Advice Line with Todd Graves of Raising Cane's

23:30Welcome back to The Advice Line on How I Built This Lab. I'm Guy Raz. My guest today is the legendary Todd Graves, founder of Raising Canes. And we're taking your calls. Todd, you ready for the next call? Yeah, let's go. Awesome. All right. Let's bring our next caller. Welcome to the advice line. Tell us your name, where you're calling from, and just a line or two about your business, please. Thank you. I'm David Burweiser calling from St. Louis. I have Midwest Pasta Company, and I manufacture fresh pasta and frozen pasta for restaurants and grocery stores and farmers markets and the like. Awesome.

24:00Welcome to the show, David. I just went to a delicious restaurant in Nashville and has fresh pasta. So there are restaurants that will sell fresh pasta, but you guys basically are the white label. You make it for them. Right. I make fresh pasta for about 80 different restaurants, about 130 different grocery stores, food distribution, hotels, farmer's markets. So with the exception of the farmer's markets, you're B2B basically. Yes. Tell me a little bit about how you got into this business. Have you been in food your whole career? Yeah. Yeah. Well, I grew up in restaurants. And when I was 25, I had$1 ,000 in idea.

24:32And me and some friends bought a restaurant in South St. Louis and had a small pasta making component. Fast forward 10 years, I had a four-year-old. And at that point, it went from being 40 seats to 120 seats, three o 'clock bar. Wow. And so we sold the restaurant and I took the pasta component with me. And then I had some help along the way. And it's been about 13 years since then. And give me a sense of what you guys are doing in terms of sales a year. Sure. We're going to be pushing 800 grand this year. I hope to be pushing a million by the end of next year. And how big is your facility? 3 ,000 square feet.

25:05Okay. Awesome. All right. Before we dive in further, tell us your question. Sure. So scaling up is something that I'm about ready to do. And I don't have access to traditional capital streams. So I'm trying to figure out how do I finance and how do I get access to capital without sacrificing my equity? Okay. Before we answer the question, tell us why you don't have access to traditional finance. Sure. Well, part of the sale of the restaurant had to do with some tax liability and default on an SBA loan. So I've been blacklisted by the SBA and I had to take a personal bankruptcy in that transaction.

25:38So I don't have bad credit, but I don't have any credit. Right. So you can't get a traditional loan because of this default. And listen, restaurant restaurants, tough business, even as it's growing, margins are small. Well, we were also hit by the recession. Got it. Okay. So I want to bring in Todd Graves. Todd, pasta business, 95 % of his business is to food services, restaurants. He's looking to expand. Thoughts, questions, concerns? Yeah. So, David, it sounds like you're doing pretty good, my man. I mean, something to be really proud of. $800 ,000 in sales right now. And you're saying by the end of next year, you're looking to do$1 million.

26:14That's 20 % growth right there that you're just doing organically right now is fantastic, especially at 3 ,000 square foot. Can I ask you, when you say you want to expand, what does that mean? What is the how much capital you need to do that growth plan? I've got two different plans. The initial plan is about 1.4 million. The further plan is more like five and a half. What that would do is gain me capacity. So freezer space, for instance, is something that is a premium. I could expand my capacity. I could expand my offerings. I could improve equipment. The industry is very equipment reliant. Most of my gear has been on for years.

26:52I've been rebuilding and repairing, but a lot of my expenses are caught up in keeping that equipment going and producing. So new equipment, better facilities, and also more marketing. I could hire someone to handle more front end things. My focus is on the creation and the production and the quality of the product and managing my team. not as much focus as I could have on outward sales, internet presence, these kinds of front of the house tasks. Quick question for you. Does the current demand, David, outstrip your capacity? There is more demand than I have the ability to touch. I've actually been approached by national players asking you to do co-packing.

27:30Wow. And I just couldn't, I just don't have the capacity to hold what they wanted. They were talking about 20 ,000 pounds a week, which with a larger facility, that's, you know, big players in this industry, that's nothing. But for me, that's more than I could take. So for the 1.4 million or the five and a half million, I mean, just right off the bat, my gut says go the lower amount because of the exposure, right? Get good traction and roll. So, and David, if you run through those numbers, 1.4 million gets me X amount of more freezer space, this equipment, and that's going to relate to X amount of sales, which means bottom line, and I make this so you can measure that return.

