Letter #61: Tony Xu (2020)
Founder of DoorDash | S-1 Shareholder Letter
Hi everyone! Due to popular request (and a few persistent individuals), I’ll be restarting this newsletter, but with a few changes. Most notably, rather than sending “A Letter a Day”, I’ll be sharing a letter or transcript twice a week, once on Tuesday afternoon (2:22pm) and once on Saturday morning (6:06am). Second, I’m expanding the scope of the newsletter to include a broader range of subjects, but still focused on thought-provoking investors (across venture, hedge funds, and private equity), founders (not just tech), and operators (sales, marketing, product, etc.). Lastly, I’ll be limiting my commentary so it’s a smoother reading experience and you can read the work as is. (If you’d like to see my notes or trade thoughts, shoot me a DM on Twitter!)
Today’s letter is DoorDash Co-Founder and CEO Tony Xu’s S-1 Shareholder Letter. In this letter, he recounts his upbringing and DoorDash’s why, as well as their unique market opportunity and vision, and then lays out how they will execute and their operating principles.
I hope you enjoy this letter as much as I did!
For more on Tony, check out my transcript of his conversation with Keith Rabois on Keith’s (short-lived) podcast Series A.
Tony is also on the board of Meta, which you can learn more about in this 5,000+ word excerpt from my 150+ page Speedwell Research writeup.
Letter
We started DoorDash to help people like my Mom.
I was five years old when I immigrated from China with my parents. Like many immigrants, my family came to this country to pursue the American Dream. Dad came to pursue a Ph.D. in Aeronautical Engineering from the University of Illinois at Urbana-Champaign. Mom hoped she could retain her job as a doctor, her occupation in China, but the odds were against her. The United States didn’t recognize her Chinese medical license and with only $250 to our family’s name, putting her through school again was impossible. But that didn’t stop her.
Mom put food on the table by working three jobs a day for 12 years. One of those jobs was as a server at a local Chinese restaurant, where I got a front row seat as a dishwasher. For Mom, working at a restaurant was a means to an end. After deferring her dreams for more than a decade, she saved enough money to return to school and open her medical clinic, which she still runs more than 20 years later.
DoorDash exists today to empower those like my Mom who came here with a dream to make it on their own. Fighting for the underdog is part of who I am and what we stand for as a company. Having spoken to countless merchants since DoorDash’s founding in 2013—from a Mom and Pop store like Oren’s Hummus to the General Managers of Chili’s (aka “ChiliHeads”)—I am humbled by their relentless drive to create and build, and their contribution to their communities. While small businesses are vital to our communities and created approximately two-thirds of net new jobs in the United States from 2000 to 2018, [1] they now risk being left behind in the convenience economy where consumers have become accustomed to obtaining everything in a few clicks, a trend that has only accelerated in a COVID world. Helping brick-and-mortar businesses compete, succeed, and flourish in these rapidly changing times is the core problem we are trying to solve.
The Future of “Local” — Our Unique Opportunity
DoorDash has always been about helping local businesses succeed, more so than about food delivery. As students at Stanford, we canvassed the Bay Area asking dozens of local businesses what they needed to grow their business. When they shared the challenges related to delivery, we were surprised. Delivery was not a new idea, yet outside of New York City in the United States, very few businesses offered it. Seven years ago, we could not have imagined how big a transformation this would become, and we are still in the early innings of this evolution of local commerce.
While we started by enabling food delivery, our plan is to build products that transform the way local merchants do business and enrich the communities in which they operate. Over time, we will build three mutually-reinforcing assets to enable this vision:
An on-demand logistics platform that can facilitate the local delivery of any item
Merchant services to grow sales in the modern era
A membership program to the physical world for consumers
Logistics
If we can make possible the delivery of ice cream before it melts, or pizza before it gets cold, or groceries in an hour, we can make the on-demand delivery of anything within a city a reality. We started with restaurants because of the potential to build the most efficient logistics network with the highest node density, based on the large number of restaurants and the high frequency of use for delivery. We believe that by starting with food, we have created the most sophisticated and reliable logistics platform for local businesses. And, while food itself is a category that has a long runway for growth, we believe the network we have built ideally positions us to fulfill our vision of empowering all local businesses to compete in the convenience economy.
Merchant Services
Logistics alone, however, will not help physical businesses compete. How do you acquire customers in a world where they no longer walk inside your stores? What products should you make today and in the future? How should you price your products? How do you build customer relationships over time?
DoorDash is much more than an application that connects merchants, consumers, and Dashers by facilitating delivery. We provide a broad array of services that enable merchants to solve mission-critical challenges such as customer acquisition, delivery, insights and analytics, merchandising, payment processing, and customer support, and to fulfill demand generated through their own channels. This is just the beginning—we strive to become a merchant’s first call when they want to grow their business.
