Advice Line with Perry Chen of Kickstarter

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I love traveling with my family. We did an awesome trip this summer, and one of the things that made the trip so special were the Airbnb experiences we did. Immersive tours, cooking classes, a chance to get coffee with a world-class barista. I had so much fun on those experiences that I decided to host my own Airbnb original experience in San Francisco. I need to help you think about how to unlock your next big move in your career or even in your life. To learn more about my Airbnb original experience, head to airbnb.com/gui. Hello and welcome to the advice line on how I built this lab. I'm Guy Ross. 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 1-800-4331298. 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. 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. Alright, let's get to it. Joining me this week is Perry Chan. He's the co-founder of Kick Starter. Perry, it's great to have you back on the show. It's great to be here, Guy. Alright, so you are 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 Kick Starter 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 collars today, can you give us an update on what you're doing these days? And the last time you were on the show, this was back during the pandemic, you were no longer the CEO of Kick Starter. You were the chairman of the board. Tell us a little bit about what's going on in your life right now. Yeah, and it's great to be back. And you know, I was chairman of Yale last time I came. Now I am off the board completely. I went from CEO, stayed on his 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. Yeah. And so after that, after I left the CEO, I went into the art world and you know, I did some shows, some galleries and even a few things that are museums. But I have since returned to music my first love and so the music stuff is kind of still under wraps, but it's been going really well and this is now, this is now where I put my energy. 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 year 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? If you're thinking more in the creative arts spaces, you know, the music, the art, film, dance, theater, you know, I don't think it's ever been really stable for people working in those spaces. Fair point. Yes. 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. Yeah. Perry, before we get to the callers, I suspect that many of 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? 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 an audience as a filmmaker or that may be limited. But you can go try to promote that in those 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 big is my audience here? You're probably trying to think is like, what communities exist that I can go to and say, hey, I'm doing something that might already interest you. Yeah. All right. Well, Perry, why don't we go ahead and take our first collar? Are you ready? Yeah. All right. Hello, collar. Welcome to the advice line around with Perry Chen, Co-Founder of Kickstarter. Tell us your name where you're calling from and a little bit about your business. Hey, what's up, guy? I'm Perry. My name is Jesse Hodge from Dallas, Texas, and I'm the co-founder of ModTab. ModTab manufactures and sells coal-punches direct to consumer, and these coal-punches keep the water cold and clean with no need for ice. Awesome. Jesse, welcome to the show. Thanks for calling in ModTab. Okay. So these are like a round hot tub. Like, what does it look like? So we started modifying a massive cooler, like a Yeti-style cooler. So it looks like a big tub, plastic tub. Okay. And basically, that's connected to some device that cools the water inside. Exactly. We modify that cooler to connect it to a pump, a filter, and a chiller, which is what brings a water down to temperature. Okay. Filled with water, there's an external device that cools the water to what temperature is. It can go as low as 39 degrees, but that is very, very cold. We recommend starting around 55. All right. Let's talk about a little bit about how you started this business. Tell me the background, the quick background story. Yeah. ModTab in February of '22, 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. I've been refurbishing it in my garage. So that led us to start ModTab. Originally, it was 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 it kind of took off from there. Okay. So you switched from hot tubs to cold plunge, it makes a lot of sense because it's a hot trend, and I think we'll become more than just a trend. Did you design these tubs? I mean, is it your original design? Yeah, that's one thing that makes this different from a lot of cold plunge is out there today. A lot of them are bought and resold or dropped 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 we ended on the design we have today. Where are they manufactured? The tubs are now made in Tennessee, so the components kind of come from all over, but final assembly is here in Dallas. Wow. Tubs. They're made in the US. Correct. Yes. Well, and do you have a patent on this design? So we actually just launched our ModTub 2.0, so this second version is our proprietary design, so we have a design patent on this new one. Tell me a little bit about the business, how were your sales last year? Yeah, so last year was really good. We did just over $5 million, and that's, wow, doubling from the prior year, so yeah, so we're right. And so, and these are