Please enjoy this transcript of my interview with Nick Kokonas (IG: @nkokonas, TW: @NickKokonas), the co-owner and co-founder of The Alinea Group of restaurants, which includes Alinea (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), Next, The Aviary, Roister, and The Aviary NYC. He is also the founder and CEO of Tock, Inc, a reservations and CRM system for restaurants with more than 2.5M diners and clients in more than 20 countries. Transcripts may contain a few typos—with some episodes lasting 2+ hours, it’s difficult to catch some minor errors. Enjoy!
Listen to the interview here or by selecting any of the options below.
DUE TO SOME HEADACHES IN THE PAST, PLEASE NOTE LEGAL CONDITIONS:
Tim Ferriss owns the copyright in and to all content in and transcripts of The Tim Ferriss Show podcast, with all rights reserved, as well as his right of publicity.
WHAT YOU’RE WELCOME TO DO:
You are welcome to share the below transcript (up to 500 words but not more) in media articles (e.g., The New York Times, LA Times, The Guardian), on your personal website, in a non-commercial article or blog post (e.g., Medium), and/or on a personal social media account for non-commercial purposes, provided that you include attribution to “The Tim Ferriss Show” and link back to the tim.blog/podcast URL. For the sake of clarity, media outlets with advertising models are permitted to use excerpts from the transcript per the above.
WHAT IS NOT ALLOWED:
No one is authorized to copy any portion of the podcast content or use Tim Ferriss’ name, image or likeness for any commercial purpose or use, including without limitation inclusion in any books, e-books, book summaries or synopses, or on a commercial website or social media site (e.g., Facebook, Twitter, Instagram, etc.) that offers or promotes your or another’s products or services. For the sake of clarity, media outlets are permitted to use photos of Tim Ferriss from the media room on tim.blog or (obviously) license photos of Tim Ferriss from Getty Images, etc.
Tim Ferriss: Nick, welcome to the show.
Nick Kokonas: Thanks, Tim. Awesome to be here finally.
Tim Ferriss: Yeah, we have the benefit of having spent some time together, and I have been fed a lot of caffeine by you. You were also of great help with The 4-Hour Chef. So I wanted to, right off the bat, thank you for that. It was a lovely experience.
Nick Kokonas: It was kind of a fun thing, because I remember when you sent me out a preview of the book, and then you called me to say, “Hey, do you want to say anything about it? I was on a chairlift. I was like, “By the time I get off this chairlift, I will have a blurb for you.” It was such pressure.
Tim Ferriss: Which meant a lot. Pressure, I think, is the word to describe so much about you and your life… I want to say “trajectory,” but I’m not even sure that is the right word. I thought a fun way to kick off the conversation would be to share with people listening some of the back-and-forth we had when we were brainstorming what a podcast might look like. Because certainly I don’t think of you first and foremost as a food guy, per se. We were having this exchange via text and then via email. I thought I’d just read one of your responses as we were swapping different ideas. I’ll probably edit for space a little bit here, but not by much. Here we go.
“I’m a huge believer in radical transparency in business. I give numbers and burn bridges with big companies because I think that a lot of times, people don’t ask the basic questions in publishing. For instance, how much did that book cost to print? How many did it sell? Oddly, those numbers are very hard to come by. I dug from months, years ago to do the Alinea book the right way. For bars – why does a bartender wash dishes and talk to customers? We’ve redesigned the bar experience in one best bar in the world. For restaurants – why is it the only form of entertainment that has only mutual promise to show up? Then it goes into behavioral economics. And in parentheses, I don’t even know how to pronounce this last name correctly, Richard Thaler or is it Taylor?
Nick Kokonas: Yeah, Thaler.
Tim Ferriss: “Richard Thaler is a friend and investor. Just won the Nobel Prize. Investing. Been beating the market for nearly 30 years. EVERYTHING (in all caps) is about asymmetric risk taking and information, and yet people’s perception of risk or of what I do is that it’s risky. It is not.”
In a separate exchange, when we were talking about many of the topics that you could talk about outside of restaurants, bars, and so on, even though that’s been a big part of your life in recent history, many of these different experiments, explorations, portions of your career, topics that you could talk about, and then going into what you said, “They come down to a single thought really. Wherever there is opaque information that should be obvious, run to that gap.”
I struggle with where to even begin with the 20 options that we have here. But maybe you can explain to me how behavioral economics and Richard Thaler fit into this? Just for curiosity’s sake.
Nick Kokonas: I’ll go back to the word you used, “options.” Because I started out back in 1992 or 1993 studying options trading, derivatives trading. I think there’s a huge misconception about what that is because of movies, because of The Big Short, because of Wall Street, and all of that. It’s a bit like playing a game of chess for a living, or being the house at a casino, that sort of thing. It’s about taking hundreds and hundreds and hundreds of decisions per day and pretending it’s like a big decision tree. Any given decision is probably, if you’re really good, at a 48 percent chance of being wrong. So, you have to be really, really good at constantly being comfortable being wrong, but knowing that your overall number of decisions that you’re going to be right more than you’re wrong.
I know there’s a big theme with a lot of the folks you have on. They talk about success or failure, how to measure those things. I don’t look at it as success or failure with anything. I look at it as just like, is my pattern of decisions correct? Then getting back to your actual question with Professor Thaler and behavioral economics. Essentially what they’re looking at is decision making. What drives people to make certain decisions. What’s rational about those decisions. What is mostly irrational or emotional. Or what decisions do we make that people don’t even realize they’re making a decision? Which is often the case as well.
Then, if you think about it, every single form of what we do – art, commerce, science, picking a mate, all those things – comes down to a whole bunch of decisions you make without often thinking about the decision itself. Not that you can walk around going, “Whoa, I’ve just made another decision.” But when you are doing business, or starting a company, or publishing a book, or whatever it might be, you can be intentional about that and realize that it’s going to be an iterative process. I think that’s been not only the case for me in learning how to filter things through that mindset, but when you said there isn’t a trajectory, I look at everything I’ve done as the same, in a way. Even though other people look at it and go, “Wow, you went from being a derivatives trader to owning a restaurant, that’s weird.” I studied philosophy in college. People are like, “How do you go from philosophy to finance?” To me, it was all the same thing.
Tim Ferriss: That particular transition or rather, progression, I suppose, from philosophy to finance is one that you and I haven’t really talked about. That one is interesting. I’d love to explore for a second. We’re going to go into a million different nooks and crannies, but did you feel like studying philosophy undergrad was an asset that then later helped you? Or was it just an interest you explored en route to other things?
Nick Kokonas: I can’t remotely imagine having not done that. The way actually I did it was really interesting. I had no intention. When I got to college, I thought I’d study political science, economics, pre-law kind of thing, something like that. My very second week at Colgate University, a wonderful professor who just passed away last year at 94 years old, a really great mentor to me, Professor Jerome Balmuth. He was a tenured professor at Colgate for almost 60 years. He pulled me aside. Introduction to Logic 101. He basically said, “What are you studying here?” I told him and he said, “No, you’re going to be a philosophy major. I’m going to teach you how to think.”
He was the kind of guy – there’s this great scene in A River Runs Through It, where the dad every time the kid writes an essay, the young fisherman kid writes an essay, and he brings it to his father to be graded, he gives it back to him and says, “Half as long again.” Long before that movie ever came out, Professor Balmuth would essentially assign a paper to the class and say, “It should be about 15 pages.” People would be like, “How long?” He’d say, “How long is a piece of string? It’s however long it needs to be.” Then he would tell me, “Yours can’t be longer than three pages.”
People would be jealous. Like, “Wow, you only have to write three pages.” If you take it seriously, that is a much, much harder thing to do. He really trained me, as well as a number of other professors there, to be clear in thinking, succinct, to understand what logic was, to process information, and really to look for parallels in different fields and different field of thought. Man, when I got out of school, I went to law school for like a day and a half. I had gotten into Penn, like a joint J.D./Ph.D. program at Penn. As soon as I knew who the other folks were and what their desires and trajectories were, I was like, “This isn’t actually a good fit for me.”
I remember my future father-in-law told my now-wife, then-girlfriend, that I was in danger of becoming an intellectual bum, because I dropped out of law school before I really entered law school. I floundered around for a little while. But if you grow up in Chicago, you end up meeting people who had this unusual lifestyle. That was back in the days pre-internet, pre-electronic trading, pre-high-frequency trading, where there were literally people on the giant trading floor shouting at each other. You either were attracted to the almost animalistic nature of that. For me, it was a huge challenge, because there were people down there that had Ph.D.s from MIT, then there were people who were butchers that went down there with $100,000 and just kicked ass.
It wasn’t about your level of education or any of the stuff I already talked about. It was about, “Can you show up every day?” Every day is game day. Be really disciplined and very clear-headed with chaos around you.
Tim Ferriss: How did you get introduced to that world?
Nick Kokonas: If you grow up in Chicago, you know some of these guys. Some of them are flashy. I can remember the exact moment, and I’m not going to name a name here, as you’ll find out why in a second, but I was walking down the street. I was six months out of college, didn’t know what I was going to do. I was walking down the street and I bumped into a guy I knew in high school. He wasn’t the best student. He didn’t try the hardest. I was like, “Hey what are you doing now?” He was like, “Well, I’m just rehabbing these homes.” I thought, “Literally, he’s a construction worker.” I was like, “What are you doing with them?” He’s like, “Well, I just bought this block. I’m turning this all over.”
This is a true story. This is so not like a good reason to do something. But I looked at him, and I was like, “What are you talking about?” He’s like, “Yeah, I skipped college. I started as a runner on the Merc, and now I own 25 condos and three townhomes and I trade.” I kind of went like, “Wow.” I don’t know what – I knew a little bit about it. I’d been down on the floor before, just visiting. I was like, “That’s fascinating. That is a truly fascinating thing.” I went down and visited the floor. I had to fake my résumé in the wrong direction to get a job. True story. People lie on their résumé all the time. I’m probably the only person that got rid of my degree and my academic awards and all that.
To get a clerk job on the floor, the last thing they wanted was someone with a good degree, Phi Beta Kappa, magna cum laude, all that stuff. I faked my résumé, got a $5 an hour job, and looked for a mentor. I found a guy named Frank Zarino, who was at Chicago Research and Trading, which also was founded by a philosophy major. It’s actually very common.
Tim Ferriss: Why is that common?
Nick Kokonas: I wish I knew the answer. I don’t know the answer. I do know that there’s three or four of the largest trading firms in the world are run by philosophy majors. If you look back at my class, there’s a few professors in there, but there are people who make movies, there’s a guy who runs an ad agency, a large ad agency. It’s a really interesting path. It’s not just dislike studying physics. I know some great physicists who are great in whatever they do. I think it’s a similar discipline of abstract thought. I can’t think of anything worse than studying business. It just seems like a terrible thing to study to me.
Tim Ferriss: Is that because it’s like the surface of the waves in the ocean topically? It’s just so non-transferable in a sense? Then as you go lower and lower through the slower moving layers, that’s just more multidisciplinary in terms of studying the basics of how things work or how people think?
Nick Kokonas: Yeah. It’s almost like how to do something or how to manage something, but not why to do it. And so, if you’re taught in 1992, if I went and got an MBA, I would’ve been taught a certain kind of management that six years later with the internet would’ve gotten blown up. So, for me, I always ask the why question. You were mentioning the book publishing or a bar. I just look at some things and go, “Why is that? Why does it work that way?” Oftentimes, the people most entrenched in a system have no idea why. They’re like the third or fourth generation of person within that system and they have no idea why a school bell rings in the morning, for example. Or why a bartender is washing the dishes. Often, I don’t know the real answer, but I come up with alternative ones at least that suit my narrative, I guess.
Tim Ferriss: Undervalued skill, by the way, in some cases. You’ve got to be careful. But very, very, very interesting. I want to pause here, partially because I’m over-caffeinated. I was inspired by my nostalgia related to your double espressos. But why did the professor pull you aside? What did that early undergrad professor in Logic 101 see in you – whether he explained it or not later, I don’t know – that led him to take a special interest in you?
Nick Kokonas: Well, I think I was prepared in earnest because I was mostly terrified. He had a reputation of being a – he was a Socratic method teacher. He was pretty harsh. Colgate was very small classes. There was a class of 80 people, and he wanted to whittle it down to a more manageable number. His method to do that was just to kick your ass. I remember – he probably, as great as he was, I doubt he would survive starting out at a college campus now. I literally saw him light fire to someone’s notebook once when he was asking people examples of how to put out a fire. This one guy was just stuttering because he was so in fear, so he just lit his notebook on fire. And he stamped. The kid threw it on the ground and stamped on it. He’s like, “You’ve got to smother it! Sure!” And he called everyone – he memorized every person’s last name. It was Mr. and Ms.
I remember the specific day, he was literally back to the – this was like right out of a movie – he had his back to the class writing on a chalkboard some logic problem, symbolic logic. The guy next to me had no shot at getting it, none. So, he said his name and I wrote on the paper on my desk so he could see it, what the answer was. Then without missing a beat or turning around, he was like, “Mr. Kokonas, please do not help him. There is no way in hell he could possibly have done that without your help.” This is like two or three weeks in. He spun around and he saw that I didn’t have my book. He said, “Mr. Kokonas, where’s your book?” I said, “It’s in my dorm room, Professor.” He said, “Well, a lot of good it’s doing you there.” I said, “On the contrary, it must apparently be doing me a lot of good there.” He said, “I’ll see you after class.”
I thought I was getting kicked out. There was a line forming to create office hours or to ask to be transferred out or whatever. When I got to the front, he said, “Follow me,” and I followed him to his office. I swear, he’s running through the New England fall. I thought I was going to get kicked out of the class. When I closed the door, I turned around and he had his feet up on the desk. He said, “Where are you from? What do you want to do here?” That was it. He took me under his wing. I was very fortunate. I never knew – here’s the amazing part. I never knew the guy liked me until 10 years after I graduated. Then I was treated like a member of his family at his funeral 30 years later. A really fascinating person. A really fascinating moment in my life, where I don’t know, someone saw something in me and went like, “I’m going to make an investment in this person.” He never asked for anything back, ever.
Tim Ferriss: How did you not know that he liked you? Did he withhold in some way so that you wouldn’t get a big head or something along those lines? Did he not want to get overly attached to you so he wouldn’t express it?
Nick Kokonas: No, no. I think I was 19 years old and I didn’t know that the people who like you hold to a higher standard probably. Consequently, it was really, he beat the shit out of me in a good way. You know what I mean? It’s like if you have someone who’s teaching you something and they invest their team in you, and they think you have a chance of being good, they work you harder than the folks around you. So the people that I thought he liked, he was just being nice to because he didn’t think they had a chance.
Tim Ferriss: Yeah, he didn’t care; he wasn’t invested.
Nick Kokonas: Yeah. With me, I think, he would be talking to my English professor without me even knowing and being like, “That paper sucks. He can do a lot better than that. Give him a C on that one.” I was like, “What’s going on?” All of a sudden, that class got hard. I didn’t know. I had no idea. It was an interesting, lucky, fortunate place to be at that time.
Tim Ferriss: We’re going to get back to the Merc, but before we do, philosophy – I’m endlessly fascinated by philosophy, but I’m also a nerd and academic and pedantic and have spent a lot of time in school. For people who are listening to this who are already in their careers, or maybe they’re in their early 20s, thinking of starting a company, but are entrepreneurially either involved or inclined, would you suggest if they don’t have any exposure to philosophy that they read any particular books or resources or explore it in any way? Or would you say “Actually, you know what? That was an intermediate step to something else. You would probably be better off studying X, Y, and Z.” Is there like a starter kit or something you would recommend to folks who don’t have the philosophy exposure?
