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SPEAKER_02: We had never worked in retail. Our qualification was the fact that we had been customers of the thing that we wanted to create. Yeah, it's interesting.
SPEAKER_00: I think one of our strengths at the time was the fact that we didn't know what we didn't know. A friend joined our board early on, and the week before our first store opened, he said, listen, I decided to do this because I really like you two. And I wanted to make the process of failure less painful for you because this is never going to work.
SPEAKER_03: 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 Scott and Ali Svensson took a huge swing at two simple ideas and turned them both into multimillion dollar businesses. Starting a brand that scales is hard. Doing it twice? Extremely rare. Back when I was a student in London in the mid-1990s, I used to get my coffee fix at an American-style coffee bar. It was called Seattle Coffee Company. It was one of the only places you could get a latte or a cappuccino or a double espresso in a to-go cup. And back then, in London, when you asked for your coffee to go, they'd hand you a styrofoam cup without a lid. And inside? Instant coffee. At the time, there was no Starbucks in London. There was Seattle Coffee Company, and it was started by Scott and Ali Svensson. Within a few years of opening one location, they turned Seattle Coffee Company into a mini empire. It got big enough that, when Starbucks was looking to expand to Europe, the company simply bought Scott and Ali's coffee chain. So they eventually went back to the U.S., back home to Seattle. But the itch to start something new wouldn't go away. So in 2008, they decided to take on pizza. They were inspired by fast-casual chains like Chipotle and Panera. And they wondered, why wasn't anyone doing fast-casual in pizza? Well, their answer was to create Mod Pizza. And today, it's one of the fastest-growing restaurant chains in the U.S., with more than 530 stores nationwide. Scott and Ali were high school sweethearts at Bellevue High, just outside of Seattle. They both ended up going to college on the East Coast. Scott graduated a year before Ali and ended up in New York. Ali was in Paris studying abroad. But — and this is before the era of email and text messages — they still managed to stay in touch.
SPEAKER_02: It's actually fun to think back to this because writing letters was something that we relied on a lot. Scott and I had been on kind of a little bit of a break. Our circumstances were just that we were in such different places. Scott had been on the East Coast for a summer. I was in Seattle, and then I knew I was going to be abroad for the year. When I was in France, it was just about postcards and writing letters. And it started very subtly. Scott and I would write each other occasional updates. And then as time went on, the letters became longer. And I got one of these beautifully long, wonderful letter from him. And I remember thinking, I just I love the way he writes. I love the letters we're writing. And I was able to come home for a very quick trip for the holidays during Christmas time. From that point on, there was something that had happened in our letter writing that once we were back together again from that holiday period — I did go back to France for the whole second semester. And he then graduated and came over and spent time with me there. We've basically been completely together ever since that break. And then by my senior year at Wellesley, he was in New York. And we tried to see each other as often as possible on weekends. So we made it work, but there was no FaceTime or texting or any of that. We wrote letters and then tried to spend time together when we could.
SPEAKER_03: I guess, Scott, you decided to go work in finance. And you got a job for the infamous or later infamous Drexel Burnham Lambier. Was there I mean finance was it just sort of like, yeah, I mean, it's an easy way to make some money and I'll go do that or were you really excited about going into finance?
SPEAKER_00: When I graduated, I really had very little clarity as to what I wanted to do as a career. And a lot of people from Harvard ended up going to work on Wall Street. And I looked at it as an opportunity, frankly, very simply to make some money to pay my student loans back because I did need to make money and to get an education in business because I graduated with an undergraduate degree in government. And I literally graduated not knowing the difference between a balance sheet and a profit and loss statement. So I had a lot to learn and I viewed it as a fabulous way to get an education and get paid enough so that I could start repaying my student loans. And it turned out that that was what it delivered me. It was a great lesson for me at that stage as well.
SPEAKER_03: All right. So you end up working there and then I think they moved you to London. And Ali, I think 1990 you joined Scott in London. Is that right? You moved there after college after you graduated?
SPEAKER_02: I graduated. I got my dream job, which was back in Seattle. I loved it, but it was a two-year kind of program. It was with NBC affiliate in the Seattle market.
SPEAKER_03: You wanted to be like a newscaster?
SPEAKER_02: Yeah. I was actually on the track more of producing and I loved this job, but it became clear to me as I was doing it that if I were to pursue that career, that industry, I would be beholden to moving to the different markets that that job required me to move to. And at the time, Scott and I, we had been together for a long time and we'd been living apart for a long time. And we agreed that if we were going to stay together, we needed to actually be together, which meant moving to London. We were not married at the time, but yeah, I moved there in 90 and then we ended up getting married in 91. In the meantime, Scott, because of what Drexel Burnham, I think, had declared bankruptcy,
SPEAKER_03: so you presumably had to find another job. You went to go work for a private equity group and I guess while you were there, you ended up becoming the deputy CEO of a healthcare company. Was that a company that the private equity group had bought out?
SPEAKER_00: So you're right. I left Drexel with a group of professionals that moved to another firm, Apex Partners, and I spent three years there advising and investing in a range of companies. And one of the areas that we specialized in or that I in particular focused on was healthcare with a focus on long-term healthcare. And I had been advising a company on restructuring their business and raising some financing and did a large financing. And then the CEO and board came to me and said, hey, listen, you've put in place a lot of the framework that we're now going to go and try to execute against. Why don't you come and join us and help us do it? And I knew that I didn't want to spend my whole career on the advisory side. I really wanted to become a principal. I wanted to go build things. And I was, this was my first opportunity to step across that divide and get into an operating role. So I became deputy chief executive of a small public long-term healthcare company.
SPEAKER_03: Wow. And a British based company? Yes. Yeah, exactly. And you were like, what, 28 years old or something. You were young. That's right. All right. So you've got this job, pretty good job. And Ali, you've got, what did you do when you got there? I said, let's go get a latte and then I'll go get a job.
SPEAKER_02: And I was so naive. One, there were no lattes and two, there was no way an American could get a job without a work permit. I did not know that. So the very first Monday that I was there, I walked around looking for coffee because I thought Scott had just been working too hard and he just hadn't found the good coffee places. And a family friend of mine worked in publishing and I knocked on many doors trying to get jobs in publishing because that was the only connection I had there in London at the time. And so I ended up getting a job with a magazine called City Limits. It was kind of like Time Out and it was actually a very fun job for an American living in London because my job was to make sure that the magazine was distributed and marketed and had visibility on all the streets. So I would spend hours and days walking the streets of London, getting to know the news agents, making sure that they would put city limits up in a way in which people could see it. So I would drive my little commute every day with my little homemade cup of coffee, my hack of Starbucks-like coffee offering that we were looking for, but we would have to make our own coffee, bring all the coffee back from the US. And that went on for a while.
SPEAKER_03: All right. So this is like, I mean, obviously we're foreshadowing here because we're going to talk about coffee. We're going to talk about coffee in a moment, but this is the early 90s in the UK and probably a lot of people drank instant coffee. And coffee culture, like that whole sort of second wave hadn't really arrived in the US quite yet. Starbucks was mainly in the Pacific Northwest. I think they had a location in Chicago, maybe one in LA. But you knew it because you guys were from Seattle. So you knew Starbucks. And in London, you could not find anything like it. You couldn't find a decent cup of coffee there at the time in the early 90s.
SPEAKER_02: Right. And it was really surprising and probably shocking to people now to think that it was like this, but it really was. There were, if you went into all the sandwich bars that were everywhere, it was just crap coffee and little styrofoam cups.
SPEAKER_03: You would get like a, I remember like a metal little teapot and they'd put some instant coffee in there and just like put hot water in there and give that to you.
SPEAKER_02: Right. And if you could find some good coffee, there were about four Italian coffee bars in Soho. The coffee was good, but if you asked for an extra shot, which I always did, or if you asked for a different size or you wanted to specify what kind of milk, they just were so angry and didn't want to do that. So they were the hardcore Italian coffee bar offerings. And then there were a few French places that were, so a few little spots would have decent tasting coffee, but nobody had what we were used to, which was a customizable coffee offering that we all now know, you know, it's everywhere, but it was nowhere there. It did not. And we know cause we walked every single street. I mean, it truly, we spent about three years looking.
SPEAKER_01:
SPEAKER_03: And if you wanted it to go, they'd just give it to you in a styrofoam cup with no lid. Absolutely.
