Pathao Founder and CEO Hussain M Elius on the early days of Pathao, how it has evolved and grown from a small team of 30 people to a team of over 500 people in a span of a few years, the hard work and intricacies of scaling a business, Pathao’s business today and its ambition going forward, the most critical aspects of ride-hailing business, how Pathao operates as an organization and Pathao’s organizational culture, driver-rider-company dynamics in ride-hailing business, ride-hailing and transportation problem in Dhaka, the future of ride-hailing and Pathao’s business, and why entrepreneurship requires a certain amount of ignorance about how hard, uneventful and unglamorous building a real business is.
This was a much longer interview, so we had to break it up into two parts. This is the part one, please check us back later this month for the second part of the interview or subscribe to our weekly newsletter to get our stories directly in your inbox.
Future Startup
Thank you for agreeing to do this interview. It has been over a year since we last spoke. Since then, you have done tremendous work and today Pathao is an entirely different company. Could you please tell us about how much has Pathao evolved as well as give us an overview of the company in terms of team and business?
Hussain M Elius
Pathao started as a concept; as a small initiative. We had a secret Facebook group, where we asked all our friends if they wanted anything delivered they could use our service. For us, it was an experiment. It soon evolved from there. While we were doing deliveries with our motorbikes, we thought, can we utilize our bikes in a more efficient way? Would people in Bangladesh like to use a motorcycle as a transportation service; as a ride-sharing option?
This question led to us building another MVP around the idea. Unlike many other countries around the world, such as Vietnam or Indonesia, Bangladesh did not have a motorcycle as transportation culture. With Pathao, we have helped create that culture. We realized that there was a pent-up demand for a service which would save people time and energy.
At first, we started small. We had only 5 bikes and everyone would call my personal number and I would schedule the rides in an Excel sheet. It was a completely manual operation. It was tedious. Everything changed when we launched our app in December 2016. That's when things kind of blew up and we ended up changing our entire business model around our app.
Back then we had maybe around 30 employees; currently, have 500 people working in Pathao, separated by 4 large offices in Dhaka and 1 large office in Chittagong and an office in Sylhet. That number excludes the delivery agents and our riders.
The past year was a journey of expansion and scaling up. Not a lot of companies in Bangladesh have had the opportunity to scale up. We saw that opportunity open up to us and we took it.
Launching a business is comparatively easy. It wasn’t our first startup. However, scaling a startup and making it into a company, and turning it into a business from a product, is a different kind of challenge.
By October 2017, we had launched our Rides service Chittagong. At the same time, we launched Pathao Cars in Dhaka. In January, this year we launched Pathao Food. In a three-month time, we became the largest food delivery service in Bangladesh, ahead of our competitors.
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Future Startup
As you said, starting a startup is easy but scaling up and turning it into a real business is where lies the real work; what are a few things that Pathao has done over the last couple of years that have helped you to grow fast? Was there any major inflection points that you could share with us?
Hussain Elius
Launching the app was a big part of it. We did not have any engineers when the app first launched. The first iteration was built by just me, Adnan and Fahad. We rolled something very simple out at first. Our core philosophy back then was and it continues to be one of our core values: "done is better than perfect". Now we call it 'bias to action'. All it means is that we don't stay busy with just making plans. Even if the plan is not perfect, we get down on the ground and we roll with it and push it through execution. That way we can incorporate market feedback faster and build product or operations around how things actually work and take the path-of-least-resistance forward.
For example, before us, there have been a few ride-sharing companies. So what did Pathao do differently? We rolled our sleeves and got down on the ground. We stood in front of universities in Banani area and did hardcore sales to put people on our bikes.
We would ask people where they wanted to go and tell them that "I'll take you there on this bike for a 100 taka". They would be very confused and scared, naturally, since we are taking them in a bike and it’s an alien concept to them. But we kept up and pushed people to get on the bike and take the first few rides. We did this for three days and gave them our card to call us and book.
On the fourth day, they would start calling us. After the fifth day, they started talking to their friends about us. And that’s how we got initial traction. Instead of spending time on a lot of planning, we directly engaged in the market.
We pushed our customers from the ground level. Since we addressed a need in the market, our service quickly got product-market fit and expanded.
