Nick Stone, Bluestone Lane

Nick: The Daily Talk Show.

Josh: It's the Daily Talk Show and we're still in Los Angeles.

Tommy: And we're at Bluestone Lane Cafe with the founder, Nicholas Stone.

Nick: Welcome, boys. Thank you for coming.

Josh: Thanks so much. I mean, priorities, I feel like this, doing a podcast with a couple of gronks, low on the priority list. So we appreciate you making it. That's okay.

Nick: You know, I had 3 other meetings cancelled.

Tommy: Oh, you did?

Nick: And I thought, alright, you know, 3. If it was just one, I wouldn't be here.

Josh: But it was 3.

Tommy: Okay, good.

Nick: It's a pleasure. Thanks for taking the time. And, you know, we've got some fantastic ambience out here. You know, typical LA day, 4,000 cars per minute and a Bobcat demolishing a road.

Josh: Yeah, it looks like they're carving out like some new lines or something like that. Something's going on.

Nick: Yeah, that or—

Tommy: We've got a very Melbourne coffee coming our way.

Josh: What have you got?

Nick: We just had plant-based oat milk piccolo, actually. Single shot oat milk.

Tommy: The oat milk's very American.

Nick: Very, very, very California. Okay. You know, the non-dairy.

Josh: Yeah.

Nick: Very health-conscious and aesthetic, aesthetics over taste, maybe.

Tommy: I tried to wean off any milk or even oat milk or almond milk style coffees coming over here. I thought I could go back and it's all black, which I wanted to do. But then you find places like this, Blue Sand Lane. It's the quality of Melbourne coffee in the States. And so this establishment, we're in California. You started out in NYC.

Nick: Yes.

Tommy: I think Josh kept his business afloat.

Josh: I spent a lot of time, so I think it was like 2013 or 2014, my girlfriend had this list of places that we had to go. And by the end of it, we, I reckon we went to more Australian cafes or like the amount of time we spent at Bluestone Lane, it felt like I was in Melbourne the whole time. Is that a common thing? How many Aussies do you reckon come through the door versus Americans?

Nick: It would definitely be sizable in locations like West Hollywood Hollywood and West Village in New York City, without a doubt. Uh, in our more business-centric locations, not many tourists, yeah, tourists are sort of wandering up there. But when you're in residential areas or where people want to hang out and spend time on holiday, like, we're on the, we're on the path of, of travel. And it's— we're so fortunate to have so many Australians come to the States and look out for Bluestone Lane and want to go to Bluestone Lane. And they're quite parochial and passionate about our coffee culture. And we've been such beneficiaries of it because if the Australians that have lived in the States and Australian tourists have acted as this tastemaker, they've been these organic influencers that have introduced that proposition and told their American friends, hey, you know, you should have something slightly better. Why spend $5 or $4 on a coffee at Starbucks when you can spend the same amount but get the Bluestone Lane experience? And we've been— we've got the timing right from that perspective. The year which we opened our first store was in 2013. The dollar was particularly strong and I think 5% of all Australians visited the US that year. Over 1 million Australians visited the US.

Tommy: We are saying 2012, 2012 was a great year.

Josh: 2012, it felt like Tommy was having the trip of his life. It was pre-marriage and all that sort of thing.

Nick: Very far, very far from that.

Josh: But why the US? Why did you decide to set up shop here?

Nick: Well, I always wanted to live in the States and I wanted to live in New York in particular. And I was, I went from football playing AFL for 6 years. Luckily I went to university at the same time because I only played for 6 years and not too many games. And then I went into corporate finance investment banking and I met this beautiful woman at Derby Day, which is obviously one of the major courtship festivals on the Australian calendar, Derby Day. And basically I had this dream of going overseas and I sort of was trying to convince her that it'd be a great idea to go and live I could even work in New York City. And she went along with the idea and she was studying at university as well, but thought, you know, it'd be quite good. She was actually modelling like on the side and as a part-time job, but she was very focused on her degree, which was— she's studying osteopathic medicine, so she's got a bigger brain than me. And then long storey short, I tried to get transferred and I wasn't able to land a job because of the financial crisis. But at that point in time, I'd already completed a postgraduate degree in Master of Finance. And I was trying to work out ways in which I could get to the States. And one of them was about studying over here and doing an MBA or doing an exchange. And I was lucky enough to get an opportunity to study in New York City and— Welcome to LA. Thank you, sir. Lovely Thursday afternoon. And, you know, that acted as the catalyst also to provide a job opportunity. And so I ended up moving in 2010, started studying in September 2010. And when I got here, I just couldn't believe how different the coffee culture was. And I also just didn't have an appreciation of how successful Starbucks is. And I think like everyone, particularly Australians, like quite a myopic, you know, insular view that Starbucks is, you know, the Antichrist and terrible and, you know, inferior. But the business model itself and the brand they've built is absolutely extraordinary in such a small point of time, period of time, building a $120 billion US brand, $23 billion of revenue a year in 40 years.

Josh: Yeah.

Nick: And introducing espresso coffee to the States. And I just thought there's got to be an opportunity to be, to be more authentically Australian, to have a better quality product, better quality service, better quality aesthetic, and really make people feel like they're going to their local establishment. And that was basically the catalyst, the business opportunity, the market opportunity. I would be a core customer, but I'd never worked a day in hospitality. So that's what's the most unique thing I think about Bluestone is like the founder and CEO of probably the largest hospitality Australian export now, never worked a day in hospitality.

Josh: You'd be horrendous at Undercover Boss. You'd just be—

Nick: dropping the coffees, which is so bad. How do you turn on the coffee machine?