SPEAKER_02: And the other size with a really bad lid, the kind that you, you know, those old ones. Yeah. They're just horrible. All right.
SPEAKER_03: So when did the two of you start to talk about, Hey, maybe there's an opportunity here to open us like a Starbucks like coffee place.
SPEAKER_02: Looking back on it, it did not occur to us to do that. We were looking for something that we desperately wanted. We were getting cranky about it. We kept hearing false rumors that Starbucks is coming or somebody's friend's cousin is about to open a place. And I would go look at the real estate that we heard that where it was going to open and nothing ever happened. And it wasn't until some friends slash colleague of Scott's had been hearing us talk and bitch and moan about this for quite some time.
SPEAKER_00: Right? Yeah. So it's interesting that it all came to a head. I was in Scotland on a work trip with the person I worked most closely with, the CEO of the company I was at and his brother who were both good friends and they'd been hearing Ali and I talk about this coffee idea for years and we were flying back from Scotland to London and they both looked at me and said, you know what? You two need to stop complaining about this or do something about it. And in the spur of the moment I said, okay, well if we're going to do something about it, then you need to do it with us. And they said, okay. This is the CEO of the long-term healthcare provider company.
SPEAKER_03: Yes. CrestaCare.
SPEAKER_00: This is the company. CrestaCare. Yeah. He was very entrepreneurial. His family was very entrepreneurial. And so Starbucks had expanded to New York and the hypothesis we had was, well gosh, if it works in New York, given how international and diverse that city is, it'll work in London. And so we agreed as part of this challenge, if you will, that Ali and I and Nigel and Andrew our two friends would go and spend a weekend in New York and we would explore Starbucks and we would make a decision. And so we ended up going to New York together and spent a weekend and came back and decided that we were going to open a Seattle style coffee shop in London inspired by what we missed from our days in Seattle with Starbucks.
SPEAKER_03: So let me just pause for a moment. This is the CEO of the company. You are his deputy. And he's saying, hey, if you're so sick and tired of this, why don't you go do something? He's essentially saying, hey, you can leave the company that I hired you to be my deputy in and go start this thing. It just sounds crazy to me that he would say that. There are two components to this story that need maybe a little bit more detail.
SPEAKER_00: One was at the time, the idea was we would just do this on the side and that I would stay at CrestaCare. That was the vision. Secondly, one of the most profound moments of my professional life was an incident where, unfortunately the same individual ended up having a disagreement with the board. It all came to a head in a very dramatic board meeting where some evidence was produced and put on the table. And unfortunately I was the one with, you know, 15 people sitting in the room that when I looked at this document, I identified the element in this document that confirmed the board's contention. I ended up having to ask for the meeting to be paused. I asked for this friend of mine to walk out in the hall with me. I asked him directly whether or not what I saw in the document was correct. He didn't say anything, just walked away and did not go back in the boardroom. I walked back in the boardroom and shared what I had seen. And that led to a front page article in the Financial Times the next day that this CEO had been removed.
SPEAKER_03: He was essentially probably stealing money from the company.
SPEAKER_00: Well, no. He was negotiating his employment contract and there was a disagreement and there were some concerns about the integrity of documents that had been... I see. Okay. And so it ended up blowing up into... And there were other things that kind of concern the board. But in any event, this led to him being removed. And despite that situation, and I think it was because Andrew, the person involved, recognized that he knew that I had a certain personal ethic and that I stood by my ethics when I had to call him out. And so I think he forgave me that and we stayed friends and we ended up building this business together. Allie and I built it and they were our backers.
SPEAKER_03: So he basically... They had already agreed to back you, then he was ousted. But you had already kind of made this decision that you would, on the side, start this coffee store.
SPEAKER_00: Yes. Yeah. Effectively. The specific sequencing in time is a little foggy.
SPEAKER_03: But that's super awkward. I mean, this guy that was going to back you, that he and his brother encouraged you, and then you had to kind of confirm that he had kind of produced false documents.
SPEAKER_00: Yeah. It was a very, very difficult moment. It was one of the most profound lessons of my young professional life. But we, as a team, Allie and I and a group of people who backed us, this family in particular, carried on and pursued this exciting opportunity to build Seattle Coffee Company together. All right.
SPEAKER_03: So it's 1995. And so I'm assuming you... Basically that was the reason why you left CrestaCare? Or that was one of the reasons? It just made sense for you to go?
SPEAKER_00: Well, so what ended up happening is we had made an acquisition and brought on a very prominent doctor who ended up becoming the new CEO. So I was still the deputy CEO working with this new individual. I stayed in that role for another 12 months. And it was about six months into that experience that Allie and I, with the group behind Seattle Coffee Company, decided at that point that we were really onto something. Allie and I talked about it and we made the decision for me to come in full time because Allie had been...
SPEAKER_02: I had left my job in 1994. Yeah.
SPEAKER_03: So these guys say, hey, you should open your own place. But let's start with like coffee, a coffee shop, right? I mean, you're coming from running a long-term health care company. And Allie, you were in publishing. And of course, we're not talking about starting an automotive company and industrial manufacturing, but still, there is still things you have to learn about that business. It's a quick service restaurant, let's say. So first of all, where did you start? I mean, you went to Starbucks in the US and you saw what they were doing and you loved it. So how did you even start to think about how you would build a coffee shop in London? Where did you go first?
SPEAKER_02: At the time, we had never worked in retail. What we realized though was our qualification was the fact that we had been customers of the thing that we wanted to create. And that became kind of the lens that we used for everything. And I remember at the time, Lavazza, we went to, who makes some of the best coffee? How can we learn about coffee? And we went to some coffee shows and tasted coffee and actually started to just systematically go through a little list of what do we need? I mean, we wrote it down on a lined piece of paper. We need to find coffee. We need cups. We need lids. Did you even know how to make an espresso?
SPEAKER_03: No. Yeah. No. Right. Okay.
SPEAKER_02: No judgment. I'm just curious. No, no. So that's the fun stuff. In fact, I remember we went to the Lavazza training program in the little industrial estate on the outskirts of London, because if we were going to be, once we decided we were going to use their coffee initially for the espresso, they then put you through these little training things. So we learned what we could and also realized early on the importance of good partnership. Who's your supplier? And if they're really good and their product is really good, you can lean heavily on that. And we also called a daughter of some family friends of ours and said, listen, we're looking for somebody who's worked in a Starbucks style coffee place. We knew we needed to get somebody over that could help just from an operations perspective. And this friend of ours said, oh, yes, I'll think about it. I'll look into it. And then she contacted us and said, well, I want to be that person. And she got to school really quickly on learning everything she could in the Seattle market. And then she moved over right before we opened the first location. But I mean, we need to get a location. That was a whole process. We need the product. We need to figure out the operation of how to bring the product to customers. And it was incredibly old school. We ended up creating our mission statement to reflect this lens that we knew we needed to use. And the mission statement was written out on a yellow sticky that just said, you know, we will create a Seattle style coffee bar that would fool a Seattleite, which meant things like it had to be the cups and the lids that we're used to. And it can't be compromised and it can't be the UK version of that stuff because it's not.
SPEAKER_01:
SPEAKER_00: It's interesting. I think one of our strengths at the time was the fact that we didn't know what we didn't know. But we had an incredibly clear and we were totally aligned on the vision for what we wanted to bring to life. And a friend of this family that I mentioned before was a very prominent retailer in the UK. And he joined our board early on. And the week before our first store opened in a board meeting, he said, listen, I decided to do this because I really like you two. And I wanted to make the process of failure less painful for you because this is never going to work. And he had his theory because, you know, he could not imagine selling enough cups of coffee to not only pay the rent, but also pay very expensive labor in the UK and all the other costs of goods sold. And he just couldn't envision it because he had never been to Starbucks in the US. He had never seen this coffee revolution. He just thought of it in the context of what existed in the UK at the time, which was very, very different. Like you said, around the world at that time, about 92% of all coffee consumed was real coffee and 8% was instant. In the UK, it was the inverse of that. It was over 90% instant and the balance was real. They drank a lot of tea and hot drinks. But coffee was just not the thing. And so he just couldn't imagine the Brits rallying around, you know, coming in often enough to buy expensive cups of coffee to make this work.
