DoorDash seeks to optimize the launch of its new businesses around a long-term ROI, rather than short-term margins or absolute losses. The U.S. is in bad need of this approach!
Commentary
- DoorDash seeks to build upon the success of its restaurant delivery business by expanding into new verticals like grocery, pet product & flower deliveries.
- To build support for this effort, the DoorDash management team does a good job of explaining to its investors that the long-term benefit of this strategy can outweigh the short-term pain.
- This lesson begins with an explanation that DoorDash invested $1B over 6 years before its restaurant marketplace generated any meaningful cash. Further, management pointed out that its losses increased while margins declined during a long period of this investment phase. Management would have significantly under-invested or stopped entirely if it had been operating to short-term margin or loss targets.
- Not only did management not abandon a seemingly unprofitable investment, but it also stepped up its commitment with a further 2018 investment in its DashPass subscription service which is now gaining traction.
- While a long-term strategy like this entails many risks (and fortitude), DoorDash’s illustrative model below clearly demonstrates how wealth is created. Of course, the alternative is to play it safe & do nothing!
