Meet DoorDash: The company that took a different approach

Hey Everyone - Harry here 👋

Welcome to Issue #17 of Deep Dive with Inquisition. In this edition, we’ll cover the story of DoorDash, one of the world’s leading technology companies in the online food ordering and delivery space, valued at over $57.41 billion as of September 2024. We’ll explore everything from its founding story to the strategies that helped it become the company it is today.

Early Days of Doordash:

DoorDash, Inc. is an American technology company operating in the online food ordering and delivery space. The company has approximately 67% market share in the United States online food ordering and delivery market and is actively expanding globally. DoorDash provides services including online food ordering, food delivery, takeout, and delivery of various supplies (e.g., pet supplies, convenience store items, alcohol, groceries, flowers)., The company also has  package pickup from FedEx, UPS, and USPS. DoorDash was founded in 2012 by Tony Xu, Stanley Tang, Andy Fang, and Evan Moore as a mobile app for small business owners, and is headquartered in Palo Alto, California.

Overview of the Global Online Food and Supply Delivery Market:

1. The revenue of the global online food market is expected to reach $1.2 trillion in 2024.

2. The global online food market is expected to experience a compound annual growth rate (CAGR) of 9.04%, with the market projected to reach $1.85 trillion by 2029.

3. The global grocery delivery market is expected to reach $770.9 billion by 2024.

4. The global grocery delivery market is expected to experience a compound annual growth rate (CAGR) of 11.81% between 2024 and 2029, with the market projected to reach $1.347 tillion by 2029.

5. According to the National Restaurant Association, over half (52%) of U.S. consumers view ordering delivery and takeout from restaurants as an "essential part of their lifestyle." This sentiment is even stronger among Millennials (67%) and Gen Z (63%).

6. According to DoorDash’s 2024 Restaurant & Alcohol Online Ordering Trending Report, “[o]ver half of consumers across the US (51%), Canada (54%), New Zealand (52%), and Australia (54%) prefer ordering food delivery via third-party apps or websites.”

The Rise of DoorDash: How it was First Started:

DoorDash was founded at Stanford University in late 2012 as a mobile app designed to address pain points for small business owners. The founders identified a significant challenge while speaking with a manager at a small macaroon store in downtown Palo Alto. This challenge was that small business owners struggled to manage delivery orders manually, often writing them down in a booklet and personally delivering them. This insight led the founders to interview 200 small business owners in the Bay Area, where they repeatedly heard the same complaint—managing and fulfilling deliveries was a major pain point.

After identifying and refining this problem, the founders built a Minimum Viable Product (MVP) in just a few hours and launched PaloAltoDelivery.com (now DoorDash) in 2013. They began delivering for restaurants in Palo Alto, many of which didn’t offer delivery at the time. In the early days, the founders took turns making deliveries themselves and grew the team by hiring through Craigslist—even hiring a delivery driver on the spot after ordering a pizza due to rising demand. As DoorDash's popularity grew, restaurant owners shared insights about the platforms they were using, such as Grubhub’s commission fees and business models, helping the founders refine DoorDash’s strategy and secure partnerships with local restaurants.

Six months after the launch, the company rebranded to DoorDash in June 2013 and joined Y Combinator’s Summer 2013 batch, receiving $120,000 in exchange for 7% equity. DoorDash was officially incorporated that same year.

Despite gaining acceptance into YC and securing funding from one of the world’s top accelerators, DoorDash’s journey wasn’t easy. Grubhub, a major competitor, held 70% of the food delivery market until 2016. DoorDash, however, took a different approach: focusing on suburban areas and partnering with restaurants that didn’t offer delivery.

Their hypothesis was that when restaurants without delivery options started offering it through DoorDash, their existing customers would use the platform. This proved true and became the foundation of DoorDash’s strategy:

• Focusing on high Average Order Value (AOV) areas rather than solely targeting urban cities.

• Partnering with local restaurants that didn’t offer online delivery but had strong community demand.

These strategies were critical to DoorDash’s growth. Customers flocked to the platform to order from restaurants that had never offered delivery, creating a unique value proposition.

From the outside, DoorDash’s story might seem flawless—Stanford students identify a problem, rapidly expand, and secure backing from top investors. But the journey was far from easy. The founders faced numerous challenges, from struggling to keep up with rising delivery orders to difficulties raising seed funding while their fellow Y Combinator founders secured investments with ease. The company nearly went bankrupt between 2016 and 2017 due to fundraising struggles, but DoorDash navigated through these obstacles and continued to grow.

A pivotal moment came in 2019 when DoorDash surpassed Grubhub in total sales, capturing 27.6% of the on-demand delivery market. The company achieved this by relentlessly focusing on hypothesis testing, validation, understanding the Dasher (delivery driver) experience, and maintaining direct communication with customers and restaurant partners.

Since that historic milestone, DoorDash has continued scaling, culminating in its Initial Public Offering (IPO) on December 9, 2020.

How Did DoorDash Become One of the Biggest and Fastest-Growing Delivery Company?