Nick Kokonas: I think part of it is if you read a book in isolation, it’s not as rich of an experience as discussing those ideas within that context. That said, if you’re the kind of person that loves to read and explore ideas, there’s hardly a better place. It’s a matter of finding what you enjoy. I happen to love The Problems of Philosophy, which Bertrand Russell wrote. It’s sort of about Wittgenstein’s ideas, but before Wittgenstein published. It’s written in plain language. It’s not hard to understand. Certainly Nietzsche is more like philosophy with some weird sugar coating of something on top of it. Man, as a young male, reading Nietzsche for the first time, I was like, fuck yeah. You know? It’s not passive. I think people think of philosophers as Zen monks sitting there quietly contemplating the universe.
I think what it is, is people grappling with all the same questions and curiosity that we all have if you pause to think about it. It’s so big that it’s not just Descartes, “I think, therefore I am.” It’s every little bit of that. Read Lucretius. He read the atomic –
Tim Ferriss: Could you spell that? I’m going to be the first one to admit that I –
Nick Kokonas: Lucretius?
Tim Ferriss: Oh, Lucretius.
Nick Kokonas: Yeah, Lucretius.
Tim Ferriss: L-U-C-R-E-T-I-U-S.
Nick Kokonas: Yeah, I’m a terrible speller. Never ask me to spell anything.
Tim Ferriss: We’ll put it in the show notes.
Nick Kokonas: Read that. Or read this great book called The Swerve, which is about this monk ages ago that found that book and then rewrote it and saved it for history. It reads like a murder mystery. You don’t necessarily need to start with philosophy. You can start with the things around it. I continue to find the world of ideas endlessly inspirational. Then, by the way, steal them and use them in whatever you’re doing. They’re there for you.
Tim Ferriss: Lucretius. L-U-C-R-E-T-I-U-S. Titus Lucretius Carus was a Roman poet and philosopher. We’ll put that in the show notes. Bertrand Russell, also. I haven’t read Bertrand Russell in so many ages, but it is very digestible. It is not dressed up in $10 words when $0.10 words would suffice. A lot of his writing is really powerful. I also just wanted to mention for folks, and I just thought about this, ages and ages ago I felt like I had certain gaps in my education after college. I ended up – I don’t know why this didn’t occur to me earlier, but someone mentioned that Stanford, UC Berkeley, these top-tier universities, all had extended or adult education classes taught by professors and junior professors. This is the same team who is teaching. Those are very readily accessible.
Nick Kokonas: Even MIT OpenCourseWare. So many colleges now have taken that model and put great, great, great classes online. I know that every now and then I’m surprised at what I find on there, and get sucked into. Like an all-nighter of taking some college class that I know nothing about, and it’s so far over my head. But it kind of refuels you again to go like, oh, there are huge gaps where I know nothing. The older you get, the harder it is to start into something new, I find at least. It feels like the mountain it too big.
Tim Ferriss: I would actually – not to pull a Nick –
Nick Kokonas: Yeah, you disagree. That’s great.
Tim Ferriss: On the contrary, sir. My book is doing me a lot of good in my dorm room.
Nick Kokonas: That’s right.
Tim Ferriss: I think one of your superpowers is that you ask the fundamental why questions about long-standing assumptions or conventional wisdom in different fields. The more you have done that, the more obvious it is to you to do it as a starting point, in a way. Let’s go back to the Merc. We can go in any direction, of course. You step into this Lord of the Flies/gladiatorial arena with butchers and Ph.D.s and so on. Then what? Is there a point when you’re like, “Okay, I actually do think I could be good at this?”
Nick Kokonas: No. For real, no. I was down there and I had made a fatal error of leaving school. Everyone told me it was a fatal error.
Tim Ferriss: This is the law school?
Nick Kokonas: Yeah. I remember being down there and what I was doing was so brainless. It was literally you take this piece of paper over to that guy, and then that guy would yell at you, and rip the paper out of your hand, and then you’d go get another one. It was literally that brain-dead. I was desperately looking to learn what was going on around me. Of course, I bought books on finance and commodities and options and all that. They were completely ridiculous and opaque and academic. It looked like they had no relationship to what was going on there at all. I started taking classes that were run at the Merc on mock trading, and just learning the hand signals and things like that, which were fine but didn’t really teach you how to trade.
I spent time interviewing with big companies like Goldman Sachs and Société Générale and whatnot, because I did have the academic background where I would get the interview, I’d be able to take the test, I’d do well on their math and psychology tests. I would get offered a job as a trader, and then I would look at the contract. This is a key thing. People get out of college, they get offered a job. I think I’m the only one who ever read the employment contract. What it said in there was basically they could do anything they want with me for three years. I don’t even necessarily need to be a trader. That’s what I was interested in doing. But they could ship me to France and have me do something totally different. I could be an analyst or God knows what.
When I would question that, they’d be like, “Man, you should be really happy. We had 300 applicants for this and we offered eight positions. Just take it.”
Tim Ferriss: Totally your style.
Nick Kokonas: I know. I was kind of like, I grew up, I’d be remiss not to say that my dad modeled – my dad was an entrepreneur by necessity because his dad died when he was really young. He fought both at the end of World War II, he was drafted into the Navy at the end of World War II. Was dismissed honorably after 16-18 months because they were downsizing the Navy. Then he was barely young enough to be drafted into the Army for the Korean War. When he got out, he had no usable skills. So he went to work at the grocery store that he started working at when he was 12 years old. He saved up all of his money from the Army and the Navy, and bought the store.
As I was growing up, my hero was my dad, who was not an academic; who was not what people would think of as an executive in a suit or whatever. But he did really well. He bought property and real estate. He owned a temporary labor office that supplied unskilled laborers to factories and conventions and whatnot. That was a really good business. He had a lot of common-sense smarts. He was horrified that I didn’t go to law school. But meanwhile, I was modeling what he did. When I got down there, I was like, “You have to own your own situation.” So when I was offered those jobs, I was like, “Well, I don’t really see myself working for someone else.”
I found a guy who also felt that way. He was working for a big company. They didn’t want to make him a trader because he was too much of a quant. He was really well educated; he was really mathematical. He wanted to prove them wrong, so he took a small amount of money and started trading currency options. When I found him, I instantly knew that this was the right person, because I had talked to dozens of people and no one was like him. Then he said he didn’t want to hire me. He didn’t want to hire anyone.
Tim Ferriss: How did you meet him? Do you remember how you guys met?
Nick Kokonas: Yeah, I was just introduced to him through, back then, if you were a trader or a trading company, you have a clearing firm like Goldman Sachs. At the time, there was a company called First Options. He cleared First Options. Back then, you literally would have to take the elevator up to key punch in all the cards into a computer that was up 17 floors away. Ancient times. I met him through being introduced to him there. After talking to him, I knew he was the sort of geeky intellectual that I needed. Then when he told me that he didn’t want to hire me because he hired some clerk, I was like, “No, no, no. I will pay you to work for you.” He was like, “This is really strange.”
I explained to him like, “Look, I’ve been here for six months.” I set a goal for myself of getting on a badge, it was called. Leasing a seat, and actually trading within a year. I was like, “I need to get going on this. I need someone that’s going to teach me options.” It’s fascinating because he then hired me for, I want to say it was $400 a week or something like that. I stood right next to him all day every day. He taught me options theory from scratch. Better than any college ever could. To the point where you’re looking three derivatives in, it’s not just volatility curve, but the curve of the curve. As soon as I started grasping this and going deeper down that rabbit hole, the more I liked it as a puzzle.
Certainly the money had an appeal, but it was also, “Hey, here’s this giant competition. It’s like playing a huge, multifaceted chess game that no one’s going to get exactly right.” But like I said earlier, it’s about making hundreds of decisions a day. Even when you get 10 in a row that come up tails, you know that the next one is 50/50. That discipline was interesting. That was more about teaching yourself the psychology of standing there while everyone told you that you were wrong, or you were physically small, or you were too educated, or too serious. You can’t imagine how much of a fraternity house that place was. Everything in Wolf of Wall Street, I have seen. I haven’t lived, but I’ve seen it all.
I started hiring very shortly after I started trading. About a year later, I left and started my own company with almost nothing. I hired my first employee, who became my business partner for the last 25 years. I taught him what I’d learned. I hired people that I considered corporate refugees. People who worked for companies and decided that independence was better.
Tim Ferriss: Why did you leave after a year?
Nick Kokonas: He was moving over to the Chicago Board of Trade, and I had found a couple of awesome programmers to help build this options analysis software. He offered me up to run some of the operations at the Mercantile Exchange when he went over to trade the bonds at the Board of Trade. He was a really smart guy. He made me a deal that when you analyzed it very carefully, got worse over time. I just went, “You know, it’s been great and I’ve learned a ton. We’ve made each other a bunch of money. It’s a win/win.” But I really wanted to do my own thing. I wanted to be the captain of my own ship, I guess. Thankfully, this guy Jim Hanson, who is still one of my dearest friends, had an option to stay with that company or come with a completely underfunded company.
Thinking back, it was so stupid from a risk perspective. It was asymmetric. Far more upside than downside. It worked out really well. We spent most of our time as we hired people and taught them how to do this, it was mostly psychology training. It was mostly standing around after hours and saying, what’s 7 x 28? And screaming it at each other like a drill sergeant until the person couldn’t remember what 9 x 3 was anymore.
Tim Ferriss: Wait. Why did you do that?
Nick Kokonas: Well, you had to be quick on basic mental agility. So, if you bought 450 contracts and it was a 20 Delta, you needed to be able to do, what’s 20 percent of 450? It’s 90. But you need to do that precisely with numbers that are not so round. You need to be willing to not be perfect, and you need to make that decision instantaneously, and realizing that it could cost you $50,000 to $100,000 if you get it right or wrong. You have to be really comfortable with that. What did we do? Well, we stood around and we turned people’s brains into mush. I literally had people punch me, cry, run out. It sounds awful, but it’s amazing training, because the rest of the world moves much slower. So, any other decisions that I’ve made in business since then have felt glacial in pace.
Tim Ferriss: There’s also something to be said for making the training in some or all respects harder than the competition, right? The adage of the more you sweat during peacetime, the less you bleed during wartime. The best competitors I’ve met in many fields often strive to make their training and the toil of their preparation harder than what they expect to face when they actually –
Nick Kokonas: It’s why we like watching big-time sports. When it matters, there are certain people that you know – you can almost look at them and go, “That poor person is going to fade.” Then you hope they don’t. You hope all that training pays off. I love golf for all the same reasons. It’s just a series of constant failures. Then when you look at someone who can pull that rabbit out of the hat at exactly the right moment, it’s pretty wonderful to see. The thing I loved about my time down there, even though I burned out of it after 10 years, is that there were moments where I did – I have friends who will listen to this and they’ll be like, “Oh, yeah, I remember that time in the SOP pit! You really got this right.” But I made some completely stupid decisions. But mostly on the measure, when things go crazy, I was able to perform more than that.
I remember Greenspan’s “Irrational Exuberance” speech was like a formative moment where I went, “Wow, I can not only hang in this environment, I can thrive in it.” You get home soaking wet with sweat. It was a physical job. It was really blue-collar in a lot of ways. I got home that day and I was like, “That was what I prepped my last six years for.” It was very satisfying. It sounds like an awful – it is an awful thing in a way. It’s just about pure commerce. It serves a purpose of price discovery and all that, but any individual person isn’t really the one doing that. I think that there are negatives to the whole system as well, in hindsight. But man, at the time, it just felt like great mental training.
Tim Ferriss: What would you recommend to people who are listening and are having this flashback to the introductory text exchange about beating the market over a long period of time, who are hoping to become better investors? You can take that anywhere you want. But are there any particular tools, books, mental models, anything that you’d recommend?
Nick Kokonas: It’s really hard. I think the mental model is asymmetric risk. Always look for something that the upside is 3-4x the downside. Obviously, quantifying those is very difficult, but that’s the key. Everything is try to do is asymmetric. Then, even though Nassim Taleb is a bit of a pedantic goofball on Twitter, his book Fooled by Randomness is awesome. That was the one that preceded Black Swan. I think Black Swan is great; it’s fine. But Fooled by Randomness is, I think, the better of all his books because man, it just encapsulates everything. People price things incorrectly.
Tim Ferriss: It’s a great book, yeah.
Nick Kokonas: All you have to do is walk through a casino and you see everybody pricing their outcomes incorrectly. The entire city is built on that. If you could get in your head –
Tim Ferriss: Literally.
Nick Kokonas: Yeah, literally. I don’t take any pleasure. People are like, “You must love gambling,” or whatever. It’s like, I would never sit down to a blackjack table because I know that there’s a 49.5 percent chance that I’m going to win, and that’s the wrong way.
Tim Ferriss: Yeah. Fooled by Randomness has come up a number of times. I haven’t read it in ages, because it is one of his earlier books. Howard Marks also brought this up recently when I was chatting with him. It is an exceptional book I think for developing a new lens on life, not just investing. When you are investing for yourself now, how do you think about risk? Because this is a word that has popped up a few times. How do you personally think about risk in your life? For instance, some startup founders look at the risk as the various early-stage startups, restaurants, bars, and so on, that you’re involved with, and then you play it safe in your other asset allocation? How do you think about risk in your life or in investing?
Nick Kokonas: Yeah, that’s a pretty difficult question.
Tim Ferriss: It is, yeah.
Nick Kokonas: I think that if you look at everything that I’ve done business-wise, everybody would say that the failure rate is super high in what we do. So trading, they used to say, “One of a hundred people that goes down there breaks even their first year. Out of that one, take another hundred of those ones and less than one in a hundred of those becomes a millionaire.” I went, “Great.” It’s like the old Jim Carrey. “So you’re saying there’s a chance?” Then you go to the restaurant business. People are like, “Oh, yeah, 95 percent of all restaurants go out of business in their first two years.” I’m going, like, “Great. That’s perfect.”
Tim Ferriss: Why do you have that response?
Nick Kokonas: Then I’m doing a software startup now, too.
Tim Ferriss: Go for it.
Nick Kokonas: So, the higher, the smaller the hoop, the more interesting it is to figure it out. And once you’re up there and you know how to jump up through that little hoop, there’s fewer people playing that game. The other thing is, I remember right when I was going to start building Alinea with Grant, I was talking to a restaurant owner. By all accounts, he was pretty successful. He had four to five restaurants. One of them I really liked a lot, and we’d go there a lot. I got to know him a little bit. He said, “So what are you up to?” I said, “Actually, I’m building a restaurant now.” He looked at me and he said, “It’s a terrible business. You don’t want to do it. Incredible failure rate; terrible.” I was like, “Why did you build the next four?”
Tim Ferriss: How did he respond to that?
Nick Kokonas: You know, no one does. We’ll get to it, I’m sure, but that’s the way I was with the publishing thing. It’s like, “Hey man, people keep printing books, and yet I can’t figure out any of the information. And yet they’re going to give me $300,000 or $400,000 to write a book. Something is remiss here.” You know what I mean? I’ve never written a book before, but yet someone is going to write me a $400,000 check. There must be a lot of money on the other side of that bet. And so, consequently, I always try to look for the high, small hoops. Then I spend my time learning as much as I can, and then I jump through that hoop. It’s both more interesting, I think, and I also think getting back to the asymmetry of risk, those are the ones that yeah, you might have a – well, first of all, do you really have a 95 percent failure rate if you put in all that effort? I don’t think so.
