In the world of internet start-ups and disruptive technology the valuations placed on popular new entrants into a market continue to be completely out of whack with their profitability, as they were in the dot.com boom and bust 20 years ago. Companies with a market valuation of $1 billion or more, known as tech unicorns, include Snap Inc. the owners of Snapchat, Airbnb, and Uber. Snapchat is currently valued at between $25-35 billion. But it has never made a profit and its net worth, assets less liabilities, is only $1.5 billion. Airbnb has a market value of around $30 billion, about $7 billion more than physical competitor Hilton, but turned in its first profit only in the second half of 2016. And Uber, currently valued at between $60 -70 billion, made a $3 billion loss last year according to Bloomberg.
Uber has not been getting a good press recently. Reports that it has used a software programme called Greyball (presumably a reference to blackballing) to identify customers who might be nosey officials and deny them access to the service resulted today in a statement that they are dismantling the system. Last month they faced accusations of sexual harassment by a female engineer employed by Uber; the issue was not just that she was harassed by a manager but that when provided with clear evidence Uber’s HR people refused to take appropriate action against the alleged perpetrator. Then the company hired lawyers to investigate her. The suspicion was that they were looking to find an opportunity to smear her reputation.
And perhaps most damaging of all is the video posted by Bloomberg of Uber CEO Travis Kalanick arguing with an Uber driver who filmed the altercation on his dashboard camera. You can see the video here – the explosive bit is at the end.
I want to make two points. Firstly I admire the Uber driver, presumably just a regular Joe, for having the guts to take on his ultimate super-boss without fear or favour. You might argue that he had little to lose, except his job, but Kalanick is a celebrity (he’s the guy who was invited to join and then resigned from Donald Trump’s tech advisory panel after pressure from Uber customers) and many ordinary people become inarticulate drivelling idiots in the presence of the rich and famous.
Secondly, after these various Uber debacles, questions are now being asked by investors and by the press about Kalanick’s suitability as the leader of a $60 billion company. In the absence of real physical value and sustained profitability the worth of companies like Uber comes down to the charisma and ability of their leaders and their ability to talk and keep talking a good game. You might think that the cleverness of original idea determines the value but actually this is much less the value driver because most ideas are copyable (Uber has real competition in Lyft, Gett and others which are essentially clones of Uber) more easily than the charismatic leaders.
The management style of Mr Kalanick reflected by these various incidents reminds me of Sir Philip Green. His style has also always been flamboyant and charismatic but when the chips were down and he was subjected to interrogation by various MPs last year enquiring into the BHS pension scandal he ended up relying on a bit of bluster, a bit of persuasion, some bullying and a lot of buck passing. But the difference between Green and Kalanick is that Green can point to years of profitability of his (or his wife’s) corporate empire. He can demonstrate that he can walk the walk as well as talk the talk.
So I suggest to Scotwork blog readers who negotiate from time to time with celebrity bosses and worry about an imbalance of negotiating power that they look behind the charisma and read the last financial report. That is where the power really resides.
