How Jacob Jaber Built Philz Coffee From 0 to 70+ Locations

When you're in the brick-and-mortar business, the real estate you choose in your store, in your space, is, you know, marketing. You should just make sure you choose a good piece of real estate. If you choose bad real estate, great marketing can't fix that. One of the things, philosophies that my dad had is that whenever you're serving a community, it's important to be authentic, but you can't be afraid to change to best serve the community. And that meant relationships. When you take the time to treat them like a human, with kindness and authenticity. It's amazing. There's no greater currency than trust and rapport. Interestingly enough, I found it more difficult to run 5, 6, 7 stores than 20 stores, because at 20 stores you're generating enough cash to hire management to help, whereas 6 to 7, you're in this interesting weird place where you still have to just run around like a crazy person checking on everything. There's so many things you have to do, so you really have to decide what's important versus less important. So what's really, really important? And the good news is there's only 2 or 3 things that were really, really important. So the way I've architected the ARC operation and the playbook is around being the best in the world at those things that were the most important and just being good enough on the things that were important.

Hey, I'm Justin Gordon and welcome to Just Go Grind. On today's episode, we have Jacob Jaber, the co-founder of Philz Coffee, one One of my favorite coffee shops in the entire world. He's also the founder of Humble Lion, which partners with entrepreneurs to build the best brick-and-mortar brands. We go through a lot in this episode, from his journey starting Philz Coffee with his father, to growing it into dozens and dozens of locations, to why he's now partnering with entrepreneurs to build the best brick-and-mortar brands. There is so much to discuss in this episode. Today's episode is brought to you by Ro. a business banking platform built to support ambitious founders and their teams at companies of all stages. Their customers include Perplexity, Public, Cal.com, among many more. And one thing among many that stands out is how they're community-driven. Reminds me of a lot of the story actually of how Jacob and his father built Philz Coffee over time. And just like Jacob Jaber with their strong community roots, Ro has taken a community-led growth approach, which I love. hosting events for founders in multiple cities, and it has worked wonderfully. So if you're building a company, one like Jacob would invest in, for instance, potentially consider Ro today. Head on over to ro.co, that's R-H-O dot C-O, to get started. Let's get to the episode. Jacob, welcome to the show.

Thanks for having me. Good to be here.

Yeah, I, I am a huge fan of Philz. I've been drinking Philz for a very long time. Every time I go to SF, I'm actually going pretty soon, I always go to Philz in Mill Valley. There's like so much to it that I, I love everything you guys created. For people who aren't familiar with the story, how did Philz get started in the first place, Jacob?

Yeah, my dad is Phil, and, you know, the shop's named after him. And him and I kind of started it together prior to it being the first Philz store. It started in San Francisco in the Mission District. It was a bodega that my dad had for many, many, many years. And I used to help him when I was a kid there, but in the early 2000s, it started to transition into a coffee shop. And, you know, I left school and was working with him full-time. And, you know, him and I were just literally baristas, but we loved hospitality, community, quality, creating a unique experience that people loved. And, you know, I always tell people it took, you know, 5 years before we opened our second location. So, it wasn't an immediate success. It took time, but we believed in what we were doing. And then, we opened one store, another store, and now, we have 80 stores across the country. And it's been a great— a lot of fun, to be honest, and tons of learnings. But we love it. You got to love what you do.

That's why I'm so excited to talk about it because I've heard you on different podcasts and obviously researching for this episode. So much to dive into. What made you want to go work on it with your dad?

Well, when I was like 9 years old, that was when it was a bodega, like a little corner grocery store. And I would help him after school. Sometimes I didn't want to, but I think he was trying to teach me work ethic. So I would go and help him. And, you know, there was just a really good bond. And no one loves you like your parents love you. They want the best for you. But when you're a kid, you want to get away from them. When you're growing up into your teens, you kind of want your full independence and you've been influenced by your parents, so you want to be influenced by the world. So, you kind of pull away. But I actually went in a little bit deeper and you live with your parents at home, but I worked with my dad and it was amazing. because he really gave me autonomy, let me make mistakes. I learned a lot. I love learning, and I got the chance to help a lot of customers too. So, you know, working with my dad, that's how that happened. And then we just kept doing it. And then eventually Philz was founded and we got, you know, we got a lot busier.

