Advice Line with Perry Chen of Kickstarter

Kickstarter co-founder Perry Chen joins Guy on the Advice Line, where they answer questions from three early-stage founders about what they really want from investment deals and acquisitions. Today we meet Jesse in Dallas, who's debating whether or not he should sell part or all of his cold plunge tub business. Then Catharine in Oregon, who's trying to figure out how to move on from the daily grind of her hot sauce brand. And Joe in Chicago, who has an ambitious vision for his chicken sandwich chain. Thank you to the founders of Modtub, HYCH, and Fry the Coop for being a part of our show. If you’d like to be featured on a future Advice Line episode, leave us a one-minute message that tells us about your business and a specific question you’d like answered. Send a voice memo to [email protected] or call 1-800-433-1298. And be sure to listen to Kickstarter’s founding story https://art19.com/shows/831bd173-0992-41b7-b1eb-112db904d947/episodes/d43ce02c-b8dd-4457-9b49-5995e8e603cc/embed as told by Perry on the show in 2017. This episode was produced by Alex Cheng with music by Ramtin Arablouei. It was edited by Andrea Bruce. Our audio engineer was Neal Rauch. You can follow HIBT on X https://x.com/HowIBuiltThis & Instagram https://www.instagram.com/howibuiltthis/ and sign up for Guy's free newsletter at guyraz.com http://guyraz.com/ or on Substack https://guyraz.substack.com/. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

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• 5:20Guy Raz?

  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 you need advice, give us a call and you just might be the next guest on the show. Our number is 1-800-433-1298. Send us a one-minute message that tells us about your business and the issues or questions that you'd like help with. You can also send us a voice memo at [email protected]. And make sure to tell us how to reach you. And also, don't forget to sign up for my newsletter.

• 6:04Guy Raz?

  It's full of insights and ideas from the world's greatest entrepreneurs. You can sign up for free at guyraz.com. 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. Perry, it's great to have you back on the show.

• 6:23Speaker 01

  Great to be here, Guy.

• 6:24Guy Raz?

  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. Perry 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.

• 7:09Guy Raz?

  Tell us a little bit about what's going on in your life right now.

• 7:12Speaker 01

  Yeah, and it's great to be back. And, you know, I was chairman last time I came. Now I am 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 then, really, as of about six months ago, I am now liberated.

• 7:29Guy Raz?

  Yeah.

• 7:29Speaker 01

  And so after that, after I left as CEO, I went into the art world. And, you know, I did some shows with some galleries and even a few things at museums. But I have since returned to music, my first love. And so the music stuff is kind of still, it's under wraps.

• 7:46Guy Raz?

  Yeah.

• 7:46Speaker 01

  But it's been going really well. And this is now, this is now where I put my energy.

• 7:51Guy Raz?

  Perry, I think, okay, this is my sort of, you know, back of the envelope, guy in the corner of the bars theory. But I think we are on the cusp of a different era, like the, we're leaving the industrial age and we're entering, or maybe we've already entered it, but with AI, it's a completely new age. And I think that in the not-too-distant future, 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, you know, enabled people to do. Do you think that, that the future of earning a living by being creative is under threat?

• 8:34Speaker 01

  If you're thinking more in the creative arts spaces, you know, the music, the art, film, dance, theater.

• 8:43Speaker 01

  You know, I don't think it's ever been really stable.

• 8:46Guy Raz?

  Yeah.

• 8:46Speaker 01

  For people working in those spaces.

• 8:47Guy Raz?

  Fair point, yes.

• 8:48Speaker 01

  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 are just experiencing it in like such a condensed, rapid fashion.

• 9:05Guy Raz?

  Yeah. Perry, before we get to the callers, I suspect that many or some today are going to have questions about raising money, right? Just 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?