Second of all, I think they priced it wrong, so to speak. Then second of all, man, that’s where the fun is. That gets you up in the morning and going to work.
Tim Ferriss: This is where, among many other places, averages can be very misleading. I always end up in public Q&As and things of this type hearing various numbers and stats thrown around, many of which I think have no basis on any data whatsoever. There is, “We only use 10 percent of our brains.” Not true. There is the “Nine out of 10 startups fail within the first year,” or whatever the stat is. The first question that occurs to me with a number like the latter, or I guess a ratio is, “Is it because the model is difficult?” Is it because startups are inherently that high risk, or are there other plausible explanations? Is it that nine out of 10 people who attempt to start a startup don’t do any of the necessary due diligence?
Nick Kokonas: I’ve been on a couple of graduate school, entrepreneurship contests and whatnot. One of the things that always happens there is what I call the time machine. Somebody comes up with a business plan that is like, “I’m going to build a time machine.” Now of course, it’s not really a time machine. But I have seen ones that defy the laws of physics, for example. Or new pipeline technology, but they have no idea. It’s just a pipe dream. They’ve done none of the engineering. So you look at that and you go, “You haven’t really done the homework yet, at all.” Then there’s a lot of people who come to me and they’ve spent six months doing their logo and the name of the company, but they don’t actually have a piece of software yet. “Oh, I’m just going to hire someone to build that for me.”
Or an app. I get so many apps pitched to me. They don’t know how to build an app, but they’ve got a logo and an idea. I was like, “That’s a good way to blow a half million dollars on a consultant.” You must get that 50 times worse than I do.
Tim Ferriss: What I tend to get, and this is part of the reason why I stopped all the startup stuff a couple years ago, is it got to the point where 90 percent of the pitches I received – which were unsolicited – would be along the lines of “Hi,” like not even a first name. Or it would be like, “Hi, Tim,” or, “Hey, Tim!” Even better. “I’m the CEO or co-founder of X. We are raising this at this valuation. We are oversubscribed, but we could squeeze you in for 25k if you’re really interested because we admire ABC. Here are the docs attached. Let us know if you’re interested in the next 60 minutes.” Which my default response to anything like that, where people are pressuring me for a fast decision, is “No.” I’ve lost very little money saying no to those things.
Coming back to the examples that you were giving and what we were talking about, bridging over to restaurants and food. So you’re being told how restaurants are an awful business; food is an awful business. I remember someone told me a long, long time ago, “If you want to lose money, go into magazines or restaurants.” At what point – and I have a little bit of the backstory, but not all the details – at what point do you decide to go into or get involved with restaurants, and why?
Nick Kokonas: I left trading in about 2002. 2001 was a tough year between 9/11, which my father had died in February of that year. I was burnt out after going really hard for so long. We’d built up a pretty good size company. I’d merged with a firm in New York. I needed a break, but didn’t know how to really take one at the time. So I left trading. I immediately panicked, because here was something I really, genuinely enjoyed. But I didn’t know what I wanted to do next. I started doing consulting for a small hedge fund. Then I just didn’t know what to do. I had an awesome wife and a young son, and things were good. But I was panicked. I was playing golf with ex-athletes, because who else is 34 years old and can play golf on a Wednesday afternoon? It was just a weird thing. I looked at them and they didn’t seem all that happy, even though they’ve got this lifestyle.
I met Grant Achatz, the chef, while dining at Trio. I went to a lunch there afternoon that some friends set up. It was a transformative experience. It was artistic. It was intellectual. It was thought-provoking. Most of all, it was emotional. Those are all things that I would never have associated with eating a dinner. From a perspective of great art experiences, like seeing a great movie or a great play, or going to an amazing museum opening, we kept getting drawn back there. We kept going back. We would go back so frequently that it was absurd. Because it was a big meal and it wasn’t cheap. Every time we’d go somewhere else, we’d go like, “Wow, why is no one else thinking this way?”
As I got to know Grant a little bit, I think sometimes people bring the chef some wine or beer or whatever. That’s kind of sand to the beach. I would bring him books. I didn’t figure he had a lot of time to read. I would put a Post-it note on a page of an old book. I remember I brought him this book called The Peregrinations of an Epicure.
Tim Ferriss: Hold on a second. The Peregrinations – like a Peregrine falcon? I don’t even know what that is.
Nick Kokonas: No, no, a peregrination is like a wondering about. So, it was written just after World War II by an ex-serviceman. He goes around Paris, I want to say maybe late ‘40s, early ‘50s. I can’t recall exactly. There is a chapter in there on La Pyramide, the best in the world at the time. He described a meal there in emotional terms that resonated with what Grant was doing, even though his technique, his cuisine, everything was completely different. I would literally highlight a couple lines in there and give him this book, which was out of print at the time. We developed this email relationship back and forth, where he would try out some new food on us, and I would give direct, honest feedback. But not, “Oh, it was delicious!” It was more like, “You’re going for a provocation there.” We would go back and forth.
He wrote at the time on a forum called eGullet. I went on there and his spelling and grammar notwithstanding, it was like reading someone who’s really thinking hard about what they’re doing. Everything we just talked about, here was this young, 28-year-old chef from Michigan who looked like Captain America. He was like Hollywood in the sense that he was good-looking and very driven, very clean-cut. But he didn’t look like the stereotype, central casting of a chef, chubby gregarious guy. He was really quiet and introspective, shy. But then you read these, which are still up. You can still Google it. He’d go on for like four pages about bread service. Like, “What’s the point of bread?” This is a guy that I could wrap my head around.
I remember on January 20, 2004, my wife’s birthday. She said, “Yeah, I want to go back there.” We’d never been in the kitchen before. They have a table in there, but we’d never eaten in there. I remember I emailed him and said, “She’s ethnically Latvian, speaks Japanese, and loves Thai food. Good fucking luck.” I knew exactly what that would do to him. That would put him into 10 days of pure hell, because he would research Latvian food. He would redo a whole menu. 20 courses, right? I didn’t know they were going to put us in the kitchen. They put us in the kitchen. It sounds like a jerky thing to do now, but we did have a relationship a little bit at the time.
He served us the most amazing meal of my life. It started out with Latvian sorrel soup with braised ham hocks. It had flavors of the sea, which was a Japanese dish. It had Thai dishes, but it was all in his style. So, it was his own, and yet it had elements of all these things. At the end of that meal, he said to me, “What do you think?” I had watched the kitchen. It was like a watchmaker’s shop. It was not screaming and yelling.
Tim Ferriss: Sorry to interrupt. It is so unlike anything that the vast majority of people listening to this would possibly expect, right?
Nick Kokonas: It’s not Gordon Ramsay.
Tim Ferriss: It is complete silence. It is like a watchmaking factory. It is really something else. Anyway, sorry to jump in.
Nick Kokonas: No, no, that’s totally fine. At the end, I said, “I doubt anybody anywhere in the world had a better meal tonight.” He was like, “Well, thank you.” I was like, “What do you plan on doing with yourself?” I’d had a lot of wine. I looked at him; he sat down with us. I said, “What are you going to do?” He’s like, “What do you mean?” I said, “Well, you’re not going to be here forever.” He said, “Well, I want to build my own restaurant.” I said, “I’d be happy to help you do that.” He said, “Well, what kind of restaurant do you want to build?” I said, “I don’t know, I’ve never built a restaurant before.” That was it. Then like a week later, I got an email with his business plan. I invited him by my house. And a year to the day later of that, that was May 4th. We went back and forth on email. On May 4th, we held a dinner at my house for potential investors. On May 4, 2005, we opened Alinea.
Tim Ferriss: That is nuts. In terms of –
Nick Kokonas: Completely nuts. We didn’t even know each other.
Tim Ferriss: I mean, can you put that in perspective for people? I actually did not realize that was the timeframe.
Nick Kokonas: Yeah.
Tim Ferriss: Can you, just in the context of normal restaurant world?
Nick Kokonas: We argued. We didn’t really know each other very well, but he would come by my house and he didn’t –
Tim Ferriss: Let me interject for a second, because you’ve said “We didn’t know each other very well.” What did you know about each other, nonetheless, that gave you guys the push, the impulse, and the sufficient level of trust/excitement to actually pursue it? There had to be something there. It couldn’t just be nothing. So what was it? You didn’t know each other well. I mean, maybe you didn’t know the full scope of each other’s backgrounds.
Nick Kokonas: I actually studied that. That I actually knew. I knew the facts. I knew what he was putting in front of me. But I didn’t know him the way you’d know someone that you were going to become a business partner with. I think he just thought I was rich. I’m being serious. Like I think everyone else wanted – this is really true because he has said this to me. Everyone else wanted to offer him a restaurant that they had already built or wanted to build. I actually answered that question correctly. The “I don’t know” is an awesome thing to say 90 percent of the time of your life. When he said, “What kind of restaurant do you want to build,” I could have waxed on about some dream I had or just made some bullshit up at the time, but I just said, “I have no idea. That’s a big question. We need to sort that out.”
I think that was the right answer for him. I think that’s all he needed to know was, “Okay, the guy’s got an open mind. He seems to have done well in business. He knows apparently how to build something.” What was really funny was the stuff that I was concerned about, which was like architecture, design, plumbing, building, lease, all of that, he was like, the word “oblivious” is not too strong a word. This is not a criticism of him either, right? It’s just like he came to my house and was like, “Yeah, I want Martin to design everything.” Martin Kastner, who is a genius designer, has Crucial Detail, which we’ve been involved with for 15 years now. He’s a designer. He’s an artisan. He built plateware and he won the Bocuse d’Or for the platter he designed from Thomas Keller and Daniel Boulud’s team for Team USA and all that. But back then, this guy’s not going to design plumbing or electrical.
I would just look at this guy and go, “No, he can’t. We need an architect and you need to get city stamps and all that.” I think Grant was just like, “Yeah, you find a place, you put tables in it, you build a kitchen, and you go.” In terms of – obviously he knew there were health inspectors and all that. But the process of all this just about – either we’re not going to build it ever eight weeks in because we would’ve hated each other, or we were the kind of people that figured everything out. We just talked it out. Right down to what kind of tables. What kind of glassware. What kind of this. We wanted to rethink the why again of everything. “Why do you put a candle on a table? Why is a candle romantic?” That’s a question we asked. “Why do we need candles? Why is that romantic? Why do people put a little bud vase on the table? Why shouldn’t that be an edible thing? That’d be cool.”
So, we did all of that. We designed the experience to create emotional responses from the moment that you walked in the front door. We didn’t have the podium. We went, “What does a good greeting feel like?” Not just “If you’re at someone’s house, what does that feel like? If you’re at a restaurant, what shouldn’t it feel like?” Well, it shouldn’t feel like a computer in front of your face saying, “What’s your name?” and all of that. We went through every aspect of that. I lost almost 20 pounds that year. Not in a healthy way. Just GCing the construction. I laid tile in the basement like three days before we opened.
Tim Ferriss: Let me pause for one second. So the why question that comes to mind for me is, after the finance, after battling it out on the front lines and going through 2001, why this as your next thing? Why is this the thing that captured your imagination? You had to know on some level, once you started getting into the details, like, “Fuck, this is going to be” –
Nick Kokonas: It’s all in, yeah.
Tim Ferriss: “This is going to be all my chips, energetically.” So why this?
Nick Kokonas: You know, there are occasional times when you wake up in the morning and that thought comes back to you. That like, “Hey, I’m really sucked into this.” For about three or four months, without telling anybody, even Dagmara, not telling her, telling no one, I kept going, “I should build a restaurant with this guy. Like, it would be the best restaurant in the world if it was done all the way.” I recognized my inner voice saying, “That’s a really dumb idea. You don’t know what you’re doing.” I’d never worked a day in my life in a restaurant. I also recognized, and this is also critical, I recognized that so many people built their living room after they made some money. They went, “Oh, I know how to host a good dinner party. I know good wine, so I’m going to build me a restaurant.” Then they sit there like it’s their living room. That’s not good.
I didn’t want to be that deucy guy that built a restaurant because my ego needed to host a party. Whenever I would later on broach that subject and people would say, “well…” and I could almost hear their brain whispering, “Well, of course that’s what he’s going to do.” That was, again, not the best of motivations in the world, perhaps, but the honest one. That was hugely motivating eventually. When we first started, it was this nagging thing like I’d wake up in the morning and I’d go, “You know, I’m not really into what I’m doing right now. I’ve just met somebody who’s the best in the world at what they do, and no one knows it yet.” That’s probably happened to me – I’m really fortunate, but that’s probably happened to me seven or eight times in my life.
When it happens and I meet that person, whoever it might be, no matter what they’re doing, I pause. I kind of acknowledge that directly. Then I just go like, “Can we grab a glass of wine or coffee or something?” That’s something worth marking and going, “Wow, this person’s really invested in something.” Grant had every aspect of being that at 28 years old. In hindsight, it looks smart, but I’ve got to tell you, it was years before it felt smart.
Tim Ferriss: You mentioned just now that you’ve met these people seven or eight times who are the best in the world or potentially the best in the world.
Nick Kokonas: Well, among them, yeah.
Tim Ferriss: Among them. But the key point that jumps out for me is: “…and the world didn’t know it yet.” So my question for you is, that sort of brings to the forefront in my mind at least, the question of, “What is Nick seeing or feeling that other people are not?” Could you talk to that? Is there a feeling or a particular type of observation, a particular type of detail that you notice in these people that allows you to scout the talent where other people might miss it or not pay enough attention to it?
Nick Kokonas: I think you’ve written a couple books about that. It’s definitely intangible. I think it’s different in every case. It’s interesting because you can tell when someone is fully committed, I guess, to their craft, or their art, or their business, or whatever it is that they’re doing, their sport. It’s not be they talk about it all the time, although if you push a little, they’re happy to do so. But it’s more like if you look around, the vast majority of people are not fully committed to whatever, you know? I think part of what you do is you try to steer people to find those things that they can commit to. Or you can try to lower a barrier to show them the commitment is not as hard as you think in this particular area, right?
Tim Ferriss: Right.
Nick Kokonas: But these folks are all in. They’re 99 percent in. That’s what they do. Often to the detriment, frankly, of other aspects of their lives. I guess you get better at noticing them. Now I live for that. I love meeting people that even if it’s not something I’m interested in, that are all in. That’s an interesting – really, I’ve never really thought about it that way. It was just very clear to me that Grant was all in. Here’s the thing. If he wasn’t going to do it with me, he was still going to do it. I was a helper. Over time, I certainly contributed a great deal to it. He contributed a great deal to the business, and I also contributed to the art, but that took time. But I could tell that he was all in. That was fun. It’s fun to work with somebody who is basically like, “Okay, man, if you’re not in, get out of the way, because I’m still going.”
Tim Ferriss: For anyone who has the opportunity, I don’t even know if they would have the opportunity, but to watch, observe Grant for even 60 seconds.
Nick Kokonas: Well, Chef’s Table on Netflix is great.
Tim Ferriss: Yeah, Chef’s Table. Great, perfect. Everybody should have the experience of observing Grant working and focusing. I’ve met a lot of people who are good at focusing who have abnormal focusing abilities. Spending the time that we did together in Chicago, and the time that I had to observe Grant, it is a next level of focus. It’s really hard to encapsulate in words. So, Chef’s Table, fantastic. People should check it out, and just watch the level of focus that permeates the appearance, the air, the atmosphere. It’s really something else. To that point, focus. One of my favorite aspects of speaking with you and having conversations is the questions that you raised. Candles. Not just, “Should we have candles?” That’s maybe a good question, but it’s probably not the right first question. Why do restaurants use candles in the first place? Furthermore, why are candles considered romantic? Stepping back.
