Transcript: Episode 178: Screamed at in the Hall

LISTEN TO THE EPISODE:

APPLE PODCASTS | SPOTIFY | TOPFLOOR.COM

[00:00:00] Susan Barry: This is Top Floor episode 178. You can find the show notes at topfloorpodcast.com/episode/178. 

[00:00:14] Narrator: Welcome to Top Floor with Susan Barry. This weekly podcast ride up to the top floor features tangible tips and excellent stories from the experts and characters who elevate hospitality. And now your host and elevator operator, Susan Barry.

[00:00:32] Susan Barry: Welcome to the show. Matthew Fotch's career has spanned engineering, real estate, hospitality, and investing. An Ohio native, he initially pursued master planning for large scale developments and honed his expertise in hospitality driven real estate projects. Over the years, Matthew has been instrumental in creating data driven strategies for restaurant chains and entertainment venues, working with concepts like Cheesecake Factory, Putt Shack, and F1 Arcade. He also co founded Consolidated Concepts, which became the largest group purchasing organization in the United States. Today, Matthew focuses on Emerging Fund, an investment platform dedicated to scaling tech enabled concepts in hospitality. Today we are going to talk about investing in hospitality driven tech and entertainment. But before we jump in, we need to answer the call button. 

Call button rings 

[00:01:37] Susan Barry: The emergency call button is our hotline for hospitality professionals who have burning questions. If you would like to submit a question, you can call or text me at 850-404-9630. Today's question was submitted by Emily, and here's what Emily has to say. I know the old adage of location, location, location for a restaurant, but how do you know if the location is the location? So I think what she means is like, okay, location's important, but what about the location's important? Matthew, what do you think? 

[00:02:12] Mathew Focht: That's an interesting question, Emily. Ultimately, you're right. That is the same and it does a location. I've seen make a crazy difference between success and failure within one side of the street to the other side of the street. So I would say, a lot of times that location, if we take that extreme example, it could be this traffic in and out of an entrance. So right hand turn versus left hand turn going across traffic. It could be a stoplight that you gotta go through. It could be Q lines. If you're on a major road that get backed up and you just, they don't want to cross over. It could be just high. Like you've seen some very high tourist destinations. One side of the street to the other that you got big, you have a five lane, like I drive in Orlando. There's major differences one side of the road to the other. So it just depends on where the market you're in, but it literally could be across the street. And so location matters. And even in those situations, but there's a lot of attributes that as you further go out, I mean, it can, it is. Yeah. gets more intense. I mean, you know, densities, day demographics, psychographics, this was a lot of components that make success. 

[00:03:37] Susan Barry: The thing that I would add to that for Emily is that I think sometimes people make the mistake of thinking that if there is no business in a category and a given location, that's a great location to go. And it might not necessarily be the case. Like if there's no dry cleaner anywhere within a 20 mile radius of where you want to put your dry cleaning business, it's probably because there's no demand for dry cleaning. So pay attention to that too. Like don't be the lone wolf, the only restaurant and in the middle of a desert and probably not going to work out for you. Does that make sense? 

[00:04:13] Mathew Focht: Definitely. 

[00:04:14] Susan Barry: What inspired, Matthew, your shift from engineering to hospitality driven real estate development? That's a pretty big jump. What made you do that? Like I know you kind of took a leap of faith with your first mixed use position development role. What, what, why? 

[00:04:34] Mathew Focht: Yeah, thanks Susan. To answer the question, I thought I wouldn't be an engineer. My dad is an engineer. My grandpa was an engineer. I had confidence that engineering was to be a great foundation for whatever I ultimately do. But I quickly, you know, my came on engineering school. I am MBA in finance and real estate. I actually was getting ready to go to Fairfax, Virginia, for Toll Brothers, big master plan developer. I thought it wanted to be a master plan developer 1200 acres at a time down to build golf course communities and then I stumbled on this mixed use developer, Steiner and associates out of Columbus, Ohio. And it was a, just a jewel. It really almost brought me to my knees of how amazing this environment is development was. It was a mixed use development of restaurants and entertainment and retail. And basically a town square in the middle of a cornfield. Hate to say it that way, but it really was. It was 1200 acres assembled together. 