SPEAKER_01:
SPEAKER_02: And he was not unique in having that kind of, you know, doomsday approach. The way this was viewed at the time, people just did not get it in the UK. For a period of time in our little basement flat when we were trying to source the paper products, we knew we needed cups and lids and we contacted every single possibility in the UK. And I would ask for, you know, we're looking to, we need three sizes, you know, we need a short, tall and a grande and we need the lids and every single time we were told that doesn't exist, that does not make sense. We were even told you're not going to want to offer anything over an eight ounce cup of coffee. It will be offensive to people in the United Kingdom. That is just too, that is gross. That is too much. Too American. They kept saying, do not do it. Do not get all those sizes. You're going to, it's a mistake. You're going to regret it. And it became so frustrating for us that we ended up, we had to bring in the cups from Chicago and sticker them. And I remember saying to them, once people have held these cups, once they drink their coffee out of these cups, there's no going back. Everybody will want these cups. And it wasn't very long after that point once Seattle Coffee Company got going and then others that, you know, if you went there within a year or two, every single cup of coffee consumed on those streets were the new, you know, nice wax cups with the good lids.
SPEAKER_03: You guys found a spot in Coven Garden, which is obviously a sort of a tourist hub and a bustling area. And was it a hit right away?
SPEAKER_02: It was. And it was so validating because we would get people piling out of a black cab in front of this little location of ours. These euphoric Americans that had heard finally, they were what we would have been two years prior, three years prior, looking for the people that would finally open one of these places. So they would come in so excited or a lot of people that have been traveling around Europe had heard. They would show up in London. Their first stop would be Seattle Coffee Company because they could get a taste of home. That was really fun to see. But the nice thing about Coven Garden is it's so crowded and so busy. So very quickly, we also had, you know, British people that worked nearby. The lines developed very quickly. And it was fun to watch how people would, some people knew exactly how to do it. And then a lot of people didn't. And so we had to create, you know, beautiful posters that demonstrated the architectural build of one of these coffee drinks.
SPEAKER_00: What's the difference between a cappuccino and a latte? Yeah.
SPEAKER_02: And sometimes the British, you know, response was what we predicted, which was you can't make it feel like it's this American concept being shoved down your throat. A lot of people came in and said, I just want a coffee. We knew what they meant was like a lot. They wanted a they wanted coffee with warm milk. And they but they didn't know how to be how to order it. And you could watch people in a line learn from each other. So if there was the American asking for the coffee drink using all the right lingo, the British person behind them could start to get a little comfortable with, well, what is that? Can I try the vanilla? Can I try the vanilla?
SPEAKER_03: And were you you were basically managing this first location? Yeah, I mean, it was kind of a collaborative effort, to be honest.
SPEAKER_02: It was a we were just figuring it out. We were in the location all the time.
SPEAKER_00: It was a crazy time, though. There was a moment that maybe lasted a month when we opened the store and we realized I was driving Allie to drop her at the store early, early in the morning before it opened. I would then go to the health care company to work during the day. And then I would drive back to Covent Garden to help her clothes. And we would then drive home at nine o'clock at night and pick up a pizza or something, and then wake up the next morning and do the same thing. And while that was exciting and entrepreneurial, it also felt incredibly constraining because we're like, oh, my gosh, we've opened this thing and now we own it. And how are we going to get out from under this? Because otherwise, this is just going to be a burden. And we knew that the only way was to refine the concept, figure it out and start growing it so that it wasn't just this one location that we needed to babysit.
SPEAKER_02: We then did, we did, I remember recruited our first manager so that we could, we didn't have to be in the store every moment of every day. There's a character named Peter who his previous job, he'd worked in Buckingham Palace as a footman. So the idea was if you stayed running this one store, it was going to be a hamster wheel.
SPEAKER_03: It was just going to be like you couldn't get out of that hamster. But in order to, so your thinking was in order to get off the hamster wheel, which is I'm
SPEAKER_03: trying to figure that out because I would think that you just build yourself a bigger hamster wheel, it was you would expand the concept because you didn't go into it thinking, let's build a chain of coffee shops. You thought let's just build a one-off.
SPEAKER_00: Well we, this was the thought. We had always talked about wanting to bring to London two things, the Starbucks style coffee experience and a bit of home, a bit of Seattle. And that meant, you know, the customer service ethic, the positivity, the energy that we've associated with home that didn't exist on the high street of London at the time. And we said when we opened our first store, if the, if the worst thing that happens is we open this one store in Covent Garden and we bring those two things together and introduce it to London, that would be a success. But we had in the back of our mind, well gosh, if this works, then maybe it will lead to something bigger and more exciting. But at the time our planning was like one step at a time. And the initial planning was, well let's just see if we can get one location open and we can figure out how to put all these pieces together and let's see if people even want this. Once we'd gotten through that and realized, wow, there is a lot of demand for this. Then we started to say, okay, what's next? The next step was, well, we should probably open two other locations in very different venues. Because listen, opening a store in Covent Garden, it's Covent Garden and there are a lot of people. So let's try one in a business district and let's try one in a, in a location outside of London. And it was a bit haphazard, but that was the way we thought at the time. Let's let's expand this one step at a time.
SPEAKER_02: It was working in Covent Garden. And so there is a certain logic to say, well, let's find other places like Covent Garden. And we actually did the opposite, like Scott said. And I kind of look back and I wonder, gosh, we were really, we did the right thing at the time. We opened our second location was as different from the Covent Garden location as it could possibly be. We made it really hard for ourselves. We opened a bookstore cafe in Cambridge. And then our third site was in the city financial district. And that kind of set us up for what we were able to then grow it quickly.
SPEAKER_03: You decided that you were going to expand this. And I guess going from one to two to three, you had a template, right? You had a design, what the locations looked like. You had the logos. You now had, you're getting the Lavazza coffee. So you had, you had it all worked out. So going from one to two to three, you could replicate that. Right. It was a matter of just hiring people and making sure that they were well-trained, more or less, right?
SPEAKER_00: Well, yes. And, you know, the format and profile of the first store was very different from the second, different from the third. It felt a little bit at that time like we were kind of continuing to create the concept while we were opening those first few stores. Laboratory mode, very much. But you're right.
SPEAKER_03: It was a simple, it was straightforward. I mean, you had just coffee drinks and maybe like some baked goods. Yeah. We had a pretty extensive food offering, more extensive than Starbucks at the time.
SPEAKER_00: To put it in context, Starbucks food sales at the time were eight to 10% of sales and ours were 25%.
SPEAKER_02: But we should talk about the coffee because there was, it was within that laboratory phase where two guys showed up to our first location there in Covent Garden. They were both British, but they were two guys who had been, they were living in California and they became infatuated with Pete's Coffee and the whole Starbucks scene. And they were captivated by it all, actually learned a bit about coffee while they were there and then they decided, are we going to set up a roastery or are we going to set up a retail brand back in London? They decided just when we were setting up Seattle Coffee Company, unbeknownst to all of us, they decided to go with developing out the roastery, Torres and Macatoni roastery. So they did that while we were building out our first location. They came, stumbled on us. That was an incredible beginning of a relationship that also really enriched what Seattle Coffee Company became because we ultimately acquired Torres and Macatoni. And so we now, we were roasting our own coffee. And at the time they were supplying beans to the highest and most special restaurants in the UK. They were really wonderfully obsessed with the science of creating great coffee and roasting beautiful coffee beans. So that helped Seattle Coffee Company quite a bit.
SPEAKER_03: I'm trying to get my head around. I mean, you open the first location 95, by 97 you've got 35 in the UK. And then there was a period of like two months where you opened like 20 or 25 stores. First of all, it seems like you were racing against a clock. Why were you in such rapid expansion mode?
SPEAKER_00: Well, a lot of it was, this was at a time when Andy Grove's book, Only the Paranoid Survive had come out, I believe. And we respected Starbucks so much. They had been our inspiration and they were our role model. And there was no animosity between us and them. We truly were inspired by them. And we knew that if they decided to come to London, that they would probably just take over and, you know, their size and scale and sophistication, we really felt like we were outmatched. I remember somebody told us, oh, if they get here, they'll squish you like a grape.