how much to do these go for? What's cost? $3,000. Our new one's $3,300. And are you profitable yet? Yes. So we've been profitable ever since we launched the coal plunge. We've been profitable. We lost a good chunk of money doing hot tubs, but then the coal plunge is recued, mostly 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 mod tubs or investing in mod tubs. So looking for advice to know if and when is the right time to go down one of those paths. All right. Perry, before we answer the question, do you have any questions of your own for Jesse? Oh, sure. I kind of want to ask what you want. You know, what's your vision, how you feeling about how things are going? Like, what do you? Yeah. Yeah, what do you want? That'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. Have you had any credible offers? Yeah. So we turned down a credible offer last year. At the time we felt like it was too low and I think as time's gone on, I've maybe realized the offer was better than I originally thought. It's a tough industry. We essentially sell one skew that people buy one time. So it's hard to sustain a business with that model. So, you know, we really need to watch new products or be a part of a catalog of other products who sell gym equipment and other kind of wellness modalities. It makes me think of two episodes. Many episodes of the show, one is TheraBody. TheraGun was their sort of hero product and Jason Worsland found somebody to partner with him who kind of became a CEO and they turned that into a sort of lifestyle brand, right? And the other one that I think of is some of these brands like Solostov. 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. Quick question for you. How did you... You've got some great momentum and I should wish you've mentioned the benefits of co-plunging are well known on your metabolism. Yeah, I think that's one thing about it is that, you know, we love it. We love the community. We love the culture. It's a lot of people who care about their health, who are willing to do the hard thing of co-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 to sell or to take on money or kind of what's next. I want to just like dive a little deeper into the kind of the you were saying, a little bit of as potential imposter syndrome. 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. 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, you know, I'm not this ultra biohacker kind of guy that most of the co-plunging community is. So there's some of that of just, you know, am I the right person to weed 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 mod pivoting the co-plunging all of that was so fun. I think running the business, trying to scale it, kind of operating it, I've not enjoyed the same over that I enjoy starting something. So I do kind of have an itch to go start something else entirely. So you just have itchy feet. I mean, you've been doing this. It's been fun. But you'd rather move on. I mean, there are a couple of options. I mean, option one is, again, to sort of go the Dollar Shave Club route or the Halo Top route. 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, quote unquote, professional CEO, give them significant equity and say, look, here are the metrics. If you can get our business up to x dollars or x revenue, and we can sell it for x, y, or z based on these metrics, you get this, this, this, or that. That could also be an interesting thing to do, which would enable you to kind of step away from the day to day running the business. But of course, you would give up some equity to somebody who you had confidence in. Yeah, I like that idea of finding a CEO to come in who maybe has done this before his scale 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. Yeah, I think that it really has to come from what you want. There is no better question than just keep asking us, it's not an easy question. You know, some people got into their business and they're trying to really, they want to get into the optimal window for sale to sell it. And they're willing to stay in the business as long as that takes because that's why they got into the business. Other people seems like yourself. You were just like, look, I'm into this. This seems like better than what I'm doing economically. And I'll just see where this takes me. And now you're kind of maybe you seem to have success. You bootstrapped it. It sounds like I'd say that, you know, for an imposter, you sure seem like, you know what you're doing. I appreciate that. And I'm going to make it hard on you. I think you got to accept that a little bit. Also, you know, you can 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 up in 20 years. Yeah. And no shade to Chip Wilson, the founder of Lululemon who's no longer involved in the company. But he's a fit guy, but he certainly doesn't look like a Lululemon model. And I think if Chip was listening to this right now, he would agree. So you don't necessarily have to look like it. But I think I do think just that 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 bread. And then with any of these cases, selling it in a hole, maybe selling a controlling stake, and then you keep some stock if a buyer is willing to do that. Or bringing in somebody who kind of lead operations and let you kind of lie 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 going to need? What do you really want? And maybe that comes in a few forms that could come in an acquisition form or could come in the form of somebody who's coming on as