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, Next, The Aviary, Roister, St. Clair Supper Club, and The Aviary NYC.
Alinea has been named the Best Restaurant in America and Best Restaurant in The World by organizations and lists as diverse as the James Beard Foundation, World’s 50 Best, TripAdvisor, Yelp, Gourmet magazine, and Elite Traveler. Nick’s restaurants have won nearly every accolade afforded to them.
He is also the founder and CEO of Tock, Inc., a reservations and CRM system for restaurants, serving more than 10M diners and clients in more than 30 countries. Tock also recently launched a to-go platform, which has helped restaurants pivot to fulfill pickup and delivery orders.
Transcripts may contain a few typos—with some episodes lasting 2+ hours, it can be difficult to catch minor errors.
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This interview was transcribed by Rev.com.
Tim Ferriss: Nick, welcome back to the show.
Nick Kokonas: Thanks, Tim. Great to be back.
Tim Ferriss: And this is an episode that I’ve been looking forward to. We’ve been chatting over the last handful of weeks, and you’ve had a few dozen people request that you go back on my podcast. I’ve had a few people request the same, and a lot has happened in the last year and a half, but certainly in the last month and a half. And before we get into the current state of affairs and how in some ways, many ways you’ve zigged instead of zagged and approach things differently, let’s zoom out to a concept that we discussed in your first appearance quite a bit. Maybe you could just define it for us, and that is asymmetric bets or asymmetric opportunities. Could you define what that is and then perhaps just describe what kind of followup questions you’ve been getting and how you would speak to those?
Nick Kokonas: Yeah, well, we covered a lot of ground. I think that first podcast was three hours or something like that. And the overarching theme was about decision making, not outcomes. So we tried to measure, I try to measure myself and my business life and personal life on making the decisions, not whether or not they sort of paid off or not. And in business, especially your investing, what you’re looking for is an opportunity, where if you make the wager or you make the investment that you get paid off eight X but you can only lose one X or two X. It’s just that simple. And that doesn’t mean also that the odds are actually eight X. It’s a 50/50 odds chance that pays off more than 50/50.
Or there are unknowable odds, and this is probably more often the case, but if something does happen, it’s really consequential, as opposed to if it doesn’t happen, it doesn’t really matter. So without getting technical or mathematical about it, if you take an action and X happens, and it doesn’t really affect you at all, but if Y happens, it’s either really, really great or really, really bad, that’s the asymmetry that we’re looking for. And you want to take the action, which either hedges you in case that that outcome is really terrible, or you invest in it if the outcome is really great. And then knowing that you did that is the right path. The outcome is what it is. You can’t really control it, most of the time. And so consequently you just go, yep, I made the right decision, I’m going to live with that. And —
Tim Ferriss: I was just going to say, and I don’t want to pull you off your train of thought, but could you give perhaps an example, not necessarily the current example which we will get into, but are there any examples that you could use just to illustrate this for folks who are listening?
Nick Kokonas: Yeah, of course. Occasionally, I’ll use an investing example, occasionally, you see a situation where a company is very, very solid, has a great balance sheet, is doing business steadily, and they’re not going to go out of business anytime soon. But they have an opportunity that, if it happens, if it works it, it’s going to go skyrocketing. The example I can think of is actually similar to our current crisis, and that is in 2008, I remember watching the CEO of Ford on TV and all the other guys were talking about the bailout and the TARP money and all that. And they looked really nervous. And he got up there and was like, “Yeah, we’re not going to take the TARP money. We don’t need it.”
And Ford was trading at — I want to say it was $1.80 or share or something at the time. It had been dragged down. And you could just see that they felt that their business was solid, their business overseas was fine, their business in China was growing, and they had planted the seeds for that. And it felt to me like Ford wasn’t going to go down to a dollar, but it could easily go to five. That’s it. It’s not overly complicated. And knowing what I did about the overall sector at the time because I was studying it, that was kind of all I needed to go to say, hey, this is a really asymmetric situation.
I think what’s interesting, after our last talk where we got into it in more depth, a lot of people on Twitter started threads saying, hey, a lot of these people that are on podcasts and people who think about these sorts of things that I like, Naval or whoever it may be, talk about asymmetric risk or Taleb, and let’s make a list of everything that’s asymmetric. And people were like, “Reading a book is asymmetric,” or “Spending time with your family is asymmetric.” And that’s not the point. It was like, yeah, those are great investments of your time, and they’re linear. What we’re looking for is something that is multiplicative, that is logarithmic. And I certainly think reading books is awesome and spending time with your family is awesome, but it’s not asymmetric.
Tim Ferriss: And let’s jump into asymmetric risk because there’s asymmetric risk or opportunity to the upside, where maybe you can invest very cheaply, I’m just making this up, in a drug development company, and it’s going to be worth nothing, but your downside is capped and very minimal. But if it does, in fact, clear the regulatory hurdles and ABC, it’s going to be 20 or 100 X, right? Something like that. There are those examples. Then there are downside risks, and you are a participant, and you wear many hats. But certainly, one of those hats is in the food and beverage or restaurant world. And many people would argue that no sector has been so swiftly decapitated as the arena of restaurants. And I’d just be curious to know, if we travel back in time, when did you start to assess this risk?
Nick Kokonas: So it is April now, and I think we’re six or seven weeks into a quarantine, mostly national. I’m the CEO and founder of Tock, which is a reservation system. And we operate in 28 countries. And one of those countries where we have about 20, 30 restaurants, small presence, is Hong Kong. And when the virus hit China, and then Hong Kong started shutting its borders, we could rapidly see the reservations going from 95 percent capacity at most of the restaurants there to zero, actual zero. They were open-ish. But no one was going.
That certainly woke me up to the possibility that zero was plausible. Now, it’s a funny story is that about three years ago, we were assessing our clearing risk. So Tock not only does ordinary reservations, but we sell tickets to events for restaurants or special tables like chefs tables or prix fixe menus, and we sell about 30 to 40 million dollars a month of those for restaurants around the world.
And one of the things that we have to assess is the risk of how we pay those restaurants out. You can imagine that if you have a concert or something like that, and you sell the tickets to the concert, and it’s the Fyre Island scenario, right? So you sell all the tickets to the concert, and then everyone pays their money. And then —
Tim Ferriss: Okay, got it. Just to be clear, that’s the F-Y-R-E, not the F-I-R-E.
Nick Kokonas: Yes, yes, that’s correct. Yeah. The Fyre Festival, yes. F-Y-R-E, not the other one. And so you, you, you pay out the money to the concert promoter ahead of time, and then if the concert doesn’t take place, or that guy just goes to Jamaica with the money, we’re left holding the bag, in the case of the restaurants. So we were trying to assess that risk, and it’s a bit like running a clearing firm. And our CFO —
Tim Ferriss: What is a clearing firm? Just for clarity.
Nick Kokonas: A clearing firm is the middle position in a commodities market. So they’re a buyer to every seller, and a seller to every buyer. So if I make a transaction with you for a futures contract, we don’t actually make it directly, even though you’re the buyer and I’m the seller. I actually sell it to the clearing firm. And you buy it from the clearing firm.
Tim Ferriss: I got it. So it’s kind of like a title company in a home transaction.
Nick Kokonas: Right. Yeah. So I remember our CFO, Steve Burnaki, really bright guy, very conservative saying to me, “We shouldn’t pay out X, Y, Z restaurants this far in advance because there’s risk that they can default.” And all of that. And I said, and I have this in an email, I said, “It’s not like every restaurant in America can close all at once.”
And that was three years ago. I was wrong about that. I never imagined a scenario that this could happen. And then in February, I could imagine it. I could imagine it, given what’s happened. I still thought the probability of it happening was very low. It wasn’t like I was prescient in the sense of, yes, for sure this is going to be a pandemic that sweeps America. And even if it had been, I probably wouldn’t have thought that it would result in the kind of lockdowns that it has.
