Uber and the curses and blessings of culture

Uber. I’ve resisted writing about Uber for 3 months now. Uber has been all over the media and I didn’t want to add another voice to the mix. But, 2 stories in the media this week pointed to powerful lessons about the curses and blessings of culture. The first was about the now infamous “sex” memo sent by Travis to the company in 2014 and the second is about the now-fired head of Asia Pacific who illegally obtained medical records of a rape victim.

So, while this is about Uber, I’m going to take a long, winding road that will touch innovation, culture, and product-market fit.

Innovations.
There are 2 theories around innovation. The theory that influences us the most is the “genius theory” — the image of the lone genius conjuring up inventions. However, over time, numerous writers have pushed forth the “networked theory” — the idea that groups of people working together invent new technology.

Who, for example, invented the telephone? It was thought to be Alexander Graham Bell — the iconic inventor and founder of a company that would be AT&T. However, history points to the fact that Bell was the beneficiary of a bribed patent office examiner who revealed the designs of a fellow inventor, Elijah Grey, to Bell’s lawyers. Similarly, other inventors and witnesses have proved they got there ahead of Bell. Simultaneous discoveries have happened throughout history. Breakthroughs in technology set the stage for inventions that build on them.

But, history shows sole inventors to be important — just for different reasons. They don’t necessarily originate the idea but, instead, create a disruptive industry. Bell created the telephone industry. Steve Jobs created the smartphone industry.

The truth, as is often the case, lies somewhere in the middle.

Founders and culture
Founders of innovative technology firms are today’s version of inventors. We see their profiles on magazines and newspapers everywhere, we hear their names in the media and they all are part of the popular culture. Whether you like this or not, it is clear that founders have an undeniable effect on their company’s culture.

Before we dive any deeper, let’s take a moment to talk about culture. 
Organizational culture is collection of shared assumptions, values and beliefs that governs how people behave.

How does culture get formed? While there has been many a book written on this topic, my synthesis is that there are 3 key factors -

  • The Leader’s personal culture. This is the single most important driver.
  • Who you hire/fire/promote. People respond to incentives. Promoting jerks is a sure-fire way of asking for jerk behavior. This flows from the leader’s personal culture as well since the leader makes all hiring decisions in the early days.
  • How you make decisions. People are paid to make decisions. And, there are few better examples of culture in action.

How does culture propagate? Stories. We’ve all likely heard stories of Zappos’ awesome culture. Stories pass context from one generation of employees to the next leading to a “this is how we do things here” norm.

Of course, culture can’t be understood in isolation. It is one of three things leaders do..

There’s a lot in this graphic and it is a topic of another post. Again, I’ll bring it down to 3 things you should know -

  • Leaders lead (focus the organization on being effective/doing the right things), manage (ensure the organization is being efficient/doing things right) and build culture. All three are inextricably linked.
  • So, certain leadership styles beget certain cultures. And, these cultures attract certain kinds of people and ensure the survival of a certain brand of processes.
  • This combination of people and processes means these organizations produce a unique brand of results that flow from the people and processes in place.

Culture is strategy
Strategy is a company’s decision on where to play and how to win. The challenge with strategy is that it is useless without proper execution. We are not what we say — we are what we do. And, given culture largely defines the company’s ability to execute — in the long run, culture is strategy.

We see examples of this all the time. Here are a few recent pieces of news (links at the end) that all make sense given what we know about company cultures -

  • Apple is struggling with becoming an artificial intelligence powerhouse thanks to its culture of secrecy. Apple’s strengths have always been around creating beautifully designed, intuitive, high margin devices that its users love. These strengths lend themselves to creating an incredibly promising looking Augmented Reality platform (ARKit) but don’t work as well for machine learning.
  • Related, Apple’s iPhone strength meant it overlooked the opportunity to win in the home. Amazon did a great job in the home with Alexa and the Echo. So, Apple played to its strengths and launched the “HomePod” — a high end speaker that suits Apple’s strengths and, importantly, removes focus from Siri (which will likely never match Google Assistant or Amazon’s Alexa)
  • Google’s culture has always been about making sense of large amounts of data. Social was never in Google’s DNA and, thus, Google+ was always going to be an uphill battle. So, Google’s approach to social has been to attack photos with awesome image identification and search functionality. Additionally, Google’s strengths are perfectly suited for Artificial Intelligence. And, Google recently outsourced a “Tensorflow Lite” machine learning library for phones.
  • Amazon tried its hand with “Fire” — a high end smartphone — that bombed. Amazon’s culture isn’t about high margins. So, the Zon went back to the drawing board and will reportedly launch “Ice” — a low end smartphone in India. I am bullish about this as it plays right to their strengths. (Amazon’s “Song of Ice and Fire” :))

These are just a few examples of how it becomes easier to make sense of how company’s approach problems by paying attention to their culture.

Most importantly, however, culture is how companies succeed in the long run. Companies can succeed in the short run on the basis of successful product market fit.

How technology products are created
A technology product is the intersection of 3 things — 
 1. A user problem
 2. A technology breakthrough
 3. A team’s capabilities

If the size of the customer problem is large enough, the team can build a company. And, product-market fit simply ensures that the product solves a real customer problem.

It also follows that there are 2 kinds of companies created -

  • Those that focus on a technology breakthrough: E.g. better search, a microprocessor.
  • Those that focus on user problems: E.g. a social network based on photos, a taxi hailing app.

