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Hello and welcome to the advice line on how I built this lab.
I'm Guy Raz. This is the place where we help try to solve your business challenges.
Each week, I'm joined by a legendary founder, a former guest on the show who will help me try to help you.
And if you're building something and need advice, give us a call, and you just might be the next guest on the show.
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And we'll put all this info in the podcast description.
All right, let's get to it.
Joining me this week is Perry Chen.
He's the co -founder of Kickstarter.
Parry, it's great to have you back on the show.
Great to be here, Guy.
All right, so you were first on How I Built This back in 2017, and if you guys haven't heard that episode, of course we will put a link in the episode description.
Parry got the idea for Kickstarter when he tried to put on a concert in New Orleans in the early 2000s, and he thought, hey, wouldn't it be great if we could fund this event in advance?
Well, that idea never panned out, but after almost a decade of kind of refining it, Perry built a platform that today has funded more than a quarter of a million projects.
Perry, it is such an awesome story.
And before we get to our callers today, can you give us an update on what you're doing these days?
I know the last time you were on the show, this was back during the pandemic, you were no longer the CEO of Kickstarter, you were the Chairman of the Board. Tell us a little bit about what's going on in your life right now.
Yeah, and it's great to be back, and I was chairman the last time I came.
Now I'm off the board completely.
I went from CEO, stayed on as chairman for many years, then was just a board member, brought on a new chairman.
And, and then really as of about six months ago, I am now liberated.
Yeah. And so I've worked after that, I, after I left the CEO, I went into the art world and, you know, I did some shows with some galleries and even a few things at a museums, but I have since returned to music, my first love.
And so the music stuff is kind of still, it's under wraps, But it's been going really well, and this is now where I put my energy.
Perry, I think—okay, this is my sort of back -of -the -envelope -guy -in -the -corner -of -the -bars theory, but I think we are on the cusp of a different era.
We're leaving the industrial age, and we're entering—oh, maybe we've already entered it, but with AI it's a completely new age.
I think that in the not -too -distant futures, it's going to be difficult to discern what is AI -generated and what's human -generated in certain creative spaces.
Music and books, even podcasts, even what I'm doing now.
And so I want to get your take on building a business around being creative, because that's really what Kickstarter initially enabled people to do.
Do you think that that the future of earning a living by being creative is under threat?
If you're thinking more in the creative arts spaces, you know, the music, the art, film, Um, dance, theater.
You know I don't think it's ever been really stable for people working in those spaces.
Fair point, yes. You know...
And so it's like each of these radical changes that we are going through, I think as long as it continues to open up opportunity for people, and not just close up opportunity, I think then that's just normal change we're just experiencing it in like such a condensed rapid fashion.
Yeah, Perry, before we get to the callers, I suspect that many or some today are going to have questions about raising money, right?
To fund a business.
And I'm just curious, I mean, what are some of the projects that do really well on Kickstarter?
Like what is the pitch that people make that attracts more capital?
Well one, there's people that have existing audiences that they can start the promotion on.
your audience is much smaller, you're trying to tap into things that have existing communities.
If you're doing a documentary film on a subject, let's say, on autism, you may not have a built -in audience as a filmmaker or that may be limited, but you can go try to promote that in communities online where people gather around that topic.
So whatever that is and whatever area of what you're doing, I think that you're really trying to think to try to understand how big is my audience here you're probably trying to think is like what communities exist that I can go to and say hey I'm doing something that might already interest you.
Yeah, all right well Perry why don't we go ahead and take our first caller you ready?
Yeah. All right hello caller welcome to the Advice Line you're on with Perry Chen co -founder of Kickstarter tell us your name where you're calling from and a little bit about your business.
Hey what's up guy I'm Perry my name is Jesse Hodge from Dallas Texas and I'm the co -founder of ModTUB.
ModTUB manufactures and sells coal punches direct to consumer, and these coal punches keep the water cold and clean with no need for ice.
Awesome, Jesse, welcome to the show.
Thanks for calling in.
ModTUB, okay, so these are like a round hot tub, like what does it look like?
So we started modifying a massive cooler, like a Yeti style cooler, so it looks like a big tub, plastic tub.
Okay, and basically that's connected to some device that cools the water inside?
Exactly, yes. So, we modify that cooler to connect it to a pump, a filter, and a chiller, which is what brings the water down to temperature.
Okay. Filled with water, there's an external device that cools the water to what temperatures?
It can go as low as 39 degrees.
Wow. But that is very, very cold.
We recommend starting around 55.
All right. Let's talk a little bit about how you started this business.
Tell me the background, the quick background story.
Yeah. So we launched Modtub in February of 22 and it started from the side business in my garage refurbishing used hot tubs.
I was a random thing I got into, my wife and I bought our first house and we wanted a hot tub, but we were poor.
