The on-demand economy is great for consumers but hard for the companies that provide on-demand services. While many are still struggling to stabilize their business model and optimize their work force, Favor has seemed to find a bit of success by focusing in on a specific region.
Favor is an on-demand delivery service that operates in Texas. Much like Postmates, the service lets users order food (as well as other stuff) from their favorite restaurants and has runners pick it up and deliver it to the end-user.
The company has today announced the close of a $22 million Series B financing round led by existing investor S3 Ventures. Moreover, Favor says that the company has achieved profitability (overall profitability; not unit-economic profitability) as of this year.
Part of that has to do with the way that Favor has scaled back and focused on growing up a small number of markets.
Favor came on to the scene at SXSW in 2014, and took the same approach that most on-demand services do, which is to rapidly expand to new markets. However, Favor announced in July 2016 that it would be shuttering service across five major markets — Chicago, Philadelphia, Atlanta, Miami and Washington, DC — and shifting focus to Tier 2 and Tier 3 markets, instead.
The plan was to target markets with low density but high population, and it worked for a while. But the company has now drawn back into its home state of Texas, serving 11 markets within the state.
CEO Jag Bath sees Texas as a great place to learn how to grow up a market. After all, Texas has the second-largest economy of any state in the country, with a GDP greater than that of many countries.
As part of the funding deal, Favor is bringing on 25,000 new runners and working out a plan to expand to more markets within Texas. Eventually, Bath tells TechCrunch, the company will proceed outside of the state of Texas, but for now they’re working on making Favor as strong as possible in Texas.
Speaking of, Favor has mobilized its workforce to help those affected by Hurricane Harvey, and built out tools offering users the option to donate a care package of relief supplies or make a monetary donation.
Like most on-demand delivery companies, Favor makes a portion of its revenue from its delivery fee, which it splits with the runner — runners keep 100 percent of their tips. But, beyond that, Favor also has paid partnership deals with businesses and restaurants, taking a percentage of the business they bring in for those partners.
“Our biggest challenge is to continue to win on service against many competitors who have deeper pockets and raised a lot of funding,” said Bath. “We don’t try to buy customers or runners, but instead try to provide the best possible service. It’s difficult to compete with free food all the time.”
That’s a clear dig at Postmates, which frequently uses promotions and discounts to turn up engagement on the platform. Postmates also operates in some of the same markets as Favor in Texas.
With this new $22 million, Favor has now raised a total of $34 million.