Nick Kokonas: Basic stuff, yeah.
Tim Ferriss: What are other questions that you asked related to Alinea? Or you could certainly bridge to other, I think it makes sense to chat about Aviary as well. But what are some other questions that you guys asked that people might not think to ask?
Nick Kokonas: Grant set the tone for that in our first meeting, not really knowing me. We started talking. We didn’t even know where to start, right? He said, “Well, I know one thing. I want to have wooden tables. I want to have bare wood tables.” I said, “Why?” He said, “Well why do fancy restaurants have white tablecloths? They literally call it a white tablecloth restaurant if it’s fancy. Why?” I couldn’t really – I came up with dumb answers. “It feels good. It absorbs a spill,” or whatever it may be. He said, “No, it’s because the table underneath is a piece of shit.” He goes, “And you know that. As soon as you say it, everyone goes, ‘Oh, yeah, I knew that.’ You’ve been at weddings and stuff where you feel under the table and you’re like, ‘Oh, it’s plywood.’ But if you go to a really fancy restaurant and you feel under the table, guess what? Also plywood, just a little thicker.”
He’s like, “When you rest your arms on the table, even if it doesn’t come forefront in your mind, you subconsciously know that they’re fooling you.” He’s like, “Why can’t we have black, beautiful tables? It’ll show the food great. It’ll show the plateware great.” Then I went like, “Well, yeah, but the health department in Chicago doesn’t let you put silverware right on the table.” If you put a glass there, the condensation will form a little ring, and then you have a wear issue. But you’ll save $70,000 a year in laundering linens. We started going, “Well how do we solve the water problem? Well, you create a fridge that’s just above the dew point, 44 degrees in the winter, maybe a little warmer in the summer because it’s higher humidity in Chicago, and you just get rid of ice.”
You have these cascading decisions that become part of the art of the place. Some of them start from a really practical thing like, “Hey, we want to have a quality table.” Then all of a sudden you need a little pillow that the silverware goes on that Martin designed, because we didn’t want to have placemats; that’s too cheap. All of a sudden, we had to design a silverware holder. It just became this cascade of interesting little art projects that were there for good reasons, and really created a unique atmosphere. It was one of those things like we never tested until the day we opened. You couldn’t test those things. The very first guy through the door is now a famous chef, Chef Sean Brock of Husk.
Tim Ferriss: Yeah, he’s fantastic.
Nick Kokonas: He was not yet a chef then, 2005. He was the first guy through the door. He wrote this giant blog post on eGullet with pictures and everything. You can go see it. Every single thing that we hoped would create an emotional trigger, an emotional reaction, it’s almost all there. I remember going home and seeing that the next day and going, “Wow. That shit actually worked!” Right down to the front hallway that was a reverse perspective, stolen from Chartres Cathedral and inverted. All of my interest in architecture, and art, and science, and all of Grant’s food, and all that, all came together in a year-long conversation on how to do something.
We really fought with the architect and designers and all that because people would tell us the practical reasons why you needed to do this or that. We would just go no, no host stand. We wanted to greet people in an open way. Just little things like that. Then we’ve taken that on through everything that we’ve done, where we took six or seven years to build our next place because we didn’t have that idea that kept us up at night again. When we did, then we did it. I think editing yourself and each other in an open way is really painful, but really important.
Tim Ferriss: Coming back to something you mentioned related to the living room. The well-off, who then creates say an art project that is not – it may be beautiful, but is most often not a viable business. How did you apply those questions, and rethink the business model to make any of this work financially?
Nick Kokonas: You don’t want to be a dilettante, right? And so, my biggest fear is that it would work in an artistic way, but wouldn’t work as a business. So, the answer is, at the beginning, I didn’t do much. I handled all of our marketing and PR. I wrote everything myself. I really thought about open-sourcing the building of the restaurant. You can still go online and see the original business plans and logos we were considering using, and the test kitchen, which was in my house. We didn’t tell anyone at the time, but that was my house at the time. And see the development of this restaurant.
I felt like the open-source movement in that way was a good model for what we were trying to accomplish. Part of that was people would say a restaurant like this can’t make money. I wrote this little spreadsheet that I called the Universal Restaurant Calculator.
Tim Ferriss: Can people find that online?
Nick Kokonas: No, no, no. It would be very unimpressive if they could. But it was basically how many covers per night – this is back-of-the-envelope stuff – how many covers per night can you do? What’s the check average for food? Check average for beverage? What are your food costs, beverage costs, labor costs? What does insurance cost? Your lease, your rent? All those things. I had enough experience with most of those things to at least give good estimates to it. So what I started doing is I started modeling other restaurants using the Universal Restaurant Calculator. I had, again, this goes to the transparency of data. I had real data for only two restaurants. From those two, I would then make assumptions about restaurants like The French Laundry, where Grant used to work, one of the greatest restaurants in the history of America, certainly.
I came up with a number that Grant went, “There’s no way their revenue is that high or they make that much money. That’s impossible.” It’s really funny because years later, I now work with Chef Keller, and he’s a friend all these years later. I literally pulled that out with Grant one day being there and went like, “How close am I back on this in 2005?” He’s like, “Oh, you were within 2 or 3 percent. Grant was just like – we’re talking about back-of-the-envelope stuff. So you asked where can people start to start a business? Start on the back of an envelope. One of my favorite exercises is to sit in a restaurant or a small business of some sort and just literally do the back of the envelope.
It was the kind of the calculation my dad called the two-shoebox method; put me through college. Money coming in one shoebox, money going out in the other. Whatever’s left is profit. Start that basic. We did that. I didn’t really think about the – we did well, but we didn’t make a ton of money. Alinea cost $2.2 million to build. I put up a little over a quarter of that myself and found investors for the rest, all of whom I knew. In the first year, we made about $450,000 to $500,000 on $4 or $5 million in sales. Not a great return. Not a terrible return. We then won Best Restaurant in America from Gourmet magazine. I was horrified that we won that, frankly.
I remember Grant called me and said, “I just got a call from Ruth Reichl.” We had some stated goals of how we would know if this was a success. One of the things we wrote down was, “Ruth Reichl declares it the best restaurant in America.” We wrote that because in 1997, she wrote, “The most exciting place to eat in America is The French Laundry.” Grant was there and cooked that meal and said that the energy of having someone he respected so much — because Ruth is just a great writer; she is one of the unimpeachable food critics in the history of America — having her write that in The New York Times propelled that restaurant to its permanent status. I think that can’t happen nowadays, honestly, for other reasons. This was pre-internet, pre-Yelp, all that.
Then all of a sudden, we got that and I was horrified, because one of our goals was completed so early. We wouldn’t have our lodestar. He was like, “Dear God, can you let me enjoy it for like a minute?”
Tim Ferriss: To you?
Nick Kokonas: Yeah, yeah. He was mad at me. I was like, “That’s terrible!” I was happy. But I was also like, “Oh, no, now what do we do? We need to find another artificial construct here to go after.”
Tim Ferriss: Enough of this. I need to find happiness. Get this other happiness out of my face.
Nick Kokonas: Yeah, for sure. Yeah, no. I really do believe that it’s often the process is so rewarding that when you get something done, it can be a letdown. I wanted that process to go. Then, unfortunately, six months later, Grant was diagnosed with stage IV cancer and given six months to live. So weirdly, that was the moment that after he was going through treatment, where I started going into the restaurant at night. Because, remember, I’m not a service professional. I was running the business of the restaurant. I would start going in at night and start asking really dumb questions again. Weirdly, our goal was to keep Alinea open for when he came back. Mind you, he only missed 12 days, 14 days of service during really intense chemo and radiation. But he was given six months to live.
When people are in that situation and their livelihood is tied to this restaurant, even despite their loyalties, oftentimes they just need to find another job. Because they’re like, hey, in four months, this place is going to be closed. And in the midst of that, we decided to do our first book, really to chronicle what he had accomplished. Because for him, he felt like that would be his legacy. He thought he was going to die. He was told he was going to die. In the midst of creating a self-created, self-published book, and trying to do that differently, and then keeping a dwindling staff motivated, trying to let him know that it would still be there when he got well, all of that, I started going, “This place is run in strange ways, man. This industry is not run right.”
I started asking basic questions. Like, “If we have a wait list for 100 people on a Wednesday, why do we do 74 people on a Wednesday, but 86 on a Saturday?” And the answer was because our incentives were misaligned. The service industry as a whole can’t run at 100% every single day of the week, unless they’re incentivized to do so. You could go like, “Well, yeah, every server there will make an extra $100 a night or whatever.” But they’re going, “Look, if every night was Saturday, I’d be dead. It’s really hard work. You need to figure out ways of load-balancing that and making every day the same. You end up way ahead.” So from a business perspective, that’s when my sort of self-education in this industry came forward. It came forward in a way that I think I was less patient with everything because we were also going through this really difficult, emotional time.
Consequently, when I didn’t get answers that made any sense, instead of being diplomatic about it, I would just be like, “Well, that’s stupid.” Which cut some of the normal social filter off, and I’m sure it wasn’t a pleasant time to be around anybody. But I also think it was accepted within that environment at that time, because everyone knew what we were going through. And so, years later, when we finally were like, “Hey, we’ve got some ideas to build Next and the Aviary,” that’s when I went, “Well, we’re going to do things totally differently here. Anyone who’s not on board, even though they work for us, if you’re not on board all the way in on getting rid of normal reservations and not using telephones and doing all these things, we don’t have a place for you here.” Man, it really worked.
That was the basis of – I talked to every software company in the industry asking for their APIs, asking to build essentially what’s options pricing software on top of reservations systems. OpenTable told me no. The POS systems told me no. I called theaters and went, what ticketing system do you use? All of those told me no. I hired a single programmer, and he and I in six weeks built a really rudimentary booking system. But the first day we turned it on, we sold $562,000 of tickets to our restaurant for the first time ever.
Tim Ferriss: Okay, so pause here for a second.
Nick Kokonas: I know, we’re way ahead.
Tim Ferriss: No, no. This is great. A few things for folks who are not familiar. API – application programming interface – it’s how you can effectively link into someone else’s software. POS – point of sale, not piece of shit.
Nick Kokonas: Ah, but it is a piece of shit.
Tim Ferriss: It may also be a piece of shit. What were the design specs that you were looking for? In other words, before you get to the $500,000+ with a snap of the fingers, what were you trying to fix or what were you trying to create?
Nick Kokonas: I get a lot of grief for saying this in the industry and in the press. But basically, whenever you make a restaurant reservation, one of the two of you talking is lying to each other. If you think about it, no other form, no other industry form of entertainment, which dining out is a form of entertainment. I know it’s sustenance. I know there’s so much culture embedded in it and all that, but you could eat at home. No other form of entertainment you just call them up and say, “Hey, hold a seat to the Bears game or the Cubs game, or the opera, and I’ll show up around 7:30.” Then they tell you, “Yeah, yeah, we’ll have a seat ready for you at 7:30.” Then when you get there, they go, “Oh, you know what? Go wait over there for 30 or 40 minutes, because we’re running a little behind tonight.”
The reason that they’re running behind is because they overbooked because about 15 to 18 percent of people don’t show up. So, they overbook. They also know that if they tell you that they’ll really seat you at 9:00 and you wanted an 8:15, you’ll just go to the restaurant down the street from them that will lie to them, right?
Tim Ferriss: Right.
Nick Kokonas: So they do that and ultimately it’s just bad all around. It’s bad for the restaurant. It’s wasteful for food. And it’s bad hospitality. There are so many pop culture references and entire sitcom episodes built around someone trying to get into a restaurant. It’s absurd. It’s completely absurd. I looked at our no-show rate at Alinea, data-driven, tracked it. I looked at what we call short-seated tables, like the number of tables that were four people, but only two showed up. The dirty secret there is like, people will go like, “Well, what do you have available?” “Well, I have an 8:30 for four.” “Okay, we’ll take that.” They never intended to bring the other two people. That’s just as bad as a two-top no showing. We only have 74 seats in there, so it’s a yield management problem.
So, 5 to 8 percent of our revenue every night was being lost to that transaction. That was a non-transaction. So I wanted to figure out ways to do two things. One, I wanted to figure out a way to make it transactional. Because, again, you asked about Professor Thaler. One of the key tenets is, there’s a little bit of skin in the game, right? When people have a small vested interest in the outcome of something, or even if I gave you a pencil as a gift, and then 30 minutes later I want to take it back, you will get so mad, even though you didn’t care about that pencil. You’re like, “What was that? Dude gave me a gift, and now he’s pulling it back,” you know?
Tim Ferriss: It’s like the expected value of a mug. If you asked them how much they would spend to buy the mug versus giving them the mug and saying, “How much will you accept to sell it?” The differential.
Nick Kokonas: Yeah, it’s huge. So, that came to me one day because my kids wanted to go see a movie at night that I did not want to go see. I would’ve easily paid $50 to not go to this movie. Then my wife basically says, “Hey, let’s go to that movie. I go on Fandango. I buy four tickets. $60, whatever it was. At 5:30 at night, pouring rain, and everyone’s napping. They’re like, “Yeah, I don’t want to go.” I’m like, “Get your asses in the car, we’re going to the movie, man!” Now I would have easily paid that $60 to not go to the movie, but once I had the sunk cost of paying for the movie, my psychology totally flipped. I was like, “We’re going to this movie that I don’t want to go to.” I literally irrationally made everyone go to the movie. Which weirdly cost, from an emotional family standpoint, all bad all the way around, right?
So I thought about it and I was like, “Wow, what if people put down a small deposit on times when demand exceeds supply? So like a Saturday night, 8:00, that’s the best seats at the opera house. Let’s see if people will pre-pay for that or put down $20 for it. That’s fully credited at the end of their meal. It’s not a cover charge. I’m not trying to squeeze people on the actual cost of the meal. I’m just trying to go like, “Yeah, let’s see if people will make a commitment.” Everybody told me, “No, no one’s going to do that. This is not the way it works.” But if you look back historically, this is the interesting part. Again, it’s about digging in deep on something.
If you look back historically, restaurant reservations started with the telephone. At the time that we were starting to do this, the telephone was dying. I didn’t know that at the time. That was eight years ago. But I have a computer in my pocket. If you ring me and I don’t know your number, I don’t want to talk to you. I don’t answer it. I’d much rather receive a little piece of text letting me know what’s going on than a phone call. Similarly, like calling a restaurant is an antiquated thing to do at this point. But long before the telephone, people got room and board. What room and board was literally, you go to an inn and you get a room for the night. Then, do you need food? Okay, well, you get a board of food. That was literally it. And you’d prepay for it. There were hundreds of years of that long before there was a telephone and people called and said, “I’d like to eat at your restaurant.” “Sure, we’ll let you in.”
As the technology for the telephone has morphed into what we all have in our pockets now, I just wanted to update that whole transaction. I also wanted to acknowledge that Tuesday nights should be cheaper than a Saturday night. It has to work both ways. I always thought Uber could fix their surge pricing issues by having discounted pricing when there was no demand. Just move pricing intelligently without directions. If you move pricing in two directions, that whole argument goes away. So, we did that. We priced out different prices by day of the week and times of day. So 5:00 p.m. on Wednesday at Alinea is still cheaper than 8:00 p.m. on a Saturday. By a lot. By $80 to $100 a person. You know what happens?
