Super Pumped : The Battle for Uber (9780393652253)

by Isaac, Mike

  But as one Uber employee competing with Lyft at the time said, “The law isn’t what is written. It’s what is enforced.” To Kalanick’s dismay, SF transit authorities weren’t enforcing a damn thing. For all his bluster about ignoring regulators and disrupting an industry, Kalanick hadn’t actually gone as far as Lyft and Sidecar. Up until then he hadn’t been willing to cross the line into extreme ride-sharing.

  But he was wrong to hesitate. After Kalanick took his first Sidecar, it clicked. There was an enormous potential market in peer-to-peer ride-hailing with everyday drivers. Kalanick needed to build the same thing for Uber.

  From the sidelines, what Gurley saw struck him like a lightning bolt. Uber wasn’t just fighting for a piece of the taxi and limousine market. It was competing against every mode of transportation in existence.

  “Could Uber reach a point in terms of price and convenience that it becomes a preferable alternative to owning a car?” Gurley later wrote on his blog.

  Uber decided to go all in. In a policy paper published to the company’s website, Uber announced that it had created a low-cost option, “UberX,” that allowed for ride-sharing. Uber was going head-to-head with Lyft.

  “We could have chosen to use regulation to thwart our competitors,” Kalanick wrote, disingenuously, upon flipping the switch to launch UberX. “Instead, we chose the path that reflects our company’s core: we chose to compete.”

  Most people who know Travis Kalanick remark on one thing: in every game he plays, every race he enters, in anything where he’s asked to compete against others, he seeks nothing less than utter domination.

  Friends who grew up with Kalanick said he was obsessed with being the best, be it running track in middle school against the teams from across the Central Valley or participating in debate competitions—something he did for fun—all in order to win.

  “He used to give some of his teachers nervous breakdowns,” his mother, Bonnie, once said of Kalanick’s tenacity. Debate was particularly stimulating for him. He enjoyed finding logical pathways forward in an argument and exposing weaknesses in his opposition. (Even decades later, little excited Kalanick more than discovering an opponent’s vulnerability and exploiting it.)

  It wasn’t just that he liked to win. Kalanick needed to win. Winning was the only option, his only goal. If you weren’t going to go home with the gold medal at the end of the day, why even show up to the game?

  At Uber, winning meant the obliteration of any opponent. There wasn’t enough room for Uber and Lyft to coexist, he believed. The game was zero-sum. Every single ride-hailing car on the road in every single important market should have an Uber driver behind the wheel. Nothing less than a complete monopoly would suffice.

  Kalanick enjoyed the fight. At first he began to needle John Zimmer, Lyft’s co-founder, on Twitter. In playful jabs, he would troll Zimmer by asking about Lyft’s insurance policies, business practices, and other seemingly esoteric shoptalk. Then he would start picking Zimmer and Lyft’s business apart.

  “You’ve got a lot of catching up to do,” Kalanick would tweet at Zimmer. He loved adding the hashtag “#clone” to his tweets, insinuating that Lyft was an Uber copycat. Zimmer tried to take the high road when he responded, but Kalanick was pissing him off.

  “He wasn’t satisfied with winning,” one former Uber executive said of Kalanick’s drive. “He needed to rub your nose in it. Like a master training a dog to submit. It was intense.”

  Every time Kalanick drew blood, he pushed further. Zimmer spent months on the road as Lyft began to gain traction, soliciting Silicon Valley venture capital firms, hedge fund managers, and private equity outfits for funding to grow their business. Whenever Zimmer walked out of a meeting with a new potential investor, however, Kalanick would undermine him. Somehow Kalanick always knew where Zimmer had been.

  “We knew that Lyft was going to raise a ton of money,” Kalanick once admitted on the record, bragging about his desire to cripple his competitor. Kalanick would make sure investors knew that, between the two companies, they could only invest in one. His primary concern was information sharing. He would tell potential investors, “Just so you know, we’re going to be fundraising after this, so before you decide whether you want to invest in them, just make sure you know that we are going to be fund-raising immediately after.”

