Nick Kokonas - Know What You Are Selling – [Founder’s Field Guide, Forever Episode]

Transcript from https://podmenti.com/t/7bf8bca17b3c30cd

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This is Matt Russell from Colossus with a quick programming note. Today's episode is a re-release of our November 2020 episode with Nick Kakonis.
It's one of our favorites at Colossus and one we revisit often.
Nick's own story as philosophy major, turn derivatives trader
Turned restaurant entrepreneur.
really captures every segment of our audience.
So whether it's your first time hearing this or a second lesson, please enjoy this episode with Nick Conis.
It truly is timeless.
Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Founders Field Guy.
Founders Field Guide is a series of conversations with founders, CEOs, and operators building great businesses. I believe we are all builders in our own way, and this series is dedicated to stories and lessons from builders of all types.
You can find more episodes at Investrefield Guide dot com.
Um
Mm.
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management.
All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management.
This podcast is for informational purposes only, and should not be relied upon as a basis for investment decisions.
Clients of O'Shaughnessy Asset Management may maintain positions and the securities discussed in this podcast.
My guest today is Nick Kakonis, the co-founder of three of the best restaurants and bars in America and the world, Alinea, Next, and the Aviary, as well as the co-founder and CEO of Talk, a comprehensive booking system for restaurants. This was one of my favorite conversations in the history of the show. Nick is a philosophy major, turn derivatives trader.
And now one of the most well-known and respected names in the restaurant and hospitality industries. We cover so many topics I can't list them here, but I'll remember it for why it's so important for a business to really know what it's selling and then actually sell it.
Nick also pulls back the curtain on why restaurants and even book publishers can be great businesses if you do them the right way.
I felt like this conversation could have gone on for hours and I hope you enjoy it.
Nick, I thought a neat place to begin our conversation today is with a quote of yours that I found that has three parts. I'm gonna read the quote and then I'd love to walk through each of the three parts. What you said was
Own something, make lots of decisions that have outcomes, try to be right fifty one percent of the time.
Do that often and repeat.
I love this quote and maybe we'll start with own something.
What do you mean by that in as much detail as you can provide, and welcome.
Thank you. My thing is I grew up with a dad
who he would say he was an entrepreneur by necessity.
No one would hire him.
I looked around at some of the immigrants.
And his cousins and people in our family who were immigrants.
And
The way to
create wealth in America was different for different populations and for the Greeks.
half of my family that's Greek.
It was owned something.
It wasn't
go to college and become a lawyer or doctor or something like that. It was, hey, if you own it.
And you grow, you make more money.
I grew up in that environment.
And then
Also just by studying
wealth creation.
It's actually really rare that you can
Sure, you could become a C level
C suite.
publicly traded company executive or something like that. That's gonna take you thirty years.
A lot of education and all of that.
So for me it was always like
I wanna own things for two reasons. One, because that's a more likely path to wealth creation.
And two, I want to own it because I want to have responsibility for it.
Ultimately, I don't want my fate decided by someone else.
What about the second part of this, which is make lots of decisions that have outcomes? Sounds kind of obvious, but my guess is there's lots of nuance in the dangers of making decisions around things that don't have outcomes.
I guess this one's harder to explain. And right when you said that at the outset, I was like, Oh, that's gonna be the tough part to explain because in one sense, everything has an outcome.
But not everything has a measurable outcome.
If you're working on a software product and you change the color of something, you can AB C D E F G test it all you want.
That sort of iterative thing has outcomes. But more than that.
Just trying different
Products entirely different.
lines of revenue for your business different
aspects of what you're doing, whether it be whether you're a writer or you're
a painter or whatever it may be.
You need to get it to some sort of completion where there is an outcome that can be measured.
That's all that means.
I see a lot of people
starting businesses and spending time drawing logos in a notebook, so to speak.
And that's not a measurable thing. You haven't
Produced anything, you haven't tested it. There's no end to the next part of the question, which is like you're the casino. You have thousands and thousands of outcomes.
And you're right, more than half.
You're gonna win.
Even though
Forty nine percent of the time you lose.
Do you think that that fifty one percent is better than say
Eighty percent.
By it being fifty one percent you're moving and making enough decisions with high enough velocity, there's more room for learning with a lower percentage being right.
No, no, no, no, no, no, no. That wasn't intended that way. It was more like
You could be wrong an awful lot and still come out ahead. And I think that in managing
decisions and managing people.
in feeling good about your work and yourself.
It's easy to get down very quickly.
in any business because you're going to have a whole bunch of things that don't work.
I mean, we're all human. No one likes to have their stuff not.
Do well.
No one likes to fail the test.
learning to be wrong.
And accept that as
a process or indeed an inevitable outcome if you're doing things correctly.
means that you can be correct and wrong at the same time, if that makes sense.
Yeah, I'd much rather be right eighty percent of the time and hopefully we drive towards that. But
I grew up I was a derivatives trader.
really becoming the house of the casino is the goal.
You don't need a lot of edge.
in running a blackjack game.
You just need a little bit and then you need a lot of players.
And that's all that this is. That's that whole statement in a nutshell.
We're gonna apply that thinking to the restaurant business a lot in our conversation today. But to set the stage, I'd love to hear
the way through which you came to be familiar with the restaurant business in the first place. What was the first
event or exposure that got you interested in this part of the world?
No one's really asked that ever.
So the very first exposure was the Greeks. If you're a Greek in Chicago
My joke is always like if you're a Greek in Chicago and you don't own a restaurant by the time you're forty, they give you a hot dog joint down the west side for free.
Does it just feel bad for you?
So I grew up
And my dad in the sixties before I was born.
Own a diner.
That was the upward mobility for sort of the uneducated Greeks.
And so I knew somebody
who owned a restaurant my whole life.
Mind you, I did well academically throughout my life.
And so my dad was always going, Look
Go become a lawyer, go become, you know, an engineer or something like that.
You don't want to own a restaurant. It's a terrible business.
So my first exposure was
All of these people telling me not to do it.
But meanwhile they were at their kids' basketball games.
They were the dads who were present.
For their families.
And they were the people who
controlled their own situation, as we spoke about.
Even though as all of them were telling me
Hey, you're the white sheep of the family. Go get a graduate degree.
I was looking at it and going like
Well, geez, they seem like they're doing pretty darn well, and I don't really want to work at Goldman anyway.
That was my first exposure to the restaurant business. And then
When I graduated from college, we actually knew a very famous restaurant that was going out of business.
I had spoken to my dad about hey, we should try to buy that.
And he was really just wildly against it.
He allowed me to have the conversation.
But he was wildly against it.
Sadly, he died in two thousand one. So he never saw any of my involvement in the restaurant business. And perhaps that's better. I think he probably would have tried to talk me out of it.
Can you describe why
In your opinion, there still is this view that restaurants are just bad businesses, that too often they're vanity businesses or it's like trying to make a movie or something, like the economics just don't work.
What's always
Interesting to me is that most businesses
are not great businesses. If there is a great business out there with high margins.
There's something else about it that's hard to get into.
So
It's very interesting to me that everyone says, Oh yeah, restaurant business is terrible. I mean, I remember when we started building a Linea just getting a slight bit ahead.
But this will make sense.
your question.
When we start building a linia, there's a suburban restaurant in Chicago.
And I really liked it and the guy was good looking chef and he seemed like he had his stuff together.
And I kinda knew him a little bit.
And I said, Oh, by the way, like I'm embarking on building a restaurant.
And he said, Well, you don't want to do that.
It's a terrible business and it's all sorts of awful stuff and all that.
I said, why did you build four more?
If you build one and it's such a terrible business, why'd you build four more?
Why are is it that there are some celebrity chefs that have thirty five?
It's not because they like to get punched in the face.
Clearly you can make money in it.
Also coming from a floor trader, derivative trader background.
When I got down there, like all anyone told you about
How terrible it is. Oh my God, you're gonna get beat up. It's a terrible environment. People are mean.
Ninety nine out of a hundred people don't make it their first year. And then even the one out of a hundred that makes it, only ninety nine
of a hundred then fail afterwards. Only one out of a thousand ever becomes a millionaire or whatever.
