Arming the Restaurant Rebels with Tock CEO Nick Kokonas
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All right, listeners, we have a treat for you today. We are diving into what we are going to call at a high level, arming the restaurant rebels with Nick Kokonas. You know, I'm stealing that term a little bit from Shopify, sort of arming the rebels against Amazon. And this is thinking about it in the context of the food industry. And we are going to get into a lot more than that. But that is the working title that we're going to this episode with. So I want to introduce you to Nick before he comes on here.

So Nick Kekonis is the co-owner and co-founder of the Alinea Group of Restaurants, which has its namesake restaurant, Alinea, which has been named the best restaurant in America and the best restaurant in the world by multiple very, very reputable food industry associations. Nick

Nick is also the co-founder and CEO of Talk, a reservation and CRM, and now the leading, I don't totally know what to call it, total reinvention software system for the restaurant industry, formerly known as a new reservation system that expanded into a lot more in March.

So we're excited to have him on and dive into everything about what it means in his entrepreneurial journey, his multiple entrepreneurial journeys, and all the stories behind it. So Nick, welcome to the Acquired LP Show. Thanks, Ben. Thanks, Dave. How are you? We're great. Doing well, all things considered. I'm doing great. Yeah, sort of. That's all of us these days. Every week is a different week. So, you know, it's a good week this week. I'll bet. Yeah.

For listeners, a little more context. If you listen to the Canlis episode in our adapting miniseries, we did that back in March and April. This is essentially the other side of the story. So Talk is the software platform that Mark Canlis referred to when he was talking about these awesome guys in Chicago whose reservation system we were trying to hack from our normal day-to-day to make delivery work. Well, you know, Nick is Talk.

And so I thought it was cool to sort of get the other side of that story here. And the story of how this episode came together comes from a serendipitous Twitter interaction where I was curious and doing some research and I tweeted, Amazon is to Shopify as Uber Eats is to blank.

Who is arming the restaurateur rebels? Nick replied and obviously had some thoughts. And we figured that a really great place to start our discussion today would be this deep dive on arming the restaurateur rebels, what the market looks like after a wild change in the last five years with food delivery, this global pandemic, and what the future looks like.

Nick, obviously, is the perfect person to discuss this with, both from the talk side, from the restaurant side, and himself as an investor. And with a very interesting story of how all that came to be, we know he'll have great thoughts on this, all those and the broader Arming the Rebels theme. So without further ado, let's go.

Let's dive into it. Nick, two major business models that are at war right now. There's a marketplace or an aggregator. You got the Uber Eats. You got the DoorDash of the world, now rolled in Postmates to Uber Eats. And then you've got these SaaS platforms, which are all helping people go it alone. How do you think about that being actually in that industry? Do you think about the bifurcation like that? Yes. I mean, for sure, that's accurate. At the same time, I also...

I simplify it a little bit and I tell our restaurant clients, winery clients and whatnot, you have to own your own customer. For me, the thing that was bad about OpenTable 10 years ago was that I couldn't have access or own the data of the customers that are clearly coming to my restaurant, not because they found it on the marketplace.

but because they wanted to come to Chicago specifically to eat at Alinea. And yet, they would book through Open Table, and then I didn't have their email address, I didn't know where they were from. If they showed up at one of my other restaurants, I couldn't go like, "Oh yeah, that's the same person," and they like to drink tea after their meal. So like basic things that you do in hospitality to make the experiences seem a little more magical are the very same things that every business tries to accomplish.

And how do you accomplish that? Well, you know your customer. And then when you want to do marketing, it gets a lot less expensive to do it on your own. And only if there were tools that you could drop things into and say email 10,000 people at once. Well, there are. There's lots of great systems to do that. But you can't do that if you don't have access to your own customers. And so that was really...

That and the no-show inefficiency model were the reasons that I started Talk back in 2010 for myself. It wasn't Talk then, it was just software that I was building in order to solve some problems for my own business. But the core problem was own your own customer. So to answer your question, if you're on DoorDash or Uber Eats or whatnot, what do they want to do? Well, they want to own the customer.

And then the attribution of the sale doesn't go to a great restaurant like Canlis. Clearly anyone in Seattle right now getting carry out from Canlis and they just launched a crab shack on talk a couple of days ago.

is going to Canlis not because it sits on top. They're going to Canlis because Canlis has been there for 40 years or longer. I don't know exactly, but it's a decades-long restaurant. And they're going to Canlis because it has a reputation and earned reputation for excellence. I do not pretend that

Talk magically got them a customer. Now, we certainly do attempt to find and steer new customers to all of the talk clients and we do all sorts of marketing on their behalf, but we don't charge for that in any way. That just makes our platform stronger in the long run. That's the way I look at it. A whole host of wonderful things happens when you give people the power to own their customers, see the data,

And then they can also operate more efficiently. You know, historically, the restaurant business has been a very poor margin business. But I don't know that it has to be that way. And then on top of that, then there's all these issues with hospitality workers and minimum wage and tipping models and everything.

whole host of other things that accrue from that low margin, which gets solved if you solve the margin. At the Alinea Group, we pay for health care. We have a 401k matching program for our employees. Those took a decade to put in place. But now there's no reason why you shouldn't be able to do all that.

The restaurant industry is famously low margin. And I think an argument underpinning a lot of the highly charged feelings right now about should Uber Eats, should DoorDash exist, stem from this notion. It's already a really low margin industry. So when you say it doesn't have to be low margin industry,

You've already got this cost structure where labor is, I don't know, 30, 40% of the business. Your lease is going to be, I don't know, 20, 30% of your business. No, no, no, no. If you sign a lease that's 20, 30% of your business, you have created an existential problem for yourself. I don't mean to like jump in and correct you. No, please do. There are some people who, if you start out undercapitalized and you're building a restaurant, you might sign a lease where 6% or 7% of your gross goes to pay rent.

That is an error. Real quick, do people, when they sign those leases, is it a variable thing? Like, is it written into the lease a percentage of revenue or is it a fixed cost that just based on whatever revenue you do, it ends up being? The answer is all of the above. And so I've seen leases that people have signed where it's, you know, the greater of...

This is the crazy part. The greater of $10,000 a month or 6% of revenue. I see that and I just go like, whoa. Like if all of a sudden like you have a hit restaurant and you expand a little bit and you go from doing $2 million in sales to $5 million in sales, the extra 3 million times 6% is an extra $180,000 a year. Like why would you ever sign that, you know?

I very, very, very much do fixed leases as low as possible, you know, stepping up 1% a year, that kind of thing. Now, of course, that assumes that you're well enough capitalized at the start to not do that and sophisticated enough to know that paying a tax on your restaurant forever is a terrible idea. But even if you did that, you'd be at 6% or 7%, not 20% or 30%. So give me a sense of the rest of the cost structure and maybe to get two different thin slices like...

Alinea, I'm sure, has a very different cost structure than like a fast casual restaurant. So what do those look like? I like to say that actually like Alinea does 100 people a night at $300 and some other restaurants do 300 people a night at $100. It actually is more of the same than you would think. And so if you're taking that to the next extension, if you go down by a power of 10, you could do 3000 people at $10 and you now have a taco shop.

It's literally the same thing. You're going to look at something between 25% and 30% food costs if you're doing things correctly, 30% labor. You can get a restaurant to 20% to 30% margins if you're running it really, really well. The real key, I give a talk called Tuesday is not Saturday and seven other things you already know but are doing nothing about.

One of the core tenants of talk is Tuesday is not Saturday. And what I mean by that is if I said to you, what do you think that means? Right. You haven't heard this before. You own a restaurant and Tuesday is not Saturday. What do you got?

