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SPEAKER_01: Hey, everybody. Hey, everybody.

SPEAKER_02: Welcome to This Week in Startups. We've been doing a series, as we are apt to do on this podcast, when we want to drill in and go deep on a topic we know you, founders, investors, and fans of technology who listen to this program want to hear about. And one of those is SaaS. What is SaaS? It's software as a service. So we decided to do rising stars of SaaS because this is a booming space. And people paying for software as a subscription has become a bit of a juggernaut in the technology industry and just in the wider business world. Subscriptions are here. And it's a better way to pay for software. This is pretty obvious. You might have in the past paid for the Adobe suite of Photoshop and other products, Illustrator, by spending $900 or $1,500 once every three years and gotten a bunch of DVDs and before that floppy disks and then traded them. It's a big, giant waste of time. It was a ton of upfront cost. And it limited the people who would embrace a piece of software. What if people could pay a low, reasonable price every month for their software and maybe even on a per-seat basis? Well, that's what's happened. Slack charging, you know, $7, $8 a month up to $15. Salesforce charging $200 or $300 a month. Depends on which piece of software you're using and the value that it creates. And this creates a massive competition. That massive competition is the free market at work. And SaaS companies have to be super confident that they're providing value because they bill every month. Sometimes they bill quarterly or yearly and get a discount if somebody is really interested in doing that. And that would be a sign of additional commitment that a user wanted to spend that money, right? But at the end of the day, capitalism is working. Now, another place where the free market and capitalism is working, but people, let's face it, the virtue signaling, socialist slash communist party, seems to think that food delivery is being controlled by three players. This is a false narrative. I wouldn't say fake news because I don't want to give Trump credit for that moniker, but this is a false narrative. There is a tremendous amount of competition in delivering foods. It is not owned by DoorDash, Postmates, Grubhub, Uber Eats, and the like. In fact, those delivery services are a fraction of the overall delivery. There are companies like Amazon, Whole Foods, Domino's that deliver directly. And there are the majority of restaurants who simply hire somebody out of the back of the kitchen to run food to their customers. And they pick up the phone or they increasingly have SaaS software to do this. Today on the program, Chris Webb will be with us, and we're going to have a frank discussion about just how disingenuous, in my mind, I'm not speaking for Chris, this debate has been because being an investor in one of these companies, Uber, which is buying Postmates, I know the numbers and I've known them for a long time. Companies are losing money on every delivery, and it's not like one company is running away with this. Not even close. Chris started a company called Chow Now. You can go check it out at chownow.com. He launched it in 2012, started in 2011. He's raised a bunch of money. Welcome to the rising stars of SaaS, our fifth episode, Christopher Webb. How are you doing?

SPEAKER_05: I'm doing well. Thanks, Jason.

SPEAKER_02: All right. You heard my bit passionate rant there. Which parts of that am I spot on? And then which part of that do you take exception with or think I'm wrong about? Let's just put it right out there from the get-go.

SPEAKER_07: Yeah. It'd be more fun if I disagreed with more of it because it's more of a debate. But I actually agree with just about everything you said there. I read the same thing you do. I see the same kind of headlines around the market and the restaurant delivery dominated by these three or four main players. In reality, they make up a decent chunk, but far from the majority of orders. Because as you said, Domino's, Papa John's, Panera, they all do delivery. They all do online ordering. There's us, who's often not talked about. This year, we'll do about $2.5 billion in orders on our platform. We have 18 million diners that will use our platform. To put that in comparison to Grubhub, who just reported earnings this week, they have about $30 million. So Grubhub spends a tremendous amount, hundreds of millions of dollars every year on marketing, getting a brand out there, getting kind of consumer awareness. We don't have one person full-time on our staff doing consumer marketing. It's just not our game. It's not what we do. And despite that, we still have 18 million diners using our platform to order at their local restaurant. And so I agree, we are one of a number of other players that make up the pie. And so that pie has a ton of players, ton of slices.

SPEAKER_10: So I completely agree with what you said around that.

SPEAKER_02: And slice.com is another one we had on the program recently doing delivery of independent mom and pop pizza stores. So there you have a competitor who has just picked one vertical pizza and local pizzerias to try to own that.

SPEAKER_13: And this is an incredibly competitive space, correct?

SPEAKER_07: It is competitive. Yeah, absolutely. And so Alir, who I believe you spoke with, the founder of Slice, is a friend of mine. He's great. What we consider kind of the good guys and the bad guys with our space, I consider Slice and Alir a good guy. There's another company called Olo. Most people don't know Olo. They've been around for 15 plus years. It's run by a guy named Noah Glass. He's a great guy himself.

SPEAKER_17: O-L-O.

SPEAKER_07: O-L-O. And Olo does it for enterprise, right? So Shake Shack and Applebee's and others are clients of Olo. We are the other spectrum. We work with independent restaurants up to operators that have 40 or 50 locations.

SPEAKER_18: But the majority of our time is spent working with independent restaurants and very small regional groups.

SPEAKER_02: So in your mind, the good guys are people who empower restaurants to do sales, not disintermediate them from the customer. So in your world, you consider the bad guys, Postmates, Uber Eats, and the like. Why are they bad guys in your mind?

SPEAKER_07: So-

SPEAKER_02: Am I correct in that?

SPEAKER_07: Yeah. And I think the poster child there is Grubhub. Okay. And Grubhub does the – and they've been called out in recent years. It took a while to get attention to some of their business practices. Some of it now is in various kind of cities and states is becoming illegal. So this practice of non-partner restaurants where you take any restaurant that you choose, you grab their menu online, you throw it on, you take their IP, and all of a sudden they're listed. And so before COVID hit, right before COVID hit, Grubhub actually had more non-partner restaurants on Grubhub.com and on their app than they had actually partner restaurants, right? So they had – I think they were claiming 300,000 restaurants on their platform. The majority of those restaurants didn't know they were on and didn't want to be on. And at some point in their life – and everyone knows Grubhub at this point. They've been around for 15 or 20 years. Those restaurants had chosen not to want to be on Grubhub, pay their fees, and everything else. And Grubhub says, frankly, we don't care. We're going to take your information. We're going to list you. We're going to take your menu. We're going to mark it up. We're going to add all these fees. And they've actually said on earnings call, we know this isn't good for the consumer, and we know this isn't good for the restaurant. But this is good for us, and this is a game that we're playing with these other players out there, and we need to compete with the others out there.

SPEAKER_10: And so we're going to follow the path.

SPEAKER_02: To really make this clear to people who are listening who might not understand the inside baseball of this, Grubhub, instead of going through the process of getting permission from a local – let's just use a pizzeria – instead of going to Geno's or Bay Ridge Pizza in my hometown of Brooklyn, instead of going to Bay Ridge Pizza and saying, hey, would you like to be on our platform? We'll sign some documents and having that onboarding cost. They just walk in. They take the menu or they find the menu on the person's website. They put it onto their website. You call it IP, intellectual property. And then they say, we're going to market that to customers. And what they do is on the slide, I'm assuming on a technical basis, they call in and pretend they are a customer. Correct.

SPEAKER_07: Sometimes what we've witnessed is them actually placing orders through our platform as well. So they'll take the order off their website from the customer and they either call it in, as you just described, or they'll just place it through ours. And sometimes they've tried to scrape various systems to submit it.

SPEAKER_31: Grubhub's not alone in this. There's a few other what we consider bad actors that do this.

SPEAKER_02: A DoorDash did this as well, right? This was an early DoorDash technique would be to just put all the restaurants online. You call them. That's exactly right. And Postmates did this as well. Postmates was originally, as conceived, a personal assistant who would do anything for you. And one of those things could be as a personal assistant, go run and get your food. Correct?

SPEAKER_07: Absolutely. And so those two companies really kind of invented this practice. They scaled very quickly because of it, I think, in kind of tech terms, kind of a growth hack type maneuver. And Grubhub never did that. And ironically, DoorDash and others have been moving away from this practice.

SPEAKER_38: And Grubhub is now playing catch up because that's kind of what they do. They tend to be behind the ball. Okay.

SPEAKER_13: So a cynical person or just a person who worked with those would say, hey, this is increasing customer choice.

SPEAKER_02: And if a rich person has an assistant and they send their assistant out to get food for them, why can't a middle class person hire a Postmate for 20 bucks an hour to go do this for them? When we get back from this quick break, I want you to answer why that seems so. What do you think of that defense of the practice of end running restaurants and putting them on their platforms when we get back on This Week in Startups?