And I was like So you're saying there's a chance.
I like businesses that are hard.
Because
If I can figure them out.
Whether that be a great arbitrage in derivatives.
or that's the restaurant business or publishing, which I think is an awesome business.
I just go like well people are full of shit.
They're defending their position.
And the fact of the matter is is that there are a lot of people
In the restaurant business.
that are not in business.
So to speak.
They did it out of passion or they did it as you said as a vanity project.
Or they thought that they were great entertainers at home and they knew how to throw out dinner parties, so they decided to open a restaurant.
I was accused of all of those things when I started building a linea with Grant.
So much so.
I would just drill into him, this will be run as a business first.
It's not an art project. It's a business.
if we run it well as a business, then we can invest more in the art. And it becomes a
Virtuous cycle.
I think that
the barrier to entry to the restaurant business is actually relatively low.
compared to many other businesses, especially in terms of actual knowledge requirements.
You can't just start a software company.
As a sole proprietor.
If you don't know how to program.
So the barrier to entry there is fairly high.
Barrier to entry to a restaurant is you sign a lease and
build a kitchen and start cooking.
It's a lot.
But it's doable.
And consequently, there's gonna be a high failure rate.
I should note for the audience that
I think at the one time I did go to two a Linia years ago, it was literally ranked the single best restaurant in the world.
So I think it's very interesting that you say
You and Grant agreed that you would run it as a business first at its inception. In what ways did that cause your behavior or your plan to depart from the typical new high end restaurant opening?
Well, first of all, we set it up in a way that
the investors, I was also
the largest investor and I was on the management side.
But I set up the structure of the business more like
If you were setting up a startup.
There is a investor group L C, there's the restaurant itself.
There's a management company, three different companies to start one company.
And I made sure that all of the interests of all three were aligned.
For the long term.
Which means that fifteen years later, the investors in Alinia still get a really nice check every year.
A lot of restaurants.
lure people into the investment group.
by saying, Well, you'll always have a preferred table.
Or you'll always have this or that. And we did the opposite. We said.
Every one of the investors will pay.
Including myself. Like if I die in there.
All the investors get twenty percent off.
If you send someone there.
And you send a friend, you pay.
And that way.
Someone who comes here eight times a year contributes.
Same as someone who comes here twice a year.
How will we run it in terms of volume?
If you're shooting for perfection in a Michelin three star restaurant.
You do forty to fifty to sixty people a night.
And that's it.
That's a lot easier than doing one hundred and twenty people a night.
Lot easier.
At that level.
So we were always looking for ways to expand revenue to grow.
To
come up with innovative ways of actually making it a business.
And by making it a business.
we could then reinvest in the experience of our customers. And if anything, it gives you a giant
Head start.
I show when I'm talking to chefs or restaurant owners, I show a picture of
Five artists.
Picasso and Da Vinci and all these people and I'm like
Four of these five of these guys.
Died rich.
Oh, there are. And one of them cut off his ear.
If you want to die for your art and cut off your ear, go right ahead.
I'm fine with that. I just don't want to be invested in that as a business.
Picasso was prolific, but he was also really clever.
And he's a genius. So they're not mutually exclusive.
And I think that's the attitude we took right at the beginning.
There's an old Picasa documentary from the twenties and
I didn't really know Grant very well when we started this whole thing and I dragged him over to my house and was like
You will watch this.
And it was just Picasso painting.
It wasn't doing anything else.
And he was like
Why am I watching this?
I was like, he made that in the 20s to promote himself.
Think about that.
The best artist, living artist at that time agreed to do this thing to show the process.
Why?
And we ran it almost like a political campaign.
We had words.
That we would avoid.
Every interview.
What words would you avoid and what words would you use? That sounds very interesting.
Two words that we would avoid were avant-garde.
And science.
So Grant considered his cooking avant-garde. He even thought about calling the restaurant A G.
I was like, Well, you automatically eliminate ninety percent of the people.
No one wants to eat science.
It's one thing to talk about the science of
Whatever I was calling molecular gastronomy.
But even that was a misunderstood term.
Because it was actually coined by Hervey Tees.
And it was about the component aspect, almost like pointalism.
It wasn't about manipulating individual molecules.
So we would have press call us.
Ask oh well, you practice molecular gastronomy.
You're really into science then because you're moving molecules of food around.
The guy's a chef. He's not a physicist.
So
Those two words we avoided because
I think that
The alienated.
Potential customers.
And then the two words that
we used in every interview and still do fun and delicious.
Because
It's so simple.
But so hard to find.
Because
When you go to a great restaurant, whether that be
Your corner bar.
Or
Um
best Michelin experience you've ever had while you're traveling.
I guarantee you it's fun. It's not snooty. It's not someone looking down their nose at you.
You feel like you're part of this.
pageant that's going on and fine dining.
And you should be
part of it. You should be one of the actors, not
An audience member.
And then delicious is obvious.
has to be delicious, otherwise it's just a farce.
Every interview you ever see of us still to this day.
when someone asks about the science or the process or whatnot, and I'm doing it right now.
Everything we do.
has to be fun and it has to be delicious, or we will not do it.
I'll just give a quick testimonial when I was there.
the way that dessert was served.
was that Grant came to our table, laid down this kind of funny latex tablecloth.
And basically created for like a half an hour.
Uh Jackson Pollock.
Dessert.
All sorts of different ingredients. Like literally painted the dessert on
Yeah.
Which was incredibly fun.
And of course me being me, I'm like asking him about
Where does this latex come from? Is it gonna impact the taste? He said I was like the first person that asked him that question.
And he was talking about its origin in like the S M industry in Europe or something, like some crazy place.
Yeah, yeah, yeah, that's actually true. So this is a good way to show how in any business.
You ask the right questions.
So one of the questions that we wanted to
answer was that we asked the question
But when in your life do you feel like something's new?
The older you get.
The fewer new experiences that you have, and so when you have one.
You kinda crave that. Like, wow, that was really cool. At the same time, you become more closed to them as you get older. It's just natural, I think.
We were like, How do you
become more childlike.
What is a way to make an adult feel like a kid again?
A number of the dishes at Alinea
came out of that question. One was the balloon dessert. It's like an edible balloon.
When you're a kid, you get a helium balloon and
Literally you can play with that thing for hours.
It's like magical. It floats. That's really cool.
We sorted out how to make an edible
Helium balloon.
It's so simple.
Just like a taffy. It's nothing.
Crazy delicious.
But it's wildly fun because you feel like a kid again.
How in the world is a Michelin Star restaurant going to give you a floating balloon and then make a mess of yourself while you eat it?
We were asking that question and
I remember going to a museum where everything was really big.
So they had like a table.
So that if you were a five foot ten adult
when you sat down at a table, you would physically feel like you were when you were three.
The plates are big, the chairs big.
The counter was really high.
I don't even remember where it was, but it really stuck in my mind. And I said, like, well, we should make everything giant.
To make you feel literally small again.
And so I came up with this idea of a table plate.
Literally a plate the size of a table.
And we made a couple up.
It was very Willy Wonka and Alice in Wonderland and all that. Had giant forks and knives and stuff. It was really stupid. Like as soon as you actually did that.
It was kind of like
Well, you're gonna hit someone in the head with this.
eighty pound plate.
And where are you gonna store it? Wash it.
There's practical considerations.
In the midst of all that.
I would talk to Grant.
at the pass in the kitchen and he would be plating things. I would be watching him do
the saucing and plating and all that. And occasionally I'd pick up a spoon and I'd do a plate. He'd fix it.
I see what he's doing and yet I can't replicate it, even though it looks simple.
There is a brush stroke there.
born of thousands and thousands and thousands of repetition.
I know what it should look like.
It's just like painting.
And I went back to that Picasso documentary and I was kinda like
We should send the chefs into the dining room.
Everyone wants to see the chefs anyway, and we should just have them.
plate on this giant plate.
So it's kinda killing two birds with one stone there.
I give you one away for like
four or five months after the big plates because it didn't work.
And just thought it was dead and then
Martin Kastner at Crucial Detail was like well why does it need to be a rigid plate?
You could use a different substance.
And we were looking for gray latex.
