Resy and Eater: Ben Leventhal

28:50And we were both at a point in our careers in late 2013 where we had the headspace to think about doing something together. And we were sitting down at a restaurant on the Upper East Side and the chef comes over and he says, you know, it's, this is, I'm, I've got some amount of notoriety in the restaurant industry because it's, um, this is post eater of course. And, um, and the chef comes over and is happy to say hello and is excited to meet Gary. And we've had a great meal and, uh, we chatted for a bit and he was just talking about how hard the restaurant was, how it really wasn't working very well and wasn't very profitable.

29:33And that was a real provocation for me to say, you know, there's something that's off here. These restaurants shouldn't be so hard. They're making people so happy. But if none of these restaurants are working, what's that about? Why is that the case? And that's how we sort of started to dig into it. And I think, I guess, at the time, Gary had mentioned that he was starting a fund, like he had raised some money to make investments. That's right. And so Gary had some money to play around with and was looking for ideas. And so that's how these sort of two things came together. It's interesting, in 2013, you're hearing chefs talk about how hard the industry is.

30:20I can't imagine a good, even a very successful restaurant doing more than 10 percent in profit. Now, if you're running a 10 % as an independent restaurant, you're crushing it. Yeah. I don't think people understand quite how hard restaurants are. And that's always been something that, to me, is part of the fascination and part of the reason to fight for them and to partner with them is these businesses are 10 out of 10 difficulty. If you think about the moving parts at the average independent restaurant and how complicated the production and assembly and delivery of food is to the table, and you compare that to any other small business, it's orders of magnitude more difficult.

31:05I mean, you don't walk into a store and say, I need a pair of socks and sneakers, and somebody down in the basement makes you the shoes and socks. Yeah. But that's what happens when you walk into a restaurant. you say that you're hungry and they go down and they put a bunch of stuff together and they make you dinner and you know you also can't go from storefront to storefront browsing for things that you like you know you go in you sit down for two or three hours you have a meal that's you get one shot at it yeah and i think as we started talking about resi it was it started to come into focus this is just this is impossible what these guys are doing and let's understand why and see where the opportunities are.

31:46Yeah. I mean, restaurants, I think it's like a third, a third, a third, right? A third for rent, a third for food, and then a third for your employees. And hopefully you can squeeze those down a little bit. So then whatever's left as the owner, you can pay yourself. But the reality is it winds up being more like, well, you know, it's like you want it to be 30%, 30%, 30%, and then 10 % profit. Yeah. But it's sort of the reality is it winds up being more like 33, 33, 33. Yeah. I mean, every day I read articles about really great restaurants in San Francisco that closed down because the owners cannot – it's not sustainable.

32:24They're literally not making a salary and they're busting their butts. That's right. All right. So you start to think, well, what's the opportunity here? How can I maybe build something that will benefit restaurants and then that we can turn into a business? So what was the kind of the choke point, you know, the bottleneck that you discovered that could be exploited? Well, we thought that the choke point was that there was no variable pricing in restaurants. And we were just talking generally, why is the price of the seat the same every day, no matter what the demand is? Right. Because a Friday night at 730 is going to be a higher demand than Tuesday night at five.

33:12Yeah. But it's 150 bucks either way. Yeah. And we were saying, how is it possible that restaurants haven't figured this out? The margins are so thin and it's so hard to generate revenue. How is it possible that restaurants haven't figured this out? Right. And so we thought that was our wedge, surge pricing. And what we did was we, the first version of Resi was just paid reservations,$10,$20,$50,$100 for reservation. So when Gary agreed, the two of you agreed to work together, did he have an office? Did you sort of, you know, set up shop in his office and start to just dig into this stuff? He did.

33:57He gave us a little group of 10 desks out in the middle of the floor, and we started banging away. And who was we? We had, at the time, it was me, Gary, and Mike Montero, who would become the CTO of Resi. Gary had known Mike and had talked to him about a couple of different projects. Because Mike's a really talented engineer and was looking for his next chapter. So the idea you started to develop was, hey, why don't we sell seats at restaurants? Like, you know, you paid a premium for a certain time of the day. Exactly. Exactly. And how is that going to work? I mean, just to get it off the ground, you had to get restaurants presumably to agree to give you an allocation of seats, right?