SPEAKER_42: This Week in Startups is brought to you by our friends at Silicon Valley Bank. What's next? What if? Are you ready? Now what? These are the questions that can keep founders up at night and no one understands this quite like Silicon Valley Bank. For over 35 years, Silicon Valley Bank has helped thousands of high growth companies by providing scalable financial solutions, along with insights and expertise that many other banks just can't. From healthcare to hardware, software to infrastructure, Silicon Valley Bank works with companies across the innovation landscape at all stages of the journey, anticipating their needs before they do. And by providing access to insights and in-depth reports, SVB can help you make more informed decisions and assist in turning your great idea into a great business, which could be why 50% of US-based venture-backed tech and life science companies bank with our friends at SVB. Will your business be next? Learn more at svb.com slash next. Silicon Valley Bank built for what's next.

SPEAKER_23: Welcome back to this week in startups. What a great guest we have already. Chris Webb is from Chow Now. They help restaurants with enterprise software deliver food, and we'll get into their offering in a moment.

SPEAKER_02: But we're sort of painting the picture here, at least pre-pandemic, of this dogfight for getting food from restaurants into people's homes. And what Grubhub, DoorDash initially, maybe they've gone back on this practice, and certainly something like Postmates, which was designed to be an assistant, right? You could send a Postmate to any store to do anything. In fact, I remember one time I wanted to go crabbing. I was crabbing with my daughter, and one of the ropes broke, and we couldn't go crabbing. So I just ordered a Postmates. I said, go get me 50 yards of rope from anywhere and let me know. And they got it, and it was delightful, and they brought it out to Chrissy Field for me. So what's your reaction to that defense, which is what I heard from those type of companies, I won't say which ones, when they pitched me on investing?

SPEAKER_07: Yeah, so I want to break it down on both the diner side, the guest side, the consumer side, your experience on it, and then from the angle from the restaurant. So on the consumer side, you know your restaurant. You talked about Bay Ridge Pizza, right? You know it from there. You know the menu probably kind of inside and out, at least at some point in your life you did. Oh, I still know it, man.

SPEAKER_54: That rice ball.

SPEAKER_07: That's a great rice ball. You may go on Postmates. Shout out, Anthony. Or Grubhub or one of the others. And you're like, man, they just raise their prices. Like, why are the prices so marked? This is not what I remember, right? So the prices get raised. Maybe they ran out of pizza. Maybe they changed the pizzas up, right?

SPEAKER_11: Maybe they've suddenly become predatory, and they hate their customers.

SPEAKER_07: Yeah.

SPEAKER_60: And they're charging eight bucks for a rice ball instead of a buck fifty.

SPEAKER_62: But a lot of times, it's actually not the restaurant that has changed the prices or the menus or have out-of-date menus.

SPEAKER_07: It is because you went on to this marketplace, and you saw them listed, and you're like, oh, that's where I want to order. And you're like, oh, that seems a little bit weird. Or sometimes you place that order, and it's not what shows up because they swap it out. On the restaurant side, they don't have control, right? They want to control how far that food is traveling many of the times, right? What happens if you're on the Upper West Side, and you're saying, you know what? I really feel like my favorite pizza. Oh, look at Postmates. We'll do it. Well, it shows up soggy and cold and just kind of lame, and you're like, that pizza's not very good anymore. And clearly, it traveled a far distance. I'm doing it to make an example. But even if it's not that extreme of a distance, you would kind of question, huh, maybe that pizza's not that good. There's one other thing that gets layered in, which I think is worth calling out, where something like Bay Ridge Pizza, right? Local hero within the community, been around for years. Postmates or Grubhub knows that, right? And so in New York, it's Seamless, which is obviously owned by Grubhub. They go, let's leverage that local brand. It's not a nationally known brand. It's a local brand. And we're going to list them. And we know that it's not the greater experience. We're going to make less money at Seamless or at Grubhub. But let's see if we can use them to get that consumer off. We're going to run a bunch of ads on Google using Bay Ridge Pizza. So when you're on Google and you're putting Bay Ridge Pizza, and you see that ad saying, order on Grubhub, you're like, okay, that seems legit. You land on that page, and they say, you know what? They're not currently accepting orders. Why didn't you order from the pizzeria down the street? And so they've totally taken hostage to that brand. They've leveraged that brand that's known in that community within that neighborhood. And then they've taken you to another pizzeria. And so Bay Ridge Pizza loses out.

SPEAKER_10: The other pizzeria then has to pay very high commissions to Seamless to get that order. And so the only one that actually really wins is Seamless Grubhub in this scenario.

SPEAKER_02: And this has been going on for decades now. So it's reasonable to say the majority of restaurants don't care. They just want to get more orders in, but some do care. And it feels like it's being done in a underhanded, unfair kind of way, especially to the people who are doing it right. Perhaps not illegal.

SPEAKER_23: Perhaps it is illegal. We'll see if this... There is actually Grubhub. We just hit with a lawsuit for this.

SPEAKER_02: A class action lawsuit from the farmer's wife in Sebastopol, California, and Antonia's restaurant in the Hillsboro, North Carolina.

SPEAKER_65: So we'll see if those lawsuits make a difference. But yeah, it does make sense that the restaurant should have control.

SPEAKER_02: Many probably don't care. On a technical basis, how do they go about doing this? They literally just have banks of people calling in orders?

SPEAKER_67: They do. In many cases, they do.

SPEAKER_02: What if the person says, is this Grubhub? Or is this an ordering service? Or is this an actual person? Are they trained to deceive people?

SPEAKER_23: Or are they trained to be clear? Like, yeah, this is a Grubhub order. We have an order from a customer. Do they volunteer that?

SPEAKER_07: I don't believe so. I don't know that for a fact. But my understanding is they call and say, hey, this is Jason. I'm placing my order. I'll come pick it up in 20 minutes or whatever you tell me to come pick it up in.

SPEAKER_69: So my understanding is they try not to share that information. Got it. They pretend that they're the average customer calling in.

SPEAKER_02: Remember, DoorDash kept putting In-N-Out Burger. In-N-Out Burger specifically does not want delivery. And they also don't want to be not in, like, the Southwest. I mean, people have been trying to bring In-N-Out to the Northeast. And I think, actually, the story is Five Guys was a reaction to In-N-Out not being willing to be across the country. And they're just like, okay, screw it. We're going to make a competitive brand called Five Guys and put it across the country.

SPEAKER_71: In the DoorDash case with those kind of businesses, that's super unfair. But let's take Postmates for a second. The virtual assistant model.

SPEAKER_02: A virtual assistant's doing this without there being a menu online. That seems reasonable, right?

SPEAKER_07: To some degree, as long it's very clear that Postmates does not have a relationship with that merchant and is not representing that restaurant as a partner. And so it's very clear that when something goes wrong, that it's Postmates' fault. And Postmates is a fault, and the restaurant has nothing to do with it. You may or may not be paying the correct price for that food. That, sadly, is not the way it's done today, though. The way it's done today is you log on and you open up the Grubhub app, and it all looks

SPEAKER_10: like the exact same restaurants, right?

SPEAKER_23: Okay. So the pandemic hits. You're providing this enterprise software. Things go absolutely bonkers.

SPEAKER_02: Let's start out, as we set the table here, how do you charge restaurants?

SPEAKER_16: Do you charge them a percentage of their revenue? Do you charge them a flat fee? Do you charge them per order? What's the business model at your company?

SPEAKER_77: Yeah, flat fee per month. So it's a SaaS business model.

SPEAKER_07: It's been that day since day one. We launched, as you said, in 2012. What we heard from restaurants back then and continue to hear from them today is we just need software to strengthen the relationship with our customers, right? Our customers want to order online. The era of calling up on a Friday night and trying to order that pizza and being put on hold for five minutes is behind us. That never happens anymore, right? You're just going to hang up the phone. And so we need convenient ways for our customers to order and for us to receive the orders. And so what we launched in 2012 and still the core of what we do today is a white label platform that allows any restaurant to get up and running and get what we consider their front of house online. And so that's what we're on their website. We build them brand and mobile apps, both a native iPhone app, native Android app. There's a customer database. There's loyalty. There's kind of everything. Many ways that we think about it is everything the national players are doing in-house. So you mentioned Domino's, Sweetgreen, Panera, Starbucks, you can name kind of any national brand. They've built very, in many cases, great apps. We want your local independent pizzeria, taco shop, and any other kind of restaurant to have the exact same tools.