But I did think if it happens, we are completely screwed. So there’s an asymmetric risk to the downside, where you go, look, there’s a 90 percent chance this doesn’t happen at this point, or maybe even a 95 percent chance. But if it does happen, we have a load of problems. We have a load of problems for our restaurants, for our employees, for Tock, and they’re existential in nature. They are the kind of problems where you go, “I have blowout risk. I can wake up tomorrow and have no businesses, and Tock could be on the hook for five to 10 million dollars, which would blow Tock out.” So I became very aggressively paranoid with people in my circle and saying, “Hey, look, what’s going on in Hong Kong could happen here.” This is into February. And —
Tim Ferriss: Just so I understand, in your circle, you mean within the company, employees, managers, colleagues within the company?
Nick Kokonas: That’s correct. Yeah. Yeah. And I called in our general counsel and said — Emily Growdon, really bright young woman, and I just said, “I need to understand everything about unemployment. I need to understand everything about furloughing people. I need to understand all of the benefits.” I talked to our HR people, “How much can we pay people, and they can still get benefits?” And I remember them looking at me going like, “Why are you asking these questions? Are you about to sell the company?” They weren’t thinking negatively. They were thinking something must be up, but it was probably a good thing. And then I called in Steve, and I was like, “We need to come up with methods of tracking the inflow and outflow of payments to our companies by the hour, not by the day.” Things like that.
And in terms of the restaurants, I had pulled in Grant Achatz and our management team, and just said, “I think there’s a reasonable chance we don’t have any restaurants in a couple of weeks.”
Tim Ferriss: And for those who don’t know, since it’s not in your bio, can you give two or three lines on Grant?
Nick Kokonas: Yeah, sure. Absolutely. Grant Achatz is, is my business partner. He’s also one of the best chefs in the world, renowned for modernist cuisine. We like to call it, some people call it, molecular gastronomy. We built Alinea together in 2005, and he’s won Best Chef US, and he’s been on all the TV shows. And if you want to learn more about him, the best way to do that is Chef’s Table, the Netflix series, season two, episode one. Really, really talented, dedicated, amazing person, who also survived stage four cancer 10 years ago.
Tim Ferriss: Grant is incredible. So I second that recommendation. Last name spelling A-C-H-A-T-Z. Also both you and Grant appear quite heavily in The 4-Hour Chef for those people who might already have that. Okay, so you called in Grant and —
Nick Kokonas: Yeah, and I just said, “I think there’s a reasonable chance that we don’t have any restaurants in a couple of weeks.” And he could tell I was very serious. Alex Hayes, our business development manager, could tell I was very serious. So they weren’t looking at me saying you’re crazy. But they also were looking at me like, “I think you’ve kind of lost it a little bit or maybe you’re overstressed these days.” And I just kept saying to them, “Look, I hope I’m wrong, but if I’m right, we need to do a lot of things very, very quickly and very well. And if we don’t, we’re going to be in a world of hurt.”
I think that because I was a trader on the floor, which doesn’t exist anymore, the thing about a trading floor is that the markets work the same as they do now a lot slower. And you could watch people, though, and their positions. So the difference in the ’90s and early 2000s is that when someone was losing a tremendous amount of money and was stressed out, you could watch them. And people had different reactions.
One reaction was to blame everyone else around them. It wasn’t their fault, the world conspires against them. And they would lash out and get violent or something like that. Some people would what we call turtle, they’d put their shell up and tuck their head in and just kind of sit there and watch the world fall down around them. And it wasn’t a pleasant thing by any stretch, but it was the kind of thing that you saw fairly often. And so we always tried to train our people to do was, hey, the market’s much bigger than you. The world’s much bigger than you. And it is what it is. You have to see it as you see it. Assess it, and then doing nothing is a choice. Doing nothing is holding tight to your current position. It’s like buying your position again.
And so if you’re better off selling your position and getting out, you have to do that very quickly. And one of the things that any trading book will tell you is that you’re supposed to let your winners ride, and your losers, you’re supposed to lock in. But most people do the opposite, of course, in every aspect of their life. Because when you lock in a loser, you have ended that outcome in a negative fashion. You’ve reinforced it. You’ve lost the game. The game is over. You —
Tim Ferriss: And by lock in, what do you mean?
Nick Kokonas: Well, I mean in the case of trading, if you buy a stock at 100 dollars a share and it goes to 80. If you hold it, you go like, “Well, there’s a chance it could go to 110,” right? If you sell it at 80, you’ve locked in a 20 dollar loss. It’s done. The game is over of that particular trade. And so I think a lot of people tend to do the opposite of what you should do, which is when you buy the stock at 100, it goes to 110, they sell it and they lock it in because why? “Hey, I made a good decision and I won, and that one’s over.” It’s the converse and it’s exact opposite intuitively of what you should be — it’s intuitively exactly the right thing that your brain’s telling you to do. It’s saying, “Lock in the feel-good, get the serotonin release or whatever, and ignore the bad shit. Let’s just let it ride because it’ll probably turn around, or it’s cheaper. I loved it at 100, I’ve got to love it at 80.” And you can ride that all the way down to zero.
And it’s no different with our restaurants. When we were looking at the possibility, let’s just say that we didn’t do the lockdowns in America, but demand went down 40 percent. Demand goes down 40 percent in a restaurant, you’re probably losing money every week, and you’re going to have to make really hard decisions about staffing, about hours, about food purchasing, all those things.
And so that day, and I can tell you it was March 4th, I basically said, “We need to get contingency plans together. Nothing happens? No problem. Business as usual. If it’s regional, and people can’t travel and our demand is down 20 or 30 percent, what’s our plan for that? What’s our staffing plan? What’s our purchasing plan? What’s our PR plan, for lack of a better term, what is our messaging to the world? What should our menu items be? What feels appropriate? How do we message that to our teammates and our staff who may not understand the situation? And then of course, what happens if we’re mandated to shut, what do we do?” And by making all those decisions at a time where it wasn’t yet a panic, when events started to unfold you’re kind of like, dust off plan D, and then you just execute because the decision making is much easier to make when you’re not in the throes of battle, so to speak.
Tim Ferriss: So if we then look at the play by play, so you call all your teammates, your staff together. What message do you deliver to the — you’ve spoken with management, you’ve spoken with Grant or presumably you’ve spoken with management, but what is the message that you sort of deliver when things start to go — either before they go sideways or when they start to go sideways?
Nick Kokonas: Yeah, so just before things were really going sideways, and you could see that in Seattle specifically, you could see that there is both an outbreak, and the restaurant business was starting to go down the tubes. And on March 8th, I tweeted that the hospitality industry in the United States is about to be decimated. It’s four percent of GDP. And then hotels and airlines are coming right after. And that’s March 8th. That same day, I brought in, I think we have about 25 managers between front of house and back of house at our five restaurants. And we brought them all into a meeting and I just said, “This is coming, and we need to institute new rules as to how everybody works.” And so we instituted mandatory temperature checks. Hourly hand-washing, both of which are logged. Normally, if there’s like a 1:00 p.m. or noon call time for front of house to do side work, people kind of can come anytime between 12:00 and 12:30 or whatever.
I was saying if someone’s not there within five minutes of call time, exactly 12 o’clock to get their temperature checked, they can’t come into the building. If they’ve traveled from Europe or Asia in the last two weeks, they have to quarantine for 10 days. And all that sounds fairly normal now. At the time, what I was relying on are two things. One, I was looking at what they were doing in China to combat this at businesses. It wasn’t hard to find information on that. And then I also talked to a doctor here in Chicago about “Is it safe for employees to go in with this? What precautionary measures can we take for their safety and the safety of our customers?” And mind you, this is when we were still open. We were not closed at that point.
And I do know that there was a bit of cynicism on this because they were kind of going like, “Oh, Nick’s the owner guy, and he’s not here during service and there’s no way we can stop our service in the middle of a busy night serving 300 people to have all 55 people on the staff wash their hands every hour. It’s just not going to happen.” And I can see that look on a few of their eyes, like, “Man, he’s out of touch and doesn’t get it.” And as soon as I saw that, I shut it down hard. I basically just said like, “There will be no jobs in four weeks, and we need to get way ahead of this curve. And anybody who doesn’t take this seriously is just out the door. No HR calls, no anything. We are in a wartime footing.” And the smiles kind of went off their face as I went down the line. And I just said, “We are going to work as hard as we possibly can for all of our mutual benefit and for our community’s benefit. And we’re going to feed people, and we’re going to feed each other, and we’re going to get each other jobs, and we’re going to pay you, and I’m not going to take any money, and Grant’s not going to take a salary, and all of the management team, the ownership team is not going to take a salary. That’s how seriously we take it.”
