Pod Insights The Prof G Pod with Scott Galloway Consumer Markets, Franchising, and Angel Investing — With Kat Cole About this episode Kat Cole, an angel investor and master of franchising, joins the pod to discuss the state of play in the restaurant and retail industry, her investment strategy, and why she’s excited about NFTs. She also shares her path from serving as a hostess at Hooters to a board member of several companies in the restaurant industry, tech, and wellness industries. Follow her on Twitter, @KatColeATL.
Scott opens with his thoughts on inflation, specifically as it relates to higher education.
Related Reading: Inflated
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Transcript 10,259 words · 5 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
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1:17 Scott Galloway? Episode 119. The White Sox threw the World Series in 1919. I went to a batting cage last week and I couldn't figure out why the ball was getting bigger and bigger. And then it hit me.
1:41 Scott Galloway? Welcome to the 119th episode of the Prob G Pod. In today's episode, we speak with Kat Cole, the former president and COO of Focus Brands, a private equity portfolio company that owns multi-channel food service brands, including Carvel, Cinnabon, and Auntie Anne. Cinnabon is the bomb. I smell that when I'm in airports. Good and good for you. Kat is a gangster advisor and angel investor for early-stage businesses in the consumer tech and wellness industries. We discuss with Kat her interesting career trajectory in the brand and franchising space, as well as her approach to raising capital and advising growth companies. Okay. Let's talk about inflation. Inflation is accelerating at the fastest pace in 13 years. So when you think about inflation, why do we not like inflation?
2:24 Scott Galloway? Well, when inflation gets out of control and wages don't keep pace, essentially what you have is a destruction in people's savings and a destruction in their prosperity. Specifically, everything gets more expensive, whether it's education, or food, or gasoline, or bacon, which is up 20% year on year. That's a crime! That's where shit gets real. That's when we know this is just unacceptable. Bacon up 20%. But what if you had inflation for the last 40 years? What if it just continued to march on? Wouldn't this not amount to a destruction in prosperity? Well, it's happened. Specifically, the 40-year runaway train that is inflation and higher education. We have had unbelievable destruction.
3:08 Scott Galloway? Probably one of the biggest assaults on middle-class prosperity in American history has been the runaway inflation in higher education over the last four years. Since 1980, undergraduate tuition at public colleges has increased at a compound annual growth rate of almost 7% for an increase of nearly 1,400%. 7% a year doesn't sound that bad until it compounds 40 years in a row, and it's 1,400%. Student loan debt, which has reached $1.7 trillion, is now greater than credit card debt. The number of people who have more than $100,000 in student loan debt is greater than the population of Utah. This may, again, be just one of the greatest assaults on what is the ballast for our society, and that is the middle class in terms of their own prosperity.
3:52 Scott Galloway? So how on earth did we get here? This is largely a function of limiting the supply of freshman seats at our best universities in concert with the continued fetishization of their brands. The top 200 schools in America educate only 10% of college attendees, but everyone from alumni to the media to corporations fetishize these elite brands and only recruit from them. And what you have is a certification that has slowly but surely morphed from being the great upward lubricant of mobility in the history of mankind to... Sort of the enforcer of the caste system. These universities raise prices in perfect lockstep, miraculously resulting in millions of kids who get arbitrage to mediocre universities but pay an elite price.
4:37 Scott Galloway? It's a cartel enforced by the accreditation organizations, institutions who are corrupt, as the NC2A in my mind minus the charm. Accreditation has teeth. Why do they have so much power? Because it determines access to federally guaranteed student loans. And some you don't qualify for federally guaranteed student loans unless your university, which you're paying tuition to and borrowing money for, is accredited. And who runs the accreditation organizations? You guessed it, the incumbents who have grown new universities at a whopping 0.59% per year for the last several decades. So what do you have? You have a corrupt cartel. They've just miraculously, we all raised prices 2%, 3%, 5% a year in perfect lockstep. And then we've decided, isn't it awesome? Isn't it awesome to be part
5:21 Scott Galloway? of this amazing luxury brand? And once you have your degree, once you have your tenured position, let's pull up the drawbridge. Universities and this rejectionist attitude has resulted in what is effectively people who, once they get citizenship that day, vote to militarize the border. The result of this type of lack of innovation is an ossification of an industry that is near void of real innovation. Why would we innovate? We absolutely don't have to. Walk into my class, I've been teaching for 20 years, and I'm embarrassed to say that you probably couldn't recognize any goddamn difference. Same PowerPoint, same classroom, same content. I've just mixed it up a little bit. But it's... What other industry has raised prices,
6:05 Scott Galloway? has doubled or trebled prices in the last 20 years? It looks anything like what it used to look like. What does your car from 20 years ago look like? What does the movie theater or the content business look like 20 years ago? What does your phone look like from 20 years ago? I had a Motorola Oyster phone. Kind of gangster. Had a battery life of like 11 minutes.
6:26 Scott Galloway? But what do we have here? Same goddamn thing, same bad channel. But, but what's changed? Oh, by the way, the output is the same. We aren't educating drastically more students. The salary they're getting through this incredible education or certification isn't increasing. What's increased are two things. One, the tuition, and specifically, specifically, the bloat. We'll come right back to it. But this rejectionist culture is no less dangerous than an insurrectionist culture. It is un-American. Despite well-publicized stories of billionaire college dropouts, a college education still remains the most powerful tool for upward mobility. In my age cohort, it's common to hear people say regarding their alma mater, "I would never get in if I had to apply today," and they say it with a certain amount of glee
7:11 Scott Galloway? and pride. Well, guess what? That means your daughter isn't getting in. The same deans and administrators boasting about their sky-high rejection rates are enjoying lofty six-figure salaries at the age of 60 from institutions that would reject them if they were 18 today. Rejectionism is cloaked in progressive policies. It's true that the student body at these institutions is more diverse than it was 40 years ago, and that's a great thing. We've made a lot of progress. A kid from the inner city can find Harvard, and Harvard will find this kid in the inner city if he or she is remarkable. But I can prove to each of us, to each of us, I can prove this, that 99% of our children are not in the top 1%.