28:07You've done that? Yes. Great. Your challenge is, is that you can't get conventional financing, which would be ideal, obviously, right? Right now, you've got a proven business model and you need to go get, you know, equity types of investments, but you don't want to give up equity. Well, I don't want to lose control. Yeah. That's what I did with the restaurant. And I ended up with a small slice of big pie where currently I have my own, my very own whole small pie. Yeah. So there's, you know, there's lots of different ways to finance a business. It depends on, um, what's your, your appetite for debt is, right?

28:44What your appetite is for how much equity you want to sell. And you, obviously it's already non-negotiable for you. You don't want to lose controlling interest of the business, which I highly recommend. This is your baby. You started it. You're making a success. Now there's other ways that you can do things. Um, there's, you know, angel investor, uh, networks, and these are the people that love your pasta. They're very passionate about this. And there are people that have enough money put away that they can do investments just to be a part of something, right? Be a part of something special. And these are generally more favorable.

29:17That's why I call them angels, right? And so I got angel investors to help me as I grew the business because I did not want to give up equity. I didn't want to give up control. I didn't even want having other equity shareholders just to have that in my head. Am I doing a good job for them? Because it took me off my focus of what I knew was the right thing to do for our business. And so generally, it's higher interest rate things. So what I had was angel investors that I would do a 15 % interest rate subordinated debt. Okay, it was a one pager. And I personally endorsed these. I mean, if I personally signed on to it, so they knew anything I had in the world, which is all just tied up the business anyway, back then, that I was gonna be 100 % into this, but there was no equity being done.

29:55But it was a 15 % interest rate, but my cash flow could pay for that. So that's That's why I was asking you about that. You run your numbers in that million four and you feel real solid for that. I was able to do a higher interest rate, but they were a part of it. I made them feel a part of the business. They got Cane's gear all the time. They came to restaurant openings and, you know, their family was thrilled. And we went and I put together photo albums of, look, look, look how great this Houma Louisiana new restaurant is and how much the community loves it. And then they made a 15 % return, which actually was really good.

30:25But as soon as I could pay that thing off, I did. And that wasn't convertible debt. It was just a straight up loan. Straight up loan. And look, banking back then was a lot more lenient. I could actually take that subordinated debt and actually use that as equity to get loans, traditional loans. But for a million four, if you had five to 10 angel investors that really want to be a part of this and everybody could break off, put in$100 ,000, put in$200 ,000. There's plenty of people in St. Louis that do have that kind of money. But subordinated debt, they have no voting rights, no anything. They're just like, hey, look, here's this.

30:59I hope you can pay me back my interest rate and do that. It's an idea. Look at anything from a 10 % up to a 20 % type of like that, up to mezzanine type lenders. That's a route you could go. Right. Yeah. There are a couple of options for you. So as Todd mentioned, there are going to be local angel investors who are focused entirely on St. Louis makers. And you can find them on LinkedIn. They may have Facebook groups. A little sleuthing on the Internet, you'll find those groups if you don't already know where they are. There are probably even some agricultural or food production grants available in the state of Missouri, I bet.

31:35These are ways to support businesses in the state that employ people in the state. There are probably even some food investment groups. So those are all really interesting paths where you can do what Todd did with loans or you could basically give away some equity or you could take some convertible debt. The other option, the other idea, which I don't know if you've explored, as you mentioned, some of these big producers on the coast want to do co-packing with you. Have you explored some kind of strategic financing from them where they basically they do a minimum volume contract or, you know, or like they commit to a certain amount every month and they prepay it?

32:12or you do some kind of joint venture with them for just one line, right? So they don't own your company, but they co-own one production line or even financing some of the equipment through those equipment manufacturers or they're even equipment lenders. So I think that there are a couple of interesting options for you that don't necessarily rely on traditional financing. Yeah, absolutely. And actually one of the companies that I was talking to is owned by private equity firm when I did a little digging. Although I have a sense that I'm too small to even sit at that table. I know that venture capital, when I looked into that, it was way higher.

