By Laura Lorek
Publisher of Silicon Hills News
Favor, the on-demand delivery startup based in Austin, reached profitability last September.
“We became the first on-demand delivery business in the United States, actually, globally, to become profitable and soon after that cash flow positive,” said Jag Bath, Favor’s CEO and H-E-B Chief Digital Officer.
“We didn’t need to raise any more capital,” Bath said. “And when the news of that got out, the phone started ringing. But not from VCs interested in putting more money in. The phone started ringing from well-established companies.”
Bath spoke Monday night during a fireside chat in the auditorium of the Engineering and Education Research Center at the University of Texas at Austin with Bob Metcalfe, founder of Ethernet, 3Com and UT professor of innovation. Genesis, a program at UT focused on nurturing and financing student-led startups, hosted the event.
Favor turned down multiple offers from companies interested in acquiring the business, Bath said.
But when H-E-B called, it made sense, Bath said. San Antonio-based H-E-B acquired Favor in February for an undisclosed price. It was the first acquisition in H-E-B’s 113-year history.
In 1905, Florence Butt founded H-E-B in Kerrville. Today, the privately-held retailer is run by Charles Butt, her grandson, who took over operations as Chief Executive Officer in 1971 and grew revenue from a few hundred million to more than $23 billion last year and 400 stores in Texas and Mexico, according to Forbes.
Since its acquisition, Favor has added 20,000 more runners and expanded into 84 cities, up from 50 cities. It plans to be in 114 cities by the end of the year, Bath said.
And Favor, founded in 2013, has spent a lot of time over the last five years developing a strong digital team, Bath said.
A few weeks ago, H-E-B announced it leased a two-story, 81,000 square foot building at 2416 East Sixth Street in East Austin for its tech facility and innovation lab for Favor and part of the H-E-B digital team.
There’s already a very strong and growing digital team for H-E-B in San Antonio, Bath said.
“We are going to keep growing that,” he said. “Given the way the industry is and what we’re investing we’re also going to add to that team here in Austin too.”
Favor has added six to eight people a week since its acquisition with H-E-B, Bath said. The company now has more than 200 employees. It has hired more than 125 people since the acquisition, Bath said.
Bath has a track record of scaling startups from early stage to successful mature companies with Unicorn status. Metcalfe defined a unicorn as a private company that has achieved a $1 billion valuation.
Favor started out with just the founders, Zac Maurais and Ben Doherty in 2013. They launched a test pilot in California and then moved to Austin and initially worked out of the Longhorn Startup Lab space at 1616 Guadalupe. In 2015, they had moved to a 4,000 square foot house on Sixth Street and they hired Bath, who served on the company’s board, as the company’s CEO.
Bath has never been a founder. He’s part of what Metcalfe refers to as the founderati or the glamorous people involved in the founding of companies.
“It takes a very unique skill set and a very unique personality to be able to be a founder,” Bath said. “The same is true of the early team that founders surround themselves with to help scale the company.”
“When all of the skills come together they work really well and that’s actually one of the secrets of scaling a company to Unicorn status,” Bath said.
In Silicon Valley, people refer to people like Bath, skilled executives brought in to scale a company as the adult supervision, Metcalfe said.
Mass growth requires a new skill set, Bath said. He previously helped to scale WeightWatchers.com, Gilt and RetailMeNot.
Typically, when someone joins a company with less than 50 employees, every single person in that group is working “an inch deep and a mile wide,” Bath said.
Over time, that startup grows into a larger company. That presents a new set of challenges.
Employees then need to be “a mile deep and an inch wide,” Bath said.
There is no real recipe to scale a startup into a Unicorn, Bath said.
But one thing that has remained true with every single startup that Bath has been involved in, the most important ingredient to building companies is talent, Bath said.
“Your ability to attract and recruit the best people you can find,” Bath said. “When you do that that influences the company’s culture. Culture isn’t something you can define or write. You can take a stab at it. But the reality is it’s the people that you bring on to go along on the journey that help to establish the culture. It’s the diversity of what they bring. The different experiences that they have. How they work well with others.”
Favor’s culture comes from its employees, Bath said.
“At Favor, one of the things we’ve put into place, we encourage every single team member to do a three-hour runner shift every month,” Bath said.
Bath also hosts Town Hall meetings on Mondays at 2 p.m. for an hour. Bath kicks off the meeting by going through the numbers and then there’s an opportunity, called spotlight, for any individual in the company to bring something to everyone’s attention. The final part of the meeting is what Bath calls eating your own dog food in which team members talk about their experience running Favors, he said.
Favor also has a program called Famous Salutes in which an employee can nominate another employee to be saluted for illustrating one of Favor’s four core values. They get a pin if they win and a $100 American Express gift card. If employees collect all four pins, which can take a year or more, they win two roundtrip tickets to any destination in the U.S. with a three-night hotel stay.
Things haven’t always been smooth sailing for Favor. The company pulled out of markets outside of Texas in January of 2017 to focus on Texas and becoming profitable, Bath said. It was in 25 cities at the time and Canada.
Favor had a difficult time raising its Series B round of venture capital funding, Bath said. Mainly because a lot of money had flowed into the on-demand food delivery sector and reporters in the financial press began raising questions about whether the business would ever become profitable.
That’s when Favor focused on building the business for the long-term and profitability, Bath said. Favor closed on $22 million in Series B funding in September of 2017 after it announced its profitability, he said.
“We worked really hard,” he said.
During the question and answer session, Bath took a question from an audience member about how his immigrant status influenced his career.
Bath said he grew up in the ghetto of London. His parents had immigrated there from India. They were both well educated. But in the 1970s, it was really tough for his parents to find jobs. His dad had an engineering degree and he ended up working a machine at a chocolate factory and later he joined a concrete company. His mom also had multiple jobs.
His family cared about getting food on the table cheaply, education and the community.
“When that is ingrained in you, it’s interesting the journey that you take,” he said.
It helped determine his work ethic.
“Having a good work ethic and working hard is something that was instilled in us,” Bath said.
