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SPEAKER_01: 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.
SPEAKER_02: And you had that in your mind. You thought, am I going to be that guy?
SPEAKER_01: Yeah, I mean, there's times that, but you know, the responsibilities, I've got four kids and a wife, and I'm sitting there with one truck thinking, can I scale this? But you know, I was having a great time. My kids thought I was the greatest because I'm driving an ice cream truck.
SPEAKER_02: Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz, and on the show today, how Tony Lam went from a door-to-door vacuum salesman to founding Kona Ice, a franchise empire of shaved ice trucks that now number more than 1,500 across North America. If you've listened to this show long enough, you'll know that we've had some brands and products that started in places that didn't really seem to match. For example, famous Dave's Barbecue. Dave Anderson started his barbecue empire in a remote part of northern Wisconsin. I mean, I don't know about you, but when I think smoked brisket or baby back ribs, I just don't think Hayward, Wisconsin. But somehow, it worked. Same with Ooni Pizza Ovens. This brand has transformed home pizza making. And yet, the ovens were invented by a man from Finland who now lives in Scotland. And let's be honest, when you think of a great Neapolitan pie, you imagine the warm sun of Naples, not mid-afternoon darkness in Edinburgh. Now, today's story is about a guy named Tony Lam who lives in Kentucky, the home of Hawaiian shaved ice. OK, I'm kidding. Hawaii, of course, is the home of Hawaiian shaved ice. That fluffy, snowy cup of ice drowning in colorful, fruity syrup. Tony Lam figured out how to turn it into a huge business, a business called Kona Ice. It now has more than 1,500 shaved ice trucks across the US, Canada, and Mexico. The brand generates over $400 million in annual revenue, and it was started by a guy who, for much of his adult life, sold vacuum cleaners. Now, if there's one secret, one thing that every successful entrepreneur has in common, it's the ability to hear the word, no, and just keep plowing ahead. And that, in a nutshell, is what it takes to sell vacuum cleaners and Hawaiian-style shaved ice in Kentucky. Tony Lam was born in the late 1960s. He grew up in Parkersburg, West Virginia, youngest of four kids. Tony actually shares a birthday with his dad, Tom, and growing up, he watched and learned a lot about entrepreneurship and sales from his dad, who also sold vacuum cleaners for a brand called Rainbow. In fact, Tony describes his dad as, quote, the greatest vacuum cleaner salesman to ever put on a pair of alligator shoes.
SPEAKER_01: My dad just got this bigger-than-life personality, and I had the weirdest perspective ever growing up because my dad did very well selling vacuum cleaners, and he drove nice cars, we had a nice house, and then I had buddies who, their dads were doctors or lawyers, and they didn't live as nice as we were living, and they're like, what does your dad do for a living? I was like, he sells vacuum cleaners. So my perspective was, okay, on the hierarchy of life, you've got vacuum cleaner sales, and then doctors, and then lawyers, and bankers. So I always aspired to be a vacuum cleaner salesman because I thought that was the road to Mercedes and quality of life.
SPEAKER_02: Tell me about, like, he was going door-to-door, selling them, like, were these for industrial use, were they for home use? What kind of vacuum cleaners?
SPEAKER_01: No, it's the Rainbow vacuum cleaner. So it's an in-home, door-to-door. They use referrals more so than they go door-to-door. So if someone buys a Rainbow, they'll send you to four of their friends so they can get a free shampooer. And he started out, you know, when I was little, I think he was a regional or a district salesperson or whatever. But then as I got older, he promoted up to the company. And when I was in high school, he was the president of Rexair, which is the company that produces them. And they're sold in 80 countries around the world. It's still a thriving business. All right.
SPEAKER_02: So you're kind of growing up with just kind of watching your dad do this and become quite successful in this business. And I guess you also kind of had a knack for selling because in high school you did sales jobs, right? And you worked at The Gap at a certain point? I did. I'm always surprised when people know details of my life.
SPEAKER_01: Yes, I worked at The Gap. It was my first W-2 job. I detailed cars for a long time. And then I wanted to get a real job. And I took this job at The Gap for $3.35 an hour, which was minimum wage at the time. But the lesson that I pulled from The Gap, and I'll never forget this, was I was at The Gap and they said, hey, they're announcing this big Christmas contest and whoever sells the most. And I'm like, well, I'm going to kill everybody. And I come in and my schedule has been cut. And I'm scheduled for like 20 hours this week. And Charlie McKay is scheduled for, you know, 36 hours. I'm like, how am I supposed to beat them? And so I'm asking the manager and she says, well, I'm trying to make it even because you sell more. And I'm like, well, how is that fair? And I remember going home to my dad and I'm fussing around. And he said, Tony, listen, when you work for somebody, they're always going to tell you when to work, how to work and basically establish your worth as a person. And I'm like, wow, that's, you know, very, very sobering as a sophomore in high school. But it stuck. And I thought, yeah, you're right. So eventually I just moved back into detailing cars and I had a pretty good little car detailing business for the rest of my high school career.
