Understanding the Downfall of 4 Pakistani Startups That Failed

The rise of startups in Pakistan brought hope for innovation and economic growth. However, many promising ventures have shut down. What causes these failures? We will explore the downfall of 4 notable Pakistani startups. By examining their journeys, we will discuss common pitfalls and valuable lessons for future entrepreneurs. Dive into the challenges and insights behind these closures.

4 Pakistani Startups That Failed

In Pakistan, numerous ventures started and thrived, only to eventually fail. The reasons behind their failure included a lack of funds and poor allocation, lack of transparency between founders and investors, poor business and revenue models, inaccurate forecasts, weak supply chains, and much more.

Here are top 4 startup failure stories. They provide lessons to entrepreneurs who plan to launch their ventures. The stories offer insights into the common pitfalls and challenges faced by startups. They help entrepreneurs make informed decisions as they start and grow a business.

1. Airlift

Airlift Express Team

Airlift set out to revolutionize urban transportation in Pakistan when it launched in 2019, founded by Usman Gul, Ahmed Ayub and Meher Farrukh. Focused on offering a reliable bus-hailing service, it targeted customers seeking an alternative to traditional public transport. With its efficient service and user-friendly app, Airlift swiftly gained popularity, making commuting easier for many people in major cities like Lahore and Karachi.

Transitioning to Quick Commerce

The challenges brought about by COVID-19 significantly impacted public transportation services. In response, Airlift strategically shifted its focus from transportation to quick commerce (Airlift Grocer). This involved delivering groceries and essential goods directly to customers’ doorsteps, with a promise of delivery within 30 minutes. Leveraging their existing logistics network, the aim was to capitalize on the surging demand for online shopping and home delivery.

Funding Success

Airlift’s pivot attracted significant investor interest. The company raised over $85 million in funding from global investors. This capital influx let Airlift expand. It lets them build a strong infrastructure and grow across cities. Investors like First Round Capital and Indus Valley Capital led the funding round. It was one of the largest in Pakistan’s startup history.

Operational Challenges

Despite its initial success, Airlift faced several operational challenges. The quick commerce model required a vast inventory of products. It also required managing complex logistics and ensuring timely deliveries. High operational costs became a significant burden. The need for many vehicles, many warehouses, and much manpower added to the expenses.

Market Competition

Airlift’s quick commerce (Airlift Grocer) venture entered a competitive market. Daraz, GrocerApp, and many local stores established themselves. They had already captured much of the market. Airlift had to compete with these giants. This needed not only lots of money but also a unique value proposition. But Airlift often failed to deliver one.

Pakistan’s economic situation further exacerbated Airlift’s challenges. Rising inflation, currency depreciation, and fluctuating fuel prices increased operational costs. These economic pressures made it hard for Airlift to keep its low-cost promise. They also had to ensure profitability.

Closure and Aftermath

In July 2022, Airlift announced its decision to shut down its operations. The company cited two main reasons for its closure. They were a lack of lasting funding and rising costs. However, when its main investor withdrew support, Airlift found itself without the necessary funds to continue operating, leading to its sudden closure. The shutdown led to big layoffs. It affected hundreds of employees. They had been part of the company’s journey.

Lessons Learned

Airlift’s story offers several important lessons for startups:

• Transitioning can be smart. But it needs thorough market research and a solid plan.
• Controlling costs is crucial. This is especially true in high-burn business models.
• Having a competitive edge is vital. It means standing out from established competitors. This is the key to gaining and keeping market share.
• Startups must be ready for economic changes. These changes can impact their operations. Covid-19 was one of the reasons behind their failure.

2. CarFirst

Launched in late 2016, CarFirst operated as a mediator, purchasing cars from consumers and then selling them to dealers through online auctions, following a classic consumer-to-business-to-business model.

The online platform streamlined the process for car sellers, allowing them to get their cars inspected and sold within an hour, including the time taken for payment processing. CarFirst’s online auction platform for used cars also included an app, which provided partners and a network of buyers with a convenient way to find the cars they needed.

