Operators Ep 35 Transcript
Delian: Hi, everyone. My name is Delian and I'm a principal at Founders Fund, a venture capital firm based in San Francisco. This is Operators, where I interview non-VC, non-CEO, non-founder operators that make the startup world go round.
Delian: Today, I'm interviewing Toby Espinosa, VP of Ads at DoorDash and previously VP of Global Business Development. Toby joined DoorDash as the 70th employee to launch new markets and has grown the business development team from 3 to over 120 people. Prior to joining DoorDash, Toby was an investor at Lux and Henry Crown & Co. He's also a lecturer in the Engineering Department at Stanford University. I hope you enjoy the show.
Delian: Cool, Toby. Well, thanks so much for taking the time to hop on today. I'm excited to chat about all the work that you've done at DoorDash and, obviously, super exciting now that you guys are public and some awesome news that's come out both this week, but I feel like even over the prior couple quarters, you guys have been absolutely crushing it.
Toby Espinosa: Totally.
Delian: I'm so excited to chat today.
Toby Espinosa: Thank you. Thank you and thank you for having me on. It's very fun.
Delian: But yeah, before we dive into that, I always like cycling back to where you got your career started. You actually started off on the investing side of startups. You were both at Lux Capital way back in the day for a little under two years, and then also at Henry Crown & Co. Can you tell us a bit about how you got involved in investing straight out of school? What did you like about that? Also, what ultimately made you want to leave investing to join in the world of building companies?
Toby Espinosa: Totally, totally, and join the ranks of Delian building companies. It's the best. It's the best. So, yeah, quick background myself. I was in undergraduate school back east at Brown University, and I applied to be ... At the time I was an Economics and South Asian Studies undergrad, which liberal arts is now back in fashion, but there was a moment there for a while that if, unless you are an engineer or something like that, you were not in fashion. So I got the great advice to go and do a graduate program in engineering so that I could get closer to how things are built, which I think is extremely important. So I found my way. I applied to a graduate program at Stanford, got in, and then had a year off, and a close friend and mentor of mine who was on the water polo team at Brown with me, called me and said, "Hey, I'm going to business school. My job is opening up at Henry Crown & company. Would you like to work in the world of investing for a year?" and I basically was like, "I have no idea what that means." It's a family office. I had no idea that families had offices maybe besides, and so it was a super, super cool experience.
Toby Espinosa: Basically, what I learned first at Henry Crown &Company is like there's this massive world of ... the financial world is massive. There are many other players growing up in Silicon Valley that the only kind of financial world that I really understood or had heard of was venture investing. So I think it was a really, really great experience for me to learn that there were a bunch of different categories across private equity that include venture, alternatives, natural resources, real estate, and the family itself were some of the earliest folks that got big to diversification. So even before David Swanson built the diversification model or the endowment model that everyone now knows at Yale. They were doing very diversified things across many different things.
Toby Espinosa: So it was a fascinating experience seeing something from like a 10 million-foot view. Then after, when I was back in grad school, I zoomed in a little bit, not getting all the way down to the customer level, but zoomed in a little bit at Lux Capital and learned from Peter & Josh and a bunch of great people there who I still look up to today and who are great friends and learned how to look at markets, I think, from a macro level is the best way I could describe it though I didn't have any experience building companies, and so that's what took me to wanting to dive in and learn what it's like to build something from scratch. So, yeah.
Delian: Again, wearing that investor hat, what was the macro analysis or how did you think through the DoorDash opportunity? What got you excited about joining that team in 2015? There were like 70 or so employees at the time and so-
Toby Espinosa: Totally.
Delian: ... relatively early on in the company's life cycle. What made that opportunity the most attractive, especially given that I'm sure you had a very broad view on the startup landscape?
Toby Espinosa: Totally, totally. Well, I think me joining DoorDash comes actually the fact, when we talk about like what makes entrepreneurs amazing, but comes to the fact that Tony Xu, our CEO, is probably one of the best recruiters I think I've ever met of all time. If you zoom into the opportunity seven years ago, I like to tell people that when I joined DoorDash, DoorDash was not the largest food delivery company even in my hometown of Palo Alto. There were probably two or three that were larger dominoes, was certainly larger. So I think if you look at it from a macro standpoint, you'd say, "Okay, $800 billion of food GMV spend in the United States annually. If you looked at analogous companies in the fast casual space, Domino's or Pizza Hut are the traditional big pizza or Chinese food companies, you could say, "Well, we could see easily 25% to 30% of that could be food delivery." So that's your overarching theme, but there were tons of players in the space
Toby Espinosa: I think, really, what caught my attention was Tony describing the customer set and the customer problems. What I really learned is instead of thinking from a macro level, what's going on out there in the world, really learning from, first, principles on the customer level. So what is the problem that you're solving for the customer in the moment and Tony had a great explanation of what we were doing, which was helping local businesses reach into the digital economy that Amazon had been doing on their own for 10, 15 years, bringing the tools and services to every mom and pop shop on Main Street to be able to compete in this new digital world. That's the same thing that we're doing today in a myriad of different things, but it's the same process on how we built out the ads business. But that was really what convinced me joining DoorDash was large macro opportunity and huge customer pain point that if we just solved over and over again, we could be a large business.