He found it at a sex shop in Paris. Rolls of gray latex.
On the internet. Like he wasn't trolling about the sex shops in Paris.
We figured out we called them and like we manufactures this for you and they're like what are you into? And we're like we're using it for food table food art. Yeah, yeah, yeah.
That's
the story of how that came to be, but I think that encapsulates a lot of our thinking.
That was
a six or seven month project and then we figured out how to do it once and we would do one table a night and we would go there's no way we can do this for every table.
And then four weeks later we were doing it.
Thirty times a night.
It's a magical thing, like Netflix Chef's Table had that on billboards in Los Angeles promoting the show.
So for me, it's a really weird thing because it came out of this process of three or four or five people talking.
about how do I make you
Feel like a kid again.
And clearly it stuck out in your mind as a new weird fun experience.
Which is really what we're shooting for.
just to pour evidence on the pile. I still tell people about that all the time. And it's interesting to me how often businesses seem to
Wanna go down the fairway and sort of
not be risky and how incredibly boring but also
how bad a business decision that is. Because if it was just a lava cake or something, like I wouldn't talk about it.
There is an important distinction here, and that is this.
People have copied that now.
Anything good gets copied.
And if you Google up restaurants in South America and Asia that are copying it.
They don't copy it well.
They literally just take
A bunch of food and dump it on a table.
No, no, no, no, no.
If you're gonna try to do this very
Risky
kind of potentially polarizing thing.
You have to make it elegant and beautiful too.
Execution.
The ideas are great. I tell people all the time that you can have all the great ideas in the world if you do not execute them at a high level.
It's gonna fall flat.
Brent when we first opened.
wanted to show movement and food and he had this little bacon on a wire thing and stuff. And now there's a bunch of steakhouses that put
thick steakhouse bacon on a clothes pen.
Our thing may have been done and we only did it for four months.
But they didn't really get the point of it.
It looked beautiful, at least.
And now they've got clothespins holding bacon on a wire.
You have to figure out the core of why it's special.
And that's a tricky thing to do a lot of times.
Going back to the kind of way the business itself is run and the service delivered, you guys have been extremely innovative in things like ticketing, selling meals ahead of time, not at the restaurant, things like dynamic pricing. Can you talk through how you arrived maybe at those two concepts?
At first.
and the impact that they had on the business once they were in place.
I had never spent a day working in a restaurant. And then even after we opened a Linium, my role was to coordinate. I was like the producer of a film.
I found everybody
Got them involved, worked with the architect, the interior designer.
Did all the permitting, the liquor license, the legal
All that sort of stuff.
But I didn't actually
work in a restaurant ever until the day we opened. And I certainly didn't intend on working at the restaurant. I expected that I would do the financials and the books and things like that, but I would also hand that off to the general manager say or things like that.
About eighteen months after we opened, Grant was diagnosed with stage four cancer and at the time was given
Six months to live.
He's eleven years cancer free. That's a story in and of itself. But at that moment I went in.
to the restaurant, started going in every night for service, not doing just the business side, but really looking at the other aspects of it.
I just would look around and be like, Why in the world do we have an empty table right now when we have sixty people on the wait list?
Well, they just didn't show up.
And of course I knew that
When I went to other restaurants, I'd have an eight o'clock reservation and be told to wait at the bar for forty five minutes.
And I started.
Asking like really, really basic questions. Why is it?
that I go to a restaurant have an eight o'clock reservation.
And then I'm told to wait for forty five minutes.
Is it because they're disorganized or so many people came?
And it's like, no, actually they lied to me and told me they had an eight o'clock table when they knew that they didn't have one until nine o'clock.
And why would they do that? Well, because if they told me nine o'clock, I would have gone to the restaurant down the street that lied to me and told me eight o'clock.
And then conversely, a lot of people live the restaurant. They would call it Alinia back then.
And they would say like
Hey, we want a table for six on March twenty third.
See I'm really sorry, all we have is a table for four.
They'd say, Okay, I'll take it.
And then they show up with six people.
Or worse.
want a table for two, they say, I'm sorry, we only have a table for six. Okay, we'll take it. We'll just bring four friends. They show up as two.
So all of a sudden you have two people sitting at six top.
And you've just forgone a thousand dollars of revenue.
Now you multiply that out over the course of the year and we were losing over a million dollars of revenue through those two things happening.
One of the basic things that people don't do in the restaurant industry
It drives me nuts.
Even with our own staff.
Is
No one multiplies it out by seven days a week, fifty two weeks a year.
So if you have something that's costing you
Even twenty dollars a day.
Add it up.
It's a low margin business because you're not looking at these chunks of revenue.
I was just going why in the world
If we have a wait list of two hundred people, can we not just limit it to the people who actually
Are
Willing to come in.
And take a little bit of a deposit first.
And what's fascinating about that
Is that when I said that to people, I was like, look.
Baseball games.
Concerts.
Theater.
Every other form of entertainment.
Does some sort of taken in.
And I was told that it was a terrible idea.
Because
Restaurants are not entertainment.
And I was like, what are they?
What's really fascinating about restaurants and food in general is that because we are biological creatures that need to eat.
People have
All sorts of
emotional and cultural
and ethical baggage on top of what a restaurant is.
And you're seeing that now during the pandemic.
And at the heart, though, you don't need to eat out.
Eating out is a social
Endeavor. It's
Entertainment.
It might be art and it definitely is sustenance as well.
At the core of it, we could charge ahead.
I was told by everybody I talked to that it was a terrible idea.
Literally everybody, except for my wife.
Grant thought it was a terrible idea, or general manager at the time thought it was a terrible idea.
Notice I say at the time.
It was very, very, very frustrating.
Because I kept having this notion in my head where I'd wake up every day going
We really should just take a fifth dollar deposit and then the problem is solved.
I honestly knew nothing about behavioral economics at the time. I didn't know that these were things that were tested.
I just knew that
As a derivatives trader, if everything went to zero
at the end of a day, that's like an expiring option.
And that option value changes.
The closer you get to expiration.
And yet we kept all of our values constant.
In other parts of the world that wasn't the case.
I sat down one day in two thousand fourteen.
and wrote this long essay, but before then I skipped ahead.
But we were building next.
I just decided
This is like a theater like restaurant. It changes three times a year to an entirely new menu.
I'm gonna sell tickets to this.
And
Again, everyone in my own company thought I was an idiot.
So I had to hire an outside programmer.
Had to not get a phone on purpose.
We barely built it in time.
And it broke right away because it was a homebrew software.
But then the first day we sold five hundred sixty two thousand dollars of tickets to a restaurant.
For the first time ever.
And
I remember
That is one of the happiest days in my life.
Yeah.
Because I turned on this thing.
And people did it.
five or six or seven years of
me kind of looking at this going like I'm pretty sure this will work. I'm pretty sure this will work.
And
Everybody in the industry telling me no and all my employees rolling their eyes at me.
I remember I called Grant up and we were opening night for next.
And I said, You've got to come to my house.
And he was like, dude, we're opening a restaurant tonight. I can't.
Things are falling apart here.
And I was like, just come.
Just for
Ten minutes.
And he showed up literally in his chef white and clogs.
And I must have looked.
Like hell,'cause I had spent like ten straight days like a bad movie eating pizza and drinking wine and trying to get this thing set up. So I hadn't shaved, I hadn't showered.
It looked like the big Lebowski.
I took him up to my little third floff.
And I showed him I'm like click on that button.
that table become available.
And then it will instantly sell.
And he did it and he's like, What happened?
And I was like, we just got six hundred and twenty five dollars in our bank account.
And that person's not gonna die in for two months.
And any one that you open will instantaneously sell.
And he was like
That's amazing.
And I was like
Yeah.
It's fucking amazing. And then he just laughed. I was like, Okay, I'm gonna go cook.
That was like one of those moments where you go like I have a time machine.
When I was a trader
There is
Exchange trade funds were just starting and the natural
hedge for them was the futures at the Mercantile Exchange.
I was the guy who said we need to connect these two exchanges.
via closed in cellular network so that people can talk to each other instead of using all these hand signals and phone calls.