We cultivated a sense of community in our users from the very beginning which has helped us to build a loyal user base who not only used our services but also told about us to their friends.
Now the times are different. Our focus is now on what the customer really needs and wants. We launched Pathao Food and we did it keeping in mind the common people, a service that could cater to a large group of people. Our competitors have 600 restaurants over 13 areas in Dhaka; we got down on the ground and enlisted over 3600 restaurants to start Pathao Foods. We also thought about the affordability of people.
A common consumer would not be willing to spend tk. 400 on an average for a regular lunch which makes a lot of existing platforms exclusive for people who could afford and it limits your market size; there needed to be a place where people could order anything of any value.
We launched the service all across Dhaka, believing that everyone should have this service. And we have received tremendous response from the market. This idea that making the product for a large group of people and making sure that there is no entry barrier for customers is critical in an emerging market.
At Pathao, we always strive to hire people who are better than the existing team. That has been our core principle when hiring. We have something called the "Bar Raiser Program", where every new hire needs to be better than the current average. The calculation of it is albeit subjective. Is this the new hire better than employee A or employee B? If they are not better, then we don't invite them in. This has been a huge driver of growth for us. At the end of the day, companies are people.
Future Startup
How is Pathao Cars doing?
Hussain Elius
It’s doing great but it could be better. The car-ride market is a lot more competitive and different from the bikes. Even the technology is different. It has a different set of challenges. Cars are mostly owned by rental companies. The nature of taxes is high in Dhaka too. Supply of cars is a challenge as well.
Cars in Dhaka are expensive to own; hence only affluent people can afford them and they are not the ones that will drive for Pathao. They have chauffeurs who drive them. For bikes, the people who own them are the ones that drive it.
Despite these challenges, we have been seeing a consistent growth. Recently we have been launching out few product level improvements such as fleet management to tackle that problem. The fleet owner will be managing it with the tools provided by us. Hence, even if the owners don’t drive the cars, they can still engage and control. These new initiatives should give a further boost to our growth.
We are constantly looking out for new ways of doing things, finding new growth opportunities, you can hope that we would be doing more things as we go in the space.
Future Startup
What are the other things you have done that might have contributed to Pathao's growth?
Hussain Elius
At Pathao, we always strive to hire people who are better than the existing team. That has been our core principle when hiring. We have something called the "Bar Raiser Program", where every new hire needs to be better than the current average. The calculation of it is albeit subjective. Is this the new hire better than employee A or employee B? If they are not better, then we don't invite them in. This has been a huge driver of growth for us. At the end of the day, companies are people.
Now that the company is 500 people big, with multiple verticals, as the CEO I can't do everything. We need people who could take initiative, push things forward, come up with effective ways of doing things. These are people that are smart, driven and share the common vision of the company. They operate independently with their own sets of responsibility and accountability.
There’s a matrix structure of the org; there are owners of the verticals and there are also owners of the functions. For example, customer support is something both Rides and Food need. It wouldn’t the efficient if the ride owner's or the food service owner's need to manage their own call centers. So there are common functions that team across the board need and there are vertical-specific needs as well.
Future Startup
How does Pathao work as an organization? What does your operational model look like? Also, could you tell us about your culture a bit?
Hussain Elius
We are a flat organization. Hierarchy exists at Pathao, but that’s with an intention to speed things up.
There are 20 people in the management team. They all report to the core team of CTO, COO, CFO and myself. I still personally look after some functions but not all of them. Some of the top managers may have 10 different departments who report to them. Some verticals self-sufficient, some are not. Rides, for example, is a more mature vertical and pretty stable. Food is still new and growing so we are still setting up those teams. Courier is also very mature.
We don't necessarily restrict ourselves on just the hierarchies.
We base plans on where it is most needed. Some functions do collaborate with other functions while some don't. For instance, Key account management for courier does not have to interfere with marketplace dynamics between Food and Rides and so on.
As you can understand, operationally we are fluid and flexible. There are things we need to figure out as we go. It will always be a challenge and be in a state of flux because we are a start-up. We have a hierarchy but we also want to be flat. Since we're not a mature company, we are not set in our ways; the organization hierarchy might change in every 3 months or 6 months.