[00:05:40] Susan Barry: Contrary to my location advice from earlier. 

[00:05:45] Mathew Focht: Pretty much. You're right. Yes, it was. And it's like 400 different parcels that were assembled together and nobody knew what was being put together. And they patch quilted all these parcels together and it's created this amazing environment. And I just saw the life and energy that restaurants and entertainment brought to this environment. And then ultimately, you know, it wasn't the country club golf clubhouse that was the anchor. It was the retail entertainment restaurants that I realized pretty quickly. So that got me real excited about jumping into more mixed use developments and how do I propel this industry that I quickly grew a passion for.

[00:06:26] Susan Barry: So what did you learn during that experience or maybe in early parts of your career about data and using that for decision making that still influence you or guide you today? 

[00:06:40] Mathew Focht: Yeah. So, it was fairly early on Yarmir Steiner, the CEO, he said, Matt, I need you to go to Denver and look for property that we could acquire and build another mixed use project, 80 acres, whatever. And so I just took photos of every corner cause I didn't know what to look for. And then ultimately I found out that the restaurant owners, local in that market were the best source in their information. They knew where their customers were coming from. They realized that places to avoid. They knew the markets that were growing. So I quickly, you know, trying to find that there's always the one or two operators in each market that are the best restaurant operators. I would get meetings with them and ask a lot of questions. I quickly started probing deeper and I said, there's a lot of operators that was all on a hunch. It was, there was no data. It was this vague void of data driven decisions. 

[00:07:46] Susan Barry: Got a feeling. Let's put it here. Let's do this. Right. 

[00:07:50] Mathew Focht: Exactly. It was just like, I felt good. It looked good. Let's go for it. And it was a multi million dollar bet. These aren’t just little tiny bets. These are freaking crazy big bets. And being in engineering, coming out of school, I was hungry for data. I want logic. I want to figure out why we're making this decision. And it just wasn't it was lacking that. So I got myself positioned to provide data. It wasn't data science at the time, but it was data. It was big data and how to aggregate and cleanse that data and try to make it actionable. And it led to some really cool projects like with Cheesecake Factory building. I remember the owner and Robert Schnur, they came into town in Columbus, Ohio.

And they were like, we would really like you to go to do Dayton and Milwaukee and Kansas city. And they're like, yeah, I don't think our customer's there. I'm like, well, who's your customer? And they're like, well, they drive Mercedes and Beamers. And I'm like, I don't know about that. And it was that kind of, it was a catalyst for me to go and enter. I asked, can I go interview your owner? I mean your customers, and when they walk outta Cheesecake Factory, which I could have been. To me, it sounds awful today, but I was asking them, intercepting them and asking them how much money they made, where they came from. 

[00:09:09] Susan Barry: Did anyone throw a drink in your face? Like, yeah, it's none of your business.

[00:09:13] Mathew Focht: They should have totally thrown a drink in my face. And then I would follow them to the parking lot. And essentially started writing down license plates of everybody and all the cars in parking lot of the garage. I did this in Miami and I did it in Indianapolis. And I wrote, I'd write over 2,000 license plates. And then I got a contact to the Bureau of Motor Vehicles in Indiana and Florida. That I paid 2 dollars a license plate. I think I told you this, Susan, before, and 2 dollars a plate. And I was able to get their home address. And then I plotted, geocoded those to a map. So it gave me a lot of data insights to where these people come from. But, you know, today, obviously, I don't think you can get away with that. 

[00:09:57] Susan Barry: You could probably do it at a touch of a button. Like that's a lot of legwork to have to do, but it, you know, absolutely probably set the stage for a more, uh, sophisticated approach to picking locations than like, this one feels right.