Tommy: Is it a— do you think it's an advantage because you don't have— you're not jaded as someone who has experienced the annoyance of maybe, you know, dealing with customers or being on that front line to come in and go, oh, I see an opportunity?

Nick: Yeah, you're completely unbridled, unencumbered from any preconceived notion of like, you got to do it this way and the steps of service and this is how you treat someone and you can't price it that It's— I think you can try things. Thanks, Brandon, lunch has arrived. I think you can try things without fear, and I think you probably apply this lesson to so many things in life. And I guess, you know, everyone, a lot of people get caught up in this notion of like they're, you know, they're an entrepreneur and, you know, they're doing this, they're creating a startup. Like, really, Bluestone's a small, a fast-growing small business, and that's the underbelly of all economies globally. And I think with me, I just looked at the way way in which I could keep iterating and learn and with a real discrete focus on building a brand and me being, and then my wife in particular being core customers and like what would we want if we walked in and we had fantastic examples being Connoisseurs living in Melbourne that we felt like we could replicate that here.

Josh: And so when you moved to the US, what was your previous experience? How long had you spent in the US prior to actually moving here?

Nick: So I moved September 2000 2010 and studied until the end of the year and then started at ANZ in their corporate finance team in February. And I was really tasked with rebuilding the team in New York and London because there was obviously a view that, that the world and the financial markets were destined to be obliterated, and that was sort of happening in the US and Europe, but Australia was relatively immune and we had some catalysts that predated the GFC that meant that the regulatory sort of authorities were more stringent and we didn't have this massive problem with debt serviceability at the household level. So suddenly it went from risk-off to risk-on and like, oh no, if you can build a business, we could actually go for market share here and we could grow in Asia. And we had a new CEO who was very, very excited about opportunities. So I worked, so I started then and I didn't do anything for a couple of years, even though I'd worked on the business case at business school in New York. But then it was till July 2013, we opened our first store in Midtown Manhattan, very close to where our office was, which was on between 47th, 48th on Park. And then went from 1 store to 2 stores and went to 3 stores and 4 stores. And they all kept working. And I didn't really have any, harbour any ambitions of ever going full-time.

Josh: Yeah.

Nick: And then I went full-time finally in mid-2016 at 12 stores. 3 years later, we're, you know, nearly 50 stores.

Josh: So what is it? What does an investment banker actually do? I guess we have this Tommy Imagine. Yeah, I mean, what is an actual day-to-day? I can assume that it's like you click a few buttons and then you do cocaine for lunch and then you come back. Like, what is that? What is the reality?

Nick: That was definitely the heydays of the '80s, you know. We missed that period. We got the austerity measures and like bankers are overpaid and Oh, listen, I think if you're interested in companies, it's an amazing job because your basic role is to understand how a company creates value and how it grows and what the capital it needs to be able to make investments. And your role is to sort of support that, whether providing them capital or advising on how they spend it. And, you know, it's fascinating that you get to work with so many different people and, and brands and companies. And I love that. I was so intrigued about, like, how does 'Cause, you know, if you look, let's just take it, let's take Amazon, like Amazon's story. Absolutely remarkable, you know, to lose money for 10 years in a row and then suddenly 10 years later be the biggest company in the world. Like those sort of examples fascinated me and I love the competitive nature of it too. I think that like going after market share and how do you compete against your competitors and your value proposition. And I was always intrigued by it. And that's how I sort of fell into my love of business and banking.

Josh: So you have a portfolio or something?

Nick: Is it like— No, I had, I had basically in the States, I had customers that I'd work on and provide ideas on how they could create more value. So it was pretty broad. It was anything from how to enter the Asia-Pacific market, how to reduce their cost of capital, or like how much interest they're paying on all their capital. Could be how to optimise their capital structure, or you know, like how to fund their suppliers or how to fund their—

Josh: So you're working with like CFOs or something?

Nick: Yeah, treasurers, CFOs. Yeah, that's pretty much it.

Josh: So if it's ANZ, does that mean that it's Australian businesses wanting to enter into North America or?

Nick: It was primarily American businesses that wanted to grow in Asia-Pacific and Australia, well ANZ was really making a hard push, concerted push in Asia-Pac. Now that's changed a bit with the Royal Commission and honestly like the banks make more money in Australia than any other region in the world, like the return on equity is so high because the defaults are so low because of that you know, the full accountability on your home loan and recourse, like people don't really walk away from homes and cars like they do here, you know, so the defaults are so much lower and it's just a lot more concentrated down there. So yeah, it was primarily US corporates growing in the Asia-Pac region, but yes, certainly there were some Australian brands that were trying to land in the US, but they're just typically so much smaller, like the big Aussies, The biggest, let's just say the top 100 ASX, very few have meaningful market share in the US. Some obviously in resources, but that's not really a US story. The banks, they're not really in the US. Yeah, you know, we're still a very Australian domestic focused and Asia Pacific focused sort of economy.

Tommy: I look around, there's so much construction going on, and we were in New York last year, and I think I look around, so much is happening, and I think, how do you even start something over there? Especially as someone who isn't from America, where do you start? How much capital do you need to create a café in New York City?

Nick: It's certainly not cheap. And New York is just the epicentre of the world. It's truly the world city, 8 million people a day, and it's the biggest influence on commerce, art, arts, fashion. It's incredibly inspiring and electric place. But the risk you've got is rent is so expensive there that you get the wrong real estate, you're cooked. You could be over in a matter of a couple of months.

