How did Nick Kokonas foresee the restaurant industry crisis?

Kokonas, as CEO of Tock, which operates in 28 countries, saw reservations in Hong Kong drop to zero when the virus hit China. This alerted him to the possibility of a similar event in the US in February, making him 'aggressively paranoid' and prompting early contingency planning for his restaurants and Tock Inc.

What were Alinea's initial safety measures and employee protocols during the early stages of the pandemic?

Before closing, Alinea instituted mandatory temperature checks and hourly hand-washing for all 25 managers and staff, strictly enforced arrival times, and a 10-day quarantine for staff who traveled from high-risk areas like Europe or Asia. This was framed as a 'wartime footing' to protect jobs and ensure safety.

How did Alinea convert its high-end dining experience into a successful carryout model?

Alinea, typically serving expensive, complex meals, pivoted to selling $30-35 comfort food items like short rib beef Wellington. They utilized their dining room space for packaging and staging contactless pickups, scaled production to over a thousand meals daily, and re-employed half their staff, achieving record revenue days.

How did Alinea ensure employee welfare during the shutdown and pivot?

Upon mandatory closure, Alinea furloughed all 300 employees but paid benefits to maintain their healthcare and provided a $1,000 stipend. For re-employed staff working takeout, everyone, from dishwashers to head chefs, was paid $15/hour, with profits distributed among them to build a recapitalization fund for post-crisis employment.

What were Nick Kokonas's criticisms of common restaurant relief efforts like gift certificates and GoFundMe?

Kokonas argued that gift certificates are liabilities that delay cash flow problems, as the money is spent before the service is rendered. GoFundMe pages provided only short-term relief, covering a few days of payroll at most. He suggested buying food directly from restaurants or donating to organizations like World Central Kitchen for more impactful aid.

What companies does Nick Kokonas admire for their resilience and strategy?

He admires companies like Ford for their asymmetric planning in 2008, Apple for its capital efficiency and cautious product development, and Zoom for differentiating itself with a superior product in a market with free alternatives. He also highlights Lambda School for its innovative educational model and small, adaptable restaurants like Eric Rivera's ADO.

How did Tock Inc. rapidly develop its 'to-go' platform?

Facing a complete loss of business as restaurants shut down, Tock Inc. assembled a team of 12-15 design and engineering staff who built the 'Talk To Go' contactless pickup and delivery platform in just six days. They prioritized speed over traditional lengthy testing, enabled local restaurants to sell food directly, and quickly scaled to processing over a million dollars daily.

What is the 'Three Shoebox Method' for business finances?

The 'Three Shoebox Method' is a simplified financial philosophy: 'money in,' 'money out,' and 'money left over.' Nick's father taught him that if the third shoebox (profit/reserves) doesn't have anything in it, the business model needs to be reassessed and changed. This approach emphasizes fiscal caution and ensuring a margin of safety.

What is Nick Kokonas's long-term outlook for the hospitality industry post-pandemic?

He acknowledges significant uncertainty, fearing a severe demand drop (70-80%) even after reopening, potentially making ordinary operations unsustainable. The long-term strategy involves redefining the dining experience, focusing on safety, emotional connection, and potentially humor, with an emphasis on adaptation and supporting new, innovative ventures by up-and-coming chefs.

Key Moments

Nick Kokonas on Resurrecting Restaurants, Skin in the Game, and Investing | The Tim Ferriss Show

Tim Ferriss

Howto & Style3 min read110 min video

May 11, 2020|9,237 views|118|11

tim ferriss 4 hour workweek 4 hour body 4 hour chef timothy ferriss entrepreneur author writer angel investor ferriss tim ferriss blog timothy ferriss speaker

Save to Pod

Key Moments

TL;DR

Restaurant industry pivots during COVID-19, focusing on resilience, innovation, and "skin in the game".

Key Insights

Asymmetric bets involve situations with high upside potential and limited downside risk.

Early recognition of COVID-19's potential impact on the restaurant industry led to proactive planning.

Restaurants can adapt by pivoting to comfort food takeout and leveraging technology for efficiency.

Financial prudence, maintaining capital reserves, and "skin in the game" are crucial for survival.

Innovation in operations, such as contactless pickup and diversified revenue streams, is key.

The crisis highlights the need for adaptability and a focus on core business values, even in dire circumstances.

UNDERSTANDING ASYMMETRIC BETS AND RISK

Nick Kokonas introduces the concept of asymmetric bets, where potential gains significantly outweigh potential losses. This principle applies not only to investments but also to decision-making, emphasizing the importance of making sound decisions rather than solely focusing on outcomes. He contrasts this with linear or multiplicative growth, highlighting that true asymmetry offers substantial upside with capped downside, a crucial framework for navigating uncertain environments.

