How I Built This with Guy Raz - Advice Line with Perry Chen of Kickstarter

Episode Date: June 12, 2025

Kickstarter co-founder Perry Chen joins Guy on the Advice Line, where they answer questions from three early-stage founders about what they really want from investment deals and acquisitions.Today we meet Jesse in Dallas, who's debating whether or not he should sell part or all of his cold plunge tub business. Then Catharine in Oregon, who's trying to figure out how to move on from the daily grind of her hot sauce brand. And Joe in Chicago, who has an ambitious vision for his chicken sandwich chain.Thank you to the founders of Modtub, HYCH, and Fry the Coop for being a part of our show. If you’d like to be featured on a future Advice Line episode, leave us a one-minute message that tells us about your business and a specific question you’d like answered. Send a voice memo to [e-mail] or call 1-800-433-1298.And be sure to listen to Kickstarter’s founding story as told by Perry on the show in 2017.This episode was produced by Alex Cheng with music by Ramtin Arablouei. It was edited by Andrea Bruce. Our audio engineer was Neal Rauch.You can follow HIBT on X & Instagram and sign up for Guy's free newsletter at guyraz.com or on Substack.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

This show is in partnership with Airbnb. This past summer, I took my family to Vienna, and it was incredible. We spent our days wandering the old streets, stopping for coffee and pastries, visiting museums, and just soaking up the history of one of the most beautiful cities in the world. And one of the things that made the trip so special was the home we booked on Airbnb. It had tall windows, beautiful old details, and plenty of space for all of us. And being in that home on Airbnb, right in the middle of Vienna, walking distance from so much of the city made it feel less like a visit and more like we were actually living there. Plus, taking a trip is the perfect time to host your space on Airbnb.

Your place, with all of its personal touches and its amazing location, could make someone else's vacation even better. Your home might be worth more than you think. Find out how much at Airbnb.ca slash host. Hello and welcome to the advice line on how I built this lab. I'm Guy Raz. This is the place where we help try to solve your business challenges. Each week, I'm joined by a legendary founder, a former guest on the show who will help me try to help you. And if you're building something and you need advice, give us a call and you just might be the next guest on the show.

Our number is 1-800-433-1298. Send us a one-minute message that tells us about your business and the issues or questions that you'd like help with. You can also send us a voice memo at hibt at ID.wondry.com and make sure to tell us how to reach you. And also don't forget to sign up for my newsletter. It's full of insights and ideas from the world's greatest entrepreneurs. You can sign up for free at gairoze.com. And we'll put all this info in the podcast description. All right, let's get to it.

Joining me this week is Perry Chen. He's the co-founder of Kickstarter. Perry, it's great to have you back on the show. Great to be here, guy. All right, so you were first on how I built this back in 2017. And if you guys haven't heard that episode, of course, we will put a link in the episode description. Perry got the idea for Kickstarter when he tried to put on a concert in New Orleans in the early 2000s. And he thought, hey, wouldn't it be great if we could,

fund this event in advance. Well, that idea never panned out, but after almost a decade of kind of refining it, Perry built a platform that today has funded more than a quarter of a million projects. Perry, it is such an awesome story. And before we get to our callers today, can you give us an update on what you're doing these days? I know the last time you were on the show. This was back during the pandemic. You were no longer the CEO of Kickstarter. You were the chairman of the board.

Tell us a little bit about what's going on. life right now. Yeah, and it's great to be back. And, you know, I was chairman yet last time I came. Now I am off the board completely. I went from CEO, stayed on his chairman for many years, then was just a board member, brought on a new chairman. And then really, as of about six months ago, I am now liberated. Yeah. And so after that, after I left a CEO, I went into the art world. And, you know, I did some shows with some galleries and even a few things at museums. But I have since returned to my first love. And so the music stuff is kind of still, it's under wraps, but it's been going really well. And this is now where I put my energy. Perry, I think, okay, this is my sort of, you know,

back of the envelope, guy in the corner of the bars theory, but I think we are on the cusp of a different year, like the, we're leaving the industrial age and we're entering, or maybe we've already entered it, but with AI, it's a completely new age. And I think that in the not too distant future, it's going to be difficult to discern what is AI generated and what's human generated in certain creative spaces, music and books, even podcasts, even what I'm doing now. And so I want to get your take on building a business around being creative because that's really what Kickstarter initially, you know, enabled people to do. Do you think that the future of earning a living by being creative is under threat? If you're thinking more in the creative arts spaces, you know, the music, the art, film, dance, theater, you know, I don't think it's ever been really stable for people working in those spaces.

Fair point, yes. You know, and so it's like each of these radical changes that we are going through, I think as long as it continues to open up opportunity for people, not just close up opportunity, I think then that's just normal change. we are just experiencing it in like such a condensed rapid fashion. Yeah. Perry, before we get to the callers, I suspect that many or some today are going to have questions about raising money, right, to fund a business.

