Kona Ice: Tony Lamb

25:25You're at the mercy of, you know, how much can I generate? I ended up with, you know, multiple billboard trucks, but it was all on me. You know, how much can I sell? But I was always in the back of my head looking for, I want to be able to sell something and make a little bit of money on it for the rest of my life. Yeah. But you didn't know what that was. I did not know what that was. Yeah. All right. So the idea for what would become Kona Ice really started a few years before you launched it. So let's first talk about the idea. I guess it's around 2004 and it's as simple as like a bad experience in an ice cream truck?

26:03Yeah, the origin story, and this is true, no embellishment. I moved into a subdivision. We're in the backyard with my kids. We hear the music and my kids all look at each other and take off running to the front yard. And I remember it very distinctly. My wife and I kind of jog behind them. Here around the corner comes a 72 Chevy van, blue smoke rolling out of the back of it and, and, you know, this funky music playing. And, and I was like, oh my gosh, it looks just like a child predator. It's just screaming. And this guy sticks his head out the window and he's, he doesn't have a shirt on. He's got a beautiful array of fresh prison tattoos.

26:50Okay. Maybe I'm exaggerating that, but he was heavily tattooed. So they got their popsicles and I'm paying the guy and they're opening up their freezer burnt, ice encrusted popsicles. And they are disappointed. However, I know for a fact, if the guy would have turned around and come back, they would have had the experience all over again. And so that became, that is the true origin of Kona Ice because I said, can you imagine if that truck would have been beautiful? Can you imagine if the product would have been good. And this is almost a two-week conversation that I just kept obsessing over where I'm sitting there and I'm like, what about if that truck would have been all glass on the side and you could have looked in and it would have been a high school girl or a college girl driving it with a uniform on and you could see what she was doing.

27:44And the product would have been fair and reasonable and the experience would have been engaging. What would have happened. And my assumption would be as you started to research this, you would quickly come to the conclusion that this was not a good business. Like ice cream consumption in the U.S., for example, has dropped considerably from like the 80s to today. And the ice cream truck business, you know, depends on the price of gas and like the repairs. And there's just so much evidence to show certainly at 2004 when you were looking that that business was in decline. It was like getting a taxi medallion, you know, in New York City.

28:20Like, that was not the business that you would naturally think, oh, yeah, there's something you could do here with this. Right. But let me tell you another story that kind of helped that. So when I sold off the rainbow business, my personal secretary, as her severance, I bought out a video store in Cincinnati because they were dying. But we moved it to Warsaw, Kentucky, which is a small town, but rural and country where they're still renting videotapes at the time. So I moved this video store down there and we get it all set up. She did a great job. I was there one time and customer came in and she was trying to turn it over into food and where she was selling ice cream and different things like that was a customer came in while I was there and she sold a shaved ice to her.

29:07So she was doing shaved ice at her, her video store, basically. Yeah. Okay. And she put some flavoring on it. The guy walked out and she made three bucks or four bucks or whatever the number was. And she said, I love that. And I said, why? She goes, because I made, it's all profit. It's just ice. It's just shaved frozen water. Yeah. And she says, even if I buy the best flavoring that's out there, the most expensive flavoring that's still wildly profitable. You make a milkshake, you sell for$3, you got a buck 50 in it. He said, I sell shaved ice for$3. I've got 20 cents in it. And that's 10 cents for the cup.

29:39basically pure profit. Yeah, it was pure. And again, being a serial entrepreneur, you only have to hear that one time. Bing, my ears, my senses go up, spidey senses start tingling. And I was like, huh. When we come back in just a moment, how Tony builds a tropical themed truck for selling shaved ice and then changes out of his salesman suit and into a Hawaiian shirt. Stay with us. I'm Guy Raz and you're listening to How I Built This.

30:20How I Built This is supported by Crucible Moments, a new podcast about the pivotal decisions that shape the journeys of some of the most important startups. Hosted by Sequoia's Rulaf Botha, Crucible Moments provides a peek into the journey of companies like Airbnb, PayPal, 23andMe, and NVIDIA, and the decisions that changed their businesses forever, like how PayPal formed from a merger of two enemies who had been trying to destroy each other, or how early days Airbnb rebuilt trust after a host's house was ransacked. These companies only matter today because of how they navigated these crucible moments.

30:54I just listened to a recent episode with HubSpot founders Brian Halligan and Dharmesh Shah and how they turned HubSpot into one of the most influential tech companies of our time. It's super interesting. Tune in to Sequoia's new podcast series to discover how some of the most transformational companies of the modern era were built. Crucible Moments is out now and available everywhere you get your podcasts and at cruciblemoments.com. Go listen to Crucible Moments today. 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.

31:29I'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.

32:07It'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 slash guy. It's going to be great. Ever had one of those afternoons where your brain just quits on you? You're sluggish, hangry, maybe even a little foggy. What if it's your glucose? See, glucose is an energy currency for your mind and body. When it's stable, you're on point. When it crashes, so can you. That's why Lingo is so interesting. Lingo is a glucose wearable designed to help you connect the dots between your glucose and what you eat, how you move, and how you feel.

