Airlift Technologies, the startup that in August 2021 raised a whopping $85 million in a fundraising round, last week said it is slashing its global headcount by 31%, and pulling out of several markets both in and outside of Pakistan as it realigns its strategy amidst a global recession.
A rough estimate, based on the database it put up of its laid-off workforce now 'open to new roles', suggests more than half the cuts were in Pakistan.
This is quite an about-turn from a company that in its fund-raising announcement said it had lofty ambitions of creating 200,000 jobs in Pakistan within the next five years and wanted to set a new precedent to bring world-class investors to the country.
It had also said it wanted to show that great technology and consumer products can be built in the country, and that this region has some of the best talent.
Why the fund-raise got attention
In August 2021, Airlift announced its $85-million Series B financing round - the largest single private funding round in Pakistan’s history - co-led by Josh Buckley (Buckley Ventures) and Harry Stebbings (20VC), both individual investors.
The amount made up almost 25% of the total money raised by the country's startups last year. In 2021, Pakistan’s startup sector saw 81 deals worth $350 million, according to a Deal Flow Tracker by Invest2Innovate.
At the time, Airlift said the funding round had added 5% to Pakistan’s FDI for the fiscal year 2021.
It had also said the financing was about twice the size of the largest private company IPO in Pakistan’s history and the highest in the MENA region, bringing a number of implications for the country.
No wonder the news spread with Pakistan hailing a record year for the country's startups.
The Lahore-based online shopping delivery firm was originally meant to be a mass transit public transport business but amid COVID and competition from Egypt-based startup Swvl, it was forced to reimagine itself as a grocery delivery app.
But it now wants to focus on “building scale and profitability in markets with considerable scale and high order density.”
As it “returns to the fundamentals”, it is exiting Faisalabad, Gujranwala, Sialkot, Peshawar and Hyderabad to focus on its largest markets of Lahore, Karachi and Islamabad, which make up 90% of its revenue. Internationally, it had spread its wings to South Africa, but it’s now retreating from the country.
It hopes that by reducing the breadth of its operations it will “achieve greater depth in key areas and deliver strong value to customers in our largest markets”.
The grocery delivery market in Pakistan is a competitive one, with foodpanda’s pandamart also operating in the space. Back in February, pandamart had announced it had over 50 dark stores within a year of opening its first in Karachi. The company plans to further increase the number of stores and also expand into several other cities during this year. All Airlift has said about this is it will be relocating 8-10 of the stores in its largest markets.
Pandamart has an advantage: it's built into the foodpanda app and can, to some extent, rely on those who regularly use the app to get food delivered to then also use the same app for groceries.
According to Asim Mushtaq, who runs a business that deals with process outsourcing and resource mobilisation, a dense network of dark stores is key for the success of delivering groceries, especially within the hour (Airlift’s website says orders will be delivered within 30 to 60 minutes for customers who choose Express delivery).
Mushtaq told Business Recorder e-commerce start-ups dealing with groceries and fresh products tend to overlook the role of intermediaries in the current supply chain system that they are trying to compete with.
He added that the grocery deliver model needs a combination of things to be successful: heavy investment, time to allow client acquisition to reach scale, sorting out supply chain issues such as grading, packing and transportation, and a whole network of dark stores across markets being served to ensure that deliveries are done in time and products are not out of stock.
“These are the areas need out of box thinking and innovation,” said Mushtaq.
Perhaps, these are hiccups Airlift is dealing with, as some customers have complained of slow delivery times and items being out of stock.
Speaking to Business Recorder, Hammad Amjad, SME trainer and business consultant, said startups in Pakistan often have a funding and growth-based business model akin to providing a subsidy to attract more consumers by either offering hefty discounts or taking on high marketing costs and “humungous” operational costs.
“This becomes the reason in the future where companies become cash strapped with a shorter runway to sustain their business.”
But he remained positive about the startup scene in Pakistan thanks to a constantly growing consumer base.
Startups will often bleed money by offering their services at very low rates, to not only undercut competitors but with the hope that consumers will get hooked to their product and then stay even when prices go up. This is not a new method by any means but it's tricky and doesn't always work.
When do you decide to stop offering discounts and start trying to finally make a profit? And what guarantee is there they won't go back to their old ways, especially in times of inflation?
The CEO of Uber, probably the world's most famous startup that is still making a loss, recently said the company will slash spending on marketing and incentives — the trend is global and its success is still a bit of a question mark.
Airlift's setback may make some skeptical on what this means for the future of startups in the country and whether investors will become wary of continuing to pour money as they have recently — startups raised a substantial $163 million in Q1 2022 as well.
Regardless, it promises to be an exciting time with several challenges as well as opportunities.
The article does not necessarily reflect the opinion of Business Recorder or its owners
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