How did it transition from the bodega to coffee shop?

That was a very organic transition, you know. One of the things, philosophies that my dad had is that whenever you're serving a community, it's important to be authentic, but you can't be afraid to change to best serve the community. So, even though we had a store and we sold a lot of different products in the bodega, it wasn't about any one specific product. It was more about how do we best serve the community. So, we'd always adapt to products to make sure we're best serving the community. And that meant relationships, getting to know people in the community, building those connections and adapting the product offerings to best serve the community. But coffee was something that my dad loved and I loved even young. You know, we used to drink it at night before we went to bed, oddly enough, and we slept just fine. But we wanted to, you know, we had a great coffee product that we put out that we believed in and loved, and my dad did a ton of research And we built a little small coffee station in the corner of the bodega and just started testing it out with some of the customers, and they loved it. So we actually removed an aisle and took furniture from our house because we didn't have a lot of money to, you know, to invest in this stuff, and literally just put like the kitchen table, the couch, etc., in the cafe from our house. And that's how it started. So it was very organic and Slowly, incrementally, we started shifting the store to be more like a cafe. And it was so much fun. It was so much fun, you know? And people were coming in, they loved it, they hung out. We love hospitality. So instead of someone buying something and leaving, they stayed for a while and we got to know them even more. So that's kind of how that all happened. Very organically, not planned.

What made it stand out in those first few years? Because obviously it was, A little bit slow growth until you expanded to a second store 5 years later. What was it about Philz, or that, like, I guess, I don't know, when was it? It wasn't even called Philz probably at that time, I imagine, or I don't know what time when that happened, but what made it stand out?

I think there were 2 main things. The first one was product differentiation, and it's better, right? So it's not just a different product, it's also a better product. And it was unique because we didn't offer any espresso, and that's what Americans were getting more. used to with the rise of Starbucks and Peet's and the other coffee companies. But we just focused on handmade coffee, and that was very unique. And the experience was very unique because you would order with the barista, us, or one of, one of the team members, and it was very personal. We'd, you know, you, instead of walking to a cashier, you'd walk up to us and we'd have a conversation. We'd make you something, and then we ask you to take a sip to make sure it's perfect. So I think it was the product differentiation. It was the experience that fostered a great sense of personalization. That's one bucket. And then the other bucket was our obsession around hospitality. You know, every first-timer that used to come in, we'd surprise them with a treat, you know, and we'd always have a little notepad and write down stuff that we learned about our customers. And that was our CRM. And it was amazing because we would remember the birthdays, we'd remember what they like, what they didn't like. And it was just a very deep, deep care for brightening someone's day. You know, when we saw someone walking across the street, we know they're going to come in. We've already started their beverage. We'd ask them how their day was. And interestingly enough, what people really valued the most was that they were seen, they were cared for. It was a moment of rejuvenation, not just through the cup but through the connection. And that may sound trite or a little bit, you know, overly used, but it's the truth. And that's what we did. So really, I think what, what made— what makes Phil's work is The product and the culture. And they all tie into this overall experience.

Was that all intuitive to you and your dad, or were you reading about that, like how to run a hospitality business, or was it just learning on your own and just intuitive, like this is what the customers will want? I'm really curious about that.

I think it was sort of, Growing up, it was all about my grandma, my mom, hospitality. When guests came over, we went over to someone's house, it was always very important being respectful, being kind, treating people well. So, I think we all grew up in that environment, so it was just innate. I think me working when I was 8, 9 years old, 10 years old at the bodega, 11, 12, all these years, Um, it was kind of natural in some ways, and then I got better at it because I learned and I dealt with a lot of different types of people. Uh, so I, I know there was no books read about it. It was really, it was really innate. I think it's a— I don't have a lot of superpowers, I really don't, but hospitality and people and experience is definitely, uh, the one, the thing that I was best at. And, and that role allowed me to, you use it all to the max. And it was amazing. And same for my dad.

In the early days of Philz, you expanded to a second store, like I said, in 5 years. What was the conversation like around expansion? Or why was that the time to expand? Why not 4 years in? Why not 6 years in? What was it about that time period that you said, okay, now's the time for a second store?

