There's no better way to be the expert than just to do the work. You might be surprised at how quickly you get to become the expert. We're here to build a company that will grow and empower every physical business. and grow the GDP of every city if we are successful in doing so. That's not going to happen in one year, two years, five years, ten years. That hopefully can be a forever or an eternal mission.
There are moments, whether it's the start of the company or a crisis situation like COVID-19, where it becomes very clear why you're doing what you're doing or should be very clear to you why you're doing what you're doing. And when you have that kind of clarity, it makes it a lot easier to make those decisions. Welcome back to another episode of How to Build the Future. Today's guest, Tony Hsu, who created DoorDash, which now has...
Mid 60% of all food delivery in the United States. Tony, welcome. Thank you. You actually mentioned you had two or three other ideas. How did you arrive on this particular one and what disqualified the other ones? There were two important things. One was that if we... decided that we enjoyed working together, we're going to keep going. And two was whether or not we actually liked the...
idea of the project and enough to keep going. And we called it a project, I think, for the entire first year of the company's life, even after legally incorporating. So one of the projects, for example, that we worked on that met one of the criteria, but meet the other was a tablet app that would sit at the counter so at the point of sale register and would ask customers while they were paying for whatever items they were purchasing, where they had heard about this retailer or this restaurant.
And it was just a very simple survey and reporting app that basically helped merchants figure out the effectiveness of their marketing spend. We loved working together. We didn't love working on that particular project, and that turned out to be something that we canceled. When it came to DoorDash, the initial... really came when we visited a macaroon store owner. Our question that we tended to ask business owners was, can we follow you?
around for a day. So we'll go and pack boxes with you, do your accounting with you, make salads with you. We went undercover. Well, we wanted to actually feel what it... was like their lived experience versus just asking a bunch of survey questions. I think sometimes it's very, very hard for any customer to tell you exactly what it's inside their brain when you ask them what problems they have. And so we want it to feel.
and maybe trying to figure it out ourselves. And it was toward the end of the time we spent with the store manager that she had showed us a booklet of orders she had turned down. All of them were delivery orders. That was the comment and thread. And it just made no sense to us. We said, you're a one-person shop. This is a big deal. This is a thick booklet of orders that...
probably is very meaningful to you. We don't understand why you're not pursuing it. And so we really just unraveled that threat. As we kept studying this problem, we just found more and more interesting threads of where it would go. Yes, certainly we could have done delivery just for this macaroon store owner. But then you can imagine you could do it for all bakeries, all types of restaurants.
all types of retailers. And we started hearing the need from so many different merchants that we knew there was something there. What we didn't know was whether or not consumers cared. and whether or not there could be a driver workforce that we could partner with. And so those turned out to be the key things we worked on at YC. And you also met your co-founders. Partially through Stanford, was it? Yeah, the GSB was an interesting time for me. I mean, I applied on the recommendation of...
one of my mentors at eBay at the time, who was the CEO, John Donahoe at the time. And he thought that it'd be great for my personal development. So that was really, that was kind of the thesis. And so I didn't go into Stanford. In other words, trying to think about starting a company or even looking for co-founders. That was very fortuitous. Meeting Andy Stanley and Evan, Evan turned out to be a roommate. And that was just...
purely from a social circumstance. Annie and Stanley were roommates at the undergrad. We happened to meet. We worked on different projects together. It wasn't intended to necessarily over time become a company or anything like this, but that's really how we got. started at what point did you decide to apply to yc while we were in school so we we actually the first two weeks of the summer batch of 2013
were the last couple weeks of our time at Stanford. So we had a few weeks of overlap or a couple weeks of overlap. I remember very specifically. my classmates or some of our classmates, you know, planning their exotic vacations to Europe or other interesting areas for the summer. And when they asked me what I would be doing, I said, I'd be delivering hummus for my Honda. It was a very different.
type of answer. But yeah, you know, we had a lot of fun. I mean, the earliest days, all four of us did all the deliveries. It was called Palo Alto Delivery previously. Yeah, yeah. A super scalable name. But a name we were able to get for less than $10. Perfect. Yeah, we shipped palatodelivery.com. under an hour. I don't remember exactly, but maybe 45, 50 minutes because all it was was a static HTML page with eight PDF menus.
And these were menus of restaurants in Palo Alto that we frequented often as students. It had a Google voice number you can call. That's how you would place the orders. There were no other way in which you can order. Once you call that number, it would ring the cell phones of all four of our... are all four of the founders cell phones and whoever picked up first would be the one to take care of that order. Amazing.