Toby Espinosa: In retrospect, there's a bunch of other things, Delian, that you probably think about all the time. I think probably one of the most important things that now, looking back, I didn't think about, though it was an interesting thought experiment within itself, is why now. I think a lot of people, there's many incredible ideas out there, many incredible entrepreneurs and markets, but the why now, particularly in our business, is like everything. I think the why now for DoorDash was also particularly strong at the time that I joined.
Delian: Yeah. I guess, I'm curious, there obviously ... Yeah, there were, as you described in Palo Alto, multiple other players. Was there a part of like Tony's argument that focused on, from a first principal's basis, why these companies weren't focused on fundamentally solving these customer problems in a way that DoorDash could and, I guess, yeah, obviously, maybe it wasn't necessarily an aspect of your argument at the time, but how would you articulate the why now in 2015, for why DoorDash was able to take over and dominate, call it, in even just Palo Alto?
Toby Espinosa: Totally. Yeah, so I think, part of his brilliance in both recruiting, but also in the way we operate our business, is that even in a super competitive market in which we operate where everything is execution-based. We talked about this yesterday. Tony talks about it yesterday, talked about it from when I joined the business, but everything, our business is execution-based. So if you think about it, like the brilliance of our company is that we focus, again, on the customer problem. So when he was convincing me to join, I don't think I even asked a question on how to beat competition. Everything would be focused right back to the customer. Okay, what problem are we solving, how many of them are there, and how big do you think this opportunity can be? Which is what makes us one of the reasons, I think ,we've done quite well to date.
Toby Espinosa: I think on the why now, if you just think, if you go back seven years, if you go back 10 years, 11 years, not everybody had a smartphone. So the ability, like you have this proliferation of smartphones ... every Dasher who's delivering, every consumer now has a smartphone on their phone, really solid wifi. This surprised people, but SMB restaurants 10 years ago, even some of them still today, there's companies that are still addressing this, didn't have strong wifi so you couldn't have a great tablet in the store or if you didn't have great wifi. So I think a lot about that, and then if you look at just the capital markets that we've been in for the last amount of time, it takes a lot of capital for us to go out and build a network of our size. Today, we are lucky and privileged to be at the scale that we have, and with scale comes a lot of efficiencies, but I don't think it's lost on us that we were in this moment of time where these companies could enter the space, whether it be an open door type company with a leveraged certain debt markets or folks in the food delivery space that leveraged the fact that we could get access to dollars to grow.
Delian: So when you first joined DoorDash, 70th employee, largely focused on being a market launcher, can you talk through what that role was and what the first year-and-a-half of your experience there was like?
Toby Espinosa: Yeah, absolutely. So the role was mom drops you off at San Jose Airport. You fly by yourself to Phoenix, Arizona. You get picked up in a Toyota Yaris by your boss who's a 6'6" former baseball player from USC. You drive to the office, brand new office in Tempe, and you blow up an air mattress and you sleep on an air mattress in the office and that's basically it. Then the next day, your boss leaves and moves on to the next market and you stay and you build the business, and it's also 115 degrees outside. So that was my introduction to DoorDash and that was basically the first job. Everything we learned, we learned from each other. There were a bunch of incredible launchers that I still have lasting relationships with, that have gone on to lead projects like the Bitcoin business at Square Cash to launching their own companies that have done incredibly well.
Toby Espinosa: That cohort, still to this day, I look back and we learn so much from each other. But that was my job. My job was to build the business, and in those days it meant going out and acquiring drivers. It meant going out and signing restaurants. It meant customer acquisition and then it meant turning on the market and finding my replacement. So going and finding the eventual general manager of Phoenix to take on my role. Until you found that person, the launcher couldn't leave the market, and then from there you went into the next market and so I went from Phoenix to Atlanta, to Vancouver, and it was great. You learn a lot from being directly face-to-face with all of your customers.
Delian: After about a little under two years, you transitioned to this role heading up business development, and I've always found that the early days of DoorDash's supply business development was incredibly passionate and clever in that the ability to see to market and solve the pre-existing chicken and egg problems, some of these national brands, was a huge unlock relative to, I feel like, what other folks were trying to do to solve that problem. Can you talk through a little bit of both how that opportunity was identified and what those first couple partnerships looked like, and how you convinced the org that this was actually like a very valuable strategy or channel to pursue?
Toby Espinosa: Yeah, absolutely. So in the early days of our model, some of the launchers realized that if we turned on national chain restaurants in a market, Phoenix or Atlanta, that we would see growth. Effectively, what that was, was consumers wanted the novel fee of getting The Cheesecake Factory or PF Chang's or Applebee's or Chili's delivered to them, and that stuck in my mind. The other thing that stuck in my mind was one of our earliest partners was Taco Bell. We turned them on, on a Friday and our site went down, I think, within 30 minutes of us turning on Taco Bell. So that also stuck in my mind. So you had these massive, really powerful national brands, but the hard thing about our business was that our business wasn't national in scale when we started. It was neighborhood by neighborhood.
Toby Espinosa: So the question that we always thought was, "How could we utilize these national brands to become a national player?" The big bet that myself and Tony and my boss Christopher made at the time was that our economic model would work in a city like San Francisco, in Palo Alto, a suburb, or in Whitefish, Montana, a town of 15,000 people. The underlying reason why it wouldn't work is there wouldn't be enough consumer demand for the product. The product is a novelty, it won't come of scale to the rest of the country. So we leaned and worked really heavily with our partners at the time. Took our Tony principle, focused on the partner, asked them what they needed, and national chains were willing to help us scale from a marketing standpoint to Whitefish, Montana, because most national chains in the U.S. are franchise organizations and so in order to be equal for all franchisees and to layer on growth, the Whitefish McDonald's franchisee who I've delivered from, and the McDonald's franchisee in Menlo Park want the same thing: they want delivery.
Toby Espinosa: So if we could turn it on at a scale and leverage some of their things that they have like large national marketing budgets, it became part of our growth strategy probably year two to year five, six, and is still part of our growth strategy, that it ended up being that national chains, the ability to have a bunch of national chains on our platform was a novelty, and it turned out that a lot of the greenfield opportunity in these markets, we were able to scale very, very fast without competitors there, which helped us to get our lead position in the U.S. But it started at a very basic level, a small insight that we carried led to a ... a small insight on a consumer side and then a small insight from partners needing us to be there, those two things combined led us to build business. It was very fun.
Delian: Do you have a thesis as to why, let's say, pre-existing plays in the space ignored this greenfield, whether it be the actual Whitefish, Montanas, or actually looking to partner with these national brands, as the types of integrations you guys did were quite, quite deep, right? Obviously, them being in your guys' app, you guys being physically in the stores with signage, et cetera. Why do you think other people like missed this opportunity, that even while you were executing on it still continue to under-appreciate or missed the opportunity?
Toby Espinosa: Yeah. I started by saying off at the beginning of this, our business is, Tony says this all the time, is execution-oriented. So any minute, any second that we take a turn and that turn leads to an advantage, it just compounds, compounds, compounds. So to your point, folks eventually did catch on, but it helped us continue to win in those markets. If I double click on the first part of the question, which is why did some folks choose to strategically not pay attention to this market, I think it fundamentally comes down to ... and you probably talked to a bunch of entrepreneurs all the time and you probably asked yourself this question, like, "Who is your core customer?" I think in marketplace businesses, it can get confusing because everyone will say, "Well, my core customer is the end consumer," right? For us, our core customer in the early days that helped us grow and build, and we very much still think that our core customer is the SMB restaurant.
Toby Espinosa: What that inevitably leads to is a strategic decision. For us, it was: if the national restaurant chain partner is our core customer and they need us in Whitefish, Montana, we will launch Whitefish, Montana regardless of if there's enough consumer demand in that moment, taking a bet that there'll be enough consumer demand in the future. That bet ended up being right, but you could completely have done it in an alternate universe, you can completely have done it and maybe Whitefish, Montana wouldn't have worked. So I think if you look at other players, they most likely chose another side of the marketplace being their core consumer, and when that is your core consumer, you will just make decisions that are different than others.
Delian: You guys grew that team quite significantly from just a handful of folks to north of a hundred, focused on these types of partnerships domestically, internationally, et cetera, what was the appropriate skill set or type of person to come in and actually execute on these types of partnerships? Then what were some partnerships or aspects of certain partnerships that were maybe more difficult than expected on the 51st and the 52nd national brand there were different challenges relative to the first handful of rollouts?
Toby Espinosa: Yeah. Yeah, it's a great question. So I think of all these things in time-based, and so our first earliest folks that joined the team had different skill sets than the end person on the team and those skill sets are neither better nor worse. They were actually just the best for the time. So early on, I think we definitely did focus on very, very smart, humble generalists that can learn from first principles. The reasoning for that is primarily due to the fact ... and we still do this today if you look at us launching new businesses, we still launch new businesses in the same way ... is coming up with a unique insight from a customer that will help you win, actually just means you need to listen; means you need to have big, big ears and listen. The best people to listen are normally folks that don't have a pre-existing notion of the way that the world should work, and it's not always the case, but generally it helps us. So in that kind of way, we look for folks that are super smart, that will listen, that are humble, that will take the insights from the customer, and then go execute in the early days.
Toby Espinosa: Once you reach certain scale, you're 51st, you're 52nd partner, there's a playbook. There's a recipe that already exists, and so what you really need are folks and a process that makes you move faster with that recipe than anybody else. So a lot of the times, it's the best time to bring in folks that can learn, write down a recipe, and then execute fast. The only kind of thing I always like to talk about with org structure and hiring and those types of things is, and I mentioned it a little bit, because we are an execution-oriented company, we always focus on being able to move fast. So, again, in the earliest innings, the folks you want are people that can learn really quickly and can learn really fast, which helps you move quicker, launch a new business and get market feedback. In the later stage, it's folks that understand a great process and can make sure that processes goes over and over and over again. That's basically how we've built the team.
Delian: Speaking of institutionalizing the process, especially for this type of business partnerships team, which, in some ways, has aspects of it that are similar to colleges like traditional enterprise SaaS sales, trying to get at a customer over the line, you're trying to get them to, I assume, sign a contract. But the actual like backend revenue monetization looks wildly different, right? This isn't a simple SaaS contract. This is a three party marketplace that early on, as it's nascent, has worse margins and then matures as the market gets larger and larger. How do you guys even think through the typical things that enterprise SaaS company has, which is just like quotas for sales, people customer success, how to make sure that partner is actually succeeding in the wallet share, is increasing but in a much more dynamic, difficult to model, predict, understand the margins for this and keep the original salespeople that closed the deal incentivized to make sure that the deal actually gets across the line and succeeds for all parties?
Toby Espinosa: Totally. It's a great question. So I think there's always like the mass 80 that matters to move fast and then there's the 20% that's the exception that you normally learn from incremental customer feedback or market feedback. So the way that I would describe that is in the earliest days, there were three of us going out, and those three folks are still some of my best friends, going out, signing national restaurant chains, actually closing the deal, doing the account management, the post-sale account management or customer success in the enterprise SaaS world, and also operationalizing these things. There were three of us and that worked. We were all generalists, pretty much. We had some sort of specialization, but we would move as a pack.
Toby Espinosa: You fast forward 2, 3, 4 years, you have 100 folks, it doesn't really work that way anymore, and so we eventually started to specialize. You started specializing in presale, SaaS folks that were compensated in the same way that a sales team would be compensated. You'd have your customer success team that would work in that same fashion. But then the 20%, this strange operational lens that is DoorDash, which is this quasi technical account management paired with operational account management, which is the final bucket. And that final bucket evolved and grew over time and still growing. But today there are specialists that focus on point of sale integrations, specialists that focus on Dashers showing up to the restaurant on time, and all of those things don't fit into the currently enterprise SaaS mode from the beginning.
Toby Espinosa: So, again, that flexibility of like, yes, we understand what enterprise SaaS teams look like and we can scale and build them and build a process, but also be flexible and listen to the customer on what we need to go build, I think, is essential in today's world. I would assume for you, it probably comes also in some different format where you have maybe, I don't know what they'd be called, like the space mission control specialist or something that are like these generalists that are not the existing, "I'm going to go out and sign a large contract," which that motion, that muscle is probably known pretty well today in the industry, at least. I could be wrong, but.
Delian: Totally, totally. Yeah, they're quite different. I guess, do you have a particular ... it sounds like as you guys started to scale, you discover edge cases that you needed to put operational specialists around. Do you have a particular story from a national brand where as you started to get deep into customer success and it was like, "Oh man, these guys weren't set up to have like a pickup counter that was meant for DoorDashers," and so working with that team to rethink like layouts of their future stores, or-
Toby Espinosa: Totally.
Delian: ... how to readjust their current stores, such that this stuff actually works and you don't have a Dasher sitting 30 minutes waiting in line, with the meal basically already ready to go.
Toby Espinosa: Totally.
Delian: Like, can you talk through maybe one of those use cases of national brand that maybe wasn't perfectly set up for DoorDash and how you guys iterated through that partnership with them to make it a better fit on both sides?