32:49It shows your glucose data in real time. Instead of guessing, you see the impact of your choices. Maybe that healthy snack is actually sending your glucose on a roller coaster. Or that afternoon walk is the perfect stabilizer. It's about unlocking your consistent best all day long by truly understanding your body's unique responses. Get to know your glucose and learn about how to build healthy habits that work for you with Lingo, designed for you by Abbott. Through November 30th, use code GUI10 on HelloLingo.com to get 10 % off a Lingo plan purchase, one use per customer. This offer cannot be combined with other offers, U.S., Puerto Rico, and U.K.

33:31only. The Lingo glucose system is for users 18 years and older, not on insulin. It is not intended for diagnosis of diseases, including diabetes. Individual responses may vary. The holidays are upon us, and businesses are hiring for seasonal roles. Everything from haunted corn maze workers to snowplow drivers. This means that people with certain skills, experience, or even a special license are in high demand and not easy to find. Whether you're hiring for one of these roles or any other role, the best way to find the perfect match for your role is on ZipRecruiter. And right now, you can try it for free at ZipRecruiter.com slash built.

34:11ZipRecruiter's matching technology works fast to find top talent, so you don't waste time or money. You can find out right away how many job seekers in your area are qualified for your role. Let ZipRecruiter find the right people for your roles, seasonal or otherwise. Four out of five employers who post on ZipRecruiter get a quality candidate within the first day. And right now, you can try it for free at ziprecruiter.com slash built. Again, that's ziprecruiter.com slash built. ZipRecruiter, the smartest way to hire. If you want a business, then Squarespace is your one-stop shop for engaging with your customers and building your brand.

34:55With Squarespace, you can easily design a website that stands out from the competition, and that's just scratching the surface. With Squarespace Video Studio, you can create pro-level videos effortlessly, helping you tell your brand story, reach new customers, and drive sales. Squarespace also allows you to easily display posts from your business's social profiles on your website with just a few clicks. You can automatically push website content to your social media channels so your followers can share it too. And Squarespace offers tons of analytics, so you know what's driving web traffic and sales and can adjust your marketing strategy accordingly.

35:34Check out squarespace.com for a free trial. And when you're ready to launch, use offer code BUILT to save 10 % off your first purchase of a website or domain.

35:52Hey, welcome back to How I Built This. I'm Guy Raz. So it's around 2007, and Tony Lamb is leaning into a new business idea based on two recent experiences. The first, a not-so-fun time buying ice cream for his kids off a truck. And the second, watching someone make a very tidy profit from shaved ice. And then a third thing happens. The guy that Tony's been working with on the furniture stores, Ed Reynolds, he happens to buy a Mr. Softy truck. I actually thought he bought it just to sit at his house so he could eat it. But, you know, he ended up putting a guy in it, driving it around or whatever.

36:31And one time he said, you know, hey, the ice cream truck's not making money. What's your thoughts on it making money? Because I'd turned his furniture business around a little bit. So you look at the ice cream truck and you're like, well, it's complicated. It's expensive. It's the product is too much. You've got to have a mechanic and a salesman. It's got to get down to a one person operation. Your food costs are too high. You've got way too much waste. You fill the entire ice cream machines up if you can't sell it all. You know, what about shaved? You know, and we just back and forth, back and forth.

37:00And this became a very big conversation between us. I'm working for him. My contracts are kind of coming to an end. We were sitting at Stringtown Restaurant in Florence and he goes, hey, we've talked about this till we're blue in the face. What do you think? And I said, I think I want to go do it. You would pursue this. you would see if you could turn ice cream trucks into shaved ice trucks, basically. And he goes, you want to partner up? And I'm like, nah, I don't want to partner. And he goes, I'll back it. And I was like, you know, I do want to partner. I don't want to spend the last of my family's savings.

37:37But yeah, your money. And by the way, I guess I should mention, the reason Ed could back you is that in addition to the furniture stores, I guess his primary business was that he owned a finance company, right? I think he gave you like half a million dollar line of credit to get things going. So you were going to pursue this. And as somebody who grew up with a Snoopy snow cone machine, what was the difference between what you were going to do and like what were called snow cones that you would get at like county fairs? It's all texture of ice. The snow cone, I mean, the way I picture it, my upbringing was you get it from a truck or you get it and then you either have to let it melt or you just take the chance of just ruining the roof of your mouth and possibly busting some teeth off.

38:23Because it was like a ball shaped ice and you had to put some syrup thrown on it. Right. And you go at it like crazy, then bite in, end up biting the bottom of the cone off and letting all the syrup drain out into your mouth. Taking me back to Little League. Yeah. Yeah. Okay. So that's different. First of all, for people who've had shaved ice, either in Hawaii or wherever, like these are specialized machines. It's like it's almost like a vice, right, that you put a huge like round ice block in and then it twirls around like to get that really nice shave. But yeah. But I have to imagine you had to spend some time like learning about that whole thing.

39:01And like, what is it? Where do you get these machines? How do you make it? 100 percent the if i would have had to rely on i think it's a swan that that does the big uh block of vice that is like you're saying a vice that forces it into an open razor blade that spins on a axis and and shaves it off it produces a very fluffy product i don't think i would have pursued all the way through because the the speed of service is slow the danger that the um skill that you have to have. You can't just let an 18-year-old go in there with a spinning razor blade. I mean, you're going to have to train this person to be able to do that.

