Tony Xu is focused on DoorDash’s long-term vision

It was Stanford University’s first home football game of 2013 and the phones of DoorDash’s four student co-founders were blowing up with calls from angry customers. Orders were running more than an hour late, hobbled by huge demand and a technical glitch.

The nascent food-delivery company Tony Xu and the others had founded in their dorm rooms three months earlier was weeks away from running out of cash — and it was running out of chances. It desperately needed deliveries to go right that day to find its footing. But it was all going wrong.  

He said it took the team barely a minute to decide what they had to do in response: They refunded everyone’s orders, then delivered surprise apology cookies to every customers doorsteps before they woke the next morning, a move that would consume 40% of its remaining piggy bank. 

Seven years later — about a month into the pandemic shutdown in April 2020 — Xu, now the company’s CEO, had to make a similar call, this one on a far grander scale. He opted to cut the fees the company charged restaurants by 50% through the end of the next month, forgoing about $100 million in revenue from their hundreds of thousands of merchant partners. 

“We were not yet profitable as a company (and) heading into a public offering, so, not usually the first decision to make there,” he told me. “It might mean that we have to make short-term sacrifices, even at the most consequential times. But if we keep this kind of long journey in mind of why we started this company in the first place, it becomes a much simpler decision.” 

It’s Xu’s commitment to the long-term vision — now accelerating far beyond restaurants to facilitate almost any local merchant transaction over its e-commerce platform — that has propelled the company through its early days as a scrappy startup in Palo Alto, through a pandemic that spiked demand almost overnight and onto a December 2020 IPO that raised $3.37 billion.

The company priced its shares at $102 apiece and saw their value climb more than 80% to $189 on their first day on the New York Stock Exchange. Throughout the year shares gradually rose to a high of $257.25 in mid-November before returning to earth at a current share price, as of Dec. 27, of around $156, putting the company’s market cap at more than $53 billion.

Since the start of the pandemic DoorDash’s market share has grown from about a third of the meal delivery market to more than half. In November, it represented 57% of all food delivery sales nationwide, according to Bloomberg Second Measure. Its closest competitor: Uber Eats, now at 24%.

Xu has led DoorDash through a period of rampant expansion even while wading through no shortage of controversies: Ongoing criticism that it doesn’t pay drivers enough while it short-changes restaurants with exorbitant fees, plus unwelcome attention on his own 2020 pay package of more than $400 million. Concerns also loom about whether the company will ever achieve bottom-line profitability. 

But ultimately, no one sits as poised to redefine the world of delivery more than Tony Xu, the Business Times’ 2021 Executive of the Year.

The vision

Xu wants to transform DoorDash from a primarily restaurant delivery app to the local merchants’ go-to online marketplace for customer-lead generation and delivery of almost anything you can think of.

This year DoorDash accelerated its push beyond local restaurant commerce into delivery of alcohol, Covid-19 test kits, convenience store goods and more. It struck retail partnerships with Ulta Beauty, Dollar General, Total Wine and Bed Bath & Beyond. DoorDash debuted service to let customers order meal kits from opposite coasts, or “double-dash” items from multiple stores on one run, and waded into 15-minute grocery delivery outpost in New York, a hotbed for rapid delivery startups. 

“For everyone we’re lunch and dinner, but we’re moving into a world where we’re becoming known as everything inside of the neighborhood,” Xu said, noting about 12% of monthly active customers are shopping outside the restaurant category, some of them as their first exposure to the app. “The shape and slope of the curve, who knows, but certainly it will reflect the essential needs of what  the every day consumer wants. That’s what we’ll become.” 

In November, it agreed to buy Finnish delivery startup Wolt for $8.1 billion, a deal that, when it closes, will give it a foothold in 180 cities and 23 countries in the hyper-competitive European delivery market while nabbing Wolt’s CEO, Miki Kuusi, to lead DoorDash’s international operations — which include Canada, Australia and, as of this summer, Japan. 

One of Xu’s core data points is that small- and medium-sized physical businesses produce the vast majority of GDP in every city in America and other countries. All of them, he says, will need to become digital businesses or risk extinction. 

“It’s going to happen,” Xu said. “I want to be there to support them. That’s what wraps up my brain — I don’t have much space for other thoughts.” 

Becoming Tony

One maxim Xu holds close is that people tend to overestimate what they can accomplish in a short period of time — and underrate what’s possible in the long run. 