The Vision of CarFirst

CarFirst set out to make the used car transaction process simpler. They did this for both sellers and buyers. CarFirst aimed to remove the hassles of selling used cars the old way. They did this by offering instant quotes, free inspections, and quick payments. The company’s goal was to create a trustworthy, efficient marketplace.

Initial Success and Growth

CarFirst gained traction due to its innovative approach. The company set up a network of inspection centers. They expanded to major cities in Pakistan like Karachi, Lahore, and Islamabad. Customers could bring their cars for a free inspection. They would get an instant offer and get paid within hours if they accepted it. This convenience and transparency appealed to many car owners. They wanted to sell their vehicles without the usual delays and uncertainties.

Funding and Expansion

CarFirst attracted significant investment from both local and international investors. The company raised a lot of money in many investment rounds. This money let the company expand. It improved its technology and increased its marketing. The funding let CarFirst grow its network of inspection centers. It also lets them improve their services.

Operational Challenges

Despite its initial success, CarFirst faced several operational challenges. Scaling the business required big resources. They were for managing many inspections. They were also responsible for maintaining a logistics fleet and ensuring good customer service. Operations became more complex as the company expanded. This made it hard to keep them efficient and profitable.

Market Competition

The used car market in Pakistan is competitive and fragmented. CarFirst faced stiff competition. It came from traditional dealerships, informal networks, and other online platforms. These competitors had deep customer connections and local market knowledge. This made it hard for CarFirst to get and keep market share.

Economic Factors

Pakistan’s economic conditions played a critical role in CarFirst’s struggles. The country had economic instability. Inflation, currency loss, and changing interest rates hurt consumer spending power. These economic factors led to a decline in car sales. This decline affected CarFirst’s business volume and profitability. Also, the costs of importing car parts and running a large network increased. This strained the company’s finances more.

Trust and Transparency Issues

Building trust was hard. Traditional dealers and informal networks dominated the market. CarFirst worked to be fair and clear. But, it had to keep working to gain trust and overcome doubt. Ensuring consistent quality in inspections and offers was critical. But, any differences or bad customer experiences could erode trust.

Closure and Aftermath

In October 2021, CarFirst announced its decision to stop operations in Pakistan. The company cited economic challenges as the main reason for its closure. They also cited operational inefficiencies and intense market competition. The shutdown led to the closure of inspection centers. It also led to layoffs. It left many customers looking for other places to buy or sell their cars.

Lessons Learned

CarFirst’s journey in Pakistan provides several important lessons:

• Operational Efficiency: Scaling operations in a complex and competitive market requires careful planning. It also requires managing resources well.
• Market dynamics are key. Understanding local markets and customers is crucial. It helps in gaining and retaining market share.
• Economic Adaptability: Building resilience against economic fluctuations can help startups navigate challenging times.
• Building and keeping customer trust is essential for long-term success. It requires continuous work.

3. Cheetay

Cheetay, launched in 2015 by brothers Ahmad Khan and Majid Khan, made its mark as a well-known startup in Pakistan. Initially established as an online food delivery platform, Cheetay quickly found itself in competition with industry giants like FoodPanda. However, the company expanded its scope over time, venturing into the realm of grocery delivery, a move that gained significant traction, particularly during the COVID-19 pandemic.

Evolution of Services

As the demand for groceries surged, Cheetay initially employed a dropshipping model, facilitating the direct delivery of goods from stores to customers’ homes. Subsequently, the company pivoted to a quick commerce model, establishing dark stores to expedite deliveries and enhance overall customer experience.

Funding Milestones

In April 2021, Jabberwock Ventures, the parent company of Cheetay, secured $20 million in Series-B funding, underscoring investor confidence in the startup’s potential. While there were rumors of a larger investment specifically allocated for Cheetay Logistics, it was clarified that the funds were intended for all startups under Jabberwock Ventures, rather than solely for Cheetay Logistics.

Operational Challenges and Tough Decisions

Despite initial successes and significant investments, Cheetay found itself at a critical juncture after three years of operations. Facing operational challenges and economic headwinds, the company made the difficult decision to wind down its operations. This decision was precipitated by the inherent challenges associated with Quick Commerce’s high-burn business model and the limited demand for immediate grocery services.

