Caviar doing things that don't scale

In the competitive landscape of food delivery services, Caviar stands out as a remarkable success story. Founded in 2012 by five college friends from the University of California, Berkeley, the company grew from a desperate pivot to a $410 million acquisition. What makes Caviar’s story particularly compelling is how the founders did things that didn’t scale in the early days—specifically, handling deliveries and customer service themselves—to build the foundation for what would become a major player in the food delivery industry. This is the story of how Caviar’s founders rolled up their sleeves, delivered food personally, and built relationships with high-end restaurants to create a business that would eventually be worth hundreds of millions of dollars.

The Failed First Venture

The journey to Caviar began with failure. The five co-founders—Shawn Tsao, Abel Lin, Andy Zhang, Richard Din, and Jason Wang—initially launched a startup called Munch on Me in 2011. The concept was essentially “Groupon for food,” offering daily deals specifically for restaurants. The timing couldn’t have been worse. Groupon was experiencing significant market troubles, with its value dropping by 80%, making investors extremely wary of similar business models.

As Tsao later recalled in an interview with CNBC, Munch on Me showed “all the signs of a failing company. We came to the realization that we had $10 in the bank.” The co-founders faced a critical decision: should they abandon their entrepreneurial dreams and pursue traditional careers, or should they try again with a new idea?

The pressure was intense. Tsao’s mother strongly urged him to go back to school and get an MBA rather than continue down the uncertain path of entrepreneurship. He had originally studied architecture and sustainable design at Berkeley and had a job at an architecture firm lined up before deciding to pursue the startup path with his friends.

At the end of 2011, the five friends met at a campus pub at UC Berkeley to make their decision. After a few beers and a difficult conversation, they decided to give entrepreneurship one more shot. They sold Munch on Me’s data for “barely anything” to another startup and gave themselves six months to figure out a new direction.

The Birth of Caviar

Inspiration often strikes in unexpected moments. For Caviar, the idea emerged from a simple human need: hunger. While brainstorming new business concepts and scribbling ideas on a whiteboard, Tsao found himself craving a sandwich from Ike’s Place, a popular restaurant across town. He wished there was a way to get his favorite sandwich delivered without having to leave his neighborhood.

This moment of personal frustration revealed a gap in the market. In 2012, the food delivery landscape was vastly different from today. GrubHub and Seamless had been around for about a decade, but they primarily connected customers with restaurants that already offered their own delivery services. Many high-quality restaurants didn’t deliver at all, leaving customers without access to their favorite foods unless they visited in person.

The co-founders recognized an opportunity: what if they could be “the Uber for food” before Uber Eats even existed? They would focus specifically on partnering with popular, high-quality restaurants that didn’t offer delivery and provide the delivery service themselves.

Doing Things That Didn’t Scale: Personal Deliveries

When Caviar launched in July 2012 in San Francisco, the co-founders didn’t have the luxury of a fleet of delivery drivers or sophisticated logistics software. Instead, they did what many successful startup founders do in the early stages—they did things that didn’t scale.

The five co-founders personally handled the deliveries themselves. They would receive orders through their platform, pick up the food from partner restaurants, and deliver it directly to customers. This hands-on approach was labor-intensive and certainly not scalable as a long-term business model, but it provided several crucial advantages in the early days:

1. Direct Customer Feedback: By delivering food themselves, the founders could interact directly with customers, gathering immediate feedback about the service, the food quality, and the overall experience. This real-time information was invaluable for refining their offering.
2. Understanding Operational Challenges: Personally experiencing the delivery process helped the founders identify pain points and operational challenges that needed to be addressed as they scaled. They learned firsthand about traffic patterns, delivery timing, food packaging requirements, and customer expectations.
3. Building Restaurant Relationships: The founders could develop personal relationships with restaurant owners and staff during pickups, fostering trust and strengthening partnerships. These relationships would prove crucial for Caviar’s curated approach to restaurant selection.
4. Quality Control: By handling deliveries themselves, the founders could ensure that the food arrived in excellent condition, maintaining the high-quality experience they wanted to be known for.
5. Cost Savings: In the early days when cash was tight, having the founders handle deliveries saved on labor costs, allowing them to invest in other aspects of the business.

