The Tim Ferriss Show - #429: Nick Kokonas on Resurrecting Restaurants, Skin in the Game, and Investing

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Starting point is 00:08:11 different fields to tease out how they do what they do, the thought processes, the favorite books, the habits, et cetera, that make them so good at whatever they choose to focus on. And my guest today is Nick Kokonas, K-O-K-O-N-A-S, on Instagram at Nkokonas, on Twitter at Nick Kokonas. Nick is the co-owner and co-founder of the Alinea Group of Restaurants, which includes Alinea, Next, the Aviary Royster, St. Clair Supper Club, and the Aviary NYC. Alinea has been named the best restaurant in America and best restaurant in the world by organizations and lists as diverse as the James Beard Foundation, World's 50 Best, TripAdvisor, Yelp, Gourmet Magazine, and Elite Traveler. The list goes on. His restaurants have won nearly

Starting point is 00:08:55 every accolade afforded to them. Recently, Alinea had to shut its doors due to COVID-19 right alongside restaurants everywhere, all over the world. So you can imagine my surprise when just a few days ago, Nick told me that Alinea had a record setting day. In fact, its highest revenue day ever within the last two weeks. That's part of the catalyst for recording this episode. And we dig into the strategies and tactics that made it possible. And even if you have no interest in restaurants, there's a lot that you can gain from this episode as it relates to frameworks, thought structures, contingency planning, all of that. And if you are in the hospitality industry, the restaurant biz, I recognize that

Starting point is 00:09:37 Alinea is a somewhat unusual case. But still, there are things to be learned from how Nick and his team have responded to this and adapted and innovated in other places. So I suggest listening. Nick, as a bit of background, has been a subversive entrepreneur and angel investor since 1996. He spent a decade as a derivatives trader, has co-written three books, and believes in radical transparency in markets and business. As an outsider to the restaurant industry, Nick's approach to the business of restaurants is markedly innovative, and he's been featured in Businessweek, Fast Company, The New York Times, Forbes, and Crane's Chicago Business, among many other publications. He's given talks on innovation, entrepreneurship, and experience design across the country. He's also the founder and CEO of TOC, Inc., that's T-O-C-K, a reservations

Starting point is 00:10:26 and CRM system for restaurants with more than 10 million diners and clients in more than 30 countries. TOC has also recently launched a to-go platform, which has helped restaurants pivot to fulfill pickup and delivery orders. You can find more on that at exploretoc.com. And without further ado, please enjoy a very wide-ranging and tactical conversation with Nick Kokonis. Nick, welcome back to the show. Thanks, Tim. Great to be back. And this is an episode that I've been looking forward to. We've been chatting over the last handful of weeks, and you've had a few dozen people request that you go back on my podcast. I've had a few people request the same. And a lot has happened in the last year and a half, but certainly in the last

Starting point is 00:11:19 month and a half. And before we get into the current state of affairs and how in some ways, many ways, you've zigged instead of zagged and approached things differently, let's zoom out to a concept that we discussed in your first appearance quite a bit. Maybe you could just define it for us. And that is asymmetric bets or asymmetric opportunities. Could you define what that is? And then perhaps just describe what kind of follow up questions you've been getting and how you would speak to those? Yeah, well, I mean, we covered a lot of ground. I think that first podcast was three hours or something like that. And, you know, the overarching theme was about decision making, not outcomes, right? So we try to measure, I try to measure myself and my business life and

Starting point is 00:12:17 personal life on making the decisions, not whether or not they sort of paid off or not. And in business, especially you're investing, um, what you're looking for is an opportunity where if you make the wager or you make the investment that, you know, you, you get paid off 8x, but you can only lose 1x or 2x. It's just that simple. And that doesn't mean also that the odds are actually 8x. It's like a 50-50 odds chance that pays off more than 50-50, right? Or there are unknowable odds, and this is probably more often the case, but if something does happen, it's really consequential, as opposed to if it doesn't

Starting point is 00:13:16 happen, it doesn't really matter. So without getting technical or mathematical about it, if you take an action and X happens and it doesn't really affect you at all, but if Y happens, it's either really, really great or really, really bad. That's the asymmetry that we're looking for. And you want to take the action which either hedges you in case that outcome is really terrible or you invest in it if the outcome is really great. And then knowing that you did that is the right path. Like you don't – the outcome is what it is. You can't really control it most of the time. And so consequently you just go, yep, I made the right decision. I'm going to live with that. And I was just going to say, and I don't want to pull you off your train of thought, but

Starting point is 00:14:14 could you give perhaps an example, not necessarily the current example, which we will get into, but are there any examples that you could use just to illustrate this for folks who are listening? Yeah, of course. Um, you know, occasionally, uh, in, uh, I'll use an investing example. Occasionally you see a situation where, uh, a company is very, very solid, has a great balance sheet, is doing business steadily, and they're not going to go out of business anytime soon. But they have an opportunity that if it happens, if it works, it's going to go skyrocketing. The example I can think of is actually similar to our current crisis. And that is in 2008, I remember watching the CEO of Ford on TV and all the other guys were talking about the bailout and the TARP money and all that. And they were, they looked really nervous and he got up there and was like, yeah, we're not going to take the TARP money. We don't need it.

Starting point is 00:15:23 And Ford was trading it. Like I want to say it was like $1.80 a share or something at the time it had been dragged down. And you could just see that they felt that their business was solid. Their business overseas was fine. Their business in China was growing and they had planted the seeds for that. And it felt to me like Ford wasn't going to go down to a dollar, but it could easily go to five. That's it. It's not like, you know, it's not like overly complicated. And knowing what I did about the overall sector at the time, because I was studying it, that was kind of all I needed to go to say, hey, this is a really asymmetric situation. I think what's interesting after our last talk where we got into it in more

Starting point is 00:16:11 depth, a lot of people on Twitter started threads saying, hey, a lot of these people that are on podcasts and people who think about these sorts of things that I like, Naval or whoever it may be, talk about asymmetric risk or Taleb. And let's make a list of everything that's asymmetric. And people were like, reading a book is asymmetric or spending time with your family is asymmetric. And that's not the point. It was like, yeah, those are great investments of your time. And they're linear. What we're looking for is something that is multiplicative, that is logarithmic.

Starting point is 00:16:53 And I certainly think reading books is awesome, and spending time with your family is awesome. But it's not asymmetric. And let's jump into asymmetric risk because there's asymmetric risk or opportunity to the upside, right? Where maybe you can invest very cheaply. I'm just making this up in a drug development company and it's going to be worth nothing but your downside is capped and very minimal

Starting point is 00:17:23 but if it does in in fact, clear the regulatory hurdles and ABC, it's going to be a 20 or 100x, right? Something like that. There are those examples. Then there are downside risks. And you are a participant, and you wear many hats, but certainly one of those hats is in the food and beverage or restaurant world. And many people would argue that no sector has been so swiftly decapitated as the arena of restaurants. And I'd just be curious to know, if we travel back in time, when did you start to assess this risk? So it is April now, and I think we're six or seven weeks into a quarantine, mostly national. I'm the CEO and founder of TOC, which is a reservation system, and we operate in 28 countries. And one of those countries where we have about 20 30 restaurants small presence is hong kong and when the virus hit china and then hong kong started shutting its borders we could rapidly see the reservations going from from 95% capacity at most of the restaurants there to zero, like actual zero.

Starting point is 00:18:49 They were open-ish, but no one was going. That certainly woke me up to the possibility that zero was plausible. Now, it's a funny story is that about three years ago, we were assessing our clearing risk. So Toc not only does ordinary reservations, but we sell tickets to events for restaurants or special tables like chef's tables or prefix menus. And we sell about 30 to 40 million dollars a month of those for restaurants around the world. And one of the things that we have to assess is the risk of how we pay those restaurants out. You can imagine that if you have a concert or something like that, and you sell the tickets to the concert, like, you know, it's the Fire Island scenario, right? So you sell all the tickets to the concert, and then everyone pays their money.

Starting point is 00:19:44 Okay, got it it just to be clear that's the fyre not the yeah yeah yeah yeah yes yes that's correct yeah the fire festival right yes fyre not the not the other one um and uh and so you you you pay out the money to uh the concert promoter ahead of time and then if the concert doesn't take place or that guy just goes to Jamaica with the money, we're left holding the bag in the case of the restaurants. So we were trying to assess that risk. And it's a bit like running a clearing firm. What is a clearing firm? Just for clarity. A clearing firm is the middle position in a commodities market.