• 9:24Speaker 01

  Well, one, there's people that have existing audiences that they can start the promotion on. If 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, a filmmaker, or that may be limited. But you can go try to promote that in those in communities online where people gather around that topic. So whatever that is, whatever area of what you're doing, I think that you're really trying to think, to try to understand how, how big is my audience here? You're probably trying to think of like, what communities exist that I can go to and say, hey, I'm doing something that might already interest you.

• 10:07Guy Raz?

  Yeah. All right. Well, Perry, why don't we go ahead and take our first caller? You ready?

• 10:12Speaker 01

  Yeah.

• 10:13Guy Raz?

  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.

• 10:20Speaker 02

  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 cold plunges direct to consumer, and these cold plunges keep the water cold and clean with no need for ice.

• 10:34Guy Raz?

  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?

• 10:41Speaker 02

  So we started modifying a massive cooler, like a Yeti-style cooler. So it looks like a big tub, plastic tub.

• 10:49Guy Raz?

  Okay, and basically that's connected to some device that cools the water inside?

• 10:55Speaker 02

  Exactly, yeah. 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.

• 11:04Guy Raz?

  Okay, filled with water, there's an external device that cools the water to what temperatures?

• 11:09Speaker 02

  It can go as low as thirty-nine degrees.

• 11:11Guy Raz?

  Wow.

• 11:12Speaker 02

  But that is very, very cold. We recommend starting around fifty-five.

• 11:15Guy Raz?

  All right, let's talk about a little bit about how you started this business. Tell me the background, the quick background story.

• 11:21Speaker 02

  Yeah, so we launched Mod Tub in February of twenty-two. And it started from this side business in my garage refurbishing used hot tubs. It 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 Mod Tub, 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 that kind of took off from there.

• 12:05Guy Raz?

  Okay, so you switched from hot tubs to cold plunges. 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?

• 12:16Speaker 02

  Yeah, that's one thing that makes us different from a lot of cold plunges out there today. A lot of them are bought and resold or drop shipped 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.

• 12:36Guy Raz?

  Where are they manufactured?

• 12:38Speaker 02

  The tubs are now made in Tennessee, so the components kind of come from all over, but final assembly is here in Dallas. Wow, so the actual tubs, they're made in the US? Correct, yes. Wow, and do you have a patent on this design? So we actually just launched our ModTub 2.0, so the second version is our proprietary design, so we have a design patent on this new one. Tell me a little bit about the business. What, how were your sales last year? Yeah, so last year was really good. We did just over $5 million. That's Wow! doubling from the prior year, so, and yeah, so we're up. Five million, so, 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?

• 13:20Speaker 02

  Yes, 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 plunges 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?

• 13:59Speaker 01

  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 do you?

• 14:06Speaker 02

  Yeah.

• 14:07Speaker 01

  Yeah, what do you want?

• 14:09Speaker 02

  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? You know, maybe it really is a good time to let go of some control and get some more outside perspective.

• 14:46Guy Raz?

  Have you had any credible offers?

• 14:49Speaker 02

  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 and we essentially sell one SKU that people buy one time. So it's hard to sustain a business with that model. So, you know, we really need to launch new products or be a part of a catalog of other products who sell gym equipment and other kind of wellness modalities.

• 15:20Guy Raz?

  It makes me think of two episodes, many episodes of the show. One is Therabody. Theragun was their sort of hero product and Jason Worsland found somebody to partner with him who kind of became the CEO and they turned that into a sort of a lifestyle brand, right? And then 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, you know, 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 I shouldn't, we should mention that the benefits of cold plunging are well-known on your metabolism.

• 16:03Speaker 02

  Yeah, I think that's one thing about it is that, you know, we love it. We've loved the community. We've loved the culture. It's a lot of people who care about their health, who are willing to do the hard thing of cold 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.

• 16:23Speaker 01

  I want to just like dive a little bit deeper into the kind of the, you were saying, a little bit of as potential imposter syndrome. 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're not, 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 could focus on the things that you want to focus on.

• 16:52Speaker 02

  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, you know, I'm not this ultra biohacker kind of guy that most of the cold plunging community is. So there's some of that of just, you know, 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 Motta, pivoting to cold plunging, like all of that was so fun. 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.

