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What Went Wrong at Uber
Super Pumped author Mike Isaac and Gigged author Sarah Kessler discuss the cautionary tale of Uber
Uber is the most successful startup Silicon Valley has ever produced — at least, according to the $76 billion that it was at one point valued by private investors.
But as the ride-sharing company prepared to go public, that success started to seem flimsy. Uber’s reputation began nose-diving in early 2017 after Susan Fowler, a former employee, wrote a viral blog post detailing how the company had ignored her sexual harassment complaint. It fell further after reporters uncovered programs that allowed Uber to spy on competitors and dupe government officials. This reputation drop had major consequences: A Twitter campaign successfully encouraged more than 500,000 people to #deleteuber, threatening to flatten the company’s growth. And following an investigation into Uber’s win-at-all-costs workplace culture, investors pushed out founder and then-CEO Travis Kalanick.
Uber’s new public market investors, meanwhile, have been less tolerant than venture capitalists of the company’s massive losses — more than $5 billion last quarter alone. Since the May IPO, shares have lost more than 20% of their value.
Technology reporter Mike Isaac covered much of Uber’s saga for the New York Times. His new book, Super Pumped, is about how the story of Uber shows that tech industry’s belief in meritocracy, decisions about personal data, and “blind worship of startup founders” can all go horribly wrong.
Isaac talked with OneZero about the rise and fall of Kalanick, and what Silicon Valley can learn from Uber.
This interview has been edited and condensed for clarity.
OneZero: You write in the beginning of the book that it’s partly the story of “sweeping but poorly misunderstood ways that startups are funded today.” What in particular about how startups are funded do you think is the most misunderstood?
Mike Isaac: It’s just grow or die — that’s how you have to think as a startup founder. The higher your valuation goes, the higher it has to be the next round, which creates this incentive to really hack growth inside of companies.
Growth can sometimes not be a positive thing. We’re now looking back on what the results of Facebook’s growth hacking from the early days has been. There are all of these privacy scandals and fallouts that 15, 20 years into this era of tech companies, people are just now getting upset about. I think a lot of it starts at the funding level, which is largely opaque to outsiders.
“It’s just grow or die — that’s how you have to think as a startup founder.”
The other thing I would say is there’s this sort of mythology around the self-made man out in the valley — that’s it’s just AWS [Amazon Web Services] and a smartphone, and me in my bedroom, eating ramen, and I’ll be a billionaire tomorrow. While that may happen, I think it’s a little romanticized. VCs really can pick winners, and a lot of this is based on connections and whether you have that intro to Sequoia [Capital] or the backing of [Benchmark general partner] Bill Gurley or fit into this very specific white male culture that is dominant out here.
Another thing I found striking about Uber’s story is how much investors care about growth but don’t necessarily have an incentive to create sustainable growth. They just want to make it to the exit.
Absolutely. And that’s where the question comes in about how much value do these early investors create for the company.
I think a lot of folks will push back on that, and to be fair, investors do research, they have teams that support these companies. But their primary incentive is to increase the value of their investment by 10X or 100X or whatever — and then get out. And the side effects that are unintended or unseen from the beginning aren’t really their problem by the time the company matures, or in Uber’s case, by the time it crosses the finish line at the IPO.
At one point, you quote Travis Kalanick literally saying “The board is irrelevant.” What allowed that to happen?
It’s not best practice. The whole point of the board is to advise the CEO and that the CEO serves at the discretion of the board of directors. Early on in the book I go over some of Travis’s history of being burned by VCs early on. He was a serial entrepreneur. He did two startups, one of which failed miserably, the other of which was a base hit that made him a millionaire for the first time. A modest millionaire, if you can take that absurd term. But he really got knifed by an investor who supported his first startup, Scour, and I think that internalized these feelings of paranoia and mistrust of the people around him.
I think it informed how he set up how the company’s charter worked, later on, and how much power he amassed himself, to the point that when we get to the $3.5 billion round with the Saudis in 2016, he’s unable to be removed. He gave himself two additional board seats, and sort of built these things in that limited visibility into the company for outsiders while cementing his position of power in the inside.
And I think the way that he got there was basically telling people, I am going to make you an insane amount of money, so just let me do my thing. And I think enough people bought into that for a long enough time that they were able to sign away their rights, turn the other cheek, or whatever. You can argue culpability and who knew what when, but it took a lot of giving Travis a long leash to get to the point when only he could take himself out of the company.
That goes back to this idea that the founder is special and you can’t build another one. Everyone was so worried about missing out on this deal.
It’s really hard to build a company, and most fail, and you have to have this unflagging sense of optimism in the face of unbeatable odds. Some people do it, and that’s to be admired. But I think everyone has the complex out here that they want to be the next… I think Steve Jobs sort of informed a wave of ideology out here, and there’s only one Steve Jobs. But everyone sort of wants to be that next Steve Jobs-like figure.