  The tactic worked. Zimmer would soon get a call from the investor, apologizing and backing out of Lyft’s latest series.

  Wherever Lyft went, Uber showed up to harass them. One of Lyft’s most effective grassroots tactics was holding what they called “driver events,” small parties for a hundred people that Lyft was trying to court as drivers. These events—replete with booze, pizza, cakes, and party games—often endeared the drivers to Lyft; people who attended them felt like the company actually cared about them.

  Kalanick made sure to ruin those for Lyft, too. He’d send his own employees to the events, where they would show up in jet black T-shirts—Uber’s signature color—carrying plates filled with cookies, each with the word “Uber” written in icing. Each Uber employee had a referral code printed on the back of their T-shirt. The codes were for Lyft drivers to enter when they signed up for Uber, earning them a bonus.

  Even when they weren’t crashing Lyft parties, Uber found ways to mess with Lyft. All around San Francisco, Uber bought street signs and billboards targeting Lyft. Each billboard showed a large, black disposable razor blade with “Uber” printed on the handle, poised above one of Lyft’s pink, cuddly trademark. In the text beside the graphic, Uber made its message clear: “Shave the ’Stache.”

  Beyond the pranks and Twitter trash-talk, Kalanick figured out a much more effective way of killing off his competitors.

  As he once put it to his employees, quoting Puff Daddy: “It was all about the Benjamins.”

  Uber had discovered a winning formula to expansion. But each new city required capital, an upfront investment to kickstart what they called the demand “flywheel.” Drivers wouldn’t work for Uber unless there was enough demand from riders. And new riders wouldn’t sign up or return unless there was a critical mass of available drivers. It was a classic chicken-and-egg problem.

  “Uber solved that problem by straight-up buying the chicken,” Ilya Abyzov, an early Uber manager in San Francisco, told friends of the strategy. Uber began torching hundreds of thousands of dollars, giving away the money as driver subsidies. They paid bonus cash when a driver completed a certain number of rides or drove for a certain number of days. Uber would also flood the rider side of the market with cash, doling out thousands of dollars in free rides to new customers. Their theory was, if we can get people to use our service, they’ll see how amazing it is and won’t want to stop.

  And they were right. Once Uber hit a new city, word of mouth spread quickly; customers loved the novelty of seeing their ride wind its way towards their location on the app. People loved how shockingly cheap the (subsidized) rides were. They enjoyed not fumbling for cash, or having to tip drivers when they left the car. Uber appeared out of nowhere, and it was magical.

  But making the magic cheap for users required cash. Kalanick knew Uber had to grow quickly, in hundreds of cities, before competitors and regulators could stop them. To do that, Kalanick knew what he needed: a war chest.

  Kalanick was good at putting on a show for venture capitalists. Even as a child, he had always been a talented showman. He had already spent years giving pep talks and advice to young entrepreneurs during his period of angel investing. Now, preparing his funding talks, he’d spend hours preparing a slick PowerPoint slide deck with eye-popping financial statistics. He’d rehearse his presentation by himself, over and over, making sure he clicked the remote control for the next slide at the exact right moment in his speech; timing was crucial.

  When he was on, Kalanick was on. He was a force of nature with investors, a Jobsian tech wizard cro
ssed with the hard-charging motivational speaker played by Alec Baldwin in Glengarry Glen Ross. “A-B-C,” Kalanick chanted to himself, repeating Baldwin’s words in his head. “A-Always, B-Be, C-Closing. Always be closing. Always be closing!” Kalanick didn’t fuck around; he knew how to close a deal.

  The first few rounds brought Uber tens of millions in venture capital. But Kalanick needed more. A lot more. The company was entering the big leagues of fundraising, where Uber wouldn’t be asking for an errant five to ten million dollars from a rich tech enthusiast.

  Uber needed billions.

  Chapter 9 notes

  ¶¶ Kalanick and other executives said this regularly to inspire employees. That much of the world doesn’t actually have access to running water, and might want that need met first, was a detail that the Uber CEO and his peers never addressed.

