News analysis

Corporate world's Uber reality: Make money or it's adieu

After a string of scandals and embarrassments, Uber's embattled CEO Travis Kalanick was forced to resign. The assumption is that he was pushed out for bad behaviour. The truth is more prosaic: the other problems compounded the basic one that he lost a lot of money. Uber lost US$2.8 billion (S$3.9 billion) on US$6.5 billion of revenue last year.

Many years ago, venture capitalist Fred Wilson, famous for his role in companies such as Twitter and Zynga, put it succinctly: "VCs have control when things don't work. Entrepreneurs have control when they do."

That's common sense in most of the business world. But as the Uber debacle shows, legal provisions like board seats or shareholder voting rights matter much less than actual performance in Silicon Valley too.

The prevailing mythos of Silicon Valley says it is visionary founder-CEOs - think Bill Gates, Steve Jobs, Mark Zuckerberg - who create great companies and need to be insulated to work their magic.

Venture capitalists and money men, the thinking goes, would otherwise get legal control of the company, oust the great founders and lead companies to their doom. Founders should be able to retain legal control of the firm, something that, in a highly competitive Silicon Valley funding environment, many VCs have agreed to.

And yet, Mr Kalanick, one of those visionary founders, was just ousted from the company despite having a great deal of control. One of Uber's key investors, Benchmark Capital's Bill Gurley, a legendary venture capitalist, seems to have played a crucial role in Mr Kalanick's ouster, even though technically he did not have the authority on the board to fire him.

As Bloomberg View columnist Matt Levine noted, Mr Kalanick controlled the majority of seats on Uber's board, as well as a majority of voting rights for shareholders.


The ouster of 
Mr Travis 
Kalanick from 
Uber is another 
reminder that 
meteoric growth 
and arresting 
vision is never 
enough.

However, that ended up not meaning much: Uber, which is losing money by the bucketful, arguably a necessary move to build a network effect which will reap profits later, needs investors. Having the majority voting rights in a company that gets shunned by investors because you're reckless is not worth a lot.

The late Mr Jobs never had formal legal control at Apple. He was ousted in the 1980s because the visionary products he shepherded - the Apple Lisa desktop computer and then the Mac - were commercial failures.

When he returned to Apple in 1998, he put out a string of highly successful products - first the iMac, then the iPod, and of course the iPhone - that brought the company back from the brink and then ensured strong profitable growth; his leadership was never subsequently questioned.

Facebook has had various growing pains as a fledgling social network, but its user numbers and revenue never stopped growing.

If it had a MySpace-like trajectory, it is unlikely that Mr Zuckerberg's formal legal control of the board and shareholder voting rights would have protected him from investor pressure to make radical changes, up to stepping down.

Many have fretted about the corporate governance implications of Snapchat going public by releasing only non-voting stock to the public; but if the company ends up cratering, then CEO Evan Spiegel is likely to be outgoing.

Similarly, media tycoon Rupert Murdoch was able to survive phone-tapping scandals in Britain and the problems at Fox, in large part because of the robust results he could generate for News Corp.

Some companies can lose money but still do well because they're growing, capturing markets and building strategic advantage.

Uber is not only losing money - and it's burning through cash at an enormous rate - but clearly it is also going through a crisis, with executive turnover, a stalled self-driving car project, myriad lawsuits and other problems. 

Meanwhile, Microsoft is one of the most profitable companies on earth, but it is growing tepidly and is getting outplayed by competitors in its most strategic markets.

Its co-founder and CEO Steve Ballmer was not brutally defenestrated, but he was certainly nagged to pass on the reins by board members and investors until he felt he had to go.

It seems obvious that if Microsoft under Mr Ballmer had beaten Google in search, Apple in mobile and Amazon in cloud, he would be CEO of Microsoft today, and would be globally lauded as a turnaround artist.

Mr Kalanick's ouster is another reminder that meteoric growth and arresting vision is never enough. A CEO who is making a healthy profit for his firm has a secure position; but, even in Silicon Valley, a company that needs investors to stay afloat will sacrifice a founder if needed, whatever the company's by-laws.

BLOOMBERG

•This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

A version of this article appeared in the print edition of The Straits Times on June 27, 2017, with the headline 'Corporate world's Uber reality: Make money or it's adieu'. Print Edition | Subscribe