Well, we've cheated because we've listened to you. Oh, you have? Okay. At least you admitted it. I was like, I feel like you should charge a different amount and you should incentivize people to take those tables differently because they're expiring inventory. Yeah, you've definitely listened to it. You know, it's like, you know, at the core that the demand on a Tuesday is different than the demand on a Saturday. Like if you ran a ski mountain or something like that, you would know that the shoulder seasons have,

Like the first snow, everyone's going to go out and they're like, oh, it's not so great. The following week's going to stink. You should change your pricing. You should change your template. It's the same for dentists as it is for restaurants. And yet, weirdly, every restaurant system, including the DoorDash and Ubers and whatnot, they don't really give mind to the variability in demand. They don't give mind to how many meals can be taken out of a kitchen in a 15-minute window.

Well, and also in something like a restaurant, you really have to pay attention to the dynamics of fixed versus variable costs. Yes, yes, yes. If you're staffing the restaurant that night, you know, that's a fixed cost that you got to cover. Yeah. And also people don't think about the food waste too. So even if you sold the food at cost, you are bringing in revenue that would otherwise just go to waste.

And not to mention all the environmental reasons that you don't want to do that, all the ethical reasons you don't want to do that. So it's just amazing to me that passionate people who open food service businesses, and most of them are passion projects, at least when they start, they are like even something that's like a huge national pizza chain probably started with some guy that went like, hey, I've got an idea to make a pizza, like, you know, which is done 10 million times, but

Everyone forgets that. Like, it's really rare that someone goes like, oh, like we're going to scale something to 500 different stores from this one idea to start with. And those almost never work. Like I have seen a couple in the past few years. And, you know, what was that one with the quinoa bowls like that came out of Silicon Valley?

I heard that and I was like, okay, like you're automating something which will eventually be automated. I don't doubt that. But you're not really giving mind to the thing that's the most important, which is the emotional connection of the people with the product. I think, was it Life Kitchen maybe? Was that the one from Silicon Valley? No, no, no. That one was actually a sit down. I was thinking of one that just like, it kind of like had these automated bowls that,

You'd go in and you could pick all the ingredients that you want in your bowl and a robot would kind of toss it all in. Robot in the ground. That's so Silicon Valley. Yeah, yeah, yeah. Life Kitchen was actually pretty good. I actually knew the investors in there. They just didn't scale it properly. If you are operating a restaurant or a restaurant group really well, kind of at any side, you mentioned 20 to 30% net that you could achieve with the business. Yeah.

So if you look at these food delivery platforms, well, their take is like 20 to 30%. Correct. That's exactly where I was going with that. That's exactly what I was going with that. So here's the psychology of your restaurant owner and how they sell to them. You have a successful restaurant that's under mid-market, just barely under mid-market. You're looking at something that's like a $20 to $25 check average in a big city.

And they have like a product that everybody loves. Could be hot wings, could be their burger, could be ribs or whatever, something that travels in a box. The rep calls and says basically like, look, all you need is an iPad and you can download this thing and we will pick up the food. You don't have to add any labor at all. And we'll probably sell an extra 500 to a thousand dollars a day on average going out your back door.

And you won't have to hire anybody. You don't have to do anything. There's like, it's just like magically an extra 30 orders of burgers will go out your back door at 20 bucks each. And you go, okay, great. That's an extra $600 a day in revenue for me. And they said, well, we're going to take 20% of that. So you'll, instead of getting 600, you'll get 480, but that's still 480. You wouldn't have when you multiply that up by a year, you're

$500 a day, you know, it's 2,500 bucks a week. That's a hundred grand a year. You're going to, you're going to get that you wouldn't have otherwise it's straight to your bottom line. So that's what they say. It sounds really compelling, right? And assuming that this isn't cannibalizing my, my direct sales where I actually have a relationship with that customer and they come through my front door, maybe they sit down, maybe they order from me directly. Then it sounds great. It sounds great. Yeah. And that's what they're going to say in all of that. Right. And, and,

What happened was, even for my own restaurants, for Royster, we do this fried chicken dinner that's 50 bucks or whatever, and it's a half of a chicken for like 25. It's just beautifully done. It's done three ways. It's very artfully presented. And it feels very worth it when you're there. It's one of the most delicious things you'll ever have via a chicken. Some of our employees were like, well, look, let's just start sending some out the door. This is like four or five years ago.

And as soon as they did it, I ordered it at my house because I wanted to see how it came. And I opened the box and I went, this does not look worth the money. And on top of that, they're not only charging the restaurant 20 percent, they're charging you delivery fees usually, depending on which platform you're looking at.

So all of a sudden this meal got ridiculously expensive and everything else was missing. The beautiful plate where the server explaining to you everything, you know, the sauces. And I called up and I just said, you know, shut it down after a week because the experience wasn't good. But beyond that, I also was like, well, how much money are we getting here?

And I realized that with our margins on the food and everything, and if you do take into consideration the labor, I mean, like, look, if you were really successful at this, you'd have to hire another person to cook or two. It's not truly all incremental. It's not remotely, right? And then when COVID hit, I quickly realized the only possible business that even Alinea, a Michelin three-star, will have is carryout. And...

Can list realize that two weeks before me because unfortunately kovat was in Seattle a couple weeks before it started moving eastward, right? so the really smart operators realized quickly that Hey, even though that's not what we do It is now like see the world as it is not as you want it to be kind of thing we immediately started taking the data structures and

of what talk does on the back end with the times and the variable pricing and the pacing of a kitchen in 15 minute increments and all these things. By the way, it wasn't my idea. It was our COO, Jeff Kaplan's idea. He said like, hey, I really think we need to like do the stuff that Canlis is talking about. And it shouldn't be that hard.

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Nick, can you just explain basically like what talk was in February? Yeah, yeah, that's a good point. So talk was built per our earlier mention, you know, it was built really to solve a few problems, which is no show rates run 10 to 15% on free reservations, which is all that OpenTable has still. When you book an 8 p.m. Saturday reservation at your favorite restaurant in a big city, they're lying to you. They know there's no chance that they're going to seat you at 8 o'clock.

Conversely, about 15% of the people are also lying to them. They're not going to show up. It's like an airplane plane. It's a circle of broken trust. Yes, it's a circle of broken trust. That is a great way to describe it. So you're going to wait 45 minutes at the bar, bad hospitality, or you're just not going to show up because you made two reservations or three that night. I mean, people do that. And then they go, where do we feel like going tonight? And they pick one of the three.

All that messes things up greatly. So I built Talk originally to solve that problem by charging a deposit. Richard Thaler, the behavioral economist, is an investor in Talk now and a friend of mine. But I had no idea who he was 10 years ago. I just knew that sunk cost was very real. Like if people...

put down five or ten dollars on something they will call you to cancel to get their five or ten dollars back it's just very real psychology you could be i mean i've watched and this is not an exaggeration i have watched billionaires cancel alinea in order to get their money back which is obviously meaningless to them right that's not just to like get on your good side

No, I mean, they do it automatically. They hit a button, you know, but it's like you see that even they do it like they don't just know short or keep their optionality. Like if you're if you're worth a billion dollars, what is a five hundred dollar meal? Like it's it's a nickel. Right.

I've heard you use this analogy before. It'd be like if the Bears and the Bulls are playing on the same day, you're not going to buy tickets to both of them. You're just going to buy tickets to one of them and then you're going to show up. And if you can't show up, you're going to get your refund. Yeah, they don't play the game again, right? Or you sell the tickets or give them to a friend or whatever. So it started out like that. So thing one is being able to charge to make a reservation so that you don't cost around not showing up. And you mentioned a second component.

The second component was the knowing your the knowing your customer problem that I mentioned earlier, like so that you could then go like, well, who are these people not only to serve them better, but also like, hey, when you open your next restaurant, I have 100,000 people that have eaten at my first restaurant. And I can easily email them and say, hey, we've got a new restaurant starting up. Like it was mind blowing to me that I couldn't do that when we were starting next.