You know, we didn't actually have plans to expand. So what happened was that we got to the point where we were so busy And we got a lot of complaints from customers about there not being a shop close enough to them. So we got tons of ideas about, you should open here, there, here, there, and finally caved in and said, okay, we'll do it. So really growth in the early days was more us being pulled to the community versus us pushing to the community. And it was amazing because when we opened, it was a line out the door, you know, there was— it was busy. So, uh, yeah, we didn't really have— we didn't like wake up one day and say, we're gonna open, you know, tons of shops. We just loved what we were doing and we couldn't let the community down, so we had to open another one. It's like we had to do it, so we did it. And then we did another one, and then we did another one, and did another one. It just And me, I loved it because it was a great challenge. I'm ambitious, I like to win, and, you know, I win through customer obsession, not through competitor obsession. So I never really cared who was out there. But it was, to your question, it was not, you know, not this big master plan. It was really getting pulled. But I think that's a good principle for people to keep in mind. The best growth is when you're pulled. People want you versus you pushing it on people. It doesn't mean you can't grow that way, but it's really a great sign when you're, when you're being pulled in, when people really desire and ask and want your product. It's always a great sign.

Did you have to do much in terms of marketing then in the early days?

Nothing.

Because it seems like people kind of, yeah, word of mouth. They're just telling other people.

Yeah, all word of mouth.

They see the store, obviously.

We used to tell customers to come again and tell a friend. That was it. Sounds, sounds pretty simple, right? But, you know, it turned out it worked. I mean, if the product wasn't good, I don't think people would tell anyone.

That's— but yeah, the core piece.

Yeah, yeah. So no, no marketing.

Plus the hospitality.

Yeah. To this day, I don't like— I'm not a fan of marketing, actually. I, I get very— it's not that marketing, all marketing's bad, but when you're in the brick-and-mortar business, you're The real estate you choose in your store, in your space, is, you know, marketing, you know, and you should just make sure you choose a good piece of real estate. Because I always say another thing to keep in mind is for brick and mortar is if you choose bad real estate, great marketing can't fix that.

Hmm.

So great real estate, great product, great service. That's it.

How did you think about that in the early days? So going from the one store to the second store, you had obviously this pull from customers being like, we need you in our areas. How are you finding the right real estate then? Because it could say we're in this town over here, we want, we want a Philz Coffee. But then within that town, you still have to find a location actually. How did you approach it in the early days in terms of finding more locations for Philz?

It was actually, surprisingly, when you build relationships with people and you get to know a lot of people and you treat them with love and passion and kindness, they go to work for you. So landlords would call, they would call on our behalf, they just helped us find the location. We didn't really have to do work.

That's interesting.

So it was all again that pull, you know, people pulled us in. So that Yeah, that was kind of how it happens. People do that. People will work for you when you take the time to treat them like a human with kindness and authenticity. And, you know, it's amazing. It's amazing. There's no greater currency than trust and rapport.

What was it about those locations then in terms of like choosing more real estate and different locations to go into? Because I imagine in the early days, Philz was getting pulled in multiple directions because you have customers in different locations and, you know, it's in the Bay Area where it got started. Like, how are you deciding then which one even to go to first and then the next one? Because if you're getting pulled in all these different directions, which is what happens with founders all the time, we're getting pulled in 1,000 different directions for products to create or locations if you're a brick and mortar. How are you thinking through that in terms of which locations or like, we're going to go here first? Like, you're obviously getting pulled by customers in different directions, I imagine, where it's like, Jacob, we need one here. No, we need one here. Like, Just take me through a little bit of that in the early days.

