Given the cloud of negative publicity following Uber around for the last year or so, it might seem odd to proclaim that the prospects for an Uber initial public offering are looking better than at any other point in the past 52 weeks.
But it’s true.
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In recent weeks there have been two major events — the addition of a tipping option for drivers within the Uber app and the surprise resignation of founder and CEO Travis Kalanick — that make the eventual, inevitable Uber IPO far more attractive. Here’s why:
Tipping policy. Uber’s philosophy in the past has really revolved around making things easy for the rider. Generally that comes at the direct expense of drivers, and it seems that the company is finally beginning to realize that it needs to make its drivers happy, too.
One of the main differences between Uber and its primary rival Lyft, from a driver’s perspective, has long been the ability to collect tips, which Lyft allowed and Uber did not. This month, Lyft announced that drivers had cashed out a total of $250 million in tips.
Uber is finally wising up, and just announced an in-app tipping feature as part of its “180 days of change” program, a six-month initiative aimed at making things easier and more lucrative for drivers.
So, you might ask, what does that have to do with the Uber IPO?
“Its new tipping policy is intended to keep drivers from leaving to other platforms,” says Juda Engelmayer, a crisis communication and reputation management expert at HeraldPR.
“For investors, it’s a positive step,” Engelmayer says. Uber “still has work to do on its driver acquisition policies, and those will change too.”
At the end of the day, retaining and recruiting drivers is vital to Uber maintaining and expanding its market share. The more drivers there are, the lower wait times are for riders, and the more affordable Uber’s service is (less surge pricing).
Keeping drivers happy and reducing turnover is also something IPO investors will want to be confident about when Uber goes public. The entire ride-hailing industry is built around the concept of being a loss-leader today in order to seize market share and eventually become wildly profitable tomorrow, when all those pesky drivers become autonomous vehicles.
Why else would investors place a valuation of $68 billion on a company that lost $2.8 billion in 2016 and $708 million in the first three months of 2017? It’s all about the future, and contented drivers are central to any ride-hailing company’s future success.
CEO Kalanick resigns. The only thing that’s more important to Uber’s future success than its renewed focus on drivers is the extreme management shakeup currently underway. Travis Kalanick’s sudden resignation on June 20 was essentially the necessary culmination to a long and unfortunate string of Uber scandals and executive departures.
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After an Eric Holder-led investigation into the company’s culture turned up a list of 47 recommendations to implement, the board voted to go ahead with every one of them. The very first recommendation? “Review and reallocate the responsibilities of Travis Kalanick.”
After the report, Kalanick announced he’d be taking an indefinite leave of absence before ultimately deciding to resign as CEO — a decision that was directly influenced by Uber investors themselves.
“While Uber is privately held, its major investors collectively agreed that they had lost confidence that Travis Kalanick could effectively lead the organization. Several high profile executive departures added fuel to the fire,” says Bob Johnson, president and CEO of the American College of Financial Services in Bryn Mawr, Pennsylvania. “A CEO with baggage is never a good thing for a company, particularly one considering an IPO. In today’s business environment, a CEO tainted by allegations of sexual harassment simply cannot survive.”
But it’s not just bad optics for a company going into an IPO to have a CEO whose reign was tainted by allegations of sexual harassment. That stigma materially affects the business by making it far more difficult to find and attract the best talent; Uber is now looking for a COO, CFO and CEO.
“What CFO would want to work for Mr. Kalanick? Not one who is a true business leader who would be putting their reputation on the line with public investors,” says Dave Arnold, president of Arnold Parnters, a leading executive search firm.
The CFO, or chief financial officer, is the core executive leading the charge toward an IPO. What Uber does now with its C-suite is absolutely integral to its future funding.
But it’s not just the top of the org chart that will determine the future of the company. The rest of Uber’s workforce is important as well, and if Kalanick remained as CEO, it would have been extremely tough attracting and retaining even lower-level engineering talent.
“The lifeblood of these companies is hiring. When it’s abundantly clear that a company has a culture issue, the best people in the world stop going to work there,” says Chris Sacca, an early Uber investor who was also an early investor in Twitter (ticker: TWTR) and Instagram.
“And when the best people in the world stop going to work there, that is literally sucking the lifeblood out of the company.”
Uber 2.0. The bottom line is that both of these dramatic changes — the departure of Uber’s founder and CEO and the renewed focus on drivers — are positives for a company that wants to redefine itself and seek capital from the public someday, which Uber will undoubtedly do so that all its current investors can cash out.
But not everyone thinks the new Uber is without downside.
“A new board and new leadership is likely to be much more conservative in decision-making, and will likely put in a governance structure and rules meant to address the current climate internally,” says Heidi Pozzo, founder of Pozzo Consulting.
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“Does that slow down the growth of the company and create a more risk-averse culture? Probably.”
Still, given the recent string of scandal at Uber, a slow and steady pace may be more welcome than ever before.
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Why the Uber IPO Just Got Much More Attractive originally appeared on usnews.com