SPEAKER_02: Tell me what was it about sales that, you know, what was it about your business? Your personality that made you good at sales? Are you just somebody who can talk to anybody?
SPEAKER_01: I think that was it, Guy. I think ego is checked at the door when you're in sales. I have no inhibitions and I say that and I don't say it boastfully. I say it almost apologetically. And the fact that I'm not an extremely attractive gentleman. So and but when I was asking, you know, girls to go out, I was never offended when they would say no. And I would just go to the onto the next one because it's a numbers game. Numbers game. Yeah. Just like vacuum winter sales.
SPEAKER_02: So, OK, so so when it's time for you to go to college, I guess you go to the University of Kentucky and you study marketing. And I guess I guess to earn some money during that time, you're also selling rainbow vacuum cleaners like your dad. Right. But what you're you're also thinking like after graduation that you'll interview for like an office job, like a professional job working under fluorescent lights. Yeah, I was a fairly good student at UK.
SPEAKER_01: I got the grades and the big job interview that came on campus was a pharmaceutical rep, Merck Pharmaceuticals. And everyone in my little peer group was talking about it. And they said, Lamb, you know, you should do this because you've got all the sales experience. You've got enough chemistry background, you know. So I go I get a suit. I go to the interview. I sit down with the guy. And man, I'm going to town. Because I sold vacuums all the way through college and I was actually pretty good at it. So I'm in there telling this pharmaceutical rep that, you know, good salesperson, da da da da da da. And we're having this conversation is going good. He said, man, I'm really excited about this interview. And I said, I am too. Because you got any questions for me? And I said, yeah, how much do I make? And he said, I'll never forget this. He said, $36,000 a year and a company car. And I said, what kind of car? What kind of car? Because my God, it better be a Ferrari. Because I make $36,000 in a summer selling vacuum cleaners. He goes, well, because you have to transport a lot of, you know, samples and things. It's usually a minivan. And I'm like, for the love of God, man, I look like this. I can't drive a minivan. I never get married. Oh, man.
SPEAKER_02: All right. So I guess you walk out of that interview and decide to stick with selling vacuum cleaners after college. I mean, you're good at it and you were making good money. Tell me about what you would do. Like, sell me a vacuum cleaner, right? Let's say I'm in the market to buy one, right? And I'm looking at this brand and at that brand and then you come to my house.
SPEAKER_01: Oh, God, nobody's looking to buy a vacuum cleaner. That's the whole thing. So you knock on the door. You've got an appointment because Mary Smith has bought a rainbow. So she gives four of her unwilling friends names. And so you call their friends and say, hey, Judy, I was wondering if I could schedule a time to come in and show you and John the rainbow. I'll be quick about it. I'll do it fast. You guys get a little three day, two night vacation package, a timeshare presentation. We didn't say that part, but get a little three day, two night vacation. It pays for your hotel accommodations. So let's schedule a time. And she's like, my husband's never going to go for this. I know, but tell him I'm fun. It'll be a good time. I'm never going to pressure you guys. I just want to show it, get the credit, and I'll be out of your hair. All right. Lord forbid the husband answers the door because he's pissed at me immediately and they all start announcing we are not buying. And I'm laughing, having a good time. I come in and just, and I just try to disarm them a little bit. But guy, there's so many nuances of, of selling and I'll give you some fun, fun things. If at some point you can figure out whether the guy's got a hobby or not. So let's just say, and I'm always looking in the cars in the garage when I come in and say, man, you guys got a beautiful garage. Why don't you show me your garage? And he'll take me out. If I see a set of PING golf clubs or a John Deere riding lawnmower, and probably most wives don't realize that a set of PING golf clubs costs $1,500. But I will announce that at some point if I'm not getting a sale. And the guy who just like sits back and smiles real big. And I'm like, you know, John, if this was a set of golf clubs or that John Deere riding lawnmower, you and I could talk about this all night, but it's not. This is a product that's going to make Judy's job a lot easier in the house. And all we really need to know is if, if she won it, would you help her get it? And I think she wants it. So the question comes down to would you help her get it? And of course you would. So what's your middle initial? Wow. Cause you just ask for their middle initial, you pull out the sales receipt and you put your head down.
