DoorDash Raises $127M in ‘Down’ Round
blogs.wsj.com
blogs.wsj.com
>DoorDash isn’t profitable and has struggled to keep some of its delivery staff, known as “dashers,” from remaining with the company for longer than a few months, raising costs to attract and train employees, according to people familiar with the matter.
>A DoorDash spokesman said the company is “cash flow positive” in its “earliest markets,” including applicable marketing and overhead expenses. He declined to name those markets. Overall the company operates in 22 urban areas in the U.S. and Canada, according to its website.
The trick with on-demand is that we're not the first into this space - low-tech versions have existed for years, but largely priced out of reach of the mainstream. This pricing was necessary because of the fundamental nature of on-demand.
After all, getting someone to drive to a restaurant, order for you, and bring you the food has some pretty immutable built-in costs.
Software can help reduce these costs, but IMO we've vastly overestimated the degree. It turns out in most cases the technology can't reduce costs enough to shift the economics from "upper class only" to "middle class".
There have been two responses to this reality - one is to force the issue by subsidizing the unit economics with VC money, and pray that you can actually figure out the economics of bringing on-demand to the middle class before the money train derails - this is the Uber strategy (specifically, UberX, which is heavily subsidized in many markets).
The other is to make the service suck - I'm not sure why any company thinks this is a viable strategy but we've seen many pursue it. Homejoy is the spectacular nuclear-explosion example but there are many others.
It turns out human labor is expensive, hard to scale, and has a lot of built-in costs that can't be eliminated by smart software.
Considering all the time we had to wait I could not help but think that, surely, it would have been more efficient to schedule other deliveries in the mean time and just come pick up the food when it was ready? As a logistics company you want to minimize the time your couriers sit around...
The kitchen already knows roughly how long it's going to take anyway, and with enough data computers could do that automatically too, I guess all delivery services work the same but I never use them, do other incumbents do these things more efficiently nowadays?
This tells me that they're not really in the Food Business - they're in the delivery business, and learning how to do it with food.
A smart system that summoned delivery people when the food was ready/close to ready would require integration on the restaurant's part (see: Seamless/GrubHub/Caviar), but DoorDash seems to be going in a different direction.
This has been a point of controversy - DoorDash offers delivery for restaurants that do not participate in delivery by simply sending someone there, ordering, and bringing you the food. This is terrible for the delivery people obviously, and DoorDash has also been caught marking up the prices on these menu items without informing the customer.
Overall, highly doubtful about the sustainability of this business model. Or the ethics.
Side note: Postmates also does similar - some of the restaurants in their system are not official partners, and so the delivery person gets to make the order and wait around. This is a large part of why I stopped using them - they're getting paid peanuts as it is and now they're sitting on their ass for 20+ minutes to bring someone $20 of food and foregoing much needed tips.
> it would have been more efficient to schedule other deliveries in the mean time and just come pick up the food when it was ready?
There are a lot of factors at play so it's hard to say what exactly happened in this instance, but some considerations:
* The wait time at a restaurant is probably not enough time to fit comfortably another delivery. Deliveries take a bit of time. I don't have the exact #'s, but you can imagine 5-20 minutes driving to restaurant (+ parking), 0-5 minutes waiting at a restaurant, 5-20 minutes driving from restaurant to customer, which ends up being around 10-45 minutes with high variance.
* We want food to be as fresh as possible for the customer, so on average we may prefer a dasher to wait a little rather than arrive the food is ready. Like the other replies mention, we try to measure how long food prep takes for a restaurant and we may err on the side of caution with restaurants with high variance by sending them to a restaurant assuming the shortest estimated food prep time.
* Restaurants don't always provide accurate estimates of how long the food is going to take to make.
* In your specific anecdote, we likely predicted the food to be ready much earlier (atleast earlier enough that you wouldn't have you felt they could have done another delivery) but some things may have changed from the original delivery. Eg: The kitchen was especially backed up during this time and we didn't have examples of this in our dataset. Or perhaps we did have examples of this and it didn't happen enough to increase its weight in the food prep calculation. Customer may have made an adjustment to the order, which caused additional wait time after we made the original dasher/delivery assignment. Kitchen may have made a mistake with the order and had to remake it. Our estimate for drive + parking time may have been too high. In other words, some of the time that you saw the dasher in the restaurant could have been time that we estimated for driving/parking instead.
There are a ton of other factors at play, but I hope this gives you some sense of complexity of the problem :)
* who could be a likely suitor waiting in the wings to snatch them up?
* what do the unit economics look like in their best and worst markets?
* have they actually found a novel solution to the massive logistics problem they face with individual deliveries?
* do they have a viable plan to pivot/expand to non-food deliveries?
