News about Uber has been brutal so far in this fragment of a year. It includes charges of widespread sexual harassment, a video of CEO Travis Kalanick berating an Uber driver for making some reasonable statements, and a New York Times report about Uber using phone apps and data to avoid authorities and sting actions.

Put the emphasis on includes, as there is plenty of other bad news, such as the vice president of product and growth resigning after questions about his behavior and a Google spin-off suing the ride-sharing company for allegedly stealing self-driving car technology, as Uber has made clear it would like to dump the drivers that made its fortunes.

A report from The Information claims that Kalanick is looking for a COO or equivalent. That wouldn't be surprising as he's said he needs "leadership help." What an understatement. The company needs a management overhaul.

Employees planning to jump ship?

The latest word from the Financial Times, via some intermediaries that don't have a paywall, is a sudden increase in the number of employees looking to leave. The sources were recruiters and some Uber competitors--which, the way things work in Silicon Valley, could mean almost any company. Supposedly, an Uber spokesperson said the levels of departures at the present were normal. That raises the questions of what "normal" is and whether current levels accurately anticipate what might be in the pipeline.

Many startups and young entrepreneurial ventures suffer from a fundamental disconnection. The people in charge assume everyone does, or should, share their passion and interest in growing the company, although others may not fully share in the benefits of success. Even when it comes to stock options, often the holders must wait a significant time and may well miss the golden opportunity to cash out when the share prices are most robust. Employees, on the other hand, typically focus on what is good for them, as you might expect. Sometimes personal benefits and the corporate good converge.

Often they don't. Uber hasn't seemed to be ready for an IPO. Perhaps that is because when the economics are examined, there's a big question of whether Uber can ever deliver profits at scale. The losses available from published financial data shows multibillion-dollar losses a year, an amount far beyond what you see in even the typical high-flying VC-backed Silicon Valley special. (The analysis on Naked Capitalism shows, in the year ending September 2015, a loss of $2 billion on revenue of $1.4 billion, or a negative 143 percent profit margin.)

Flood of bad news

Not only is there a questionable business model, but the unnecessary bad news keeps rolling along like a flash flood in Central Texas. The body blows aren't even a recent development. From the executive who suggested raising $1 million to harass unfriendly journalists to the frequent bickering with regulatory authorities and the class action suits by drivers who feel they are more employees than contractors, the negative material is pervasive and wells up from what seems to be a never-ending spring source.

In a normal company, the board of directors and major investors would have been all over the situation. A CEO on whose watch a company kept getting into one scrape after another would generally be given a little time to fix the situation and then get bounced in the absence of improvement.

Some big investors are concerned. If Uber were a normal company, that would pull a lot of weight. But Uber is not a normal company. As The Information notes, Kalanick and two people close to him control a majority of shareholder votes, an approach that has become frequently used in tech startups. Pushing the CEO out of the picture would be extremely difficult.

Squeeze play?

What could still happen might come down to financial pressure. If Uber still runs in the red, it will need continued cash infusions. Investments are normally performed in stages, allowing a big investor to cut off the tap to minimize a loss. It may be that existing investors still have a significant amount of money not yet transferred to Uber. But such a strategy would be difficult to pull off. As the saying goes, when you owe a little on a loan, the bank owns you. When you owe a lot, you own the bank. Investors will be wary of taking an action that would prevent them from recouping at least some of their investment through an IPO.

Perhaps Kalanick is willing to see the company's culture completely change. Even then, with strong management help, it could take years to fix. In the meantime, employees will consider any share grants they've received, look at the bad news and difficult path going forward, and decide whether it's time for a change on their part, if not the company's. What does seem clear is that Uber probably has a very short amount of time in which to turn things around.

There are some lessons for entrepreneurs in all of this:

  1. Always have experienced management knowledge at hand. Get someone seasoned on your management team or board.
  2. Listen to the experience and make changes in your approach to running a company so it can remain viable.
  3. If you can't pull off the managerial role, get your ego and yourself out of the way and find someone who can.

There's no shame in recognizing your limitations and understanding where your talents and inclinations are best applied. Problems develop when you want to be the center of everything, no matter how inappropriate you may be in the role.

Published on: Mar 6, 2017