39:39And I didn't want that. I don't want to have something so proprietary that we just can't duplicate it on a large scale. So I found an ice shaving machine. It produced very acceptable, not snow cone, very acceptable shaved ice on a very quick time frame. You know, in a couple seconds, you have a cup full of pretty fluffy snow. Yeah. So we're now talking about, you know, we're going back to 2006, where you really are jumping into this and you are starting to really figure out how to make this work. Because it wasn't going to launch until 2007. But at that time, and even to some extent today, unless you go to Hawaii, there are probably huge parts of the United States where people aren't that familiar with shaved ice.

40:27Correct. You know, it's not, it's certainly in 2006. So what made you think that that was going to be a winner? The fact that I've never seen a kid turn down a sugary treat. I get a little grief for that too, because I used to make the statement, hey, it's not hard sales. We're selling sugar to kids. And, you know, now that's the worst thing you can possibly say. You're an animal. of like everything in moderation, lighten up, you know. But you really thought that it was just a matter of time. And I guess because the margins were better than selling popsicles or ice cream. Yeah, because you could handle the, you're basically, you've got your own manufacturing in your truck.

41:11Yeah, yeah. So, all right, so you start, let's talk about kind of like break down how you started to think about this. First of all, you want to remake the experience. So starting with the truck, how did you start to think about that? Well, a lot of the ice cream trucks I saw, you know, people are hunched over, running back and forth in the van, opening up freezers, passing out stuff. So you want to be a comfortable experience for the operator. And I started getting the visualization of what I wanted pretty early on. You look at an ice cream truck and it rolls through your neighborhood. and you're like, oh my gosh, it just, it looks terrible and it looks disgusting, but your kids are screaming and you're trying to, you know, you lie to your kids and you say, well, when it plays music, you know, that means it's out of ice cream.

41:57And, you know, so you lie to your kids about stuff like that. Let's get the presentation down to where you can't say no. You know, a truck drives through, it looks like Disney World and your kids are losing their mind. You can't say no to that. I mean, what can you say no to on that? Yeah. All right. So you have this line of equity to start, you know, half a million dollars, you got to start with a truck. So, you know, you bought these off the shelf billboard trucks. Were you just going to buy like an off the shelf, like used ice cream truck and repurpose it? No, I was I was going to go strict custom from the ground up.

42:33I got it. So so you and where did where at that time could you source those from? Well, I was sourcing my billboard trucks out of I was having them built up around Elkhart, Indiana. Elkhart, Indiana is this mecca in the United States for the RV industry. They build all RVs up there. That's right. That's right. Yes. And so there's all kinds of fabricators up there. I went up there. I spent a couple of days. I went around and visited several fabricators and introduced myself, told them my idea. I was probably the fifth person that day that walked in and had a screwy idea. So I found a guy that I was really going to go with.

43:06He was very professional. It was a big operation. But then one guy was a very small operation, but I really liked him. And so actually, I called him to say, hey, I'm not going to go with you. I'm always respectful when I get bids. Hey, I don't think I'm going to go with you. And he said, why not? I said, well, you know, I told him why. And he said, Tony, neither one of us are going to make a lot of money if we only build a couple of these things. He said, but if we get in there and figure it out, because you're going to need somebody to go through the ups and downs in the beginning. But if we can figure this out, because this is what – I don't want to just build you a truck.

43:42I want to get in business with you. And I just loved that attitude. And his name is Tony Marchetti and doesn't have to sell me too hard. His name is Tony. My name is Tony. Is this God talking to me? And did you have a design scheme for what you wanted to look like at that point or not yet? I did. I had a really close friend, Tony Gard. Another Tony. Another Tony. Wow. And he's an industrial designer. And then Tony was so talented, he was also able to kind of help me, you know, map out the look of the outside of the truck. I want a tropical truck. I just don't want tropical colors. I want a scene on the truck.

44:22I want the escapism. When someone comes up to that truck for 10 minutes, I want them to be on a tropical island. So you wanted it like painted like – because I mean I'm describing the truck today, but you wanted it like to look like the ocean and sort of the sand on the ocean and almost like a painting on the side. It's got like a bamboo hut basically selling shave ice. Yeah, some palm trees, some little characters in the sun, in the sand for the kids to like. And then tropical music playing, calypso music playing. And just these ideas just kept coming. And you're just – but it all, again, comes back to you want this experience.

45:01All right. So you're working on this on the truck with Tony in Elkhart, Indiana. And I guess you also wanted it to have like a self-service part. Like when you go to a fast food place, you can fill up your soda yourself, right, which my kids unfortunately love too much. Right. As much as I prevent them from drinking all that soda. But you wanted a way for, I guess, for kids to what? To flavor it themselves. Well, if you start talking to kids about snow cones or even shaved ice in some way, either you go to a hut or you buy a pre-made product and the complaints are there's never enough juice on it.

45:38Or it's not exactly the flavor combination that I wanted, blah, blah, blah, these different things. And so the idea was, hey, can you get the economics right to where you can turn it over to the customer to put as much syrup on as they want? But here's the moment that I had it. So I'm talking to Ed, and he's got two sons that are hilarious. And I think they were nine years old at the time. And I said, hey, boys, let me ask you a question. I said, a truck comes down the street. It's a shaved ice truck, snow cone truck or whatever. And it pulls up, and they hand you a cup of fresh, unflavored snow.