For DoorDash’s founders, there wasn’t much of a track record. They were all undergraduate and graduate students at Stanford, with no prior startup exits, as DoorDash was their first venture. The only exception was Tony Xu, the co-founder and CEO, who had previous experience working in tech and consulting companies before joining Stanford’s MBA program and co-founding DoorDash.

Like most first-time founders, they weren’t sure how to approach certain aspects of building a company. So, the DoorDash founders prioritized validating their hypotheses by talking to their target users and customers. They focused on understanding the pain points from every segment—restaurant owners, delivery drivers, and customers alike.

Additionally, the founders immersed themselves in each segment by either doing the work themselves (e.g., delivering food to customers) or speaking directly with small business owners. This hands-on approach allowed them to successfully validate their hypotheses and launch their MVP with real users, gaining valuable feedback along the way. Similar to Netflix's core strategy, DoorDash has continually engaged in a process of hypothesis testing, validation, and product development.

By addressing the key pain points and delivering value to each of its target segments—business owners/restaurants, consumers, and delivery drivers—through technology, DoorDash was able to grow rapidly both within and outside of the United States.

By 2024, DoorDash generated $8.64 billion in revenue for 2023 and was valued at $58.31 billion as of September 25th, 2024. The company boasted around 37 million monthly active users and raised $2.5 billion from institutional and individual investors during its 2020 IPO.

Below are the strategies that contributed to DoorDash’s growth:

1. Continuous Validation and Improvement:
    → The founders had an idea, which they quickly validated by directly talking to their target customers and confirming that the pain points were significant enough to warrant a solution. After rapidly launching their MVP and securing initial clients, the founders focused on improving and expanding their product into other areas. These expansions still followed the core foundation of acting as a marketplace connecting consumers with restaurants, shops, and retailers, but they broadened their value propositions after successfully validating that the core model worked.

2. Do Things That Don’t Scale:
    → One of the biggest lessons we learned from Stripe’s story is the importance of "Doing Things That Don’t Scale." Instead of just sending a demo link, Stripe focused on directly showcasing their product and setting it up for specific founders. The founders of DoorDash fully embraced this concept by delivering orders themselves, taking turns, and personally visiting 200 small local shops in Palo Alto to discuss the pain points local businesses faced. They also hired Dashers (delivery drivers) on the spot with compelling pitches and manually handled orders. By engaging in these hands-on activities, the founders and early team members gained a deep understanding of every aspect of their business, from how restaurants used the platform to how customers received deliveries. This level of involvement, especially in the early stages, is crucial for founders to fully understand and improve their product—something every aspiring and current founder should prioritize in the early stages.

3. Leverage technology to fill in the gap:
    → DoorDash didn’t invent online food or supply delivery. Instead, the company identified gaps within a massive market and provided solutions that leveraged technology. What set DoorDash apart from its competitors was its focus on small local areas that had not yet adopted the same delivery infrastructure as larger urban cities. The company targeted tight-knit communities with local restaurants and stores, convincing owners to implement a technology-driven solution that addressed their major pain points—delivery tracking, management, and logistics.
   The lesson here is simple: whether in the early 2010s, when there was a huge demand for technology adoption in non-tech sectors, or today, with AI being implemented everywhere, it remains crucial for companies and aspiring founders to find ways to leverage technology to fill gaps in underserved areas. Even in 2024, opportunities will continue to exist where technology can bridge these gaps.

4. Never Give Up:
    → DoorDash almost went bankrupt twice for various reasons, one of which was its inability to secure funding and extend its runway during those critical times. Despite this, the founders never gave up. They kept pushing forward, continuously improving the platform, listening to users, and meeting their needs and wants. The lesson here is to never give up—there will always be light at the end if you are heading in the right direction.

5. Go with the flow like how you Surf:
    → DoorDash is known for its ability to adapt to changing situations. It initially launched as a technology-based marketplace connecting small local restaurants with customers but later expanded into areas like grocery and supply deliveries. While this shift represented a new direction, DoorDash continued to leverage its core strengths in logistics and delivery. The company adapted to customer needs and market trends. The key lesson here is the importance of adaptability—always be open to change, listen to feedback, and continuously improve while staying connected to your company’s core strengths.

Challenges for DoorDash:

1. Navigating through the Competition:
    → Competition is an inevitable reality in any industry unless there is only one company dominating the entire market. The global online food and supply ordering and delivery market is filled with players that have substantial resources, including capital, a large base of restaurants and stores, and the ability to attract new users through massive promotions. For DoorDash, it will be crucial to navigate this competition by continuing the successful strategies it has implemented, such as focusing on specific market segments and committing to continuous product improvement through active listening to user feedback.

2. Achieving Profit starting from 2025?
   → Achieving profitability is a major challenge for DoorDash. It will be crucial for the company to develop a strategy that improves its financials, even as it continues to show rapid growth each quarter since its IPO. One way DoorDash can achieve profitability is by increasing its global presence and dominating specific markets through a localization strategy similar to Netflix's approach when entering new markets. Specifically, DoorDash can establish partnerships with major local brands and niche-specific restaurants that competitors in those local markets aren't serving.