Membership Program
Over time, as DoorDash partners with local businesses beyond restaurants, we want to make it easy and affordable for consumers to enjoy the best of their communities. To that end, we launched a membership program called DashPass, where customers can pay a flat monthly delivery fee (today $9.99) for unlimited deliveries from eligible merchants. To date, these deliveries come primarily from restaurants. In the future, we envision this membership program becoming a wallet for the physical world, where a consumer can access not only restaurants, but all the local businesses in their community, and receive benefits while shopping in-store, at home, or anywhere in between.
If we are successful in helping local businesses overcome the greatest business model challenge of their time, we believe that physical stores will be transformed and will morph into offering two types of products: convenience and experience. Every category of store on the street will be omni-channel—offering goods online, as well as rich, personalized experiences in-store.
Further, we believe this will lead to an increase in both local commerce and new business creation. Anyone should be able to launch a business. We hope to become the platform of choice to help businesses participate in the modern economy and enable entrepreneurs to bring their dreams to life.
The window is closing to empower this transformation, as the rise of ecommerce and other on-demand technologies are rapidly surpassing local businesses. To serve these businesses effectively, scale is paramount, and as the player with the largest market share in our category, we are uniquely positioned to help local businesses compete in the new economy.
How We Operate
Our greatest competitive advantage is, and always has started with, our people and our culture. Speaking for the entire DoorDash team, we are inspired by merchants and Dashers from all different backgrounds who work tirelessly to achieve their goals—and know we need to earn their trust each and every day. We take our part in their journey seriously, which is reflected in our values and the ways in which we execute, a few of which I will highlight:
Be customer-obsessed, not competitor-focused: In the third month of DoorDash’s operation, we experienced a terrible outage, where we decided to refund every consumer the full value of their order. The refunds took out a significant, double digit percentage of our bank account. This customer obsession remains as crucial today as it was then. As COVID-19 began crippling local economies, we led the industry in reducing commissions by 50% for our local restaurant partners with five or fewer locations, benefiting approximately 180,000 local restaurants in the United States, Canada, and Australia. We will always endeavor to do right by our merchants, consumers, and Dashers, regardless of the short-term impact on our financials or stock price. At the end of the day, we believe that being laser-focused on solving problems for our customers will deliver long-term value.
Get 1% better every day: We are only as good as our next order. We operate a difficult business—we must perennially improve our products, create more customer value, and launch new services to meet the needs and expectations of our three constituencies. We know we have ample room to improve, and the opportunity to do so motivates us. While it might seem small in isolation, our daily work—be it on reducing delivery times, increasing efficiency, or improving personalization—is about compounding incremental improvements that drive significant value over time.
Operate at the lowest level of detail: Averages in our industry are meaningless, it’s the distribution that matters. No consumer cares if our average delivery time is 35 minutes if they received their food in 53 minutes. At DoorDash, we go to the lowest level of detail to understand every part of our system, looking for “and” solutions that fight false “either/or” dichotomies. This is one reason why everyone at DoorDash, including me, tries to step out of our day-to-day roles once a month to do a delivery or engage in customer support, menu creation, or merchant support—staying very close to the needs of those who use our platform is key. We attribute our category-leading spend retention [2] and capital efficiency, in part, to this obsession.
Dream big, start small: We take a long-term view at DoorDash and recognize that the best way to help merchants is to iterate quickly on products to help them grow their businesses. While we won’t optimize for quarterly changes to our business, we also won’t pursue 1,000 things at once or begin a project without enough resources. While we plan and invest for the long term, we begin projects in one market, with a lean team, and with very little capital and ask them to earn their way toward increasing investment. These constraints, we believe, help drive creativity, in much the same way DoorDash was founded.
We are owners: At DoorDash, our operators are relentlessly focused on execution and hold themselves to the highest accountability levels while carrying no blame. Like the problems we solve, working at DoorDash is challenging. We have stretch goals and we increase them when we beat these goals, always raising the bar. To foster this ownership mentality, we believe in using equity as an important part of our employee compensation.
Our values underpin our operational playbook and make us uniquely situated to seize the opportunity before us—to enable local merchants, to level the playing field for underdogs playing from behind, and to empower local economies.
I hope you’ll join us in transforming the future of local commerce.
Onward and upward,
Tony
Footnotes
[1] U.S. Small Business Administration, Office of Advocacy, or SBA, Frequently Asked Questions, September 2019. See the section titled “Industry, Market, and Other Data.”
[2] Edison Trends. Based on the estimated dollar value of orders placed on DoorDash, Grubhub, and Uber Eats by a group of users that first placed an order on any such platform between January 1, 2019 and September 30, 2019, as determined by Edison Trends. For each platform, spend retention represents the total dollar value of orders placed by this group of users in their twelfth month on the platform as a percentage of the total dollar value of orders placed by such group in their first month. Postmates is excluded due to inconsistent data availability in April and May 2020; however, Postmates’ spend retention was lower than DoorDash in all other months of the measurement period.
Wrap-up
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