46:10And you get to go to the side and put as much flavoring on as you want. What's your reaction to that? And they both, I mean, you're giving me the keys to the magical syrup? Yes, give me more of that. That was a moment that I thought, this has to happen. So you work on the economics. You figure out the flavoring and how you can dispense it in a way that it's not crippling financially where kids are putting – sticking their mouths under the spout and pulling them on. So you've got to design the flavor wave to where a kid's head, an 8-year-old's head won't fit in there. This is the dispensers are called Flavor Wave and it's like 10 or whatever.

46:51I don't know how many flavors. But basically it's – the idea was you could take your own – you get the shave ice in a cup and then you could just put the flavors on, whatever you want to put on. Which is, as you say, I mean presumably before you had the prototype, you had to ask yourself, is this a good idea? Is this going to get out of hand? Is this going to break? I mean, would it be better to just have like bottles, like ketchup bottles of syrup? I don't know. Oh, yeah. And the variations are legendary. The very first flavor wave would fold out from the truck. Okay. So you picture this thing folding out from the truck and it's made out of aluminum.

47:32So in essence, Guy, there was a two-foot aluminum-edged sickle, as I like to say, driving through neighborhoods. What could possibly go wrong with that? Then with the next generation, we had a handle where you could close it from the inside, but no one closed it. So then it would drain into the – and all the flavors, the excess flavors would drain. And, you know, variation, variation, variation until let's work on embedding this into the truck. I hate to say stuff like that because then people realize how maybe unintelligent I am. All right. So the other thing I'm wondering about is you had some savings, right?

48:17But you weren't financially secure for life. Like you needed – you still needed to work. And this was a risk. I mean, you had some of your money in this and obviously you had an investor who believed in this idea. Did you have any doubts at all going into this that maybe this might not work or were you 100 percent confident? You know, I guess you would say progressively I'm 100 percent confident. You know, as the more meat you put on the bone, the more you realize this has got some legs. So the truck shows up. You start working the truck. the customer reaction was so good. You're like, okay, there's something magical here.

48:57We've got to figure everything else out. But at the core, it's working. I've got a winner here. Now just don't screw it up. So this is June of 2007 and the first trucks are ready. First truck, period. First truck. And you were going to be the first driver of this truck. I was the only guy – I say employed, but I wasn't being paid. So I was the only guy in the game. So this is what you have to do as an entrepreneur. I mean if you see the movie The Founder, like Ray Kroc, who was in his 50s trying to sell ice cream machines and getting the door slammed in his face. You had run a really successful business selling vacuum cleaners.

49:38You had 300 people working under it. You had a really very successful business. Here you are, almost 40, making shaved ice and selling – like I don't – was any part of you like I used to oversee 300 people and now I'm like an ice cream man. I'm not saying – and I hope this doesn't sound condescending. I'm just trying to get into your head like – Oh, no. Listen, my buddies – kids loved me, but my buddies were harassing me. They were heckling you. Oh, my gosh. I pulled into one of these cul-de-sacs. And as soon as I turned down and I thought, oh, for the love of God, Jim lives at the end of this cul-de-sac.

50:16I go down to the end of the street and he comes out. I'm like, ah, gee, many Christmas. And he's like, Lamb, what are you doing? And I'm like, you know, he comes out and he's just in an Armani suit. And he's like, Lamb, you used to drive a nice car and wear a nice suit. What's happened, brother? Is the economy just? And I'm like, Jim, this is a pretty – I mean I'm wearing a Hawaiian shirt. This is not the worst thing in the world. You were in a tiki van with a painting of the ocean on it in a Hawaiian shirt, which is awesome. And you're living the life. But you've got to explain it a lot. You've got to tell them how good it is.

50:56They don't see how good it is. But this is a good story actually because why Jim and I are sitting there talking and probably 15, 20 kids come up. They're all buying Konas. I'm serving them out and, you know, collecting. I probably made 50, 60 bucks or whatever, just sitting there for, I don't know, 10 minutes. And he goes, well, you didn't do bad here. And I'm like, you know, we're laughing or whatever. And I drive away. And of course it was a little bruising on the ego at that moment, but I thought tech on it, you know, I'll just, you know, without, you know, I'm sitting there with one truck thinking, can I scale this?

51:26But you know, the responsibilities I've got for kids and a wife and, you know, everyone knows that guy or you've read about that guy that just he can't get out of his own way and he just entrepreneurs till he dies and he never hits anything big. And you had that in your mind. You thought, am I going to be that guy? Yeah. I mean, there's times that, but, you know, I don't know. I was having a great time. My kids thought I was the greatest because I'm driving an ice cream truck. And so when you started to drive around your neighborhood, you would just drive down streets. And then as you would see kids run out of their homes, you would just pull up on the sidewalk and stop?

52:05Yeah, I took this fellow out by the name of David Jones, and I was training him to be a driver. I think we had three or four trucks at the time. And we pulled into this cul-de-sac, and I said, David, here's the trick. We got to get those two kids right there off that porch. Drove around. I said, go real slow. I said, ah, we're not getting them. I said, let's stop and go out and clean the flavor wave. So we stopped the truck. And this is early on because not everyone knew the Kona truck. So I went out and so these kids come wandering down off their front porch and they're like, hey, what do you got there?

52:33I said, oh, this is shaved ice truck and they come in. And then people start because I'm stopped. Music is playing. Lights are flashing. Here comes some people. And I've got a picture of this somewhere in my phone because I remember getting back up on the hill and taking a little picture. It was about 60 people gathered around the truck with lawn chairs. I mean, it looked like something out of Norman Rockwell. They're skipping ropes. They're drawing hopscotch on the ground with chalk. And David remembers this. And he said, you remember the time we got stopped in that cul-de-sac and it turned into a block party?

