121. How to Fail the Right Way: Lessons from a Multimillion-Dollar Company

0:00Welcome to the UpFlip Podcast, where we flip the script and ask successful entrepreneurs the questions that all those other podcasts out there aren't asking but should. They're questions that dig a bit deeper, maybe a little more personal, and are designed to arm you with information and insights that you aren't going to get anywhere else. I'm your host, John Palumbo, and today I have with me an entrepreneur who has not only been through a lot of the ups and downs many of us who have started companies have experienced and are familiar with, but he's also had some pretty unique experiences that I think we could all learn from as well.

0:35Like, for example, being on Shark Tank and having all the sharks offer him deals, which, as we know, doesn't happen all that often. I'm talking about Doc Kwon, the president and COO of Cup Bop, which is a fast, casual restaurant chain that serves Korean barbecue in a cup. Hey, Doc, thanks for coming on. Hey, thanks, John, for having me. So, Doc, like I mentioned, and as you know, we don't want this to be the typical podcast interview where I ask you a bunch of questions, a bunch of the same questions that you've answered other times on other podcasts or media interviews, but I obviously want to do a bit of that right out of the gate just to get our listeners familiar with you and Cupbop if they aren't already.

1:12So I apologize if you've been asked these next few questions hundreds of times and you're sick of answering them. So bear with us on this. Let's start with your personal background, which I think is fascinating. Can you take a minute to tell our listeners a bit about yourself and maybe even would influence you to start a business? Yeah, great question, actually. I mean, I never actually thought I would end up in the restaurant industry. After college, I actually kind of went the finance route, started my career at Goldman Sachs as an investment research analyst, equity research analyst. And then I think I spent about close to three years there.

1:48And actually after that, worked as an investor at a major hedge fund called Citadel and as an investor for about four and a half years. And, you know, I just had this burning itch to do something more entrepreneurial. CupUp, it's a funny story is, so I lived in Utah, I went to school in Utah to BYU. And right before I left for New York, a few months prior to that is when the CupUp truck started in Utah. And so I had a few months overlap and I loved the food truck. And so I was going every week they were in town. And so I got to know the food truck personally. And the founder, Jung, my partner, he was the person running the truck at the time.

2:33And, you know, there aren't that many Koreans in Utah. So I connected and I was a customer. He was a vendor. And I remember, I think a few days before I left for New York, I went to the food truck for the last time and I told him, hey, you guys have an incredible brand. Like I'm moving to New York, but I hope to see you in New York. Bam. And so and that was the last time I had really contact with them. And one day it just popped up in my mind. I was like, man, that was such a good brand. How are they doing? So I started like face talking, cup up a little bit. And then I hit up the founder through Facebook and said, hey, we got to talk.

3:06And I asked him a bunch of questions. I said, hey, how's business going? This, that, that. They're very early on still. And he said, hey, look, the people love the brand. that there's a lot of demand, but it is getting very, very hard to manage at this point. So they were kind of right at a place where, you know, you could kind of scale and get to at least kind of the next level where a lot of companies fold or you just don't grow. Right. And yeah, I thought, huh, interesting. So talk to him more and more. And, you know, what got me over the line was because, you know, the comp wasn't going to be it because they had no money.

3:41It was a startup. They literally, and it's a restaurant company, they haven't raised money. So they had literally nothing. And I, you know, I told him, hey, this is not what I'm coming for. Like salary, I don't care, you know, but I want to be, you know, your partner that can take this, you know, nationally. And we talked over a few months and it was very clear that we gelled very well. And what caught me really over the line was when he told me, hey, look, there are a lot of very successful, wealthy hedge fund managers in New York. But I'll tell you what, nobody has been able to create a national QSR brand out of Korean cuisine.

4:17And that just hit me with a hammer. There it is. And I was like, that is like actually the coolest thing ever. Right, right. What a carrot to dangle. Yeah. And so when I heard that, I was like, all right, I'm on board. Right. I'm going to pack up and move back to Utah. We're going to grow this thing. Would they have been able to grow it? Did they have that experience, that skill set? Or was that something when you called them, they were like, oh, this is perfect. I think they were just still trying to figure out. I mean, it was just they were on their 10th location at the time. And you, you know, at the time, they were just brute forcing each location, right, without processes.