SPEAKER_03: Can we come back in just a moment, what happened when Starbucks did come to London and how a van full of teens led Scott and Allie to think seriously about pizza? Stay with us. I'm your host, Ross, and you're listening to how I built this. One of the reasons I love summer is summer fruits and vegetables, and it's an incredible opportunity to prepare fresh meals in my own kitchen. In fact, I learned so much about selecting seasonal ingredients when I took a class with Chef Alice Waters on MasterClass. With MasterClass, you can learn from the best to become your best anytime, anywhere, and at your own pace. Annual memberships start at $10 a month, and you get unlimited access to every instructor, thousands of online lessons, exclusive content, insights, and much more. There are over 180 classes to pick from, everything from self-made entrepreneurship with Sarah Blakely to skateboarding with Tony Hawk, and new classes are added every month. The Alice Waters class, for example, teaches the art of home cooking with amazing insights on building a home pantry and essential tools for the kitchen. Get unlimited access to every class, and right now, as a How I Built This listener, you can get 15% off when you go to masterclass.com slash built. That's masterclass.com slash built for 15% off an annual membership. Masterclass.com slash built. Hey, small business leaders. On How I Built This, we hear all about how founders have built their companies from the ground up, and today's sponsor, Justworks, makes it easier for you to start, run, and grow a business. And let me tell you how Justworks can help your business. Whether you're looking for help with payroll, benefits, HR tools, or compliance, Justworks has you covered. And Justworks makes it simple to hire and manage remote employees across all 50 states. Its cloud-based platform enables managers and employees alike to quickly and securely access benefits, payroll, and other HR functionality from anywhere, anytime. Justworks also believes that it's your right as a customer to have a phenomenal service experience every time. Whether you have a question about setting up benefits, paychecks, or anything else, their team of experts is standing by 24-7, ready to guide you. Learn more about Justworks and how they can help you get more done by visiting Justworks.com slash podcast. That's Justworks.com slash podcast. One more thing before we get back to the show. Please make sure to click the follow button on your podcast app so you never miss a new episode of the show. And it's totally free. Hey, welcome back to How I Built This. I'm Guy Raz. So, it's the mid-1990s. Ali and Scott are working round the clock on Seattle Coffee Company, and the business is booming. But they still have to figure out how to manage the company's growth and deal with the low looming threat of Starbucks.
SPEAKER_00: I mean, I think we had an appropriate amount of humility and a little bit of an inferiority complex that if they came over, they would bring the full capacities of the organization to try to dislodge us. And so, we knew that it was a market share game. We knew that we had to get out and secure the right real estate and build the brand. And in our market, they talk about the first mover advantage. And we had to secure that first mover advantage so that if they did come, we could defend ourselves.
SPEAKER_03: How did you manage? I'm just trying to, I mean, you know, 65 locations in a three-year period of time, I mean, you had to identify locations, you had to get the build out, you had to find the people, and you had to, I mean, and you're doing this all over the UK, sometimes two or three a week. So just help me understand how you actually manage that.
SPEAKER_02: I'm smiling right now because I'm having a memory of what our Sunday, so you mentioned guy site selection. I mean, just that alone is a process that's very time intensive. And we would get, you know, long lists of potential sites from our real estate broker. And typically, you go through the process of visiting and studying those sites and you have to, you know, make a schedule to go do that. And at the time when we would get this list of a bunch of sites to go look at, we were parents of a very young kid named Tristan, who I was nursing. And anybody who's been a parent of a baby knows there's not a lot of sleep that goes on you if you're feeding a baby in the middle of the night or early morning. That can be tough. But for us, it actually was awesome. We would have our Sundays. I remember on weekends, Tristan would wake up for his morning feed at whatever four in the morning or something. And instead of us going back to sleep, we would load him up in the car after I fed him and we would be able to drive what otherwise would have been, you know, gridlock traffic all around the city, all around London. We would be able to drive with sleeping Tristan well fed in the back and see all of these sites all in a day. And then on that Monday morning, we were able to give our feedback to the real estate guy and we could fast track things that way. I mean, that's how we, I mean, our situation was a bit nutty. Our life was very, the dimension of it was all about Seattle Coffee Company. But in some ways, like having Tristan, that helped us.
SPEAKER_03: So, all right, this crazy rapid expansion and even licensing deals overseas, I mean, imagine a certain point you thought, okay, this is going to be a global empire. But in the end, three years in Starbucks offers you $90 million and you accept it. You sell the company to them.
SPEAKER_00: Yeah, it's an interesting, how that came about is interesting. We had been raising capital to grow. We had a strategy to turn this into a brand that was, like you said, outside of the UK and we had global aspirations. We had signed up with partners in the Middle East and South Africa and Southeast Asia and had plans to go to Northern Europe. And actually it had conversations with several brands in the US, well-known brands, about us acquiring them to create an entree into the US so that we would become the global alternative to Starbucks. At the time, Starbucks was very established in the US and they had gone to Japan as part of their first step to becoming an international brand. Well, we were far ahead of them internationally and so the hypothesis was we could become the Pepsi to their Coke. And at the time we sold the Starbucks, we had 68 locations, but we had 50 locations in our UK pipeline for the next year and we had a whole bunch of stores we were going to be opening internationally. And that's when Starbucks approached us and said, we have an aspiration of building the world's most inspiring brand or something. There was a context for it. And they said that we know that to do that, we need to be successful in three markets, New York, Tokyo, and London. And we are in New York City and Tokyo and you're in London and that's a problem. And so we want to solve that problem by working with you as opposed to against you. And so we ended up having this very positive conversation because again, we very much looked up to them as our inspiration. So we started by having a conversation with Oren Smith, who was the president of the company at the time. And that led to Howard Schultz coming to do a visit and entering a negotiation to see if we could make this work. And it all led very quickly to us deciding to work with Starbucks as opposed to competing with them.
SPEAKER_03: So all of your locations under that deal would become Starbucks. You would take on an executive role. And eventually, I think you were even the president of Starbucks Europe. What was that experience like for you? I mean, because I should say, I don't think you ended up spending that much time there. Was that the idea that you would just kind of stay there for a couple of years as part of the commitment of being bought out? Or did you think, okay, I'm going to have a career at Starbucks now?
SPEAKER_00: Yeah, it's a great question. At the time the transaction happened, I made a commitment, Allie and I made a commitment that we would work as hard as possible to make sure that the transaction was as successful for them and their shareholders as it had been for our shareholders. And that was an informal handshake. And I stuck around for almost two years to help manage the transition from Seattle Coffee Company to Starbucks. And it was a fascinating experience, very eye-opening in that we assumed that this big successful business would come over and everything would be buttoned down and polished. And what we found was all of the challenges and the imperfections and the dysfunction that we had in our small little company were just amplified on a bigger scale at Starbucks. And it was funny because Howard Schultz took us to dinner right after the transaction closed in London. And he had had a little bit of a campaign going on internally at the time around how do you get big and stay small? And there was a book that he was handing out to all of his senior executives called Orbiting the Giant Hairball. And he gave us a copy of it. And it's a lot of pictures and graphics. And the whole premise is when you start a company like Starbucks, you have to put processes in place and systems and controls. And each one of those is like a little piece of hair. And over time, it creates this hairball that if you're not careful, it'll stifle. So he talked a lot to us at the time about that. And his basic message to us was, we love what you have done in the UK and how entrepreneurial you've been and dynamic and please build a wall across the Atlantic. And don't let, I think the word he used was the bastards, but don't let those in from Starbucks who are going to try to take that away from you. And they will do it in my name and with all of the right intentions. But they don't understand that what I really want is for you to continue to be entrepreneurial and dynamic and creative, not just to cut and paste everything that we've done in the US into the UK, because that will be a hairball. And so what we found was, he was right, there was a lot of momentum organizationally to simply replicate in a new market what they had success doing elsewhere. And so that was a very, very interesting experience for me. And I loved it, but ultimately decided, Ali and I, that what we loved even more was building things. And I talked to Ali about it and we came back and I sat with Howard Schultz and said, I love this place. I love this brand. But I think Ali and I are going to go and think about what to do next in terms of building our next business as opposed to coming in and managing your great business. And so we ended up deciding to leave Starbucks.
SPEAKER_03: So you guys moved back to the US, back to Seattle in 2000. You've got your financially secure. I mean, you can just kind of spend, focus all your energy on your family if you wanted to for the rest of your lives. But you, I think, Scott, you joined or maybe you started a private equity group when you got back. You created one, right? Yeah.