And the state of the art, like you look at, and I'm going to mention competitors here, but Resi, OpenTable. I can't wait to jump into it. Yeah. They thought about, hey, these are our customers. You know, we'll seat them at the restaurant, but they're not the restaurant's customers. Yeah, they don't say that, of course. They say the opposite. But the practice is such that, well, first of all, they only get a phone number. They don't require, like Resi has recently switched to requiring an email login, but they have done it in a very haphazard way.

Because they want to remove as much friction to getting their own customers. Sure, sure, sure. So at the end of the day, like OpenTable, the report that they give restaurants at the end of the month, and this is something that I was immediately like, it's like 100% of your customers came through OpenTable. The only ones that they give you credit for are the ones booked on your website. But if you think about it, if you Google a restaurant, let's say you go to Google and you type in Canlis. If you're on OpenTable, what happens is that

Open Table has good SEO, so they've got the first spot and the second spot. Then they take out a Google AdWord on top that they hope you don't click, but even if they do, they know that an average of 3.2 diners come and they charge $1.50 to $7.50 per diner. So they do AdWords arbitrage. Then they've got the link in the Google Knowledge Card on the right-hand side, and all that flows through to Google Maps and all that. Now, where does that attribution go? Well, it should go to Google.com.

Google knows this. They can't really do anything about it. Right. Organic. Where do you not go? Well, you don't go to the Canlis website, probably, because you just want a book. You don't need to know where it is. You don't need to see the art project that is their website. Which is beautiful. Yeah, theirs happens to be really beautiful. Most restaurant websites, as we all know, completely suck. With OpenTable, I believe, correct me if I'm wrong,

Anything that OpenTable says they get credit for, they charge a fee to the restaurant. Yeah, a larger fee. If it's booked directly on the restaurant website, then they don't pay the OpenTable. No, there's still a fee. It's just, it's a lower fee. They're even charging for walk-ins now. So I have gone to restaurants that are on OpenTable and seen literally yellow post-it notes for walk-ins because they don't want to pay the 50 cents per cover for walk-ins. Wow. Wow.

And this is crazy, too, because my understanding of OpenTable is that it started at least as like talk as a as a SaaS platform, not a marketplace. Right. And so in theory, this should be a tool of the restaurant. But now it's owned by booking.com.

Right. So what does booking.com do? Well, you know, they book airlines and hotels inventory and take a slice of the middle. It's the same thing, you know, and that's why it was so attractive to them. That's why they paid $2.6 billion for it, even though they wrote it down now by 900 million. And it's been kind of a failing business for booking by their standards. At the end of the day,

People go to most restaurants. I mean look if you go on to DoorDash OpenTable, whatever you type in Mexican food near me there is value to that but you can do that in Google now too or on your phone You can just say, you know, hey, hey Siri, like, you know, show me a Mexican restaurant near me And what's it gonna do? Well, it's gonna do a search a generalized search. So we built talk to be mobile web first and

Yes, we have an app. Yes, it works on laptop and whatnot. But about 80% of the people do the interaction that I just described where they just type in the name of the restaurant or something near me.

and we link to all those things as well. Like we have the talk SEO and we have all that. There's no charge to the restaurant for that. The attribution is honest. In other words, if it came through Google, well, you can go to Google Analytics for your talk page. We actually give you the Google Analytics web property ID. If it came through social media, we have an Instagram and Facebook pixel ID. So if you're running social media boosted posts or ads, if someone books via talk,

But started at Instagram, then comes in, spends an extra hundred dollars on wine. All that information goes to talk and it attributes back to the ad spend on Instagram. So it gives the restaurants the power to do this stuff themselves, own it and then build on it.

You're touching on something here that I think is really important for particularly early stage startups to understand. And that's the way that you do your pricing model and the factor that it scales with aligns all the incentives for a very long time in your business and determines success.

how your customers are going to act. So like the customer incentives are misaligned from OpenTables incentives in your example with the Post-it notes where they're going to do a thing that's worse for them so that they can save some money. What's interesting is that oftentimes the people who make the decision in a restaurant to get the software are not the end user of the software.

And that is something that we understand and try to explain to restaurants. It's something that other companies understand and try to take advantage of. As a restaurant owner, I use Talk every single day. Well, I also used to use Talk's competitors every single day. And it was frustrating that I couldn't just flip open my laptop and watch it live at home. You know, basic things that you can do with other SaaS products.

So there's a lot in time. I mean, it's a really deep and broad product now. You know, the initial things we were trying to fix was just that access to information. But even then, the pricing, like you said, the pricing incentives, like I was like, great. Like on open tables, a restaurant that's busy can easily spend four or five thousand dollars a month, but they do so a dollar at a time. Like it feels like, you know, small little bites. And I was like, we're just going to charge like six or seven hundred or eight hundred dollars a month flat.

And that's it. Well, all the VCs basically were like, well, your TAM's not big enough then. Probably you too, Dave. Probably me back in the day. But we were going to ask how your experience was. I'll get to that. So I thought like, wow, this is the most obvious thing in the world. Like we can price it at one tenth the price of like OpenTable per month.

who's not going to do that? Which of the 35,000 restaurants at mid-market on OpenTable in the US is not going to do that? And the answer was, none of them were going to do that because they were like, wow, that seems really expensive. And I was like, what? What are you talking about? They're like, oh yeah, well, like in August, we shut down completely. We'd still have to spend $700. I'm like, annualize it. You're spending $60,000 on OpenTable and you're worried about the $600 in August? Are you kidding me?

The irrationality of how people buy anything

just became like... It's just like diners booking. It was a dystopian universe for me. Operating leverage is not an intuitive human concept, like downside protection is. And so I'm sure what they're thinking is, whoa, I don't want to be paying for... This is a tough business I'm in. I don't want to be paying money for something when I don't have a lot of food going out the door. Thousand percent. What they should be doing is saying like, wait, if I do really well, then all that should accrue to me, not you.

Exactly right. And so we did a lot of tweaking to creating new plans. There's a reason why every SaaS product has a three-tiered pricing plan. And that is because at some point, somebody said, hey, let's just make it a flat thing and make it really simple. And then they started talking to actual customers. And the actual customers went like, no, no, no, no, no. We're different. We need a different plan.

as unique as they all think they are, they're not different anywhere in the world. It's mostly the same problems being solved. And ultimately, a lot of times there's that disconnect between the owner of a business and the user of the SaaS product. You could have huge buy-in from the general manager and the workers and saying this is easier, better, all that. And if the owner thinks that

Just for irrational reasons that the Open Table Network, which they've been drilled into their head for the last 10 years. There's a major, major restaurant group in America, huge, one of the biggest in America, not in terms of number of units, but just in terms of volume per unit. Like some of their units do 40, 50, 60 million dollars per location. They said to me, but Nick, 89 percent of our reservations come from Open Table.

And they said, like, here's the report. Like, if you look, 89% of our people booked on OpenTable, you know, and then 5% called us and 5% went through some other little thing that we got. And I said, look, here's the deal. That's your digital front door. So people have to book on it. They have no choice. I said, when people come to my house, I have a blue door on my house.

And 85% of people come through my front door. 15% are walk-ins through the back door, you know, through my garden gate or whatever. I said, if I rip that door off and I get a new, better, awesome looking red door, and it's got like a mail slot in it and all this other shit, and it's got a little camera so you can see who's walking up and all this new stuff. 89% of the people are going to go through that front door because that's my new front door. That's the front door. And they go, yeah, but open table, 89% of people came through that.

And it's like you end up in this circular universe of an argument that's just like, whoa, like I don't I don't know how to convince you of this. So we've learned like how to counter this this network argument and all that. Or this is really interesting. How did you break through this? Well, part of it is that we went to smaller markets.

