Invest Like the Best with Patrick O'Shaughnessy
· Nick Kokonas
[00:00:00] S1: No, I know. It's so stupid. I'm telling you what, there should be a business course on that. If I ask Gramercy Tavern what you're selling they'd say food. And I'd go, "No. You're actually selling seven different experiences plus some merchandise." Meanwhile you haven't categorized those experience until after someone comes in. You haven't even informed the consumer that they exist. Do you want to be surprised? When you go to pick up your car that you bought, would it be really weird if the car had a different color and they tried to sell you on that one? Yeah, you'd walk out of the place. One of the talks I give to all of our new employees at Tock and to the industry is called Tuesday is not Saturday and seven other things you already know but are doing nothing about. It's really obvious, you don't need to be an expert in the restaurant business to know every restaurant in the world probably, or 99% with some anomaly, are busier on Saturday night than Tuesday night. Okay, so we have that. You're not going to get an argument even from a diner. Yeah, more people eat out on Saturday night. What are you going to do about that? How are you going to get more people in on Tuesday? What levers are you going to pull to get them in? And for some reason the whole industry, with the exception of the early bird special in the '70s and the blue plate special in the diners, the high-end industry just went like, "Yeah, no, we're too good for that. We're not going to pull the pricing lever because we might piss off the people on Saturday night." Because that was the argument given to me by my own employees. "Well, won't the people on Saturday be pissed if they're paying more?" No. Do people sitting on the 50-yard line on the 10th row, are they pissed off that they spent $500 on the football game instead of $80 to be in nosebleeds? No. That's like a normal thing. The other thing is, people can't buy what you aren't selling. You have to have the information readily available where people live and people live on the internet now on their phones. And if you are not selling there ...
· Nick Kokonas
Not just saying, "Hey, come to my restaurant, eat this delicious thing." But if you're not selling those experiences, if you're not saying, "Hey, we've got this awesome corner table at our pizza place that everybody wants and it's a $10 deposit per person because we can't have no shows at that table." The sunk cost of that $10 per person is mentally done a week before they arrive. They end up spending more once they get there and they're happier because they didn't need to wait for the table and they got the best table in the place. It's like win, win, win. Having those levers and those tools to actually sell, regardless of what business it is, is massive. Same thing goes for publishing. We publish all of our own books. Last week sold $120,000 of books in a week for our restaurant with margins much better than the restaurant. But we actually sell them ourselves. I have mailing lists. I have websites. I have Instagram and Facebook. We're running couple thousand dollars of ads per day. And we own the rights to the book. Done. Not that hard. That goes back to the original thing, own it. The publisher doesn't own our books. We do. And sell it. This is not hard stuff. It's amazing to me that so many people in the industry don't ... There's a lot of artists in the industry that view commerce as antithetical to their ethical beliefs, as weird as that sounds.
· Patrick O'Shaughnessy, Nick Kokonas
[00:00:00] S0: And yet, so much of that makes the whole artistic expression and creative part of this more possible. By running it successfully like a business you create more opportunity to do more of the thing they want to do. [00:00:00] S1: Yeah, yeah. I mean, at the end of the day you can't operate if you're losing money. And there are restaurants out there by the way that have run for decades nonprofits essentially. And they don't mind. And that's fine. That's totally valid for them. But that's not what I wanted to do. And I think a lot of times people say, "Well, you guys can do that because you're Alinea. You can charge ahead because you're Alinea or you could sell your own books because you're Alinea." And I always say, "No, no, no. We're Alinea because we do those things. You're getting the order wrong." It's hard to do. It sucks. There's been many times we've done stupid things that haven't worked. And then you junk them and you move on. [00:00:00] S0: Any other lessons that you've learned from publishing? You mentioned that earlier as something that you do and you enjoy doing. You mentioned the higher margins. Any other thoughts on publishing? Which I think, again, like restaurants, many would knee jerk reaction say is a bad business.
· Nick Kokonas
[00:00:00] S1: If you ask questions of an industry and they won't tell you the answer, that's always a good sign that someone's getting very wealthy. In publishing, if you ask an author, ask any author, how much did it cost to print the book? What are your COGS? They will not know. Ask any literary agent that question and they'll think you're off your rocker. Ask any publisher to give you that information transparently and they will rip up your contract. So call the printers in China, pick your favorite book, find out some print brokers here in the US, and say, "What did the printing of those books cost? Send me a spreadsheet." And when they do and you find out that a $50 retail book cost about $2 to print, and you're going to get 10% of cover price, they're requiring that you order 5,000 for your own list and they're going to give you a quarter of a million dollar advance, you realize that there's no way they've taken no risk at all. I wrote up a long Medium for those who are interested. If you google my name and look on my Medium there's Why We Are Self-Publishing the Aviary Book. I posted up the contracts that we were offered. They're all terrible. Certain kinds of books I think you're much better off going with a publisher for it. Like if you're going to write an academic book and you have no built in audience, chances are you're not going to sell a ton of them on your own. But if you have an audience already in whatever business you're doing, or a large social media following or any of that, doing a book and publishing it yourself is not hard. It takes a lot of effort. Allen Hemberger and Sarah Hemberger came from Pixar Industrial Light and Magic. We hired them both to do all of our media and books. We gave them equity in the thing so that they own part of it. Three years later we have six books out and they produce millions of dollars of revenue every year.
· Patrick O'Shaughnessy
[00:00:00] S0: Fascinating. What are a few of the other things that people already knew but do nothing about? What are the top two or three that you haven't talked about that come to mind?
· Nick Kokonas
[00:00:00] S1: Food costs money, so that's one of them. But the way that everyone looks at food costs and paying for food is very weird in that every restaurant ... And this happened when COVID started so it's a good segue to that, every famous chef that went on TV said, "This is the kind of business where this week's revenues pay for bills from a month ago." And when we started to bring in money through deposits and prepaid reservations, tickets, I suddenly looked and had a bank account that had a couple million dollars in it of forward money. Like a lot of other businesses. Like the computer business. If you buy a computer then they ship it to you five days later kind of thing. So you have a float. So I started calling up some of our big vendors for big expensive items. Proteins, meat, fish. Luxury items like caviar, foie gras, that sort of stuff. And wine and liquor. And just said, "I don't want net 120 anymore. I want to prepay you for the next three months." And they had never had that phone call from a restaurant before. So basic economic theory would say well, how much should they discount it? Let's say we're going to buy steaks and they were $34 a pound wholesale for dry aged ribeye. We're going to pay $34 a pound wholesale, get net 120. And I called the guy and said, "I'm going to use 400 pounds of your beef a week for the next four months for our menu, which is about $300,000 of beef. What do we got if I prepay you?" And he was like, "What do you mean?" I'm like, "I want to write you a check tomorrow for all of it for four months." And he was like, "Well, no one's ever said that." So he called me the next day. He said, "$18 a pop." Half. Half price.