Customer Obsession, Surviving Startup Death & Creating A New Market

Xu and his co-founders tested different projects before settling on delivery. By shadowing a macaroon shop owner, they saw a booklet of delivery orders she had turned down and began investigating why local businesses could not fulfill them. They tested whether consumers, merchants, and drivers would all participate.

The founders launched Palo Alto Delivery with a basic webpage, restaurant menus, and a Google Voice number that rang all four founders’ phones. During YC, they made deliveries themselves and saw customers return without discounts. After a Stanford football game overwhelmed their capacity, they refunded customers despite the cost, then baked cookies and delivered them before dawn.

Xu says DoorDash aimed to build a last-mile delivery network for businesses that did not already offer delivery. While competitors focused on dense cities, the founders heard strong demand from customers outside city centers and chose to pursue suburbs. They later found suburban orders often had larger baskets and simpler deliveries, improving unit economics.

Despite growing engagement and strong internal metrics, DoorDash struggled to raise capital from 2016 to 2018 and received hundreds of rejections. Xu says investors were unsure which company would win in a market that had not yet been defined. After raising a Series D in 2018, DoorDash expanded into more geographies, building on its strong customer retention and order frequency.

During COVID-19, DoorDash launched contactless delivery, helped merchants and Dashers access cash, and arranged free delivery for hospital workers. The company also halved commissions and ran a TV campaign encouraging people to order from the industry, even though DoorDash was unprofitable. Xu ties those choices to a long-term mission of empowering physical businesses and growing cities’ economies.