And I'm just curious, I mean, what are some of the projects that do really well on Kickstarter? Like, what is the pitch that people make that attracts more capital? Well, one, there's people that have existing audiences that they can start the promotion on. If your audience is much smaller, you're trying to tap into things that have existing communities. If you're doing a documentary film on a subject, let's say on autism, you may not have a built audience as a filmmaker or that may be limited, but you can go try to promote that in communities online where people gather around that topic. So whatever that is, in whatever area of what you're doing, I think that you're really trying

to understand how big is my audience here? you're probably trying to think is like what communities exist that I can go to and say, hey, I'm doing something that might already interest you. Yeah. All right. Well, Perry, why don't we go ahead and take our first caller? Are you ready? Yeah.

All right. Hello, caller. Welcome to the advice line you're on with Perry Chen, co-founder of Kickstarter. Tell us your name where you're calling from and a little bit about your business. Hey, what's up, Guy. I'm Perry. My name is Jesse Hodge from Dallas, Texas, and I'm the co-founder of Mod-Tab. Mod tub manufactures and sells coal plunges direct to consumer, and these cold plunges keep the water cold and clean with no need for ice.

Awesome. Jesse, welcome to the show. Thanks for calling in Mod tub. Okay, so these are like a round hot tub. What does it look like? So we started modifying a massive cooler, like a Yeti-style cooler, so it looks like a big tub, plastic tub. Okay. And basically, that's connected to some device that cools the water inside? Exactly, yeah. So we modify that cooler to connect it to a pump, a filter, and a chiller, which is what brings a water down to temperature. Okay, filled with water, there's an external device that cools the water to what temperatures? It can go as low as 39 degrees. Wow. But that is very, very cold. We recommend starting around 55. All right, let's talk about a little bit about how you started this business. Tell me the background, the quick background, sorry. Yeah, so we launched Modub in February of 22.

and it started from this side business in my garage refurbishing used hot tubs. It was a random thing I got into. My wife and I bought our first house and we wanted a hot tub, but we were poor. So we bought this junky old hot tub off Craigslist. And I just really enjoyed working on it. I enjoyed fixing it up and refurbishing it in my garage. So that led us to start a mod tub originally as a new hot tub company. So we were a dealer essentially selling new hot tubs.

that business was very hard and we had a very tough year, but we saw the rise of coal plunge. And because of all I knew about hot tubs, we were able to make our own coal plunge out of my garage. And I kind of took off from there. Okay, so you switched from hot tubs to coal plunge. It makes a lot of sense because it's a hot trend and I think will become more than just a trend. Did you design these tubs? I mean, is it your original design? Yeah, that's one thing that makes this different from a lot of coal plunges out there today.

A lot of them are bought and resold or drop shipped from overseas, but we make these ourselves. So we designed it. My brother and I would tinker in my garage every Friday, trying different fittings, different pumps, different tubs, and eventually landed on the design we have today. Where are they manufactured? The tubs are now made in Tennessee. So the components kind of come from all over, but final assembly is here in Dallas. Wow. So the actual tubs, they're made in the U.S.?

Correct, yes. Wow. And do you have a patent on this design? So we actually just launched our Modep 2.0. So the second version is our proprietary design. So we have a design patent on this new one. Tell me a little bit about the business. How were your sales last year?

Yeah. So last year was really good. We did just over $5 million. That's doubling from the prior year. And yeah, so we're at. Five million. And these are, how much do these go for? What's cost?

$3,000. Our new one's $3,300. And are you profitable yet? Yes, so we've been profitable. Ever since we watched the cold plunge, we've been profitable. We lost a good chunk of money doing hot tubs, but then the coal plunge is recouped most of that back. Amazing. Okay, lots of questions for you.

But before we get to Perry, bring them in, tell me what your question is for us today. Yeah, so we're a little over three years in and have had a lot of fun building this. I get to do this with my brother. But lately, we've been getting approached by people interested in potentially buying Mod Tub or investing in Mod Tub. So looking for advice to know if and when is the right time to go down one of those paths. All right, Perry, before we answer the question, do you have any questions of your own for Jesse? Oh, sure. I kind of want to ask what you want.

You know, what's your vision? How you feeling about how things are going? Like, what do you? Yeah. Yeah, what do you want? Yeah, it's a good question. I think I've felt a lot of maybe where I feel like I'm towards the edge of my rope or I've taken it as far as I can go. and now I feel just this pressure or maybe some imposter syndrome of like, man, I'm not the face of this health and wellness company.

I'm not sure if I can take it to the next step. It might be better in someone else's hands. And I'm kind of wrestling through some of that just insecurities I need to push through to keep growing the company. Or is that indicative of, you know, maybe it really is a good time to let go of some control and get some more outside perspective. Have you had any credible offers? Yeah, so we turned down a credible offer last year. At the time, we felt like it was too low. And I think as time's gone on, I maybe realized the offer was better than I originally thought. It's a tough industry.

I mean, we essentially sell one skew that people buy one time. So it's hard to sustain a business with that model. So, you know, we really need to watch new products or be a part of a catalog of other products. who sell gym equipment and other kind of wellness modalities. It makes me think of two episodes, many episodes of the show. One is Therobody. Therogun was their sort of hero product. And Jason Worsland found somebody to partner with him who kind of became the CEO.