Last December, at 36, Xu became a billionaire just over three decades after his parents immigrated from Nanjing, China, for better economic prospects in the U.S. He was 5 at the time. His mother and father arrived with him and $200 to their name, settling in Champaign-Urbana, Illinois, where his dad was studying aeronautical engineering and applied math at the University of Illinois. 

Both parents — his mother a doctor in China whose license wasn’t recognized here — took restaurant jobs to pay the bills. From an early age, they brought along their son, Xu Xun, who was just excited at the prospect of Coca-Cola and the occasional luxury of a McDonald’s run.

To better fit in, Xun renamed himself Tony after his favorite character played by Tony Danza on the sitcom “Who’s the Boss?” He walked with his dad to the local government office to make it official. 

He improved his English playing basketball and made side hustles out of mowing lawns and helping his mom in the restaurant kitchen where she worked.

After finishing high school in Illinois, he landed at UC Berkeley, where he graduated with high honors in industrial engineering and operations research in 2007. He took a job at McKinsey & Co. in Chicago before moving on to stints at eBay and PayPal in the Bay Area, staying for less than two years at each.  

He enrolled in business school at Stanford University, where he met his eventual DoorDash co-founders Evan Moore, Andy Fang and Stanley Tang. Xu and Moore interviewed dozens of local businesses to understand what kind of technology they could build that could help small businesses like the one where Xu’s mother worked. 

The aha moment came in 2012 when the owner of a macaroon store showed them a thick booklet with pages and pages of delivery orders, lamenting that without her own drivers, it fell on her to fulfill them. The inspiration for an “on-demand FedEx” for merchants was born. Nearly any restaurant would take delivery orders if it could, they surmised, but few could afford the cost or risk of setting up and managing their own delivery infrastructure. 

Investors were not so sure.

30 minutes or less?

A few months after founding the company, the team applied to startup accelerator Y Combinator. The team’s video application, which included two fresh-faced undergraduates (Fang and Tang) and the production value of a high-school group project report, is something to watch. (Eight years later, three of the four founders are billionaires, while Moore, who left the company in 2014, is a partner at Khosla Ventures.)

The first time Alfred Lin had the chance to invest in Xu’s company, at Y Combinator’s annual Demo Day, he passed. The former chairman, COO and CFO of Zappos, who oversaw that company’s sale to Amazon and led other companies to their acquisitions by Microsoft, has been a partner at Sequoia Capital since 2010 and has a reputation for the “Midas Touch” when it came to consumer internet and enterprise companies. He wasn’t sold that DoorDash’s operations could work on a larger scale beyond Palo Alto and Stanford, where early results were encouraging. 

“We weren’t sure whether this was a problem that needed to be solved at the time, but it turned out to be a very big problem,” he told me. “All restaurants would deliver if they could, but it didn’t make sense for every restaurant to have their own. The same was true with all local merchants.”

Lin said what made DoorDash stand out from other early delivery startups pitching at the time was its leadership under Xu. Here was an ideal example of “founder-market fit” — with an upbringing that gave him an appreciation for his market, and whose thinking embodied a rare mix of high-level imagination on where the world is heading while still having a grasp on the details.

“There are very few people who can speak at a strategic level and a visionary level but also go down all the way to the minutiae and how to run the operation,” Lin said. “Tony can do both.

“Very successful people have sort of high IQ, high EQ and high hustle but how they bring it together makes them special in the domain that they’re in,” Lin said. “That all comes together in Tony.”

In the early days, the DoorDash founders conducted hundreds of interviews with restaurateurs. Xu himself took part-time jobs at Domino’s Pizza and FedEx to better understand the pain points in delivery operations. 

Lin recalls the “clincher” was sitting next to him at a networking dinner in Palo Alto in which Xu broke down the hypothetical delivery run into 22 discreet tasks that could be optimized and perfected.

“The thing only he thought about was how to make sure we’re focused on the inputs,” Lin said, comparing the CEO’s priorities to the maxim of legendary 49ers coach Bill Walsh: “If you practice the right skills, the score will take care of itself.”

In 2014 Lin facilitated Sequoia’s leading investment in DoorDash’s $17 million Series A round, and joined the company’s board. Sequoia was a contributor in every round thereafter — B through H — to a collective $415 million, representing about 16.6% of DoorDash’s total funding haul of $2.5 billion, per Crunchbase.

Questions and critics

Xu’s vision for a company that will go far beyond restaurant delivery is not without its share of critics, who contend that the business is a prime example of the “flywheel economy” and the exaggerated promise of network effects. 