more of a business partner. Yeah. And the beauty of that 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 Hodges, the brand is called ModTub. Thanks so much for calling in. Good luck. All right. Thanks, guys. Thanks, Josie. Thank you. You know, I'm kind of a one-trick pony guy because in a way, it's like there's two ways to handle a lot of these questions. Like one is just like, from a business perspective, how could this business have like legs and be, you know, sees the best opportunity it might have in front of it? And the other side, which is again, what does the entrepreneur want? Because at the end of the day, if there's a distance between what the entrepreneur wants, and what they may realize is like a way of seizing the opportunity economically, that is going to 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 do I better do in my life? We're going to take a quick break, but when we come back, another caller, another question and another round of advice. I'm Guy Ross and we're answering your business questions right here on the advice line on how I built this lab. If you've been listening to the show these last couple of episodes, you've probably heard me mention the Airbnb original experience that I'm hosting and I'm so excited to have a chance to connect with listeners in a completely new way. It's called the reinvention lab and it's designed to help you think about how to unlock your next big move in your career or even in your life. I'll help you discover your own story in ways I do on this show with my guests and attendees will get a chance to take a deeper dive with me on so many lessons I've learned from this show, lessons that have transformed how I work and think about the future. All proceeds from the event will go to support the Ronald McDonald Houses that helps families stay near their children who are being treated at nearby hospitals. It's going to be really fun and I can't wait to meet you. So come join me in San Francisco and take your idea to the next level. To grab your spot, visit airbnb.com/guy. It's going to be great. Everyday it feels like there are new headlines speculating about how AI is coming for our jobs. Of course all of this can be a bit anxiety inducing, but a recent survey from Miro found that 76% of respondents believe that AI can benefit their role. 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Here modern rom-coms from authors like Lily Chu and Ali Hazelwood, the latest Romanticie series from Sarah J. Mass and Rebecca Yaros, and Regency favorites like Bridgerton and Outlander. And that's only the beginning. Audible has an incredible selection with over 1 million audiobooks, podcasts, and Audible originals all in one easy app. And you can enjoy Audible any time while doing other things. Household chores, exercising on the road, commuting, you name it. Audible makes it easy to drop into your fantasies during your everyday routine without needing to set aside extra time. There's more to imagine when you listen. Your first great love story is free when you sign up for a free 30 day Audible trial. Visit Audible.com/built. Welcome back to the advice line on how I built this lab, I'm Guy Ross. 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. 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. Hi, Guy. I'm Perry. Thanks so much. My name is Katherine Kerbus. I'm calling from Salem, Oregon. I'm the co-founder along with my husband of Hitch, where a chef crafted hot sauce brand. We are known for our super flavorful hot sauces with slightly lower heat. So we call it heat you can handle. And our sauces are sold in grocery stores around the northwest and in specialty stores around the country. Awesome. Thanks for calling in, Katherine, and welcome to the show. And so, all right. So Hitch is a hot sauce, but it's not like going to just burn your mouth so that you can't taste anything. Right? That's the idea behind it. Exactly. Yeah. We were just tired of coming home with hot sauces that were way too hot for cooking and marinating and really enjoying. And so my husband's a chef, and he was like, I'm going to make us some hot sauces that are, you know, complex flavors, global, and that we can actually eat and enjoy. But how did you guys decide to turn this into a business? Oh gosh. It's actually a funny story. We were living and working in Costa Rica at a retreat center, and he was making a lot of sauces from scratch with peppers and vegetables out of the garden. 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 going to make hot sauce, and then we'll get it in a 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. Is it your primary source of income, is it your primary job? 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 job. What's your day job? I'm the marketing director for a vacation rentals company on the Oregon coast. My husband Matt is a chef educator, so he teaches online for a scoffier culinary school. Yep. And so give me a sense of what you guys did in sales like last year, for example. 