So we bought this junky old hot tub off Craigslist and I just really enjoyed working on it.
I enjoyed fixing it up and refurbishing it in my garage.
So that led us to start Modtub originally as a new hot tub company.
So we were a dealer essentially selling new hot tubs.
That business was very hard and we had a very tough year.
But we saw the rise of cold plunge and because of all I knew about hot tubs, we were able to make our own cold plunge out of my garage and I kinda took off from there.
Okay, so you switched from hot tubs to cold plunge.
It makes a lot of sense because it's a hot trend and I think will become more than just a trend.
Did you design these tubs?
I mean, is it your original design?
Yeah, that's one thing that makes this different from a lot of coal plunges out there today.
A lot of them are bought and resold or dropshipped from overseas but we make these ourselves.
So we designed it, my brother and I would tinker in my garage every Friday, trying different fittings, different pumps, different tubs and eventually landed on the design we have today.
Where are they manufactured?
The tubs are now made in Tennessee, so the components come from all over but final assembly is here in Dallas.
Wow, so the actual tubs — they're made in the U .S. Correct, yes.
Wow. And do you have a patent on this design?
So we actually just launched our Mod tub 2 .0, so this second version is our proprietary design, so we have a design patent on this new one.
Tell me a little bit about the business.
How were your sales last year?
Yeah, so last year was really good.
We did just over $5 million, that's doubling from the prior year.
So yeah, we're at $5 million.
And these are, how much do these go for?
What's the cost? $3 ,000, our new one's 3 ,300.
And are you profitable yet?
Yes, so we've been profitable, ever since we launched the cold plunge, we've been profitable.
We lost a good chunk of money doing hot tubs, but then the cold plunge is recouped most of that back.
Amazing. Okay, lots of questions for you, but before we get to Perry, bring him in.
Tell me what your question is for us today.
Yeah, so we're a little over three years in and have had a lot of fun building this.
I get to do this with my brother.
But lately we've been getting approached by people interested in potentially buying Modtub or investing in Modtub.
So looking for advice to know if and when is the right time to go down one of those paths.
All right, Perry, before we answer the question, do you have any questions of your own for Jesse?
Oh, sure. I kind of want to ask what you want.
You know, what's your vision, how you feeling about how things are going?
Like what are you? Yeah, what do you want?
Yeah, it's a good question.
I think I've felt a lot of Maybe where I feel like I'm towards the edge of my rope or I've taken it as far as I can go and now I feel Just this pressure or maybe some imposter syndrome of like man.
I'm not the face of this health and wellness company I'm not sure if I can take it to the next step.
It might be better in someone else's hands And I'm kind of wrestling through some of that just insecurities I need to push through to keep growing the company, or is that indicative of maybe it really is a good time to let go of some control and get some more outside perspective.
Have you had any credible offers?
Yeah, so we turned down a credible offer last year.
At the time, we felt like it was too low.
And I think as time's gone on, I've maybe realized the offer was better than I originally thought.
It's a tough industry.
I mean, we essentially sell one SKU that people buy one time.
So it's hard to sustain a business with that model, so we really need to watch new products or be a part of a catalog of other products who sell gym equipment and other kind of wellness modalities.
It makes me think of two episodes, many episodes of the show.
One is Therabody. Theragun was their sort of hero product, and Jason Wurstland found somebody to partner with him who kind of became a CEO, and they turn that into a sort of a lifestyle brand, right?
And the other one that I think of is some of these brands like Solo Stove.
Again, very successful product.
The co -founders hit a certain level and they brought in a sort of a quote unquote professional CEO to really build the company with the idea of selling it in two or three years.
So some interesting ideas, a quick question for you.
How did you, I mean you've got some great momentum and we should mention the benefits of cold plunging are well known.
on your metabolism.
Yeah, I think that's one thing about it is that, you know, we love it, we love the community, we love the culture.
It's a lot of people who care about their health who are willing to do the hard thing of coal plunging, which builds resilience.
So we're still having a lot of fun with it, which is, you know, another factor that kind of plays into our decisions of to sell or to take on money or kind of what's next.
I want to just like, dive a little deeper into the kind of the you were saying, a little bit of as potential imposter syndrome.
And how much of that is that you're just like, you want to do right by the business and you don't want to obviously start to get into areas where you may not be the right person for that.
And how much of that might be that you're kind of getting a feeling that like, look, that's not who I am or where I want to be spending my time.
You're really like, I'd be happy to let somebody kind of come in here who knows what they're doing and you can focus on the things that you want to focus on.
Yeah, I think there's two parts to that.
One is the imposter syndrome part.
I mean I'm not the face of health and wellness.
I love my beer and my pizza.
So it's a, I'm not this ultra bio hacker kind of guy that most of the coal plunging community is.
So there's some of that of just am I the right person to lead it when I don't know that I totally fit our target demographic perfectly?