SPEAKER_78: And so we offer all that for a flat monthly fee that's anywhere from $99 a month to $149 a month.

SPEAKER_36: Yeah. I'm looking at the website right now. If they buy it for two years, it's $99 a month. Correct.

SPEAKER_02: And there's maybe a $100 to $400 setup fee. So if the person were to do, but, you know, or, you know, a couple of orders a month, the 30% it might cost to use one of these other delivery service pays for itself. Correct? That's correct. That's your pitch to them. So you're greatly underpricing it. And you've also started to do this order contactless ordering. I noticed. And I initially thought, because the layout is so clean and focused, it looked a lot like Uber Eats, the design. And I thought I was using Uber Eats. And I was like, oh, wait a second. This is on their website. And a bunch of the websites in Sam, a bunch of the restaurants in San Mateo are now putting QR codes. We're in the Bay Area.

SPEAKER_23: Yep. That's your software. When you scan a QR code and you can order very easily through a website while you're sitting at a table, that's your software, Chow Now?

SPEAKER_83: In some cases.

SPEAKER_07: Not always. I wish it was always, but it's not always us. And it's something that we launched a few months ago, kind of mid-summer. And it was obviously a response to COVID and trying to keep everyone safe and at a distance.

SPEAKER_31: And then the other thing that we launched is curbside pickup. That launched earlier in COVID.

SPEAKER_86: How did that curbside pickup? I know it was pretty amazing because nobody does curbside pickup. That seems to be like a dead area.

SPEAKER_02: You had delivery, you want total convenience, or you go to the restaurant, you want the experience. But COVID created this new thing, which was, hey, these fees for delivery are expensive. I need to pick stuff up.

SPEAKER_71: I'm going to go pick it up myself and save 20 bucks. I've done it myself and I'm not really price sensitive. But I was also kind of pizza sensitive where my local pizzeria, the delivery service took

SPEAKER_02: too long and it's right down the block. I'd rather just order it and pick it up and not have to wait. It's faster and the pizza comes hot.

SPEAKER_71: So when we get back from this quick break, I want to know how that changed and how consumer behavior has changed in the pandemic generally. In other words, a restaurant you had that was doing, call it 100 orders, three a day, 100 a month. What did that look like during the pandemic? And is that starting to go back to normal? And in which cities and states and regions is it going back to normal when we get back

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SPEAKER_23: Our guest is Chris Webb. Chris Webb runs a company called chownow.com. As you've heard, they charge a reasonable price. Yeah. Call it low.

SPEAKER_02: A couple of thousand dollars a year for a restaurant to do delivery.

SPEAKER_71: Now you don't take a percentage of the $2.5 billion in orders you're going to do this year. Correct?

SPEAKER_83: That is correct. Got it.

SPEAKER_07: There's one small exception is something that we built over the years is restaurants kept coming to us early on and said, this is great for my existing customer base, right? In your case, coming back to the Bay Ridge pizza example, people that know us, but I want to grow my business. How can you help generate demands? And so what we decided to do is take a different path. And instead of trying to build our own marketplace overnight and compete with Grubhub and raise hundreds of millions of dollars, if not more, we said, well, why don't we partner with people who already have that traffic? And so we first partnered with Yelp. We've since added Google, Instagram, TripAdvisor, OpenTable, Resi, and others. And so we created this demand network that if our restaurants want, they can tap into, we have roughly 80% of our restaurants that use it. And today, I don't think I mentioned it, but we have 20,000 restaurants that use our software today, and it's grown pretty quickly every month. And so 80% of those 20,000 restaurants use this demand network to drive orders. Those orders, depending on the partner, sometimes have a very small commission, way lower than what you'll find on all the delivery apps. But there is a small commission associated with those that makes up roughly 16% of the $2.5 billion will come from that demand network.

SPEAKER_75: The other call, 84%, 85% of the orders of the $2.5 billion will come directly from the restaurant through their apps that we built for them through the website or another direct channel.

SPEAKER_36: So that seems reasonable. That's like lead gen. Do I get to own the customer from that point forward, or do I have to pay commission on that customer forever?

SPEAKER_07: So it varies partner by partner. In many cases, you own the customer. In the majority of those channels that I just listed, you own the customer.

SPEAKER_100: It's not true of every single one, but we're working to try to make that true for every single one.

SPEAKER_36: Got it. So in the majority of cases, if Bay Ridge Pizza got this new person who just moved into

SPEAKER_02: Bay Ridge, Brooklyn, and they lived on 8th Street and 5th Avenue, and they find out about it through Yelp or something, and they click the order button or whatever it is, they would own them for that second and third and fourth order. How many orders to a restaurant are repeat customers versus new ones?

SPEAKER_71: I guess it depends on how new the restaurant is, but you must have some of that data. Is it half? Is it a third?

SPEAKER_105: Yeah, you really do have to look at it at a cohort basis to really kind of see it because

SPEAKER_07: we have restaurants that have been with us six, seven years, and the majority of their client base has been with them for many, many years. One thing that I do know is true is that when a restaurant has a branded mobile app, and people don't understand why individual restaurants or small groups with two, three, four locations need their own app. And what we find is the customers that download those apps order three times as often as any other customer. For sure. And so you're never going to get 100% of your client base or your customer base to download an app. But the percent that you do, it's a little bit of that 80-20 rule. That 20% will contribute to 80% of your takeout revenue. So they kind of holy grail.

SPEAKER_37: It definitely is sticky.

SPEAKER_71: I recently downloaded the Shake Shack app because I would take my daughters to this mall in the Bay Area, the Hillsdale Mall.

SPEAKER_02: And there's a Shake Shack there, and they like the ice cream there. And the line can get crazy. And I just got the app because I didn't want to wait in line. So when we're having dinner at another restaurant, I'll put the order in for the ice cream, wait till I get the thing, and then I walk over and get the ice cream and let them play outside. And now it really is compelling once you get that app on your phone to do that.

SPEAKER_65: So I'm curious, just in general, what you're seeing with restaurants in Los Angeles, I think, is your biggest market. Am I correct?

SPEAKER_109: LA, Chicago, New York are tied for they're all within 100 or 200 restaurants.

SPEAKER_65: So let's take that cohort of the three leading places, three leading geos, as it were.

SPEAKER_02: What did you see during the pandemic in terms of the change in orders? And then has in those three cities, has it started to change back in some way?

SPEAKER_07: So things are still changing every single day. So you may have noticed this week, Chicago just put a ban back in place with numbers starting to tick back up. So that's changing. Cold weather is now taking an impact. So laws have changed. So New York City passed a law that made outdoor dining legal year-round. So the kind of outdoor patios that have all been propped up, you can keep it year-round. You can, you know, if someone wants to sit outside in the cold in December, you can do it. But that doesn't mean anyone wants to sit out or everyone wants to sit out in 40 degree weather under a heat lamp to dine outside. So it does constantly change. It does change by cities. Where we actually saw the initial impact, which isn't a surprise, was Seattle in early March. Because if you remember, Seattle actually was the city that was hit the hardest. And that's where you start to see this kind of ripple effect take hold of something that's going on here with ordering patterns. Obviously, you know, the news was talking about it, the city was starting to shut down. And then you saw this kind of ripple effect through the country as you saw these kind of hotspots come and go. May, where the entire country was shut down, that was the highest month that we've ever done in orders. And then it still has been very, very elevated all summer long, all the way through the fall. But nothing like May, where the entire country was basically shut down. You can go out to any restaurant. And that brings us to today, where you have all these factors, cold weather taking place, the restrictions like in Chicago and other cities taking place. So it really changes day by day, week by week.

SPEAKER_10: So it's really hard to kind of get a grasp of it.

SPEAKER_02: Got it. So DoorDash takes 20% commission from a restaurant when somebody orders food.

SPEAKER_71: So on a $50 order, they make $10, right? That's the basic fee that they take from the restaurant.

SPEAKER_07: 20% is for a good restaurant that's negotiated a good rate. You will find in New York City, which is a competitive market on these delivery apps, some restaurants paying up to 40%. And that's not specific to DoorDash. That is just the broad spectrum.

SPEAKER_02: Now, to make sure that this is...

SPEAKER_71: Yeah, because DoorDash is 10% to 20%. They're pretty clear about that. So sticking with the DoorDash example, they're taking 20%.

