At Airbnb, Tensions Bubble Between Chesky and Tosi

In recent months, the CFO has made a case to some investors that he should become chief operating officer or president of its “homes” division, which accounts for the vast majority of Airbnb’s revenue, three people close to the company said. A half dozen people close to the company wonder whether he could succeed, given that he isn't always in sync with Mr. Chesky on strategy.

Mr. Chesky would rather create unique products that fit with Airbnb’s millennial-friendly, design-oriented culture, building on the success of its original business of unique homes. Mr. Tosi would prefer to tilt the company to be more of a traditional travel firm, as three people put it. The CEO also has been frustrated by the lack of "innovation" in its customer-service shop, which Mr. Tosi oversees, a person close to the CEO said.

But more fundamentally, the two differ over how to balance the financial stability needed to go public with Mr. Chesky’s desire to transform Airbnb into a more diversified travel firm, investing in areas that might not yield profits for awhile, people close to the company say.

The future of the relationship could be crucial for Airbnb’s near-term prospects. Mr. Chesky long has been looking for a No. 2  executive to help him run the company, now valued at $31 billion. Several key responsibilities are unfilled. Mr. Chesky oversees the homes business himself for now, and the company is without permanent heads for its crucial China business or its marketing arm. The company, which pulled in between $2.5 billion and $3 billion in revenue last year, also hit rare growth headwinds during the first half of last year. It is expected to report fourth-quarter financials to investors next week and announce new initiatives next month.

It is common for Silicon Valley founders to bring in an outsider with more management experience to help a company grow. Sometimes it works—witness the relationship between Mark Zuckerberg and Sheryl Sandberg at Facebook. But sometimes it doesn’t: Emily White lasted a year as Snap COO, No. 2 to CEO Evan Spiegel, before departing.

Mr. Tosi is also part of a new breed of Wall Street transplants, such as Twitter COO-turned-SoFi CEO Anthony Noto and Alphabet CFO Ruth Porat, who have sought power and money in tech.

Meanwhile, investors and other executives want Mr. Tosi to stay focused on preparing Airbnb to go public. Mr. Tosi, who was CFO of the private equity giant Blackstone from 2008 until mid-2015, is a valuable CFO for Airbnb because he has leadership experience at a public company, they say.

Several people close to the company maintained that the relationship between Mr. Chesky and Mr. Tosi appears to still be in good shape, despite some differences in style and vision. In executive meetings, Mr. Tosi is “pretty assertive and alpha, but also deferential to Brian,” according to a person who has been in the meetings.

A Chance to Build

Mr. Tosi’s broader ambitions aren’t surprising. Known to most as “LT,” he became a top executive inside both Merrill Lynch and Blackstone by the time he was 40. Now 49, Mr. Tosi wanted to be part of a company he could help build, people close to him said.

“LT is always going to think big. He’s not going to think, ‘I’m the CFO and this is my responsibility.’ He’ll always be a very important partner to the CEO and want to position the firm strategically,” said Reena Aggarwal, a professor of finance at Georgetown who taught Mr. Tosi in business school and is now friends with him.

He also is expected to use Airbnb’s cash pile (about a couple billion dollars from past fundraisings that it hasn’t touched) to make one to two significant acquisitions over the next year, a person close to the company said.

He is looking to acquire companies that can help grow Airbnb’s supply of homes, boost its business in China and improve its machine-learning capabilities, a person close to the company said. (One set of reported deal talks, between Airbnb and Wyndham Worldwide Corp.’s European vacation rental unit, is unlikely to come to fruition, one person familiar with the discussions said.)

When Mr. Chesky tried to poach him in 2015, Mr. Tosi initially brushed off his phone calls. The Airbnb CEO showed up unannounced at Blackstone’s office and asked him to lunch. “He comes walking down hallway, right out of central casting for Silicon Valley. Black jacket, white shirt, sneakers with white soles,” Mr. Tosi said in a live interview last year at Georgetown University, his alma mater. “I drilled him with questions about the business. I was so enthralled by his passion.” Mr. Tosi also gelled with board observer Marc Andreessen, helping him seal the job, according to people close to the company.

