, staying with strangers, this wasn't new. Couchsurfing and other websites were already doing it. But generally, those were based on free accommodation. So the difference here was that three complete strangers had actually paid money to sleep on air mattresses. So big deal, you've still

[00:05:04] got a pretty crappy idea. It's still not very original. But in Chesky and Gebbia's mind, they now had proof of concept. And so they bring in Nathan Blacharchik. I hope I'm pronouncing that right. He was a Harvard-educated computer scientist who had lived with Gebbia. And he comes in as the technical co-founder. And so their next big event is South by Southwest in Austin. And this looks perfect. You've got tens of thousands of people are coming into the city. Hotel rooms are scarce. Chesky goes

[00:05:33] onto Craigslist and finds people advertising spare rooms in Austin and contacts them directly. So he gets 15 hosts onto the site, but they only get two bookings. And one of those bookings is Chesky himself. So South by Southwest is a complete bust, except for the fact that while in Austin, through a mutual contact, Chesky meets Michael Siebel. He is one of the founders of a website

[00:06:00] called Justin TV. It's an online streaming company, which just the year before had been backed by Paul Graham's Y Combinator. Now I did an episode on Paul Graham and Y Combinator in June, 2025. So that's well worth checking out. Anyway, Justin TV would eventually become Twitch, which Amazon bought in 2014 for $975 million. So Siebel, he knows Silicon Valley through Y Combinator and all

[00:06:27] that he knows about fundraising. Chesky knows none of this. He doesn't even know what an angel investor is. And in actual fact, when Siebel mentions some angels that he knows, Chesky says that he thought the following, oh my God, this guy's crazy. He believes in angels. What the hell? Chesky also doesn't even know what a sly dick is. So Siebel basically starts teaching him how Silicon Valley fundraising works

[00:06:56] and Chesky and Gebbia start trying to work out what this business that they're in could become. And by this stage, they're now just not looking at air mattresses. They're also looking at individual bedrooms as well. And the model is simple. Somebody books through the website and they take roughly 10% of the transaction. So they try to calculate how many people might eventually rent rooms and they come

[00:07:19] up with a total potential market size of around $30 million. Now somewhere around this time, Chesky also meets a young Sam Altman. I'm guessing it's through Michael Siebel because Altman's startup, looped, had also been backed by Y Combinator. So Altman looks at Chesky's business model and especially the $30 million market size and he tells Chesky, you got to change the M's to B's.

[00:07:47] Investors want B's, not M's. So they basically changed the market size from $30 million to $30 billion. And Siebel then emails around 20 investors on Chesky's behalf. And they get a few meetings. And I love this. At one meeting, the investor orders a smoothie and then gets up and walks out while they're in the middle of the pitch. Chesky says, we thought he just had to move his car.

[00:08:14] I haven't heard back from him since. And they actually took a photograph of the abandoned smoothie. I love that detail. Like they're not even being politely rejected. The investors literally can't be bothered finishing their drink before getting away from them. So now their next big opportunity comes in August 2008. You've got the Democratic National Convention. It's been held in Denver and Barack Obama's acceptance speech is in an 80,000 seat football stadium. So demand for accommodation

[00:08:43] is massive. So they start promoting airbed and breakfast first on blogs, then the Denver Post picks it up, then local television, and eventually they get national press. So they get around 800 people in Denver to list rooms. But they only get 80 bookings. As Chesky said, in the matter of two weeks, we went from three guys in an apartment with no business, no money, and no press, to three guys in

[00:09:10] an apartment with still no business, still no money, but we were on the New York Times. And that sums up where they were. Because once the convention ends, the bookings disappear again, and they only got 80 any to begin with. They've no salaries. They've no investors interested in them. And between living costs and keeping the company alive, they've built up around $40,000 in credit card debt.