SPEAKER_01: If you get T or S you've got the sale, but you got to do your, you got to do the presentation, right? You got to bring them all the way through the journey. Wow. There was this, there was an old Zig Ziglar and I, and guy, God helped me if I don't quote Zig Ziglar a thousand times today, but my dad, I, the joke was that I think he put Zig Ziglar tapes in my crib when growing up. Cause I, I can talk like Zig Ziglar and I can recite most of the stuff. But his, his great line was timid salesman have skinny kids. And so I wasn't going to be timid. I was going to ask for the order. That's how I married my wife 31 years ago was I asked, I didn't assume, I just asked for the order. Wow.
SPEAKER_02: So one of the things that I, that I've noticed in all the hundreds of interviews I've done on the show is that when I talk to people who started out in sales, the thing that sales really helped them to learn was how to, how to move past no. Right? Like for a lot of people, they hear no and that's it. That's that's the end of the road. Right. But, but then if you can figure out how to hear no and understand that that's just the beginning of the road.
SPEAKER_01: Well, it's all in how you interpret no. And the way I was always taught or the way I believe is the answer is no based on the information that I have right now. So the no is not going to change by you pressuring me. The no only changes if you give me more information. So okay, why would you not purchase the, well, it's just too much. You can buy a $200 vacuum cleaner at Walmart where I can buy a $1,500 vacuum cleaner from you. So let's break that down. Let me go ahead and do a 15 year cost study. So these vacuum cleaners that you buy from Walmart are going to break down every three or four years. You got to buy bags. You're not getting the job done. Or you can spend 1500 you've got a product that'll last 15 years, but most importantly, you're going to get the job done. So let's make it to the point where it's just an obvious yes. And you'd feel almost stupid saying no before you get there.
SPEAKER_02: All right. In the meantime, early in your career, you're you are selling vacuums and you help me understand me. You were a rep for the Rainbow Systems, but you had your own team. It was sort of like a real estate agent that eventually when they become good, they they build their own team around them. Is that how it works?
SPEAKER_01: Yeah, you basically you I was in Lexington after I graduated. I stayed there for a year. And then I moved to northern Kentucky. And I started my own office. Very magically. I mean, I don't want to take too much credit for it. But we built a one of the largest offices in the region within a year. Wow. So yeah, I mean, I'm again, I'm 2324 years old. I'm making, you know, 10 $20,000 a month. And I ended up with six offices. This is by the time I was 25. I had 300 salespeople. I was running a multimillion dollar business at 25 selling vacuum cleaners and started door to door. I guess when I say it like this, and I'm having this revelation, I'm like, Hey, that's not too bad. Yeah. So, all right.
SPEAKER_02: So you grow this, this regional office to quite a big business. And I guess what around sort of the early 2000s, you decide to, to leave to retire? I mean, was that was that what happened?
SPEAKER_01: It was I, my dad had stepped down from the company. I thought he was treated very poorly. They rewrote the history of rainbow and my dad who I feel like was responsible for a massive part of this growth, all the programs we running, they were my dad's ideas. And he got like two paragraphs in the in the history of Rexair. And I was like, you know, I'm done. You know, I'll go do something else. Little did I know how much money I was making. In comparison to the real world. But I did, I got very discouraged. I didn't like the new management coming in. I, you know, I got a couple other opportunities. And I just started slowly disassembling the organization, I would start selling the offices off to the managers. And, and it slowly just, you know, all went away.
SPEAKER_02: It's interesting, because the earlier you talked about how, you know, sort of checking you out the door is really important quality in being a salesperson. I think it really is and just in life, right in general. But it sounds like in this case, it did kind of challenge your ego or your family's. It doesn't sound like the same Tony Lamb that, you know, that didn't really care what people thought about him. Listen, nothing will build an ego like, you know, success and that and again, I will
SPEAKER_01: freely admit, you know, you get a little big for your britches. I was very young and I was winning all the contests and I was, they fly you to Hawaii, they go on all these trips. And yeah, you get a little, you get a little bit too big for your britches. And then, like I said, and I was like, you know what, I'm going to quit this business. And my wife said, Are you sure? Because we are, we are living pretty good. And we get these trips every six months that we go on that are fabulous. And so she wasn't a fan. But I just thought I had some other options out there that turned out not to be as, you know, wonderful as Rainbow was. So at this point, from what I understand, you start to do some, some consulting work,
SPEAKER_02: like I guess there was a friend of yours, and you were helping out this guy, Ed, Ed Reynolds. That's it. That's exactly right. And I guess he had, Ed had this struggling furniture company in Louisville. And what was it exactly? Did he have just one furniture store? Was it several?