As Tsao later explained, “Initially, the co-founders took on the deliveries themselves, but as their orders grew, they were able to hire couriers.” This transition from founder-led deliveries to a more scalable model was a critical evolution in Caviar’s growth story.

A Curated Approach to Restaurant Selection

Unlike many food delivery services that aimed to partner with as many restaurants as possible, Caviar took a more selective approach. They focused on curating a list of high-quality, popular restaurants that didn’t already offer delivery. This strategy differentiated them from competitors and created a unique value proposition for both customers and restaurant partners.

Tsao’s role as “operations lead” primarily involved building these crucial restaurant partnerships. The founders recognized that by partnering with the most desirable restaurants in each neighborhood—the places with the best burgers, tacos, or pizza—they could generate word-of-mouth marketing without spending significantly on advertising.

“We realized that if we sign [the] best burger or best taco in the neighborhood, all of a sudden everyone’s talking about us in an indirect way,” Tsao explained. “They would say, ‘Hey, Little Star Pizza does delivery now.’ And they would go to their website that would backlink to us.”

This strategy created a powerful marketing engine that required minimal financial investment. As Tsao noted, marketing “was super-cheap because all the marketing work was actually done by the restaurants themselves.”

When Caviar launched in San Francisco, they initially focused on providing weekday lunches to companies and started with just a handful of carefully selected restaurant partners. As they proved the model’s success, they gradually expanded to include about 30 restaurants in San Francisco before beginning their geographic expansion to other cities.

Building a Fair Compensation Model

As Caviar grew and began hiring couriers to handle deliveries, the founders developed a compensation structure that would attract and retain quality delivery personnel while maintaining the economics of the business. They created a model where couriers kept the $10 delivery fee and a portion of the gratuity, while Caviar retained the food surcharges and the remainder of the tips.

This approach to courier compensation reflected the founders’ understanding of the delivery experience from their time doing deliveries themselves. They knew that fair compensation was essential for maintaining a reliable delivery workforce, which in turn was crucial for providing the high-quality service that distinguished Caviar from competitors.

Controlled Growth and Exclusivity

Rather than pursuing rapid expansion at all costs, Caviar initially took a measured approach to growth. During their first year, they focused on two simple metrics: increasing weekly orders and revenue. This disciplined focus on fundamentals helped them build a sustainable business model before scaling.

Interestingly, Caviar initially operated as an invite-only service, creating an aura of exclusivity that generated buzz and anticipation. This controlled access allowed them to manage growth carefully, ensure quality service, and create a sense of privilege among early users. It wasn’t until March 2013, about eight months after launch, that they opened their service to the general public.

When they did begin geographic expansion, they maintained their curated approach, launching in New York City and Seattle with just 15-20 carefully selected restaurants in each location. This strategy of controlled growth and quality over quantity continued to distinguish Caviar from competitors focused on signing up as many restaurants as possible.

The Path to Acquisition

As Caviar demonstrated the viability of their model and began to scale, they attracted attention from investors and potential acquirers. The company secured funding from notable investors including the Winklevoss twins, Andreessen Horowitz, and Tiger Global Management.

In 2014, just two years after launch, payments platform Square (now Block) approached Caviar with an acquisition offer. The deal valued Caviar at more than $100 million in Square stock and included a promise to bolster Caviar’s team with 20 top engineers from Square.

The decision to sell wasn’t straightforward. The founders considered the possibility of continuing to build the company independently and potentially achieving an even higher valuation in the future. However, they ultimately decided that joining forces with Square would accelerate their growth and provide resources they couldn’t access on their own.

“The offer was hard to turn down because we knew that would be the best direction for the company,” Tsao reflected. The acquisition included a $2 million cash sign-on bonus split between the founders, along with Square stock that would appreciate significantly in the following years.