Starting point is 00:20:25 So they're a buyer to every seller and a seller to every buyer. So if I make a transaction with you for a futures contract, we don't actually make it directly, even though you're the buyer and I'm the seller. I actually sell it to the clearing firm and you buy it from the clearing firm. I got it. So it's kind of like a title company in a home transaction. Right. So I remember our CFO, Steve Bernanke, really bright guy, very conservative saying to me, you know, we shouldn't pay out X, Y, Z restaurants this far in advance because there's a risk that they can default and all that. And I said, and I have this in an email, I said, it's not like every restaurant in America can close all at once. And that was three years ago. I was wrong about that. You know, I never imagined a

Starting point is 00:21:13 scenario that that this could happen. And then in February, I, I could imagine it. I could imagine it, given what's happened. I still thought the probability of it happening was very low. It wasn't like I was, you know, prescient in the sense of like, yes, for sure, this is going to be a pandemic that sweeps America. And even if it had been, I probably wouldn't have thought that it would result in the kind of lockdowns that it has. Um, so, but I did think if it happens, we are completely screwed, right? So there's an asymmetric risk to the downside where you go like, look, there's a, there's a 90% chance this doesn't happen at this point, or maybe even a 95% chance. But if it does happen, we have a load of problems. We have a load of problems for our restaurants, for our employees, for talk, and they're existential

Starting point is 00:22:13 in nature. They are the kind of problems where you go, I have blowout risk. I can wake up tomorrow and have no businesses and talk could be on the hook for, you know, five to ten million dollars, which would blow talk out. So I became very aggressively paranoid with people in my circle saying, hey, look, what's going on in Hong Kong could happen here. This is end of February. And just just just so I understand in your circle, you mean within the company, employees, managers, colleagues within the company? That's correct. Yeah. Yeah. And, you know, I called in our general counsel and said, Emily Grodin, a really bright young woman, and I just said, I need to understand everything about unemployment. I need to understand everything about furloughing people. I need to understand all the benefits. I talked to our HR people,

Starting point is 00:23:18 like how much can we pay people and they can still get benefits. And I remember them looking at me going like, why are you asking these questions? Like, you know, are you are you about to sell the company? Like they weren't thinking negatively. They were thinking like something must be up, but it was probably a good thing. with methods of tracking the inflow and outflow of payments to our companies by the hour, not by the day. Like, things like that. And in terms of the restaurants, you know, I had pulled in Grant Ackett and our management team and just said, I think there's a reasonable chance we don't have any restaurants in a couple weeks. and our management team and just said,

Starting point is 00:24:09 I think there's a reasonable chance we don't have any restaurants in a couple weeks. And for those who don't know, since it's not in your bio, can you give two or three lines on Grant? Yeah, sure, absolutely. Grant Eckert is my business partner. He's also one of the best chefs in the world, renowned for modernist cuisine, we like to call it. Some people call it molecular gastronomy. We built a linea together in 2005. And he's won, you know, Best Chef US and he's been on all the TV shows. And if you want to learn more about him, the best way to do that is Chef's Table, the Netflix series, season two, episode one.

Starting point is 00:24:50 Really, really talented, dedicated, amazing person who also survived stage four cancer 10 years ago. Grant is incredible. So I second that recommendation. Last name spelling A-C-H-A-T-Z. Also, both you and Grant appear quite heavily in the four-hour chef for those people who might already have that. Okay, so you called in Grant. Yeah, and I just said I think there's a reasonable chance that we don't have any restaurants in a couple weeks. He could tell I was very serious. Alex Hazer, business development manager, could tell I was very serious. So they weren't looking at me saying

Starting point is 00:25:31 like, you know, you're crazy. But they also were looking at me like, you know, I think you've kind of lost it a little bit, or maybe you're overstressed these days. And I just kept saying to them, like, look, I hope I'm wrong. But if I'm right, we need to do a lot of things very, very quickly and very well. And if we don't, we're going to be in a world of hurt. I think that because I was a trader on the floor, which doesn't exist anymore, exist anymore, the thing about a trading floor is that the markets work the same as they do now, a lot slower. And you could watch people, though, and their positions. So the difference in the 90s and early 2000s is that when someone was losing a tremendous amount of money and was stressed out, you could watch them. And people had different reactions. Like one reaction

Starting point is 00:26:33 was to blame everyone else around them. It wasn't their fault. You know, the world conspires against them. And they would lash out and get violent or something like that. Some people would, what we called turtle, like they'd put their shell up and tuck their head in and just kind of like sit there and watch the world fall down around them. And it wasn't a pleasant thing by any stretch, but it was the kind of thing that you saw fairly often. And so what we always tried to train our people to do was, hey, you know, the market's much bigger than you. The world's much bigger than you.

Starting point is 00:27:05 The world's much bigger than you. And it is what it is. Like you have to see it as as you see it, assess it. And then doing nothing is a choice. Doing nothing is is holding tight to your current position. It's like buying your position again. And so if you're better off selling your position and getting out, you have to do that very quickly. And one of the things that any, any trading book will tell you is that you're supposed to let your, your winners ride and your losers, you're supposed to lock in. But most people do the opposite of course, um, in every aspect of their life, because when you lock in a loser, you have you have ended that that outcome in a negative fashion. You've reinforced it like you've lost the game. The game is over.

Starting point is 00:27:57 By lock in. What do you mean? Well, I mean, in the case of trading, like if you buy a stock at $100 a share and it goes to $80, if you hold it, you go like, well, there's a chance it could go to $110, right? If you sell it at $80, you've locked in a $20 loss. It's done. Like the game is over of that particular trade. And so I think a lot of people tend to do the opposite of what you should do, which is when you buy the stock at 100, it goes to 110. They sell it and they lock it in because why? Hey, I made a good decision and I won and that one's over. It's the converse and it's exact opposite intuitively of what you should be. It's intuitively exactly the right thing that your brain's telling you to do.

Starting point is 00:28:46 It's saying, you know, lock in the feel good, get the serotonin release or whatever, and ignore the bad shit. Like, let's just let it ride because, like, it'll probably turn around, you know, or it's cheaper. Like, I loved it at 100. I got to love it at 80, right? And you can ride that all the way down to zero. And it's no different with our restaurants. When, when we were looking at the possibility, let's just say that, that we didn't do the lockdowns

Starting point is 00:29:18 in America, but demand went down 40%. Demand goes down 40% in a restaurant, you're probably losing money every week. And you're gonna have to make really hard decisions about staffing about hours, about food purchasing, all those things. And so that day, and it was, I can tell you it was March 4th. Um, we, I basically said we need to get like contingency plans together. Like nothing happens, no problem. Um, business as usual. If, uh, it's regional and people can't travel and our demand is down 20 or 30%, what's our plan for that? What's our staffing plan? What's our, what's our purchasing plan? Um, what's, what's our, our PR plan for lack of a better term? Like what is our messaging to the world? What should our menu items be? Um, what feels appropriate? Um, how do we message that to our teammates and our staff who may not understand the situation?

Starting point is 00:30:28 And then, of course, you know, what happens if we're mandated to shut? What do we do? And by making all those decisions at a time where it wasn't yet a panic, when events started to unfold, you're kind of like, you know, dust off plan D and then you just execute because the decision-making is much easier to make when you're not, when you're not in the throes of battle, so to speak. So if we, if we then look at the play by play, so you call all your teammates, your staff together, what, what message do you sort of deliver to the, you've spoken with management, you've spoken with grant or presumably you've spoken with management, but what, what, what is the message that you sort of deliver when things

Starting point is 00:31:17 start to go either before they go sideways or when they start to go sideways? Yeah. So just before, you know, things were really going sideways and you could see that in Seattle, um, specifically, you could see that there was both an outbreak and the restaurant business was starting to go down the tubes. And on March 8th, I tweeted that the hospitality industry in the United States is about to be decimated. It's 4% of GDP. And then hotels and airlines are coming right after. And that's March 8. That same day, I brought in, I think we have about 25 managers between front of house and back of house at our five restaurants. And we brought them all into a meeting. And I just said, this is coming. And we need to institute new rules as to how everybody works.

Starting point is 00:32:17 And so we instituted mandatory temperature checks, hourly handwashing, both of which are logged. Normally, if there's like a 1pm or noon call time for front of house to do side work, people kind of can come anytime between, you know, 12 and 1230 or whatever. I was saying, if someone's not there within five minutes of call time, exactly 12 o'clock to get their temperature checked, they can't come into the building. If they've traveled from Europe or Asia, in the last two weeks, they have to quarantine for 10 days. And all that sounds fairly normal now. At the time, what I was relying on are two things. One, I was looking at what they were doing in China to combat this at businesses. It wasn't hard to find information on that. And then I also talked to a doctor here in Chicago about, you know, is it safe for employees

Starting point is 00:33:13 to go in with this? Like, what precautionary measures can we take for their safety and the safety of our customers? And mind you, this is when we were still open, like we were not closed at that point. And I do know that there was a bit of cynicism on this because they were kind of going like, oh, Nick's the owner guy and he's not here during service. And there's no way we can stop our service in the middle of, of, of, you know, a busy night serving 300 people to have all 55 people on the staff wash their hands every hour. It's just not going to happen. And I can see that look on a few of their eyes, like, man, he's out of touch and doesn't get it. And as soon as I saw that, I shut it down hard.

