DoorDash CEO Tony Xu is recent industry consolidator in food delivery

In the course of the depths of the Covid pandemic, with restaurants across the country facing an existential crisis, DoorDash CEO Tony Xu had an unconventional proposal. He desired to cut commissions.

Chief Business Officer Keith Yandell anxious that such a move would lead to a large hit to profits ahead of the corporate’s planned IPO. But Xu made a persuasive case.

“If restaurants don’t thrive, we cannot,” Yandell told CNBC in a recent interview, recalling Xu’s perspective on the time. “We want to take a leadership position.”

The corporate ended up sacrificing over $100 million in fees, Xu later said.

Since starting DoorDash on the campus of Stanford University in 2013, the now 40-year-old CEO has navigated the notoriously cutthroat and low-margin business of food delivery, constructing an organization that Wall Street today values at near $90 billion. The stock has emerged as a tech darling this 12 months, jumping 23%, while the Nasdaq continues to be down for the 12 months largely on tariff concerns.

Greater than 4 years after its IPO, net profits remain slim. But that is not getting in the way in which of Xu’s mission to change into an industry consolidator, using a mix of money and recent debt to fuel an acquisition spree at a time when big tech deals remain scarce. Earlier this month, DoorDash scooped up British food delivery startup Deliveroo for about $3.9 billion and restaurant technology company SevenRooms for $1.2 billion.

“What we have delivered for a customer yesterday probably is not adequate for what we’ll deliver for them today,” Xu told CNBC’s “Squawk Box” after the deals were announced.

This week DoorDash announced the pricing of $2.5 billion in convertible debt, and said the proceeds might be used partially for acquisitions.

The San Francisco-based company has a history with scooping up competitors to grow market share. In 2019, it bought food delivery competitor Caviar for $410 million from Square, now often known as Block. About two years later, DoorDash said it was paying $8.1 billion for international delivery platform Wolt. The deal was its last big transaction until this month.

When DoorDash entered the food delivery market, it needed to face off against the likes of GrubHub and Seamless, which later joined forces. That combined entity was bought late last 12 months by restaurant owner Wonder Group. In 2014, Uber launched Uber Eats, which is now DoorDash’s biggest competitor within the U.S.

“It’s a really competitive market, and I believe merchants do have selection,” Xu said within the CNBC interview. “What we’re focused on is at all times attempting to innovate and convey recent products to match increasing standards and expectations from customers.”

DoorDash didn’t make Xu available for an interview for this story, but provided a press release concerning the company’s acquisition strategy.

“We’re very picky, very patient, and conscious that, for many corporations, deals don’t work out in hindsight,” the corporate said. “Once we see a possibility that brings value to customers, expands our potential to empower local economies all over the world, and has a path to strong long-term returns on capital, we are inclined to push our chips in.”

DoorDash differentiated itself early on by cornering suburban markets that had fewer delivery options, while other players attacked city centers. When Covid shut down restaurant dining in early 2020, DoorDash capitalized on the booming demand for deliveries. Revenue greater than tripled that 12 months, and grew 69% in 2021.

Colleagues and early investors credit a customer-first focus for much of Xu’s success. Gokul Rajaram, who joined DoorDash through its Caviar acquisition, described Xu as “the most effective operational leader within the U.S.” after Amazon founder Jeff Bezos.

Restaurants have not universally viewed DoorDash as an ally. Commissions can reach as high as 30%, which is a hefty cut to fork over. Many restaurants have reluctantly paid the high fees due to DoorDash’s dominant market share, which reached an estimated 67%. In 2021, the corporate introduced three tiers of pricing, with a basic option at 15% for more price-sensitive businesses.

DoorDash needs the high fees as a way to stay within the black. The corporate’s contribution profit as a percentage of total marketplace volume hovers below 5%.

Colleagues who’ve known Xu for many years say the food delivery entrepreneur hasn’t modified much for the reason that early days of the corporate.

Yandell said Xu once took advice from his young daughter, who complained a couple of routing issue while accompanying him on food delivery orders. All employees, including Xu, are required to finish orders and handle support calls yearly as a part of the corporate’s WeDash program.

In a component of the country known for the pomp of its wealthy founders, Xu has a really different popularity.

Early staff recall memories of Xu pulling up in a dilapidated green 2001 Honda Accord to team events, or participating in company knockout basketball games known as “knockys,” next to the animal hospital in Palo Alto, which DoorDash briefly called its headquarters. Xu also personally approved every offer for the corporate’s first 4,000 employees.

