WSJ: Potholes on the Uber Ride to Riches

http://www.wsj.com/articles/andy-kessler-potholes-on-the-uber-ride-to-riches-1418083496

The ride-sharing service Uber Technologies was valued at $41 billion last week thanks to a recent investment surge, but the good news faded fast. On Monday Uber was banned in New Dehli after a woman accused a driver of rape. The company has also suffered a string of press run-ins that have left many wondering what’s going on at the Silicon Valley startup.

For instance, last month Uber threw a wasp nest into a crowded room when it was reported that Senior Vice President of Business Emil Michael had suggested in a private conversation at a media dinner that Uber could hire opposition researchers to dig up dirt on its critics in the press.

On top of that, an Uber employee reportedly tracked a journalist’s location using an internal system known as “God View” mode, greeting her at the company’s New York headquarters by saying, “There you are. I was tracking you.” Uber CEO Travis Kalanick quickly disavowed these tactics, calling the comments “terrible,” but the stings continue. Around the same time investor Peter Thiel said in a CNN Money interview that Uber is “the most ethically challenged company” in the valley.

Everyone from Sen. Al Franken to Buzz Feed has demanded an explanation of the company’s policies, but much of the story can be explained by how startups differ from the rest of the business world. From nothing five years ago, Uber is now doing $10 billion in annual fares, according to unconfirmed reports. Since the company keeps 20% of fares, that’s about $2 billion in sales. Why so successful yet so much hubris?

The two are related. Those who run or work at startups are a different breed. Often computer science majors or engineers, they didn’t get invited to the cool parties. And then when they came up with ideas for products or companies, just about everyone, from parents to friends, told them they were crazy. That’ll never work, they said. Get a job at IBM like your uncle. But instead these entrepreneurs persist, usually failing a time or two. Mr. Kalanick started a peer-to-peer file-sharing company called Scour that went belly up in 2000.

Entrepreneurs pitch their ideas, sometimes to angel investors like dentists and accountants with extra cash, but more often to venture capitalists looking to fund the next big thing. As a venture capitalist, I’ve been pitched thousands of times, and entrepreneurs often peddle market-size projections and future sales predictions that are creative, if not fictional.

Those who win funding wake up every day and ask what they can do to make this thing work. Hubris becomes an asset. Startup CEOs are always saying the goal is to “suck the oxygen out of the room” of their competitors. Success requires a certain bravado. That should be encouraged, not neutered, but most entrepreneurs have no idea when to turn it off.