Travis Kalanick co-founded Uber in 2009 after getting into an argument with a cab driver in Mexico and disliking conventional cabs. Under Kalanick, Uber grew exponentially from 3 drivers to over 3.9 million drivers within 7 years, becoming the highest valued private company in the world. However, Kalanick's extremely aggressive leadership style fostered a toxic culture and he was fired in 2017. Uber continues to operate under new CEO Dara Khosrowshahi but still struggles with profitability despite its scale.
The Rise and Fall of Travis Kalanick and His Uber Empire
1. After getting into an argument over the fare with a local cab driver in Mexico, Travis
Kalanick jumped out of the moving cab. The incident would leave him with a dislike for
conventional cabs. A few years later, he founded Uber. Under him, Uber – went from 3
drivers to 3.9 million drivers, became the highest valued private company in the world
and made him a famous billionaire, all within seven years. Then, he was fired. The
Uber Story offers inspiration, but also warns about the consequences of pushing the
limits too far.
The Uber Story formally began in 2008, when Travis Kalanick and Garrett Camp met
at LeWeb, a tech conference in Paris. Like all seasoned entrepreneurs, both had
founded a string of failed start-ups, before hitting pay-dirt with Red Swoosh (acquired
for $19 million) and StumbleUpon (acquired for $75 million) respectively. They talked
about the idea of people hailing rides using their phones. After this brief discussion,
both of them returned to California.
In 2009, Camp began working on the ride hailing service as a side project and roped
in Kalanick as a partner. They bought the domain UberCabs.com. After creating a
working platform to hail rides, UberCabs had a beta launch in San Francisco with 3
luxury cars, in 2010. Platform businesses have a very interesting phenomenon called
Network Effects. As the number of users on a platform increases, sellers flock onto
that platform in order to sell their products and vice versa. Amazon is a prime example
(no puns intended) of such a phenomenon.
These businesses manage to corner 70-80% of the market without using any
predatory tactics. Uber became one such “natural monopoly” in San Francisco. The
timing for Uber couldn’t have been better, smartphone usage was
increasing rapidly. People found Uber to be very convenient. Word-of-mouth
helped Uber grow immensely. Drivers and users, flicked to Uber. However, it
soon received a cease and desist order in San Francisco, for using the word “cab”
in its name. The solution was simple; it went from UberCabs.com to Uber.com.
With Kalanick as CEO, Uber grew, and it grew exponentially. To fund its hunger for
growth, Uber raised $11 million from Benchmark Capital in 2011. The money was
used to fund operations in new cities. The business model of outsourcing cars and
drivers through contracts, helped keep investments and costs low.
Unlike traditional cab firms, it did not have to pay any employee benefits to its drivers.
Cab firms have to pay hefty license fees to run cabs in a city. Since Uber did not
register itself as a Cab Company, it was free of these shackles. Legal loopholes
helped Uber push through these issues.
By 2012, Uber had launched a new product called UberX for low cost rides. Uber got
into the relatively less affluent market segment. In the same year it expanded to
Canada and the UK. By 2013, people could use their personal cars
2. for sharing rides on UberX. It became a great combination of the gig economy and the
sharing economy. By the end of 2013, Uber raised $258 million, which valued it at
$3.5 billion. This was 22x the original amount it had raised just two years back in its
first round of funding.
This blistering growth came at a cost. Journalists wrote articles about the extremely
aggressive culture fuelled by Travis Kalanick. The culture was called “toxic”. Despite
these rumours, Uber raised $1.2 billion at a valuation of $40 billion in the same year. It
also launched UberFRESH, which would later pivot to become the famous food
delivery platform UberEats.
By 2015, even though Uber was still growing at a fast pace, the tide had started
turning against Uber and Kalanick. Protests against Uber became common. Cab
unions protested against Uber for disrupting their business. Uber drivers protest
against Uber for not offering any employee benefits and a minimum wage.
Uber’s rivals like Lyft, Ola, Didi Chuxing and Grab Taxi, formed an alliance as a
means to confront Uber. Despite these issues, Uber again raised $2.1 billion at a
valuation of $65 billion. It had become the highest valued private company in the
world.
Despite the investor optimism, Uber did not have a single profitable year since its
inception. The continuous expansion, high rebates for customers and incentives to
attract drivers ensured that costs remained high. While some markets matured,
other markets continually needed large investments.
Investors expected Uber to spend money and capture the market. Once captured,
the market could be capitalised on. However, in the real world, with
3. similarly well-funded competitors, this was an incredibly difficult task. All competitors
kept taking losses to keep the prices low and the customers happy. Uber finally
decided to exit a few businesses. It sold its South East Asia business to Grab. The
China business was sold to its rival Didi Chuxing.
Another controversial issue that Uber faced since its beginnings is Surge Pricing.
Surge pricing jacks up ride prices during periods of high demand. Prices sometimes
move up to 2-3x of the normal price range. In recent years, Uber has capped its surge
pricing during blizzards as a means to appease customers.
The year 2017, would prove to be the worst for Uber. It was fighting lawsuits filed by
cab companies and Uber drivers. At the same time, the continuous allegations of a
“toxic culture” at Uber led to a federal level investigation into Uber. The resultant
reports accused CEO Kalanick of fuelling the hyper aggressive culture in order to
increase productivity. Kalanick took a sabbatical leave to understand these issues.
Two weeks later, he resigned as CEO of Uber.
Under its new CEO Dara Khosrowshahi, Uber has gone into clean up mode. This is
necessary for Uber. It has become a public company with an IPO in 2019. With public
shareholders and 22000 employees, Uber cannot continue with its upstart image and
growth-at-all-costs mind set.As of 2020, neither Uber, nor its competitors are
profitable. Travis Kalanick has moved onto other projects. While he is still hated by
some, Uber certainly wouldn’t have achieved such scale without someone as intense
as him. Uber says it plans to become profitable quite soon and has been cutting
losses by selling some of its businesses to competitors. We all hope that this iconic
company does well. For more amazing insights and updates follow Insellers. With
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