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

Recorded in April 2020 amid the COVID-19 lockdowns, Nick Kokonas returns to the Tim Ferriss Show to discuss how he saw the crisis coming and prepared contingency plans before restaurants were forced to close. He explains the concept of asymmetric bets, his decision-making framework drawn from his trading background, and how Alinea pivoted from $350-per-person fine dining to $35 takeout beef Wellington at scale. He details furloughing and re-employing staff, equalizing pay at $15/hour, and building a profit-sharing recapitalization fund. He also describes rebuilding Tock's software into a to-go platform in six days, growing back to a million dollars a day in volume, and shares thoughts on which businesses will survive and Nassim Taleb's skin-in-the-game ideas.

• Nick reveals that despite the COVID shutdown, Alinea had a record-setting day with its highest revenue ever within the last two weeks, which became the catalyst for the episode.
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• When the shelter-in-place order came, he furloughed all 300 employees at the level that let them retain unemployment plus healthcare, and paid a $300,000 stipend ($1,000 per employee).
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• The team replaced their entire fine-dining model with a $35 short-rib beef Wellington (instead of pricier tenderloin) sold via Tock To Go, selling out 500 in five minutes.
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• Within a week they scaled from 500 to 1,250 meals a night and re-employed about half their staff.
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• They equalized wages so everyone, from dishwasher to a $150,000/year head chef, made $15/hour, with profits distributed among employees and a recapitalization fund.
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• Tock's engineering team built a full to-go ordering platform in six days without normal testing, throwing it straight into production.
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• Tock went from over a million dollars a day in gross merchandise value to zero, then back to a million a day within four weeks via the to-go pivot.
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• Three years earlier his CFO warned about restaurant default risk and Nick replied by email that 'it's not like every restaurant in America can close all at once', an assumption he was proven wrong about.
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• A normal Alinea experience averages about $350 per person with wine and service; the takeout pivot dropped that to roughly one-tenth.
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• Alinea does about $20 million in revenue a year, up from about $4.5 million in its first year, serving 128 people a night across 64 seats with a staff of about 85.
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• On a normal night Alinea sends out 2,200 to 2,500 plates with 15-16 dishes each, making the identical beef Wellingtons actually simpler to produce at volume.
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• Chicago has 82 major grocery stores for five million people; Nick uses a computer-network node analogy to argue restaurant takeout was safe and necessary.
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• On March 8th Nick tweeted that the U.S. hospitality industry, 4% of GDP, was about to be decimated, with hotels and airlines next.
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• Alinea eliminated tipping ten years earlier; servers make well into $150,000+ a year with 401k matching, healthcare, and paid parental leave.
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• Tock sells about $30-40 million a month in restaurant event and prepaid tickets and faced $5-10 million in clearing-risk exposure if restaurants defaulted.
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• About five years ago they began prepaying big-ticket vendors (meat, fish, wine) like a futures contract to negotiate discounts instead of taking net-60 or net-90 terms.
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• Nick's high-school-educated father taught him the 'three shoebox method': money in, money out, and what's left over.
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• Nick criticizes gift-certificate and GoFundMe drives as liabilities that mortgage a restaurant's future, urging people to instead buy food directly or give to World Central Kitchen.
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