34:45Precisely what we did. We went to restaurants. I went around the city and went to restaurants where I knew the chefs. And presumably you had some credibility from your time at Eater. Yes. I brought to Rezzy the credibility and the Rolodex that I developed at Eater. And I think it's fair to say that as Rezzy grew, you know, I used my product instincts and my content experience and started to round the thing out. But really, I went door to door to restaurants, and I started with the restaurants that I knew and really asked them to take a leap of faith and try this out. And what was your pitch to them?

35:28Like you come into a restaurant, you say, hey, we're going to do this thing. And I would say, well, what's in it for us? Like, I mean, we're just going to give you our seats. I mean, we're already selling these out. The pitch was airlines have first class and business class and premium economy and economy. And when you go to a concert, there's front row and floor seats and second deck and third deck. But for restaurants, you have nothing. You have one price. It's one size fits all. Everyone gets the same seat at the same price. And what if you could charge more for 730 on Friday night? It's only 50 bucks.

36:08If you want it, it's yours. 50 bucks for the right to have the seat, but then obviously you'd have to pay for the meal. Yeah. Okay. And that was the pitch. You can generate revenue. You can make customers happy. And all you have to do is you have to charge for your primetime inventory. So maybe like Tuesday night, you could book it for$10 for the reservation. But on a Friday night, it might be$50 or more if it's a hot restaurant. That's right. And the restaurant will get a cut of that? The restaurant got most of that revenue. Most of it? Most of it. Oh, wow. Okay. My recollection is that we took 20 % as a vig and the restaurant kept the rest.

36:48And were you getting traction? Were you getting restaurants saying, I'm in, I'm up for trying this out? It was really hard. We got restaurants to say yes. I remember the restaurants that said yes to us first because when you're starting a business, the first five yeses are the ones that matter the most and are the ones that require a tremendous amount of leap of faith. but there were lots of no's too. So it would be a mobile app. Yes. And people could basically buy this. I mean, it's a great idea. And I know there are people listening and I know that you guys got knocked for it because people are like, oh, they're like ticket scalpers.

37:26But at the end of the day, like that is for better or worse, how capitalism works, right? Is that there's an opportunity. And if you can, if you make money off of it, that's reasonable and legal and ethical, then it's going to happen, right? I mean, I just went and saw Taylor Swift. Most of those people in that arena probably bought from the secondary markets for better or worse. Yeah, but there's something about hospitality that forces consumers into a different mental model than they are using for other entertainment categories. And I think it's the intimacy of it. I think it's the legacy and the history of hospitality.

38:11Restaurants in people's minds are first-come, first-served democratic places. When you start pricing them, everyone gets a little uncomfortable. When you say to a customer, you can have this table, but you have to pay$100 more for it than the person sitting next to you, that really, really bothers people. Even though that might be the case at an NBA game or any concert they go to. Yes. For some reason, when it's at a restaurant, people just psychologically, they just cannot accept it. Yeah, I think it's about how bespoke it all is. I think it's about how intimate restaurants really are at the end of the day.

38:58I also think as time's gone on, I mean, this is the number one question that people ask me as the founder of Resi. Why isn't there more variable pricing in restaurants? And I think one answer is because hospitality is not capitalism in a pure sense. The other is that it's actually happening, but it's a little bit behind the scenes. When you have credit cards who get paid allocations of tables and you have VIPs and you have concierges, all those are entities that are benefiting the restaurant economically. and all those are entities that essentially help make sure that higher spending people are going to be in more valuable seats so it's happening it just turns out that something as sort of raw as resi 1.0 is not the right it's just not the right product for it and so a lot of places told us there's no way we're doing this this is crazy because they thought people would hate them People were worried about that, yeah.

39:55But you've got Mineta Tavern. You've got Balthazar. I mean, you've got some very hot restaurants, still a hot restaurant, still a hot table to this day. One thing we did to make it more palatable is we said, well, look, even if you don't want to take the money, on the consumer side, this is beneficial. So charge for the table and we'll take your cut of it and we'll donate it to a charity of your choice. I see. So you could advertise that. That's right. It sort of was a way – it was a landing zone for restaurants. To be able to do it without worrying that they looked like they were greedy. That's right.

