What Kalanick's Fall Means for Silicon Valley Culture
June 21 2017 - 5:28PM
Dow Jones News
By Rolfe Winkler
For years, Uber Technologies Inc. founder Travis Kalanick has
been the poster boy for Silicon Valley success, idolized by
entrepreneurs for building the world's biggest venture-backed
company with an approach that snubbed convention and prioritized
winning at all costs.
On Tuesday, Mr. Kalanick lost, pushed to resign as Uber's chief
executive by rebellious investors -- a stunning fall that is
prompting reassessment of the growth-obsessed culture that Uber
epitomized.
Mr. Kalanick's resignation followed a string of scandals that
exposed a toxic work culture at Uber with allegations of sexual
harassment and sexism. For some investors and entrepreneurs, the
message is that companies can't afford to place ambitious expansion
targets ahead of basic principles.
"Move fast and break things, sure," said Wesley Chan, an
investor with Felicis Ventures. "But don't move fast and break your
people." Mr. Chan was previously at GV, the venture-capital arm of
Alphabet Inc. that is an investor in Uber.
Mr. Kalanick resigned late Tuesday after Uber investors led by
Benchmark's Bill Gurley, a company board member, sent him a letter
that said they no longer had confidence in his leadership. Lacking
support of investors and many employees, Mr. Kalanick departed
despite his de facto control of the company through board seats and
super-voting shares.
As the company searches for a new CEO that can fix its culture,
maintain breakneck growth and stem a torrent of red ink, the tech
industry is reflecting on lessons of how to knock down market
barriers and fend off competitors, but while doing it
responsibly.
"Running fast and working hard is not going to go out of style,"
said Marco Zappacosta, chief executive and co-founder of local
services company Thumbtack Inc. "But something that will is the
conceit that growth solves all problems. Turns out you can't grow
yourself out of a culture rot."
Mr. Kalanick isn't the first hard-charging tech founder to be
ousted, though others were often forced out because of
disagreements with co-founders or after revenue growth hit a wall.
In the most famous example, Apple co-founder Steve Jobs was fired
in 1985 after he tried to get Chief Executive John Sculley removed.
Twitter Inc. co-founder Jack Dorsey was pushed out after spats with
other founders. Both later became CEOs of their companies.
More recently, health-benefits broker Zenefits pushed out CEO
and co-founder Parker Conrad amid regulatory lapses, but also
because revenue growth was falling far short of expectations. Mr.
Conrad similarly had voting control of his company.
Mr. Kalanick's aggressive style and guerrilla tactics helped
Uber battle regulators and taxi commissions around the world and
push the company's valuation to $68 billion. His brash style was
tolerated by investors, who saw him bulldoze entrenched rivals in
protected markets. Mr. Kalanick's success spawned a new generation
of "Uber for everything" startups that mimicked the company's
business model, hoping to turn smartphones into remote controls to
summon a range of services beyond cabs.
But as the company got bigger, that mentality bred a culture
that former employees say was overly aggressive and toxic. In the
end the culture didn't evolve as Uber grew into a 12,000 employee
company. Its human resources structure failed and Mr. Kalanick's
management style went unchecked by investors.
Mr. Gurley declined to comment. He tweeted late Tuesday, "There
will be many pages in the history books devoted to [Kalanick] --
very few entrepreneurs have had such a lasting impact on the
world."
Culture problems can have serious business impact at tech
companies, where the difference between success and failure is
often their ability to attract talent. Uber has struggled to fill a
raft of open jobs, including the heads of operations, engineering,
finance, marketing, legal and many other positions.
"If a company does not build a strong culture and values, at
some point it will no longer be able to recruit the most talented
employees, innovate faster than competitors, and grow," said Bob
Kocher, a venture capital investor with Venrock. "I think at Uber,
the lack of learning from their pitfalls and the unstable culture
and churn of talented employees created huge worries about Uber's
ability to deliver on the exceedingly high expectations that they
have set for themselves." Mr. Kocher's firm didn't invest in
Uber.
Silicon Valley investors have been more deferential to company
founders in recent years, partly because founder-led companies have
been some of their biggest winners and partly because abundant
capital enabled founders of hot companies to drive hard
bargains.
The percentage of U.S.-based venture-backed companies valued
north of $1 billion that secured super-voting shares from investors
increased from 20% in 2014 to 39% in 2016, according to a survey by
law firm Fenwick & West.
But the trend has started to reverse, says Ivan Gaviria, a
lawyer with GundersonDettmer.
"We already hit 'peak founder control' about 18 months ago from
a governance and structuring point of view," Mr. Gaviria wrote in
an email.
(END) Dow Jones Newswires
June 21, 2017 17:13 ET (21:13 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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