by Isaac, Mike
“It was January of 2001, and I was trying to start a networking software company,” Kalanick later said, realizing the futility of the endeavor. “Are you frickin’ kidding me?”
They forged ahead regardless. Kalanick set up shop just south of the city, in San Mateo, a few freeway exits down from San Francisco and roughly thirty minutes north of Silicon Valley.
From the start, the team didn’t love Kalanick’s leadership. His six engineers went months without pay, and he begged them to stay. At one point, when Red Swoosh was running out of money, an employee dipped into the company’s payroll tax withholdings—money a company reserves to pay the IRS the taxes it owes—to fund operations. That employee left the company, and Kalanick was stuck with the blame. He was later informed by an advisor that the company might be committing tax fraud. This would stick with Kalanick for years; he felt betrayed, put in legal jeopardy by a colleague.§ It would form the basis for his difficulty trusting people close to him for years to come.
Red Swoosh barely scraped by, but somehow he kept the place running. Cashflow was a month-to-month adventure. He scored a $150,000 deal from a cable and telecommunications company just two weeks before he was set to go out of business. It was painful and desperate, but Kalanick eventually came to appreciate the experience. It taught him how to negotiate from a position of weakness.
One VC firm made Red Swoosh a promise of a $10 million investment, but it never materialized, eventually falling apart after the venture capitalists couldn’t agree on other investors to join the funding round. Once again, Kalanick felt he got screwed by VCs who didn’t care about him or his company. It left a bad taste in his mouth. Later, describing the incident and his hatred of venture capitalists, Kalanick would channel the West Coast rap icons of his youth, Snoop Dogg and Dr. Dre: “VCs ain’t shit but hos and tricks,” he said.
That cycle repeated for the next few years at Red Swoosh. Kalanick would run out of money, then secure a last-minute deal with a larger tech company and keep his business alive for another few months. He’d then find a way to parlay that deal into yet another venture investment, bailing out the company for a year or so longer. “In a weird way it sort of kept me going, because there was always this shiny ball that was just right there,” he said. “I could almost taste it, but it kept never happening.”
One of his most painful episodes happened in Davos, Switzerland, home to the annual elite conference for the world’s wealthiest and most powerful people: the World Economic Forum. Kalanick, who had managed to get an invitation to the event, was in the middle of negotiating a $1-million annual revenue deal for Red Swoosh with AOL, a potentially lucrative partner. Before he could close the deal, Kalanick received an email from his last remaining engineer—the one who hadn’t quit despite being paid irregularly for months. The engineer said Michael Todd, one of Kalanick’s former colleagues from Scour, was recruiting him away to go work for Google.
Losing his last engineer was bad. It went from bad to worse when the news hit the front page of Fucked Company, spreading Red Swoosh’s embarrassing troubles across Silicon Valley. That, in turn, led to a breakdown in talks between Red Swoosh and AOL.
Finally, in 2005, Kalanick caught a break. Kalanick got into a flame war on a message board with Marc Cuban, the celebrity billionaire investor and owner of the Dallas Mavericks. Kalanick evangelized peer-to-peer tech, while Cuban thought Kalanick was dead wrong. Though Cuban didn’t like the tech, he did like Kalanick’s hustle, the tenacity he saw in Kalanick during the pitch. Cuban sent Kalanick a private message, offering him money to invest $1.8 million in the company. That was a crucial lifeline which eventually led to more contracts with important partners. Another investment from August Capital, a respected Valley firm, pumped even more life into the company.
There was a silver lining to his disappointing trip to Davos: He met the CEO of Akamai Technologies, his largest competitor, and began to make inroads with the company. Finally, after six years of tireless hustling, Kalanick negotiated his best deal yet: he sold Red Swoosh to Akamai for nearly $20 million. After taxes, Travis personally netted roughly $2 million.
After a grueling trudge towards the exit, Kalanick was finally able to take a breath. No longer would he have to work around the clock for peanuts, looking for the next deal while living in his parents’ house and eating ramen and other treats from the bargain bin at Safeway.
