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What Made Uber?- A Case Study for Entrepreneurs

Jun 20, 2021
Hi everyone, this is Tom Ellsworth, and welcome back to Case Studies with Biz Doc. This week is the brainchild of Travis Kalanick and Uber. Let's find out

what

made

Uber co-founder and CEO Travis Kalanick the man he is today. More importantly, the highly successful leader and CEO. And along the way, we're going to look at Uber's first four rounds of funding. In a later

case

study

, we'll dig a little deeper into Uber and see

what

they did to overcome controversy, when they ran into opposition to their success, and how a great company bounces back and continues to grow. at a record pace.
what made uber   a case study for entrepreneurs
But for today, let's dig into what he did to Uber and what things were in Travis' life that

made

him the CEO we know today. There will be three points that we are going to dig up today that I think will be very useful and interesting for everyone. One is that most great CEOs don't come out of nowhere. They learn lessons and gain skills and experience along the way. The central points for today are the following three elements. #1: Most great CEOs don't come out of nowhere. They had some sort of learning or experience along the way.
what made uber   a case study for entrepreneurs

More Interesting Facts About,

what made uber a case study for entrepreneurs...

There are very few Bill Gates and Mark Zuckerberg who dropped out of Harvard, joined a company, and then moved on. And in the

case

of Zuckerberg and Gates, they both had a lot of experience on the road. Other CEOs don't have it that way. They learn things along the way. And that's point one. Most great CEOs don't come out of nowhere. Point 2. When you're building a business, assemble a great core team early. You can't do it yourself. But stay in the vein of Lean Startup, a great book I recommend, by Eric Ries. Keep it simple, but get a great team of key people who will be the trusted brains and genius moving your company forward.
what made uber   a case study for entrepreneurs
And point #3: The minute you know what you've got, go big and fast. And if you have a great core team, that's your platform to go big and fast. Because you can't do it alone. So those are the central points. And now let's dive into the life of Travis Kalanick and take a look at the background of him and the founding of Uber. Travis turned 40 this year. He was born in 1976, in Los Angeles, California. He grew up in the valley as they call it, in a place called Northridge. Northridge is famous because in 1994 there was a massive earthquake that made world news.
what made uber   a case study for entrepreneurs
And that's the area where he grew up. After finishing high school in the valley, he entered UCLA with a degree in computer engineering. That was his specialty. That's what he was