Yeah, you know, the truth is, early, in the very early days, it was very organic, and we didn't really have a clear playbook for how to do all that stuff. The thing that we did really well was constrain ourselves through the quality of the experience and the execution. In other words, we had a very good pulse on how we were executing and would not even talk or think about growth unless that execution was at our standard. So, to the extent that we can execute really well, we've earned the right to expand and grow. So, that pulse was just very, you know, alive and focused on for us. So, that was great. There was a lot more art and science later on as we scaled, right? But in the early days, it was mostly art. And, you know, people would show us a location and we got a little smarter about it over time, like, oh, You know, these types of locations work better than that, so I don't want to do that one, but that one looks really good, you know. Oh, can we do that? Yeah, we can. Let's do it. So it was really more like that. Obviously, in the early days, we couldn't commit to too many locations at once. We didn't have the money and, you know, the bandwidth, but it was one at a time. And then you have 2, you have 3, you have 4, you have 5. If you do a great job, you're earning cash flow. And then you can reinvest those cash flows and maybe do 2 in a year or 3 in a year. But, you know, over time, to your question, it went organic to a lot more art and science. And interestingly enough, the best locations are when it's done from your instincts. You know, the more science— it makes you feel smarter when you just throw numbers on a page and talk to investors and stuff who want to hear all these fancy numbers. It's like, oh, you know, But yeah, no, it's good.

I want to get into that in a second in terms of like the scaling up because it's obviously there's like 2 distinct different periods here, like the early days versus raising capital and scaling. We're gonna get to that in a second. But take me through even like going from one location to 2. In one location, you're just at the same location, you show up there, you deliver a great experience, great. 2 locations, you instantly have to hire people or have to like take me through that switch from even like one to 2, you doubled your business. Take me through that. switch in terms of either like hiring people and the complexities of that? Like, how did you finance it? I'm just curious on going from 1 to 2. It's like a massive step for you.

Yeah. So, my dad and I cared very, very deeply about the quality of the experience. So, we knew that as we grew and got busy, even with the first location, we needed help. And we always wanted to choose great people. Not just anyone, so that helped a lot. So we were quite selective on who we hired from the beginning, and that became an obsession as we scaled and expanded. So it was really just a matter of making sure we're being patient and we're finding the right people to do that. And then, you know, the first location got so busy to the point where we had enough cash flow to reinvest into the second location. So, you know, we— and when we opened the second store, of course, we were understaffed because it got busy right away. So, we had to go and start hiring a bunch of people. But no, I mean, you know, and we took some people from the first store to help with the second store, you know, but you're totally right. You double and you potentially dilute. So, but we knew, you know, we knew that that was kind of going to be the case. And we were planning ahead of time so that it wasn't a shock to the system.

And you did take, I mean, so 5 years of growth before you got the second store.

Yep.

And to your point, you just mentioned, like, I read the book from Izzy Sharp for the Four Seasons, founder of the Four Seasons. In his book, he mentions, like, you know, taking people from the core first locations of Four Seasons, then going to new locations, having them lead the way, train the staff, all of that. You mentioned looking for really great people, especially early on. And I'm sure, you know, carries out throughout the entire time of Philz. What were you looking for? How are you evaluating people? Like, I know everyone says like, hire great people, then we're like, how? How do you do that? What do you— how do you vet them? What are you looking for? Like, tell me more of that in the early days as well, just in terms of like, how are you looking at which people would fit with who you wanted at Philz?

Yeah, so we developed Early on, it wasn't really like formalized, but I formalized it a little bit later. But we, we knew how important people were to the Philz experience because every cup was handmade, prone to a lot of error without care, and it was all about hospitality, connection. And in many ways, you can't teach, you know, you, you can't teach someone to Have that level of presence, care. You can't teach that. You can't teach the care part. So we knew from the very beginning that we needed to hire people that had a set of values that aligned with ours, and it was less about their resume and their experience, particularly if you're a barista. I, I don't care a ton about where you worked before. Some of our best baristas were never baristas prior. So, the framework that was developed was CCE: character, competence, and experience. So, for baristas, experience mattered less, so you can take that out. So then the 2 C's were the ones that mattered the most: character and competence. Character is who someone's— who someone is.

Mm-hmm.