7:51 Scott Galloway? The mission, the mission is to expand opportunity, not to reallocate the elites. Bigotry is prejudice against a person or people on the basis of their membership of a particular group. Haven't we, in higher education, become bigoted? Specifically, bigoted against unremarkable kids from lower and middle-income households? There used to be a time when a good kid from a middle-class household had access to a great education, but we've decided, no, sorry, boss, you're just not good enough. We're going to leverage this cartel to move you down to a middling education, to a mediocre brand with mediocre faculty, with mediocre outcomes. But because we've engaged in this rejectionist culture among our elite universities, and
8:35 Scott Galloway? because we have a cartel that allows them to increase prices in lockstep, we have arbitrage a lot of good kids down to mediocre educations at incredibly exorbitant prices. The result is a transfer of wealth of about $1.5 trillion. From lower and middle income homes to the endowments and the tenured faculty salaries, and more so really than anything, the administrative salaries, which have exploded. Too much money has gone to the establishment of colleges administrative superstate. Virtually every other industry, every industry has leveraged technology and volume to decrease the burden of overhead costs, except for one you guessed it higher, at the Yale. Daily News recently reported that, open quote, "The number of managerial and professional
9:18 Scott Galloway? staff that Yale employs has risen three times faster than the undergraduate student body", close quote. Longtime professors decried how burdensome and inefficient they found the swelled ranks of administrative functionaries. However, elite schools, or I should say it also, elite schools are rife with recently created centers and departments that are all really cool, all really noble in mission, but of course have no measurable output. Many provide, in my view, a waystation or a rest home for formerly important people. Let's take a former Obama administration person, put them in charge of the Sustainability Center, or who wants to speak up against a diversity and inclusion center, even though despite the fact these are the most diverse and inclusive places in the world, but let's have an ESG or sustainability.
10:03 Scott Galloway? All these departments, all these very smart people who weren't pulling their weight oftentimes, or waiting to run for governor, or get a job back in the private sector, let's give them a big salary so they can think big thoughts and have absolutely no fucking accountability. And what does all of this translate to? Your daughter and your son's tuition skyrocketing, which translates to more debt, which translates to people not forming households, not taking risks, and starting businesses, not getting on with their life. Now, is all of this bad? No. To be fair, there are some very good reasons for increases in administration in targeted areas that need to be addressed. For example, mental health. Forty-seven percent of college students are depressed. Think about that. Almost one in two report being depressed. That's up from one in four in 2007.
10:48 Scott Galloway? And only 40% of those depressed have received mental health treatment. Between 2007 and 2017, suicidal ideation among college students has nearly doubled. Today, roughly one in 10, get this, one in 10 college students report that they've attempted suicide. So, if you have an entering class of 5,000 people, that means 500 are going to try to kill themselves. Jesus Christ, nobody wants to criticize a Center for Diversity or Sustainability, but to the extent exorbitant tuition. Is the product of an increased budget to build stronger support systems for a more diverse body of students. The bottom line is, it isn't working. But they might respond, but what if we hadn't made this investment? It'd be totally off the charts.
11:29 Scott Galloway? Across the Ivy League, the share of total expenses allocated to institutional and academic support went from 19% in 2000 to 24% in 2020, where student services expenses as a share of total expenses have actually gone down since 2000 from 4.8% to 4.4%. At four-year colleges nationwide, it's bloat and more bloat. Between 2010 and 2018, spending on administration far outpaced instructional outlays. And there's one more place that bloat is just out of control. Specifically, senior leadership salaries. What a shocker. Boomers figuring out ways to pay themselves a shit ton of money and then layering that unearned compensation on young people in the form of debt. Hello, America.
12:14 Scott Galloway? Some examples. In 2018, after being ousted, USC President Max Nikias—am I saying that? President Max Nikias? Anyways, received a $7.7 million payout. He was one of a dozen university presidents to make more than $2 million that year. Every president—even presidents of relatively unknown schools, including Bryant and Johnson in Wales—true, never heard of them—enjoy multimillion-dollar salaries. Many public college leaders register enormous paydays. Last year, the president of the University of Kentucky made $1.7 million. The presidents of Texas A&M and the University of Florida each made $1.6 million, and another 13 clock, more than a million.
