BusCaro: reinventing commuting in Pakistan

This interview was conducted, transcribed and edited by Timothy Motte.

Biography:

Maha Shahzad is the CEO and founder of BusCaro, a Pakistani mobility startup. BusCaro is a bus hailing solution for companies, industries and institutions. The company has raised $1.5M in funding.

Previously, Maha was the general manager for Swvl in Pakistan and was the head of partnerships for Careem. 

Swvl and Airlift, two companies with a similar model, failed in Pakistan. Why try again?

The problem both of these companies addressed was real. Pakistanis struggle to find reliable, cheap, safe transportation to get them to work or school. This problem is exacerbated for women, who face terrifying rates of sexual harassment on public transport. The state of public transport in Pakistani cities such as Karachi is dismal and painfully unreliable. 

Airlift, the most funded Pakistani startup at the time ($110M raised), is an unfair comparison. While they started out with the same model as Swvl and BusCaro, they pivoted during the pandemic as commuting activity ground to a halt. They became a quick commerce company, delivering goods through a network of dark stores. Airlift came to a brutal end in mid-2022 when they failed to raise their Series C. 

I wouldn’t say Swvl failed. At the time, the company was on a risky and expensive hyper-growth trajectory, which came crashing when macro conditions flipped. I used to head Swvl Pakistan: we were the company’s number one market in terms of number of bookings. The rise in interest rates, inflation and a sharp decline in investment activity forced Swvl to scale back. But Swvl’s product solved a tangible pain: when Swvl shut down, I got hundreds of messages from disgruntled customers who wondered how they would commute. 

This tsunami of messages convinced me that, while the Swvl adventure was over in Pakistan, the problem remained. That’s why I founded BusCaro, almost immediately after leaving Swvl. My idea was to copy-paste the Swvl model but implement saner unit economics and more sustainable growth tactics, for us to survive while traction built up. 

For example, BusCaro opted for a B2B2C model (employers subsidize their employees’ commute) rather than a B2C one. This reduces our customer acquisition costs (CAC), because we’re going after a couple of big fish rather than individuals. It is also logistically easier: since all users from a similar employer are going to the same place, route optimization smooths out.

You launched a seemingly failed business model, in a horrible fundraising environment, in an economically struggling market. How did you stitch up the initial traction and raise?

One bus at a time. Once again, the value proposition is clear: Pakistanis want a better, cheaper alternative to public transportation. BusCaro connects individuals who own and drive mini-buses with clients (and vice versa). At the beginning, it was a WhatsApp group, starting with a bus owner I knew from Swvl. We then began layering basic tech on top of it. 

For the bus owner, the incentive is clear: we specialize in helping them fill their buses, which means more revenue for them. On the rider side, people would be organizing these types of trips amongst themselves anyway. We just do it for them. 

This business model isn’t capital intensive, so we were able to build traction while relying on my personal savings. It took us over 400 pitches, but we ultimately raised $1.5M. 

I assume you have little competition then?

Anyone transporting people is competition. But in our specific vertical, we’re unique. This is a boon for our unit economics. When Swvl and Airlift competed in the market, they heavily subsidized their rides to gain market share, both on the rider and bus operator side. They were charging a tiny amount for rides and were paying bus operators 3 to 4 times what BusCaro pays them today. That situation was untenable in the long-run. 

We don’t have the luxury of operating like that, since we’ve raised a minuscule fraction of what Swvl and Airlift had raised. We are targeting the people who can afford to pay a bit more than public transport but can’t afford individual ride-hailing services every day. 

Source: BusCaro deck

So you sell directly to B2B clients. What persona has been the easiest to convert?

We mostly serve academic institutions, who value our safety component, and corporates (our biggest clients today) who value punctuality. 

You have other factors at play, which add complexity. Impeding on the territory of existing suppliers can be difficult. Maybe there was some kind of kickback agreement, where the supplier is serving that company not because they are the best but because of some backdoor arrangement. Breaking into these loops is difficult. 

BusCaro also offers a tech approach many potential clients might shun. If they are used to organizing commuting on pen and paper, it’s an uphill battle to get them to upgrade. 

We now cater to 70+ clients across major cities. Word of mouth is picking up.

Swvl’s former CFO said that Swvl is now trying to sell its SaaS to existing bus/fleet operators. Is that a viable vertical for BusCaro?

It would make sense in the context of a public-private partnership. We could sell a SaaS to municipalities to help them organize public transportation. I think we’re miles away from that though. 

If one looks at the amount of money needed to get Pakistani public transport up to speed, the bill is simply too high. The private sector will have to play a role. We’re focused on them for now. 

You currently work with individual bus owners and bus companies. Is there a case for you to buy your own buses?

Yes there is, for multiple reasons.

First, it’s easier to dispatch your own fleet when serving difficult routes. Second, we want to move to electric vehicles and it’s easier to buy our own rather than convincing existing operators to change their buses. Third, once the initial cost is paid, margins are better. 

While we might end up buying some of our own buses, we want to keep working with individual bus owners. We maximize their own earnings and that’s a part of the impact we want to have.

What’s the most unexpected challenge you’ve faced so far?