Xu spends many mornings answering customer support complaints. He often drops his kids off in school and, after tucking them in at night, hops on calls with international regions, colleagues say. Xu is an avid Gold State Warriors basketball fan but has a soft spot for the Chicago Bulls, having spent a few years in Illinois. A few times every week, Xu squeezes in a morning run, and can often achieve this while traveling to explore different neighborhoods and stores.

Xu was born in China and moved along with his family to Champaign, Illinois, in 1989. Growing up, he played basketball and mowed lawns to avoid wasting up for a Nintendo. He told Stanford’s View From the Top podcast in 2021 that the experience, and watching his parents hustle, taught him the best way to “earn your way into higher things.”

His “characteristics became the corporate’s values,” said Alfred Lin, an early DoorDash investor and partner at enterprise firm Sequoia.

Xu often attributes his entrepreneurial spirit to his parents. His mother worked as a health care provider in China, and juggled three jobs within the U.S. for over a decade, saving up enough to eventually open a medical clinic. His father worked as a waiter while pursuing a Ph.D. Xu said on the podcast that watching his mom gave him a deep understanding of what it takes to run a small business, which got here in handy in DoorDash’s early years as he was attempting to convert restaurants into customers.

Employees say Xu has a popularity for detecting hidden talents amongst his colleagues. Jessica Lachs, the corporate’s chief analytics officer, was working as a general manager assisting with DoorDash’s Los Angeles launch when Xu guided her toward her passion for data.

“He believes in leaning into the belongings you’re really good at, reasonably than attempting to be mediocre at a variety of things,” she said.

After Toby Espinosa, DoorDash’s ads vice chairman, lost a cope with a serious fast food company during his early years on the startup, Xu told him to work “10 times harder” and change into an authority in his field. A number of years later, the corporate secured the partnership, Espinosa said.

Grit and struggle defined the early years of DoorDash. The founding team of 4 managed deliveries around Stanford and Palo Alto though a Google Voice number directed to their cellphones.

DoorDash emerged out of a Stanford business school course often known as Startup Garage, taught by Professor Stefanos Zenios. The category requires students to present a business idea, test it, after which pitch it to investors.

Zenios said Xu stood out along with his data-driven approach and natural leadership qualities. The team tested two different ideas, including a platform that helped small businesses higher track the effectiveness of their marketing, he recalls. Zenios called the thought to focus on suburban areas a “good insight.”

Xu and his team entered Y Combinator in the summertime of 2013. The three-month startup accelerator program is thought for spawning corporations like Airbnb, Stripe and Reddit. Every session culminates with a demo day in front of a few of Silicon Valley’s biggest investors.

Shortly after its Y Combinator stint, DoorDash hit an early roadblock. Following a Stanford football game, a rush of orders bombarded its delivery system causing massive delays, Xu told Y Combinator’s CEO Garry Tan in an interview this 12 months.

The founders refunded the orders and spent the night baking cookies, then driving them to customers early the subsequent morning.

Oren’s Hummus co-owner Mistie Boulton said DoorDash still takes that approach. The team comes to satisfy together with her every quarter and he or she serves as a beta tester for brand spanking new products.

The restaurant, which began in Palo Alto and has since expanded to a half-dozen locations across the Bay Area, was one among DoorDash’s first clients, latching onto the chance to succeed in more customers beyond its small establishment that continuously had lines snaking out the door. 

“We just fell in love with the thought,” Boulton said. “The primary thing that encouraged and enticed me to need to work with them was Xu’s passion. He really is one among those people that you may count on.”

Wall Street is now counting on Xu’s ability to execute big deals, even with the corporate having this month surpassed 10 billion delivery orders worldwide.

The acquisition of Deliveroo, based in London, marks a renewed effort by DoorDash to expand its presence overseas, following the acquisition of Finland’s Wolt three years ago.

The money deal for SevenRooms, a Latest York City-based data platform for restaurants and hotels to administer booking information, takes DoorDash into a wholly recent category. Xu told CNBC that DoorDash is a “multi-product company now that is operating on a worldwide scale.”

Following the acquisition announcements, which coincided with a disappointing earnings report in March, analysts at Piper Sandler reiterated their hold suggestion on the stock.

One reason for concern, they said, was that “integrating multiple acquisitions directly may create some noise near-term.”

Correction: A previous version of this story had an incorrect figure for total delivery orders.

 WATCH: DoorDash CEO Tony Xu: Deliveroo & SevenRooms deals make us a multi-product company on a worldwide scale