12:56 Scott Galloway? Nearly all of the 100 highest-paid civil servants in Massachusetts are employed by—wait for it—the University of Massachusetts. Faculty and leadership should be paid well. I get it. There's nothing wrong with it. However, however, under the auspices of—remember when Scott got fired from NYU? My boss at NYU, President Andrew Hamilton, makes over $2 million per year. Granted, he donates $75,000 of it to a scholarship fund. And also, and in case you're wondering, hashtag virtue signaling, I have returned all of my compensation for the past decade, and I recognize that most faculty are not in a position to do that. However, this is totally out of fucking control. Should Andy Hamilton—
13:40 Scott Galloway? Be making 16 times the average salary of an NYC school principal? Think about that. The average principal is someone who's very talented, works very hard, makes 160 grand at a Manhattan school. The fiduciary boards of these institutions will claim that they're victims of supply and demand and they'll bemoan the high salaries but say, "We have to get the best people and this is what the market will bear." What bullshit. We'd have a line out the door of applicants who would take a modest salary of, say, I don't know, just a million a year. Anyone who would take the job of university president for 2 million but would turn it down for a million probably shouldn't be a university president. That 1 million per year could fund 12 undergrads, full ride scholarships, or better yet, just
14:25 Scott Galloway? increase the number of freshman seats. So what can be done? Private company leadership needs to increase the number of entry-level jobs based on a skills assessment versus certification. We need to get rid of this fetishization of elite colleges and develop more on-rampster grade, middle-class lifestyle that don't include this luxury certification. State governments also have leverage. We need a grand bargain. Every state should be aiming to increase undergraduate seats by 50% in the next decade. We can scale Facebook and Salesforce 40 and 60%, but we can't scale the University of North Carolina more than 1% a year? Come on, sure we can. The FTC and the DOJ should evaluate the accreditation cartel and the dollar-for-dollar price increases taken by supposedly competing universities over the past 40 years for compliance with antitrust laws.
15:10 Scott Galloway? Schools of all types should embrace distance learning and other technological tools. These are force multipliers, allowing institutions to serve more students without building more ivy-covered temples to bloat. Nonprofit should mean public service, not a dragon's sort of endowment riches. Schools with multi-billion-dollar endowments should increase their class sizes or be taxed on endowment gains. The accreditation system should be revamped to encourage the founding of strong, public-service-minded nonprofit institutions, not protect the incumbents. And dramatically increase student loan forgiveness. Canceling all student debt is a bad idea, rife with inequity and moral hazard. But our human capital is overencumbered by debt incurred by false pretenses.
15:51 Scott Galloway? We also need to crimp the fire hose of cheap debt put out by schools and put them on the hook for a portion of the bad debt. America is not about making the children of rich people and the remarkable billionaires, but about giving everyone a shot at being a millionaire and/or making a contribution. American higher ed has become un-American. We need to fall back in love with the unremarkables. We need to return to America, and the tip of the spear of America is higher ed, which has become corrupt.
16:27 Scott Galloway? Stay with us. We'll be right back for our conversation with Kat Cole.
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19:14 Scott Galloway? Welcome back. Here's our conversation with Kat Cole, the former president and COO of Focus Brands. Kat, where does this podcast find you?
19:22 Speaker 02 Atlanta.
19:23 Scott Galloway? Atlanta? How did you end up there?
19:26 Speaker 02 I moved here for my first corporate gig with Hooters when I was 20 years old.
19:31 Scott Galloway? Well, let's start there. So, give us the headline news or the Cliff Notes on your background.
19:38 Speaker 02 Grew up in Jacksonville, Florida. Child of a single parent. We left my dad when I was nine. I helped raise my two younger sisters, who are three and six years younger than me. Mom fed us on a food budget of $10 a week for three years, worked multiple jobs. So, I just started working really young because I had to. So, I worked in malls. Retail, local gyms, eventually first person in my family to get into college. I was accepted to the University of North Florida for an engineering program and had high hopes to finish that degree and then become a lawyer. In order to pay for that education, I had no loans or debt or support from anyone. I had a lot of jobs. So I worked in malls.
20:20 Speaker 02 I eventually became a hostess at Hooters at 17 in high school, at 18 while I was in college. And it just so happened that Hooters was growing around the world and I had worked every job in the restaurant. So I became a top employee to travel around the world and launch the franchise. So at the age of 19, I started traveling around the world to open new stores and launch new franchises. By the age of 20, I had launched the brand on three continents and I was failing college. So I'm a college dropout. I quit at the age of 20 and was offered a corporate gig to run the training department. And that's what got me from Jacksonville to Atlanta. And as the company grew, I grew. By the time I was 26, I was vice president of the company, doing around 800 million
21:05 Speaker 02 in revenue, remained an executive there for six years while we grew around the world and had some pretty crazy experiences. And then left to become president of Cinnabon at 31, turn it around out of the recession, built with a great team, an omni-channel brand empire, then became a group president and eventually president and COO of Focus Brands, the parent company that owned seven brands in over 60 countries, 7,000 locations, billions in sales, and then left in January to take a year off from operating, since I've been doing it since I was 19, to lean into advising, investing, and board roles before I jump into another operating role.
21:45 Scott Galloway? So my guess is you're going to forget more about what most people are ever going to know about kind of retail and consumer. And is it called QSR? Is that the category?
21:55 Scott Galloway? Give us kind of the state of play in the world of restaurants and retail. What, describe in your mind, the setting right now and where there's opportunity and where there's trouble. When you look at all these great companies, they sort of get overlooked because tech kind of absorbs all the headlines. We used to be obsessed with retail because it was fun and we could relate to it. And now we just talk about tech. What do you make of what's going on out there in retail and in restaurants?
22:18 Speaker 02 An interesting dynamic in restaurants specifically is how fragmented a majority of the industry actually is. I mean, people speak about focus brands and yum brands and these big, giant, global QSR chains that we know about, but that is not a majority of the retail operations. It's actually independents and small regional chains, if you could even call them that. And so that is both a pain point for the industry. You know, they're not able to come together on key issues to advocate for their own needs as effectively as some others, but it's also part of the beauty and the power and the uniqueness and the hyper-localization. You know, the, like many industries, a challenge, a headwind, has been that not only because
23:01 Speaker 02 of the, how fragmented the retail system is and how decentralized, interestingly with the popularization of that word, you know, this industry has been, that, and how small the average operation is, and small by every definition, you know, footprint, revenue, budgets, cash on hand, you know, et cetera. These business owners are some of the least likely and the least capable to invest ahead of revenue in the technological improvements needed to set them up for where the world would eventually go and how the world would accelerate through 2020. And so that made 2020 in particular incredibly damaging, not just the global demand shock.
