Former Kozmo CTO: There’s Froth in the Local Delivery Market
The days of having to go to the grocery store to get your items for tonight’s dinner are becoming a thing of the past as companies continue to jump on the home delivery bandwagon. With heavy hitters like Amazon and Google launching their own home delivery services, will the dream of ubiquitous local delivery come true? Or are the new batch local delivery startups doomed to repeat the mistakes of their dot-com predecessors?
Street Fight recently caught up with Chris Siragusa, CEO of Max Delivery — who also happens to be the former CTO of Kozmo.com, a failed food delivery startup which came to epitomize dot-com era excess. Here, Siragusa talks about what’s changed in delivery since the 2000s, the froth in the startup delivery market today, and why he thinks things will turn out differently this time around.
In many ways, the promise of local delivery was one of the hallmarks of the dot-com bust. Help us understand what has changed in delivery model has since the 2000’s that will make it not only incrementally more efficient, but sustainable overall.
Having come out of the dot-com bust as one of the first employees at Kozmos.com, I saw a lot of what went into why things didn’t work out there. But underneath all of it, I saw a very solid business in there if it could be executed properly. What we’ve done over the past few years is taken the time to build the business properly, and building proper business models and a logistical infrastructure so you can reliably get people what they need everyday and it in a way that’s faster than going to the store themselves.
The largest thing that’s changed is the focus on building a business model that actually works so we can make money while doing it, while keeping the focus on the customers rather than growing at all costs to get market share and figure it out later. That shift is why the business model works now and it didn’t work back in the 1990’s.
When you take a look at the startups in the market today — like Instacart and Postmates — there are obviously a lot of differences. But do you see any specific mistakes being made (either in product or business model) that remind you of what companies did in the 2000s?
There is some of that feeling I get from back in the late 1990s. I see a little bit of that froth happening with some of the businesses in the market, where companies are trying to grow at all costs and figure out the business model later. It’s a little more thought out now then it was back then, but I definitely a sense in at least some of the businesses they are expanding and then going to figure it out later.
Let’s talk about the bigger companies. Do you think that the economies of scale that have kept an e-commerce company like Amazon in the front apply to local delivery? Is local delivery just a fast version of what they are already doing? Or is it something entirely different?
It’s a very different animal. The logistical aspects of trying to run local delivery services are much more difficult. You have to really keep your ear on the ground. I’m not saying they can’t do it, they are obviously a very talented company and do many things. But running local delivery is not the same as warehousing the products and shipping off to UPS.
With most of the services that rely on next-day overnight you have a lot more time to think and plan out what you’re going to do, it’s a lot less chaotic environment. For local delivery, especially for people who are trying for immediate delivery, you really have to be constantly adjusting on the fly to make sure you’re optimizing all your routes to make sure customers are all going to get their product on time and in the right condition. And that’s a very different animal than running a centralized e-commerce giant.
GrubHub recently moved into the delivery market, acquiring two delivery companies. Do you think ordering, essentially what Grubhub did, and delivery are better run by one company? Or is it more efficient to do as two?
We are definitely of the opinion the only way to provide a great customer experience is to create a seamless end-to-end experience where you can control everything. The model of “I’m going to take an order, I’m going to ship it out to some third party and hope they do that good customer service and accuracy and then put my brand name on top of that” is always a dubious thing for me. I think what winds up happening is you find those companies trying to always push blame off to their suppliers as opposed to being able to stand up and say end to end we’ll make sure you’re taken care of.
I definitely approve of being a fully integrated solution which is why we do everything from end to end ourselves. It’s all about quality. Getting a delivery is a very trust-based system. You effectively you have plans for the night, you have plans for what you need and you are just sitting down and hoping these guys are going to bring it to you and if they screw up you’ve just wasted an hour or two of your day and you have to go to the store anyway. So being able to ensure to your customers that you are giving the highest quality possible is the key thing for us.
I think, often, the technology industry assumes that what works in NYC and SF will work elsewhere. But both cities are unique, both in density and wealth. Do you believe that same day delivery is a product unique to the large metropolis or is it something that can apply to secondary urban markets and even suburban areas?
I truly believe it’s not something unique to an urban market at all. It comes down to whether you can make the logistics work in suburban markets. In some respects it’s actually much easier to do it than in the urban market. In the super-dense urban markets of New York and San Francisco, you have the density — but you also have much bigger issues with traffic and trying to route things around.
What’s truly compelling about immediate delivery is that it’s far easier and better than going to the store yourself. If you can get the same quality products at roughly the same price delivered to you in 30 minutes who doesn’t want that? According to all the studies we’ve looked at, there are many, many markets that have the required population density that would work plus international options, of course.
Much of the innovation around delivery has actually stemmed from these more flexible labor models. How is that different from the way the delivery market functioned already and how will that shape the direction in which the market develops?
Tough question for us in many respects as we don’t use those flexible labor models. The reliance on 1099 workers that [other companies have] is not the correct way to go. The change to the 1099 workers a lot of people are doing has some advantages, it’s a little easier to manage, cheaper in many respects, but to me the downside is you have a lot more risk in your core part of what you do which is delivery.
This is a trust-based system, I can trust when they show up at the customer’s door they are going to do the right thing for the customer they are not going to have any kind of bad experiences.
Liz Taurasi is a contributor to Street Fight.