And then the other component is kind of what you're saying that I think starting MATA, pivoting to coal plunging, like all of that was so fun.
And I think running the business, trying to scale it, kind of operating it, I've not enjoyed to the same level that I enjoy starting something.
So, I do kind of have an itch to go start something else entirely.
So - You just have itchy feet.
I mean, you've been doing this.
It's been fun, but you'd rather move on.
I mean, there are a couple of options.
I mean, option one is, again, to sort of go the Dollar Shave Club route or the Halo Top route, which is to find a buyer.
There are these websites where you can post your company as a photographer acquisition I think is one of them.
The other is to find a professional or quote, unquote professional CEO, give them significant equity and say, look, here are the metrics.
If you can get our business up to X dollars or X revenue, and we can sell it for X, Y, or Z based on these metrics, you get this, this, this or that, that could also be an interesting thing to do, which would enable you to kind of step away from the day to day running the business.
But of course, you would give up some equity to somebody who you had confidence in?
Yeah, I like that idea of finding a CEO to come in who maybe has done this before or is scaled kind of to the next level because I always feel like there's like some silver bullet that everyone knows that I don't, and I'm just out there trying to find it, and if we got the right person in there, they would triple our revenue overnight, and maybe that's true, maybe it isn't, but I do feel that there probably is someone better suited to take us there.
Yeah, I think that it really has to come from what you want, there's no better question than just keep asking.
It's not an easy question.
You know, some people got into their business and they're trying to really they want to get into the optimal window for sale to sell it.
And they're willing to stay in the business as long as that takes because that's why they got into the business.
Other people seems like yourself.
You were just like, look, I'm into this, this seems like better than what I'm doing economically and I'll just see where this takes me.
And now you're kind of maybe you seem to have success, you bootstrapped it, it sounds like.
I'd say that for an imposter, you sure seem like you know what you're doing.
I appreciate that. And I'm gonna make it hard on you.
I think you gotta accept that a little bit.
Also, you could always hire somebody if you feel like there needs to be an image of somebody standing there and also in an industry where everybody kind of looks like the same archetype, like having a different vibe ends up often being like really powerful because as the market is expanding, it's not everybody who looks like you know like they haven't had a carb in 20 years.
Yeah. And no shade to Chip Wilson, the founder of Lululemon, who's no longer involved in the company.
But he's a fit guy but he certainly doesn't look like a Lululemon model.
And I think if Chip was listening to this right now he'd agree.
So you don't necessarily have to look like but I think I do think Jesse you have answered Perry's question.
I think that you really want to move on.
I mean it sounds to me like you're ready for the next challenge.
It sounds to me like you want to try something new.
So I do think it's worth exploring either a sale or trying to find somebody willing to take a risk in exchange for significant ownership to see what they can do with this brand.
And then with any of these cases, selling it in whole, maybe selling a controlling stake, and then you keep some stock, if a buyer is willing to do that, or bringing in somebody who kind of will lead operations and let you kind of like slide down to what you want, And maybe you'll have a little space to work on what might be next for you.
Like imagine those scenarios, like what are you really going to need?
What do you really want?
And maybe that comes in a few forms that could come in an acquisition form, it could come in the form of somebody who's coming on as more of a business partner.
And the beauty of that is, is that if you sold or gave away a significant amount of equity for a certain amount now, and the next owner is able to really scale this brand, I mean, your tiny bit of equity that you have could be worth much more.
All of these options are interesting options.
I think they're worth exploring.
Jesse Hodge, the brand is called Mod tub.
Thanks so much for calling in.
Good luck. All right.
Thanks, guys. Thanks, Jesse.
Thank you. You know, I'm kind of a one trick pony guy because in a way, it's like, there's two ways to handle a lot of these questions.
Like one is just like, from a business perspective, how good does the business have like legs and be, you know, sees the best opportunity it might have in front of it?
And the other side which is again what does the entrepreneur want?
Because at the end of the day if there's a dissonance between what the entrepreneur wants and what they may realize is like a way of seizing the opportunity economically, that is gonna really be a weight on the whole thing and can cause a lot of problems, both for the business and then also for the person who's like what am I doing with my life?
We're gonna take a quick break.
But when we come back, another collar, another question, and another round of advice.
I'm Guy Raz, and we're answering your business questions, right here on the Advice Line on How I Built This Lab.
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Welcome back to the Advice Line on How I Built This Lab.
I'm Guy Raz, and my guest today is Perry Chen, co -founder of Kickstarter.
Perry, let's take another call.
Great, let's do it.
Let's bring in our next caller.
Hello, welcome to The Advice Line.
You're on with Perry Chen, co -founder of Kickstarter, welcome.
Tell us your name, where you're calling from, and just a little bit about your business.