23:45 Speaker 02 I mean, that was a huge friggin' problem, but they were ill-equipped to navigate it in part because of the small nature of the operations. And that's on the positive, though, that's changing. A lot of enterprise SaaS companies have pivoted or expanded to be SMB tech. New SMB tech companies have sprung out of the ground with venture funding to actually service this community. And so the world is changing. There are now tools and solutions that are affordable for a small business owner, any small retailer, certainly for restaurateurs, that are allowing them as operators or as owners or even investors in those businesses to cut through the noise, to access the consumer
24:27 Speaker 02 that have increasingly digital preferences in a way that helps them be competitive.
24:31 Scott Galloway? Yeah, I was thinking about this. There's typically when you see a lot of capital and technology come into a sector, you see a consolidation. And this is, to your point, an incredibly fragmented industry. I remember reading that if JP Morgan goes out of business, it could tank the global economy. And that's the definition of a fragile industry. And the definition of a robust industry is where there's no one player that threatens the industry. So if McDonald's went out of business, it's unlikely we'd be, you know, heading to the street with guns. It just didn't. But now that so much tech has come into it, I don't know if it was inspired by Domino's or Starbucks with their app.
25:08 Speaker 02 Both.
25:08 Scott Galloway? Yeah, both of them, right? But it feels like, so I'm on the board of Panera, and I see the kind of investments we're making in tech, and over 50% of our orders originate online.
25:18 Speaker 02 That's right.
25:18 Scott Galloway? And I think a chain with 40 restaurants, much less a mom and pop can't keep up with this stuff. Aren't we going to see a massive culling of the herd?
25:26 Speaker 02 Well, I think you're seeing multiple things. So the answer is yes, we'll see a culling of the herd. We've been seeing that for a few years. Even if you look in franchise systems, single store operators, which is a little different than the Panera system that tends to have larger, more sophisticated franchisees, you know, many of these franchisees that own one, two, or three have been selling. And the ones with five, six, and seven, of course, have been absorbing those. And so they get the benefits of scale, even forget the company or the brand's investments. This is just the viability of a franchise entity. So that culling or that consolidation momentum has been increasing. At the same time, what's happening is there are more cost-effective services that are,
26:08 Speaker 02 to a degree, emulating at a micro level, the investments that a Panera, a Domino's, or a Starbucks are making. A perfect example is Slice, the company I'm on the board of directors of, which literally is trying to give the tools and the competitive advantage from a marketplace and technology perspective to independent pizzerias that Domino's franchisees enjoy. So that I do, I believe both are, are true.
26:38 Scott Galloway? So where do you see, you invest across a number of sectors in tech and consumer. Where do you, what's your kind of thesis for the next few years? What are you looking at? What are you excited about? Where do you think the kind of dislocation or the investment opportunities are?
26:52 Speaker 02 You know, the asterisk for this is it's continually evolving as I learn and as I shift and change and mature as an investor. So my thesis is evolving to include web three in both pick and shovel businesses that will consumerize what is a hot mess of experiences in whether it's NFT or crypto space. So I will continue to invest in companies that bridge the worlds of messy, early-stage web three to consumer, consumer brands, and simplify what is a very messy process right now. I will continue to invest, my thesis is still really bullish on wellness. I believe we're all on a wellness journey and most people
27:37 Speaker 02 are at very different points in that journey from just, give me something better than bad, to something that allows me to have fun and not be guilty, to I want my food to be medicine. And there are many commercial opportunities on that journey. I'm leaning more, you know, if that spectrum goes from left to right, I'm leaning more to the, you know, the farther end of the wellness spectrum, actual foundation of nutrition, like companies like Athletic Greens that are literally, not just saying we're a little bit better for you, but we're going to be a foundational element of your nutritional stack. And so wellness is a big piece. And then SMB tech, because this, while at the same time, there are small businesses that have been underserved by technology. There are now small businesses
28:18 Speaker 02 being born and created out of either the creator economy or the gig economy. And I'm a big believer in continual need in the tools for those solopreneurs or creators to need to manage their lives and their, their businesses.
28:32 Scott Galloway? So let's double click on wellness. I think it's hard to not read the macro view or not, not, not look at wellness and think all the trends, all the moons line up here in terms of us living longer, being in more disposable income, we turn to health. And yet I have trouble finding any runaway successes. I think about, I met one of the co-founders of The Well, which sounded like a really good company.
28:57 Speaker 02 I agree.
28:58 Scott Galloway? But I don't, you know, my sense is, I don't know how well they're doing, but there haven't been what I call the same level of kind of unicorns in wellness, or maybe I have it wrong. What is the application here?
29:10 Speaker 02 Yeah. I mean, you're, you're incredibly right. Part of it is just still, even though wellness feels like it's been a trend where people are actually spending their money the way they answer surveys, which was not the case 15 years ago. It's like, I want to be well, but then I'm going to buy the crappiest thing for me. It's, that has changed. And, but not enough to create such breakout velocity successes
29:37 Scott Galloway? Right.
29:37 Speaker 02 that we're seeing in other, in other sectors. Now, there are some exceptions. You look at hens and herds, you look at, you know, companies that are touching on improving your life. And you can argue around the edges. There's some examples there, but
29:51 Scott Galloway? I mean.
