Hello everybody, Tom Ellsworth here, and welcome back to Case Studies with the Biz Doc.
This week it's the making of Travis Kalanick and Uber.
We're going to find out what made Uber co-founder and CEO, Travis Kalanick into the man he is
today.
More importantly, the highly successful leader and CEO.
And along the way, we're going to look at the first four rounds of financing for Uber.
In a later case study, we're going to dive in to Uber a little deeper and take a look
at what they did to overcome controversies, when they reached opposition in the face of
their success, and how a great company recovers and keeps growing at a record rate.
But for today, let's dive in to what made Uber and what things were in Travis' life
that formed him into the CEO we know today.
There's going to be three points that we're going to dig out today that I think will be
very helpful and interesting to everyone.
One is, most great CEOs don't come out of nowhere.
They learn lessons and they acquired skills and experience along the way.
Today's core points are the following three items.
#1: Most great CEOs don't come out of nowhere.
They had some sort of learnings or experience along the way.
There are very few Bill Gates and Mark Zuckerbergs who dropped out of Harvard, joined a company,
and then went forward.
And in the case of Zuckerberg and Gates, they both had a lot of experience along the way.
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 company, assemble a great core team early.
You can't do it yourself.
But, keep yourself in the vein of the Lean Startup, a great book that I recommend, by
Eric Ries.
Keep it lean, but get a great team of core people that will be the brain trust and the
genius that moves your company forward.
And point #3: The moment you know what you've got, go big and go fast.
And if you have a great core team, that's your platform to go big and go fast.
Because you can't do it alone.
So those are the core points.
And now let's dive in to the life of Travis Kalanick and take a look at the things in
his background 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 for in 1994, there was a massive earthquake that made world headlines.
And that's the area where he grew up.
After getting out of high school in the valley, he got into UCLA in a computer engineering
degree path.
That was his major.
That's what he was studying.
So as you can see, this is a very bright guy that got into a great college and he was studying
pure geek.
A lot of good geek that goes into that.
Some of the greatest companies in the world are made out of comp sci majors and engineers
who are just taking that geekdom into stardom, and build fantastic companies.
Travis was no different.
But apparently he had a little bit of an itch to do more than just go to college.
Because at the age of 22, in 1998, he dropped out of UCLA.
Something that I happen to think is actually good.
You need to get a degree to learn things like comp sci, but there is a side of me that doesn't
believe that everyone should go to college.
But anyway, that's for another story and another day.
But in this case, he drops out and he 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 that remember, there's a little company called Napster that was doing
peer-to-peer audio, and allowed people to share songs without paying for them.
Or one person paid over here, and a thousand people shared the song.
And meanwhile the artists and record companies got upset.
Yeah, that was peer-to-peer.
And Travis was working in a company called Scour.
Now it had some interesting first investment, which put Travis in contact with some big
players.
One of those was Michael Ovits, former president of Disney, and the founder of mega agency
CAA, Creative Artists Agency.
And, Ron Burkle of Yucaipa companies, a massive private equity company.
So here he is dropping out of UCLA, joining Scour and getting an acquaintance with some
very big players.
Well, in October of 2000, if you go back and take a look at history, you'll see that the
peer-to-peer companies were getting 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 you're sued for $250 billion, it's really not 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 everything we have from us.
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 could sue me for earth, the value of earth.
I haven't got it.
So good luck with that.
And what really happened is it forced the company into bankruptcy.
So they filed chapter 11 bankruptcy, after being sued for an amount which is bigger than
the gross domestic product of Nicaragua, you know, they said, okay, that's it.
But then, undaunted, Travis creates Red Swoosh.
It was also a peer-to-peer file sharing company, so he was staying in the peer-to-peer space.
And you should stay tuned 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 see a relationship here, show up later.
Which is really important.
Even in the midst of failure, sometimes relationships you have here become in handy here.
So don't make enemies.
Move on.
Because you never know who can come back and help you later.