4:53And it was at a point where it was starting to break down, honestly. And that was one thing that Jung told me was like, it's getting, you know, yeah, it's getting very hard. And consistency is getting hard. Services getting hard. Hiring is getting hard. We got to do something. And so and I don't know why I had that confidence because I've never run a business. business. I just thought, yeah, I feel like I can do it. And so I said, yeah, let's do it. I think this is such an incredible brand that we can scale. And so I joined in kind of late summer of 19, moved back. And yeah, a few months later, there was COVID and that was another story.

5:28But that's how my journey with CupUp started. Well, first off, the hedge fund, I'm sure if you go look at your counterparts from the hedge fund from Citadel, I wonder how many of them have gone off Not very many. Right. And they definitely aren't going and doing food trucks, right? And then there's also just this idea. I think a lot of the entrepreneurs probably listening to this probably founded their company, probably started their company, whereas you were actually a customer, which I think is really unique. And you know what I want to talk about a little bit too, Doc, is that evolution from food truck to brick and mortar.

5:58Can you talk a little bit about why you guys decided to take that path? I think simply food trucks just don't scale. I think that was really it. For example, you can't control weather. Right. Right. And, you know, the impact that you will have as a food truck versus a brick and mortar is night and day. Second, because you have all these individual events that you're always going to actual inventory management, food management, how much to cook. It's just a nightmare. Very, very tough to manage. And you constantly have to try to get on schedules. And there are so many variables between that. Food trucks break down all the time and it's very tough to operate.

6:36And so, and that was one of the first things I came and said, hey, look, food trucks, we will keep them, but we will not actively grow them. We use them as marketing. It's interesting because I think a lot of people, when they think food truck, it sounds kind of like interesting and sexy and it's like, oh, it's a food truck. And you don't realize the realities, like all the things that you just talked about, but it is interesting that you went to them already knowing that. And that's one good thing, one training that I think I received well, kind of my days in New York is, you know, as an investor, the first thing you always try to do when you get coverage of a new sector or an industry is you try to figure out the drivers of the industry.

7:15What are the most important metrics that you need to look at? And is it scalable? Is it not? How is it valued? Because it is scalable, it is not. And yeah, food trucks right off the bat was, okay, can't do it, but it's a great marketing tool. We can't forget our roots. So we'll keep food trucks, but all our growth is coming in the form of brick and mortar. So you still have food trucks now? Yes. So it's more of a marketing? Marketing and some big catering events. Yes. In my intro, I mentioned that you were on Shark Tank and everybody hears, everybody gets excited when they hear that. If I'm remembering correctly, I think you pretty much ran the floor.

7:51I think you got deals from every shark, if I'm remembering that the right way. And I'd love for you to talk about it. And By the way, the presentation was hilarious. It was great. Thank you. So what was that like? It was fun. I honestly, both Jung and I, we actually had a blast. I think for Jung, it was for him, it was especially emotional. I remember after the show, he got very, very emotional. You know, he started this company literally from nothing. And he got all this confirmation from these great, great entrepreneurs in front of him. Right. And for me, it was obviously also a confirmation of the bet that I made.

8:26But also, you know, we had a lot of fun preparing for it because, you know, myself, it was actually the first time I was sitting on the other side. I'd always looked at investments from the investors. Oh, that's a good point. Yeah. You could have been sitting in the chair. Yeah, it was very natural of, OK, this is what they're going to ask. This is what they want to hear. This is how you want to tell your story. So I kind of had that game plan from the get go. and, you know, kind of all the intangibles were, hey, we got to show who we are. We got to represent what our brand stands for, which is, you know, we're an energetic, fun, loud, crazy brand.

8:58So let's deliver that. The economics really speak for themselves. And so I can obviously kind of explain that part and get them over the hump on that. And so, yeah, that was really the game plan. And we had a blast. It was great. It was such a great presentation. Their faces, when you guys talked about the numbers, it was just fantastic. It was a lot of fun. Honestly, I don't even know how we got on. It's crazy. That's great. Hey, everyone. If you're enjoying our podcast, you'll probably be interested to know that we're launching UpFlip Academy, a premium membership program where you'll find things like comprehensive courses and complete business blueprints created by industry leaders, a vibrant community of entrepreneurs, both eager novices and rugged veterans, workshops dedicated to mastering very specific skills where in four weeks you'd learn what would have taken you months if you were doing it alone and a whole lot more.