Toby Espinosa: Yeah. There's a group of individuals who I never thought growing up because it was the place ... growing up, it was a special Friday night if you're able to go to this restaurant, and it was only celebrations; it was Cheesecake Factory. When cheesecake factory opening in Palo Alto, I remember there being a line around the block and my family, for sure, waited in that line multiple times to get access to The Cheesecake Factory. So I never thought I'd be that close to these celebrities, but I am today, and The Cheesecake Factory, they actually are an interesting case just like if I look at the partnership overall, because The Cheesecake Factory is one of our first really, really close, deep, exclusive partnerships. They were actually one of the reasons why we expanded nationally in the way that we did to suburban markets.
Toby Espinosa: If you roll back the clock, there was this moment where we were covering probably 120 of their 200 units and their CEO would call our CEO probably once a week saying, "When are you going to launch new markets? When are you going to launch new markets?" and we could have delivered them a hundred billion dollars in sales of some 50x, whatever they wanted, and it would not have been good enough if we hadn't covered those 80 stores. They put it that way. So, eventually, they became one of the major reasons why, if you think about listening to your customer, sometimes they do have to pound the table. We listen to customer, we expanded for Cheesecake Factory, and the rest is history.
Toby Espinosa: But one of the interesting things that we had to build for them that we then scaled to other partners was, we called it our merchant operations organization. The first problem the merchant operations organization had to solve was the case of the missing cheesecakes. There was this moment in time where there was like the missing and incorrect, which is how many times an item is missing and incorrect, of cheesecakes was their highest missing item by a crazy factor. Of course, the restaurants would say, "We put the cheesecake in there;" we would say, "You didn't put it in there," and there's always this is back and forth. So, again, things that don't scale, we deploy the team to the ground in multiple locations and we watched. It turned out, yes, to your point on like moving things around in the restaurant, that the bakery for cheesecakes and the pickup counter in some locations is separate, in some locations is the same. So we had to design a system where we could do specific Dasher operational instructions. In some stores, they actually did change the way that they were built though, often, as the incumbent, you have to provide solutions for your large customers.
Toby Espinosa: But that's an example. We brought that cheesecake number down. So that system, I think a lot of folks would look at that problem and say, "It's an existing problem. It's a known problem. It's going to go away at some point." But the reality is that small change or difference, think about how many customers. You order from The Cheesecake Factory. You don't get your cheesecake, you don't really want to order from The Cheesecake Factory again. I mean, that's why you went there. So think how many customers, even if you just did 100 of those, 10 of those, one of those, the LTV for their customers goes up over time. So, yeah, that's an example. Fun example.
Delian: When you had that missing cheesecake example that eventually turned into a system of, "Okay, we actually do statistically study when there's missing items that are abnormal." "Hey, this particular item on this particular menu is consistently missing," deploy the team, figure out what the solution is, and actually like turn that into the system that you then apply to future partners?
Toby Espinosa: Totally. Yeah. So now we have a full step. I actually don't even know today how large the merchant operations team is, but we have it both for local partners and national partners. They work really closely with our analytics team to try to figure out what the problem is, and it actually turns out, for us, it was both like location for The Cheesecake Factory, but also volume during certain times of day. So you can imagine, like because of our business, it's heavy lunch, heavy dinner, and The Cheesecake Factory in San Jose is going to get their peak hours at 7:00 PM. You have 25 Dashers all trying to go pick up an order at 7:00 PM at the same time they have their peak capacity, and labor's not meant to flex in that way. So in some cases we actually brought people to work during certain hours of the day. You can make the economics work, too, but yes, we created a system for partners. So if it's anyone from McDonald's to Cheesecake, to Chipotle, to any of our local partners, they now have a merchant operations specialist on their account management team that helps them go through these problems.
Delian: Speaking of some of these large partners, most importantly, my favorite restaurant of all time, Chick-fil-A, but also McDonald's, Wendy's, et cetera, you guys have kept as partners for extended periods of time despite, obviously, there being tons of competition in this space, very high profile. What do you think you guys have done that has kept these partners so excited to continue to work with DoorDash for such an extended period of time?
Toby Espinosa: Yeah, I mean, I think it's goes back to we listen and we want to build solutions for them. We've created this tagline when I was running the business development team, which was we want to be your most important partner. I've taken that, installing it for the ads business too, which is we want to be your most important ad partner. What's crazy about our ad business that was launched 12 months ago is that I'm at a restaurant conference today and I'm speaking to some of the executive team for Panera, Chick-fil-A and a few others, we are now a large percentage of their digital marketing spend, like larger than way above our weight compared to the Facebooks and Googles, and et cetera, of the world. The reason we're able to do that is we can understand their problems much better than others.