We have hundreds of restaurants doing this on our software called Tock. What happens is people buy the most expensive seats first, and the cheapest seats first. Which is exactly what you’d expect, actually. Because some people are price conscious and go like, “Wow, this is a really expensive meal, but holy cow, I don’t really care if I eat at 5:00 on Tuesday. Great. I can save $400.” Then there’s some people that go, “I only eat at 8:00 p.m. on Saturday.” Okay, that’s fine. Pay a little more.
Tim Ferriss: Or they’re attracted to the fact that it is the most expensive.
Nick Kokonas: Sure. That happens too. Then there’s a whole bunch of tools that over time can be built on top of that to sell wine pairings or sell books. We sell 20 Alinea books a day on checkout with the booking process. That’s a ton. Because we’re not going to exit through the gift shop at Alinea. It’s a Michelin three-star restaurant. So we would subtly have one book near the restrooms that people could peruse, but it didn’t say, “Buy the book” or anything like that. So typically, we’d sell one or two per night. Now on checkout, when you book Alinea, it says, “Would you like to buy an Alinea book, personalized?” 20 people a night get it. That’s $400,000 in revenue a year. It’s crazy, right?
Tim Ferriss: That’s incredible.
Nick Kokonas: It’s amazing to me that no one did that beforehand. Because ultimately, people can’t buy what they don’t see. People don’t want to be upsold inside of a restaurant. There’s nothing worse in my mind – some places, today’s special is today’s special and it’s real and you know that. But sometimes, it’s just the old fish.
Tim Ferriss: Right. Sunday night.
Nick Kokonas: Yeah, right. We all know these things. I think no restaurant wants to raise their hand and go, “Yup, that’s all true. We were lying to our customers, and we are not really going to seat you at 8:15.” I think when I said that, you can look back through some articles. I remember that there was an article, I think it was in GQ, that they interviewed a grizzled veteran – he didn’t use his name – he said, “An overbook and a bar to wait in has always worked for me.” I was just like, “How does that not sound like terrible hospitality to everyone reading that?”
Tim Ferriss: Yeah, for sure. There are so many systems that have similar overbooking, load-balancing issues, right? You look at airlines, you look at hospitality.
Nick Kokonas: My dentist.
Tim Ferriss: Yeah.
Nick Kokonas: I have a great dentist. They only do it via phone call or email. So I have to play a guessing game. It’s like going into a clothing store and going, “Yeah, I’m looking for a blue, V-neck, cashmere sweater.” They’re like, “No, don’t have one; guess again.” It’s like, “Put the shit on display, man. Just tell me what day you can clean my teeth. Show me and I’ll just go online and hit the button.”
Tim Ferriss: When you then debuted the ticketing option, if I’m labeling it properly, how did you prime the pump for that? Did you need to prime the pump to have what certainly seems like a windfall?
Nick Kokonas: We did a video where Next restaurant was about a restaurant that’s always new, essentially. What’s one of the big problems of the restaurant industry? Well, when you open a new restaurant, it doesn’t matter what it is, people are going to show up for like five or six months. Then after that, you’ve got to struggle to get regulars and find new audiences and all that. But people like the “new,” right? The other problem is that our own staff and chefs were the kind of people who I said to Grant one time, he cooked this amazing French dish at Alinea for me right in the middle of his sickness, because I had driven down from Michigan. I have never eaten before or after in the Alinea kitchen, but he whipped up this little French dish for me of duck. I was like, “Man, let’s open a French restaurant some day.” He went, “Eh, we’ll get bored after six months.”
Then I was at one of our chef’s homes on a day off on a Tuesday. He loves Thai food. He made this amazing Thai meal. Amazing. I was like, “Wow, I had no idea these guys were so versatile.” Then it made sense. Hey, these are passionate, amazingly talented people. It dawned on me, “Let’s just change the restaurant every four months.” Then we dwelled on that for like a year, thinking it was impossible to do. Then Grant said – I said, “Let’s start with a French menu.” He’s like, “Well, what does that mean? There’s southern France, there’s Loire Valley. There’s France that’s nouvelle cuisine. Then there’s France from 100 years ago. Totally different.” I was like, “Yeah, Paris 1906. I don’t need to explain to you what that is. You’d want to eat that.”
If someone said, “New restaurant opening, what’s the menu? It’s Paris 1906.” I’d go like, “Cool, I want to do a little time travel and see what that was like.” So, as soon as we had a city and a time, we instantly knew. That was the idea that kept us up at night. Where we went like, “Wow, look at all these different places we can travel, and what does that restaurant look like and how do you create a kitchen versatile enough to make all these different cuisines? How do you make it not feel like Disneyland, where one time you have a theme of Paris, and the next time you have a theme of Japan?” So you have to do with an austere minimalism.
Tim Ferriss: Is there a reason why you chose the year 1906?
Nick Kokonas: I’m doing some research, and I may get the exact date wrong, because this is eight years ago that I did the research, but I believe the Seine flooded in 1908. Somewhere around there. And so Escoffier, the father of French cuisine, was at the Ritz then. That was the height of that era of cuisine. Then after the Seine flooded, that’s where you got your brasseries and bistros, because they had to go to a more casual; it opened up for more people. It took the price point down. It made it more approachable. And it wiped out dozens of these fancy restaurants. Rent got cheap and all of a sudden, “Hey, we’re going to get this new style of restaurant.” That’s roughly, as I recall it. Somebody’s going to listen to this and tell me I’m all wrong. That’s where we landed, because we do this Escoffier menu. Boy, we argued about that too. They didn’t have blenders then, electric blenders.
Tim Ferriss: So, you wanted to mimic the production?
Nick Kokonas: I did. Grant did not. I remember we had invited the press to a practice dinner.
Tim Ferriss: Grant’s like, “Hey, pal. You don’t have to make the food.”
Nick Kokonas: Well, partly that. But partly he was like, “Should we make it intentionally worse than we can?” Because the recipes were really vague. They didn’t even call for salt. So in the middle of this press dinner where we had The New York Times there, we had all sorts of these people there, which I’ll never do again. That was a genuine error. We were still arguing out conceptually what this thing would be. Then we serve dinner, and we were openly – he’d come out of the kitchen and we’d openly argue about it.
Tim Ferriss: This is at the press dinner?
Nick Kokonas: Yeah, yeah, yeah. I remember he brought the soup out and I was like, “Oh, they must have used the actual blenders, right?” Modern blenders. Because the mouthfeel was perfect. I was like, “Oh, you used the blenders?” He was like, “The recipe didn’t call for salt either, did it? Should I have not used that and had it taste like shit?” Then I was like, “Well, maybe you don’t know that they didn’t have refrigeration then either and they packed the vegetables in salt as a desiccant, so they were almost all pre-salted by the time they got to Paris.” And that was it. People were just like, “These guys don’t like each other at all.” That was our method. That’s what we did. To the day we opened, we had those arguments. Then in terms of the software, man, I didn’t sleep for a week. We set it up on Rackspace. It didn’t work right. I had never done anything like that before. It was like, no one would help. I think nobody would help.
Tim Ferriss: When you say nobody would help, you mean competitors, potential –
Nick Kokonas: Potential allies, potential, these are people at software companies.
Tim Ferriss: I got it. Why wouldn’t they help?
Nick Kokonas: In the case of OpenTable, they had a monopoly. So, why –
Tim Ferriss: That makes sense to me.
Nick Kokonas: In terms of everyone else, I think they just didn’t get it. But even people within my own company thought this was a fool’s errand. Grant, for sure, he will fully admit this now, thought it was a terrible idea.
Tim Ferriss: Why did he think it was a terrible idea?
Nick Kokonas: Because it’s not hospitable. It’s not hospitality.
Tim Ferriss: It’s low touch, not high touch?
Nick Kokonas: Correct. And hugely the case where all of a sudden the price is different every day. Are people going to get that? I just kept looking to other industries. No one has a problem with it when they go to a baseball game. They’re not sitting above the dugout and then the guy who’s in the third deck back row looks down and goes, “Oh, that guy, he totally stole that ticket from me.” They’re two different price points. I think people inherently get that without having to explain it to them.
Tim Ferriss: If I might, how far in advance of the opening were you hoping to launch the software, and when did you end up launching the software?
Nick Kokonas: I launched it about seven hours before the first dinner.
Tim Ferriss: Holy shit.
Nick Kokonas: I had hoped to have done it four to five weeks ahead of that. It was literally a one-man operation plus me; one programmer and me. When we launched it, Rackspace, this is 2010, I’m not saying anything bad about Rackspace. I probably set it up wrong. 2010. It did not, it’s supposed to auto load correct, and self-propagate. Neither happened. We had 17,000 people on our email list that had signed up on the website to be notified when the bookings went on sale. I was expecting maybe 700 to show up — should be fine. Something like 8,000 or 9,000 showed up. Everyone just kept hitting the refresh key. Here’s another fatal error of stupidity. This is not the way our software is built now because we have professionals here. But basically, my admin login was on the very same server as everybody’s public access. So I couldn’t even go in to configure.
The good news on this is that I couldn’t answer hundreds of angry emails all at once. So I created a Facebook group for the business, which in 2010 not very many people did. If you go back and scroll all the way down to the beginning of that, you’ll see me going, “Hey, if everybody could please stop refreshing, I can sort this out.” What was really cool is that people felt part of something. They felt like “Wow, holy shit, this guy is actually doing this himself. We’re part of this experiment and we’re on the inside of it.” I got a lot of empathy from the customers, even though they were the ones that were unable to get what they wanted. Then when it finally started working, I had literally not showered in five days. I had pizza boxes laying around. It looked like a bad movie startup thing. I had a beard. I was just strung out, manic.
I remember I called Grant. It was opening day. He said, “How many should I prep for?” I said, “Prep for full. Because if not, we’ll turn on the phones.” What I didn’t tell him was that I didn’t order the phones because I didn’t want to have a failsafe.
Tim Ferriss: You’d burned the ships.
Nick Kokonas: I just wanted to make sure I forced myself to work. We had no phone line. When it started working, I would double-click, one of the functions was double-click on a table. If it was yellow, it was held; the public couldn’t see it. I could make it available by double-clicking it and it would turn green. Then when it was sold, it would turn red. But the first time I did that to let more inventory out, and clearly things were working, it turned red so fast, I thought it was broken. So then I went into the credit card processing and saw, “Oh, my gosh, someone bought that that fast.” I called Grant and I said, “Dude, you’ve got to come to my house.” He was like, “Uh, we’re opening a restaurant in like six hours. What’s going on?” I said, “As the guy who helped save your life, get in a fucking taxi and come over here, because I need to show you something!”
He looked at me and went like, “What is wrong with you?” I took him upstairs to my office and I explained to him what I just explained to you. I said, “Click on one of those and make it available.” He said, “Which one?” I go, “Any one in the next month.” He clicked like three weeks out at 9:30. It instantly turned red. In another window, I had the credit card thing up. I go, “Look, Mr. Jones bought that.” He went, “Really?” I went, “Yup, there are 4,000 people waiting for you to do that right now.” That was the moment at which I was basically like, “This is the best thing I’ve ever built.” Because it was functionally different than any way that anybody was doing this. It wasn’t novel. It was just applied in a novel way. What was interesting is that, of course, the software itself sucked. But as a proof of concept, it was awesome.
Tim Ferriss: Quick question on that, if you’re comfortable answering. How much money had you put into developing the software at that point, roughly?
Nick Kokonas: I’m going to say $115,000, roughly.
Tim Ferriss: In your mind, were you completely confident it would work? Or — and it doesn’t have to be A or B; there could be C, D, E, F — or were you like, “For $115k or whatever it might be, even if you budgeted for less and it overran, even if there’s a 20 percent chance that this works, it is worth risking the hours and time because it will so completely transform what we’re doing, and if it fucking fails, who cares?”
Nick Kokonas: Correct. The latter one, yeah. Again, it’s about the asymmetric risk, right? It was also about this thing as I dug into how Alinea ran, there’s thing that you can fix and control, and there’s things you can’t. This was the one that I would answer phones at Alinea and it was like being a therapist. People would go like, “I would like to make a reservation on my anniversary, seven weeks from now on a Thursday.” And you’re like, “I’m really sorry, sir, it’s totally full.” 100 percent of the time they thought you were lying to them. Consequently, I realized that we were saying “No” to people more than we were saying “Yes.” That even when we said “No” in a nice way and took 10 minutes to do so, people thought that we were lying, or that they weren’t important to us, or any of those things.
I felt that transparency was actually more important than the actual money and the actual yield management. I felt like allowing people to see the entirety of the inventory was the most important thing. I had the same thing with the trading markets. They’ve moved to more and more transparency, more and more speed. This is true across every industry. I just felt like “Wow, this industry I found myself in was so backwards.” I just wanted to make the whole thing more transparent. Even if it didn’t go beyond my own restaurants, I was totally fine with that. In fact, I didn’t do anything with it for four years. I didn’t really intend on making it a software product. I intended to fix my own problems. I think often that’s where good ideas come from.
Tim Ferriss: Super often. The scratching of your own itch. At least you know you have a market of one. Guaranteed market of one. I also want to point out, we were talking about asymmetric risk earlier, and you’re like, “I want to stand to make 3-4x what I stand to lose.” If you run the math, and I’m sure I’m missing a lot of subtleties here, but when you said we booked $500,000 and it cost $115,000, we’re getting very much within the ballpark of that.
Nick Kokonas: Yeah, but I didn’t even, well, since then, we’ve taken our margins at our restaurants from 10 to 12 percent to at times in good months, 20 to 25 percent. In an industry that over the last five years, if you read – I give a talk called Tuesday is not Saturday, and Seven Things You Already Now But Are Doing Nothing About. It’s a talk that I give to the restaurant industry. One of the things that I point out in there is that there’s so many obvious things that you could be doing to improve your hospitality, to improve your booking process, to get rid of food waste. But people tend to just kind of move along because it’s a really chaotic environment. It’s hard to make change in it because every day is game day. You wake up every day and 100 people are going to come through the door. If your fishmonger doesn’t show up, you need to figure out what to do with that.
It’s not really about the return on that one investment at that one moment. It’s more like 1,000 small improvements over time. If I look back at that system that I built then compared to what we have now, it’s a miniscule part of what it turned into. But it was the seed of an idea, which is more important, which is, “Hey, let’s shake things up.” Then I got a great CFO, who was at Bain Consulting. He came on to help manage the building of Next. When he said he wanted to build out a business team, I was like, “Great. Run with it.” So we’ve built out food cost analysis that uses Marimekko charts. It’s totally different because it’s visual. You give that to the chef and –
Tim Ferriss: It uses what charts?
Nick Kokonas: Marimekko. If you don’t know Marimekko – if you get nothing out of this, one of the greatest visualizations in charts that you could do in Excel or whatever. It’s hard to do vocally, but imagine a square where each of your x-axis is the percentage of let’s say food cost. Then each square within there is meat or produce. But the whole of the square is 100 percent. The y-axis is 100 percent of one metric, and the x-axis is 100 percent of another. So, you could look at any given square and see how much that impacts the whole. It becomes like a big LEGO building with different colors. If you give a busy chef 400 receipts and say, “Hey, every Friday look through these and figure out what we’re spending too much on.” Or, worse, “Hey, your food costs last month were at 36%; I need them at 32%.”
