Entrepreneurship

DoorDash IPO: The Lessons For Entrepreneurs

By November 14, 2020 No Comments

Today DoorDash filed the necessary papers for its upcoming public offering. The estimate is that the company will raise over $2 billion, which will make it one of the this year’s largest IPOs.

In the U.S. market, DoorDash is the leader in the on-demand food delivery business. The share is about 50%. The other top players in the category include Uber and GrubHub. 

Consider that DoorDash’s platform includes over 390,000 merchants, over 18 million consumers, and over one million Dashers. During the first nine months of this year, the revenues jumped from $587 million to $1.92 billion. The company has also been able to generate positive cash flows. 

Note that it only took the co-founders–Tony Xu, Evan Moore, Andy Fang and Stanley Tang–about seven years to create this powerhouse. 

So then, what can entrepreneurs learn from this? What are some of the main takeaways?

Well, of course, there are many lessons. But let’s focus on the main ones.

As is typical with most startups, the original idea for the co-founders of DoorDash was not the winning one.  Interestingly enough, in the early days of the company, the belief was that delivery was unimportant.

But then the co-founders had a talk with a store manager, Chloe. She said to them that it was a big pain to not have drivers to fulfill the many delivery orders.

Now the co-founders did not automatically pivot to this focus. They instead engaged in lots of research, which involved interviewing more than 200 local business owners. 

But after all this, it was clear that delivery was a pervasive problem for restaurants. So yes, it looked like this could be a great market to target.

To test out this idea, though, the co-founders spent a few hours creating a prototype app. Then within a half hour of the launch, DoorDash received its first call. The co-founders made the delivery themselves and continued do this for awhile. As a result, the app got better and better. 

But of course, DoorDash was still something that could be easily replicated. So to be successful, the company would have to raise substantial amounts of money, build a sophisticated logistics system and put together a streamlined system to recruit and onboard Dashers. 

All this required a strong culture, a focus on disciplined execution and agility. In the DoorDash prospectus, Xu provides some of the guiding principles for the success:

  • Be customer-obsessed, not competitor-focused: This philosophy was demonstrated in the first few months of the launch of DoorDash. When the system suffered a major outage, the company refunded all the orders.
  • Get 1% better every day:  Incremental improvements can go a long way. It is similar to the Toyota process methodology of continuous improvement. In other words, when there are small improvements over time, they can begin to compound.  
  • Operate at the lowest level of detail: Let’s face it, a customer doesn’t care about the average response time. He or she always wants a great experience.  To this end, DoorDash has all employees–even the executives–make a delivery or get involved with support for the customers or merchants every month.
  • Dream big, start small: It’s all about taking the long-term view of things. According to Xu: “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.”

Tom (@ttaulli) is an advisor/board member to startups and the author of Artificial Intelligence Basics: A Non-Technical Introduction and The Robotic Process Automation Handbook: A Guide to Implementing RPA Systems. He also has developed various online courses, such as for the COBOL and Python programming languages.



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