And they turned that into a sort of a lifestyle brand, right? And the other one that I think of is some of these brands like Solo Stove. Again, very successful product. The co-founders hit a certain level and they brought in a sort of quote unquote professional CEO to really build the company with the idea of selling it, you know, in two or three years. So some interesting ideas. A quick question for you, how did you, I mean, you've got some great momentum. And I should, we should mention the benefits of cold plunging are well known on your metabolism. Yeah, I think that's one thing about it is that, you know,

we love it. We love the community. We've loved the culture. It's a lot of people who care about their health, who are willing to do the hard thing of coal plunging, which builds resilience. So we're still having a lot of fun with it, which is, you know, another factor that kind of plays into our decisions to sell or to take on money or kind of what's next. I want to just like dive a little deeper into kind of the, you were saying, a little bit of as potential imposter syndrome. How much of that is that you're just like, you want to do right by the business and you don't want to obviously start to get into areas where you're not, you may not be the right person for that? And how much of that might be that you're kind of getting a feeling that like, look, that's not who I am

or where I want to be spending my time, you're really like, I'd be happy to let somebody kind of come in here who knows what they're doing, and you could focus on the things that you want to focus on. Yeah, I think there's two parts to that. One is the imposter syndrome part. I mean, I'm not the face of health and wellness. I love my beer and my pizza.

So it's a, you know, I'm not this ultra biohacker kind of guy that most of the coal plunging community is. So there's some of that of just, you know, am I the right person to lead it when, I don't know that I totally fit our target? demographic perfectly. And then the other component is kind of what you're saying that I think starting Mata pivoting to coal plunging, all of that was so fun. I think running the business, trying to scale it, kind of operating it, I've not enjoyed to the same level that I enjoy starting

something. So I do kind of have an itch to go start something else entirely. So you just have itchy feet. I mean, you've been doing this. It's been fun, but you'd rather move on. I mean, there are a couple of options. I mean, option one is, again, to sort of go the dollar shave club route or the halo top route is just to find a buyer. There are these websites where you can post your company as a target for acquisition range, I think is one of them. The other is to find a professional or quote unquote professional CEO, give them significant equity and say, look, here are the metrics. If you can get our business up to X dollars or X revenue and we can sell it for X, Y, or Z, Based on these metrics, you get this, this, this, or that, that could also be an interesting thing to do, which would enable you to kind of step away from the day-to-day running the business. But, of course, you would give up some equity to somebody who you had confidence in. Yeah, I like that idea of finding a CEO to come in who maybe has done this before is scaled kind of to the next level, because I always feel like there's like some silver bullet that everyone knows that I don't.

And I'm just out there trying to find it. And if we got the right person in there, they would triple our revenue overnight. And maybe that's true. Maybe it isn't. But I do feel that there probably is someone better suited to take us there. Yeah, I think that it really has to come from what you want. There is no better question than just keep asking yourself. It's not an easy question.

You know, some people got into their business and they're trying to really, they want to get into the optimal window for sale to sell it. And they're willing to stay in the business as long as that takes because that's why they got into the business. other people seems like yourself. You were just like, look, I'm into this. This seems like better than what I'm doing economically, and I'll just see where this takes me. And now you're kind of maybe, you seem to have success. You bootstrapped it, it sounds like. I'd say that, you know, for an imposter, you sure seem like you know what you're doing. I appreciate that. And I'm going to make it hard on you. I think you've got to accept that a little bit. Also, you know, you could always hire somebody

if you feel like there needs to be an image of somebody standing there. And also, you know, in an industry where everybody kind of looks like the same archetype, like having a different vibe ends up often being like really powerful because as the market is expanding, it's not everybody who looks like, you know, like they haven't had a carb in 20 years. Yeah. And no shade to Chip Wilson, the founder of Lula Lemon, who's no longer involved in the company. But he's a fit guy, but he certainly doesn't look like a Lulu Lemon model. And I think if Chip was listening to this right now, you'd agree. So you don't necessarily have to look like it. But I do think, Jesse, you have answered Perry's question. I think that you really want to move on. I mean, it sounds to me like

you're ready for the next challenge. It sounds to me like you want to try something new. So I do think it's worth exploring either a sale or trying to find somebody willing to take a risk in exchange for significant ownership to see what they can do with this brand. And then with any of these cases, selling it in whole, maybe selling a controlling stake, and then you keep some stock if a buyer is willing to do that. or bringing in somebody who kind of lead operations and let you kind of like slide down to what you want. And maybe you'll have a little space to work on what might be next for you. Like imagine like those scenarios. Like what are you really going to need?

What do you really want? And maybe that comes in a few forms. It could come in an acquisition form. It could come in the form of somebody who's coming on as more of a business partner. Yeah. And the beauty of that is that if you sold or gave away a significant amount of equity for a certain amount now, and that, you know, the next owner is able to really scale this brand. I mean, your tiny bit of equity that you have could be worth much more.

