Uber’s Opportunistic Ouster | The New Yorker ⋆ Epeak . Independent news and blogs
On February 23rd, two venture capitalists, both early investors in the ride-sharing company Uber, circulated an open letter in response to a female engineer’s published account of sexual harassment at the company. “Silicon Valley prides itself on pattern recognition,” Freada Kapor Klein and Mitchell Kapor wrote. “Here are a couple of toxic patterns we have observed.” Despite several scandals, they went on, Uber had failed to reform its culture, and investors “in high growth, financially successful companies rarely, if ever, call out inexcusable behavior from founders or C-suite executives.” They argued that both of these patterns needed to change.
Four months later, when Uber’s C.E.O., Travis Kalanick, stepped down after other influential investors demanded his resignation, Klein and Kapor’s words appeared to have resonated. Kalanick, who helped found Uber, in 2009, built the company into an indispensable amenity in many urban areas and one of the most highly valued private companies in history. This success was achieved against a backdrop of escalating management concerns and legal problems. In addition to facing allegations of harassment, Uber is in a war with its drivers over reducing their fares; it’s fighting an intellectual-property lawsuit charging that Uber is using self-driving-car technology stolen from Waymo, a part of Alphabet; and the Justice Department is reportedly investigating whether the company used software to evade regulators as it launched its service in new cities. There was also a leaked videotape of Kalanick scolding an Uber driver, and reports of privacy violations and even espionage. The brand came to represent both convenience and sinister corporate overreach.
There are many examples of corporate behavior that violates rules but bolsters profits, from emissions cheating at Volkswagen to the creation of fake bank accounts at Wells Fargo and alleged sexual harassment at the highest levels at Fox News, but what set Uber apart was the way the company was celebrated for its better-to-ask-forgiveness approach to business. Kalanick was praised even as he was dismissive of obstacles in his path, such as local-government regulations and protests from his company’s drivers. As long as Uber was growing at a brisk pace, behavior that could be characterized as rule-breaking was framed as bold disruption. “When the only thing that matters in the final analysis is how big you’re getting and how fast, which is what’s shown to produce these multibillion-dollar returns, what you get is a culture of looking the other way, of refusing to deal with what ought to be an affront to people,” Mitch Kapor told me a few days after Kalanick resigned.
He went on, “If Uber . . . had fought to get complete permission to get where they are, they wouldn’t exist today. I don’t think anyone would dispute that. So the question is: Is there a way to innovate in a way that has more measured disruption? And, absolutely, I think it could be done.”
Measured disruption sounds sensible, but it doesn’t dazzle venture capitalists in the way that Kalanick’s ruthless growth strategy evidently did. Still, for all Uber’s success, there was a more urgent problem that caught investors’ attention. Evan Rawley, a professor at the University of Minnesota who studies entrepreneurship, notes that, even as it expanded, Uber was losing enormous amounts of money. “The burn rate was alarming,” Rawley told me. Uber was shedding around three quarters of a billion dollars every three months, following a business strategy that Kalanick showed few signs of changing. Amazon and other technology giants had pursued this method, by which the generous flow of money from investors was used to subsidize losses and drive competitors out. Uber’s seventy-billion-dollar valuation was “predicated on the assumption that they would be a monopolist in some markets,” Rawley said. But Lyft and other smaller competitors maintained a stubborn hold in many cities, and Uber’s costly experiments with driverless cars are a long way from working out. “The H.R. and cultural issues were (a) a real problem, but (b) a really convenient excuse to push Travis aside,” Rawley said. He added, “I think there were some real business and strategic issues with the way Travis was taking the company, and the V.C.s and investors in Uber were starting to grow worried about it.” If Uber had to begin raising more money, new investors could demand better terms that would have reduced the value of earlier investors’ holdings, a scenario the early investors were eager to avoid.
Sunil Paul, an entrepreneur who started Sidecar, a onetime competitor that didn’t survive Uber’s overwhelming force, told me that Uber’s board members were rattled by the Delete Uber campaign, during which around half a million consumers were believed to have wiped the Uber app from their phones. The concerns about the corporate culture are genuine, and potentially destructive to the company’s brand. But Paul didn’t think that the worry about ethics or corporate behavior would ultimately dissuade Uber and its investors from ambitious expansion, with or without Travis Kalanick. Whatever shape the new strategy takes, it likely won’t be measured. “It’s not about replacing taxis—it’s about replacing cars and creating an entirely new industry,” Paul said. Scandal or not, that’s just the sort of wild promise of riches that investors are eager to get in on. ♦