The moment that I got that turned on after over a year of work getting regulatory approvals for it and everything, I had a five second time machine on the market.
Now people are down to like pico seconds now with high frequency trading.
But at the time, literally five second time machine. I could see what was going on in New York five seconds before it arrived in Chicago.
This felt like the same thing.
I can run my restaurant in a way that no one else in the world can.
And it worked. I mean, we sold every single seat for a year.
We made over thirty percent margins in the first year.
We blew out all of our
Goals.
while providing people with an incredible value, that opening menu was$85 for a 12 course menu.
It was incredibly satisfying and then incredibly frustrating.
As well because even after I did it.
People would say, Oh, well that works for that one.
In any business, you're kind of constantly having to prove
that it works outside of your own niche.
Even if you look back at the articles, they'd say, Oh yeah, this is a really unique restaurant.
This one's different than all the others. So it works for them.
But it won't work for
Pick your casual pizza place.
And I was kind of going like no no no that's why
The variable word is in there.
could charge five dollars and still affect people's behavior.
It took four years, but four years later I just couldn't take it anymore. And so I started talking.
Do you think before we get into some of the talk origin stories and spend a bunch of time there,
Do you think that this concept of ticketing, prepayment, and even dynamic pricing
can and should be extended to all sorts of other business verticals I'm thinking about like salons or spas.
Anything like that.
My original
thought and if you look back at the old blog post and you Google ticketing for restaurants, Alinea.
It's still somewhere out there.
I call the dynamic and variable pricing for time slotted businesses.
Any business that's time slotted should be dynamic and variably plot priced, right down to your lawyer, frankly.
Your dentist. If everyone wants a ten A. M. Saturday.
appointment because of work hours. Why doesn't it cost more to go to a dentist or a salon?
Or anything else for that matter.
Personal trainers, uh
ten AM on a Tuesday, do not have as many clients at six AM on a Tuesday.
To me, all of those things should be and will be dynamically priced. The tools to do so.
are not yet widely available.
But you look at something like
Amazon and Shopify for hard goods, they're doing that already. It's accepted for hard goods.
It's less accepted for services.
Inevitably it's gonna happen.
If I was gonna open a dry cleaner.
or something like that, I would immediately have dynamic pricing.
Can you discuss the origin of talk itself, I think
Now we could talk about software business that
potentially is rolling out the
innovative thinking that you have and making it a service for a whole bunch of restaurants to begin all over the country.
Why did talk begin and we'll kinda talk through each stage, including a an incredible story through Covid.
I came to the restaurant business as an outsider with this weird background. I was a philosophy major in college. Studied logic and philosophy of language.
And applied it to derivatives.
And then ended up in the restaurant business.
Inevitably you start.
going like, Well, I need to know my customers. I need to start looking at some data here.
All of the software available to restaurants at the time, and this is still true.
their business model intermediates the relationship between the business and
the consumer.
Open table wants to own that relationship.
Because
That's how they monetize it. They get paid a dollar for every diner that books at a restaurant.
Up until seven dollars if you enter their promotional plans as the restaurant.
So they claim to the restaurant, we delivered the diners, not you, not your great ideas, not the table plate we were talking about and all that.
And I was like
They're not delivering any diners for us.
We're doing that.
We're making a great experience, and yet I don't know.
which Patrick O'Shaughnessy is coming in tonight.
So
I don't know that your wife is left handed and likes tea.
I don't know that you've been to my other five restaurants.
twenty two times because each restaurant is siloed.
as its own server.
And the more I dug into the why of all that.
How are these companies monetizing it? What are their pricing plans look like?
Who owns the data, who owns the customer relationship.
I started
More and more going this is
Right.
for innovation and it's just frustrating as hell as a business owner.
I didn't build
the predecessor talk to commercialize it. I just built it for my own restaurants because I was dissatisfied with the existing systems.
And it ended up being a much bigger problem than I thought.
In terms of solving it.
programming it, building out the system because there's just so many components to it.
And that's why no one had started it before.
There are whole companies built around a wait list for a restaurant.
And that's a feature.
Not an application.
But they turned it into an app.
And they just built a little better weightless thing and they sold it to the Yelp for like forty million bucks.
So I would look at this and go
How is that a thing?
That's a weekend project and it's not even executed well.
More power to'em, mind you, but
I would just get incredibly frustrated that there are these little
peeks and pokes at it.
So finally
I woke up literally one day and read this article in the Wall Street Journal about reserve and resie and open table and and just went, No one gets it. No one gets what the real problem is here.
I would listen to some leaders in the industry.
Wow, they don't get it either.
Meanwhile, I knew what the finances of my own restaurants looked like.
This doesn't seem as hard of a problem as they're saying.
When I would go and
to conferences and talk to them is incredibly dismissed.
I wrote this blog post literally on Saturday morning, woke up, read the article, and said, I should probably dump all my thoughts into a blog post.
Five thousand words in like
four hours and posted it up.
It was read a couple million times in the first couple of months because economists loved it because they were like, Oh, this is behavioral economics in action. Restaurant owners that were like, Yes, this is what I've been thinking.
Now, if two hundred restaurant owners email you
You fall into the trap like every startup going like well everybody thinks this way.
Look.
People love this idea.
But of course the two hundred restaurants that emailed you are the ones that are the minority.
I didn't.
know that at the time the crossing the chasm thing is kind of real.
So the early adopters are all gonna call you up.
And say that you're brilliant. We want the software and all that. Well, I fell for that.
and called Brian Fitzpatrick and said, look, I need to make this into a company. And he was the head of Google in Chicago at the time.
I was like, I need to hire two engineers and build this thing out. I was seriously.
Under
Imagining what it would take.
That naivety is great to have when you're starting a company.
I'd invested in other software companies.
I grew up programming as a kid, not that I can program at all now.
But I knew what.
was sort of required.
And he quit Google.
I didn't expect him to, but he just said, I want to quit and start this with you.
And we hired a few really great engineers who had heard me, one of whom heard me give a talk.
At Google, actually.
about dynamic and variable pricing for time slide businesses.
And it was a talk about derivatives and how derivatives can apply to things other than financial products.
These folks are super geeky engineers and understood
the math and statistics of these things and whatnot. And
were enamored of trying to apply that to an industry that's five percent of GDP.
So we started out with a group of five people literally in a closet. We had like a spare storeroom in the Alinia offices.
That's how it started.
It's been fascinating to actually sell this thing to the industry.
Can you talk about what it was like in the earliest days and how you decided which restaurants customers to focus on and which features to deliver to them first? I always find this to be a huge challenge in building software is you kind of know where you're going in the end state, but the sequencing
is really critical to success or failure and hard to stay disciplined on. So how did that go in the early days of talk? Who did you focus on and what did you deliver first? And and what was your strategy for deciding those two things?
I looked at what everyone else was doing.
Yeah, what everyone else was doing.
our competitors worldwide. I looked at every booking system worldwide.
And what they all did was that they copied
part or as much as they could of the feature set of open table.
And then gave the product away for free to gather market share.
That is a standard playbook kind of thing to do.
Which is
Hey, we'll make the slightly better iterative mousetrap and then underpriced the competition.
we tout a new feature or two, but really it's we're not trying to break new ground here because we don't want to scare people.
That is exactly what
was getting funded at the time.
And I looked at the products and I was like
This doesn't do anything for me that I couldn't do on open table. And yeah, it might be free.
But
If you give something away from free, the people that you attract are the people who need free.
So in a weird way, you get the worst customers.
If people are that price sensitive.
They're probably not thriving.
So we
sat down and for the first six weeks of the company, we literally just whiteboarded out.
Everything.
What is the target customer?
in the first six months.
The one thing I could prove
Beyond a shadow of a doubt. Was that four
A certain kind of prefix high end restaurant.
This would be a game changing thing.
it would make them millions of dollars.
They were also tended to be the high profile restaurants and the restaurants that could take risk.
So we were like double down on the high end thing.
It's kind of like the Tesla approach.
Let's build the fancy car first.
And then work our way down market.
Everyone else is trying to build the Volkswagen.
Bug.
And sell up.
ton of them I giving away for free.
I remember talking to VCs at the time.
They're going like, what's your tan?
