What Made Uber?- A Case Study for EntrepreneursJun 20, 2021
Hello everyone, Tom Ellsworth here and welcome back to Case Studies with Biz Doc. This week is the making of Travis Kalanick and Uber. We'll find out
madeUber co-founder and CEO Travis Kalanick the man he is today. More importantly, highly successful leader and CEO. And along the way, we'll look at Uber's first four rounds of funding. In a later
study, we'll dig a little deeper into Uber and look at
whatthey did to overcome controversies, when they encountered opposition to their success, and how a great company recovers and continues to grow. at a record pace.
But for today, let's dive into what
madeUber and what things in Travis's life made him the CEO we know today. Today we are going to unearth three points 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. Today's central points are the following three points. #1: Most great CEOs don't come out of nowhere. They had some kind of learning or experience along the way. There are very few Bill Gates and Mark Zuckerbergs who dropped out of Harvard, joined a company, and then moved on.
And in the
caseof Zuckerberg and Gates, they both had a lot of experience along the way. Other CEOs don't see 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 starting a company, assemble a great core team from the beginning. You can't do it yourself. But stay in line with Lean Startup, a great book that I recommend, by Eric Ries. Keep it agile, but get a great team of key people who will be the brains and genius that move your company forward.
And point 3: The moment you know what you have, do it big and fast. And if you have a great core team, that's your platform to grow and grow fast. Because you can't do it alone. So those are the main points. And now let's delve 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 headlines around the world.
And that's the area where he grew up. After leaving high school in the valley, he entered UCLA to pursue a degree in computer engineering. That was his specialty. That's what he was
studying. As you can see, this is a very bright guy who got into a big university and was studying purely geeky. There's a lot of good geekiness in that. Some of the biggest companies in the world are made up of engineers and computer science specialists who are simply taking that geekdom to stardom and building fantastic companies. Travis was no different. But apparently he wanted to do something other than go to university.
Because at the age of 22, in 1998, he dropped out of UCLA. Something 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 believe everyone should go to college. But anyway, that's for another story and another day. But in this case, he quits 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 is a little company called Napster that did peer-to-peer audio and allowed 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 labels got angry. Yes, that was equal to equal. And Travis was working at a company called Scour. Now he had an interesting first investment, which put Travis in contact with some big players. One of them was Michael Ovits, former president of Disney and founder of the mega agency CAA, Creative Artists Agency. And Ron Burkle of Yucaipa Companies, a huge private equity firm. So here he is leaving UCLA, joining Scour, and meeting some very important players. Well, in October 2000, if we go back and look at history, we will 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 about 30 other plaintiffs for what was said to be approximately $250 billion. Okay, if they sue you for $250 billion, it's not really a problem. 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 sue us for $250 billion, they're in trouble! We don't have that. You can sue me for that, you could sue me for the land, the value of the land.
I don't have it. Good luck with that. And what really 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 you should pay attention because Napster was also peer-to-peer and there were some guys on Napster, the peer-to-peer community was a small world. So we're going to look at a relationship here, which will come 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 is 30 years old and he sells a company to Akamai. So he experienced dropping out of school, joining a company that gets sued and goes bankrupt, and creating a company that doesn't go crazy. It only sells for about 20 million dollars. 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 who was suing him here became Red Swoosh customers. So he thought it was ironic and referred to it in the big business of revenge. But anyway, he sells it, so he had a successful sale, and he's at a conference. And he's at a web technology conference and he hears some things that lead him to think, you know, maybe order a black car, you know, a limo, to take you to the airport or go out to dinner or something like that maybe it could be more easy by using a cell phone application.
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 advisor and head of incubator. He wasn't the CEO yet. In 2010, early 2010, a guy named Ryan Graves, a bona fide product guru, joins and becomes the first CEO. So they're working on this, putting it together. And in June 2010, Uber launches in San Francisco. And at that time, a black Uber car cost about 1.5 times more than a taxi.
But guess that? You could get it very fast, you could get it from your phone and you could see how long it would take. So if we think back, it's a Blue Ocean strategy and those four points remembering about it, 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 type 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.
Now you could see cars with the Uber app that were maybe five blocks away. You could tell them to come to you. So they increased the availability of rides and then eliminated the main thing we hate about taxis: the stinky car that is just atrocious. You don't travel by taxi because you want to. We have always traveled by taxi because it was necessary. And we ignore the thoughts of whatever happened in the back seat, was thrown in the back seat, or was abandoned in the back seat. We put the whole smelly taxi experience aside. And guess what?
All those four factors are pure Blue Ocean. So here comes Uber, a blue ocean that allows us to get rides to get you and me where we need to go. There we have 2010. Well, in October 2010, they raised $1.25 million in seed funding. They got it from first round capital. A guy named Chris Sacca, who was a friend of Travis, who was a lawyer who had worked at Google, had also been a guest on the Shark Tank show on TV. So I had been around for some early stages, you know, wild ideas of course, and another investor, Napster co-founder Shawn Fanning, back from the peer-to-peer days, becomes one of the early initial investors in Uber.