What was it like to interview YC, get in? And then I know Paul Bukai did a lot of work with you, actually. Yeah, Paul. Paul Bukai was was our group partner. And I think he took a personal affinity to us because he really wanted us to. exist where he lived. And we only operated in Palo Alto at the time, not yet where he lived, which was a neighboring city. YC was intense. For us, the reason why we did YC...
was we really wanted to keep going on this project. And to us, YC was a bit of an accountability mechanism. One of the biggest things we learned from all of the different partners at YC was really just... what's important in the earliest days versus what's not important. The ethos in NYC was fantastic, I think, for certainly a group that wanted a structured place to find guidance on whether or not know we were on to something two things you had to figure out supply and actually
consumer demand. Yeah. So driver supply and consumer demand. What was that like, you know, sort of over the 10, 12 weeks? Yeah. So the number one thing we were very scared about was whether or not consumers would want this product. And it's because... delivery is not a new idea. It's been around since... It's been around forever. And so and obviously the U.S. is a very highly capitalistic market. So if something doesn't exist, maybe there's a good reason why it doesn't. And so.
We wanted to make sure from the get go whether or not consumers would pay us for the service. So that was one big question. The other was whether or not we knew that restaurants had a need for it. We didn't know if they would pay us. That was a second pillar. And then the third is whether or not.
there would exist drivers who would actually want access to this. And so early on, we did all the deliveries. One of the best parts of doing all the deliveries besides teaching us what are all of the steps within a delivery. is what customers wanted. And our earliest customers tended to be families with young children. It tended to be the mom who made a majority of the decisions when it came to.
to meal prep and food. And so they told us what they wanted. They told us what was important. They told us what restaurants that they preferred. But the most important thing was that they kept coming back in again without our throwing.
advertising at them, coupons or discounts at them. That kind of gave us the check mark, if you will, on growing organically on the consumer front. With drivers, because we did every single delivery, um it was very easy to speak knowledgeably um about uh what it would be so we would just post ads on Craigslist, see who shows up, and then started filtering different segments of drivers. That was one where we weren't necessarily sure whether or not there would ever exist a large enough
workforce interested in this type of work. One of the questions we had asked ourselves was, would drivers only be interested in working for a platform that pays the most because obviously it's going to be more valuable to transport Gary. than to transport a burrito. And so one of the earliest tests we ran was we recruited two groups of drivers, roughly speaking 20 drivers who drove for UberX at the time and 20 who delivered for DoorDash.
The control, if you will, variable was that they both earned $20 an hour each group. I made them an offer to. work for $25 an hour guaranteed if they were to switch jobs. If the DoorDash drivers would go over to UberX and UberX drivers would come over to DoorDash. Exactly one driver out of two groups of 20, so one out of 40 said yes.
Now, this wasn't a very scientific study, but clearly we were missing something or I was missing something. And it was actually staring me right in the face, which was. These were very different groups of people. They self-selected completely differently. And on the DoorDash side, we tended to skew younger. We tended to skew more female.
And so today, DoorDash has over 7 million drivers on the platform. Of these dashers, the drivers on the platform, almost 60% are women. Today, they literally come from... every part of the economy, hundreds of industries represented. Back then, they tended to skew younger. They tended to skew from segments like retail or... universities and the like, or service jobs.
And they didn't always deliver in a car. Sometimes they preferred working on their scooter or working on their bicycle or working from their motorcycle. Very, very different from the ride sharing or the ride hailing segment. I think that was one of the key. experiments I remember running in YC that gave us enough confidence. We didn't certainly know how large the Dasher pool might be, but gave us enough confidence that we had positive answers that consumers would pay for this product.
merchants, the restaurants would pay for this product because I sold them door to door. And after running this experiment, that there would be enough of a driver pool to partner with. And then what was that demo day experience like? Well, we felt great internally as a team where we answered our own questions, those three questions, because to us, the most important thing was that, was this project worth continuing?
Forgetting about the circumstance of demo day or how awesome of an opportunity it was to get in front of investors, can we prove to ourselves that this is worth continuing? The answer was yes. Demo day, however, was... not successful. I don't know exactly where we stacked ranked that day but we certainly weren't amongst the favorites.
