The Difference Between In-N-Out and Cameo
There’s a simple explanation for why an old-fashioned burger chain is celebrating its 75th anniversary while a tech unicorn flames out. Hint: it has to do with how they financed their growth.
Here are today’s highlights:
How much are you willing to spend to integrate A.I. into your business?
Believe it or not, there’s a market for used kitchens.
A chef in San Francisco thinks he may have reinvented the restaurant.
One of the most popular restaurants in Philadelphia hires only people who have been incarcerated.
THE 21 HATS PODCAST: DASHBOARD
Gene Marks Predicts an A.I. Backlash: For months, Gene has been telling us about all of the cool things we’ll be able to do with Microsoft’s Office 365 and Google’s Workspace when those companies integrate artificial intelligence into their platforms. Gene’s still excited about the possibilities, but he’s also more than a little annoyed, because both Microsoft and Google are planning to charge us quite a bit more for their A.I. enhancements. Gene also talks about automated invoicing, which he believes is going to displace a lot of employees, and why he believes most business owners are doing a poor job managing their insurance needs.
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Stacy Perman on how, 75 years after its founding, In-N-Out’s philosophy remains the same: “When I wrote the book ‘In-N-Out Burger: A Behind-the-Counter Look at the Fast-Food Chain That Breaks all the Rules’ in 2009, the chain was hugely popular with a fervid customer base, bordering on obsessed, and yet little was known about its origins or the family behind it. The elusive Snyders maintained a low profile. They rarely did press. For the most part, the company followed founder Harry Snyder’s belief that it was best to let their burgers do the talking. ... While I didn’t set out to write a hagiography, I learned that despite operating counter to every conventional tenet of American business, In-N-Out has remained faithful to its founding mission and is enormously profitable.”
“To this day all burgers are custom-made, nothing is frozen, the restaurants are sparkling clean, and its employees have long been known to be some of the highest paid in the fast-food industry.”
“The French Laundry’s Thomas Keller described to me the pilgrimage he makes when in Los Angeles with the friend who first introduced him to In-N-Out — accompanied by a good bottle of wine. The French-born, New York-based Michelin-starred chef Daniel Boulud called its burger “perfection.” In her purse, Julia Child kept a map of all In-N-Out locations between her house in Santa Barbara and Los Angeles.”
“Yet even as the chain has grown and expanded, it has adhered to Harry Snyder’s motto: ‘Keep it simple, do one thing and do it the best you can.’ Indeed, the menu remains largely the same as it was when Truman was president, and the Snyder family has clung stubbornly to Harry’s corporate philosophy. While the fast-food industry it helped launch morphed into a network of global conglomerates, the Snyders have rebuffed all calls to franchise, go public, or be acquired.” READ MORE
Cameo really thought it was going to be the next Disney: “The company was preparing to expand in every direction: crypto art, live events, merchandise, international; its co-founder and chief executive, Steven Galanis, now 35, was expert at straddling the line between business and pleasure. A former collegiate party promoter, he shared the lifestyle of Cameo’s celebrity talent, jet-setting between parties, sporting events and luxury homes in Miami, Los Angeles, and Chicago. Cameo had just raised $100 million on the audacious ambition to pioneer the ‘connection economy,’ landing a $1 billion ‘unicorn’ valuation just a few years into its existence. Now fueled by money from venture capitalists including SoftBank, the investor that powered so many of the previous decade’s frothiest start-ups, Cameo could be so much more than just a quirky, semi-ironic video greetings business.”
“Mr. Galanis and his co-founders decided to build ‘one of the most important, beloved consumer companies of the generation,’ as Mr. Galanis declared in a 2021 interview. ‘Something that can be as enduring as what Walt Disney did for the last century.’”
“A decade of near-zero interest rates, abundant venture cash, and a steady tech boom gave no indication otherwise. A company like Cameo could afford to lose money forever, as long as it kept getting bigger. And American culture produced few things with such regularity as it did new celebrities. What could go wrong?”