SPEAKER_02: So if a restaurant wants to be on that platform and they have a, let's call it a $50 average food bill, they're giving $10 to DoorDash for that privilege. And then there are some delivery fees that are given to the customer on top of that.

SPEAKER_63: So they're making roughly 15 or 20 bucks on that $50 order?

SPEAKER_73: That's correct. I actually think your 20% is probably a little low.

SPEAKER_07: When these platforms first launched in 2014 or whenever DoorDash and Postmates came onto the scene, that 10% to 20% was their pitch. And I think on average, the restaurant was paying, call it 14%. And so it was a very easy pitch to go in a restaurant and say, hey, you know that delivery apparatus that you have here, the kind of what you described, the guys going out in the back of the kitchen, the insurance you have to pay, the constantly trying to find staff because people come and go. Yeah, it's a pain in the neck. It's a huge pain. And so we will lift that off of you, that pain, and we will do it all for 14%. And so you had a lot of restaurants say, that's a sweet deal. I'll take you up on it. Pretty great deal, yeah. What has happened over the last six years is that 14% has gone to 15, 18, 20, 25, 30%, and sometimes higher depending on the market. And so that's why restaurants have really woken up. And things that we've been saying internally at China and trying to kind of get out and get the press aware, no one frankly kind of cared. It was other than restaurants. The restaurant industry cared. It's why we've been successful over the last six or seven years. It's why we frankly exist. It's only been in the last year or two that you've actually seen the press get a hold of it. And then now with COVID hitting, where the cities have jumped on, you talked about kind of the delivery caps or kind of alluded to the delivery caps that are taking place in various cities in the intro. That's a lot of times a reaction to every year that commission going up and up and up. When we first launched and I lived in New York for a while, I would talk to my local restaurants on my block and they would constantly compare Seamless to the local mafia. It's like they come in every year and they're like, you want those orders?

SPEAKER_15: It's going to be 10% this year. You want those orders? It's 12%. And it just goes up and up and up.

SPEAKER_02: Now, do you believe that local governments should put caps on these fees?

SPEAKER_128: I do not, no.

SPEAKER_07: I think, you know, I'm in it for the free market. A lot of these restaurants have signed up for it. They've agreed to it. It's two private companies agreeing to do business, agreeing to the fees. So in that case, I'm with you. I don't think there should be caps. What I do think is illegal or should be illegal and is becoming illegal is what we talked about earlier, the non-partner, that and that now. So here in California, the governor a couple of weeks ago signed into law, making that practice of non-partner restaurants, being able to scrape restaurants and just throw them onto your app, your website, illegal. Denver just made it illegal a couple of weeks ago. We're starting to see kind of city by city, state by state, that practice become illegal. And that I agree with.

SPEAKER_13: And I think this is where the rubber hits the road.

SPEAKER_02: This is becoming an incredibly, incredibly competitive environment where DoorDash was losing $2 or $3 per delivery. I think Uber was losing $1.50 per order. So these companies, even with this fee structure, were losing money on every order. And then you have competitors like yourself, Olo, Bento. I mean, I've been pitched on a bunch of these. You're not the only person doing enterprise software for this. You may be one of the leaders, and you certainly got there before everybody or almost everybody. But this has become wildly competitive. When we get back from this final break, I want you to tell me how many of your restaurants are actually participating in both.

SPEAKER_131: And is that a sign that the free market is working when we get back on This Week in Startups?

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SPEAKER_71: All right, Chris, when we went to break, we're talking about the free market. You yourself who are going up against DoorDash, ScrubHub and all these companies that charge a percentage, a percentage that might go up as they try desperately. I might add to hit break even because they're all losing money since it's become an arms race. And if they're all losing money, that means the restaurants are the beneficiary. The restaurants are, and I see this all the time when I order food and anybody who's listening to see this, they're on every platform now. They're on three, four, five platforms.

SPEAKER_02: In fact, I just got pitched on a company that consolidates all the orders into one iPad because they showed me a picture of restaurants where they have six different iPads and that the big opportunity would be to consolidate these so there would only be one device. I don't think that's necessarily a great business, but that was indicative of just how crazily competitive this is.

SPEAKER_71: Of your restaurants, how many are using a DoorDash postmanage or one of those Grubhubs and using your system for direct orders? Yep.

SPEAKER_07: Yeah. So as best we can track it, because again, things are shifting around pretty quickly, it's 50-50. So 50 will only use us and they will tell the customers, if you want to order online from us, order off our website, order off our app, or order off Chowdown. There is a Chowdown app. It's kind of what we consider our collective, kind of our farmer's market that all our restaurants are located in there if you don't want to order direct to the restaurant. So use any one of those channels. So that's half of our restaurants. Now, say that. Half of them, and that half is comprised of restaurants that have a lot of power because they are that local hero in their neighborhood. Everyone knows them. They can, in normal times, have lines out the door. And so people will follow what they tell them to do to get that food. Or they are located in very small towns and cities across the US and Canada, and there's just not a marketplace option, right? So you are in a tiny town in South Dakota. You run a pizzeria there. You compete with the local Papa John's, Domino's, and Pizza Hut. They all make it very easy, convenient to order. Their pizza may not be nearly as good as your kind of local pizza that you've spent the last 20 years developing and making, but it's a pain to order from you. And so you need tools and software to make it easier to be competitive. And that's why we have restaurants all over. We have restaurants technically in 4,000 or 5,000 cities. Now, that may meet this one restaurant in this one small town in South Dakota, but there's a lot of those examples. And so that's why you have half that just use us. The other half take more of what we consider the Delta Airlines or the American Airlines approach, which is, hey, if you want to go buy that ticket on Expedia, Priceline, Booking, whatever, you can do that. You may not get the best price. You can do that. Come to us. You were guaranteed the lowest price, in this case for a ticket, in our case, obviously for the food. You'll get the best experience and you'll have that direct relationship.

SPEAKER_75: And so we have half of restaurants kind of taking that approach as well.

SPEAKER_02: So in other words, there is a vibrant, competitive, dog-eat-dog, dogged, dogfight in this space currently. And that nobody, including the restaurants, needs to be worried about here. They all have all of these incredible options and it would be worse for them to have less options. And I think, this is one thing I heard from, again, a founder pitching me, I won't say which one. They said the new art is to use a service like yours, which is a flat rate. And then what you do is you turn on the DoorDashes, et cetera, and then you get those people's information. You put little flyers in it, order direct in the bag, which they don't know if you're doing or not, or you give them a coupon and you build that loyalty and then you turn them off at peak times. We're not taking orders from DoorDash on Friday and Saturday nights. You have to come direct. And so then what you do is you train people to order direct, you get better service, order through those other systems, you get penalized where it may not be available, or maybe we won't even put certain things on those menus. Is that a real trend? Absolutely. And how are the DoorDashes and Postmates of the world responding to that?

SPEAKER_07: Well, obviously they don't like it, right? They're spending all this marketing money to get consumers. Now, it's very ineffective or maybe it is effective, but it's not productive. So you know your local restaurant, right? You tend to crave your local restaurant. You don't tend to crave Grubhub. You don't kind of on a Friday night at six o'clock be like, I'm craving Grubhub. You're craving Thai food, Indian food, whatever you're feeling. You talked about crabs earlier, whatever you're in the mood for, right? And so you, in many cases, are trying to find that restaurant online, usually through Google, but not always. And you get hit with ads. Those ads cost a lot of money because it is so convenient. And they are bidding and bidding and bidding. And so you ultimately click on an ad that costs that service. So let's stick with Grubhub, Grubhub a lot of money. And so they need, so their customer acquisition cost is high, roughly in this space. And again, we don't compete in the consumer marketing space, but we know a lot of people that do. It's $80, $90, easy to get a new consumer, right? So you need that consumer. You need that customer to order many times to recoup that. And that's just to get the order back to the restaurant that that customer wanted to order from in the first place. So you're layering in all this fat and all this money just to get the customer back to where they wanted to go in the first place, which is causing all these fees to stack on top of each other, right? And so despite that, as you said, they're all losing money, right? Everyone you've named is losing a buck or order, two bucks an order. It's because of all these fees to get the consumer over and kind of that constant battle. And then you have that restaurant to say, okay, well, I'm just going to drop a flyer in the bag and they're going to stick with me.

SPEAKER_10: And I may just give them the guaranteed lowest prices for my menu. And I'm going to cut out all these crazy fees that they get later on.