SPEAKER_01: It was he had several, but the what we did in Louisville, transpired into his whole all of his furniture shops. Got it. Okay. And so we turned it around and fairly quickly. It got going pretty good. But then they were taking those. How did you do it? He had finance people running a sales operation. Yeah. And so you really needed salespeople. And you needed some marketing. And I was, I'll tell you this real quick. I didn't have a marketing budget. So I would come up with these yard signs. Now remember, it's buy here, pay here furniture. So it's not, what does that mean? So it's not bank financing. So you come in and you want a couch and you put $200 down, and you pay them $50 a month till the couch is paid off. So buy here, pay here. And they charge you some interest. Oh, yeah, charge you interest and they make the profit on the on the couch. So yard signs. And I produced like 1000 yard signs, buy here, pay here furniture, you know, no credit checks, blah, blah. I started putting them all over Louisville, Kentucky. Like signs of people when they're running for office, like those kinds of yards.
SPEAKER_02: Exactly. There's 18 by 24 signs.
SPEAKER_01: I put them at every intersection. Business started going up. The city of Louisville calls the furniture store and said, we're getting ready to fine you for all these signs. You can't put signs up. And I'm like, we paid some high school kids to do it. I'm so sorry. We'll get them down. He goes, so a week later they call back because there's more signs now. Because, you know, and he goes, we're going to fine you $1,000 a day. Well, we were making probably $5,000 a day. I was like, I'll take the fine.
SPEAKER_02: I read that at a certain point you bought billboard trucks on eBay.
SPEAKER_01: I will give you credit, Guy. You have certainly done your research. I could not get billboard space in Louisville where I wanted it. And I'm on eBay. I'm looking, you know, trying to do maybe temporary billboard or signage or something. And I came across a billboard truck and I thought, huh, and I bought a billboard truck. And then it became its own business on the side.
SPEAKER_02: You would rent the truck out or you would basically rent the billboard out on the truck and have somebody drive it around. Yeah. You go get a retired guy and say, hey, go get stuck in traffic.
SPEAKER_01: And it's brilliant. Slow down. You're going too fast. I ended up with a bunch of those trucks. And that was that's kind of a segue into Kona Ice because the billboard truck business was turned into a really nice side. But my wife still loves the billboard truck business because it saved us. You know, those were leaner times in the in the Lamb family.
SPEAKER_02: Why were they leaner times? I mean, you sold your vacuum business to your managers and it was a good business. So I have to assume that you did pretty well out of that.
SPEAKER_01: Well, if they would have kept going, I would have done really well. But, you know, they slowly they're going to pay me one hundred dollars over for the sales for the next five years. But, you know, then they started shutting down because they didn't have the all the skill sets to keep running it. So I got about probably a third of what I was expecting. And, you know, all the other little things that happened in life, you're like, oh, well, that didn't work out. Well, OK, that didn't work out.
SPEAKER_02: Did you I mean, the billboard truck idea is a great idea, right? Because it's it is almost like not quite, but almost like a passive income business, which is, you know, as you say, you find some people who want to pay for the bill. By the way, how much would it cost to place an ad on a billboard on the truck per week? Or how did you price it?
SPEAKER_01: Yeah, you want to charge because you've got to inherently you've got gasoline and labor. So you've got a couple hundred bucks a day in expenses. So you're going to need to get five hundred to seven hundred dollars a day for it to be profitable. So so I started selling each individual side of the truck. The truck holds looks like a big teepee or whatever and it has two sides to it. So I started what I would do is I went to the all the casinos in Cincinnati and I because they were the biggest media buyers at the time. What happens in casinos when they come to town, you know, after a while, they stop buying all the ads, the revenues go down and this thing kind of petered out. But then Kona had started up.
SPEAKER_02: I want to ask you about Kona in just just a minute. But before that, I mean, were you looking for the next thing like that, like an ad? Anchor that would be that thing for you?
SPEAKER_01: Yeah, I mean, what I hated about Rainbow was the lack of residuality. Truly, you have to sell another vacuum cleaner every single day. I had buddies that were in insurance and they worked their butts off for a couple of years, then coast for the next 20. And I'm like, you know, I want some of that. And so what was so fabulous about the ad truck was the five hundred, six hundred dollars a day. But it was you're at the mercy of the ad media buyer. You'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.