53:07And I was like, yeah. I wonder when you – I mean, what did you have to make? What did that truck have to sell per day for it to be worthwhile? What was your goal? In northern Kentucky, we have a 210-day season. I remember these numbers and I was like, well, for inclement weather and blah, blah, blah, you got about 180 days to sell. If you can make a thousand dollars a day, you make one hundred and eighty thousand dollars. You've got food costs and labor costs and operational costs that you can make. You can net well over one hundred thousand dollars, even debt service meant to pay the truck off over a five year period of time.

53:42So I remember calling Ed and I said, hey, I've done the math and I think I can get the truck up to about one hundred and fifty thousand dollars a year. And he's like, no way. And I'm like, yeah, I think I can. He said, well, that's you. How many, by the way, how many hours a day would you have to work to hit a thousand bucks a day? You really start making your money after schools. In the summer, you make money all day long, all the way till nighttime. As soon as school starts up, you really start making your money about three or three thirty. Right. We were primarily neighborhood sales. That's what the business model was.

54:15And I was trying to get neighborhoods up to a thousand dollars a night. I got a couple neighborhoods up to$1 ,000 a night through some techniques that we were doing. Techniques meaning what? Well, it's all about consistency and it's about knowing. So I would go to Crystal Lake subdivision. I would sign it all up in the morning. So cone and ice is coming tonight. You put signs up in the neighborhood, okay. Oh, yeah. Yard signs. Just like the same playbook from the furniture shop. I don't have many aces up my sleeve, brother. I keep going back to the well. No, it's a good playbook. Yeah. Okay, keep going.

54:49So now as kids are leaving and parents are leaving, they see the big signs. Kona's coming tonight. You make a little deal with the houses at the edge of the neighborhood. Hey, if you keep this sign up, I'll give your kids free Kona when I stop by. So the signs go up. You do the same path. So you're basically at the same house or the same street almost every once a week. So I got this subdivision in northern Kentucky to an easy$1 ,000 a night. This is 2007. 2008 hits. You remember what happened in 2008. Massive financial crisis. Yeah, my neighborhood sales start dropping precipitously. During the financial crisis, you saw sales drop, even though some people still spend money on small pleasures like ice cream.

55:34They do. And so it doesn't take much to drop your sales in a neighborhood. I mean you saw a lot of people not in homes. You know, you think about, you know, there's more for sale signs, especially at that socioeconomic level of starter homes with a lot of kids. And, you know, someone says, do you do good in country clubs? I'm like, no, because the houses are too big, too far away from the road and the kids are in the basement. But, yeah, you get a little starter homes or something where, you know, they're full of kids and the parents want them outside. You know, get outside. You're driving us all crazy.

56:08So that's where you do the best at. But those kids, there's not crazy amounts of disposable money floating around out there. So, yeah, we saw it tick down. But we have these amazing margins in Kona. So we are responsible with the amazing margins. Because the margins, I mean, your costs were frozen water and syrup and obviously the cups and gas. But in general, like your overhead was quite low. Oh, yeah, just crazy low. And so how long did it take you before you hit profitability? I paid the equity line off this in 2008. So I had ran it all the way up to about 400. How did you pay off a half a million dollar equity line in less than a year?

56:53Well, we spent a lot of it buying the trucks and then we were able to sell the trucks. Of course, we were. Oh, you sold it to other people. Correct. Right. So, all right, let me go to this. Let's talk about selling the trucks, right? Because was that the idea that you would basically franchise this out to other people from the beginning? I didn't know whether to franchise or license or just sell the truck as a commodity and let people just do what they want. Yeah. Franchising is wonderful because it helps maintain the integrity of the brand. It helps make sure that you can control the brand. You can control the brand.

57:30Rather than just licensing it or just selling the trucks. Yeah. So we decided to go down that road. It was expensive. We spent some more money. But – You and Ed decided to do this. And just to be clear, it's expensive because of what? Legal fees and registration fees? Yeah. That's exactly what it is. It's – writing the FDD is, let's say,$50 ,000 and then all the registrations and all the states, the attorneys that are involved. And it's no easy task. Yeah. So you decide to start small, presumably in Kentucky, to sell some of these trucks. And how are you going to structure that? Um, ridiculously.

58:10The model out there was, you know, Mr. Softy would sell a truck for whatever, let's say, back in the day, they would sell a truck for$150 ,000, make a lot of money on their trucks. But then the royalty was$3 ,000 a year. And you had to buy all the cones in the cups and stuff from them. And they were marked up pretty substantially. So that was kind of the model to go after whatever. It's an all-cash business. So what I really don't want to get involved in is – Percentages of sales. I thought let's just keep this all in the up and up. Let's charge a very minimal royalty. And we'll sell the trucks as close to cost as we can.

58:50So we just get the trucks out there. Let's just build the brand. And then just like Amazon, at some point we'll look around and say, hey, do we have something that we can parlay on, so to speak? Yeah. So you start out with a couple of franchisees driving their own trucks. This is in 2008. But it's also the financial crisis. So people still had to pay, I think,$15 ,000 for the franchise, which is nothing compared to other franchise opportunities. and then royalty fees, but they had to buy a truck, and the truck was going to cost them$100 ,000-plus. Given that we were in the middle of a financial crisis, was it harder to attract franchisees?

