How Pathao stays the lone profitable start-up

In Bangladesh's challenging start-up ecosystem, Pathao is a rare success story: it achieved profitability, which is considered the holy grail for start-ups anywhere nowadays.

Pathao reached profitability in mid-2022, while its competitors were either scaling down or exiting the market due to the investment and consumption slowdown brought on by the Ukraine war.

Ironically, the catalyst for the remarkable feat was the pandemic, which prompted the start-up to make a big bet: greater attention to logistics service.

The start-up, with over one crore app users, anticipated that the demand for online shopping would blow up in areas beyond the capital. Consequently, it invested in establishing a nationwide infrastructure for third-party logistics (3PL) courier services.

"Many start-ups say they love to build products; some say they love to build products that customers love, and we say we love to build products that customers love and are happy to pay for," Fahim Ahmed, managing director and CEO of Pathao, told The Business Standard in an exclusive interview last week.

This is best captured by Pathao Courier, which saw its business grow more than six times in the last two years, even without offering discounts or pursuing higher volumes.

Today, Pathao Courier is delivering around 1 lakh parcels a day, which accounts for half of the 3PL market, and this growth occurred while one of its competitors, Paperfly, shut down and another, RedX, downsized.

And Pathao Courier accomplished this without serving Daraz, the largest e-commerce platform in the country.

Thanks to its reliable and timely service at both ends, Pathao has become the logistics partner of choice for the lakhs of e-commerce entrepreneurs in Bangladesh, according to Ahmed, who took charge of Pathao in 2021.

Now over two-thirds of Pathao Courier parcels are delivered outside Dhaka, which was less than half two years ago.

This does not mean Pathao's other two verticals – ride-hailing and food delivery – are lagging behind. Both the verticals are profitable too, making it the only profitable operation in those segments.

Asked the recipe behind the success, Ahmed said, "Right product for the right people, providing more value to them in an affordable manner, justifying each cost for financial sustainability, and a strong internal ecosystem that includes a strong technology backbone."

In the food delivery segment, which is seeing a decline globally, Pathao Food's market share grew from 25% in 2021 to 35% at present.

"A good match between customer acquisition cost (CAC) and the lifetime value (LTV) generated there is important."

It is the same case for ride-hailing, where it has a 75% market share in bikes and 35% in cars.

"We don't think in terms of market share, but instead in terms of providing value to the customers. If we can deliver what they actually need in a manner that is financially sustainable for us and affordable for them, market share will follow," said Ahmed, who joined Pathao in 2018 as the CFO.

As a result, in a dry funding landscape, the start-up, which will soon celebrate its eighth anniversary, is managing fine without raising funds as its own cash flow is sufficient for it to thrive. The start-up has raised $50 million so far.

In 2022, the company logged in revenue of $14 million, according to Rest of the World, a New York-based tech-focused news publication founded by Sophie Schmidt, the daughter of former Google CEO Eric Schmidt.

Earlier this month, Rest of the World picked Pathao as one of the top 40 global technology firms that are outperforming their Western counterparts.

Asked about Pathao's future plans, Ahmed said, "Fintech has our focus now. We deliver more than one lakh orders a day, and 97% are cash on delivery. This provides a foundation for introducing digital payment and embedded finance services to these e-commerce and f-commerce merchants that can serve their working capital needs and help grow their businesses. When their business grows, so does ours."

Pathao is working to roll out its mobile wallet, Pathao Pay, and has also applied for a digital bank licence from the central bank.

"Just like we have transformed urban transformation and logistics services, a digital bank licence for the platform can revolutionise the financial sector in Bangladesh," he added.