40:34So I think Balthazar was donating to Food Bank, and it was easier for restaurants to say yes if they could wrap their head around the fact that, okay, well, if it's going to charity, it can't be that bad. Yeah. All right. To get this off the ground, you had some financing from Gary's fund. And did that finance the whole thing? I know you guys raised$2 million. Did it come entirely from the venture fund that Gary was starting? Yeah, that's right. All right. So you have this money and you've got to build an app, develop a team and get the restaurants on board. So first of all, just from the technology perspective, building out a good piece of software was that must have eaten up a lot of a lot of your cash.

41:21Yeah, well, we had Mike, who, as I said, is a world-class engineer, and he'd coded the first couple of versions of it. But we had raised this$2 million seed round. So our first two hires were engineers, one for iOS, one for web. And Mike was doing back-end work, and that was the team. And at the time, I mean, this was not a restaurant reservation site. The Open Table had been around since 1998 already. Yeah. Even I think even Yelp, you could by that point reserve a table at a restaurant. So you were definitively not in the business of competing with those those brands. Yeah. And even in those days when we were starting Resi, a lot of people were saying to us, oh, this is an open table competitor.

42:09You know, you guys are going after reservations. Yeah. But we still sort of said, no, no, this is different. This is not rest. We don't want to be open table. This is an Uber for restaurants. This is different. Right. So but but like how big did you see the opportunity for what you were doing? I mean, did you think, oh, this could be, you know, a billion dollar business? Yeah, well, the thing is, when you're starting something out and you need to see it through to it being a big business, you can often kind of squint and see it. I mean, that's one of the superpowers of entrepreneurs. You were really squinting there.

42:46One of the superpowers of entrepreneurs is you can convince yourself of anything. Yeah. And so we had to squint a little bit, but we could see this being a big business. And the idea was basically we're going to roll this out and there's going to be this idea of variable price tables all over the world. And sometimes it might be a dollar and sometimes it might be 200, but there's always going to be a clearing price for reservation. And we were going to be that service that determined that price and made it happen. Except the big, bad, 800-pound gorilla, I shouldn't say big and bad, but just the big, you know, player, OpenTable could have easily replicated that if it took off.

43:28I think that's true. I mean, I think the idea that, you know, your competitors can just rip off your products when they get big, I think that's true. But also it's just not the nature of how big companies work. I think you often find that they're focusing on other things and they're too busy to worry about, you know, a little sort of fruit fly buzzing in their ear. But you're right. If OpenTable had seen what we were doing and said, oh, this is interesting, they easily could have stood it up themselves. The fact of the matter is OpenTable saw that we were doing a couple of things and entirely passed on doing them.

44:01They saw that we were pricing tables and we were also distinguishing tables. We said, you know, not all restaurant tables are created equal. There's bar seats and there's outdoor seats and there's dining room seats. And when you go on OpenTable and you make a reservation, you don't know what you're booking. Yeah. And we had brought Resi to market in the summer of 2014. And so we, as really a hack to get the thing going, one of the things we did was we said to restaurants, well, look, we'll take care of your outdoor seats when they're available and people will know they're booking outside. And in the middle of the summer in New York City, the idea that you could have a guaranteed table outside certainly was something that you could sell for a premium, which a lot of places did.

44:50But we did a bunch of things like that. But at the end of the day, all of that didn't amount to a real business. We couldn't, other than, you know, spreadsheets that had no basis in reality, we couldn't see it through to the other side and build a big business around that. How long did it take you before you realized, you know, making 10 bucks here and five bucks there is not going to work. I would say by the end of 2014. Okay. So that was the only model for the first like five months. Yeah, that was the model. And it became clear that this was not going to work. It became clear that this was not going to be as big as we thought.

45:32And yet we had the attention of the restaurant industry and we had their engagement and we had their urgings for us to build something else. When we come back in just a moment, how Ben and his business partners ditch their first business model and come up with a better one. Stay with us. I'm Guy Raz and you're listening to How I Built This.

