Pando

Postmates wasn’t the delivery company the Valley elite bet on. But it’s the one winning

By Sarah Lacy , written on May 9, 2016

From The Sharing Economy Desk

End of last week, TechCrunch ran a piece titled “Leaked Postmates financials suggest the company might be doing better than anyone thought.”

CB Insights-- among other outlets-- followed up with shocked reports that given the “shakeout” going on in on demand funding, and struggles its competitor DoorDash had in raising its last round, the acceleration in Postmates business was surprising.

Well, not to everyone.

Postmates is clearly not the company that the Valley’s most elite forces-- TechCrunch, Uber, Benchmark, Kleiner, Sequoia, Y Combinator-- expected to win at on demand delivery. And if it does, it’ll be a sweet victory for every entrepreneur who didn’t focus on playing the game in the Valley, manipulating the tech press, or happen to conform to the young, Stanford grad, YC engineering centric ideal.

DoorDash-- not Postmates-- was the delivery company picked to be the winner by most of the Valley gatekeepers. That’s not so coincidentally lead to a ton of on and off the record trash talking about Postmates over the last year, most strangely when Benchmark’s Bill Gurley who isn’t invested in either singled out Postmates as a company engaging in the “same shit as in 1999” implying it was doomed.

TechCrunch’s story insists it’s more than just Gurley, saying: “Countless venture capitalists have told TechCrunch that the company, despite its popularity with consumers, is doomed because its unit economics don’t add up.”

Wow! TechCrunch can’t even count the trash talkers!

And yet, Postmates’ “leaked” numbers show what I’ve heard consistently from its own investors: That despite reports to the contrary, it’s been fairly restrained when it comes to spending on growth and expansion, focusing instead on margins and building a sustainable business.

And even the couriers who complain about Postmates, argue the software stacks up too many deliveries back-to-back working them like pack mules. Being a Postmate is considered one of the tougher jobs in the on demand world. When I’ve asked Postmates CEO Bastian Lehman about this in the past, he hasn’t flinched at the description, arguing that’s why the economics work.

It’s emblematic of how “off the record sources” manipulate the tech press these days. And how little any of that actually matters when it comes to actually building a business.

The actual numbers from TechCrunch’s piece:

The documents highlight Postmates’ gross profit margins, which we understand are now above 20%. This is not the same thing as actual profitability because it excludes operating costs, but it does demonstrate that Postmates brings in more revenue than what it pays the couriers. We are told that the costs associated with each transaction have been accounted for in COGS. (Postmates is also forecasting net profitability in 2017 – we’ve confirmed that they are still on track)....

The files reveal that in the first quarter of last year, Postmates processed $28 million in transactions (GMV), resulting in $6.5 million in net revenue and $1.1 million in gross profit, up 67% from the prior quarter.  Postmates projected $55 million in net revenue and $11.3 million in gross profit for last year, a substantial increase from the $8.6 million in net revenue and $1.03 million in gross profit from 2014…

We’re also hearing that the actual numbers turned out to be better than what was forecasted in documents and that Postmates facilitated $56 million in gross merchandise volume  in just the third quarter of last year.  About $14 million of this was net revenue and gross margins were about 22%.

And as of the first quarter of 2016, the gross margins held above 20%. We’re told that both the transaction volumes and revenues doubled in a six month timeframe — from the third quarter of last year to the first quarter of this year.

While the documents from last year listed the 2016 revenue forecast to be $250 million, we hear that the revenue this year is expected to be between $200-$250 million. 

TechCrunch tries to save face for blinding believing “off the record” competitors and their VCs (bless ‘em) by pointing out that DoorDash had a downround and SpoonRocket went under. As we explained with the divergence in fortunes of Shuddle and HopSkipDrive, the logic of looking at one challenged player and trying to extrapolate that to an entire category is a flawed metric if you are a journalist and a pathetic excuse on the part of founders. (Remember how many online social networks failed? Didn’t seem to hurt Facebook…)

Anecdotally, Postmates is tied with Lyft as the on demand service that I use most-- at least three times a week and sometimes twice a day-- the one I see people in San Francisco using the most, see the most mentions on social media about, and the one I hear name dropped in TV shows. Not DoorDash.

The disconnect isn’t new to me. I’ve spent months not just asking investors about how Postmates is really doing, but also asking a more relevant question: What did Lehman do to piss off so many powerful people in Silicon Valley?

It’s hard to think of another example right now where the company that isn’t the “anointed one” appears to be winning.

I should note that both Paul and I have known Lehman since well before he started Postmates. Paul knew him back when both lived in London. Paul’s theory is that Lehman is just so German he refuses to play the Valley game in any way. No flattery. No networking. No conforming to what they want to see or hear. Just building his own great company, with or without the Valley’s permission or assistance.

Maybe, but come on, this is the asshole era of Silicon Valley. It’s not like you get rewarded by having a great bedside manner. We wrote last week about one founder’s conclusion that VCs only respect you when you are an asshole these days, because it signals “passion.”

A better explanation came from one of Postmates’ backers in a conversation last week: Postmates didn’t conform to the norm; DoorDash did. DoorDash came out of Stanford and was engineering centric. Postmates was started by a German whose LinkedIn account paints describes him as more of a sales guy, founder, and project manager. DoorDash got the YC seal of approval, followed by the Sequoia seal of approval. Postmates launched unceremoniously at Disrupt.

Valley VCs will back a “technical founder” any day, and the history of the Valley certainly backs that bias up. And yet, even DoorDash’s Tony Xu said at PandoMonthly last year the software was the “easy part” of this business. And much of the tech press simply assumed YC and Sequoia picked right.

This is not to say the category is “done.” No one has exited, and we still don’t have a great side-by-side comparison of DoorDash and Postmates numbers. But we can say that the bulk of tech watchers were simply wrong in their trash talking of Postmates for the last year-- most clearly Gurley.

The most interesting thing will be less which of these two wins, but how either of them (and Instacart) can stack up to Uber and Amazon in the long game of logistics. There’s been almost no consolidation to this point, but I’m guessing that will start to change in the next 18 months.  

Will Lyft and Postmates bundle up to take on Uber? Will Didi invest in another US logistics company next to further thwart Uber’s ambitions? Will Amazon buy Postmates? Will Uber finally get acquisitive as it continues to realize food and parcel delivery are simply different businesses than ridesharing?

It’s hard to know. But so far Postmates has bucked the trend of the unicorn era: It didn’t maximize for growth or valuation at a time everyone else was. And that gives it more options for the future than a lot of on demand players. It is said to be raising capital now. Because of its 2015 restraint and its growth, I doubt it has a downround.


This should be heartening to any company that’s been counted out by the Valley elite for little more reason than it didn’t “seem like” the category winner, because the founders didn’t go to the right school, get the right degree, know the right people, or act the right way.