[00:10:13] Mathew Focht: Exactly. 

[00:10:14] Susan Barry: I know that you have had a lot of chapters in your career, but I want to skip ahead to the latest, which is emerging fund. What motivated you to create emerging fund? And how is it different from traditional like venture capital or private equity? 

[00:10:34] Mathew Focht: Yeah, I think that the number one motivating factor, there's a lot of them, but I think the number one motivating motivating factor was I had, I've had a chance for over two decades work alongside restaurant operators and owners and I have seen the pain. I mean, you spend enough time with them. You're in their car, you're in a plane and you listen to them and they're like, ah, it's a pain to raise capital and they have and or I have a technology issue or I need a solution to do this. Yeah. And they're all scrappy entrepreneurs, like restaurant owners are probably the best definition of a free enterprise system. Like they're hungry, they're scrappy, they're living life. They're like, they're barely getting by a lot of ways until they hit it big. But they, they're amazing people, and I've had so much fun being in the industry of entrepreneurs and rest that are restaurant owners.

[00:11:23] Susan Barry: Yeah. And to hit it big as a restaurant owner, you have to be because that margin is so slim. That to turn that into an empire is a magic trick. 

[00:11:33] Mathew Focht: It is a magic trick and you have to be dialed in and you have to be a people person and there's so many components that being as tough around that. And so what I, you know, ultimately fall in love with working with these and realizing their pain, and I've made so many introductions to private equity and venture capital firms over the years, I found that there's good private equity firms, but they want to own 100 percent of your company or majority control. And there's good venture capital firms, but venture capital firms are giving, they're placing 50 bets to win one or two historically on your whole pay the whole fund return their whole fund returns based on one or two usually hitting.

And they can't give you enough time when you make 50 bets. That you only have basically 2 percent of your time. You can give to each company if he was equally weighted, right? You only got a hundred percent of your time. So ultimately these companies, there's so many great companies that need growth advice. They need go to market strategy. They need support. They need mentoring. They need, they're amazing companies and they don't want to get there, but they don't want to sell you a hundred percent of the company. They want to sell you a majority and adventure capital firms, or there's a handful of them out there that can give you some good advice and everything, but they only spend 2 percent of their time with you.

So we are growth capital. We're early stage growth capital. And we spend, we will make 17 investments. We have 14 investments in fund one right now. And we spend a lot, a lot of time like with these companies, we're working with them every day and helping them grow their business. And we use our operating companies, which we're the largest food and beverage network in the U S. We work with almost one out of three restaurants in the U. S. today with our operating companies. So we have the ability to do risk and support them. We have 50 CEOs and founders and hospitality in our fund today that are all here to mentor and support. So we get that's kind of why. 

[00:13:27] Susan Barry: I want to ask a chicken and egg question about something you said about VC. So I understand the idea that they're making 50 bets to win on one. And I understand the idea that they can only give each of the companies they're betting on, say 2 percent of their time, but what's the chicken and what's the egg, like which comes first? Is it that if they invested more time in all 50 companies, they would have more than one successful bet? Or is it that they don't invest the time because they know only one is going to be successful? I mean, is it even possible to parse that out? I'm just curious. 

[00:14:06] Mathew Focht: Great question. I mean, I, I think it's tough to answer, but, you know, you just look at historical norms and, and that's kind of how it works. I think these guys would love to spend more time with their investments. I mean, they're naturally, they know, they quickly figure out in their fund period that who's the winners. So what typically happens that 2 percent becomes the 20 percent on the few within year three to five later in the fund period. And then if you were early, you didn't head it out of the blocks would say it takes longer for your company to make sure you're probably working. You know, you're not even getting that 2%. It is a set, but ultimately, I think it's more these companies need nurturing. They don't need capital, like really good companies that we work with. They actually don't need our capital. The funny thing is, because they don't have a problem getting good capital because everybody wants to invest them. Usually they're oversubscribed. But they want us.