You can’t take percentages to the bank. Let’s talk about dollars. Let’s see where we can save some dollars. Or the revenues could have just gone down that month for whatever reason. August in New York. So, it’s not really a good way to look at it. But you give this person this chart, this Marimekko –
Tim Ferriss: Now, Marimekko, I’m looking –
Nick Kokonas: It’s the guy’s name.
Tim Ferriss: Yeah. It’s M-A-R-I-M-E-K-K-O chart. Is that right?
Nick Kokonas: Again, I’m not good at spelling, but sure.
Tim Ferriss: I think so. There is a Google result for “how to make a Marimekko chart,” in Excel, so I’m guessing that’s probably it. There’s some YouTube videos as well. So I’ll put those in the show notes for people.
Nick Kokonas: Man, I’ve got to tell you, from a utility perspective, you show that to a person, you explain it visually, when you see it, it makes much more sense and they instantly get it. They’re like, “Oh, there’s no way I spent that much on fish last month.” Instantly.
Tim Ferriss: This can be used for things outside?
Nick Kokonas: Everything.
Tim Ferriss: Not just food, not just restaurants.
Nick Kokonas: No, no, no. It’s just a great visualization of utility. Consultants love it. I’ve got to tell you, I don’t love consultants, in general. But if I’ve learned anything from the best consultant that I’ve ever hired, who is now my partner and CFO, he came up with this and as soon as I saw it, I was like, “How did this not enter my life until my 40th year? This makes no sense.” It’s just incredibly useful. My point is that we went through everything in the restaurant and went like, “What are the biggest spending areas that we can analyze?” It’s true in any endeavor that you’re doing. There’s no point in looking at the dimes if you’ve got something that costs $1,000. Start there.
That’s getting into our thoughts on our publicity, our PR. We don’t have a professional PR person, and haven’t in 14 1/2 years. We don’t spend money on any promotions other than social media. Then with the social media, we track all of that. We can see what our ROI is on a boosted post. We can see what our ROI is if we advertise on your podcast. That’s why these mediums are working, is because they’re measurable.
Tim Ferriss: I was looking up, just as you were chatting as I was also looking for Marimekko, a quote that I think applies. You may certainly feel free to disagree, but it applies very well to a lot of the breakthroughs that you have experienced, and also helped to catalyze in a lot of what you’ve done. It’s a quote from Charlie Munger who, for those who don’t know, you should definitely take a look at Poor Charlie’s Almanack. He’s the right-hand or, I shouldn’t even say that. He is the investing partner of Warren Buffett. He’s a fascinating human being. But one of the quotes of his that I really return to a lot when I think I might be outsmarting myself in some way, or in general, as a reminder is, “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid instead of trying to be very intelligent.”
Because as you noted earlier, you have these practices that are being implemented by otherwise, in many cases, smart people who have just not taken the time to ask “Why are we doing this? Why does this exist?” as the thing. Like you pointed out, it’s so obvious once you reframe it. You walk into a clothing store and they’re like, “What are you looking for?” “Nope, sorry. Guess again.” That’s fucking ridiculous. And yet, that’s exactly the way it works in many other places.
Nick Kokonas: Yeah. Once you start down that road of thinking that way, it will drive you a little nutty. Because you can’t do every business. There’s a couple things that I’ve got in my back pocket that I’m like, “One day I’m going to arbitrage truffles.” Because there’s an opaque market that’s absurd. Here’s an example. I’m going to give somebody out there – call me up because this is a real business idea, and I’ve been wanting to do it for years. But black-and-white truffles – not the chocolate ones, but the kind that the dogs dig up in France and Italy – are as expensive as the most expensive drugs in the world. You order them as if it were an illegal drug. Of course, they’re perfectly legal. But you call up a truffle dealer and you go, “What do they cost?” “Well, they’re $650 a pound right now for black truffles, $1,600 for white.”
You try to talk them down a little bit. You make sure that you get the best quality because, hey, we’re Alinea and we’ll ship you back the stuff we don’t like and all that. Then in an unmarked box stacked with newspaper will come $20,000 of truffles. Good for like a week, by the way. This is not a big supply. It is completely opaque as a market. There is no mycologist touching these. There are knock-offs – well, not knock-offs. There’s different species and quality from Australia, from Tennessee, from China, etc. that they cut into it. Sound familiar? We spend a lot of money on truffles every year. Try to figure out what the U.S. market in the fall truffle season is worth? You can’t. It’s exactly like publishing. You can’t find numbers. Whenever I see something like that, I’m like, someone’s guarding their golden goose.
Tim Ferriss: Whenever it’s a black box, you’re like, I feel like I am not on the best side of this trade.
Nick Kokonas: That’s right. That’s what I did. I did a closing in cellular network between the Merc and the AMEX to arbitrage ETFs to get rid of the phone brokers in the middle. That took me like a year and a half to get through the Merc and AMEX powers that be. I read most of the CFTC, so when they would tell me it’s not in the rules or not legal or whatever.
Tim Ferriss: CFTC is the Chicago Trade something Commission?
Nick Kokonas: No, this is the Federal Commodities Trading Commission.
Tim Ferriss: I see.
Nick Kokonas: It’s like the SEC, but for commodities. Again, sit down and actually read that some day. What’s amazing is that the experts never – it’s like the members of Congress who don’t read the bill. Then if you ask them detailed instructions on it, they’re like, oh, yeah, I don’t really know, but the general tenor is this or that. The people who were governing the exchanges, had never read the rules. So, they would just quote to me like, well, it’s against the rules. I was like, well, here are the seven volumes; please show me where. If not, I’m going to do it. Similarly, truffles, same thing. The booking for the restaurant, same thing.
OpenTable had a monopoly. They wouldn’t tell you who your customers were. They would sell your customers, they still do, to other restaurants. If you’re full one night, they’ll just send you down the street to a Japanese restaurant down the street. They don’t care. I wanted to get rid of all that, so I built the software for that. Truffles, I will someday build a truffle exchange.
Tim Ferriss: So, a question for you. This is something also for, this is maybe just turning this into a therapy session/coaching session for myself. I get attracted like a moth to the flame to puzzles.
Nick Kokonas: I’ve got a puzzle for you.
Tim Ferriss: No, no. I don’t need any more puzzles. I need no more puzzles. But there are many black boxes are there. You have truffles. Like you said, what’s the market size of the truffle exchange at x point in time? Don’t know. Although you guys, as one establishment or multiple establishments, buy a lot. There might be 100 different black boxes like that, that you run into. How do you choose the black boxes worth trying to shine light on like a detective? Because it’s going to consume energy, it’s going to consume time. How do you pick and choose which to go after?
Nick Kokonas: It’s like the manic test. It’s like the one that bothers me the most, I start doing. Then it’s iterative from there. Sometimes you find yourself in a construction of your own doing that was accidental. All of a sudden, you kind of opened your mouth and said something like the truffle thing and all of sudden, oh, okay, I guess we’re building a truffle exchange. I feel like The Boring company’s like that for Musk. He opened his mouth and like, “Yeah, dig big tunnels.” He’s got enough credibility now where some engineers went like, “Yeah, we can dig tunnels that are seismically fine. Oh, you work for SpaceX? Okay. Let’s see if you can dig a tunnel!” I don’t think that was a business plan. He just has a lot of credibility at this point. I think that to a certain extent, a lot of people have a lot of ideas; they just don’t dig down that rabbit hole. I do some as a hobby.
I do some where I have someone that I like within our company and say, “Well, if you really wanted to be independent and do something cool, here’s a project. Learn more about this and start researching it.” We have 300-and-some employees on the restaurant side and about 50 on Tock. Many of them are incredibly hardworking and intelligent. When someone says, “Hey, I want to learn how to be more entrepreneurial,” I take one of my black boxes out and say, “Well, let’s see if that’s true, because this is going to take you six months of independent work without any guidance, and you’re going to get tired of it really fast. Or you’re going to come back to me and say, ‘Hey, you know what? I can’t figure out the total value of the truffle market in the United States.’ And I’m like, yeah, no shit, that’s why I asked you to do it!”
Tim Ferriss: Now when you give them an assignment like this, “You know what, boss? I really want to be an entrepreneur.” You’re like, “Congratulations. I am now giving you a project, and (a) it’s on your time and you’re not getting paid for it.” Or do you pay for it?
Nick Kokonas: No, no, no. I never take – every single intern that works at our restaurants for a minute is paid.
Tim Ferriss: So they do get paid for the black box time?
Nick Kokonas: Oh, yeah, of course. I would never – I think one of the things I really dislike actually, are industries where they say, “Hey, you’re in college or whatever, be an intern.” Then your parents say, “Yeah, that’s a great opportunity for you to learn something” and all that. It’s like, well, if you’re not getting paid, you’re not being valued, frankly. For me, we pay everybody. Nobody who’s working here – I do expect that salaried people are going to work more than just the time here. I think that people who are passionately curious will be given a problem like that and will come up with interesting solutions to find out what the answer may be. That’s enough.
Tim Ferriss: I want to add some commentary on the question that I asked, which is I think it’s incredible that you do pay them for that independent research, which is also acting an entrepreneurial training/filtering for them. But I wouldn’t have judged you harshly at all if you said, no, that’s on their own time. The reason I say that is that if you are going to be investigating black boxes as an entrepreneur, there are going to be periods of time where you are doing it in the evenings; you are doing it on the weekends; you are doing it without a clear road to immediate cash flow, right? So I wouldn’t have judged you if you said, “You know what? I am paying them full time for their normal job, but if they want to tackle one of these black boxes, that’s considered extracurricular time.” So I wouldn’t have judged you harshly if you had responded in the negative on that.
Nick Kokonas: I guess to back up a little bit, when there are people who I don’t know who do not work for our company, and they call me up and say, “Hey, I’ve got this idea for X, Y, Z” or whatever and it’s intriguing enough, I will pose some more difficult questions. But they’re not working for me, you know what I mean? There’s a guy who brought me a food product about a year ago. It was interesting, but not super compelling. I said, “If you did these five things, it would be a lot more compelling for me to be involved and to help with it and all that.” Yesterday, I got a box in the mail, and he had done not only the five things I said, but said, “Hey, when I started doing those, these seven other things popped up. Here’s where the product is. Here’s the people we signed. Here’s the airline we just signed to carry the product. I would love to have you still involved, even though we’re so much farther down the road than I thought I’d be a year later.” That’s super cool.
I didn’t pay that guy, obviously. But there’s a person who’s truly entrepreneurial and did this on his own time. But if they’re working here, if they work for the Alinea Group, if they work for Tock, for sure you could take time during your day during your normal business that’s a project that we’re working on. We also try not to have such harshly defined roles, not within the restaurant. If you’re a server, if you’re a captain, if you’re a line cook, you’re probably not working on my truffle project, realistically. But on the business side, we certainly have people who work in roles as a lawyer or an analyst or something like that who want to get involved with our publishing project, or who want to get involved with the truffle project, or whatever it may be. I’m happy to pull them in and try to include them. Like you said, you used a word as an entrepreneurial filter. I would say 95 percent of the time, people filter themselves out.
Tim Ferriss: Right. I agree with that. They’re going to self-select or self-select out. Are there any particular books or resources that you have found useful on hiring or managing?
Nick Kokonas: If you found one, let me know. Hiring is so hard. I think it’s the hardest of all things to do. I think my style of interviewing people is totally different than it was 20 years ago. We used the word “self-selecting” just a moment ago. It’s exactly what I do. I kind of bring people in. I let them know what I’m about, what the company’s about. They’ve probably already been interviewed by other people before they get to me. At that point, I let them know what the upsides and downsides of working here are. I let them know what the expectations are. Then I tell them people self-select into a job. You don’t want to come here if you’re going to fail, because that would be terrible. I don’t want you to come here and fail, because that would be a waste of my time and resources and would also feel awful. It’s never good to let go of someone. It feels terrible.
Let’s see if you are self-selecting in. What do you want to know? I’ll be completely transparent about what’s good, what’s bad, what’s good about working for me, personally. The fact that maybe you’ll never see me again. It’s a big enough organization where there are definitely people working here who I don’t know at all. But people tend to join organizations where they want to work. I try to make them be able to say no easier than they can say yes.
Tim Ferriss: What would be some examples of how you do that?
Nick Kokonas: I judge the person by what their pain points are. One of the things I like to ask, which kind of resonates probably with you, I say, what are the last five books you read? I’ve got to tell you, that’s a really hard question to answer. Even if you’re a voracious reader, it’s really hard. You remember a book from two years ago, but you can’t remember the one you read two months ago, sometimes. At least I can’t. That is a great filter on people. A couple things will happen. One, the person who is a voracious reader will go, “Oh, my God, I swear to God I read like 20 books this year. Let’s see.” Then they will really start going, “Oh, I read one three months ago that was this and it was about that.” You can tell that they’re intellectually curious and read a lot. You’ll also get a person who goes, “Look, I haven’t read a book in 20 years, but every night I go home and I do woodworking, and that’s my outlet. That’s where I focus. That’s my Zen moment.” That’s a valid answer to that question, too. You don’t have to be a reader. Some people will just lie through their teeth. They’ll answer what they think is the smart answer to that question. I don’t want that person there.
Tim Ferriss: I read War and Peace, and then I went to The Problems of Philosophy.
Nick Kokonas: Yes, yes, yes. Then The 4-Hour Workweek, right?
Tim Ferriss: Definitely not the right answer.
Nick Kokonas: So there’s that, and I ask that kind of question. But then things like, “Do you enjoy writing?” One of my things is, if someone doesn’t like to write, when people ask what I do for a living, I say, “I’m a writer.” They go like, “Oh, you’ve written a couple books?” I go, “No, no, no. I write about 400 emails a day.” That skill is hugely important right now. If someone doesn’t like to write, they’re not going to want to work for me. Because when they send out an email and I’m CCed on it and it isn’t a well-thought-out little thing, the answer coming back is, “Hey, here’s four ways to improve this.” At some point, it’ll be like, “Really? You did that same mistake again?” It comes off kind of harsh in email.
So if you’re the kind of person that doesn’t take feedback well or doesn’t want to learn, man, I am lacking patience for that at this point in my life. I let them know that. Some people look at you and just go like, “Yeah, dude, I don’t want to work there.” More than I would think. Which is great.
Tim Ferriss: Yeah, it simplifies matters.
Nick Kokonas: It’s done with a smile. I’m not trying to terrorize people when they come in and interview. Then there’s some people that go like, awesome. That’s exactly what I want. We have everything from double-Ph.D. engineers to people who’ve never attended a university for a minute, but they’ve self-selected into an organization that people ask a lot of questions. I love that I can be in a room and come up with an idea, and everyone there will just be like, “Well, that’s a great idea. There’s no way we’re going to be able to do that in the next six months, because that’s not in our capacity at our size right now.”
Tim Ferriss: I think a question on a lot of people’s minds, and a pain point for most people listening, will be email. So you seem to be at least confident in your treatment of email. 400 is a lot of email. Do you have any particular commandments? Dos, do nots, times you check, things you check first? Any types of systems or approaches that allow you to maintain a degree of sanity with the amount of email that you must receive?