SPEAKER_02: Do those platforms force the restaurants to charge the same price when they're ordering direct as are on the platform? In other words, do they ask for most favored nation in their contracts now? And do they demand that they provide service 100% of the time?

SPEAKER_13: Are they hip to this trend?

SPEAKER_07: They used to be. And technically, their contracts may, in some cases, have those terms still left in there. In reality, as you said, it's so competitive that once one platform kind of gives in, the other platforms have to get in.

SPEAKER_02: So capitalism working again, the free market working again. So to all of the dipshits on Twitter who were printing, they cherry picked one receipt and it was like 80% taken by Grubhub or whoever it was. I can't remember.

SPEAKER_71: And then I looked at it and it was like, there was an item on there that was the majority of it was like a third of the bill that was a return. So they were showing the return of a previous order on this bill. So there's a bunch of FUD, fear, uncertainty, and doubt in the marketplace. But let me ask you about another deep inside baseball, which is what we do here on This

SPEAKER_02: Week in Startups. And again, it might be a little dark, but we're going to be candid here. I was told that the big social benefit of the DoorDashs and Postmates of the world is that they're being forced to use Americans or people with green cards and to pay taxes. So even though those people are gig economy, they're not the underground economy, the gray market, the non-taxed market. And that restaurants, and I know this having come from a restaurant family, I think you were in restaurants as well, were universally, when I was growing up in the 80s and 90s, and when I lived in New York in the 90s and 2000s, 100% of the time, it was an illegal alien. It was an undocumented worker doing these deliveries. And I know from back in the day, the way they got paid was they got paid like 20 bucks to

SPEAKER_71: just do a shift, $2 an hour plus tips. They lived off the tips. So maybe they made in the 80s, 90s, five, six bucks an hour off the books, which on the books would have been at $2 to that, whatever it is, seven to nine. And the minimum wage at the time was $3.50. So it was double minimum wage. And it was, I guess, a pretty good deal for people who wanted off the books work. In your system, the restaurants pick who the workers are, correct? They're responsible to deliver. You don't do the delivery.

SPEAKER_07: Correct. We are just software. The majority of our restaurants do their own delivery still today, despite the press that DoorDash, Uber Eats, and everyone else gets. The vast majority of the restaurants on our platform still do their own delivery.

SPEAKER_119: Right. And you can't be assured that they're not using illegal aliens or the underground economy,

SPEAKER_02: and many of them are, right? So that is one societal thing that the other services, that the Postmates or the DoorDashes

SPEAKER_44: can say, hey, listen, we're taking these jobs and legitimizing them. Correct.

SPEAKER_159: In some cases. Yeah.

SPEAKER_07: But if you break down the math and the way it works, the one example that you talked about with that $50 order on DoorDash, you kind of broke down the math and you said the 20%, right, was $10 and then the service fees. So to fill that $50 order, let's use round numbers, that's $15. Let's say that delivery takes at max 30 minutes, probably not going that far. Well, if you do two orders per hour, that person could have made $30 if it was just there, right? Yep. So if you'd start to do the math, and this is where originally when they first launched and they said, we're just going to charge 14%, there's no crazy fees. And this is when they were losing tremendous amounts of money and they- Yeah, they were building a business. Exactly. And so they're undercutting and they're just trying to get their foot in the door. And so that's where the math made sense for the restaurant. Now, with what the math you just described, where it is that $15 of that $50 order went to actually fulfill the delivery and it went a mile or two from the house, well, now you can justify actually paying market rates if you're saying kind of $30. And so that's what we're seeing more of. And we're actually seeing a lot of restaurants, because of COVID, do both things, go with all the marketplaces, but also repurpose their own staff, right? Yes, this is a big trend. Bartenders are running orders now. Totally. We see that on our platform all day long. Yeah.

SPEAKER_23: And that actually creates a more consistent experience. Are there third parties now that just do the delivery piece?

SPEAKER_71: I know I had been pitched on businesses like this that were just, they had unbundled from Uber the logistics piece. So they were like, you can just tell us, pick up this, drop this off, put it in, drop it into an API and we'll do it for you for X bucks a mile or X bucks an hour.

SPEAKER_23: Does that still exist? Did that ever work?

SPEAKER_73: It works all the time.

SPEAKER_07: It's worked for years. There's a company here in LA that I would be shocked if you knew called Jolt Delivery. I have heard of it. Yeah.

SPEAKER_169: That might've been the one that pitched me. Oh, interesting. It's been around for a while. Yeah.

SPEAKER_07: It has been well over a decade. No one knows them. I'm shocked you knew them. That's impressive. But all they do is pick up food at a restaurant and they drop it off at a home or office and they get paid five, six, seven bucks to do that. And they do that thousands and thousands of times a day here in LA. There's one in New York called Relay. Relay has been around for a number of years. They're very successful. Restaurants love them.

SPEAKER_75: You can talk to them soon. I know Relay as well.

SPEAKER_02: I mean, Maria's Kitchen, which was a local chain in LA, that was by my house in Brentwood. We would order from there. They had a pretty good ziti.

SPEAKER_71: They used it and a bunch of other people used it. But you can't order directly from Jolt. Jolt just empowers restaurants. They charge them on a per fee and you can become a jolter as it were.

SPEAKER_61: Exactly. It's sort of like Postmates without the marketplace, right?

SPEAKER_07: That's exactly what it is. And that's what most restaurants need is actually the fulfillment of the order, the logistics piece, not the demand generation. So demand generation amounts for it. They often get sold on, hey, we're going to send you all new customers, right? Grubhub will walk in. We will send you new customers. And when you look at the names coming in off that Grubhub tablet, it's the same person every single week ordering the exact same food. And so you at the restaurant are paying way too much when in reality, all you need is that food delivered. And so what we've never really understood is if you take a $80 delivery and a $40 delivery, both fill up one bag, just have different prices of the value of the food, why does the restaurant have to pay double the price for $80 to be delivered the exact same distance to the exact same person?

SPEAKER_71: It's a no-brainer. You want all those people, and this is where a loyalty program comes in. When you have the loyalty program, if people are ordering from the same pizzeria every week because the kids love it and you put the same order in, yeah, you start a loyalty program, you give them free dessert or a free appetizer, whatever it is,

SPEAKER_02: you can then start converting them over. There's no reason to be paying for them and acquiring the customers. Okay, you got a lot of softballs today, Chris.

SPEAKER_178: And now I'm going to throw the heater because we're in minute 40, 45 minutes in.

David Friedberg: It comes to fastball. Okay. It's going to be coming tight and inside right now. So this could, you know, don't lean into this one. Be careful. My good friend who paid for the house I'm in, Travis, started a little company called Cloud Kitchens, which hopes to take the entirety of what we discussed about on this podcast and take it all. So how are local restaurants going to compete against 30 food brands being in a space that's the size of, you know, let's face it, one restaurant sharing one commissary, one set of salt, one

SPEAKER_02: walk in box and having all the drivers go to one central location. How on earth will the industry look in 10 years when Cloud Kitchens is everywhere? And how are restaurants responding to that?

SPEAKER_184: That's the hardball? I think so. It's coming down. Yeah.

SPEAKER_23: I mean, I, I mean, I know for me, I'm ordering Belcampo when I'm at the office and then there's some other house brands and it's for, at Cloud Kitchens.

SPEAKER_71: I don't think Belcampo needs to have all these expensive restaurants everywhere. I mean, they might, but I think they're going to, it's going to be a race to the bottom with

David Friedberg: all of these places in one. Are you going to launch a competitor to that? Because you're providing software to people.

SPEAKER_07: We're not. And we actually have a very good relationship with the folks over at Cloud Kitchens. A very good friend of mine has been there for a number of years. I was talking to him last night. He also runs some really great restaurants. They're very secretive. They don't list themselves on LinkedIn working there.

SPEAKER_83: So, so I'm not going to mention his name because they, they, it's kind of very much.

SPEAKER_188: Did you say they might make cauliflower pizza? I think I know who you're talking about, the cauliflower pizza, the Kino pizza company.

SPEAKER_191: You know who I'm talking about too. Okay.