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. And you're mainly in, I mean, you mainly sell through grocery, or do you sell direct to consumer? Or do you sell like at farmer's markets? It's about a 50/50 split between our wholesale channels and our direct to consumer. So we certainly started out just selling at farmers markets. And then within a couple 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 in to 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 and present because we're really tired of setting up 10 foot canopies. All right. So tell us what your pain point is, what are you trying to solve for today, what's your question for us? Yeah. After nine years of building our business through farmers markets and selling into our regional grocery chains, we would love some advice on how to scale successfully international retailers without getting significant outside investment. And ultimately, we want to position our brand in the marketplace so we can sell to a larger company. Got it. Okay. Perry Chan. Say hello to Catherine. Hi, Catherine. Hi, Perry. Wow. You know, for both of you having very busy schedules, full-time jobs, it seems outside of this. How is that going? How much is that basically driving everything? Yeah. Yeah. It's 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 their company, it's not so tied to mostly to Matt, because he's the chef behind the brand. One thing I wanted to ask then is your question was like, how do you maybe make it attractive for an outside acquisition without taking outside investment? And so that seems like a constraint that seems important to you. Yeah. So we have gotten a small angel fund investment, like in 2020, we got $10,000 from a local angel fund group. And we used to do a lot of cooking classes online and in person. And we also like culinary retreat. So we were taking groups to Costa Rica and we did a trip to Italy as well. So we were a little hesitant to bring on investors because we didn't want them saying like, hey, don't do all that fun stuff. Just focus on the bottom line with these hot sauce sales. But now that we're wrapping those parts up, I mean, honestly, we are open to outside investment now because we just want the company to be successful and to scale. And like I said, we did the trial run with Khe and two national stores. And what we discovered was without brokerage teams to kind of supervise that roll out among all the stores and without demo teams to show up immediately and all those stores and move those bottles quickly. It's just really hard to sport it with two people and a really limited marketing budget. So I feel like it's a turnkey brand if we could get investment. Katherine, I'm the challenge. I'm just going to be straight up with you because I talked to multi million dollar and even billion dollar companies and brands. It's a very hard time to raise money and 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 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 the people that are going to be the most likely to, you know, to write a check for a thousand or five thousand or maybe more. One of the questions I have for you is have you, I know, so it sounds to me like you've got it in regional grocery and how much demoing are you able to do in the stores? Oh, gosh. We did a lot before COVID when the business was newer and we have 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. Yeah. I mean, it's worth thinking about taking a risk and cutting into some of the revenue here, the sales and 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. You have to demo it. People have to be made aware of it by trying it. And so that is where I think your biggest opportunity is. If you really want to position this for an ultimate acquisition, you might have to take a deep breath and really you and your husband sit down and say, okay, let's think strategically about this because to be in an acquisition target, you're going to need to hit 20 million or more in sales, right? And so to get there, you really have to be in grocery. And to be in grocery, you've got to demo the product and demo and demo and demo and demo. Yeah. You know, 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? Yeah. And so that's really good. You can use that in a way, I think, maybe as to what guys say, you know, maybe you just have to come up with a number. You're like, look, let's give it another whatever year, two years, 18 months. And you're like, at the end of that, if we can't get it acquired, like, you know, we've had a good run. 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 guys 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 going to maybe it's like a Hail Mary go all in, figure out what does it really take and take your shot, even if it's just, you know, maybe it's a one in five chance that could work. But you know what you're working towards now, you have a goal in mind that you've already decided on. Yeah. And you just have to backward engineer from that. I do love that because sometimes it just feels like, you don't know when it's going to end is it going to go on forever and you're like, I can't keep going at this pace forever. But if you put a goal out there, I think you could sprint for the finish or something. Yeah. I love that. I think you have a real sense of what you're up against and it is a hard business, but you know, some businesses just hard. Yeah. Yeah. So just take the shot. Like don't be afraid. Like, you know, when it's like down to this end, like just pull out all the stops to the things that you're like, let's just try it. So you know that you feel like you've given it the shot that you're going to feel proud of. Yep. 