Uber IPO woes stem from a lack of innovation
When Uber hired Dara Khosrowshahi in 2017, the company board was solving the wrong problem.
The ride-hailing app was in the midst of a media firestorm over the culture fostered by founding chief executive Travis Kalanick and Mr Khosrowshahi’s reputation as a smooth, calm, professional manager seemed the perfect antidote. It all worked — until the company floated last week and saw its share price fall nearly 10 per cent in the first two days of trading.
As someone who worked with Uber in its early days and still owns shares, I think investors are saying they want a lot more proof before they are willing to throw more money at the lossmaking company. In other words, the operation to save Uber’s reputation by replacing the head was a success, but the patient died.
At the time Mr Kalanick resigned Uber was awash in controversy, fighting with regulators around the globe and losing market share to Lyft because of it.
The problem, the board said and the media echoed, was the narrative, the optics, the ethos. Mr Khosrowshahi, then chief executive of Expedia, would bring down the temperature, keep all the good things about Uber intact but get rid of the bad things and guide us to a smooth initial public offering.
Except it hasn’t worked out that way. To his credit, Mr Khosrowshahi has done an excellent job of changing the storyline. He hired a new team and settled as many raging controversies as possible, including Waymo’s claim that Uber had stolen its self-driving technology. He also pulled out of money-losing wars for dominance in far-flung regions like Russia and south-east Asia. He also brought in SoftBank as a major investor (full disclosure — I sold some of my equity to SoftBank in January 2018). Most importantly, he convinced reporters and pundits to stop constantly talking about the company.
But valuing optics above all else isn’t an ideal strategy. Mr Khosrowshahi is the anti-Travis in many ways — I attended his talk at a conference last summer in Aspen and was amazed by his ability to speak for an hour without actually saying anything. But what the media wanted is different from what the markets wanted, and still want, from Uber.
No one expected Mr Khosrowshahi to make Uber profitable in less than two years. But the promise of Uber — the reason why anyone would buy the stock now — is its long-term vision. Investors must believe that it will, one day, stitch together ride-sharing, food delivery, freight and electric scooters into a network that could efficiently and profitably get anyone or anything from point A to point B. To do that, you have to believe that above all else, Uber values relentless, even ruthless, innovation.
The downside of Mr Khosrowshahi’s tenure is that Uber has lost its mojo.
It stopped being an exciting company. Innovation no longer seemed like the top priority. Stability mattered more. That may work for Dow Chemical or Johnson & Johnson. But when the entire value proposition is that the company can one day change the world, being quiet isn’t necessarily the best strategy. We’re seeing the results of that right now as Uber’s IPO continues to stumble.
The board’s mistake wasn’t trying something new. It was thinking that Uber’s massive valuation reflected the company’s present, rather than its future. It was thinking that all of the good qualities of the Kalanick-era would automatically continue, no matter who was in charge. The directors forgot that innovation requires constant focus and unending devotion, not just good talking points.
I still hope that Mr Khosrowshahi gets it right and the stock corrects its course. But the lesson is clear. Telling a convincing story is critical for all businesses, but when you let concerns about appearances govern all of your actions, there will be consequences once the dust settles and the smoke clears.
That’s the price Uber investors are all paying right now.