SPEAKER_00: So one little thing that happened in between is as we were leaving Starbucks, we got involved with helping to back an incredible couple and concept called Carluccio's, which is an Italian Deli Cafe concept that two incredible people, Antonio and Priscilla Carluccio's, were in the process of bringing to life in the UK. And we helped them build a really fun, successful business called Carluccio's. And that was something that we did while we were still in the UK. And then we were very involved with when we got back to Seattle. But that was another chapter for us of helping a really great team bring to life a concept based on what we had learned from our experiences with Seattle Coffee Company. And that's a company that eventually went public in the UK and then we eventually sold it. But that was all happening while we moved back to Seattle. And then you're right. We decided to set up a company called the Sienna Group, which was intended to be a platform from which we could bring the experiences we'd had with Seattle Coffee Company and Carluccio's and support and back other private companies that were growing. But to do so more as a investor and coach, less as a full-time executive. So you're back, fully back in Seattle at this point.
SPEAKER_03: And I think initially the idea with this private equity group that you started was to kind of follow the Warren Buffett playbook, find great family-owned businesses, buy them and don't sell them necessarily, but hold them for a long time. And did that pan out? What kind of businesses were you looking for? He's got paint companies and railways and chocolate. Yeah, so Carluccio's was one of the businesses that we had participated in.
SPEAKER_00: And then we ended up making a very large investment in a wealth and asset management company here in Seattle with the idea of kind of using this as a platform to start to dabble in combining profit and purpose.
SPEAKER_03: So you guys are involved in philanthropy. So tell me how you, the conversations you started to have around starting another business of your own, because you'd been through it, right? You did your own startup 10 years earlier. And now it's like 2006, 2007, you start to talk about maybe the two of you starting something again. How did that start?
SPEAKER_00: Well, what ended up happening is we had been approached many times by people who were interested in getting us involved with a coffee business or a restaurant retail business. And we had always politely declined. But one of the elements of our time in Europe was we had an intense love affair with Italy and all things Italian. When we had a chance to travel, most of the time we ended up going to Italy because there was just something about the country and the people and the culture and the food and everything about it, the architecture that just drew us in. And we loved our experiences. You overlay that with somebody approached us during that time that we were back in Seattle and thinking about how we were going to be investing our professional time. And they came to us with the idea of doing something different in pizza. And I'll be honest, I kind of poo-pooed it. And then Ali kept coming back to it saying, you know, I really think we need to look more closely at this.
SPEAKER_03: Why Ali? Why were you saying that?
SPEAKER_02: I specifically remember one moment that made my hair stand up. I was driving our big family rig. We had groups of our boys and a couple of their friends in the car. And we were doing one of those typical things where you're between a game and a practice and got a drop off and this guy's hungry. And now I am too. And what are we going to do? And we really struggled to find the right solution for the carload. You know, if we're going to feed them, then we're going to be hungry. If we're going to feed us, they're going to be picky and it's going to cost a fortune. And it was just one of these. And we'd had so many moments like that. And then we just had this one in the car that day of that deja vu feeling of we are looking for something that doesn't exist. And I know that what we're looking for other people would want to. And because we'd had this backdrop of somebody talking to us about pizza and the exploration of not doing pizza by the slice, but individualized pizzas, which of course is the way it's done on the street in Italy. So we had that in the back of our mind. And then that deja vu moment of we're looking for something that doesn't exist. Wow. If we could go and get pizza that we could all customize. That is interesting. So I think it was a deja vu moment of we're frustrated. We have a problem to solve. We should pay attention to this feeling.
SPEAKER_03: And was there a partner or somebody who was like, pizza, let's do pizza. Yeah, there were a couple of people who approached us.
SPEAKER_00: One in particular who the general idea was pizza is slow. It's expensive. It takes time. And it's a sit down occasion. Or you go into these places where you have pizza by the slice, but the pizza was made hours ago and it's reheating it. Is there a way to combine all of these, the attributes of fast casual with pizza, which is the second largest food category in restaurants behind hamburgers. It's a loved product. There's so much innovation you can do because you have this great platform of dough that you can put any combination of wonderful toppings on. So maybe we can try to make the experience more personalized.
SPEAKER_03: So you guys saw what Chipotle was doing, right? But fast casual was blowing up and now there's millions of burger chains, smash burger places and stuff. So you saw what was happening. And essentially this was happening with things like sandwiches, burritos, but pizza, nobody was really doing it with pizza. There was no fast casual quick pizza place. That's right. Yeah. And as you say, this is the second most popular fast food in the US or food.
SPEAKER_02: Back in the day when we were doing our research and trying to brainstorm around this, yes. I mean, those will be out of date numbers now, but they were really compelling.
SPEAKER_03: And so the idea was, well, could you do this pizza? And I'm thinking of like Papa John's, for example, I think, which is not a fast casual place, mainly delivery, but they have like a conveyor belt system, I think where they put the dough and then they put it in a runs or conveyor belt and it comes down as a fully done pizza. So you could do it. I mean, the concept of kind of creating a fast pizza place, you could make that happen. Well, that's why we knew we needed a laboratory.
SPEAKER_02: We knew from our Seattle Coffee Company experience, we don't know how to do this. We don't know what it will look like, but we need a real laboratory.
SPEAKER_03: What was the motivation for the both of you? I mean, you were going to now dive back into a really intense project. Of course, you had more resources and you had more experience. So it was going to be different than the Seattle Coffee Company and slightly less scrappy, but still it was going to require a huge time and emotional energy commitment. So what got you to the point where you're like, let's do this?
SPEAKER_00: In all honesty, it was a little bit like our time with Seattle Coffee Company, where it was one step at a time and the plan really didn't extend years into the future. This is a really intriguing question about can you modernize the pizza experience to deliver a more personalized, customized, quick experience? And can we do that in one location? And how did you start to determine what the concept would be?
SPEAKER_03: Did you rent space? Did you get a kitchen, a commercial kitchen? Did you bring a bunch of people together in an office? What did you do? It was a combination of all of that.
SPEAKER_00: We had an office for the Sienna Group and we used that as kind of our main hub. There was a lot of work that was done on whiteboards and so forth. We then collaborated with some equipment suppliers to get into kitchens to test this idea of how we could formulate the dough and how we would press it and the different techniques for cooking it and how quickly could we do it. So there was like multiple streams of work that were going in to convince us that if we actually did lease a space and build it out and start to construct this concept that the key components would all come to life in a way that we could at least run one restaurant and have it operate. We had lots of questions though about would people, would we be able to deliver a product that people liked enough to actually come back? We were able to answer enough of them to convince ourselves that, hey, taking a lease and trying this once might not be a bad idea. And by the way, at the time in particular, Guy, we weren't thinking that if we did this and it started to build momentum into a business that Allie and I would be the ones in the driver's seat. That was not the perspective at the time.
SPEAKER_02: Early on, it was very much the kitchen table mentality. Even more kitchen table mentality than Seattle Coffee Company had been because we had been motivated to just pull in people and want to work and collaborate with people that we respected, that were friends. We really just sat around our table and kind of name creation and early on what could logos be like. We launched actually with two logos because we couldn't decide. We were playing with it. We didn't have a sense of desperation. It was more about curiosity and getting really creative and brainstorming what do we want to create that we ourselves would need? What solves this? We played a bit.
SPEAKER_03: Let me ask you about the overcoming some of the bottlenecks here. Because a burrito place, there's tortillas are made, they're quickly heated and it goes down a line and people add stuff to it and it's packaged in a foil wrapper and you're done. It's a little bit different because you've got the balls of dough and usually there's one, maybe two people who are flipping the pizzas in the air and stretching the dough and then making the pizzas and then putting it in the oven and you got to monitor what pizza is doing what. Maybe you can, depending on the size of the pizza oven, maybe you can do three, four at a time. I mean, that was a bottleneck you had to solve because clearly if there was an easy way to do this, somebody would have figured this out. These are presumably questions you were asking around the whiteboard. And what was the, like, how did you come upon a solution to this, to the bottleneck issue of just a long line of people waiting to get their pizzas done, you know, made?