And that's hard to change. You can't really change someone's character. They're just, you know, they're a collection of the genes, the experiences, the upbringing they had, and maybe there's incremental change over time, but you can't really change someone's character. Competence is more malleable. It's a skill set, right? I can train you how to make a cup of coffee. You can train me how to code. So then what that meant was that competence was also a little bit less of a, you know, we weighted it less than character. So then we put all of our energy into character. So then we had to define what does that really mean? What are the 2 or 3 characteristics that overwhelmingly correlate to someone who's going to do a great job at the job? And it turns out that the things that, you know, we found were people who were kind and driven. Kind means that I see something on the floor and I pick it up without someone asking me. Like there's a wrapper on the floor, I'm just being a good, kind person. Kind not always just to people, but kind to environment, all those things. And then driven is I want something better out of life. I really want something better. So when someone's kind and driven, It's an amazing blend, and interestingly, it's actually very rare to score high on both of those things. But that's how we did it. And you know, the hard work is really in in in details of that and how you execute those that framework. But that was it, and it was you know again I made mistakes, but as every entrepreneur makes mistakes, but I got that piece right because. I cared about it and I was passionate about it and I knew that was the sauce, that was the culture sauce of Philz that was critical.

You said you were, I mean, even with the first store, you had to hire people obviously. And then the second store, you quickly had so much demand, a little understaffed, so you kind of have to hire people again. At what point in terms of stores, so 5 years to get to your first store, how much was it between like second and third store first? I'm curious, time-wise.

I think that was a lot less. I think it was a year and a half, a year, year to 2 years max. So yeah, it started shrinking.

Yeah. So, but so by that point you're like, okay, we know we're going to expand to more stores because clearly customers are pulling out of us. Correct. Okay. We need to expand. At what point does this start breaking? Because one store versus, we're going to more stores obviously, but I'm not going to go, I'm not going to go store by store to 80. But at what point does it start breaking in terms of The systems in place or it just getting too hard? Or was it pretty seamless for the first 3, 4, 5, 10? I'm just curious on that as well as you expanded.

I wouldn't say that anything ever broke. And one of the reasons is why we knew exactly what we were doing and we controlled growth. Growth didn't control us. So we knew what we were doing. And, you know, there's also an inherent paranoia For quality.

Yeah.

And when it's good to be a little bit paranoid, you know, when you're an entrepreneur and building stuff, because when you're paranoid, you're usually proactively preventing problems. Uh, so we always hired in advance, we spent extra time on training, we overdid things that we knew were good to overdo. even if it ended up in a little bit of waste because it protected against the downside. It was like defense. So nothing really broke, to be honest. There were certainly hiring mistakes. Those are painful, but that's not system— that's not a system break. That's a micro break. You know, that's a little sprain.

Yeah.

You can fix those things and you learn from them. But yeah, I don't know. I mean, for us, it was too important. The experience was too important. So we were paranoid about it.

To that point too then, because you have such a high quality bar in terms of the experience and obviously the product, you know the playbook, you see you had that kind of, you know, ironed out and clearly everyone's gonna make hiring mistakes. Just, you never know how people are gonna turn out, but do your best. How was it managing that as you get into like 10 locations, for instance? Managing one location, hard on its own, just in a different way.

Yeah.

Then you expand to like, you're obviously having to trust people to then run these stores. But just take me through like running even like 10 stores. And we'll get into like when you started raising capital. But first, I'm curious about even running like the first like 10 stores. Now, you have stores all different locations. You're definitely not in each store the whole day, obviously, because like you can't be in every store all day. How was that experience in terms of going from that one to then having like 10 stores, for instance?

Yeah. Interestingly enough, it's more— I found it more difficult to run 5, 6, 7 stores than 20 stores because at 20 stores you're generating enough cash to hire management to help, whereas 6 to 7 you're in this interesting weird place where you still have to just run around like a crazy person checking on everything. So that happened a lot. I mean, really the key was finding a great manager at each location. That's the most important thing. And usually once you get to 10 locations, you have an area manager where all the managers report to that area manager. So when we were at 2 or 3 or 4 or 5 locations, I was very actively starting to think about area management because I knew we were going to get to 10. So I was that person, right? In the beginning, in the early days, I was that person. And then eventually I had to hire someone to do that. But it was very difficult. It was very difficult at 5, 6 locations going from store to store. Somebody had to quit and move on, and then you're short-staffed and there's complaints. And it's just constant problems being thrown at you. So it's not for the faint of heart. You got to embrace that stuff.