* are they getting a big contract from a giant corporation to be their last-mile delivery service?
* is there a strategic partnership that changes their business for the better?
Maybe somebody can explain what the business model is here.
It sounds like the founders get to play big shot for a couple years while they bleed their VCs.
They ensure that the food is edible by working with restaurants that customers already dine-in at. Sure, they can't guarantee that the food is edible, but no delivery service can guarantee anything about the product that they are delivering. They have to rely on the reputation of the sender.
The problem is instead that this is too common of a business model. There doesn't appear to be anything particularly innovative about what DoorDash is doing, and they don't appear to be executing very well. It's not a fundamentally flawed business; it's just a uninspiring one that was probably overvalued.
Given the fact that the optimization is global they would have the advantage of doing global optimization over each restaurant doing it locally. Therefore they could charge less for deliveries while paying their workers the same.
Unfortunately, a google search of the founders tells us they haven't got the slightest clue how to do that. What the investors can hope is that this money will allow them to find people that can make the extra effort to rise the business above all of the similar ones.
Like deliveroo recently went live in Nottingham (May 2015) and they have only fairly good restaurants who did not previously do delivery on their books.
Just Eat and HH added a centralised online booking service to existing takeaways. Dilveroo and Doordash aim to deliver restaurant quality food, it's a new market segment.
What the secret? He subtly changes the resturant prices--the customers don't have a clue. When caught(one time), he claimed it was a mistake in the publication.
Workers/Drivers? There's a lot of desperate people in this sharing economy. (Some do sample the food though.)
Since I really can't stand the dude, I'll spill everything I know.
Lunch is a hard sell. I don't know why? Delivering dinner is where it's at. People eat a lot!
It's a good business for anyone. This guy started when he moved from the east coast to the west coast. On the east coast, they have had this service before computers. Just printed menus, and phones. Supposedly, it a common service in NY?
This guy is so successful, even without technology, he never bothered to revamp for Internet use. It's still just a 10 page booklet, with the scanned restaurant menus, with fluctualting prices. It all depends on his mood. Of course, restaurants always get the lowered, agreed upon price.
So, it's a good business model. I never thought people would pay so much for delivered food, but they do.
I did learn something from this guy, if you bend the rules, and work hard, you can make pretty much any business work.
But there's going to be a lot of M&A along the way and a lot of these companies seem to be building themselves as acquisition targets instead of independant businesses. Just like every tech giant has to have a music streaming service, a phone OS and an intelligent assistant, they'll pretty soon all have to have a food delivery and virtual laundry service too. So the downside is pretty derisked as long as you can stay as one of the top 3 or 4 candidates in your vertical and you don't burn too much cash before Daddy Warbucks takes you under their wing.
Plus, it was not a priori impossible that the company that wins the logistics-as-a-service space might come from food delivery instead of people delivery. Food complains a lot less, it's way more bursty and it benefits from economies of scale in way more attractive ways than people. As long as the food delivery startups remain valued at around the billion dollar mark, it's a 50:1 cheap bet that food might be a more attractive pivot point in the land grab than people.
The business model isn't as bad as you'd think. For newcomers in this space, the major issue (that could very well thwart any innovation) is fraudulent orders.
Seems dumb to do from a restaurant's prospective, as I'm sure they see all these products as "the delivery app". But they're different to me: I won't order from DoorDash because I can't be confident my food will be hot — they do multiple deliveries per run, as opposed to an exclusive run.
One area I have thought might work is if these food delivery services act as the seller and take responsibility for quality. You could have a DoorDash sell the food and outsource the production to the restaurants. The customer would not know where the meal came from and any quality issues would be on the DoorDash services plate (sorry for the pun).
They do operate on pretty tight margins though, and its a competitive space.
DoorDash marks up menu prices 15-25% or so, charges $5-6 for delivery, and an implied tip to the driver ensures they don't have to pay drivers much (the last point is speculation, but I suspect its true). A $25 pizza costs over $40 to get delivered from 5 miles away after all that. That is what is ultimately unsustainable about the business -- if they can't turn a profit with ~40% service fees, they are doomed.
I am sure that there are some common stock holders in DoorDash looking to offload their stock, but I can’t think of a more certain way to lose all your money than to invest in the common stock of a startup who has just taken a down round.
That all depends on several unknowns at that time. It definitely increases the chances of the holders of common stock to be left without compensation if and when the company sells or there is some other 'liquidity event', but it definitely is not a given.
A down round is simply the issuing of new shares at a different valuation than the previous shares. There could very well be a round at a higher valuation later on, the difference between the previous share issue and the current one could be small, the number of shares issued could be small to the number of shares already outstanding and so on.
Actually, please just keep it off HN. It distorts the discussion in all the wrong ways.