[00:09:35] So they come up with this ridiculous idea to get themselves out of debt. They bulk buy cereal and create two breakfast cereals, Obama O's and Captain McCain's. They do the design themselves while a friend in the printing business provides the boxes. And unbelievably, it works. They sell the cereal through their website for $40 a box, and they wipe out most of their debt. But obviously,

[00:10:03] business-wise, these are pretty desperate times. They've had zero success. And this is when Michael Siebel throws them a lifeline. In January 2009, he managed to get them an interview with Paul Graham at Y Combinator. And look, I'm looking at them at this stage and thinking, why is Siebel or Graham even doing this? Because I'm thinking, there's nothing really here. They're renting air

[00:10:29] mattresses and now rooms, and they haven't really shown that it can work. And it's clear that Graham thinks pretty much the same thing. Because according to Chesky, the interview has gone very, very badly, until Gebbia pulls out one of the boxes of Obama O's and explains to Graham how they created the cereal and sold it to help clear their debts. And that gets Graham's attention. Because he says,

[00:10:53] you guys are like cockroaches. You just won't die. And that really is why Graham backs them. He isn't backing the idea. He's backing the two guys. He can see that they're tenacious. And so Y Combinator invests $20,000 for 6% of the company. And in the words of Chesky, it ended up being the best thing that ever happened to me. And then Graham asked them a very simple question. Where are the people

[00:11:20] actually looking for places to stay? And based on searches on their website, one city stands out, New York. So Graham tells them, go there, meet the hosts, stay with them, talk to them, figure out why people are looking at these listings, but not actually booking them. And Chesky and Gebbia, they start flying back and forth, New York. They're meeting hosts, trying to understand what isn't

[00:11:45] working. And one of the first thing that really jumps out is the photographs. They're terrible. They're dark. They're blurry. They're badly framed. And look, if you're asking somebody to hand over money to stay in a stranger's house, the photographs, they matter. So Chesky and Gebbia rent a decent camera and they start taking the photographs themselves. And New York revenues double. In the first week of

[00:12:11] February, Airbnb makes $460 in fees. The following week, $900. The week after that, $1,500. Now it's still tiny, but at least something is starting to happen. And around the same time, they make another important change. Like the Air Bed and Breakfast name. It's tied to the whole original air mattress idea. But now as they're evolving, they're renting rooms and apartments.

[00:12:37] So they shorten the name to Airbnb. And by March that year, they've got 2,500 listings and almost 10,000 registered users. But now to be clear, Airbnb, they haven't invented this market. Websites have been renting holiday homes for years. Craigslist is full of rooms and apartments. And as I mentioned earlier, couchsurfing has been around and lets people stay in strangers' homes for free.

[00:13:02] What Airbnb does do differently is they make the whole thing much easier and more flexible. Anybody can list anything from a spare bedroom to an entire house for one night or for much longer. And Airbnb then handles the booking and the payment. And crucially, the host doesn't have to pay to advertise. Airbnb only gets paid when the booking actually happens. So within the first few months of 2009,

[00:13:29] they're doing around $5,000 a week. Again, tiny, but it's growing and they have some momentum. And in April 2009, Sequoia invests about $600,000 for 20% of the company. So that values Airbnb at just under $3 million. And this investment, it gives Chesky and Gebbia the chance to really start

[00:13:52] developing and fine-tuning the business. Or maybe fine-tuning the product is a better word. Because, see, the thing about Chesky and Gebbia that I didn't really understand until I researched the story is the fact that they're product designers. And this is crucial because they are obsessed with getting the product right. They're constantly thinking about how to make the whole thing as

[00:14:20] easy as possible for both the host and the guest. So now with this investment from Sequoia, they redesign the websites. Cleaner pages, better photographs, fewer steps. A guest can find a place, choose it, and book it in three clicks. And while that sounds obvious now, back then an awful lot of websites were clunky as hell. And then they tackle a much bigger problem. Trust. Because just as the

[00:14:47] guest doesn't know the host, the host is letting a complete stranger into their home. So Airbnb introduces two-way reviews. Guests review hosts. Hosts review guests. Everybody starts building a reputation. And Airbnb holds the payment for 24 hours after check-in. So if the place is nothing like the listing, the host doesn't get paid. And these changes, they start making a difference. Word spreads.