Josh: What would like a corner, like what is, how much would a lease cost? And is it the same structure as in Australia or?

Nick: No, so the handy thing in New York is because defaults are so high that the actual recourse structure is a lot lower than Australia. So if you sign a lease in Australia, you could be on the hook for 10 years. In New York, you could be on the hook for 6 months or 12 months. So that's more favorable, but your probability of failing is so much higher, I think. Yeah, um, so it's a risk-reward play. And as it relates to, um, lease— leasing costs, uh, to get a great corner in Midtown, it could cost you around $400 a square foot, which is like $4,000 a square meter.

Tommy: Okay, is that per month? So what's that breakdown Yeah, that's annually.

Nick: So let's just say we have a site that is 1,000 square feet, which is 100 square meters, and it's costing us $400 a square foot.

Josh: You're gonna have to help us with the maths. You're the bank guy.

Nick: That's $400,000 a year, which is about like $37,000 a month.

Josh: So how the fuck do you do it with coffee? How do you sell coffee and then make it? And like, how does it actually work?

Nick: Yeah, this is the bit I sort of got wrong in a few cases. Like, yeah, we'll do it.

Tommy: We can make it.

Nick: I get it, then I back solve it out. Like, you know, coffee, $4 flat white multiplied by how many people are here. Oh wow, I need to sell like 4,000 coffees a day. Okay, 4,000 coffees divided by 10 hours. Holy smokes, that's 400 coffees an hour. Like, okay, how long does a coffee make? Oh, 3 minutes. Uh-oh, I can do 20 in an hour. Oh, like, how do I get to 4? I can eat 10 espresso machines. So what are you doing?

Josh: So where is the money in coffee?

Nick: Yeah, it's a, it's a very, very, very delicate balance between managing your lease costs and driving enough productivity through your staff. It's certainly not easy. You've got to get the right rent deal. It takes a long time to get those deals. The landlord's got to trust your brand, got to trust your value proposition and who you are. And, you know, for us, obviously food was a larger part of it, but like with more food means more people. So it's not easy, but you need, In our case, we won't sign a deal where the landlord doesn't really want us over anyone else. They have to feel so fired up and motivated that we're gonna be an amenity to their building where they're happy to take a bit of a hit or subsidise the retail rent because they're getting their core rent roll or your core revenue from the office tenants above or the mixed-use campus. Like, that's how we've been able to do it. And a lot of the big guys, the incumbents like Starbucks, they've been in there through grand grandfathered leases, which really, you know, they probably signed 10 years ago.

Tommy: Is that cheaper rent?

Nick: Yeah, certainly, because rent goes up. Rent's basically indexed, it goes up 3% a year typically. So over 10 years you're talking 30% increase, right? And when they reset rates, rents, they often reset them higher, you know. So you could be paying 30-40% higher than what they were 10 years ago. Now that's going from $200 a square foot to $370. That's a big, big difference.

Tommy: We were at IHOP last night. Classic. Stock eggs. Oh yeah, I know.

Josh: They're great.

Tommy: Great experience.

Nick: I've never been to IHOP. Really?

Josh: Yeah, the pancakes?

Tommy: Yeah, I had pancakes.

Nick: What's it like?

Tommy: Pancake parlor? Uh, cornea.

Nick: It was—

Tommy: I mean, they're fine, but it's— we're in this on Santa Monica Boulevard. It's an old building. It's a bit run-down. I was thinking, there wasn't many people in there, and I was thinking, how are these guys surviving? When you look at businesses that are franchised, is there some game that's happening where they're spreading the costs across a whole bunch of them and that's how they're even able to have ones that are not doing that well?

Nick: Yeah, scale. Scale gives you a portfolio approach and ultimately brands like IHOP make all their money in suburban markets and markets that the cost pressures are a lot lighter, you know, and have— they've got a lot lower minimum wage, they have significantly lower rent, The food, the food import costs could be very close to what it is in LA. Like, getting food product in here is not easy with the density. It's not easy in New York, but a lot easier out in the suburbs. And honestly, like, labour could be 50% the cost it is here, and rent could be 30% the cost it is in the middle of LA or middle of New York City. So once you've got enough scale, you've got units that some do 5% margin, some do 30% margin, some do 7%, some do 27%. Blend out at around anywhere from 15 to 22% profit margin because they can make more money in certain markets than they can in the city centers. But the city centre gives you the incredible brand awareness and the momentum to be able to franchise and grow in other markets.

Tommy: I saw you give me a keynote and you mentioned that next year, 2020, you wanted to have 200 stores, 200 cafes. But in the same token, in the same keynote, you You said Starbucks has 15,000, which is in perspective, it's a small number, what you were saying. What's the thought on going to a number like 200? How does that— how are you feeling from, you know, the first 50?

Nick: Well, it's interesting because I think we have obviously naturally a very Australian-centric lens with how we look at hospitality, and we're pretty much anti-chains, and certainly as it relates to coffee. Like, I think, you know, the way that you're talking about coffee, I came to America and I was going to drink bad coffee and then I found a Blue Stone Lane and other Australian cafes, like they're independent, independent owned and operated, very high standard, the owner knows everyone, really cares about the product. Australia's 25 million people, the US is 320 million people, so if you have 4 cafes in Melbourne, which a lot of proprietors do, they're just under different names, you can multiply that by what, 15 times or something? So 4 by 15, you know, That's a lot. That's 60 cafes, right? So I think with us, like, 200 is very, very achievable because the market's so big, the white space is so great, the independent operators aren't here. And I look at Starbucks and I look at just how many— this is a trivia question for you— how many, how many stores in New York City, New York City, does Starbucks have?