32:51The floor for that kind of a transaction was way higher than anywhere close to where I'm at. You're too small for that. But you're not too small for, especially for passionate, committed local. I mean, Todd, Baton Rouge has groups of people who are committed to investing in Baton Rouge, right? I mean, you are probably one of those people today. That's right. They want to see St. Louis exceed. They want to see them do better. And so the community people will invest. I love it, Guy. You said there's plenty of government resources to go into looking at. What are grants? What are any of those things going on that you're creating jobs and doing well?

33:21You're a proven hardworking person. And the equipment leasing company, since you have a successful company, look, it's going to be higher interest than if you went in and you finance it traditionally. But that's how restaurateurs like us grow, man. You can go in and get it. It'll be a higher interest rate. But the equipment lending is another really big one. I love the idea of talking to these companies. I want you to come in and do all this pasta for them and just saying, look, here's where I'm at. You know, you're just going to be honest. You're an honest guy. So you're going to tell them, here's where I'm at.

33:46I can do this, but I need this. And would you be interested in helping me do that? These are all just creative ways to where you don't have to give up equity. That's right. There's a lot of creativity that you can build into those conversations. Yeah, great. I don't think you've got a capital problem. I actually think it's more of an opportunity for you to identify those places where you can get the cash from. And it may work out ultimately in your favor. Right, right. I agree. And look at the restaurants you currently sell to now. I'm sure they're thrilled with your product. I'm sure they love you because you give them good product.

34:17Those are those angel investors. They're doing well and just saying, hey, look, I want to grow. I'd like you to make a good return. Are you interested in this? I'm asking for smaller increments. I'll put together a group of this many people. And look, they start talking. They know each other. They start talking. Hey, this is exciting. This is, you know, have them come out to your plant and look, this is what I'm going to do. And they feel a part of something and you can do good for St. Louis. I think those restaurant owners you're selling to right now are a good place to go look. 100%. Agree. Yeah.

34:45David Burmeister, Midwest Pasta Company. Thanks for calling in. Good luck. Thank you. Wow. It's interesting because a lot of people think that once you default or something, you're finished. But it's actually, there are all kinds of ways to find. It's not easy. There's no question about it, but there are all kinds of ways to find that cash. Absolutely. That was good advice, Guy. That was some good stuff. Stay with us because after the break, we'll talk to another founder working to take their business to the next level. That's after the break. I'm Guy Raz, and you're listening to The Advice Line right here on How I Built This.

35:40Welcome back to the advice line on how I built this lab. I'm Guy Raz, and today I'm taking calls with Todd Graves of Raising Canes, and let's bring in our next caller. Yeah, I'm ready. This is fun. Hi, Todd, and hi, Guy. I'm Shane Lyons, long-time listener, first-time caller. Awesome. I'm the co-founder of Vesti in Los Angeles, California. We specialize in delivering chef-crafted snacks and signature sandwiches made on homemade focaccia to retail partners, offices and corporate campuses, and direct to consumers via web orders all over LA and Orange County. Awesome. Vesti, so you make focaccia bread sandwiches.

36:14You're in LA. Tell me a little bit about where you're selling your stuff. Sure. So we've been on quite the journey. My partners and I, we're just about three years in, and we have 45 retail partners that we work with. So Alfred Coffee being one of our most notable. They've got, I believe, 22 locations in Los Angeles, and we service 18 of them with sandwiches, as well as gourmet grocers and other coffee shops. So you make the sandwiches like a central kitchen and deliver them fresh every day to these different places? That's right. Yeah, we call it like a chef-driven factory model because we're all chefs, my partners and I, long time fine dining, boys and girls, and we love great food.

36:56We also wanted to make a really scalable, profitable business. So we're trying to find the balance of the two, and we landed on sandwiches. And the sandwiches we design actually, believe it or not, get better as they sit because of how we've designed them. They're low moisture, relatively high fat due to the nice olive oil that we use. And so they have a shelf life up to, we say, three days, but in actuality, it's four days where you really see almost no degradation in the product. And just really quick, you guys are profitable, and roughly, what are your sales? Sure. Yeah. We had our first months of profit in June and July.

