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.
Critics of startups often compare them to a fraternity culture, as they tend to be mostly male, with plenty of camaraderie—and drinking. Uber had a keg on tap when I profiled Mr. Kalanick in 2013. So far the untraditional office setup seems to be part of the formula for success.
Startups are often crashing into regulatory authorities. Uber still has spectacular battles with transportation commissions, taxi cartels and other public agencies looking to regulate their service out of existence. Airbnb has been a favorite target of attorneys general in New York, San Francisco and elsewhere.
All this makes dealing with the press difficult. Startups, like most other companies, generally try to find ways to get their message out—a puff piece on your company’s awesomeness is very useful. Much of the tech press and blogs fight for this type of reporting, as access is hard to get. Apple’s Tim Cook tightly controls his press exposure. Most startup CEOs do the same as soon as the company gets going. Even the ill-fated private Uber dinner was billed as “special access.”
Uber learned the press isn’t always your friend when the company rolled out surge pricing in 2011. Rides would cost two to seven times more than normal on, say, New Year’s Eve. No one liked it, except those who got rides, and the media swarmed to criticize the policy. National Public Radio has called it “gouging.”
But keep in mind that every company runs over these speed bumps. In 2006 Facebook launched News Feed, a new way to see what your friends are up to without having to visit their page. Users hated it, until they liked it. Then in 2010 Facebook allowed user information to be shared beyond your circle of friends, and a privacy crisis ensued. YouTube was accused of piracy. Airbnb had apartments and houses trashed. Even Apple’s iPhone 4 was plagued by signal problems in 2010.
What should Uber do? Hiring expensive crisis managers is one option. Or do these four things that everyone else eventually figured out. Admit the mistake. Fire someone. Be transparent on the solution. Put guidelines in place to assure customers that this can’t happen again. Uber hasn’t done much of this but it should.
Then move on: Good products will continue to grow. Facebook had 12 million users when the News Feed saga hit. It had 400 million during the privacy crisis and 1.2 billion today. Uber isn’t going anywhere but up.