This book profiles a lot of problems with Uber and its culture of winning at all costs. To what extent do you see those as problems at Uber versus problems or features of Silicon Valley in general?
That’s exactly what I was trying to get at. The reason I chose Uber, other than having reported on it for years, was to maintain an emblematic version of what not to do as a company. If there’s a continuum of companies doing things “right” versus “wrong,” and the best possible outcome of the way that Silicon Valley shapes these companies, you can argue that maybe Google and Facebook — these have been challenged now because there’s a larger reckoning — but for the sake of argument let’s say they did things better than average by letting Zuckerberg and Page and Brin have this outside power, and they turned out pretty well: They’ve grown enormously, they may have focused on growth for a really long time but they are throwing off cash like crazy now and they really have changed how the world works.
“I’d never dealt with such a snake pit before.”
Uber under a founder like Travis who really took them far but was not able to mature and change himself with the company as it became mature, as it grew — it sort of deteriorated in a lot of the worst ways that startups can fall apart out here. The scrappiness ended up being a liability when women were getting assaulted or harassed and HR wasn’t even a thing and folks would turn a blind eye or not know how to report this kind of harassment. Or Travis would pit people against each other in order to come up with the best ideas, and often that resulted — instead of this ideal meritocracy — just knifing, and backstabbing, and probably a lot of wasted resources and energy instead of positively producing something.
I think it was just an extreme version of what can go wrong and represents a larger point I’m trying to make about the Valley.
In the book, Uber executives are lying, they’re cheating, they’re spying on the competition. They’re not taking anything into consideration other than are we going to grow. And that looks bad. On the other hand, they built the most successful startup in Silicon Valley. To what extent would they have been able to still win if they hadn’t done that?
That’s probably the question that I get asked the most by current and former employees, by VCs that have relationships with the company. It’s the thing that really plagues people and really eats at their conscience. Especially because anyone who has been close with Travis worked or worked with him has good things to say about the guy. Because he’s really charming, he was fiercely loyal to some of his early employees, and he built an empire in a relatively short amount of time. So you have to give him credit for that.
I think the conflicted feeling is that, did he know what the limit was? Was he able to change when he needed to? At what point does your strength start to become a liability? I think if Travis had been more self-aware, or maybe had the right coach or the right guidance or was willing to accept that guidance, perhaps things would have turned out differently, perhaps he would have been able to change and grow and fix it. But I don’t know what that alternate version would have looked like. Or if someone else could have made it.
I will say, and I try to get at this point in the book, that a lot of forces came together at the same time to make it possible for something like Uber to exist. And so one could argue that someone else would have done it if not Travis, and to be sure, there were a bunch of competitors at the time. But he did it the biggest out of the many that tried. So you have to give him credit for that.
I didn’t realize that the #deleteuber hashtag actually impacted the company as much as you described in the book.
I hadn’t either, in the moment. I remember that day — it was when Trump put down his travel ban and everyone who was against the travel ban was upset and going to the airport and trying to help. I went to the airport in San Francisco to cover the protest and the lawyers trying to help. And I go home and go to sleep and come back to my phone exploding with people who work at Uber trying to do damage control on this #deleteuber hashtag. At the time, I was like, why are they freaking out about #deleteuber? It’s just some people in my feed being mad. But it was huge. They had to create a tool specifically to handle the amount of account deletions. Because people had never deleted their Uber accounts before.
“At the time, I was like, why are they freaking out about #deleteuber? It’s just some people in my feed being mad. But it was huge.”
And they were freaking out. There was a point when the hockey stick growth curve started going the other direction.
That is just not something I think about a Twitter hashtag campaign accomplishing.
I know. People talk about “slacktivism” where you sit back and that’s the bare minimum of doing something. And that’s counterintuitive to me that it produced a real-world outcome, but it did.
You mentioned waking up to a phone full of people from Uber trying to contact you to do damage control. In your role as a New York Times reporter, you are very much part of this story. People are leaking things to you as part of the game that you are profiling. What is it like to know that you’re constantly being manipulated?
I had a really rough 2017 actually. Personally. I think it was this thing where, it really affected me. It was difficult for me because I’d never dealt with such a snake pit before, where everyone is trying to knife each other, and everyone is lying to you or me, trying to get someone else pushed out or taken down or whatever, and it became really hard to trust anyone.
So there were occasions where someone would come to me with a story and I’d have to say, well, I only have one source on this and it’s going to take me a while to pad it out. I’m not going to take it just on your word because you have your motivations — let me report it out. But I wouldn’t just jump when someone came to me, I would try to understand the full playing field and who was going for what. And occasionally I would lose a story because someone else would run it, and not with the full picture. So I think the reporter’s responsibility, or what I was fine with, was getting beat on scoops in order to really contextualize or understand who was doing what and what the motivations were for each action. I think for the most part I was able to give people context rather than just run with whatever people told me.