Starting point is 00:34:01 I basically just said, there will be no jobs in four weeks. And we need to get way ahead of this curve. And anybody who doesn't take this seriously is just out the door. No HR calls, no anything. We are in we are in a wartime footing. And the smiles kind of went off their face as I went down the line. And I just said, we are going to work as hard as we possibly can for all of our mutual benefit and for our community's benefit. And we're going to feed people and we're going to feed each other and we're going to get each other jobs. And we're going to pay you and I'm not going to take any money. And Grant's not going to take a salary. And all of the management team, the ownership I'm not going to take any money and Grant's not going to take a

Starting point is 00:34:45 salary and all the management team, the ownership team is not going to take a salary. That's how seriously we take it. And by the end of that meeting, all those procedures were in place the next day. There were one or two people who did not want to do it and they were asked to leave and this is pre tsunami right i mean you're sort of seeing based on the canary in the coal mine of seattle and washington the the tide kind of flowing out so to speak right like okay yeah this is not this is not normal yeah and we we were still doing business you know we were still open um and i thought that there was a chance that you know again i thought it was like well we're at like 60 percent now or 70 percent this is going to come to chicago but even if it doesn't come to chicago even if it

Starting point is 00:35:37 just stays on the west coast it still affects us tremendously right so know, day by day, I think it became very evident that we were going to be mandated to close. and we've got these plans to the talk mode of, holy cow, if every restaurant in America shuts, talk has no business. Like we're a four-year-old, five-year-old startup with 100 employees. May I pause you for one second? Yeah, of course. So you have the startup with 100 employees, but you also have all these restaurants. So you said you had the plans in place. What were the plans for those restaurants? I mean, if well, yeah, for the plan for the restaurant was if if the governor's office mandated that they close, we would.

Starting point is 00:36:39 Well, first of all, let me back up. We we run the restaurants very differently than a lot of folks. We eliminated tipping 10 years ago in order to accomplish a lot of the things that I think the industry needs. We try to treat all of our employees as the professionals that they are. So what I mean by that is that a lot of people think of a waiter or a waitress as embodying this role in society of servitude. And certainly we're in service of our customers and trying to give them great hospitality. But for many of our employees, most I would say, this is their chosen profession.

Starting point is 00:37:18 They are highly skilled at what they do. We create a unique environment and experience for our guests. And that's why we're so successful. And the more successful we are as a team, the more successful these folks are as professionals. We have servers that make well into $150,000 plus a year, but we don't do it with tips. And so we also provide a 401k with 4% matching benefits. We also have health care benefits that people vest into after just, you know, a month or two of work. We have Family Medical Leave Act, you know, paid parental leave. All these things that I think, and we'll probably get to it in a little bit, but all these things I think that people are aware of now because the industry, you know,

Starting point is 00:38:15 was forced to close. And, you know, you're talking about 11 million workers in the United States that are in the hospitality business and that aren't going to be displaced by robots anytime soon. You know, we ran that very, very differently. And so the considerations that I had was, okay, if we're not doing any business and we have no revenue coming in, what is the best way over the short term, month or two, to ensure that these folks have healthcare, ensure that they're taken care of. What does a furlough look like? What does unemployment insurance look like? What kind of capital reserves do we have that we can pay stipends to them? What other work could we give them that could produce revenue that isn't our core business? And so all of those things were considered. And when the shelter in place order came, I was watching on my computer and I heard the governor, Governor Pritzker. And I said, I'm going to draft a letter

Starting point is 00:39:26 furloughing all 300 people. But what we're going to do is we're going to pay the benefits out at the level at which we can keep them on that they can get unemployment insurance, but can also retain their health care. We are going to pay a $300,000 stipend to all the employees. So $1,000 for every employee on their paycheck as a bonus to tide them over. So last paycheck comes this Friday. Everybody gets an extra $1,000. And then what we're going to do is we need to understand the rules on how to hire everybody back and what the timing of that looks like. And certainly at that point, we didn't know how successful we would be in the plans I'll tell you about in a second.

Starting point is 00:40:16 And I wrote that letter to the employees, and I have to tell you, it was super emotional. I was at home. And it was really tough. Because in some ways, I felt like I knew the plan. And I knew what we might be able to accomplish. But I also thought that there was a really high chance that we'd fail at it. And also, there was, you know, it's a sense of helpless of helplessness like there's not much you can do so i knew i think i what i said to my wife was i knew i was making the right decision both ethically and strategically and yet it still felt terrible so so that was really hard and then i sent that off and i probably wallowed for like an hour.

Starting point is 00:41:06 And then I went, okay, we need to start feeding people. We're in the business of selling food and selling emotional connections with that food and cultural connections. And we're going to start doing that. And so we had already decided that we were going to try to do carry out which is the farthest thing from what we do normally and yeah just to paint a picture for yeah so alinea is like moma meets immersive theater meets uh hear a pin drop quiet kitchen with art pieces being brought out to you it is as far from takeout as you could possibly imagine right or carry out yeah it's it's as far from carry out as you can imagine. And I said to Grant, I'm like, we got to do $30 comfort food, and we need to do it at volume.

Starting point is 00:42:14 Now, as a contrast, what would you say the average ticket per person or per table price is normally? Yeah, with wine, food, service, about $350 a person. Okay. You're going to one-tenth of that price point. Yeah, I mean, like, we can talk a little bit of numbers. Like, we do 128 people a night at Alinea, and we have a staff for 64 seats. We have a staff of about 85 people that make that happen. They get there at 4 in the morning, 5 in the morning for the morning prep team, and they're there until 2 in the morning.

Starting point is 00:42:50 So the cost, as you might imagine, of running all of that labor for 20 hours a day, and then the night cleaning person, the door doesn't lock 365 days a year. It is a 24-7 operation to keep that going. And we do about $20 million in revenue a year. It's a very successful business. And we built that up from our first year doing about $4.5 million in sales. It's really, really hard work to make. It's like running a theater, like you said. It's like every night is showtime. if the fishmonger doesn't show up with the fish that morning the people are still showing up at 6 p.m and there's just no excuse not to have excellence because uh everybody's coming there expecting a transformative

Starting point is 00:43:41 experience and if we fall even a little bit off of a really high mark, they consider that horrific because it's their special occasion. You know, it's the one time they're going to go to Alinea and see that. It's like going to see the stones. And if the stones suck, you're like, oh, God, I waited 30 years to see the Rolling Stones and they were no good. No, they bring it every night. It's hard work. You know, I mean, they're like 80 years old and they're still doing a great job. So we have that attitude of make it happen. Just do it, like figure it out. And just, just as a side note, because I think it'll, I think it's kind of entertaining. So good food, like good tasting food. Again're gonna we're gonna segue back to comfort food and just what a transition that is and you and i have not spoken about this in depth because i wanted to save it

Starting point is 00:44:32 for this conversation in terms of making that hop and the specifics but they're good tasting food is table steaks, right, at Alinea. Could you, what is the, I think it's embroidered, is it not? It's on a wall. What is the expression? Flavor is for? Well, yeah, Grant, yeah, I don't even, should I say that? I think at one point, actually, when you were doing 4-Hour Chef, you got a kick out of this. Grant had a napkin that someone embroidered that said, flavor is for pussies.

Starting point is 00:45:14 And I think, I mean, it's not exactly PC, but I think it's like, yeah, that's given. Like making food taste good at that level. It better damn well tastes good. And honestly, that for people at that level, that's not the hard part. That'd be like telling Picasso, like, you know, hey, you know, can you do a portrait of my daughter and make it look like her? And the answer, of course, is of course he can. Like, you know, that's like he was doing that when he was 12. And it was unbelievable. He was a prodigy. What are you going to do when you're 60? To do something new, different, interesting, better? How are we going to through food and through your experience and sitting down there, create an emotional experience for you with food and through your experience and sitting down there create an emotional experience

Starting point is 00:46:05 for you with food and service as the medium and that sounds like that sounds like pretentious bullshit like i get that like i get that that sounds like potentially like the worst art house project in the world which which means it's even harder to pull off you know what i mean so what we always tell people in any interview you'll ever hear with me, you'll hear when people say, well, what's the point of Alinea? And I say, fun and delicious. And everyone's like, yeah, but what about the science? Or what about the art house? Or what about the pin drop in the kitchen? And I'm like, nope, fun and delicious. Like if you're not having fun at Alinea, if you don't get the joke, if you think that we are making fun of you,

Starting point is 00:46:46 we fail miserably. But if you go there and you're laughing with us and you are surprised and excited, we all win. It's meant to be that. And by the way, we fail all the time at it, but we try really hard to keep it approachable. So let's flash forward then, because now all of these things that make Alinea Alinea, many of them are gone, right? I mean, it's just the palette of colors has been reduced to carry out or something like that. We didn't know what we were going to do. And I think everybody on our team, the close-in team, as we were trying to figure this out, kept going back to things we knew.