29:52 Speaker 02 Exactly. Peloton. But what was the last low SKU, I'm not talking massive conglomerates that have taken decades, you know, to build, but the last low SKU purely wellness or nutrient or supplement or, you know, oriented company that hit that billion dollar valuation mark? And I don't know the answer, but the only one that comes to mind is like Centrum, or something like that.
30:18 Scott Galloway? No, I just, I would argue it hasn't lived up to the hype from an investment standpoint. There's, we all know it makes a ton of sense. All the numbers all match up to it. And it's like, okay, find me something that's trading at 1% of the value of PayPal, you know, it's just.
30:33 Speaker 02 Right.
30:34 Scott Galloway? These things just haven't shown the kinds of returns that I think venture investors are pursuing. What about, what do you make of?
30:44 Scott Galloway? The future of brick and mortar gyms. Is that has they been unfairly punished? Do you think it's there? Do you think Equinox and Planet Fitness? Do you think they'll come back?
30:53 Speaker 02 Not all of them. I do believe some of these brands have moved to a pit of irrelevance that will be difficult to recover under the same brand. Their their real estate assets will be able to be repurposed nicely, I believe, into other uses. But as a brand, some have not stewarded their brands to retain relevance in a way that's going to be needed to be competitive. That being said, I believe we've already seen it in some of Peloton's recent numbers. And I advise City Row, which is a omni-channel fitness company. They have both brick and mortar and connected home. And I just, you know, whether I'm a bit delusional
31:34 Speaker 02 and optimistic about the power of omni-channel, which is possible. I believe I am a believer that when a brand gives a customer all the opportunities to access the brand in places that the brand has permission to travel and where the customer wants to access that brand, that brand has a higher likelihood of resilience and relevance over time. So some mix of dipping in to the IRL gym experience that one, gives me more access to equipment that I'm never going to have in my home. Two, if the gym is smart, gives me access to other other resources and benefits, whether it's stretching, massage,
32:18 Speaker 02 trainers, et cetera, and find a way to work that in with my home fitness, my connected fitness. That feels like where it's at. But I don't know that all the players that have that were winning previously can continue and win in that environment. Couple of them are going to die.
32:33 Scott Galloway? Yeah, yeah. What do you think of meditation apps? I always thought these are streaming, basically streaming media that don't have scale. What do you think of the comms of the world or the headspaces? Do you do you think that they? What's their future look like?
32:49 Speaker 02 It feels like their future in order to accelerate from where they are today. So they've experienced their big hype pop is B to B.
32:59 Speaker 02 And finding a way to tap into other massive ecosystems. So that's either insurance companies, healthcare companies, corporate America as part of the wellness programs that corporations provide. I'm really interested. I mean, I love all the startup phase and the energy, but I'm a scale person. And I'm really intrigued by the remaining upside for strategic alliances and partnerships for companies like a com to lean into that could do what the founders' mission really, if you want to reach the masses, it's not going to happen with just an app in most cases. You know, these accelerating partnerships can be really game changing to get,
33:43 Speaker 02 whether it's a product or an app or a practice to smaller towns, to the average Jane and Joe.
33:53 Scott Galloway? And so you're on, you're on, you were both an operator, but you're also on the investing side. How would you describe the investing landscape right now? If you're someone who has a startup who's thinking about raising seed or they're Series A, describe the ecosystem right now.
34:07 Speaker 02 On one hand, it feels like there are more options for access to capital than there have ever been. Certainly, I will not be the first or the last person to say capital feels like it's become a commodity and the liquidity in the markets is unbelievable. And there's just a ton of money looking for a home.
34:21 Scott Galloway? Yep.
34:22 Speaker 02 But that's not true for all founders.
34:24 Scott Galloway? Yep.
34:24 Speaker 02 You know, as much as we want to say that, there are many, many founders who tend to be from underrepresented communities who don't have access to that knowledge or the networks. But I love, outside of traditional venture, that there's more openness and cool factor around non-venture methods of funding a company, whether that's companies like Pipe that are like the modernization of factoring, whether it's for inventory or receivables that allow you to take on some form of modified equity or debt structure. These solo angels that are out there, many of which are former founders, that can be incredibly strategic for a company. So that feels really cool.
35:06 Speaker 02 Like it's expansive, there are more options, as long as we can get that knowledge and education to a broader set of people looking to raise funds. The downside, and I was just talking with some amazing investors from some of the largest venture capital funds about this is
35:23 Speaker 02 Wow, we've had a boom in valuations for companies that seem to lack some of the fundamentals for those valuations. And some of that is starting to come to roost, whether that is companies that go public and we see the outcome of the lack of fundamentals, or a team that wasn't prepared, either through the process or by strategy, to manage a publicly traded company. Or founders that raised on massive multiples at an early stage, and now they're getting close to that what would otherwise be the IPO stage. They need to go for another round of fundraising, and those growth investors or crossover investors are looking at what an IPO multiple might be, working backward from that, and it's
36:08 Speaker 02 barely an up round, if flat on the valuation, and some of them are facing down rounds. And if they're not at that point, they're stressed out AF with the pressure and the valuations of the capital that they have taken. So it feels like a ton of opportunity and flexibility at the earlier stages, and some not surprising pressure points coming for those raising at the later stages. Although, within that, still killer, killer stories of growth that make these wild valuations make a ton of sense.
36:39 Scott Galloway? Yeah, it's like nothing, I like you've been investing for a long time, and it feels as if, the way I would describe it, it's never been easier to be a billionaire, it's never been harder to be a millionaire, and that is, the companies I used to raise money for were like, good companies, where you were going to get a return, but we were never going to be billion dollar companies. But we could raise money. Someone would put in a half a million or a million bucks, thinking, maybe I'll get two or three back, and the company's kind of off and running, it kind of makes sense. Now, there doesn't, people would rather swing for the fence, and if you're the right profile, if you're dropped out of Harvard and went to work for Bridgewater and dropped out, and now are running some SaaS company, you can literally raise hundreds of millions of dollars.