SPEAKER_00: As you just described it, we were confident that people would be attracted to the idea of walking into a restaurant where they could walk down the line like they do at a Chipotle and co-create their own pizza using 30 fresh, beautiful toppings. And that's a, you know, the fast casual concept, that idea of being able to walk down the line and have the ability to personalize was very attractive. And but to be able to do so quickly and efficiently was also important. So we knew that would be appealing. Now if you're at Chipotle, the food has been prepped before and it's simmering. So it's sitting there. And as you put it together, by the time you get to the end of the line, it's done. You put the top on it and you take it away. At Maude, that creation of the pizza was the first step. The second step was then to cook it. And that takes three or four minutes. So in exchange for a freshly cooked product, that is going to take a little bit longer. Now you're preoccupied because you go at the end of the line and you go grab a drink and you pay for it. And while you're doing all of that, we're cooking your product. But there was a question, both in terms of customer acceptance of that slightly longer experience and then the production process of being able to get the throughput, particularly at the peak hour. And in our ovens, we can at peak have 15 to 20 pizzas in the oven at one time. But it's still going to take, you know, three to four minutes for that product to cook. Would people come and have pizza at lunch because pizza historically has been a dinner occasion. And this concept wouldn't work if we couldn't crack the lunch occasion, just given the economics of paying for a piece of real estate and the people and so forth.
SPEAKER_03: And that was the, I mean, that was going to be the concept for the first location. I mean, the idea was let's do one off and see how this goes and then decide what we want to do afterwards.
SPEAKER_02: We're lucky because the first location that we had identified was actually a great one to test the focus that Scott mentioned around will people eat pizza for lunch and can we handle volume in, you know, at peak time. And the first location that was to be our laboratory was in an office building that was really only going to be trading Monday through Friday, primarily lunchtime. So it was actually a really, really great place to start to figure, you know, to answer some of those most fundamental questions. That's why we chose that location, downtown Seattle.
SPEAKER_03: And the name M.O.D. Pizza Made on Demand, that's what it stands for, right?
SPEAKER_00: Well, a little bit. The M.O.D. name was inspired by the M.O.D. era of the 50s and 60s in the UK. Emily and I grew up as big fans of the Who and the music and vibe of that era.
SPEAKER_02: And the original M.O.D. movement, when you read about it, it just has some of that innocent rebellion kind of. Yeah, there's something written about the M.O.D. movement, which is a movement that
SPEAKER_00: was all about speed and style and challenging convention and innocent rebellion, all in pursuit of a better future. And we were like, that's it. That's what we want to build with M.O.D. is a brand and a business that has that essence.
SPEAKER_02: Combined with, it's not, you know, made to order. It is made on demand, which, you know, that helps. And we like the idea that this is a modern way to enjoy pizza, M.O.D. There are a lot of ways to interpret M.O.D.
SPEAKER_00: We intentionally tell people it's not literally meant to be made on demand. We love that inclusivity and that flexibility around how M.O.D. comes to life. But M.O.D. is what you make it, and M.O.D. can mean a lot of things to a lot of people.
SPEAKER_03: While we come back in just a moment, how Scott and Allie made M.O.D. meaningful and how an economic downturn and a free bottle of water would give shape to their pizza business. Stay with us. I'm Scott DeRoz, and you're listening to How I Built This. You know, I'm pretty good about using sunblock and wearing hats to keep the sun out of my face. But, you know, as you get older, your skin also reflects your age. Well, fortunately, incorporating skin care into your daily routine can be effortless. And that's where Caldera Lab comes in. With their products clinically proven to reduce wrinkles, fine lines, and signs of aging, Caldera Lab proudly stands as a leader in men's skin care. The regimen leads off their product lineup. It's a twice-a-day routine to transform your skin. Inside this bundle, you'll find the Clean Slate, the Base Layer, and the Good. The Clean Slate is where you start your day. It's a balancing cleanser that leaves all skin types exceptionally refreshed. The Base Layer is a nutrient-dense, fortifying moisturizer that hydrates your skin and absorbs it fast. And the Good is your go-to at night before bed. It's a serum that helps your skin look tighter and smoother. Get 20% off with this exclusive link, calderalab.com slash built. That's 20% off by going to calderalab.com slash built. Experience a whole new level of health in skin care with Caldera Lab. After years of fine print contracts and getting ripped off by big wireless providers, if we've learned anything, it's that there's always a catch. So when I first heard that Mint Mobile offers premium wireless starting at just $15 a month, I thought, well, what's the catch? But after talking to them and then using their service, it all made sense. There isn't one. Mint Mobile's secret sauce is that they're the first company to sell wireless service online only. They cut out the cost of retail stores and pass those sweet savings directly to you. I live in the Bay Area, and you'd be surprised, but cell reception in San Francisco can be terrible. I know, the capital of technology. But with my Mint Mobile phone, I get crystal clear reception everywhere I go. To get your new wireless plan for just $15 a month and get the plan shipped to your door for free, go to mintmobile.com slash built. That's mintmobile.com slash built. And when you use that URL, you're also showing them how much you support our show. Cut your wireless bill to $15 a month at mintmobile.com slash built. Hey, welcome back to How I Built This. So it's 2008, and Scott and Allie believe that with Mod Pizza, they're on to an idea that will work. And right as they're getting ready to launch, the financial crisis hits. And for lots of startups, it would mean the end. But Scott and Allie doubled down and decided to ask what Mod Pizza should and could do.
SPEAKER_02: This really informed a lot of what Mod was to become from a perspective of how do we take care of customers, and how are we going to take care of employees. And those two, we made some decisions very early on because of the financial crisis that I think today are some of the most fundamental decisions we made about Mod, starting with the customer proposition, this need for value. I mean, with all the financial insecurity at the time, and people aren't going to be you know, the disposable income question around are they going to be going out for food, this one price model of here's the price. You have a flat price for whatever the size of the pizza.
SPEAKER_03: It doesn't matter how many toppings you put on it, there's one price.
SPEAKER_02: And no, that had never been done before in pizza. And the story of how that came about, like with so much of this stuff, it was a personal thing for us. We had stayed in an incredible hotel in California. We'd forgotten to bring our water bottle into the hotel room, which I hate forgetting to bring our own water because I don't like to pay an insane amount of money for the water in the hotel room. And as it turns out, there was this wonderful sign in this very expensive hotel room that said we're so happy you're here. Enjoy these items on the house. And I remember looking at Scott and I almost burst into happy tears, you know, my gosh, the water's free, like all this is free. But yes, we agree. That's refreshing. Like that was a very nice discovery moment for us. And that feeling we wanted to capture when we opened Mod, again, given the timing of the recession, this idea of one price, there is no nickel and diming. We wanted customers to truly feel that this is a place where there is a commitment to being value for money. We've got your back. And if people ask for more chicken or they want to add pepperoni to their pizza, there's no additional charge. And it was really fun early on watching customers react the way we had reacted all those years ago in the hotel room where they just couldn't believe it. Like, well, what's the catch? There is no catch. This is the price. Now what's the pizza that you want? Well, let's make it. So the pricing came about because of the recession. And that was important. And the other thing was this idea of we want to be employers that are truly taking care of the people that we're able to employ at a time when job security and in the fall of 2008, it was a real issue. And to this day, and I'm sure we'll get into it, our opportunity employment and taking care of the people that we're able to employ continues to be absolutely fundamental to this business. Let me ask you about that.
SPEAKER_03: From the beginning, we should dive into this. The hiring practices are quite interesting. You hire a lot of people who are formerly incarcerated and people with developmental disabilities and people who have struggled homelessness. So was that baked in from the beginning? Was that the intention or did that evolve?
SPEAKER_02: It was baked in in the sense that we had a philosophical approach when we were starting Maude. We were in that lucky position to be able to, we didn't have to build Maude. We wanted to build Maude or we wanted to start this thing. And if we're going to start this thing, what do we want it to be? What matters to us? I mean, we were able to take time to ask all these questions and we knew that we wanted to build a business that we were proud of and something that we wanted to see grow in the world. And there were problems that we were seeing. And then when the recession kicks in, the problems were even worse. Can we make sure that what our business is doing is a force for good in some way? Can we help deal with some of these issues that we're now all having to deal with? The world seems to be melting. This is scary. What can and should Maude be? And from that moment on, you know, we knew we've got this platform. We do two things. We employ people and we feed people. So let's make sure that in every, with every opportunity of feeding or employing, we're using this for good.