Starting point is 00:47:31 And we were on a chain text message because there's so much going on. our employees kind of was modeling in talk like, well, we can do 125 meals a night and we can do it between a six o'clock pickup and a nine o'clock pickup. And, and we'll have this many employees and this many dishwashers and all that. And I remember I replied, there are no chefs, there are no dishwashers, there are no cooks, there are no owners, and there is no restaurant. Get it through your fucking heads. Like none of what we had last week exists. We're doing something completely different. We have to do it inexpensively because no one's going to want to spend $200 on a pickup meal. It's also tone deaf. We're in the middle of a fricking pandemic, right? It's going to have to cost like of a freaking pandemic right um it's gonna have to

Starting point is 00:48:25 cost like 30 35 bucks it's gonna have to be comfort food because it's still kind of winter here it needs to be highly delicious it needs to be transportable and it needs to beat the shit out of ordinary like delivery food pickup food and then we need to do it at a scale that the revenue makes sense. If we're doing 100 of them at $35 a night, that's $3,500. With the scale of our employee level and our lease and the kind of ingredients we buy, $3,500 a night is fine if you have a small sandwich shop. It's probably great. You probably have two or three employees. We have nearly 100 at that restaurant. Our annual payroll there is, you know, six and a half,

Starting point is 00:49:09 seven million dollars. So you're guys, you're not getting the scale of the problem, you know. And I remember I called Grant and he was like, well, we could do like a beef Wellington because that's always delicious. And we could do them individual size. And we buy at the, currently we buy beef from a ranch in Colorado called 7X Ranch, which makes a great product. And, uh, you know, the Wellingtons would have to be 50 or 60 bucks each. And I was just like, it's gotta be 35 bucks. Like you have to come up with something that's 35 bucks. And he said, well, I could do a short rib, um because short rib is way less expensive than tenderloin. It'll still be really delicious.

Starting point is 00:49:49 The sauce will be the same. And all of a sudden, you know, three days later, we turned on talk, which we built this other thing, which I can tell you about in a minute, talk to go. And we put up 500 for sale for the weekend on Friday, Saturday, Sunday, and they sold out in like five minutes. And we also offered wine to go with that. And we sold like a couple hundred bottles of wine. And suddenly we're like, oh, like, hey, we brought in like $20,000 of revenue a night. We can hire back like 30 people. And by the way, we need to because we got to produce 500 beef wellingtons.

Starting point is 00:50:36 The first day was tricky because the pickup, we'd never done a pickup before. But we kind of went like, well, it's the smoothest way to do a contactless pickup. So we built two-way text messaging into talk. And people just pulled up and we had an iPad out front and people had masks on and gloves and they popped their trunk and we put the food in the trunk and off they go. And lo and behold, by 7.30 the first night, we had served all 500 and people were posting on Twitter saying, wow, this is a really joyful thing in the midst of all this craziness. And what always happens with us in a good way, and with Grant, God bless him, like, you know, guy's a freaking fighter. On Sunday, he was like, you know, I think we could do 750 tomorrow. Like 500 is easy. And by the following weekend, we were doing 1250 a night. And we had reemployed about half our staff in a week

Starting point is 00:51:27 and then we kind of looked midweek and we went okay what do we do it next now we know how to do this like hey we got five under our belt i think it's safe to to get next and roister our other two of our other restaurants going and by the way way, we have a cocktail bar. Let's start doing cocktail prepaid cocktail packages, um, cocktail kits out of aviary and then offer them up with these meals. So we started engaging. Nick may jump in for a second. Yeah, please. So a question that I'm sure some listeners are wondering is how do you produce that number of meals safely without packing employees together? Yeah, absolutely. That's certainly part of the trick. First thing you have to understand is that on a normal night at Alinea with 128 people, you're looking at about 2,200 to 2,500 plates going out of the kitchen. We have a big open kitchen. It doesn't look like a traditional French kitchen. It looks more like a lab or something like that.

Starting point is 00:52:29 And so what we did is we took all the dining room space and we spaced all of that out. Prep kitchen next door that we use all the time during the day. And the, the, the important thing to remember is that the intricacy of what we do at Alinea normally with those 2000 plates that goes out is highly complex. You've got 15, 16 different dishes, each with 15 or 16 different components. Um, very precise by doing 500 to a thousand beef Wellingtons that are all identical to one another, along with the sides and the rubbish on mashed potatoes and all that, it's actually much simpler than what we do normally. And so what we did was we did the temperature check, the mandatory handwashing, the masks, the gloves, but we spread it out throughout the entire restaurant so that the space where diners normally are wasn't being used. So we use that as staging for all the boxing of the food and whatnot. Right. So we were able to do it in a way that was safe. And it's really important to remember, too. And this is something

Starting point is 00:53:38 I think a lot of people early on didn't think about. In Chicago, we have 82 major grocery stores for 5 million people. If one of those nodes goes down, like if you think about a computer network, if you have a network of 16 computers and one of those nodes goes down, you notice, right? But if you have one with 64,000 nodes and one of them goes down, you don't really notice. That's the internet in a nutshell. That's computing in a nutshell. Early on, there were some folks in the industry that were calling for restaurants to not be allowed to do carryout at all. And is it 100% safe? Well, it seems to be the case, and there's broad consensus on this, that food is safe and packaging is probably safe, like 99% safe.

Starting point is 00:54:33 Now, the mail is still being delivered and we're all getting Amazon packages. So what we were left with is really the safety, not of our customers, which seemed to be very, very safe, but the safety of our employees. And so that's what we took very, very seriously. And first, I should also add, anybody who didn't want to come into work didn't have to. Anyone who felt unsafe or was in giving care to elderly parents and it was a bad risk reward, no one had to work. Their reemployment is in no way contingent on whether they decide to work during this time. What we found, though, is that most people wanted to work. And in addition to being reemployed, we put everyone at $15 an hour. We did not know,

Starting point is 00:55:22 you know, so if you were a dishwasher, you made 15 bucks an hour. If you were the head chef of Linnea, the sous chef, a manager who's making $150,000 a year before you were getting $15 an hour. And we did that to make everyone equal. And then we said, if we make money doing this, we're going to take the profits of that money and we're going to distribute it amongst all the employees and a recapitalization fund for the restaurant. And could you, everyone felt like, sorry, just like part of it. Yeah. I'm the, I'm the, I'm that guy who interrupts. I apologize. But the, because I know people are going to wonder recapitalization. Could you just explain that, uh, real quickly? We don't have to spend too much time on it, but what does that mean? Yeah, no, I mean, basically we're going to need runway to keep everyone employed after we reopen. Uh, one of the things that people don't realize, I think, um, in the industry and in public in

Starting point is 00:56:18 general, although it's, it's certainly dawning on everybody is that, okay, Congress passed the CARES Act, and that's certainly a huge help to small businesses across the board. They did so very, very quickly. And consequently, there's a June 30th deadline as of the time we're recording this, and it may be changed. But basically, you can apply for the payroll protection program, rehire everybody. But you've got to spend all that money if you want it to be forgivable by June 30th. But restaurants won't be reopened for ordinary business by June 30th. And even if they were, how many people are going to show up and feel safe, right? So it's one thing to hire everybody back.

Starting point is 00:57:29 But then what happens on July 1 when your demand is down 70 percent and all of a sudden you have ordinary expenses and ordinary payroll again and your lease that you signed in 2016. to do was try to make enough money now that we could have, you know, a capital pool where we could weather the storm, not now, but over the six months after we're allowed to reopen. Um, and it remains to be seen of course, whether or not this works, but what I didn't want to do was, was wait to see what happened. Like every step along the way, I kept saying, great, I'm glad Congress is doing this. I'm working with the independent restaurant coalition, but I also want to keep working. Like, you know, I don't want to rely solely on, you know, Congress or the, some guidance in the SBA, whether or not they changed this June 30th date or not. Like, I can't really control that, even though they should change it.

Starting point is 00:58:08 And I want them to, and we've pushed them to, because it'd be good for the industry as a whole and for the economy as a whole. I can't personally, as an individual, rely on that. And so we've been working really, really hard to scale up all of our operations so that we actually make money during this time. And then we're going to pay out that money to the staff so that they can take care of themselves and all that. But then we also said, look, we want to guarantee your employment even when it doesn't make sense come September. That's the goal.