“Today, Cameo operates as a husk of its former self. Its nearly 400 employees have shrunk to 33, plus a handful of contractors, after three rounds of layoffs.” READ MORE
This business is making a market in 20-year-old kitchens: “In 2001, a radio executive and recovering addict named Steve Feldman was driving through Greenwich, Connecticut, when he spotted the demolition of a 10,000-square-foot mansion in progress. He watched, aghast, as workers threw load after load of custom kitchen cabinetry, fine-marble countertops, and high-end appliances into dumpsters. Surely, he thought, there was a market for this stuff. There was. The company he founded shortly thereafter, Renovation Angel, has now rescued 8,100 upscale kitchens, according to its website.”
“Here is its business model. (Caution: May sound insane.) When you want to renovate your kitchen, Renovation Angel sends an insured, background-checked demolition crew to rip it off the walls. Of course, demolition and rip aren’t quite the right words; what they actually do is carefully unscrew, pry, remove, and protect your cabinets, counters, and appliances, piece by piece. Then they load it all onto a truck and drive it to New Jersey.”
“At this point, they stage your former kitchen in a 43,000-foot showroom. It’s as weird as it sounds: an immense store selling entire kitchens, arrayed like stage sets with price tags. People who are renovating their kitchens can now buy yours for 10 or 20 percent of its original cost.”
“How can someone buy a kitchen from a totally different house and expect it to fit their kitchen space? ‘Kitchens are modular,’ Feldman says. ‘They use a few less cabinets. They rearrange them differently. They get different granite. But at the end of the day, they’re saving tens of thousands of dollars.”
“The whole thing is a nonprofit. Feldman donates the proceeds to addiction-recovery programs like the one he credits with saving his life.” READ MORE
A chef in San Francisco believes he’s figured out the future of restaurants: “Standard restaurant logic dictates that your dining room be as big as possible, but we cut ours in half (to just 35 seats) so the business has an additional leg to stand on: a retail shop that is open all day selling freshly made pastas, sauces and high-end pantry items, all of it prepared and curated for people to make easy dinners at home. Our consistent retail traffic balances most seasonal ups and downs; when young diners are at Burning Man, families still swing by to grab bucatini and olive oil. Granted, a minuscule dining room means no massive Friday night sales, but that’s a welcome trade-off for better consistency throughout the week, and that consistency gives us the freedom to operate with less complexity and fewer moving parts.”
“Our restaurant is walk-in only, so we don’t pay an online reservation platform or lose money on no-shows. Our tiny menu is efficient and minimizes waste. Our product, pasta, is affordable enough to keep profit margins sufficient even during inflationary periods.”
“Most important, guests order at the front door with the host before being pointed to their (fully set) table, which eliminates 15 minutes of profit-killing dead time at the beginning of each meal.”
“It’s becoming common for us to do more than four turns on a table at night. The faster we turn tables, the stronger our sales are. The more we do with less, the better our margins are.” READ MORE
Jerry Lorenzo and his label, Fear of God, have taken an unusual approach to designing and selling apparel: “Lorenzo has pulled this off by building not one collection, but three. There is his high-end main line, which is available at retailers like Mr Porter and includes $2,850 Italian-made melton wool overcoats and $750 jeans with whiskery distress marks at the knees. Then there’s Essentials, the economical label built on $100 hoodies and $95 sweats in colors like sand and slate gray that are sold at Nordstrom and PacSun. Lorenzo’s third and latest brand, Athletics, is a sportswear-focused line produced in partnership with Adidas. The sizable range will include swishy parkas, duffel bags, and thick-soled sneakers and is set to hit stores later this year.”
“‘He didn’t do it fast, he did it differently,’ says fashion consultant Julie Gilhart, the chief development officer of Tomorrow, who has worked with Fear of God. ‘He had the nerve to be out of the system.’”
“The financial success of Essentials propels the broader Fear of God empire. It’s difficult to drive down Melrose Avenue in Los Angeles or amble along Spring Street in New York’s SoHo neighborhood and not see several matcha-clutching, Nike-Air-Jordan-wearing 20-somethings in slouchy Essentials logo sweatshirts or jogger pants.”