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 to a show for Cruder and Dorfmeister. Is that right? Mm-hmm. That's right. Well, all right. They're coming to Portland, Oregon and September. So we wanted to invite you if you're in the area. Please feel free to. Now, we'll get you a ticket. You can stay there. Amazing. I had no idea that they were still-- They're still going, Perry. Yeah. They're still going. Yeah. Going strong. All those, all those 90s kids are still listening to Cruder and Dorfmeister today. Amazing. Um, Katherine Kirby's the brand is called He You Can Handle. Good luck. Thanks for calling in. Thank you. Thank you. Bye. Bye-bye. Stay with us. Because after the break, we'll talk to another founder working to take their business to the next level. I'm Guy Ross. And you're listening to the advice line right here on how I built this lab. 1.3% It's a small number, but in the right context, it's a powerful one. Stripe processed just over 1.4 trillion dollars last year. That figure works out to about 1.3% of global GDP. It's a lot, but also just 1.3%. And GDP isn't capped. There's a ton of headroom for growth, especially with Gailforce tailwinds like AI and stablecoins. 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Take up to the power of AT&T business at business dot ATT dot com that's business dot ATT dot com. Welcome back to the advice line on how I built this lab. I'm Guy Ross and today I'm taking your calls with Perry Chan of Kickstarter. Perry, are you ready for our next caller? Yeah, let's go. All right. Let's bring in our final caller. Welcome to the advice line. You're on with Perry Chan. Please tell us your name where you're calling from and a little bit of extra business. Hey, guys, my name is Joe Fontana. I am the founder and owner of Fry the Coop. We are a chicken sandwich shop here in Chicago. We fry everything in beef tello and right now we got 10 locations and a little shy of 200 employees. Wow, Joe. Welcome to the show. Fry the Coop. We're growing like crazy. Before I asked you about the story of just what are your sales? So last year we finished at 12.9 million and we're already on track to do 14.5 million coming up this year. How did you get into this business? Are you a chef? I'm not a chef. Although I can come to your house and make you a great meal. I love food. I'm just a fat Italian guy. I love to eat. But I was 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. I did some soul searching, figured out that I love food and I wanted to open up a business and food. At the time, there's a little place in San Diego called the Crack Shack and I was just obsessed with their chicken sandwiches. At the time I was living down the street from an in and out burger. I kind of thought like, gosh, like a handcrafted, double fried chicken sandwich, just kind of style with a really small menu like in and out. I'm like, this will do well anywhere. But you figured you'd go back to where you're from, I guess? Well, it wasn't actually that. 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. I would see a Bentley on the side of the road and I would put my business plan in the windshield wiper with a note. Call me please. Did that work? No, no, it didn't. It didn't work. My friend in Chicago, who's now my partner, he was a real estate guy and they had a building. There was 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. He calls me up one day and he just said, "Hey, I have a small window for you to move back Chicago and you can open up your fried chicken concept." 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 and I'm moving back across country and that's how we ended up back in Chicago. Wow. That's amazing. 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 canes and Dave's hot fried chicken and of course, Chick-fil-A is huge. But there is a lot of smaller regional chicken places. What are your sort of challenges right now? You're growing and that's amazing, you're 10 locations. I'm assuming you want to open more in the future. Yeah. Really separating ourselves as the best of the best. Frying in Beef Tello has been a huge differentiator for us. We just put a lot of love into the quality of the product. We go around and train our team on hospitality. Touching tables is something that is kind of lost in the fast-casual space, fast food. No managers are going out and touching tables. Nice. Very smart. And I think in frying in Beef Tello probably raises your cost, too, right? It's more expensive than frying it in a seed oil, I guess. Definitely. But the taste, it is like a million times better and I think that's what makes us ignore the extra expense. That's awesome. Okay. So before we get dive into this, tell us what your question is or your challenge. All right. So we have been funding all of our growth with our own cash flow. But I have an audacious goal to open up 75 stores over the next 10 years, all around the Chicago land area. We have a huge market, so I think it's something we can accomplish. And what I'm figuring out now is that 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. It'll take you 30 years. It'll take us 30 years, yeah. So we need to raise money about 30 million dollars. Our company is not even worth 30 million. So how do we raise money or what vehicle and bank debt is not working to basically grow the company without selling off all of our equity or piecing it together and ending up with like a hundred different investors? All right. Big challenge. Before we get to that question, Perry Chan questions for Jill. 