It's funny, like, I just finished reading this book on Sam Newhouse, who— I think it's called Newspaperman. And it's about— he at one time was like, I think, the richest media person in the United States. His company's called Advance Publications. They own like Condé Nast and all these different ones. They own a ton of them. But somehow him in the early days of like running his newspapers, he was going like newspaper, newspaper every day where he had like 2 or 3 newspapers. He's like Spend the morning, then like take the ferry afternoon, come back in the evening to a different one and just like one at a time. And eventually though, you acquire more newspapers, you have to hire people because you can't be in like— he acquired like the Oregon, like one in Oregon. It's like obviously he can't be on the East Coast and on the West Coast running both of those. So the complexities ramp up pretty quickly. And your story reminds me of that very much so. You have to kind of change how you operate a bit and put the right people in place because you literally can't obviously go to each store in that. As you guys were expanding, where— when did it start, the idea of raising capital? Because you're growing off of kind of profits and being able to invest in new stores. I think it was 13 stores then you had, you started to raise capital. Take me through that decision even just to raise capital and expand more.

Yeah, you know, we didn't have to. We were doing really well. 13 stores, we bootstrapped the whole thing. And We started in Silicon Valley, so naturally, so many of our customers were these investors, these smart engineers, these entrepreneurs. So I built so much relationships with these guys, and these investors started just reaching out. They started the pool, right? It's like, hey, we're seeing all these fills and there's all these lines. You guys should raise capital and grow. And we wanted to grow at that point. But we weren't sure we wanted to, you know, haven't— we've never done it before, and this is a family business, so having the right investors is critical because what a shame it would be if, you know, it was disrupted in any way. But, uh, you know, one of the customers who I developed a good friendship with, and I used to make coffee for, was Naval Ravikant, and he used to come in all the time And number one, like, what an amazing guy. Like, you know, if you get to know him, he's just a very good human, very nice guy, very smart guy, very nice guy, very kind guy. And anyways, I was like, hey, Naval, I have these people wanting to, you know, I think we want— it would be good because then we can grow a little faster. Can you help me out? And, you know, we were big enough, we didn't need any kind of seed round, you know, so we went straight to an A round. And he literally helped me from 0 to 10 get that round done all the way to negotiation. I would go to his office, the AngelList office, we'd sit, look at the deck, talk about the LOIs, and he was amazing. So, um, that's how we did the first round. And then the second round I did— so I learned from him, and then I learned a lot from him. And then I very quickly went from high school to an MBA in fundraising because of that experience.

What were some of the key things he taught you? Because people who know Naval, they're going to be like, you have to ask more about Naval. Because I had heard that in different podcasts. I'm like, Jacob needs to expand on this because it's obviously not a tech company. It's a different thing. But you started fundraising for a very successful brand at that time. What did he teach you? What were some lessons or takeaways from Naval that helped you on the fundraising side?

There was quite a bit. A lot of it, you know, tactical deal structure, etc. But I think the biggest thing was knowing what you want and why you're doing it, and then making sure you're partnering with the right people. And even if you work hard at that, you can still mess up. But a lot of it was just avoidance, like what to avoid, what to watch out for. So at a high level, it was about knowing what you want, why you want it, right partners. But there was like 30 things from just a tactical deal negotiation and structure standpoint that, I mean, I don't know that we want to get into every single one of those, but—

Yeah.

I don't know that I remember every single one of them, but that was amazing. Yeah, he was fantastic, and he would take his time to explain things to me. And, you know, again, just an amazing, amazing guy. Naval is awesome.

At that time, with that raise then too, because I'm more familiar on the, you know, raising for software companies and all that and understanding how that kind of goes. You didn't need to raise funding. You had 13 stores, you're pretty profitable already, obviously.

Yeah.

Take me through more thinking about like how much to raise and what that would get you. Like what were you, what did you want from this raise? Like those things, because you're 13 stores in, profitable, it's working. We have obviously, you had opportunities to expand. And now you're like, well, we could raise capital, which is the best position to be in where you don't need their money. So, like, just take me through how you thought about like, well, how much should we raise? Like, what's this gonna get us to? Like, does this get us to 1,000 stores? Does it get us to 100 stores? Like, just say anything more of that with the first raise.