On top of normal paranoia of reporting on anything and realizing that people will try to manipulate you, the story you are covering involves all of these operations where they’re tracking people or trying to use the app to manipulate government officials. Were you paranoid about that aspect?
Two of my sources basically told me, delete the Uber app from your phone. There’s an option to upload your address book because there’s some feature in the app where you can share your location with a friend or split your fare with them — there are uses for this thing — but my sources just were like, no, you need to delete that permission from our service because if someone dives into your profile and can see my contact info there it might be damaging for us. Any meetings with sources I never took Ubers or Lyfts. It was always walking or public transportation. And there was this level of paranoia where my sources were the ones telling it to me because they knew the level of black bag spy tactics going on.
I met with another source once who told me both me and another reporter were followed once, in a process of reporting stuff out. And I was never able to get the rest of the details on whether that happened, but it was always a little like having a belief in aliens and always thinking you’re crazy, but then being shown an alien. It was this sort of validation of the paranoia. I bought a paper shredder, I started shredding everything. I never kept hard copies of stuff. All of my accounts are locked down. We sort of just took our security to the next level.
The Uber security org hired a lot of random contract operators for some of this stuff, and so, I contacted Uber a while back asking them if they knew about this, and the head of security always maintained “we never do this.” They probably didn’t have control over it, and I think what they would say is that they never authorized it. But it was not uncommon for a lot of folks to go a lot further than what was acceptable, and I think that was kind of a theme for the company.
In the end, no matter what happens to the company, it changed transportation. What do you think will happen to that change? Will we keep getting new startups offering subsidized rides until they run out of money? Are things going to get more expensive?
That’s the grand irony of this whole thing is how a company can change the way transportation operates in hundreds of cities around the world and perhaps never be a profitable company. But I think that they’ve opened this Pandora’s box for both good and ill and now we are left with trying to deal with how these consequences have left the way we operate cities, or left the way culture is formed. Left the way people go to restaurants or eat at home. Left the way that public transportation either functions or doesn’t. I’m not going to say whether they are going to be successful or not. I think they are just still trying to prove out this thesis of being this platform, and have said they need years to do that.
“A company can change the way transportation operates in hundreds of cities around the world and perhaps never be a profitable company.”
The other thing is the VC subsidies. You can only sell so many shares before you start running out of subsidies for your rides and stuff. So I think the way that there are only two ways that things work. Either you raise prices for customers or you lower wages for drivers. Or maybe cut down operational costs. But eventually you have to make something change, you can’t compete in subsidy wars forever.
Was the bet really, “we’ll just have self-driving cars and then we won’t have to figure this problem out”?
I do think they saw the vision of the future that they believed was closer than ever when they could make their labor costs cut down very significantly and increase margins tens of percentage points more if they made they cars self-driving. I think that also comes with a lot of problems, like, imagine if Uber had to park these cars somewhere or maintaining them or owning cars themselves. It’s still not a problem that seems instantly solvable overnight. But I do think that they believe that this is going to be a very important part of their future. And that if someone else gets there before them it might mean game over. If Google gets it… that was a constant paranoia of Travis. If Google does this before us, we’re dead in the water. Whether you believe that or not.
It still seems like nobody is really close.
I think that the sobering reality is that A.I. has its limits and we’re starting to understand that, and it’s going to take much longer than most people suspected.
You set up the story as “a cautionary tale.” What do you think there is to learn from this story, and do you see any signs that Silicon Valley has learned it?
The cynical part of me kind of looks at the aftermath here, and what do we have? Travis is now a billionaire five times over, working at a new company, his own company, in a similar race, hiring people who were pushed out of the company as a result of the Holder report, which would suggest that he didn’t really learn a whole ton from that. The people who I talk to say he’s working people just as hard as ever. So it’s not clear he took many lessons away from his time at Uber. I think he probably took lessons of like keeping my neck out and try to stay heads down and let’s work under the radar so we don’t get the press on us. And look, the venture capitalists have made their greatest investments of all time, and it’s just hard to say who lost in some ways except for losing face or reputation.
But at the same time I do have hope that younger entrepreneurs can look at the problems they see at Uber, at Google, at Facebook, in this last generation of companies and find what they don’t want their own companies to be like, and perhaps take a more proactive path forward, informing their culture early on and creating a more positive version of the company they want to build.
One thing I don’t want to come across as is anti-business building. I have a lot of respect for anyone who can build their own small business and scale that up. The thing I hope people at least look at is how much attention they want to pay to their company’s DNA early on, and that they should think about the company they really want to be and hopefully build their companies in a positive way.