Invest Like the Best with Patrick O'Shaughnessy
· Nick Kokonas, Patrick O'Shaughnessy
I see what he's doing and yet I can't replicate it even though it looks simple. There was a brush stroke there born of thousands and thousands and thousands of repetition. I know what it should look like. It's just like painting. And I went back to that Picasso documentary and I was kind of like, "We should send the chefs into the dining room. Everyone wants to see the chefs anyway. And we should just have them plate on this giant plate." So it's kind of killing two birds with one stone there. The idea went away for like four or five months after the big plates because it didn't work. And just thought it was dead and then Martin Kastner at Crucial Detail was like, "Well, why does it need to be a rigid plate? You could use a different substance." And we were looking for gray latex. He found it at a sex shop in Paris. Rolls of gray latex. On the internet. Like he wasn't strolling about the sex shops in the Paris. We figured out ... We called them and were like, "Who manufactures this for you?" And they were like, "What are you into?" And we're like, "We're using it for food." [00:00:00] S0: Table food art.
· Patrick O'Shaughnessy, Nick Kokonas
[00:00:00] S0: Table food art. [00:00:00] S1: Yeah, yeah, yeah. That's the story of how that came to be. But I think that encapsulates a lot of our thinking. That was a six or seven-month project and then we figured out how to do it once and we would do one table a night. And we would go, there's no way we could do this for every table. And then four weeks later we were doing it 30 times a night. It's a magical thing. Like Netflix Chef's Table had that on billboards in Los Angeles promoting the show. So for me it's a really weird thing because it came out of this process of three or four or five people talking about how do I make you feel like a kid again? And clearly it stuck out in your mind as a new weird, fun experience which is really what we're shooting for. [00:00:00] S0: Just to pour evidence on the pile, I still tell people about that all the time. And it's interesting to me how often businesses seem to want to go down the fairway and sort of not be risky and how incredibly boring but also how bad a business decision that is. Because if it was just a lava cake or something I wouldn't talk about it.
· Patrick O'Shaughnessy, Nick Kokonas
[00:00:00] S0: Just to pour evidence on the pile, I still tell people about that all the time. And it's interesting to me how often businesses seem to want to go down the fairway and sort of not be risky and how incredibly boring but also how bad a business decision that is. Because if it was just a lava cake or something I wouldn't talk about it. [00:00:00] S1: There is an important distinction here and that is this. People have copied that now. Anything good gets copied. And if you google up restaurants in South America and Asia that are copying it, they don't copy it well. They'll literally just take a bunch of food and dump it on a table. No, no, no, no. If you're going to try to do this very risky kind of potentially polarizing thing, you have to make it elegant and beautiful too. Execution ... The ideas are great. I tell people all the time. You can have all the great ideas in the world. If you do not execute them at a high level it's going to fall flat. Grant, when we first opened, wanted to show movement in food and he had this little bacon on a wire thing and stuff. And now there's a bunch of steakhouses that put thick steakhouse bacon on a clothes pin. Our thing may have been dumb, and we only did it for four months, but they didn't really get the point of it. It looked beautiful at least. And now they've got clothes pins holding bacon on a wire. You have to figure out the core of why it's special and that's a tricky thing to do a lot of times.
· Nick Kokonas, Patrick O'Shaughnessy
[00:00:00] S1: There is an important distinction here and that is this. People have copied that now. Anything good gets copied. And if you google up restaurants in South America and Asia that are copying it, they don't copy it well. They'll literally just take a bunch of food and dump it on a table. No, no, no, no. If you're going to try to do this very risky kind of potentially polarizing thing, you have to make it elegant and beautiful too. Execution ... The ideas are great. I tell people all the time. You can have all the great ideas in the world. If you do not execute them at a high level it's going to fall flat. Grant, when we first opened, wanted to show movement in food and he had this little bacon on a wire thing and stuff. And now there's a bunch of steakhouses that put thick steakhouse bacon on a clothes pin. Our thing may have been dumb, and we only did it for four months, but they didn't really get the point of it. It looked beautiful at least. And now they've got clothes pins holding bacon on a wire. You have to figure out the core of why it's special and that's a tricky thing to do a lot of times. [00:00:00] S0: Going back to the kind of way the business itself is run and the service delivered, you guys have been extremely innovative in things like ticketing, selling meals ahead of time, not at the restaurant. Things like dynamic pricing. Can you talk through how you arrived maybe at those two concepts at first and the impact that they had on the business once they were in place?