That went like, well, you know, if we get five or 10 restaurants here on talk, that's the five or 10 that matter in Kansas City or Minneapolis or, you know, pick your market like that. So we intentionally and again, this drove the VCs nuts. Everyone's like, OK, you need a two way. You need a B2B and a B2C market in New York, Los Angeles, San Francisco, Chicago, Houston. And I went like, yeah, we're concentrating on Kansas City right now.

And they were like, yeah, we're not giving you anybody. This guy's nuts, right? But what I wanted to prove is that, like, look, if it works in Kansas City or Charleston or something like that, all of our competitors went out of business or got bought at not a great price, honestly, because they were giving it away for free on that model. It's really easy to give away free mediocre software to a couple hundred restaurants in New York. And also the client you tend to get

is the client that is desperate for a change. So instead of getting the great client that you can really produce an ROI for and have a proven white paper afterwards, you instead get a client that's going like, well, shit, I'm going out of business anyway. Maybe OpenTable is the problem. I'll move to Resi or I'll move to Reserve. So what you're really talking about here is...

taking a sass you know mindset of like your your product is software you are producing software you're selling the software yeah versus yes there's you know marketplace i'm just going to try and and then and then i always said like look when we get to 10 12 15 million people

that are on talk and look to talk as a way to find great experiences. And I say experiences because it's not just reservations for restaurants. It's dynamic. We used it for a winery the other day. Yeah, yeah. Dynamic and variable pricing for time slotted businesses. We have galleries and retail shops going on now like 10 a day.

When you take the ambiguity out of showing up somewhere and you know your customer, knowing your customer works if you're selling, you know, clothes or shoes or your paintings. All these businesses are businesses that need to connect emotionally with their customer. And I will use that word a lot. We're selling software, but we're selling connection.

And, you know, why is Twitter and Facebook, why is it both a great product and a potentially like dystopian product? Well, it's because people are so emotionally connected to it that they look at it 50 times a day and get this like endorphin release of good or bad, you know, like outrage or pleasure. That emotional connection in a positive way, if you put it in the hands of a small individual business,

is a really good thing. As you prefaced in the start, like that's why talk is more like Shopify. We're giving individual businesses the tools to do that. And yes, like even Shopify is doing a marketplace now because they've had such explosive growth.

We are building Talk Time, which is not appropriate for the COVID era. It's almost done. It is a digital concierge that will essentially do all this stuff on the consumer side. So, Dave, if you like to go to this kind of winery and your anniversary is coming up in four months or something like that, we'll ping you and go, hey, your anniversary is in four months and we've seen that you like these things.

here's the Netflix recommendation engine for wineries and restaurants. And here we can plan out a little automated itinerary for you and you can click one button and book it all. And you look like a good husband. So that's coming out. That is always my goal. It's always your goal. So I didn't even know if you're buried, but like, you know, but like, you know, at the end of the day, like anticipating people's desires and needs is something that's really, really well, you know, great with machine learning and all of that.

But building out that comes at a cost if you're doing it from scratch and say like, hey, we need to get 20 million users. Like I wanted to build that organically. And that's what we did. We're at about 13 million accounts and we had a half million a month at this point.

So let's talk about the springtime transformation for talk. So you were a system that either I'd go to explore talk.com or I would go to the restaurant's website and I would pay money and I would book my table and then I would show up at that restaurant. And like, there's some other stuff. And by the way, you don't need to, you don't need to necessarily pay money because if it's Tuesday night, just to be clear, we're not ticketing. So if it's a Tuesday night and the demand is low, don't charge a deposit.

So it's about 70% of reservations are totally free on top. And again, from a consumer standpoint or from a restaurant or standpoint, they will get nervous about like, well, can I charge a deposit? And it's like, sure, on a Friday, Saturday, you can, but on Tuesday, you shouldn't.

So it's not just prepaid. Okay. Thanks for clearing that up. Yeah. So then like first, second week of March comes around. I want you to talk about that moment and what you became after that. And when you talk about how many users you have now and how many restaurants you have now, how did that drive that change?

We recognized through Canlis and through my own restaurants that the only way to survive would be to move to carry out. It was the only viable option, even for a restaurant like Alinea. At the end of the day, we're in the business to provide food to people. I could talk about experiences and hospitality and all that.

That's not what was going to be needed in March and April and May and maybe not now either. I saw the reservations that we have about 20 or 30 restaurants in Hong Kong on the platform. We don't have any salespeople in Asia. They just found us. And I watched their reservations go from like 95% capacity to zero literally overnight. And I sent an email to our CFO about three years ago that said, you know, Steve, it's not like every restaurant in America can shut down at once.

And I did that because we were processing money and paying out money in tens of millions of dollars a month. And you have some existential clearing risk as the middle person in that transaction. And all of a sudden, I went, oh, my God, if every restaurant goes out of business, we're going to need to refund millions of customers. We have money, but that'll be all of it. So there's like that...

First, I was like, this is going to kill my restaurant. Then I went, oh, my God, they're also not going to have any reservations on talk. And also talk is the only platform in the industry that actually does the payment side of things. And also we forwarded some percentage of that money to some of the restaurants. So we have clearing risk.

And that was March 6th. I can tell you exactly the day because I have it on my calendar of going. That's like your heart stopped cold. That was like the oh shit day. And if you look at that, that was about 10 days to two weeks before everyone else had their oh shit moment. And so I did a few things that day. I called our board members and said, you know, we have serious existential risk, clearing risk and also business risk.

At the beginning of the year, we were about 80 employees, 90 employees. We were scheduled to hire about 50 people this year. I put in a hiring freeze immediately. I bought puts on the NASDAQ in every airline and every hotel that you could think of. I was a trader for many years. On behalf of Tuck? No.

No, no, no. Just on my own behalf because my existence, I can't do that on behalf of TalkTalk. It's not a trading firm. I'm going to tell you that I seriously thought about doing that on behalf of Talk. Well, it sounds like you should have or need a treasury department with all the payment that you do. We do. We really do. We have a clearing department and all that. And then I was like, wow, we're really screwed. So I called in all of our managers on the restaurant and said, we're putting in temp checks,

P.P. hourly hand washing. And and they're like on like owner guy does not understand that we can't wash our hands every hour and still run a restaurant. And I was just like, I don't care. Like, you know, say no again. And you'd be the first people out the door because we're not going to need all of you in a week. And people thought I lost my mind. I mean, genuinely thought I lost my mind. But I had talked to restaurants on the West Coast where they were just seeing 20, 30, 40 percent reduction in bookings.

before as like the canary in the coal mine, just from looking at the press. Like once the unfortunate instance happened with the nursing home in Seattle, that was the catalyst for 20% of Seattle bookings to go to zero.

It's not like everyone noticed that, but there was a section of people in law of large numbers where they just went, wow, I'm not going to Seattle right now. I'm going to cancel my canless reservation or a number of other restaurants. So when I saw that, I was like, that's the best case scenario for talk in my restaurants is like a 20 to 30 percent decline that short lived. And that's actually what I thought would happen. But I made the plan for the catastrophe that we've got now.

And then, you know, Jeff called me and said, hey, I got an idea. Like, we've got the data structures such that. And Jeff's your CTO? COO. COO. Yeah, Jeff. He was he came from Zermed. He's bootstrapped to data science companies for the health care industry, sold one of them to Zermed. And then Zermed got sold about two years ago.