study

ing. So as you can see this is a very bright guy who got into a big university and was studying purely geek. A lot of good geeks who are dedicated to that. Some of the best companies in the world are made up of engineers and computer science specialists who are just taking that geekdom to stardom and building fantastic companies. Travis was no different. But he apparently had a little desire to do something other than go to college.
Because at the age of 22, in 1998, he dropped out of UCLA. Something that I think he's really good at. You need to get a degree to learn things like computer science, but there's a part of me that doesn't think everyone should go to college. But anyway, that's for another story and another day. But in this case, he leaves and joins a company called Scour. And Scour was a peer-to-peer search engine that included video, not just audio. Now, for those of you who remember, there's a little company called Napster that was doing peer-to-peer audio and allowing people to share songs without paying for them.
Or one person paid here and a thousand people shared the song. And meanwhile the artists and record companies were getting angry. Yes, that was equal to equal. And Travis worked at a company called Scour. Now he had an interesting first investment, which put Travis in touch with some big players. One of them was Michael Ovits, former chairman of Disney and founder of the mega-agency CAA, Creative Artists Agency. And Ron Burkle of Yucaipa Companies, a massive private equity firm. So here he is dropping out of UCLA, joining Scour and meeting some very important players. Well, in October 2000, if he goes back and takes a look at history, he'll see that peer-to-peer companies were being sued.
And that's what happened. Scour was sued by the Motion Picture Association of America and the Recording Association of America and 30 other plaintiffs for what was said to be approximately $250 billion. Okay, if you get sued for $250 billion, that's fine. And let me tell you why. If someone sues you or me for a million dollars, we're in trouble. They could take away everything we have. But if they're suing us for $250 billion, they're in trouble! We don't have that. You can sue me for that, you can sue me for the land, the value of the land. I don't have it.
So good luck with that. And what actually happened is that it forced the company into bankruptcy. So they filed for chapter 11 bankruptcy, after being sued for an amount that's greater than the gross domestic product of Nicaragua, you know, they said, okay, that's it. But then, undaunted, Travis creates the Red Swoosh. It was also a peer-to-peer file-sharing company, so it stayed in the peer-to-peer space. And he should watch out because Napster was also peer-to-peer and there were some guys at Napster, the peer-to-peer community was a small world. So we're going to look at a relationship here, it'll show up later.
Which is really important. Even in the midst of failure, sometimes the relationships you have here become useful here. So don't make enemies. Move on. Because you never know who may come back and help you later. Anyway, this lasts about five or six years and sells it to Akamai. Well, now he's 30 years old and he's selling a business to Akamai. He then he experienced dropping out of school, joining a company that gets sued and bankrupt, and starting a company that doesn't go crazy. It only sells for something around $20 million. And the funny thing is, he said it was some kind of revenge business.
Kalanick did an interview with Fast Company where he said that basically everyone suing him here became a Red Swoosh client. So he thought it was a bit ironic and referred to him in the big business of revenge. But anyway, he sells it, so he's had a successful sale and he's at a conference. And he's at a web technology conference and he hears some things that make him think, you know, maybe order a black car, you know, a city car, to take you to the airport or to dinner or something that maybe could be easier by using a cell phone app.
And so the concept that would become Uber was born. And so Uber was founded in March 2009, as a company called Uber Cab. It was a black car service and Travis was one of the co-founders and in those days he called himself a mega adviser and head of incubation. He was not yet the CEO. In 2010, early 2010, a guy named Ryan Graves, a true product guru, joins and becomes the first CEO. So they're working on this, putting it together. And in June 2010, Uber is launched in San Francisco. And at the time, a black Uber car cost about 1.5 times more than a taxi.
But guess that? He could get it real fast, and he could get it from his phone, and he could see how long it would take. So if we think back, it's a Blue Ocean strategy and those four points that you remember about that, some very interesting things happened. What did they do with Uber? They added ease of use with technology. They reduced the hassle of waiting and hailing a taxi on the street. Is that guy available? Is that guy available? Is that guy available? We have all been there. They also increased the availability of attractions. Because you could see taxis that weren't necessarily on the street.
You could see cars now with the Uber app that were maybe five blocks away. You could instruct them to come to you. So they increased the availability of rides, and then they removed the number one thing we hate about taxis is the stinky car which is just atrocious. You don't ride taxis because you want to. We have always traveled in taxis because we had to. And we ignore thoughts of whatever happened in the backseat, was thrown in the backseat, or was left in the backseat. The whole stinky taxi experience we put aside. And guess what? All those four factors are pure blue ocean.
So here comes Uber, an ocean blue to get you and me rides to where we need to go. So there you have 2010. Well, in October 2010, they raised $1.25 million in seed money. They got it from first round capital. A guy named Chris Sacca who was a friend of Travis's, who was a lawyer who had worked at Google, had also been a guest on Shark Tank on TV. So I had been around with some initial, you know, crazy ideas of course, and another investor, Napster co-founder Shawn Fanning, coming back from the peer-to-peer days, here becomes one of the first initial investors in Uber.
What goes around comes around. Sometimes the people you worked with here are helpful here. So, there it is, December 2010, after this wonderful, successful launch in San Francisco, and Ryan Graves, who was CEO, decided that he would be CEO, and Travis becomes CEO. And there you have it in 2010, he becomes the CEO. So take a look at what he's learned in those 12 years, from dropping out of UCLA to becoming CEO of Uber. If you didn't know his story, you'd think, wow, he just got lucky and had an idea to start a company. No luck here. This was a 12 year education.
He earned a master's degree in experience, failure, success, starting a company, and all the headaches that come with it. That's what led to the creation of Travis Kalanick, who is now the CEO of Uber as 2010 comes to a close. Well, things were rolling and once you've got your seed funding and you're successful and you've got a good team in place, and a capable CEO, guess what? It's time for your Series A financing, your first real financing. And they raised $11 million in a round led by Benchmark and it was a value of $60 million, and $11 million was invested in the company.
