Why Did Glovo Turkey Shut Down?

In April 2019, as the Spanish delivery start-up Glovo announced a new funding round, it described Turkey as one of its fastest-growing markets. TechCrunch recalled that on 21 January 2020, because on that day the same company announced it was leaving Turkey. Nine months lay in between.

It was not Glovo that closed. The Barcelona-based company is still operating. What closed was its Turkish operation, which started in Istanbul in June 2018 and spread as far as Ankara and İzmir. Leaving a fast-growing market looks like a contradiction at first sight. This piece opens that contradiction up.

What did it do?

Glovo's promise was simple: whatever you wanted in the app, a courier would bring it to your door. According to a September 2018 report by egirişim, a Turkish start-up news site, customers could order restaurant meals, coffee and desserts, groceries, gifts and personal care products, and could also have keys, glasses or documents left at home or in the office carried across town. Orders were taken by the company's own couriers, and delivery was promised in under 30 minutes.

According to figures Webrazzi, the Turkish tech news site, published on 24 September 2018, Glovo reached more than 50,000 downloads, more than 20,000 deliveries and over 300 sellers in its first three months in Istanbul. The service covered ten districts, from Acıbadem to Maslak and from Kadıköy to Şişli. Chains such as McDonald's, Burger King and Popeyes were on the platform. Austin Kim, the Turkey general manager, was clear: "We will keep growing by investing in Turkey." The goal was all of Istanbul first, then Ankara and İzmir. By 2020 the company was operating in those three cities.

What went wrong?

It is hard to say there was no demand. The record tells a story about where you stand in the market.

• June 2018: Glovo launched in Istanbul.
• September 2018: The first three months' figures were published, and the company said it would keep investing in Turkey.
• April 2019: According to TechCrunch, Glovo counted Turkey among its fastest-growing markets as it announced its funding round.
• December 2019: According to Habertürk, the company closed a USD 167 million round led by Mubadala, and its valuation passed USD 1 billion.
• 21 January 2020: Glovo announced it was pulling out of Turkey, Egypt, Uruguay and Puerto Rico. According to TechCrunch, the eight cities in these four countries made up 1.7% of the company's gross sales in 2019. The app stayed open for a few more weeks to manage the transition.

The company's reasoning was plain. Co-founder and CEO Oscar Pierre told TechCrunch that its strategy had always been to focus on markets where it could establish itself among the top two delivery players. The target was to reach profitability by early 2021. Speaking to Habertürk, Pierre added of Turkey that the decision had been very hard, especially in a country where they were running a successful operation.

So why was the top two hard to reach in Turkey? Webrazzi wrote that strong local brands such as Yemeksepeti, the dominant food-ordering platform, and Getir, the Istanbul-based quick-commerce start-up, made competition hard for a foreign player. Habertürk also noted that Getir had raised USD 38 million a week before the January 2020 exit decision. In other words, Glovo worked out how much capital it would take to climb above third place in a growing market that already had two strong players, and chose to spend that capital elsewhere. That last sentence is an interpretation, but it fits the strategy the company itself set out.

Lessons for founders

• Growth rate does not show your place in the market. Turkey was growing fast, but a fast-growing third place is still third place. Measure where you stand against your rivals separately from your own growth rate.
• The parent company's timetable is the local arm's timetable. Glovo targeted profitability in early 2021 and left the cities that contributed least to that goal. If you run the local business of a global company, write the parent's profitability date into your plan.
• A small share is easy to cut. The eight cities accounted for 1.7% of gross sales. The decision to close a part that stays small within the whole can be taken regardless of that part's own success.
• Count your rival's capital before you enter. In a capital-intensive business, a rival's next funding round can decide your whole year. We explain how to analyse competitors in our piece on when to fear a competitor.

The card for this record sits in the Startup Graveyard. You can see other start-ups that closed because of competition on the beaten by competition page.

Lanchester's square law

In Aircraft in Warfare, written during the First World War and published in 1916, the English engineer Frederick W. Lanchester separated two kinds of combat. In old-style fighting, where each soldier engages one opponent at a time, strength is in direct proportion to the number of soldiers. In modern combat fought at range with aimed fire, a side's strength grows with the square of the number of its units. That is why a side with half the numbers needs four times the firepower to draw level.

A delivery market is not a war, but the analogy is instructive. As the courier fleet, the restaurant network and the marketing budget grow, the advantage grows not in a straight line but in multiples: more restaurants bring more users, and more orders make each courier more efficient. In such a market, the player in third place has to spend far more than its share to close the gap. This is an interpretation, but Glovo's top-two rule looks very much like the corporate form of that arithmetic.

Carl von Clausewitz had written a similar idea more than eighty years before Lanchester, in the eleventh chapter of the third book of On War, published in 1832:

"The best Strategy is always to be very strong, first generally then at the decisive point."

In J. J. Graham's translation. For Clausewitz there is no more imperative and no simpler law for strategy than to keep your forces concentrated.

In how many markets, channels or product lines is your start-up fighting at once today, and in how many of them are you truly strong at the decisive point?