He left Zermed. It was bought by Bain Equity for $750 million. I met him at a meeting to see if somebody should run for mayor of Chicago. And there's all these political consultants there. And Jeff was there with his laptop. Great recruiting event. Jeff was there with his laptop. And I was asked, I really like this person who didn't end up running. Jeff was there with his laptop and some pivot tables and publicly available information going like,

I don't think any of you political consultants know what you're talking about. And normally I'm the guy raising my hand going like, okay, this isn't really my realm, but like, I don't think you understand statistics, but mind you, they are literally the people who are hired to understand the statistics. And instead Jeff was doing that. So I Googled Jeff and I saw his history, you know, and what he did. And I was like, oh my God, like this company got sold. I had been looking for like a head of, of sales and someone to own all revenue side of things for like two years.

And afterwards I was like, I introduced myself and he was like, man, that was the dumbest fucking meeting I've ever been to. Am I allowed to swear on here? I guess I am. So, so, so I was just very intrigued by him and I invited him out to dinner. And what was really funny is that like after like 10 minutes and dinner, I started talking about talk and,

And he was like, yeah, I got a list of questions. He pulled out like a thing. He goes, I'm like, I'm like, oh, like you knew I was talking to you about this. He's like, well, I didn't think it was a date. Like we're like, he's like, I knew that, you know, and I was instantly like, this is my person. I was juggling a lot of different balls at the time, as you might imagine. And we were building out with our CFO, like every single restaurant, like in like three days, we built out the parsing of refunds.

Buy at restaurant level city level state level all that Tracker and all these things which honestly we should have built at the beginning probably you're flashing forward to March here. Yeah, it's March Yeah, but that was March like six and then Jeff called me and he was like hey, you know we need to build like a carryout thing for talk and Canlis wants this and this and it's not that much because our data structures are already like we already think about things in that way and

I immediately went like, oh yeah, when we were on Grubhub and DoorDash and those guys, they don't have any notion of kitchen pacing or how many orders you want per hour or any of that. It's just incremental sale. And they know the incremental sales, like, okay, well, you're going to get, what, 10 orders? 50 orders an hour if you're a big restaurant? You're not going to get 500. But now if you close, you might get 500. Kitchen pacing is important. With Alinea, in a night now, you're doing like...

one, 2000. Yeah. We used to do 128 people a night and it was a 15 course meal. So if you do the math on that, it's again, just going back to my earlier thing, same, there it is, but it's the same restaurant. So whether you do a hundred people at $300 or 300 people at $10 or a thousand people at $30, it's the same number of plates. It's the same revenue. It's the same, everything that mindset, which I was always like, all restaurants are the same in some way.

I immediately went and I said to Grant, $300 food is not what people need in a pandemic. We don't need a five course take home tasting menu. We need $35 comfort food. It's still rainy and cold in March in Chicago. And so that's what he started working on. On the talk side, Jeff grabbed, you know, our head engineer, Robin O'Neill, who's an amazing guy and a couple of designers. And they just started going at it. And when I say started going at it, like normally, you know, I mean, you know how software development is like,

you have various prototype screens and Figma, and you're going to like review every UX feature and you're going to do all that. And this is like Robin just going in code heart, you know, hard coding, uh,

hour, you know, 15 minute template. I grew up on an Apple too. It's that level of programming, right? Like, you know, so like, it's just going right into like machine code going like, boom, here's what we're going to do. And, and the only thing was, is could it work? It wasn't, is it beautiful? Is it well-designed? Is it whatever it's, can it work at all for Canlis five days from now and for Alinea 10 days from now?

And then we will iterate. And as long as it doesn't break for the consumer or the restaurant, like, and I mean, break, I mean, it's not gonna be perfect. You're taking payments. Well, yeah, yeah. It's like the money flows through, the order comes and they have some way to see it. It's not gonna be elegant. It's not gonna be beautiful. You're not gonna have great reporting and all that. Five, six days later, like it was done. We took all this stuff that we did. And I'm gonna say that without exaggeration, we had, you know, 15 to 20 people working 20 hours a day.

And I have to tell you, there is a for a terrible reason. Let me be very clear. I do not wish a pandemic on anyone. But there is an incredible amount of clarity that you have in running a company when you know what you need to build. You really know your timeline and you know it's existential. And the people who say like, I don't think that can't that can be done. You just go great. Go work on the thing that we're not going to ever put out anymore because the world changed and you haven't figured it out yet.

I was like in my house growing a beard, eating pizza like a 20-year-old again. And I fully admit that that was like when we launched that thing, it was the most excitement I had had since 2010 when I launched Next. And then we went, what do we charge for it?

You know, we literally were like, well, we should charge six or seven or eight percent or whatever. But actually metering that gross merchandising volume is actually a very sophisticated program. Yeah, it's a very sophisticated program because there's a lot of safeguards in it because you get into the whole payments flow and all that. Right. And refunds and keeping the right ledger and truing everything up like that's a hard problem.

It's a hard problem. And so what we did was we had this events product where people were just doing events for wineries or something like that. They could do $0 per month and 3% of GMV because they practically begged us for that, even though that wasn't really our model.

So we had this thing sitting on the shelf and we said, OK, well, we'll just essentially charge that way because we have that module sitting in our toolbox. Right. And that was the extent of the thought on the pricing. Now, if you look at our advertising for a talk to go, you will see that we charge a three percent flat rate for restaurants, which is, you know, 10x cheaper than our competitors, right?

Our competitors being, if you used Uber, DoorDash, Uber Eats, Grubhub, any of those. Which, of course, we should say, like, isn't apples to apples? Because that comes with the delivery network and that comes with them bringing the demand. Well, that's the network thing. Is that true? That's what they would say. That's what they would say. Are they bringing the demand? So when every restaurant in the world becomes a carryout restaurant at once, you suddenly go like, hey, we're going to charge you a flat 3%.

And you can meter your kitchen so that you can say, I'll do 40 of these meals per every 15 minute window. And you can do pickup so that you don't have to pay for delivery. Now, everywhere except for New York, pickup works fine because we have cars. Like, so if you're in Los Angeles, if you're in Chicago, if you're in Cleveland, you have a car, you don't mind driving. It's actually safe too, because you're in your hermetically sealed car environment.

And you can pop the trunk and people can put the food in it. That's what we started doing at Alinea. We started at 500 meals a night. We got to 1,250 meals a night. Easter, we did 3,000 meals between brunch and dinner. It was a record revenue day. Including when you would operate the restaurant normally? Yes, by far. It's not even close. Wow.

It also made people feel good getting back to that emotional connection. You're in the middle of a pandemic and you can pick up a real delicious meal for 35 bucks from a restaurant that's doing high quality. And what I noticed and what I started saying was that elevated carryout is a thing.

It's a thing born of something terrible, but it's not going to go away, I don't think. Because like instead of like shitty packaging and some wings, which by the way, I love. Yeah. I don't necessarily want that to feed that to my kids or my family on a Saturday night. But if I'm busy and I know I can get a really high quality restaurant, sit down, quality meal, but do it at home.

And all you do is like drive there. They have two way text messaging built in and they just plop it in my trunk. We were putting, you know, hundreds and hundreds of cars through Alinea in a three hour window without any problem. So many, in fact, that the city of Chicago like created a little lane for us in front of Alinea during the during the height of the pandemic. But I will tell you that like when we built this, it felt amazing.

It felt good as well because we went from being a company doing something really interesting in a hospitality space that most of our employees love to doing something truly essential for them. It went from being normal work to important work in a way that we were saving jobs and restaurants and the future, like building a bridge to the future of the restaurants. So we did that very, very quickly. And what happened was, of course, is that our gross merchandising volume went from

say a million dollars a day for prepayments and whatnot. And then that represents like one in every eight transactions because a bunch of them are free reservations and all that. Well, all the free reservations go to zero. Your million dollars of GMV goes to zero. And every restaurant's like, well, I'm not open, so I'm not gonna pay you your SaaS fees. So our revenue went from really good to zero.