· Nick Kokonas
[00:00:00] S1: I had never spent a day working in a restaurant. And then even after we opened Alinea, my role was to coordinate. I was like the producer of a film. I found everybody, got them involved, worked with the architect, the interior designer, did all the permitting, the liquor license, the legal, all that sort of stuff. But I didn't actually work in a restaurant ever until the day we opened. And I certainly didn't intend on working at the restaurant. I expected that I would do the financials and the books and things like that. But I would also hand that off to the general manager, say, or things like that. About 18 months after we opened Grant was diagnosed with stage four cancer and at the time was given six months to live. He's 11 years cancer-free. That's a story in and of itself. But at that moment I went in to the restaurant, started going in every night for service. Not doing just the business side but really looking at the other aspects of it. I just would look around and be like why in the world do we have an empty table right now when we have 60 people on the wait list? Well, they just didn't show up. And of course I knew that when I went to other restaurants I'd have an 8:00 reservation and be told to wait at the bar for 45 minutes. And I started asking really, really basic questions. Why is it that I go to a restaurant, have an 8:00 reservation, and then am told to wait for 45 minutes? Is it because they're disorganized or so many people came? And it's like no, actually they lied to me and told me they had an 8:00 table when they knew that they didn't have one till 9:00. And why would they do that? Well, because if they told me 9:00 I would have gone to the restaurant down the street that lied to me and told me 8:00. And then conversely a lot of people lie to the restaurant. They would call Alinea back then and they would say like, "Hey we want a table for six on March 23rd." Say, "I'm really sorry, all we have is a table for four." They would say, "Okay, I'll take it." And then they'd show up with six people. Or worse, they'd want a table for two and they'd say, "Oh I'm sorry, we only have a table for six." "Okay, we'll take it and we'll just bring four friends." They show up as two. So all of a sudden you have two people sitting at a six top and you've just forgone $1,000 in revenue.
· Nick Kokonas
Now you multiply that out over the course of the year and we were losing over a million dollars of revenue through those two things happening. One of the basic things that people don't do in the restaurant industry, and it drives me nuts even with our own staff, is no one multiplies it out by seven days a week, 52 weeks a year. So if you have something that's costing you even $20 a day, add it up. It's a low margin business because you're not looking at these chunks of revenue. I was just going why in the world if we have a wait list of 200 people can we not just limit it to the people who actually are willing to come in and take a little bit of a deposit first? And what's fascinating about that is that when I said that to people I was like, "Look, baseball games, concerts, theater, every other form of entertainment does some sort of ticketing." And I was told that it was a terrible idea because restaurants are not entertainment. And I was like, "What are they?" What's really fascinating about restaurants and food in general is that because we are biological creatures that need to eat, people have all sorts of emotional and cultural and ethical baggage on top of what a restaurant is. And you're seeing that now during the pandemic. And at the heart though you don't need to eat out. Eating out is a social endeavor. It's entertainment. It might be art. And it definitely is sustenance as well. At the core of it, we could charge ahead. I was told by everybody I talked to that it was a terrible idea. Literally everybody except for my wife. Grant thought it was a terrible idea. Our general manger at the time thought it was a terrible idea. Notice I say at the time. It was very, very, very frustrating because I kept having this notion in my head where I'd wake up every day going, "We really should just take a $50 deposit and then the problem is solved." I honestly knew nothing about behavioral economics at the time. I didn't know if these were things that were tested. I just knew that as a derivatives trader if everything went to zero at the end of a day that's like an expiring option. And that option value changes the closer you get to expiration. And yet we kept all of our values constant. In other parts of the world that wasn't the case. I sat down one day in 2014 and wrote this long essay. But before then I skipped ahead.