Lessons From The Uber Saga

The startup and angel investing community has had one big story after another, where drama was a part of the headline.  One that I find relevant for budding startup entrepreneurs is the so-called “resignation” of Uber’s CEO, Travis Kalanick (https://www.nytimes.com/2017/06/21/technology/uber-ceo-travis-kalanick.html).

Pushed out of his own company by his major investors, Kalanick gave up control of the unicorn that he nurtured from a startup.  It would be nice to think that he did this willingly in hope that another CEO might be able to put an end to the scandals and lead Uber towards a brighter future. However, it is more likely that his investors had no other option but to push him out, given that confidence in the company waned under his stewardship.

While Kalanick’s resignation sent shock waves through the startup eco-system, his departure provides many learning opportunities for startup founders. If you are building an up-and-coming startup, it is critical that you learn a few hard lessons from the fallen.  Trust me, the future of your company will depend upon it.

  1. Research Your Investors.

Before accepting funding from angel investors, it is imperative that you research their past behaviors. Take Mike Arrington’s tweet for example: (https://twitter.com/arrington/status/877407185566801921).  This can happen when you don’t understand how your investors operate under pressure. Most investors with deep pockets (and Board of Director Candidates) will have previous indicators of how they are inclined to treat the companies and founders they invest in, and with whom they work. Just because an investor is willing to help fund your startup, that doesn’t mean that taking his/hers money is in the best long-term interest of your company. Accept investors’ money only when you are certain that they will have your back when times get tough.

  1. Profits Matter: You don’t control your company if survival is based on ongoing funding.

Unless your startup is wildly profitable, you truly don’t control its destiny. Once you start accepting funding from investors, you give up control of your business regardless of how many shares you have. If the survival of your startup depends on you continuing to raise outside funding year after year, your control is highly compromised as investors can kill your company by refusing to participate in future rounds. You might think you control your startup because you have control of your board of directors or have more common or voting shares than anyone else, but being dependent on future funding obliterates your leverage. I have seen this time and time again, both on the private and on the public side #ProfitsMatter.

  1. “Move Fast and Break Things” is a Fallacy.

A familiar adage in StartupLand is Move Fast and Break Things.” While moving fast might still hold true as you build your startup, breaking things only works in the short term. Kalanick’s modus operandi for running Uber was seemingly to do whatever necessary for supercharge growth, even if that meant possibly skirting the law or using questionable software. A move-fast-and-break-things mentality might work in the short term (while you are scaling your company) but that attitude can come back to bite you when you are trying to build sustainable growth.

  1. Image Matters.

How your startup is perceived by the public and by the media matters. Kalanick’s reputation as a hard-charging startup CEO served him well initially but became a detriment when investors were looking for increased profitability and decreased scandals. When your investors want to see a return on their money, and profitability depends on the goodwill the public shows toward your company, the image that you have created relly matters. You should be working on your branding and public perception from the start… and never stop.

  1. Staff Satisfaction Matters

Just as the public image of your startup is important, so is staff satisfaction. The tide seemed to have started to turn against Travis Kalanick when a former Uber engineer published a scathing blog post about her treatment and the corporate culture at Uber (https://www.susanjfowler.com/blog/2017/2/19/reflecting-on-one-very-strange-year-at-uber). Once she ran her blog post, more tales of mistreatment at Uber began to surface (http://observer.com/2017/03/another-female-uber-engineer-claims-sexism-harassment/). As public sentiment towards Uber shifted, tech media piled onto the runaway train of Uber discontent. From the New York Times and Business Insider, to Recode and TechCrunch, numerous media publications spotlighted each scandal in which Uber was involved. If Kalanick had focused more intently on his company’s culture, public sentiment toward Uber might have never shifted. If you learn only one lesson from Kalanick’s fall from grace, it is the relevance of your employees’ feelings about you and your company.

 

 

Of course, the story of Uber doesn’t end with Travis Kalanick’s resignation. I hope not, as I myself use Uber daily. Time will tell whether a new CEO can turn the company around, reduce burn rate, and improve profits. Mr. Kalanick built a formidable company through sheer will and determination; whether he eventually is reinstated as CEO or goes on to launch another startup remains to be seen. What is clear is that his resignation might be the turning point for hard-driving CEOs and attitudes in “StartupLand”.

 

As a business development professional, I’ve seen this several times with both private startups and publicly traded microcap companies.  Oddly, in my recent role as an executive officer of Digital Arts Media Network, Inc. (DATI), a public company that accelerates investment capital into private tech startups and liquidity for angel and early-stage investors, I am beginning to see it even more than I would have expected.  So, if you are building a startup, please take heed and learn from the Kalanicks of the world to ensure that your position within the company you have created will not be met by the same tumultuous end.