Starting point is 00:58:39 Let me ask another question or just dig into one aspect of this that may be a dead end or it may be interesting to people. You were just mentioning a few minutes ago about repurposing the dining space. In other words, the spaces outside of the kitchen, but still within the restaurant for this takeout, right? For the meals that you were delivering for, say, $35 a pop. Was part of your ability to execute that the use of induction stovetops that could be moved around and put all over the place? Because that's something I remember noticing very, very obviously when I walked into the sort of the main, and I know you have multiple spots, but within Alinea, the sort of main alien autopsy sterile cooking environment where

Starting point is 00:59:26 the induction stovetops these i mean if you imagine for people who have no idea what this is like a very a very thin boxed board game i mean something roughly that size that you can plug in anywhere and boil a huge pot of water within a matter of minutes using my understanding is some some type of of sort of i guess well magnetic induction i suppose but did you use those in the dining space or was that primarily a prep and kind of packaging area yeah it's a good thought but we didn't really need to um we were able to do everything we needed to do between our prep kitchen and our main kitchen. Again, keep in mind, it's a lot of food. If you look on Grant's Instagram, you'll see some pictures where there's the packaging for 500 of them across

Starting point is 01:00:20 all the paths, and they're plating it up, you know, um, for packaging. But in terms of the cooking, we didn't need to do that. It was more in terms of the packaging and staging for pickup and whatnot that went out into the dining rooms. Um, again, it's a ton of food, but it's less than we normally do. Did, uh, I, I'm not in the restaurant world, but I imagine that, and correct me if I'm wrong, but that on top of low or no, I shouldn't say demand, but rather ability to service customers in the usual way, that there are some supply chain disruptions. Did you guys not run into any supply chain issues? You know, we're starting to now. But early on, all the food that you might imagine that would normally be distributed to thousands of restaurants, almost everybody was buying nothing. So early on, we actually found that we had some distributors who would call us up and say, hey, I've got 800 pounds of XYZ that's about to go bad in four days.

Starting point is 01:01:30 Do you want it? That's amazing. Yeah. I remember probably like day five or six, we didn't want to be selling wine out of our cellar because it would, again, a little tone deaf trying to sell, you know, like, hey, it's a pandemic by a $250 bottle of wine, right? So we were going out into the market and buying wine from distributors. And when we would reach, you know, the distributor, and they would email us back, they would be like, what do you mean

Starting point is 01:02:06 you want to buy wine? And we're like, yeah, we need to buy like, you know, 50 cases for the next couple of days. And they would go like, what are you, what are you doing? You know? And, and so, so again, like, I mean, you know, sounds bad, but from a trading perspective, when you're the only buyer, it's like the in scene and trading places with Eddie Murphy going like, you know, he's got all the frozen concentrated orange juice. Right. If you don't know the movie reference, it's worth watching. Old, old movie. There's time now. But, you know, it's like we would just go like, well, you know, they're asking $22 a bottle, offer them $12, and we'll buy it all.

Starting point is 01:02:48 And still doing that. You know, it's like we put in a wine order this morning. Most restaurants are not buying wine right now. They're wine sellers. Again, about the asymmetry of things, like you want to be a buyer when everyone in the world says that it's totally not worth buying as long as the thing you're buying has some intrinsic value and vice versa. Yes, let me hop in because I want to try to put myself in the shoes of some listeners who are going to say my god like these guys have huge cast surpluses they're generating incredible revenue of course they can weather the storm now if we just take that as a as a as a position right which i think i'll it seems yeah for people for people to take right uh what i'd love to talk about is, or to hear you talk about really is number one,

Starting point is 01:03:47 what types of restaurants you think will make it. And that could be intrinsically because they have certain characteristics or because they adapt in certain ways. And then what are some of the things you wish restaurants would do more of and less of, right? For instance, a lot of restaurants are using gift certificates. I don't know how you feel about that, but I'd be interested in hearing. To the first point, who's going to survive? You and I were chatting last week, or maybe it was time. Time space has collapsed, so it's hard for me to say. Maybe it was a few days ago. And it was a few days ago. And a friend of mine was playing, as he called it,

Starting point is 01:04:25 Meet Santa Claus. Thank you, Matt. And delivering Franklin's barbecue to his friends in Austin, which is an incredible gift. Franklin's barbecue, for those of you who don't know, is this iconic barbecue spot where normally you would have to wait hours and hours and hours. There's a line that will take you three to four hours if you are lucky enough to get to the door before it sells out completely. It is incredibly popular, right? And I remember you were like, yeah, Franklin's will be fine, which I would tend to agree with, right? It's kind of like if people are looking at distressed debt and real estate, it's like, yeah, like Pebble Beach probably will be fine. Maybe like the B tier,

Starting point is 01:05:03 C tier, like who knows, right? And I'm not, Pebble Beach is just a hypothetical, but it's a name brand in that respect, which I'm sure has some value in terms of resiliency. But who do you think is going to make it through? And what are the characteristics of the things that they might do? Yeah. So one of the things that was interesting in a, in a difficult way when this all happened was that as much as I was scared and, and to be clear, I was very scared as to what would happen. Um, just as much as everyone else's like, you know, yeah, we have pretty good capital reserves and whatnot, but we chose to do that. During the good years, last couple of years, we always held money back.

Starting point is 01:05:51 We didn't pay it all out to our investors or ourselves. And we did that because when things were going really well, we expanded over 15 years to five restaurants. I watched other groups during that time expand to 20, 25, 30 restaurants and thought to myself, there's no way that they can be managing all that well, I don't think, unless they're doing something, in which case I need to learn from them, you know. But we were always very conservative in keeping those capital accounts and whatnot. But more than anything else, we're scrappy. Like people don't realize, people think I wrote a check and built Alinea and then like retreated to some island somewhere. Like since the day we opened Alinea, which is 15 years ago,

Starting point is 01:06:36 coming up May 4th, I've been engaged every single day with that restaurant, with Grant, with our team, as has Grant personally, as have Steve Bernanke and other key people that we have. It is not glamorous. And then we're scrappy. Like we'll just get in there and do shit ourselves. I'll tell you what kind of restaurant will survive. Eric Rivera used to work for us, and he has a place called Otto ADDO in in Seattle. And he is very vocal on Twitter right now in not always a totally positive way because he sees a lot of big companies and big hospitality people saying, you know, that the industry is going to get bailed out and this and that. And Eric's just like, fuck it, I'm selling burgers.

Starting point is 01:07:32 And next week, we're going to do a steakhouse. And then by the way, if you want to pay it forward, we'll sell 1000 bowls of soup every week for, you know, people, people who are in need and, uh, anybody can buy one of those. And he has created in the last three or four weeks, probably 20 different concepts of carry out delivery. Um, he's doing his own delivery fleet already. He's figured that out. Um, and he was a development cook for us and moved to the west coast what is a development cook yeah he just basically like he started off in our kitchens and then he didn't really didn't really love or thrive in the environment of you know just grinding out old deal in your kitchen every day and so what he did was he, when we did

Starting point is 01:08:25 research on something, or we would try to figure out new products or new ideas or new dishes or whatnot, or you just needed someone to go like, get me 42 different kinds of grass fed beef, and we're going to figure out which one we're going to serve it next for our steakhouse. He would do all that sort of stuff. So he was a research chef, basically. And you look at what he's managed to do. And what he says on Twitter is like, look, I've got eight employees, I don't have a ton of money. And I know, for a fact, there's no chance that I won't be open in two years. Because I just wake up every day and do whatever it takes to make my payroll and make enough money to keep my place open. Now, what was his name again? One more time. Eric Rivera,

Starting point is 01:09:12 Eric Rivera. And, you know, it's like, he's really vocal on Twitter and I think he's pissing a lot of people off and he's gotten into it.ic rivera cooks is his handle on twitter that's what i was trying to find the restaurant is at you know auto seattle he even gets into it with me at times because you know early on like in this like i i feel like i need to i have enough of a platform in the industry where i have to be a little bit careful on on on balancing, um, my criticism with my encouragement, you know? And, uh, so I think he was kind of like, you know, Hey, Kokonas, why are you, you know, why aren't you supporting this or that? And yet I watch what he's doing as opposed to some other folks who, who turtled to get back to our earlier conversation where they just kind of went like, well, it's a hopeless situation.