And by the end of that meeting, all those procedures were in place the next day. There were one or two people who did not want to do it, and they were asked to leave.
Tim Ferriss: And this is pre-tsunami? You’re sort of seeing, based on the canary in the coal mine of Seattle and Washington, the tide kind of flowing out so to speak. Like, okay, this is not normal.
Nick Kokonas: Yeah. And we were still doing business. We were still open. And I thought that there was a chance that — again, I thought it was like, well we’re at 60 percent now or 70 percent that this is going to come to Chicago, but even if it doesn’t come to Chicago, even if it just stays on the West Coast, it still affects us tremendously. So day by day, I think it became very evident that we were going to be mandated to close. And that’s when I went from restaurant mode of like, “Okay, well the restaurants, we kind of know what we’re going to do, we’ve got these plans,” to the talk mode of “Holy cow, if every restaurant in America shuts, Tock has no business. We’re a four-year-old, five-year-old startup with 100 employees.”
Tim Ferriss: May I pause you for one second?
Nick Kokonas: Yeah, of course.
Tim Ferriss: So you have the startup with 100 employees, but you also have all these restaurants. So you said you had the plans in place. What were the plans for those restaurants?
Nick Kokonas: The plan for the restaurant was, if the governor’s office mandated that they close, we would — well, first of all, let me back up. We run the restaurants very differently than a lot of folks. We eliminated tipping 10 years ago in order to accomplish a lot of the things that I think the industry needs. We try to treat all of our employees as the professionals that they are. So what I mean by that is that a lot of people think of a waiter or waitress as embodying this role in society of servitude. And certainly we’re in service of our customers and trying to give them great hospitality, but for many of our employees, most I would say, this is their chosen profession. They are highly skilled at what they do. We create a unique environment and experience for our guests. And that’s why we’re so successful. And the more successful we are as a team, the more successful these folks are as professionals.
We have servers that make well into 150 plus thousand dollars a year, but we don’t do it with tips. And so we also provide a 401k with four percent matching benefits. We also have health care benefits that people vest into after just a month or two of work. We have family medical leave act, paid parental leave. All of these things that I think, and we’ll probably get to it in a little bit, but all these things I think that people are aware of now because the industry was forced to close, and you’re talking about 11 million workers in the United States that are in the hospitality business and that aren’t going to be displaced by robots anytime soon. We ran that very, very differently. And so the considerations that I had was, okay, if we’re not doing any business and we have no revenue coming in, what is the best way over the short term, month or two, to ensure that these folks have healthcare, ensure that they’re taken care of.
What does a furlough look like? What does unemployment insurance look like? What kind of capital reserves do we have that we can pay stipends to them? What other work could we give them that could produce revenue that isn’t our core business? And so all of those things were considered. And when the shelter in place order came, I was watching on my computer and I heard the governor, Governor Pritzker, say that he’s ordering all the restaurants closed. And I closed that window and I immediately called our HR and our general counsel, and I said, “I’m going to draft a letter furloughing all 300 people. But what we’re going to do is we’re going to pay the benefits out at the level at which we can keep them on, that they can get unemployment insurance, but can also retain their healthcare. We are going to pay a $300,000 stipend to all the employees, so $1,000 for every employee on their paycheck as a bonus to tie them over. So last paycheck comes this Friday. Everybody gets an extra $1,000. And then what we’re going to do is we need to understand the rules on how to hire everybody back and what the timing of that looks like.”
And certainly at that point we didn’t know how successful we would be in the plans I’ll tell you about in a second. And I wrote that letter to the employees and I have to tell you it was super emotional. I was at home and it was really tough because in some ways I felt like I knew the plan and I knew what we might be able to accomplish. But I also thought that there was a really high chance that we’d fail at it. And also there was a sense of helplessness. There’s not much you can do. So I think what I said to my wife was, I knew I was making the right decision both ethically and strategically, and yet it still felt terrible.
So that was really hard. And then I sent that off, and I probably wallowed for an hour. And then I went, “Okay, we need to start feeding people. We’re in the business of selling food and selling emotional connections with that food and cultural connections, and we’re going to start doing that. And so we had already decided that we were going to try to do carryout, which is the farthest thing from what we do normally.
Tim Ferriss: Yeah, just to paint a picture for folks, so Alinea is like MoMA meets immersive theater meets hear-a-pin-drop quiet kitchen with art pieces being brought out to you. It is as far from takeout as you could possibly imagine or carryout.
Nick Kokonas: Yeah, it’s as far from carryout as you can imagine. And I said to Grant, I’m like, “We’ve got to do $30 comfort food and we need to do it at volume.”
Tim Ferriss: Now as a contrast, what would you say the average sort of ticket-per-person or per-table price is normally?
Nick Kokonas: Yeah. With wine, food service, about $350 a person.
Tim Ferriss: So you’re going to 1/10th of that person.
Nick Kokonas: Yeah. We can talk a little bit of numbers. We do 128 people a night at Alinea, and we have a staff, for 64 seats, we have a staff of about 85 people that make that happen. They get there at four in the morning, five in the morning for the morning prep team, and they’re there until two in the morning. So the cost as you might imagine of running all of that labor for 20 hours a day, and then the night cleaning person, the door doesn’t lock 365 days a year. It is a 24/7 operation to keep that going. And we do about $20 million in revenue a year. It’s a very successful business, and we built that up from our first year doing about four-and-a-half-million in sales.
It’s really, really hard work to make — it’s like running a theater. Like you said, it’s every night is showtime. If the fishmonger doesn’t show up with the fish that morning, the people are still showing up at 6:00 PM and there’s just no excuse not to have excellence because everybody’s coming there expecting a transformative experience. And if we fall even a little bit off of a really high mark, they consider that horrific because it’s their special occasion. It’s the one time they’re going to go to Alinea and see that. It’s like going to see the Stones and if the Stones suck, you’re like, oh God, I waited 30 years to see the Rolling Stones and they were no good. No, they bring it every night. It’s hard work. I mean, they’re 80 years old and they’re still doing a great job. So we have that attitude of make it happen. Just do it. Figure it out.
Tim Ferriss: Just as a side note, because I think it’s kind of entertaining, so good food, good tasting food — again, we’re going to segue back to comfort food and just what a transition that is. And you and I have not spoken about this in-depth because I wanted to save it for this conversation in terms of making that hop in the specifics. But good tasting food is table stakes, right, at Alinea? I think it’s embroidered, is it not? It’s on a wall. What is the expression? Flavor is for —
Nick Kokonas: Yeah. I don’t even want to, should I say that? I think that one point — actually when you were doing 4-Hour Chef, you got a kick out of this. Grant had a napkin that someone embroidered that said “Flavor is for pussies.” And I think, I mean it’s not exactly PC, but I think it’s like, yeah, that’s given. Making food taste good at that level, it better damn well taste good. And honestly, for people at that level, that’s not the hard part. That’d be like telling Picasso, “Hey, can you do a portrait of my daughter and make it look like her?” And the answer, of course, is of course he can. He was doing that when he was 12 and it was unbelievable. He was a prodigy.
What are you going to do when you’re 60 to do something new, different, interesting, better? How are we going to, through food and through your experience and sitting down there, create an emotional experience for you with food and service as the medium? And that sounds like pretentious bullshit. I get that. I get that that sounds potentially like the worst art house project in the world, which means it’s even harder to pull off. So what we always tell people, in any interview you’ll ever hear with me, you’ll hear, when people say, “Well, what’s the point of Alinea?” And I say, “Fun and delicious.”
And everyone’s like, “Yeah, but what about the science?” or “What about the arthouse?” or “What about the pin drop in the kitchen?” And I’m like, “Nope. Fun, delicious. If you’re not having fun at Alinea, if you don’t get the joke, if you think that we are making fun of you, we fail miserably. But if you go there and you’re laughing with us and you are surprised and excited, we all win. It’s meant to be that.” And by the way, we fail all the time at it, but we try really hard to keep it approachable.