SPEAKER_02: 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.
SPEAKER_02: I guess it's around 2004 and it's as simple as like a bad experience in an ice cream truck. Yeah, the origin story.
SPEAKER_01: 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, run into the front yard. And I remember it varies, very distinctly. My wife and I kind of jog behind them here around the corner comes a 72, 72 Chevy van, blue smoke rolling out of the back of it. And, you know, this funky music playing. And and I was like, oh, my gosh, it looks just like a child predator. Just 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. OK, 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. But ice cream truck, ice cream truck. And 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 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, you know, with a uniform on and you can see what she was doing. And the products would have been, you know, fair and reasonable. And and the experience would have been engaging. What would have happened?
SPEAKER_02: 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. 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 in 2004, when you were looking at that, that business was in decline. It was like getting a taxi medallion, you know, in New York City. Like 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.
SPEAKER_01: So when I sold off the Rainbow business, my personal secretary, as her 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. A customer came in while I was there and she sold a shaved ice to her.
SPEAKER_02: So she was doing shaved ice at her her video store, basically.
SPEAKER_01: Yeah. OK. And she put some flavoring on the guy, walked out, 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 mean, it's all profit.
SPEAKER_02: It's just ice. It's just shaved frozen water.
SPEAKER_01: Yeah. And she says, even if I buy the best flavoring that's out there, the most expensive flavoring is still wildly profitable. You know, you make a milkshake, you sell for three dollars, you got a buck fifty in it. He said, I sell shaved ice for three dollars. I've got, you know, 20 cents in it. And that's 10 cents for the cup.
SPEAKER_02: Basically pure profit. Yeah, it's pure. And again, being a serial entrepreneur, you only have to hear that that
SPEAKER_01: one time. Yeah. 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
SPEAKER_02: shaved ice and then changes out of a salesman suit and into a Hawaiian shirt. Stay with us. I'm Guy Raz and you're listening to How I Built This. How I Built This is supported by Crucible Moments, a new podcast about the pivotal decisions
SPEAKER_00: that shape the journeys of some of the most important startups hosted by Sequoia's Rulof Botha. Crucible Moments provides a peek into the journey of companies like Airbnb, PayPal,
SPEAKER_02: 23andMe and Nvidia. And we'll be right back. And the decisions that change 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. I 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 into 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 want a business, then Squarespace is your one-stop shop for engaging with your customers and building your brand. With 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. Check 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. Hey, welcome back to How I Built This. I'm Guy Raz. So it's around 2007, and Tony Lam 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.
SPEAKER_01: I actually thought he bought it just to sit at his house so he could eat it. But he ended up putting a guy in it, driving it around or whatever. One time he said, hey, the ice cream truck's not making money. What's your thoughts on it making money? Because I had 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, 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. You can't sell it all. You know, what about shaved ice? You know, and we just back and forth, back and forth. And 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.
SPEAKER_02: You would pursue this. You would see if you could turn ice cream trucks into shaved ice trucks, basically. Yeah.
SPEAKER_01: 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. But yeah, your money.
SPEAKER_02: 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. Yeah. 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?
SPEAKER_01: 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. Because it was like a ball shaped ice.
SPEAKER_02: And you would put some syrup thrown on it.
SPEAKER_01: 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.
SPEAKER_02: Yeah. Yeah. Okay. So 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. Yeah. But I have to imagine you had to spend some time like learning about that whole thing and like what is it? Where do you get these machines? How do you make it?
SPEAKER_01: 100 percent. If I would have had to rely on I think it's a swan that does the big block of ice that is like you're saying a vice that forces it into an open razor blade that spins on an axis and shaves it off. It produces a very fluffy product. I don't think I would have pursued all the way through because the speed of service is slow. The danger that the 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. And 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.
SPEAKER_02: 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, they're probably huge parts of the United States where people aren't that familiar with shaved ice. Correct. You know, it's not, it's certainly in 2006. So what made you think that that was going to be a winner?
SPEAKER_01: 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. Like everything in moderation, lighten up, you know.
SPEAKER_02: But you really thought that it was just a matter of time, like, and I guess because the margins were better than selling popsicles or ice cream.
SPEAKER_01: Yeah. Because you could handle the, you're basically, you've got your own manufacturing in your truck. Yeah.
SPEAKER_02: 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?
SPEAKER_01: 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. And 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?
SPEAKER_02: 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?
SPEAKER_01: No, I was, I was going to go strict custom from the ground up.