Starting point is 01:10:10 There's nothing I can do. the hospitality industry, but with everything, every industry, every business saying, you know, woe is me, we'll never make it kind of thing. And this is a terrible situation. But I have a huge belief in human ingenuity and the ability of people to be resilient. And things people make are never as structurally sound as the people themselves. Like, this is not a unique situation as much as we'd like to think it is. Pandemics have been going on throughout human history. It's just that none of us walking around has lived through one before. And so if you study history, you if you read accounts, which I did right at the beginning of 1918 pandemic and what happened in 1920 through 1928, it was the roaring 20s. People partied their brains off afterwards. paper and you read all you read about and all that anyone wants to hear about is how hopeless and awful the situation and how broken society is. And we have massive problems, but we could

Starting point is 01:11:33 look at that and say, wow, this has really put a lens up to the things we need to fix. Let's get fixing. And so the kinds of places that will, will do that, you know, the Franklin's barbecue story is perfect. That guy didn't grow up barbecuing. He figured the shit out, made a brand for himself. There's no chance that Franklin's Barbecue doesn't exist in two years. And then also the other thing that will happen is just like when you have a forest fire and then the forest reblooms you know that there's some 25 year old chef out there and she's been itching to do her own restaurant but she couldn't afford

Starting point is 01:12:11 the leases and she couldn't find the backers and all that and a year from now there's going to be some empty restaurant that's with a perfect kitchen that she's going to be able to get at half price and all of a sudden she's going to be able to get at half price. And all of a sudden she's going to kick our ass. Like the new Alinea is going to come a year and a half from now to kick our butt. And that's a good thing. Like that's the stuff that, that we need to start focusing on, I think. So if we're, if we're looking at, I mean, I think the, I agree with you that I think the hope is important to Kindle and highlight whenever possible, because it is so easy. And I've certainly struggled in the last few weeks. I'm not trying to compare myself to anyone who's out of work, but everyone is fighting battles we know nothing about. A lot of people in my life also, family members who are in the service industries have been laid off. And it's a tough time. And it is very easy to succumb to despair, particularly if you are only ingesting news that highlights hopelessness, if that makes any sense. If we look at the, if we look at the tactical,

Starting point is 01:13:27 so I totally agree with you. I mean, the opportunity is just going to be incredible for that 25 year old woman or any up and comer or person who's simply been waiting in the wings, looking for opportunities. I mean, within the next year or two, there are going to be a lot of opportunities. If we're looking at tactics right now, what are some of the things that you think are not a good idea? What are bad ideas that people in the restaurant world are pursuing? And what are some of the good ideas? So you mentioned the gift certificate thing, and I know that like week one, people love their neighborhood restaurants, and I'm glad they do. And I do as well, by the way. I'm a frequent diner, and I've got all my favorites.

Starting point is 01:14:16 And so people wanted to know what they could do. And there was this whole movement about gift certificates. And someone in New York set up a site that they called Restaurant Bonds, which showed that they don't really understand what a bond is. They were just basically a Groupon. And it was not only a gift certificate, but it did a terrible thing with GoFundMe to like create, you know, 100,000 automatically generated GoFundMe pages for restaurants, including my own, which I, I, I shot down and they killed the program. Um, you know, it makes people feel good to give, to support other people. And I certainly don't want to ever discourage that. A gift certificate is a liability on your balance sheet. And if you take, say, $25,000 from people for a GoFundMe or gift certificate. First of all, in the scale of your payroll, and if a restaurant

Starting point is 01:15:27 has 40 or 50 employees, you can just do the math on the back of your hand. They're making, just call it $15 an hour, 10 hours a day, multiplied by 50. You're going to cover a day of payroll with a gift certificate drive or a GoFundMe, maybe two days, maybe three. You know, if you're hugely successful, maybe every employee gets a few hundred dollars. And of course, you could say, like, Nick, while you're being really cynical, like, that's a few hundred dollars they didn't have. But what I'm saying is that you're much better off channeling that to other organizations that can leverage it more, more impactfully, you know, world central kitchen, for example, the work Jose Andres is doing. Um, if you want to help your local restaurant buy food from them, because if you buy the gift certificate and then you go use it in

Starting point is 01:16:19 four months, they spent that money four months ago. Um, You know, one of the big problems that a lot of restaurants had is that they were paying for food that they bought four weeks ago with next week's revenue. And the gift certificate just exacerbates that problem. It just it's like mortgaging their future. What's interesting is that when I criticized the gift certificates, a lot of restaurants didn't understand how the finances on that work. They didn't understand how that shows up in their, in their balance sheet. And we're very much thinking that I was trying to hurt them. I was not, I was actually trying to, trying to help. Um, so it's, again, it's very tricky how in the midst of a crisis you try to be positive and educate the public and even your fellow business owners. Similarly, there's a really high

Starting point is 01:17:19 end push to sue insurance companies for business interruption insurance. And, you know, that's a five-year process. That's not going to save your restaurant next week. Um, and it's not going to help your employees next week. So all of these things are, are thoughts that people had really, really fast. Um, and again, I think that's why it went to the planning ahead. If you're acting as a reaction to a really bad situation, it's very easy to make bad decisions quickly. If you've considered the various possibilities that can occur and what you will do at that time, it's like being an athlete that goes okay well if we get to this part this is the play we run and you just do it it's not a hard decision and then you you act it

Starting point is 01:18:12 out that's those are the folks that are that are going to make it in every in every business through this sort of thing and um and also that's of course the problem with our government too right um we had some of these these playbooks in place and we were spending money on them every year and then people said well well we're spending money on something that never happens right maybe we should save that money or spend it on something else or or give people tax cuts with it. That's the sort of failure of leadership that is happening nationally, internationally, but also locally and on a small basis with many businesses. And I don't know how you change that globally. I really don't. But well, I think I think we can start with this with people listening and how they implement things.

Starting point is 01:19:05 And so I had a clarifying question, but I also want to maybe underscore one thing, which is many people listening will say, well, that's great if you had the foresight to plan and determine contingency A, B, C, and D before all this hit. But a lot of people didn't do that. And I would just say, and I'd love to hear you add to this after I ask a clarifying question, that it's not too late, because there's still so much uncertainty in the next two weeks, four weeks, two months, fill in the blank. You can still ask yourself, what if this happens versus that? And think about what you will do in those situations in advance, right? That's still very much a possibility for a lot of people. But the quick clarifying question I had might seem superficial, but you mentioned that a lot of restaurants are paying for the food they bought four weeks ago with the revenue from the following from next week,

Starting point is 01:20:07 let's just say, right? So I imagine that's something like net 30 terms. Does that mean that you guys do not pay your vendors using terms like that, or just that you have such a cash reserve, you have such a margin of safety in that that buffer that you don't have to depend on next week's income to pay for what you bought four weeks ago the answer is actually both um about five or six years ago we realized that if we called the vendors of our more expensive items um meat, fish, wine, that sort of thing. And we said, hey, we'll make you our exclusive vendor for the next three months, and we'll probably spend about $220,000 during that time. What sort of discount will you give us if we prepay for that? Almost

Starting point is 01:20:59 like a futures contract, right? So instead of getting net 90 or net 60, which is what every restaurant tries to get, we actually negotiate a discount by prepaying that and then sort of truing up afterwards. So for our big ticket items, we try to stay a couple months ahead on payments in order to get more favorable terms and better product. And that's something that when I talk to even big restaurant groups about that, there are certainly some that do that. It's very rare. You're looking at some big hotels that do that and whatnot, but not that many. And then the other part is exactly what you said, which is, you know, for the for the vendors that just are smaller, they won't do that.

Starting point is 01:21:47 Or we just sign the standard terms. We have a capital account that we keep, which is, you know, accounts receivable, accounts payable and our accounts payable. We're always going to be able to cover that. We're never going like, well, if business goes down 30 percent next week, we're not going to be able to pay for four weeks ago. Now, of course, everyone can say like, well, that's because you're a busy restaurant or whatever. But when we first started, my dad used to run his own business. He was only high school educated. And he was like, every time I tried to complicate things when I was in college and I talked to him about his business, he would be like, it's three shoeboxes, Nick. It's the money in, the money out, and then the third box is what

Starting point is 01:22:27 paid for your college. It's the money that's left over. If you worked with me, you would hear me say that a lot. I will get some very complicated models sometime. And if there isn't a three shoebox tab on that spreadsheet, like money in, money out, money left over, I don't even want to look at it. And it's not that hard, you know, and if you can't figure out if that third shoe box isn't going to have anything in it. You need to reassess what you're doing and iterate. And boy, so much of things would be less complicated. So we always get down to the three shoebox method and we always make sure that there's something left over in that third shoebox. And if there isn't, we change. We change what we're offering, what we're selling and all that.

