Favor quit five big US markets, bet on Texas — and hit profit first (interview)

What was changed

In an interview with Crunchbase News, Favor CEO Jag Bath describes the on-demand delivery market of 2015 as one where investors began pulling back — not from doubts about market size, he says, but because 'they were seeing money poured into companies that had upside down economics, meaning they were losing money on a per-delivery basis.' Rivals kept expanding geographically and hiring. Austin-based Favor, founded in 2013 to deliver anything in under an hour, chose the opposite path and focused 'on every single aspect of our unit economics.'

The changes were structural. Favor centralized its market teams at headquarters instead of scattering staff across cities, building systems to support them. It then pulled out of five major US markets — Chicago, Washington DC, Philadelphia, Miami and Atlanta — because, Bath says, traffic and parking meant 'we were not able to deliver our value proposition' there. The deeper finding: 93% of delivery volume was already in Texas, yet the company was spending proportionally more resources outside its home state. Favor closed every non-Texas market.

Six months later, in July 2017, Favor says it reached EBITDA-positive, calling itself the first on-demand delivery company to turn a profit. Bath says gross product sales surged from $4 million in 2014 to $60 million in 2016, with more than $100 million projected for 2017. The company closed a $22 million Series B led by S3 Ventures to fund the Texas push, where its delivery area had more than doubled since January, with 30 markets targeted by end of 2018. Board member Charlie Plauche of S3 told Crunchbase News the team had 'proven... the on-demand delivery business model works at scale.'

Why it worked

Rivals kept expanding into markets where each delivery lost money, betting on scale that deepened the losses.

Five major markets failed the basic promise — traffic and parking made sub-one-hour delivery uneconomic — so Favor left rather than dilute the service.

Resource allocation contradicted demand: 93% of volume was Texas, yet growth spend went elsewhere.

Centralizing market teams at headquarters cut the overhead of running scattered city operations.

A single dense home market let the same runners, systems and brand compound instead of restarting in each new city.

What can be applied

Shrinking to where the unit economics work beats growing to where the story sounds big — a promise you cannot deliver in a market is a loss you have chosen.

Aftermath

Favor put the fresh $22 million Series B behind Texas expansion, doubling its delivery area in the state since January 2017 and targeting 30 markets by end of 2018. Bath framed the lesson as sector-wide: companies that 'forget about the fundamentals' end up 'picked up for pennies or having to close down.' Austin B2B same-day courier Dropoff, interviewed for the same piece, reported profitability in 8 of 17 markets — profitable, but on a slower enterprise-sales path.