Mexico City — Inefficient management, nepotism and centralized decisions are plunging Kavak, the most valuable startup in Latin America, into an internal crisis that has been permeating even customer service, its current headache, while growing rapidly with geographic expansion, former employees who worked in some areas of the company in the countries where it operates revealed to Bloomberg Línea.
Those familiar with the operation, but who asked to remain anonymous for fear of reprisals, agreed that some management profiles do not have the knowledge required to perform the job, which has led to decreases in efficiency, productivity and the fulfillment of objectives.
The Mexican company’s decisions are centralized among a small nucleus of friends and relatives related to two of the founders, Venezuelans Carlos and Loreanne García Ottati, a group of former employees said, and which is a model which is no longer sustainable as the company expands with the help of large funds and banks such as SoftBank, QED Investors, HSBC, Goldman Sachs and Santander.
In parallel, Kavak this year implemented a series of cuts, especially since Djamil Jassir, nephew of Carlos García Ottati, took over as HR director in April 2022. Since his appointment, there has not been a proper personnel selection process. Despite being considered an empathetic person, he is not qualified for the position, according to one of the former employees.
In order for Jassir to take over, Kavak fired Jorge Chapa, who later became head of human resources in Mexico at Chilean insurtech unicorn Betterfly.
Three other people separately confirmed to Bloomberg Línea that, following Jassir’s arrival, the influx and promotions of people close to the management team became more evident, but with no subsequent improvement in the work environment.
In a memo sent to employees and seen by Bloomberg News, Carlos Garcia Ottati, CEO of Kavak, said the company was forced to cut staff and lay off managers because higher interest rates, inflation, war and slowing economic growth would create a “challenging 2023″.
The constant layoffs would be due to poor recruiting and not to lack of, or mismanagement of money, said another former employee who worked for the company in the state of Querétaro, in Mexico’s Bajío region.
Kavak obtained a record $810 million in financing in late September from HSBC, Goldman Sachs and Santander, an amount higher than the credit line obtained by Brazilian fintech Nubank ($610 million) and higher than the combined amount raised by other Mexican unicorns.
The company was founded in 2016 and, four years later, in October 2020, it became the first Mexican unicorn. It is currently operating in an environment where it must prove to investors that it has sales, that it can sustain its $8.7 billion valuation and that it will be able to reach profitability by 2023, as promised.
A former Kavak executive also said that the company received consulting from McKinsey a few months ago, through which it found areas of opportunity in terms of efficiency.
The constant layoffs have also caused some ‘Kavakers’, as the employees are called, to suffer stress at work. One of the former employees who spoke to Bloomberg Línea said he works 10-hour days, Monday through Saturday, to meet the targets set by leadership.
Kavak’s management had set a goal of selling 17,000 cars per month by 2022, but the figure currently hovers around 3,500 monthly. Another former executive said he had to take sleeping pills due to stress.
Bloomberg Línea contacted Kavak regarding the testimonials, but the company said it had no comment at this time.
Centralized decisions
One of the operational failures within Kavak, according to those consulted, is that the founding team does not allow new managers to execute their proposals. This included the former CEO of Mexico, Alejandro Guerra, who was dismissed in November.
Also joining their ranks was Federico Ranero, former director of Uber in Mexico, who became COO, but his decision-making is limited, according to one of the former employees consulted.
In the latest round of layoffs in mid-November, Djamil Jassir, after only seven months as head of HR, had a role change and was reassigned as regional sales manager, an area in which the economist by profession also has no experience, said former employees.
Customer service impacted
As the company tries to improve the process of buying and selling used cars in Latin America, with transaction insecurity being the main problem, Kavak is dealing with the problem of customer complaints.
One of the former employees who headed the after-sales department estimates that 30% of customers complain. The most frequent complaints, once the car has been delivered, are due to failures caused by a bad inspection process, although he pointed out that most of them are not serious.
Two of the people familiar with the issue have said that deficiencies in customer service have undermined the ambitious sales projection, which contracted from 17,000 to 8,000 units per month in 2022, and current sales are around 3,500 cars per month.
Three testimonies in Mexico agreed that proposals to improve customer service, or any other process, were rejected if they did not come from the trusted team.
A former employee who worked on the floor at one of the company’s hubs in Mexico City said that concentrating improvement proposals in a very closed core of 20 people causes the operation to be less than satisfactory.
He mentioned that when there was an incident on the floor with a customer and they tried to escalate it to Hector Ibarra, sales manager, they did not get a solution to the problem. Ibarra is married to another cousin of Carlos Garcia Ottati.
The fact that problems were not solved from the top, says the former employee, makes it difficult for floor employees and the customer service department.
The customer service problem is something Kavak is working on. One person said that several changes have been implemented, very quickly, to improve the experience. However, according to testimonials, effective strategies are not being executed.
It is normal to change the rules of the game in a startup, said one person, but in doing so the human resources are not being taken care of.
“Kavak is going through a serious internal and external reputation crisis, said Vivian Cadena, an academic at the Universidad Panamericana (UP) Business School. “It is shaking it up”
She said that, while the company was doing very well at the beginning, the company must be institutionalized. “Stop making it a family business, because these people [the founders] are very young, with a lot of capital, but with very little vision in terms of their own staff”.