• 17:36Guy Raz?

  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 is just to find a buyer. There are these websites where you can post your company as a target for acquisition range, 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.

• 18:20Guy Raz?

  But of course, you would give up some equity to somebody who you had confidence in.

• 18:24Speaker 02

  Yeah, I like that idea of finding a CEO to come in who maybe has done this before, has 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, you know, 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.

• 18:49Speaker 01

  Yeah, I think that it really has to come from what you want. There is no better question than just keep asking yourself. 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, it 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've bootstrapped it, it sounds like. I'd say that, you know, for an imposter, you sure seem like you know what you're doing.

• 19:24Guy Raz?

  Appreciate that.

• 19:25Speaker 01

  And I, you know, I'm gonna make it hard on you. I think you gotta accept that a little bit. Also, you know, you could always hire somebody if you feel like there needs to be an image of somebody standing there. And also, you know, 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 car in 20 years.

• 19:49Guy Raz?

  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 it. 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.

• 20:25Speaker 01

  And then with any of these cases, selling it in whole, maybe selling, 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 like those scenarios, like what are you really gonna need? What do you really want? And maybe that comes in a few forms. It could come in an acquisition form, it could come in the form of somebody who's coming on as more of a business partner.

• 20:54Guy Raz?

  Yeah. And the, 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 that, you know, 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 ModTub. Thanks so much for calling in. Good luck. All right. Thanks, guys.

• 21:18Speaker 01

  Thanks, Jesse.

• 21:19Guy Raz?

  Thank you.

• 21:21Speaker 01

  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 could this business have like legs and be, you know, seize 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 gonna do in my life?

• 22:00Guy Raz?

  We're gonna take a quick break, but when we come back, another caller, 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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• 26:01Guy Raz?

  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 are 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.

• 26:21Speaker 05

  Hi, Guy, I'm Perry. Thanks so much. My name is Katherine Kerbus. 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.

• 26:45Guy Raz?

  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 and so that you can't taste anything, right? That's the idea behind it?

• 26:57Speaker 05

  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 gonna make us some hot sauces that are, you know, complex flavors, global, and that we can actually eat and enjoy.

• 27:13Guy Raz?

  But how did you guys decide to turn this into a business?

• 27:15Speaker 05

  Oh, gosh, it's actually, 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. And then we moved back to Oregon to kind of get real jobs again. And we decided we'd love to return to Costa Rica, so why don't we come up with a business that we can start and then have passive income? And within like two or three years, we'll be living back in Costa Rica. And he said, I'm gonna 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 like, 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.

• 28:01Guy Raz?

  Is it your primary source of incomes? Is your primary job?

• 28:05Speaker 05

  No, no, we have tried to make it our primary job and we just couldn't make it like we're saving for retirement and stuff. Yeah. So we both have day jobs.

• 28:13Guy Raz?

  What's your day job?

• 28:14Speaker 05

  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.

• 28:25Guy Raz?

  Yep. And so give me a sense of what, what you guys did in sales like last year, for example.

• 28:29Speaker 05

  Last year was like 157,000. So great for us. Our first year we did just under 3,000 in sales. So we feel like, you know, it's a lot of bottles of hot sauce sold.

• 28:40Guy Raz?

  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 farmers markets?

• 28:47Speaker 05

  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 of 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 into some Kroger stores and did some trial runs and like Fred Meyer and King Supers. 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. Cause we're really tired of setting up 10 foot canopies.

• 29:25Guy Raz?

  All right. So tell us what your pain point is. What are you, what are you trying to solve for today? What's your question for us?

• 29:29Speaker 05

  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.

• 29:48Guy Raz?

  Got it. Okay. Perry Chen, say hello to Catherine.

• 29:51Speaker 01

  Hi Catherine.

• 29:52Speaker 05

  Hi Perry.

• 29:53Speaker 01

  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?