And it was really tough. I mean, the company almost went out of business because, you know, we didn't raise a lot of money from Y Combinator with the initial grant. And so we were looking for seed financing and we were... We were a couple of weeks away from going to zero. I think at the time people just weren't sure if this would be a business. Yes, we had great metrics. Yes, we had.
positive evidence to each side of our marketplace in terms of thinking about whether or not they would participate. But it was 10 weeks of data. And so at the end of the day, If you were an investor looking at DoorDash on demo day or anywhere near demo day, it would be a conviction bet. It would be a conviction bet on the team on that there would be a potential market. You know, I think one of the things people... missed early on was that DoorDash was really in the business of creating a market.
There were 20,000 maybe restaurants offering delivery at the time, and that's who incumbents would work with, the Grubhubs or the Seamlesses. They would partner with these restaurants that had their own delivery fleet, and they would just send them an order. The restaurants would complete the deliveries themselves. But the question we always asked was, if you could build a last mile logistics network for every retailer, well...
Could you open up everybody else? There's about rough math, a million restaurants in the U.S. Only 20,000 of them offer delivery. What would happen if you can enable the other 980,000 to do it? DoorDash actually almost died, I guess, after a Stanford football game in the fall of 2013. We did. Can you tell that story? Yeah. So it was the first Saturday home game for Stanford football. And it was at an awkward time where after the ending of the game.
Everybody in Palo Alto decided to order DoorDash for restaurant delivery. Normally a good thing. Normally a great thing. You know, no one usually complains of too much demand, except when you have no ability to fulfill the demand or to shut off, you know.
the website that kept receiving these orders when you didn't have enough drivers on the road. So that became the complication. What ended up happening was every delivery was at least an hour late, probably more like an hour and a half. It was terrible. We also at the time, or I at the time, could not raise any seed financing. So you've got the cash going to zero.
You have hundreds of customers very upset because they either received cold food or received very, very late deliveries. I remember that night, maybe 9 or 10 p.m., my co-founders and I... looking at what the refund cost would be because we thought the right thing to do would be to refund everybody. But that would take away about 40% of the bank account, which was already quite low. We took maybe 10 seconds to make the decision to refund everybody. We ended up...
staying up that night and then baked cookies so that we could deliver them at around 5 a.m. before everybody had woken up. Oh, my God. That was an early story that ultimately became the story that... translated to our internal company value of customer obsessed, not competitor focused. And this is partially survival bias, but I think the...
The founding team always had this desire to at least do things the right way, even if we wouldn't have made it. Well, so what happened in the following weeks? How did you get yourself out of... This sort of situation where the bank account is dwindling, yet, I mean, seemingly business is booming in some sense. Business is doing actually really remarkable. We've had a few occasions like this in the history of DoorDash where business is actually going really well.
organically, on its own, without the aid of marketing, spend, or discounts, yet I can't raise a dime. And so I don't know what that says about my fundraising ability. But, you know, luckily, all you need is one investor to say yes. And that's what happened. So a couple of weeks after the Stanford incident in September, we raise our seed financing.
You were not the only player. There were others, especially in urban areas, there started to be a price war. You know, talk to me about how you approached that, because you took a very sort of contrarian view of it. and ended up mainly focusing on suburbs instead of fighting it out in sort of battleground cities. One of the things that we noticed at the time was, you're right, it was a crowded space, lots of people more successful at raising capital than we were.
into perhaps the expected geographies, the San Francisco's, the New York's, the areas where people thought you needed. order density in order to make the economics work so it was all hail you know city centers that had high population density but because we had done all the deliveries ourselves and we actually kept that going for about two years straight after.
And even to this day, every person at DoorDash, myself included, does deliveries every year. We kept hearing over and again that the need was very, very strong outside of these city centers. It makes sense when you actually take a step back to think about it. customer's perspective. If you and I lived in New York City and we walked outside of the elevator or the building, we probably could walk into hundreds of restaurants in a place outside in New York City.
Long Island, for example, or when we launched here in Palo Alto, you would be walking for miles probably before you would see the first restaurant. And so from- the customer's perspective, not from, you know, a unit economics perspective or anything like that, it was quite obvious that the need was higher. in these places outside of city centers. And I think that always became, you know, a general mantra we had whenever we were in question of what to build. Listen to the customer, run the test.
