Lenny's Podcast: Product | Career | Growth
00:49:05 · Casey Winters
Grubhub then tried to copy the approaches of DoorDash and Postmates, and they wrote kind of this famous letter saying that they still thought the approaches were stupid, but they were... Their hand was forced, which is kind of funny to read in retrospect. So, you know, a lot of armchair thinkers are like, how could Grubhub have been so stupid to let DoorDash take the market that they built? And look, I'll admit, Grubhub made some mistakes. But I think it would have been extremely hard for Grubhub to come out on top here. So let's say in 2014, after you IPO, you do actually think what DoorDash, Postmates, and Uber are doing are smart. What do you do? Go to investors that you promised high growth and high profits and say you need to raise more money and debt to compete with negative margin upstarts in a way that will destroy all that potential profit you mentioned, the stock would drop 90%. A lot of your employees would leave because their stock is now worthless. And on top of that, building a delivery network is a heavy operations play that matches none of your core competencies. So to me, that feels like a death sentence. So I think the only play here was to buy DoorDash as early as possible. And let DoorDash and their operationally heavy culture eat Grubhub from the inside out. I think Grubhub probably could have acquired them multiple times for whatever reason it ever happened. It would have seemed pretty risky had Grubhub done that. Investors probably would have hated it, but it would have been their Netflix moment where, you know, Netflix bet it all on streaming, and they bet right. And this is all incredibly easy to say in hindsight. But I think what I've learned, you know, now that I'm more senior in my career, is during existential threats, you know, it's like when Nassim Taleb says the only rational reaction is overreaction. Unless you have a real viable reason to assume otherwise, you gotta assume the disruptor is right and base your strategy on them playing an optimal game. And I... Whereas I think, you know, Grubhub assumed the disruptor was wrong and that it would all play out eventually in their favor, and it clearly did.
00:51:14 · Lenny Rachitsky, Casey Winters
[00:51:14] S1: Wow. I have never heard that full story. That was amazing. Thank you for getting in so much detail there. [00:51:19] S0: I don't know how much of it is right. [00:51:21] S1: Seems right from the outside, And it's interesting that it's like a version of Innovator's Dilemma. Usually, Innovator's Dilemma is people come and do something cheaper at the low end of the market. And in this case, it was more they were doing something that they didn't believe would scale. Was, like, just much more inefficient even as a better experience. And is that is that Innovator's Dilemma, or is that some other version of Innovator's Dilemma? Because to your point, they couldn't almost go after it. [00:51:45] S0: I I think it is in spirit, for sure. [00:51:47] S1: The takeaway there that you've learned is don't underestimate someone that's trying to do something that's gonna eat your lunch eventually even though it feels like a terrible business model.
00:51:47 · Lenny Rachitsky, Casey Winters
[00:51:47] S1: The takeaway there that you've learned is don't underestimate someone that's trying to do something that's gonna eat your lunch eventually even though it feels like a terrible business model. [00:51:59] S0: Right. Like, if the market's rewarding it, the market will probably find a way to make it profitable. And, you know, it's... Essentially, when everyone's find, like, a more efficient network effect for demand on the on the on the marketplace side, you probably need to copy that, like, as soon as possible. And if you can't copy it, own it. Right? Like, buy it. And And I think we've seen this a few times. Like, Rover and Wag was another interesting example of this, where they found a more frequent use case that fit the same supply and demand. And, you know, Rover just copied it as soon as as soon as possible. And that ended up, you know, working out for them in a way that, you know, it didn't as much for Grubhub. [00:52:37] S1: I just did a talk recently on Marketplace, growth strategy, and someone asked me a really interesting question. If you were trying to go up up against the DoorDash or an Uber today, what would you do? And my answer is just like money was so freely available at that point that they were able to... Like, a lot of this was spent. They had so much money raised. You said they're raising a $100,000,000 every six months. Like, is it even possible in today's climate where you can't actually raise that much money to have any sort of chance to beat a DoorDash or an Uber?
00:53:05 · Casey Winters, Lenny Rachitsky
[00:53:05] S0: Yeah. I mean, clearly, took advantage of the zero interest rate environments that we talked about earlier. That is not a replicable strategy in 2023. Yeah. So any approach to compete with them has to be competing on a very different angle, because, yeah, they can spend you into the dust. So, you know, we'll see if anyone's able to build a way that creates new supply in market. I think you and I have seen a couple of earlier stage examples of that. We'll see if any of them scale. Or something that feels cheaper or more fun on the demand side, that would be, like, another way to potentially disrupt things. I think another thing that was working pretty well to... Before the pandemic in building disruptors was focusing on the pickup use case, which, you know, DoorDash cannot do as easily. Like, they've tried. Right? But, like, their whole value prop is the delivery network, which you don't need for pickup. But, of course, the pandemic put a lot of those startups grinding to a halt as well. So, you know, there's always angles, but you're gonna need to be incredibly clever because just attacking with a war chest is not really gonna work. [00:54:09] S1: Yeah. I noticed a lot of startups launching that are trying to do white label delivery for restaurants so they don't have to really rely on DoorDash. But that may be... Maybe that's a wedge to get in, and eventually they do Yeah. DoorDash sort
00:54:09 · Lenny Rachitsky, Casey Winters
[00:54:09] S1: Yeah. I noticed a lot of startups launching that are trying to do white label delivery for restaurants so they don't have to really rely on DoorDash. But that may be... Maybe that's a wedge to get in, and eventually they do Yeah. DoorDash sort [00:54:20] S0: of thing. And I would say I'm pretty skeptical of those because they're just not really building the network effects on the demand side. They're just more like SaaS businesses, and I think they'll struggle to be, you know, multi $100,000,000 in revenue businesses because the take rate is typically, like, you know, a third or a fourth of what, you know, a DoorDash can charge. [00:54:39] S1: Perfect segue to my next question. I only have a couple more. There's this concept and, I think, pull from Marketplace founders to add a SaaS tool eventually Mhmm. And have both business models. And then there's often the reverse where a SaaS company wants to add a marketplace. And I know this question is something you get a lot. And so just a question for you. Does this work? Are there examples where they've added this additional way of making money? And which direction do you find is most often successful and not successful?
00:54:39 · Lenny Rachitsky, Casey Winters
[00:54:39] S1: Perfect segue to my next question. I only have a couple more. There's this concept and, I think, pull from Marketplace founders to add a SaaS tool eventually Mhmm. And have both business models. And then there's often the reverse where a SaaS company wants to add a marketplace. And I know this question is something you get a lot. And so just a question for you. Does this work? Are there examples where they've added this additional way of making money? And which direction do you find is most often successful and not successful? [00:55:11] S0: You know, the canonical example that a lot of these founders use is is OpenTable. And that always felt really unfulfilling to me because it's very old at this point. Probably the younger people listening to the podcast are like, what's OpenTable? And I think, you know, that business has incredibly underperformed the market it operated in. So it it had a good exit. It sold for $2,600,000,000, I think, to booking.com. But Booking subsequently wrote that value down, like, below 1,000,000,000. So, you know, that's not really the outcome, I think, we're looking for traditionally in marketplaces. [00:55:43] S1: And maybe explain, like, what it was initially the SaaS tool versus the