Yep. So, I think there was 2 things. The first one was just growth velocity. We were able to organically grow from 1 to 2 stores a year with our existing footprint. Raising capital would increase the trajectory so that we are now growing 3 to 4 to 5 stores a year. So that's one, accelerating growth. Number 2 was investing in a state-of-the-art roasting facility that we wanted to have to improve quality, reliability, all that stuff, and support growth. So those were the 2 big reasons that, that we raised and The way we thought about the number was simply, you know, what's going to comfortably get us over the next, you know, 3 to 4 years. That's how it— so that's kind of how we did it. You know, there's not a ton of science involved, but you kind of define what you're going to do. You know, it depends where you are, right? If you're in the product-market fit stage, everything should be milestone-based. And I'd even advise against raising capital. Especially with AI, like figure out how to achieve product-market fit without it. Um, but yeah, we, we had product-market fit, so now it was just about expansion and growth. So really the challenge was not if people would love this product, but, uh, can we demonstrate a growth engine and growth muscle that can get us on the trajectory to have hundreds of stores one day? So, that's the milestone. And then what's a sensible amount to raise for that? That's kind of how we thought about it.

Going in the second time, you said you raised again. So, you raised the first round, Naval helped with that, obviously, which is a very good person to have in your corner for raising capital. You said you raised again, though. You raised the second round again. How did that differ the second time? Was that similar, like further growth velocity? Like, what was the second round then in terms of raising more capital?

Yeah, just growing faster, really. was the key. And, you know, those are existing investors who just— we went out to the market and we got bids, and then the existing investors actually took it.

So, like, we'll take that.

Yeah, yeah. So they— and that made it easy. So we did that, and then it was just continuing accelerating growth, right? Costs money to build stores. It's quite expensive. It's quite expensive.

Yeah. And on that note, actually, you mentioned earlier on with the real estate, you know, earlier on in the journey of Philz, you're trying to figure things out. It's a lot more art in the early days of choosing locations and real estate and all of that. Take me through more of the science as you start scaling. Now, you have capital, even more capital behind you to grow this into a much bigger thing, going from those first 13 stores before you raised and then now you're 80 today. Scaling Philz. What were the keys to scaling Philz, I guess, is what I'm asking.

So there were— so it always, it ties back to like, there's so many things you have to do. So you really have to decide what's important versus less important. Not unimportant, less important, because everything's important. So what's really, really important? And the good news is there's only 2 or 3 things that were really, really important. So the way I've architected the operation and the playbook is around being the best in the world at those things that were the most important and just being good enough on the things that were important. They were choosing good real estate because that had a huge influence on the success, performance, economics of the business. Choosing a good manager. And having a good people playbook for hiring, training, etc. So real estate and people were the 2 things. So when we had a dozen stores, 2 dozen stores, we had a lot of data. Which type of real estate performs the best? What are those common themes? And then using tools to help us find more locations that look like that. So that's the real estate side. On the people side, it's just a grind, you know? It's just a grind. You gotta like—

Yeah.

Uh, you gotta— I interviewed the first 500+ people, baristas even, uh, and I wasn't willing to give that up because I really wanted to nail down that character, uh, and I had someone who was Great, you know, person working with us who was like, hey, let's do them together, because I needed help and I couldn't do this all on my own. So every single person went through either me or her, and then I trusted her. She did a great job, so she took the lead. And then we needed another person, so we trained that person, and basically no one got hired unless you passed through us. And, uh, that was great. Very difficult to do and expensive, uh, because, you know, it's not just going through us. You still have to go through the rest of the interview process. You know, we're just like price of admission. It's just like for even getting— So that's, you know, that's how we did it. And then you got to be really good at firing, and, uh, we were, we were okay at it. We I could have been better at it, meaning like when you have an itch about someone, fire fast. Everyone says that. It's very difficult to do, but it's the truth. And it turns out firing is a big part of how you shape the culture. Who do you fire and why do you fire them tells more of a story to the organization than who you hire. So in other words, if you want to build and shape your culture a certain way, um, the type of people you fire help shape it most efficiently, if that makes sense.

Yeah.

So, you know, be good at hiring, be good at firing, be good at training, all these things. It's people.