And that was certainly one of the things early on that we made a very large bet on that if this industry were to be created, it would actually be created outside of the city centers. If you looked back. Over the last 10 or 12 years in this industry, you know, the majority of the growth came from these places outside of city centers. Obviously, we didn't have the data to prove it at the time. But what we did have was the conviction in doing these deliveries ourselves that.
there was a chance that could be true. So, I mean, that's fascinating. You know, from the outside, it always felt like... Oh, well, logically speaking, like somehow maybe gross margin would be higher or, you know, CAC would be lower in the suburban areas. And somehow, like from the spreadsheet view, some sort of like quant-based analysis would cause you to...
you know, sort of choose suburbs. But what I'm hearing is actually, certainly that might have been true, but like being super customer obsessed was like the number one reason.
Well, it was the number one reason of how it happened. But actually, if you got into the P&L where I think the details would surprise you, where in the places outside of city centers, the suburbs, you tended to have... a greater percentage of families which have more mouths to feed as a result you tended to have higher baskets higher baskets meant larger revenues you also tended to have
easier ways to find parking. You tended to have a greater percentage of single family homes, which made it easier to, you know, deliver. Whereas you can imagine you contrast that by going into a high rise building in downtown Manhattan or something like this. And that would be a much more complicated delivery. When we studied it, you know, line by line by line, actually the union economics were much stronger outside of the city centers.
And that wasn't the first instinct. You know, the first instinct was just listening to what the customers had told us where the need was. But it was very easy to prove out very, very quickly, you know, thereafter, every line on the line item on the unit economic spreadsheet of how it could be even better if we did a good job.
you just continued to grow you kept you raised you know multiple rounds of funding your series c was actually a down round what was that like you know you're growing the business raising more money you know you're fighting off competitors you know
how did you manage that and what was that experience like it was very tough i mean because on the one hand you see all of the internal metrics going in the right direction you're growing organically you're growing quite quickly organically you see that the market is
perhaps larger than you expect. These are all the positive signs on one side of the equation. On the other hand, to your point, we're also investing in scale because this is a business where... um you need enough order volume to make the math work to get there you have to invest before you get the demand and so we needed to raise capital and there were a couple there were a few years actually in a row three years in a row 2016 17 18 where
I continue to struggle to raise capital. And I think this was the part that was quite difficult for us, where you have a company whose product seems to be moving in the right direction across any metric, any way you want to cut the data. On the flip side, you know, I'm receiving hundreds of rejections for investment. I think this was certainly one of the most difficult periods so far that we've had to overcome.
From the outside, like having never been fully a growth investor, in theory, it should be deterministic. Like mechanically, what the growth investor should be doing is, well, I get to look at this data room. I get to look at this other data room. They certainly give the indication that like they have.
you know a sense for what is normal in the market and yet they were just like wrong about you well i think one of the things i've learned that's tough for an investor is knowing when to invest and I think that it's really easy to invest when the numbers are clear and that the story of repeatable, profitable growth has happened enough times where you just believe.
And then there are moments where it's just before that moment. And I think for DoorDash 2016, 17, 18, a lot of those times or moments were just before that moment. It's not a game that's just measured on your own scores. It's a relative score in some ways, especially when a market hasn't been yet defined or that it's not obvious who the winner is.
Investors were a bit gun-shy because they saw lots of people going for it, people who were better capitalized. While DoorDash may have had very strong numbers, it wasn't obvious that it would merge. the largest player. I mean, the amazing thing is you came out of like sort of the capital as a bludgeon phase as actually the winner. Like by 2019, you actually had surpassed Uber Eats and Grubhub and you became...
the category leader? Well, all you need is one investor to say yes. And so in 2018, when we raised our Series D... in March, it was obvious to the team internally what was going to happen next. Everyone can have an opinion about their product versus the fields, but one of the hardest things to... to really fool is the retention and the engagement of a product. And because DoorDash always had superior retention and frequency,
Every dollar that we spent would just go a lot farther for us than anyone else. And so when we received the capital to actually be able to invest and launch all the geographies, it was just a matter of time before DoorDash would get to the... largest position. So fast forward a little bit. I mean, at the start of COVID, delivery demand cratered and then skyrocketed and you cut commissions in half. You ran a TV campaign that advertised your competitors. What gave you conviction about that?
that period like? COVID was a bit of a blur. COVID 2020 was a bit of a blur. We were actually in 2019 preparing, you know, to go public, obviously COVID. shelved those plans. But, you know, COVID was probably next to 2013. So the COVID year, 2020, that is. Next to 2013 was probably the year where it felt most like DoorDash in YC. You know, it was seven days a week, 10am to 2am, all hands on deck, you know, multiple, you know.
all company meetings per day. And sometimes in crises, I actually find that it's a lot easier operating a company because it's very clear what to do. Number one, job number one, keep everyone safe. right get tens of millions of units of ppe make sure that we can ship no contact delivery or contactless delivery we ship that product in four or five days number two got to make sure that everybody gets liquid Why? Because the average merchant has 17 days of cash on hand. So...
Every hour of cash is very, very important. Same thing for dashers who a lot of them are furloughed or laid off because of COVID. And so getting them instant liquidity. the third thing was making sure that we could take care of the community actually and so we partnered with dozens of the largest hospital networks from UCSF or Stanford here in California to Mount Sinai on the East Coast, where we wanted to make sure that all the hospital workers and nurses could get.
free delivery and also because they were doing the hardest jobs. It was very easy to run the company. Now, you called out a couple of decisions that were made that were more controversial in the company. One was running a national TV campaign where we spent millions of dollars advertising on behalf of the industry, basically saying whether you order on us. or any of our peers just order you know the dining rooms may be closed but the kitchens are open
And the other decision, which we were the only platform to do, we cut our commissions by half, which cost us over $100 million. Now, these things sound inconsequential when you look at our balance sheet today. Back then, DoorDash was not profitable. And it was also when we were thinking about going public, which is not usually the first decision you'd make if that's what you're trying to do.
To me, I think what made it easy was, what do you want to build, became the question. I think I asked everybody who worked at the company. And are we just here to build a company that ends in 2020 or ends in an IPO or something? No, we're here to hopefully build a company that will grow and empower every physical business.
and grow the GDP of every city if we are successful in doing so, that's not going to happen in one year, two years, five years, 10 years. That hopefully can be a forever or an eternal mission.
When I thought about it from that perspective, I mean, this was a drop in the bucket in the grand scheme of the journey. And that's how we made that decision. That's amazing. So super long-termist, basically. I think that's the only way you can make some of these decisions. I think if you're just purely looking at... of these decisions in the in the here and now or just looking at it as a
business line item on a spreadsheet or something like that. It's very difficult perhaps to make the justification. I think sometimes there are moments, it's not always, but there are moments, whether it's the start of the company or a crisis situation like COVID-19, where it becomes very clear why you're doing what you're doing or should be very clear to you why you're doing what you're doing. And when you have that kind of clarity, it makes it a lot easier to make those decisions.
What advice would you have for sort of the 18 or 22 year old version of yourself knowing what you know now? I might ask you to modify it a little bit in that obviously we're at the beginning of this sort of age of intelligence, boom in large language models. What do you have to pass on to the next generation right now? One of the things I would tell the 18-year-old self is that, especially when you're on the cusp of something new, take AI, there's no better way to be the expert.
than just to do the work and you might be surprised at how quickly you get to become the expert i mean that was really my experience with logistics and delivery. I mean, I had no background in any of this, but by doing deliveries two years in a row, three years in a row, even 12 years later,
you get to very, very quickly have a strong point of view on how the physical world works. And whether that's now in software, in AI, in... biotechnology, in whatever field of interest, the best way really to be the expert is just to get started and do the work. What are you excited about for DoorDash? What comes next and what does DoorDash look like in the future? I think there's obviously a big exploration and set of battles right now for...
all of the digits and the bits. And these things obviously come and go in terms of the level of excitement versus the level of progress. And I'm long-term super optimistic about what's happening. in the digital world. I'm as optimistic, though, about what's happening in the physical world. I think sometimes we still forget that it's still even in 2020.
whether it was 2013 when we started the company or present day, that it is the physical businesses, small, medium, and large, that produce the vast majority of jobs and GDP. any society. And I think GDP growth is probably the best offensive weapon for any city. And so I can't really think of anything. more worthwhile than trying to grow the GDP of the cities. And so I think that as important as the digital battles are happening,
I think there's still this massive opportunity to understand the physical world. You know, where is the last parking spot in a rainstorm here in San Francisco? How many apples does the local grocery store have in aisle six? These are questions that actually nobody has, no LLM has the answer to. No one has the answer to. And I think that the physical world is just as interesting as the digital world. When you say GDP, I mean, what that means is prosperity, abundance.
jobs, and problems being solved. So, Tony, thank you so much for creating DoorDash and spending time with us. It's great to be here.