Mr. Tosi brought both a Wall Street swagger and much-needed business discipline that was foreign to the San Francisco upstart, former Airbnb executives and managers said. He built up the corporate development arm of the company, which had mostly hired small teams before his arrival, and staffed it with a team of former Blackstone employees. He also came with experience, understanding the financials of travel companies thanks to Blackstone once holding stakes in hotel chain Hilton, travel site Orbitz and many theme parks.

Mr. Tosi, who moved with his wife and two young children to the Bay Area for the Airbnb job, has tried to fit in, swapping Wall Street suits for jeans and vests. But his arrival also was a shock to Airbnb’s culture, with its emphasis on an idealistic brand. Mr. Tosi sent marching orders across the company in 2016 that it had to get profitable. Before Airbnb could go public, it would have to have a better handle on predicting its earnings. “I believe we have built this path but can do more,” he wrote to employees.

Mr. Tosi initiated cost-cutting efforts, including cuts to customer service and food staff, that longtime Airbnb employees saw as hurting the culture. But Airbnb’s cost per customer service “ticket” fell by 30% to 40% between 2016 and mid-2017 last year, an Airbnb official said, thanks largely to Mr. Tosi. (An Airbnb official said last year that those savings were reinvested into improving customer service and that satisfaction scores had gone up.)  Airbnb hit profitability late in 2016 and has mostly stayed there.

But employees have worried about quality of service still being subpar. Mr. Chesky seems to agree. He said during a live-stream Q&A for hosts in November that “we have far from the best customer service in the world.”

In last year’s Georgetown interview, Mr. Tosi said he saw the company “needed to get things in order” before he arrived. It wasn’t losing nearly as money as a startup like Uber—Airbnb doesn’t give bonuses or incentives to hosts like ride-hailing companies do for drivers.

Airbnb’s success had bred spending behavior “that’s not necessarily sustainable or productive,” he said. “We took the core business and said, ‘It’s growing 85% to 90%. Let’s grow that and refine it, and save time and margin for all the things we like to do,’” Mr. Tosi said.

There were other bumps in the road early in Mr. Tosi’s tenure. He joked at one staff meeting that he hadn’t passed the company’s “core values” test for new employees. He later had to clarify in an email he was kidding. “I’m committed to our values and believe that were reflected in the advice that I shared during the meeting,” he would write to employees in a May 2016 email.

Mr. Tosi and Airbnb declined interview requests from The Information.

Mr. Tosi has pushed to professionalize the travel site whose business roots were tied to regular people renting out their apartments or spare bedrooms. The company began embracing professional vacation-rental managers and will soon dip into luxury travel after Mr. Tosi led the roughly $200 million purchase of Luxury Retreats last year. Mr. Chesky hadn’t put luxury travel as near-term on Airbnb’s roadmap until Mr. Tosi advocated for it, said a person close to Mr. Chesky.

“LT is always going to think big. He’s not going to think, ‘I’m the CFO and this is my responsibility.’ He’ll always be a very important partner to the CEO and want to position the firm strategically.“

But in other areas, the two had very different visions. That was most apparent during a debate about expanding into air travel.

The company sees selling flights as a medium- to long-term business opportunity that will be crucial to attracting travelers when they first start planning trips.

About a year ago, Mr. Tosi oversaw a team working on a potential flight-booking integration with the travel site Skyscanner, which was eventually scrapped, according to a person familiar with the matter. The company has also held preliminary talks to buy the flight-booking app Hopper. Mr. Chesky, meanwhile, had more radical ideas, seeming at times to want to start his own airline. He convened a small group of designers and product managers last year, who created mock-up images like Airbnb’s logo on an airplane to help juice brainstorming sessions.

The two executives sometimes joke openly in front of the company about the natural tensions in their job, one former employee said. “At all-hands [meetings], it’s a friendly rivalry. They joke openly in front of the team, ‘If I do this, Brian will kill me,’” the ex-employee said.