46:04Shopping for eggs should be simple. A happy hen makes a happy egg. And that's why eggs from Happy Egg are so delicious. Happy Egg partners with family farms across the Midwest to raise happy hens outdoors. The proof is inside the shell. A tasty orange yolk. It's the difference you can see and taste. I just made an incredible omelet with eggs from Happy Egg. It was delicious and so fresh. Once you crack open a happy egg, you can see and taste the difference right away. It's obvious. Visit www.happyegg.com slash built to find happy egg near you. This episode is brought to you by Klaviyo, the only CRM built for B2C and the key to making Black Friday and Cyber Monday your biggest wins yet.

46:59When the holidays hit, your competition only gets louder. That's why the most successful brands use Klaviyo to cut through the noise and build personalized relationships that drive more revenue. With Klaviyo, you get marketing, service, analytics, and all your customer data together on one AI-powered platform. It's everything you need to build lasting customer relationships. Send exclusive email offers to your VIP customers. Deliver perfectly timed text to high-intent shoppers. Maximize your ad dollars with precision. Join the more than 176 ,000 brands, including Away, Patrick Ta, and Dollar Shave Club, already growing with Klaviyo.

47:46Make this holiday season your best yet at klaviyo.com.

48:01Hey, welcome back to How I Built This. I'm Guy Raz. So it's late 2014, and Ben and his partners have realized that their initial business model for Resi is not going to fly. Meanwhile, the restaurants they're working with start to give them some well-meaning advice. we got over and over again this same feedback in different ways but the feedback was always you just should build out reservations like this is cool but we want table management and we want booking widgets and if you can do those things then we don't have to pay open table a dollar per seat and then you'd really help us and that's how we crossed the chasm into what would become Rezzy is we heard from restaurants, look, this is cool, but this is not what we really need.

48:51Right. So I guess at this point, you respond to this feedback that you're getting from restaurants and you start to build out your reservation system, right? That's right. And we went really fast to the widget. So now we had Rezzy with a widget deployed to a restaurant's native website, meaning when you click reserve on a restaurant's website, that popped up a resi-powered interface. Right. That was the first really big unlock for us. That was where we started to see traction. And that was because the restaurants were asking for that. The restaurants were asking for it, and it made sense. It's part of our core thesis.

49:34A restaurant should be in more control and should be able to book their own customers without having to pay a dollar per cover. And so if you're on a restaurant's website and you want to visit the restaurant, of course you should be able to make a reservation. And for the restaurant, of course, that reservation should be free. You weren't going to charge a per booking fee. It was just going to be a flat fee to use the Resi backend software. That's right. We said, we're not going to charge per cover. we're going to charge you either$99 or$399 a month. I think there was another tier in the early days that was sort of the enterprise tier where we would do some custom stuff for you.

50:16And that's it. You could do one cover or you could do 10 ,000 covers. It's the same price. Wouldn't matter. Doesn't matter. You're not going to be metered for demand. The idea that more successful restaurants pay more is insane. You pay us a flat fee. Use the software as much as you want it. But the success of that model depends on getting a lot of restaurants to sign up. It does. You need to convert a lot of restaurants from OpenTable or wherever else they're using to you guys. Because if you've got fewer restaurants, but you're getting a per cover charge, you don't actually need as many. But if it's just a monthly flat fee, the business depends on having a good sales force out there.

50:59yeah and so i mean we were mainly in new york initially right yeah but but to really make this work you had to be it to expand out did you where was the next place you went to we went to la we had restaurants coming to us because the offering was attractive whether or not there was resi marketing behind it so we had restaurants starting to pop up around the country but But the next market that we went into from a sort of go-to-market perspective was LA. And I know, obviously, in the first few months with the original business model, you could see that it wasn't going to work. Did you start to see it turn around?

