What Kalanick's Fall Means for Silicon Valley Culture

By Rolfe WinklerFeaturesDow Jones Newswires

For years, Uber Technologies Inc. founder Travis Kalanick has been the poster boy for Silicon Valley success, idolized by entrepreneurs for building the world's biggest venture-backed company with an approach that snubbed convention and prioritized winning at all costs.

On Tuesday, Mr. Kalanick lost, pushed to resign as Uber's chief executive by rebellious investors -- a stunning fall that is prompting reassessment of the growth-obsessed culture that Uber epitomized.

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Mr. Kalanick's resignation followed a string of scandals that exposed a toxic work culture at Uber with allegations of sexual harassment and sexism. For some investors and entrepreneurs, the message is that companies can't afford to place ambitious expansion targets ahead of basic principles.

"Move fast and break things, sure," said Wesley Chan, an investor with Felicis Ventures. "But don't move fast and break your people." Mr. Chan was previously at GV, the venture-capital arm of Alphabet Inc. that is an investor in Uber.

Mr. Kalanick resigned late Tuesday after Uber investors led by Benchmark's Bill Gurley, a company board member, sent him a letter that said they no longer had confidence in his leadership. Lacking support of investors and many employees, Mr. Kalanick departed despite his de facto control of the company through board seats and super-voting shares.

As the company searches for a new CEO that can fix its culture, maintain breakneck growth and stem a torrent of red ink, the tech industry is reflecting on lessons of how to knock down market barriers and fend off competitors, but while doing it responsibly.

"Running fast and working hard is not going to go out of style," said Marco Zappacosta, chief executive and co-founder of local services company Thumbtack Inc. "But something that will is the conceit that growth solves all problems. Turns out you can't grow yourself out of a culture rot."

Mr. Kalanick isn't the first hard-charging tech founder to be ousted, though others were often forced out because of disagreements with co-founders or after revenue growth hit a wall. In the most famous example, Apple co-founder Steve Jobs was fired in 1985 after he tried to get Chief Executive John Sculley removed. Twitter Inc. co-founder Jack Dorsey was pushed out after spats with other founders. Both later became CEOs of their companies.

More recently, health-benefits broker Zenefits pushed out CEO and co-founder Parker Conrad amid regulatory lapses, but also because revenue growth was falling far short of expectations. Mr. Conrad similarly had voting control of his company.

Mr. Kalanick's aggressive style and guerrilla tactics helped Uber battle regulators and taxi commissions around the world and push the company's valuation to $68 billion. His brash style was tolerated by investors, who saw him bulldoze entrenched rivals in protected markets. Mr. Kalanick's success spawned a new generation of "Uber for everything" startups that mimicked the company's business model, hoping to turn smartphones into remote controls to summon a range of services beyond cabs.

But as the company got bigger, that mentality bred a culture that former employees say was overly aggressive and toxic. In the end the culture didn't evolve as Uber grew into a 12,000 employee company. Its human resources structure failed and Mr. Kalanick's management style went unchecked by investors.

Mr. Gurley declined to comment. He tweeted late Tuesday, "There will be many pages in the history books devoted to [Kalanick] -- very few entrepreneurs have had such a lasting impact on the world."

Culture problems can have serious business impact at tech companies, where the difference between success and failure is often their ability to attract talent. Uber has struggled to fill a raft of open jobs, including the heads of operations, engineering, finance, marketing, legal and many other positions.

"If a company does not build a strong culture and values, at some point it will no longer be able to recruit the most talented employees, innovate faster than competitors, and grow," said Bob Kocher, a venture capital investor with Venrock. "I think at Uber, the lack of learning from their pitfalls and the unstable culture and churn of talented employees created huge worries about Uber's ability to deliver on the exceedingly high expectations that they have set for themselves." Mr. Kocher's firm didn't invest in Uber.

Silicon Valley investors have been more deferential to company founders in recent years, partly because founder-led companies have been some of their biggest winners and partly because abundant capital enabled founders of hot companies to drive hard bargains.

The percentage of U.S.-based venture-backed companies valued north of $1 billion that secured super-voting shares from investors increased from 20% in 2014 to 39% in 2016, according to a survey by law firm Fenwick & West.

But the trend has started to reverse, says Ivan Gaviria, a lawyer with GundersonDettmer.

"We already hit 'peak founder control' about 18 months ago from a governance and structuring point of view," Mr. Gaviria wrote in an email.

(END) Dow Jones Newswires

June 21, 2017 17:13 ET (21:13 GMT)