All of these options are interesting options. I think they're worth exploring. Jesse Hodge, the brand is called Mod Tub. Thanks so much for calling in. Good luck. All right. Thanks, guys. Thanks, Jesse.

Thank you. You know, I'm kind of a one-trick pony guy because in a way, it's like, there's two ways to handle a lot of these questions. Like, one is just like, from a business perspective, how could this business have, like, legs? you know, sees the best opportunity it might have in front of it. And the other side, which is, again, what does the entrepreneur want? Because at the end of the day, if there's a dissonance between what the entrepreneur wants and what they may realize is like a way of seizing the opportunity

economically, that is going to really be a weight on the whole thing and can cause a lot of problems, both for the business and then also for the person who's like what I've been doing in my life. We're going to take a quick break. But when we come back, another caller, another question, and another round of advice. I'm Guy Raz, and we're answering your business questions right here on the advice line on how I built this lab. Welcome back to the advice line on how I built this lab. I'm Guy Raz. And my guest today is Perry Chen, co-founder of Kickstarter.

Perry, let's take another call. Great. Let's do it. Let's bring in our next caller. Hello, welcome to the advice line. You are on with Perry Chen, co-founder of Kickstarter. Welcome. Tell us your name, where you're calling from, and just a little bit about your business.

Hi, Guy and Perry. Thanks so much. My name is Catherine Curbis. I'm calling from Salem, Oregon. And I'm the co-founder, along with my husband, of Hitch. We're a chef-crafted hot sauce brand. We are known for our super flavorful hot sauces with slightly lower heat. So we call it heat you can handle. And our sauces are sold in grocery stores around the northwest and in specialty stores around the country. Awesome. Thanks for calling in, Catherine. And welcome to the show. And so, all right, so Hitch is a, it's hot sauce. but it's not like going to just burn your mouth so that you can't taste anything, right? That's the idea behind it. Exactly. Yeah, we were just tired of coming home with hot sauces that were way too hot for cooking and marinating and really enjoying. And so my husband's a chef and he was like, I'm going to make us some hot sauces that are, you know, complex flavors, global and that we can actually eat and enjoy. But how did you guys decide to turn this into a business?

Oh, gosh. It's actually a funny story. We were living and working in Costa Rica at a retreat center, and he was making a lot of sauces from scratch with peppers and vegetables out of the garden. And then we moved back to Oregon to kind of get real jobs again. And we decided we'd love to return to Costa Rica. So why don't we come up with a business that we can start and then have passive income? And within like two or three years, we'll be living back in Costa Rica. And he said, I'm going to make hot sauce and then we'll get it into grocery stores.

and then we'll just have checks coming into our bank account, and we can just be on the beach in Costa Rica. And we look back at that plan now. We're almost 10 years in. And at first it was a two-year plan, and then it was a five-year plan. And now it's probably like a 20-year plan. Is it your primary source of incomes? It's your primary job? No, no.

We have tried to make it our primary job, and we just couldn't make it. Like, we're saving for retirement and stuff. Yeah. So we both have day job. What's your day job? I'm the marketing director. for a vacation rentals company on the Oregon Coast. And my husband Matt is a chef educator.

So he teaches online for a Scafayia culinary school. Yep. And so give me a sense of what you guys did in sales like last year, for example. Last year was like $157,000. So great for us. Our first year we did just under $3,000 in sales. So we feel like, you know, it's a lot of bottles of hot sauce sold. And you're mainly in, I mean, you mainly sell through grocery or do you sell direct to consumer?

or do you sell like at farmers markets? It's about a 50-50 split between our wholesale channels and our direct-to-consumer. So we certainly started out to selling at farmers' markets. And then within a couple of years, we got into our first wholesale retailers in the Portland, Oregon area. And now we are carried in all the regional chains around the Northwest. And we did break in to some Kroger stores and did some trial runs in like Fred Meyer and King Supers. But it was really difficult as a tiny company with limited funds to support that kind of. of scale. So we really are to the point where we want to sustain the business without having to

show up in prison because we're really tired of setting up 10 foot canopies. All right. So tell us what your pain point is. What are you trying to solve for today? What's your question for us? Yeah. After nine years of building our business through farmers markets and selling into our regional grocery chains, we would love some advice on how to scale successfully into national retailers without getting significant outside investment. And ultimately, we want to position our brand in the marketplace so we can sell to a larger company. Got it. Okay. Perry Chen, say hello to Catherine. Hi, Catherine. Hi, Perry. Wow, you know, for both of you having very busy schedules, full-time jobs, it seems, outside of this, how is that going? How much is that basically driving everything?