59:31Well, let me quote Forrest Gump. When the hurricane hit by LaBattie and he said all the shrimping boats were all busted up, he said after that, shrimping was easy. Ed Reynolds owned a financial institution, a finance company. And he was my partner. And so I had financing. Wow. So after that, shrimping was easy. So I could find somebody that I would approve and I liked to be in business with. And I'd say$15 ,000 down, Eagle Finance will finance the product for you. And again, I'm back and everything. So if the deal were to go bad, I get the truck back and then I'd have to resell it. Yeah. But that was probably if there's if there's anything that just set us apart in the early days is the fact that we had financing and nobody else did.

1:00:26When we come back in just a moment, how Tony grows Kona Ice from a few trucks into 1500 and then lands on another idea, which he thinks could be even bigger. Stay with us. I'm Guy Raz and you're listening to How I Built This.

1:00:50Raise the bar of your entertainment with Sonos Beam, the compact smart soundbar for TV, music, and more. Enjoy panoramic sound for shows, movies, and games when the TV is on. And stream music, podcasts, and more when it's off. Precision engineered and fine-tuned by Oscar and Grammy-winning producers, Beam delivers crystal clear dialogue and powerful bass. In fact, I have one in my house, and it is absolutely amazing. It's like a cliche, but it sounds like you're there with the performers in the room when you listen through it. Setup is practically plug and play. The Sonos app walks you through getting started step by step, including syncing your TV remote, connecting your music services, and adding a voice assistant.

1:01:34I did it myself. It took like, I don't know, five minutes? There's speech enhancement mode, which is perfect for when you're watching a movie and the characters are whispering or the action intensifies. Or there's night sound, which can tone down loud effects when others at home are trying to work or sleep. Visit Sonos.com to learn more and find gifts for every listener on your list. It seems like every day we hear about how AI is coming for our jobs and people are getting anxious and fearful. But a recent survey from Miro reveals that 76 % of us believe that AI can actually benefit their role, while 54 % struggle to know when to use it.

1:02:15Well, enter Miro's innovation workspace. It's an intelligent platform that brings people and AI together in a shared space to get great work done. Miro has been empowering teams to transform bold ideas into the next big thing for over a decade. We've recently started a new project using Miro, and it's a really awesome creative partner. It helps us develop better processes for organizing. It even generates new ideas. You don't have to be an AI master or toggle to yet another tool. The work you're already doing on Miro's canvas is the prompt. Help your teams get great done with Miro. Check out Miro.com to find out how.

1:02:57That's M-I-R-O dot com.

1:03:07Hey, welcome back to How I Built This. I'm Guy Raz. So it's around 2009, and with financial backing from his partner Ed, Tony is able to move past the financial crisis and to start growing the business by franchising. So we started getting contacted. I did a little bit of marketing, put it out there on the franchise portals, as they call them, franchise.com. that, hey, this is available. These franchises are available. Right. And the leads would come in and people would call and we'd talk through it. And I've got so many funny stories from franchisees that are doing unbelievably now, but they were some of the early adopters.

1:03:45And I'll tell you this one real quick. Mark from down in Georgia called me. He was out of work 2008 or 2009. He got laid off and he decided he was going to get into Kona and he sent us the$20 ,000 and then planned to come up to pick up his truck. And he tells the story and I didn't necessarily know the story word for word, but he tells the story. He goes, I sent our last$20 ,000 and my wife, who's a school teacher, is just pounding me that you have been taken by a man on the internet, a slick-talking vacuum cleaner salesman on the internet. And so he drives six hours from Atlanta to come up to northern Kentucky, pulls into my warehouse, which was nothing to look at.

1:04:33It was a little tiny house with a couple garage doors on it, and I had some trucks parked out front. And he said, and I pull into the prestigious world headquarters of Kona Isom. My wife looks over at me and says, I told you you got scammed. So, so he comes in, he gets, and he's nice as he can be. And we are who we say we are. And then Mark and his wife get in that truck and drive back to Georgia. And, and we talked almost every day. And he was, you know, I did$300 a day. I did$350. And then he does, he did some festival or some event and he made a thousand dollars. So, you know, if you add those numbers up, He's doing$300 a day.

1:05:15He's working seven days a week. He makes$9 ,000 a month. He's got expenses of about$3 ,000 probably back then. It's profitable. So he took off. And Mark's still in the business today. He owns multiple franchises and his entire family is in the business. But that origin story of a person coming up saying, I got scammed is my favorite. And what was your criteria for accepting a franchise? I mean, I have to assume initially in the first couple of years, it was like, you know, you needed the business. So maybe the criteria was a little different or not. Like, who are you looking for? I was very discriminating in the early days.

1:05:54I would stick a mirror under their nose. And if it fogged up and their check cleared, they had themselves a brand new cone ice truck. No, I was looking for – and I'm real proud of this. I have talked to every single person that owns a Kona franchise. They cannot get into the Kona franchise business to this day, unless we have a conversation. I'm looking for someone that has that, you know, I, nothing turns me off more than, than the ROI question. I was on a call, I think this year and someone was, I'm looking at his application. The guy's got tons of money and, and I'm like, what do you, what are you wanting to get into Kona for?