Tommy: Oh, there's one on every other street corner.

Nick: That's not the correct answer.

Tommy: No, I reckon I'm just doing the maths. I reckon 200. I was going to say 200, but now I can't, so I'll say 280.

Nick: 280. 200. 240.

Josh: Oh, that's quite good. We did quite well, didn't we?

Nick: So it's Price Is Right. Who wins?

Josh: Yeah, I went lower, so that's better.

Nick: Yeah, congratulations.

Josh: Thank you.

Nick: I'll give you 50% off a flat white today.

Josh: Plus tip.

Nick: Nah, nah, nah, I won't actually do that. Yeah, yeah, of course. All tax, no discount on that.

Tommy: I don't know either.

Nick: You know, so I look at New York City and Starbucks and 240, like, you know, it feels sort of without, you know, back of the envelope, it feels like 200 is very achievable across, say, 10 cities. The markets we're in now, we're in 7 markets if you cluster New Jersey and New York Metro together. And, you know, I feel like that's very achievable over the next 3 to 5 years. I think that next year we're actually going to slow our rate of opening down because we want to have a a year where we consolidate the markets we're in. We're not going to go to any new markets, we're going to get deeper. And I think we just want to make sure we're perfecting everything we're doing as it relates to systems and our team and training and the economics to then rapidly be able to accelerate in 2021. And whether that's under a company-owned and a franchise construct or just company-owned, but I think like next year's that year where we slow a little bit, get everything right to go fast again. So yeah, I don't know when, if I said get it 200 by next year, but like, that's certainly not possible and, uh, not, not the ambition. But 200, I think, is very, very comfortable for us over the next, you know, 5 years, I would say.

Josh: I feel like coming to the US, there's something a bit scary, a bit like— there's a few things that scare me. Seeing all the billboards with the lawyers and then seeing the ads where it's like everything from, you know, have you been injured at work, to like every spectrum. It seems like every second ad is a lawyer saying you know, call us now. So there's that element. Then you've got like everything cause you cancer by the set, like there's signs everywhere saying this can cause you cancer. Do you get the sense or the feeling in the US of that anxiety or does it sort of not enter your system?

Nick: It's an extremely litigious culture. Like there's, I think there's, everyone talks about there's more lawyers than nurses and doctors combined. And yeah, it's definitely a major risk with operating in this market. Often you may not do anything right. No, sorry, you may not do anything wrong. Yeah, yeah. Freudian slip. But everyone has the right to sue in a very sort of open way, in a flexible way, because costs aren't awarded. So for example, you trip over here and you say, Nick, Nick tripped me, it's hurt my leg, I'm gonna sue you because I can't go to work. I'll have to defend myself, but if the court says you're right, Nick, you did nothing wrong, I can't counterclaim costs against you. So the motivation to sue is infinite. And that's very strange. In Australia, that doesn't exist, right? You know, you sue someone under false pretenses, you lose, you pay the other person's lawyer, their legal fees. In the US, that's not the case. So that's why the notion of an ambulance chaser is right. And you know, that's definitely one of the challenges in the market. You need to be really, really careful. You need to be—

Josh: What does that do to compliance?

Nick: Like, within a business? The compliance costs are massive, absolutely massive. The amount of money you'll spend on HR, people-centric, and lawyers is huge. It's a cost of doing business here, and a very major one. And I guess there's been a lot of discussion around trying to reduce some of the regulations in certain pockets that could make sense. Like the EPA, I do vehemently do not agree with.

Tommy: Yeah, yeah.

Nick: But you know, there are a lot of costs in doing business, and I guess the concern a lot of entrepreneurs or small business owners have is that inflection point where suddenly it becomes cost prohibitive, or there's not sufficient motivation or incentive to take the risk, to be a small— to put your own money in, to put your reputation on the line. To build business and grow when you know that there's such great, such incredible downside and there's not enough upside. You know, like when you start something, you leave a big company, like you are taking an incredible amount of risk on yourself, on your personal life, financially. It's way bigger than I ever thought. That was probably the biggest lesson I got from banking. You think that you're really important and you're working with these big companies and it's great, you're giving them great ideas, but it's so intense. Versus, okay, like, go out there and hire 10 people and everyone's gonna get paid every week and it's dependent on how much money you've got or how much the business makes. And like, those simple operatorship lessons I think are so valuable. And in fact, more bankers and more finance professionals and more leaders should actually get exposure to real tangible small economies. It'll make them a better, a better a better business person without a doubt. And I feel that that's been one of the biggest gifts from Bluestone, not only working with 700 teammates and making a difference to nearly 12,500 people a day now, but just the lessons around business and how to work in a complicated team from different walks of life, different backgrounds has been really intrinsically rewarding, but challenging. Nonetheless.

Tommy: What lessons from footy did you learn and that you apply now in business?

Nick: Well, team sports in Australia are incredible because they're quite democratised and everyone needs to be pretty cross-functional, right? Every, you know, you play AFL footy, everyone needs to know how to kick, handball, tackle, mark. Play cricket, you know, it's everyone sort of knows how to bat. The US sports are pretty segmented. Like in baseball, you could just pitch but never bat. You could catch and never be in the outfield. You can be in the outfield and never pitch. The US, you know, look, football offense, never on the same side of the field as the defense.

Tommy: Yeah.

Nick: Never on the field at one time. You may never touch the ball in your entire career. You can make $100 million and never have actually touched the pigskin.

Josh: You're describing my footy, junior footy career. I wouldn't mind that.