Yeah, yeah, it's been so fun. We love this brand so much. And honestly, it's really fun to go to markets and events and hear people's reactions to our flavors. And so that part of it is very energizing. but I will say this year I kind of put my foot down because we've been working farmers markets on the weekends for eight years and you know we usually work like three to five markets a week so we're splitting up hustling and then when you have a day job it's just like your life is taken over and then all summer long your friends are like what are you guys doing this weekend oh never mind we know or you're doing all weekend so we're just ready to step back and also not have our faces be such a huge part of the brand so that if we can sell it to

their company, it's not so tied to, mostly to Matt, because he's the chef behind the brand. One thing I wanted to ask then is your question was like, how do you maybe make it attractive for an outside acquisition without taking outside investment? And so that seems like a constraint that seems important to you. Yeah. So we have gotten a small angel fund investment, like in 2020, we got $10,000 from a local Angel Fund group. And we used to do a lot of cooking classes online and in person. And we also like culinary retreat. So we were taking groups to Costa Rica and we did a trip to Italy as well.

So we were a little hesitant to bring on investors because we didn't want them saying like, hey, don't do all that fun stuff. Just focus on the bottom line with these hot sauce sales. But now that we're wrapping those parts up, I mean, honestly, we are open to outside investment now because we just want the company to be successful and to scale. And like I said, we did a trial run with Kehe and two national stores. And what we discovered was without brokerage teams to kind of supervise that rollout among all the stores. And without demo teams to show up immediately in all those stores and move those bottles quickly,

it's just really hard to support it with two people and a really limited marketing budget. So I feel like it's a turnkey brand if we could get investment. Catherine, the challenge, I'm just going to be straight up with you because I talked to multi-million dollar and even billion-dollar companies and brands. It's a very hard time to raise money in consumer full stop. And, you know, you're still too small for any professional investors to really get involved. I think if you're looking for some funding, it's really worthwhile talking to people who know the brand in your area and region who've used it, who love it.

I mean, those are the people that are going to be the most likely to, you know, to write a check for $1,000 or $5,000 or maybe more. One of the questions I have for you is have you, I know, so it sounds to me like you've got it in regional grocery and how much demoing are you able to do in the stores? Oh, gosh, we did a lot before COVID when the business was newer and we have more energy. So we're currently not doing many demos. We do pay a professional occasionally to do demos, but now we're just not doing many. It just takes so much time with energy. It's worth thinking about taking a risk and cutting into some of the revenue here, the sales or profits, and using third-party samplers to demo the product. Because for people to discover the brand, there's a lot of brands and there's a lot of hot sauce brands.

You have to demo it. People have to be made aware of it by trying it. And so that is where I think your biggest opportunity is. If you really want to position this for an ultimate acquisition, you might have to take a deep breath and really you and your husband sit down and say, okay, let's think strategically about this. Because to be an acquisition target, you're going to need to hit 20 million or more in sales, right? And so to get there, you really have to be in grocery. And to be in grocery, you've got to demo the product. and demo and demo and demo and demo.

Yeah. You know, where you're coming from is that you're like, look, the way we're doing it now isn't sustainable. And so like, how do we find a way to where we're not putting in this much or even more work on this in perpetuity? Yeah. And so that's really good. You can use that.

And in a way, I think, maybe as to what guy is saying, you know, maybe you just have to come up with a number. You're like, look, let's give it another whatever year, two years, 18 months. And you're like, at the end of that, if we can't get it acquired, Like, you know, we've had a good run. So you give yourself that emotional kind of like safety valve of like that you're not going to do it forever and never see friends again. But within that, you can work backwards to say, okay, if that's what we're trying to do, then what is it going to take to get this in the position where there, where has the opportunity to get acquired? And so as guys saying, that releases you to maybe do things that like over the years you've been hesitant to do because you're like, look, we're trying to, we don't want to raise money or we want to like, you know, preserve capital. because we don't know how long we're going to. And maybe it's like a Hail Mary, go all in, figure out what does it really take and take your shot, even if it's just a, you know, maybe it's a one in five chance that could work. But you know what you're working towards now.

You have a goal in mind that you've already decided on. Yeah. And you just have to backward engineer from that. I do love that because sometimes it just feels like you don't know when it's going to end. Is it going to go on forever? And you're like, I can't keep going at this pace forever. But if you put a goal out there, I think you could sprint for the finish or something. Yeah, I love that. I think you have a real sense of what you're up against. And it is a hard business, but, you know, some business is just hard. Yeah.

Yeah. So just take the shot. Like, don't be afraid. Like, you know, when it's like down to this end, like, just pull out all the stops to the things that you're like, let's just try it. So you know that you feel like you've given it the shot that you're going to feel proud of. Yep. I love that. Can I say one more thing for Perry?

I just, we heard in your original interview with. guy that you started Kickstarter because you were trying to raise money for a show for Kruder and Dorfmeister. Is that right? That's right. Well, all right. They're coming to Portland, Oregon in September. So we wanted to invite you if you're in the area. Please feel free to, you know, we'll get you a ticket.

You can stay. Amazing. I had no idea that they were still. They're still going, Perry. They're still going. Yeah. Going strong. All those, all those 90s kids are still listening to Kruter and Dorf Meister today.

Amazing. Catherine Curbis, the brand is called Heat You Can Handle. Good luck. Thanks for calling in. Thank you. Thank you. Bye. Bye.