PROACTIVE PLANNING AMIDST UNCERTAINTY

Kokonas recounts his early warning signs of the COVID-19 pandemic's impact, stemming from observations in Hong Kong. This foresight triggered urgent internal discussions and contingency planning within his companies, Talk Inc. and The Alinea Group. The focus was on understanding potential existential threats and preparing for drastic scenarios, such as mandated closures, by exploring options like furloughs, benefits maintenance, and rapid operational shifts.

Pivoting Restaurant Operations: From Fine Dining to Comfort

When lockdowns occurred, The Alinea Group, known for its high-end dining experience, pivoted dramatically. They shifted to offering $30 comfort food takeout, a stark contrast to their usual $350 per person price point. This required reimagining service, menu, and logistics, focusing on delicious, transportable, and affordable options to generate revenue and maintain employment, demonstrating extreme adaptability in a crisis.

OPERATIONAL RESILIENCE AND EMPLOYEE WELFARE

A significant aspect of their response involved prioritizing employee welfare. This included maintaining benefits, providing stipends, and establishing a flat $15/hour wage for all returning staff, regardless of previous roles. Profits from the takeout service were earmarked for a recapitalization fund to ensure continued employment and operational runway post-crisis, underscoring a commitment to their team's long-term stability.

TECHNOLOGICAL ADAPTATION AND INNOVATION

Talk Inc., their reservation and CRM system, rapidly developed a "to-go" platform in just six days. This allowed restaurants to manage online orders and contactless pickups efficiently. The platform's flexibility, originally designed for variable pricing and time-slotted businesses, proved adaptable not just for restaurants but also for other industries, showcasing the power of a robust technological foundation in crisis response.

FINANCIAL PRUDENCE AND 'SKIN IN THE GAME'

Kokonas stresses the importance of financial discipline, exemplified by his father's 'three shoebox' method: money in, money out, and money left over. Maintaining capital reserves, securing favorable vendor terms through prepayment, and avoiding excessive debt are crucial. This philosophy of 'skin in the game' means owners are personally invested, incentivizing resilience and responsible management, particularly when compared to leaders who may not share in the downside risk.

STRATEGIC ADVICE AND FUTURE OUTLOOK

Kokonas advises against reactive measures like offering deep-discounted gift certificates, which can create liabilities. Instead, he advocates for buying directly from restaurants to provide immediate support. He believes resilient businesses will be those that are scrappy, adaptable, and have a clear understanding of their financial foundations, while also anticipating a future where new, innovative concepts will undoubtedly emerge and challenge existing models.

Mentioned in This Episode

●Software & Apps

●Companies

●Organizations

●Books

●Concepts

●People Referenced

Common Questions

An asymmetric bet is an opportunity where the potential payoff (e.g., 8x) significantly outweighs the potential loss (e.g., 1x or 2x), even if the odds of success are not guaranteed. It's about making decisions where the upside is multiplicative or logarithmic, not just linear. The focus is on the decision-making process rather than the outcome.

Topics

Business & Entrepreneurship Mindset & Self-Improvement Economics & Markets Asymmetric Risk Crisis Management Supply Chain Management Restaurant Industry Business Model Innovation Contingency Planning Employee Welfare Strategic Thinking

Mentioned in this video

Companies

Apple

Technology company admired for its capital efficiency, cautious product development, and strong cash reserves, enabling it to weather economic downturns.

Fast Company

Business and technology magazine that has featured Nick Kokonas.

Franklin's BBQ

Iconic barbecue spot in Austin, Texas, known for extremely long lines, cited as an example of a resilient, name-brand restaurant likely to survive crises.

ADO

Restaurant in Seattle owned by Eric Rivera, highlighted as an example of a business that rapidly innovated and diversified its offerings to survive.

OpenTable

Dominant restaurant reservation system that Tock Inc. successfully competed against by offering a differentiated product, even when it seemed ubiquitous.

Yahoo

Internet company that many thought was impenetrable until Google emerged as a competitor.

TikTok

Short-form video app that emerged as a challenger to established social media platforms like Facebook, illustrating that even dominant companies face new competition.

Tock Inc.

Reservations and CRM system for restaurants, founded by Nick Kokonas, which rapidly launched a new 'to-go' platform to support restaurants during the pandemic.

Facebook

Social media company that seems impenetrable but still faces new competitors like TikTok.

Yelp

Business review website that has recognized Alinea and was criticized for its GoFundMe initiative for restaurants during the pandemic.

7X Ranch

Colorado-based ranch supplying high-quality beef that Alinea used, showing their commitment to premium ingredients even when pivoting menus.

Alinea Group

Group of high-end restaurants including Alinea, Next, The Aviary, Roister, and St. Clair Supper Club. Discussed their pivot to carryout during the pandemic.

Helix Sleep

Mattress company known for its quiz that matches body type and sleep preferences to a personalized mattress. Mentioned as a sponsor of the podcast.

