Founders Fund Partner Keith Rabois recently launched a new podcast on Sirius XM – Series A with Keith Rabois. For the first episode, he interviewed Doordash cofounder and CEO Tony Xu. You can listen to the entire conversation on Sirius XM. But if you prefer reading, I’ve transcribed the conversation below.
Keith Rabois is a general partner at Founders Fund, a San Francisco based venture capital firm with an unparalleled track record as an entrepreneur, investor and executive. Keith has been instrumental in some of the most ubiquitous social and commerce platforms like Doordash, Lyft, Airbnb, and YouTube. Now he’s here to share conversations with some of today’s most accomplished CEOs and innovators in the technology advancing our future. Welcome to Series A with Keith Rabois on Sirius XM Business Radio.
Keith Rabois: I’m delighted to record the first episode of Series A with Keith Rabois, where we interview the best entrepreneurs in the planet. And we’re going to start with one of the most phenomenal entrepreneurs I’ve ever worked with, Tony Xu of Doordash, cofounder and CEO of doordash. So Tony started Doordash, I believe in 2013, when he was working on a project while he was in business school at Stanford. Tony, what led you to the idea of starting a delivery service in Palo Alto of all places?
Tony Xu: Well, the truth is, we didn’t start with really with the idea of food delivery. We started, my co founders and I, with the idea to help every brick and mortar business. And really, the fascination about these local businesses, for me, came at a very young age when I was five years old. My family immigrated here from China, to Illinois. My dad was getting his graduate degree and my mom, as a way to put food on the table, worked three jobs a day for about 12 years. Now all of those jobs happened to be inside local businesses. One of which was a local Chinese restaurant that I moonlighted at times as a dishwasher. So I think at a very young age, I had a massive appreciation for all of these store owners. And in adulthood, my co founders and I realized that for every amazing technology company, it’s actually these physical businesses that produce the vast majority of jobs and GDP in every city globally. And that’s been true consistently through the decades. And we were looking for ideas in helping this customer segment. And so we really started with a passion for a customer group more so than necessarily a problem that we were trying to solve. And speaking with hundreds of these businessowners, we basically learned that they struggled with everything from customer acquisition to customer service. If you think about it, more and more orders are happening outside of their four walls, they’re happening online. And so something as simple as customer service, which used to happen by just a waitstaff helping take care of it at the table now needs to be solved outside of their restaurants or outside of their stores. And so these businesses struggle with a lot of different things in order to compete effectively in e commerce. We decided to pick one of those things to start. We chose delivery. And when we looked at every category of delivery, we really had two ideas. One was, we wanted to serve every store in the neighborhood. So we might as well start with the largest category of stores, which was restaurants. And second, we thought if our idea is to build a logistics network that could serve all of them, while something like order density is going to really matter. And so we made a bet that restaurants would give the highest frequency of activity. And that turned out to be true. It took us a few years to figure that out and kind of collect that data. But those are the reasons why we launched with delivery, but it really started with the passion for these local business owners.
Keith Rabois: So why do you think Doordash has been so successful? There’s other people providing food delivery back then directly and indirectly. There’s other people providing today. But my understanding is over 20 million Americans use Doordash. Why have so many Americans voted with their feet to choose Doordash?
Tony Xu: Well, I think it starts with offering the best combination of the selection of restaurants, we bring the quality of the delivery experience of the timeliness, the speed, the accuracy, and the affordability of the service. And I think getting all of those things, right, is what’s important. And it’s really hard to get all of those things right. I think sometimes it’s really easy to focus on one of those things. But candidly, for customers, if we offer all of the restaurants, but they’re too expensive, or if we offered all of the restaurants and we never show up on time, none of those things are good enough to fit this equation that customers demand when it comes to convenience. And so I think by figuring that out, and offering a better combination, that’s why we were able to build a better product. And I think you can see that with our industry leading retention and why more people vote with their wallets and spend more of their stomachs with us than with anyone else.
Keith Rabois: And you had to confront some pretty substantial, large, well established companies along the way. Any lessons in competing with very large incumbents that other entrepreneurs can take with them?