Nick Kokonas: You’re going to hate this answer, Tim. I am terrible at it. It used to be not so long ago that I personally replied to absolutely every single email that came in myself. I used to have an auto-sign that basically was like, if I don’t reply to you within five minutes, I’m dead or asleep. It’s the opposite of everything you stand for. I know that. I was listening to Jason Fried – Jason Fried’s a friend – I was listening to his podcast with you. I don’t get it at all. I would love nothing more than to re-work or to not work, work four-day weeks or have six-week projects and all the stuff that he espouses. He’s a friend. He’s an investor in one of my businesses. But man, that’s not how I function at all. I weirdly think that he misses cause-and-effect a little bit. He has a very successful company, and that’s the cause that allows the effect, which is the ability to manage your time really well.
I live really paranoid. I’m more comfortable that way. Also, I feel a weird moral responsibility to reply to the people who’ve taken their time out of their day to write us a note, even if it’s not critical business for me. One of the things that I did for about 10 years, that I loved doing when we first started Alinea, was I would have Google Alerts set up and I would find some blog that only some woman and her mother read. I would reply personally. “Wow, thank you for the great write-up of Alinea.” They would be mind-blown that I found it and all that. I treated email that way for a long period of time. Unfortunately, now I can’t quite do that.
So I do have a bunch of filters and whatnot, but I didn’t even set them up. My business partner, Brian Fitzpatrick, who used to be the head of Google in Chicago, he runs the engineering team and he’s the CEO of Tock, he said, “Dude, you’re slipping, man. You need to create some filters and get some stuff that’s directly to you.” So he went into my Gmail accounts and forced the issue for me. So now I can’t quite do that. I do wake up in the morning and look at our bazillion social media messages and whatnot, kind of pick a random one, and just answer it. I want to be involved in knowing what our customers are asking, what they’re doing, what they’re saying, what they’re replying. Anything that’s a complaint actually gets brought directly via email to a complaint tracker that me and Grant see.
So, luckily, there aren’t that many of those. But any time you serve 5,000 or 6,000 people a week, you’re going to get something going wrong. But man, I’m terrible at it, honestly. I will tell you a funny thing is that when I go away on vacation, I do try to concoct a pretty funny – I basically say, “Look, I’m going to be on a mountain or on a boat or whatever, and I’m not going to be able to reply. I would make these elaborate stories up, almost as like a fun piece of art project as to why I couldn’t do it. One year, every time I went away, I basically said, “I’m going to visit a panda I adopted and going back to Chicago.” It ended the year around Christmastime when I went on break with a picture of a baby panda, and a really mediocre Photoshop job of me standing there with the panda.
The Chicago Tribune called me up like three days later, like, “Is it going to the Lincoln Park Zoo?” I was like, “No, dear God, it’s not. There is no panda.” That’s what I wrote back. That was my terrible reply to that. The following year, I said, “I don’t like to talk, as you might be able to tell.” So everyone who knows me knows that I can just go on and on. I said I was going to a combination of a tantric sex retreat and silence retreat for eight days to explore my both inner and outer selves. I made some elaborate story.
Tim Ferriss: This is your out-of-office reply.
Nick Kokonas: That’s my out-of-office reply. Anybody would get that, right? I thought that was really funny. Then about two years later, I bumped into some guy who worked for a very big corporation. They wanted to do some work with the Alinea Group. It was kind of a consulting project; very lucrative. He was looking at me really funny. I said, “What’s up?” He said, “Well, I really wished we had worked together, but then you went to that sex retreat, and I just couldn’t get it past everybody.” I was looking at him going, like, “What are you talking about?” Then I remembered like four years earlier, my out-of-office reply. I told him it was a joke, like the panda. He did not find any humor in it. I did. I thought it was hilarious, even though we lost the business, I thought it was really funny. So if you ever get a really unusual out-of-office reply from me, it’s fiction. Probably.
Tim Ferriss: I love that. If you’re serious all the time, you’re never going to get the actual serious work done. You’re going to burn out before that ever happens. I also want to underscore one thing. Then I want to ask you about a black box that you and I have talked about quite a bit, which is publishing. The fact that you pick a message to reply to, even if it’s one, is really important. I’ve noticed this certainly with the audits that I have, listeners, readers, etc. It is not physically possible for me to reply to everyone; it would also be anathema to everything that I’m espousing in many of the books.
But I do want to demonstrate that I am listening. I think that it goes a really long way, even if you do not personally reply to people, if you are able to prove that you’re paying attention. That seems to resolve a lot, or at least act as a salve for people out there who very seldomly feel heard, which does not always necessitate a response. I just wanted to point out that it might seem like a drop in the ocean, but it actually has further reaching implications when you do what you were describing.
Nick Kokonas: Yeah, I feel like it’s genuine. First of all, I’m always curious what people are writing about to the restaurants, what they are writing about to me. My LinkedIn profile basically – I don’t really read LinkedIn at all. I keep it. I think it’s important to have it, but I don’t ever read the messages on there. But in my bio, it basically says “If you can find my email address, I will incite this; I will reply to you. So that gets rid of all of the marketing crap that comes in. But every now and then, I get a subject line to the email address that’s on there that says “Hey, via your LinkedIn bio,” I’ll read that and reply. It just shows me that (a) there’s an actual human on the other line; it’s not just some marketing thing, and (b) they really do have something that they want to talk about.
It’s little things like that are puzzle filters, that I call them. Where I just create a little bit of a barrier. If you’re really into it and you really want to talk to me, you can pretty find me pretty easily. I’m not that hidden.
Tim Ferriss: The detail is really important here. The mini-hurdle. I have a friend I’m not going to mention by name because he’ll get deluged, but he is a very successful author and journalist. When he is hiring for different positions, part-time or full-time, at the bottom of the job description on a job site or wherever it might be, in small print at the very bottom. It will say, do not send a message on this platform. Do not send an email, even though an email address is given earlier. Call this number and leave a voicemail answering the following things. Automatically, he takes the pool of 1,000 people who are going to do the wrong thing, and finds the 10 people who are actually paying attention.
Nick Kokonas: Yeah, 100 percent.
Tim Ferriss: Publishing. We didn’t really talk much about it. Can you give just a tiny bit of background on The Aviary, and then some of your related publishing investigations? Which I think is not an inappropriate word. If you could give people a little bit of context.
Nick Kokonas: Yeah, I’m going to back up before The Aviary, just a little bit. For a chef, doing a cookbook is something that they dream about if they’re a serious chef, from the time they’re 15. Just like if you’re a basketball player, you want to make the NBA. Or if you’re a runner, you want to be in the Olympics or whatever. To Grant, to a bunch of chefs, having their own ideas in a physical, beautiful cookbook is a holy grail for them. It’s very sacred. What was interesting is that just before Grant was sick, we started to get a lot of publishing offers. The natural inclination was to go to what he knew, which was Artisan Press, which published The French Laundry book, which is one of the bestselling, high-end cookbooks ever. It’s certainly beautiful. It was very revolutionary at its time. I think it was published in about ’98 or ’99, something like that.
The typical publishing deal came into us, which was great that they were coming in. It was $250,000 to $300,000. They would basically say, well, out of that, you’re going to pay for the designer and the photographer, and you need a 30-day photoshoot. Here are the guidelines for how many photos you want in the book, to keep costs down, and all that. I looked at all that, and all the offers came within about 10 percent of each other, which immediately the hair on the back of my neck, the Spidey sense starts telling me that something back there is pricing this is an unusual way. Then I started going, “Oh, this is actually like the music industry.”
Tim Ferriss: Very much so.
Nick Kokonas: Because I knew people in bands that would get signed to a record label back in the day, and they would get a quarter million dollar advance. Shit. That seems like a lot of money, right? Then all of a sudden, all your studio time comes out of that, and you don’t recoup another dime until you’ve sold X number of records or CDs or, in this case, books. Then in the contract, it actually said, and the restaurant guarantees that they will buy 2,500 books at half of retail price. I was like, whoa. You’re looking at something like $80,000 right there. That goes right back to them, in essence. Then I went like, “Well, I wonder what a book costs to print?”
I asked them, “How much is this book going to cost to print?” “Well, I don’t really know.” So what they would do is they would always have layers of people, so they said, “That’s not what I do. I am the person that does this. The lawyer gives the contract. The printer does the printing.”
Tim Ferriss: There’s always a plausible deniability or a plausible ignorance.
Nick Kokonas: Yes. Willful, plausible ignorance. And so I do what I start doing. Well, let’s just Google that up and see what it costs to print a book. Or, “Hey, how many copies of The French Laundry books sold? How many copies of 50 other books that we wanted to emulate or that we thought were well done sold?” Man, it’s like asking for keys to the Vatican or something when you call a publisher and ask them that. I’m sure you know this, right? You probably know now because you’ve been so entrenched in the industry. You know your numbers, and you might know that of some of your colleagues and friends, right? But if you wanted to actually do a meaningful comparison across the industry, it’s almost impossible to do it, even though there’s a company that does that.
Then you start trying to reverse engineer it and you go to The New York Times. You can go to The New York Times website and just look at how is The New York Times Best Seller created? On their own site, they say it’s a compendium of known publishers, like publishing houses, as well as these top 50 retailers, back in the day. It’s a gameable system. The way that the publishers want to do it is that they want to ship out all the books at the same time, because that’s how they’re counted for The New York Times Best Seller list and stuff.
Tim Ferriss: I should also note it’s not only gameable, but it’s also conversely highly subjective within The New York Times. So there’s a lot of wiggle room. In other words, it is not like the Olympics, where clear gold, silver, bronze video replay. We know exactly how this was tabulated.
Nick Kokonas: Yeah, so the more that we dug, the more we got more and more curious, and a little bit angry, actually. But Grant was weirdly angry at me, because he’s going like, “Dude, why do you care? I’ve been wanting this since I was 15.” I was like, “Well, look, if this is our budget, it’s not going to be the book you want. It’s not going to be as good as you want it to be because we’re not going to be able to spend six months doing the photography. We’re not going to be able to get great pages. We’re not going to be able to get a picture of every dish.” What do people cook in a cookbook? Well, they tend to cook those pages where they see a picture of the final dish. Because you know what? It looks delicious. You know what it’s supposed to look like. You’ve got something to emulate at least.
When we did the specs for the book, I had one of the best publishers in America say, “If you do that book, there’s no way you sell more than 5,000 of them. No way. No one’s going to publish it. You can’t use metric. You can’t use a gram scale. You can’t have that font. You can’t have those pictures in full bleed. And it’ll cost way too much to print.” And so it took about a month and a half before I got lucky and I called a print broker, who had actually brokered the print job of one of the famous books. I was expecting that if the book retailed for $60, it would cost like $15 to print, $20? I didn’t know anything about it. When he told me it was like $2.23 per book to print per a 30,000 copy run, I went, “No way,” like that. He’s like, “Well, it’s probably less now.” Like, he thought I meant it was too much.
Instantaneously, I went, “Oh, shit. Everything makes sense.” When I would call publishers and tell them this, they would go “Oh, yeah, but look. We did 40 different books last year. Only five of them did well.” I’m like, “That’s your problem, man. I know we’re going to sell well. I don’t really give a shit if you lost 35 percent of the time, and you need to spread your portfolio risk. I’m the one you’re spreading it on.” We decided with the Alinea book, we put together like 20 pages, and Martin made this beautiful, stainless steel bracketing system, and we shipped it out to eight different publishers we like. Two of which were art houses that had never done a cookbook. They all came back and said all the usual criticism, except Aaron Wehner at Ten Speed Press.
Tim Ferriss: Smart guy, by the way.
Nick Kokonas: He basically said, “I’m going to make you an unusual offer. No advance at all. We can negotiate. Essentially, we’ll just be the distributor. We’ll negotiate out what that looks like, and we’ll help you with the printing, and we’ll help you with the editing, which we’re both really good at.” Within 10 minutes, we had struck a deal whereby any of the books that we bought or sold for ourselves for our restaurant, we paid actual printing cost. Not wholesale, actual printing cost. Anything that they sold and distributed through their channels, they would get about 27% of the sale price, which means that we got 73% of that. These are state secrets. Nobody tells this stuff.
For years, I was walking around with this knowledge where if we sold 100,000 books, that would be the equivalent of selling like 500,000 books on any other deal. And we got to control the quality of it. We won both the James Beard award for best cooking from a professional point of view, best cookbook of the year. We won, I say we, Martin and Laura Kastner, won the communication arts award. Where if you’re a designer, their annual is like getting the Oscar.
Tim Ferriss: Similarly, for people who don’t know it, the James Beard awards are also very much like the Oscars.
Nick Kokonas: Yeah. So, we felt really vindicated on that. The book still sells. This is eight years later. We still sell 7,000 to 8,000 copies a year. When we did The Aviary, which is our bar that’s a non-bar that we talked about earlier, we started getting all of the same offers again. This time, it was really easy to go, “Ha, ha!” Just go, “Oh, that’s cute.” I should add that Grant and I wrote his memoir together that we didn’t use a ghostwriter, we wrote it ourselves, called Life, on the Line. That one, we did a traditional book deal, but after our agent got it halfway, I got on a plane and flew out there, and then brokered the deal myself. I got a giant multiple of the highest bid by doing essentially a reverse Dutch auction. Starting at a really high price and working my way downward.
Tim Ferriss: Can you explain to people just briefly what that means?
Nick Kokonas: Yeah, basically, I’ll do this. I think one of the great problems to solve, one of the black boxes, is the agency problem. Let’s say you want to sell your house. You put it on the market and the agent is going to get, I don’t know, 4 to 5 percent of the sale price. That’s a lot for something that’s your biggest investment in your life. But they say, they control the information, they control the MLS, and all that. Will they, if they’re the seller’s agent, get the highest price for you? The answer is almost certainly not, because let’s say a house is going to sell for $500,000; they’re going to get 4 percent of that. That’s $20,000. If they get $490,000, it’s almost no different to them. Right? $400 difference. But if they lose the deal over that last $10,000, it’s a lot.
So they want to price a home so that it sells quickly, so that they can keep their deal flow going. They don’t really care about maximizing their last dollar. Whereas for you, that last dollar is actually like $9,600. It’s a lot more money. So what I do whenever I’ve sold real estate is I figure out what the intrinsic value is of the house. What’s the bare minimum that I’d be willing to sell it for? I price it just slightly higher than that, and I tell all the agents in the whole town, “I will pay you 50 percent of everything over 10 percent higher than that.” They all say, “That’s against the real estate ethics code,” or, “I would never do that deal because it would subvert all of my other deals” or whatever. Then what happens is two days later, you get a dozen phone calls and they’ve priced it 40 percent higher and it sells in two days. Because now they’re actually working for you.
Well, similarly, I went into that publishing negotiation and I was like — by the way, the agent is probably lookup-able. She’s a great person. I don’t think she even knows that’s what was happening, you know what I mean? She was brought up in this industry for this company, and that’s the way it works. She would for sure dispute everything I just said. She would say, “I always try to get the highest price.” But I went in and I was like, “Look, I’m not going to spend my time doing this for X. So I need four times that.” She’s like, “There’s no way you’ll ever get that. You’ve never written a book before.” I said, “Well, we did the Alinea book.” “Yeah, it’s cookbook. It doesn’t count.” These are words. So I went to the publishers that all bid on it, and I just got them all on a conference call and just started at a really high price. Every couple seconds, I went down $10,000. Then one of them blinked and bought it.
That’s a great method of price discovery. If you think about it, most auctions, even if you go to a charity event or whatever, they start low and they try to get interest going high. It’s often the case that if they start really high and start going down, people start going “Oh, my God, someone’s going to say something. Like, I would pay that, someone else must as well.” They could be off by a factor of 30 percent and they’ll never even know it because there’s only one bid that ever happens. So no one knows how off they are.