Four months after the deal closed, he bought a condo in San Francisco’s Castro district, set atop one of the tallest hills in the city with a view of the Bay Area. He was able to take some time to relax and enjoy the luxuries that lured global elites to San Francisco. He and his girlfriend, Angie You, could hang out with friends from the startup scene while he let his Akamai shares vest. He could party, chill, and most importantly, figure out his next move.
Aside from the money he made over ten years of dogfights in startup land, Kalanick had gained a great deal of practical experience and emerged with a new understanding of leadership. He now held a siege mentality, one that perceived dangerous enemies all around, and developed a quasi-Darwinian vision of what it takes to survive.
“There are forces all around you when you run a company, . . . ready to take you out,” Kalanick said. “The [CEOs] that survive are the ones that are supposed to be there.”
But most of all he took a valuable lesson to heart: Never trust a venture capitalist.
“They’re all so founder friendly! They exalt founders, put them on pedestals and say ‘we’re just the measly VCs!’ ” Kalanick later said to a group of entrepreneurs of his early startup experiences. “It is in the VC’s nature to kill a founding CEO. It just is.”
Chapter 3 notes
§ Kalanick saw to it that the tax withholdings eventually made their way to the IRS.
Chapter 4
A NEW ECONOMY
Travis Kalanick sold Red Swoosh just as a national crisis was beginning to unfold.
It was April 2007. For years, American banks had been doling out loans to first-time, “subprime” home buyers, whose financial histories had historically made it impossible for them to secure home loans. But changes in national fiscal policy in the late 1990s led banks to welcome subprime buyers in record high numbers, signing them to seemingly affordable adjustable-rate mortgages, and then packaging these mortgages into derivative products and selling them to other investors.
This practice set the timer on an economic IED. Subprime borrowers who signed up for adjustable rate mortgages soon faced sky-high monthly payments. Wave after wave of home owners defaulted, failures that rippled throughout the economy. It would take years for the country to recover from the catastrophe—and some people never did.
As the great financial crisis came to a boil, the federal government spun up a suite of financial instruments to soften the blow. On September 7, 2008, the Bush administration seized control of Fannie Mae and Freddie Mac, the United States’ two largest mortgage financing bodies. Henry Paulson, then secretary of the treasury, pledged billions in bailout money to some of the world’s largest financial institutions, including AIG, J.P. Morgan, Wells Fargo, and dozens of others. From September 2007 and onward through the financial crisis, the Federal Reserve Bank cut interest rates from a little over 5 percent to its lowest ever rate, 0.25 percent, by 2009. And that rock-bottom rate is where it would stay for the next seven years.
Through these maneuvers the Treasury Department and the Fed arguably kept the global economy from spiraling further out of control. But during the panic, leaders focused mostly on Wall Street, and not Big Tech. Slashing interest rates to save the banks would have profound effects on technologists and entrepreneurs—particularly on a fifty-mile stretch of Route 101 in Northern California.
In a way, the carnage of the dot-com bust had done the Valley more good than ill.
The bust separated the dot-com poseurs from the actual valuable companies. Led by Larry Page, Sergey Brin, and Mark Zuckerberg, a new genera
tion of entrepreneurs seemed to understand intuitively how to harness the true power of the internet, and turn it into a profitable business.
There were three important ingredients that fueled the new generation of entrepreneurs like Zuckerberg and Page. First, By 2008, more than 75 percent of American households owned computers, and unlike the 1990s and early 2000s, this mass population had access to broadband; more than half of American adults in 2008 purchased a high-speed internet connection for the home. As more and more people connected online, demand for new, internet-enabled services grew by the day.
Second, the hurdles for entrepreneurs who wanted to launch a company were lowering quickly. Amazon Web Services, or AWS, changed the startup game entirely. Amazon started AWS in 2002 as an engineering side project; it would grow to become one of its most successful innovations in Amazon history.