They need good mentorship. They good need support. That's the challenging thing for them to find, and there's a lot of people willing to throw you money. If you're a good company but having a partner that can, is going to work with you daily and has done it. And we have 50 CEOs that have taken companies public. They've delisted. They have, you know, we have like velvet taco founder, Kodato taco founder, um, bar taco founder, like all in our fun. But these guys, if you had a taqueria or thinking about it, they could probably give you some advice, right. Around that, around the corner. So ultimately it's about putting good people together to support you. That's the real need. And we're just fortunate we're on nine out of 14 boards and we're usually not the largest investor or we're sometimes we're not the second largest investor even, but we get that board position just because we're that engaged in trying to help them.

[00:16:16] Susan Barry: From the advisory side? 

[00:16:18] Mathew Focht: Yeah, advisory and then go to market, what locations you want to go next? Who's your ideal customer profile? We have a data science division that is really helping them figure out where to go. Those back those routes that they, that doing the white page. 

[00:16:35] Susan Barry: Hopefully they're not writing down license plate numbers anymore.

[00:16:38] Mathew Focht: Yeah right. 

[00:16:39] Susan Barry: Well, you talk a little bit about, Okay. Some of the qualities are even metrics that you're looking at when you're evaluating a potential investment. Like, I'm wondering if there are trends that you're seeing that are driving your deal thesis or if there's something else or if it's an indefinable quality that you're like, this is it.

[00:17:00] Mathew Focht: Yeah, good question. I would say, you know, we are heavy in tech enabled concepts. And restaurant tech, those are two verticals rent, but the tech enabled concepts was what I have seen the industry transition over the last decade, specifically to this with the market. Once we're in an experiential economy today, people don't need to sit down for a 2 hour meal to get a quality field food anymore. They can go to Chipotle. They can go to Sweet Greens and they get really, really good quality. So you don't need to sit down like you used to, to have a good quality meal. So what happens is casual dining is getting squeezed. And if you're going to sit down for a two hour meal or an hour going out, you want to be entertained.

So this experiential entertainment side of the business, which we're in the experiential entertainment industry today. We love these companies are using technology to drive that experience, like Putt Shack, like F1 Arcade, that we're investors in, and we're helping them grow, and you know, Flight Club, all these, there's really good companies that we have seven tech investments, tech enabled investments. We're just seeing double digit EBITDA margins, extremely much more profitable companies. We like that there's patent protection around them. There's a moat. Protecting from, you know, you have a hot chicken concept. You're more likely if you're a really good hot chicken concept, what's going to happen next year, there's going to be another hot chicken concept next year. If you're a good coffee house, there's probably going to be another coffee house next year. So, we really like this industry that we're investing in and we're early stage or, you know, that we get a chance to really help them create the brand. 

[00:18:42] Susan Barry: Will you talk a little bit about what you mean by tech enabled? I feel like, especially in this environment, every company is able to say AI powered and it doesn't really mean anything. So can you put some fences around what you are referring to when you say tech enabled restaurant or entertainment? 

[00:19:02] Mathew Focht: Yeah. Yeah, like, so Putt Shack, which we started working with them in 2018, actually started talking to him in 2016.The first one in London, they had their unit open. This is from the founders of Top Golf. And I remember the Jollof brothers were tinkering around in their holes when I first met him. The two twin brothers and they were, and I'm like, what are you doing? And I, so this ball that they're tinkering with is literally a computer. It has Bluetooth and GPS technology inside this golf ball, but it's in a much more advanced version than Top Golf, which was a chip. And so when you go and hit that ball Susan, it’s going to recognize what path you made, what's your last shot. It's automatic scoring and knows when you hit the wall versus hits the hole. It’s really a smart, but it's a computer, right? It's the ball is extremely expensive.

