The Doordash story: How to approach competition, capital efficiency and customer-obsessed for maximum customer retention
Alfred Lin, Partner @ Sequoia Capital & Joe Lonsdale, General Partner @ 8VC
20VC: The Memo: Sequoia's Alfred Lin on Why Chasing GMV Leads To Bad Behaviours, How To Approach Competition and Capital Efficiency & The Core Importance of Understanding the Difference Between Input and Output Metrics
(January 27, 2021 - 40 minutes)
Alfred Lin is a Partner @ Sequoia Capital, one of the world’s most renowned and successful venture firms with a portfolio including the likes of Google, Airbnb, Whatsapp, Stripe, Zoom, Doordash and many more. As for Alfred, he has led deals in the likes of Airbnb, Doordash, Zipline, Reddit and Houzz to name a few.
The Twenty Minutes VC - Venture Capital, Startup Funding, The Pitch
By Harry Stebbings - Founding Partner @ Stride.vc & Founder of 20VCMicrofund
How did Alfred meet Doordash?
Alfred joined Sequoia with a differentiated investment theme in mind. Particularly interested in the food delivery space, he finally found the perfect founder market fit in Doordash’s Tony after passing on their other competitors. He was drawn to Tony’s observant and detail-oriented manner and how he could systematically break down a restaurant’s efficiency. He then convinced Sequoia to lead their Series A and invested in each subsequent round.
Takeaway: The most important thing at the seed level is to find great founders who are attacking a large market. Then, find the founder market fit.
How did Doordash break down the food delivery market when doing investment evaluations?
As a startup, you need to figure out which market you’ll be addressing in the beginning. Find out if the initial market is big enough, and if it’s growing. Don’t forget to also look at the market dynamics and prepare a full attack plan.
Tony wanted to build the FedEx of local deliveries and decided to start with food deliveries, because if they can deliver a pizza before it gets cold or ice cream before it melts, then they can deliver almost anything.
Thoughts about expansion into other spaces?
Sometimes, the desire to expand into other categories is a sign you don’t love your core business.
It’s good if you’re being pulled by the customer or market to expand into a different category, but it isn’t good to be pushing simply because you have aspirations of building an empire.
Important questions to ask:
1. Are you leaving your core business because it’s not that interesting or it’s not doing as well as you thought it would?
2. Why do you need to expand if you’re doing your core business just well?
3. How much increasing advantage do you gain; is it an adjacent market that lets you leverage all your strengths or a new market where you have no advantages from your core business?
4. If you’re expanding in a slightly different category or market, is it a better customer experience?
Any unexpected elements?
The market evolution was a lot more competitive. The most important thing is to make sure you have a differentiated business model, superior unit economics, and a strategy to win.
Doordash won because they had differentiated strategies to focus on the suburbs and the merchants as well.
The second most important thing is to have a large selection available. The paradox of choice is an individual issue, not a population issue.
People fail to see that the largest selection always wins. Doordash knew that from the very beginning.
Be competitor-aware but customer-obsessed.
What can you do to improve the customer experience and continue to serve and retain your customers?
More on Unit Economics
The unit economics at seed or Series A shows how thoughtful the founder is and how the management team thinks about the business. If the unit economics is messed up, it might mean they’re operating the business at the lowest level and just focusing on operational excellence.
Unit economics is mostly about AOV — customer retention, and the GMV.
Find new channels to sell and scale efficiently, and when the channel becomes saturated with competitors, it’s time to find a new channel. It’s a constant cycle of experimenting and learning how to do things more efficiently. The more efficiently the business is run, the more you can outspend your competitors to grow.
Why shouldn’t founders chase after GMV?
Chasing after topline GMV leads founders to the wrong behaviours. GMV is important, but it’s an output metric — something out of your control. Break down your GMV into smaller pieces until you get to your input metrics (like the number of merchants in selection and number of orders that can be taken etc.) and make sure they are really healthy before pushing GMV.
Figure out ways where the customer pulls you instead of chasing the customer down and forcing them to use your product. And create processes to account for human error.
Doordash broke it down from GMV to retention to the cohorts, who were very sticky. Many investors hadn’t seen that before. They also developed their own error-correcting codes to reduce the number of wrong orders.
How did Doordash do so well for driver and merchant acquisition?
Differentiated strategies. Doordash focused on a different set of drivers than their competitors — drivers who didn’t have the right car for service, who didn’t want to drive other people around, and who preferred delivering packages instead.