So anyway, this runs for about five, six years, and he sells it to Akamai.
Well he's 30 years old now, and he sells a company to Akamai.
So he experienced dropping out of school, joining a company that gets sued and goes
bankrupt, and starting a company that doesn't go crazy.
It only sells for something around $20 million.
And funny thing is he said it was kind of a revenge business.
Kalanick did an interview with Fast Company where he said basically everybody that was
suing him over here, became customers of Red Swoosh.
So he thought it was kind of ironic and he referred to it at the great revenge business.
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 lead him to think
about, you know, maybe ordering a black car, you know, town car, to take you to the airport
or out to dinner or something maybe that could be made easier by using a cell phone app.
And so the concept is born that would become Uber.
And so Uber's 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 back in those days,
he called himself a mega adviser and chief incubator.
He wasn't the CEO as of yet.
In 2010, in early 2010, a guy named Ryan Graves joins, a real product guru, and he becomes
the first CEO.
So they're working on this, putting it together.
And in June 2010, Uber launches in San Francisco.
And at the time, an Uber black car cost like 1.5 times the cost as a cab.
But, guess what?
You could get it really quick, and 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 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 cab on the street.
Is that guy available?
We've all been there.
They also increased the availability of rides.
Because you could see cabs that weren't necessarily on the street.
You could see cars now with the Uber app that maybe were five streets away.
You could signal them to come to you.
So they increased the availability of rides, and then they eliminated the number one thing
that we hate about cabs is the stinky car that is just atrocious.
You don't ride in cabs because you want to.
We've always ridden in cabs because we had to.
And we ignored the thoughts of whatever has happened in the back seat, been thrown up
in the back seat or left in the back seat.
The whole smelly cab experience we set aside.
And guess what?
All of those four factors is pure Blue Ocean.
So here comes Uber, a Blue Ocean in getting rides for you and me to go where we need to
go.
So there you have 2010.
Well in October of 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, he had also been a guest on the Shark Tank show on T.V.
So he had been around with some early stage, you know wild ideas of course, and, another
investor, Napster co-founder, Shawn Fanning, back from the peer-to-peer days, back here
becomes an early seed investor in Uber.
What goes around comes around.
Sometimes people that you worked with over here come in handy over here.
So, there it is, December 2010, after this wonderful, successful launch in San Francisco,
and Ryan Graves who was a CEO, he decided he'd be the GM and Travis becomes the CEO.
And so there you have it in 2010, he becomes the 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 history, you would think, wow, he just got lucky and had an idea
to start a company.
There was no luck here.
This was a 12-year education.
He got a master's degree in experience, failure, success, founding a company and all of the
headaches that go along with it.
That's what led to the creation of Travis Kalanick who's now the CEO of Uber, as 2010
comes to a close.
Well things were off and running and once you have your seed funding and you're successful
and you 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 that was led by Benchmark and it was a $60 million
value, and $11 million into the company invested.
And Bill Gurley, the legendary VC Bill Gurley of Benchmark, joins the board of directors.
But Bill Gurley was a guy that invested in a company that I had the privilege to be a
part of, Jamdat Mobile.
He was in our series D, but he was a guy that I had a lot of respect for, and has always
been on the forefront of some real innovative ideas.
And nonetheless, there he is, series A, $60 million valuation.
Well, in May of 2011, just a couple of months later, they actually launched in New York
City.
That was a little controversial, because New York City is a union cab town, but nonetheless,
they launched.
Today it's one of their biggest markets.
And what's interesting, five years later, after launching, over a one-year period, from
April 2015 to April 2016, Uber averaged 170,000 trips a day in New York.
So five years later, and all that controversy later, New York is one of their most controversial,
but one of their most successful markets.
Now, there's also an interesting thing that went on in 2011.
There was a conference, in the 4th quarter of 2011 called Failcon, a conference talking
about failure.
And you know who spoke?
Travis Kalanick.
And you know what he said?