Amazon Web Services powers cloud computing services for coders and entrepreneurs who can’t afford to build their own infrastructure or server farms on their own. If a startup is a house, AWS is the electric company, the foundation and the plumbing combined. It keeps the business up and running while the company founders can spend their time focusing on more important things like, say, getting people to come to their house in the first place.
Crucially, AWS was relatively inexpensive. For the first time in computing history, any single programmer with a startup idea and a bit of cash could quickly build a company without having to plow tons of money into infrastructure—they could farm that part out to Amazon, and focus on building the app itself.
But the third and most important ingredient was released just two months after Travis Kalanick sold his startup. It would change the face of computing—and how the world would come to interact with devices—more than anyone could have ever anticipated.
At the end of 2006, two men walked a sunny sidewalk in Palo Alto and talked about the future.
In his signature black turtleneck and faded blue Levi’s, Steve Jobs couldn’t go anywhere in Silicon Valley without being swarmed by fans. His accomplishments were well known by then; after giving the world the Macintosh, he helped found Pixar, the beloved animation studio. Later he would develop the iPod and iTunes store, a combination that revolutionized the way the world listened to music through digital media. Jobs’s legacy was already cemented thrice over.
Biographers were already beginning to sketch that legacy in their heads. Jobs had been diagnosed with a rare form of pancreatic cancer, quickly growing gaunt as the sickness attacked his system.
Beside him was John Doerr, the Intel engineer turned venture capitalist. Doerr, too, was a titan of industry. Doerr was an unassuming man, slight of frame, with wire-rimmed glasses resting atop his pointed nose. He looked like he would be more at home in a laboratory fabricating silicon chips—something he once did back at Intel in the ’70s—than zooming around the Valley hosting dinners for Barack Obama.
As a partner at Kleiner Perkins Caufield & Byers, the storied Menlo Park venture firm, Doerr made an early investment in Netscape, a company that eventually became the world’s first consumer internet browser. Doerr was early to spot the potential of Amazon, back when Jeff Bezos’s operation was selling books in a run-down warehouse in Seattle. And perhaps most famously, in 1999 Doerr invested $12 million in Google, then just a search engine run by a couple of engineers in a garage. Five years later, when Google sold its shares on the public stock markets, that investment was worth more than $3 billion, a return of more than 240 times Doerr’s original investment.
But that morning, they were just two friends walking down the sidewalk in Northern California, on the way to their kids’ soccer game.
As they chatted about life, family, and the industry, Jobs stopped for a moment and reached into his pocket, pulling out something Doerr had never seen before. It was the first iPhone.
“John, this thing nearly killed our company,” Jobs said to Doerr, who stared at the boxy, glass-faced device with wonder. Jobs never showed him new products ahead of time, but Doerr—as well as the rest of the technology world—had heard rumors of the iPhone’s development. Apple was said to have been working on it for years, a skunkworks project of the highest secrecy. Doerr stayed quiet, not wanting his friend to clam up and put the phone back in his pocket.
“There’s so much new technology in it, fitting it all inside was a feat,” Jobs went on, beginning to walk again under the valley oak trees that lined the Palo Alto street. “Behind this LCD display we’ve fit a 412-megahertz processor, a bunch of radios and sensors and enough memory to hold all your songs. We’ve really done it.”
Jobs handed the phone to Doerr, noting that it didn’t have all those “fucking ugly buttons” that characterized BlackBerry (the predominant cell phone of the day, used by most professionals). It was touch-screen based—sleek, glossy, gorgeous.
Doerr held the phone as gingerly as he would had he been given a newborn baby. It felt better than the phone he had in his pocket by far. Still staggered that his friend was showing him a new device, he flipped the iPhone over in his hand to look at the back panel. In small, white lettering beneath the iconic Apple logo, Doerr saw a bit of information that intrigued him: It said “8GB,” an amount of storage that at the time seemed like more room for files and music than anyone would need.
“What do you need all that storage for?” Doerr asked, watching his friend crack a smile as he took the phone back.