  *** Ridiculously enough, the idea for Lyft’s pink mustache sprung out of one employee’s recognition of the popularity of “truck nutz,” literally a pair of fake testicles that drivers could affix to their cars’ bumpers. For some reason, both were wildly successful with the public.

  Chapter 10

  THE HOMESHOW

  It was Gurley who connected Kalanick to his secret fundraising weapon.

  A good venture capitalist helps a startup recruit. Gurley wanted to find Kalanick a funding wingman, and he had the exact right person in mind: a talented dealmaker from Tellme Networks, a telecommunications software outfit that had been around since the late nineties. Tellme powered telephone-enabled apps, like voice-based personal assistants, or the automated software airlines use to answer the calls of irate customers with flight delays.

  Emil Michael was the deals guy for Tellme. Though his sense of humor was brash, Michael presented to clients as a polished entrepreneur; he know how to glad-hand MBA types around the Valley. Tellme had survived the dot-com bust in part because Michael had struck partnerships with big corporations like AT&T, Southwestern Bell, Fandango, and Merrill Lynch. Even after the bubble burst and Tellme needed to lay off staff and retrench its operations, the company was able to parlay its assets and talent into a home-run sale to Microsoft in 2007 for more than $800 million.††† Michael knew how to get a deal done.

  A first-generation immigrant from Egypt, Michael grew up as the son of a pharmacist father and a chemist mother in Westchester County, New York. Michael was a child of the New Rochelle suburbs, a family of color in a largely working-class neighborhood. To fit in, Michael networked. He was gregarious from a young age, chatting with customers more than twice his age while working behind the counter for his father at the small-town pharmacy. People knew the Michaels, and young Emil and his family knew them in turn.

  Michael earned good grades and secured a spot at Harvard for undergrad. There, he studied government and then went on to Stanford Law School, which brought Michael to the heart of Silicon Valley. He graduated with top marks, eventually landing a job at Goldman Sachs in the communications, media and technology group. There, Michael cut his teeth in the dealmaking world, watching his co-workers buy and sell companies every day. They fought like gladiators, recapitalizing firms, flipping them, stripping them for parts. But it was the burgeoning technology group that whet his appetite for eventually landing inside a Silicon Valley startup.

  After Goldman, Michael began his nine-year run at Tellme, and then went to Washington to take a job as a White House fellow in the Obama administration, working as a special assistant to the secretary of defense. That rounded out his skill set; a deals guy with Washington contacts could go far in the private sector, where Michael felt most at home. The government job lasted a few years before Michael went to Klout, a social influence measurement company. Using proprietary algorithms, Klout scored the amount of reach a given consumer might have across sites like Facebook, Twitter, and Tumblr. Users with high Klout scores were rewarded with perks at partner companies; an influential Klout user might get an upgrade on a Virgin America flight, or a free breakfast at the Palms hotel in Las Vegas. Michael was the guy who struck all the deals with partner companies. Klout executives loved his hustle.

  Bill Gurley had connected the two men in 2011, but they wouldn’t truly sync up until Gurley called Emil Michael in 2013, asking if he wanted to hear about an enormous opportunity. “We need you over here,” Gurley said. Working for Uber early in the company’s life cycle, Gurley said, was too good an opportunity to pass up. Gurley loved how aggressive Kalanick was, but he knew the CEO needed a counterbalance, someone to check Kalanick’s baser tendencies. Michael, Gurley thought, could be the grown-up in the room.‡‡‡

  Besides babysitting Kalanick, Michael would do for Uber what he had done for Tellme and Klout: strike lucrative deals with partner companies. Gurley had never seen a more talented dealmaker than Michael, whose silver tongue and affable personality could charm business development types.