Nick: $100 mil not to touch the ball. Yeah. So, you know, I think that's incredible how it's such an important part of our upbringing and culture. You learn how to deal with people. They have different skill levels and different motivations and different athleticism. It's, it's a great equalizer. And working together congruently and everyone knowing their role and executing their role underpins how businesses operate, right? You need everyone to know what they're doing, to be focused, to execute along those lines and to lean in when others need help. And I've tried to really embrace a lot of those lessons that I've learned from team sports and being part of higher performance teams. And apply them to not only banking, but certainly Bluestone. And I'm still learning. You know, I've moved from, say, being more a captain's role in footy and banking to now being a coach. Like, my role is to coach the team. I can't go out there and work in 50 stores. I have to help architect and put people in the right spots and motivate them and inspire them and making sure that we're on the right path, we've got the right strategy, and we have the right capital. And that's my role now, It's certainly a big change, but it's been wonderful.

Josh: Is it completely different running one cafe versus running many in regards to just how the whole operation works?

Nick: Yeah, it's just so incredibly different. And not only are we now running 50, but we're in 8 markets with 8 legal structures and 8 different cultures. It's, it's, it's the complexity increases exponentially when you go to how different Toronto is from Philadelphia or how different LA is to San Fran, or how different San Fran is to New Jersey. Yeah, you know, it's— there's a lot of complexity, but that was the challenge. That was the risk-reward for us. Like, if we can execute and pull it off, we would actually have a national brand. Yeah. If we stayed small and focused in New York, we'd probably be far more profitable.

Josh: How do you create trust? Like, I guess you, you're going to have a bunch of lawyers in different markets. How do you pick those critical parts of the business?

Nick: I, I think with, with trust, the way I establish trust with people is through dependability. You know, I'm looking for, for people who are extremely dependable and reliable, who give consistency of, of effort, and that they are at work on time and they care and they're committed and passionate. Like, I'm not looking for the best barista, I'm looking for someone who again can like play their role, and playing a role smallest part of a barista is, yeah, you've got to make great coffee, but you've got to provide outstanding service. You've got to have that theatrical element that I think people love about Australian cafes.

Josh: What about the senior stuff, like in the books, like the structure level? How do you— like that high-up level, how do you gauge that? Because I guess there's a lot— like one thing with the US is it feels like people know how to hype, they know how to talk, and I feel like I would get a bit paranoid that is this person just really good at talking? Can they execute?

Nick: I think that sometimes people in this market sort of over-promise and under-deliver versus maybe my standards. You know, we're trying to grow faster than most and do it at the premium value proposition, and we're trying to do it in complex markets. And you know, I was you know, to be able to execute effectively, you gotta have very, very high standards, unrelenting standards. And sometimes people's expectations on what's premium is different from yours, and that's your overpromise, underdeliver. But I think, you know, you never entirely know. You've just got to ask the right questions and observe and make sure that you have enough critical people in your team a team that can make calls and provide the right feedback and coach them. And if they're either going to get it or they're not, and you've got to assume good intent and give everyone an opportunity. Yeah, when it's not working, you just got to be honest. It's not going to work. And I think you're a great person, happy to go for a beer with you, happy to have a coffee, but maybe you're not perfect fit for Bluestone Lane. And I'm going to try and do it with as much dignity as possible. But that's like life, it's, you know, like you may have lots of people that want to work on, sit in this seat and get on a podcast, but you know, they're not perfect fit for it. That's okay. Like, I think, you know, in hospitality, culture is far more important than any technical component. In other industries, technical skills are more important than, than maybe your cultural fit. But hospitality is about making other people feel happy and satisfied and excited, and you've got to change the way, way they feel. So if you're, you're not dedicated to, to that pursuit, I don't know if the industry is cut out for you, and probably not. What Bluestone Lane's got to offer.

Tommy: How, as a business owner, do you set up a solid framework to create a great culture?

Nick: Well, you've got to lead by example, right? I think, I think, you know, the fish rots at the head, as they say. And I think you need to be very clear on your expectations. You need to be very clear on your value proposition and why you, why Bluestone Lane should exist and why customers are going to like us and want to come back. And then just be very, very clear on your standards out of the gate. Like, and just know who you are and be crystal clear on what makes you special and why you think there's an opportunity for you to grow a business.

Tommy: And is this something you had before you launched? You opened your first one?

Nick: I spent an incredible amount of work on analysing how we could compete and how we could grow and what the brand should stand for and the way it should feel and the experience should be like and the cost structure. I came from a— I was very fortunate I had a background of being like analytical, right? That was my That was my skill set. That was my business as usual. And then I could overlay it with a real deep interest in how to build brands. And rather than a collection of stores, how do I build an actual brand that stands for something? And in our case, we wanted to be this extension of Australian lifestyle. Yeah. We wanted to encourage people to go out and get a coffee and socialize, not just get a coffee to go to drink at your desk. We wanted you to come down with a colleague and chat and, and get that broader sort of daily escape. And I think that A lesson I, you know, I always convey to entrepreneurs is don't jump into this unless you can answer all the questions. And you don't have to have like just general questions like, you know, can you make a profit? Can you generate revenue? Can you make a profit? Can you employ people? Are they actually going to go to work? Can you generate loyalty with your customers? Yeah. And I think I could I got a lot of confidence from people challenging me and saying, ah, you know, it's too expensive. Oh no, it's too slow. Oh no, it doesn't have syrups and—

Josh: It's too blue.