51:41I did, yes. You know, in the first 12 months, we went from being Resi, the paid reservation service, to Resi, the reservations and table management service. And one of the things that you guys did pretty early on was you decided to partner with Airbnb. You get them to – you approach them and you say, hey, let's see if we can integrate this app into Airbnb for restaurants. Yeah. So Airbnb was thinking about how do we incorporate restaurants into our offering because Airbnb at the time was really focusing on going deep in every market from an experiences perspective. perspective wanting to be you know sort of a one-stop shop when you visit new york for example and so they were looking for a partner here and they came to us and said what would you guys be able to do for us from an integration standpoint they went to some of our competitors too they had a pretty considered approach and we won that business basically we convinced them that we were the right partner for them at some point in that conversation we said you know we'd like this to be both an investment and a commercial partnership.

52:52And they agreed. One of the things that presumably, you know, I know this was happening at the time is like a CRM for restaurants, right? Where they could know a lot about a customer. Because there are a lot of restaurants that I go to, maybe you go to, or you go a lot. And then you'll go the sixth or seventh time. And then you have a bad experience. And then you don't go back. And you're like, I've been there seven times. They don't even, I've seen the same people there or the same food and they don't recognize me, which is fine. But if that happens and you have a bad experience, that's a big loss for a restaurant.

53:27But if they know that you're there and you're fifth or sixth time, that could be a huge advantage, right? And this was something that I guess you were, that restaurants wanted, that they wanted something like that. Yeah, for sure. I mean, again, if you look at the history of this, it really comes down to us shipping features that our competitors didn't have. And on that basis, convincing larger and larger restaurant groups to sign up with us. And one of those features was the universal guest database. Before Resi came along, every individual restaurant unit had its own customer database. It was essentially a customer database on a local server.

54:12And from the start, we said, if you have four restaurants, it's all one database. It's one customer profile against four restaurants. So now you can start to track them across your group. And you don't have to worry about missing a VIP if they're always going to your uptown location and then they come visit downtown. You don't have to worry about missing them. That was a big unlock for us. That was a big unlock. and restaurant it really it mattered a ton to restaurants it's so obvious now that that was the right that's the right way to think about the guest database but that's not how the systems had been architected before us so did you at any at a certain point hit profitability um we were in sight of it when we sold it to amex we were not profitable yeah may 2019 american express announces that it's acquiring Resi reportedly for$200 million.

55:06The timing couldn't have been in some ways better because it was a little less than a year before the whole industry would collapse temporarily, but obviously with COVID. You stayed on as CEO after the acquisition, and now it's part of American Express's portfolio of companies. Yeah, I stayed on for a year and a half. So, and you were there for the first six months of COVID. For sure. So what did that do to the, I mean, I have to imagine a part of you was relieved that you were part of a bigger company. Oh, yeah. I mean, better to be lucky than good, as they say. I think we, in hindsight, timed the exit perfectly.

55:49It meant that we could do some things for the restaurant industry that we would not have been able to do as an independent company. We did two things and we did them very fast. And then the industry followed. One is we cut fees to zero. We thought it was really important symbolically to say we are not in a position to be collecting money from restaurants right now. And a lot of the industry, other tech companies followed that. And I think it was important that we did that. And the other thing we did is that we said to restaurants where we had relationships, ones where we had marketing relationships or we were going to we had signed up to, you know, maybe later in the year sponsor something.

56:26We said, well, we'll just advance you the money. you know, we're going to do this event with you all anyway. If we can advance you those funds and that can help you with payroll while the restaurants close, great. So let us know what you need. And I'm certainly proud of having been able to do those things and getting them done while I was still at Amex. When you stepped down in November of 2020, what did you do? I mean, did you just take some time off for a while? I wish I had taken more time off completely. But being that I'm a curious ideas-driven person, I started talking to people about what to do next.

57:04And one of the things that I started talking about was the idea of a restaurant currency. you know the the thing that's happening in this 2020 2021 is obviously there's a lot of interest and excitement around blockchain tech and nfts and cryptocurrency and i started to talk about just this idea of what about a currency for restaurants there's a lot of restaurants it's a trillion dollar industry they pay a lot of money in fees to move money from point a to point B from consumers to the restaurant units and back and forth, maybe there's a currency here. Maybe this should exist. And that's how we started to slowly paint the strokes of Blackbird.

