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Quick takeaways
- DoorDash's decision to expand beyond major cities and focus on suburban areas with no competition gave them a competitive advantage and allowed them to build a dense network of restaurants and drivers.
- DoorDash's partnerships with national brands such as Taco Bell and KFC helped attract customers, build trust, and rapidly gain popularity and market share in various regions.
- Uber's decision to have drivers carry food around in cars instead of building a full logistics network negatively impacted the perception of food delivery startups at the time and contributed to a negative sentiment in the market.
- Despite facing challenges in raising funds and a down round in 2016, DoorDash persevered, strategically expanded their market presence, outpaced competitors, and successfully acquired Caviar, leveraging their logistics capabilities to offer various services.
- DoorDash's cohort data showcases remarkable growth, with each cohort spending at least 38% more in the second year compared to the first, and their focus on customer retention and increasing order value resulted in impressive cohort growth and positive contribution margin.
- The passing of Prop 22 in California secured DoorDash's business model, allowing them to classify gig workers as contractors and maintain their economic viability, while their diverse product offerings and innovative approach have driven their growth and profitability.
Deep dives
Expansion into new markets and partnership with Yum Brands
In the fall of 2014, DoorDash expanded from Palo Alto to San Jose and other cities, focusing on suburban areas where there was no competition. They signed a partnership with Yum Brands to deliver Taco Bell and later KFC. This decision to go beyond major cities gave them a competitive advantage and enabled them to build a dense network of restaurants and drivers.
Challenges of launching new cities and the importance of leveraging national brands
Launching new cities posed challenges in terms of acquiring consumers, partnering with restaurants, and recruiting enough drivers. To mitigate these challenges, DoorDash signed partnerships with national brands such as Taco Bell and KFC, which helped attract customers and build trust. This strategy proved successful, as they gained popularity and market share rapidly in various regions.
Perception shift after Uber's struggles with UberEats
Uber launched UberEats as a delivery arm of their business, but due to the difficulties of operating a full logistics network, they resorted to drivers carrying food around in cars. This decision, which differed from DoorDash's approach, negatively impacted the perception of food delivery startups at the time. Square's IPO also contributed to the negative sentiment, as the market questioned the viability of the payment and delivery models used by DoorDash and other similar companies.
Slow fundraising process and investors' hesitations
After their successful Series B funding, DoorDash faced challenges in raising their next round. Investors were hesitant due to concerns about unit economics and profitability. This led to a difficult fundraising process, with many investors passing on the opportunity. Sequoia Capital reaffirmed their commitment to DoorDash but suggested having another investor lead the round. Despite the setbacks, DoorDash pushed forward and continued to invest heavily in expanding their operations.
Dordash's Journey to Profitability and Growth
Dordash faced numerous challenges, including difficulty in raising funds and a down round in 2016. However, they persevered and secured funding from Sequoia and other investors. They strategically expanded their market presence, outpacing competitors like UberEats, and successfully acquired Caviar. Dordash leveraged its logistics capabilities to offer services like Dordash for Work, Storefront, and Dordash Drive. The company's focus on customer retention and increasing order value resulted in impressive cohort growth and positive contribution margin. Prop 22's passage in California removed a significant regulatory threat for Dordash. With strong financials and growing market share, Dordash went public, and its shares soared upon market open.
Dordash's Impressive Cohort Growth and Contribution Margin
Dordash's cohort data showcases remarkable growth, with each cohort spending at least 38% more in the second year compared to the first. They have achieved significant expansion, earning close to 1.6x the dollars spent by cohorts in the second or third year. Dordash's contribution margin turned positive, and they successfully acquired and retained customers, generating substantial value for the platform. Their efficient performance marketing strategies and focus on customer acquisition and retention have helped them earn back their marketing budget. Dordash's ability to leverage its market position and offer additional services like Storefront and Dordash Drive has contributed to its success.
Prop 22's Impact and Dordash's White Label Solutions
The passing of Prop 22 in California secured Dordash's business model, allowing them to classify gig workers as contractors and maintain their economic viability. Dordash capitalized on the market by providing solutions like Storefront, which offers white-label ordering and supports local restaurants. Dordash Drive, a white label logistics service, enables restaurants to utilize Dordash's infrastructure and delivery network to fulfill orders generated from their own channels. These services empower Dordash to compete with restaurants managing their own delivery systems while expanding their market reach and maintaining customer loyalty. Dordash's innovative approach and diverse product offerings have driven its growth and profitability.
Dordash's IPO and Impressive Valuation
Dordash went public with a remarkable market debut, pricing its IPO at $102 per share. This exceeded previous expectations, and the stock opened trading at $182 per share. Despite some fluctuations, it has experienced substantial gains. Dordash's fully diluted market cap stands at around $39 billion, representing significant investor confidence and interest. Its pricing and successful market debut reflect the company's growth, profitability, and dominant market position. Dordash's ongoing success hinges on its ability to retain customers, provide value, and leverage its logistics capabilities and white-label solutions to expand its reach and revenue.
The Impact of Tony Hsieh
We want to take a moment to reflect on and appreciate the impact that Tony Hsieh had on the tech industry and the entire ecosystem.
Hades: A Fun and Engaging Game
The game Hades is an enjoyable and captivating experience that offers hours of fun and entertainment.
TV Shows and Movie Recommendations
Watchmen, Succession, and Palm Springs are all highly recommended shows and movies worth watching for a great streaming experience.
2.
Is It Even Possible to Build a Sustainable Business With Positive Unit Economics?
2min
58.
The Biggest Barcase Is That Dordash Is Not Going to Be Able to Address All of That?
2min
70.
Perkins Cooey, the Official Legal Sponsor of Season Seven, Have Acquired a Bamboo Sponsor Ship
4min
Live from the scene of its blockbuster IPO, we recount the crazy, roller coaster journey of this "Palo Alto delivery company". From Sand Hill darling during their Series A and B fundraises to all but left-for-dead during the great unicorn massacre of 2015/16, DoorDash has clawed their way back from the brink and emerged as America's dominant meal delivery service, and its only unit-economic positive standalone logistics player. Is this the dawn of the next great Amazon-like story, or is the company simply benefiting from temporary tailwinds due to the pandemic? As always, we dive DEEP to find out.
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© Copyright 2015-2024 ACQ, LLC
Playbook Themes from this episode are available on our website at https://www.acquired.fm/episodes/doordash
Carve Outs:
David:
- Hades on the Nintendo Switch: https://www.nintendo.com/games/detail/hades-switch/
Ben:
- Watchmen on HBO: https://www.hbo.com/watchmen
- Succession on HBO: https://www.hbo.com/succession
- Palm Springs: https://www.imdb.com/title/tt9484998/
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