Nick: Too blue and just like, tick it off the boxes. Yeah, but there's a person who doesn't want syrup because there's a health-conscious niche and this niche is this age and that's our core customer. And if I put the stores where the core customer wants to hang out or work or live, maybe I can compete there. Okay, good point. Okay, tick that one. And then just working methodically down the list, and then I've suddenly felt like, hey, there's enough, there's enough sort of signals that we could make it to overcome the barriers.

Tommy: Is it the opposite approach to test and learn, minimum viable product?

Nick: Well, I think like test and learn and rapid prototyping are really like concepts linked to technology, right? Like where you are assessing things so dynamically. Yeah. I can't—

Josh: Harder to do with a lease.

Nick: Yeah, I can. Yeah, yeah, exactly. I can't open a store and go, ah, 4 days in, poor sales, done. You know, my lead time's so much bigger, my CapEx is so much bigger.

Josh: So the culture, the brand, I think Tommy and I are very comfortable with that sort of stuff. The thing that I find fascinating is the cost structures and the idea that if you're in all these different markets, paying a few cents more on almond milk at the supplier level could be the difference between making money and not making money. Like, how do you make sure that those things are all dialled in so then you don't have to worry at that sort of cell level of a spreadsheet?

Nick: So supply chain is absolutely critical and we have a really, really good one.

Tommy: One.

Nick: In fact, my partner in banking I brought in to oversee supply chain. Never worked in supply chain in his life, but he just had a fantastic mindset on business. And he studied law and then he was in banking and he just sort of very practical and pragmatic. And like most of these things are, like you don't need to be a professor of supply chain. Like you got to work out how to get point A to point B the most efficiently, the most reliably, and with the best quality product you can get for the price. Like, so, but supply chain in our case has big risks in some commodities, like particularly coffee prices, paper prices, and what we experienced this year was avocado prices. Avocado prices went up 500% in July and August, and it really crushed our gross profit line, and we are now looking looking to purchase, like have a forward sort of purchasing obligation where we have the price locked in if we buy a certain amount of volume. But that takes time to be able to get to that scale, and we're sort of there now. But it's, it is, you know, it's not only just what I'm buying the avocado price, it's getting the portion control right, it's getting your wastage right, it's making sure that, you know, that we're not just giving product away and that the staff aren't having a free-for-all. Like it is a business ultimately that needs to be sustainable and the business is what generates the cash to be able to pay everyone's wages and to be able to grow and to invest more into the stores or more into our training and opportunities to grow. So, you know, it's an area that we're spending an inordinate amount of time right now on getting the gross profit right and also getting the labour productivity right —right? And yeah, you know, it's— so minimum wage in New York City went up 20% this year. Can you imagine, like, costs? Like, everyone that works for you got a 20% raise in one year, and it was mandatory by the state government. And that's pretty hard to swallow. I couldn't put up all my— I couldn't put up my avocado toast price 20%. I'd absorb it and somehow offset it through increased sales volume, not really spend.

Tommy: Did you see a shift in culture? I mean, teams that are going, okay, now we're earning 20% more, this is—

Nick: I could actually live. Yeah, yeah, yeah. Well, it's, it's a pro and a con. Like, I think for certain pockets it's a— it was very beneficial and much needed. There is definitely a big disparity here between those who are entitled to tips and gratuities and those who aren't. It's an archaic system, 100%, don't agree with it. But effectively, those who don't directly serve a customer aren't entitled to a tip. So you got a coffee here, and let's just say you give a dollar tip, which is nothing in the US when you consider, um, you go to a bar and you're guaranteed to give $1 or $2, even though pouring a beer is a lot easier making that oat milk Piccolo coffee. It's a big— it's another broader issue that's a bit strange here, but you give a dollar tip, like, none of that dollar is entitled to go to the back of house.

Josh: If we're getting a coffee to go I've been selecting 18%, so I'm giving something.

Nick: That's generous and fair, and like, well, not really for that long, but I wonder if I was literally really appreciated.

Josh: Yeah, like, is that like from a standard? Like, what do you feel like the, uh, the citizens of the US, what are they doing as a standard when it comes to tipping for things like to-go?

Nick: So coffee to-go, honestly, it's 5% here, which is quite quite perplexing because if you go to a bar and buy a beer, which literally takes no skill whatsoever, like everyone can pour a beer, right? And the beer is $6, you're gonna give the bartender a dollar. You're gonna pay with a $10 and he's going to give you back 4 ones and you're going to leave a one for him. So a dollar on $6, you know, it's— what is that, nearly 20%?

Josh: So you start putting vodka in your coffee basically.

Nick: Yeah, you know, that's an option. It's not like just out of the gate espresso martinis. No flat whites anymore, just like espresso martinis. Um, there's, there's, uh, it's a cultural thing, right? And, uh, you know, I think we're trying to, we're trying to educate people around that these people are highly trained and people are so, so passionate about their coffee. Like, one bad coffee, you're upset for the morning. One bad beer, like the beer's flat, you're like, oh, or the beer's not perfectly cold, you know, it's not that cold, but But you don't sort of like think, oh, never gonna buy a beer from that place again. You're probably like, oh, let's hope the next one's better.

Tommy: Because the alcohol kicks in, you're just feeling less anxious.