SPEAKER_00: Yep. Our motivation was to create a platform that we could use to make a positive social impact that would endure and sustain beyond us. And we knew we wanted to focus on people and starting with the employees or our people. But then we basically said to our team, you know, Maude is what you make it. Maude is what we make it. Let's we want to, our North Star is to use this business as a platform. Now let's together figure out what that means.
SPEAKER_02: Because the philosophy and those conversations happened before we even opened the first locations. In our second location, we had employed a couple of individuals who had been justice involved and this idea of how much of an impact our business could make through employment practices became clear very early on because these at the time, unemployable individuals, they would have had to check a box in Seattle and we did not require them to check the box. We employed them. The first job out of prison was working at Maude. And in a very short period of time, even though some people thought, well, that's kind of crazy, we like to say what was crazier was the incredible work that these individuals did and their gratitude for being given an opportunity translated into a work ethic that was incredible, the way they took care of each other, customers. I mean, this started to happen quite immediately. And that's the thing that started to take hold when we ultimately got to the point where we did have to have the conversation around, gosh, now we have, I think at the time was five locations. And kind of like with Seattle Coffee Company, they were all very different, which helped us learn very quickly about what worked and what didn't work.
SPEAKER_03: The expansion really, I think, started to kind of take off around 2013. By then you had like 12 stores, mainly, I think entirely in Washington state. And I think a year later, you were up to like 31 locations in six states, which is amazing. It's pretty great, but still slower than the growth of the coffee company. And then I guess over the next few years, you raised like around $50 million from investors. But you also began like a franchising program in 2014. So can you explain why you decided to do that? I mean, obviously franchising the model is great because you can expand quickly and with less upfront costs, but you also risk losing control, right, over the brand and the quality and things like that.
SPEAKER_00: Yeah, it's a great question. So you're exactly right. On our fifth birthday, we had 12 stores in Western Washington. And it was at that time that we sat down, as Allie said, and had a long conversation about what we wanted to do with Maud. Did we want to keep it regional and live, frankly, a more comfortable life and just drive to all the new stores and know everybody? Or did we want to take a swing and see if we could turn this into a true national, maybe even international brand and really expand this platform that we'd been talking about into something much more profound? Now most of that growth that we then embarked on was company-owned growth. But you're right, we did also bring in a franchising model because in that first five years, having started or kind of pioneered this category of fast casual pizza, halfway through that first five years, a lot of other brands started to enter the category. And back to the conversation about Seattle Coffee Company, there is an advantage for the first mover. That person or that brand that gets out and secures the right real estate builds that relationship with customers. If you allow a brand in a category to get too far ahead in a particular market, it's hard to supplant them. So as these other brands were entering the market and they were all franchised, we would only be able to push ourselves so far with company-owned growth. And we would ideally bring in partners who could help us expand into those markets that we would not otherwise get to. And so we brought franchising in as part of our strategy, but we did it differently than a lot of brands. We chose only partners who, importantly, were people who we felt philosophically aligned with, who we enjoyed and who understood our purpose and really bought into it and that could build out a relatively large market. So today, 85 percent of our stores are company-owned, 15 percent are franchised with nine partners who are fabulous, incredibly valuable and experienced operators. But in that second five-year chapter of our growth, on our fifth birthday, 12 stores in western Washington, five years later on our 10th birthday, we had over 400 stores spread across 70-plus discrete markets around the U.S. So that second five years was, it was frenetic, it was exciting, it was exhausting, and it was all driven by this mission of, we want to win in this category because the payoff or the end that we're pursuing is to build this highly successful, healthy platform that we can use to make a difference in our communities and in the world around us.
SPEAKER_03: SONIA DARA... You used the word discrete. Did you target sort of communities, places, regions that were a little off the beaten path?
SPEAKER_00: CHAD WYATT... Well, it's funny, I remember sitting in our little office that we had in the early days of our growth and we had a whiteboard and we were talking about our growth strategy. We literally took out a map of the United States and somewhat arbitrarily started to carve up the country in the markets that we would enter ourselves as company markets and the markets that we would then go and seek out franchise partners in. I look back on it now and think, wow, if we were answering the same question today, we would be pretty thoughtful with research and analytics. At the time, we literally got up, we took this map and took a marker and started circling regions of the country. So yeah, we constructed a growth strategy that had logic behind it, but it was seat of the pants logic in some ways. SONIA DARA...
SPEAKER_02: And also dependent on where you find great partners.
SPEAKER_00: CHAD WYATT...
SPEAKER_03: Yeah. SONIA DARA... as this kind of rolled out, I mean, I think at a certain point, not too quickly after the expansion, plans were kind of released or unveiled or whatever, you know, you became, I think, the fastest growing quick service restaurant chain in the US for quite a bit of time.
SPEAKER_00: CHAD WYATT... Yeah, we were the fastest growing restaurant brand in the country for, I believe, four years, three or four years. And that's a nice accolade. It's not something that, you know, we put on our resume. It's not something we view as that important, other than it is a reflection of the fact that we were growing really fast back then. But we also recognize that that rate of growth, particularly for a small and not fully developed organization was going to come with a cost in terms of a heavy investment in infrastructure, a heavy investment in new market opening, a heavy investment in mistakes, because anytime you're growing that rapidly, you are going to make mistakes. And that was very a conscious decision that whatever mistakes we made, whatever collateral damage, if you will, that comes from going too fast would be more than made up for by winning in this category and having all the advantages that come from being that market share leader over time, being the Starbucks of the category, the Chipotle of the category, the Panera of the category, as opposed to the second, third and fourth brands in those categories. Many times it's even hard to think who that second, third, fourth brand is.
SPEAKER_03: In sort of building this business, how did you guys divide and conquer? I mean, did you, who did what? I mean, were you, who was the CEO? What did you, Allie, would you focus on? Scott, what'd you focus on? And you know, was it similar to how you operated at Seattle Coffee Company?
SPEAKER_02: I think it was similar. I think it was very similar. And I think Seattle Coffee Company, that experience helped us understand how we best divide and conquer. We're really lucky, I think, because we've known each other a really long time. I think it happened naturally, the way that we divide and conquer combined with the fact that we have very different strengths. And we just naturally kind of each focused in the areas where we could help the most. Scott, he's absolutely the CEO. And I've always liked working with him on some of the big strategic focuses that we have. But I also love getting into the weeds in the areas that I know he and I, the whole reason that we're doing this. We're so intentional at the beginning with Maude. We're only going to do this if we know that it needs to be done, that it matters and that we can actually do something good with it. And because that was very intentional at the beginning, that's that element of it, ensuring that we continue to be focused on the why behind the business is always been a primary focus for me.
SPEAKER_00: Ali's title is protector of the purpose. And I think that's a great way of summarizing the contribution she makes. In addition to that, she's got a magic touch around our brand and how the concept evolves and the way we deliver value to customers. And I get involved with a lot of the details of how do we build the framework and the infrastructure and the team to actually now go and execute on it.
SPEAKER_03: The restaurant is, I think, mainly, I'm assuming most people sit down and eat there. Or am I wrong? Is it most people take pizza out and leave? Well, it's a really great question.
SPEAKER_00: Prior to the pandemic, 95% plus of our customers would come into Maude, a restaurant, and either walk down the line and build their own product or pick up their product and take it out. Since the pandemic, a much higher percentage of our business is, or our customers approach us differently, either through delivery or through our digital channels. And so that's actually part of our story today, which is how we need to continue to evolve. In 2019, there was a study conducted. We had an investor who joined us at the time and they commissioned a big study by a big consulting firm. And they did a deep dive into the business and the industry and our brand. And we had a very thoughtful plan to develop greater off-premise capabilities and digital capabilities. And it was like a five-year plan. And all of a sudden, the pandemic hit and we needed to do all of that in five weeks. And so it's been, the last three years has been a real adventure. The business has changed from what it was just a few years ago.
SPEAKER_03: My understanding is that there was a target to hit a thousand locations within five years of 2019. And I guess my question is, is that still the right kind of, I mean, not even just for Maude, but in general for a quick service restaurant. With this sort of the rise of ghost kitchens, particularly in urban areas where you can make a bunch of stuff and send it on to DoorDash and somebody gets it. I don't know. Is it in your interest to actually have more restaurants or to have more of these ghost-type kitchens or a combination? I don't know.
