E641: Tony Xu, DoorDash Co-founder & CEO, on building a thriving business in the difficult on-demand market

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about this episode

Can the on-demand marketplace stay afloat? Tony Xu, CEO and Co-founder of DoorDash, sits down with Jason for an in depth interview on This Week in Startups to explain how his company has scaled in the on-demand economy. The discussion ranges from growth and sustainability to the difficulties of the restaurant business in general. With the minimum wage increasing and the market consistently fluctuating, on-demand is one of the most difficult areas for entrepreneurs to break into. So getting insights from a founder who is thriving in that space is a truly educational experience.

Five Key Takeaways

How does it work?

It’s a simplified delivery system application. The labor force is made up of ‘Dashers,’ who are able to work their own hours, and generally make an average of $15 to $20 per hour. The consumer ordering from the app is charged $4.99 for the delivery, and DoorDash takes a small percent on the order from the merchant. Sound familiar? It’s nothing new, but with GrubHub charging 20% to restaurants without even offering delivery drivers, DoorDash is in prime position to take over the market.

Is it sustainable?

Jason brings up the issue of margins. It is no secret that the space has become extremely difficult to turn a profit. Ultimately it comes down to the unit economics. Can DoorDash, and on-demand companies like it, compete as viable businesses? Tony explains, step by step, that it can be a very lucrative business, but with the disclaimer that there is little room to make mistakes.

What is the impact of UberEATS?

Tony hasn’t seen much of an impact so far. He believes that the reason for that is because the market sector is so small, and growing so quickly. As of right now, 85% of restaurants do not offer delivery. This leaves a massive hole for multiple companies to continue to squeeze into. As the market grows, the need to service the demand grows as well, and another company entering the market during a period of market growth like this doesn’t necessarily have a negative effect on companies already in the market.

The importance of data

Jason asks about the ‘Holy Grail’ of on-demand… being able to know how long any particular item from any particular merchant will take. Tony says that DoorDash is very close to being able to provide that kind of data to the customer, but it’s not the most important factor in the industry. Being able to offer these types of actionable insights are critical for this type of business, but there is more that you can do with it. For instance, DoorDash wants to be able to tell when a restaurant is understaffed based on time of delivery, which could be invaluable to the customer.

The restaurant business

Jason and Tony were both raised in restaurant families, and grew up watching their parents struggle in this extremely competitive market. Knowing first hand how difficult it is, the two discuss their appreciation for restaurant owners. For Tony, helping merchants in the restaurant industry cut down on costs has been an important byproduct in building his business. An individual restaurant hiring a delivery driver is far more expensive than paying the fee per delivery through DoorDash. It’s a win-win for both restaurants and DoorDash.

Timestamps

1:07-2:32: Jason opens the show with a brief run down on the current state of the on-demand economy. 

2:32-5:52: Jason introduces Tony Xu, CEO of DoorDash, and the background of his fast-growing on-demand business.

5:52-9:19: Tony explains how smartphones have allowed us to access a workforce that values flexibility over pay.

9:19-12:15: Jason asks about the unit economics involved in DoorDash… how much does a ‘Dasher’ make per hour?

13:47-19:34: Tony explains why DoorDash always puts the merchants first when testing new services.

19:34-23:12: Jason asks about the exact costs involved in DoorDash, particularly the margins.

28:38-32:10: Tony and Jason discuss the different expectations and preferences for different customer bases around the country.

32:10-34:17: Jason asks about the most challenging part for Tony at this point in his young company’s saga.

34:17-: Tony explains why competitors in his market are not nearly as dangerous to his own company’s success as in other markets.

38:31-41:45: Tony believes it is important to keep the app and the mission simple, at least in the beginning.

41:45-44:17: Tony demos the app itself, and shows off the simplicity of the features offered.

44:17-46:30: Jason asks about the importance of data for a company like DoorDash.

46:30-51:36: Jason and Tony share their experiences growing up in families who ran restaurant businesses.

51:36-55:22: “Build the business correctly. Who cares? Up market, down market… the markets are going to change, and that’s not within our control, so let’s not obsess over it.”

55:22-59:28: Jason asks about what’s next for DoorDash and the competitors in the on-demand market.

59:28-1:05:12: Jason inquires about how the minimum wage increases may affect businesses like DoorDash.

1:05:12-1:10:10: The two discuss international on-demand markets, which leads the conversation straight to the phenomenal DabbaWalas system in Mumbai.

1:10:10-: Jason asks about Tony’s favorite Chinese restaurant in the city, then shares his new-found love of the food in the Inner Richmond.

1:13:39-1:16:03: Jason shares his secret to get a table at any full restaurant in New York.

1:16:03-1:24:56: To close up the interview Tony and Jason debate the proper way to tip, and share some humorous stories involving bad tippers.

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