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Nick Kokonas Interviewed by Connie Loizos | Upfront Summit 2020

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Upfront Summit 2020
January 30, 2020, Pasadena, CA, United States
Upfront Summit 2020
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Nick Kokonas Interviewed by Connie Loizos | Upfront Summit 2020
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About speakers

Nick Kokonas
CEO at Tock
Connie Loizos
Silicon Valley Editor at TechCrunch

About the talk

Topic: Business

Nick Kokonas (CEO, Tock) talks with Connie Loizos (StrictlyVC) about building and scaling software for traditional markets. Topics include:

- How restaurants are operating with opaque information and how he's capitalizing on that need

- The process and decisions behind building software from scratch

- The opportunities in dynamic pricing and the psychology of pre-paying for experiences

- The emotional resonance of restaurants and why you won't see a lot of Tock branding in the user experience

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I'm so happy to be here with you and invited me to interview you. First you are the co-owner of one of Chicago's hottest restaurants alinea, which is not the sort of award-winning but I think considered one of the best restaurants in the world consistently consistently bite people in the know you own a number of other restaurants Sinclair Supper Club Aviary next which is also his award-winning but in addition to that you have a software company started in 2014 and talk and my understanding is

basically you've enabled restaurants to sort of deal more directly with their patrons. They're offering directly. They consider customized offering which is really nice. So I got to start one thing that I thought was her funny is your Greek American a lot of us are there restaurants run in our blood like my grandparents had restaurants. I know your father had a diner in Chicago before you were born into restaurants right away. Usual where I started derivatives trading firm right out of college

because I was a philosophy major that's really important. Then did that for 11 years. I felt that to about a hundred and 40s and we're doing about 4% daily. Find me DMX in ETFs in 99 2000-2001. And then I'm at Grant Achatz Chef who if you want to learn more about him Netflix Chef's Table season 2 Spinning places. He had tongue cancer and a very incredible outcome of me still 10 years cancer-free, but I met him when he was very young and use the same kind of person that I would want

to hire in my training firm and it was more just like Josh pop no style backing a great person. I knew nothing about the restaurant business, but I did know that in Chicago if you turned 40 and you don't own a restaurant to give you a hot dog joint on the west side for free. That's true. And so I didn't want to do that. So I had to build alinea if you want to do something on your own look me up. In 2005. This is little bit free blogging in Pre foodie a little bit. You could be surprised going into restaurant. And what

Grant was doing was what I think we all try to do any time we build anything he was doing to me up in emotionally resonant with consumers. So you would go in there and you have this incredible experience in every day from the timer babies. We kind of do this like we people shoving food into her mouth and all of a sudden that was broken apart by Design experience a type of food things that you didn't even know by looking at them what they were but then when you tasted them they were comfortable and delicious and I felt like I knew how to build businesses. I start investing in the

internet in 1996 and I just sent you one day like if you ever want to do something more than this, let me know and he said well what kind of restaurant you want to build I said, how should I know? I've never felt the restaurant before but I want to make it great. And so I knew nothing about it a year to the day later of that conversation. We opened alinea and I remember on the first day. I thought I was done. It was kind of like a Film Production or you you produce the film and then people can watch it. But of course with the restaurant you're

making art everyday that people consume it's one of the only art forms are forms of entertainment that the consumable it's more like a theater and so I I remember he just grabbed me by the tie I don't wear one often, but I didn't opening night and he grabbed me and then just said he'll go over table for tea and make sure that they're doing it the right way. So 16 years later. I have six restaurant and about 300 Floyd's between Chicago and New York and what I learned when I actually started running the restaurant when when Frank gets sick was that no one else knew anything about running

restaurant either. It's one of those areas where tradition exceeds expertise and the software for it was built in a way that look like 1998 Chevelle 2005 an Open Table Sales North come literally with a briefcase in and the Erv and say Play this bad boy. I can leave it here for you today. And that's kind of what they still do and I came from a trading organization and company that was built for real scale. So we could process hundreds of thousands of transactions even back in 1999 before trading for the high-frequency

trading what not. We can process hundreds of thousands of transactions a day without a problem. I couldn't even know who my customers were in 2010 that was held from me. And so whenever I see opaque information as an arbitrageur, I want to run to that opaqueness and opacity tell you and that's what I did and we started so that was kissing a restaurant reservation software. Like why do we need another one of these there's so many of them you're saying that OpenTable kept all the customer information. And so that was restored to starting point. This is a