Tim Ferriss: So let’s flash forward then, because now all of these things that make Alinea Alinea, many of them, are gone. I mean the palette of colors has been reduced to carryout or something like that —
Nick Kokonas: Yeah. We didn’t know what we were going to do, and I think everybody on our team, the close-in team, as we were trying to figure this out, kept going back to things we knew. And we were on a chain text message because there’s so much going on. And one of our employees kind of was modeling in talk like, “Well we can do 125 meals a night and we can do it between a six o’clock pickup and a nine o’clock pickup and we’ll have this many employees and this many dishwashers” and all that.
And I remember I replied, “There are no chefs, there are no dishwashers, there are no cooks, there are no owners, and there is no restaurant. Get it through your fucking head. None of what we had last week exists. We’re doing something completely different. We have to do it inexpensively because no one’s going to want to spend $200 on a pickup meal. It’s also tone-deaf. We’re in the middle of the fricking pandemic. It’s going to have to cost 30-35 bucks. It’s going to have to be comfort food because it’s still kind of winter here. It needs to be highly delicious. It needs to be transportable. And it needs to beat the shit out of ordinary delivery food, pick up food. And then we need to do it at a scale that the revenue makes sense. If we’re doing 100 of them at 35 bucks a night, that’s $3,500. With the scale of our employee level and our lease and the kind of ingredients we buy, $3,500 a night is fine if you have a small sandwich shop. It’s probably great. You probably have two or three employees. We have nearly 100 at that restaurant. Our annual payroll there is six and a half, $7 million. So you’re not getting the scale of the problem.”
And I remember I called Grant and he was like, “Well, we could do a beef Wellington because that’s always delicious, and we could do an individual size. And currently we buy beef from a ranch in Colorado called Seven X Ranch, which makes a great product. And the Wellingtons would have to be 50 or 60 bucks each.” And I was just like, “It’s got to be 35 bucks. You have to come up with something that’s 35 bucks.” And he said, “Well, I could do a short rib beef Wellington because short rib is way less expensive than tenderloin and it’ll still be really delicious. The sauce will be the same.”
And all of a sudden, three days later we turned on Tock, which we built this other thing which I can tell you about in a minute, Tock To Go. And we put up 500 for sale for the weekend on Friday, Saturday, Sunday. And they sold out in five minutes. And we also offered wine to go with that. And we sold a couple hundred bottles of wine. And suddenly we’re like, “Hey, we brought in $20,000 of revenue a night. We can hire back 30 people. And by the way, we need to, because we’ve got to produce 500 beef Wellingtons.” The first day was tricky because the pickup, we’d never done a pickup before, but we kind of went like, “Well, what’s the smoothest way to do a contactless pickup?” So we built two-way text messaging into Tock and people just pulled up, and we had an iPad out front and people had masks on and gloves, and they popped their trunk and we put the food in the trunk and off they go.
And lo and behold, by 7:30 the first night, we had served all 500 and people were posting them on Twitter saying, “Wow, this is a really joyful thing in the midst of all this craziness.” And what always happens with us in a good way, and with Grant, God bless him. Guy’s a fricking fighter. On Sunday, he was like, “I think we could do 750 tomorrow. 500’s easy.” And by the following weekend, we were doing 1,250 a night and we had reemployed about half our staff in a week. And then we kind of looked mid-week and we went, “Okay, what do we do next? Now we know how to do this. Like, hey, we got five under our belt. I think it’s safe to get Next and Royster, two of our other restaurants, going. And by the way, we have a cocktail bar. Let’s start doing prepaid cocktail packages, cocktail kits out of Aviary, and then offer them up with these meals.” So we started engaging —
Tim Ferriss: Nick, may I jump in for a second?
Nick Kokonas: Please.
Tim Ferriss: So a question that I’m sure some listeners are wondering is how do you produce that number of meals safely without packing employees together?
Nick Kokonas: Yeah, absolutely. That’s certainly part of the trick. First thing you have to understand is that on a normal night at Alinea with 128 people, you’re looking at about 2,200 to 2,500 plates going out of the kitchen. We have a big, open kitchen. It doesn’t look like a traditional French kitchen. It looks more like a lab or something like that. And so what we did is we took all of the dining room space and we spaced all of that out, prep kitchen next door that we use all the time during the day.
And the important thing to remember is that the intricacy of what we do at Alinea normally with those 2,000 plates that goes out is highly complex. We’ve got 15-16 different dishes, each with 15 or 16 different components, very precise. By doing 500 to 1,000 beef Wellingtons that are all identical to one another along with the sides and the rubbish on mashed potatoes and all of that, it’s actually much simpler than what we do normally. And so what we did was we did the temperature check, the mandatory hand-washing, the masks, the gloves, but we spread it out throughout the entire restaurant so that the space where diners normally are wasn’t being used. So we used that as staging for all of the boxing of the food and whatnot. So we were able to do it in a way that was safe. And it’s really important to remember too, and this is something I think a lot of people early on didn’t think about, in Chicago, we have 82 major grocery stores for five million people.
If one of those nodes goes down, if you think about a computer network, if you have a network of 16 computers and one of those nodes goes down, you notice. But if you have one with 64,000 nodes and one of them goes down, you don’t really notice. That’s the Internet in a nutshell. That’s computing in a nutshell. Early on, there were some folks in the industry that were calling for restaurants to not be allowed to do carryout at all. And is it 100 percent safe? Well, it seems to be the case, and there’s broad consensus on this, that food is safe and packaging is probably safe, 99 percent safe. Now the mail is still being delivered and we’re all getting Amazon packages. So what we were left with is really the safety not of our customers, which seemed to be very, very safe, but the safety of our employees.
And so that’s what we took very, very seriously. And first I should also add anybody who didn’t want to come into work didn’t have to. Anyone who felt unsafe or was in giving care to elderly parents and it was a bad risk/reward, no one had to work. Their reemployment is in no way contingent on whether they decide to work during this time. What we found though is that most people wanted to work. And in addition to being reemployed, we put everyone at $15 an hour. We did not know — so if you were a dishwasher, you made 15 bucks an hour. If you were the head chef of Alinea, the sous chef, a manager who was making $150,000 a year before, you were getting $15 an hour. And we did that to make everyone equal. And then we said, “If we make money doing this, we’re going to take the profits of that money and we’re going to distribute it amongst all the employees and a recapitalization fund for the restaurant.” And everyone just felt like part of it. Yeah.
Tim Ferriss: I’m that guy who interrupts, I apologize, because I know people are going to want to hear. Recapitalization, could you just explain that real quickly? We don’t have to spend too much time on it, but what does that mean?
Nick Kokonas: Basically, we’re going to need a runway to keep everyone employed after we reopen. One of the things that people don’t realize I think in the industry and in public in general, although it’s certainly dawning on everybody, is that, okay, Congress passed the CARES act and that’s certainly a huge help to small businesses across the board. They did so very, very quickly. And consequently, there’s a June 30th deadline as of the time we’re recording this and it may be changed, but basically you can apply for the Payroll Protection Program, rehire everybody, but you’ve got to spend all that money if you want it to be forgivable by June 30th.
But restaurants won’t be reopened for ordinary business by June 30th. And even if they were, how many people are going to show up and feel safe? So it’s one thing to hire everybody back. But then what happens on July one when your demand is down 70 percent and all of a sudden you have ordinary expenses and ordinary payroll again and your lease that you signed in 2016? So what we wanted to do was try to make enough money now that we could have a capital pool where we could weather the storm, not now, but over the six months after we’re allowed to reopen.
And it remains to be seen, of course, whether or not this works. But what I didn’t want to do was wait to see what happened. Every step along the way, I kept saying, “Great, I’m glad Congress is doing this. I’m working with the Independent Restaurant Coalition, but I also want to keep working. I don’t want to rely solely on Congress or some guidance in the SBA, whether or not they change this June 30th date or not. I can’t really control that, even though they should change it and I want them to, and we’ve pushed them to, because it’d be good for the industry as a whole and for the economy as a whole. I can’t personally as an individual rely on that.” And so we’ve been working really, really hard to scale up all of our operations so that we actually make money during this time. And then we’re going to pay out that money to the staff so that they can take care of themselves and all that. But then we also said, “Look, we want to guarantee your employment even when it doesn’t make sense come September.” That’s the goal.
