Uber after Travis Kalanick: The most valuable startup faces the ultimate test of its business model
No one is indispensable. As long as the business model is right, the company will thrive
A startup founder narrated how he started tinkering with computer programs as a 12-year-old school student and requested permission from his school to stay back after school was over at 4 pm. As a 15 year-old, he sold computers door to door and started his own company while 17 years-old. Working 18 to 20 hours a day was 'normal' for this entrepreneur as it is for most in the sector.
The passion of this founder is a given with most startup founders. They pursue an idea, start up with their personal savings or family and friends pitch in and they are consumed with the idea that success in most cases is incidental.
Almost all startups are founded on the passion and drive of its founders. Uber’s Travis Kalanick founded the ride hailing app after tasting success with his first startup and selling his second one. He had become a millionaire before he set up Uber.
Any interview or write-up of Kalanick’s does not fail to mention his ‘brash’ behavior. Though that trait worked for him ever since he dropped out of school and started up, that has now led to his being sidelined in his own company and the board asking him to step down as the CEO.
A founder having to take a backseat and let a professional take over the reins is not unheard of. When does the founder of a company, with an innovative idea that gets traction and is successful, cross the line and think that success equals bad behavior and he/she can get away with it?
In the case of Uber, the sexual harassment issue raised by former employee Susan J Fowler, which has now become a scandal, has proved to be damaging for the company's image. Customers in California, for instance, chose Lyft over Uber not because it was better but because they did not want to associate with a company that did not treat its women employees fairly.
These are times when social media leads many to vote with their feet. There are cases of customers who won’t buy products or services of a company if they are not organic, or trade with certain countries or are seen to hire child labour, says Harish HV, Partner, India Leadership Team, Grant Thornton India LLP.
When Uber's major investors -- Benchmark, Lowercase, First Round, Menlo Ventures and Fidelity -- decided to rectify the company’s image by asking Kalanick to step down, the message was clear: The company could not afford to let business bleed and its image take a beating because of the action or inaction of its CEO, even if he was the founder.
“When there is a loss of energy within the company and its image is being hurt, the board has to take a call – to shift the person from the leadership position rather than face the issues the gentleman’s presence brings for the company,” said Harish.
It is also true that startups by their nature are about working with an idea that is innovative and solving an issue. When the idea gets traction with several rounds of funding, and the founder/s are valued and serenaded by investors and the media, they sometimes falter in handling the success thrust upon them as most of them have no experience of managerial skills for running a company.
Santosh Desai, social commentator, and Managing Director-CEO, Future Brands, says that often when the founder/co-founders are successful, they err in thinking that the skills required to run a business and manage it is the same. “The startup founders have the passion and have developed the business to scale, but to expect them to also have the skills to manage the business is stretching it,” he says.
Many times the founders may not be the best person to lead the company through all its stages. There are many examples of those who realised it and quit when the company’s business model reached traction. Bill Gates took a backseat and let Steve Balmer take on the leadership role, for instance. Today the company is led by Satya Nadella and his vision is different from when Gates was the CEO.
Very often, says Devangshu Dutta, chief executive of Third Eyesight, a consulting firm, as the business evolves rapidly, a founder can become irrelevant or even a drag. This can impact the business negatively. “When it is due to personality issues, investors ask the founder to leave or step aside or sometimes kick them upstairs. A professional CEO is then brought in,” he says.
A company’s interest is better served by non-founder CEOs and that is a good thing, believes Paula Mariwala, Partner, Seedfund and Co-Founder, Stanford Angels. “Clearly, a leadership change was warranted at Uber and it is a good thing. But the challenge is to find the right leader with the passion and beliefs of the founder and the skills of a professional,” says Mariwala.
Each startup has to take the call what is better for it – to let the founder founder who is a maverick too to lead or combine the founder’s vision with a professional running the company. “This is inevitable in companies with maverick founders like Steve Jobs and Travis Kalanick,” says Mariwala.
Uber has been notorious for brash behavior and in fact that has been its culture, says Sanchit Vir Gogia, chief analyst, Founder and CEO of Greyhound Knowledge Group, a global strategy and transformation research, advisory and consulting group.
Uber after Kalanick
The company will take a beating for a short while until it recoups, feels Harish. He said the vision for the company may take a little while to be clear as it won’t be Kalanick’s. “But within a short time the company will be able to get back on track provided its business model is right,” he said.
A founder and his idea that gets traction is not the sole reason for its success. By that yardstick, he/she should be the sole reason for its failure too. Kalanick’s idea found traction and then many people joined him in that entrepreneurial journey as employees, investors, etc.
“When a company’s culture is not socially acceptable, the CEO is seen as aggressive and its culture detrimental to its image, it is better for investors to cut their losses than allow the leader’s actions or non-actions to affect the company,” said Gogia. He feels that Kalanick being sidelined at Uber is only a blip on its radar. “No one is indispensable. As long as the business model is right, the company will thrive,” he said.
Clearly, the ultimate test for the business model of the most valued startup (its valuation is reportedly nearly $70 billion) starts now.
Kalanick, still one of the largest shareholders, said in a statement he had appointed former Xerox Chief Executive Ursula Burns and former Merrill Lynch Chief Executive John Thain as directors.
Khosrowshahi would also have to contend with the legacy of Travis Kalanick, Uber’s pugnacious co-founder, who was ousted as CEO in June
Both Uber and Travis Kalanick have been through an eventful six months