  The pharmacist’s son had something Kalanick lacked; he had the emotional intelligence to adapt to any situation. Kalanick could be pigheaded. With slicked-back black hair and dark features, Michael would shake your hand and meet you with a wide smile, putting you at ease even as he sized you up. Every interaction was a negotiation, every opening a potential weakness. He spoke the language of the Street and, having spent more than a decade around technology companies, could adequately sell the abilities of Uber.

  But the qualities that made him such an effective dealmaker had their flip side. Michael tended to mirror his partners, taking on the qualities of the group in order to fit in. It was his instinct from his youth in Westchester; to avoid being an outsider, he would become the ultimate insider. At his best, he was a great drinking buddy and even better new friend. At his worst, he was an enabler—a partner who not only helped mastermind the plan, but conspired in the coverup as well.

  Kalanick took to Michael immediately. Michael was hired on as Kalanick’s second in command of sorts, officially Uber’s “Chief Business Officer.” The title was akin to a chief operating officer, though in practice he became “dealmaker in chief.”

  His real job would eventually enmesh itself with his other job; best friend to Travis Kalanick. Michael and Kalanick became inseparable, chatting strategy and business together throughout the day while spending evenings and weekends hanging out. They would dine together, take road trips to speak to partner companies together—they’d eventually begin vacationing together, a foursome composed of Kalanick, Michael, and their respective girlfriends. They took trips to places like Ibiza and Greece together—boundaries between the two melted away, personal and professional merged. They were “bros” and acted accordingly, spending lavishly at nightclubs and upscale dinners that befitted the lifestyle Kalanick imagined appropriate for himself and his close friends.

  Where Kalanick and Michael really shined, however, was in raising money. The two perfected their technique through sheer force of repetition. In a Wall Street IPO, for instance, a company puts on what is called a “roadshow,” in which bankers representing the startup travel from city to city pitching investment firms on their company. Kala­nick, however, had no intention of going public (at least, not any time soon). So, he and Michael developed their own method, affectionately titled “the Homeshow.” There was enough interest in Uber that the two flipped the power dynamic, forcing investors to come to Uber’s San Francisco headquarters, fighting to get in on their dance card and waltzing to their tune.

  Kalanick and Michael created a system built around scarcity. Uber would hold only three meetings with bankers per day for the span of a week, and the investment firms would have to jockey for a time slot.

  They called Kalanick “the showman,” and he was. He had the poise, timing, and “wow-factor” needed to pique the interest of bankers, VCs, and hedge funds who sat through hundreds of startup pitches a year. Kalanick brought a meticulously composed slide deck, larded with cherry-picked numbers that showed Uber’s
enormous “hockey stick potential”—a term that referred to the shape of the growth curve every entrepreneur and venture capitalist wants to see when building a company. And he didn’t have to work hard to get those numbers. Uber had what was called “negative churn”—a term often used to describe software as a service, or SaaS, companies. Having negative churn meant that once customers used the product, they were more likely to keep using it regularly thereafter. “It means that customer accounts are like high-yield savings accounts,” a venture capitalist once wrote of the term. “Every month, more money comes in, without much effort.”

  Kalanick’s data showed that by the time a customer used Uber an average of 2.7 times, they became a customer for life. The product was just that good.

  Kalanick modeled his approach after his idols: Steve Jobs, Mark Zuckerberg, Larry and Sergey. He positioned Uber among the famous world-changing tech companies, and implicitly put himself among those legendary founders. His performance in the boardroom convinced each set of new executives that he might be right.

  Then, after Kalanick had wowed the room, Emil Michael was the closer. As Kalanick whirled through his pitch deck, Michael kept an eye around the boardroom table for body language. Who was leaning in? Whose eyes lit up at the sight of our growth numbers? Who couldn’t wait to make an offer? Investment firms would send enthusiastic follow-up notes, but Michael would wait to respond, making them sweat. A week later, potential investors would receive an Excel spreadsheet to fill out, asking them how much money they’d be willing to put into the company and at what valuation. Kalanick set them up, Michael knocked ’em down. The entire process, soup to nuts, took the duo three weeks. It was a dance they would repeat, time and again, over the next five years.