On merchant acquisition, Doordash went to the restaurant locations to understand the restaurant dynamics and market power, before locating and getting the local influencers on board. They acquired restaurants also by showing them how Doordash could benefit them and offered to sign them up as partners for more perks.
Switching roles between the founder and the CEO
Many founders struggle with leading as CEO, simply because founders start companies despite everyone saying ‘no’ so they don’t listen, but a CEO needs to listen very intensely, carefully, and actively to everybody. They also take all the information, weigh the different opinions, and then make the decisions. So, they have to lead by setting the strategy, the tone, and the culture.
20VC: 8VC’s Joe Lonsdale on How To Foster Contrarian Thinking Within Venture Partnerships, Why The Best VCs Are Company Builders & Why It Is Not Possible To Build Multi-Billion Dollar Companies and Have Worklife Balance
(July 7, 2020 - 38 minutes)
Joe Lonsdale is a General Partner @ 8VC and in the past has invested in many notable companies including Wish, Oculus, Oscar, and Guardant Health. As a result, in both 2016 and 2017, Joe was the youngest member of the Forbes 100 Midas List.
The Twenty Minutes VC - Venture Capital, Startup Funding, The Pitch
By Harry Stebbings - Founding Partner @ Stride.vc & Founder of 20VCMicrofund
Not Your Average Joe
Prior to founding 8VC, Joe was both an investor and entrepreneur. While attached to PayPal, he began meeting people from many companies that he invested with, who in turn, supported him in founding Palantir. After establishing many companies and building experiences with angel investing, Joe decided to dabble into fundraising, which eventually led to 8VC.
History Favours The Bold
With an affinity for history, Joe believes that the study of said subject is quintessential to polishing investing acumen. This is because history discusses a great many deals of worldly evolutionary processes. Investors could benefit from utilising the said framework of understanding and applying its concept to technology as well as the venture industry.
Market Timing
Market timing is a difficult craft to master and can never be certain. Should one attempt it, it is advisable to be careful not to allow it to be the deciding factor and neglect critical judgements based on observations as well as research. Additionally, businesses should strategize other means of investing for better returns.
Late Stage Capital
The influx of late-stage capital or the lack of thereof determines the focus and priorities of the company. To increase late-stage capital especially during series B, C and D, acquire insider advantage on better deals before going to market. Alternatively, having prior knowledge on potential areas not considered by bigger firms in New York and China will prove beneficial.
The Best VCs
The best investors are those who excel at building large companies. The study of conceptual spaces and thinking of project details are largely similar to builder-like tendencies. Moreover, the manic culture in Silicon Valley where investors capitalise on networking with the best and getting exclusive experiences ahead of the competition sets apart the good from the greats.
The Incubator Model
A fifth of capital will proceed into the incubator model where Joe will have a final say following a build meeting discussing possible projects within their 5 cores of tech, FinTech, logistics, healthcare and biosciences. Voting for incubations curtails politics within the board and unites all parties to a common goal. Joe also believes that the model is helpful for his portfolio companies better rather than distracting.
On The Contrary & #Woke Culture
Joe personally describes contrarian thinking as non-consensus and not necessarily politically correct. To be a contrarian is to critically question a popular or favoured topic from every possible angle and have the courage to question the status quo. Similarly, Joe frowns on woke culture today as it advocates cancel culture and prevents opportunities for rational discourses.
Cash Burn and Runway
In this age, it is crucial for businesses to get as much cash as possible to survive. Joe recommends a simple framework of 18 - 24 months of cash to be safe with 9 to 12 months as concerning, 6 months highly alerting and at 3 months of cash to explore other alternatives to gather more. When done correctly, sacrificing growth for gross margin in 1 year is a healthy exercise for businesses, which promotes aggressive cost-cutting to circumvent high cash burn.
Following The Northern Star & Challenges With 8VC
Joe finds that when one is confident about the gap that needs fixing, one should be fully obsessed, persevering and focused in realising the goal. As such, a healthy work-life balance would be impossible in building a company that will eventually scale to worth multi-billion dollars. Joe also shares that the biggest challenge with 8VC is trying to be as hands-on as possible in its growing processes as the company grows.
City Building & The Silicon Valley
Joe is agreeable with the idea of building new cities and could be done by reinvestigating the conceptual gaps of the world. He also stresses that gaps in governance and finances should be addressed before undertaking others. Likewise, he believes that while the Valley is dense with innovators, its dominance is decreasing due to poor land use and local leadership as well as increased remote working and sister hub locations.
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