“Low-margin businesses require extreme financial efficiency”

Interview #24 with Juan García Braschi, CFO of Cabify

This week, I talked with Juan García Braschi, CFO of Cabify, which is a leading platform connecting passengers and drivers. Recently, their annual growth has steadily quadrupled. Juan has been the CFO since 2013 and was also Country Manager Spain from 2014 till 2016.

Cabify in two sentences

We are a digital platform that acts as an intermediary between drivers and passengers who need to make a journey by car. We connect the parties via our application and take a cut of the fare paid by the user (the driver keeps the rest).

So we’re talking about a business with tight margins

Very tight. At the end of the day, transport is a commodity and that shapes the margins. What that means is that you’ve got to be extremely efficient, excellent, operationally speaking so that you can offer the best service at the lowest price and still make money.

What is the main factor that differentiates Cabify?

There are several. Our long-term strategy is to attract drivers who are professionals, i.e. who don’t just see Cabify as a way of earning themselves a little extra money from time to time. We want them not only to make a living with us, but to be proud to work as Cabify drivers. That has an inevitable knock-on effect on the quality and professionalism of our fleet, on the protocol they follow and on how invested they are in using the platform.

In what other ways do you deliver added value for users?

Perhaps the most obvious example is that, unlike traditional services, Cabify passengers can find out the fare before their journey, irrespective of traffic. Another factor I’d highlight is our service for businesses. At present, corporate clients account for 30% of our turnover. This is a result of the fact that we offer 24/7 customer service and all the tools enterprise clients need in terms of billing and so on.

How do you approach regulatory risk?

Reducing regulatory risk is crucial for us. That’s why, when we launch in a country, the first thing we do is visit the relevant authorities and conduct a thorough analysis of the regulatory framework. We’ve also got an in-house, global legal consultancy team (our Head of Legal specialises in administrative law, which is of paramount importance in this sector), as well as advisors on the ground in every country in which we operate, who are versed in the regulations there.

When we enter a country, it is to stay: we normally have a local team in place and we build strong ties with the local community. All that is directly linked to our goal of having professional drivers on the platform because it would be very difficult to retain those drivers in the long term without the guarantee that they are operating under a totally legal model.

Who are your main competitors?

On the one hand, the taxi industry, which is firmly established all over the world. On the other hand, there are technology-based companies, some of which have a global presence, while others are known as regional champions.

I believe you are the regional champions in Latin America

Yes, in Latin America, Spain and Portugal. Likewise, other companies are leaders in regional hubs like the Middle East, or in specific countries, like the densely populated parts of China, Russia and India. This is a business that lends itself to large and very large cities, where each player’s status can vary on a city-by-city basis. In the regions where we’re present, we’ve got a pretty commanding lead in some cities and are a strong number two in others. Nevertheless, I’m convinced that our current market share and that of our competitors are tiny compared to the magnitude of the market.

In what sense?

For one thing, the taxi industry is enormous and a lot of territory remains to be conquered. But beyond traditional taxi services, people make a huge number of daily journeys in their own cars and on public transport that they could make with us instead. The logical strategy to follow in the coming months or even years seems to me to step up our operations in the markets where we’re already present, rather than venturing into new regions.

How important was being the first mover in some of the cities in which you’re present?

Being first on the scene is a major competitive advantage. When you reach a large enough scale/density, everything functions much more smoothly and a virtuous cycle pretty much kicks in naturally. You can offer drivers much higher wages per hour logged than your competitors, who ultimately have to try to make up the shortfall with subsidies and bonuses. This is epitomised in Madrid, where we’ve been operating since 2012. Our main competitor is Uber, who entered the market around a year and a half ago, and we’re ten times bigger than them there.

But it’s not an industry in which the first mover takes all

Being first obviously helps, but like I said before, I think that only a minuscule fraction of the potential market has been exploited. Where we’re concerned, Brazil exemplifies that situation. We began operating there in 2016, when our competitors were established, and we’ve gradually captured market share (albeit partly thanks to major investment in acquisitions).

Antonio Figueroa, the CFO of Mobusi, passed on this question for you: “You started out in Spain (Madrid) and now you’re present throughout Latin America. How has your financial management changed as a consequence of this international expansion?”

Virtually right from the start, we got up and running in Mexico, Peru and Chile, so we already had that international dimension. The big difference has been the shift from operating on a very small scale in four countries to 12 countries. That expansion took place last year and the problem is that, despite all being in Latin America, ultimately every country is different and has its own regulations.

The biggest challenge has been, and remains, implementing the necessary procedures and processes, along with putting in place a team who know the special features of the area in question. And if I had to single out one pain point in particular, it’d be the issue of payment methods. Credit card payment infrastructure and, in general, banking relationships are much less developed there than in Europe, which translates into extra financial or time costs.

Could you elaborate on that point?

Just think that the rate of access to banking services in Latin America ranges from 30% in Peru to 80% in Chile. Let me give you an example. Our app uses a system known as recurring payments: you enter your card details, which are verified and then securely stored, so that you can use the card for every journey without having to input the details again and again. That is a very important feature of our user experience. But when we started out in Latin America in 2012, we couldn’t find any local payment gateways that supported this functionality. As a result, we had to process payments from Spain, with the added inconvenience that the Chilean and Peruvian currencies aren’t traded in Spain, which further heightened the inefficiencies.

Turning to financial management, is your organisational structure highly centralised or less so?

Right now, we have a Finance Officer in each country, but we’re moving towards increasing centralisation and setting up a sort of shared services centre in Spain. In this sense, the CFO will interface with the Country Managers, almost like a business partner.

You’re growing fourfold per year. How is your financial management contributing to this success?

This is a fiercely competitive sector that requires that you spend a lot to grow, and we’ve not always had that much cash to play with at Cabify. In the past, we were operating with a pretty short leash, which explains why we’ve built a financial culture that entails constantly analysing the performance and profitability of everything we do.

All of our processes (which started off with data being manually inputted into Excel spreadsheets, but have been steadily automated through technological systems and tools) have always focused on analysing efficiency and getting the most out of our funds.

Does the Business Intelligence (BI) department report to Finance?

BI is separate from Finance because it works for several departments, including Marketing, Sales and particularly Operations (especially on analytics regarding operating data, plus fleet optimisation, etc.). However, there is a dedicated BI team that liaises with Finance and whose members are familiar with our needs.

How do you think technology is affecting the Finance department?

Day in, day out I see the impact that technology is having throughout the company, helping all the departments to be more efficient. In terms of Finance, for instance, besides the good old ERP suites, which are highly stable but bulky, a lot of smaller tools are emerging that are very easy for the team to set up themselves and hugely boost productivity.

Which ERP system have you opted for?

A company of our size needs something dependable, so we opted for Oracle’s NetSuite.

And can you give us any examples of technological tools you use?

We recently installed AODocs, a really lightweight invoice approval system (we set everything up with a couple of scripts) that functions as an add-on to Google Drive.

A whole host of tools are available to meet the needs of Finance departments (like Kantox for FX risk management) and can be used by all sorts of companies, including large ones, to become more agile and productive.

Originally published at www.kantox.com on October 5, 2017.