Tim Ferriss: Let me ask another question or just dig into one aspect of this that may be a dead-end or it may be interesting to people. You were just mentioning a few minutes ago about repurposing the dining space, in other words, the spaces outside of the kitchen but still within the restaurant for this takeout, for the meals that you were delivering for say $35 a pop. Was part of your ability to execute that the use of induction stovetops that could be moved around and put all over the place? Because that’s something I remember noticing very obviously when I walked into sort of the main, I know you have multiple spots, but within Alinea, so the sort of main alien autopsy sterile cooking environment where the induction stovetops — I mean, if you imagine, for people who have no idea what this is, a very — thin boxed board game. I mean, something roughly that size, that you can plug in anywhere and boil a huge pot of water within a matter of minutes, using, my understanding is some type of sort of, I guess, well, magnetic induction, I suppose. But did you use those in the dining space? Or where, was that primarily a prep and kind of packaging area?
Nick Kokonas: Yeah, that, it’s a good thought. But we didn’t really need to. We were able to do everything we needed to do between our prep kitchen and our main kitchen. Again, keep in mind, it’s a lot of food. If you look on Grant’s Instagram, you’ll see some pictures where there’s the packaging for 500 of them across all of the past. And you know, they’re plating it up for packaging.
But in terms of the cooking, we didn’t need to do that. It was more in terms of the packaging, staging for pickup and whatnot, that went out to the dining rooms. Again, it’s a ton of food. But it’s less than we normally do.
Tim Ferriss: I’m not in the restaurant world. But I imagine that, and correct me if I’m wrong, but that on top of low or no, I shouldn’t say demand. But rather, ability to service customers in the usual way, that there are some supply chain disruptions. Did you guys not run into any supply chain issues?
Nick Kokonas: You know, we’re starting to now. But early on, all the food that you might imagine that would normally be distributed to thousands of restaurants, almost everybody was buying nothing. So early on, we actually found that we had some distributors who would call us up and say, “Hey, I’ve got 800 pounds of X, Y, Z that’s about to go bad in four days. Do you want it?”
Tim Ferriss: That’s amazing.
Nick Kokonas: So we were, yeah. So you know, we, I remember, probably like day five or six, we didn’t want to be selling wine out of our cellar. Because it would, again, a little tone-deaf, trying to sell, you know. Like, “Hey, it’s a pandemic. Buy a 250 dollar bottle of wine,” right?
So we were going out into the market and buying wine from distributors. And when we would reach the distributor, and they would email us back, they would be like, “What do you mean you want to buy wine?” And we’re like, “Yeah, we need to buy 50 cases for the next couple days.” And they would go like, “What are you doing?”
And so, again, I mean, it sounds bad. But from a trading perspective, when you’re the only buyer, it’s like the end scene in Trading Places, Eddie Murphy going like, you know, he’s got all the frozen concentrated orange juice, right? You know, if you don’t know the movie reference, worth watching. Old, old movie. There’s time now.
But you know, it’s like we would just go like, “Well, they’re asking 22 dollars a bottle. Offer them 12. And we’ll buy it all.” And still doing that. It’s like, we put in a wine order this morning. Most restaurants are not buying wine right now. They’re wine cellars. Again, about the symmetry of things, you want to be a buyer when everyone in the world says that there is, it’s totally not worth buying. As long as the thing you’re buying has some intrinsic value. And vice versa, you know?
Tim Ferriss: Yes. Let me hop in, because I want to try to put myself in the shoes of some listeners who are going to say, “My God, these guys have huge cash surpluses. They’re generating incredible revenue. Of course they can weather the storm.”
Now, if we just take that as a position, right? Which I think seems reasonable —
Nick Kokonas: Yeah, that’s totally fair.
Tim Ferriss: — for people to take that. What I’d love to talk about is, or to hear you talk about, really, is number one, what types of restaurants you think will make it. And that could be intrinsically because they have certain characteristics or because they adapt in certain ways.
Then, what are some of the things you wish restaurants would do more of and less of? Right, for instance, a lot of restaurants are using gift certificates. I don’t know how you feel about that, but I’d be interested in hearing.
To the first point, who’s going to survive, you and I were chatting last week. Or maybe it was — time, space has collapsed, so it’s hard for me to say. Maybe it was a few days ago. It was a few days ago. And a friend of mine was playing, as he called it, Meat Santa Claus. Thank you, Matt. And delivering Franklin’s Barbecue to his friends in Austin, which is an incredible gift. Franklin’s Barbecue, for those of you who don’t know, is this iconic barbecue spot where normally you would have to wait hours and hours and hours. There is a line that will take you three to four hours, if you are lucky enough to get to the door before it sells out completely. It is incredibly popular, right?
And I remember you were like, “Yeah, Franklin’s will be fine.” Which I would tend to agree with, right? It’s kind of like if people are looking at distressed debt in real estate. It’s like, yeah, Pebble Beach probably will be fine. Maybe the B tier, C tier, who knows, right? Now, I’m not, Pebble Beach is just a hypothetical, but it’s a name brand in that respect, which I’m sure has some value in terms of resiliency.
But who do you think’s going to make it through? And what are the characteristics or the things that they might do?
Nick Kokonas: Yeah, so one of the things that was interesting in a difficult way when this all happened, was that as much as I was scared — to be clear, I was very scared as to what would happen, just as much as everyone else is. You know, yeah, we have pretty good capital reserves and whatnot. But we chose to do that, you know.
During the good years, the last couple years, we always held money back. We didn’t pay all out to our investors or ourselves. We did that because when things were going really well, you know, we expanded over 15 years to five restaurants. I watched other groups during that time expand to 20, 25, 30 restaurants and thought to myself, “There’s no way that they can be managing all that well. I don’t think, unless they’re doing something, in which case I need to learn from them,” you know?
But we were always very conservative in keeping those capital accounts and whatnot. But more than anything else, we’re scrappy. People don’t realize, people think I wrote a check and built Alinea and then retreated to some island somewhere. Since the day we opened Alinea, which is 15 years ago coming up May 4th, I’ve been engaged every single day with that restaurant. With Grant, with our team. As has Grant, personally, as have Steve Bernacki and other key people that we have.
It is not glamorous. Then, we’re scrappy. We’ll just get in there and do shit ourselves. I’ll tell you what kind of restaurant will survive. Eric Rivera used to work for us. He has a place called Addo, A-D-D-O, in Seattle. He is very vocal on Twitter right now, in not always a totally positive way. Because he sees a lot of big companies and big hospitality people saying, you know, that the industry is going to get bailed out, this and that.
Eric’s just like, “Fuck it, I’m selling burgers. Next week, we’re going to do a steakhouse. Then, by the way, if you want to pay it forward, we’ll sell a thousand bowls of soup every week for you know, people who are in need. Anybody can buy one of those.”
He has created in the last three or four weeks probably 20 different concepts of carryout/delivery. He’s doing his own delivery fleet already. He’s figured that out. He was a development cook for us, and moved to the West Coast —
Tim Ferriss: What is a development cook?
Nick Kokonas: Yeah, he just basically, he started off in our kitchens. Then he didn’t really love or thrive in the environment of just grinding out the Alinea kitchen every day. What he did was, he, when we did research on something, or we would try to figure out new products or new ideas, or new dishes or whatnot, or you just needed someone to go get me 42 different kinds of grass-fed beef. And we were going to figure out which one we were going to serve next for our steakhouse, he would do all that sort of stuff. He was a research chef, basically.
You look at what he’s managed to do, and what he says on Twitter is like, “Look, I’ve got eight employees. I don’t have a ton of money. I know for a fact there’s no chance that I won’t be open in two years, because I just wake up every day and do whatever it takes to make my payroll. And make enough money to keep my place open.”
Now, that’s —
Tim Ferriss: What was his name again? One more time.
Nick Kokonas: Eric Rivera.
Tim Ferriss: Eric Rivera.
Nick Kokonas: You know, it’s like, he’s really vocal on Twitter. I think he’s pissing a lot of people off, and he’s gotten into it —
Tim Ferriss: @ericriveracooks is his handle on Twitter.
Nick Kokonas: Yeah.
Tim Ferriss: That’s what I was trying to find.
Nick Kokonas: Yeah.