SPEAKER_02: I got it. So you and where do, where at that time could you source those from?
SPEAKER_01: 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.
SPEAKER_02: That's right.
SPEAKER_01: Yes. And so there's all kinds of fabricators up there. I went up there, I spent a couple days, I went around and visited several fabricators and introduced myself, told them my idea. They probably, 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. He was very professional, was a big operation, but then one guy was a very small operation, but he was, I really liked him. And so I actually, I called him to say, Hey, I'm not going to go with you. I am always respectful when I get bids. I'm, Hey, I don't think I'm going to go with you. And he said, why not? I said, well, you know, blah, blah, blah. 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'm not, I don't want to just build you a truck. I want to get in business with you. And you know, I just loved that attitude and his name's Tony Marchetti and you know, doesn't have to sell me too hard. You know, his name's Tony. My name's Tony. I'm like, is this God talking to me?
SPEAKER_02: Did you have a design scheme for what you wanted to look like at that point or not? Not yet.
SPEAKER_01: I did. I had a really close friend, Tony guard, another Tony, another Tony. 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. I want the escapism. And someone comes up to that truck for 10 minutes. I want them to be on a tropical island.
SPEAKER_02: So you wanted it like painted like, cause 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, you know, a bamboo hut basically selling shave ice. Yeah.
SPEAKER_01: Some Palm trees, some little characters in the sun, you know, 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, but it all again comes back to the, you want this experience. All right.
SPEAKER_02: So you were working on this, on the truck with Tony and 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. Not as much as I prevent them from drinking all that soda, but you wanted a way for, I guess, for kids to what, to, to flavor it themselves. Well, if you start talking to kids about snow cones or even shaved ice in some way, either
SPEAKER_01: you go to a hut or you buy a pre-made product and there's the complaints are, there's never enough juice on it, or 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 they're, I think they were nine years old at the time. And I said, 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. And 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 got, 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, you know, are putting, you know, sticking their mouths under the spout and pulling them on. So you got to design the flavor wave to where the kid's head, an eight year old's head won't fit in there.
SPEAKER_02: This is the dispensers are called flavor wave and it's like 10 or whatever, I don't know how many flavors, but basically it's, the idea was you could take your own, you get the shaved ice in the 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.
SPEAKER_01: 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. So 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 what, 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.
SPEAKER_02: All right. So the other thing I'm wondering about is you had some savings, right? But 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 a hundred percent confident?
SPEAKER_01: You know, I guess you would say progressively I'm a hundred 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. We'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.
SPEAKER_02: So this was, 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.
SPEAKER_01: I was the only guy, I say employed, but I wasn't being paid. So I was the only guy in the game.
SPEAKER_02: So this is what you have to do as an entrepreneur. I mean, if you see the movie, The Founder, like Ray Kroc was in his fifties trying to sell ice cream machines and getting the door slammed in his face. You had run a really successful business selling vacuum cleaners. You had 300 people working under you. You had a really very successful business. Here you are almost 40 making shaved ice and selling. 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. Oh no.
SPEAKER_01: Listen, my buddies, you know, 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. I go down to the end of the street and he comes out. I'm like, ah, gee, Merry 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.
SPEAKER_02: 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.
SPEAKER_01: But you got to explain it a lot. You got to tell them how good it is. They 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 Kona's. I'm serving them out and, you know, collected them. 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, that I'm sitting there with one truck thinking, can I scale this? But, you know, the responsibilities I've got four 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.
SPEAKER_02: And you had that in your mind. You thought, am I going to be that guy?
SPEAKER_01: 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.
SPEAKER_02: 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.
SPEAKER_01: Yeah. It's, it's, it's, I took this fella out by the name of David Jones and we were, 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've got to get those two kids right there off that porch, drove around. I said, go real slow. I said, 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 we, 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? I said, oh, this is shaved ice truck and they come in and they start, and then people start, cause 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 I, he said, you remember the time we got stopped in that cul-de-sac and it turned into a block party. And I was like, yeah.
SPEAKER_02: 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?
SPEAKER_01: 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 $180,000. You've got food costs and labor costs and operational costs, you can make, you can net well over a hundred thousand dollars, even debt service meant to pay the truck off over a five year period of time. So I remember calling Ed and I said, hey, I've done the math and I think I can get the truck up to about $150,000 a year. And he's like, no way. And I'm like, yeah, I think I can. And he said, well, that's you.
SPEAKER_02: How many, by the way, how many hours a day would you have to work to hit a thousand bucks a day?
