Grubhub’s Recent Problems Have a Lesson for Entrepreneurs: Defensibility

Grubhub’s Recent Problems Have a Lesson for Entrepreneurs: Defensibility

Grubhub has been mining the restaurant end of the delivery business for years, as many people increasingly want "bring-it-out-to-me" and not take-out

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Grubhub has been mining the restaurant end of the delivery business for years, as many people increasingly want “bring-it-out-to-me” and not take-out. But it’s facing challenges, as a quick look at its share prices show, as they’ve gone from the $26 share price IPO in March 2014 to a September 2018 high of over $138, but now are back at just over $52.

A lot of excitement and then cooling off. For good reasons, as Grubhub, which enjoyed a head start in becoming a tech destination for ordering restaurant food, suddenly had a lot of company. It went from the big name to a 30 percent market share, according to Seeking Alpha, with DoorDash having 37%, Uber Eats at 20%, Postmates’ 10% coming from behind, and then others.

And to think Grubhub was worried about Amazon.

Now Google is getting into the game with its own food ordering business. Turns out owning search and having that mapping system beloved of so many becomes a great entrée into delivering entrées.

Anyone can set up a business and work at a low level. When you start to become successful, the antennae of others go up. Companies and entrepreneurs looking for new ideas decide yours should be freely available.

Grubhub should have seen it coming because it’s a classic problem in business. You want to have a great idea that will bring in customers and revenue. But once you do, potential competitors are likely to take notice. The bigger and more obvious you are, the more attention you attract.

To keep the danger at arm’s length, a company needs a defensible business model. That is, a way of doing business that offers some mechanisms to discourage or slow competitors. There are many potential ones. Here are a few:

  • Patents and other intellectual property protection that forces would-be competitors to invent their own way to build a similar offering.
  • Network effects, in which reach, whether nationally, regionally, or even locally, becomes an advantage to customers. (This is particularly important in social networks and other services that promote communications and relationships.)
  • Inherent difficulty of reproducing the idea, whether because it needs unusual expertise or skills, heavy capital investment, specific physical locations, or another factor that may not be readily available.

The sad reality is that few businesses and entrepreneurs have such built-in barriers to entry. If you open a coffee shop, another could appear down the block. Software company? Others likely already do the same. How many competing auto body shops, copy services, and convenience stores can you find in proximity to one another?

Entrepreneurs do have another option: Offer the best products and service available to your customers. Create an atmosphere and experience that they want and come to expect. Your type of business may be easy to recreate. But you, your staff, and all of your skills aren’t.

Published on: Jan 12, 2020

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

This article is from Inc.com

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