SPEAKER_07: A different person, but, but the, and so a lot of the restaurants in, in all these kind of Cloud Kitchen facilities actually use Chow Now. So, so in many ways we actually work really well with them. I will say it works really well for some models. And we have a lot of very successful, successful restaurant clients here in LA. I may get in trouble for, for mentioning this, but you'd mentioned living in Brentwood, you know, Coral Tree Cafe. Of course. Yeah. Really well known, very successful group. They pulled out of all their Cloud Kitchens, right? None of them work. Oh, wow. The number, the numbers didn't work. So you have this local brand that is loved, known as you said, of course, you know them because everyone in Brentwood knows them and all the, exactly, exactly. And yet they, they tried multiple facilities, uh, in Cloud Kitchen and the numbers just did not work despite that local brand. Uh, there, there's a number of examples where it does not work like that. Um, you know, Sweetgreen, which is really well known, very young, uh, digital, uh, Ford platform. Uh, they've closed a number of their Cloud Kitchen locations. They still have one or two running. So it doesn't work as advertised. Um, it sounds great on paper. And there's some examples. The one that they always flip back to is, is, um, uh, Chick-fil-A, right? Uh, Chick-fil-A works, works, works, works.

SPEAKER_65: Starbird chicken is incredible. Yeah. Yeah.

SPEAKER_46: That's the higher end one with the non, you know, uh, hormone injected chickens. You want that one.

SPEAKER_07: And in some cases it works really well. Um, I'm, I'm friends with, uh, Michael, the CEO of, of Kitchen United, another kind of one of these that's backed by Google.

SPEAKER_15: Uh, and I know they're doing very well in some cases, and in some cases, some restaurant concepts don't work. So, so I don't think I'm not in the campaign.

SPEAKER_36: Well, how does it compete against, I mean, let's forget about your business. Cause I agree it's your business will always be there, but for a restaurant that has to

SPEAKER_02: go up against, you know, star bird chicken or something, or, or a house brand that's there, that house brand is going to have a massively lower cost structure. So I think the consumers are going to be the huge winners here. But if these, how does a restaurant with all of that space actually compete?

SPEAKER_71: That's what I'm trying to figure out. Uh, when this all becomes consolidated and all the drivers are sitting out there. So, you know, the time for the driver is cut in a third or half because the drivers just immediately go back to the cloud kitchens and sit there as opposed to going to Maria's kitchen or coral or wherever. Right. You understand what I'm saying?

SPEAKER_07: I do. So I have a couple of thoughts on it. One, I'm like you, I believe the free market will make this work. Uh, and also as more things move online, more of that main street type setup, there are more shops that are going to be closing. I actually think that kind of commercial real estate is going to have a lot of pricing pressure. I think from a pricing standpoint, I'm hoping, and maybe I'm overly optimistic that actually some, some of this rental space will go down. You can get a lot online food. You can obviously order online, but it has to be hyper-local has to be coming from someplace very close to you, obviously, uh, within miles, uh, most things that you buy online, whether it's Amazon or Shopify, Shopify store, wherever you're buying something online, it can be shipped from a warehouse many, many miles away. And so I think I am fairly bearish on those local stores, sadly surviving what I think actually will survive with restaurants. And I think that will just, uh, lower the price of rents across the board over the next decade.

SPEAKER_71: I think I'm, I hope that's a good counter argument and I agree, you know, what I saw in New York in like the eighties and into the nineties was all that storefront space that was vacant became offices and live work offices and then creative people would use it for an art gallery or an event space.

SPEAKER_02: So you'll have this creative destruction that occurs where I remember on Montana, when I lived in Brentwood and Montana and Santa Monica, man, like, uh, I don't know if it was one out of five stores were empty because the rents people have bought those buildings at such high prices.

SPEAKER_71: They all thought they were going to have a Starbucks or a, you know, sweet rose creamery or whatever it was. There just aren't enough of those to go around on every block. So they couldn't keep up with the rent. So now all this stuff collapses, all that rent's going to be there. It might turn out that instead of having a $5,000 storefront, you got a $1,500 storefront

SPEAKER_209: and the economics suddenly work again, right?

SPEAKER_29: That's sort of the argument here. I also am a big believer of out of sight, out of mind.

SPEAKER_07: And I think when you are within this facility with 30 other locations, the restaurants that you describe, I think there's something about driving past, like you, Coral Tree Cafe, I named it and you said it's on the corner of here and here, right? And there's something in the back of your mind that remembers exactly where that location and it makes it relevant to you. And I think when you don't have that and that driving that past the restaurant, even if you're not going to order there for a week or go there or whatever, there's that constant reminder and you lose that. And I think that's one of the challenges of the cloud kitchens. And so to make up for it, you have to spend on digital marketing and that will then raise costs in another area that you're currently not spending money on.

SPEAKER_65: You think, listen, I'm not an investor in Travis's and Diego's latest company,

SPEAKER_02: cloud kitchens, unfortunately, but obviously rooting for them. Um, do you, do you think they eventually aggregate the drivers and become a platform themselves?

SPEAKER_213: Well, they clearly have the capital if they want to do that. Um, that's true. They raised to have 500 million bucks or so.

SPEAKER_214: Yeah. That we know of. I mean, who knows what else has occurred since then?

SPEAKER_215: Yeah. Um, yeah. I mean, they, they, they don't like to share much.

SPEAKER_71: Um, it's, it's, well, I mean, after the last time being high profile, it's exactly.

SPEAKER_215: Yeah.

SPEAKER_71: I mean, it wound up getting Travis ousted. It was so high profile and now nobody knows what's happening at cloud kitchens. Then they don't even list their names on LinkedIn, according to a story I read. Yeah. Um, and they've been shielding all their purchases with LLCs on LLCs on LLCs. So smart move. I don't think they want to educate people. Do you think that they just at some point decide heads up against Postmates and, and DoorDash heads up against Uber and Lyft in terms of driving stuff?

SPEAKER_07: I think so. Yeah. The, the drivers like Lyft and Uber, um, they're, they're not loyal to any one of the companies, right? They will go where the, the work is. They will go where the job is. Uh, so, so a lot of these drivers.

SPEAKER_15: Currently.

SPEAKER_228: We'll see what happens when Prop 22 passes. Yeah.

SPEAKER_15: We'll see what happens next on Tuesday.

SPEAKER_07: Um, and so, um, I tend to think that if they wanted to prop that up overnight, they could get a lot of these drivers driving for them and fulfilling it. So, so I actually think it's a pretty easy move. Clearly Travis knows a little bit about this.

SPEAKER_230: And so I think a little information about how that business works.

SPEAKER_07: So, so I, I don't think it's a stretch to see them do it at some point in the future or, or buy like a relay or buy a, a jolt or, or someone like that. Cause this is essentially what that is. It's just kind of bolting on a delivery only logistics only platform.

SPEAKER_02: What, what, what do you think is going to happen with Amazon and they're sort of, they had done some restaurant ordering kind of experiments. Are they anywhere circling around this? I, I know I saw Uber Eats now is putting in, you know, like a various sundries and, you know, uh, groceries into the Uber Eats app so you can order them, um, which was part of Travis's original plan, but I haven't seen, they did have restaurants on Amazon, right? Didn't Amazon have Amazon restaurants?

SPEAKER_159: They, they, they had kind of one foot in, one foot out. It was, it was very bizarre how they read it. Um, which is unlike Amazon.

SPEAKER_07: Amazon tends to do things pretty, pretty darn well. Yeah. Or shut them down. Yeah. This, this, they didn't either. They just kind of let sit out there for, for a couple of years. Um, every six months I'd be like, did you hear Amazon enter the space? I'm like, yeah, they've been here for years. That says how much, like how lame this, this approach has been. Um, I, I had a friend that actually worked for Amazon restaurants and gotten kind of look kind of under the hood. And, and it was like, they, they were okay, burning 50 to a hundred million a year, but they didn't want anything to come out of it. And then ultimately it kind of one day they said, you know what, we're out. Somebody had told me, and I've never verified this, but it makes sense to me that actually because the experience was so poor, because it took so long for you to get your food on Amazon, that they were doing surveys and they found it actually hurt the Amazon core brands. And so people would stop buying less things on Amazon because their experience with ordering food from their local restaurant was so poor that they just bundled it with the Amazon brand in their mind. And they said, you know, screw it. I'm not using Amazon. I'm going to go Walmart or whatever. And so for whatever reason, I, that was one reason I heard, um, I never understood why they went all in. I do think they're very interested clearly with whole foods, clearly with this massive, massive, um, delivery driver network, you know, what they call flex, uh, their flex driver network. I think they'll enter it again. Um, I'm, I'm pretty positive. I think, I think they're waiting for the dust to settle. I think they're waiting for a few of the players, the big players to go away. It feels like that's not going to happen now. Right. With, with, uh, Uber buying Postmates, Grubhub now being, yeah, I mean, you'll have two or three players, but now we have three players and I don't see, see those three players DoorDash is going to go public at some point here. Uh, they're very successful. They're very well run. Uh, they, they're very smart over there. Uh, you have Uber and Postmates, um, who I honestly think is a little bit lost to the two of them. I think they're trying to kind of figure it out. Clearly it was very public that Uber wanted to buy Grubhub. That didn't work out. They kind of turned around and bought, bought Postmates.