Tony Xu: Yeah, we certainly, I think historically, have never been the most resourced company. For the first five and a half, almost six years of our eight year history, we were operating on a fraction of the budgets of some of our peers. In fact, up until 2018, so about three years ago, we didn’t even have a marketing team. Because we couldn’t afford one, I think a few lessons. I think one is, you have to start by building a better product and trying to differentiate through that basis versus any other basis. And building a better product starts with an intense obsession over that customer experience, more so than it does what others are doing. The second thing I would say is you have to compete on your own vector or your own basis where you don’t want to play someone else’s game, especially if you can’t do it better. So it would be probably a foolish decision if you wanted to compete spending capital if you don’t have the greatest war chest, for example. And one of the things we did was we also looked at geographies that were less penetrated or maybe overlooked by others. And this really goes back to I think, the question you asked at the onset of our conversation, where we started in a place where there was no delivery. And I think this was one of the misunderstandings in the industry where I think a lot of people when they thought of delivery, they thought about pizza places, they thought about Chinese food. I think the final thing I would say, to entrepreneurs, competing against maybe others that might be better resources is to think about where the industry is, in terms of its growth and evolution, because there’s always these disruptive moments in industries. And that’s really where you have the opportunity. In Doordash’s case in 2013, it really stemmed from the fact that most people did not offer delivery. But that’s different today. But these disruptions and changes are constantly happening. And so if you can hold a long term view, and you can enter a market at a point where there can be a disruptive moment, whether it’s because you’re causing it or because externally there’s a global pandemic or there’s some other exogenous factor. I think that’s also where you want to seize the opportunity.
Keith Rabois: Yeah, I think I recall when you first presented the idea to me in 2013, that you have a slide that said 7% of restaurants maybe in the United States offered delivery, but 93% did not.
Tony Xu: Yeah, that’s right. That’s exactly right. And it was testing the thesis that if we offered convenience to those who didn’t have access to it, would people care? And I think what we learned and have discovered is, is that there’s nothing special about New Yorkers. No offense, Keith, [crosstalk] for the Yankees and all things New York City. But really, it’s that what was special about New York City was that they had access to that convenience. It wasn’t that people didn’t want the convenience elsewhere, it was just that that access wasn’t available anywhere else. And so absolutely, back in 2013, the vast, vast, vast majority of restaurants, and if you go outside of restaurants, just about no one else offered their own delivery.
Keith Rabois: You’ve been working on Doordash, realistically, for about eight years now. How early in the trajectory of the company did you realize you were right? Like when did you really know emotionally that you were on the right side of history?
Tony Xu: Sometimes it’s hard as an entrepreneur, I think to to know that you got something right. But I think that when we started going from Palo Alto, where we started into I think, zip codes that looked more like the rest of America. So for example, our second launch market was actually East San Jose. So part of San Jose that looked a lot more representative here in the Bay Area of the rest of the US than than say Palo Alto did, we started gaining confidence and with each successive city that we launched, as we saw that customers from all backgrounds were actually as engaged in ordering delivery and seeking that convenience as those customers that we started with. That’s when we started gaining confidence. So probably your one year two in that time period. And as we saw that replicability across different customer groups, different cities, different types of markets, the NBA markets or the tier one cities to the minor league markets and saw kind of the same level of usage and engagement. That’s when we started having point of view that maybe this is something mainstream.
Keith Rabois: So you also mentioned the vision of Doordash, it’s always transcended beyond the logistics for restaurants and the delivery of food from restaurants. In some ways, many people would argue that you bought off actually the hardest problem first. Hot food delivery, on time, reliably from a wide selection. Did you consciously choose the hardest problem first? Or is that a byproduct of some other decision framework?
Tony Xu: I think it was half a byproduct. So what I mean by that was, when we started, and we chose restaurants, really, because of how pervasive restaurants were as a category as well as just the frequency of activity. Those are the dominant reasons why we chose restaurants. But one of the other reasons why we chose restaurants was we knew, to your point, it would be the most difficult type of delivery. Obviously, if we can deliver pizzas before they get cold or ice creams before they melt, that is a much more difficult problem at scale, consistently doing the time and again, every order versus delivering something that is less perishable in more time. And we knew the reverse isn’t true, right? It’s like someone who can run a five minute mile can probably run a seven minute mile. But the inverse isn’t true, right? And so I think that, that has had a benefit as we’ve now gone into serving other types of categories in the neighborhood, whether it’s convenience stores, grocery stores, other types of stores. And so it definitely, though, gave us quite a lot of very difficult problems we had to solve at the beginning of our life. And I do think there is something about, as an entrepreneur, if I were to look backwards, if you can solve the hardest problem first, I’ve often found that, that gives you quite a lot of runway and defensibility, even though others may not appreciate it.
Keith Rabois: Great. And let me transition a little bit into hiring because of course, scaling a company requires you to hire, maybe, I’ve seen an interview before, where you mentioned that you allocate up to 50% of your time on hiring. One thing that I’ve noticed is that you hire a lot of ex-athletes. Can you explain why?