Stay with us because after the break, we'll talk to another founder working to take their business to the next level. I'm Guy Raz, and you're listening to the advice line right here on how I built this lab. Welcome back to the advice line on how I built this lab. I'm Guy Raz, and today I'm taking your calls with Perry Chen of Kickstarter. Perry, you ready for our next caller? Yeah, let's go. All right, let's bring in our final caller. Welcome to the advice line.

You're on with Perry Chen. Please tell us your name, where you're calling from, and a little bit about your business. Hey, guys. My name is Joe Fontana. I am the founder and owner of Fry the Coop. We are a chicken sandwich shop here in Chicago. We fry everything in Beef Talo. And right now we got 10 locations and a little shy of 200 employees.

Wow, Joe, welcome to the show. Friday Coupe. So you're growing like crazy. Before I ask you about the story, just what are your sales? So last year we finished at 12.9 million and we're already on track to do 14.5 million coming up this year. How did you get into this business? Are you a chef? I'm not a chef, although I can come to your house and make you a great meal. I love food. I'm just a fat Italian guy. I love to eat. But I was, my wife and I moved to Temecula, California. We grew up in Chicago and I was working some. corporate job that I just really disliked. So I did some soul searching, figured out that I love food and I wanted to open up a business and food. At the time, there's a little place in San Diego called the Crackshack, and I was just obsessed with their chicken sandwiches. At the time, I was living down the street from an In-N-Out burger. So I kind of thought, like, gosh,

like a handcrafted, double-fried chicken sandwich, like just kind of style with a really small menu, like, in and out. I'm like, this will do well anywhere. You figured you'd go back to where you're from, I guess. Well, it wasn't actually that. It was, I was trying to raise money in Temecula, because we had no plans of coming back to Chicago. However, I couldn't raise any money. I didn't have any money.

So, I mean, I would see a Bentley on the side of the road, and I would put my business plan, like, in the windshield wiper, like, with a note. Call me, please. And did that work? No, no, it did. It did not work. But my friend in Chicago, who's now my partner, he was a real estate guy, and they had a building.

There was a kind of an over-the-counter service place that opened and closed within eight months. And they had spent the money to all build it out. So he calls me up one day, like, and he just said, hey, I have a small window for you to move back to Chicago and you can open up your fried chicken concept. And so my wife and I just had our first baby and just bought our first house. We had to sell that. I had to talk my wife into moving back across country. And that's how we ended up back in Chicago. Wow.

That's amazing. And this just proves that there is a lot of space in the chicken business. I mean, it's super popular. Obviously, you've had in the last few years raising canes and Dave's hot fried chicken and, of course, Chick-fil-A is huge. But there is a lot of smaller regional chicken places. What are your sort of challenges right now? I mean, you're growing, and that's amazing. You have 10 locations.

I'm assuming you want to open more in the future. Yeah, and really like, um, separating ourselves as the best of the best. Frying and beef tallow has been a huge differentiator for us. We just put a lot of love into the quality of the product. We go around and train our team on hospitality. Like touching tables is something that is kind of lost in the fast casual space, fast food. Like no managers are going out and touching tables. Nice. Very smart. And I think, and frying and beef tallow probably raises your cost too, right? It's more expensive than frying it in in a seed oil, I guess. Definitely. But the taste,

it is like a million times better. And I think that's what makes us, you know, ignore the extra expense. That's awesome. Okay. So before we get, dive into this, tell us what your question is or your challenge. All right. So we have been funding all of our growth with our own cash flow. But I have an audacious goal to open up 75 stores over the next 10 years all around

the Chicagoland area. We have a huge market. So I think it's something we can accomplish. And what I'm figuring out now is that we can afford to open maybe one to two stores on our own with our current cash flow. But we will not get to our 75 locations in 10 years. It'll take you 30 years. It'll take us 30 years. Yeah.

So we need to raise money about $30 million. Our company is not even worth $30 million. So how do we raise money or what vehicle and bank debt is not working to basically grow the company without selling off all of our equity or piecing it together and ending up with like a hundred different investors. All right, big challenge. Before we get to that question, Perry Chan questions for Joe. Yeah, Joe. First of all, congratulations on all your success so far. But I would ask, you know, like very specific plan. Like I get a big hair outages goal, 75 locations. Why? How did you come to that? And that is a very good question. So I started working backwards from

what is a very attractive asset to purchase. And I kind of learned that if you want to take a company public, you need about 25 million in EBDA. And so I thought, okay, so how do we get to 25 million in EBDA? Well, if we're around 2 million per location, we're doing 15% a profit, you know, we would need 75 locations to get to that. And then also, there's a great brand that came out of Chicago called Potbelly. Yep.

They're a publicly traded company, 400 locations. I just thought, I'd go, how many locations does Potbelly have in Chicago? And you don't see them everywhere. It's not like a Starbucks or Dunkin' Donuts where you're bouncing into them. And I look around, and there's 77 Potbelly locations in the Chicagoland area. That's a magic number. And do you, a question for you right now, the 10 locations you have, do you own any of the property, or do you lease them all? We do.