If I told you, there'd probably be a bunch of Putt Shacks would be robbed tomorrow. So ultimately, this golf ball, it has 15 year patent technology on it. That's tech. And what we love about that tech is that it provides a barrier that it's very difficult. Nobody else has automatic scoring in golf, far as I know. And it's been a while. I mean, this is 2018, our 1st unit. And still we have a patent we have, there's a moat. It produces a lot of profitability. So when you have a unit like Putt Shack that you have a concept that build out cost is amortized into the overall build it. So you have high margin on that, which produces high profitability and which makes these companies a lot more profitable than a traditional restaurant. 

[00:20:44] Susan Barry: And they, you know, in terms of a moat, they won't have a competitor until 2033. We like to make sure that our listeners come away from every single episode of Top Floor with some specific tangible things that they can try either in their businesses or in their personal lives. So for entrepreneurs and hospitality, what are some of the common pitfalls that you see and do you have any tips for avoiding them? 

[00:21:16] Mathew Focht: Hmm. I would say, as the common thing that I see frequently is they under value marketing today. 

[00:21:29] Susan Barry: As a marketer, I couldn't agree more. Say more about this, Matthew, go on. 

[00:21:35] Mathew Focht: Yes. Yes, they do. And I think ultimately it’s, they think the people would just come and historically a lot of these operators, the ones that have been around, the word of mouth was really strong and it worked. But today there's so much noise in social media and, and it's so effective. These concepts are so, the ones that are effectively marketed on social media or re outreach just do so much better out of the gates the concepts that do a really good job in marketing. They have a strong Marketing they spend the money like and I've seen it in Vegas. We are you know, it's always we open up a concept not that long ago they spent literally a third of what it was.

It was a lot of money. It was like mid six figure like over 300 grand for opening and marketing but they were told that they should spend a million dollars in marketing and the gates and Vegas, because you got to compete with so much and they had a slow start, but now they're crushing it. They're doing extremely well, but it took a long time. And so what is that time? It's been almost 3 years. Well, what was that time worth? What was that an impact for them not hitting, putting those dollars in marketing early and coming out of the gates quicker? And it probably would have prevented some turnover in your business because you got staff and servers that would have got paid a little bit more.

And they would have stayed, you would have had probably a better corporate business because the word of mouth would have been a lot stronger. And obviously you're going to be more profitable quicker in those early years, when you're bleeding cash, you just invest millions of dollars in your build out your investors want to see a quick payback and that time value of money is worth a lot because if they, if it takes you two to three years, then you're most likely not going to be investors are not going to be so quick to put more money in for your next unit.

[00:23:38] Susan Barry: Well, plus what's the sort of exponential asset value on your exit, right? Like how long did you delay the exit? How long did you delay making the asset worth enough to get the cap rate that you need, you know? 

[00:23:53] Mathew Focht: That's right, that's exactly right. And, and that time value of money, it means a lot. And so I think that I'd say the number one is invest in your, make sure you're invested in marketing, have a good CMO, or have a good marketing company that you're working with and take the time to vet them just as important as construction and your food. You got to look at marketing as serious. 

[00:24:16] Susan Barry: I love that answer, obviously. Well, we have reached the fortune telling portion of our show. So now you have to predict the future and then we'll see if you were right. What is a prediction that you have about the future of technology in the hospitality industry? 

[00:24:33] Mathew Focht: What I see happening is that the restrooms are going to, unfortunately, are going to be dominated, the experiencers are going to be dominated by those that can quickly adapt to using technology and then next three to five years, because AI and robotics are going to change this industry. We're going for the most disruptive period in hospitality and history. You're going to be able to have somebody who's in your kitchen doing what you do where you could do if you're working in that kitchen and for the most part, even better or consistent. So, their restaurants are going to more going to be more like factories than they do restaurants today. So, the execution in the making the experience amazing. We got to focus in on it and you gotta be looking at quickly adopting to technology fast as you can. And ultimately you're going to get very rewarded if you do, because you'll be much more profitable than you are right now.

