Uber’s decision to withdraw from China, Russia, and South-east Asia marks the transition in Uber’s strategy from hyper-growth to sensible growth. It has helped it check the losses and cash burn which could have been far worse. There was no way that Uber could have kept its boat sailing while fighting Didi in China, Ola in India, Grab in Singapore, Go-Jek in Indonesia and Yandex in Russia- all at once.
The buzz around Uber’s IPO is palpable. It is undoubtedly one of the most anticipated IPOs of all times. Every Tom, Dick, and Harry has turned into a valuation guru, predicting the valuation of the firm. Initial indications were that Uber could seek a valuation of ~$120 billion. But given the slide of Lyft’s share price last week, it is more likely that Uber will be more conservative and seek a valuation of ~$80–90 billion. Whether the stock market will be bullish or bearish to Uber is still unknown. Nonetheless, the meteoric rise of Uber gives startups a few major takeaways to succeed in the journey.
1) Key to fast growth is decentralization
Uber is technology industries’ equivalent of Ripley’s believe it or not! Isn’t it unbelievable that a company founded in 2009 has expanded to more than 600+ cities in 65 countries? This is an incredible achievement. Since July 5th(2010), when Uber (then UberCab) offered its first ride, Uber must have expanded into a new city every 5.3 days to reach to 600 cities in 3219 days(assuming sequential launches). How could Uber achieve this humongous task? Uber established local operations team and gave them full autonomy. This led to multiple mini-organizations fueling the growth of Uber. This decentralized strategy helped Uber scale faster. The decentralized approach comes with a possible risk of misalignment and fall outs. Uber has had minor hiccups with local teams in France, US and elsewhere getting into the news for wrong reasons. But overall, this strategy has helped Uber outgrow its competition.
The crux of the story is- find smart people and delegate. The firms that want to expand geographically need to give more autonomy to the local units and resist the temptation to drive the entire show from the headquarter. In my opinion, Booking.com is one of the firms which intends to go global but can’t let the major decisions slide away from the headquarters in Amsterdam. If headquarter makes all the calls, it becomes difficult for local units to operate to full potential and localize the product as per local demands.
What is the take away for a firm that has no global aspiration? Uber’s model is very relevant even for firms which are local. The idea is to delegate responsibilities to each team and provide them full autonomy to operate. Some mistakes are bound to happen. But every team learns and evolves through these mistakes.
2) Think Big
“At Uber, we ignite opportunity by setting the world in motion.”
Uber never boxed itself to a ride-hailing service. It always envisioned itself as an enabler for mobility. Precisely the reason why Uber Eats, Uber bikes (acquisition of JUMP) and Uber Freights could come into existence. If one wonders as to how could a firm , which is yet to be profitable, command such an attractive valuation, the answer lies somewhere in the grand vision of Uber. By broadening its horizon to mobility, Uber gets access to a potentially huge market. The growth story thus far has been consistent with the vision and Uber has enabled other forms of mobility with food and freight delivery. This, in turn, allows Uber to charge a premium from its investors.
Every firm should ‘think big’, set ambitious goals and strive to achieve them. There is a thin line between being ambitious and being grandiose. While the former is the recipe to success, the later is a sure formula to failure. If a firm sets its vision so impractical that it can not take logical steps to move closer to the stated vision, stakeholders will not buy the story. Hence, the firm will not be able to capture the optimum value. At the same time, if a firm tends to box itself by narrowly defining its vision, it puts a glass ceiling to its own growth.
3) Invest in Future
Heraclitus, a Greek philosopher, said:
“change is the only constant in life.”
His quote is most relevant for the dynamic and disruptive technology industry. The technology landscape is changing rapidly and barriers to entry are virtually non-existent. New players could emerge and take the market by the storm. The product line which is cash-cow today may become obsolete in the near future. Hence, it is crucial to continually innovate and self-disrupt before a new player pops up. Uber shows intent to future proof itself with its investment in autonomous vehicles and forays into urban air transport. No one knows if investments in autonomous vehicles would yield return. And even if it does, the timeline for the same is uncertain. But the fact that Uber is foresighted makes stakeholders believe that the firm will stay relevant in the future and will make right investments to stay ahead of the competition.
It is very important for each and every firm to invest in the future. Not every firm needs to invest in technological innovation. For many traditional firms, the need of the hour is to invest in skill development of employees for a new set of roles with the advent of automation and digital transformation. The bottom line is; if the firm is doing great, it doesn’t mandate that we sit back and become complacent. Instead, we should stay agile and prepare for an uncertain future.
