Case Study: How Uber Beat Lyft And Reached A $100B Valuation w/ Emil Michael (Former Chief Business Officer @ Uber)

Emil, I believe one's earliest years are fundamental to understanding who they are as a person. How did your childhood influence you?

You know, I'm having my second kid in about a week, so I was going through all of the mementos that one accumulates over the years. And I stumbled upon my first paychecks from selling shoes at a shoe store and working at a snack bar.

And it reminded me that there's an immigrant ethic you get when your parents come to this country, and it’s like, “You gotta succeed.” That notion of you got to be independent, you got to be self-sufficient, you got to be able to support yourself all started at a super young age.

So I was looking at these paychecks from when I was 11 years old, and it reminded me of that ethic that gives you your first 10,000 or 40,000 hours.

Sometimes, we will see people who are successful early in their careers take a break for the rest. What is it about you that’s kept you driven from Tellme to Uber to now advising companies?

Well, first, I started at Uber when I was 40. So, you know, it wasn't like I hit the best company that's ever built when I was 25. Who knows what would have happened if that happened, but generally speaking, even now, post-Uber, why am I engaged? Why am I not on the beach or an island?

First of all, this sort of workaholic success mentality, I can't shake it. But then you do get to a point in your life where you’re like, “Okay, well, how do I continue being engaged, keep my mind engaged, and give back to the community that helped build me up?That's really motivating to see young people have a chance to do what I did.

It's also really important to have somebody that can coach you along the process. For you, that person was Bill Campbell, who was your mentor. He has mentored Steve Jobs, Larry Page, and Jeff Bezos. What was the most valuable lesson you learned from him?

He had the most simple life, career, and leadership concepts. The most important lesson that I took away over the years is to lean into hard problems, run into the fire, don't run away from the fire. Human tendency is to avoid problems, to delay, and to not be messy. He's had the opposite mentality. The way you spend less time and energy is to solve problems before they get big.

It sounds simple, but if you think about every day, whether you're a boss and you have an HR issue with the employee, and you're like, “I want to have this conversation. I don't want to make that phone call. I don't want to read that email. I'm tired.” Always lean into hard problems. And that will make you lean into great opportunities, too.

How do you know which problems to focus on?

The way you prioritize the problems you’re going to solve is obviously important. You start with the existential.

Do you have enough money to make payroll?

Then you have the urgent, not necessarily important, but you've got to solve those today.

Like your lease is ending. You don't have a new lease. What do you do?

It's not important in the grand scheme of things, but it has to be done today. And then you have important, but not urgent.

And those typically are the things that get ignored. For the things that have no actual deadline, but if you're not pushing forward attacking that opportunity, that category is going to get short-shifted. That's where the strategy happens. That's where you distinguish yourself from your competitors.

So, bucketing problems has a way of clarifying your time spent. The other point I'd add is if you're going to do something, do it right. I've given feedback to a lot of entrepreneurs when they write imperfect emails or do a crappy deck, like, no.

Perfection is in everything you do. Because the small things reflect how much attention you pay to the important things.

Emil Michael

The world sees that your employees see that, your colleagues, your competitors, your partners, and your investors.

I want to backtrack a little bit. So, after you graduated from Harvard, what was next for your career?

So I graduated in 1994, and in 1994, Harvard first got email, but you had to go to the science center to use it. So we were at the very beginning of the tech revolution, and for most Harvard kids, the prestigious job is to go into investment banking or consulting.

I went into a tech incubator.

People thought I was nuts. But I knew that there was something there, and we were at the beginning of something new. 

Emil Michael

I only spent a year there, but then I chose to go to Stanford Law School to be in the Bay Area.

I was still nervous about student loans and my immigrant ethos of having a professional career, which provides a backstop, but I basically spent most of my time at Stanford Law School, working at startups. I was early on with Tony Shea, who ended up being the founder of Zappos.

Now, I didn't get into Google or Amazon. But I was in and around those companies early on.

Why did you go to Stanford Law instead of the business school if you were interested in startups, tech, and business?

In retrospect, I should have gone to neither. It was a waste of time, but I had aspirations to do more in politics and government, which was more consistent with a legal career. I was at a tug-and-pull between public service and business. [Law school] was the right answer for me at the time. But I will tell you what I did in law school.