Under Square’s ownership, Caviar experienced remarkable growth. The company tripled its order volume, doubled its employee headcount, and expanded to 15 cities across the country within six months of the acquisition. Five years later, in 2019, Square sold Caviar to DoorDash for $410 million, representing a substantial return on their investment.

Lessons from Caviar’s Approach

Caviar’s journey from five friends doing their own deliveries to a $410 million acquisition offers several valuable lessons for entrepreneurs:

1. Resilience in the Face of Failure

The Caviar story might never have happened if the founders had given up after their first startup failed. Their willingness to learn from failure, pivot, and try again was crucial to their eventual success. As Tsao’s mother urged him to abandon entrepreneurship and return to school, the founders instead chose to give themselves six months to develop a new idea—a decision that ultimately led to Caviar’s creation.

2. Solving Personal Pain Points

The idea for Caviar emerged from Tsao’s own desire for a sandwich from a restaurant across town. This personal frustration revealed a market gap that the founders could address. Many successful startups begin by solving problems that the founders themselves experience, ensuring that there’s genuine demand for the solution.

3. Willingness to Do Things That Don’t Scale

By handling deliveries themselves in the early days, Caviar’s founders gained invaluable insights into their business operations, built relationships with restaurants and customers, and conserved limited resources. This hands-on approach allowed them to refine their model before scaling, setting the foundation for future growth.

4. Strategic Differentiation

Rather than competing directly with established players like GrubHub and Seamless, Caviar carved out a distinct niche by focusing on high-quality restaurants that didn’t already offer delivery. This differentiation made them attractive to both customers seeking access to these restaurants and to the restaurants themselves looking to expand their reach without managing their own delivery operations.

5. Quality Over Quantity

Caviar’s curated approach to restaurant selection—focusing on the “best burger or best taco in the neighborhood” rather than signing up as many restaurants as possible—created a premium brand identity and generated word-of-mouth marketing. This strategy allowed them to grow with minimal marketing expenditure.

6. Controlled Growth

By initially operating as an invite-only service and expanding deliberately to new cities, Caviar maintained quality control and operational excellence during their growth phase. This measured approach to scaling helped them avoid the pitfalls that often accompany rapid expansion.

7. Strategic Acquisition Decisions

The founders’ decision to sell to Square reflected a thoughtful assessment of how the acquisition would benefit the company’s growth trajectory. Rather than holding out for a potentially higher future valuation, they recognized the value of Square’s resources and engineering talent in accelerating Caviar’s development.

The Legacy of Caviar’s Approach

Today, the food delivery landscape is dominated by major players like DoorDash (which now owns Caviar), Uber Eats, and GrubHub. The industry has evolved significantly since 2012 when Caviar’s founders were personally delivering food across San Francisco. Yet the principles that guided Caviar’s early success—focusing on quality, building strong relationships with restaurants, ensuring excellent customer experiences, and being willing to do things that don’t scale—remain relevant for entrepreneurs across industries.

The five co-founders have continued their entrepreneurial journeys. Tsao and Wang have become angel investors in the food and tech sectors and have opened their own Thai chicken restaurants. Wang was recognized on Forbes’ 30 Under 30 list for his success with Caviar.

Perhaps the most enduring legacy of Caviar’s approach is the reminder that sometimes the most direct path to understanding a business is to do the work yourself. By personally handling deliveries and customer service in the early days, Caviar’s founders gained insights that no market research or business plan could provide. They experienced firsthand the challenges and opportunities of their business model, allowing them to build a service that truly met the needs of both restaurants and customers.

In a world increasingly focused on automation, algorithms, and scaling quickly, Caviar’s story highlights the enduring value of rolling up your sleeves, doing the unglamorous work, and building a business from the ground up—one delivery at a time. Their willingness to do things that didn’t scale ultimately created the foundation for a business that scaled remarkably well, culminating in a $410 million acquisition just seven years after its founding.

As entrepreneurs continue to launch new ventures in competitive markets, Caviar’s journey serves as a powerful reminder that sometimes the best way to build something big is to start by doing the small things exceptionally well.