4) Pick your battles
Rapid expansion comes with its own set of perils. If you spread yourself too thin, you risk being torn apart. Uber learned it the hard way and was quick to retreat and focus. I believe that Uber’s decision to withdraw from China, Russia, and South-east Asia marks the transition in Uber’s strategy from hyper-growth to sensible growth. It has helped it check the losses and cash burn which could have been far worse. Picking the right battles enabled Uber to book its first-ever quarterly profits in 2018. Though the firm plunged back into losses soon, investors see the light at the end of the tunnel.
The valuable lesson for every firm is to wisely pick the battles. To get into war with all your neighbors at once is to shoot oneself on the foot. There was no way that Uber could have kept its boat sailing while fighting Didi in China, Ola in India, Grab in Singapore, Go-Jek in Indonesia and Yandex in Russia- all at once. I am sure Uber would have lost Indian market to Ola had it not chosen to let go off few of the other markets. It is worth taking the foot off pedal once in a while to check if we are spreading ourselves too thin to survive.
5) Brick walls are to test your determination
Let me quote one of my favorite lines from ‘The last lecture’,
“The brick walls are there for a reason. The brick walls are not there to keep us out. The brick walls are there to give us a chance to show how badly we want something. Because the brick walls are there to stop the people who don’t want it badly enough. They’re there to stop the other people.”
To believe that Uber always had a smooth ride is to forget the hardships and struggle that Uber had to go through. There were bottlenecks galore. For starters: taxi unions were not particularly pleased with the existential threat that Uber created. This meant that Uber invariably faced resistance from the local taxi unions. The concept of a ride-hailing service that doesn’t own its own fleet was in itself very new and unique. The policies around ride-hailing were either non-existent or obscure. This meant that Uber always had to pre-empt adverse policy changes and work with local governments to establish conducive policies. Apart from these, Uber had its own share of scandals, litigation, and protests. But not once has Uber given-up. The firm has always fought through the situation and evolved as an organization past every brick wall.
Its very natural for us to assume that every successful firm had a dream run. We often ignore the downturns. What separates a unicorn and a ‘popcorn’ firm is not the lack of brick walls but the perseverance and resilience to not settle for anything less than success. Every firm which aspires to be successful should have the intent to encounter every brick wall head-on. If a boat is afraid of tides, it should stay anchored at the harbor.
6) Growth Vs Profit
For firms such as Uber, it is not possible to grow rapidly and stay profitable at the same time. Uber has consciously chosen growth over profit. It may not be the most profitable firm (Uber is loss making), but it is for sure one of the fastest growing firms. It is this scale that has helped Uber complete 10 billion trips worldwide with 15 million more added daily. These numbers stand in testimony to the impact that Uber has over global mobility. This, in turn, elicits trust among investors who have funded the firm’s growth. It is very important for every firm to understand their end objective and ensure that every stakeholder is aligned.
Road-blocks ahead for Uber:
Asset light approach of Uber has helped it scale rapidly. There is no major capital investment required. Both the drivers and riders are free agents. Hence there is no contractual obligation on Uber above and beyond the transaction between riders and drivers. This is a double-edged sword. There is hardly any switching cost for drivers and riders. One has to simply log-off from one application and log in to another. There is no stickiness at all. Any local player could join the bandwagon, sweeten the deal for drivers and riders and challenge Uber. The expansion of a ride-hailing service, Bolt, into 50 cities across 30 countries stands in testimony to the fact. The moment Uber tries to tighten the screws on riders or drivers, it risks losing them to the competition. The Uber growth story has been fueled by promotion and discounts. It will be interesting to see how the market pans out in the absence of these.
Network effect that Uber expected to kick-in at scale still alludes the firm. Additionally, ride-hailing businesses have broken business model for profitability. Dominant players such as Uber and Lyft are bleeding money. For Uber, though losses have decreased as a percentage of sales, profitability is still out of sight. With the current burn rate, Uber would be able to sustain for a couple of years with the new capital raised. What next? For long term sustainability, Uber needs to fund its own growth.
Taxi unions and government regulation are concurrent issues. Every now and then a new government policy threatens to ban ride-hailing companies in some part of the world. Taxi unions continually try to derail the firm. To add fuel to the fire, discontent among drivers seems to be growing. As Uber tries to rationalize their incentive plans, drivers run the risk of making lesser money.
In nutshell, IPO is not an end but just the beginning for Uber. Uber needs to be uber strategic in planning their next move to ensure that they stay relevant in times to come.