Hi guy, I'm Perry, thanks so much. My name is Katherine Kurbus, I'm calling from Salem, Oregon, and I'm the co -founder along with my husband of Hitch. We're a chef -crafted hot sauce brand.
We are known for our super flavorful hot sauces with slightly lower heat.
So we call it Heat You Can Handle.
And our sauces are sold in grocery stores around the Northwest and in specialty stores around the country.
Awesome, thanks for calling in Katherine and welcome to the show.
And so, all right, so Hitch is a, it's hot sauce, but it's not like gonna just burn your mouth so that you can't taste anything, right?
That's the idea behind it?
Exactly, yeah. We were just tired of coming home with hot sauces that were way too hot for cooking and marinating and really enjoying.
And so my husband's a chef and he was like, I'm going to make us some hot sauces that are complex flavors, global, and that we can actually eat and enjoy.
But how did you guys decide to turn this into a business?
Oh gosh, it's actually a funny story.
We were living and working in Costa Rica at a retreat center, and he was making a lot of sauces from scratch with peppers and vegetables out of the garden.
Then we moved back to Oregon to get real jobs again, and we decided we'd love to return Costa Rica.
So why don't we come up with a business that we can start and then have passive income.
And within two or three years, we'll be living back in Costa Rica." And he said, I'm going to make hot sauce and then we'll get it into grocery stores.
And then we'll just have checks coming into our bank account.
And we can just be on the beach in Costa Rica.
And we look back at that plan now.
We're almost 10 years in.
And at first it was a two -year plan and then it was a five -year plan.
And now it's probably like a 20 -year plan.
Is it your primary source of income?
Is this your primary job?
No, no. We have tried to make it our primary job, and we just couldn't make it.
We're saving for retirement and stuff, so we both have day jobs.
What's your day job?
I'm the marketing director for a vacation rentals company on the Oregon coast, and my husband, Matt, is a chef educator, so he teaches online for Escoffier, a culinary school.
Give me a sense of what you guys did in sales last year, for example.
Last year was like 157 ,000.
So great for us, our first year, we did just under 3000 in sales.
So we feel like, you know, it's a lot of bottles of hot sauce sold.
And you're mainly in, I mean, you mainly sell through grocery or do you sell direct to consumer or do you sell like at farmer's markets?
It's about a 50 50 split between our wholesale channels and our direct to consumer.
So we certainly started out just selling at farmers markets.
And then within a couple years, we got into our first wholesale retailers.
in the Portland, Oregon area.
And now we are carried in all the regional chains around the Northwest. And we did break in to some Kroger stores and did some trial runs and like Fred Meyer and King Soopers.
But it was really difficult as a tiny company with limited funds to support that kind of scale.
So we really are to the point where we want to sustain the business without having to show up in person cuz we're really tired of setting up 10 foot canopies.
All right, so tell us what your pain point is, what are you trying to solve for today?
What's your question for us?
Yeah. After nine years of building our business through farmers markets and selling into our regional grocery chains, we would love some advice on how to scale successfully into national retailers without getting significant outside investment.
And ultimately we want to position our brand in the marketplace so we can sell to a larger company.
Got it. Okay. Perry Chen.
Say hello to Katherine.
Hi, Katherine. Hi, Perry.
Wow. You know, for both of you having very busy schedules, full time jobs, it seems outside of this.
How is that going? How much is that basically driving everything?
Yeah, yeah, it's, it's been so fun.
We love this brand so much. And honestly, it's really fun to go to markets and events and hear people's reactions to our flavors.
And so that part of it is very energizing.
But I will say this year, I kind of put my foot down because we've been working farmers markets on the weekends for eight years, and we usually work like three to five markets a week.
So we're splitting up, hustling, and then when you have a day job, it's just like, your life is taken over, and then all summer long, your friends are like, what are you guys doing this weekend?
Oh nevermind, we know what you're doing all weekend.
So, we're just ready to step back and also not have our faces be such a huge part of the brand so that if we can sell it to another company, it's not so tied to, mostly to Matt, because he's the chef behind the brand.
One thing I wanted to ask then is your question was like, how do you maybe make it attractive for an outside acquisition without taking outside investment?
And so that seems like a constraint that seems important to you?
Yeah, so we have gotten a small Angel Fund investment like in 2020, we got $10 ,000 from a local Angel Fund group, and we used to do a lot of cooking classes online and in person, and we also like culinary retreats.
So we were taking groups to Costa Rica and we did a trip to Italy as well.
So we were a little hesitant to bring on investors because we didn't want them saying like, hey, don't do all that fun stuff, just focus on the bottom line with these hot sauce sales.
But now that we're wrapping those parts up, I mean, honestly, we are open to outside investment now because we just want the company to be successful and to scale.
And like I said, we did a trial run with Keihi and two national stores.
And what we discovered was without brokerage teams to kind of supervise that rollout among all the stores and without demo teams to show up immediately in all those stores and move those bottles quickly.