Future Startup
How big is your team in Pathao Food and how do they work? Could you give us an insight into teams in your other verticals such as Courier, Rides and how these verticals and teams work?
Hussain Elius
There are only around 5 people who work in Food. Then there are separate Food operation and customer service team, which are much larger. But at its core, it's 5 people.
In courier, we have seven managers who are spaced out into executives. Courier can get very complex because we have at least 8 different hubs in Dhaka alone, with multiple more in Chittagong.
In rides, we have about 10 managers, which has a much bigger operation and they report to one person. That one person handles all of the rides and similarly for foods and accounts the model is same.
Then you have the top 20 managers who work across functions and verticals. That's the first level of managers. Then you have the second levels managers, who are a lot more in numbers; at least 60.
We have an excellent data science team, who can figure out whether a ride is fraudulent or not. It always happens, regardless of counter-measures; it's sort of like a cat and mouse game. Our job is to always find ways to stay ahead in this game. So far, we have made excellent progress. Our fraud incidents have come down to a minimum level and we are working on it for further improvement.
Future Startup
Could you please give us an insight into your organizational culture? You have grown pretty quickly, how do you install values in all your people? How do you monitor and ensure everyone is on the same page and are motivated?
Hussain Elius
It's a challenge because the team grew to be so big. Before everyone used to personally report to me, which does not happen anymore. Only 4 people report to me directly. The core Pathao culture is still very ingrained and repeated. The vision is always repeated and what we do is also the same. We actively try to instill our core values in our people.
Firstly, the motto of "bias to action". This is something we have driven home to everyone. When we onboard new people, we ensure that these values are communicated and people carry these values along. I tell a story to people about how back in at Chairman Bari office we went 3 days without electricity. And we had to set up table fans in the garage below to work.
When we had the pressure of too many delivery orders, I had to deliver myself. We tell these stories to the new people we on board; this is the level of commitment that we expect at Pathao. Get things done fighting every odd, even if you're stuck.
Communication is another pillar that helps us consistently remind ourselves these values. Every week we have all-hands meetings with the entire team and we share what we are doing. We share the milestones, the problems, and challenges. We discuss solutions, how people are approaching different challenges and we welcome every new joiner publically. We repeat our values in these all-hands meetings. We have a direct line for people to voice their concern, to myself and others.
A CEO's job changes, from a start-up to a scale-up company. In a start-up, the CEO's job is to do everything. In a scale-up company, it is probably not, because I have 500 people who do the job for me. Hence, the CEO's job here becomes to keep track of whether everyone is following the right culture and right vision.
Even if everyone is working towards one vision, there will be mistakes along the way. But if they follow the vision correctly, they will always come back on the right path. That's what my job has become; reminding them of our vision and giving people the freedom to do things their way and at the same time finding a balance between freedom and accountability.
We have to be open to people making mistakes and trying new things; that’s what allow you to grow as a company. When you allow people to explore, they would always surprise you.
Future Startup
What are some of the challenges you are now facing, in terms of ride-hailing business?
Hussain Elius
The challenge still has to do with scaling up. Then we have product-level challenges as well as operational level, such as frauds, although it's much less than product-level.
Currently, we are paying a lot of attention to our product level improvements and bring the product to international standards. Working on that is a priority for us. Having said that, we have already working on these issues and we are making good progress as well.
Future Startup
Fraud is a major issue for ride-hailing companies. How are you doing on fraud management?
Hussain Elius
We have an excellent data science team, who can figure out whether a ride is fraudulent or not. It always happens, regardless of counter-measures; it's sort of like a cat and mouse game.
Our job is to always find ways to stay ahead in this game. So far, we have made excellent progress. Our fraud incidents have come down to a minimum level and we are working on it for further improvement.
Future Startup
How big is the ride-hailing market in Bangladesh? There are a handful of ride-hailing companies in operation in Dhaka, how many rides do you think take place daily?
Hussain Elius
Currently, urban transportation spending is about 7 billion dollars in Bangladesh. In Dhaka, it is about 4.1 billion dollars. The number of total journeys is 19.9 million in total, rickshaws are 15 million itself. The middle class was like 12 million in 2015, which is predicted to be 34 million in 2025.
Urbanization is growing rapidly. And we are not only restricting ourselves to just ride-sharing. We're targeting urban households, which is about 100 billion dollar industry.