And then six days later it started building back up because we started doing this, you know, first like, you know, a hundred thousand dollars a day and then $500,000 a day and carry out. And then a million dollars. This is the 3% of GMV of carry out that you're. Yeah. So you do a million dollars a day. That's $30,000 a day. You're at $900,000 a month in revenue just from that. Right. And instead of having to convince restaurants suddenly that talk was better than open table, um,

Open Table said, yeah, we're just going to link out to Grubhub and DoorDash. We have no product for this. Rezzy said, yeah, we're just going to link out to Grubhub and DoorDash. And so all these restaurants called us and said, like, I was on DoorDash and on Cinco de Mayo, I got 750 orders in an hour. And I had to spend all night telling 650 of those people that we couldn't make the food for them.

And this is a mess. People are showing up to pick it up or get the delivery or the delivery. People are showing up and there was no food to be delivered. So there's 50 delivery guys from from DoorDash. This is a true story at a Mexican restaurant in Chicago. Well, this stuff happens all the time. The next day, guess where they are? They're on top the next day.

I want to pause to make sure I fully understand this. So there's two components here. One is that there's no metering in the sort of DoorDash and... There's no sense of inventory control. Right. So like with talk, the ticketing thing where you're like, well, the kitchen can't make any more than that. And we know exactly when the kitchen can make how much. Like that's been baked in for a while. So it makes it... Forever. Perfect. But the other side of this is like if...

The solution for OpenTable and Resi is, hey, go check out these aggregators. That solves a different problem for the restaurant. That solves this problem of like, yeah, we don't know how to get our own customers. We don't know how to deliver the food on our own, assuming we are delivering it at all. It doesn't let the restaurant use any of the assets necessarily.

It like charges them for stuff they may not need. Yeah. I mean, look, if you were on OpenTable and, you know, you shut down and then someone goes to the OpenTable page because they didn't want to pull the pages down. Right. Because then OpenTable doesn't exist. They just said, hey, it's a really tough time for restaurants right now. And then they just literally put click here to order carryout. And then it would take you to whoever they were using for carryout. I will say that OpenTable reached out to talk and said, hey, what you built is really cool.

maybe we can do something together. Now, I didn't see that email for a week. True story. Because I was so buried. And I like Steve Hafner. Steve Hafner is the CEO of OpenTable. I should say that we've got a frenemy relationship. I think OpenTable is a total steaming pile of shit. But...

But I like Steve Hafner and he inherited a steaming pile of shit And he knows all this like I've said this is not a secret He emailed me but it was seven days later Normally if you if you email me like I email you back in 30 minutes or I'm dead right so or sleeping or something So I didn't email him back for a week and by that point I was just embarrassed that I hadn't emailed me probably thought I was just like not paying attention or something like it, but I was just fried and

But OpenTable even reached out. Like they had no plan. Resi had no plan for ages. And so what did we do? Well, we signed up 2000 plus OpenTable and Resi clients in the past 12 weeks. And then what happens is that when they see that the marketplace was bullshit,

And these people still found their restaurant. And by the way, Oh, look at all this other stuff on the back. You were talking about. And then look at all the other stuff. Like when we go back to patios, like we immediately started building talk 20 and we went, well, what are they going to need when they reopen? So as soon as talk to go was like being an iterative improvement, build new features, make it beautiful. Like we started polishing the little gemstone we found and,

I went, okay, I'm done with that. Those guys are great at that. We have awesome people. When we reopen, what do we need? Well, we're going to reopen outside, clearly. So now we need to improve our table configurator. So we're going to need to do that. We're going to need to have contactless payment. So we're going to need to do that. So there's all these other things that are going to have to happen six to eight weeks from now. Let's take the same core crazy group that we had and go, okay, we're going to build Talk20.

And what is it? It's what you need now in 2020 to get reopened. And so we wanted to be able to convert all those people because I knew what was going to happen. I knew that people were going to go like, hey, this worked great for carryout. But open tables are front door once we go back to normal. And by the way, we'll be back to normal in eight weeks. And thanks for your help and all that. We'll look at you again in the future. But I don't want to retrain my staff in the middle of a pandemic. And we just got our patio opening. And it's really only 30 covers tonight. We're just going to go back to open table.

So then I could say like, okay, well, how are you going to configure that? You have to call OpenTable and reconfigure your layout. And by the way, you're going to have to have those seven feet apart. But if things get better, you're going to only have them three feet apart.

So you have to call them again. But we built this cool little shiny toy where you can like play it like a video game, move your tables around and you could double click on it and hide a table. So it's not in your inventory yet and all these things. So we did that in the intervening six weeks and built out a whole host of features there. Launched that as Talk 20 and converted massive restaurant groups off of OpenTable that a year ago I had talked to and they said basically like we're too scared to

And then like, as soon as they had that conversation, I said, yep, I knew, I knew that you might want to do that, but here you need to see this first. And then they went, when did you have that? And it's like, yeah, we built that in the last six weeks. And they're like, oh, we've been asking for our open table app for three years.

And then because we are a cloud-based system, we have API, like, you know, 350 API endpoints. Right, because OpenTable's on-prem, right? Yeah. Like, you put a computer in your restaurant. Yeah. So they have an iPad-based thing called Guest Center that is the one that they try to sell everyone now. But when you go in and you see one of those old screens there, where, you know, old touchscreens, that pings, like, a server, like, every 30 minutes. And that's about... I can't actually tell. I don't know exactly how many...

of those installs are there, but I know that they started trying they mandated that everyone needs to move off of this the ERB the electronic reservation book that was built in 1998 they need to move off that into the guest center which was built like seven years ago for iPad and

There's some restaurant groups that are just going to go, yeah, we don't want to switch because it's like we don't want to retrain everybody. So we built all that and we've converted restaurant groups around the country to talk. Even some of the investors, board members, et cetera, et cetera, ambassadors to our competitors.

There's the days I love. I can imagine who you're talking about, but I don't want to use that. I don't want to use names. Dislocation is like a business term for the tragedy that's happening in the world. But like to make it sort of a stampable repeatable thing, there's a dislocation in the world. You guys were proactive about it and going heads down for a week and creating, you know,

something that worked enough to solve this new problem in the world at scale. And then it was all about like, okay, when the dislocation ends or when we get relocated in some new configuration of society, like how can I manage to keep all the benefit that has accrued to me so far? Yes, we're in that now. And then still some people like when Los Angeles reopened, we went from having maybe 50 restaurants in Los Angeles to having like three or 400, right in eight weeks.

Still, some of them said, well, we're going to reopen our indoors now. So we're just going to put down an open table because it's already sitting there. We already know what we're doing. Open table is going to waive our fees for the rest of the year, which then they have to sign a contract that has huge breakup fees for through 2021. You know, there's like a lot of fine print there. We basically said, oh, OK, like you shouldn't do that because of talk 20 and all these things and all that. And some of them did it anyway. And then what happened, unfortunately, I mean, three days ago, well, California got locked down again.

What did all those people do? They said, oh, right. Yeah, we need to go back to talk. So now we have a backlog of people whipsawing back to the product, unfortunately. And I say unfortunately because I do not want California to close down. I do not want Houston to close down. But let me say that all of these things accrue to talk, not because we built it in the last 12 weeks, but because...

Six years ago, when we started rebuilding the thing that I started building in 2010, we started from scratch. We made the difficult decisions to build the actual product more slowly. Like I had so many VCs saying, you're building a Ferrari for something, something that no one wants to drive. And I said, no, I'm building the inevitable outcome of the restaurant industry. Will there be checks dropped on a table in 2030? And then you write down with a pen, the tip of

I think we could probably all agree that that sounds incredibly stupid. Hopefully we're not still on a tipping system then too. Right, exactly. All of those things. And so I would say like, look, I'm building the inevitable outcome of things. And whether we win or not, I don't know. And I would have thought that OpenTable would have started building this stuff, but at every single turn they haven't.