We own four of the buildings that we're in. So it just, I love real estate. and I love commercial real estate. I would love to buy all of them. However, it kind of proved to be a little challenging, more time consuming. Yeah. Why have bank loans been a challenge? I mean, I'm thinking right away, SBA loans, you've got assets to back them up. So why is that not an option? Well, so we did use SBA loans to buy the real estate and they have a big mortgage on each property. So it's not like we own the properties outright. And technically, when you get into the restaurant, business. As a restaurant brand group, we don't have any assets. We have a little bit, but it's

nothing that we don't have a lot of collateral to back up the lines of credit. So we did try that. We partnered with a local bank. They gave us a first line of credit for $300,000 that we opened a location. But it was really bizarre. After we got halfway through it, they called in the loan out of nowhere. They were like, hey, you know, you guys only owe $180,000 and you still have cash in the bank. They were like, why don't you just pay it off? The bank acts like we're fine. We're failing, you know, and as you try to grow, you become less profitable. And so then they really, yes. You know, they really dag you on that. Yeah. Is there something in the middle here? Like, you know, you're painting a picture maybe where you're saying like, okay, if you feel to open up

75 locations in the period of time that you would hope to do it, I'm guessing that what you've estimated is that the capital you might need to do that, given your current revenue and assets and all that stuff, would put you in a position where, you know, your equity would get watered down well beyond where you'd want. Is that an assumption or is that something that like you've stressed tested and so that's just how it is? I think you're kind of hitting it where it is a little more of a paranoia. And let me paint you a picture that I think would be a perfect scenario. It's possibly we brought on an investor or a maybe a family office sell maybe 20% of the company to them. But then,

get almost a line of credit or a loan from them. But the catch would be that we would try to avoid principal and interest payments. So like say I need 30 million to grow these 75 stores. Like they would say, all right, here's the 30 million over, you know, the 10 years. And we're not going to charge you principal and interests. But then we can like accumulate it maybe on an Excel sheet, you know, so to speak. And then when we exit the company in 10 years or set it up for an exit to exit them, that's when they'll get their principal and interests on the loan of it. And there are plenty of family offices in the Chicago area. It's an interesting idea.

I mean, it's essentially raising minority equity, right, from aligned investors. I wonder, have you heard our episodes on Dave's hot chicken or raising canes? I have. I've listened to both of them. So you know how they went about it, both of them in different ways. Dave's went to franchising model. And of course, here's the big F question. what's your view on that? Because that's a way to supercharge growth and it doesn't require a whole lot of upfront capital.

A year ago, I would have told you absolutely not. No franchising. We want to own it, control it. But now I am starting to change my tone a little bit. I'm starting to think, well, hey, maybe through franchising, we could raise the capital to kind of accomplish our goals and then maybe franchise like outside of Chicagoland area. I don't take it lightly, though. I've kind of learned that if you franchise, you have to. be, it's almost like opening up a whole separate corporation and you really have to take it seriously. Yeah. I don't love being on planes all the time. I have three little kids at home. So, you know, I don't want to have to be living in hotels either flying all around the country. No, that makes sense. I mean, look, franchising is, it's risky, right? There's a reason why every time you go to an in and out, it's the same. It is consistent because it isn't, they don't franchise. It's owned by the company. And it's the same with, with Raising Cains. And there's, there are franchise models where you do see inconsistency

from location to location. So it's tricky, but it can also be a great option. Exactly, Guy, you know, I think it always comes back to that show, which is, what do I want? Yeah. And it seems really important to you that the customers experience the business in this way that is your vision. It seems like obviously that's why there's tension with with franchising. and what comes down to us, like, of all these things that you want to achieve and how you want to feel about them, which are more important than the other, to you. Yeah, it's very true. Yeah. I care deeply.

I want everyone to be happy. Yep. I think you have got essentially three big options. It's either some kind of bank loan, right, which you've tried, and maybe you can try. There are other banks that actually have restaurant lending divisions. The other one is you could do franchise. actually there are four options the other one is you find a some aligned investors to get some minority equity and give you a loan and then I think the fourth option actually there's five

I'm going to give you two more the fourth option or two of option four this is complex but could you do like a sale of one of the properties that you own or two of them and lease back so you get cash in hand and then use that cash to finance more locations that's risky. And then the last one, which is, I mean, things like operational efficiency, right? Can you centralize the food prep? Can you also negotiate better prices on supplies? I mean, anyway, there are five different things that you can do, and you're just going to have to choose one or more of those or a combination of those. What I would say is you got this big Heriotash's goal and you've got clear reasons why you think that this is saying that is worth going after. And I wonder if you

kind of like, you know, you figure out more ways that that might be attained. whether it's loans, whether it's investors. And you give yourself time, you know, whatever, nine months to like really kind of like build towards that, work towards that. And you also have like a plan B. You're like, okay, if that doesn't happen, then I think that where I can get to, that's a step to that. And a goal I can now focus on is something in the middle. The reason I say that is with raising money, one of the big things is it's like, how long can you keep your mind in fundraising brain versus operating brain? And fundraising brain is really, you know, know, it's really stressful and your eye isn't on the ball. And also, you know, you don't want to

hear no all the time. You know, it's not, it's not, it's not how anybody wants to live. So give yourself, give yourself some box, some constraints, some time box around, plan, you know, plan big. And then, okay, if that doesn't work out in this amount of time, I'm going to shift my, my mind. I love that. Is it there, because we did $1.5 million in EBITA last year. Do you think we should wait until were at 2 million or 3 million EBITA, or is there like a number, you think, that I should then kind of switch over to that? You know, I'd almost deferred a guy. Like, it's so industry specific, I think, in a way.

