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Even Steve Jobs worried about retaining employees. Good luck, Uber

By Sarah Lacy , written on May 16, 2017

From The Travis Shrugged Desk

Editor’s Note: “Uber Tuesday” is a new weekly column by me all about Uber. To protect my sanity, I’m confining everything I have to say about the Valley’s most highly valued and most toxic startup to one day of the week. Enjoy. 

Slowly but surely, Lyft is getting better at this game.

After years of refusing to throw a punch, make hay out of Uber’s constant scandals, Lyft is finally starting to capitalize on its greatest strength: It is a ridesharing leader in the US not run by Travis Kalanick.

First there were those ads that painted Uber as an unfeeling giant corp, who won’t allow riders to tip their drivers. (True, btw.) Then there was its $1 million donation to the ACLU, just as #DeleteUber and the outrage around Kalanick serving on Donald Trump’s advisory council was in full social media rage.

But Lyft’s most decisive gauntlets are thrown with the assist of a company as large or even larger than Uber. It’s like David and Goliath if David’s huge brother stood behind him.

Back in 2015, Lyft stood on stage with Chinese rival Didi announcing all sorts of cozy partnerships and collaborations, including Didi investing directly in Lyft. Lyft emphasized it had no interest in going international, and that it would instead rely on Didi’s network. Didi gave Lyft more firepower to fight Uber in the US….. until, Didi acquired Uber’s Chinese assets and created even cozier financial ties with Lyft’s largest rival.

We saw something similar play out Monday when Lyft confirmed that it was partnering with Waymo to collaborate on self-driving cars. Lyft-- again-- emphasizes that it isn’t going to waste capital trying to compete on self-driving car technology, and Waymo -- like Didi-- uses the deal to thumb its nose at Uber. “See? Some companies decide to partner rather than collude with our ex-employees to (allegedly) steal our technology!”

As with Lyft’s deal with Didi, this could be a risk. Lyft relies on a partner who may suddenly do a partnership deal-- or even acquire?-- its largest rival should Uber continue to stumble. But, still, it’s worth the risk. Uber has done plenty of things ordinary people find distasteful but the two things that have concerned investors are: It’s overspending on a market like China it was never going to win, and -- yunno-- allegations of theft that could leave it unable to pursue the autonomous vehicle market.

Lyft has clearly differentiated its strategy: Sure, we’ll spend a shit load of money trying to compete in our core market and our core service. But we’re not going to burn billions on areas where others have deeper pockets and an obvious market or technology lead on us.

This matters for two reasons, and again, it has absolutely nothing to do with how toxic Uber’s brand is with users: Uber is undoubtedly going to need to raise more capital in the future. Lyft is demonstrating there’s a comparatively “rational” way to build this business.

Further, by focusing on the core ridesharing piece of this, Lyft is priming itself as a potential acquisition target for any of the dozen or so autonomous vehicle companies who want maps, routing data, a customer base, and all the other assets that Uber argues it brings into this fight with automakers, Google, Apple and others. I’ve heard from insiders, the main reason no one has bought Lyft yet is the reticence to take on all those thorny labor issues. Waymo has stayed far away from that, emphasizing even in its Waze-based pilot ridesharing program, that it is not intended for people trying to make a living, the costs should only cover expenses.

But Lyft’s increased ability to distinguish itself culturally from Uber could also hurt in the other place Uber is incredibly vulnerable: With employees. And that couldn’t come at a worse time. 

Uber’s investors have long excused the company’s aggressive culture by saying it’s the only way you could have built a company in such a competitive space with such entrenched, politically connected incumbents. If Lyft can succeed-- even gain market share-- with it’s slow, steady, friendly, focused counter-game, it sends the opposite message. That a lot of Uber’s spending on robotics, Otto, China, and the “global domination” that simply never happened was a colossal mismanagement of funds. If Uber doesn’t have admiration for the speed and size of the business it’s built… well, it doesn’t have much for investors and employees to bet their futures on.