37:22 Scott Galloway? But I would still argue, if you're an entrepreneur who doesn't have the kind of right credentialing or profiling, it's still really difficult, the majority still have a tough time. Raising money. So you're you're actually dipping your toe, or I don't know, or maybe totally jumped in into the crypto and NFT space. Give us your view on that world and what excites you in that sector.
37:43 Speaker 02 First, I just think it's irresponsible for anyone going deep in the space to not acknowledge outside of, yes, it's early, but the implications of how early it is, how messy it is, the fact that it's decentralized, and that also means no gatekeepers, no security layers, right? Other than it being on the blockchain, it's the Wild West, and that rightfully scares some people from jumping in. That being said, I do believe that the space is moving so quickly, and there are clear implications that decentralized approaches to many things, maybe not all things, but many things, is an important shift in the world, that there are clear elements of relevance for
38:28 Speaker 02 consumer brands, given that NFTs specifically, which of course are investable, purchasable, powered by cryptocurrencies, but NFTs is a thing, these digital assets that can commemorate what look like modernized loyalty and rewards programs, but participation and community are the way of the future. They already exist in gaming, you know, what many call the original landscape of the metaverse. But the idea of a digital asset that not only is potentially just a future version of art or collectibles, but more importantly, is a an unlock or a key to a community and then resulting utility should the creators
39:13 Speaker 02 choose to provide that, that feels like the world where the world of IP, where the world of loyalty and rewards is going, and that has relevance for hospitality and travel and consumer brands and restaurants and many others. I mean, Leadership of Starbucks just came out and said this has relevance. Disney has already minted NFTs of some of their key characters on a new platform. And I mean Burger King and McDonald's in the same week, it happened to be NFT NYC week, launched global NFTs even for their customers. I mean, this is not
39:47 Scott Galloway? So I get Disney.
39:48 Speaker 02 Definitely here.
39:48 Scott Galloway? I get Disney doing NFTs. What does Burger King do around NFTs?
39:52 Speaker 02 So Burger King and McDonald's did two very different approaches to NFTs, which I like to call instead of web three, web two dot five. And instead of red pilling, purple pilling. They like, they did it in a way that made sense for their consumers. So McDonald's was just get in a contest to have unique access to this digital piece, this digital artifact for the relaunch of our McRib. It was like a limited time offer, special memento of, of relaunching the McRib, but in a 2021 web three. So they thought, you know, so they're calling it kind of way. Now, was there any utility to that? Any special membership? Will that have future value?
40:34 Speaker 02 I don't know, maybe, but that was their approach. Burger King's approach was more of a connection to their existing loyalty program, which feels like the smarter conduit for retail companies that already have loyalty and rewards programs. So you, you already have participation in some way, but it requires an app, a membership number, text, email, you know, all these things. The ability to actually simplify that, even though it is the Wild West, but to simplify that by having it on chain in a wallet is a really big opportunity for these loyalty programs. So I see that coming very quickly.
41:15 Speaker 02 What Nike is doing through their actually long held patents for digital assets, but the ability to buy branded items for digital gaming and then have those NFTs or purchases give you benefits in the real world, you know, to buy shoes or apparel or whatever it is, these types of.
41:34 Speaker 02 Community driving assets and activities can actually build a brand and build loyalty over time, and I believe drive transactions.
41:41 Scott Galloway? So how do you play this? I remember thinking, I wish I could invest in OpenSea or OpenSea. What, as an investor, how are you, how are you playing this? What's, where do we make money here if you're just a retail investor?
41:53 Speaker 02 I mean, my approach is I want to understand it. And I, it's too early and too messy for me to put my fiat to work without some level of understanding, which takes time that not everyone has. So I've cut into some weekend time, evening times, participating in discords that are mind-numbingly chaotic, but interesting.
42:16 Speaker 02 And making some bets and learning the hard way. I lost, you know, gas fees and trying to mint my few NFTs. And I realized I'm not one of these folks that can dedicate the time to watching when things happen to benefit from the low prices of when a project is created. And so I'm a secondary girl, you know, like I'm going to go to OpenSea and try to buy what I believe in. And even then, for me, I, if it's a collectible, if it's a one of one art, or if it's a generative project where there are 5,000 or 10,000 unique pieces of a combination of traits, I'm also not looking to go into the rarest combination to make my millions off of an NFT. Some people are doing that, however.
43:00 Speaker 02 For me, it's one, I'm not playing with money I can't lose. Definite advice, everyone, not financial advice, but personal advice. And I want to have fun. It is fun. And I don't, I don't think enough people talk about that. At the end of the day, it's just fun. There's something about being a grown up, playing games with cartoons in a way that has profit potential.
43:21 Scott Galloway? Yeah, I agree.
43:22 Speaker 02 That is, if it is nothing more than fun, and I'd love to not lose money in my learning, that's a great foundation. All that to say, I'm going deep. I'm making my own mistakes. I'm learning how the communities work. I'm seeing the challenges of these founding teams, which oddly are very similar to building and growing a franchise, because it's the most decentralized version of retail and you have a lot of pressure from the community to make the brand matter over time. And so that's, that's how I determine what's going to have value.
43:59 Scott Galloway? Coming up after the break.