Toby Espinosa: So I generally think, when you look macro, if you go back to the venture world, and I'm sure you feel the same way too, when you go back to the macro and you go top-down, you look at the world as if everything's the same. It's like a peanut butter approach, and it's hard to find these exceptions, and the exceptions are what make our business is. So we find those things. Knowing the Chick-fil-A team really, really, really well, we find those exceptions, and what's really cool about Chick-fil-A, Chick-fil-A is another great example of we worked with them ... Because we knew them so well, we actually were able to build a Chick-fil-A location in Redwood City in a dark kitchen before there was Chick-fil-A on any other platform in that area. If you look at that selection advantage, even if it's for a couple months, it's a material difference for your business. So I'd say, listen, build things for the customer, and then maybe if I add something, it's like the exception rule. It's normally what you find the exceptions.
Delian: Then we talked about this a bit earlier of just like, obviously, there's a lot of cross-functional teams required to make these partnerships successful, but I'm sure there's been times where some national partner for some reason or another just hasn't ultimately ended up being successful. How do you actually figure out how to make the team accountable to bring in ideally partners that are successful to both sides, i.e. it's great for the partner, great for DoorDash and keep them accountable to that when the fruit of that effort may not come or be realized that it's not necessarily successful six months a year later, et cetera. It may come from wildly different teams than the original folks like negotiating the original agreement. How do you actually feed that feedback back to the original top of funnel?
Toby Espinosa: Yeah, it's a great question. So one of the ways organizationally you can do it is you can make folks responsible for both. So they can be responsible for signing the deal and then actually managing and maintaining that deal over a long period of time. That works for speed and for knowing your customer, if you would in certain areas if you start to verticalize your teams. We reward behavior when we see when we see people doing it, and that can manifest itself. At the beginning, it manifests itself in, if when there's that exception rule, "All right, I'm going to dive into the problem. Cheesecake, let me go figure out what's going on with the cheesecakes. I will go to your store. Chick-fil-A, let me figure out why Dashers are lining up. I will go visit your store," and that thing is embedded in our culture.
Toby Espinosa: But then the secondary point is how you then scale that over time and a part of that is then to help figure out, okay, once it's no longer part of your system, who cross-functionally are your core stakeholders and partners that you're going to hold hands with, and then making sure you can all work together in the same room. Don't be so single-minded to think that you are the only way that things can get solved. Those two things can fight each other in certain moments, but I think that's again in the yang of any great builder or founder, to be honest, and so you manage those things over time.
Delian: You talked about this, the peanut butter top-down approach, but curious if there have been particular moments during the past couple of years at DoorDash where you felt like, "Oh, the fact that I had this macro investor background or viewpoint actually impacted either how I thought about the strategy or particular unit, how to compensate, how to assess what opportunity to go after." Do you feel like there are times where you're having that macro background and broader view has helped when you faced certain decisions at DoorDash?
Toby Espinosa: Yeah. I mean, I think for us, looking at ... I think when, when I was personally assessing what I wanted to go do next at DoorDash and looking at the playing field, I think the one macro dichotomy that existed out there that then if you zoomed in at a customer level also existed, was that digital ads as a percentage of the ad industry is growing a tremendous, tremendous, tremendous amount. You can just watch, that's a macro trend, more and more dollars going into the space. But if you zoomed in on restaurants, it was growing, but not as fast, and so then you ask yourself, like, "Why?" Like, "What was it that CPGs had that restaurants don't have? or, what is it that XYZ have that others don't?" If you start to zoom in, you start to realize, "Oh, wow, restaurant brands when they think about marketing, still think about marketing the same way they thought about marketing, for the most part, 10, 15 years ago. It's real estate, real estate, real estate, national TV when I hit scale, and maybe some Facebook and some Google.
Toby Espinosa: If you think about why, some folks, like when you think about what has been created for the consumer if you're going to flip the script and look at Facebook and Instagram and Pinterest and these sorts of places, they work really well for native environments for consumers to look at retail. Like a cool new shoe, for example, works really well on Instagram, but a restaurant concept meeting consumers where they are, that's like maybe there are some percentage of consumers that are hungry in the moment, but we have a 20 million monthly actives, 9 million DashPass subscribers that when they open up their application every single day, they are hungry and want something, and putting your brand in front of them means a lot. So I think that sort of macro dichotomy definitely helped us when evaluating if this could be a large business.
Delian: Yeah, I guess, diving into DoorDash's ads launch, I'm curious, what was the process for shifting from obviously this type of national partner business development team had grown quite large, super successful, their willingness to revving, I feel like most operators or execs would just get complacent and just continue to grow that as opposed to taking the crazy shot at building entirely separate and new line of business. Like, how did you even think through doing that? What do you think DoorDash does better than most in ability to you, guys, I think, have quite successfully launched many "non-core" businesses that are seeing a ton of success. Both how did you decide to do it, but then how do you feel DoorDash set you up for success to build up this new line of business?