And no one else is doing it. Like I can name reservation systems around the world. You've never heard of Quandu, Book-A-Table. Like there's all these reservation systems. Everyone's just copying the OpenTable thing, hiring a bunch of like, you know, programmers in the Ukraine and saying, copy this. And then selling it for $49 a month to restaurants in New Zealand. And then the restaurants in New Zealand go like, oh, I guess there's nothing better out there. I'll use this. I'm so glad you took this here because I wanted to, before we wrap up,

ask you about your journey through all this. Like, you've raised money for talk along the way, both recently since post COVID and pre COVID. But I know, having been one of the VCs that talked to you early on, your vision and what you were been doing doesn't fit the traditional go go VC model. Like, how has this journey been for you?

You know, a little interesting, a little frustrating, a little bit of all that stuff. I do think that the vast majority of people that I've spoken to about – I'm an investor in companies as well. I'm a seed stage investor in companies. I'm often on the other side of a table where I look at something and go –

This does not have a snowball's chance in hell of happening. And of course, I never say that, you know, which is also kind of one of the faults of the VC world. Like no one ever says we think this is a dumb ass idea and you should run the other way yourself. Nobody's ever just. No, it's very rare that you get like you need to do something really crazy for them to just say, like, this is a terrible idea.

I actually think a little bit more of that might be good, but whatever. When I started raising money, the first round we did, I had already put a lot of my own time and effort money into what would become talk for my own restaurant groups. And at some point, I was like, we had 17 restaurants using this homebrew software. And it became like a job just to maintain all that. And I knew that

In the back of my mind, I kept going like, ah, OpenTable's going to see this and do it. Like, I don't want to compete against a booking.com, you know? And also, I have, you know, successful restaurants. I still trade. A startup is a lot of work. And I kept waking up. When you say you still trade, like, you started your career as a derivatives trader, right? Derivatives trader, yeah, yeah. So, I mean, I traded...

Tesla options yesterday in the midst of managing my restaurants because all the Wall Street boys and girls on Reddit are buying 3,500 calls at 290 vol. And while I don't like selling... I don't like selling... We got to do another episode with you on just Tesla options. Yeah, I don't like selling lottery tickets to people. But if they're going to pay like a million dollars to make 50,000, like...

have at. So you should you should know Nick took the very classic philosophy major gone derivatives trader gone restaurant owner and very, very sort of accomplished award winning at that gone VC backed company founder path. It's basically the traditional. Yeah. And I'm 52 years old. So it's like I'm not exactly this. I started talk what six years ago. So I was 46.

I woke up every day and this is kind of my criteria for doing something. If you wake up every day and it's nagging at you going like, you got to do this, like you will regret not doing this if you don't do it. Well, eventually talk got to that to me because I kept going, look, why is no one doing this? Like this is the inevitable outcome of the industry. And then even when I would talk to restaurant owners, they would they wouldn't get it. And actually, I looked at that as an asset, not a liability. It's like the old Steve Jobs things like you don't do a focus group to build the iPhone.

Like you go like, what is the inevitable outcome of a computer in your pocket? Right. And so similarly, I was like, well, what's the inevitable outcome that I want for my restaurants? And that's what I started building. When I started talk in 2014, we raised two million dollars from people that I could pick up a phone and say, hey, I'm finally doing that thing. Are you in or out?

I understood as well that it was built within the auspices of Next Restaurant. So we had investors in that, again, many of the same people who've known me for 30 years.

And I said, like, those investors should get something of talk because we don't want five years down the road if we sell this thing or if it becomes huge for them to go, hey, wait, you started this within Next. So the IP would be muddled. Yeah. When you say within Next, is it because you were using Next's profits to fund it or it was just like too much of your time or something? No. Yeah. All of that. And also it was built on the platform of Next because Next was...

very successful restaurant and this was the way to book it and it was on the next website I mean there are real IP issues there and so so those investors I said like hey you're gonna get X percent of talk just for having invested in the restaurant as well if you want to invest in this company here's what we're doing raising two million dollars and I got some great industry people and I got some great tech people so at the time Dick Costolo was CEO of Twitter and I called him up and said

Hey, man, I don't know if you invest in things, but I need your money. And he said, I would love to give you a small amount of money and be involved in a small way. Did you know Dick from the feed burner days in Chicago? I did. I knew Dick from the feed burner days. I turned down. So that that's one of my ones that I turned down because I looked at it. I was like, I don't understand what this does.

And I can't invest in anything. Now, that was a huge mistake because FeedBurner got sold to Google just about two years later. So I was going to put my typical investment is $250,000 to $500,000 in something. Had I done that, I would have probably made like 20x in like two years. I didn't do it. But I stayed friends with all the folks there. And I called like Kimball Musk because I knew him from the work he was doing with the city of Chicago to do rooftop gardens on

Chicago public schools and he was really passionate about that. And of course I knew his background So whereas I was helping him like with some awareness on that through the Alinea group I was like hey you own a bunch of restaurants too like you're a software guy and like you know I You got a nice last name like put in some money here So that was the level of my initial fundraising right is people that I knew and trusted and I wanted their opinions, too. I

This fundraising was to build a product and build a business. Like you knew what you were going to do. And like, that is not how a lot of venture backed financing happen. But at that point I genuinely had the delusion that if you build it, they will come like the crossing the chasm thing, which I'd never read before any of this stuff.

I had two or three hundred customers that were begging to use this thing that I couldn't give to them. And I just assumed that there were twenty thousand more behind it. Once we built out a cool thing, it would be it would be like good to go. Right. That was very wrong. Like you need to sell. You need to educate. You need to sell. But I didn't know that at the time. And so I was like, we're going to raise two million bucks.

If we need more, we can just go back to the same people. We're not going to do any of that. So I had VCs that I knew in Chicago saying, hey, wait, you started talking. You didn't call me. And I'm like, yeah, man, we're good. Like, we'll be profitable in six months. Like, I've never not run a profitable business. Like, I've never not run a business that has a burn. Like, I just don't believe in that. Right. So I was like, we're just going to like scrappy lean where we're going to make money. And that's I know it's a weird concept, but like, that's what we're going to do.

So over the first two years, I grew definitely frustrated because we did get those first couple hundred people and we got the early adopters. And then all of a sudden people are like, yeah, but you don't have this or you don't have that. And I started looking at our build, you know, our future build requirements. And I went, oh, my God, this is a huge project. Like you can't do like the niche that we built only works for a couple hundred restaurants.

And to be clear, it's like super high end restaurants, right? It's other restaurants that. Yeah, at the time. And I knew that that was true. Like the TAM part of that doesn't, you know, 500 restaurants does not make a product. You could make a profit. By the way, could have built that, made it profitable, had a nice little niche thing that made a few million bucks a year. Nothing wrong with that.

I really wanted to improve and change the industry. And so at that point, we went out a couple years later, two years later to raise, you know, seven and a half million dollars. And the very first meeting I had was with Origin Ventures because they had come to me before and I had a term sheet three hours later. That's awesome. Chicago guys. That is an insane valuation. But that was only for like three million of the seven and a half million.

Wait, why did they give you an insane valuation? Just because you're Nick or like something competitive? Because I asked for it. No, I just asked for it. You get the shareholders you ask for, right? Right. I asked for it. And they said, that's insane. You have like $400,000 or $500,000 a year in revenue. And I said, don't invest. I really don't give a shit. It was very much like Silicon Valley. But the thing was, is like, I could also like our costs, like our burn then wasn't much.