44:01 Speaker 02 The arc of work and careers, and if you want to think about it this way, money-making is very long. And the earlier you start, the faster you jump into something, the quicker you're going to know if that's what's the vibe and the thing for you right now. And if it's not, you'll change and you'll be ahead of the game. If it is, you're starting way earlier than others in that industry.
44:23 Scott Galloway? Stay with us.
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46:05 Scott Galloway? So we went from low tech to high tech. I want to take you back to low tech. You're considered the Yoda of franchising. What give us the state of play in franchising? And do you think that is still? Do you think that's a good investment? Have valuations like everything else gone up like crazy? And which franchise? If I'm a 55 year old that has some money to put to work and still have some tread left on my tires and I want to be in the business of franchising, has it become institutional? Are there still opportunities? What is the state of the market in franchising right now?
46:42 Speaker 02 It's such an interesting model. I mean, you know, at its core, it's building something singular, a global brand, but with other people's capital. And the experience of the business is fully decentralized and distributed. And you have the life savings of thousands of people essentially in your hands as a brand owner. And so on one hand, consumer brands, let's just stay with restaurants or even fitness that have often moved into franchising. It seems that the founders, I'm seeing a bifurcation, that the founder or founding teams of these brands, on one hand, I've seen groups move to franchising far too early, irresponsibly.
47:25 Speaker 02 Their business model has not been pressure tested in multiple markets. They don't really have a brand to speak of. And so they actually have no business charging someone competitive royalties. And they often struggle as a result because then you've got too much variation in the experience of the business from the early days to build a brand that you can really then say is franchisable. And again, the economics aren't proven. On the other hand, we're seeing businesses, Starbucks being a great example, Chipotle being another, Sweetgreen, to use a more relevant recent example, that are corporately owned, at least in general in the United States, and are holding on to that approach for some time.
48:07 Speaker 02 And franchising is always a lever they could pull if they have the unit level economics to support a post-royalty, post-fee EBITDA margin. That's competitive. Then you look at the Paneras, the Focus Brands, the Yum Brands, even a lot of what JAB has acquired in the space. And the interesting thing, going back to an earlier piece of our discussion, is the consolidation happening amongst franchisees because it's just getting tougher to be a small operator and make the investments that the franchisor is telling you you need to make that accompany their investments to help the brand be relevant for the future. You know, when we pushed on certain Annie Anne's franchisees or Jamba Juice franchisees
48:52 Speaker 02 or Cinnabon to make investments in their, in their physical assets and their properties, as well as in technology, we were making massive investments on their behalf, not Panera level investments, but massive investments on their behalf. And that required some accompanying investment in their physical property that is fully their responsibility that we would often front or fund or support in some way. And some of them couldn't make it, right? They can't financially make it, or they're tired, they've been in the business for a long time, and they're like, I don't know that I'm ready to sign back up. So as long as another franchisee pays a decent and competitive multiple, they're happy to exit. And so the investor opportunity in franchising is twofold. One, there are more opportunities
49:35 Speaker 02 to invest with franchisees than there have ever been because of this consolidation activity. They're looking for outside capital to fund the acquisition of underperforming assets that if all they do is apply their management expertise, the operations and the profitability will improve. And you've got immediate value improvement in those regions, right, in those franchise businesses. So then if you're a bigger deal investor and have an opportunity to invest in a franchisor, you know, the sexy part of that model is it's asset light. And so you're looking at 40 to 50% EBITDA margins at the franchisor level. And so the question is, are you going to have real growth? Are you going to have unit growth that makes
50:19 Speaker 02 putting money there as smart or a smarter bet than it would be putting it somewhere else? Unless you're just looking to diversify, in which case it seems to be a pretty successful model. So many of these firms, whether it's the Cattertons or the Rorkes, you know, that I, that owned the companies I ran. From what I understand, their investors are incredibly happy with their outcomes, with brands that are old and brands that are new and relevant because of how lucrative those asset-like business models are. If you have brands that matter, if management knows how to keep it relevant, and if they're able to leverage their scale. And increasingly, you're seeing them become portfolio companies, like Focus Brands, like Inspire Brands,
51:00 Speaker 02 where even the franchisors realize, man, we need more scale to invest in these brands at the level they require to set the franchisees up for success. So Focus, while I was there, we bought and integrated four brands in less than 10 years. It was an acquisition every 18 to 24 months, and that was the strategy for that business.
51:21 Scott Galloway? So I just want to do a quick lightning round with you before we wrap up. I'm going to give you some retailers and some brands, and I'd just love to get your gut feel on them. Allbirds.
51:30 Speaker 02 Performing better than I would have expected. Really tapped into the modern zeitgeist from a branding perspective. I don't know much about their underlying economics to opine on the fundamentals of the business, but they've done a great job of bullseye marketing that brand to those who relate.
51:50 Scott Galloway? On running.
51:52 Speaker 02 Huge fan. Similar to Allbirds in that they tapped into a zeitgeist a moment, but not in a way that is reliant on just like advertising and hype. I mean, they delighted not only runners and walkers and fitness enthusiasts, but I can't think of a doctor's office I've been in where the people in there haven't been wearing on running shoes. Like the quality of that product, combined with the simplicity and clarity of their marketing, is top-notch in my book.
52:24 Scott Galloway? Warby Parker.
52:26 Speaker 02 Experiential kings. You know, being a digital business, but leaning into the IRL experience and the way that they did at the time was not intuitive. And groundbreaking.
52:40 Scott Galloway? Rent the runway.
52:42 Speaker 02 Mixed feelings. Created a category. Phenomenal founder leader by almost all metrics. And yet still doesn't feel like it's center of lifestyle in the way that it should be, given it's a category creator. And I'm less familiar with where they are today, but I'm, I'll never poo poo on people who came in and literally created consumer behavior. That's one of the most difficult things to do.