And I'm like, my TAM is a giant percentage of GDP in the world.
Yeah, but you're only for high end restaurants. I'm like, no, no, no, no.
We're starting with that.
And we will go down market.
I mean I had very famous VCs tell me that this will never work. You need to have a B to C.
Strategy.
These other guys are paying twenty five to fifty dollars per download.
on advertising and promotion.
Whereas we're getting
thousands at the time, just a couple thousand, but thousands of new clients every time we add a high end restaurant.
because people are seeking out that restaurant. That goes back to my point that
The network of open table wasn't finding the restaurant. It's like if we got the French laundry and Eleven Madison Park and the fat duck and Talier Cren.
and all these Mitchell and three star restaurants.
People were gonna go to them no matter what the booking system was, because they didn't care what the booking system was.
So we'll get our first million users for free.
And then we'll provide a great ROI.
On the seven hundred dollars a month we're charging to these restaurants. And by the way, we'll process millions of dollars. We'll pull that from the POS systems.
will be a payment processing company at the core. That's how we will make our money in the long run.
And I'm telling you, nobody believed it.
in the V C world. Now not nobody believed it because I had some really great

fifty to eighty to a hundred restaurants on.
Origin Ventures, Jason, Helter.
I served as a judge at the new venture challenge at the University of Chicago Booth School of Business.
sat next to him a couple of times on that and I was like, oh, this guy gets it.
Yes, the tough questions here and all that.
He always said to me, like if you're ever gonna take money for talk.
Let me know.
While we never intended to
I recognized about a year into it that
This is gonna be a long term.
project, tenure project.
It's going to take hundreds of people to build it.
Not dozens.
I went out to raise money.
I called him up. He came in. They talked for an hour. We had a term sheet.
At a crazy valuation.
Now or later.
And that was because
For years.
He saw how
I personally operated.
And he knew that I was committed to doing it well.
But the business model
didn't resonate with most people until
Honestly, this year.
People
Now see that
Creating a network in say New York and Los Angeles and San Francisco is not as resilient.
as creating a network in Kansas City, Minneapolis.
And those cities as well.
You need
Everywhere.
And you need all sorts of different restaurants and you need to figure out how to provide the ROI.
to all strata.
of these businesses.
As soon as we had
all the features set could provide a great ROI for really high end restaurants.
We started going
hard down market.
Fast.
On purpose.
And building out all of those features and breaking them and then
All of our engineers went and worked in restaurants as
Host.
These are people who spent their time staring at a computer screen or suddenly checking people in at a restaurant.
So they suddenly had empathy for the end user.
And
We didn't conduct focus groups, we didn't bring the restaurants into our offices. We did the opposite. We took our people and we put them into the restaurant.
Two incredible insights, the one being that last one there, putting people in there, but also
the value of spending care and time choosing your first customers.
It's so interesting how much
of a business gets determined by who it picks as its first customers. I feel like that doesn't get talked about enough.
And who you don't pick, too.
There were restaurants.
And restaurant groups that wanted to use us.
Three years ago.
When I saw what they needed and what they wanted to do.
I just went.
We're not quite ready for you yet.
And they were like ready to sign on.
And I was like, No, we'll fail if we do this right now because we don't have this particular
waitless feature or a walk in feature.
There's so many different aspects. Like a restaurant actually sells ten different things.
At the time we can only service two of the ten.
And meanwhile
They had five other systems that were servicing all ten. And I was like, You know what? When we're ready for you, I will call you.
And then I want you to take me seriously.
And we did that.
Over and over and over again.
We didn't even have a sales team at all until three years in.
Which is crazy.
We grew the company.
Very, very capital efficiently.
And one of the ways we did that is
Can we onboard more than a hundred restaurants this month?
No, okay, well let's just concentrate on doing fifty then and do it perfectly.
That discipline is rare. See it over and over again.
I think it's a Chicago thing too, or maybe it's just uh I always ran profitable businesses.
The concept of the phrase burn.
In a startup.
is just the worst.
word in the world because I'm not burning money.
I'm investing it.
the time horizon on investing money in a startup.
Tech startup.
Especially is a lot longer than people think for every
Instagram out there where you get a ton of users and all of a sudden it's like this ballooning
Unicorn and
their first raise is a hundred million dollars or billion dollar valuation, or they sell it for a billion dollars or
The vast majority of SaaS based companies have to work capital efficiently early on and
I just anytime I saw a negative.
month, which was gonna be for a long time.
I was like
Just viscerally.
Upset.

Intellectually I knew that in order to grow something that's scalable
You're gonna have to have a long
time horizon of investment.
That said, my restaurants are making money in the second month that they were open.
Now they're paying back a giant upfront investment.
But
I could kind of go like well, yeah, in eighteen months or twenty four months we'll have all that paid off and for as long as it runs after that, it's profitable.
The trading firm was the same way.
It's profitable.
It was very strange to me that
working for a business that wouldn't be profitable for years.
And I think because of that.
We attracted people who
understood and welcomed that.
Mindset.
But that also was a mindset that turned off a lot of investors prior to COVID.
I want to talk about what talk did during COVID, but I feel obligated to do some setup first around just the restaurant business, generally speaking. You talked about the 10 ways it makes money. It makes me think of the old adage, a third, a third, a third of the margin goes to the manufacturer, the wholesaler, and the retailer in a lot of businesses. And I would just love to hear you always hear the restaurants make their money on booze.
I would love you just to describe sort of the
Canonical.
restaurant business model.
from the food in the ground through to the retail price at the restaurant. Generally speaking, how does a simple restaurant business work so that we can lay that groundwork before talking about how Covet changed?
I'm not gonna use a simple one. I'm gonna use a complicated one and then go backwards to so Gramercy Tavern.
is one of I think the best restaurants in America.
It's a great place. It's iconic.
Let's use Grammar C Tavern.
When you arrive at the front door of Gramercy Tavern, they have no idea what you're gonna do.
And when I say that
I mean that very literally. They have no idea what you're gonna buy.
They have a bar area there that's casual.
That serves more casual fare.
They have a walk up bar.
that you could be at. So now we have two different things that they're selling.
Your casual restaurant and your bar.
Then in the main dining room, you sit down, they have an a la carte menu.
Which is amazing. Michael Anthony's great chef, great place.
Then you have a tasting menu.
They tell the people sitting down.
If you want to do the tasting menu, you all need to do the tasting menu.
And then we have two kinds of tasting menu. We have the regular omnivore one and we have a vegetarian tasting menu.
Then if you do the tasting menu, you can add on wine pairings.
Or you can buy the wine less.
And then they have private dining.
So they have two private dining rooms there.
that are sold for special occasions, corporate events, all that sort of stuff.
Plus they have a cookbook.
So eight things that they are selling.
The bar.
The casual
All apart.
Two prefix menus.
Private dining.
And merchandise.
When you go to book that
The only thing you say is I'm showing up.
That's incredibly, incredibly inefficient. And what they'll say
So say, Well, yeah, but only four percent of the people buy the tasting menu.
But that's because you're relying on the server.
to surprise them with this as an option. And then everyone at the table needs to agree to it.
At that moment.
If one person doesn't agree with it, it gets vetoed and everyone all orders all the car.
If you put that up on a Saturday night when your demand is three times
your supply. There's seven hundred people that want to go there, but you only have two hundred fifty seats. I'm making that number up.
If you say, Well, I'm gonna put a hundred of these up for sale as tasting menus only.
You will sell all hundred.
And you will know before people come in what they're gonna get for those people, not the a la carte people.
The people who want to do it at the bar, you have a separate button that says
I want the casual aspect.
If you imagine all that same thing applying to
A pizza place, your favorite pizza place to go.
To get pizza on premise.
There will be seats in front of the pizza oven that people like to sit at to watch the making of the pizza.
There'll be the really nice corner table that seems like the regulars always get.
And
There will be private events.
And there will be T shirts for sale.
So
I always went, what are the revenue sources?
You mentioned the cost side as well.
And there is all of that.
But restaurants never concentrated on their revenue side other than going like
Whoever sells the most Mai Ties this month gets a bonus.
to their servers.
Which
essentially means that you get a terrible sales pitch at the beginning.
