Why Uber CEO Travis Kalanick’s Resignation Matters

There is a reason the media is closely following the story of Uber’s demise, and it’s not just for the drama. This news of CEO Travis Kalanick’s resignation has real ramifications.

Uber is the largest, most valuable, most global, most disruptive, most quintessential Silicon Valley success story of this era. What happens to this company affects the entire tech industry – the companies, the investors, the culture, the regulations, the employees.

To elaborate on what I wrote last week:

• Regulations: An excuse to be aggressive. The ability to connect Uber’s swashbuckling approach to the law and the ouster of its CEO bolsters the case of any regulator looking to crack down on disruptive Silicon Valley startups. And not just in the specific areas Uber ran afoul of the law – labor, transportation – but in any startup that operates in a legal gray area. As startups attempt to innovate in highly regulated sectors of the economy like healthcare, financial services, insurance, and real estate, they almost always start out in a legal gray area that must be defined. These companies need a bit of regulatory goodwill just to prove their idea is viable.

• Employees: Scaring away the “adults.” Startups need experienced executives, increasingly from the old-economy industries they’re disrupting, to help them transition from fledgling disrupters into legit businesses. A few years ago, many of those executives saw joining a hot pre-IPO tech startup as an attractive career move (not to mention, a way to get very rich, very fast). Now they are probably looking at former Target CMO Jeff Jones’ six month stint as Uber President and viewing the jump to startup-land as career suicide.

• Investors: The end of founder-friendly? This era of founder-friendly venture investing – driven by Web 2.0, Mark Zuckerberg, Sean Parker, and The Social Network — means founders get board control and can’t be forced to step aside when the job outgrows them. (Instead they “hire a Sheryl Sandberg” to deal with all the management stuff.)

Now investors are likely rethinking that trend. Even without control, the board was able to oust Kalanick, but only after a month of very messy, very public fighting. (Notably, Kalanick did not secure his board control in Uber’s early rounds of funding – that came in later rounds. Early investors had no choice but to live with it.)

• Businesses: Nobody is immune. In reporting my story on Silicon Valley ethics from January, a number of people quietly wondered whether Uber might be the next startup to have a major, company-ruining scandal. This was before we learned about Susan Fowler, Greyball, the Waymo lawsuit, the rape victim’s medical records, the escort party in Korea.

I noted the suggestion but, after a number of conversations about it, ultimately dismissed it. Yes, Uber had some issues, everyone said, but it was too big, too well-funded, too valuable, too dominant to face a comeuppance as bad as that of Theranos or Zenefits. How wrong that was, and it’s led me (and plenty of others) to rethink our assumptions that tech’s dominant power players are invulnerable.

• Culture: Death to “growth at any costs.” This is what happens when you take Silicon Valley’s most aggressive business practices to their logical end. As my colleague Adam Lashinsky wrote this morning: For Uber, “flying in the face of convention was an asset, but ultimately a horrible liability.” Startups that followed Uber’s playbook are likely reevaluating the serious risks associated with it. Likewise, Fortune’s Kristen Bellstrom noted this morning that they’re likely paying much closer to attention to the sexism in their workplaces. Kalanick’s departure “sends an encouraging message about just how bad sexism is for business—and how seriously some companies are beginning to take that fact,” she wrote.

A few additional notes on the news:

• Investors did this. Benchmark, First Round Capital, Lowercase Capital, Menlo Ventures, and Fidelity Investments consolidated their power — voting rights worth a combined 40% — and demanded Kalanick resign.

• Kalanick’s email to employees made it clear that he isn’t happy about the decision: “I have accepted a group of investors’ request to step aside.”

• Benchmark’s Bill Gurley’s consolation to Kalanick was a tweet stating that “very few entrepreneurs have had such a lasting impact on the world.”

• Kalanick is still on the board. He owns a majority of the voting shares. That sounds like a recipe for dysfunction, let alone a deterrent to any potential CEO. The only solace to any incoming exec might be that there are no remaining “surprises” after the Holder investigation.

• Some are already comparing this situation to Steve Jobs’ ouster from Apple. And indeed, Kalanick could someday return in a blaze of glory. But why limit ourselves to such a clichéd comparison? This situation could also mirror Mark Pincus and Zynga. Or Rob Kalin and Etsy. Or Jack Dorsey and Twitter!

• The speculation begins for replacements. Outside names that have already come up include newly available ex-Yahoo CEO Marissa Mayer, ex-Ford CEO Mark Fields or ex-GE CEO Jeff Immelt, and the not-available Facebook COO Sheryl Sandberg. There are also the ones that were rumored for Uber’s COO job – former Walt Disney COO Thomas Staggs, former Walmart CIO Karenann Terrell, CVS EVP Helena Foulkes, Turner head John Martin, AOL CEO Tim Armstrong, as well as Nikesh Arora (who was not approached about the COO role).