SPEAKER_232: And some European company bought it. I mean, yeah.

SPEAKER_07: Yeah. A company called takeaway. Um, I agree.

SPEAKER_241: But, but either way, there's now move on their, on the Grubhub people's part.

SPEAKER_07: Well, as I look forward over the next year or so, and, and hopefully, you know, over the next year, COVID starts to kind of move behind us of vaccine treatments and other things. And at some point this will end and life will return. I think restaurants will be, uh, have a lot more leverage in the conversation right now. They are just trying to save, stay alive. They're trying to keep the lights on and it orders wherever. And that's one reason that they went to everything and that, that the description you described of five tablets in a restaurant, I think is very much the case today. That's why I said half our restaurants will use anything because they want orders where everything yet, whatever the commission may be coming out of this, when dine-in returns, when their core business starts to return, they will be in a place to be a little pickier and they will be able to turn away some of those high commissions. And so that will be very interesting on kind of how that dynamic plays. And they start turning off some marketplaces. And at that point, laws are now in place where Grubhub can't just list the restaurant, even if they turn it off. And so I think you'll start to see inventory coming off, restaurant inventory off of these,

SPEAKER_62: these apps in the next 12 months or so. And that'll be a very interesting dynamic to kind of watch.

SPEAKER_71: Yeah. I think that's directionally correct is when we come out of the pandemic, which I would

SPEAKER_02: put, you know, sometime in the first, second quarter, uh, hopefully of next year, we will see some amount of, uh, restaurants. There'll be a, what a third less restaurants.

SPEAKER_247: I think David, what was it? David Chang, uh, was saying he thinks half the restaurants in LA are going to go away. That seems a little crazy.

SPEAKER_07: It's pretty dire. Uh, so, so I will say from our perspective, Q3 of this year. So the quarter that just obviously wrapped up was the lowest quarter for churn on our platform in years.

SPEAKER_71: So, so, so if you would have shut down, you would have shut down already. So this was like an extinction event, the bottom 25% of restaurants go away, but the rest make it.

SPEAKER_159: Correct.

SPEAKER_07: Or, or it just happens that our, our group of restaurants were well-positioned, not that they were very well-run, but that they already had a takeout business to begin with. It's how people thought about them going into COVID. Now that takeout is massive and people are spending a lot of money on, you are, you as a restaurant are well-positioned. Uh, you also had online ordering set up. You did it the right way. We like to think it's through us, but as you mentioned, there's other options out there. Uh, and so you had all the pieces in place to take advantage of this massive boom in takeout, pickup delivery and curbside pickup. And so, so you were well-positioned and you were surviving this right now. It's the fine dining restaurants that we typically don't work with that are the ones that aren't

SPEAKER_62: able to pivot quick enough. Dine-in's gone away. And those are the ones.

SPEAKER_71: Yeah, they just can't. I mean, they have huge rents. They've got this incredible opulent Taj Mahal destination with vaulted ceilings and, you know, gold leaf. They, they can't survive. And, and Danny Meyer has been pretty clear about that. If they don't do a second stimulus, which is the most bizarre thing in the world, I can't understand why the, and we're sitting, we're taping this by the way, right before the election in case it comes out after that. I mean, it's just so insane to think that Trump didn't do a stimulus before the election and get credit for that.

SPEAKER_02: And then all these poor restaurants, um, you know, and, and retail and, you know, small businesses. I mean, they're all good. I mean, this is going to be a massive shock of, of job loss, right?

SPEAKER_71: As we're apparently, if you believe Trump and if you believe, uh, you know, some of the, um, you know, experts, we're going to have a vaccine and we're gonna, we have treatments

David Friedberg: and the death rate is kind of staying low while the case count goes high.

SPEAKER_02: Like, it feels like we're in the end game here in maybe a six month stimulus would be wise, but I don't know. Maybe they're just taking this like nihilistic approach of let everything die so that the things that do survive will be that much stronger, you know, in the boom, bust cycle of competitive capitalism. But man, there's going to be some carnage.

SPEAKER_07: I, from a political angle, I agree. I don't understand why they didn't push this through one out of every 10 people in the U S work for a restaurant somehow, uh, either in a restaurant. I mean, it's a massive, massive part of the supply chain, et cetera.

SPEAKER_257: Correct.

SPEAKER_07: I mean, it is, it is massive. And so retail too.

SPEAKER_251: Yeah. And, and so I don't, I I'm with you. I don't understand. To me, it was an easy win right ahead of the election to lay up. Yeah.

SPEAKER_186: It's a free throw. You got to hit your free throws. I mean, it's just too easy free throws. The first stimulus they do, everybody loves Trump. Do the next one.

SPEAKER_71: Everybody loves Trump. Every mortgage. You're dumping money from a helicopter. Do it. Like, I can't tell you how many startups I know who we're going to go under and then we're pitching me, you know, this summer and into the fall and said, you know, we got a hundred K, we got a 200 K stimulus check.

SPEAKER_02: We didn't have to lay anybody off, you know, and, uh, we're, we're going to make it through.

SPEAKER_71: And now people are not going to make it through. It's crazy. Uh, listen, you've been a great guest, Chris Webb, congratulations on your success. Congratulations on getting there early.

SPEAKER_02: Uh, congratulations on the SPAC. No, you're not. How many of these SPAC people, be honest, are circling, knocking on the door?

SPEAKER_246: There are hundreds of them.

SPEAKER_175: Yes. I I'd say it's cooled in the last week, but one a week up to this week.

SPEAKER_13: It's unbelievable, right? It's like, we were sitting here and everybody's like, yeah, you got to get to whatever it is.

SPEAKER_02: You know, 500 million is the new bogey for going public, 250 minimum.

David Friedberg: And now people are like, you got 50 million in revenue. Let's, let's roll. And you're in that window, right? So yeah, we're approaching a hundred.

SPEAKER_02: You could be public. How do you think about that as a founder? You know, you got all these great investors in your company. You could stay private longer. SPL, stay private longer. Yeah. Or you could SPAC it out. You could do a SPAC attack. SPL, SPAC, where are you leaning?

SPEAKER_15: Definitely not SPAC. IPO, maybe one day. Okay, you want to do a proper IPO? Yeah. Direct listing?

SPEAKER_07: Yeah, yeah.

SPEAKER_281: So you're SPL, you're SPL.

SPEAKER_07: In my 20s, I worked in finance in New York. And so SPACs always had a bad name back then. And I always kind of view them as a relatively desperate way of going. And so that's how I still view them. And now it's not.

SPEAKER_16: It's considered the opposite. It's considered a more elegant way of going. Yeah. Or as elegant.

SPEAKER_62: It's what the bankers are telling me. So, you know, it's like, it's...

SPEAKER_71: You got pressure from the investors who want you to like get liquid? I would be telling you, if I was an investor, I'd be telling you, do it. Get public and start acquiring stuff. And I mean, people, your story's good for the public markets right now.

SPEAKER_86: Retail investors, I mean, not to make a pun here, but they would eat it up.

SPEAKER_201: Yeah. So we may be raising our end of funding, maybe, maybe not. Maybe, maybe not.

SPEAKER_07: And so we think coming out of this, we will be in a position to start acquiring companies. We've already started having conversations. At this point, we don't have an LOI signed, but we are having conversations. Given the size and the scale of the business and the fact that we've been very fortunate, we've grown a ton this year, we've hired a ton this year, we think coming out of this

SPEAKER_31: and going into next year, we're in a position to start acquiring some companies and building that muscle as a company.

SPEAKER_85: What did you learn at Lehman Brothers during the crash?

SPEAKER_65: I know you were on Wall Street at Lehman. What did you learn?

SPEAKER_285: I wish...

SPEAKER_65: And how does that sit with you?

SPEAKER_68: How does that, that scar tissue, you know, when you rub your arm and you feel that scar, or maybe it's in your side, what do you think about?