Josh: So do you find that, I don't know, like from a market rate point of view, do you find that because you guys are doing that sort of bespoke artisan or whatever the fuck they say like that? Artisan. Artisan, thank you. There's just a couple of gronks trying to work out what they want. Do you find that you end up, do they make more tips here because people, customers who come here see it as, as more than just—

Nick: Well, they make a lot more tips in our cafes because food and the hospitality element's a lot more experiential. So your table service here, someone's working with you and looking after you and educating you and helping you. So certainly the tip percentage is a lot higher, multiples higher than just to-go. But that's legacy. That's not us, that's the US system. You know, eventually there'll be a change, I think, but we're in a tough, I would say, transition right now where minimum wage has gone up so much, but tips are still the same. So if anything, it's almost like accelerating the— to some, maybe accelerating the divergence in wage between back of house and front of house, which definitely wasn't the intention with increasing minimum wage in certain cities and states.

Tommy: I think there's a lot of Aussies that come over here and they might think things are backwards or just totally different to back home. I saw you folding up a cheque before. I didn't see how much it was for, but I saw you folding up a cheque and I was like, you guys still use checks? And then I remember driving from the airport, there's a, you know, cash your cheques here. Is there a thing, a few things things in business in America that you just think, we've got to get rid of that, or you just sort of grit your teeth and go, we've got no choice? That's amazing.

Nick: I'm happy to admit this, but I was a banker for 11 years, and when I moved to the States, or prior to moving to the States, let's say 7, 6 years, I didn't know how to write a check. I had to Google, like, pay to, and you know, do I put lines on it and write things, and you know, non-negotiables. Void or whatever. There's some things like that that just don't make sense. So you've got the biggest tech companies in the world all based here, and you've got, you know, incredible fintech investment, but like people are getting paid by check. And like, we— I think we have 650 staff, right? I would say of the 650, 200 still getting cheques weekly.

Tommy: Is that their choice? Yeah, it's their choice.

Nick: We want to pay everyone a direct debit. We don't want to cut cheques and and sign them. A member of our team does cheque signing for like 3 hours on a Thursday. And that person does not want to do it, but there's no option.

Tommy: You know, like that stuff's crazy. Why would a staff member want to cheque?

Josh: I've always done it that way.

Nick: Yeah, I guess it's like a ritual routine.

Tommy: You know, people who still pay their power bill at the post office.

Josh: Some kind of nostalgic about it. —before you go, if someone's thinking about starting a business in the US, what's one question that they should ask themselves?

Nick: One question is tough. Ultimately, I think if you want to make it in the US, you've got to go all in. I see a lot of people think about opening in the US US. I don't think— the notion of thinking does not make it here. Yeah. It's the city, it's a country in which people all around the world want to come and make it in. And certainly like a city like New York City, it's the world city. So you're not just competing against New Yorkers, you're competing against people from other parts of America, you're competing against people from South America, from Europe. So I think that you need to to be all in. And to be all in, you got to take a tremendous amount of personal risk. So that would be my one piece of advice. Like, be prepared. You are moving. You're gonna be on the hook for a lease. You're gonna have to rent a place. You're not going to consider about flying in from Australia and flying in the States. They see through that. You're all in and you need to pay the price and you need to put yourself on the line and And if you do, honestly, Americans are really, really open-minded and they're very proactive and entrepreneurial. And I do think they see the— that they look through things with good intent and optimism. And that resonates really, really well with Australians who've got that attitude of giving it a go and are not too fussy and happy to be scrappy and lean in and do whatever it takes and be social and be open-minded. If you've got those qualities and they know you're here and you're going to give it everything you got, people will give you a chance. And that is what's incredibly exciting and inspiring about being here. Yeah, I think you feel it.

Josh: Like, us just being in the store, there is that. And seeing all the experiences of the US, it's not until you sit down at a Bluestone Lane having a coffee that you appreciate the amount of logistics and also just ability to cut through all of the things that you need to do to make it happen. It's very, like, we find it extremely inspiring.

Nick: So we're going to see the Daily Talk Show.

Josh: Well, we keep talking. So this is the funny thing. When you're in Melbourne, it's like, yeah, fuck, if we were in LA. And then you come here, it's like, we're just some big babies. We've got a few years.

Tommy: Well, you realise that the scale that it's being played at. And I think there's such— the bubbles in Australia consist of quite a few people that make up quite a lot of the majority. We come over here and you realise how small our bubble is, or how there's just little bubbles here, that there's so much more to it.

Josh: Yeah, there seems like there's a bit of a bullshit filter too. So like, if we were to do it, if you don't have those things lined up, as you said, if you're sort of half putting a you're destined. So I think, I think they see through it.

Nick: They're used to it. They used to, ah yeah, I had a friend like this from France 3 years ago. He lasted one winter. Yeah, gone. You know, the exciting part about the US is, and this is, the technology has certainly facilitated this, but you don't need to now land in LA or New York. You could honestly land in Austin, Texas. You could land in Nashville, Tennessee. You could land in Miami, Miami, Florida. And these tier 2 cities are absolutely exploding because people now have more flexibility with where they want to work and where, how they can work. So that's super exciting because the cost structure in those cities is a lot lower, you know, the barrier of entry is lower. And so that's, I think Australians think, yeah, gotta make it in Big Apple. Well, maybe now it's, maybe Big Apple's the second step. Maybe let's land in Let's land in San Diego, let's land in Seattle, and then see if we can make it there. Those cities are still big, got a million people, and there's lots of opportunities to broadcast your proposition and your message. And then let's attack New York next. So that's a little bit of salient advice, and that's definitely a new thing, the emergence of these tier 2s. And without a doubt, it's been underpinned by technology because people now can for example, live in Austin, Texas, pay no city tax, no state tax, and pay less to rent, it gives you a lot more runway to get something off the ground versus California where you're paying state and city tax of 14%, 13%, 14%. Are you paying for the dream?