It's just really hard to support it with two people and a really limited marketing budget.
So I feel like it's a turnkey brand if we could get investment.
But Catherine, the challenge, I'm just going to be straight up with you, because I talk to multimillion dollar and even billion dollar companies and brands, it's a very hard time to raise money and consumer full stop.
And you're still too small for any professional investors to really get involved.
I think if you're looking for some funding, it's really worthwhile talking to people who know the brand in your area and region who've used it, who love it.
I mean, those are the people that are going to be the most likely to write a check for 1 ,000 or 5 ,000 or maybe more.
One of the questions I have for you is have you, I know, so it sounds to me like you've got it in regional grocery and how much demoing are you able to do in the stores?
Oh gosh, we did a lot before COVID when the business was newer and we had more energy.
So we're currently not doing many demos.
We do pay a professional occasionally to do demos.
But now we're just not doing many.
It just takes so much time and energy.
Yeah. I mean, it's worth thinking about taking a risk and cutting into some of the revenue here, the sales and or profits, and using third party samplers to demo the product.
Because for people to discover the brand, there's a lot of brands and there's a lot of hot sauce brands, there's a lot you have to demo it.
People have to be made aware of it by trying it.
And so that is where I think your biggest opportunity is.
If you really want to position this for an ultimate acquisition, you might have to take a deep breath and really, you and your husband sit down and say, okay, let's think strategically about this, because to be an acquisition target, you're going to need to hit 20 million or more in sales, right?
And so, to get there, you really have to be in grocery.
And to be in grocery, you've got to demo the product, and demo and demo and demo and demo.
Yeah, you know, you were you're coming from, is that you're like, look, the way we're doing it now isn't sustainable.
And so like, how do we find a way to where we're not putting in this much or even more work on this in perpetuity?
Yeah. And so that's really good.
You can use that in a way, I think, maybe, as to what guys say, you know, maybe you just have to come up with a number, you're like, look, let's give it another whatever year, two years, 18 months.
And you're like, at the end of that, if we can't get it acquired, Like, you know, we've had a good run so you give yourself that emotional kind of like a valve of like that, you're not gonna do it forever and never see friends again.
But within that, you can work backwards to say, okay, if that's what we're trying to do, then what is it going to take to get this in the position where the where has the opportunity to get acquired.
And so as guy's saying, that releases you to maybe do things that like, over the years, you've been hesitant to do because you're like, look, we're trying to, we don't want to Or we want to like, you know, preserve capital because we don't know how long we're going to be.
And maybe it's like a Hail Mary or go all in figure out what does it really take and take your shot.
Even if it's just a you know, maybe it's a one in five chance that could work.
But you know, what you're working towards now you have a goal in mind that you've already decided on.
Yeah, you have to backward engineer from that.
I do love that. Because sometimes it just feels like you don't know when it's gonna end.
Is it gonna go on forever?
And you're like, I can't keep going at this pace forever.
But if you put a goal out there I think you could sprint for the finish or something.
Yeah I love that. I think you have a real sense of what you're up against and and it is a hard business but, you know, some businesses it's just hard. Yeah so just take the shot.
Like don't be afraid like, you know, when it's like down to this end like just pull out all the stops, so the things that you're like let's just try it so you know that you feel like you've given it the shot that you're gonna feel proud of.
Yeah I love that. Can I say one more thing for Perry?
I just we heard in your original interview with Guy that you started Kickstarter because you were trying to raise money for a show for cruder and Dorfmeister, is that right?
That's right! Well, all right, they're coming to Portland, Oregon in September, so we wanted to invite you if you're in the area, please feel free to, you know, we'll get you a ticket.
You can stay in, stay low.
Amazing! I had no idea that they were still going.
They're still going.
They're still going strong.
All those 90's kids are still listening to the Kudendorfmeister today.
Catherine Curbis, the brand is called Heat You Can Handle.
Good luck. Thanks for calling in.
Thank you, thank you.
Bye. Bye bye. Stay with us, because after the break, we'll talk to another founder working to take their business to the next level.
I'm Guy Raz, and you're listening to the Advice Line right here on How I Built This lab.
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Welcome back to the Advice Line on how I built this lab.
I'm Guy Raz, and today I'm taking your calls with Perry Chen of Kickstarter.
Perry, are you ready for our next caller?
Yeah, let's go. All right, let's bring in our final caller.
Welcome to the advice line you're on with Perry Chen Please tell us your name where you're calling from and a little bit about your business.
Hey guys, my name is Joe Fontana I am the founder and owner of fry the coop.
We are a chicken sandwich shop here in Chicago we fry everything in beef tallow and Right now we got 10 locations and a little shy of 200 employees Wow Joe Welcome to the show, Friday Cup.
So you're growing like crazy.