37:31We are targeting just under a million in sales this year. Nice. And you mentioned you were a fine dining chef. Tell me a little bit about your background. I can imagine why you left that world, but why did you leave that world? Sure. I've actually had dual careers my whole life. When I was a kid, I was a kid actor on Nickelodeon and Disney for many years. And then that train stopped. And at 16, I went to culinary school. I went to the CIA, Culinary Institute of America. My mom's also a graduate from there. So sort of in the blood. And then I worked with some really fantastic chefs, David Chang and Daniel Blude.

38:09And then I had the opportunity to open up a restaurant in New York City with my cousin, Nicky Ovikini, and legendary restaurateur, Drew Nipon. We did that for about eight years and eventually sold the least to other restauranteurs. So after that, I was sort of beat on, you know, done with restaurants. I was working six, seven days a week, back to back lunch, dinner into brunch, all that sort of good stuff that chefs do. And I was burnt out and then found myself working in film and TV again. And during COVID and like many people during COVID, you know, I was going one direction, then I was given a COVID diagnosis, I was supposed to actually star in a TV show, and they recast immediately.

38:47And so I had to regroup. And I really spent a lot of time thinking about the background of being a chef and as well as an actor and the things I liked and the things I didn't like from the cultures that I was in. And I was just dedicated to doing something with my friends. So it sounds like you got your weekends back, basically. I do have my weekends. And I've seen what a Friday night not at a restaurant looks like. And it's really nice. Tell us what your question is before we dive in a little more. So our question relates to brick and mortar. Should we invest in a brick and mortar? and if so, when?

39:16It comes up often in conversation. We have internal debates about it. We have some active investor interests and then constant guest inquiries. And our model right now as a chef-driven factory allows us to excel at high volume, high quality food production, but it's not currently set up for on-demand single sandwich orders, which, as you can imagine, leaves some of our guests really frustrated and potentially turned off from the brand entirely. But given that our model's low fixed costs and high margins, what are the compelling reasons that we should be exploring and investing in a traditional bricks and sticks location?

39:50Okay, great. Todd, I want to bring you in former Michelin star chefs and making focaccia bread sandwiches to offices and coffee shops, but they're thinking about opening a brick and mortar. Shane, I'll give you a few things just from my experience. What happens is when you start to have success, you have other influences that come in saying, hey, you're doing great doing this, but you know what? Maybe you should go do this. And that's where I think this brick and mortar is coming. People are like, your products are incredible. Then why don't you go do this? And what's worked in my passion, my career doing Raising Cane's, it's been being staying focused, focused on I know what I'm good at.

40:32I know what I can do to successfully make money, Would you have to continue to make money? So for me, the whole thought of brick and border, and I'm not saying it's a bad one, but as you know, it's a completely different business. You're still selling your product, but now you're the one doing all the front of house, back of house with people. You're taking on substantial debt doing that. And to me, it's a distraction away from building your current business that's doing very well. You can take that 45 retail partners and you can make a goal to say, we want 90 retail partners. And this is how we're going to go out and do this and double your sales.

41:08So my advice would be go for the goals to keep doing great what you're doing right now. Focus on that, make it better. And I would table that brick and mortar thought until after you get that next goal, let's say it's 90 retail partners, say, hey, do we really want to do that now and change our focus right now? Because this little guy, Todd Graves in Baton Rouge, Louisiana had a chicken finger dream and stuck with it. And now I got a thousand brick and mortars and we're planning on the next thousand, you know what I mean? But if I try to get into retail line, you know, grocery stores want canes frozen in the grocery stores.

41:37Retail, they want our sauce bottle. They want all these different lines. And if I look at all those different product lines, it's going to take my focus away from doing what I'm really good at. Yeah, you know, it's so interesting. A couple of questions for you, Shane. I mean, the first is, do you guys do pop-ups? It's funny you should say that. I'm actually suited up because right now we're working at the Miden Market in Los Angeles. It's a really cool hybrid concept, which we kind of consider an asset-like brick and mortar. Basically, we have a six-week lease. So for us, exactly what you're describing, Todd, it's back.