need you wanted to start a better connect with Track of his conversations. We were doing a spreadsheet with if you dine with us or if any of you have done with us, I could look up every single thing that you eat and what you like what you didn't like what you left on the table. But your wife or spouse likes to drink and we're doing that in a very wrote way and we couldn't share that information with our other restaurants. If we open the second restaurant, you've been doing restaurant 20 times. I couldn't they were siloed on

purpose because of the business model of of of of Open Table on booking.com. So when I started it I started building it for myself. I remember Danny Meyer told me you'll never sell ticket to a restaurant. I thought it was 20 years ago. It won't work. We process about 2 million dollars a day now in prepaid tickets, but the time I built myself by myself with one programmer a very rudimentary system and we still $562,000 a ticket to the first day. Cuz reservations that you make in the world of any of it anything there's free

reservations like ordinary reservation. There's times where you have to make it put a deposit down on something and there's times that you prepay something if you think about it, if you're coming to the Rose Bowl and you can buy tickets to the Rose Bowl NCAA game and suddenly your dog get sick and you got to go to the vet. You do not call the Rose Bowl and say I'm really sorry. I can't make it tonight. Give me my money back. They play the game without you with restaurants where demand exceeds Supply by two or three two one. There's an opportunity to charge like a movie or

concert or anything else. It's a form of entertainment and that's what was going through my head because we were running 8% no-show rate. We had $600,000 of Labor answering a phone everyday disappointing people telling people know so they would call and say I want some on a Saturday. So we start tracking with everything that they wanted what they request request word 85% request in the same. And yet it's like walking into a sweater store something and you have no sweaters and you have to go. Do you have a black card again? Nope, try again, you know, it's like the information

still like that with most systems. And so I didn't really realize how big of a problem it was. I just knew that I need to sell my own problem. And now we've got a hundred and forty. He's building all sorts of different iterations of dynamic and variable pricing for X lot of businesses. So you're Dentistry cost left on Tuesday flat-out it will in the future. We all know I think everyone here looks at things like that and goes well in 10 years for sure pricing will be differentiated in real time and yet in restaurants is 4% of GDP sit down restaurants at 4% of GDP.

And all you do now is play. Google is building a thing to call the restaurant. I don't want to have a robocall that is not tied to my inventory terrible customer experience. I fought like heck to get them to stop doing that with my restaurant and yet I want to integrate with them in a way that's positively consumer fingerspelling experiences that are certain dynamically price based on when the person is going to come in Saturday night Tuesday night. It's just like good seats and bad seats. I'm sure the seats on the fifty-yard line cost more than those

nose bleeds for my restaurants for a Linea were sold out every night 360 nights here for our bar the Aviary be charged a $5 deposit the loss of version. I don't care what your socioeconomic status is. If you put $5 down as a commitment, you will be way more likely about five times more likely to show up. It's it's it's richer Taylor that behavior. Thomas thought I was doing this I wrote a paper about it and called me up one day and he was like I want to write about this because you put

all your data out if what I've been trying to prove and he's a good friend. He's on our board now and those are the kinds of questions that we ask as we're trying to build these things out who is acquired last year acquired by and said that no shows a gun to like 5% credit card, which is very different thing because it feels like a penalty afterwards if you don't show up it is a slight. Difference from like a build-it thing, but the outcome is very very very different when people prepay. It runs like a .38 percent no-show

rate .38% is indistinguishable when people put down even a $5 deposit is 3% when you take a credit card, but don't charge them until afterwards about 9% but they don't charge back. So he tried to charge a $75 penalty to go to a restaurant San Francisco people complain about it. It feels like it's healthier. They want to gift certificate was just simply lose their economic loss out about the case. There's so much psychology that goes into this stuff. So I mean you and I were even talking about tipping

a 30 minute thing in and of itself. I can't even begin to go into tipping other than we eliminated tipping 10 years ago. Successfully. The fair labor standards Act is completely broken for restaurant over $35 check average. I'm in in in New York there is case law that prevents it from being easy to do but as minimum wage goes to $15 an hour and States like California and and Washington State and whatnot. You'll see tipping going away more and more and more and that's a good thing for the employees. It's better people understand sexy great for the employees have a 401k

