Who’s My Customer Anyway?
How breaking-up with some customers brought GrubSquad one step closer to success
Written with Shin Wang
My world view of the delivery landscape was quite different prior to launching GrubSquad. My understanding of the on-demand food delivery space was that it was mostly a consumer business going door-to-door. This user base consisted of folks like you and me wanting their favorite meals delivered to their house or office. The best part is, they were willing to pay for the convenience of meals being delivered to them. Grubhub and Seamless had made great in-roads in this industry, but their product was limited. In 2012, these companies functioned more as restaurant order generators, essentially a directory for restaurants that have take out or delivery themselves. During that time, the majority of restaurants did not offer delivery. A 2011 National Restaurant Association survey reports that 51% of restaurant diners were likely to use delivery option to their favorite restaurants if it was offered. Locally, the surveys that I generated had even higher numbers of people who wanted delivery. Armed with the fact that young professionals are working above 40+ hours a week, I made the bet to go after the underserved market of people who wanted their favorite restaurant meals delivered without the hassle of having to go pick it up. To test idea, we formed partnerships with restaurants and delivered meals myself. As we saw a more consistent consumer purchase behavior, we built our initial business model and product to fit this target market.
Just because we built our web application, it didn’t mean people were going to use it. We got in front of our target demographic by passing them GrubSquad flyers at gyms and restaurants, sponsored events at apartment complexes, and invested in advertising in print media. This seemed to be the right decision as these initial customers became our best marketers, and we started to really gain steam through the word-of-mouth. Revenues grew by multiples, and we added dozens of customers everyday. The only problem was that in an industry with pretty low profit margins (anywhere from 5–10%) managing operations proved to be a difficult task as we grew. The margin of growth in sales, the number of deliveries made by drivers, and the number of drivers needed to serve our customer base all became functions tied to each other. The challenge was to balance the number of drivers working to cover the delivery demands, the classic traveling salesmen problem. With too few many drivers, the wait time for each delivery gets longer and users are less likely to come back to our service. With too many drivers, a small company like Grubsquad could easily chip away our slim profit margin on paying drivers. We were forced into a reactive position while trying to achieve key milestones.
About a year into the running the company, a new market opened up to GrubSquad. An executive assistant who had used our service as a consumer wanted to try it out for her office. After a handful of successful trials, the company made the decision to use GrubSquad at least 3–4 times a week. They loved the variety of food options that GrubSquad offered, as opposed to the same restaurant chain paper bag sandwich options. With our service, they were able to get a much more delightful delivery experience. We latched onto this developing customer sector and began courting similar corporate customers. By separating the sales numbers for corporate accounts, we noticed the profit margin was significantly higher than that of our single consumers. On average, these corporate customers placed orders 1.5 times as more frequently than consumers and more than double to order amount per delivery. However, in aggregate, the non-corporate customers defined the long tail of our business; this meant that the total sales of customers who used us once was still a significant part of our business. Our corporate customers who purchased through us at least twice a week accounted for 47% of our annual sales and 20% of our total deliveries. On the polar end, our non-corporate customers who used our service less than 6 times a year accounted for 10% of our annual sale but consumed 15% of our total deliveries.
With those numbers staring us in the face, we aggressively targeted the corporate market. There were many potential targets as Houston has the 2nd highest number of Fortune 500 companies in the US and even more small to medium sized businesses (SMB’s). We reached out to office managers and executive administrative assistants to sell them on the idea that GrubSquad would provide their office with meal variety and make their jobs much easier. We aimed to save them from the days of print-out menus or going around writing down what each person wanted to eat.
After gaining a consistent group of large corporate accounts, along with a number of SMB’s, we adapted our business model to align more with these types of customers. We raised our prices in order to provide the best service and experience for our corporate accounts. We were now able to better train, pay and equip our delivery agents, as well as provide our restaurant partners with devices and tools that create a more seamless and efficient ordering process. Due to the changes of our pricing structure, our non-corporate consumers were now met with higher delivery fees. This action separated those who were willing to pay from those who were not. We knew we had to make the hard decision to “cater” to the market segment that provided us the opportunity to grow the company in the best possible way, while still providing the type of excellent service we believed our customers deserved. We also decided to put greater focus on building features that benefited corporate customers; one of which is group orders that allowed an administrative assistant to create an order and invite participants to choose their meal selections with just a few clicks. Eventually, we got the corporate business of GrubSquad to bring in nearly 66% of our revenue.
While we gained some successes as a whole, we had a lot of gaps to fill. In retrospect, we spent way too much of our resources trying to serve everyone. Even though we did relatively well as a small bootstrap company, we met our limits quickly. We failed in trying to tackle the technical challenge of optimizing the delivery process, something that companies like Uber (UberEats) and Doordash fixated on from the get-go. Our product offered a way for ordering, but we didn’t have a robust solution for delivery. Thus, there wasn’t a way to scale successfully.