I took four or five business school classes in Accounting, M&A, Securities, and Spreadsheeting. So that was more functional. But either way, I wouldn't have done either of them today.

When you joined Tellme, which was founded in 1999, the team scaled to 300 people and raised $150 million. Unfortunately, the business model didn't work. Why didn't it work, and how did you prevent the team from going under like many tech startups during that time?

The first business model for Tellme was pre-smartphone. It was in ‘99, and the idea was that you used your home phone, you called a number, and you spoke to the internet, and said, “Give me my Yankee scores. What is the stock price for Apple?” So it was like Yahoo over the phone, and Yahoo at the time was the dominant internet provider.

It was a precursor to Siri in the sense that it was in the cloud where we put the speech recognition software. The idea was we were going to monetize it with ads. Now, no one wants to listen to ads over the phone, especially because it wasn't that actionable. So that didn't work.

The good news is we raised the $150 million in August of 2000, and the wheels came off the economy two months later. So we had this big cash balance. We had to do a riff, unfortunately, and we had to decide what we were going to do with this money to build a real business.

So we basically turned it into an enterprise business. You know, today, when you call Fidelity or American Express? That’s the voice recognition system that Tellme and Microsoft ended up buying.

I want to dive into that Microsoft component. You met with Steve Ballmer and were able to get an additional $300 million for the company. How did that happen?

The co-founder of Tell Me, who departed by the time we wanted to sell the company in 2007, was buddies with Steve Ballmer and would go jogging with him once a year. I had this offer from this other company, which was half the price we ended up getting from Microsoft.

I begged Hadi Partovi, who's prominent in the tech world, to say, “Please tell Ballmer he's got to look at this company.” 

And he's like, “Well, I don't know. I don't like talking about that stuff.” 

I said, “Hadi, for every minute you talk to him about Tellme, there's $100 million more that we're going to get for this company.” So, I want seven minutes, and he joked, but he actually did it.

He spent time talking Steve through why voice recognition was important in the long term, and it obviously was. It took longer than we thought because it was 2007. But we flew up to Seattle.

Steve Ballmer is a deal guy. He makes up his own mind. He pulled everyone into the room on Super Bowl weekend to do spreadsheets. He took control of the computer with the screen to do the spreadsheet and how this deal could work. By the day after Superbowl 2007, we had a term sheet. That was an amazing experience.

What do you think was it about that experience that led to getting a deal closed so quickly? 

The thing that drives deals faster at a higher value is always competition.

So, there's a collective action problem in M&A. Let's suppose your company wants to get sold. Until someone jumps in and creates an auction, you're kind of a drift, and you're on a random walk. Unless you're distressed, in which case you're actually proactively marketing your company to be sold.

If you're not distressed, but you're still better off in the long term being part of another company, it's a little bit of a dance. But once we had an offer from another company, I had nothing to lose by making sure everyone knew that this auction was happening. If they wanted to participate, they needed to move fast. And that created some momentum.

Today, that's still the case. It's getting that first step in that’s the hardest.

How do you get that first step in?

I have a long-term view on business development, corporate development, relationships, and M&A.

One of the things I think I tell a lot of people who are starting off in these business jobs is the same thing, is:

You don't know what relationships you're going to need a few years from now.

Emil Michael

So, go around the world, developing them. I'm not talking about steak dinners and ball games. I'm saying, develop an intellectual relationship with as many potential acquirers and partners as you can.

Do favors for them, whether it's personally or business-wise. And when it comes time for that moment of truth, you have some built trust. You have some understanding of that other organization, why they might want to buy you, how they can pay, and the important people to convince.

It's really hard to think that far ahead, but if you're a strategist, that's kind of what you're doing all the time.

After Tellme exited, you entered the public sector as the Special Assistant to the Secretary of Defense. What motivated that move from private to public?

Tellme was a long journey. It was eight years with a lot of hard enterprise sales building from 2000-2007. Then, we had to stay at Microsoft to transition. So we're talking till ‘09. Basically, a 10-year journey, which is a lot. I was working really hard, and I've done well. But I still wanted to test that instinct I initially had from when I was younger about public service.

