What DoorDash got right and most others missed
Or how to get from delivering macaroons to building a logistics company worth $70B
I have used DoorDash a lot in the past and while a happy customer, I had underappreciated the solid foundations on which the company was build and their amazing journey to become the leader in US food delivery. As of last year they reached an impressive 67% market share leaving giants like Uber Eats far behind1. A recent interview with Tony Xu, CEO and Co-founder of DoorDash, provided a unique view in the company's philosophy which explains a lot of their success. What stood out most wasn’t what the DoorDash team did, but how they thought.
1. Keep your friends close, and your customers closer
During the idea validation stage Tony and his co-founders followed around restaurant owners for a day (with their permission) to better understand their pain points. Tony tells the story of how they visited a macaroon store owner and were shown a booklet of delivery orders that the store was turning down as they didn’t have the delivery capabilities to fulfill. This made no sense to them and thought that it could be a problem worth solving. It is unlikely that they would have identified this problem through a survey or even a brief interview as this process is rarely linear.
They then went on to validate all sides of the marketplace
Merchants: Other restaurant owners had this same problem so this was something that had meaningful business value for merchants.
Consumers: Consumers were coming back without any marketing or promos so they validated that the service was solving a pain point and there was willingness to pay for it.
Drivers: They run a scrappy test to validate demand for delivering orders which have since scaled to seven million Doordash drivers (Dashers).
2. Be the expert by doing the work
Tony says that "there is no better way to be the expert that do the work". In the early days the founding team did all order taking and delivery. This not only it gave them a clear view of all operational steps and how to simplify them, but also allowed them to be close to customers on a daily basis and better understand their needs. Even today everyone on the team including Tony is delivering orders to be closer to the driver and customer experience.
3. Solve the hard problem
DoorDash solved the delivery problem differently than incumbents. When the company started, there were about 20k restaurants that offered their own delivery and the "delivery" apps would act as a marketing channel that passed through orders which the restaurants fulfilled. DoorDash realized that there could be a TAM expansion by solving the much harder delivery problem. This required creating a last mile delivery network which would require more effort, but this allowed them to capture more value and increase defensibility.
4. Customer Obsession in Action
When a college football game overwhelmed their system, orders were delayed or canceled. The team calculated the refunds at 40% of their total bank balance and then decided to refund everyone, while also staying late to bake cookies as an apology. Customer obsession at it’s best.
5. Be contrarian based on insights and data
This customer obsession led them to an informed contrarian view. The team scaled not through the obvious way which was targrting city centers that offered order density, but chose suburbs. In contrast to city centers where you can find several restaurant options within walking distance, suburbs had very limited restaurant access which made the service much more desirable. The team paired this insight with a deep dive on unit economics and found that suburbs had larger baskets (driven by larger families) and faster delivery times (driven by less traffic and easier parking access) which led to better margins.
Bonus - Optimize for the Long Term
Tony closes with a powerful framing:
“We are here to build a company that will empower every physical business and grow the GDP of every city. That’s an eternal mission.”
When you’re thinking in decades, not quarters, the hard choices become a little easier.
https://secondmeasure.com/datapoints/food-delivery-services-grubhub-uber-eats-doordash-postmates/