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In 1998, Chuck Templeton founded OpenTable and has since launched a Chicago-based incubator, Impact Engine, to help startups dedicated to social change accelerate their growth and attract venture funding. As an investor in 22 companies, he is extremely involved in the Chicago tech community shared with Belly CEO, Logan LaHive, and the rest of the team his thoughts on food, focus and culture.
Logan: How did you come up with the idea for OpenTable?
Chuck: Well one day, my wife spent a good part of her morning from 9am to 12:30pm trying to make restaurant reservations. I thought there’s got to be a better way. It kinda started as a business plan idea in my MBA program at Santa Clara and two months after I got married, I quit my job and I went for it.
Logan: What were some of the initial challenges you faced?
Chuck: So there’s this perception of writing a business plan, trading it for a check and starting your own business. There was certainly that perception but one of the things about OpenTable is it’s very local and there weren’t a lot of local companies back then. Another challenge was there’s a hardware component to it, which didn’t appeal to {restaurant owners} at first. Plus, we were selling to small businesses, which a lot of people disliked back then, too. Companies such as Yahoo! and Netscape were getting traction, but they were low-touch. Yet, our idea garnered interest and we were able to raise a fair amount of capital early on.
Logan: So in the first two years, you were tackling the local space and raising capital; I’m sure it wasn’t just business planning. What did the sales process look like, how many locations did you have, how did you handle sales?
Chuck: Initially we were out there talking to restaurants. We were unproven and the restaurant industry is still to this day very tech paranoid. There were only a few companies like Citysearch and Sidewalk which were info pages, where you could find out the hours of operation and at most a menu or picture. Most restaurants didn’t have email addresses or a web presence. In fact, most restaurants didn’t even have power at the host stands. Initially in selling our product, we went to the influencers.
Logan: Influencers being, like, key restaurants in the area?
Chuck: Yes. So, we’d target the restaurants with the highest ratings - best dining, best ambiance, etc. We tried to get three to five of the top 20 restaurants in the market. If we could get those, then the next fifty or seventy all aspired to be what those top restaurants were and did whatever they were doing. Eventually, we would get the next two, three, four hundred restaurants in the market.
Logan: An interesting strategy, because typically it is harder to sell to the bigger and more popular businesses in a market, especially if you don’t have a brand or a reputation. What was your pitch like?
Chuck: The pitch evolved over time. At first we recognized that restaurateurs wanted to take better care of their best customers, but they did not have insight into who those customers were. The restaurateurs wanted a CRM system that was able to do three things: reservation management (making, changing, confirming reservations), table management (who’s sitting where, how long have they been sitting there, when do they like to get up, am I seating my servers evenly) and then third was guest management (who are my VIPs, who’s been here ten times and hasn’t been here for six months). So, they would now have this tool where they could know who their best customers were, they could track which servers were getting sat on a consistent basis, they could do better planning. {OpenTable} became an operations tool for restaurants. The first restaurants in a market cared about knowing who their customers were so that’s what we sold. We didn’t sell more customers for them, we sold taking better care of their current customers.
Logan: One of the things you brought up that I think is really interesting is the difference between the consumer perception of OpenTable and the merchant value. We talk about this a lot because the consumers think of Belly as the better punchcard, but our merchant value is focused around CRM, email marketing and social integration. And so we’re known as a loyalty company, but the merchant product is fundamentally very different than what you consider a loyalty card. How did you think about OpenTable branding and difference between consumer and merchant?
Chuck: For the diner, the number one thing that we did was to make sure that anywhere a restaurant was listed on the Internet there was the ability to make a reservation.
Logan: Did you guys notice tipping points on the consumer side?
Chuck: Each market was different. And things like intensity of the market matter, so San Francisco was much closer to how Chicago and New York was than it was to LA or Atlanta or Houston. So spread-out markets are very different than dense markets. So, for us, we are original sort of cost-to-sale, so it took us about 3.2 visits to a restaurant to make a sale.
Logan: And you raised some money, not a lot. Was part of raising this round a competitive strategy?
Chuck: For sure. We also had an investor who recognized the value of the two sided network, winner-take-all, they were an early investor in Ebay, they turned 5,000,000 into 5 billion with an investment in there, and so they sort of saw this two sided network and thought: ok, we need to own this whole market. So they said ‘let’s go out and do a really big round, let’s make sure that none of your competitors can raise capital’, because the investors at that point, venture capitalists, weren’t interested in getting into spending more - they were holding onto their dollars. A lot of people weren’t even reinvesting in their own companies. We were able to get one of our investors to write a big check and another one of our investors participated pretty heavily in that, so we raised 36.4 million at that point and we had a 172 employees and we were bleeding cash at that point, because it was about growth at all costs, and then we said: we need to get smart about this. So we did a downsizing.
Logan: After the fundraising?
Chuck: After the fundraising.
Logan: So you had the cash?
Chuck: We had the cash but we would have hit a wall. We had to downsize, which was painful, we from about 172 people down to 64. We went from 16 markets down to 4 markets, so we made a very specific decision to get each market profitable. So we were losing money in all four markets on sort of a market for market basis, so we focused on those four markets and getting them profitable. Once a market became profitable, we could see the two sided network start to kick in and we would then go back to one of our other twelve as we slowly started to bring our markets back online. Customers would get mad at us, it was a painful, painful time for the company for sure, but we had to do that or the company would not have succeeded.
Logan: You touched on some of the challenges. I’m curious if you could talk through just what the first couple of years looked like in terms of growth, number of restaurants, when did you get to a point where you started to think like that this is something important?
Chuck: Back then we believed in the model, but we hadn't seen that sort of economic shift yet from four and a half sales to six to seven sales per month per salesperson. So, it took a while before that happened. If you look at our first year, it took us three years to do a million covers. Party of three is three covers, party of four is four covers. So, it took us three years to get to a million covers. Now they do a million covers in two and a half days or something like that.
Logan: You’re consistent. I actually quoted you on something that you and I talked about last week... you said multiple times ‘maniacal focus.’ What does that mean to you and if you could talk a little bit about how you got distracted from that and where you think you did well?
Chuck: There were a couple of times where we lost a little of the sense of who we were as a company. At one point one of our restaurants started to partner with hotels and they asked us to design a room service ordering system for their clients. Suddenly, I’m thinking about user paths and we were like: let’s split our engineering team and let’s split our customer service team and let’s split our install team and let’s split our sales team and… And then we’re like: what are we doing? We put maniacal focus back on being restaurant-centric.
Logan: The last thing I wanted to ask you was just looking back at your time, founding the company, growing the company, being what it is today, what are you most proud of?
Chuck: Two things. For one, the brand and what it stands for to the diner, I think it’s awesome. People tell me that they’re able to go in, get a reservation and be done. It’s very utilitarian, it’s a tool made to get something done, to me it’s the number two thing. The number one thing is I’m pretty proud of the culture that we’ve built there. We have a group of awesome individuals who have worked to change the mentality behind an entire industry. We were creating value and making people’s lives better in the restaurant space; we were not solving poverty or health issues or anything like that, but in the restaurant space, we’re proud of the fact that we were sort of revolutionizing the business.
Logan: Any parting advice to a company with maniacal focus around creating and enhancing digital connections and strengthening customer loyalty?
Chuck: Don’t take advice from old entrepreneurs. I mean, you guys are doing something cool - you can change an industry. That’s something to be super excited about. There aren’t a lot of companies out there who are up and coming that have the reputation like you guys have and I think it’s kind of cool. So to be able to embrace that and run with it and see what you can do with it is awesome.