Before I ask you about the story of this, what are your sales?
So last year we finished at 12 .9 million and we're already on track to do 14 .5 million coming up this year.
How did you get into this business?
Are you a chef? I'm not a chef, although I can come to your house and make you a great meal.
I love food, I'm just a fat Italian guy who loves eat, but I was, my wife and I moved to Temecula, California, Yeah, we grew up in Chicago and I was working some corporate job that I just really disliked.
So I did some soul searching, figured out that I love food and I wanted to open up a business and food.
At the time, there's a little place in San Diego called The Crack Shack and I was just obsessed with their chicken sandwiches.
And at the time I was living down the street from an In -N -Out burger.
So I kinda thought like, gosh, like a handcrafted, double fried chicken sandwich, like just kind of styled with a really small menu like in and out, I'm like this will do well anywhere, but you figured you'd go back to where you're from I guess.
Well, it wasn't actually that it was I was trying to raise money in Temecula because we did it.
We had no plans of coming back to Chicago.
However, I couldn't raise any money I didn't I didn't have any money.
So I mean, I would see a Bentley on the side of the road and I would put my business plan like in windshield wiper like with a note call me please.
And did that did that work?
No, no, it didn't work.
But my friend in Chicago who's now my partner.
He was a real estate guy and they had a building there was a Kind of an over -the -counter service place that opened and closed within eight months and they had spent the money to all build it out So he calls me up one day like and he just said hey I have a small window for you to move back to Chicago and you can open up your your fried chicken concept and so my wife and I just had our first baby and Just bought our first house.
We had to sell that I had to talk my wife into moving back across country And that's how we ended up back in Chicago.
Wow, that's amazing.
And this just proves that there is a lot of space in the chicken business.
I mean, it's super popular.
Obviously, you've had in the last few years raising canes and Dave's Hot Fried Chicken.
And of course Chick -fil -A is huge, but there is a lot of smaller regional chicken places.
What are your sort of challenges right now?
I mean, you're growing, and that's amazing 10 locations.
I'm assuming you want to open more in the future.
Really separating ourselves as the best of the best. Frying and Beef Tallow has been a huge differentiator for us.
We just put a lot of love into the quality of the product.
We go around and train our team on hospitality.
Touching tables is something that is kind of lost in the fast casual space, fast food.
No managers are going out and touching tables.
Nice. Very smart. And I think and frying a beef salad probably raises your cost, too, right?
It's more expensive than frying it in in a seed oil, I guess.
Definitely. But the taste is like a million times better.
And I think that's what makes us ignore the extra expense.
That's awesome. So before we get dive into this, tell us what your question is or your challenge.
All right. So we have been funding all of our growth with our own cashflow.
But I have have an audacious goal to open up 75 stores over the next 10 years all around the Chicagoland area we have a huge market so I think it's something we can accomplish and What I'm figuring out now is that you know We can afford to open maybe one to two stores on our own with our current cash flow But we we will not get to our 75 locations in ten years.
It'll take you 30 years.
It'll take us 30 years Yeah.
So I'm, we need to raise money about $30 million.
Our company's not even worth 30 million.
So how do we raise money or what vehicle and bank debt is not working to basically grow the company without selling off all of our equity or piecing it together and ending up with like a hundred different investors?
Big challenge before we get to that question, Perry Chan questions for Joe.
Yeah, Joe, first of all, congratulations on all your success so far, But I would ask, you know, like very specific plan, like I get a big heritage skull, 75 locations, why?
How did you come to that?
And that is a very good question.
So I started working backwards from what is a very attractive asset to purchase?
And I kind of learned that, if you want to take a company public, you need about $25 million in EBITDA.
And so I thought, OK, so how do we get to $25 million in EBITDA?
Well, for around 2 million per location, we're doing 15 % profit.
You know, we would need 75 locations to get to that.
And then also there's a great brand that came out of Chicago called Potbelly.
They're a publicly traded company, 400 locations.
I just thought I'd go, how many locations does Potbelly have in Chicago?
And you don't see them everywhere.
It's not like a Starbucks or Dunkin Donuts where you're bouncing into them.
And, uh, I look around and there's 77 Potbelly locations in the Chicago and area that's a magic number and do you have a quick question for you right now the 10 locations you have do you own any of the property or do you lease them all we do we own uh four of the buildings that were in so it just uh i love real estate and i love commercial real estate i would love to buy all of them however it kind of proved to be a little challenging more time consuming yeah why have bank loans been a challenge i mean i'm thinking right away sba loans, you've got you've got assets to back them up.
So why is that not an option?
Well, so we did use SBA loans to buy the real estate.
And they have a big mortgage on each property.
So it's not like we own the properties outright.
And technically, when you get into the restaurant business, like as a restaurant brand group, we don't have any assets.