Future Startup
What is the strategy going forward for your ride business? Take a few things into consideration. One, almost all companies are offering promo codes and other incentives and much of the growth in the ride-hailing space could be attributed to the various incentives that ride-hailing companies are offering, how do you continue to grow without offering these incentives? The second thing is: the competition is growing. Although, Pathao has been able to build a solid position in the market and you have also built strong moats around your ride-business with other services like Food and upcoming Payment, how do you see the marketing evolving in the coming days and how do you see your path forward?
Hussain Elius
Ride-hailing globally will always be a two-player market. It's kind of like the airlines' industry. The airline industry is something that provides people a lot of value. If any airline shut down, people will notice; it brings such value to the customers. I feel like ride-hailing is a lot like that. If it's a one-player market, another competition will enter, because monopoly makes too much money.
If you look at countries such as Mexico, Uber had a monopoly. Then strong local companies emerged, and now local players own some of the markets.
The three-player markets are unstable; such as Uber, Grab and Go Jek in Indonesia. There was a lot of value destruction there. Globally ride-sharing will always be a two-player market. That is also the future I see in Bangladesh; some of the existing players may go out of business but eventually, it will tie-off to a two-player market.
For us, Pathao rides is something we feel is going to continue to grow. However, we have always thought about how we can use the same fleet and same technology to move into other products. Cars are a much higher margin than bikes are; Foods are much higher than either of them. Other future vertices that we have planned are there. For us, the path is very simple: it is using our existing leverage and builds on that. I do not see a future with more than 2 ride-sharing companies.
As for the promo-code driven-growth, I would not say it is entirely promo-code driven. There are users who use it without promo codes. This is one of the areas where our data science team comes in. After a certain time, you don't need to give as much promo codes. At the end of the day, it's a commodity. The point is to make a product and service that is accessible to everyone.
Promo codes are promotional items, they change the behavior of people. And that's it: and this neither unique to our market nor to our industry. Discounts are everywhere. Until that behavior is reached, you have to grow the market.
When we started ride-sharing, there wasn't a bike-taxi culture. We created that culture and we grew to one million rides per month. I do not agree with the sentiment that it's promo-code driven market; promo codes give you short-term advantages very quickly, but it's also a customer acquisition tool.
I do agree that Pathao has not reached that point yet where we could entirely stop or dictate decision about promo code or incentives. We see certain cohorts of customers changing their behavior and the number is growing. But it will take time.
We are still scaling and growing it. Cars is something that is very interesting. Right now it's more product level improvements and we need to touch more people's lives. So I think we are just getting started.
I cannot give you granular details of that right now. Probably, I would at some point in the future. What I can tell you is that we focus on our business. We didn't focus on raising funds. We focused on my numbers, number of rides, number of deliveries and how efficient we are with capital. We ran a good business and that has brought us where we are today.
Future Startup
Ride-hailing companies are the product of so-called gig economy. Drivers work independently using your network which means although they use your network to serve customers, they are not your employees. The difference is that when someone works for a company or an individual, they get certain benefits such as the yearly rise in salary, sick leave probably and other similar benefits. In your case and in the case of Uber and other ride-hailing companies, the relationship is not that of employee-employer dynamics. Consequently, they don’t get the benefits that they would have gotten had they work for a company as an employee. There are benefits to driving for a ride-hailing company but there are questions about how much drivers earn in many advanced markets such as in the US and UK. At the same time, ride-hailing companies often dictate the terms of the relationship between the drivers and riders, such as Uber’s surge pricing, because ride-hailing companies control the demand for rides and intermediate the driver-rider relationships. There are heated discussions going on on these issues in many markets where Uber and other players operate. How do you see these dynamics are going to play out in our market in relation to your business?
Hussain Elius
Bangladesh does not have as many vehicles as other countries- there are not enough vehicles on the road. The traffic we see is not because there are lots of vehicles, but because there aren't enough roads. Bangladesh has the lowest per capita vehicle in any country in the region. Since there is a lack of vehicles, there is also a lack of drivers. If you can make the drivers happy, then you can make the customers happy.
We focus a lot on our riders. People always need to move. But the supply at first was not there, there was no motorbike culture. So I don’t think many of the things that apply to other markets apply to our market. On top of that, as a company, we are very different from any other players in the market.