SPEAKER_01: 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 to three or three thirty. Right. We were primarily neighborhood sales. That's what the business model was. And I was trying to get neighborhoods up to a thousand dollars a night. I got a couple of neighborhoods up to a thousand dollars a night through some techniques that we were doing. Techniques, meaning what? Well, you, 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.
SPEAKER_02: OK.
SPEAKER_01: Oh, yeah.
SPEAKER_02: Yard signs. Just like the same playbook from the furniture shop.
SPEAKER_01: I don't have many aces up my sleeve, brother. I keep going back to the well. No, it's a good playbook.
SPEAKER_02: Yeah.
SPEAKER_01: Yeah. Keep going. So now as kids are leaving and parents are leaving, they see the big signs. Cone is coming tonight. You make a little deal with the houses at the edge of the neighborhood. Hey, if you keep this sign up, you know, I'll give your kids free Cone 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 thousand dollars a night. This is 2007. 2008 hits. You remember what happened in 2008.
SPEAKER_02: Massive financial crisis. Yeah.
SPEAKER_01: My neighborhood sales start dropping precipitously.
SPEAKER_02: During the financial crisis, you saw sales drop, even though some people still spend money on small pleasures like ice cream. They do.
SPEAKER_01: 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. They're driving us all crazy. So 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.
SPEAKER_02: 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?
SPEAKER_01: 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?
SPEAKER_01: Well, 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.
SPEAKER_02: 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?
SPEAKER_01: I didn't know whether to franchise or license or just sell the truck as a commodity and you know, let people just do what they want. Yeah. franchising is wonderful because it helps maintain the integrity of the brand.
SPEAKER_02: It helps make sure that you can control the brand, you can control the rather than just licensing it or letters assigned trucks.
SPEAKER_01: Yeah. So so we decided to go down that road is expensive. And we spent some more money, but you and Ed decided to do this.
SPEAKER_02: And just to be clear, it's expensive because of what legal fees and registration fees.
SPEAKER_01: 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.
SPEAKER_02: Yeah. So you decide to start small, presumably in Kentucky, to sell some of these trucks. And how are you going to structure that?
SPEAKER_01: ridiculously. The model out there was, you know, Mr. softy would sell a truck for whatever, I'd 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, is percentages. Yeah. 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. So 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?
SPEAKER_02: Yeah. So let's 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? Well, let me quote Forrest Gump.
SPEAKER_01: When the hurricane hit by La Batre and he said, all the shrimp and 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. 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 backing everything. So if the deal were to go bad, I get the truck back, then I'd have to resell it. But that was probably if there's anything that just set us apart in the early days is the fact that we had financing and nobody else did.
SPEAKER_02: When we come back in just a moment, how Tony grows Kona Ice from a few trucks into $1,500 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. Here's 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. I 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.
SPEAKER_02: Hey, 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.
SPEAKER_01: So we started getting contacted. I did a little bit of marketing, put it out there on the franchise portals, as they call them, you know, franchise.com.
SPEAKER_02: That hey, this is available, these franchises are available. Right.
SPEAKER_01: 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. And 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 sales. And so he drives six hours from Atlanta to come up to Northern Kentucky, pulls into my warehouse, which was nothing to look at. It was a little tiny house with a couple of 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, I saw my wife looks over at me and says, I told you, you got scammed. 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 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. He'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.
SPEAKER_02: And what was your criteria for accepting a franchisee? I mean, I have to assume that 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.
SPEAKER_01: I would stick a mirror under their nose and if it fogged up and their check cleared, they had themselves a brand new Kona Ice Tribe. 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 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 I'm like, what do you, what are you wanting to get into Kona for? He said, well, I 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, just a, 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, those kinds of lines. I'm looking for someone that I want to be in business with. And you 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. These kinds of things that we kind of handhold all the way through.
SPEAKER_02: Tony, I want to talk to you about money for a moment because obviously this is a business show and business is about creating something sustainable. And money doesn't necessarily have to be the end goal, but it certainly is important. There's nothing wrong with making it. And your business model is interesting to say the least, right? Because 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.
SPEAKER_02: Most of your money is coming from selling the trucks or selling the supplies to the franchisees.
SPEAKER_01: 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. I got five people working in the office. Payroll's about $450,000. They say franchise systems have to get to 100 franchises before they can float. And I'm at 100 and I'm not even close to floating. But the reality is this. We make enough money on, 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. But 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 the this. And yeah, we've got enough revenue as long as you keep your expenses low.
SPEAKER_02: 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.