57:52And Blackbird, Blackbird Labs, which is your newest venture, which you launched in 2023, it's basically like a reward program for diners, right? And so from a consumer's perspective, How does it work? Blackbird is a loyalty company for restaurants. So you go into a restaurant, you earn points by using Blackbird, and then you can take those points and you can spend them like currency at any of the restaurants on our platform. It takes all of the restaurants in the world and turns them into one big giant coalition loyalty program that sort of feels like something you get in the airlines. And so when you go to the restaurant, you basically pay through the app.

58:36Correct. And so if I go and I spend money at a restaurant in San Francisco and I gain points and then I'm in New York and I'm like, oh, I've got enough points for a free meal at this restaurant. How is that restaurant benefiting from that? We backstop all of the points with USD. So restaurants know at any time they can sell us their points for USD. Got it. And it's priced essentially as a really cheap transaction. It's cheaper than the price that they pay for a credit card swipe. And so what they know is it's good as cash. And over time, what we hope is that they will hold it as points and use those points for future rewards.

59:22So effectively, we're giving the restaurant industry a currency they can use to acquire and retain new customers. And the currency is a – it's a cryptocurrency? It's really just points. When I say currency, I mean, you know, in the way that you go to an arcade and you buy arcade credits and then you go spend them in video game machines. That's the idea here. So it's like a bunch of airlines are part of whatever United's called, Mileage Plus. I can't remember what it's called. Yeah, the Star Alliance. Star Alliance, forgive me. It's kind of like that. Yep, exactly. And so the idea here is that there is a spread and we make money on points going in and out of the system.

1:00:06Every time a consumer is rewarded points, some of those are funded by Blackbird, some of those are funded by restaurants. We take a vague on that outbound flow of points. And when they come back to the restaurants and come out of the system, we charge restaurants a processing fee for those points as well. And so how many restaurants are participating? We have about 500 signed up across the platform. Wow. How big of an opportunity do you see here? Oh, I think this is a massive opportunity. I mean, we want to create a global currency for restaurants. You know, I come at this from the perspective that restaurants are magic.

1:00:46Restaurants are places that make people happy, that create memorable hospitality experiences. So we want – with Blackbird, we want consumers to feel our enthusiasm for restaurants and we want to harness that magic and we want to make the app as thrilling as the restaurants themselves. So we want every restaurant on the planet to be wired with Blackbird and to in that way create a whole new restaurant economy. When you think about what happened with the two brands that you started and now you've got a third, how much of their success do you attribute to the work you put in? How much do you think it had to do with the luck and the timing and environment, etc.?

1:01:26I think luck and timing matter a ton. I mean, I think what you have to believe when you're starting these things out is that you have unique insights and that you have superpowers. And so I do think that there are some things that I've brought to each of these businesses and will continue to bring to the things that I do that create market opportunities and advantages. But I mean, these businesses are really tough. It's so hard to bring something like this to market. So with each of these businesses, we got a combination of timing and brand and strategy and execution right. And those things have led to success.

1:02:06That's Ben Leventhal, founder of Blackbird Labs and co-founder of Eater and Resi. And according to Resi's website, in the 10 years since it was founded, it's made a total of 600 million restaurant reservations. 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. And if you're interested in insights, ideas, and lessons from some of the world's greatest entrepreneurs, please sign up for my newsletter at GuyRoz.com or on Substack. This episode was researched and produced by Sam Paulson with music composed by Ramtin Arablui.

1:02:46It was edited by Neva Grant. Our engineers were Robert Rodriguez and James Willits. Our production staff also includes Alex Chung, JC Howard, Carla Estevez, Devin Schwartz, Catherine Seifer, Chris Messini, Carrie Thompson, John Isabella, and Elaine Coates. I'm Guy Raz, and you've been listening to How I Built This.

1:03:15If 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. When too much work bogs you down, Asana helps you handle it. That's because Asana is where humans and AI coordinate work together. AI makes it easy to hand off routine tasks, streamline workflows, and keep everyone focused on the work that matters most. That's how work gets handled. That's Asana. Visit us at asana.com.

1:04:00That's A-S-A-N-A dot com.