About five years ago, I found myself at a bar night in Washington sponsored by Uber, part of its effort to gin up support for overturning DC’s antediluvian taxi regulations. It was a remarkable thing.
Travis Kalanick, the CEO, was the distilled essence of a disruptive entrepreneur; a hypomanic extrovert, he motored through a PowerPoint deck so fast that the words blurred together into a sort of infectious hum.
Soon profane imprecations against DC’s taxi commissioner were ringing out of the crowd. “I need you guys,” Kalanick told them. “So, one, stay on Facebook, stay on Twitter. Two, hearings -- go to hearings. Go to political events. … The bigger we get, the harder it is to take us out.”
Events like this helped Uber to spur, incredibly, a sort of populist limo movement in my city and many others: young, professional, affluent. And Uber did indeed get big -- bigger than many of us could have imagined back when its core business was providing black car services to folks who weren’t being adequately served by taxicabs.
But Kalanick is no longer in charge of that bacteria-like growth. Yesterday, the New York Times reported that he had stepped down as CEO after an annus horribilis for the company to rival the worst Queen Elizabeth endured. A sexual harassment claim, embarrassing inquiries into the company’s culture, an intellectual property suit from Google’s self-driving car division, and a federal inquiry into its software practices. And with all that weighing on his shoulders, Kalanick also faced personal tragedy: aboating accident that killed his mother and badly injured his father.
Kalanick had already taken a break from the company to deal with what had happened to his parents. But reporting suggests that this is not why he was forced out. What riled up shareholders was Uber’s growing reputation as an outlaw company. Such problems generally stem from the top, which means that if you want to fix them, you need someone new in the corner office.
It’s hard to blame shareholders for wanting a change. And yet, isn't that swashbuckling style -- the one causing so many problems now -- part of the reason that the company got so big in the first place?
Though Uber strenuously denied that it was a taxi company, that was the market niche it was serving. Its dispatch service and credit card processing were innovative, solving the deep coordination problems that had long plagued that market. But this was a difference in degree, not in kind; at the end of the day, Uber was still undertaking to drive people from Point A to Point B.
The problem with starting a taxi company is that there are basically no barriers to entry; all you need is a car and a driver’s license, something most Americans have. So over the years, the taxi industry prevailed upon local governments to erect some, with a thicket of laws and regulations that restricted the ability to drive or operate a taxi. That drove down supply, drove up costs, and in many ways resulted in lower-quality service than consumers otherwise would have enjoyed … but it ensured that owning a taxi service stayed profitable for the folks who already had one.
Imagine a 2012 entrepreneur who wanted to start a ride-sharing service, like Kalanick except for a pathological aversion to rule-breaking. That person would probably have approached local governments to figure out how such a service could be operated under the byzantine regulations that govern taxi operations in most major cities. That person would probably still be working through channels, trying to get permission to dispatch their first car … if they hadn’t given up after repeated rounds of battering by a powerful and well-entrenched taxi lobby.
Instead, Kalanick waltzed into markets and built an enthusiastic customer base, then essentially dared regulators to shut him down. Sometimes they did, but often the blitzkrieg worked: By the time regulators got around to cracking down, Uber was too popular to mess with.
The problem is, Uber made a lot of enemies along the way. Blitzkriegs do that. Governments don’t like people who flout their rules, especially when those people prove adept at evading the usual consequences of such behavior. And the problems seem to have been internal as well as external; along with a cavalier attitude toward regulatory regimes, Uber is accused of taking a laissez-faire attitude toward the sort of sexist behavior that stopped being legally or socially acceptable shortly after the Mad Men era.
This sort of problem is not uncommon with entrepreneurial ventures. The skills and personality traits that enable disruptive innovation are often wildly at odds with those that you need to turn a company into a mature and stable firm. Sometimes those problems can be finessed by bringing on auxiliary managers who can tame the CEO’s more outrageous instincts, and attend to the finer details of running the company. But sometimes, the only solution is a clean sweep, because if you keep the founder on, his disruptive tendencies will sow internal chaos.
Kalanick has made some sizable mistakes, and the company may well be better off without him now. But that doesn’t mean that the company would have been better off without him five years ago. If he had been ousted then, the rest of us might well be worse off -- in a world without Uber.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of “The Up Side of Down: Why Failing Well Is the Key to Success.”
© Copyright 2021 Bloomberg L.P. All Rights Reserved.