Tim Ferriss: The restaurant’s @addoseattle.
Nick Kokonas: He even gets into it with me at times, because you know, early on, in this — I feel like I need to, I have enough of a platform in the industry where I have to be a little bit careful on balancing my criticism with my encouragement. You know?
So I think he was kind of like, you know, “Hey, Kokonas, why aren’t you supporting this or that?” And yet, I watch what he’s doing, as opposed to some other folks who turtled, to get back to our earlier conversation. Where they just kind of went like, “Well, it’s a hopeless situation. There’s nothing I can do.”
There’s a bit of this misery porn going around with all, not just the hospitality industry, but with everything. Every industry, every business, saying, you know, “Woe is me, we’ll never make it,” kind of thing.
This is a terrible situation. But I have a huge belief in human ingenuity and the ability of people to be resilient. Things people make are never as structurally sound as the people themselves. Like, this is not a unique situation, as much as we’d like to think it is. Pandemics have been going on throughout human history. It’s just that none of us walking around has lived through one before.
If you study history, and if you read accounts, which I did right at the beginning, of 1918 pandemic. What happened in 1920 through 1928? It was the Roaring ’20s. People partied their brains off afterwards. But right now, if you pick up a newspaper and you read, all you read about and all that anyone wants to hear about is how hopeless and awful this situation, and how broken society is.
We have massive problems. But we could look at that and say, “Wow, this has really put a lens up to the things we need to fix. Let’s get fixing.” And so the kinds of places that will do that, the Franklin’s Barbecue story is perfect. That guy didn’t, he wasn’t, he didn’t grow up barbecuing. He figured the shit out. Made a brand for himself. There’s no chance that Franklin’s Barbecue doesn’t exist in two years.
Then also, the other thing that will happen is, just like when you have a forest fire and then the forest re-blooms, you know that there’s some 25-year-old chef out there. And she’s been itching to do her own restaurant, but she couldn’t afford the leases. She couldn’t find the backers, and all of that. A year from now, there’s going to be some empty restaurant that’s, with a perfect kitchen, that she’s going to be able to get at half price.
All of a sudden, she’s going to kick our ass. The new Alinea is going to come a year and a half from now, to kick our butt. That’s a good thing. That’s the stuff that we need to start focusing on, I think.
Tim Ferriss: So if we’re looking at, I mean, I think the — I agree with you, that I think the hope is important to kindle. And highlight whenever possible, because it is so easy, and I’ve certainly struggled in the last few weeks. I’m not trying to compare myself to anyone who’s out of work. But everyone is fighting battles we know nothing about. A lot of people in my life, also, family members who are in the service industries have been laid off.
It’s a tough time, and it is very easy to succumb to despair, particularly if you are only ingesting news that highlights hopelessness. If that makes any sense.
If we look at the tactical — so I totally agree with you. I mean, the opportunity is just going to be incredible for that 25-year-old woman or any up and comer, or person who’s simply been waiting in the wings, looking for opportunities. I mean, within the next year or two, there are going to be a lot of opportunities.
If we’re looking at tactics right now, what are some of the things that you think are not a good idea? What are bad ideas that people in the restaurant world are pursuing, and what are some of the good ideas?
Nick Kokonas: So you mentioned that, the gift certificate thing. I know that week one — people love their neighborhood restaurants. I’m glad they do, and I do as well, by the way. I’m a frequent diner, and I’ve got all my favorites. So — people wanted to know what they could do. There was this whole movement about gift certificates, and someone in New York set up a site that they called Restaurant Bonds, which show that they don’t really understand what a bond is.
They were just basically a Groupon. It was not only a gift certificate, but it was a gift certificate that was at a 25 percent discount. All the GoFundMes started. Yelp did a terrible thing with GoFundMe to create a hundred thousand automatically generated GoFundMe pages for restaurants, including my own, which I shot down and they killed the program.
You know, it makes people feel good to give to support other people. I certainly don’t want to ever discourage that. A gift certificate is a liability on your balance sheet. If you take, say, 25 thousand dollars from people for a GoFundMe or gift certificate, first of all, that, in a scale of your payroll and you know, if a restaurant has 40, 50 employees, you can just do the math on the back of your hand. You know, they’re making, just call it 15 dollars an hour, 10 hours a day. Multiply by 50. You’re going to cover a day of payroll with a gift certificate drive, or a GoFundMe.
Maybe two days, maybe three. If you’re hugely successful, maybe every employee gets a few hundred dollars. And of course, you could say, “Nick, you’re being really cynical. That’s a few hundred dollars they didn’t have.” But what I’m saying is that you’re much better off channeling that to other organizations that can leverage it more impactfully, you know, World Central Kitchen, for example, the work José Andrés is doing.
If you want to help your local restaurant, buy food from them. Because if you buy the gift certificate and then you go use it in four months, they spent that money four months ago. You know, one of the big problems that a lot of restaurants had is that they were paying for food that they bought four weeks ago with next week’s revenue.
The gift certificate just exacerbates that problem. It just, it’s like mortgaging their future. What’s interesting is that when I criticized the gift certificates, a lot of restaurants didn’t understand how the finances on that work. They didn’t understand how that shows up in their balance sheet and were very much thinking that I was trying to hurt them. I was not. I was actually trying to help.
So, it’s, again, it’s very tricky how, in the midst of a crisis, you try to be positive and educate the public and even your fellow business owners. Similarly, there’s a really high-end push to sue insurance companies for business interruption insurance. That’s a five-year process. That’s not going to save your restaurant next week. It’s not going to help your employees next week.
So all these things are thoughts that people had really, really fast. Again, I think that’s why it went to the planning ahead. If you’re acting as a reaction to a really bad situation, it’s very easy to make bad decisions quickly. If you’ve considered the various possibilities that can occur and what you will do at that time, it’s like being an athlete that goes, “Okay, well if we get to this part, this is the play we run.” And you just do it. It’s not a hard decision. You act it out.
That’s, those are the folks that are going to make it in every business, through this sort of thing. Also, that’s of course the problem with our government, too, right? We had some of these playbooks in place, and we were spending money on them every year. And then people said, “Well, why are we spending money on something that never happens, right? Maybe we should save that money or spend it on something else, or give people tax cuts with it.”
That’s the sort of failure of leadership that is happening nationally, internationally. But also, locally and on a small basis with many businesses. I don’t know how you change that globally. I really don’t.
Tim Ferriss: Well, I think we can start with those, with people listening and how they implement things. So I had a clarifying question, but I also want to maybe underscore one thing, which is, many people listening will say, “Well, that’s great if you had the foresight to plan and determine contingency A, B, C, and D before all this hit. But a lot of people didn’t do that.”
I would just say, and I’d love to hear you out of this, after I ask a clarifying question, that it’s not too late. Because there’s still so much uncertainty in the next two weeks, four weeks, two months. Fill in the blank. You can still ask yourself, what if this happens versus that, and think about what you will do in those situations in advance. Right? That’s still very much a possibility for a lot of people.
But the quick clarifying question I had might seem superficial, but you mentioned that a lot of restaurants are paying for the food they bought four weeks ago with the revenue from the following, from next week, let’s just say. Right? So I imagine that’s something like net 30 terms. Does that mean that you guys do not pay your vendors using terms like that, or just that you have such a cash reserve, you have such a margin of safety in that buffer, that you don’t have to depend on next week’s income to pay for what you bought four weeks ago?
Nick Kokonas: The answer is actually both. About five or six years ago, we realized that if we called the vendors of our more expensive items, meat, fish, wine, that sort of thing, and we said, “Hey, we’ll make you our exclusive vendor for the next three months, and we’ll probably spend about $220,000 during that time. What sort of discount will you give us if we prepay for that?” Almost like a futures contract, right?
So instead of getting net 90, or net 60, which is what every restaurant tries to get, we actually negotiate a discount by prepaying that and then sort of truing up afterwards. So for our big-ticket items, we try to stay a couple months ahead on payments, in order to get more favorable terms and better product.
That’s something that, when I talk to even big restaurant groups about that, there are certainly some that do that. It’s very rare. You know, you’re looking at some big hotels that do that, whatnot. But not that many.
