Can DoorDash handle the heat in the kitchen? 🥃
The pandemic darling came under fire from a number of VCs and founders last week. We examine DoorDash's business equation, unit economics, and flywheels to identify strengths and vulnerabilities.
Hey friends and family,
Thanks again for following along in these early stages. We have a really exciting focus for you this week on the intersection of digital and dining, which is a particular passion of ours. We’ve built up a little more capacity to attract new subscribers, so if you like what you read, please share around. In addition to next week’s digest of napkin sketches, we’ll be following up with a longer form investment thesis in this space (similar to our Peloton write up) that we’d love to broaden our distribution for. If you have any feedback on format, content, cadence, etc., we’d love to hear it, as well. Without further ado, let’s get into this week’s focus.
Cheers,
🥃
A Back of the Napkin VC look at DoorDash
While no stranger to scrutiny from skeptical investors or its own stakeholders, last week DoorDash recaptured the attention of VCs and founders, who yearn for a more productive, equitable, and sustainable model for dining and delivery in the wake of the COVID pandemic. It started with a compelling guest post written by Dan Teran on the Not Boring Newsletter, which sparked a broader conversation on Twitter and later Clubhouse. We’ll be publishing a longer investment thesis on the intersection of digital and dining in the near future in the The Speakeasy, so be sure to subscribe to receive that. But first, we take a closer look at DoorDash through the Back of the Napkin VC framework to getter sense what it’s done right, where it’s vulnerable, and where the market might be headed.
Doordash: Business Equation
For a business that runs an unimaginably complex network of eaters, restaurants, and couriers, Doordash has a fairly simple business equation. To succeed, Doordash must maximize Gross Order Volume and Take Rate, while minimizing Customer Acquisition Costs. We dive deeper in a look at their business equation.
Doordash: Unit Economics
Doordash's unit economics paint an encouraging picture in some aspects: their share of the suburban market should clearly benefit them versus peers and their repeat customers drive increasing returns. However, just how sustainable is this business without the ample capitalization it's enjoyed to date? We dive deeper in a look at DoorDash's unit economics.
Doordash: Flywheels
DoorDash boasts of three virtuous cycles that the local logistics platform benefits from: local network effects, economies of scale and increasing brand infinity. On the one hand, it's easy to concede that the flywheels above do generate accumulating advantages with scale. However, relative to some other "aggregators" we've looked at, we view some of DoorDash's flywheel advantages as more fragile.
Lastly, we want to raise a glass to the spots that inspired these ideas down here in Charleston, SC: Graft Wine Bar, Xiao Bao Biscuit, and 167 Raw. Check out https://www.thenapkinvc.com/ for photos from each spot.
If you’ve made it this far, we’d love if you could subscribe and share us. Next round’s on us when we see you, if so. 🥃