Toby Espinosa: Totally. Yeah. So, I think I'll take the first one first, which is why from a career standpoint. I think the best advice I ever got from Tony Xu was lean into your superpower early in your career and you will move faster. My superpower very clearly, from anyone who works with me or any partner you meet, is understanding partners better than most. This kind of like sales/BD/partnership mentality. That helped me and my career move very, very quickly at DoorDash. But if you always only focus on your superpower, then you actually, I've found that it's hard to take a beat and actually write down and be able to make it into a process.
Toby Espinosa: So, often, if you think about the best coaches, they were not the best players. So this insight of how do I then become a really great coach, it's like, "I actually need to do something that I'm a little bit uncomfortable with," so go outside your comfort zone. Leverage your superpower, go outside your comfort zone. So you look around the ad spends was a great a place for me personally to start, because it was focused on a core customer, which was our restaurant brands, local and national, building a business for them to help scale within our company. So I think that from a personal standpoint, it worked really, really, really well for me. From a company perspective, it's a very interesting time because if you take a step back, we were looking ... this was right before COVID hit and what we were noticing was that restaurant partners wanted ways to grow on our platform. We had something like 350,000 partners at that time. We now have 500,000 partners on DoorDash in the U.S. So if you look at them, most of them were still trying to find ways to access new consumers within our marketplace.
Toby Espinosa: So we started with the very basic premise, which was launch a promotions platform, a way that a lot of us have known, gotten to know new restaurants, is say $5 off, 10% off, et cetera, et cetera. So we made a very flexible promotions platform, which then scaled, and then we got another call from our local restaurant partners, which was "We want something called sponsored listings," which is we just want a banner in certain areas and height in services for our consumers, and I think that's the moment where we switched into, is this also going to be good for our consumer side of our marketplace? The one thing we can't do is violate that kind of experience.
Toby Espinosa: So we did a whole bunch of testing on the consumer side, and we ended up in a place where ... DoorDash is a very interesting ecosystem where you're super, super high intent, but most folks actually don't know exactly what they want. So they don't search exactly for the restaurant. They're actually kind of, "Oh, inspire me a little bit," and that prospecting and inspirational moment, much like Instagram, makes it a very, very valuable place for brands to be in front of consumers and inspire them to try their product. So from there we realized if we were able to do that in a nice way, we wouldn't be violating the consumer experience. In fact, if ad formats continue to get better and better, it actually might enhance the consumer experience from a content trying to find new things perspective.
Toby Espinosa: So that's where we are today. So if you move forward, what have we done? We've built the sponsored listings business for every SMB. So any one of our 5,000 merchant partners can purchase sponsored listings within our business on a CPA basis, which is slightly revolutionary. Or, I like to think it's revolutionary in the ad space. Most ads are CPC. This is you will only pay us, SMB restaurant, if you get an order from DoorDash, which aligns incentives perfectly for us. So we launched that business, we scaled an ad platform so we can turn on a new surface within a matter of weeks, not months. We launched our grocery, our CPG business, so sponsored listings units within there, our banner business, and our promo business.
Toby Espinosa: In the first nine months of this year, we're very proud that we were able to generate over a billion and a half dollars in incremental revenue for our ad partners on DoorDash, which is a material difference for any mom and pop. So, yeah, so I think that's the journey. There's this personal moment of being able to get out of my comfort zone, explore, and then by doing so, compounding yourself in your career, but also at the same time working on a business that would be great for our core customers.
Delian: I feel like there's something relatively revolutionary not just about, obviously, CPA versus CPC, but also the fact that you're taking these SMB businesses and even some of these, I'm sure, even national partners that up until now have basically entirely only done brand, non-quantitative marketing versus this is almost certainly the first time that they're actually doing direct marketing and they've ever even measured a CPA. Can you talk through some of the customer education around that and actually understanding? I mean, obviously, in startup land CAC, LTV, payback period, et cetera, like very natural languages, but the mom and pop waffle shop probably isn't necessarily thinking about their customers that same way, but it would probably be very advantageous to both the waffle shop and to DoorDash if they did think about it that way.
Toby Espinosa: Totally.
Delian: So how do you, guys, go about that customer education?
Toby Espinosa: Yeah. It's a great question. So, basically, one whole thing what's also very cool about being in the DoorDash ecosystem is we actually know the value of an incremental customer that you acquire. So, I think, the first thing is, and we're not doing this perfectly today, but we are working very, very hard to make this accessible so we can tell a merchant, whoever they are, any brand with, with inventory on DoorDash, what is the value of the person that you are trying to go interact with and by doing so, then you can reach back. So if I tell you that Delian loves Chick-fil-A and he's a power user, so he's ordering two times a week, and so we're talking hundreds and hundreds of dollars a year in Chick-fil-A.
