Opinion

July 4, 2019

Uber IPO: the lessons every entrepreneur should learn

Profits (or lack of them) are a very poor way to judge a truly disruptive company in its early days says David Richards, chief executive of WANdisco.


David Richards

4 min read

Nearly two months after the Uber IPO and the shares haven't yet quite climbed back up to their initial offer price of $45. Entrepreneurs on both sides of the Atlantic have been watching the float for signs of how the markets will receive big, new tech IPOs.

It hasn't been terribly encouraging. Uber has come in for a barrage of criticism, with serious questions raised over the ride-hailing company’s profits.

The profit a company makes in its infancy and its long term success are two fundamentally different things.

If you ask me, this is totally absurd. Ask any ambitious tech founder and they will tell you the same – the profit a company makes in its infancy and its long term success are two fundamentally different things.

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Industry commentators, investors and the public in general have been quick to pass judgement on Uber going public, assessing its success solely on the bottom line. There should always be room for scepticism, but on this occasion this point of view is misguided, and just focusing on the immediate profit is a dangerously short-sighted approach to take.

Uber’s inability to turn a profit at this stage is not the most important metric. Let’s not forget that the company can actually afford to operate at a loss for the next five years. Anyone snarking at its valuation figures is failing to provide an insightful perspective.

Take Amazon as a precursor. In its early days, few thought it could be a genuine retailer, let alone become the biggest company in the world. The industry was stuck focusing on how things had been in the past. What they missed was that Amazon was investing heavily in infrastructure – a digital backbone to support a truly global company. They fundamentally underestimated the ambition behind the business.

Amazon is a cautionary tale on questioning companies’ immediate profitability without looking at their true potential.

Instant profitability tends to be a poor indicator of a company’s potential, especially one that is breaking the mould.

Instant profitability tends to be a poor indicator of a company’s potential, especially one that is breaking the mould of the sector it operates in. We cannot use traditional parameters to evaluate them.

The word disruptor is thrown around all too often these days. Companies with no credible track record and without a genuine IP are being branded as such.

But let’s be clear, Uber and its main competitor, Lyft are true disruptors. Uber's technology has sent shockwaves through the world of technology, creating and breaking traditional transport and business models.

The company holds an entirely new philosophy at its core, a business model we’ve never seen before, and its growth is underpinned by investment in R&D.

Much more than a tech company, Uber is a force behind a transformational transport system that has changed how we travel and live in cities all over the world. Fast forward ten years, and who is to say its technology won’t be behind the next breakthrough in urban mobility?

The same people who claim that Uber is overvalued are the ones who will call it a taxi company or an app. They just don’t get it.

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Measuring Uber’s current performance against traditional business parameters will not give a realistic representation of what the company is and what it can be – those rules simply do not apply to companies that flip the business model on its head.

As someone who took his company public I can attest that an IPO is not a simple a step, but there comes a time when it’s the right one.

A number of European companies have had a growth spurt following an IPO: Sweden's Spotify, Fartech in the UK, or Adyen in the Netherlands.

On this side of the pond we have seen a number of companies reach new heights after the leap into the realm of public funding: Sweden's Spotify and Fartech in the UK, or Adyen in the Netherlands – these are tech businesses disrupting different sectors, seeing a growth spurt following an IPO.

As was the case with our listing for WANdisco, an IPO gives the opportunity for long-term funding that supports long-term strategy. Too often, companies rely on short bursts of venture capital, and in the current inflationary market that seems like the safer bet.

Moving beyond the rigid and outdated approach of assessing quarterly profits is the way to go. Genuinely groundbreaking companies embrace the Jeff Bezos method and look at the big picture – safe to say things worked out for him.

David Richards, CEO and co-founder of WANdisco