David Trainer, CEO of equity firm New Constructs, noted in Forbes in 2020 that it shouldn’t take a global pandemic and lockdown for a company to achieve one quarter of bottom-line profit — and skeptics think that’s a one-off that won’t happen again. 

Trainer called DoorDash “the most ridiculous IPO of 2020,” saying that the low switching costs for customers between delivery apps and DoorDash’s struggle to find profitability in ideal (pandemic) conditions demonstrate the business is fundamentally unsustainable.

Short-seller Citron Research said soon after DoorDash’s IPO that “there is no business that is more commoditized and more competitive” than food delivery and predicted an eventual “race to the bottom” in pricing between undifferentiated competitors. 

“In their current form, food delivery companies will struggle to ever become consistently profitable,” said Maxim Manturov, head of investment research at firm Freedom Finance Europe. 

Here Xu takes the long view: Yes, the company’s expansion sideways into various iterations of grocery, retail, rapid delivery and international markets push the timeline out for achieving bottom-line profitability, but that’s because when it comes to the larger vision, “we’re only 1% of the way there.” 

“It all goes back to, what is the purpose and horizon for achievement?” Xu told me. “The purpose is to transform local commerce by building the largest mobile commerce app and platform. We’re a long way away from that.” 

Xu can also point to six consecutive quarters of positive EBITDA growth. 

After posting a  $312 million net loss in the fourth quarter of 2020 — the quarter of the IPO — DoorDash reduced losses to between $101 million and $110 million in each in the first three quarters of this year. Meanwhile year-over-year gross profit (revenue less cost of revenue, and related depreciation and amortization) increased 42% to $665 million in the third quarter.

“I do think we’ve demonstrated it’s possible to grow top and bottom line, which starts with having really attractive and strong unit economics,” Xu added.

While still not net profitable, DoorDash has shown more promise of future profitability than its main competitors, GrubHub and UberEats, the latter achieving a razor thin positive EBITDA for the first time in its most recent quarterly earnings. 

“If you have a great product that leads to great retention and an efficient system that allows us to support the highest quality at the lowest cost, then everything else just becomes an investment decision of how profitable do you want to be,” Xu said.

Be 1% better

Xu is wary of averages.

When anecdotal evidence and data conflict, he says he tends to listen more closely to the anecdotes, because while data accounts for the aggregate, stories show a distribution across the spectrum, between the ends where joy and disappointment live. He tells me he learns much more trying to parse (or in his words, “prosecute”) how a 60-minute delivery went awry than taking comfort that the average execution is close to half of that. 

“This is a business where you have to earn every order,” Xu said. “You can’t rest on your laurels, with how high frequency the category is, but that means there’s also room for progress.”  

The saying internally is “get 1% better every day.”

On top of his executive’s eye for detail and founder’s long-term imagination, Xu tries to cultivate the viewpoint of the new user whenever possible, keeping it fresh through answering customer service calls and a delivery run once a month, a recently reintroduced requirement for all employees. 

Since the days of 5 a.m. apology-cookie runs, he still works long hours, but he’s deliberate about room for Friday date nights with his wife, Patti, time with their two kids, and morning runs untethered from the smartphone.

In the last five years, he said DoorDash has developed “a fairly heavy writing culture”— more memos than meetings — partly just to keep up as the company grows in size and complexity. 

“I’ve always believed in managing ourselves and our teams to their superpowers,” he said. “From that angle it’s much less a comparison between one individual and the next, but more the comparison of skills within that same person.”  

He also holds court regularly with restaurant owners and other merchants, learning their pain points and (if the post-undergrad stint at McKinsey & Co. left its mark) looking for where his company’s ever-expanding suite of services can lend a hand.  

He told me he looks forward to getting back on the road in the coming year and seeing his merchant clients where they are, as part of his Instagram Live series chatting with restaurateurs. During the latest one, right before our interview, he was with Tee Tran at Monster Pho in Oakland. 

I waited outside while Xu and Tran prepared rice bowls in the kitchen, the billionaire CEO fielding instructions from the proprietor on how to top off the three different kinds of protein.

Tran’s family fled political chaos in Vietnam and arrived in Oakland in 1989, the same year Xu and his parents immigrated from China to a small college town in Illinois with a few hundred dollars to their name. 

“It’s incredible,” Xu said of immigrants like Tran — and, yes, his own family. “Frankly, many were born out of very similar circumstances, and from constraints, they literally created and invented their own story.”


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