SPEAKER_01: 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 jumping ahead for a sec, like in 2023, the system-wide
SPEAKER_02: sales will be like 370 plus million dollars. 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. 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?
SPEAKER_01: 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, you know, they've got probably 20 franchisees that pretty much run the company. You know, whatever 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 or I don't need them. It's not like, you know, 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 sign 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.
SPEAKER_02: 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, you know, hey, Kona truck is coming this week. I remember first seeing a Kona truck in 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.
SPEAKER_01: It all comes together, doesn't it? Yeah, it's, it's, I've got 1800 billboard trucks driving around.
SPEAKER_02: Yeah.
SPEAKER_01: 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. And every adult that sees the truck and the line of kids says, man, why didn't I think of that? Yeah. And I mean, the testimonies from franchisees are like, I saw a line of kids. I did the math and here I am.
SPEAKER_02: A huge part of the business is school events, right? Essentially you go, you pull up 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.
SPEAKER_01: And it's, it's, and that's changed the industry tremendously. And as far as, hey, listen, you're making a great margin. Let's figure out how to, you know, revenue share, give back and be communal about it.
SPEAKER_02: You 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.
SPEAKER_02: That's over all of a sudden.
SPEAKER_01: It was over in like three or four days. Listen, I don't want to, you know, where people losing their lives, but the businesses were, I mean, this is traumatic, I think. But we pivoted.
SPEAKER_02: What did you do?
SPEAKER_01: 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. We 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. You know, 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 franchisees. They were all still looking to collect their payments. And so we went after installments and deferments. But probably the biggest thing that we did was we were able to develop a program called Curbicide Kona. It was an ordering platform for mobile. And it was very archaic, but it worked for us.
SPEAKER_02: So you could go online, order it, and then the truck would pull up and hand it to you.
SPEAKER_01: Yeah. And, you know, we developed our flavor wave to it operated with the end of a spoon, not your finger. And we just went out hard. And the franchisees just came and bored and ideas were flowing. I had guys working here, I think sometimes 20 hours a day, you know, talking franchisees through this fairly complicated software to teach everybody how to do it.
SPEAKER_02: When 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, maybe even more recently, is a coffee business. Can you tell me a little bit about that business? It's called Traveling Toms. This is a totally separate business or is it part of Kona Ice?
SPEAKER_01: Totally separate.
SPEAKER_02: Same concept, though? It's basically a mobile truck that does coffee and coffee drinks.
SPEAKER_01: Mobile coffee cafe.
SPEAKER_02: So tell me what's going on. What's the status of it right now?
SPEAKER_01: It is flourishing. This started on March 18, 2020. I looked at my team. From that staff meeting, I told you where I said everybody's OK. Well, you start having to reallocate people around.
SPEAKER_02: You started the business in March 2020 or the idea came to you in March of 2020?
SPEAKER_01: The idea has been with me for years. I have behind my desk was just 20 renderings, artist renderings of different coffee trucks, cafe trucks and things like that. 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. The 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 out. We're only selling to Kona franchisees right now. Right now. You have to be a Kona franchisee to buy at Tom's Traveling.
SPEAKER_02: When you look at the economics, do you see the coffee business eclipsing the shave ice business eventually?
SPEAKER_01: 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.
SPEAKER_02: It's amazing because there seems to be such a mass proliferation of good coffee. Like you can go to remote parts of the United States and find great coffee in Alaska or you know. Right.
SPEAKER_01: 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.
SPEAKER_02: And right now you're only in a few states.
SPEAKER_01: No, we're in probably, I think 13 states right now.
SPEAKER_02: Right. And Tom is your dad, I should mention. Tom is my dad. And he's the mascot too. It's his head, right? That's him? He is. He is. The orange sunglasses? Yep. And the orange sunglasses. It's been great. Tony, when you think about like, you know, this journey that you took, I mean, you know,
SPEAKER_02: 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 1500 trucks just in Cone Heights, $375 million in system-wide sales in 2023. That's a really great business that you started from, you know, an idea. How much of where you are today do you think has to do with just the hustle, the grind, and your, you know, 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,
SPEAKER_01: 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 in 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 was working my butt off. But, you know, I've been so lucky to get around great people and have a family that, you know, that has been involved and stuck with me. And 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.
SPEAKER_02: That's Tony Lam, 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. And as always, it's free. This episode was produced by Casey Herman with music composed by Ramtin Arablui. It was edited by Niva Grant with research help from Katherine Seifer. Our audio engineers were Ko Takasugi Chernovan and Robert Rodriguez. Our production staff also includes JC 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. If 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.
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