9:52Now to celebrate our launch, we're offering a pretty amazing early bird prize that will never change if you sign up. So follow the membership link in the description of this episode to sign up and enjoy the benefits and lock in that price. All right, doc, so that's going to conclude the you've been asked these questions a million times part of this interview. So that part's over. So now what I want to do is I want to hit you with some questions that might to be a bit different than what maybe you're used to, but I do think your responses are going to really end up inspiring and educating, even motivating the listeners who are out there.

10:21And I want to begin by talking about that time that I think all of us as entrepreneurs have. We've all experienced it. It's the time when we decide we're going to really do this thing and take the leap into entrepreneurship. And I think everyone out there listening is going to agree that it's a really unique time because you have all these mixed emotions. You're excited. You're scared to death. You have people telling you that you're making a great decision and you're feeling all confident while others are kind of looking at you with a blank look on their face and you find yourself kind of sitting there thinking that you might be nuts for even considering this.

10:51You think your idea for the company is amazing and necessary on like, let's say Monday. And then you think it's a terrible decision by Friday, right? Like on Monday, you're thinking, oh man, Korean food in a cup. This is genius. And then by the end of the week, you're thinking, what am I doing? What am I thinking here? More like within the hour, right? Within the hour, right, right, exactly. So the point is, I mean, it's a really confusing time to say the least. and it really can be difficult to navigate for some people. So with that in mind, I'd love it if you could kind of take us back to that time for you and maybe talk a bit about your experience then.

11:21Like, where was your head at? Were you all over the place, back and forth, up and down? And most importantly, how did you navigate it? And what advice would you give to entrepreneurs out there who are probably nodding their heads off because they know exactly what we're talking about here right now? Yeah, no, great question. I was pretty methodical about it And I think it was just my background, right? I treated it as almost any investment that I would look at. And obviously, your career is one of the biggest investments you're making because you're spending so much time on it, right? And so I knew that I wanted to try something definitely more closer to entrepreneurial spirit, right?

11:58It's something I had that. I wanted to tangibly build something. That decision I had already made up in my mind. And I think where a lot of people get hung up is the risk, right? And it was kind of the same thing for me. I thought about it a lot. And in fact, a lot of people, I told a few of my close friends, family, and thought when I kind of started getting more firm on this cup up idea, I let them know. And then my colleagues and so forth. And a lot of them honestly thought I was crazy. They thought, wait, you're leaving Citadel, the most profitable hedge fund in history. to join not a sexy SaaS company even.

12:38Right. A company started from a food truck. That is just nothing. Yeah, yours is the extreme example. Right. But a local business at the time, they thought, you're nuts. Like, my brother actually got mad. He was like, you're crazy. Like, what are you doing? And, you know, for me, the answer was, what's the worst downside? You know, sure, there's that. What do you lose? The opportunity cost of what I would be making at Citadel, right, versus that much smaller, obviously, paycheck from CupBot, right? But on the other side, I'm learning something very different that I knew, you know, would actually even make me a better investor if I were to come back.

13:17And it was worst case, I'll just come back. It's very logical, but I think a lot of people forget that. And I think people just forget it. And look, this is now that I am on the side of an employer hiring a lot of people. if you have good talent and if they leave the moment they want to come back, I promise the company will want you back. And that's what they don't realize. Trying to find talent and already being able to have somebody back who was already trained in the system, all of that. I mean, that is just not even a no brainer. And so if you've done a semi decent job, I promise you will have that job back.

13:49Yeah, that's a great point. And that's, I think, something that a lot of people forget. I love that. Like the fact the risk looking at it and saying, well, what's the worst. I also love that whole idea of, well, I'm going to learn something. Oh, yeah. That if I do go back, I'm going to be better at what I was doing. A hundred percent. You'll be way more valuable, way more valuable. And so I thought, OK, you knock out kind of that difference in pay gap or whatever, all of that. I'll say, yeah, but I get to take these new lessons. And that's the cost of the lesson of being an entrepreneur, which is well worth it because, you know, there is still a lot to go in my life.