SPEAKER_00: We really focus more on the more successful we are and the more stores we have, the more people we'll be able to employ and therefore the impact that we wish to make will be bigger. And so that's a real driver and motivator for us. Just specifically on this question of ghost kitchens, I'll be honest with you. It's not really an area that's super appealing to us. And there are a number of reasons why. One is we believe one of the roles that Maude plays is a venue or a location within which the community can come together and connect in person and be a place of celebration and human connection. This whole idea of ghost kitchens is a little, it's not a model that makes perfect sense or hasn't been perfected yet because a ghost kitchen is a location from which you can ideally build a restaurant meal more efficiently because you don't have the more expensive real estate. But you still have the same challenge of having to get that meal into someone's hands. So the radius that you have to work from is still more or less constrained by the same constraints you have for any restaurant. You can only deliver a meal with a certain quality within plus or minus five, six, seven miles depending upon the topography. And so it becomes really challenging. Some people say, well, as opposed to having these five restaurants just build one ghost kitchen. But the dynamics of distance doesn't always allow that to pencil. Yeah.
SPEAKER_03: So I mean, when you think about this, as you say, I mean, you don't measure your success on a number of locations. But I mean, is there, I mean, earlier you spoke about, hey, maybe we can make this into a national and a global brand. I know you are in the United States and in Canada right now. And I don't think outside of North, you're not outside of North America, but is that part of the long-term plan?
SPEAKER_00: So it's interesting. You know, I think as we've gotten, we've been in this game longer and we have an incredible team around us, you would have thought that our planning would have become a lot more thoughtful and sophisticated. And in many ways it is. But it is still a game of one step at a time. And I can tell you with great conviction what our next step is and what we're focused on and the opportunities we have and the improvements we're making. But three to five steps out, our industry is changing so rapidly and the needs of the consumer and technology and even now with robotics and AI, and it's an incredibly dynamic environment. And it's exciting, but it does mean that we have to be really thoughtful about how we're evolving with all the changes. We get excited about growth because for us, growth opens up pathways for people. Right now we have about 12,000 squad members. If we were to open another hundred stores, that's going to be another 2,500 squad members that we're going to be able to provide opportunities to and bring into this community where they can find belonging and connection and opportunity. And that excites us. Now that also allows us to build hopefully a more successful business, which will give us more fuel, more resource to do things for our team. So for instance, this last year, we introduced an education benefit through an organization called Guild, where people are able to access classes on a whole range of skills and access a BA. And we have had an incredible take up. People are thirsty for those types of opportunities. And we would love to go deeper into that. And we'd love to offer more and more to provide that rich experience to really help people. And so growth is a part of that.
SPEAKER_03: I feel like you tapped into two different times in your careers into two different kind of cultural phenomenon, coffee in Europe, certainly, sort of second wave of coffee. And there's a similar, it's not an exact parallel, but a slightly similar thing with pizza. Of course, pizza has been around in the United States for a long time. But I feel like in the last 20 years, there's been a kind of a new renaissance like pizza Bianco in Phoenix and Roberta's in New York and Mazza in LA and they're just amazing. And so there has also been this kind of pizza revival that you guys kind of hit on too, the sort of similar to coffee in a sense. I mean, do you agree? Do you think that that also helped kind of create momentum with your business?
SPEAKER_02: I think I'm sure, yes. But also, I think it's part of why we felt a healthy amount of confidence around pursuing the opportunity for First Seattle Coffee Company and now with Maude. It's not fancy, new, crazy thinking. It's really fundamental. And it's just about how do we evolve that and build upon that which is already kind of proven and known. And we've also always been big believers and only ever really wanting to be involved with things that where there's need there, where it makes sense, where it's justified, where it's not excessive and things like pizza and coffee are stuff we can relate to.
SPEAKER_03: You guys clearly were looking at trends and trying to spot them ahead of the curve and look around corners and whatever other cliche I can come up with. But you looked at pizza and you're like, this is a category that can work. And so I guess I wonder where do you see the opportunities now? Or like if you were, you guys when you were 30 looking at something to start, where would you go?
SPEAKER_00: For me, the big opportunity is to continue to lean in to this macro trend that is both, I think, powerful but also incredibly needed to tap into the potential of capitalism and of business to be a force of change, a force of good in our society. We have so many issues in our country and our communities, and they're not all going to be solved by the politicians, so they're not all going to be solved by the nonprofit sector. I think companies need to be more accountable for the health of the communities that they rely on for their survival. And I don't think that that is a zero sum game. I actually think that if you do that and you do it well, you can build a business that is better and stronger and more defensible because you're going to attract and retain and engage a group of people who want to be a part of that as an employee. And then over time, you'll attract customers, hopefully, who understand that you are about more than just a product or just about profit, that you are also about giving back and they're going to want to be a part of that.
SPEAKER_03: When you think about the journey you guys have taken together, I mean, first of all, you met when you were teenagers, 15, 16 years old. And it's actually quite remarkable because we change, humans change a lot. Your values stay consistent, but who you are is quite different from who you were 10 years, 20 years earlier. What happens is people meet in high school and then they split up because they grow apart, they grow in different directions, and you guys have kind of grown together and changed together. And so what do you count for that? I mean, you probably don't know anybody else who met in high school and are still married.
SPEAKER_00: Well, I'll be honest, Guy, I just think my lucky story is every day that Allie puts up with me and has adapted to all those changes you talked about. Allie just keeps getting better and better and I just try to keep up with her. But it's been, it's definitely been the blessing of my life to have a partner like her. And it has been incredibly collaborative and a lot of give and take and we're human, which means we're imperfect. We always focus on this theme of it's about progress, not perfection. And you've had these challenges together and I'll tell you, there's nothing better than that. Sharing that with someone makes the journey just so meaningful and count my lucky stars every day.
SPEAKER_02: So do I. I remember I overheard a conversation that my mom was having with a friend of hers when I was in high school getting ready to go to college. I heard her saying to her friend on the phone, yep, Allie and Scott are still together and you know, the college thing's starting. And my mom actually said to her friend, I truly believe that they are meant to be together. I just worry so much whether or not they'll be able to weather all the chapters and the storms because that's where it gets hard. And I remember at the time listening to that thinking, oh, she's, you know, she doesn't know us or I don't know what she's worried about. And I now know what she was worried about. And it's what you just said. I mean, people do change and there are chapters and it's, and so I do think that part of it is we've been very lucky. But I also think part of it has, we have that, you know, we, we subscribe to the saying that the harder you work, the luckier you get sometimes. And I think we've worked hard at being friends and supporters of each other through all of it. You just sometimes have to shift how you're engaging or what the stage is of life that you're in. And I think Scott and I have been so lucky because the things that we've been collaborating on, whether it's having our kids or the businesses that we've built, it's stuff that we've been able to share. It hasn't been divisive stuff. It's been stuff that we could come together on. And that's kind of how we've chosen to approach it, which has strengthened us, not weakened us.
SPEAKER_03: Well, you've answered my question about luck or skill, so that's... That's Ali and Scott Svensson, co-founders of Maude Pizza and Seattle Coffee Company. And despite its size, Maude is still clearly a family business. They even named four of their classic pies after their sons, Tristan, Caspian, Dylan James and Jasper. 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 totally free. This episode was produced by JC Howard with music composed by Ramtin Arablui. It was edited by Andrea Bruce with research help from Casey Herman. Our production staff also includes Neva Grant, Liz Metzger, Kerry Thompson, Alex Chung, Elaine Coates, John Isabella, Sam Paulson, Chris Messini and Carla Estevez. I'm Guy Raz and you've been listening to How I Built This. Hey, it's Guy here. And while we're on a little break, I wanna tell you about a recent episode of How I Built This Lab that we released. It's about the company TerraCycle and how they're working to make recycling and waste reduction more accessible. The founder, Tom Zaki, originally launched TerraCycle as a worm poop fertilizer company. He did this from his college dorm room. Basically, the worms would eat trash and then they would turn it into plant fertilizer. Now, his company has since pivoted from that and they recycle everything from shampoo bottles and makeup containers to snack wrappers and even cigarette butts. And in the episode, you'll hear Tom talk about his new initiative to develop packaging that is actually reusable in hopes of phasing out single-use products entirely and making recycling and TerraCycle obsolete. You can hear this episode by following How I Built This and scrolling back a little bit to the episode, Making Garbage Useful with Tom Zaki of TerraCycle or by searching TerraCycle, wherever you listen to podcasts.