Future of DoorDash:

1. Expanding into the Global Market:
    → We can expect the future of DoorDash to include global expansion. The company currently operates in a total of 30 markets; however, we anticipate further expansion into new markets in an attempt to diversify and increase its revenue and profits. The expected strategy for DoorDash’s global expansion will focus on onboarding prominent brands within specific markets by establishing partnerships, whether with famous chains, local restaurants, or major brands for general household supplies.

2. Achieving Profitability:
    → One of the company's primary focuses will be achieving profitability and maintaining that success. One creative approach to this could involve lowering operational costs while also seeking methods to increase the number of users subscribing to its “DashPass” plan. One effective strategy for increasing “DashPass” users may be to partner with other startups to provide additional value propositions, such as discounted subscription fees for services like Netflix or monthly coupons for specific brands.
   It is essential for DoorDash to clearly identify its target users for “DashPass,” discover additional value propositions for this main user group, and deliver those offerings. This approach could lead to an increase in the number of subscribers paying $9.99 per month for “DashPass.”

Key Takeaways from the Story of DoorDash:

The story of DoorDash can be described as a journey akin to a rollercoaster, marked by consistent highs and lows. It was never easy for the founders to build DoorDash into the company it is today, and it seems that scaling further while navigating competition will continue to pose challenges.

One key lesson from DoorDash's story is the importance of mastering the foundations. The founders accomplished this by doing things that don’t scale, such as delivering food themselves, directly engaging with users by visiting 200 local restaurants, and manually managing delivery orders and tracking. This hands-on approach allowed them to gain firsthand experience from every segment, from a Dasher's perspective to that of someone managing orders. By excelling in the fundamentals early on and maintaining that focus, the company experienced rapid growth across all segments, ultimately becoming what it is today.

Another lesson is the importance of perseverance, especially during tough times. DoorDash struggled to close its seed round due to a lack of market validation, despite being a Y Combinator alum while its peers secured investments right after their pitches. The company also faced near-bankruptcy in 2017. Was it possible for the founders to give up, close the company, and return the leftover money to their investors? Yes. However, instead of surrendering, the founders remained steadfast, pushing forward despite experiencing their lowest moments—eventually leading to an IPO in 2020. This success was only possible because the founders did not give up and held immense conviction even when others thought the market was dying or that competition was too fierce.

The lesson here is to never give up during challenging times if you have 100% conviction in your idea and the solutions you are providing. Ultimately, if you are heading in the right direction, it will work out in the end.

Below are the key strategies that DoorDash used to become the company it is today:

1. Drop the Ego/Fear of talking to people inside the target segments:
    → To successfully do things that don’t scale, one of the first things a founder needs to do is remove their ego and the fear of approaching challenges. For example, many founders tend to avoid talking to their target users because they either struggle to identify specific users or forget that the goal is to solve a problem rather than build something based solely on personal preferences. It is crucial to drop your ego and fear of engaging with people in the segment your startup aims to serve. The only way to truly understand what to solve and build is through conversations with people. To facilitate these conversations, founders must set aside their egos and fears, just as the founders of DoorDash did by consistently engaging with individuals in their target segment.

2. Try to view and approach things from a different perspective:
    → The online food ordering and delivery market has existed thanks to Grubhub, meaning DoorDash wasn’t the first company to iIntroduce online food ordering and online food delivery. However, the company has still managed to outperform its competitors (e.g., Grubhub and UberEats) to claim the #1 spot in the U.S. delivery app market share. This success stems from addressing pain points within its target segments from a different perspective than its competitors. As mentioned earlier, DoorDash focused on local small restaurants that previously did not offer online delivery services. By forming partnerships with these businesses, DoorDash attracted the restaurants' existing customers, allowing them to enjoy the convenience of ordering through the platform. This approach enabled DoorDash to prioritize building partnerships within local communities rather than focusing solely on urban areas, which was the primary strategy of its competitors and later a major factor that allowed the company to achieve the largest market share in the U.S. among its competitors.

3. Do Things That Don’t Scale:
    → Go talk to people within the target segments, host events to help people connect with each other, and get involved yourself. Do unexpected things that people can’t imagine—like how Airbnb sold cereal. Purposely target small markets and provide the best possible experience for every segment, even if that means the founders running up and down the street to deliver food or visiting 200 different local stores just to validate their hypotheses—actions the founders of DoorDash took when they first started. Remember: Do Things That Don’t Scale, because it’s okay to be different, and always be creative.

4. Always be ready to adapt by leveraging technology:
    → DoorDash leveraged technology to fill the gap faced by small local restaurants when it first started. However, it later expanded into new markets, such as supply delivery. Another example of DoorDash's continuous adaptation is its improvement of logistics and platform capabilities, demonstrating the company’s commitment to leveraging technology. This is a crucial lesson for every company: always adapt by listening to the needs and wants of people within your target segments and leverage technology to further enhance their experience.

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