Tony Xu: In the beginning, we used to, for some of our city managers or people who ran the P&Ls of our cities, we looked for folks who had almost this background that was a mix between what we call the Rhodes Scholar and the Division One athlete. And one of the things we’ve learned about our business is that it’s a grind. You have to start every city from first principles. City A and City B and City C, you kind of have to start all over again, because our business is so hyper local, that customers even in neighborhoods A do not necessarily know or care about customers a neighborhood B. And so as a result, we’re looking for folks who have a very strong bias for action, who have really high standards for everything that they do, who are always trying to get better, who are competitive in nature, because a lot of the work that we do, obviously has other players involved. And I think, who really get into the details of focusing on the process over the scoreboard. And I think that those are some of the most critical components that have certainly formed the foundation of the Doordash culture. And a lot of that was exemplified in some of these folks that came from other backgrounds or training programs that I think solidified those attributes. And I think sports is one of them.
Keith Rabois: And you also played sports when you were growing up?
Tony Xu: I played some sports. Yeah, I played a lot of basketball as a way to learn English. So there’s two ways in which I learned English. One was playing basketball. The other is watching TV.
Keith Rabois: I won’t, well yeah, I guess that’s a pretty common trait. My friend Max Levchin also learned how to speak fluent English by watching TV in Chicago, which also, I guess he moved not that far away from you. Tell me about your basketball experience. What lessons from basketball translated into being an entrepreneur, being a CEO?
Tony Xu: As a kid, I was lucky to play somewhat competitive basketball because I was, I’ve been the same height ever since the age of 12. And so I’m a short guy, five eight now, but as a 12 year old, that’s above average, I suppose. And so even though I was not the most talented person on the team, the number one thing I remember, and frankly, probably, it’s the most insightful management lesson. I remember where I got that training, it was a long time ago as a kid, was that everyone has a superpower. My coach used to say, you can’t shoot, you can’t dribble, you have no speed, you have no jumping ability, and you don’t really have height, but you could shoot the ball. So whenever you’re in the game and the ball comes to you, your job is to shoot the ball. And if you shoot the ball, you get to stay in the game. Otherwise, I’ll bench you. And I think even though this isn’t always the most positive motivating story, I think what it taught me was that everyone has a place on the team. And I think that everyone has something that they can be excellent at. And that if you can focus everyone, if you can manage people to their superpowers, and find them the widest exposure for that superpower, you’re going to have a lot of success. Because at the end of the day, I think everyone wants to be successful, everyone wants to feel like they’re contributing to the team and to the greater company collective. And I found that if you can move people around, based on what you’ve identified as their superpower, I think that that’s really where they can sustain quite a long runway of running really, really fast.
Keith Rabois: How do you diagnose what a superpower of one of your colleagues, employees, someone you interview is?
Tony Xu: I think it starts by listening to what they like to talk about in one on ones. And what types of issues they like to bring to you first. If they bring to you lots of topics that are about a particular team or organization and what they would do about it, that may suggest that actually, they’re quite interested in solving lots of peoples challenges. A lot of times, if you can listen to what someone would do for free, as if it’s not a part of their jobs. That’s how you find them work that does not feel like work.
Keith Rabois: Yeah, that sounds like a great formula. Over the last eight years, you’ve had to evolve from working with three colleagues and co founders, to managing over 3000 employees. What are the biggest lessons that you’ve learned along the way?
Tony Xu: In the beginning, especially if your company is in hyper growth, or at least doubling every year, you have to fire yourself quite often from what you’re doing, because there’s way too many challenges to solve. And the way to fire yourself is really by a identifying who’s the best in the field at the area that may, or one of the areas that you’re trying to get out of, and then recruiting those individuals. But I think over the years, the other lessons that I’ve learned are one, it’s really important to manage your time, and to constantly be okay adjusting how you manage your time. Because, especially if you’re in a company that’s growing fast, or you’re an entrepreneur and you’re juggling, I don’t know, a dozen different activities, the return on your time actually is not uniform at all. It’s actually quite uneven. So you mentioned that I spend quite a lot of time on on recruiting. One of the reasons why I do that is because I believe that the return on time is highest in recruiting than maybe anything else I can do. Whether it’s helping work on a partner relationship with one of our merchants or fixing a product problem or helping in engineering, the best thing I can do is making sure that we get the best person for a particular position, who can probably save 100 times the the hours that it would have taken us to do something in the first place. And so I think learning how to change my habits of where I spend time has been a big lesson. And I always have two todo lists. One is really around the things I have to do for the week. And the other is things what I call on the horizon, which have an indefinite time period, but typically longer scale. And I review my calendars usually on the weekends, Sunday nights or something, to see if the previous week was spent efficiently on my two todo lists. If I spent three quarters or more of my time there I think that’s a pretty good week. Otherwise, I’m probably tweaking my calendar in the upcoming week so that I can readjust. So I think that managing time has been a big lesson. I think the third one is, it really is about, especially if you aspire to build a generational company, it’s really about the team and the culture that you build that’s ultimately going to create the system that can make the next products, build the next businesses, because businesses and products are always dynamic. They’re constantly changing, the market is constantly changing. And so the only thing that you can hold constant is what are the systems that you want to build internally so that it can be most agile to those changes. And so a lot of my time as the company has moved from a product to a business now to a company has also shifted towards spending most of my time thinking about, do we have the right people in the right places? Do we have the right internal systems and rewards such that we can actually improve our culture over time? So that’s probably how things have changed.