[00:15:16] And importantly, it starts spreading outside of America without Airbnb having to go and open up offices in every country. So by late 2010, Airbnb has around 50,000 listings around the world. More than 700,000 nights have been booked through the site. Revenue has been doubling every month and reached about 10 million for the year 2010. So this growth, the momentum behind it, it catches the attention of

[00:15:45] Reid Hoffman. And Hoffman, of course, he'd built LinkedIn together with Peter Thiel. He was one of the first investors in Facebook. By now, he's a partner at Greylock, the venture capital firm. And through LinkedIn and Facebook, Hoffman, he understands network effects probably as well as anybody. So network effects, to explain them in their simplest terms. The more people who use a service,

[00:16:10] the more useful that service becomes, which attracts even more people. And Hoffman can see this starting to happen with Airbnb. So in November 2010, Greylock, together with Sequoia, invest $7.2 million, valuing Airbnb at around $70 million. Now, not everyone at Greylock, the VC firm, agrees with Hoffman. One of the senior partner tells him,

[00:16:34] every venture capitalist has to have a deal that they can fail on. Airbnb can be yours. But Hoffman is right. Airbnb keeps growing at a very, very fast rate. And of course, once you have an internet company growing this quickly, competitors are going to start appearing. And look, you have competitors, and then you have clones. And nobody, and I mean absolutely nobody,

[00:17:02] does clones like the Samwer brothers. So these guys, wait for it, these guys are just fascinating. So there are three German brothers, Oliver, Mark and Alexander Samwer. And they've become billionaires by spotting internet businesses that are working, usually in America, recreating them in Europe, and then executing really, really quickly. Wired Magazine, they did a brilliant profile on them

[00:17:30] in 2012 called Inside the Clone Factory. Well worth reading. And I am definitely going to be doing an episode on these guys at some stage, because it is a brilliant story in itself. But just to give you an idea of their MO. So the Samwer brothers, they built an eBay clone in 1999 and sold it within 100 days of launching it

[00:17:53] to eBay for $35 million. They built a Facebook clone and sold it to a publishing company for $85 million. They launched an Amazon clone that they eventually sold to Alibaba for $2 billion. They built a Groupon clone and sold it to Groupon within months of launching it and took shares that were worth $1 billion when Groupon Float It. Now, as you can imagine, the Samwer's, they're not very popular with lots of people.

[00:18:23] Jason Calicanis from the All In Podcast, he tweeted the following, The Samwer brothers are despicable thieves. How do they sleep at night? Anyway, in 2011, they turned their attention to Airbnb by launching Wimdo. Basically, you guessed it, an Airbnb clone. And they back it with $90 million, they hire 400 people, and they go after the European

[00:18:48] market. Then Oliver Samwer rings up Chesky and invites him and his co-founders over to Berlin. And when Chesky and Gebbia walk into Wimdu's office, Chesky says there are hundreds of people sitting almost elbow to elbow with two screens in front of them. One screen is Airbnb, the other screen is Wimdo. So they are literally looking at Airbnb while they build Wimdo. And Oliver

[00:19:17] Samwer doesn't even pretend otherwise. He tells Chesky they're going to copy Airbnb and beat them by moving faster. But he offers them a way out. Airbnb can take over Wimdo in return for 25% of Airbnb. So the first thing Chesky does was ring Andrew Mason, the CEO of Groupon, who had done the same kind of deal

[00:19:42] with the Samwers. And Mason says that, yeah, the deal did help Groupon expand quickly into Europe. But he also said there were big integration issues, a big clash of cultures between both companies. Mark Zuckerberg tells Chesky, don't buy them. The best product will win. Paul Graham also tells him to reject the deal and says of the Samwers, and I love this, they're mercenaries, you're missionaries. They're like

[00:20:08] people raising a baby they don't actually want. And Reid Hoffman, when Chesky goes to Reid Hoffman, he says, with Airbnb, we have a business that is already benefiting from network effects. We can win. So Chesky rejects the deal and goes to war. He raises $112 million, buys a smaller German competitor, opens international offices and flies all around Europe doing press interviews. Airbnb has

[00:20:36] the momentum and Wimdo just can't keep up and it eventually ends up closing down in 2018. And Chesky later said, the Samwers gave us a gift. They forced us to scale faster than we ever would have. Now, as Airbnb gets bigger, the problems get bigger as well. So one of the first serious ones happens in

