How to start a business revolution? Transparency, trust, and fairness.

What happens when a former derivatives trader gets into the restaurant business? Well, in the case of Nick Kokonas the business partner behind Alinea, Next, and the Aviary, you look at the numbers and decide that the restaurant reservations system is irredeemably broken, and you start a revolution. Tickets are the new reservations.

When starting Next, and based on the outstanding success of Alinea — partner Grant Achatz was named the Best Chef in the United States by the James Beard Foundation — Kokonas was able to take a chance on a revolution, and developed a purpose-built software platform to handle the complex issues surrounding dynamically-priced ticketing for restaurants.

Kokonas was motivated by the enormous overhead of phone reservations — he  had to employ three full-time receptionists to handle the requests for reservations, changes, and calling people on the waiting list to cover last-minute cancellations. And the phone overhead was only part of the problem. Worst was the lack of transparency. As Kokonas puts it in a great and detailed post on the topic,

I like to say that traditional restaurant reservations are predicated on two people lying to each other. The restaurant says to the customer, ‘you’re all set for 8 PM for 4 people this Saturday night’ knowing full well that they won’t have turned the 6 PM table by 8 PM… at which time the arriving customer is told to wait at the bar. […]  In fact, this is actually a strategy for many restaurants.  Let the customer buy a drink before being seated – it’s an upsell and everyone has experienced it.  The customer, having been lied to so often doesn’t feel terrible about not showing up.  After all, there are plenty of people to ‘fill that table’ anyways.  This creates a cycle of subtle mistrust and becomes a problem for both the customer (bad service) and the restaurant (no shows, partial no shows, bad service).

And that’s why the rate of no shows is so high, which was averaging 8% at Kokonas’ Alinea before he made the big shift to ticketing. Here’ Kokona’s argument as to what a ticketing system does right (his topic headings, my summaries):

It creates transparency of process for customers, and builds trust and loyalty — Today’s online reservations tools — like OpenTable — are partial implementations: restaurants hold onto the most popular time slots because they know they will sell those slots and they don’t want to pay a commission to OpenTable for those. So a customer will still call the restaurant if a time slot isn’t available. They don’t trust the system.

Acknowledge that there are better/worse table times, and shift demands accordingly — Saturday at 8:00pm is the highest demand tabel, and Tuesday at 9:45pm isn’t. Why pretend otherwise? Why attempt to treat them the same when they just aren’t. So Accept the notion that a fixed price 4 course meal at an elite restaurant should be priced differently on Saturday at 8pm versus Wednesday at 6pm.

And the ticket is treated as a deposit on the meal, so it is not additional, unless you are a no show (which is now running at less than 2% at his restaurants).

It moves pricing in two directions, which is key 

Restaurants don’t want to discount certain nights, because it sounds like the restaurant is not popular, and likewise charging a premium to get in on a Saturday feels like the old style of payola to the Maitrê’d to get a table. As Kokonas says,

Having either static or dynamically variably priced tables by day of week and time – in a fully transparent manner – simply gives customers the option of paying a bit more for a prime time table or saving a bit of money for an off-prime table.  It acknowledges the obvious.

No one pays $ 275 for a good seat at a Cubs game, looks up at the nose bleed seats and complains that it’s not fair that those guys up there only paid $ 25.  People accept the difference so long as the choice to buy either was their own.

It supports the notion that table management should be visually simple for the restaurant managers and customers alike. And ticket systems need table management. — Here’s what customer of Next see:

Screenshot 2014-06-08 14.11.44

It’s easy to see what is available, and what isn’t. The restaurant managers have a similar UI, but one based on tables.

The old reservations system lack these critical things: clear table management, simple template creation, and ticket pricing and sales management.

It creates a direct connection between restaurant and patron  — Unlike the mediation buy OpenTable or other reservation systems, this approach maintains the direct relationship that was the heart of the tradition phone-based reservation system. This allows a direct and authentic relationship between the parties, and one that is not based on lies.

It does not penalize success — With current online reservations services, the more business a restaurant does, the more is paid out to the reservations service. As Kokonas rolls out his cloud-based ticketing service to other restaurateurs, he will charge a flat usage model.

The Bottom Line

Kokonas’ insight was that a ticketing system that offered transparency and fairness was the way to slay a collection of expensive problems. The transparency leads to trust of the restaurant by the patrons, and the price of the ticket leads to fair behavior on the part of the clientele. They have a strong incentive to cancel reservations or show up.

The fairness extends another way. Once restaurants have a real sense of how many people are going to be eating on a given night, they can do a better job of staffing and ordering food. This means that you’ll be less likely to be told that the house is out of tonight’s special, and less table staff will be sent home early. And those factors lead to a more efficient operation, with higher margins, and perhaps lower prices.

The takeaway outside the specific market of restaurants is the power of transparency, trust, and fairness. When these are introduced into a system that lacks them, there can be a revolution of productivity, and those that build the platform and practices on which those three factors rest will realize huge success. And that’s my prediction for Alinea software.