OPEN MIC, UBER EDITION
After Uber CEO Travis Kalanick was fired, one of the (many, many) takes on the news was that Uber’s business model is a bigger problem than its toxic culture. Here’s one example of this take from the Wall Street Journal. Here’s another from Bloomberg. Here’s one from Fortune!
I disagree for a few reasons:
• Almost all of Uber’s 2017 disasters can be traced back to its culture. The dirty competitive tricks, the medical record incident, the sexual harassment, discrimination and retaliation and subsequent ignoring of complaints about it, the inappropriate parties. Some of these have legal ramifications beyond the bad headlines. None of them are a result of Uber’s lack of profits.
• Uber’s investors are totally fine with its business model. Most argue that the company is profitable in its oldest markets. The idea is that, if the company wanted to grow more slowly, it could stop investing in growth and become profitable tomorrow. Sure, the most disgruntled investor among them (cough, Bill Gurley) might complain that Uber should buck up and go public already. The least angry among them (the high net worth individuals making late stage vanity investments) might complain about the lack of financial disclosures. But that didn’t stop them from investing!
I asked readers to weigh in, because I knew you all would have even better insights on this issue. Of course, you delivered:
Manuel writes: First, Uber is structurally destined to be unprofitable because of the current attitude of investors. Since they are willing to provide capital to companies that grow so fast that they cannot possibly be profitable, it would be impossible for a profitable competitor to survive – the prices they would have to charge would be too high.
Second, though many of Uber’s recent controversies are apparently unrelated to its inability to be a profitable enterprise, it seems to me that both share a common cause – its risk-seeking culture, partly due to and propagated by its founder. That is, Uber’s propensity for risk has caused it to target a rate of growth much faster than what would be sustainable if it were to seek profitability in the short run (and, arguably, in the long run), and has also led both to oversights and deliberate missteps in areas that have led to the controversies that plague it today.
Mike writes: The “venture-funded company XYZ isn’t even profitable!!” argument is usually made with complete lack of acknowledgement for the trade-off being consciously made for investment in growth. Perhaps you could argue that the growth / profitability trade-off is not being made efficiently, but all signs point to Travis being the most effective business operators alive. The only thing he’s guilty of is the poor trade-off between culture and results.
Tom writes: Calling Uber the ” largest … Silicon Valley success story of this era” as it hemorrhages red ink reminds me of the run up to the Iraq war. Turned out Saddam’s ELITE Republican guard turned tail and ran when faced with real combat. Let’s hold back the gold medals and blue ribbons till we see some earnings growth
Jay writes: The hypothetical “Kalanick would still have his job if Uber were profitable” has far too many variables to really have any discussion value. Uber’s growth strategy related to spending to acquire new customers and enter new markets would have to have been dramatically different for it to become profitable. What would Uber being profitable mean for the company’s size and scale as compared to today? That’s also assuming the company can become profitable in its current form. If Uber is subsidizing its current pricing structure to increase rides, it’s hard to say whether it could’ve ever been profitable. Maybe the plan has always been to subsidize building a network of customers and mapping data to become profitable when self driving technology is introduced.
Andrew writes: The cynical thought that Travis would still be there if Uber was profitable is not exactly true, though money did play a key role. I think the investors looked at the practical hit to revenue, both in short-term #DeleteUber movement and the long-term hit to the brand. Those factors made this an easy decision from both a “do the right thing” and financial prospective.
Peter writes: A likely reason that Kalanick felt he needed to step down is that future fundraising would be nearly impossible without a board and existing investors who support him. If it were profitable, he wouldn’t need to fundraise! Even an IPO could theoretically be only a secondary offering.
…And here are a few interesting pieces of feedback on other aspects of the news…
Two more CEO ideas: Jeff Weiner, CEO of LinkedIn and Blake Irving, CEO of GoDaddy. (One reader writes: Irving executed a massive cultural and business turnaround, including eliminating sexism at GoDaddy, leading a successful IPO and doubling the stock price, and rebuilt the entire management team.)
Spencer writes: Why are none of the names being floated to replace Kalanick from Amazon? Both are hard-charging, innovative, global logistics companies.
Kendra writes: One small thing that I find missing in all reports of Uber right now is, ironically, the lack of empathy. Travis and team have been rightly blasted lately for their lack of empathy, sexism, and terrible business practices, and anywhere outside the micro-chasm of Silicon Valley, we would do nothing but expect these outcomes. However, under all of this is a man who recently lost his mom, and whose dad is still in recovery. I know this news is exciting and sexy right now, but if you and your colleagues could maybe acknowledge this guy is going through a real s*** time personally and maybe take it a bit easy on him professionally, it seems like the kind, ‘non-Silicon Valley’, thing to do right now.
Clarke writes: A whole lot written about the “unraveling” at Uber, but despite all of this Uber just had their best month ever in May with no sign of slowing down. Sure Travis is gone, but to say Uber has somehow been taken down a notch or that you have been proven right about actions at Uber is just wrong. The company and the service they provide is only continuing to grow. The internal dysfunction has had little observable impact on company performance.
Yousif writes: If you look at all the startups who raised on founder-friendly terms and judged their success (both financially and culturally), then I’m sure a reasonable conclusion would be that being founder-friendly in fact helps create better startups overall. Yes, in Uber’s case it meant too much power concentrated in the hands of a dysfunctional CEO. Yet when you look at Facebook, Twitter, Snapchat and essentially all the Y Combinator companies (including Airbnb), I’d argue founder-friendly terms help the founders drive their positive vision & generate net positive outcomes. It would be a shame if the actions of one founder punished future founders who want to create both external value with their products and an internally great place to work.
And the latest Uber news: Employees have signed a petition to reinstate Kalanick. And T Rowe Price marked down its Uber holdings by 5% before Kalanick resigned. Fortune’s Jen Wieczner has more on that here.
Have a great weekend!
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