[00:21:00] San Francisco when a guest trashes a host's home, steals possessions, even starts a fire. And this gets loads of publicity and it's a nightmare because the whole business, it depends on trust. And Chesky gets hammered for Airbnb's initial poor response. And eventually he publishes an open letter called We Screwed Up. And as a result, Airbnb introduces a $50,000 host guarantee to cover damage

[00:21:28] caused by guests, later increased to a million dollars, as well as a 24-hour customer service line and a trust and safety team. Now the business evolves. By 2016, you have Beyonce staying in a luxury Airbnb over Super Bowl weekend. So you can now go on to Airbnb looking for a $50 room or you can be looking for a $10,000 a night villa. And that's really a difficult thing for a brand to pull off

[00:21:56] because once people associate you with cheap accommodation, it can be really hard to convince them that you also belong at the luxury end. And equally, on the other side, when companies move up markets, they can sometimes and nearly always alienate the people who came to them in the first place because they were cheap. But Airbnb manages to pull this off. And I think Chesky's design background

[00:22:22] plays a big part in all of this because he's managed to keep all audiences, all customers, still interested in the business. Because whether you're booking a room or a luxury home, you still have the exact same website. You still have the same reviews. You still have the same booking process. It still feels like Airbnb. Now as Airbnb grows, it launches experiences,

[00:22:47] it adds boutique hotels, it adds a travel magazine. And by the end of 2019, revenue is at $4.8 billion. But it still hasn't made a profit. Mainly because Chesky is spending heavily on expansion, staff, marketing, all these new businesses. Now in terms of what Chesky is like as a boss, as I already mentioned, one of his big influences is Walt Disney. And Disney liked to walk the park,

[00:23:14] get out from behind the desk and see what the customers are experiencing. And Chesky does the same. He takes that to heart. He lives a semi-nomadic life. He moves between Airbnb listings to test the product himself. And as recently as 2025, he was still renting out a guest room in his own house. And by all accounts, even though he's been very open and honest talking about his earlier shortcomings

[00:23:39] as a CEO, he's built a reputation as a very transparent boss. He's not a leasist. He's not flashy. He's very open and approachable. Like all my research shows that overall, he comes across as a really down-to-earth good guy. Anyway, back to 2019. Everything appears to be going gangbusters. The business is evolving and growing. And then COVID hits. Within eight weeks, bookings fall by more

[00:24:06] than 80%. And in fairness to Chesky, he doesn't hesitate. He starts cutting hard. Advertising is almost completely cancelled, saving $800 million a year. Non-core businesses like the hotels, like the travel magazine, they go. And in May 2020, he lays off 1,900 people, roughly a quarter of the company. But Chesky gets a lot of praise for how he handled it. He writes directly to staff. He explains what is

[00:24:33] happening. And there's none of the usual corpus bullshit, you know, about right-sizing or unlocking efficiencies. And here's a quote from Chesky, which I really like. My view is, even if I said something ineloquent, it's better than people thinking I'm bullshitting them. I don't think most CEOs are as cold as they come across. I just think that there are people in HR and legal that round every edge off

[00:24:58] the person to the point that they're sometimes not people. I agree with him 100%. Now, he also increases communication during COVID. Company-wide meetings go from monthly to weekly. And he takes far more questions. As he said, in a crisis, you have to communicate four times as much. And then, gradually, the recovery begins. People start travelling locally to cabins, beach houses, small towns. In December

[00:25:26] 2020, Airbnb floats. Its shares jumped from $65 to $144 on the opening day, valuing the company at around $100 billion. By 2022, revenue reaches $8.4 billion. And Airbnb makes its first full-year profit of $1.89 billion. But one problem that has been dogging Airbnb for years is getting even hotter.