So I could actually self-fund it. And so it was kind of like, well, if you want to dive in, I don't really want to sell. I want to sell 10% of the company. That's all I want to sell. Negotiation 101, always have a good bad night. Right, yeah. But then the other $4.5 million proved brutally difficult to get because of the insane valuation and all that stuff. Nonetheless, we got it.

you know, I think people were like, well, you don't want to do a down round later and bubble. And it's like, well, actually, if I do the math, the only problem with a down round, you know, assuming you actually get back over the initial valuation, is that like, I guess,

I guess it's like an ego thing. I guess that there are some, you know, you can do the math and say where those things break down. The options are underwater. Yeah, all those things, yes. But as long as you go back the other way. Right, your ownership at the end of the day may actually be better for doing a crazy high valuation and then a down round. I mean, hey, Square did a down round in their IPO and look at them now. Right, right. And so I guess I just didn't buy into like a lot of the advice I was being given.

after that first round we we were able essentially to to raise 10 million dollars two years later and then last year we had about 300 plus percent growth by every metric that you could that you could give like number of restaurants gmv process number of reservations number of consumers like was up way more than 300 five six hundred percent this is even pre-covered yeah pre-covered and so

At the beginning of this year, I went, this is the year where we get to like a billion dollars of GMV processing. We're going to get to five, six, 7,000 restaurants on the platform. We'll have 20% market share. It's a very, very viable company. And we had built this talk time product that we're going to charge consumers for, for the digital concierge. Every single person I previewed that for every VC, I previewed that January, February, you're thinking January, February. Yeah. Every single VC I previewed talk time for, um,

They basically went, oh shit, you just built Spotify for restaurants. This is the big tab. Yeah, yeah, yeah. So we were getting, you know, so our valuation, like there was some people that wanted to put in like 20, 30, $40 million at a couple hundred million dollar valuation, right? And there was reason to want to do that at the time. And then when March hit, I wanted to do a much smaller round because I thought like I didn't really need $20 million to get that out the door and to build it. I was like, let's just do $10 million round.

And I was talking to Valor. Valor put in a small amount last round. And they were early investors in Tesla, SpaceX, you know. Valor Equity Partners. Yeah. Also in Chicago, right? Also in Chicago. Antonio Gracias, John Shulkin, both great people. Very different kind of VCs in the sense that some of the companies that they invest in is almost more like a PE, depending on which fund they're in.

And so Valor Siren Ventures is got money from-- - Oh, the Starbucks or the Howard Schultz thing. - Correct. That's right, yeah. So that's run by Valor. It's a Howard Schultz thing. It's obviously in the food space and whatnot.

And we were negotiating over valuation. Like, you know, it's like they wanted obviously a lower valuation. I wanted a higher valuation and more money. And I wouldn't say it's contentious, but we're both John is a smart guy and he's a good poker player. And I just kept telling him, like, dude, you should know me well enough to know I'm willing to walk.

And he was just like, OK, like that you walk, you know, and it was a little bit contentious because I'm going like we were so we were like so close. And yet neither one of us would give that last inch. And then he would come up with like creative solutions that I would like that. I didn't see the air quotes that Nick just. Yeah, yeah, yeah, yeah. What happened after COVID, like two weeks into this whole thing, and we just launched Talk to Go.

A number of the groups that I was talking to that I thought still might be coming around, both coasts, major VC folks, household name kind of folks, called and said, yeah, hospitality industry, not looking so good. Let's stay in touch. Let's stay in touch. I think we'll see how it goes kind of thing. And that's what I expected. And then John called me. And I was literally just like, I smelled like a monkey in a zoo. I hadn't showered in three days. I was fried.

And I was walking around my house and I was like, oh shit, here comes another one of these calls. Like I just, I should have caved. Like, you know, I had that second of doubt, like, you know, no matter what, which everybody has, like, had I caved in February, we'd have the money. We wouldn't need to lay people off and blah, blah, blah. And he said, hey man, we invested in Tesla in 2008 when no one thought it would happen when they couldn't get funding. And we invest in people and ideas.

And when the shit hits the fan, you very quickly learn who dives in the trenches and digs their way out, right? And what you guys have done in the last 10 days, I was just negotiating two weeks ago, let's do it. Your term's not mine. And I went like, yes! How did you feel when you got that call? You know how I felt? I will tell you exactly how I felt. I didn't feel like we were fine. Like we were going to be fine either way, right? What I felt was this is a person I want to partner with.

Because the folks that just looked at the surface of things and went like hospitality industry shit, let's not look at what they did or what the opportunity is here. Let's just, let's just bail and wait for six months and see how it turns out. Those are the folks that weren't going to really be helpful anyway. Right. And I use that helpful word very, very purposefully. So, right. Um, when John called, you're like way in on meme culture. Yeah.

Yeah, my kids would disagree. Are you running the VCs congratulating themselves Twitter account? Yeah, right, right. We're unveiling your identity. Yeah, I mean, I've seen it. It's not me. Yeah, that call from John just told me what kind of people they were and the opportunity they saw and whatnot. And literally three weeks later, we were oversubscribed by $4 million or so. Because we went to...

our existing investors and said, hey, here's what we built. This is what we're doing. This is what the growth rate looks like. We replaced all of our revenue in three and a half weeks. And what did you end up raising there? We raised 10 million. Exactly. We capped it at 10 million. I didn't want to sell more more than that because I didn't want to sell more than that at the company. It's very interesting that, again, and this is really important. It's not because of covid. It's because of everything we did beforehand. It's because the inevitable outcomes are

The same thing would have happened in the third party delivery space in the future. Like people would have realized that 20, 30% stupid. It's amazing to me that, you know, all this consolidation is happening in that space right now. And by the way, we have delivery now. You know why we negotiated with DoorDash and said, we'll charge consumers directly. And in New York city, you can't charge more than $5 and 75 cents. And in the rest of the country, you can't charge more than $7 flat, flat. So if the order is $200, you're

from a high-end restaurant, they're going to pay $40 for the delivery. And the consumer is happy to pay $5.75 because that's what a cab would cost to bring it over. Fine. I've got no problem with that. Charge the consumer five bucks. They can go pick it up or for $5.75 in New York City, they can click this button and get it delivered to them. By the way, delivery is a worse experience. Yeah. We always do pickup because the food is better. Food's better. So my whole thing has always been like, look, these are inevitable outcomes.

You either want to hitch yourself to this ride. This ride could be two years. It could be 10. It could exist after me and we could go broke. I don't know that. I still don't know. I do know that what we've built now has delivery pickup, ordinary reservations, events,

and contactless ordering and payment all built into one platform, all metered through the same inventory control, all with Google Analytics and Instagram and Facebook Pixel ID and social media built in together. And you can look at all of that information in one cloud-based platform and use it from anywhere. That's Shopify for restaurants. That's going back to your original tweet.

And why I was like, all these people who are replying to your tweet, I was like, no, no, no, no, no, no, no. Those are not... Those don't do all the shit. Now, not every restaurant needs all that. But if it costs a couple hundred bucks, why wouldn't you do it so you can future-proof yourself? That's the alternate title for this episode, Future-Proofing Your Restaurant. And that is a great place to leave it. Thanks to you both very much. We could talk for hours about this. Obviously, I love...

And just the VC part of it and the fundraising part of it and all that. There's so much stuff. Well, we got to have you back on for... We'll discuss Tesla option trading. I'm sure that we'll get a lot of... It's a really, really, really short conversation. And that is, it's really stupid, Val. Don't buy Tesla options. Even if you're a long Tesla, don't buy Tesla options. Hot take. You heard it here first or last. So Nick, where can listeners find you on Twitter?

Um, I'm at Nick Kokonas on Twitter at N Kokonas on Instagram and Google's your friend. And my email address at talk is nick at talkhq.com. I always give that out. I do actually look at it myself. I don't have anyone looking at it and I do reply to folks. So awesome. Well, thanks for joining us. Thanks very much. Great to see you too. Thanks, Nick. Cheers.