Of course, it takes both of these to work in tandem. Most companies fail when they do one exceedingly well without focusing on the other. But, nearly every company specializes in one of these.

Product market fit is a process
Most start-ups need to work their way to product market fit.

Former Benchmark partner, Andy Rachleff, described the process as this — “You often stumble into your product/market fit. Serendipity plays a role in finding product/market fit but the process to get to serendipity is incredibly consistent. What we do is teach that incredibly consistent process.”

Or, as Union Square Venture’s Fred Wilson puts it — “Getting product right means finding product/market fit. It does not mean launching the product. It means getting to the point where the market accepts your product and wants more of it.”

Product-market fit is clearly a process and many companies pivot multiple times before finding it.

But, financing helps along the way
In the Stanford lecture series on “How to start a start-up,” the DoorDash founder said the following were key to DoorDash’s success.

DoorDash is a food delivery start-up founded in 2013.

This turns out to be great advice for students studying Computer Science at Stanford and pretty bad advice for everyone else. I say this because this, to me, is an example of the identification problem. DoorDash undoubtedly did these things well. But, to point to these as the causes for DoorDash’s success (one could argue it is too early to call “DoorDash” successful — so, let’s define success as surviving 4 years as a start-up) is naïve. The most important cause of DoorDash’s success is likely that its founders were Computer Science students at Stanford university. That meant they fit in the stereotype that venture capitalists typically invest in.

So, what does funding from the likes of a Sequoia or a Kleiner Perkins for you? Think of it as the financing virtuous cycle.

Funding from a top tier venture capital firm is essentially a pass to money, access to better talent, trust from customers, free marketing via media mentions, among others. It doesn’t always — but, it generally helps a ton.

There is one obvious downside to venture capitalists funding a certain stereotype of course — diversity suffers. Venture capitalists, as The Economist describes are “bright, clannish, and almost exclusively male.” That leads to stats that look like this -

Only 7% of the founders of tech startups in America that raised $20m or more are women, according to recent research by Bloomberg. Yet nobody would argue that men make the best founders nine times out of ten. On average, firms founded by women obtain less funding ($77m) than those founded by men ($100m). The VC industry has been successful enough to ward off the pressure to change. That does not make it perfect.

The Economist also notes — “Venture capitalists play a vital role in shaping the culture of startups: investors who value diversity are likelier to guide them away from the reputational and legal risks that beset offices full of “brogrammers”.

All this brings us back to Uber.

Every once a while, there comes a firehose — a company that nails product market fit
Every once a while, however, there are companies that are the equivalent of “firehoses.” A great example of one such company is Uber. These companies are, effectively, rocket ships and are generally venture funded. These venture capital firms often help these rocket ships avoid obvious mistakes that come from relatively inexperienced founder leaders.

Google and Facebook are famous examples of this. Google’s VC’s insisted on replacing Google’s founders with Eric Schmidt as CEO. And, Facebook, on the other hand, installed Sheryl Sandberg to balance Mark Zuckerberg out. Both of these moves worked incredibly well.

Then there’s Uber. Uber exploded onto the scene and had an unrelenting ride to a ~$70B valuation. Uber was such a star that executives at AirBnB, the second highest privately valued firm, suffered from “Uber envy.”

AirBnB, born out of founder’s who hustled their way to product market fit, was growing “slower,” has been tighter with its expenses and invested heavily in building a strong, benign culture.

To put this in perspective, this is what AirBnB’s growth and valuation have looked like.

Uber, on the other hand, seemed to be on a tear. It’s success was on the back of an aggressive, no holds barred, testosterone filled, founder driven culture that enabled it to keep winning.

But, as we’ve learnt, the strengths and weaknesses of any culture are simply two sides of the same coin. Uber had flirted with public relations disasters in the past but seemed to narrowly escape major problems.

Then 2017 happened. This, in turn, has left a big question on most observer’s minds is — is there a way back for Uber?

Product-market fit combined with network effects always offers a way back.
Uber’s product was exactly what the market needed. That gave it the network effects to be incredibly successful. The company has seen about 1 scandal per week, on average, in the last 6 months. Most companies would have imploded — they would lose their ability to attract employees, would lose customers and the faith of the market.

Yet, the product’s success means Uber still has a way back.

But, Uber’s response to the scandals has been weak. They’ve responded by investigating employees and firing employees who have allegations of misconduct against them. And, yet, the board refuses to acknowledge the elephant in the room — the biggest driver of culture is the leader’s personal culture.

Until the board acknowledges that, it is unlikely Uber’s culture problems will go away.

A final reflection — it took some back-and-forth and personal convincing to write this. Previous editions of Notes by Ada have always been about the “hard stuff” and have not touched on aspects like leadership and culture. Perhaps companies, in their urge to grow, do the same. The only way to build a great culture is to do it intentionally — one small decision at a time.

The soft stuff is the hard stuff in the long run.


Links for additional reading

  • Uber fires exec for violating rider’s privacy — Techcrunch
  • Travis Kalanick’s “sex” memo — Recode
  • Why Apple is struggling to become an AI powerhouse — Washington Post
  • Apple launched HomePod, ARKIT — Bloomberg, The Verge
  • Google launches TensorFlow Lite — The Verge
  • Amazon to launch “Ice” — The Verge
  • 12 Things about Product Market Fit — a16z
  • Venture capitalists and Silicon valley’s sexism problem — The Economist
  • Praising AirBnB — The Economist

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