Starting point is 01:23:25 And after 15 years of doing that, um, the hardest part is to keep that attitude, uh, when things are going well. Um, you know, we ripped apart Alinea after a record year in 2016, raised it to the ground and rebuilt it because we had maxed out of that footprint it wasn't going to improve at all and right now like you said it's not too late like i want to pick up on that it is very much not too late we are at the beginning of the beginning of some unknown terrible weird thing that's happening um your listeners may a year from now, listen to this and go, God, Nick was so full of shit. He's out of business. It could happen. Like, you know, it's like, like my, what I live in fear of right now is, Hey, in September, when, when all of the government,

Starting point is 01:24:24 like, you know, look, we can't keep printing trillions of dollars. We can't bail out every single business in America permanently. I mean it seems like we can because we just did. But if we keep doing that, you run into things like hyperinflation. And at some point, we're going to probably issue a 50-year bond at 1%. The Chinese government will probably buy that bond. But at some point, the ability of the rest of the world to want to consume our debt will slow down. And so consequently, all of us are going to be left to our own devices

Starting point is 01:25:00 sooner rather than later. So September or so, I reopened my restaurants and we've got people wearing gloves and we're practicing social distancing and our occupancy is 50% of what it used to be and demand is down 70 or 80%. And my revenue has gone and plummeted by 75%. That's what I spent yesterday modeling out. And at some point, you just go like, yeah, it's not really worth being open, you know. So at that point, I go like, well, what would we need to do to make it worth being open? What would we do to be able to save 95% of the jobs and still make money as a sign of business and rebuild it over the next two or three years? And I don't have those answers yet. But we're kind of going like, well, what do we do

Starting point is 01:25:56 experience wise? What will people want emotionally then? Well, they'll certainly want safety in the short term they'll want a release of some sort um i think humor will be important then um but what is that in terms of a dying experience i haven't the faintest idea right so these are the conversations we're having now and i was talking to grant about it yesterday and trying to come up with ideas for instead of looking at the distancing as a limitation or the occupancy as a limitation, what kind of weird idea can we have to make that an asset instead of a liability? So I have no idea what we're going to do. I don't know if it'll work or not. But that's the part that's going to be really hard. It's actually not right now. Right now, the limitations are so great that all we can do is carry out. Like they extended the

Starting point is 01:26:54 stay at home order through May in Illinois yesterday. And I just went, oh, okay, well, for the next four weeks, we kind of know what we're doing. After that, it's a wide open slate and very scary, to be honest. People listening who want to improve, and I want to come back to talk, because we didn't really pick up, and that's my fault, but pick up on the, here's a business that also entirely depends on restaurants. And it's not like you're only servicing Alinea so you can make up for it, right? I mean, we're going to come back to that. particular books or resources that you have found helpful or would recommend for improving your thinking and strategic planning? They don't have to touch on it directly. It could be, for instance, you like Dune, I think has a lot of great leadership lessons. It's not a book about leadership, but nonetheless, does anything come to mind just for people who are saying, God damn, I wish I studied more

Starting point is 01:28:08 economics, which I did not, but you might have. I wish I studied derivatives. I wish I studied this. I wish I studied that, but I haven't. How can I hone my thinking? Do you have any suggestions? They're the same ones from the last podcast we did. I think there's a list on there. And it's funny, you know, Nassim Taleb Fooled by Randomness is over and over again, a book that I come back to and have suggested to people to read during this or to reread, because both that and Skin in the Game are fascinating. And what's been interesting in this is that, he has the generalized Rubin principle, which is kind of funny, which is basically like, all the airline CEOs have no skin in the game, right? So many of the leaders of our big companies are custodians of those big companies, and they get paid more if the stock price goes up. And so if they take their capital reserves, if they take that third shoebox and they spend it to get the stock price going up and they don't hold billions of dollars in reserve, they only do that knowing that they're going to get bailed out if shit hits the fan, like 08, like 01, like 89, like now.

Starting point is 01:29:54 And so Taleb is – this is stuff he's been writing about for 20 years. And I have to say that, like, you know, what people don't realize is that the airlines, you know, I tweeted something like they're too few to fail. Like they've they've all merged together. There's not that many of them. And we certainly will need air travel in the future. And so consequently, everyone's like, well, yeah, we're going to have to bail out the airlines. But but you really don't like Those planes aren't going anywhere. And someone will buy those assets, and the airlines will still run, and the employees will still have their jobs. So I keep coming back to a lot of his thinking on that, because

Starting point is 01:30:38 the people that I know that are looking for the bailouts in any industry, including hospitality, including software, both of which I'm in, are the ones who themselves generally don't own the things. They may look like they do, and you may think that they've got their skin in the game, but they don't. They have licensing deals, which is very different. The people who've built their own businesses from scratch and have bootstrapped them and whatnot, I think you'll find that a lot of those folks were like my dad. And my dad was a product of the Great Depression. My dad didn't carry a credit card his whole life. He was like, if you can't pay for it, you can't afford it.

Starting point is 01:31:24 And that's been beaten into me. Um, and that, like I, I, I tweeted, you know, after this all happened, like we ran talk in a very capital efficient manner while some of our competitors grew at, at, at a pace we're growing 300% a year, which isn't shabby. right? It's VC eyebrow raising worthy, right? That said, some of our competitors grew faster by giving their product away by burning through 60, $70 million, and then selling the company for a couple hundred million. Those are all the companies now that are laying off 50% of their employees. And so running a fiscally cautious and intelligent company, whether that be your restaurant or your software company or your airline or whatnot, you know, like biggest example of that's Apple. How many companies does Apple buy a year? How much money do they have in

Starting point is 01:32:18 the bank? A hundred billion plus. And there's been times where people are like, oh, Apple should buy Uber, not Uber, Tesla, or Apple should buy this or Apple should buy that. Apple's product development cycle is slow as hell. They wait and see what works in the market, and then they just make a better version of it. And, you know, is anybody worried about Apple right now? I'm not, right? So, and yet, like, there there are companies like like my favorite, like Yelp. What did Yelp do? Well, they laid off 50 percent of their workforce right away. That Taleb goes through all of that in great detail 20 years ago and has been right on the money with a lot of his prescriptive writings. What are some companies that could be in his hospitality or they certainly could be outside that you admire a lot right now or in general?

Starting point is 01:33:15 That's tricky. Certainly, they're out there. I think some of the remote learning, I follow a guy named Austin Allred on Twitter who has an online programming school. And the model of that, I started following him about a year ago, and I think it's called the Lambda School. And the model of that, which is so great, is simply like you don't pay for the school until after you get out and we get you a career. So if we do our job right, we'll take some money, you know, I don't even know what the deal is, five years after you graduate or whatever. And then if during that time you become unemployed again, you'd stop paying us, right? What's fascinating now is that these universities, the great part

Starting point is 01:34:07 of an elite university, and I think you and I have both been fortunate to go to two of them, a lot of what we learned, I bet, took place outside the classroom amongst our peer group. What's interesting is that I have a 21-year-old son, and he is at a wonderful liberal arts college and he hasn't been feeling that he was getting that same experience that, that I got. And I, I honestly thought it was a failure of, of him, like, you know, or maybe if I was going to be in a generous mood, I'd blame the school or something. Right. But I think what happened is that he associates a lot of his relationships to be online and virtual, you know, and so he stayed in touch. Like when we when I went off to college, I couldn't be in touch every day with my high

Starting point is 01:34:57 school friends or I couldn't be in touch with people that I met on the other end of the world who had similar interests to me. He does. And I think if you look at what Austin's doing with the school is that he's taken the best, most important parts of the school and realize that some of the, the community aspects can be done virtually. Now I still, I'm not totally sold on that. I'm 52 years old, though. I bet my kid agrees with that 100%. I think that he just thinks, he's telling me, get over it, old man. So you look at companies like Zoom, which is really hot now. We started using Zoom a year

Starting point is 01:35:37 and a half ago. If you had told me five years ago that that would be a company that would grow like that when hey you know what like skype video has existed for years google hangouts is free there's all these free options right why would you build a video conferencing company well it's because all those video conferencing things suck all the ones i mentioned aren't that great they're free but they're not they're not differentiated. When we started Talk, we started Talk competing against OpenTable, which was completely ubiquitous. And I've had hundreds of people tell me, both in our industry and investors and whatnot, you are completely out of your mind starting a company competing against someone who has a monopoly and uh so the companies

Starting point is 01:36:27 that i like to look at are the ones that go into a very established industry and just go hey it's ripe to be blown up and done better you know and so a lot of version i feel like another people gave that a lot of people gave that line to Google with respect to Yahoo. Yeah, a thousand percent. And, you know, I mean, like Google seems impenetrable now, right? Facebook seems kind of impenetrable, but yet like TikTok still came along, you know, not something I use, but still, there's there's always room for for a positive change. And, you know, it's an interesting question. I normally I probably go on and on about that question, but I'm so in my own weird space these days because everything's happening.