He said, the 10 years before Uber was a case study in failure.
And he openly talked about all the things that led him to do this and do that and the
experience that made him who he is today.
So you should go 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 $32 million series B. So now in the course of just a few months, they've
raised, you know, $43 million and the people in series B, 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 you don't think the Goldman Sachs boys making an investment here are thinking about
a future IPO, you're not paying attention.
That's exactly how some banks get involved early.
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
the entitled cab drivers were trying to force legislation and stuff 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 so they're trying to legislate away free enterprise.
And it's just not going to work.
So anyway, that's what was happening this year, the seeds of which were 2011, as 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 it wasn't
just 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, building another product
chapter, putting their mind to good use.
And so you can see they didn't just say, "it's all about black cars.
It's all about black cars, all about limos."
Nope, they were thinking beyond and as we will see in a few minutes, they were thinking
well beyond.
So that service about again 35% less expensive than a black car, you had Prius' picking you
up, and there you have it.
Well, in August of 2013, now we're less than two years later, they were continuing to grow
and add cities, and controversy would come up from unionized cabbies, but here comes
the big money.
They raise $258 million from Google Ventures and, by the way, it was a $3.76 billion valuation.
They were now what people like to call a unicorn, which is a company that's a startup and is
suddenly worth more than a billion dollars.
And that was just incredible.
So their forays and success drove a need for capital, but with that came the valuation.
This is part of my point about going big and going fast.
Within a year of that, July of '14, so, July of '13, July of '14, they raised $1.4 billion
in a series D at a $17 billion valuation.
Let me say that again.
$17 billion valuation.
And at one point Uber was the most valuable private company that hadn't gone public yet.
And they continued to invest in technology and apply technology.
For instance, they started Uber Pool, which you and I may know about.
It's a car pool . You could see people going your direction.
You could hop in an Uber with them, you only pay for your part of the trip, but you're
all splitting it.
So it's efficient for two or three people to share one Uber.
Then they started Uber Rush, which was a bicycle messenging service in New York.
They also started Uber Cargo, where you're allowing people to pick things up and drop
it off in trucks and small vans.
And then Uber Eats.
As a matter of fact, the founder of Valuetainment, Patrick Bet-David, he uses Uber Eats a lot
because we're working crazy hours, and we want good meals delivered.
So we're customers of Uber Eats and we say hey, we need to get something.
Get me one of these, one of those.
We call for Uber Eats and great food is here.
And that is an example of strategy thinking beyond, and strategy applying saying, you
know, we got 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 bicycle messengers use this as well?
And that is the first chapter of Uber.
Going all the way to their series D, the first six years with the growth.
And as you know if you read the headlines, and I know you pay attention, because these
viewers, I know you ask 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, such as facing competition from Lyft - much smaller, but also a competitor.
Facing the city of Austin, Texas putting in legislation that actually led to Uber and
Lyft saying, okay, the hell with it.
We'll leave Austin, Texas.
See what the people have to say about that and maybe they go back to city hall and say,
hey, you know, we need more than just taxis.
Come back.
We're going to see how that plays out.
We're also going to see some things happened internationally, such as having to leave Hungary
because Hungary forced federal legislation down their throat and basically defended legacy,
inefficient cab service.
Socialist entitlement, squashing free enterprise, at its worst happened in Hungary.
And so we're going to see how Uber maintains its status of an incredible, growing company
and raises billions and billions of more dollars in capital to continue global expansion and
it becomes a fantastic mature company, responding to things that are going on around it, under
the leadership of a UCLA dropout named Travis Kalanick.
And that, my friends, is chapter one of Uber, the making of Travis Kalanick and Uber reminding
you of those simple points.
Great CEOs quite 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.
One, put a great core team around you early, but stay lean and then when you know you've
got something, and that it's time to go big, go big and go fast.
And as you can see, Uber went out to get 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 peek of that.
And for today, we are saying, thank you, and I'll see you 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.