Uber has been looking for a new CEO, since top investors pushed co-founder and former chief executive Travis Kalanick out. Last night the news broke that the short list included GE outgoing CEO Jeff Immelt and Meg Whitman at HP. When a high profile company has a long list of problems, topped by the need for strong leadership at the top, looking for business genius is understandable.
Despite the desire to name a new CEO by September, Uber may find its wish list more a wish-the-would-have list.
When the news came out, Whitman immediately withdrew from consideration -- via Twitter. Ouch. Immelt and GE haven't made any public comments. And, chances are, the others on the list may not be warm to the notion. The reasons top business leaders might want to avoid Uber like a highly communicable disease are the same reasons the company would want them. Any one of the company's issues is major. The combination is brutal.
1. Underlying business model
On more than one occasion, I've pointed to the series of analyses of Uber on the blog Naked Capitalism. They're worth reading, but the essential is that, at the moment, Uber is unlikely to ever deliver a return on the massive amounts of investment dollars it has received because profit will elude it. The major costs of operation are in pay to drivers and cost of operation and maintenance of cars.
Because of the need to treat drivers as contractors, lowering other costs of business, Uber can't buy all the cars and get group deals on fuel, maintenance, and insurance. Once it takes up those expenses, it admits that drivers are really employees. The numbers look bleak. To turn things around, either Uber has to push virtually all competition out of the way in all major markets so it can hike prices or get rid of drivers altogether and move to self-driving cars. The latter isn't happening in the near future and the former, probably not either. This is one of those existential problems that executives don't like. Who wants the hassle?
2. Cash flow
A major problem for any venture-backed business can be cash flow. A series of cash infusions, enormous in the case of Uber, is no substitute for revenue and profit. Management must build a sustainable business that can generate revenue faster than it spends money. Cash burn, or how quickly the company goes through its cash reserves, becomes a headache. If revenue fails to grow quickly enough or if investors decide to stop writing checks, the company will go out of business. Uber's received more than $8.8 billion since 2009. But when you lose $2 billion a year, as Uber's been doing, even that amount of money can dry up. It's a race, and pulling a rabbit out of a hat may be necessary. Executives toward the ends of their careers may not want to pray for miracles.
3. Toxic culture
Culture is difficult to change at any company. It's habit reinforced by structures, processes, and executive inclinations. From many reports, the culture at Uber sounds toxic. As the New York Times put it:
Among the most egregious accusations from employees, who either witnessed or were subject to incidents and who asked to remain anonymous because of confidentiality agreements and fear of retaliation: One Uber manager groped female co-workers' breasts at a company retreat in Las Vegas. A director shouted a homophobic slur at a subordinate during a heated confrontation in a meeting. Another manager threatened to beat an underperforming employee's head in with a baseball bat.
The culture is a big reason Kalanick was pushed out and why former attorney general Eric Holder and Uber board member Ariana Huffington were asked to conduct an investigation. The resulting report listed many problems, including "cultural values" that promoted "poor behavior," a frat culture, unchecked power of executives, and unequal treatment of employees. Cultural problems alone would take immense effort to change even there was nothing else to address.
4. Legal mess
Uber's strategy has included a truculent attitude toward any regulation, which is an interesting position to take in an industry that is heavily regulated at the local level. That has caused run-ins with regulators, even as many users supported the company. Then there are the class action lawsuits filed by drivers claiming they weren't fairly paid and that they should be considered employees and not contractors. There is the claim that the company adds hidden charges to rides. One of Google's sibling companies sued for alleged theft of technology trade secrets for self-driving cars. The back-and-forth included allegations that Uber hid evidence and an Uber executive reportedly having asserted Fifth Amendment protections against self-incrimination. And law enforcement authorities have claimed that Uber has used its apps and data to dodge authorities. It's another source of executive distraction.
Major investors forced Kalanick out of the CEO's position, an interesting result when you consider that he controlled a majority of shareholder votes and could have overruled the board had he wanted to. But investors can do things like pull out, cut off funds they had been previously scheduled to provide but not yet deliver, and cause other money sources and potential partners to get cold feet. Given the challenges of cash flow and the underlying business model, making money is still in doubt and those investors want a return on what they've provided. CEOs of public companies know all about shareholder pressure. The need for Uber to satisfy powerful people who have likely lost much of their patience becomes a final reason that the types of leaders who might be able to address Uber's dire needs, people who are likely financially well off and enjoying a strong reputation because of past success, would find something less stressful and more pleasant to do.