[Business ★★★] How I Did It: Matt Maloney of GrubHub and Seamless
(P1) GrubHub co-founder Matt Maloney took his Chicago food ordering service from scrappy startup to a public company worth $3 billion.
(P2) It was just another hungry late night at work, but Matt Maloney sensed an opportunity. In 2004, he and co-worker Mike Evans launched GrubHub, an online food-ordering service, in Chicago. Lately, business has been good. After making the Inc. 500 in 2010 and 2011, GrubHub hit $137 million in revenue in 2013. It also merged with competitor Seamless (another Inc. 500 alum). In April, Maloney, who is CEO of the combined company, led GrubHub to a successful IPO. And, if he gets his way, no one will ever have to phone for a pizza again.
(P3) Innovation works best when there’s a problem to solve. The eureka moment for GrubHub came when Mike and I were working as developers for Apartments.com. We were frustrated by the lack of dinner options as well as the pain in the ass of calling restaurants and reading our credit cards. At the time, we were working on geographic lookup searches for rental real estate. That’s when I heard the screeching wheels in my head: Why wasn’t there something like this for food delivery?
(P4) Mike and I collected hundreds of menus around my Chicago neighborhood, and he wrote some code. We thought restaurants would pay for the ability to capture the attention of hungry people. We initially charged them $140 for six months of premium placement on our website. But when we started asking restaurants for money, most of them didn’t see the value. They had spent thousands of dollars putting up crappy websites that nobody ever found, so the idea of paying for another site of unknown value wasn’t appealing. Finally we said, “What if we take a 10 percent commission on whatever we sell for you?” Restaurants loved that.
(P5) We realized we had a really good product that was scalable. The next step was expanding to a second city. We tried to raise venture capital to do that, but it was taking too long. VCs are slow to say yes, but they’ll never say no. The longer they can push you off, the more options they keep open. So we said, “Screw it! We’re going to do it anyway.” We flew out to San Francisco to sign up restaurants and do guerrilla marketing. We bootstrapped, and it paid off. The restaurants were really receptive, and the orders started coming in aggressively. People in San Francisco loved it, and investors noticed. We opened in San Francisco in October 2007 and closed our first capital round that November.
(P6) Still, expanding to a second market was really difficult, because we weren’t living there. This business is hyperlocal. We didn’t know the neighborhoods the way we do in Chicago. We wanted to be a national company, but we couldn’t afford to put an office in every city in the U.S. So we had to figure out a way to build a market, drive awareness, and sign up restaurants without having to pay rent. We ultimately hired a San Francisco manager who physically went to restaurants, signed them up, and built our network. These days, instead of having managers in each place, we just have people on the ground in our top 10 markets. The rest of our sales team is in Chicago and New York City.
(P7) We’re one of the few consumer internet companies for which offline advertising works really well–specifically, at transit hubs. People coming home from work around 6 p.m. are hungry and very susceptible to our message. We figured this out when we advertised on mass transit in Chicago. We had noticed that the person managing the outdoor ads was really bad at taking them down, so we knew if we bought a month of space, we’d get five. That placement worked very well. It has been a staple of our advertising ever since. In New York City, you’ll see Seamless ads plastered on the subways and buses.
(P8) Before the merger, Seamless was our biggest competitor, so I was very aware of what it was doing. I would have been loath to say it before we merged, but the companies were similar–we were solving the same problems but in different geographies. Seamless consistently made very smart decisions, both with product and marketing. My view on competition is, if someone comes along with an improved product at a cheaper price, then we damn well better do a better job, or we deserve to fail. So, we can copy what they do and make it better, or we can merge with them.
(P9) When we announced we were keeping both the GrubHub and Seamless brands, the resounding response was, “Why?” GrubHub was doing a really good job nationwide–but Seamless had incredible brand awareness in New York. It’s like a religion there. By keeping both brands, we didn’t have to spend money to promote Seamless in markets outside of New York or to promote GrubHub inside New York. We were able to optimize those marketing dollars and reinvest in our product.
(P10) We’re constantly working to improve our technology. We launched our mobile platform in 2010. That was major–it’s a lot easier to pull out your phone and order with three thumb taps. But that’s obvious. Our tablet technology, on the other hand, wasn’t so obvious. We realized that certain restaurants were having a hard time keeping up with the volume of orders. Historically, we’d send them by fax–but the fax machine runs out of ink or gets jammed. So we built a tablet app for restaurants to confirm and complete orders, send messages back to us, change a menu item or the restaurant’s hours–whatever they need. Now, nearly half of our 175,000 daily orders go through our tablet technology. We give tablets to the restaurants doing high volume. I want them to have one, because then they can process orders better and faster. And that means everyone is happier: the diner, the restaurant, us. It’s just smart.
(P11) Everyone talks about next-day delivery being a coup for online companies–at GrubHub, we execute the delivery experience within 60 minutes. That’s the unsung part of our business. To do this, we have a team of more than 300 customer care agents in Chicago proactively managing the status of meals nationwide. If your order hasn’t been confirmed within five minutes, someone from GrubHub is calling that restaurant, because we don’t have time to spare. If your order’s not out the door in 20 minutes, then we’re on the phone figuring out what’s wrong. There’s still the issue of the delivery drivers, so we’re working on a tool to help them be more efficient.
(P12) The IPO process, at a fundamental level, exposes what makes every company tick. If that message is complicated, the IPO process is tricky. In our case, it was very simple. We have a business model that everyone understands. Not a lot has changed since we went public. The big difference is that we have an extra $200 million on our balance sheet. You can’t let financing drive the strategy of the company, but the company needs to grow and evolve and get stronger. Having money helps.
VOCAB (testing-kr only): [B021C] GRUBHUB_VOCAB
TO PRINT (testing-kr only): [B021C] GRUBHUB
If you found the passage difficult to read or had problems understanding specific words or idiomatic expressions, please discuss them with your tutor. The following discussion questions should be answered in your own words and with your own arguments.
- Briefly summarize the content of the article in your own words.
- How did Maloney and his co-founder come up with the idea of Grubhub (P2-3)? What was their first attempt (P4) to solve this problem?
- What were the major problems the company faced when it was trying to scale up in different cities (P6)? What marketing method worked well for them (P7)?
- Briefly summarize the story behind the merger with Seamless (P8-9). Why is GrubHub keeping the brand Seamless?
- Why is Grubhub trying to go public (P12) and how does Maloney feel about the process?
- Are there similar services in the country you reside in? Share the stories if you know any!
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