So, I applied to this program called the White House Fellowship Program. There are thirteen selected a year. I got into the Secretary of Defense's office, which is the biggest agency in the world. The most money, the most firepower, and led by Robert Gates, one of the all-time great, great leaders in America. So I loved it. But it's definitely not something I could do for a career. It's something I could do for actual service.

I had no interest in getting re-elected for getting re-elected sake or supporting something that I don't actually support because I need donors.

The way I'll go into government someday in the future is with nothing but the good of the people in mind. In the meantime, I'll do business. But it was a great detour, and I learned a lot.

Do you think that's a fault of the current system, or it's just the way that it is?

I do think that one of the things we and a lot of other countries are missing that we used to have is that being in government was a much more honored profession.

Now, if you're a scientist at SpaceX, Neuralink, or some private company, not only are you making more money, but you also get the honor that people are really interested in what you're doing.

In some cases, what's happened is the best minds have moved into private industry, and therefore, the whole government architecture has gone down from a quality standpoint.

You were one of the great minds who ended up joining Uber. You spent two years meeting with Travis Kalanick, debating on whether or not you should join. Why so long?

It was really dumb. So, there's no lesson to be learned in that except that I couldn't get out of my head that this was a black car service for rich people. And I just didn't get it.

At the time, I hadn't thought of UberX and how you make this a mass-market product. So it was the lack of the mass market vision that Travis had but wasn't articulating, that I didn't have, that kept me for so long.

In retrospect, even if I didn't know about UberX and what it meant, I should have made this decision based on Travis alone. He and I thought, complementary. I wanted to work with him, and that should have overcome any reticence I had about the total addressable market.

But, working with someone I liked as much as him was real. And something I'll never forget.

I know when Travis emailed Mark Cuban, who we've had on the show, to invest in Uber, Mark asked a follow-up question over email, and Travis never responded. It seems that he moves on pretty quickly. Why did he keep meeting with you despite the doubts you had about the company?

I think that, first of all, we were friends. So we socialized. It wasn't all business every time we met, right? We weren’t on a whiteboard every time we met for two years. But also, I think he respected the way I thought. We liked being together, both intellectually and socially, and my resume was so random that it didn't quite fit into any role there, and he kind of liked that.

So he was happy to keep recruiting me, and I was happy to keep being recruited until I finally said to him, “I got to join.” When I saw UberX in San Francisco, I was like, ah, light bulb! I called him, and I said, “I need to come over. We need to do this deal.” 

And there was a singular graph that got you to join. What was that graph?

It was a graph that displayed what we call anti-churn. In most consumer companies, you sign up for a service, and the next month, a few people have turned off, and the next month, revenues are down, but you're getting new customers to fill up the top of the funnel. You're worried about retention.

Uber had anti-churn. You used Uber your the first time once a month. The next month, it was twice a month and then five times a month, and ten. So your use graph grew as time went on, which is totally different than most other businesses.

Seeing that exponential notion was a game changer for me.

How did you beat Lyft?

A couple of things. First, we had international ambitions from day one. Uber was in a hundred countries and several hundred cities. Compared to Lyft, which started at the same time. They actually had an UberX like product before Uber did. But, they limited themselves to one country, one service.

Our ambition, starting at the same time, makes Uber worth $100 billion and Lyft worth $4 billion. That’s a 25x difference because of ambition. So, what do you need to fuel that ambition? Money. And I was going to make sure that Travis [Kalanick] had as much fuel in the tank as possible to ensure that we were firing on every ambition that we had. Some were going to work, some weren't, but we were okay with that.

Number two, ridesharing has a network effect. In any one city that you go to, the more cars, the shorter the wait time, the cheaper the cost.

Let's say you can get a ride in three minutes from Uber. A new competitor comes into town. They have a few cars, and the wait time is 10 minutes. People just shut the app off and go back to Uber.

That time advantage mattered. It's not true for every business model, but in our business model, it mattered.

What was the biggest challenge of expanding Uber into an international brand?

Where the regulations were gray and Uber launched, consumers loved it because, remember the system was before was a taxi system. In no city in the world did people love taxis in terms of reliability, cost, cleanliness, safety, you name it.

So Uber comes into a city, and it's a miracle. Like you push a button on your phone. A car comes. You see it coming on the map. All of these things. So, in most cities and countries, consumer love for Uber would allow us to change regulations for the positive, but not in every city.