Tim Ferriss: On that phone call, were you like, “Hey, guys, I would love to get you on the phone,” and then publisher A –
Nick Kokonas: – right away.
Tim Ferriss: I guess my question is, did they know that they were signing up for a Mexican standoff?
Nick Kokonas: Yes, they did.
Tim Ferriss: Oh, they did.
Nick Kokonas: I went and met with them all personally.
Tim Ferriss: You’re like, “John, I’d love to get you on the phone” then it’s like, “All right, congratulations, guys.”
Nick Kokonas: No, you can’t ambush people to a Mexican standoff. You can’t do that. You could. It might be fun, but I didn’t do that. I went and talked. I created enticement. I sold on my ability to actually do it. It was a bit like doing the no phones with the software. I was like, well, if I get a really big contract, I’ll have to figure out how to write a book, and then there will be a lot of pressure. So I did that and I wrote it and I turned it on time, which apparently no one does.
Tim Ferriss: Very rare.
Nick Kokonas: I sent it to them on the day it was due. They went, “What’s that?” I went, “That’s the manuscript.” They went, “Oh, that’s cute.”
Tim Ferriss: It’s kind of like showing up at the restaurant on time as a diner and then being seated at the appointed time.
Nick Kokonas: Apparently very rare.
Tim Ferriss: It’s just this open line.
Nick Kokonas: Do you turn your books in on time?
Tim Ferriss: I do, actually.
Nick Kokonas: I believe that.
Tim Ferriss: I do turn my books in on time and we could get into that a separate time.
Nick Kokonas: I just wanted to ask you a question.
Tim Ferriss: I do. I do not turn them in at the expected length. But I do –
Nick Kokonas: A little longer perhaps.
Tim Ferriss: I do tend to turn them in on time.
Nick Kokonas: I do believe that. What happened with The Aviary is we basically couldn’t figure out how to do another book, because the Alinea book was such a project, and Martin was on to other things. We didn’t want to do it traditionally. I didn’t know anyone who could do what we wanted to do. Then there was this guy, Allen Hemberger. If you get nothing else from this whole talk and you’ve made it this far, go Google Allen and Alinea. Allen is a procedural effects artist. He worked at Weta Studios on all the Hobbit movies doing things like hair and water and things like that. He writes the physics that then makes the magic. He worked at Pixar.
While he was at Pixar, and his wife, Sarah, worked an Industrial Light and Magic as the graphics designer, he was given by Sarah a copy of the Alinea book, to go full circle. He became fascinated with it. He was not a cook. He didn’t know how to cook. He did the Julie & Julia thing. He spent five years not only cooking his way through the entire book, but also would do things like “Well, I don’t know where to get this plate, and I’ve always wanted to learn how to fire porcelain.”
Tim Ferriss: Allen, for people wondering, is A-L-L-E-N. There are also videos of Allen and Alinea. He’s an autodidact. This guy learns and learns and learns. He is the kind of person that goes to the black box and goes, “I’m going to learn how to forge knives, and I’m going to learn how to fire porcelain. By the way, I’m going to cook everything in there and I’m going to make pictures of it, and I’m going to make a book documenting that.” When he asked if he could use – we had a little email relationship, and he came up to Alinea once to ask Grant some questions about how to make something because it wasn’t working. When Grant threw up his arms and goes, “Well, the book might be wrong,” Allen’s world view was shattered. He was like, “What do you mean it could be wrong?” He goes, “Well, we did have some errata in there. We documented hundreds of recipes. It could be wrong.”
At that point, his mentality changed. It’s in the video. We got to know him and I got to know him. When he sent me the book, it wasn’t what I was expecting. I was expecting a homegrown book. What I got was a 400-page, beautifully illustrated, beautifully written book about a person’s journey of learning. It was called The Alinea Project. I had no idea that he had done anything like this. Suddenly, I thought to myself immediately, and it’s in the intro to The Aviary book, I texted him and said, “Holy shit, you’re crazy.” And I have ideas. After waiting for like four or five years to do a book on The Aviary, I immediately was like, “This is the guy to do the book. Now I need to lure him out of Pixar,” which is about the best place to work in the world. Then I found out his wife worked at Industrial Light and Magic and she did all the graphic design. I was like, “This is perfect. You guys need to quit your jobs and move to Chicago.”
They flew out. We had some conversations about what that might look like. It was very much a partnership. They would have equity in the book. We would have creative freedom to do it exactly the way we wanted. We knew more about the printing and the bidding and all that, so I wasn’t worried about the economics of it anymore. I was worried about trying to make something really awesome. Right as they were about to say yes, they found out that they were going to have a baby. So they called me up one day and said, “Oh, my God.” I was like, “Oh, they got cold feet.” Oh, no. They said, “We’re pregnant. We’re going to have a baby.” I said, “Okay, well, we’re going to wait a year, because there’s no way in the world I’m letting you move out of your comfort zone, and have a child, and have that change of life.”
They thought I was punting on them just because — in a discriminatory way. I said, “No, we’re not going to do this with anyone else. We will wait as long as it takes.” About a year and a half later, they moved to Chicago. We spent the last year and a half, set up a studio of our own. Spent the last year and a half doing this book. Did a Kickstarter to just essentially raise awareness for it. We raised almost a half million dollars in the Kickstarter. We’ve sold about another $300,000 of books since then. It comes out in October. You can go to thealineabook.com. The coolest part of that website is that if you look at –
Tim Ferriss: It’s thealineabook?
Nick Kokonas: I’ll show you. Theaviarybook.com. “Bury the lede, Nick, bury the lede.” Genius marketing right there. Yeah, theaviarybook.com. But the coolest part of that is, other than your ability to buy said book, is Allen kept a blog on there called Our Progress. In it, he details every single aspect of what it takes to make a book like this. Right down to line screens and compositing photos. One of the things that every single book publisher told me is that you can’t sell a cocktail book for more than $30. There’s no market for it. And you don’t need pictures, because it’s just liquid in a glass. I think we blew that out of the water with what the book looks like.
I think that because certain things like fire are really hard to photograph, there’s this great picture in there of this one cocktail where we spray some anise and we light it on fire and it creates an aroma into the bowl that it’s served it. It’s called “loaded to the gun walls.” It’s a Batavia rock cocktail. That took a composite of 18 different photographs. So he breaks down the photography techniques. Also, The New York Times Best Seller list. I showed him how Google target marketing works and Facebook ads work and all that. All of a sudden, he went, “Holy shit, I had no idea you could do this.” We are going completely without a distributor or a publisher at this time. I think we’re going to set a, man, I don’t know. I’m either completely delusional. It wouldn’t surprise me if we sold a half million of these in the next two or three years.
Tim Ferriss: Yeah, it’s not a $9.95 book either, which it shouldn’t be.
Nick Kokonas: No, it’s $85. We’ve invested close to a million, all the way in, around it. It looks like, I think, I hope.
Tim Ferriss: From what I’ve seen, it looks like it would cost more than that.
Nick Kokonas: We did it all ourselves, too. It’s really like a five-person project. It’s deep enough that if a professional gets it, they’re going to learn a lot. But I’d say about 35 to 40 percent of it can be done at home because unlike the Alinea book where you’ve got to go out and buy duck and your local grocery might not have this kind of duck or whatever, if you need some Flor de Cana rum or a certain kind of tequila or whatever, you just go to your local liquor store, and it’s exactly the same thing that we use. That product is universal.
Tim Ferriss: I read somewhere – I don’t think this is taking us too far afield – I read somewhere that you consider yourself a tequila guy. Or at least in part a tequila guy. Do you have any favorite tequilas or concoctions?
Nick Kokonas: I’m going to do a little video promo for the book that we just filmed last week, where essentially I work with Eric Jeffus, who’s one of our bartenders in the office, which is our little speakeasy below The Aviary.
Tim Ferriss: Which is amazing. If people have the opportunity, they should check it out.
Nick Kokonas: It’s basically Grant just said, “Hey, everything upstairs, people are going to think it’s Alinea smoke-and-mirrors. We need to prove we can make a real cocktail.” So one of the foundational cocktails for me is a daiquiri. It’s three ingredients and a million ways to fuck it up. It’s just lime, sugar, and rum. That’s all it is. And yet most bars you go into will make a terrible daiquiri. Or they’ll blend it or blah, blah, blah. But a great daiquiri is really, really transformative. So I did a video on that. Then I always make a mezcal margarita. That’s my favorite drink. All I’m doing is I’m taking some reposado and a little bit of mezcal in equal weights, along with some Grand Marnier or Cointreau equivalent, and lime and simple syrup. That’s it. That’s all there is to it. Man, I love simple stuff like that.
Then we have a whole section in the book on old whiskeys, dusty bottles, old gins. There’s a growing movement to rediscover some of the distilleries in America that were really, really great that don’t exist anymore, that were more artisanal at the time. You can still find those bottles around. It’s a little bit easier than someone wine collecting or something like that. Man, it’s like an endlessly fascinating thing. I didn’t consider myself a cocktail person 10 years ago. I really loved wine. I felt like from a health perspective it was better as well.
But just like anything else, if you have a well-constructed cocktail, something of high quality, it’s an additive thing. You can have it in a meal, and it can make the meal better. Whereas a vodka tonic is just boozing. It’s just getting drunk. That’s not what we’re trying to do here. We’re trying to make things that are – it’s really a culinary approach to cocktails. Man, it’s endlessly fascinating, just like anything else in this world.
Tim Ferriss: I would also say, just contrasting say someone who wants to recreate something from Alinea, which you certainly could do, I mean, Allen proved that, with something from The Aviary, there is also a tremendous amount of theater and presentation dynamism that you can create with cocktails that does not have to be super expensive or super complicated, that certainly you guys are able to go as complex as you want to go, which is stunning, and I’ve spent time at The Aviary.
Nick Kokonas: You could easily make some ice with Peychaud’s Bitters in it or something like that, then as the ice melts in the cocktail, and it’s going to look really cool, too. Doing some of these things at home is not hard. I did a dinner party once where it was like a cocktail party. I probably had 40 people at my house. Each room in my house had all of the ingredients for the cocktail, and then little instructions on how to make it themselves. That took away the need for a bartender, because they’re terrible anyway, anyone that you bring in, a caterer or something like that. The other cool thing is that people got really into it. They went, “Oh, now I know how to make an Old Fashioned. Now I know how to make a Manhattan.” The one that I discovered at that party was a Frisco Sour. I had like Benedictine, whiskey, and lemon. It was really delicious. It can be more than just a strong cocktail. It can be really delicate and interesting.
Tim Ferriss: People can learn all about this at theaviarybook.com. Is that right?
Nick Kokonas: That’s right, yeah.
Tim Ferriss: Well, Nick, I have two rapid fire questions that are unrelated, and then I think we’re going to bring this neat and tidy round 1 podcast to a close, but we’ve talked about books. Everybody should not only check out The Aviary book, but also, if they have a chance, go to The Aviary. It is tremendous. You can also get some delicious bites and food, at least the last time I was there –
Nick Kokonas: You still can.
Tim Ferriss: – at The Aviary. I hesitate to call it a workaround, but you guys have some very popular establishments. If you want to sample the food, this is also a great way to do it. The drinks are just incredible. It’s a real destination that makes a trip to Chicago worth it in and of itself. I would recommend not only checking out the book, but also checking out a lot of what you guys are up to. Aside from that, books you have gifted the most to other people? Outside of those that you have made yourself, what are the books that you have gifted the most to other people?
Nick Kokonas: I named one of them already. Fooled by Randomness. Almost everyone in my office is forced to read that. I’ve definitely given that away. Boy, that’s a tricky one because just like I said, I can’t remember books very well. But certainly probably No. 1 on a business side of things. On the other side, I tend to give away what I would call vintage art books. So, it’s not a book people can buy, I’m sorry to say, but occasionally I’ll be at a used book store and I’ll find some of these great old art books. I buy a few of them and then when I want to thank someone for something, I send them that.
Tim Ferriss: Peregrinations of an Epicurean. Something like that?
Nick Kokonas: At the end of the day, when I want to give someone something, I try to make it something that, and I really want to make it a great gift, I try to get something that you can’t buy. So I bought an old typewriter, and when I write a thank you note, I type it up on the old typewriter. It is the most confounding thing to people. Because they look at it and they go, “How did you do that?” I go, “On a 1922 typewriter.” It’s like a personal, artisanal thing. I know that’s not what you’re getting at. I can’t think of the number one. I’m sure once we end this, I’ll immediately think of it. If I do, I’ll send it to you so you can link to it.
Tim Ferriss: I think the answer is more interesting with the typewriter. I think what I’m getting at is whatever you just offered. That’s perfect. If you come up with anything else, we can put it in the show notes. This next one can be tough at times for folks. So the billboard question. So, metaphorically speaking, non-commercial, no advertising, but if you could get a word, a quote, a sentence, a question, up on a billboard to transmit something to millions or billions of people, does anything come to mind that you might put on that billboard?
Nick Kokonas: I don’t know why this came to mind, but the word would be “Pause.” That’s it. I have no idea why that came to mind. I think in talking through this whole thing, you kept asking me: “Why are you digging this black box” or whatever? Or it would be like curiosity. I thinking of those in the same way. I’m not saying “Pause” like “Stop.” I’m saying “think.” I think the hallmark of the people that I like as friends the best is what we try to instill in our kids, and the reason that I like my wife so much and all that, is that intellectual curiosity is everything. I don’t know, how do you get that on a billboard? I think “Pause” or “Be curious” or something like that. I know it’s cliché. I think that’s the thread that ties everything together.
Tim Ferriss: Yeah. You do pause a lot. Even though on a macro level you seem to be moving at hyperspeed a lot of the time, there are a lot of pauses built into that speed, if that makes sense from what I’ve noticed. You are simultaneously one of the craziest fuckers I have know, and least craziest fuckers I know, if that makes –
Nick Kokonas: Well that’s a great compliment. Thank you. I’ll take it.
Tim Ferriss: Where can people find you? I know you have, of course, thealineagroup.com. You have exploretock.com. Theaviarybook.com, which is sort of the most timely for people to check out right now. If people want to say hello or follow you on social, where are the best places, the best handles for that?
Nick Kokonas: Instagram, which is @nkokonas, K-O-K-O-N-A-S. And Twitter is @nickkokonas, N-I-C-K. Hey it’s all Google-able. If you can figure out my email address, I’ll probably answer. Although, given the reach of your podcast, perhaps I will be inundated; it might take a while.
Tim Ferriss: Yeah, that might be a hug of death situation. But we will TBD.
Nick Kokonas: That’s okay. Good problem to have, I suppose.
Tim Ferriss: Good problem to have. Nick, this was a blast. Thank you so much for taking the time. I really appreciate it.
Nick Kokonas: Thank you, Tim.
Tim Ferriss: Many more conversations to be had. I think another trip to Chicago may be in order soon.
Nick Kokonas: I was going to say, I hope we see you here soon.
Tim Ferriss: I know. I need to get back. To everybody listening, we’ve made mention of the show notes, links to everything we’ve discussed, which you will be able to find at tim.blog/podcast, as with this episode and certainly every other episode. Until next time, thank you so much for listening.
The Tim Ferriss Show is one of the most popular podcasts in the world with more than 600 million downloads. It has been selected for "Best of Apple Podcasts" three times, it is often the #1 interview podcast across all of Apple Podcasts, and it's been ranked #1 out of 400,000+ podcasts on many occasions. To listen to any of the past episodes for free, check out this page.