• 30:02Speaker 05

  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, you know, 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, never mind. 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

• 30:47Speaker 05

  chef behind the brand.

• 30:49Speaker 01

  One thing I wanted to ask then is your question was like, how do you maybe make it attractive for an outside acquisition?

• 30:58Speaker 05

  Yeah.

• 30:59Speaker 01

  Without taking outside investment. And so that seems like a constraint that seems important to you.

• 31:04Speaker 05

  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 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 to be successful and to scale. And like I said, we did a trial run with K He and

• 31:44Speaker 05

  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.

• 32:07Guy Raz?

  Catherine, the challenge, I'm just going to be straight up with you because I talked to multimillion dollar and even billion dollar companies and brands. It's a very hard time to raise money in consumer full stop. And, you know, you're still too small for any professional investors to really get involved. I think if you're looking for some some funding, it's really worthwhile talking to people who know the brand in your area and region who have used it, who love it. I mean, those are the people that are going to be the most likely to, you know, to write a check for a thousand 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.

• 32:49Speaker 05

  Hmm.

• 32:50Guy Raz?

  And how much demoing are you able to do in the stores?

• 32:53Speaker 05

  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's just, it just takes so much time and energy.

• 33:09Guy Raz?

  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, let's think strategically about this because to be an acquisition target, you're going to need to hit 20 million or more in

• 33:50Guy Raz?

  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.

• 34:01Speaker 01

  Yeah. Um, you know, where 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?

• 34:13Speaker 05

  Yeah.

• 34:14Speaker 01

  And so that's really good. You can use that. And in a way, I think, maybe as to what Guy's saying, 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 safety valve of like that you're not going to 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 there where it 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 raise money or we want to like, you know, preserve capital because we don't know how long we're

• 34:59Speaker 01

  going to, and maybe it's like a hail Mary or go all in.

• 35:02Speaker 05

  Yeah.

• 35:02Speaker 01

  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.

• 35:13Speaker 05

  Yeah.

• 35:14Speaker 01

  And you just have to backward engineer from that.

• 35:16Speaker 05

  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.

• 35:30Speaker 01

  I think you have a real sense of what you're up against and it is a hard business, but you know, some business is just hard.

• 35:37Guy Raz?

  Yeah.

• 35:37Speaker 05

  Yeah.

• 35:38Speaker 01

  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 to the things that you're like, let's just try it. So you know that you you feel like you've given it the shot that you're you're gonna feel proud of.

• 35:51Guy Raz?

  Yep.

• 35:51Speaker 05

  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?

• 36:05Speaker 01

  Mm hmm. That's right.

• 36:06Speaker 05

  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.

• 36:16Speaker 01

  Amazing. I had no idea that they were still.

• 36:19Guy Raz?

  They're still going, Perry. They're still going. Going strong. All those, all those 90s kids are still listening to Cruder Dorfmeister today.

• 36:28Speaker 01

  Amazing.

• 36:29Guy Raz?

  Catherine Kurbis, the brand is called Heat You Can Handle. Good luck. Thanks for calling in.

• 36:33Speaker 05

  Thank you. Thank you.

• 36:35Speaker 01

  Bye.

• 36:36Speaker 05

  Bye bye.

• 36:38Guy Raz?

  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.

• 37:37Guy Raz?

  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, you ready for our next caller?

• 37:46Speaker 01

  Yeah, let's go.

• 37:47Guy Raz?

  All right, let's bring in our final caller. Welcome to the Advice Line. You are on with Perry Chen. Please tell us your name, where you're calling from, and a little bit about your business.

• 37:54Speaker 06

  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.

• 38:13Guy Raz?

  Wow, Joe. Welcome to the show. Fry the Coop. So you're growing like crazy. Before I ask you about the story, just what are your sales?

• 38:21Speaker 06

  So last year, we finished at 12.9 million, and we're already on track to do 14.5 million coming up this year.

• 38:29Guy Raz?