“Fear of God employs around 60 people, with revenue in the low hundreds of millions annually, says CEO Alfred Chang, who was appointed in March after 17 years at PacSun, where he rose to be the mall retailer’s co-CEO.” READ MORE
Spotify has devoured its competition: “It may be the Netflix of music, but it’s never posted a profit; in 2022, with nearly a half-billion users around the world, around 200 million of whom pay for the service, it lost 430 million euros (the company is based in Sweden). This weird, loser-take-all outcome — which happens from time to time in tech, where dominant firms are allowed to bleed money for years in pursuit of long-term sector domination — means that the music industry’s biggest success story of the 21st century can also seem like it’s flailing. There have been layoffs and a price hike. The company is pulling back from its splashy investment in podcasting.”
“Royalties are by far its biggest operating cost, but outside of a small slice of the highest earners, many artists have been shocked by how little money ends up in their pockets.”
“This week, the indie music platform Bandcamp laid off roughly half its staff after its second change of ownership in as many years. The site’s new owner, music-licensing service Songtradr, has promised to ‘keep all the existing Bandcamp services that fans and artists love,’ but artists themselves sense a turning point. ‘God this is frustrating,’ wrote John Darnielle of the Mountain Goats. ‘Bandcamp was an unalloyed good in the music business.’”
“The platform, said Kimya Dawson of the Moldy Peaches, ‘was the only place I felt safe and supported as an artist.’ Bandcamp, through which musicians have sold $193 million in downloads and physical media in the last year, was, for a certain type of artist, a refuge from the brutal economics and promotional machinery of streaming.” READ MORE
A new rule lets homeowners count potential rental income when obtaining a mortgage: “The new rule, announced by the Department of Housing and Urban Development, in partnership with the Federal Housing Administration, allows mortgage lenders to count the potential rental income from so-called accessory dwelling units attached to a home when calculating how much a buyer can afford. For example, someone buying a house with a basement apartment or a small second unit could add that rent to their income and, thus, increase the pool of buyers that could qualify for FHA financing. The new policy comes at a time when housing is more out of reach for many people than ever before.”
“The new policy allows buyers to include up to 75 percent of the estimated rental income of an existing ADU or 50 percent of the estimated income of a new ADU a buyer plans to add after purchase.”
“The new guidelines also allow ADUs to be built as part of FHA-financed new construction, and provide additional guidance for appraisals needed when allowing ADUs as part of the income.” READ MORE
Mike Carter learned to cook pizza in prison, where he experimented with ingredients available at the commissary, including ramen noodles and Cheez-It crackers: “Today, pizza is still Carter’s specialty — but rather than improvising it in prison, he’s crafting it as the executive chef of one of Philadelphia’s most popular restaurants, Down North Pizza. The eatery only employs formerly incarcerated people, many of whom struggle to find work once they’re released. The Detroit-style square pies at Down North Pizza have been showered with accolades, including being listed recently in The Washington Post’s Best Pizza in America and the New York Times 2021 The Restaurant List, The 50 Places in America we’re most excited about right now.”
“For Carter, while the menu is important, it comes second to the restaurant’s mission of helping people who have been in prison get back on their feet. In the U.S., more than 44 percent of former inmates end up returning to prison within one year of their release.”
“‘There’s a big stigma. They’ve been dehumanized for so long,’ said Muhammad Abdul-Hadi, the founder of Down North Pizza, which also offers housing above the restaurant to employees, as well as pro bono legal services. ‘We focus on humanizing individuals, and allowing people to see that they should not be defined by a mistake they made.’”
“He said he hopes to reduce recidivism in the surrounding Strawberry Mansion neighborhood, and minimize the stigma associated with incarceration. ‘The person is not the crime,’ he said.” READ MORE
THE 21 HATS PODCAST
We Haven’t Signed a New Client in Eight Months: This week, we meet Jaci Russo, the co-founder and CEO of BrandRusso and the latest addition to the 21 Hats Podcast team. Jaci tells Jay Goltz and Laura Zander how she went from working for Barry Diller to starting her own marketing agency. Jaci also explains why she recently decided to introduce a four-day workweek and why she thinks her agency has now gone eight months and counting without signing up a new client—the longest such stretch in more than 20 years in business. “I find it interesting,” responds Jay. “You just said this is the first time you've ever had such a long period without new business. And, ‘Oh, we went to a four-day workweek.’ Hmm, how interesting.”
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Thanks for reading, everyone. — Loren