In some cities and countries, the legal ethos is the opposite. Germany, South Korea, and Japan are where the rules are paramount to the interest of the consumer. It doesn't matter that the consumer likes Uber. The rules are rules. And still today, Uber is not allowed in Spain, Italy, Germany, South Korea, and Japan. Those were the hardest problems to try and solve.

There's a lot of talk about apps that can contain multiple services in one platform. Uber has Uber Eats and services like delivering wine in one platform. Why was that done?

So let's talk about the biggest super app in the world, and that's WeChat in China. What made WeChat a super app is that before credit card penetration mattered in China, they had a payment system. So people paid each other PayPal style.

15 years ago, every store in China, even the littlest mom-and-pop, started doing electronic payments with WeChat. So that meant everyone had to have a WeChat account. So then payments combined with chat, and then they added many other things on top of that. We don't have that in the Western world. I think that notion is not possible.

It is possible to have super apps in segments. Maybe travel, maybe delivery, or stuff that you want now. I do think Uber will struggle with groceries because of this because it is not a “now” need.

The benefit Uber gets when they aggregate things you need now is that those consumers think about Uber as on demand, and therefore, you're allowed to put on-demand services on there.

What do you think is something that consumers want now that could be added to Uber?

I can't think of anything besides transportation and food, which are of a household budget. Then you have rent. Loans. Those two are an enormous part of the economy.

On-demand healthcare that exists today with Teladoc and so on. You don't need logistics for that. That's on-demand without logistics.

So, on-demand with logistics, I think, is a big category.

As I was doing research for the show, I came across Elon’s vision for being able to use your Tesla’s FSD capability to go out and pick people up when you're not using it as another source of income. Do you see that vision as a reality? And if so, how do you think that will impact ride-sharing companies? 

I mean, gosh, never bet against Elon. I always bet with Elon. I'm a stan on him and his companies and the things he says and does.

I heard this notion directly from him 10 years ago. He has had this notion for a long time. And he approached self-driving technology differently than Google and everyone else. I think he's right. He's using video computer learning, basically where the video comes in, and you use that to train the models where everyone else uses LIDAR, which is the sensor you see on the top for a Cruise car, really expensive.

He's doing it cheap. He's getting this data from all the Teslas he's ever sold. So he's advancing faster. Is there a world where all Teslas become self-driving, and you can rent them back to a network? Sure.

But, the people who can afford Teslas now don't want to rent them out because what happens is someone does whatever in the backseat, and they don't need to rent them out.

Does the price point come down where it becomes a significant income stream to rent it out? Sure, maybe. But then we're 10 years away from that kind of penetration and the tech for that to happen.

As we wrap it up here, what's the one thing you want to accomplish before you die?

On the business side, I'm hungering for some involvement with the next hyper-growth company. I miss that thrill. I miss the excitement. I miss the inventiveness and the ambitiousness of it. So, does lightning strike twice in a lifetime? I don't know, but I'm searching for lightning.

On the personal side, I got married and had a family late. I'm 50 now. I'm about to have my second kid next week. And that kid goes to college when I’m 70, right? So, I'm catching up on the stuff I missed when I was working 80-90 hours a week.

Then the third for the world is I’m involved in the Innocence Project. I'm involved in local, state, national politics, mostly from a donor/advisor standpoint. “How do I step up that involvement so that I can be part of solving this talent problem in government?” would be another life goal of mine. Whether that ends up as an elected position, appointed, or just someone in the background who's making change happen. That's the third leg of my stool.

Sounds like a lot of years ahead to keep on going, and congratulations, by the way, in two weeks, when you have your next kid! All right, everyone, that wraps it up for today's episode. Thanks, Emil, for taking the time to join. I greatly enjoyed the conversation.

Great to be with you, Shamus. Thank you so much for having me on.


If you enjoyed this case study, please share it with your friends. We're on Apple Podcasts, Spotify, and any major podcast player.

Thanks for reading! If you found this valuable, please consider subscribing and sharing it with a friend 😊

Subscribe to keep reading

This content is free, but you must be subscribed to The Dealroom: Business Success Uncovered to continue reading.

Already a subscriber?Sign In.Not now