42:08We're there every day. I'm there from 9 a.m. to 11, 12 o 'clock at night, and it's full-on six days a week. And it's reminded me of, you know, that I really like my core business. As much fun as it is to interact with guests, we're in hospitality for a reason. We love people. We love to make them feel great. We love delivering on the promise of providing a fantasy, which I think is what restaurants are ultimately there for, is to provide fantasy to some degree and fulfill on that promise. So it's been really nice to kind of be in a restaurant for this period, but then we'll be exiting. Yeah. I mean, to me, that's a brand building exercise, which is important because a lot of chefs go into catering.

42:45It's just more efficient. It's more profitable, better margins. And by doing these pop-ups, right, you're exposing more and more consumers to what you offer. And really, it's the lunchtimes. It's 500 sandwiches or 200 sandwiches for the lunchtime offices. That's really going to be your bread and butter. What's interesting to me about brick and mortar is that – and I totally agree with Todd. It's like do you want to get back into that restaurant lifestyle that you walked away from? I think there's kind of a happy middle there, which is is there a world where down the road – it may not happen right away.

43:18You basically open up a commissary kitchen that is like an embassy, right? Like almost like a brand embassy where you might have a little counter where you can go in, a little bit of a brick and mortar where you do offer maybe a window. But really, it's just about putting your brand out there and just building more awareness, but also having a kitchen, your own kitchen where you're making the product. I think that's right. It makes total sense. And we've talked around ideas like that, and we really love the hub and spoke model. We've kind of reversed engineered it. A lot of restaurants move into catering because their a la carte sales are lagging.

43:52And instead, we've started exclusively catering, and now there's demand for a la carte. So trying to find that hybridization of the two is really what we're looking at now. And we do know that we would like to expand across at least North America. And there's the internal conversation of, well, can you have a brand that can leave L.A. and go somewhere else and not have a brick and mortar presence? Is it even possible? We don't know. As far as expanding, right? Now you'll have some aspiring goals. It's a dream. You want to expand across the country. When using retail partners, they need good products, right?

44:25And I like what guys saying them, some of your product having its own brand. It's a pop-up in the new area. You set up that hub and spoke model. You're going to set up your commissary there and do it great. Some pop-ups where people go, man, that's the best focaccia sandwich I've ever had. Using influencers to where people know it's your brand. But I don't think you need to have the brick and mortar. You also run the risk of that brick and mortar not hitting the way you want it to hit. And the retail partners are like, hey, you know what? You weren't that successful in your brick and mortar. I don't want to get your product.

44:53You have something that's working very well right now. And I would focus you and your team all that energy on that and growing that side of your business. Yeah. Yeah, we've been sort of like a slow growing indie band in L.A., but the word's getting out. And like we can see that the opportunities are sort of everywhere now. And I'm very afraid of the shiny objects. I've been around enough to say most of them are a distraction. And so it's a little challenging to navigate all the different feedback. We have three lines of CPG goods. I've never had anything on a shelf before, but I'm learning that I really like selling potato chips, and I love the margins on them, and people really love our potato chips.

45:31So I guess this is really helpful, and what I'm hearing is to stay focused and go back to the core product, which is making sure that taste, texture, and temperature on all the things that we create are, deliver on that promise, because that's what we can control. Yeah, Todd, they do a muffaletta. Oh. They're doing a New Orleans sandwich. Man, that's not easy to do that right. Oh, we'll take the Pepsi challenge, Todd. We'll take the challenge. I can't wait to try it. Awesome. Shane Lyons, a brand that's called Vesti Sandwiches and Snacks in LA. Congrats. Good luck, man. Thanks, guys. Good luck, Shane.

46:03Such a pleasure. Thank you. Yeah, I mean, it's interesting because do you guys, I mean, do you do, is catering a significant business for you? I mean, your stores are so packed, so I don't know. Yeah, it's really not. You know, it can be up to like maybe 3 % of total sales, right? So we actually even looked at like when we could different times and experimented, like going out, taking catering to places. And it didn't have the extra manpower to go get that done. It didn't make sense. So now we just make it easily packageable. You can pick it up at the restaurant. But for us, it's just like stay at our model.