  How did you get into this business? Are you a chef?

• 38:31Speaker 06

  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 to eat. But my wife and I moved to Temecula, California. 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 in 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 kind of thought like, gosh, like a handcrafted, double-fried chicken sandwich, like just kind of styled with a really small menu, like In-N-Out. I'm like, this will do well anywhere.

• 39:15Guy Raz?

  But you figured you'd go back to where you're from, I guess?

• 39:17Speaker 06

  Well, it wasn't actually that. It was I was trying to raise money in Temecula, because we had no plans of coming back to Chicago. However, I couldn't raise any money. 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 the windshield wiper, like with a note, "Call me, please."

• 39:36Guy Raz?

  And did that work?

• 39:37Speaker 06

  No, no, it did not 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 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.

• 40:11Guy Raz?

  Wow, that's amazing. And this just proves that there is a lot of space in the chicken business. I mean, it's a super popular, obviously you've had in the last few years, Raising Cane's and Dave's Hot Fried Chicken and of course Chick-fil-A is, you know, huge. But there is a lot, a lot of smaller regional chicken places. What are your sort of challenges right now? I mean, you're growing and that's amazing. You have 10 locations. I'm assuming you want to open more in the future.

• 40:40Speaker 06

  Yeah, and really like 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. Like touching tables is something that is kind of lost in the fast casual space, fast food. Like no, no managers are going out and touching tables.

• 41:03Guy Raz?

  Nice, very smart. And I think, and frying a beef tallow probably raises your cost too, right? It's more expensive than frying it in, in a seed oil, I guess.

• 41:11Speaker 06

  Definitely, but the taste, it is like a million times better. And I think that's what makes us, you know, ignore the extra expense.

• 41:20Guy Raz?

  That's awesome. Okay, so before we get, dive into this, tell us what your question is or your challenge.

• 41:24Speaker 06

  All right, so we have been funding all of our growth with our own cash flow. But I 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 will not get to our 75 locations in 10 years.

• 41:53Guy Raz?

  It'll take you 30 years.

• 41:55Speaker 06

  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 100 different investors?

• 42:16Guy Raz?

  All right. Big challenge. Before we get to that question, Perry Chen, questions for Joe?

• 42:20Speaker 01

  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 hairy dash skull, 75 locations. Why? How did you come to that?

• 42:32Speaker 06

  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, okay, so how do we get to 25 million in EBITDA? Well, for around 2 million per location, we're doing 15% of 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.

• 43:04Guy Raz?

  Yep.

• 43:04Speaker 06

  They're a publicly traded company, 400 locations. I just thought, oh, 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 I look around and there's 77 Potbelly locations in the Chicagoland area.

• 43:21Guy Raz?

  That's a magic number. And do you, a question for you, right now, the 10 locations you have, do you own any of the property? Or do you lease them all?

• 43:29Speaker 06

  We do. We own four of the buildings that we're in. So it just, 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.

• 43:41Guy Raz?

  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?

• 43:51Speaker 06

  Well, so the 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 try 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

• 44:34Speaker 06

  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.

• 44:43Guy Raz?

  Yeah.

• 44:44Speaker 01

  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?

• 45:13Speaker 06

  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. Is 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 interest. But then we can like accumulate it maybe on an Excel sheet, you know, so to speak.

• 45:54Speaker 06

  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.

• 46:03Guy Raz?

  And there are, 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 Canes?

• 46:17Speaker 06

  I have, I've listened to both of them.

• 46:19Guy Raz?

  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.

• 46:34Speaker 06

  A year ago, I would have told you absolutely not, no franchising. Like, 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, you know, through franchising, we could raise the capital to kind of accomplish our goals and then maybe franchise like outside of Chicagoland 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.

• 47:02Guy Raz?

  Yeah.

• 47:02Speaker 06

  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.

• 47:12Guy Raz?

  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, by the company and it's the same with, with Raising Canes. And there's, 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.