[00:25:54] And that brings us to probably the biggest criticism of Airbnb. What happens to a city when too many homes become short-term rentals? You can end up with fewer homes for local people, higher rents, and neighbourhoods that are full of properties being turned over to tourists every few days. Because, you see, Airbnb, it's no longer just about somebody renting a spare room. In fact, the room business is a tiny part of

[00:26:21] its business. Estimates suggest that more than 60% of hosts have two or more listings. And some operators have dozens or even hundreds of listings. And so, in 2023, New York passed a law requiring hosts to register and, in most cases, be present while the guest is staying. And as a result, active short-term listings in New York collapsed from around 22,000 to fewer than 3,000. And New York, it's not alone.

[00:26:50] Barcelona, Amsterdam, Florence, San Francisco, London, Tokyo. Cities all over the world are trying to limit short-term rentals. So, is Airbnb responsible for the global housing crisis? I mean, no. That's far too simplistic. Housing shortages are mainly caused by things like not building enough homes, planning

[00:27:14] restrictions, growing populations. So, you know, it's easy and very politically popular to blame Airbnb. But, having said that, Airbnb can definitely and does definitely make an existing problem worse. Because if an apartment that could house a local family is instead rented to tourists all year, which is happening, well, that apartment has effectively disappeared from the long-term rental market. And when thousands do it,

[00:27:43] that has an impact. Like, there's research showing that in some heavily affected areas, the growth of short-term rentals accounted for as much as 20% of the increase in rents. Now, to Chesky's credits, and I know I'm taking Chesky's side in a lot of this, but I do genuinely like the guy. I think unlike an awful lot of other tech bros out there, I wouldn't even categorize him as a tech bro,

[00:28:07] unlike an awful lot of CEOs in the tech business, he does try his best to address the problems. And he does acknowledge it. He said, we grew so fast, we made mistakes. We really need to think through our impact on cities and communities. And he has made changes to Airbnb. They've introduced systems that help cities see what is being rented and identify illegal listings. And in places like

[00:28:32] London and Paris, Airbnb's own software can stop a property taking any more bookings once it reaches its legal annual limit. They've also banned parties. Their software, it tries to identify bookings that look like they could be used for a party and block them before they happen. While properties that repeatedly cause problems can be removed from Airbnb altogether. Now, this doesn't solve all of the

[00:28:57] problems. And an awful lot of these changes have happened because cities have forced Airbnb to make them. But I think Chesky understands. But Chesky does understand that if Airbnb wants to be around for another 20 or 30 years, it can't spend its entire time fighting the cities where it operates. And as he said himself, who wants to invest in a company that the public doesn't want to exist? And despite all of

[00:29:25] these issues, Airbnb, it's continued to grow. In 2025, it had more than 9 million listings, people booked 533

[00:29:50] million nights and experiences and revenue reached 12.2 billion with a profit of around 2.5 billion dollars. And by now, Airbnb, it's become such a powerful brand that it's achieved verb status. You know, in the same way that people say they're going to Google something, people are now talking about Airbnb-ing a place. And that has a huge commercial advantage because 90% of Airbnb's traffic comes direct.

[00:30:18] And that helps explain why, while Airbnb still does spend close to 2 billion a year on marketing, it's much, much less than say Booking.com and Expedia, which are each spending around 7 billion a year. So look, I have a lot of admiration for Chesky because he took a really, really crappy air mattress idea, gradually moved it into a market that already existed as in renting homes because,

[00:30:46] you know, most of our business comes from that now. Renting individual rooms is only a tiny part of our business. And yet, despite the fact that this market had more or less existed for years before his involvement, through his focus and Gebbia's focus, although I forgot to mention, Gebbia has stepped away from the business now, so it is mainly Chesky. So through his focus and his obsession with making small tweaks to the product, getting the product better than anyone else out

[00:31:16] there, he built a 100 billion dollar business. And I think it's a good business. I really like it. My family and I book Airbnb a few times every year and I've never had a problem. So I'm a fan. And, as you know, I like Chesky himself. He just comes across as a good guy. Anyway, that brings us to listeners' emails. And this one comes from Nick, who'd love me to do the story of Boo.com. This was

[00:31:43] the hottest online fashion startup back in the dot-com boom. I remember it well. It's going to make for a brilliant story. So thanks so much for the recommendation, Nick, and for listening. And any story that you'd like me to cover, email me at info at gbspod.com. All the best, folks.