Like, with the internet, it's not even real. Sometimes they're like, don't make any money. It's better if you have no revenue at all, because you could always sell the dream of. Yeah, the restaurant industry is not like that. It's not this different game. No, and, you know, you've got to hit profit and growth to be a, a target for acquisition or to go public. I mean, that's really the name of the game. Now, it wasn't five years ago. Five years ago was growth, growth, growth. And so you had a lot of

brands that did grow and didn't have to worry about staying profitable. Now it's different. So, you know, a slower approach, I don't think you either, it's either or. It's either or a slow or a fast approach. I think there's a middle ground, which is you might only be able to open up one or two locations for the next year or two while you are searching for the right partner who can help you really expand because there's a scenario where you open one or two in the next year or two. And then year three from now, you're opening 15 to 20 locations a year, right? I mean, there's a realistic scenario where that can happen if you find the right partner or you find the right financing model. Yeah, I would love that. And I'm okay with that. If it takes a couple

years and then we can really run, that sounds great. Yeah. Joe, I can't wait to try a sandwich at Fry the Coupe. Thanks for calling in. Good luck. Thank you guys. Good luck. Honored. Perry, before we let you go, a quick question that I like to ask all of our returning guests, which is if you could go back to the Perry Chen from when you were just starting this idea, when you were starting to really find people to support you to build Kickstarter, and you could go back to him now knowing what you know.

What advice do you think would have been helpful? Oh, man. I don't know. I would say this. I'm dodging the question, but it's truth. The delusion that I had, and I think the delusion that we all have as entrepreneurs, if I cut through that delusion with some common sense from the future, to be honest, who knows if I would have gone through with that? Fair point. Fair enough. I don't think enough founders and entrepreneurs are honest about that, but I do think it's worth, it's a question worth asking yourself, which is like, in 10 years, don't want to look back and say, this was worth it. I think for the most part, the answer is yes, for most people. I think it's still the answer for you because you built something of incredible, value, cultural value. It was absolutely worth it for me. And I think a lot of what I picked up on

this show too and kind of just in general engaging with entrepreneurs is that there's a lot of interesting conversations to have around, you know, like should I keep going? I think so many entrepreneurs just drive themselves to not fail, not fail their employees, not fail their investors, not fail, you know, success. And we'll add years and years and years onto businesses that they're running 70, 80s, hours a week, that they really wish they could have back in the future. And the off-ramp seems impossible to them. And I've talked to many entrepreneurs like that.

Most entrepreneurs statistically end up in that category. And it's not saying that really gets talked about a lot. And I think because of that often, people in that situation, it's really soul-crushing. Yeah. But not for you. Not for you. Are people ready for the soul-crushing?

of the business podcast. I'm not sure anyone will listen to it. One star. That's Kickstarter co-founder, Perry Chen. Perry, thanks so much for coming back on the show. My pleasure. And by the way, if you haven't heard Perry's original

how I built this episode, you can find a link to it in the podcast description. Go back, check it out. It's a great episode. And here's one of my very favorite moments from that interview. Weren't you getting stressed out that somebody else is going to beat you to the punch

and do the same thing? I think that certainly comes to mind. But I think there's also like we couldn't have tried to go any faster. There was just not that much was in our control. We didn't have a lot of money. We didn't have a lot of influence. We didn't have a lot of connections. So we're moving as fast as we could.

And that's kind of as that's as much as you can do. Thanks so much for listening to the show this week. Please make sure to check out my newsletter. You can sign up for it for free at gairoze.com. Each week, it's packed with tons of insights from entrepreneurs and my own observations and experiences interviewing some of the greatest entrepreneurs ever. And if you're working on a business and you'd like to be on this show, send us a one-minute message that tells us about your business, the issues or questions you'd like help with,

and hopefully we can help you with them. And make sure to tell us how to reach you. You can send us a voice memo at hibt at id.wondery.com or call us at 1-800-4331-12-1. 9-8 and leave a message there. And we'll put all this in the podcast description as well. This episode was produced by Alex Chung with music composed by Rumtine Arablewee. It was edited by Andrea Bruce. Our audio engineer was Neil Rouch.

Our production staff also includes Chris Messini, Carla Estevez, J.C. Howard, Casey Herman, Sam Paulson, Carrie Thompson, Catherine Seifer, John Isabella, Neva Grant, and Elaine Coates. I'm Guy Raz, and you've been listening to The Advice Line on How I Built This Live. up.