Then, the other part is exactly what you said, which is, you know, for the vendors that just are small or they won’t do that, or we just sign the standard terms, we’re not — we have a capital account that we keep, which is, you know, accounts receivable, accounts payable. And our accounts payable, we’re always going to be able to cover that. We’re never going like, “Well, if business goes down 30 percent next week, we’re not going to be able to pay for four weeks ago.”
Now, of course, everyone can say, “Well, that’s because you’re a busy restaurant,” or whatever. But when we first started, that was, you know, my dad used to run his own business. He was only high school educated. He was like, every time I tried to complicate things when I was in college and I talked to him about his business, he would be like, “It’s three shoeboxes, Nick. It’s the money in, the money out, and then the third box is what paid for your college.” That’s the money that’s left over.
He was like, “So, you hear, if you worked with me, you would hear me say that a lot.” I will get some very complicated model some time, and if there isn’t a three-shoebox tab on that spreadsheet, money in, money out, money leftover, I don’t even want to look at it. It’s not that hard, you know? If you can’t figure out, if that third shoebox isn’t going to have anything in it, you need to reassess what you’re doing and iterate.
Boy, so much of things would be less complicated. So we always get down to the three-shoebox method, and we always make sure that there’s something left over in that third shoebox. If there isn’t, we change. We change our — what we’re offering, what we’re selling and all that. After 15 years of doing that, the hardest part is to keep that attitude when things are going well. You know, we ripped apart Alinea after a record year in 2016, razed it to the ground and rebuilt it. Because we had maxed out of that footprint. It wasn’t going to improve at all.
Right now, like you said, it’s not too late. I want to pick up on that. It is very much not too late. We are at the beginning of the beginning of some unknown, terrible, weird thing that’s happening. Your listeners may a year from now listen to this and go, “God, Nick was so full of shit, he’s out of business.” It could happen. It’s like, what I live in fear of right now is, hey, in September when all of the government — look, we can’t keep printing trillions of dollars. We can’t bail out every single business in America permanently. I mean, it seems like we can because we just did. But if we keep doing that, you run into things like hyperinflation, and at some point we’re going to probably issue a 50-year bond at one percent and the Chinese government will probably buy that bond.
But at some point the ability of the rest of the world to want to consume our debt will slow down. And so consequently, all of us are going to be left to our own devices sooner rather than later. So I reopened my restaurants and we’ve got people wearing gloves, and we’re practicing social distancing, and our occupancy is 50 percent of what it used to be, and demand is down 70 or 80 percent, and my revenue has gone and plummeted by 75 percent. That’s what I spent yesterday modeling out. And at some point you just go, “Eh, it’s not really worth being open.” So at that point I go, “Well, what would we need to do to make it worth being open? What would we do to be able to save 95 percent of the jobs and still make money as it’s own a business and rebuild it over the next two or three years?” And I don’t have those answers yet, but we’re kind of going, “Well, what do we do experience-wise? What will people want emotionally then?”
Well, they’ll certainly want safety in the short term. They’ll want a release of some sort. I think humor will be important then. But what does that in terms of a dining experience, I haven’t the faintest idea. So these are the conversations we’re having now, and I was talking to Grant about it yesterday and trying to come up with ideas for instead of looking at the distancing as a limitation or the occupancy is a limitation, what kind of weird idea can we have to make that an asset instead of a liability? So I have no idea of what we’re going to do. I don’t know if it’ll work or not. But that’s the part that’s going to be really hard. It’s actually not right now. Right now the limitations are so great that all we can do is carryout. They extended the stay at home order through May in Illinois yesterday and I just went, “Oh, okay, well, for the next four weeks we kind of know what we’re doing. After that it’s a wide-open slate and very scary,” to be honest.
Tim Ferriss: People listening who want to improve, and I want to come back to talk because we didn’t really pick up, that’s my fault, but pick up on the, here’s a business that also entirely depends on restaurants, and it’s not like you’re only servicing Alinea so you can make up for it. I mean, were you going to come back to that. But for people listening, whether they are in restaurants or otherwise, are there any particular books or resources that you have found helpful or would recommend for improving your thinking and strategic planning? They don’t have to touch on it directly. It could be, for instance, Dune I think has a lot of great leadership lessons. It’s not a book about leadership, but nonetheless. Does anything come to mind just for people who were saying, “God damn, I wish I studied more economics,” which I did not, but you might have. “I wish I studied derivatives.” “I wish I studied this, I wish I studied that, but I haven’t.” “How can I hone my thinking?” Do you have any suggestions?
Nick Kokonas: They’re the same ones from the last podcast we did. I think there’s a list on there. And it’s funny, Nassim Taleb on Twitter can be very pedantic and kind of a jerk sometimes, but Fooled by Randomness, not The Black Swan as much, this isn’t actually a Black Swan event, I don’t think, Fooled by Randomness is over and over again a book that I come back to and have suggested to people to read during this, or to reread, because both that and Skin in the Game are fascinating. And what’s been interesting in this is that he has the generalized Rubin principle, which is kind of funny, which is basically all the airline CEOs have no skin in the game. So many of the leaders of our big companies are custodians of those big companies, and they get paid more if the stock price goes up.
And so if they take their capital reserves, if they take that third shoebox and they spend it to get the stock price going up and they don’t hold billions of dollars in reserve, they only do that knowing that they’re going to get bailed out if shit hits the fan, like ’08, like ’01, like ’89, like now. And so Taleb, this is stuff he’s been writing about for 20 years, and I have to say that what people don’t realize is that the airlines, I tweeted something like “There are too few to fail. They’ve all merged together, there’s not that many of them and we certainly will need air travel in the future.” And so consequently everyone’s like, “Well, yep, going to have to bail out the airlines.” But you really don’t. Those planes aren’t going anywhere, and someone will buy those assets, and the airlines will still run and the employees will still have their jobs.
So I keep coming back to a lot of his thinking on that, because the people that I know that are looking for the bailout in any industry, including hospitality, including software, both of which I’m in, are the ones who themselves generally don’t own the things. They may look like they do and you may think that they’ve got their skin in the game, but they don’t. They have licensing deals, which is very different. The people who’ve built their own businesses from scratch and have bootstrapped them and whatnot, I think you’ll find that a lot of those folks who are like my dad, and my dad was a product of The Great Depression, my dad didn’t carry a credit card his whole life. He was like, “If you can’t pay for it, you can’t afford it.” And that’s been beaten into me. And I tweeted after this all happened, we ran Tock in a very capital efficient manner while some of our competitors grew at a pace. We’re growing 300 percent a year, which isn’t shabby. It’s VC eyebrow-raising worthy.
That said, some of our competitors grew faster by giving their product away by burning through 60, $70 million and then selling the company for a couple of hundred million. Those are all the companies now that are laying off 50 percent of their employees. And so running a fiscally cautious and intelligent company, whether that be your restaurant, or your software company, or your airline or whatnot, biggest example of that is Apple. How many companies does Apple buy a year? How much money do they have in the bank? A hundred billion plus. And there’s been times where people are like, “Oh, Apple should buy Uber — not Uber, Tesla — or Apple should buy this, or Apple should buy that.” Apple’s product development is slow as hell. They wait and see what works in the market and then they just make a better version of it. And is anybody worried about Apple right now? I’m not. And yet there are companies, like my favorite, like Yelp, what did Yelp do? Well, they laid off 50 percent of their workforce right away. Taleb goes through all of that in great detail 20 years ago and has been right on the money with a lot of his prescriptive writings.
Tim Ferriss: What are some companies that could be in hospitality or they certainly could be outside that you admire a lot right now or in general?
Nick Kokonas: That’s tricky. Certainly they’re out there. Some of the remote learning… I follow a guy named Austen Allred on Twitter who has an online programming school, and I started following him about a year ago, and I think it’s called the Lambda School. And the model of that, which is so great, is simply “You don’t pay for the school until after you get out and we get you a career. So if we do our job right, we’ll take some money,” I don’t even know what the deal is, five years after you graduate or whatever. “And then if, during that time, you become unemployed again, you stop paying us.” What’s fascinating now is that these universities, the great part of an elite university, and I think you and I both have been fortunate to go to two of them, a lot of what we learned I bet took place outside the classroom amongst our peer group.