Starting point is 01:37:21 I mean, we've probably done for for Toc and the restaurant group, I bet we've done, what, two years of work in eight weeks. Like normally what we accomplished in eight weeks, in two years, we did in eight weeks. Well, you had to completely, I mean, I don't know if completely is the right modifier. Just a quick aside,

Starting point is 01:37:39 Austin Allred, you mentioned, at Austin, A-U-S-T-E-N, and it is Lambda School. Lambda School is super interesting. You had to kind of redesign the business, if I'm not mistaken, or at least do a hell of a lot of coding and product upgrading because, as you mentioned, open table or kind of analog to open table, but better reservations and CRM system for restaurants. And you, how long did it take you to create the to-go platform? Six days. Yeah. And, and, and, and, you know, it was, we have a hundred person company and we service about 3000 hospitality clients between wineries and restaurants in 28 countries.

Starting point is 01:38:20 As I mentioned, we were growing about 300% a year. And as this year started, we had come off a year where we grew by 300% almost across every metric. Revenue, we added 40 employees to get to just under 100. And we really were getting traction for bigger groups and more casual restaurants and whatnot. And then this happened. And just at the same time where I was saying that I could see that my restaurants were going to go to zero, I had this company with 100 employees that were making really innovative software for the hospitality industry. And our revenue was going to go, our revenue was going to go completely to zero, you know? And, you know, we have a high, high payroll because we have really highly skilled individuals. And so Canlis restaurant in Seattle, which was a couple of weeks ahead, quote unquote, you know, of the problem, they

Starting point is 01:39:25 were like trying to modify the way that we handle tables, which is unique to talk, um, to make it into carry out meals. And Brian called up, um, Jeff Kaplan, who's the COO and a really great guy at talk. And I really couldn't run the company without him. And Jeff called me and said, you know, we're going to go to zero. And I'm like, yeah, yeah, I know. And he's like, I think we should just do this carry out thing. He's like, you're doing it for Alinea. You're already talking about it. Canlis has already started doing it.

Starting point is 01:40:01 And the third party delivery apps charge 20 to 30 percent percent like that's we don't need to do that these people aren't going to be sending food out the back door this is going to be the only option in america so we got a group together of about 12 to 15 design engineering people and we got on on a video call and we just said we got to do this in a week and everyone kind of like you could see the discomfort because this is the kind of project that normally we would take six months to build and we're very particular about the ux we're very particular about testing yeah you're talking about payment processing all these things and robin and nil who's our head of engineering who is just an extraordinary guy he He was a machine learning

Starting point is 01:40:45 guy at Google and whatnot. He got off the call and he called me on the phone and he just said, we can do this. I got it. There's a couple of people who were like, that's not really possible. And they said, you know, we're not gonna be able to test it. Like it would take weeks to test. And like, yeah, we're not gonna test it. We're just going to throw it out into the world. And six days later, Canlis was using it. And we had five restaurants by day seven. We're adding 50 a day now. So we went from processing over a million dollars a day in gross merchandising value for events and prepaid reservations, and then 50,000 to 60,000, 70,000 reservations

Starting point is 01:41:27 that were free besides that, to zero. And now we're at a million two a day in four weeks. And we've completely changed the way that the restaurants can manage the inventory on the dashboard, the back end side of talk, in a way that we're getting emails every day from restaurants saying, not only is this a lifeline to the other side of this crisis, but we are employing people. There have been several restaurants, including Alinea, by the way, which has had its record revenue day during this time. And so what we managed to do and what our team managed to do is have the urgency of a startup circa 2002. And we now are working seven days a week. Um, we, we hired another person yesterday,

Starting point is 01:42:29 um, our first hire since this all began, um, to be in our account management team to help onboard restaurants because we're adding, we're literally working. Someone is working 24 hours a day, uh, for talk right now, just onboarding restaurants and then teaching them how to do this. Um, and then this is the kind of thing also that expands talk was always about dynamic and variable pricing for a time slotted business. Now, what that means is that your dentist should cost less on Tuesday than Saturday, right? Dentists have time slots. Suddenly furniture stores have time slots. Grocery stores have time slots. There are going to be reasons to gate in a time slotted way a whole bunch of different kinds of businesses.

Starting point is 01:43:13 So now we are talking to all sorts of businesses that have nothing to do with the restaurant industry about um, for reservations. And because we built those data structures in that way five years ago, and we thought about those time slots almost as derivatives, that's now, um, flexible enough that we can apply it to say a furniture store, which we just signed yesterday. So, um, again, very interesting outcome, unintended of a terrible situation. But I have to say that, um, our team, uh, man, I, we've never felt more productive, more connected. Um, we haven't been in an office in six weeks. I personally don't like remote work. I like to be in an office, but we have been more productive in the last six, seven weeks than we have in the last year and a half at an extraordinary pace with really high quality too. That's incredible. And you have a lot of skin in the game just to bring that for his back.

Starting point is 01:44:25 Yeah. I, you know, I, I would like to emphasize that I've lost 10 pounds. I'm stressed out. I'm 1400 emails behind. You're always on the email zero thing, right? Like I'm not managing all of this. Well, it's chaotic. It's not fun. Um. I'm drinking more wine than I should in the evening. But you know what? It's like a sense of purpose is what we all want. And I think it's very easy to have a sense of purpose right now. Well, Nick, this has been yet another wide-ranging and fascinating conversation. I appreciate you coming back on. People can find Talk at ExploreTalk, T-O-C-K dot com.

Starting point is 01:45:13 Is that right? Yes. And please do support your local restaurants through there. And they can find you on Twitter. That's probably... Is that where you're most active? At Nick Kokonas on twitter yeah twitter and instagram and kakonas at instagram excellent and i will include links to everything we discussed

Starting point is 01:45:31 in the show notes for everyone tim.blog forward slash podcast or just go to tim.blog and search nick or alinea or kakonas and you can find everything that has been covered. Is there anything else that you would like to say or comment on before we wrap up, Nick? Not at all. Thank you so much. You know, I'm sure that much of what I've said here is going to be wrong and that's fine too. And send me some Franklin barbecue next time you have a meat fairy, a meat angel coming by. Cause I would love some of that right now. Oh, that is my plan for lunch today is leftovers.

Starting point is 01:46:09 Can't wait. Thanks again, Nick. Always, always a great time. Thank you so much, Tim. And to everybody listening, until next time, thanks for tuning in. Hey guys, this is Tim again. Just a few more things before you take off.

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Starting point is 01:49:00 slash Tim. That's helixsleep.com slash Tim for up to $200 off. So check it out one more time. Helix, H-E-L-I-X, sleep.com slash Tim. This episode is brought to you by ShipStation. I've been super impressed with these guys. ShipStation is the shipping software with the most five-star reviews. Now, speaking as a former e-commerce CEO back in a previous incarnation when I was shipping tens of thousands and then hundreds of thousands of products, this is what I wish I had way back in the day. As folks adapt to this changing world, these strange times, we are all going to be buying more stuff online than ever before. And if you're an e-commerce seller, or if you want to be selling

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Starting point is 01:50:26 They do a few things really, really well. You can import more orders from more places. So no matter where you're selling, Amazon, Etsy, Shopify, eBay, your own website, wherever, ShipStation brings it all into one simple interface, making it really easy to manage from any device, including your cell phone, your smartphone. You can instantly rate shop your favorite carriers. And this is a huge deal. it really easy to manage from any device, including your cell phone, your smartphone. You can instantly rate shop your favorite carriers. And this is a huge deal. As a ShipStation user, you can get access to discounted rates that are typically reserved for much larger companies, like Fortune 500 companies that meet certain minimums. Just as an example, ShipStation just negotiated a new deal with UPS, which rates are discounted as much as 62%. That has a huge impact on businesses and on your bottom line, your profit margin.

Starting point is 01:51:12 And in the Amazon Prime world, where people are used to free shipping, small businesses or smaller businesses can struggle to stay competitive with high shipping costs. ShipStation can help with that. You go way beyond ordinary tracking. So there's a self-serve portal for people who want to know where their order is, when they're going to get it, etc. Returns, ditto, self-serve. It just makes everything easier. That's why ShipStation is the number one choice of online sellers today. You ship more product in less time with the best rates available. And right now, my dear listeners, you can try ShipStation

Starting point is 01:51:45 free for 60 days when you use offer code TIM, T-I-M. There's absolutely no risk. You can start your free trial without even entering your credit card info. Just visit ShipStation.com, click on the microphone at the top of the homepage, and type in TIM. That's ShipStation.com. Then enter offer code TimShipStation.com. Make ship happen. One more time. ShipStation.com. Click on the microphone at the top and type in Tim. That's me. T-I-M. Check it out.

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Pet Camera - EBO Air 2

The Tim Ferriss Show - #429: Nick Kokonas on Resurrecting Restaurants, Skin in the Game, and Investing

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.