Healthcare all of that and be treated like the professionals that like if I want to hire you we can come to an arrangement salary and bonus and that's perfectly legal cuz you are a professional but that's a whole different ball of Wax. Ecology from what I can get away with it something they feel like the service is going to be substandard. I also wonder if selling tickets to a restaurant is also only or two other verticals are getting another vertical to the only sort of applicable to paint above a certain song. Absolutely true. But let's say you have a

great mom and pop restaurant. And then normally they just are free reservations. And you go in all of a sudden what happens is on Mother's Day Valentine's Day New Year's Eve all of that. They actually cancel ticket and they do already they use Eventbrite for it. Now. If you want to really make a platform in a Commerce platform for restaurants, you have to have the CRM that we talked about you have to have the ability to have those three kinds of reservation and special events built in and it's taken us like five years to build that all out and getting to the to the title of the talk.

You know, there's a choice that you make when you first start building company Bubble Witch thing, you're going to scale like resy gave away their product for free or very very very cheaply to restaurants in Los Angeles and New York Reserve did the same thing and I was sitting Chicago going. I'm in Chicago. I like to make money everything I ever do makes money. Let's charge people to provide a real r a y but then what'll happen is we will get the scale if the French Laundry signs up and use our product because it's great and it's at that level and high-end will get a quarter-million new

users the year for free instead of trying to pay $27 to download my app with the coupon and that's what's happened. We've gotten to 11 million users. We had about a quarter million a month and we are in a really fortunate position that you get that that engineering saying it's either great faster cheap pick two. We kind of just picked great early on and didn't really worry about scale because If you go from one to two, you're not logarithmic use that a client. You can't know for 4 A. Of time if your Capital your Capital efficient, whether or

not you can scale what I heard from a lot of investors early on was spend $29 to get a consumer Network and I thought we could build that Network without finding anything and that's what we've done. So, how are you? I mean, I'm sure a lot of it is word-of-mouth in terms of garnering where customers ripping and replacing a system that's been around for 20 or 30 years. You have some convincing to do and that the crossing the chasm thing is real like the first, you know, a couple years we would a Danielle 15-20

restaurants a month and they would be we had to learn really quickly there. Either really great high high demand or they are failing willing to try anything. So you had to really learn to pick your the right customer when you were early in the process. Now it's happening is that we built out of system that is cloud-based for the only independent system left and we built it for Enterprise. So we have 400 API endpoint we can integrate with Salesforce, but we can also do specialty Integrations with with no vailresorts as a client of ours now, so All of that now is going

laterally were getting the halo effect. We spend very very very little on marketing to two businesses. We spend an awful lot of money now and we're building out that consumer Network and we're about to announce in a week that the largest bank in America. We will be there dining program. But the cool part about that news is that every single one of those people in the largest Rewards program in the country is going to get stock account. So that's how I get 30 million us households at once and

can we talk about the bank Lisa? Can I already did you can figure it out? But don't get mad at me or friend E8 here right like this, but it is a sort of it doesn't serve reflect. What happened to resi which was Phi Phi American Express last year until American Express Now is offering resy as a way to sort of Create a path for their customers are Platinum customer service reservations. We're building out several initiatives with them and on our own for Consumer products there as differentiated for the consumer. I'll say is like one of the things that were working on his instead of a wait list

or wishlist wishes are more hopeful it's it's a digital concierge that it's completely silly to have somebody in Toronto. If you call a credit card company won't name the name and you call credit card company and you say I am a XYZ card holder. Can I get a restaurant reservation at alinea? There is a company in Toronto that has a white board of been there and seen it with my phone number on it and they can try to call me. That is not scalable. It's not going to work. And so what we're doing is we're building a trading firm. We know exactly when restaurants put reservations up

whether they're on our platform or not. We can instantaneously in milliseconds grabbing hold the table for 24 hours email you the customers and provide a whole bunch of different sales ad on its really like we solve a million dirty money. For the Bookstore Restaurant on check out like the exit path is through the gift shop now, but no way that's on your phone when you're in pajamas at 2 in the morning. So I got the new one of the ways. Are you using the data that you're collecting from? Your customers important

is that we want to know your preference is dietary preferences restrictions your your your spouse's birthday. All those things. Those are for better Hospitality. Now what the next step is that we want you to give us that information. We already know your dining history. Why is there no platform like Spotify or Netflix for restaurants that anticipates your need knows what you enjoy and suggest little nudges to you going. Hey, your anniversary is coming up in a little while. Maybe you should book this. Now.