SPEAKER_287: Yeah. So I wish I was at my desk.

SPEAKER_07: I'm clearly not at my desk right now. I have a cube that sits on my desk and it's from Lehman Brothers and it's what they gave you as your first week that you're there, you employ each other. And it was one of these cubes that's not a Rubik's cube, it kind of like flips open and says different sayings on different surfaces that you kind of flip this cube around. And it was the operating principles of it. And so one of them, of these many that I list, is smart risk management, which is just so ironic given that it ended up being the largest bankruptcy in the history of the U.S., right?

SPEAKER_289: Smart risk management.

SPEAKER_07: Smart, smart, smart risk management. Yeah. Was one of the operating principles. So among all the lessons I learned, the fact of just talking about these principles and not actually living them is one. The other thing that I remember very distinctly is when I lived in New York and you work in these very tall buildings in New York. All the employees are in, call it 18 different floors. And then the senior execs are in their own floors with their own dining rooms and their own elevators. And there's no interaction. And I remember this very, very well. They keep you walled off. There is no interaction, no physical interaction. And so-

SPEAKER_292: Yeah, you have the private bathroom, private lunchroom.

SPEAKER_07: And as someone who was in my early to mid-20s and given commands and all these things to do, it's like, these don't make any sense. Do they not understand what's going on in the business? What's going on here, yeah. And so as we've built this business, I am very approachable. I'm intentionally very approachable. Yes. We're all at home now, but my desk in the office is on one of the rows with a lot of people. I tell every new class, slack me anytime. I'm approachable because I do not want that where I and other executives at the company are walled off and have no idea what's going on in the trenches, out in the fields, talking to clients. So that was probably the biggest takeaway from my time at Lehman.

SPEAKER_65: All right. So the culture thing, making yourself accessible. Since you're such an outspoken and candid, great guest, by the way, we might have to

David Friedberg: have Chris back for a news roundtable. You're in the candid bucket, like one out of every six or seven guests, I get somebody

SPEAKER_60: who's candid.

SPEAKER_247: You must have watched Brian over at Coinbase and then Expensify, two polar extremes here.

David Friedberg: Yes. Expensify CEO emails 10 million people, says you have to vote for Biden. This is an existential moment in time. Trump is Hitler, basically. And if you don't vote, and I don't care if I lose a third of my customers. And then you have Brian saying, hey, listen, come to work and work.

SPEAKER_23: And we're not going to have work become a place where we're talking about religion, social movements, or anything. We're here to focus on this movement.

SPEAKER_02: When you watch those two things, and you talk to your management team, your board, your investors, and you just sit there in your own space, and you meditate on it, what's the right answer

David Friedberg: here? Because both of those, no discussion slash I'm going to force my will on the customer base.

SPEAKER_23: Both of those, most people I've talked to say we're too extreme. Where do you come down on this?

SPEAKER_109: Yeah, so I agree. They're both too extreme. When I saw that blog post, like everyone did on Twitter, all of a sudden, because it got

SPEAKER_07: shared very, very quickly. The first thing I did is I went to our head of recruiting and said, start calling everyone at Coinbase. Because I'm sure there's some people that don't agree. And I'm sure we can get free. And I'm sure they have some great engineers over there that disagree with this. So let's see if anyone want to join. We're hiring like crazy. And so that was my first thought based off of reading that. It's not what we believe at Chow Now. I also disagree with sending out that expensive email that I also received and read and shared with a couple of people that everyone kind of got it. And everyone's like, is this real? Like, this is kind of extreme as well. And so the way I view it is we live right now in a place where there's a lot of instability and people are very concerned. And so what I want to do at Chow Now in terms of kind of the culture, the people we work with is provide some level of security. And so I think you actually have to talk about a lot of this stuff. I think you have to be fairly balanced in many ways, because we have people from all over the political spectrum. We have a lot of people here. We're based in Los Angeles. We have a lot of people that you would assume are young and liberal and progressive because just the age range and the location here. We also have a very big office in Missouri, in Kansas City, brings different political views. And then we have people all over the country. We have people up and down the East Coast. We have people in the Midwest. And with that brings a lot of different views and perspectives. And you'd be hypocritical if you're saying everyone has to be included unless I disagree with you. And so we are making sure that we want to have a place where we're not having a political battle, but you can feel safe. And that Chow Now is a place that you can at least get some type of comfort in your life because the amount of stress and anxiety that's in society today is through the roof. The number of just three friends in the last two weeks who had premature babies. Apparently, that's a massive thing because the amount of stress that we are going through and women are going through are causing premature babies. So we are just living in a very stressful time. And so I want to do whatever we can at Chow Now to try to reduce that and give you some type of thing. And so that means actually talking about a lot of this. So we address it. We talk about it. We encourage people to vote. We're doing a lot of things on Tuesday. We're not taking the day off, but we're doing a number of other things.

SPEAKER_75: We're letting people go and work at the polls and we'll pay for your day to go over. There's a whole bunch of things.

SPEAKER_306: I'm sure if somebody asks you, like, can I leave work at four o'clock to go vote?

SPEAKER_71: We're coming at 10. You'd be like, cool. Yeah. I don't think you have to take the whole day off, but I do think people should be allowed to take a couple of hours to go vote and make it easy for people.

SPEAKER_109: Absolutely. And you get hours of PTO to take off. If you have to vote the entire day because you're standing in a line somewhere where it's

SPEAKER_07: hard to vote, take off the entire day. We also, one thing that we did weeks ago is we announced that there is zero meetings that day. So you cannot be stuck into a meeting.

SPEAKER_251: So you don't have to worry about missing a meeting or being late or being early.

SPEAKER_02: You know what I think a lot of this is, you mentioned Slack before, is on top of everybody being so stressed out because of the pandemic, the recession, and our divided politics and the election, um, and this bitterness, you know, you, you put that into what's the worst possible medium to talk about a charged issue chat, whether it's I message or Slack, and this is no dig to Slack. I love Slack. We use it every day. It's our operating system, but I got to tell you that goddamn random channel. I suggest everybody go right now and delete it, uh, because somebody is going to put a random joke in there or a random cause. And you don't want to be like, uh, you're not a Scientologist by chance.

SPEAKER_86: Are you Chris? Cause I'm about to go off on Scientology, even though I've got a lot of friends who are

SPEAKER_68: Scientologists, but I'm not going to go off on it. You can have, you can go, you can be a Scientologist.

David Friedberg: I don't care, but I don't know if you know the story, but Tom Cruise, when he was making World of Worlds, put a Scientology recruitment tent famously on the set. And Mr. Spielberg, who is infinitely more important and desiring of respect than Tom Cruise, in my mind, just in the hierarchy of the film industry, like some respect here, you're working for Mr. Spielberg, like Jaws, E.T., Raiders, Spielberg, don't set up a religious tent. Like I'm not setting up a Catholicism tent or a Greek diner, like chill out.

SPEAKER_02: And that's what people are doing at work, you know, and that's where I think Brian's got a point. And I just said to my team, if we're on a Zoom call or we want to have talk about a discussion,

SPEAKER_71: let's set up a Zoom call. Let's set up a lunch. Let's set up a dinner. We'll have a lunch and learn or whatever.

SPEAKER_02: And we can talk about any issue that's charged in person, looking each other in the eyes with patience and respect, not in a Slack room, not on an email server. That's where people flame each other and there's no empathy. So if you hear my voice, that's my common sense solution.

SPEAKER_71: Just ban these discussions on social, ban the discussions on internal electronic communications and insist they occur in person. Very simple. Which is what I do with important people in my life. If I'm having a dispute with somebody who I'm friends with, I'm like, let's talk about it in person, right?

SPEAKER_318: Yeah. Or at least over the phone. Even voice helps. Oh yes, the phone is fine too. Yeah, yeah, yeah.

SPEAKER_23: When you hear the process. All right, listen, Chris, continued success. Thanks for taking the time out of your busy schedule. If you know somebody who's got a restaurant, just go to chownow.com and spend a hundred

David Friedberg: bucks a month and start owning some of those customers. Listen, I'm still heavily invested in Uber, but viva the competition. I want to see competition in the space because that's in the best interest of the restaurants, the winners of that competition and the consumers.

SPEAKER_65: Let's go capitalism. Congratulations on your great success with Chow Now, Chris. And we'll see you all next time on This Week in Startups. Bye-bye.