Pakistani taxation rules. Until recently, companies such as BusCaro were taxed on their gross merchandise value (GMV), in other words, the total money paid by customers. The problem is that this isn’t the money we actually make, since we pay the drivers, salaries and our own costs from that GMV. It makes very little sense for us to be taxed on our GMV and it kills our take rate (the % of GMV we keep for ourselves).

Players such as Careem started the regulatory procedures to change this and it’s finally been changed. Pakistani tax authorities see the obvious benefits we’re bringing, as companies such as ours relieve some of the government’s transportation burden. 

Pakistani founders and VCs often talk about “Pakistani macro” severely impacting their business. How has “Pakistani macro” affected BusCaro?

In two main ways.

First, the global rise in interest rates makes it harder to raise VC funding. If lending money is more profitable, there’s less appetite for the VC asset class. This isn’t Pakistan-specific, but it impacts Pakistani startups’ ability to raise just as much. 

Second, Pakistan has suffered from stinging inflation, owing to external factors (ex: Gaza/Ukraine war impact on supply chains) and internal ones (ex: 2022 Pakistani floods). 

A cause and result of that inflation is a hike in fuel prices. We pass on fuel price hikes to our customers, making us more expensive but protecting us in the long-run. Our price increase is smoothened by the fact that our vehicles transport multiple people, which can’t be said of individual ride-hailing companies for example.

You’ve recently launched “fuel cards”. What do these entail?

In our space, 70% of the cost of goods sold (COGS) is fuel. This is a cost that is incurred before the client pays, so there’s a blatant gap in working capital until then. In other words: drivers dish out a large expense before being paid.

To assuage this problem, we’ve just signed a partnership with Total Parco to give our drivers fuel cards. These allow them to buy fuel on credit. This means they don’t have to carry a hole in their budget until the client pays us (and we then pay them). 

What’s the hardest decision you took so far?

Starting BusCaro. It was contrary to all logic. The business model had lost its allure, fundraising prospects were apathetic and Pakistan’s fuel prices were shooting up. My closest friends and advisors told me it was a terrible idea, one which I was funding with my personal savings as well. But the flood of disappointed messages I received when Swvl Pakistan closed supported my hunch. 

What’s the best piece of advice you’ve received from your investors?

I’m lucky to have built a solid base of investors, people who have been founders or operators and understand what I’m going through. 

All I’ve ever known in the startup environment is hyper-scaling. My investors ground me in rolling out rational unit economics. They’ve also told me to refuse money from particular investors, even when I really needed the cash. I thank them for that. Misaligned investors are an unshakeable weight. 

You lived in New York. What challenges do you face as a Pakistani founder that Americans would never consider?

Tech adoption has been very hard on the supply side. We are quite literally teaching many of these bus drivers how to use an app. Swvl and Airlift had started the training, so there’s some trained drivers, but newbies need to be taught from scratch. 

In some companies, unions will expect you to give them free rides on their days off if they grant you the contract. It’s a legacy of subtle corruption. But generally, the management at the companies we work with want to clean that up. 

We’re also working with a particular strand of the population. Many of them are uneducated. For example, we want our bus drivers to get certain vaccines, for riders’ safety. Some of these drivers are scared of vaccines making them infertile. I didn’t think that part of my job would be explaining that vaccines don’t tend to do that. 

You are still a (too) rare case of a woman founder. How has the role of women changed in the Pakistani ecosystem?

I started working in the Pakistani startup ecosystem about a decade ago. My first boss told me that I should do content, because women are “good at writing”. Operational roles were evidently off the table, as they were “men roles”.

This has changed. One of Pakistan’s leading VCs (i2i ventures) is woman-led. I was often the first woman in management positions in the companies I worked at, but that is becoming an increasing occurrence. 

We need to shortcut the system. Since the early days of the ecosystem was men-led, the most experienced profiles in the ecosystem today tend to be men, who thus have a better shot at higher roles. The ecosystem needs to collectively spend more time on training and mentoring women. 

For women to enter the Pakistani workforce, we need to fix commuting. Pakistani public transport’s  rough and dangerous conditions means parents feel safer sending a boy than a girl to school. Professional women might spend an inordinate amount of their salary on commuting, just to access safer and more reliable transportation. 

You could be working abroad and make more money. A lot of Pakistani talent prefers to do so. Why stay?

The impact I can have in Pakistan is bigger. Here, we are solving base problems. We’re helping girls get to school and enter the workforce. It isn’t exaggerated to say that in the process, we are changing the trajectory of thousands of Pakistani lives. 

I don’t blame people for leaving. If they come back however, they have to be driven by passion. This isn’t where you’ll make the most money. 2021’s funding fury might’ve skewed that equation. Pakistani founders thought a golden financial path was to raise VC funding and live the founder lifestyle. This isn’t the case anymore. Being a founder here is hard and it stings. The reward isn’t financial but the ability to fundamentally better one’s country. 

For a founder however, the Pakistani market is exciting. It’s a huge, very tech-early market so there’s a ton of opportunities. There’s also little competition at the moment.

The Realistic Optimist’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice.