Growing at the Speed of Uber Always Comes at a Cost
In the corporate world, rapid growth comes at a cost. Deals with the devil always do.
Uber might best epitomize the strengths and weaknesses of the era of unconstrained, disruptive technology companies. On the one hand, its supporters would say that by disrupting entrenched local ground transportation companies and regulations, it has led to a golden era of cheap, abundant ride-sharing options available at the touch of a button on one's smartphone. On the other, detractors have criticized the company for a whole host of reasons ranging from how it treats its drivers to a culture that has been hostile toward women.
Marissa Mayer, the former CEO of Yahoo, struck at the heart of the matter when she absolved former Uber CEO Travis Kalanick of responsibility for the company's cultural problems. "I just don't think he knew," she said. "When your company scales that quickly, it's hard."
But "scaling quickly" was a deliberate choice on the part of Uber, its management team and its investors, which to some extent can be attributed to the business model of the venture capital industry. "Move fast and break things" and "fail fast" are two of the business slogans that have emerged from this era of technology companies. Venture capital firms spread their bets around when it comes to startups, knowing that the vast majority will fail, a small percentage will be modest successes, and then a lucky few will be home runs, earning multiples on their initial investment and paying for all of the losers. Because of this reality, companies with ideas that don't gain traction are encouraged to shut down early rather than continue to waste investors' money, and thriving companies are encouraged to grow as quickly as possible to thwart the competition and to earn outsize returns for their investors.
When the industry in question is semiconductors or cloud computing, purely technical endeavors, perhaps the pros of scaling quickly far outweigh the cons. But as Silicon Valley looks to take over existing industries, scaling responsibly might have to take precedence over speed.
Uber is hardly the only example. Facebook has gotten in trouble by allowing unfiltered "fake news" to show up in people's timelines, and by allowing anyone to use its streaming video service Facebook Live, which has led to acts of violence being broadcast on its platform. This laissez-faire culture of Silicon Valley can't be tolerated as the industry looks to put autonomous vehicles on the road.
The U.S. economy has seen this Faustian script before. When the mortgage industry tried to grow as quickly as possible in the mid-2000s and ran out of well-qualified borrowers, it started lending money to unqualified borrowers. When even that wasn't enough, it increased its financial leverage and turned to complex derivatives. Here in Atlanta and other fast-growing Sun Belt metro areas, in order to grow as fast as possible, real estate developers and regional planners often neglected things like infrastructure and other long-run concerns, leading to traffic delays and other challenges with governance today.
To some extent, the slow economic growth of the 2010s is a direct response to unrestrained growth in the past. Financial regulation and mortgage underwriting is stricter than it was in the past. Construction costs have risen as developers are now often the ones responsible for paying for infrastructure costs associated with development, and communities have passed legislation to ensure they get the kind of responsible development they desire.
We may be approaching this point in the technology sector, when society will demand that companies grow responsibly with corporate cultures that respect all of their employees and partners rather than simply as fast as they possibly can. Whether this new responsible growth model still works for venture capital, or whether tech will need to find a new approach to raising money, remains to be seen.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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