1:06:37He said, well, I, you know, Sold a rental house. I was going to put it in the market. I think the market's on the way down. I'm looking for a good rate of return. I thought I would invest in this. I got some friends that I can get to run it. I couldn't be out faster. There's no interest whatsoever for me to be in business with that guy. When a husband and wife calls me or whoever, they call and they say, we love our community. We've lived here for 10 years. Our kids have grown up here. We want to give back or our kids are involved. Something along those kind of lines. I'm looking for someone that I want to be in business with.

1:07:12And you've got to understand a lot of my franchisees are first-time business owners. So let's get QuickBooks set up. Here's your chart of accounts. Let's get you an accountant. Let's form your entity. You know, these kind of things that we kind of handhold all the way through. Tony, I want to talk to you about money for a moment because obviously this is a business show. And, you know, business is about creating something sustainable. And, you know, money doesn't necessarily have to be the end goal, but it certainly is important. There's nothing wrong with making it. Nothing. And your business model is interesting, to say the least, right?

1:07:45Because you have the franchise fee is very low, the initial fee, the cost to buy the truck. It's a turnkey truck. You sell that. And then it's about, I think,$3 ,000 a year per franchisee, right? Correct. So I guess per truck. So for every truck, they pay you$3 ,000 a year. And so I have to imagine that a very small portion of your revenue actually comes from franchise fees. Most of your money is coming from selling the trucks or selling the supplies to the franchisees. Yeah, not even much in supplies. I mean, at scale it is. I mean, you sell 50 trucks. Everyone's paying you$3 ,000. It's$150 ,000.

1:08:27I got five people working in the office. Payroll's about$450 ,000. Right. You know, you're like, you know, they say franchise systems have to get to 100 franchises before they can float. Yeah. And I'm at 100 and I'm not even close to floating. No. But, you know, the reality is this. We make enough money on, you know, we've gotten at scale and manufacturing scale to where we can make more money when we do sell the product. This year we sold 276 trucks basically. So that's the lion's share of the revenues that come into the – but we're at the point now you're making. I don't know, five, six, seven million in royalty.

1:09:04But it also, it makes us a good steward of the resources. And it makes us very lean. But you add up the flavoring, you add up the truck sales, you add up the royalty, you add up the cups, you add up to this. And yeah, we've got enough revenue as long as you keep your expenses low. And you don't even require the franchisees to report revenue at all. So you don't know how much each one is making necessarily. We can do the math if we want to. You do the cup sales and the flavor sales and you work it backwards and then you realize how stupid you are because you're charging not enough royalty. Yeah, I mean I read that like just – I'm just jumping ahead for a sec.

1:09:43Like in 2023, the system-wide sales will be like$370-plus million. Correct. That's not your revenue. That's what these entrepreneurs, these small business owners who are franchisees, this is what they're selling in shaved ice. Right. And you're only getting a portion of that, a small portion of that. Yeah, one or two percent. And so really, I mean, the business model is, in your view, like it works because they're incentivized to work hard. They're loyal to the brand. And you guys are doing well enough. Yeah, we're doing well enough. But let me turn the tables on it. I was talking to an executive at a big franchise system, and they've got probably 20 franchisees that pretty much run the company.

1:10:30Whatever those people say goes because they're the ones generating a lion's share of the profits for the company. And I don't have anybody doing that. So if a franchisee gets out of line, and I say out of line, just against the code, I don't need them. It's not like someone's going to threaten, hey, I'm going to get out of the business. And I'm like, all right, go ahead. So there is that double side to that where I don't get too needy to a franchisee that's pumping in hundreds of thousands of dollars of revenue to the company. Tony, in terms of like getting the word out, right, like you talked about early on, you know, you had the lawn sign approach, which is so smart.

1:11:10You know, hey, Kona truck is coming this week. I remember first seeing a Kona truck up here in Sonoma County in California just driving around. I thought, oh, that's cool. That looks interesting. Right. So I imagine that you don't really need to spend that much money on advertising because the trucks are like your previous business. They're like moving billboards. It all comes together, doesn't it? Yeah. I've got 1 ,800 billboard trucks driving around. Yeah. And I always make this comment when a truck pulls up for the first time in a line of kids form on the side of that truck, every kid in his mind says, man, I want some of that.

1:11:49And every adult that sees the truck and the line of kids says, man, why didn't I think of that? Because they do them. And I mean, the testimonies from franchisees are like, I saw a line of kids. I did the math and here I am. And a huge part of the business is school events, right? Right. Essentially, you go, you pull up at a school or some kind of fundraiser and the franchisee is going to make a lot of money, but they can also donate a portion of the money and still walk away having made money. Yeah. And that's changed the industry tremendously as far as, listen, you're making a great margin. Let's figure out how to revenue share, give back and be communal about it.

1:12:27You guys had more than a thousand trucks and moved into a new office space in Florence, Kentucky in 2019. Things are looking great. Then COVID hits 2020. I mean, you are an events based business. Like that's most of your business is doing the school events or charities or fundraisers or parties, whatever office parties. That's over all of a sudden. It was over in like three or four days. Listen, I don't want to – there were people losing their lives, but the businesses were – I mean, it was traumatic, I think. But we pivoted. What did you do? I had a staff meeting. I'll never forget that. I had a staff meeting and brought everybody in and said, hey, everybody's okay.