A Pathao driver makes more than twice the average salary in Bangladesh. The reason that happens is due to the tariff structure so the cost of ownership of motorbike is higher and the cost of fuel is higher. Therefore fare is also higher which makes the earnings higher.
Our drivers are true entrepreneurs and they are making money on their own time. We have merely created the opportunity. In fact, our drivers/partners decides when they want to work and when they don’t. So your point that we dictate the term is not the case in the reality. We do everything to make sure that our drivers earn more and have a good experience with us and we will continue doing that.
Future Startup
There is no doubt that Pathao enables people to reach their destinations quickly and it does solve a real problem for many people. But the traffic problem in Dhaka is an entirely different one. Ride-hailing probably helps solve this problem at an individual level, but broadly, it is a problem of lack of better public transport option. Many people claim that ride-hailing companies have contributed to the problem than easing it because these companies contributed to the overall influx of vehicles. Probably, a bus-hailing service would do a better job solving the problem. Do you think it has helped to solve the traffic jam problem in Dhaka?
Hussain M. Elius
It's helping people. World Bank has estimated that 3.2 million hours are lost due to traffic jam, solely in Dhaka. We are giving people back their time. I had discussed this in my TEDx talk; where the average speed in Dhaka is km per hour and average speed on a Pathao ride is 26 kmph. Because of Pathao rides, more people can reach their destinations faster.
The transports are far better utilized now. The cars that sat in parking before are now on the road and being used by people.
Now traffic is an entirely different challenge. Dhaka not having enough roads is an infrastructural problem. And there are other dynamics as well. Everyone will have to come forward to solve many of these challenges.
The reason that services like ours have become popular is because of the lack of public transport. There are only 2700 buses in the entire city and 50000 CNGs in a city of 18 million people, so they operate in a perpetual state of a surge. The infrastructure problem is always there. We have taken a step towards solving a problem. There are many more problems, which need to be worked on by the private and the public sector together.
Paul Graham has a term called “Schlep Blindness”. “Schlep” means boring, uneventful ground grinding work. There is a reason lot of entrepreneurs are young. People who start companies don't realize how difficult it is to start companies; which makes them perfect candidates for starting companies. If people knew how difficult it was, none would start one.
Future Startup
There is a humongous lack of public transportation in Dhaka, as you already mentioned. Do you see one of the proper solutions to this problem to have better public transportation? Is it something you would like to get into - offering better public transportation solution?
Hussain Elius
We always think about how to make people’s life easier, and we do have a long way to go to develop Dhaka into a smart city.
Future Startup
What are some lessons you’ve learned?
Hussain Elius
Paul Graham has a term called “Schlep Blindness”. “Schlep” means boring, uneventful ground grinding work. There is a reason lot of entrepreneurs are young. People who start companies don't realize how difficult it is to start companies; which makes them perfect candidates for starting companies. If people knew how difficult it was, none would start one.
People don't realize that most of the times entrepreneurship is not very eventful and not a very glamorous job. It's a lot of hard work over a sustained period of time, where you don't give up. It’s the grind that you have to face every day. No matter what someone has to start, there is a lot of ground level, boring, and monotonous work.
If you see through my personal journey, you will see that I don't appear a lot in media, especially before 2018. It was because I believe that people should keep their nose down to the ground, be humble and just work.
It's very important to have everyone follow their own north star metrics rather than vanity metrics.
Work hard and be humble, there’s no secret to success.
Future Startup
I want to end this part of the interview with this final question; you have just raised over $10 million dollars at a valuation of more than $100 million, what kind of negotiations goes into when you are raising such kind of money?
Hussain Elius
I cannot give you granular details of that right now. Probably, I would at some point in the future. What I can tell you is that we focus on our business. We didn't focus on raising funds. We focused on my numbers, number of rides, number of deliveries and how efficient we are with capital. We ran a good business and that has brought us where we are today.
One thing I can tell is that there are a lot of investors out there but Bangladesh lacks good investable businesses. If you could build a solid business, raising investment should not be a challenge.
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Interview by Ruhul Kader, Transcription by Shabiba Benta Habib
Photo credit: Pathao