What goes around comes around. Sometimes the people you worked with here are useful to you. 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 the GM and Travis becomes the CEO. And there you have it, in 2010, he becomes CEO. So take a look at what he's learned in these 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 the idea to start a company. No luck here.
This was a 12 year education. He earned a master's degree in experience, failure, success, founding 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 underway and once you have your initial funding, you are successful and you have a good team 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 was valued at $60 million, and $11 million was invested in the company.
And Benchmark's legendary VC Bill Gurley joins the board. 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 I respected a lot 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 2011, just a couple of months later, they launched in New York City. That was a little controversial, because New York City is a taxi union city, but they still released it.
Today it is one of its largest markets. And what's interesting, five years later, after it launched, over a one-year period from April 2015 to April 2016, Uber averaged 170,000 trips per day in New York. So, five years later, and all that controversy later, New York is one of the most controversial markets, but also one of the most successful. Now, something interesting also 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 talked openly about all the things that led him to do this and that and the experience that made him who he is today. Then 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 is time to go international. So they start with Paris, France. And they raised 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 venture capital, not as good or as big as Benchmark, but certainly a high quality venture capital, Amazon's Jeff Bezos and Goldman Sachs were involved.
And if he doesn't believe that the Goldman Sachs guys who are investing here aren't thinking about a future IPO, 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 and protests in France, because Uber had been very successful and now they were trying to force, basically, licensed taxi drivers, they were trying to force legislation and stuff to get 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's just not going to work. Anyway, that's what was happening this year, the seed of which was 2011, when they raised $32 million to launch their first international market in Paris, France. They continuedgrowing and moving and in July 2012 they announced UberX, and it wasn't just about black cars anymore. Now you could get a Prius. And it cost a little less than the black car. So they were just applying their technology and their expertise, creating another chapter of product, and 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, all limousines." No, they were thinking far beyond, and as we'll see in a few minutes, they were thinking far beyond. So that service again is about 35% less expensive than a black car, the Prius picked you up and there you have it. Well, in August 2013, now we are less than two years later, they were still growing and adding cities, and controversies were arising from unionized taxi drivers, but here comes the big money. They raise $258 million from Google Ventures, and by the way, that was a $3.76 billion valuation. Now they were what people like to call a unicorn, which is a company that's a startup that's suddenly worth over a billion dollars.
And that was just amazing. So his 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 later, July 2014, July 2013, July 2014, they raised $1.4 billion in a series D at a $17 billion valuation. Let me say it again. Valuation of 17 billion dollars. 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 founded the Uber Pool, which you and I may know about. It is a group of vehicles.
You could see people heading in your direction. You could get in an Uber with them, you will only pay for your part of the trip, but you will split it between everyone. That's why it's efficient for two or three people to share an Uber. Then they founded Uber Rush, which was a bicycle courier service in New York. They also started Uber Cargo, where it allows people to pick up and drop off things in trucks and small vans. And then Uber Eats. In fact, Valuetainment founder Patrick Bet-David uses Uber Eats a lot because we work crazy hours and want good meals delivered.
So we're an Uber Eats customer and we're like, hey, we need to get something. Get me one of these, one of those. We call Uber Eats and good food is here. And that's an example of strategy thinking outside the box and applying strategy by saying, you know, we have this technology with mapping, we know how to map things, we know how to make efficient routes, we know how to do all these things, why? not deliver food? Why not pick up cargo? Gosh, why shouldn't bike messengers wear this too? And that is the first chapter of Uber.
Reaching its D series, the first six years with growth. And as you know, if you read the headlines, I know you're paying attention, because these viewers, I know they're asking me questions and things to show me that you'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 the competition from Lyft, much smaller, but also a competitor. In front of the city of Austin, Texas, which introduced legislation that actually led Uber and Lyft to say, okay, screw this. We will leave 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. Go back. Let's see how that plays out. We'll also see some things going on internationally, like having to leave Hungary because Hungary put federal law on them and basically defending an inefficient, legacy taxi service. Socialist law, which crushed free enterprise, occurred at its worst in Hungary. And so we're going to see how Uber maintains its status as an amazing, growing company and raises billions more dollars in capital to continue global expansion and grow into a fantastically mature company, responding to things going on around it. . , under the leadership of a UCLA dropout named Travis Kalanick.
And that, my friends, is Uber Chapter One, the brainchild of Travis Kalanick and Uber that reminds you of those simple points. Great CEOs often don't come out of nowhere. They have a lot of experience. And if you're living that experience, you could be the founder of something really special when you get there. And my other two points. One, build a great core team around him early on, but stay nimble and then when you know you've got something and it's time to go big, go big and go fast. And as you can see, Uber went out looking for 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 peek of that. And for today, we say thank you, see you next time and subscribe to Valuetainment, the best content channel on the Internet for
entrepreneurs. Until next time, I'm Tom Ellsworth and I hope I left you better than I found you.
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