53:14 Scott Galloway? Yeah, agreed. So just to finish up here, Kat, what advice would you have? Our listeners have skis pretty young. Any advice for someone just, just starting out their career?
53:25 Speaker 02 Yeah, one, don't hesitate. Beware of analysis paralysis. If you're sitting around thinking, wondering, stressing, the arc of work and careers, and if you want to think about it this way, money making is very long. And the earlier you start, the faster you jump into something, the quicker you're going to know if that's what's the vibe and the thing for you right now. And if it's not, you'll change and you'll be ahead of the game. If it is, you're starting way earlier than others in that industry.
53:54 Scott Galloway? Yeah, it's funny you say that because I find that that's really important advice for people in their 50s. I have a lot of friends who had great careers and they retire from some investment bank. And their bar is so high for the next thing that they wake up and it's five years later and they haven't done anything. Because nothing is ever perfect. Nothing is, you know, you got to give yourself, I'm not saying leap at the first thing, but you're right. It's like, just start. And if it's not great, you can do something else or you make it great. But nothing, your bar can't be too high.
54:25 Speaker 02 And the other piece that I think comes into play, I'm 43. That is very real is ego. As we're later in our careers and thinking, how do I define my own joy and sense of self? And I have certainly learned as someone who's reinvented themselves and is jumping into deep ends of the like NFT pool and web three pool and was early in social audio and just left running a bunch of big brands earlier this year. Is is that when when I get really clear on what matters to me, my currency, which can become a little tough to refine after you've been in the big game for a while.
55:08 Speaker 02 And and I've learned to just make sure that I don't feel like I'm just trying to continue on the path that I'm on, but launch a different S curve and decide about whose opinion I care and and those who I don't and turn up my FU volume,
55:23 Speaker 02 turn up the volume on my FU energy in a way that allows me to make decisions that feel right. The irony is that when we do that later in life, it inspires so many other people to make courageous decisions because it slowly redefines what a career looks like as opposed to these like, you know, typical journeys and and arc. So I'm so glad you brought that up. I hope people who listen, or if they're younger, their parents, you know, hear this and are just reminded there are so many ways to be fulfilled and be successful. And no one's going to think less of you if you're not continually running a bigger, bigger, bigger, different thing. In fact, it can be quite inspiring. And earlier stages is where the upside is.
56:02 Scott Galloway? Agreed, early stage. Kat Cole is a seasoned executive and leader with deep expertise building global brands, businesses and high performing teams. She previously served as president and COO of Focus Brands, a private equity portfolio company that owns multi-channel food service brands, including Carvel, Cinnabon and Auntie Anne's. As of today, she's angel invested in over 60 firms and sits on the board of several companies in the restaurant tech and wellness space. She joins us from her home in Atlanta. Kat, appreciate your time and stay safe.
56:31 Speaker 02 Thanks for having me.
56:41 Scott Galloway? Algebra of happiness. So it's Thanksgiving and we can talk about everything we're thankful for. I think it's a wonderful holiday, time to register your blessings. So I've been thinking a lot about the past 18 months and the pandemic and just how much, how difficult it's been for so many people. It has not been for me and my family. And I think one of the tragedies of the novel coronavirus is that the government response has largely sequestered the pain from wealthy people and even I would argue made their lives better. But I've been thinking a lot about some of the tragedy or things that have really upset me over the last 18 months. And it doesn't have a lot to do with Thanksgiving, but I believe that grief and
57:24 Scott Galloway? what upsets you and what moves you are really fantastic indicators of what's important to you. And I think about kind of my lowest moments or what has really upset me or what I'm worried about over the last 18 months. I think it's important to take stock of that stuff because what it does is it informs you of what's important to you. And one of the things I would also advise young people around is to embrace the sloppy side of you. And that is when I was a younger man, kind of before the age of 40, I thought that being strong and being a stoic, if you will, meant suppressing any emotions that might signal
58:03 Scott Galloway? weakness, anything around being upset, anything around being sentimental, crying. And what I've learned is that those, those emotions are a key component of living a healthy, productive life. And it is difficult to embrace the upside of those things. It is really a challenge to understand what's important to you without acknowledging and registering the disappointment, without experiencing grief, without feeling pain, without having empathy for other people and how much they're suffering. So embrace the sloppy part of yourself this Thanksgiving. Take time to pause, I know I am, to think about the things that have really upset me over the last 12 months.
58:47 Scott Galloway? Some of the things that happened during the lockdown. One of my kids really struggled. That was the most terrifying thing for me. And that's okay, because it puts into sharp relief what is really important to me. So embrace the grief. Grief and upset are just a function of the fact that you have built some wonderful things in your life that you care about.
59:10 Scott Galloway? That's it. Our producers are Caroline Shager and Jew Burrows. Claire Miller is our assistant producer. As a reminder, we answer your questions about various business trends, big tech entrepreneurship, career pivots, and whatever else is on your mind on the pod every Monday. If you'd like to submit a question, please visit officehours.profgmedia.com to submit your question. Again, that's officehours.profgmedia.com to submit a question. If you like what you heard, please follow, download, and subscribe. Thank you for listening to the Prof G Pod from the Vox Media Podcast Network. We will catch you next week on Monday and Thursday.
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Previous Office Hours: What’s Next for Peloton, The Hidden Value of B2B, and Diversifying your Investments Next Office Hours: Rivian’s Colossal IPO, Fashion Industry Winners, and Pivoting Out of an Ad Agency Page updated September 30, 2026 · transcript and summary are machine-generated