But Doerr already knew. Just as Jobs had trained millions of people to go to the iTunes store and download their music to their computers and iPods, Jobs was going to do the same with music and new program applications—or “apps”—for the iPhone. He knew he was opening up a new way of computing, built for mobility, and would need his pocket computers to do just as many things as his desktop Macintosh computers were able to do. He would eventually call it the App Store.
Doerr knew opportunity when it was in front of him. He tried to seize it.
“Steve, I see what you’re doing. I see it. I want to be a part of this,” he said. “I want to put together a fund to kickstart this thing.”
Doerr was falling back on his VC instincts. Every few years, investors like him would go to their institutional partners to pool millions of dollars in a new fund. Venture capitalists like Doerr would then use that money to purchase stakes in promising startups around the Valley. Like Bill Gates and his era of Windows-based applications, Doerr saw that an iPhone App Store would open a huge new field to programmers—whose startups he could fund.
Jobs chopped the air with his hand. “No. Stop it right there. I don’t want a wave of shitty apps from outsiders polluting this phone. Not going to happen.”
Doerr dropped the subject and the two men walked on to the soccer game. He knew his friend’s mind would be impossible to change once he had made it up, and Apple’s approach to software development had rigorously avoided Gates’s “come one, come all” approach with Windows third-party apps. But he sensed that Jobs was wrong, that people would be desperate to build things that operated on Jobs’s gorgeous new device, and ultimately Apple would let them do it.
Pluck an entrepreneur at random from the streets of Silicon Valley, and you’ll likely find an evangelist for Jobs and his vision for the iPhone, of the one product that could be “an iPod, a phone, an internet mobile communicator.”
The iPhone radically reimagined what a smartphone was supposed to be. A sleek, glass-faced front with a dazzling array of colorful apps—a rainbow of greens, blues, and yellows. The iPhone took the luxuries of an enterprise-level business device, like email and internet access, and opened mobile computing up to the masses. You didn’t need to carry an MP3 player, mobile phone, and bulky laptop around to browse the internet on your commute. You didn’t need a separate camera to take photos during an afternoon walk in the park. The iPhone had it all.
Inventing the hardware was laudable enough, and the company would spend the next decade refining it. But the device truly
took off when Jobs decided to allow a wave of “shitty apps” into his sandbox. And far from “polluting” the iPhone, they fueled its rise higher and faster than even Jobs could have anticipated.
Later in the spring of the next year, a few months after their walk to their kids’ soccer game, John Doerr was at his Palo Alto home when he got a phone call from a friend. It was Jobs.
“Remember that thing you pitched me on last year, the fund?” Jobs said.
Doerr immediately knew what his friend was talking about and sat up in his chair. “Yes, yes I do. Did you give it more thought?”
“I did,” Jobs said. “I think Kleiner should do it.”
The call shocked the investor. Doerr knew how controlling Apple was under Jobs’s reign. Everything had to be perfect, from the industrial design led by Jonathan Ive—a dapper British lieutenant and longtime confidant of Jobs—to the software and apps under the direction of Scott Forstall, a fiery and talented executive leading Apple’s mobile operating system. Asking Doerr to kickstart a sea of new smartphone apps with a multimillion-dollar fund would create a wave of innovation much messier than Apple was used to dealing with.
But Doerr wasn’t going to question an opportunity. He offered to raise $100 million from his limited partners, an unheard-of amount of money—especially one earmarked for funding a new form of program that was unproven and untested. But Doerr believed in Jobs and saw the potential the iPhone could have in the market if the product took off.
To say they were right would be a wild understatement.
Until 2006, computer programmers made their living inside big corporations or software development outfits. To have your software touch millions of people usually required the distribution of major software publishers, ones with sizeable marketing budgets and deals with off-the-shelf, big-box retailers. Places like Best Buy, FuncoLand, and Babbage’s had aisles stocked like a grocery store, stuffed with rows of boxes of PC and Mac programs.