What’s interesting is that I have a 21-year-old son, and he is at a wonderful liberal arts college and he hasn’t been feeling that he was getting that same experience that I got. And I honestly thought it was a failure of him, or maybe if I was going to be in a generous mood, I’d blame the school or something. But I think what happened is that he associates a lot of his relationships to be online and virtual, and so he stayed in touch. When I went off to college, I couldn’t be in touch every day with my high school friends or I couldn’t be in touch with people that I met on the other end of the world who had similar interests to me. He does. And I think if you look at what Austen is doing with the school, is that he’s taken the best, most important parts of the school and realized that some of the community aspects can be done virtually. Now I’m not totally sold on that. I’m 52 years old, though.
I bet my kid agrees with that 100 percent. I think that he just thinks, he’s like telling me, “Get over it, old man.” So you look at companies like Zoom, which is really hot now, we started using Zoom a year-and-a-half ago. If you had told me five years ago that that would be a company that would grow like that when, hey, Skype video has existed for years. Google Hangouts is free. There’s all these free options. Why would you build a video conferencing company? Well, it’s because all those video conferencing things suck. All the ones I mentioned aren’t that great. They’re free, but they’re not differentiated. When we started Tock, we started Tock competing against OpenTable, which was completely ubiquitous. And I’ve had hundreds of people telling me, both in our industry, and investors and whatnot, “You are completely out of your mind starting a company competing against someone who has a monopoly.” And so the companies that I like to look at are the ones that go into a very established industry and just go, “Hey, it’s ripe to be blown up and done better.” And so Slack is another version that —
Tim Ferriss: I feel like a lot of people gave that line to Google with respect to Yahoo back in the day.
Nick Kokonas: Yeah, 1,000 percent. And I mean, Google seems impenetrable now. Facebook seems kind of impenetrable. But yet TikTok still came along. Not something I use, but still there’s always room for a positive change. And it’s an interesting question. Normally I probably go on and on about that question, but I’m so in my own weird space these days because everything’s happening. I mean, we’ve probably done for Tock and the restaurant group, I bet we’ve done, what? Two years of work in eight weeks. Normally what we accomplished in two years we did in eight weeks.
Tim Ferriss: Well you had to completely, I mean I don’t know if completely is the right modifier, just a quick aside, Austen Allred, you mentioned, at Austen, A-U-S-T-E-N, and it is Lambda School, Lambda School’s super interesting. You had to kind of redesign the business, if I’m not mistaken, or at least do a hell of a lot of coding and product upgrading. Because as you mentioned, kind of analog to OpenTable, but better reservations in CRM system for restaurants. And how long did it take you to create the To Go platform?
Nick Kokonas: Six days. Yeah. And we’re a 100-person company and we service about 3,000 hospitality clients between wineries and restaurants in 28 countries. As I mentioned, we were growing about 300 percent a year. And as this year started, we had come off a year where we grew by 300 percent almost across every metric. Revenue, we added 40 employees to get to just under 100. And we really were getting traction for bigger groups and more casual restaurants and whatnot. And then this happened. And just at the same time where I was saying that I could see that my restaurants were going to go to zero, I had this company with 100 employees that were making really innovative software for the hospitality industry, and our revenue was going to go completely to zero. And we have a high, high payroll because we have really highly skilled individuals. And so Canlis restaurant in Seattle, which was a couple of weeks ahead, quote-unquote, of the problem, they were trying to modify the way that we handled tables, which is unique to Tock, to make it into carryout meals.
And Brian called up Jeff Kaplan, who’s the COO and a really great guy at Tock and I really couldn’t run the company without him, and Jeff called me and said, “We’re going to go to zero.” And I’m like, “Yeah, yeah I know.” And he’s like, “I think we should just do this carryout thing.” And he’s like, “You’re doing it for Alinea; you’re already talking about it. Canlis has already started doing it. And the third-party delivery apps charge 20 to 30 percent. We don’t need to do that. These people aren’t going to be sending food out the back doors. This is going to be the only option in America.” So we got a group together of about 12 to 15 design engineering people, and we got on a video call and we just said, “We’ve got to do this in a week.” And everyone kind of, you could see the discomfort because this is the kind of project that normally we would take six months to build. And we’re very particular about the UX, we’re very particular about testing. You’re talking about payment processing, all these things.
And Robin Anil, who’s our head of engineering, who is just an extraordinary guy, he was a machine learning guy at Google and whatnot, he got off the call, and he called me on the phone and he just said, “We can do this. I got it.” There’s a couple people who were like, “That’s not really possible,” and they said, “We’re not going to be able to test it. It would take weeks to test.” And I’m like, “Yeah, we’re not going to test it. We’re just going to throw it out into the world.” And six days later, Canlis was using it, and we had five restaurants by day seven, we’re adding 50 a day now. So we went from processing over a million dollars a day in gross merchandising value for events and prepaid reservations, and then 50, to 60, 70,000 reservations that were free besides that to zero, and now we’re at 1,000,002 a day in four weeks.
And we’ve completely changed the way that the restaurants can manage the inventory on the dashboard, the back end side of Tock, in a way that we’re getting emails every day from restaurants saying, not only is this a lifeline to the other side of this crisis, but we are employing people. There had been several restaurants, including Alinea by the way, which has had its record revenue day during this time. And so what we managed to do and what our team managed to do is have the urgency of a startup circa 2002, and we now are working seven days a week. We hired another person yesterday, our first hire since this all began, to be in our account management team to help onboard restaurants because we’re adding, we’re literally working, someone is working 24 hours a day for Tock right now, just onboarding restaurants and then teaching them how to do this. And then this is the kind of thing also that expands, Tock was always about dynamic and variable pricing for a time-slotted business. Now what that means is that your dentist should cost less on Tuesday than Saturday. Dentists have time slots.
Suddenly, furniture stores have time slots, grocery stores have time slots. There are going to be reasons to gate in a time-slotted way a whole bunch of different kinds of businesses. So now we are talking to all sorts of businesses that have nothing to do with the restaurant industry about time management for reservations. And because we built those data structures in that way five years ago and we thought about those time slots almost as derivatives, that’s now flexible enough that we can apply it to say a furniture store, which we just signed yesterday. So again, very interesting outcome unintended of a terrible situation. But I have to say that our team, man, we’ve never felt more productive, more connected. We haven’t been in an office in six weeks. I personally don’t like remote work, I like to be in an office. But we have been more productive in the last six, seven weeks than we have in the last year and a half, at an extraordinary pace with really high quality too.
Tim Ferriss: That’s incredible. And you have a lot of skin in the game, just to bring that phrase back.
Nick Kokonas: That’s it. That’s it. Yeah. I would like to emphasize that I’ve lost 10 pounds, I’m stressed out, I’m 1,400 emails behind. You’re always on the email zero thing. I’m not managing all of this well, it’s chaotic, it’s not fun. I’m drinking more wine than I should in the evening. But you know what? It’s a sense of purpose is what we all want, and I think it’s very easy to have a sense of purpose right now.
Tim Ferriss: Well, Nick, this has been yet another wide-ranging and fascinating conversation. I appreciate you coming back on. People can find Tock at exploretock, T-O-C-K, .com, is that right?
Nick Kokonas: Yes. And please do support your local restaurants through there.
Tim Ferriss: And they can find you on Twitter. That’s probably, is that where you’re most active, @nickkokonas, on Twitter?
Nick Kokonas: Yeah. Twitter and Instagram, and Kokonas at Instagram.
Tim Ferriss: Excellent. And I will include links to everything we discussed in the show notes for everyone, tim.blog/podcast, or just go to tim.blog and search Nick, or Alinea, or Kokonas. And you can find everything that has been covered. Is there anything else that you would like to say or comment on before we wrap up, Nick?
Nick Kokonas: Not at all. Thank you so much. I’m sure that much of what I’ve said here is going to be wrong, and that’s fine too. And send me some Franklin Barbecue next time you have a meat fairy, a meat angel coming by because I would love some of that right now.
Tim Ferriss: Oh, that is my plan for lunch today is leftovers. Can’t wait. Thanks again, Nick. Always a great time.
Nick Kokonas: Thank you so much, Tim. Thank you.
Tim Ferriss: And to everybody listening, till next time, thanks for tuning in.
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