And Bill Gurley, Benchmark's legendary VC Bill Gurley, joins the board of directors. But Bill Gurley was a guy who invested in a company that I was privileged to be a part of, Jamdat Mobile. He was in our D series, but he was a guy he had a lot of respect for and he's always been at the forefront of some really innovative ideas. And yet there it is, Series A, $60 million valuation. Well, in May of 2011, just a couple of months later, they launched in New York City. That was a bit controversial, because New York City is a city of unionized cabs, but they launched nonetheless.
Today it is one of its largest markets. And what's interesting, five years later after its launch, over a one-year period from April 2015 to April 2016, Uber averaged 170,000 rides a day in New York. So five years later, and all that controversy later, New York is one of its most controversial markets, but also one of its most successful. Now, there's also something interesting that happened in 2011. There was a conference, in the fourth quarter of 2011 called Failcon, a conference that talked about failure. And do you know who spoke? Travis Kalanick. And do you know what he said? He said the 10 years before Uber were a case study in failure.
And he was open about all the things that led him to do this and that and the experience that made him who he is today. So you should Google that video and take a look at Travis's comments at Failcon 2011. You'll learn a lot from it. In December 2011, Uber decides it's time to go international. So they start with Paris, France. And they raise a series B of $32 million. So now, over the course of just a few months, they've raised, you know, $43 million and B-listers, check this out. Menlo Ventures, a leading VC, not as good or as big as Benchmark, but certainly a high-quality VC, Amazon's Jeff Bezos was involved, and Goldman Sachs.
And if he doesn't think that the guys at Goldman Sachs who are making an investment here are thinking about a future initial public offering, he's not paying attention. This is exactly how some banks get involved early on. So, you know, five years later, here in 2016, you look back and there were riots in France and protests, because Uber had been very successful and now they were trying to force, basically, licensed taxi drivers were trying to force legislation and those things to push Uber out of the way. But there would be no Uber if people didn't like it and didn't want to pay for it.
And that's why they're trying to legislate to eliminate free enterprise. And it just won't work. Anyway, that's what was happening this year, the seeds of which were 2011, when they raised $32 million to launch their first international market in Paris, France. They continued to grow and move and in July of 2012, they announced UberX, and they weren't just black cars anymore. Now you could get a Prius. And it cost a little less than the black car. Sothat they were just applying their technology and expertise, building another chapter of products, putting their minds to good use. And as you can see, they didn't just say, "It's all about black cars.
It's all about black cars, it's all about limousines." No, they were thinking far beyond, and as we'll see in a few minutes, they were thinking far beyond. So that service is about 35% less expensive than a black car, you had a Prius picking you up and there you go. Well, in August 2013, now we are less than two years later, they kept growing and adding cities, and the controversy was coming from the unionized taxi drivers, but here comes the big money. They raise $258 million from Google Ventures and by the way, it was a valuation of $3.76 billion. Now they were what people like to call a unicorn, which is a company that's a startup and suddenly worth over a billion dollars.
And that was just amazing. So their forays and success drove the need for capital, but with that came valuation. This is part of my point about going big and fast. A year after that, July 2014, July 2013, July 2014, they raised $1.4 billion in a Series D with a valuation of $17 billion. Let me say it again. $17 billion valuation. And at one point Uber was the most valuable private company yet to go public. And they continued to invest in technology and apply technology. For example, they started Uber Pool, which you and I may know about. It is a shared car. You could see people going in your direction.
You could get in an Uber with them, you only pay for your part of the trip, but you are splitting it between everyone. So it's efficient for two or three people to share an Uber. Then they started Uber Rush, which was a bike courier service in New York. They also started Uber Cargo, where you let people pick up and drop things off in trucks and small vans. And then Uber Eats. In fact, Valuetainment founder Patrick Bet-David uses Uber Eats a lot because we're working crazy hours and want good meals delivered. So we're an Uber Eats customer and we're like, hey, we've got to get something.
Get me one of these, one of those. We called Uber Eats and great food is here. And that's an example of further strategic thinking and strategy application saying, you know, we've got this technology with mapping, we know how to map things, we know how to do efficient routing, we know how to do all of these things, why? not deliver food? Why not pick up the cargo? OMG why shouldn't bike messengers wear this too? And that's the first chapter of Uber. Going all the way to their D series, the first six years with the growth. And as you know, if you read the headlines, and I know you're paying attention, because these viewers, I know they're asking me questions and things to show me that they're really diving in.
I'm going to do a second case study. that talks about 2014 - 2016 and all the things that Uber faced, like facing competition from Lyft, much smaller, but also a competitor. Taking on the city of Austin, Texas, enacting legislation that actually led to Uber and Lyft saying, okay, to hell with that. We will depart from Austin, Texas. See what people have to say about it and maybe they'll go back to city hall and say, hey, you know, we need more than just taxis. To return. Let's see how that plays out. We're also going to see some things that happen internationally, like having to leave Hungary because Hungary imposed federal legislation and basically defended the legacy and inefficient taxi service.
Socialist law, crushing free enterprise, at its worst happened in Hungary. And so we're going to see how Uber maintains its status as an amazing, growing company and raises billions and billions of dollars more in capital to continue global expansion and become a fantastic mature company, responding to the things that they happen around you. , under the leadership of a UCLA dropout named Travis Kalanick. And that, my friends, is the first chapter of Uber, the brainchild of Travis Kalanick and Uber reminding you of those simple points. Great CEOs often don't come out of nowhere. They have a lot of experience.
And if you're out there getting that experience, you could be the founder of something really special when you get there. And my other two points. First, put a great core team around you early on, but stay lean, and then when you know you've got something, and it's time to go big, go big and do it fast. And as you can see, Uber went out looking for the capital to do exactly that. I'm looking forward to another time where we dive into the other side of Uber and I gave you a little sneak peak of that. And for today, we say, thank you, and until next time and please subscribe to Valuetainment, the best channel on the Internet for content for

entrepreneurs

.
Until next time, I'm Tom Ellsworth, and I hope I left you better than I found you.

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