Josh: Is there overinflation? Like, are there all these things like, is it overinflated? Is it like, I guess, just oversaturated in the sense of New York, like actors for instance, if you want to act you go to Los Angeles and we see the amount of Uber drivers that have—

Nick: Gorgeous looking. Yeah, and can speak in 7 different accents. Yeah.

Josh: I mean, and so I guess that, that's part of the whole thing too is going to those other cities is it's like it's probably not as crazy inflated.

Nick: Yeah, without a doubt. And it obviously depends on the industry you're trying to crack it, you know, if you're trying trying to make it in acting, yeah, you're gonna play Hollywood and you're gonna play maybe New York on the theatre circuit. But a lot of other industries aren't linked to a particular city. There's pockets of engineering in 30 cities, there's pockets of technology in 10 big cities here, hospitality, you know, there's probably 50 cities that you could do something pretty special Coming to Los Angeles, I realise the ease that I have it back home in terms of ease of life, having a kid, the roads that I drive on.

Tommy: They're not as busy as I thought they were. It feels like traffic, but when you come here, it is pretty crazy. What is one thing you actually love about living in California?

Nick: So I've only lived in LA for just under 2 years, and we live in Santa Monica. And so I think Santa Monica— and everyone talks about the 4 405, like, dividing the city, and it is actually very true. Like, the fact that I made it out here— well, this is the second time I've attempted it, right? It's a real journey. Yeah, you persisted with it. The first time was a misfire. I was going to take too long to get here.

Tommy: What I've learned is it's usually about 25 minutes one way, and then you double it to get back.

Nick: Yeah, so it took me— and what happens, what is crazy is you look on your phone and the Uber says, all right, 22 minutes. Okay, great, get in the Uber. 22 minutes, I'm on time. Mid-Uber ride, it goes from 22 to 27 to 32 to 37. You're like, what is going on? I'm going closer and then like the time's going up. And literally that's because it's so dependent on roads. You have one accident, blocks a lane, like there's 20 minutes on your journey. And I remember when I moved here, I was like going to apologising and calling to people. And I'm often not the most like prompt, I must admit. I always put too many things on my calendar, but people are like, nah, the whole time. Like, I only get to half our meetings. Half the meetings I take in the car trying to get to the meeting because somebody's in an accident or something goes wrong. Where in New York, like, the subway's so damn efficient. Pretty grimy and dirty, but incredibly efficient. Then, you know, Santa Monica is close to the beach, and the weather is absolutely extraordinary. Like, consistency of weather. It might, you know, it's probably improving because of global warming, which is not a good thing, but you know, it's just like, well, it's pretty epic. But you know, I think it's more like an Australian style lifestyle, close to the beach. You can— we can walk to the shops, we don't have to drive. The climate is very moderate, particularly in winter. And being close to the beach, you don't get the crazy heat that you get in the valley. You get the sea breeze that cools things down. So it's worked out well, but we're actually moving back to the East Coast. So this is gonna be a 2-year stint here and we go back to the East Coast because I've been travelling so much and doing one week in LA and one week in New York and it's just, it's just too, just, just too, just too hard.

Josh: When you go to Melbourne, what cafe do you go to?

Nick: Well, there's a lot, you know, I think like the top, the top cafes are obviously— nearly got my burrito. Nearly lost a burrito, guys. You know, I think I love the Kettle Black top paddock, but I love things like Pillar of Salt. I love Journeyman. You know, I love Steve Rowley's cafes are amazing. Plain Sailing in Elwood, that's mine. Can I have half? All right, you can have half. You can have half. There you go. Thank you. Okay. So, lost half my burrito. You know, I think it's— there's so many, you know, every time I go there. But, you know, I used to go to Patricia in the city. Absolutely love that. And, you know, I used to— and when I go home, we often stay at my parents-in-law place, and they're around the corner from a cafe called Little Locks and close to Plain Sailing. That's great. Yeah, I love the consistency of cafes is so high in Melbourne. I think it's more the social ritual I love. Love, the fact of just going to catch up with my wife and reading the papers back to front, having 2 coffees, avocado toast with halloumi and mushrooms, roasted tomato. It's just magical. It's such a great way to disconnect and just relax a little bit. And then during the week, you know, Monday through Friday, I'd go twice a day. Our morning catch-up as a team. And then, yeah, all good. And then, you know, the afternoon was before we, you know, we were working so late that we used to get another coffee at 3 o'clock because we may get out of the office at 6, 7, 8, 10, 12 PM. You know, you never know really. And sometimes in that type of banking.

Josh: Yeah, well, I think you've brought the dream to the US. It's super exciting. Thanks so much for your time, Nick, because I know this is, it's outrageous that you're able to sit with us for this long.

Tommy: We've made you miss about 2 meetings and you got half a breather.

Nick: It's a daily talk show.

Josh: If you've enjoyed the show, feel free to Instagram us, share your stories. Hi@thedailytalkshow.com is the email address.

Tommy: And if you're in LA, come to Bluestone Cafe, Bluestone Lane. Absolutely.

Nick: Or New York or D.C. or Toronto.

Josh: Which is your favourite one? Very quickly.

Nick: There's a cafe we have on the Upper East Side that's in a church opposite Central Park. That's pretty magical. Yeah, I like that one a lot.

Tommy: What number was that out of the—

Nick: I think it was like number 6. The first cafe was in West Village. And that was where we lived, and that's one I hold close to our heart.

Josh: I think that's the one I would spend a bit of time at. Awesome, thanks, Icky. It's The Daily Talk Show, see you tomorrow, guys.

Nick: See you guys.