46:34Because if you're going after 3 % and putting muscle behind that, you're losing focus. You're distracting. Just like with Shane, like we said that too. He said something interesting. He's like, then I make the great potato chips to go with that. That's still in that same vein. That's a great add on. Your margins are even better on potato chips. but you start doing two different businesses, which it is in that deal. He loses focus. He screws up something that's really working well right now. It happens to all success, right? It's you're doing great, but you can also do this. And when you lose the focus, you mess up with what really is your concept.

47:03At the end of the day, I call it God, faith, whatever Buddha, divine intervention. It's going to, what's supposed to happen is going to happen. I think about Stacy's pita chips. It started out as a pita wrap sandwich place, but people wanted the pita chips and then it turned into a different business. And you never know. Potato chips, that might become the business. You're right, man. It's cool. Todd, before I let you go, a quick question for you. If you go back to the guy that was working at the oil refinery on the ship and starting the first Canes, right, down the street from Louisiana State, what advice would you have given him that would have been helpful?

47:37You know, I think number one would be concentrate more on progress rather than perfection. and, you know, entrepreneurs, when you start something, it's your baby, right? You just, everything's into it. It's about an expression of yourself. And so I want everything to be perfect, right? So we'd be starting a new training program, but I wouldn't release it because it wasn't perfect yet. Well, give me a couple more weeks. You're like, Todd, we need this program. Two more weeks. I'll get it right. I missed out on a lot of progress, just trying to make it perfect. And then some older mentors, they taught me, look, Todd, nothing's ever going to be perfect.

48:11And progress is way more important than perfection. So get that training program out, but it's version one and you can get to your version hundred that you're going to do and get better. I still use that today, you know, here 30 years into the business, because I will literally want something to be so perfect and a new marketing campaign and new thing is. And then I'm like, I can't stop progression in our business. Progress, progress, progress. Yeah, that's right. Todd, thanks so much for coming back on the show, man. Really great having you. Thanks for having me on. That's Todd Graves, founder of Raising Canes.

48:43And by the way, if you haven't heard that episode, it's so good. I swear to God, if you don't like it, send me a letter, I'll send you a dollar. And if you do like it, you can send me a dollar. Go back, check it out. It's just so good. We're going to put a link to it in the show notes. And here's one of my favorite moments from that episode. You know, back then we thought you could actually, this is being naive, you could actually go to a bank, bring a business plan and they'd lend you money. Here's my plan. I need a hundred thousand dollars. Yeah, and I thought they'd give it to you. Isn't this a great plan?

49:13Isn't this a great idea? And so did you do that? Yeah, yeah, yeah. Look, we bought a couple of cheap suits and went to Office Depot and bought boxy briefcases with the brass combination locks. You remember those? Yep, yep. We went and we went and saw every bank in town. I had a briefcase, Craig had a briefcase, and we would put it on their desk sitting across from them in our chairs, and we would open the brass combination lock like somebody was going to steal our chicken finger business plan. Hey, thanks so much for listening to the show this week. And by the way, please make sure to check out my newsletter.

49:48You can sign up for it for free at guyroz.com or on Substack. And of course, if you are working on a business and you'd like to be on this show, send us a one minute message that tells us a little bit about your business and the questions or issues that you're currently facing because we would love to try and help you solve them. You can send us a voice memo at hibtid.wondery.com or call us at 1-800-433-1298. Leave a message there and make sure to tell us how to reach you, and we'll put all of this information in the podcast description as well. This episode was produced by Alex Chung with music composed by Ramtin Erevlui.

50:28It was edited by Andrea Bruce. Our audio engineer was Jimmy Keighley. Our production staff also includes Chris Messini, J.C. Howard, Casey Herman, Sam Paulson, Carrie Thompson, Catherine Seifer, Ramel Wood, Neva Grant, and Elaine Coates. I'm Guy Raz, and you've been listening to The Advice Line right here on How I Built This Lab.

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