We have a little bit, but it's nothing that like, we don't have a lot of collateral to back up the lines of credit.
So we did We tried that, we partnered with a local bank.
They gave us a first line of credit for $300 ,000 that we opened a location.
But it was really bizarre after we got halfway through it, they called in the loan out of nowhere.
Like they were like, hey, you know, you guys only owe 180 grand and you still have cash in the bank.
They were like, why don't you just pay it off?
The bank acts like we're failing, you know.
And as you try to grow, you become less profitable.
And so then they really, you know.
They really dag you on that.
Yeah. Is there something in the middle here?
Like, you know, you're painting a picture, maybe where you're saying like, okay, if you feel to open up 75 locations in the period of time that you would hope to do it, I'm guessing that what you've estimated is that the capital you might need to do that, given your current revenue and assets and all that stuff would put you in a position where you know your equity get watered down well, beyond where you'd want.
Is that an assumption?
Or is that something that like you've stress tested?
And so that's just how it is.
I think you're kind of hitting it where it is a little more of a paranoia...
and let me paint you a picture that I think would be a perfect scenario.
Possibly we brought on an investor or a maybe a family office, sell maybe 20 of the company to them, but then get almost a line of credit or a loan from them.
But the catch would be that we would try to avoid principal and interest payments.
So like, say, I need 30 million to grow these 75 stores, like they would say, all right, here's, here's the 30 million over, you know, the 10 years.
And we're not going to charge you principal and interests.
But then we can like accumulate it, maybe on an excel sheet, you know, so to speak.
And then when we exit the company in 10 years, or set it up for an exit, or to exit them, that's when they'll get their principal and interest on the loan of it.
And there are plenty of family offices in the Chicago area.
It's an interesting idea, I mean, it's essentially raising minority equity right from aligned investors.
I wonder, have you heard our episodes on Dave's hot chicken or Raising Cains?
I have, I've listened to both of them.
So you know how they went about it, both of them in different ways.
Dave's went the franchising model, and of course, here's the big F question.
what's your view on that?
Because that's a way to supercharge growth, and it doesn't require a whole lot of upfront capital.
A year ago, I would have told you absolutely not.
No franchising. We want to own it, control it.
But now I am starting to change my tone a little bit.
I'm starting to think, well, hey, maybe through franchising, we could raise the capital to accomplish our goals, and then maybe franchise outside of Chicago land area.
I don't take it lightly, though.
I've kind of learned that you know, if you franchise, you have to be...
it's almost like opening up a whole separate corporation and you really have to take it seriously.
I don't love being on planes all the time.
I have three little kids at home.
So, you know, I don't want to have to be living in hotels either, flying all around the country.
No, that makes sense.
I mean, look, franchising is, it's risky, right?
There's a reason why every time you go to an In -N -Out, it's the same.
It is consistent because it isn't...
they don't franchise.
It's owned by the company and it's the same with Raising Cane's.
And there are franchise models where you do see inconsistency from location to location.
So it's tricky but it can also be a great option.
Exactly, Guy. You know I think it always comes back to that show which is What Do I Want?
And it seems really important to you that the customers experience the business in this way that is your vision.
And it seems like obviously that's why there's tension with franchising and what comes down to it, it's like of all these things that you want to achieve and how you want to feel about them, which are more important than the other to you.
Yeah, it's very true.
I care deeply, I want everyone to be happy.
I think you have got essentially three big options.
It's either some kind of bank loan, right?
Which you've tried, and maybe you can try it.
And there are other banks that actually have restaurant lending divisions.
The other one is you could do franchising.
Actually, there are four options.
The other one is you find some aligned investors to get some minority equity and give you a loan.
And then I think the fourth option, actually there's five.
I'm gonna give you two more.
The fourth option is - Part two of option four.
This is complex, but could you do like a sale of one of the properties that you own, or two of them, and lease them back so you get cash in hand and then use that cash to finance more locations.
That's risky. And then the last one, which is I mean, things like operational efficiency, right, can you centralize the food prep?
Can you also negotiate better prices on supplies?
I mean, anyway, there are five different things that you can do, and you're just going to have to choose one or more of those, or a combination of those.
What I would say is you got this big Haryodesh's goal, and you've got clear reasons why you think that this is saying that that is worth going after.
And I wonder if you kind of like, you know, you figure out more ways that that might be attainable, whether it's loans, whether it's investors, and you give yourself time, you know, whatever, nine months to like, really kind of like build towards that work towards that.
And you also have like a plan B, you're like, okay, if that doesn't happen, then I think that where I can get to that's a step to that.
And a goal I can now focus on is something in the middle.
The is, it's like how long can you keep your mind in fundraising brain versus operating brain?
And fundraising brain is really, you know, it's really stressful.
And your eyes aren't on the ball.
And also, you know, you don't want to hear no all the time.
