In this episode of Acquired, hosts Ben Gilbert and David Rosenthal recount the remarkable journey of DoorDash from its inception as Palo Alto Delivery to its status as a leading food delivery service with a valuation soaring above $70 billion post-IPO. They detail how the company, co-founded by Tony Xu and his Stanford peers, navigated the fiercely competitive market, raised substantial funds from venture capitalists like Sequoia and SoftBank, and expanded rapidly, especially during the global pandemic. Despite legal challenges and the controversy over tipping practices, DoorDash's innovative strategies and persistent growth have positioned it as a dominant player in local logistics, raising questions about its long-term impact on the restaurant industry and gig economy workers. This story highlights the company's ability to adapt, scale, and potentially redefine how consumers interact with local businesses beyond just food delivery.
"Welcome to season seven, episode seven of acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert, and I'm the cofounder of Pioneer Square Labs, a startup studio and venture capital firm in Seattle."
This quote introduces Ben Gilbert and sets the stage for the podcast episode.
"And I'm David Rosenthal, and I am an angel investor and advisor to startups based in San Francisco."
David Rosenthal's introduction provides context for his perspective as an investor and advisor.
"Tony Shu and his co founders were launching Palo Alto Delivery, which we all know today as DoorDash."
This quote explains the original name of DoorDash and its early beginnings.
"This is the story of insanely fast growth, a company currently tripling year over year."
The quote highlights the remarkable growth rate of DoorDash during the early years.
"Is it even possible to build a sustainable business with positive unit economics in this category? And if so, will DoorDash actually be the one to do it?"
This quote poses the central question of the episode regarding the sustainability of the food delivery business model.
"They were using square to take payments... they used find my friends on iPhones to track the deliveries in real time."
The quote illustrates the innovative use of existing technology by DoorDash to manage their operations.
"Tony had the insight... the mass market is out there. It's not in San Francisco. It's not in cities."
This quote explains the strategic decision to focus on suburban markets for expansion.
"Ultimately, our vision is to become the local on-demand FedEx."
This quote from a Medium post by DoorDash conveys the broader vision of the company beyond food delivery.
"The thing is, you can blow it with one bad customer experience."
This quote emphasizes the importance of maintaining high standards for customer service, as a single negative experience can have lasting repercussions on customer loyalty and a company's reputation.
"By the beginning of 2014... one in six people on the San Francisco Bay peninsula... have used DoorDash."
This quote highlights DoorDash's rapid market penetration in the San Francisco Bay Peninsula, demonstrating the company's early success and growth trajectory in a densely populated area.
"They raise a $40 million series B again... led by Kleiner Perkins at a 600 million dollar valuation."
This quote signifies a major milestone for DoorDash, securing a substantial investment from a reputable firm and a renowned venture capitalist, which reflects the company's promising performance and market position.
"It's just as hard to launch your 8th city as it is your second city because you need to go get all the restaurants, you need to go get all the drivers, you need to do all the consumer marketing because people don't move that much between cities."
This quote explains the complexities and challenges DoorDash faced when entering new markets, as each city required building a new network of restaurants and drivers from scratch.
"They signed their first partnership with Yum brands to do Taco Bell in the markets that they're in."
This quote indicates a strategic move by DoorDash to align with established brands, which facilitated market entry and consumer adoption by associating with well-known restaurant chains.
"Uber is basically voting with their feet that you can't make this operate profitably."
This quote reflects the skepticism surrounding the delivery service industry, influenced by Uber's hesitancy to fully commit to the same operational model as DoorDash and the broader market's doubts about the viability of such businesses.
"Tony goes out to fundraise, and it is just like a slog. Nobody wants to lead this round and invest in this company."
This quote captures the challenging period DoorDash went through in securing additional funding, highlighting the perseverance required to navigate the venture capital landscape during tough times.
"Softbank comes in over $500 million pumped into the company."
This quote marks a pivotal moment for DoorDash, where SoftBank's substantial investment provided the necessary capital to scale operations and become a dominant player in the market.