• 47:40Speaker 01

  Exactly, Guy. You know, I think it always comes back to that, Joe, which is, what do I want?

• 47:46Guy Raz?

  Yeah.

• 47:47Speaker 01

  And it seems really important to you that the customers experience the business in this way that is your vision. Seems like, obviously, that's why there's tension with, with franchising. And what it comes down to is like of all these things that you, you want to achieve and how you want to feel about them, which are more important than the other to you.

• 48:05Speaker 06

  Yeah, it's very true.

• 48:06Guy Raz?

  Yeah.

• 48:06Speaker 06

  I care deeply. I want everyone to be happy.

• 48:10Guy Raz?

  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. 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 a, 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 going to give you two more. The fourth option is-

• 48:39Speaker 01

  Or two of option four.

• 48:41Guy Raz?

  This is complex, but could you do like a sale of one of the properties that you own or two of them? And lease ba- 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.

• 49:12Speaker 01

  What I would say is you've got this big hairy dash'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 reason I say that is with with raising money, one of the big things 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 eye isn't on the ball.

• 49:57Speaker 01

  And also, you know, you don't want to hear no all the time, you know? It's not, it's not, it's not how anybody wants to live. So give yourself, give yourself some, some box, some constraint, some time box around plan, you know, plan big. And then, okay, if that doesn't work out in this amount of time, I'm going to shift my- My mind.

• 50:16Speaker 06

  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?

• 50:31Speaker 01

  You know, I'd almost defer to guy like it's so industry specific, I think in a way like with the internet. It's not even real. It's 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.

• 50:45Speaker 06

  Yeah, the restaurant industry is not like that.

• 50:47Speaker 01

  Different.

• 50:49Guy Raz?

  No, and, 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 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.

• 51:30Guy Raz?

  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.

• 51:42Speaker 06

  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.

• 51:48Guy Raz?

  Yeah. Joe, I can't wait to try a sandwich at Fry the Coop. Thanks for calling in. Good luck.

• 51:53Speaker 06

  Thank you, guys.

• 51:54Speaker 01

  Good luck.

• 51:55Speaker 06

  Honored.

• 51:57Guy Raz?

  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, what advice do you think would have been helpful?

• 52:15Speaker 01

  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.

• 52:33Guy Raz?

  Fair point. Fair enough. I've, 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 want to 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.

• 52:52Speaker 01

  It was absolutely worth it for me. And I think a lot of what I picked up on this show too, 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 will add years and years and years on to businesses that they're running, 70, 80s 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

• 53:35Speaker 01

  category. And it's not something that really gets talked about a lot. And I think because of that, often the people in that situation, it's, it's really soul crushing.

• 53:43Guy Raz?

  Yeah. But not for you.

• 53:45Speaker 01

  Not for you. Are people ready for this soul crushing business podcast?

• 53:52Guy Raz?

  I'm not sure anyone will listen to it.

• 53:55Speaker 01

  One star.

• 53:56Guy Raz?

  That's Kickstarter co-founder Perry Chen. Perry, thanks so much for coming back on the show.

• 54:00Speaker 01

  My pleasure.

• 54:01Guy Raz?

  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, somebody else is going to beat you to the punch and do the same thing?

• 54:18Speaker 01

  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 as, that's as much as you can do.

• 54:39Guy Raz?

  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 guyraz.com. 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. You can send us a voice memo at [email protected] or call us at 1-800-433-1298 and leave a message there.

• 55:24Guy Raz?

  And we'll put all this in the podcast description as well. This episode was produced by Alex Cheng with music composed by Ramtin Arablouei. It was edited by Andrea Bruce. Our audio engineer was Neil Rouch. Our production staff also includes Chris Messini, Carla Estevez, J.C. Howard, Casey Herman, Sam Paulson, Carrie Thompson, Catherine Seifer, John Isabella, Niva Grant, and Elaine Coats. I'm Guy Raz, and you've been listening to the Advice Line on How I Built This Lab.