Keith Rabois: That makes sense. What are the foundations of the Doordash culture today?
Tony Xu: Well, a lot of them have been kept from the beginning. And it really starts with what we call the the six attributes of excellence. These are things that we definitely look for when we look to hire. People who love operating at the lowest level of detail is something we really believe in. Our business is really not about the average delivery time. It’s about the distribution of outcomes. People who have a very strong bias for action, recognizing that it’s impossible to analyze your way to the answer. People who are able to hold two opposing ideas at the same time, recognizing that no matter how much we care about being right, what we should care more about is what’s the right answer, as opposed to who gets credit for it. People who are strong recruiters, because it’s always about the team and it takes a team to build something meaningful. People who care about getting 1% better every day because our business is one that is recurring, which means that even if we got the first nine deliveries correct, if we messed up the 10th order, the customers are gonna remember that last one, and they’re not going to remember the 90% score we got over their last 10 deliveries. And finally, I think people who inspire followership. I believe that leadership is far less about how many direct reports you have, but how many people would like to follow you. And we have lots of people at Doordash, who have zero direct reports, but their influences is disproportionate.
Keith Rabois: That’s an amazing description and I think it’s quite accurate from afar, anyway. What’s the most challenging part of your job these days?
Tony Xu: The most challenging part, if you’re part of a growing organization, is how are you going to spend your management bandwidth, which is a function of your time and your energy, because we’re running a multi decade game, we’re playing a multi decade game. It’s very different from sports in this regard, where sports you have a defined start and finish, and whoever has the higher score or the lower score, depending on the game, emerges. But in business, if we’re doing it right, we should be doing it forever, which is so against human nature. Human nature likes things very fast, on demand, and and it can’t wait, and it likes definitions of starts and closings. But that’s not how business works. And so the hardest part is, where am I going to allocate my time and my energy, because both are really important to a) make sure that our company has the right people in the right positions with the right support system to actually go and achieve the priority, and b) where I personally, alongside the rest of the management team can run this race like a marathon as opposed to just a sprint after sprint after sprint.
Keith Rabois: Let’s talk finally about decision making. When you have to make a decision under conditions of uncertainty, when there’s no right answer that’s obvious from bottom up data, how do you how do you decide how to proceed?
Tony Xu: A very simple framework I go back to is just thinking about what’s the size of the opportunity versus the size of the challenge. And if the size of the opportunity is really small, and it’s a decision that’s highly reversible, that’s something that actually we would make sure in our company it gets made really fast with very, very little consensus or debate. I think that for the more consequential decisions, where the size of the opportunity is large or potentially large, and the size of the challenge is also difficult, because usually in order to achieve something very outsized, it you have to solve some very hard problems. I look a lot at who are we putting on the problem. And are we able to give that individual the necessary cross functional team to be successful? And usually when we’ve been able to do that, we’ve found very good success, where even if we failed, we learned quite a lot that we have taken to be productive in other business pursuits. And usually, when that hasn’t gone as well, it’s because either we were not able to assign the right, directly responsible individual and give that leader a cross functional team. So that’s really how we’ve approached a lot of things. And I think it’s because every problem is pretty different, you kind of have to start from first principles. You can’t assume that it’s going to have the same set of constraints, the same set of optimization strategies. A lot of times if you’re going from zero to one, there is no optimization strategy. You’re trying to figure out what it is, should even be built in the first instance and instead, we’ve made a bet on can we pick the right person for the right problem with the right cross functional team as more a framework that is more in our control.
Keith Rabois: I really appreciate you joining us. I think there’s a lot of very serious lessons here that entrepreneurs in the audience can take advantage of. Hopefully everybody who hasn’t tried Doordash in the audience will actually try Doordash and be satisfied. But I really appreciate you taking the time to be our first guest on Series A with Keith.
Tony Xu: Great, thanks so much, Keith.
Keith Rabois: Thank you. Thank you.
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