"But much like Amazon Prime, I'm sure they make up for it in the amount that you are now loyal to and conditioned to have a habit of using DoorDash instead of competitors or frankly, just making food on your own."
This quote emphasizes the strategic goal of DashPass to build a strong, habitual customer base that prefers DoorDash over other options, including cooking at home.
"I mean, it's got to be the amount of value you get as a consumer out of that. What is it, $129 a year?"
This quote highlights the customer's perspective on the value derived from subscription services, suggesting that the benefits are worth the cost.
"And so interestingly enough, I do think it worked, at least for me personally."
This quote reflects the success of the credit card partnership in making the speaker a more loyal DoorDash customer, indicating an effective customer acquisition strategy.
"So that's a meaningful chunk. I mean, that's a little under a third of their total customer base are on this reduced fee program."
This quote indicates the substantial impact of the DashPass program on DoorDash's overall customer base and revenue model.
"They reach, overall for the whole company, positive contribution margin in Q1."
This quote signifies a pivotal moment in DoorDash's financial trajectory, where the company begins to see profitability after covering variable costs.
"So, like, having 25 ish percent contribution margin is great. The big question will be, will this continue after the pandemic?"
This quote raises the question of the sustainability of DoorDash's growth and profitability once the pandemic's effects subside.
"This was super controversial... It removed an existential threat to the business."
This quote explains the importance of Prop 22's passage for DoorDash, as it secures the company's labor model and protects its economics.
"Literally ten days later, on November 13, 2020, DoorDash releases their S-1 and files to go public."
This quote marks the transition of DoorDash from a private to a public company, signaling a new phase of transparency and growth expectations.
"There's Doordash for work... DoorDash storefront and DoorDash drive that are worth understanding."
This quote introduces DoorDash's expanded services, indicating the company's strategy to address various market segments and customer needs.
"It costs about $6 for DoorDash to acquire a customer... DoorDash can earn about $60 in pure profit from them over those five years."
This quote presents the financial calculation behind customer acquisition and retention, highlighting the importance of long-term customer value for DoorDash's business model.
"As you think about the far future of like how does the world of restaurants reorganize given you now have this participant in the system or this set of participants in the system that are gobbling up all the consumer attention and the default way to order food as the default shifts from that real world to online, whether it's DoorDash or you're using Prime Now to have stuff delivered, they're going to start eating, or they already are eating the profit of that local business or store."
This quote discusses the impact of online platforms on the restaurant industry, predicting that local businesses may suffer unless they offer something unique, as platforms like DoorDash become the default choice for consumers.
"This is, that is a consequence of economies of scale and then growing into network economies, which I think they maybe have a little bit of now."
This quote explains that platforms like DoorDash gain advantages from economies of scale and the beginnings of network effects, but do not rely on brand power in the traditional sense.
"What would have happened to DoorDash if Uber hadn't gone through their 2017 and 18?"
This quote raises the question of how much Uber's challenges contributed to DoorDash's opportunity to grow and become a significant player in the food delivery market.
"According to Tony, the average Dasher is in their mid-twenties and the average rideshare driver is in their early forties. And women are willing to be Dashers. There's 40% of Dashers are female, whereas only 15% of rideshare drivers are women, largely because of the safety concern."
This quote highlights the demographic differences between Dashers and rideshare drivers, which influence the supply dynamics and competitive advantages of DoorDash.
"Winner take all markets do indeed have a pot of gold at the end, but so far, we have just seen cash flooding in to try and take it all."
This quote reflects on the nature of winner take all markets and the venture capital strategy of investing heavily for a future dominant position, as exemplified by DoorDash's financial journey.
"They seem to be capturing basically the maximum amount that they possibly could anymore, and consumers probably wouldn't buy."
This quote suggests that DoorDash is maximizing its value capture from consumers, but there are constraints based on what the market will bear, impacting the overall value dynamics within the industry.