TIP789: The Story of Uber w/ Clay Finck

“Kalanick experimented with the Uber flywheel. Lower prices lead to more demand for rides in terms of number of customers and frequency of usage. More demand for rides leads to larger supply of cars and busier drivers. Bigger supply of drivers allows Uber to cut prices further, putting more pressure on competition. Because Uber lowered the cost of transportation for everybody, they were expanding the overall market itself.”

Strategy & Decision Making · Economics & Markets · Operations & Execution

DUR_ENDURING

Price cuts unlock flywheel in two-sided markets

“Kalanick's view: Uber's product is so superior to the status quo that if we give people the opportunity to see it or try it in any place in the world where government has to be at least somewhat responsive to its people, they will demand it and defend its right to exist. In London, when 10,000 taxi drivers went on strike, Uber signups jumped by over 800% after the strike, only bringing them more attention.”

Strategy & Decision Making · History & Geopolitics · Leadership & Management

DUR_ENDURING

Customer mobilization as regulatory defense

“The number of Uber rides started to rapidly increase at 30% per month, which on an annualized basis is more than 20x per year. Oftentimes users would open the app and see no cars available, which is not an Uber experience. The obvious solution was to start adding drivers and give them an idea of when and where there would be spikes in demand. It dawned on Kalanick that Uber would be a data-driven technology company collecting data and understanding swings in consumer behavior.”

Operations & Execution · Technology & Engineering · Economics & Markets

DUR_ENDURING

Negative churn signals exceptional product-market fit

“The biggest mistake other startups made was trying to work with the taxi cab industry. One startup out of New York partnered directly with owners of fleets, and another startup in San Francisco worked with taxi cab drivers. Uber differentiated themselves by working with drivers who weren't in the taxi cab industry. Uber blew all competition out of the water due to superior technology that scaled well, and they didn't have to deal with friction and inefficiencies within that industry.”

Strategy & Decision Making · Business & Entrepreneurship · Operations & Execution

DUR_ENDURING

Disruptors must avoid incumbent entanglements

“For decades, San Francisco had deliberately kept the number of taxi medallions capped at around 1500. The medallions in the city were relatively inexpensive and could not be resold. Owners could keep the permits as long as they logged minimum hours on the road each year. New permits were only available when drivers passed away, leading to waitlists of 3 decades. The system guaranteed a shortage of drivers and long wait times.”

Economics & Markets · History & Geopolitics · Strategy & Decision Making

DUR_ENDURING

Artificial scarcity as incumbent defense mechanism

“Uber expanded with a 3-person team when launching in a new city. The general manager was the head person supervising the overall business and accountable for growth. They needed to be entrepreneurial, scrappy, and aggressive in talks with regulators. The operations manager was the analytical type in charge of signing up drivers and making sure passengers had cars available. The community manager handled marketing and stimulation of demand among riders.”

Operations & Execution · Leadership & Management · Strategy & Decision Making

DUR_ENDURING

Three-role city launch team structure

“Upon receiving the cease and desist letter threatening $5,000 per ride and 90 days in jail for each day in operation, Uber asked for a meeting. The meeting led to nothing. Uber could not market themselves as a cab company, which was an easy compromise, and they needed to drop cab from UberCab. Uber never had to stop operations as they argued they were simply an intermediary between drivers and riders, not an actual fleet operator.”

Strategy & Decision Making · History & Geopolitics · Leadership & Management

DUR_ENDURING

Tactical retreat to preserve strategic position

“Kalanick convinced Camp that purchasing cars himself was a bad idea. It would be better if the app was available to drivers to sign up and offer rides themselves. Kalanick remarked: Garrett brought the class and I brought the efficiency. We don't own the cars and we don't hire drivers. We work with companies and individuals who do that. It's very straightforward. I want to push a button and get a ride. That's what it's all about.”— Travis Kalanick

Strategy & Decision Making · Business & Entrepreneurship · Economics & Markets

DUR_ENDURING

Platform beats ownership for scalability

“In China, Didi and Uber were each burning through $1 billion a year subsidizing both drivers and riders. Kalanick expected the market opportunity in China to be massive, and 6 of Uber's top 10 cities were in China. Didi claimed over 80% market share and operated in 400 cities relative to Uber's 100. Uber's institutional investors were urging Kalanick to negotiate a truce. Both sides agreed it was time to focus on profitability after burning billions.”

Strategy & Decision Making · Economics & Markets · Leadership & Management

DUR_CONTEXTUAL

Strategic retreat with equity position preserved

“Camp's lightbulb moment came from a James Bond movie. 30 minutes into Casino Royale, Bond glances at his phone showing a graphical icon of his vehicle moving on a map toward his destination. Camp thought: what if he created an on-demand car service in an app that allowed passengers to track the location of vehicles on their phones? He jotted down business ideas, company names, and logos. He liked the name Uber as it was one word describing excellence.”

Creativity & Innovation · Technology & Engineering · Business & Entrepreneurship

DUR_ENDURING

Platform enablement unlocking impossible business models

“Taking a company from $0 to $1 million in revenue requires a certain skillset. It's almost entirely about raw execution, finding product-market fit, selling relentlessly, wearing every hat, and proving someone is willing to pay. Scaling from $10 million to $100 million requires an entirely different skillset.”

Leadership & Management · Business & Entrepreneurship · Psychology & Behavior

DUR_ENDURING

Founder skillset must evolve across growth stages

“By 2017, Uber had grown to more than 15,000 employees just 7 years into operation. There were high-level managers who had never run departments for a company of that size. Kalanick seems to be wired to be really good at running a small startup, as he resisted hiring accomplished leaders with real experience running larger companies to try and keep bureaucracy at bay. Brad Gurley from Benchmark Capital had grown increasingly worried about Kalanick's behavior.”

Leadership & Management · Business & Entrepreneurship · Psychology & Behavior

DUR_ENDURING

Founder strengths become liabilities at scale

“Most investors on AngelList said no to Uber's seed round. One investor unsubscribed from the list. Naval Ravikant planned to invest $100,000 but waited until the end when Graves told him they only had room for $25,000. That initial investment would be worth hundreds of millions of dollars. The initial implied valuation was $5.3 million after raising more than a million. Even the earliest investors admitted how lucky they were.”— Naval Ravikant

Business & Entrepreneurship · Economics & Markets · Psychology & Behavior

DUR_ENDURING

Irreducible randomness in seed investing outcomes

“Uber wanted to avoid classifying drivers as W-2 employees, arguing most drivers did not consider themselves full-time chauffeurs and wanted to remain independent, flexible, and free to take on other work. Kalanick wrote: Drivers value their independence, the freedom to push a button rather than punch a clock, to use Uber and Lyft simultaneously, to drive most of the week or just a few hours. Uber presented a new way of working.”— Travis Kalanick

Economics & Markets · History & Geopolitics · Business & Entrepreneurship

DUR_CONTEXTUAL

Contractor flexibility vs. employee security tradeoff

“Uber hired a new CEO, Dara Khosrowshahi, a long-term CEO at Expedia who seemed a much better fit. Since Dara took the helm in 2017, he successfully shifted Uber from a culture of principled confrontation to one of corporate maturity and profitability. Under his leadership, the company has seen massive growth, reaching a market cap of roughly $160 billion while expanding into food delivery and global logistics.”

Leadership & Management · Business & Entrepreneurship · Strategy & Decision Making

DUR_CONTEXTUAL

Professional CEO enabled scale and maturation