The risk of hiring and retaining talent is even greater than Uber’s risk at finding more capital, because there’s far more capital in the world than autonomous vehicle talent. With the Waymo lawsuit moving forward, engineers heading to Uber will have to worry not just about whether their RSUs will ever be worth anything, but whether their technology will even make it to market.

Plenty of folks in the Valley have said Uber is too big to fail, but no one in Valley history has been immune to vulnerability of the the talent wars.

Every major winner in Silicon Valley -- going back to the “traitorous eight” who left to start Fairchild Semiconductor-- has been shaped by their ability to amass and motivate the best talent. Sure, money can be a quick fix to this. So can being the highest valued company with the fastest growing private stock…. For a time. But because every company will have ups and downs (even Facebook), you need more than just that. Uber has never faced that challenge. And frankly, a lot of people didn’t want to join its culture when it was ascendant.

What’s truly toxic about Uber’s culture is that it has only stood against things, as Jeff Jones warned before he resigned, frustrated with his inability to change anything. It’s a place where certain protected individuals are untouchable and everyone else is expendable. That isn’t a place you stay when the going gets tough and the option of a huge sure-thing payday starts to look doubtful.

The need for talent isn’t just something small companies struggle with, it is the great leveler in the Valley. One of the reasons that companies like Yahoo can never seem to pull out of a death spiral once they enter it.

So great is the power of talent over nearly anything else in the Valley that even Steve Jobs stooped to illegal lengths to “hack” it, when he proposed an illegal wage collusion pack among a dozen or so tech giants, and enforced it with threats that Apple would aggressive raid the staffs of anyone who stepped out of line.

The power of a tight labor market even wigged out Steve Jobs.  

I was reminded of this one persistent law of Silicon Valley when I was (finally) reading Kim Scott’s excellent book on management, “Radical Candor: Be a Kick-Ass Boss Without Losing Your Humanity,” this past weekend. She writes that Silicon Valley has been the best place to study management culture, not just because of the scale and speed with which companies grow here, but because the war for talent is so intense and the stakes are so great.

“So many great companies in the Valley are growing and hiring that there’s no reason to stay with a company if you are unhappy or think your potential is being wasted,” she writes. “And there’s certainly no reason to pay the ‘asshole tax.’ If you don’t like your boss, you quit, knowing that ten other companies will be lining up to hire you. So the pressure on companies to get these relationships right is enormous.”

CEOs need to not only telegraph that they care about their direct reports, that CEOs direct reports have to telegraph that all the way down the line, Scott argues. Having lead teams at Google, built a management training program for Apple and Twitter, and coached countless unicorn and public company CEOs, Scott has seen this over and over again.  

Let’s remember Susan Fowler’s description of how middle managers behave at Uber: A Game of Thrones like environment, where performance reviews can be changed without the employee’s knowledge, women are propositioned by managers, and human resources urges you not to report anything or put it in writing.

Until now, Uber has (somewhat) gotten away with it because for a time it’s value and potential seemed so far outside what any existing public company or unicorn can offer. That’s very much in doubt now.

This could get worse soon. The Information has reported that Uber is loosening the handcuffs around some of its longest standing employees, some 10% of the company. From TechCrunch’s write up of the news:

Uber is dropping the requirement that employees who quit must exercise their options they have within 30 days or lose them; instead, the employees will have as many as several years to exercise the options after they’ve left the company….Given the seemingly endless turmoil surrounding the company, it’s probably fair to assume that many of those people will, in fact, hightail it despite the morale-boosting gesture on Uber’s part.

Recode is reporting that two members of the A-Team might become sacrificial lambs in the company’s internal investigation into its culture: Co-founder and board member Ryan Graves and CTO Thuan Pham. (BI reported months ago that the continually marginalized Graves had been MIA and might be a scapegoat…)

Meaningfully placed heads finally rolling at Uber isn’t something we’ve seen before. Still, it won’t solve the problem. Everyone knows this culture is coming from the top. All Kalanick will have done is show that the pressure is starting to get to him.