Ford Motor Company

Automotive company that exemplified an asymmetric opportunity in 2008 by refusing a government bailout, demonstrating a solid business foundation.

TripAdvisor

Travel and restaurant review website that has recognized Alinea.

Franklin Barbecue

The specific physical location of Franklin's BBQ in Austin, Texas.

Google

Tech giant that seemed impenetrable but still faced challenges from new entrants like TikTok. Anil, head of engineering at Tock, worked there.

Canlis

Restaurant in Seattle that was among the first to pivot to carry-out meals ahead of the broader pandemic, providing an early case study for Tock's 'to-go' platform.

People

Nick Kokonas

Co-owner and co-founder of the Alinea group of restaurants and founder/CEO of Tock Inc. Discussed his entrepreneurial approach and crisis management.

J. B. Pritzker

Governor of Illinois, who issued the shelter-in-place order for restaurants, prompting immediate action from Nick Kokonas.

Jose Andres

Renowned chef and founder of World Central Kitchen, praised for his work in channeling aid effectively during crises.

Nassim Nicholas Taleb

Author whose works on asymmetric risk, Black Swans, and 'skin in the game' are recommended for strategic thinking and understanding market dynamics.

Eric Rivera

Former Alinea development cook turned owner of ADO in Seattle, praised for his scrappiness, adaptability, and vocal stance on industry issues during the pandemic.

Austin Allred

Founder of Lambda School, admired for his innovative remote learning model where students only pay tuition after securing a job.

Steve Bernanke

CFO of Tock Inc., described as a 'really bright guy, very conservative,' who foresaw clearing risks for the company.

Jeff Kaplan

CEO of Tock Inc., described as a 'really great guy' and essential to the company's operation, who initiated the idea for the 'to-go' platform.

Grant Achatz

Nick Kokonas' business partner and renowned chef, co-founder of Alinea, known for Modernist Cuisine and his resilience after surviving cancer.

Alex Hayes

Business development manager at Alinea Group, who recognized the seriousness of the impending crisis.

Emily Grodin

General Counsel at Nick Kokonas' company, whom he consulted regarding unemployment and furloughing policies early in the pandemic.

Media

Gourmet

Food magazine that has recognized Alinea.

BusinessWeek

Business magazine that has featured Nick Kokonas for his innovative approach to the restaurant business.

Crain's Chicago Business

Chicago-focused business newspaper that has featured Nick Kokonas.

Chef's Table

Netflix documentary series, with Season 2 Episode 1 featuring Grant Achatz, recommended for learning about his work.

Elite Traveler

Luxury lifestyle publication that has recognized Alinea.

Books

Skin in the Game

Book by Nassim Nicholas Taleb, recommended for understanding the importance of personal risk and responsibility in leadership and business decisions.

The 4-Hour Chef

Book by Tim Ferriss which heavily features both Nick Kokonas and Grant Achatz.

Modernist Cuisine

Style of cooking practiced by Grant Achatz, also referred to as molecular gastronomy, focusing on innovative techniques and scientific principles.

Fooled by Randomness

Book by Nassim Nicholas Taleb, recommended for improving strategic thinking and understanding non-linear outcomes, cited as particularly relevant during the pandemic.

The Black Swan: The Impact of the Highly Improbable

Book by Nassim Nicholas Taleb, distinguished from 'Fooled by Randomness' as the pandemic is not seen by Kokonas as a true Black Swan event.

Software & Apps

Zoom

Video conferencing software that experienced a surge in popularity, highlighted as an example of a company that differentiated itself from free competitors with a superior product.

ShipStation

Shipping software for e-commerce sellers, offering discounted rates and simplified order management. Mentioned as a sponsor of the podcast.

Google Hangouts

Google's communication software, mentioned as a free but undifferentiated competitor to Zoom.

Skype

Video communication software, mentioned as a free but undifferentiated competitor to Zoom.

Legislation & Policy

CARES Act

Congressional act mentioned for its Payroll Protection Program, which provided help to small businesses, though criticized for its June 30th deadline for restaurants.

Organizations

Lambda School

Online programming school founded by Austin Allred, praised for its innovative income-share agreement model that aligns student and institutional success.

New York Times

Major American daily newspaper that has featured Nick Kokonas.

Small Business Administration

Government agency that provides support to small businesses, mentioned in the context of CARES Act guidance and the need for policy changes.

Forbes

Business magazine that has featured Nick Kokonas.

James Beard Foundation

Prestigious culinary arts organization that has awarded Alinea restaurant for its excellence.

World Central Kitchen

Non-profit organization founded by José Andrés, mentioned as an impactful organization to support during crises rather than gift certificates.

Independent Restaurant Coalition

Advocacy group that Nick Kokonas works with to push for policy changes that would benefit the restaurant industry, such as extending the CARES Act deadline.