So my whole thing is we gave restaurants tools to actually sell.
The other part of that is that if you sell more efficiently, your margins get better and better.
Because
The last dollars in are the dollars you keep.
Your fixed costs are known.
rent and utilities, all that sort of stuff.
Your cost of goods sold.
look better and better and better when you have less waste.
So it's actually good for the environment, it's good for your food costs.
It's usually thirty to thirty five percent labor.
Thirty to thirty.
Five percent food costs.
Thirty percent.
On your
fixed costs and insurance and overhead and all that.
What are you left with ten percent?
Well, if you can eliminate food costs, if you can run more efficiently, if you can have high demand on a Tuesday at nine thirty at night.
you will make twenty to thirty percent restaurant.
I've had dozens of restaurants I've talked to where they said that it's completely impossible to make more than twenty percent.
It's just not possible.
Over and over and over again, I see that when they make these small changes, even the casual places on the revenue side.
Suddenly it unlocks.
money that they just were like, wow.
The denominator's the same and the numerator got big.
It's just not that hard, but no one does it.
No one runs it efficiently and people are scared of change.
People are like, well, what about our customers that want to call on the telephone or what about the people, what about the great customer?
That doesn't want the tasting menu.
I was like, great, hold back four tables.
Click that button and hold back four tables.
I'm not telling you to change
the entirety of your business for every person.
I'm saying run some of those experiments we talked about at the beginning.
and see what the outcomes are.
And I've been incredibly
Unimpressed.
in general with the industry of their willingness to do that.
What do you think the generalizable lessons are from
These learnings at talk about
specifying revenue sources and exposing them to customers more deliberately, reducing uncertainty. If you're just thinking about business generally speaking,
What lessons do you think could be very broadly applied, not just to restaurants?
Know what you're selling.
and then actually sell it.
Which sounds incredibly odd. Stupid. No, I know, it's so stupid.
I'm telling you what, there should be a business course on that.
If I ask Grand Mercy Tavern what you're selling, they'd say food.
And I'd go, No, you're actually selling seven different experiences plus some merchandise.
Meanwhile, you haven't categorized those experiences until after someone comes in. You haven't even informed the consumer.
But they exist.
Do you want to be surprised?
When you go to pick up your car that you bought.
Would it be really weird if the car had a different color and they tried to sell you on that one?
Yeah, you'd walk out of the place.
One of the talks I give to all of our new employees at talk and
To the industry is.
called Tuesday is not Saturday and seven other things you already know but are doing nothing about.
It's really obvious.
You don't need to be an expert in the
restaurant business to know
Every restaurant in the world probably or ninety-nine percent with some anomaly.
are busier on Saturday night than Tuesday night.
Okay, so we have that.
You're not gonna get an argument even from a diner.
Yeah. More people eat out on Saturday night.
What are you gonna do about that?
How are you gonna get more people in on Tuesday? What levers are you gonna pull to get them in?
And for some reason the whole industry
With the exception of the early bird special.
in the seventies and the blue plate special and and the diners.
The high end industry just went like, yeah, no, we're too good for that.
We're not gonna pull the pricing lever.
Because we might piss off the people on Saturday night.
that was the argument given to me by my own employees. Well won't the people on Sarai be pissed that they're paying more? No.
Do people sitting
On the fifty yard line on the tenth row.
Are they kissed off?
That they spent five hundred dollars on the football instead of eighty dollars to be in those bleeds? No.
That's like a normal thing.
The other thing is people can't buy what you aren't selling.
You have to have the information.
readily available where people live. And people live on the internet now on their phones.
And if you are not
selling there, not just saying, hey, come to my restaurant, eat this delicious thing.
But if you're not selling those experiences, if you're not saying, hey, we've got this awesome
corner table.
At our pizza place that everybody wants.
And it's a ten dollar deposit per person because we can't have no shows at that table.
The
sunk cost of that ten dollars per person.
is mentally done.
A week before they arrive.
They end up spending more once they get there.
And they're happier.
Because they need to wait for the table and they got the best table in the place.
It's like win win win.
having those levers and those tools to actually sell.
Regardless of what business it is.
Is massive.
Same thing goes for publishing.
We publish all of our own books.
last week sold 120 000 of books in a week.
For a restaurant.
With margins much better than the restaurant.
But
We actually sell them ourselves.
I have mailing lists, I have websites, I have Instagram and Facebook.
We're running a couple thousand dollars of ads per day.
And we own the right to the book.
Gone.
Not that hard.
That goes back to the original thing. Own it.
The publisher doesn't own our books. We do.
And show it.
This is not hard stuff.
It's
Amazing to me.
that so many people in the industry don't
There's a lot of artists in the industry that view commerce as anthetical to their ethical beliefs.
As weird as that sounds.
And yet so much of that makes the whole
Artistic expression and creative part of this.
More possible.
By running it successfully like a business, you create more opportunity to do more of the thing they want to do.
Yeah, yeah. I mean, at the end of the day, you can't
operate if you're losing money.
And there are restaurants out there, by the way, that have run for decades.
Nonprofits, essentially.
And they don't mind.
And that's fine. That's totally valid for them.
But that's not what I wanted to do. And I think a lot of times people say, Well, you guys can do that because you're a linear.
You can charge ahead because you're a Linea or you can sell your own books because you're a Linea.
And I always say, no, no, no, we're a linear because we do those things.
You're getting the order wrong.
It's hard to do. It sucks. There's been many times we've done stupid things that haven't worked.
And then you junk'em and you
You move on.
Any other lessons that you've learned from publishing, you mentioned that earlier is something that you do and you enjoy doing. You mentioned the higher margins.
Any other thoughts on publishing, which I think again, like restaurants, many would knee jerk reaction say is a bad business.
If you ask questions of an industry and they won't tell you the answer.
Yeah.
That's
Always a good sign that someone's getting very wealthy.
In publishing, if you ask an author
Ask any author.
How much did it cost to print the book?
What are your cogs?
They will not know.
Ask any literary agent that question and they'll think you're off your rocker.
Ask any publisher to give you that information transparently and they will rip up your contract.
So
Call the printers in China. Pick your favorite book.
Find out some print brokers here in the US and say
What did the printing of those books cost? Send me a spreadsheet.
And when they do, when you find out that a fifty dollar retail book costs about two dollars to print.
And you're gonna get ten percent of cover price.
They're requiring that you order five thousand for your own list and they're gonna give you a quarter million dollar advance.
You realize that there is no way
They've taken no risk at all. And I wrote up a long medium for those who
are interested if you Google my name and look at my medium, there's why we are self publishing the Aviary book. I posted up the contracts that we were offered.
They're all terrible.
certain kinds of books, I think you're much better off going with the publisher for. Like if you're gonna write an academic book.
You have no built in audience.
Chan, you're not gonna sell a ton of them on your own.
But if you have an audience already in whatever business you're doing.
Or
a large social media following or any of that, doing a book and publishing it yourself is not hard.
It takes a lot of effort.
Alan Hamburger and Sarah Hemberger came from Pixar and Industrial and Magic. We hired them both to do our all of our media and books.
We gave them equity in the thing, so that they own part of it.
Three years later we have six books out and they
produce millions of dollars of revenue every year.
Fascinating.
What are a few of the other things that people already knew but do nothing about?
What are the the top two or three that you haven't talked about that come to mind?
Food costs money.
So that's one of them.
But the way that everyone looks at food costs and paying for food is very weird.
In that
Every restaurant and this happened when Covid started, so it's a good segue to that. Every famous chef that went on TV said
This is the kind of business.
Where this week's revenues
pay for bills from a month ago.
And when we started to bring in money through deposits and pre-paid reservations tickets.
I suddenly looked and had a bank account that had a couple million dollars in it.
of forward money.
Like a lot of other businesses, like the computer business. If you buy a computer and then they ship it to you five days later, kinda thing.
So you have a float.
So I started calling up.
Some of our big vendors for like big expensive items.
Proteins.
Me fair.
Luxury items like caviar, foie gras, that sort of stuff.
And wine and liquor.
I just said, I don't want net one twenty anymore. I want to prepay you for the next three months.
