How I Did It

For this delivery startup, one risky decision unlocked success.

JAG BATH FAVOR Was hired to scale the business. Didn’t think it would play out like this.

Jag Bath, an e-commerce veteran of Gilt Groupe and RetailMeNot, became CEO of the Austin-based on-demand delivery service Favor in 2015, fully prepared to execute the Silicon Valley playbook of growth at any cost. But it wasn’t until he made a series of painful decisions, and took a much different approach, that the company really succeeded. —AS TOLD TO TOM FOSTER

In 2014, around $4 billion of venture capital—that’s $1 billion a quarter— poured into the on-demand app industry. That’s not including ridesharing companies like Uber. It was food delivery, grocery delivery, housecleaning, dog walking—you name it. No other industry came close. And it didn’t peak until the third quarter of 2015, when a little more than $2 billion was raised.

That’s when I joined Favor as CEO, with a mandate to scale the business. It’s also when fundraising went off a cliff.

Going into 2016, we needed to raise more money. We had launched early in our space—in 2013—but we were losing our advantage to better-funded competitors in Silicon Valley. Those companies were expanding rapidly into more and more cities, which is expensive, especially if there are multiple companies trying to do the same thing. When you enter a new market, you have to get your name out there. The best way to do that is to spend more than the other guy. And our pockets weren’t as deep.

Tech startups have swung toward the idea of growth at all cost: “Let’s conquer the world, and then we’ll figure out how to make money.” It’s a trap. Companies then start to treat how much money they’ve raised as a key metric, because that money fuels their growth. But if you don’t have a good underlying business, it’s irrelevant.

Investors were starting to see that the economics were upside down for on- demand delivery companies. Those businesses brought in lots of revenue and were adding lots of users, but they lost money. That’s why funding had taken a nosedive. We were trying to raise money—spending a lot of time in hotels in California—but there was a

FAVORITE Favor CEO Jag Bath, architect of the strategy that saved the business, at company headquarters in Austin. Favor connects smartphone users to an army of Uber-style freelance drivers who deliver anything from a restaurant or store in less than an hour.