14:23And I know, you know, this is not going to be the only time I'm going to be involved in the business, right, in my life, I'm sure. And so I thought, okay, that's fine. And then it was just the downside risk was I'll come back. Yeah, the skills you're going to learn, you're going to keep, I mean. Yeah, I didn't think much more about it after that. And then I started doing like I would always do when I had a number of offers from some of these SaaS companies to, you know, cup up. I actually just all put it in a spreadsheet and really started thinking about kind of the risk reward of these opportunities.

14:54At the end of the day, what drew me to Kupap was, hey, I get to drive the ship with my partner and we could be the first ones to create a Korean national brand. But it also made sense financially or it absolutely could pay off financially if it kind of went the direction that I thought it could. You know, you never have a crystal ball, but you can have a ballpark of, you know, what could upside look like versus a downside. And I I was just going to come back if things didn't work. But Upside ended up being actually much better than some of these other offers that I had because number one, I was going to have much more equity in the company.

15:30Plus, I was going to be driving the ship with my partner and so forth. And so when I put it on a spreadsheet, it was and I forgot about the industries and all else. It was very compelling and telling that this was the right opportunity. There's a lot of lessons in that that I think could put people at ease and help them through that. And you know, Doc, I'm not sure there's an entrepreneur on the planet who didn't hit a point, especially early on, when maybe they were close, and I mean very close, to maybe giving up. Personally, I probably had that feeling a ton of times. I'm curious to hear your, I guess I'll say, I'm done.

16:02I'm out. You know, that story or those stories. And I want to hear it for a couple reasons. First, I do think entrepreneurs, as entrepreneurs, we take comfort in knowing that other people have gone through this experience and we don't need to be, I guess the word would be almost ashamed of the fact that we almost quit. right? It's always nice to hear that. And second, I'm betting there are people out there listening who might be feeling that way right now and would appreciate some insight, even advice from someone who was in that place and pushed through it. Oh, I'll tell you this. We're in that place every day and will be for a long time.

16:34And I fully expect that. I think that should be the expectation. I think Elon Musk hit the nail on the head when he said, being an entrepreneur, being a CEO is like eating glass and staring into the abyss. You don't know what's going on. You don't have a lot of visibility, right? And there are things that happen, you know, that are out of your control. I mean, that happened with us when COVID hit. And that was just a few months after I joined, like five months after I joined, like the world just shut down. And I remember that first week when the total kind of shutdown mandate came down. After that first week, I looked at our numbers and our same store sales, it was cut in more than 50%.

17:13It was down like 60 plus and not just first week. And I had to literally run like liquidation scenarios. I was like, wow, we don't have much capital. If this goes on for another month, we're toast, right? And so we felt it then and we thought, okay, how do we do it? And one thing that you have to do is number one, don't panic. It's easier said than done. Yeah, it is. Yep. But you can panic by yourself, it's okay, but don't show that to your people ever, ever. Never let them see you sweat. And I think that training I got pretty well as well from an investor because you know, there are days you'll lose five,$10 million in a day and you kind of want to shoot yourself, but you learn over time with the experience to just move past it and really just focus on what is the next course of action that I have to take that will be the best decision, right?

18:05And one thing that I've realized is as you're scaling, especially if you're a high growth company, your cost structure doesn't go up linearly. So you'll have these big, you know, stair step ups where you were running, you know, at a certain level. And all of a sudden that cost structure just balloons and you're constantly going through that and you have to have that to grow. And every time that happens, you feel like giving up. And there may be reasons where you want to give up, not for financial reasons. may be a relationship with your business partner. We have a lot at CupUp, the history of, we had some nasty breakups with some former partners that really taught me a lesson, a lot of lessons.

18:48And that was another factor that was hard that we had to go through. And I mean, even last year, right? The rates were increased at an unprecedented rate. Inflation was nuts, right? And a lot of businesses felt a lot of pain. And so I think one thing that every entrepreneur should take comfort in is the fact that, look, it doesn't matter what business you are, you are always going through a struggle. Just like personal life, you know, everybody may seem fine, but they're always going through their own battles, right? And yeah, even Cupop at its eyes, we have a lot more resources than we did before, right?