And they had never had that phone call from a restaurant before.
So basic economic theory would say
that well how much should they discount it? Let's say there's
We're gonna buy steaks and they were thirty four dollars a pound wholesale for dry age ribeye.
We're gonna pay thirty four dollars a pound wholesale.
Get net one twenty. And I called the guy and said
I'm gonna use 400 pounds of your beef a week for the next four months.
For a menu.
Which is about three hundred thousand dollars of beef.
What do we got?
If I prepay you.
And he was like, What do you mean? I'm like, I want to write you a check tomorrow for all of it for four months.
And he was like, Well, no one's ever said that. So he called me the next day.
He said
eighteen dollars a pound. Half.
Half price.
Wow.
That's what I said.
I went.
I'll pay you twenty if you tell me why.
You say, Well, it's very simple.
I have to slaughter the cows.
Then I put the beef to dry.
And for the first thirty five days I can sell it. After thirty five days, there's only a handful of places it
sell it for more than thirty five days dry agent at sixty days.
I sell for a dollar a pound for dog food.
Literally.
So his waist
On the slaughter.
And these animals' lives and the ethics of all of that.
are because of net one twenty.
Seems like someone should have figured this out.
As soon as he said that.
Everything clicked.
And I just went
We need to call every one of our vendors.
Every time and say we will prepay them.
Now I know huge restaurant groups.
Huge restaurant groups.
That look at their float.
as more valuable to have that money in the bank and to pay their vendors net ninety, net one twenty, whatever.
What are you earning in interest these days? 1% a year or something like that? It makes no sense to do that.
It makes sense to get ahead of that curve.
Estimate your next month's sales and pre-pay for the food. Now there's risk involved in that.
But you've mitigated that risk by much, much better food prices.
Uh the mission three star level, we've been able to take
our food costs down to a level that
Honestly, our chefs never thought was possible.
We've done that.
Partly through the efficiency of not having no shows.
But then the other flip side of it is that we've also
Worked on creating forwards contracts.
For all of our big vendors.
You have to do at least one more. This list is amazing. What's one more thing? And then we'll move on.
People can't buy what you don't sell.
Stranger danger.
You don't know who your customers are.
So in the restaurant business, anyone can walk in and you have no idea who they are.
It's really obvious that that's the case.
You have a casual restaurant, people walk in.
Who is this person?
You have no way of knowing them.
Almost any other business.
you are going to have some information about that customer.
So you can remarket to them.
You can take
that customer and aggregate them into a pool of customers.
upload them into Facebook and Instagram and say, create a like customer list within three square miles of my restaurant. All that.
So
All of these tools exist.
They're largely free to use.
As well.
And all you need to do
is get your customers email address.
Not their cell phone number, their email address is the unique identifier.
Other businesses and other booking systems don't want you to have that.
Just like
The publisher is saying
Yeah, we won't tell you how much a book costs to print, or we don't know, which is a weird thing to say.
These other booking systems go like yeah yeah.
People don't like giving their email address.
It's much better to have a cell phone number. It's like, no, actually it's not.
And that's why Amazon and Netflix and HBO.
And everyone else uses your email address as your unique identifier.
I call that stranger danger.
Your customers cannot be strangers.
You need to
Know who they are.
And what are you gonna do about it?
Very simple. When they arrive, you get their email address.
It's not that hard.
When Covid happened, it represented obviously an existential
crisis and still does.
For
A huge swath of the restaurants in the US.
And I think one of the most interesting things that's happened with you and with talk
Is how you responded and reacted to that.
Now that we've laid that groundwork, just love all the lessons you've shared with us so far.
Talk us through that episode, which is of course ongoing.
and what you did and what you've learned.
The first thing that
I did was I realized
You said it's an existential danger.
You can realize that something's an existential risk or danger at any
Point along the curve of it being
An existential risk.
The trickier part
is to realizing that something could be an existential risk.
has a small chance of happening.
But it's non zero.
So right now it's very obvious that to the restaurant industry
to software companies that serve the hospitality industry.
that COVID is an existential risk.
We started talking about that.
February twenty eighth.
Because at the time
There was
Evidence in
Asia and Italy.
That
This was a very, very serious potential pandemic.
Then when Seattle
started having some cases at senior
Care facilities.
That's the moment. That was March eighth.
Where I went.
the whole industry is totally screwed if this happens and it seems like it's going to happen.
as a trader and and a trader in an era where you look at other people and you can tell whether they're telling the truth and how panicked they look.
Every time I saw senior officials on TV saying that this is nothing to worry about, I worried more.
They wouldn't even be talking about it if it was nothing to worry about.
I immediately went into like
Kind of a footing of
What happens if tomorrow every restaurant in America is shut?
What happens if I have to shut down all my restaurants and can't serve anybody? What happens if they just go to 50% occupancy? Or what happens if my employees begin getting sick?
How do we protect
ourselves.
That was a moment where
I don't want to use the word
panic. I didn't panic.
where I got very, very concerned and serious.
And when you're the only guy in the room saying the sky is falling.

All right. This guy's about to fall.
You can look a little unhinged.
I tried to explain to everyone if something has a 10% chance of happening.
But if it happens, it wipes you out.
you need to mitigate that risk.
Even if you're wrong and it doesn't happen, great.
But at least we were prepared.
And I called some other restaurant owners and whatnot, and honestly, like people thought I was off my rocker a little bit. My own employees were kind of snickering behind my back because we instituted
A five minute call time meaning everyone had to
Come within five minutes.
We instituted mandatory temperature checks and hand washing.
And mask wearing. We did that.
Two and a half weeks before Chicago was shut down.
And before there are any guidelines to do so.
I could see on the look of some of our managers' faces.
The fact that the guy who sits on his computer all day
is telling us to wash our hands every hour, but he has no idea that you can't run a restaurant that way.
You can't run a busy restaurant.
where everyone stops and washes their hands every hour.
log all that and video record it.
to make sure people are doing it and all that.
When I noticed that in the room, normally I would
have a nice explanation as to why this is the case and all that.
And instead I just said anyone who doesn't do it is fired.
And you won't have a job for two years.
Anywhere.
Because that's how serious this is gonna be if it happens.
People went from going, Oh, he's unhinged.
And we're just not going to do it.
Two, he's unhinged and he's gonna fire us all.
Which doesn't mean that they wanted to do it, but it did mean that it got the job done.
And what happened was within
A week it became evident that unfortunately we were correct, but that also gave us
The opportunity
both on the talk side and the linear group side to pivot very, very quickly.
And we talked to Canless in Seattle and they were like we're gonna shut the restaurant and we're gonna start doing

figure out how to do that on talk because we love talk and it's changed our business for the better.
And we recognize that there was a way to shoehorn it in, but it wasn't that elegant.
But
Because we're a cloud based system, because we built our data around dynamic and variable pricing for time slotted businesses.
Carry out food is also a time slot of business. We can adapt to this very quickly. And so we gathered about 20 designers and engineers.
We got a week to put out a new product.
The people again who went that's not possible simply
We're off the team.
And everyone else worked twenty hours a day to do it.
We got it up and running for Canless.
Three days after
Chicago shut down. We started serving thirty five dollar beef wellingtons out of Linia, which
Was newsworthy at the time.
Because why would a Michelin three star serve thirty five dollar food?
By the following week we were selling a thousand a night.
Plus wine plus
supplements plus all those things I talked about where you're actually selling.
We're selling books as well every night.
And we went from furloughing our employees to hiring everybody back in four and a half, five weeks.
Everyone who wanted to come back.
And on the talk side.
We
We're able to massively undercut.
Mm.
third party delivery applications.
Doradas breed to the world.
Until then they were supplemental income to restaurants. So they could say, Well, I'm charging twenty to thirty percent.
Because you have no service cogs. You have no extra labor.
We're doing the labor by delivering it the last mile.
And restaurants signed up for that.
But when it became their only source of revenue.
That thirty percent suddenly looked egregious and painful.
We charge.
A flat three percent.
'Cause we built the whole thing on the back of our events platform that charge three percent. It wasn't like some
Miraculous thing. Frankly, I wish I'd charge six or seven or ten percent.