You know, it's not how anybody wants to live.
So give yourself some box, some constraint, some time box around plan, you know, plan big.
And then, okay, if that doesn't work out amount of time I'm gonna shift my my mind.
I love that is it there um because we did 1 .5 million in EBITDA last year do you think we should wait till we're at 2 million or 3 million EBITDA or is there like a number you think that I should then kind of switch over to that.
You know I'd almost deferred a guy like it's so industry specific I think in a way like with the internet it's not even real You could've dreamed.
Sometimes they're like, don't make any money.
It's better if you have no revenue at all cause you could always sell the dream of.
Yeah, the restaurant industry is not like that.
It's not this different game.
No, and, you know, you've got to hit profit and growth to be a target for acquisition or to go public.
I mean, that's really the name of the game now.
It wasn't five years ago, five years ago it was growth, growth, growth.
And so you had a lot of brands that did grow and didn't have to worry about staying profitable.
Now it's different.
So, you know, a slower approach… I don't think you either – it's either or.
It's either a slow or a fast approach. I think there's a middle ground, which is, you might only be able to open up one or two locations for the next year or two while you are searching for the right partner who can help you really expand.
Because there's a scenario where you open one or two in the next year or two, and then year three from now, you're opening 15 to 20 locations a year, right?
I mean, there's a realistic scenario where that can happen if you find the right partner or you find the right financing model.
Yeah, I would love that.
And I'm okay with that.
If it takes a couple of years and then we can really run, that sounds great.
Joe, I can't wait to try a sandwich of Friday the Coop.
Thanks for calling in.
Good luck. Thank you guys.
Good luck. Honored.
Perry, before we let you go, a quick question that I like to ask all of our returning guests, which is if you could go back to the Perry Chen from when you were just starting this, you know, this idea, when you were starting to really find people to support you to build Kickstarter, and you could go back to him now knowing what you know, what advice do you think would have been helpful?
Oh, man, I don't know.
I would say this. You know, it's a, I'm dodging the question, but it's truth in it, the delusion that I had.
And I think the delusion that we all have as entrepreneurs, if I cut through that delusion with some common sense from the future, to be honest, who knows, if I would have gone through with that.
Fair point. Fair enough.
I you know, I don't I don't think enough founders and entrepreneurs are honest about that.
But I do think it's worth it's a question worth asking yourself, which is like in 10 years, don't wanna look back and say, this was worth it.
I think for the most part, the answer is yes, for most people, I think it's still the answer for you because you built something of incredible value, cultural value, it was absolutely worth it for me.
And I think a lot of what I picked up on the show to and kind of just in general engaging with entrepreneurs is that there's a lot of interesting conversations to have around, you know, like, should I keep going?
I think so many entrepreneurs just drive themselves to not fail, not fail their employees, not fail their investors, not fail, you know, success.
And we'll add years and years and years onto businesses that they're running 70, 80 hours a week that they really wish they could have back in the future.
And the off -ramp seems impossible to them.
And I've talked to many entrepreneurs like that, most entrepreneurs, statistically, end up in that category.
And it's not something that really gets talked about a lot.
And I think because of that often people in that situation, it's, it's really soul -crushing.
Yeah, but not for you.
Not for you. Are people ready for the soul -crushing business podcast?
I'm not sure anyone wants to do it.
One star. That's Kickstarter co -founder, Perry Chen.
Perry, thanks so much for coming back on the show.
My pleasure. And by the way, if you haven't heard Perry's original, How I Built This Episode, you can find a link to it in the podcast description, go back, check it out, it's a great episode.
And here's one of my very favorite moments from that interview.
Weren't you getting stressed out that somebody else is gonna beat you to the punch and do the same thing?
I think that certainly comes to mind, but I think there's also like, we couldn't have tried to go any faster, there was just not that much was in our control.
We didn't have a lot of money, We didn't have a lot of influence.
We didn't have a lot of connections.
So we're moving as fast as we could and that's kind of is That's as much as you can do Thanks so much for listening to the show this week, please make sure to check out my newsletter You can sign up for it for free at guy Roscom each week It's packed with tons of insights from entrepreneurs and my own observations and experiences interviewing some of the greatest entrepreneurs ever.
And if you're working on a business, and you'd like to be on this show, send us a one -minute message that tells us about your business, the issues or questions you'd like help with, and hopefully we can help you with them.
And make sure to tell us how to reach you.
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And we'll put all this in the podcast description as well.
This episode was produced by Alex Chung with music composed by Ramtin Ereblui.
It was edited by Andrea Bruss.
Our audio engineer was Neil Rauch. Our production staff also includes Chris Messini, Carla Estevez, JC Howard, Casey Herman, Sam Paulson, Carrie Thompson, Kathryn Seifer, John Isabella, I'm Guy Raz, and you've been listening to the advice line on how I built this lab.
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