Toby Espinosa: But what he really loves, if you zoom in, is he really loves the chicken sandwich, and you're a KFC or you're a mom and pop and you have a new chicken sandwich, and all you had to do was get his mouth, his taste buds, just try that chicken once and it's better chicken, and all of a sudden you can take some percentage of that spend, that's a really, really cool opportunity. So that data set's really massive. We talk a lot about cuisine types or cuisine groups that are very, very interesting for both, yes, the restaurants that are brand restaurants, but also for CPGs. So the example there would be Cholula knowing that you love spicy, well, now they want to put their brand in front of you because that's great for Cholula brand.
Toby Espinosa: So, yeah, we have this abundant amount of data that we want to surface to our customers in an interesting way so that they can continue to participate in the platform. I'd say we're doing an okay job of it today. We have a long way to go. But if you think about the way that we actually describe what a CPA or CPC is, we are trying to do it in a very basic way. We say, "Give us a budget and in return we'll give you sales, and we'll show them to you because they are on our platform." If you can just do that over and over again, I think there's a lot of lingo in the marketing space attribution, where that 5,000 point attribution doesn't ... we're a very basic folks, first principle is solving for a customer. I'm just going to tell you how much money you're going to spend and I'll give you that money in return, and we think that approach is both a competitive advantage for DoorDash, but also quite novel for most folks spending money.
Delian: Then you talked about how switching over to ads was a way for you to not just rely on your core superpower. Can you talk about some of the things that were maybe more difficult in that transition that were not native to you and required you to either, yeah, grind through, make a couple mistakes. Like, what were the aspects of switching over to ads that took you some time to wrap your head around?
Toby Espinosa: Yeah, I think Silicon Valley is a very interesting place where, my mentor once said, very simply there's two things that happen: there are people that build products and then there are people that sell products in an organization, and there's a million of other people that are important cross-functionally, but at the fundamental level that's what we're doing. Because I was out in front on the sales side, I don't think I was moving away from the build side. What that inevitably means is I don't think sometimes, from a speed standpoint, changing direction, particularly with an engineering and product organization can be quite difficult.
Toby Espinosa: So I think learning a little bit about being very, very clear on which way we're going and why, which is like north star, and then behind that, the rational for that north star so that everybody can get behind it is a skill set I had to learn. Historically, that skill set was, we need to get every national restaurant chain and large grocery on our platform and watch the magic, and no one would disagree with that. Everyone would say, "Of course, we need every national restaurant on DoorDash. That makes total sense. Just go do it." But I think writing down north star rationale for reasons why I think is something that is a skill set that I employed a lot when I was in college writing papers, but just hadn't done for a long time. So it was a skill set I had to bring back.
Delian: Then it's a bit of a tangent. You actually have been teaching a tech investing course at Stanford for quite some time, basically the entire time you've been at DoorDash. Can you talk a little bit about how that course got started, what your motivation was to do it and, how you continue, I guess, to do it as a now public company executive?
Toby Espinosa: Totally, totally. So, yeah, when I was in grad school at Stanford, there was this interesting opportunity. I was in a graduate program in engineering school and most of the programs that would teach about the economy, how people think about investing a diversified portfolio, why there's so much money going into private equity, why there's more money within private equity going into venture. I think the macro reasons as to why, there weren't classes that taught that. There were some classes in the business school, but there was no class in the engineering school. Again, back to this point of like the getting closer to the folks that are building things. Those are the folks that are building things. So I felt it was very, very important for people that were building things to understand why the larger world, at least in the financial world, was working in a particular fashion. So we think of it as like demystifying what we think of as like the alternative investment landscape, which is a completely opaque for the most part, place. It has gotten way more transparent, I would argue, with many more people talking about it and a bunch of new things, but still large, still much more opaque than others.
Toby Espinosa: So, yeah, we've just been doing it. It's a bunch of guest lectures in the winter quarter and we bring folks in from venture funds, private equity funds, endowments, family offices to talk about what they're seeing in the environment and where they're investing. So anything from Web 3 crypto to ... We haven't had anyone come in to talk about space so maybe at some point we can have someone come in and talk about space, but, yeah.
Delian: Hopefully, I'd like to think I know a thing or two about it, but yeah. Toby, appreciate you taking the time today to hop on the podcast.
Toby Espinosa: Of course.
Delian: --It's a really cool conversation.
Toby Espinosa: Of course, thank you so much. This is really fun and wish you all the best in success for your business and Founders Fund in the future. So thanks so much.
Delian: Thank you.
Delian: Thanks for listening, everyone. If you'd like to support the podcast, please sign up for a paid Substack subscription, which we use to pay for transcripts, mikes, and other improvements. If you have any comments or feedback on what kinds of questions I should ask, who should come on the show or anything else, please do let me know. Have a great rest of your day.