19:26But still, we have opted to not raise money and to bootstrap this whole thing. At least so far, we've done that. And it's literally a battle every day. It's literally a battle every day, right? And I'm always making sure I'm checking our accounts, payable accounts, we're still, right? And I remember having this conversation with a great friend of mine who is an unbelievable entrepreneur. And I said, man, when does this get better? It's a battle literally every day, right? And he gave me a great quote. He said, hey, doc, when we were building my business every month until we got to close to$100 million revenue, we didn't know if we could make it or not.

20:06That's how we felt. Wow. Every month up until$100 million, and that's when things started getting significantly better. And he said, that's normal. That's what everybody goes through. Yeah. See, knowing that, it's funny you bring up the quote. I think it was Sean Parker who had said, running a startup is like eating glass. You start to like the taste of your own blood. Yeah. Right? And so I think it's just knowing and taking comfort of that. Yeah, exactly. That is being an entrepreneur and you will face it. Keep your expectations low because even if you grow your revenue and the company's growing, you're going to continually face it.

20:40It's not going to go away for a while. You could have all the money that you think you needed and you're still going to be feeling that way. It's interesting. I mean, these days, a lot of people in the business community, they talk about how important it is to move on from failure or like learn from failure. Failure has become a very big topic. And of course, as entrepreneurs, the failures we experience, I want to say they hit a bit harder than say a failure than an executive, maybe at a large corporation, somebody like that, when they go through it, because our companies are our lives. They're more personal and they could potentially be more devastating.

21:09And I'd love to know what's your approach to dealing with failure? Yeah, I think you just have to move on. You can't linger. Learn your lesson and do not linger on it because there's too much to do. You have to have the takeaway asked to. And look, it's fine because half the failures, like nobody has a crystal ball. I think you have to realize that even knowing what you know now, there are many decisions that ultimately lead to failure that when you were making that decision at the time with the set of information that you have, you would be making that exact same decision anyway. And it was really because that was the best decision available at the time with the data set that we had.

21:46There is that idea of have confidence in the fact that you made the right decision, it failed, but that was the decision you made and you'd do it again. You have to, you have to. Yeah, and it doesn't matter. You could go back 10 times, you would have made the same decision because that was the best decision you can make at the time. And it happened to be the wrong decision. But look, if we had a crystal ball, everybody be running a business, right? And so that's the whole point is that if you made the right decision, and I think that's when you look at your mistakes. When I first started managing money and actually started investing at Citadel and I had my I got my own portfolio, there were my biggest kind of mistakes were, you know that you see some data points that you know in the back of your head are important, that you need to act on.

22:29But as human beings, sometimes you choose to ignore it because you have your bias that you have and you like to stick to your thesis that you came up and you fall in love with your own story. And those have always, always ended in dumps. And I've had to do that multiple, multiple times to continue to improve on that, to be just intellectually, be brutally honest with myself. I cannot be biased. I cannot fall in love with my own investment thesis. You got to have some self-awareness. Exactly. But look, there are a lot of investments that went wrong that if I were to go back, I would be making exactly the same decision.

23:07And you just learn over time, but you have to move on. Take what you can from it, but move on from it as quickly as possible. Don't dwell on it. you know, fail fast. So doc, as you know, on this podcast, we talk with entrepreneurs who have, I'm going to say weathered the storm, so to speak, and have experienced a lot of things that entrepreneurs who are just starting out are probably going to experience. So our guests kind of had the luxury of looking back on those experiences and helping others, especially people who are just beginning that entrepreneurial journey by giving them, I guess I would say shortcuts that they wish they had or pointing out potential landmines that they wish they had known about or just giving them the encouragement and advice that they wish someone had given them.

23:44So with that in mind, I'd love to ask you a few things that you probably wish you knew then, things that entrepreneurs listening need to know and appreciate. And the first thing I'd love to know is, is there a misconception about entrepreneurship in general that you'd like to debunk based on your experience? Maybe something that you believed about entrepreneurship when you first started out, it just isn't true or what you thought it would be. Yeah, I think the biggest misconception generally is that, you know, the grass is always greener on the other side. Everybody wants to be an entrepreneur until you are one and it's miserable a lot of the times.