For now, Mr. Tosi is pursuing other revenue opportunities. One revolves around financial products that would be developed by Airbnb’s payments team, which reports to Mr. Tosi. The company has plans to invest more in payments as a potential lever for growth, three people close to the company said. It has told hosts it will provide advance payments to them as part of the Airbnb Select program, which will encompass thousands of hand-curated spaces fit for business travelers and other upscale customers and is expected to launch next month.

Investors are generally pleased with Mr. Tosi’s moves getting Airbnb ready for a potential 2019 public offering, when the company’s 10-year employee stock grant expires. The company now regularly reports financial performance data to investors and closes the books on time, an investor said. The CFO also would be in an important position to sell the company’s vision to potential public shareholders. Mark Mahaney, an internet analyst at RBC Capital Markets, said Mr. Tosi “comes in with cachet” but “doesn’t have that many grey hairs.”

“His reputation is that the guy is super smart. He’s one of those super fast talkers that people assume is rocket smart,” he said.

Wall Street Background

A New Hampshire native, Mr. Tosi attended Georgetown University, where he earned a bachelor’s degree in 1990. He stayed for a law degree and MBA at the urging of Georgetown’s former president, Mr. Tosi said in his interview at the school. He now sits on Georgetown’s board of directors.

After stints at a New York corporate law firm and as director of business development at NBC, he headed to Merrill Lynch in 1999, first as head of business development and eventually as chief operating officer for its investment banking division. Mr. Tosi was one of the few executives inside Merrill Lynch raising warning about how much exposure the bank had to collateralized debt obligations on its balance sheet before the mortgage industry went bust, according to “Crash of the Titans,” a book on the fall of Merrill Lynch.

In 2008, he left to become CFO at Blackstone, the vaunted private equity firm that had just gone public. His job was mostly out of the public or media spotlight, as he wasn’t involved in sourcing deals for the company. He was at times rumored to be a potential successor to longtime CEO Stephen Schwarzman.

Some of his primary charges were to communicate information about the firm’s investments to its limited partners and help meet new accounting standards. He took an interest in technology, overseeing the company’s chief technology officer and leading the company’s efforts to start investing in tech firms and software that could help manage its portfolio companies. Joseph Baratta, Blackstone’s global head of private equity who sits on Georgetown’s board with Mr. Tosi, said in an interview with The Information that Mr. Tosi “was more than a number cruncher in the back office.”

“He has skills to be CEO of a company. He has a broad range of gifts. He likes people. It’s an important part of managing. That’s not always the profile of a CFO,” Mr. Baratta said.

In 2011, news came out that Apple approached him about a CFO job. Mr. Tosi addressed it during the Georgetown interview. He said then-Apple CEO Steve Jobs “was a very compelling person and if I felt like we could’ve run that company for a long time together, I think we could’ve done great things. But my work at Blackstone wasn’t done yet.”

By the time Mr. Chesky came knocking, though, Mr. Tosi was ready to move on from Blackstone.

Looking for Acquisitions

After joining Airbnb, he focused on preparing the company to go public and looking for acquisitions that could drive growth. Mr. Tosi’s only big deal came early last year when the company bought Luxury Retreats, a Montreal-based travel company that manages high-end mansions and villas for short-term stays. Using Luxury Retreats, Airbnb is planning to offer a new service called “lux” integrated into its current app this year.

Airbnb beat out travel-booking company Expedia for the deal. Mr. Tosi structured the deal so Luxury Retreats’ founders got more tax benefits than other companies could offer, helping Airbnb seal the acquisition, a person close to the company said. The deal hasn’t been totally smooth. Luxury Retreats’ back-end systems were clunky and have required significant work to integrate with Airbnb, several people close to the company said.

Mr. Tosi is a “dealmaker at heart,” a person who has worked with him said. He also has worked at Airbnb on issues like helping the company set up operations in China and has met with mayors and other regulators. He also took those responsibilities on at Blackstone, meeting with federal regulators to explain the private equity business.

In the interview at Georgetown last year, Mr. Tosi recounted a conversation he had with New York City Mayor Bill de Blasio over the city’s strict regulations on Airbnb. “I said, ‘Tidal waves don’t beg forgiveness. ...Fight me now, fight me later, eventually Airbnb will proliferate.’”