[00:25:35] Susan Barry: Okay. So speaking of disruption, if you could wave a magic wand and create the next big disruptor in the industry, it doesn't have to be realistic. So realistic or not, what would that be? 

[00:25:49] Mathew Focht: The biggest disruption I see happening is, that really hasn't happened, is the use of projection versus the physical and basically projection mapping anything with visual lighting, can create an space and an environment that to the human, to the eye, it looks legit and real and actually much more cool. Like there's a concept called mirror immersive out of Bellevue. I was working with a guy from Shanghai for two years, and he opened his concept. And now mirror immersive is this gaming VR experience with huge 7k resolution screens and I would say that in the future, using projection and lighting and in creating moments and creating experiences and spaces is where, is going to offset construction costs and provide much more flexibility and environments.

[00:26:57] Susan Barry: Well, before we tell Matthew goodbye, we are going to head down to the loading dock where all of the best stories get told.

Elevator voice announces, “Going down.”

[00:27:05] Susan Barry: Matthew, what is a story you would only tell us on the loading dock? 

[00:27:14] Mathew Focht: So I remember when I started consolidate concepts of my partner, John Davies, the GPN of the fund with me, and he's a majority owner of buyer's edge. We started when we're staying in the Wind jacuzzi. I think it was as soon as Wind opened, it just opened up in Vegas. And we spent a lot of money. We were spending, we had a very expensive night. I can say, the next day we're like, man, we should probably make money in Vegas versus spend money. And I said, I'm gonna land the Wind Casino as a client. And he laughed. He said, yeah, yeah, yeah, yeah, bet. And it took me two years.

And, and I got him as a client and it was our first casino and now we have 80 casinos and I had to call a bunch of favors to get it done. I had to call some people that were Chicago tied and know Steve Wynn. That knew Steve. And then ultimately, we sent him a client and I was super excited to meet Steve, Mr. Wynn, and like, there was this, I was told that he is going to be here in the hallway at this time was Memorial weekend. I had my wife with me. And so I, it was right outside the nightclub and so I was there and he had this entourage and you're coming through the hallway and then one of his guys that kind of set it up, said, let me introduce you.

And right before he, I stuck my hand out. He started yelling at his top of his lungs, like just yelling, like, what are you doing? What's going on in here? And I didn't understand what was going on. So I'm like, Oh my God, what is going on? And he’s looking at me like, what is this kid in front of me doing? And he's yelling and screaming, basically yelling at everybody around him is guys. And his team was like, what's going on? And he's like, I told you guys to clear out this aisle, clear out this path and nobody should be in this hallway. They should be all inside. It will basically what I went from this amazing, like moment and being like, this is going to be a really cool experience.

It's pretty deflated. With my wife, but ultimately I did shake his hand and he did say hi and it was really not the moment I, you know, you really want to say it was such a magical moment with Steve Wynn, but you know, the funny thing is I came back a year later. I was there in the casino and there was no line. There was nobody in the hallway. So he bought out all the retail shops that were in that section next to the nightclub. He bought them out of their leases and he put those lines. Talked into those retail spaces. So they're out of the hallway.

[00:30:24] Susan Barry: Oh, wow. Crazy. Matthew Fote, thank you so much for being here. I know that our listeners got some great ideas. We've got a lot of entrepreneurs who listened to the show and I really appreciate you riding to the top floor. 

[00:30:41] Mathew Focht: Excellent. Thanks, Susan. 

[00:41:09] Susan Barry: Thank you for listening. You can find the show notes at topfloorpodcast.com/episode/178. Jonathan Albano is our editor, producer, and all around genius. He even wrote and performed our theme song with vocals by Cameron Albano. You can subscribe to Top Floor on Apple Podcasts, Spotify, or wherever you like to listen. And your rating or review will go a long way in helping us give you more of what you like.

[00:41:45] Narrator: Thanks for listening to the Top Floor Podcast at www.topfloorpodcast.com. Have a hospitality marketing question? Reach us at 850-404-9630 to be featured in a future episode.