We’re used to small businesses closing their doors on a regular basis because we understand that small business owners don’t have large financial reserves to cushion the impact of adverse economic conditions and various disruptive events.
But when a major e-commerce giant shuts down its operations just one year after raising $30 million without showing basic signs of struggle during the preceding months, we sense that something isn’t quite right.
That’s what happened with Awok, a Dubai-based e-commerce platform that closed its business in August 2020, blaming the COVID-19 pandemic and the global financial situation caused by it.
Awok’s story serves as an important reminder that the ability to attract investment capital doesn’t always go hand in hand with the ability to run a successful business, especially when the moral compass of the person in charge of the business is broken.
The Rise Of Awok
Awok was launched in 2013 by Kyrgyzstan entrepreneur Ulugbek Yuldashev with an original investment of 100,000 AED (27,000 USD).
Yuldashev realized that the mid-income segments in the United Arab Emirates and Saudi Arabia didn’t offer consumers too many choices, and he decided to seize the opportunity by launching an e-commerce platform with a focus on affordable products.
After just two years, Awok reported a phenomenal 500 percent increase in sales and expanded its product selection to include not just electronics and gadgets but also household appliances, health and beauty products, and jewelry.
“Awok’s solid growth is testament to the brand’s commitment in providing quality products at consistently low prices,” said Yuldashev at the time. “Reaching this two-year milestone is a great achievement for Awok, and we look forward to achieving future growth in line with our third-year targets. We are grateful to our loyal customers and are always striving for ways to identify and meet our consumers’ needs”.
Later in 2015, Awok introduced its mobile app, allowing customers to comfortably order affordable products using their smartphones and tablets. The e-commerce company also continued expanding its warehouse capacity and fleet of delivery vans, all while sourcing as many products as possible directly from manufacturers, distributors, and re-sellers to keep prices low.
With more than a decade of retail and e-commerce experience under his belt, Yuldashev was well aware of the importance of using innovative technologies to secure a competitive advantage, which is how he managed to process and deliver orders in just a few hours, instead of several days as was typical for its competitors.
“We use a lot of technologies and big data analysis to comprehend what our customers will be buying tomorrow so we can make sure to send our vehicles with goods even before the customer orders,” he said. “The technology that we are working on will be the key to deliver goods within the shortest time. We are able to predict more than 70 percent items that will be sold on a particular day, 24 hours in advance”.
It seemed that the strategy was paying its dividends, helping Awok attract more than 10 million monthly visitors and expand its inventory to include around 300,000 products, and the best was yet to come.
In 2019, Awok proudly announced that it had raised $30 million in funding to fuel its Saudi Arabia expansion, enhance the Awok platform, and broaden the range of products on offer. The financing round was led by two top-tier regional investment companies, StonePine Ace Partners and Al Faisaliah Ventures, with investment group Endeavor Catalyst as a co-investor.
“These are truly exciting times for Awok and its entire ecosystem,” Yuldashev commented. “Our success was built on providing our customers with the best experience we could, and, with this round of financing, we will be able to provide an even better experience to an even larger market”.
Youssef Haidar, founder and CEO of StonePine Capital Partners, and Alejandro Carbon, chief portfolio officer of Al Faisaliah Ventures, were equally excited.
“We are excited to help accelerate what has already been impressive growth,” said Haidar. “The Al Faisaliah Ventures team scanned the market for the best end-to-end e-commerce capabilities — from sourcing to last-mile delivery — and found Awok.com to be the right player to become the next unicorn,” added Carbon.
Unfortunately, their excitement was relatively short-lived because Awok would soon make another announcement.
In the second half of 2020, just a little over a year after the successful financing round, Awok announced that it was shutting down its e-commerce platform.
“Awok’s journey as a mass-market e-commerce player has unfortunately come to an end, and the company has ceased operations,” the e-commerce giant stated on its website. “After seven incredible years of saving money for our customers by creating regional business and a platform for our suppliers and sellers, we are sad to inform you that given the current global situation it left the company no other choice than to close its platform for good”.
While Awok wasn’t the only e-commerce company in the MENA region that closed its doors in 2020, the e-commerce market itself was in the middle of a major boom as a result of various social distancing measures intended to slow down the spread of COVID-19 and the resulting switch to online shopping. For example, Amazon’s sales in the MENA region grew by 26 percent to $76 billion in Q1 2020, and many other companies reported similarly large numbers.
As the news about Awok’s end spread, many of its customers, former employees, and business partners started to reveal what was really going on behind the scenes since the $30 million funding round.
Apparently, Awok’s leadership made many poor decisions and took several unnecessary risks with the funds it had raised. “It was never related to Covid-19 at all. It was cash mismanagement, we haven’t seen any sign of the funds in reality. The whole situation spoke to bad management and leadership,” said Hussein Khafagy, head of customer experience at Awok.
“There was an untrusted relation between the investors and Yuldashev, investors were backing out in January, despite the earlier news reporting the financing was secured. The funds were conditioned to specific KPIs, and the cash was not available for us to work with,” he added.
According to Khafagy, Awok’s debt since 2018 reached over 60,000,000 AED (16,300,000 USD). Short for cash, the company’s management decided to stop paying its employees and vendors, but they didn’t stop accepting new orders and money from its customers. Soon, employees began to realize that Awok is going under, and they started abandoning the sinking ship.
When Awok’s team in India discovered that C-level executives kept receiving full salaries until the very last moment, the team tried to bring the situation to the attention of the media but without any success.
Awok’s fall is an excellent example of what can happen when management makes a series of bad decisions and puts its own self-interest ahead of the interests of all other stakeholders when the situation becomes dire. In this case, the end result is one of the biggest startup failures in the MENA region.