Increasingly, founders having to sidestep the organizations they founded for behavioral issues that include alleged sexual harassment charges, inter-personal skills and beliefs is becoming a business risk for investors that is hard to model. The Chief Executive Officer (CEO) getting caught on tape while abusing one of Uber’s own driver was certainly not a scenario Uber’s investors would have imagined when they poured money in the cab aggregator startup. Such risk is very nebulous and therefore it becomes more threatening for the continuity of the business and its investors specially for a startup in high octane growth journey. A mature organization with stable cash flows has defense mechanisms to either spot such signs or put resources to minimize the damage control.
Such departures are undesirables in startups because founder/s moving away before the company has reached the vision they imagined is problematic. In this context, it is not desirable for Travis Kalanick, Uber’s current CEO and founder to quit, though it is what the investors want. When a company is at a high growth stage, has not broken-even yet, investors’ investment models still place founders central to their investment thesis. It does not matter if the company is making millions or billions of dollars. If the company has not reached the envisioned stage then both – the company and the founder, are inextricably linked and therefore for the founder having to quit at this stage is not desirable.
It does not mean that the founder/s should not move on from the companies they built and nurtured with passion. The best phase to quit is when the business has grown to a matured phase that the founder had desired. It is desirable for the founder to move on more in the interest and long-term sustainability of the business. It de-risks the company's existence and keep's it relevant with the changing times. To give an instance. Bill Gates left Microsoft, the company he had founded, when it reached the stage that he had perhaps desired. Today's Satya Nadella’s growth agenda for Microsoft is very different from what Gates was doing 15 years ago. Larry Page and Segey Brin, the founders of Google, did the same thing as Gates when they moved away handing over the daily reins of the company to Sundar Pichai, the CEO when perhaps Google achieved the first phase of their vision. Investors cheered the move in both cases.
Companies and founders
Founders lose their sense of judgement or are seen to flounder due to various reasons. When a company that has been founded reaches scale, it also carries for the founder significantly increased avenues of social exposure. It gives enormous sense of control for the decisions he / she takes. Usually, their personal beliefs and behavior never witnessed such an exposure in the past that often leads to binary outcomes. The perceived desirable behavior gets praised and perceived undesirable behavior gets rebuked by the intense scrutiny of the external world. It is possible the founder is blissfully aware that the behavior that he / she considers as normal is condemned by the external world. Therefore, some of the actions that seem baffling to the external world are natural responses of the founder.
Having said the above, it is very difficult to define this in clear terms of black and white. It could be that the founder is extremely arrogant to the outside world, and is very humble within the organization. There is a shade of grey in this behavior -- everyone pivots to a certain shade which is positive or negative. But this must be viewed from the context of the company. For instance, Elon Musk – Co-Founder, CEO and Chairman of Tesla Motors is touted as a hard taskmaster by employees. He is extremely passionate about his ideas and drives his engineers nuts to deliver out-of-box ideas. To say that being a hard taskmaster is good or bad depends on how that behavioral trait works for the company.
Travis Kalanick, the Uber CEO and co-founder, has shown himself as brash to his employees, to taxi drivers among others. He may have internally justified that behavior but it was affecting the success factor of Uber and had negative consequences. We have seen this brash attitude playing out in the case of Rahul Yadav, the co-founder of Housing.com and recently in the case of Abhilash Kumar, Founder and CEO of TVF. Kumar had to resign from the company because of a sexual harassment case. His brashness came out as patriarchy and all kinds of accusations were alleged. The personality of the founders is an extreme risk and very difficult to model because it depends on their upbringing, their experiences in personal and professional life and how they view their path to success.
Uber takes action
While Kalanick’s departure from Uber is not desirable for the business’s vision and its growth trajectory, it is vital for company’s survival. The vision would not mean anything if the company confronts social boycott and legal suits. Bigotry and women’s dignity are not issues that can be brushed aside anymore. The cab drivers are the most important link in Uber’s success. An incident in the media with the footage of Kalanick abusing an Uber driver made the company’s business model susceptible. Similarly, the sexual harassment complaint by a former Uber employee portrayed the company and its founder in poor light. These are issues that roughly sums up Kalanick’s behavior from the emerged media reports. No organization in the first world can dream to even survive such charges if it seen siding with such ideas. It does not mean that these societies have become utopian but they certainly are intolerant on these matters. Uber being a company, whose survival is dependent on social interactions cannot be seen harboring these ideas and wanting to succeed at the same time. Boards that have attempted to suppress these have witnessed bitter outcomes.
The investor must take a tough call when the behavior of the founder/s begins to affect the survival of the company. The investors can help the founder though mentoring, coaching and bring in check and balances to stem this behavior in anticipation. These are sounding boards to mitigate the risks to the company, but once such cases get exposed, any argument that sides with the inseparability of the founder becomes untenable.
The investors at Uber decided that they could not risk the company’s image in its growing stage and took this decision to ask Travis Kalanick to step down. The board sided with one difficult call over the other other only to ensure that Ubers survives the next day for the better.
(The author is Senior Vice President of the Retail and Consumer Products division at Technopak Advisors Pvt Ltd)
Updated Date: Jun 21, 2017 15:38 PM