Well we charge three.
In the intervening since March, we've signed up over three thousand restaurants.
our business.
Well
We had a billion dollar GMV run rate by the end of the year, an amazing mix of revenue between
elevated carry out and to go.
reservations as places reopen.
Seventy percent of everything I talk is a totally free reservation.
It's not a ticket. It's not a deposit.
It's that bar seat, the Grand Mercy Tavern that's totally free.
But the ability to sell that tasting menu and your carry out and all these things together.
Make for more
resilient business model.
even as we reopened in the summer our patios and the linia did a pop up on a rooftop and all that.
Even though we had replaced a lot of our revenue.
with the patios and whatnot.
I insisted that we keep the carryout going.
Because
At some point I was like, Hey, it's gonna be
Winter in Chicago.
There's no yurt warm enough.
Plastic urs.
to have two sides open when twenty below tundra in January in Chicago and it's snow Mageddon again.
And then I gotta carry food out to that. That's not gonna work.
It's obviously not gonna work. I'm amazed that all these restaurants are putting those up.
Because that is a six week solution to a
Six month travel.
They just closed down dining again in Chicago and
We were able to instantaneously wrap up our carryout again.
And that's the goal is to have that sort of resiliency even after COVID.
Do you think that based on that observation that
there's a big risk factor for those DoorDash Uber E kind of delivery last mile services because of how restaurants will inevitably have to change and it impacts their economics so much.
Yeah, I mean if you look every single one of the
US based
delivery applications.
Actually lost more money.
during COVID, even though their revenue tripled.
As much as they are charging.
The last mile delivery to a single location.
is a model that
Doesn't make money.
which is why there's a lot of consolidation there.
I think there are ways to have it make money.
And part of the way to do that is to give is what we've done, which is give the consumer
a choice between
picking it up themselves at the restaurant or paying for the convenience of having it delivered.
And then splitting that cost with the diner.
So
If someone picks
It up.
We charge the restaurant three percent for the order.
And we charge the consumer a dollar.
For the order. That's it.
If someone's delivering it.
We utilize these third party delivery.
Last mile applications.
And we integrate with them seamlessly.
But we've essentially convinced them that we're gonna charge the consumer a flat five to seven dollars.
And
If someone's selling a fifth dollar menu
And four people order it. So it's a two hundred dollar carry out order, which isn't the case with casual places.
Why should the delivery app get$50 to take it a mile?
Doesn't make any sense.
I think that there are ways of changing their pricing model.
That doesn't impact the restaurant as much.
still good for consumers and gives consumers a choice.
but kind of spreads out the true cost.
Of
doing that delivery.
which is also equitable to the drivers.
I'd love to close our conversation with one of the places that we started.
I'll call the idea sort of process as art your Picasso example of
going to the trouble to expose the process as part of making people aware of it.
The whole conversation maybe I would sum up as know your customer, know what you're selling and sell it to them.
It sounds so simple, but so many implications.
What do you think about just businesses in general and how they communicate
With their
And customers
And whether or not things like we've mentioned Michelin stars a few times, and I think of that as this amazing thing that changes the trajectory of a restaurant.
But that ultimately the best thing would be to create that impression directly to the consumer, not through Michelin.
Close with any thoughts on this idea of process as art direct to consumer and just the future of business.
Yeah, I mean
You have all the tools to know your consumer and interact directly with them.
for the first ten years of of a linea
Every single day when I woke up.
I emailed two people.
That were either diners or posted on their blog about
Their dinner.
Or wherever it may be.
'Cause I figured over the course of a year I would email seven hundred customers and they'd be like, Holy cow.
That's a very simple thing. It took me about five minutes a day to do.
And as social media grew up.
around it. I just went, oh, that's even more effective way of doing it.
I think
That
Knowing your customer.
Literally.
Who is it?
And then having the ability to interact with them in an authentic way.
is the key to all business.
At the end of the day, you buy the person as much as the product.
And that's why so many
in America so many executives, both for good and bad.
come to be known. Like if you say Apple, you think of Steve Jobs still.
You think of Tesla, you think of Musk.
That's because they're out there actually selling their product and their ideas.
But of course there's a cumulative ideas of thousands of people.
But they're the good communicators, and at the end of the day, you're a philosophy major, I was a philosophy major.
One of the things I learned in in studying philosophy is how to think
critically of something that I've learned or read.
And then how to write about that in a concise and efficient way. So when I write a business plan.
I don't understand the business until I can write about it on a single page.
I have chefs all the time emailing me with business plans.
And I say, do me a favor, write up one page.

Like as a diner to eat at your restaurant.
And then I don't hear from them for
Two months.
If ever.
Because
they don't have a clear vision. They have a clear of what food they want to give to someone.
They don't have a clear vision of who that person is.
and what sort of emotionally resonant experience that you're creating with them.
All the time we try to
communicate directly with our guests.
Both on the talk side and
The linear group side.
And
You know, I've consulted for other businesses as well.
In the past couple years.
These are the kinds of like really stupid questions I get paid.
Money too.
Yeah.
I'm always amazed.
When I go in there.
And I was like
Okay, show me your customer list for the last six weeks.
And they can't.
That just seems
Insane to me. And let me tell you, almost no restaurant can do that.
But there's also a lot of other businesses that can't do that.
So
That's incredibly
simple to do, but it's really hard to execute.
None of this has been fun. Let me also
Reiterate.
Covid has been terrible. It's been emotionally draining. It's been
incredibly difficult on our staff. We've had to hire people back. We've had to re furlough people.
We've constantly had to change.
We were about to do a pop up at a hotel, which gave us extra square footage so we can run at fifty percent capacity.
We were about to spend thirty, forty thousand dollars creating this really cool
multi-media experience for diners in there.
We were working with sound and lighting companies and all that. And then they shut.
And we're dining again.
The next day, as soon as it was shot, I was like, okay.
All that's done.
We're not gonna do that this year.
And then people are like, Why not this year?
It might only last two weeks. I said.
Well, we can't outlay all that money and then open for a week and then close for Thanksgiving, then open for two weeks and closed for Christmas break.
So
It's become easier to make those quick decisions, but I want to reiterate, none of it's fun.
It's all been a struggle.
It's not like I have the answers.
We're willing to try things.
And it's been
Very, very difficult and sad, frankly. It's never fun to sustain a business and your employees.
And not have a goal of thriving.
We do keep that as the goal.
But it's been challenging.
I'll remember this awesome conversation for a lot of reasons, but just for the first principle's thinking, no surprise to your philosophy major at all. I'll turn to my traditional closing question that I ask everybody, which is to ask you what the kindest thing that anyone's ever done for you is.
I'll make it a little bit generalized.
Any time that
Someone says thank you for something that was done a long time ago is a nice thing.
I try to do that for some of the people who are mentors to me.
I think like a really nice act of kindness is just to sort of recognize
somebody when they've done something
Nice for you, or they've helped you out.
Or sometimes it's tough love.
It's not always a good thing.
So recently I've had a couple of instances in the midst of all this.
People have called up and said, Like, hey, I really appreciate
that these were difficult decisions or I really appreciate that I wouldn't have started my company without you.
Alan Hemberger, who is running all of our publishing stuff.
Once stolen napkin from millennium.
He is an autodidact.
Amazing guy. He learned so much different stuff.
And one day I got a knife.
In the mail.
With a story written to it.
That said.
I was so taken by Linia when I was there years ago. I never imagined working with you guys.
And I've never done anything like this, but I actually
Took one of the napkins.
And I wanted to return it to you today.
Wow.
It was embedded in resin in the handle of a knife that he hand forged.
From a kiln that he hand built.
Wow.
So
I opened it and I was just like
That is one of the most amazingly cool things anyone's ever done.
Now
It's not the fact I mean it's kind of amazing that he made the knife and all that stuff.
What's really cool is that he took the time to do it.
And sort of said, Hey, this is important to me.
Those kinds of little kindnesses are the big ones.
Well this is so damn fun.
Could have done it for three hours. Sorry, we only had an hour and a half, but it's been an absolute pleasure to meet you and to speak and learn from you. Thank you for the time.
Thank you very much, Patrick.

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