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Uber

7 min read

Uber

A valuation professor at NYU once published a detailed analysis proving Uber was worth 150 billion. The professor’s model was off by a factor of 25.

The Uber story on My First Million is not really about ridesharing. It is about what happens when a company creates a market so large that every existing framework for measuring markets breaks.

The Valuation Debate That Defined an Era

Sam discussed the Gurley-Damodaran exchange as a case study in how even the smartest analytical minds can be wrong when the underlying market does not yet exist. “He’s a legendary VC and now retired, and he was one of the main investors in Uber,” Sam explained. “This guy, Aswath Damodaran, is a well-known thinker on valuations. He’s a professor at NYU” (5 Startups That Looked Dumb Until They Didn’t).

Damodaran’s model was not wrong in any technical sense. His assumptions were careful. His discount rates were defensible. His comparable companies were reasonable. The problem was that his model assumed Uber was competing in the taxi market. Gurley understood that Uber was creating the on-demand transportation market — a category that included trips people would never have taken in a taxi, trips that replaced car ownership, trips that replaced drunk driving, trips that replaced walking.

The lesson Sam and Shaan draw is the same one that appears in the Airbnb story: when a company creates a new category, the total addressable market calculation is not just difficult — it is actively misleading. You cannot size a market that does not exist by looking at the market it is replacing.

Travis Kalanick and the Founder Archetype

Travis Kalanick occupies a complicated position in the MFM canon. He is referenced alongside Brian Chesky as part of a specific generation of Silicon Valley founders — the mid-2010s cohort who built city-by-city, regulation-defying, growth-at-all-costs companies that reshaped industries. As Sam noted, the newer generation of founders is different: more personal-brand-oriented, more content-savvy, less purely operational (Ocean Is the New Space).

Kalanick’s eventual ouster from Uber — pushed out by his own board and investors after a cascade of cultural and ethical controversies — is referenced on the show as a cautionary tale about what happens when the founder’s intensity, which is essential for building something from nothing, becomes destructive at scale. The thing that makes a founder indispensable in years one through five can make them untenable in years six through ten.

Sam’s summary of the denouement is characteristically blunt: “They ended up kicking Travis out and there was the — it got messy at the end.” The messiness is the point. Uber’s story is a reminder that building a $150 billion company does not protect you from the consequences of how you built it.

The Marketplace Flywheel

Uber’s business model is the canonical example of what the show calls the marketplace flywheel. More drivers mean shorter wait times. Shorter wait times attract more riders. More riders mean more earning opportunities for drivers, which attracts more drivers. The loop compounds.

The flywheel also explains why Uber invested so aggressively in subsidizing both sides of the marketplace in its early years. The company lost billions of dollars per year because each dollar spent on rider subsidies or driver bonuses was not an expense — it was an investment in accelerating the flywheel to a velocity where it would become self-sustaining. The bet was that once the flywheel reached critical mass in a city, the subsidies could be withdrawn without the flywheel slowing down.

This worked in most major markets, which is why Uber eventually reached profitability. It failed in China, where Didi had deeper pockets and better local market knowledge, forcing Uber to sell its Chinese operations in exchange for a stake in Didi. The China exit is studied on the show as an example of a discipline most founders lack: knowing when to stop fighting.

Growth at All Costs

Uber is the company that most clearly embodied the “growth at all costs” philosophy of the 2010s venture-backed startup era. The approach was simple: raise enormous amounts of capital, spend it on acquiring customers faster than competitors can, and worry about profitability later.

The MFM hosts have a nuanced view of this approach. They respect the ambition and acknowledge that it worked — Uber is a profitable, hundred-billion-dollar company. But their own entrepreneurial philosophy leans heavily toward cash-flow-positive businesses from day one. The boring businesses thesis, the sweaty startups framework, the acquisition entrepreneurship model — all of these MFM favorites are defined by their rejection of the Uber playbook.

The tension is productive rather than hostile. Uber proves that the growth-at-all-costs model can work at the absolute extreme end of the ambition spectrum. MFM’s bread and butter is the 99% of founders for whom that model would be suicidal.

The Disruption Template

Cathie Wood discussed Uber on the show as part of ARK Invest’s broader framework for valuing disruptive companies. Her thesis is that traditional valuation methods systematically undervalue companies that are creating new markets because the models extrapolate from existing market sizes rather than accounting for the market expansion the company itself causes (I Asked Cathie Wood the Question Everyone Wants Answered).

This framework — which Wood applies to Tesla, Bitcoin, and genomics companies alongside Uber — is controversial on the show. Sam and Shaan are sympathetic to the directional logic but skeptical of the specific valuations Wood arrives at, which have occasionally been dramatically wrong. The ARK Innovation ETF’s performance in 2022, when many of her high-conviction positions dropped 50-80%, is referenced on the show as evidence that being right about the direction of disruption does not guarantee being right about the timing or the price.

Drone Delivery as the Next Uber

Steph Smith, during her analysis of under-the-radar trends, drew a direct line from Uber to drone delivery. If Uber created the on-demand transportation market for people, drone delivery could create the on-demand transportation market for packages. The economics are potentially even better — no driver to pay, no vehicle to maintain, no surge pricing triggered by human behavior (5 Under the Radar Trends).

Smith’s point was more subtle than “drones are the next Uber.” It was that the regulatory environment around drones is creating the same kind of timing opportunity that Uber exploited in ridesharing. When regulations shift, the companies that are already built and waiting will have an enormous first-mover advantage. This is the Uber lesson applied forward: the regulatory fight is not a bug in the business model. It is the moat.

What Uber Teaches

Uber’s presence in the MFM universe serves three functions:

  1. Market creation is real. The Damodaran-Gurley debate is the definitive case study for why TAM calculations fail when applied to genuinely new categories.

  2. Founder-market fit has an expiration date. Kalanick was the right founder for building Uber. He was the wrong CEO for running it. The skills that create value and the skills that sustain value are not the same skills.

  3. The flywheel is the business. Uber’s marketplace flywheel — more supply, more demand, more supply — is the mechanics behind every successful platform business. Understanding it is more valuable than understanding any individual company.

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