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 area that's just goal 75 locations. Why? How did you come to that? And that is a very good question. So I started working backwards from what is a very attractive asset to purchase? And I kind of learned that if you want to take a company public, you need about 25 million in EBITDA. And so I thought, okay, so how do we get to 25 million in EBITDA? Well, for around two million per location, we're doing 15% profit, we would need 75 locations to get to that. And then also there's a great brand that came out of Chicago called Pat Belly. They're a publicly traded company, 400 locations. I just thought, how many locations does Pat Belly have in Chicago? And you don't see him everywhere. It's not like a Starbucks or Dunkin' Donuts where you're bouncing into him. And I look around and there's 77 Pat Belly locations in the Chicago and area. That's a magic number. And do you have a question for you right now, the ten locations you have? Do you own any of the property or do you lease them all? 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. Yeah. Why have bank loans been a challenge? I mean, I'm thinking right away, SBA loans, you've got assets to back them up. So why is that not an option? Well, so we did use SBA loans to buy the real estate and they have a big mortgage on each property. So it's not like we own the properties outright. And technically, when you get into the restaurant business, like as a restaurant brand group, we don't have any assets. We have a little bit, but it's nothing that, like, we don't have a lot of collateral to back up the lines of credit. So we did 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. They were like, hey, you know, you know, you guys only owe 180 grand and you still have cash in the bank. They were like, why don't you just pay it off? The bank acts like we're failing, you know, and as you try to grow, you become less profitable. And so then they really, you know, they really dug you on that. Yeah. Is there something in the middle here, like, you know, you're painting a picture, maybe where you're saying, like, okay, if you feel to open up 75 locations in the period of time that you would hope to do it, I'm guessing that what you've estimated is that the capital you might need to do that given your current revenue and assets and all that stuff would put you in a position where, you know, your equity get watered down well beyond where you'd want. Is that an assumption or is that something that like you've stressed tested and so that's just how it is? I think you're kind of hitting it where this 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, they would say, all right, here's the 30 million over the 10 years and we're not going to charge you principal and interests, but then we can like accumulate it maybe on an Excel sheet, so to speak. And then when we exit the company in 10 years or set it up for an exit or to exit them, that's when they'll get their principal and interests on the loan of it. And there are plenty of family offices in the Chicago area. That'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? I have. I've listened to both of them. So you know how they went about it, both of them in different ways. Dave's went the franchising model and of course that here's the big F question. What's your view on that? Because that's a way to supercharge growth and it doesn't require a whole lot of upfront capital. A year ago I would have told you absolutely not, no franchising, 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 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 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. Yeah. So being on planes all the time, I have three little kids at home. So you know, I don't want to have to be living in hotels either flying all around the country. No, that makes sense. I mean, look, franchising is, it's risky, right? There's a reason why every time you go to an in and out, it's the same. It is consistent because they don't franchise. It's owned by the company and it's the same with raising canes. And there's, there are franchise models where you do see inconsistency from locations location. So it's tricky, but it can also be a great option. And guy, exactly guy, you know, I think it always comes back to that show, which is, what do I want? Yeah. 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 when it comes down to us, like of all these things that you want to achieve and how you want to feel about them, which are more important than the other to you. Yeah, it's very true. Yeah. I care deeply. I want everyone to be happy. Yep. I think you have got essentially three big options. It's either some kind of bank loan, right, which you've tried and maybe you can try it and there are other banks that actually have restaurant lending divisions. The other one is you could do franchising. Actually, the 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 option four. This is complex, but could you do like a sale of one of the properties that you own or two of them and lease them back so you get cash in hand and then use that cash to finance more locations. That's risky. And then the last one, which is, I mean, things like operational efficiency, right? Can you centralize the food prep? Can you also negotiate better prices on supplies? I mean, anyway, there are five different things that you can do and you're just going to have to choose one or more of those or a combination of those. What I would say is you got this big area dashes 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 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, your eye isn't on the ball. And also, you know, you don't want to hear no all the time, you know, it's not, it's not how anybody wants to live. So give yourself, give yourself some, some box, some constraints, 