Market Dynamics and Competition

Cheetay also encountered stiff competition in its restaurant aggregation business, particularly from FoodPanda, backed by substantial funding from DeliveryHero. The intense competition, coupled with economic uncertainties, exacerbated Cheetay’s struggles, ultimately leading to the cessation of its food delivery operations and the impending closure of all its services, including quick commerce.

Lessons Learned

The journey of Cheetay offers valuable lessons for startups:

• Operational Efficiency: Scaling operations in a complex and competitive market requires careful planning and resource management.
• Understanding Market Dynamics: Gaining insights into local markets and customer preferences is crucial for gaining and retaining market share.
• Economic Adaptability: Building resilience against economic fluctuations can help startups navigate challenging times.
• Trust and Transparency: Establishing and maintaining trust with customers is essential for long-term success and requires continuous effort and commitment.

4. Jugnu

Jugnu, a Pakistani startup founded in 2019 by ex-Unilever executives Sharoon Saleem and Yasir Suleman Memon, ventured into B2B e-commerce with the aim of digitizing and empowering small retailers. Building on their experience with Salesflo, a retail automation tool, the founders envisioned Jugnu as a platform to streamline inventory management and access to capital for retailers.

Vision and Services

Jugnu’s platform provided retailers with the tools to order and manage their inventory, offering a wide range of products from various suppliers. The startup’s services aimed to simplify supply chain management and enhance retail efficiency.

Funding and Expansion

With a total funding of $25.7 million across three rounds, including a significant Series A round of $22.5 million led by MENA-based e-commerce marketplace Sary, Sarmayacar, and Systems Limited in March 2022, Jugnu experienced rapid growth. At its peak, the startup had onboarded over 30,000 retailers across Islamabad, Rawalpindi, and Lahore.

The Downfall

Despite substantial funding and initial success, Jugnu encountered numerous challenges that ultimately led to the cessation of its core operations:

1. Investor Withdrawal: A significant setback occurred when an investor withdrew support from Jugnu, leading to financial difficulties that proved insurmountable.
2. Profitability Hurdles: The FMCG sector’s slim profit margins and high operational expenses posed significant challenges for Jugnu’s profitability.
3. Internal Mismanagement: Internal inefficiencies and mismanagement resulted in notable losses in inventory, primarily due to internal theft.
4. Work Culture Issues: Former employees highlighted a toxic work culture and unprofessional conduct from senior management as contributing factors to Jugnu’s downfall.

Transition and Closure

In response to these challenges, Jugnu announced a pivot away from its self-managed fulfillment centers, logistics, and inventory model. Instead, the company planned to leverage its tech and data suite to facilitate commerce and financial inclusion. However, this transition resulted in layoffs and ultimately led to the shutdown of the startup.

Lessons Learned

The story of Jugnu underscores the volatility of the startup landscape, where external factors like investor sentiment and internal issues such as management and efficiency play significant roles. Jugnu’s closure serves as a poignant reminder of the importance of sustainable business practices and the need for startups to adapt to shifting economic realities.

Conclusion

The stories of Airlift, Cheetay, and CarFirst highlight the blend of innovation and potential inherent in Pakistani startups, alongside the multitude of challenges they face. These ventures underscore the importance of adaptability, cost management, and a deep understanding of market dynamics. Economic instability, fierce competition, and regulatory hurdles often pose significant obstacles to their success.

Despite receiving substantial funding and experiencing strong initial growth, these startups ultimately succumbed to a myriad of operational issues and external pressures. However, their closures offer valuable lessons for future entrepreneurs.

Future startup founders can glean important insights from these failures, emphasizing the necessity of establishing a robust business model, differentiating themselves from competitors, and remaining prepared for economic fluctuations. While the closures are undoubtedly disappointing, they provide invaluable lessons that can guide future startups towards success in Pakistan’s dynamic startup landscape.

Achieving success in Pakistan’s startup ecosystem necessitates meticulous planning, meticulous execution, and a steadfast focus on addressing market needs. By internalizing the lessons learned from these closures, future startups can navigate the challenges more effectively and increase their chances of long-term viability and success.