We've got these great five choices that are in your thanks. Let that mass personalization for the consumers is coming. That's something that we're building and you have to get to a point where you have enough of that data to To do it well enough that it's meaningful but there were there now and that sort of rotation or is it sort of like either we don't know yet, you know restaurants are incredibly myopic in the sense that I don't care how good you are

they are concerned that when I turn on booking for March. I hope we have customers. It's a really weird business that way and will we're going to be able to do is that because of of some of the data people indicating interest before the reservations are available. We get to show the restaurant on elasticity of their demand before they actually put those bookings on that's incredibly powerful because now for the first time they can know they can project out months into the future what their demand will look like And you're working with restaurants and also wineries. I'm just wondering what

the vision is if they're if you're going to be getting into sort of other verticals our hospitality is kind of hospitality. It's a huge or in 30 countries organically already. And so it's a huge huge huge space. But you know, it's if if I was if I was left to my own devices and didn't have people managing me, I'd already have Dennis using it. So, you know, there's Spas dentist University of exactly what I used to do is a traitor. It's just in a different Marketplace the thing that people don't

understand or don't think about is that if there are people know showing a restaurant reservation that means food is going to waste so my margins increase from 10 to 20% across, you know, 70 million-dollar year Revenue stream, that's a massive difference for me, but it's the reason I'm making more money is because there's less food way that's better for the environment is better for your staff. It's it has so many Touches our lives in so many different ways and it's an emotionally resonant product just like grants food is emotionally resonant. Eating out is one of those

things we do for entertainment at the only thing where you actually put something in your mouth or almost the only thing and that's really personal, you know, and so that's what we always consider as we're building our software is Riley's going how can we make that as emotionally resonant on the consumer side, but also for our our clients who are the restaurants what can we do for them to get them to run their businesses better and easier and faster but keep their own identity. So we you will not see a lot of talk branding around what you see is the restaurants image

and buy as a restaurant to where I think it's impacting sort of like Like there's this again. It's it's about a moute like if I want to eat fast on a Tuesday night so much to build a better if there's no storefront and I can get it delivered from a delivery service and it's great food. Awesome. I don't think us sitting down together having a glass of wine and chatting. I think that's actually on the upswing because we're so we're so removed from each other and every other aspect of Our Lives that dining is so culturally

significant Italy or Japan why the first things you think about is the food of that country and its really ingrained in us and as humans, you know that it's more important than ever and it's sort of more kind of treasure I think than ever by people because there are fewer points of contact in San Francisco. I don't know if you're aware, but there was sort of a kerfuffle maybe more than that this past weekend. Some fine dining establishments realized is that Yelp and GrubHub his mother know where Services

were selling food from the restaurant food fried made. There's a sales tactic going on with a lot of different companies now, not just the delivery services, but even Yelp or Facebook or whatnot where they are creating. Template business pages and then sending you orders that say anything we had people where we do not do any carryout saying Hey, where's my carryout? It's been like an hour. Oddly. Matt. Matt Maloney is on our board. Who's the CEO of GrubHub a really? Well. I called him up directly then says that's really uncool. Yeah. It's

a terrible practice. I know pimp who wrote the the Twitter feed that kind of went viral on she's great. I don't think that's good practice for any kind of business. It's certainly something that one of our competitors did my restaurant has an Open Table page. Why bother trying to suck say this restaurants on OpenTable, but these five others are blood siphon off the business and that's how they get paid so we can set up our our business that way we don't we don't. Make money that

way, not happen that said, you know, I do get if you get the temptation to do those things. I just think that's a short-term solution to a long-term problem. So unfortunately, we're almost out of time but I did want to ask you since I do have investors in the audience and probably Foodies like 17 million so far does credit card company that we are forbidden from an email yet. Are you looking for more funding or are you a week with the launches of these two products that we have that we

could grow more quickly or the only independent left? So we have entertained some some offers to accelerate things. I'm I'm a former Trader. So it's always something between 0 and a lot and we will we will see how it goes and I'm always going to have a conversation. I know.

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