1:13:20We got reserves. You're not going to lose your job. You're not going to lose a paycheck. Stop worrying. Our job here is to service and save the franchisees. So let's get to work. And we had a very multi-pronged approach. I had some great people that just went after all the stimulus things that they could possibly get, the PPPs. Our franchisees were just not skilled at being able to go through. And we had a hotline and we had multiple people just – we went after all the financial institutions that have loaned money. to Kona franchises. They were all still looking to collect their payments. And so we went after first stallments and deferments.

1:14:04But probably the biggest thing that we did was we were able to develop a program called Curbicide Kona. And it was an ordering platform for mobile. And it was very archaic, but it worked for us. So you could go online, order it, and then the truck would pull up and hand it to you. Yeah. And, you know, we developed our flavor wave to it operated with at the end of a spoon, not your finger. And we just went at it hard. And the franchisees just came and bored and ideas were flowing. I had guys working here, I think sometimes 20 hours a day, talking franchisees through this fairly complicated software to teach everybody how to do it.

1:14:47When you came out of that, and now you are fully out of that and growing, one of the things that you started to do really in the last two years, really in earnest, and maybe even more recently, is a coffee business. Can you tell me a little bit about that business? It's called Traveling Tom's. Is this a totally separate business or is it part of Konaise? Totally separate. Same concept though, basically a mobile truck that does coffee and coffee drinks. Yeah, mobile coffee cafe. So tell me what's going on. What's the status of it right now? It is flourishing. This started on March 18th, 2020. I looked at my team.

1:15:28From that staff meeting, I told you where I said everybody's okay. Well, you start having to reallocate people around. But you started the business in March of 2020 or the idea came to you in March of 2020? No, the idea has been with me for years. I have behind my desk was just, I don't know, 20 renderings, artist renderings of different coffee trucks, cafe trucks and things like that. Wow. So October of 2020, we wrote a prototype of a very elaborate coffee truck that hit the streets and just a couple of them. And they started doing really well. We put them in a couple other franchisees hands.

1:16:03The following year in 2021, I think we sold 20. We sold 30 more in 2022. And then this year, we've already got 90 sold. We're only selling to Kona franchisees right now. Right now. So you have to be a Kona franchisee to buy at Tom's Traveling. Yeah. When you look at the unit economics, do you see the coffee business eclipsing the shave ice business eventually? Yeah. I don't think I would have said that a year ago, maybe not even six months ago. But some of the results that our coffee people are having are pretty spectacular. It's amazing because there seems to be such a mass proliferation of good coffee.

1:16:42Like you can go to remote parts of the United States and find great coffee in Alaska or, you know, right. Well, that's what makes everything so hard about that except for the fact that we're mobile and we'll go places where no one else will go. And I don't have the same economics. That truck doesn't have to do$1.6 million to service the debt and the 18 people that are working behind the counter. It's just a different mousetrap. And right now you're only in a few states. No, we're in probably I think 13 states right now. Right. And Tom is your dad, I should mention. Tom is my dad. And he's the mascot too.

1:17:20It's his head, right? That's him? He is. He is. With the orange sunglasses? Yeah. Or orange glasses? And it's been great. Tony, when you think about like this journey that you took, I mean, from being a very good salesman to kind of leaving that behind and kind of just trying to figure it out and then going into shaved ice and now here you are in coffee. And in all of the things that have happened, the growth of your business, I mean, you've got 1 ,500 trucks just in Kona Ice,$375 million in system-wide sales in 2023. That's a really great business that you started from an idea. Yeah, thank you.

1:18:06How much of where you are today do you think has to do with just the hustle, the grind, and your talent as a salesperson? How much do you think has to do with luck? I listen, there's a lot of smart people, a lot of people that work hard, you know, so luck plays a huge role in it. You know, I don't know. I think I'm a good student of life. I pay attention. I see where the problems are. What's the solution to fix the problem? I wish this for my kids. I admire this and other people is who's a good student of the game or a good student of life. yeah I'm glad I was there I'm glad my sleeves were rolled up I'm glad I'm glad I was working my butt off but you know I've been so lucky to get around great people and then have a family that you know that has been involved and stuck with me and you know I've been married 31 years and you know you're a serial entrepreneur a 31 year marriage is probably my greatest accomplishment because the ups and downs of that is remarkable.

1:19:10That's Tony Lamb, founder of Kona Ice. By the way, kind of like the vacuum cleaner business back in the day, Kona Ice is very much a family affair. Tony's two older brothers work in the business, as well as Tony's wife Susie and three of his children. And Tony's dad, Tom, he's not only the mascot for the new coffee truck business, He's also been working with Tony since the early days of Kona Ice. He gave himself a special title, the founder of The Founder. Hey, thanks so much for listening to the show this week. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show.

1:19:51And as always, it's free. This episode was produced by Casey Herman with music composed by Ramtin Arablui. It was edited by Neva Grant with research help from Catherine Seifer. Our audio engineers were Ko Takasugi Chernobin and Robert Rodriguez. Our production staff also includes J.C. Howard, Kerry Thompson, Alex Chung, John Isabella, Chris Mussini, Sam Paulson, Carla Estevez, and Malia Agudelo. I'm Guy Raz, and you've been listening to How I Built This.

1:20:28if you like how i built this you can listen early and ad free right now by joining wondery plus in the wondery app or on apple podcasts prime members can listen ad free on amazon music before you go tell us about yourself by filling out a short survey at wondery.com slash survey Thank you.