Invest Like the Best with Patrick O'Shaughnessy
· Patrick O'Shaughnessy
[00:00:00] S0: My guest today is Nick Kokonas, the co-founder of three of the best restaurants and bars in America and the world, Alinea, Next, and The Aviary, as well as the co-founder and CEO of Tock, a comprehensive booking system for restaurants. This was one of my favorite conversations in the history of the show. Nick is a philosophy major turned derivatives trader and now one of the most well-known and respected names in the restaurant and hospitality industries. We cover so many topics I can't list them here but I'll remember it for why it's so important for a business to really know what it's selling and then actually sell it. Nick also pulls back the curtain on why restaurants and even book publishers can be great businesses if you do them the right way. I felt like this conversation could have gone on for hours and I hope you enjoy it. Nick, I thought a neat place to begin our conversation today is with a quote of yours that I found that has three parts. I'm going to read the quote and then I'd love to walk through each of the three parts. What you said was, "Own something, make lots of decisions that have outcomes, try to be right 51% of the time, do that often and repeat." I love this quote and maybe we'll start with own something. What do you mean by that and in as much detail as you provide? And welcome.
· Nick Kokonas, Patrick O'Shaughnessy
[00:00:00] S1: Thank you. My thing is I grew up with a dad who he would say he was an entrepreneur by necessity, no one would hire him. I looked around at some of the immigrants and his cousins and people in our family who are immigrants, and the way to create wealth in America was different for different populations. And for the Greeks, half of my family that's Greek, it was own something. It wasn't go to college and become a lawyer or a doctor or something like that. It was hey, if you own it and you grow, you make more money. I grew up in that environment and then also just by studying wealth creation, it's actually really rare that you can ... Sure you can become a C-level C-suite publicly-traded company executive or something like that. That's going to take you 30 years and a lot of education and all of that. So for me it was always like, I want to own things for two reasons. One, because that's a more likely path to wealth creation. And two, I want to own it because I want to have responsibility for it. Ultimately I don't want my fate decided by someone else. [00:00:00] S0: What about the second part of this which is, make lots of decisions that have outcomes? Sounds kind of obvious, but my guess it there's lots of nuance in the dangers of making decisions around things that don't have outcomes.
· Patrick O'Shaughnessy, Nick Kokonas
[00:00:00] S0: What about the second part of this which is, make lots of decisions that have outcomes? Sounds kind of obvious, but my guess it there's lots of nuance in the dangers of making decisions around things that don't have outcomes. [00:00:00] S1: I guess this one's harder to explain. Right when you said that at the outside I was like, oh that's going to be the tough part to explain because in one sense everything has an outcome. But not everything has a measurable outcome. If you're working on a software product and you change the color of something, you can A, B, C, D, E, F, G test it all you want. That sort of iterative thing has outcomes. But more than that, just trying different products entirely, different lines of revenue for your business, different aspects of what you're doing, whether you're a writer or you're a painter or whatever it may be. You need to get it to some sort of completion where there is an outcome that can be measured. That's all that means. I see a lot of people starting businesses and spending time drawing logos in a notebook so to speak. And that's not a measurable thing. You haven't produced anything. You haven't tested it. There's no end to the next part of the question, which is like you're the casino. If you have thousands and thousands of outcomes and you're right more than half, you're going to win even though 49% of the time you lose.
· Nick Kokonas, Patrick O'Shaughnessy
[00:00:00] S1: I guess this one's harder to explain. Right when you said that at the outside I was like, oh that's going to be the tough part to explain because in one sense everything has an outcome. But not everything has a measurable outcome. If you're working on a software product and you change the color of something, you can A, B, C, D, E, F, G test it all you want. That sort of iterative thing has outcomes. But more than that, just trying different products entirely, different lines of revenue for your business, different aspects of what you're doing, whether you're a writer or you're a painter or whatever it may be. You need to get it to some sort of completion where there is an outcome that can be measured. That's all that means. I see a lot of people starting businesses and spending time drawing logos in a notebook so to speak. And that's not a measurable thing. You haven't produced anything. You haven't tested it. There's no end to the next part of the question, which is like you're the casino. If you have thousands and thousands of outcomes and you're right more than half, you're going to win even though 49% of the time you lose. [00:00:00] S0: Do you think that that 51% is better than say, 80%? By it being 51% you're moving and making enough decisions with high enough velocity. There's more room for learning with a lower percentage being right.
· Patrick O'Shaughnessy, Nick Kokonas
[00:00:00] S0: Do you think that that 51% is better than say, 80%? By it being 51% you're moving and making enough decisions with high enough velocity. There's more room for learning with a lower percentage being right. [00:00:00] S1: No, no, no, no. That wasn't intended that way. It was more like, you could be wrong an awful a lot and still come out ahead. And I think that in managing decisions and managing people and feeling good about your work and yourself, it's easy to get down very quickly in any business because you're going to have a whole bunch of things that don't work. I mean, we're all human. No one likes to have their stuff not do well. No one likes to fail the test. Learning to be wrong and accept that as a process or indeed an inevitable outcome if you're doing things correctly means that you can be correct and wrong at the same time, if that makes sense. Yeah, I'd much rather be right 80% of the time and hopefully we drive towards that. But I grew up, I was a derivatives trader, really becoming the house of the casino is the goal. You don't need a lot of edge in running a blackjack game. You just need a little bit and then you need a lot of players. And that's all that this is. That's that whole statement in a nutshell. [00:00:00] S0: We're going to apply that thinking to the restaurant business a lot in our conversation today, but to set the stage, I'd love to hear the way through which you came to be familiar with the restaurant business in the first place. What was the first event or exposure that got you interested in this part of the world?
· Nick Kokonas
[00:00:00] S1: No one's really asked that ever. The very first exposure was the Greeks. If you're a Greek in Chicago ... My joke is always like, if you're a Greek in Chicago and you don't own a restaurant by the time you're 40, they give you a hotdog joint on the west side for free because they just feel bad for you. So I grew up and my dad in the '60s before I was born, owned a diner. That was the upward mobility for sort of the uneducated Greeks. And so I knew somebody who owned a restaurant my whole life. Mind you, I did well academically throughout my life. And so my dad was always going, "Look, go become a lawyer, go become an engineer or something like that. You don't want to own a restaurant. It's a terrible business." So my first exposure was all of these people telling me not to do it but meanwhile they were at their kid's basketball games. They were the dads who were present for their families and they were the people who controlled their own situation as we spoke about. Even though as all of them were telling me, "Hey, you're the white sheep of the family. Go get a graduate degree." I was looking at it and going like, "Well geeze, they seem like they're doing pretty darn well and I don't really want to work at Goldman anyway." That was my first exposure to the restaurant business and then when I graduated from college we actually knew a very famous restaurant that was going out of business. I had spoken to my dad about, hey, we should try to buy that. And he was really just wildly against it. He allowed me to have the conversation but he was wildly against it. Sadly he died in 2001 so he never saw any of my involvement in the restaurant business and perhaps that's better. I think he probably would have tried to talk me out of it.