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. I love that. Is it there? Because we did 1.5 million in EBITDA last year. Do you think we should wait till we're at 2 million or 3 million EBITDA, or is there like a number you think that I should then kind of switch over to that? You know, I'd almost defer to guy like it's so industry specific, I think in a way. Like with the internet, it's not even real. Sometimes they're like, don't make any money, it's better. If you have no revenue at all, because you can always sell the dream of, yeah, the restaurant industry is not like that. It's not like that. No, and, you know, you've got to hit profit and growth to be a target for acquisition or to go public. I mean, that's really the name of the game. Now, it wasn't five years ago, five years ago, it was growth, growth, growth. And so you had a lot of brands that did grow and didn't have to worry about staying profitable. Now it's different. So, you know, a slower approach, I don't think you either, it's either or it's either a slow or a fast approach, I think there's a middle ground, which is you might only be able to open up one or two locations for the next year or two while you are searching for the right partner who can help you really expand because there's a scenario where you open one or two in the next year or two. And then year three from now, you're opening 15 to 20 locations a year, right? I mean, there's a realistic scenario where that can happen if you find the right partner or you find the right financing model. Yeah. I would love that. And I'm okay with that. If it takes a couple of years, then we can really run. That sounds great. Yeah. Joe, I can't wait to try a sandwich or fry the coop. Thanks for calling in. Good luck. Thank you guys. Good luck, honored. Perry, before we let you go, a quick question that I like to ask all of our returning guests, which is if you could go back to the Perry Chen from when you were just starting this, you know, this idea, when you were starting to really find people to support you to build Kickstarter and you could go back to him now knowing what, you know, what advice do you think would have been helpful? Oh, man. I don't know. I would say this, you know, it's a, I'm dodging the question, but a, it's truth in it. The delusion that I had, and I think the delusion that we all have as entrepreneurs, if I cut through that delusion with some common sense from the future, to be honest, who knows if I would have gone through with that. Fair point. Fair enough. I, you know, I don't think enough founders and entrepreneurs are honest about that. But I do think it's worth. It's a question of asking yourself, which is like in 10 years, don't look back and say, this was worth it. I think for the most part, the answer is yes for most people. I think it's still the answer for you because you built something of incredible value, cultural value. It was absolutely worth it for me. And I think a lot of what I picked up on 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 onto 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 category and it's not saying that really gets talked about a lot. And I think because of that often, people in that situation, it's really soul crushing. Yeah. But not for you. Not for you. Is it, are people ready for the soul crushing business podcast? I'm not sure anyone will let's do it. One star. That's Kickstarter co-founder Perry Chen. Perry, thanks so much for coming back on the show. My pleasure. And by the way, if you haven't heard Perry's original How I Built This Episode, you can find a link to it in the podcast description. Go back, check it out. It's a great episode and here's one of my very favorite moments from that interview. Aren't you getting stressed out that somebody else is going to beat you to the punch and do the same thing? I think that certainly comes to mind, but I think there's also like, we couldn't have tried to go any faster. There was just not that much 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 as much as you can do. Thanks so much for listening to the show. This week, please make sure to check out my newsletter. You can sign up for it for free at gyros.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. 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 and we'll put all of this in the podcast description as well. This episode was produced by Alex Chung with music composed by Ramtean Eroblui. It was edited by Andrea Bruce. Our audio engineer was Neil Rauch. Our production staff also includes Chris Messini, Carla Estevez, J.C. Howard, K.C. Herman, Sam Paulson, Carrie Thompson, Catherine Cipher, John Isabella, Niva Grant and Elaine Coates. I'm Guy Raaz and you've been listening to The Vice Line on How I Built This Lab. If you like How I Built This, you can listen early and add free right now by joining Wondery Plus in the Wondery app or on Apple podcasts. Some members can listen add free on Amazon music before you go tell us about yourself by filling out a short survey at Wondery.com/survey. Picture the app you've been dreaming about. Now imagine it's real and ready to launch before today's over. Meet Base 44, the fastest way to bring your ideas to life without writing a single line of code. Just describe what you want to create and watch it take shape instantly. The design comes together. The features are built and the back end is ready to go. No technical setup, no juggling tools, no waiting on anyone. 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