With Philz as well, You said 80, roughly 80 stores today. Starbucks has, I think, tens of thousands worldwide. Other, like, but when I look at Philz versus Starbucks versus any other company, I'm very biased and like Philz a lot more than anywhere else. But like, why doesn't Philz have 1,000 locations or 500 locations? Or take me through like the thought process or— constraints or intentionality behind that? I'm just curious.

I definitely think it can and it should, and I think it will over time. Yeah, I think it's just a question of speed and how important speed is, you know. But no, I definitely think we can. I definitely think we can. Right now we're just conquering California. Chicago. Yeah, Chicago, we're off to a great start. We're gonna do that there. You know, I think it's just a question of speed. The other thing is, for me at least, I'm an investor, but I'm also an entrepreneur. I always consider myself an entrepreneur first, investor second. And I'm very— I'm inspired by brands that have been around for 100 years. You know, because you hear about a lot of successful companies, um, but maybe they don't have a long life. It's good to have a long life and to build a brand. So I love building brands. I love thinking about 20-year time horizons. You know, how do you build an enduring brand that people will love for a very long time? Like, look at In-N-Out Burger. It's pretty amazing. Talk about pull, right? I don't think, you know, when a Starbucks— Starbucks has pushed growth out on people, and that's fine. In-N-Out has just been pulled, you know? And if you think about the love of a brand, you know, Ultimately, that's one of the most— I prioritize that over everything, the love of the brand. You know, ultimately, that's what it comes down to. You know, you're not— I don't think the most exciting thing is going to be someone's market cap. It's going to be the soft stuff. How does the world feel about your brand? What have you done? So, I'm a big fan of that. So, I'm not— speed is important for certain industries. But it's, it's, I, you know, like Apple says, you know, I'd rather be the best than the fastest. So yeah, those are my thoughts.

I mean, I imagine with what you've built already and the brand that Philz has, there's real staying power obviously and longevity in that. So there's no reason why you won't just continue to grow. Obviously you have some playbooks in place, you have the things in place that got you to this point. Now, what got you here doesn't always get you there. But you have a strong foundation, obviously, for growing tremendously more in the future, which is going to be interesting to see how this kind of plays out more as the years go by. I'm curious, though, with your experience there at Philz, at what point did you decide that you want to then be more— start investing, like not be as— I don't know how involved, like how much day to day you still are in the business versus when you were earlier days. But at what point do you want to start investing and finding companies that also could be the next like great brick and mortar businesses?

You know, I— what I've learned about myself is that I really love 0 to 1, you know, taking, you know, and then building the operating playbook, like the OS that you can scale on top of. I can scale, I know how to do it. It's not the thing I'm, you know, most excited about, waking up to an HR call.

Yeah.

You know, with thousands of people.

Touché.

But no, I love— I think it's just much more stimulating for me to figure out how to create and build. So, I just met so many entrepreneurs being in Silicon Valley. My network got so deep with these amazing people and I learned so much and I just started being part of that ecosystem and I was like, man, I want to do more of that. And I think there's an opportunity to do what has been done for tech but in brick and mortar and consumer. No one's doing that well. I know how to do it. I'm gonna go do it. So that's what I'm doing. Philz is still part of our— absolutely still, you know, part of, part of our lives and has my dad's name on it, uh, you know. But we have investors and, and other folks involved, so it's not just us anymore. But that's going, uh, and it's growing, which is great. And, uh, you know, we created that, you know. So I want to figure out how we can You know, I can be helpful to other entrepreneurs and, you know, help get them from 0 to 1 and from 1 to 2 and from 2 to 3 and to grow.

Yeah, because you have the experience across all of that already, obviously, with Philz. So with Humble Lion, with your investment firm, then what are you looking for? Tell me more. Obviously brick and mortar, but what are you looking for from the companies that— what makes something interesting to you? And maybe a concrete example so people listening can be like, oh, that company, I get it. Tell me more about that.

Yep. Yeah, so the focus is food and beverage, but also other things, you know, like community, you know, it could be an experience, entertainment, but brick and mortar is the primary focus. I also do tech here and there, but that's not the primary focus. And a lot of the tech, there's adjacencies that tie back to brick and mortar. So, it's all kind of connected in some way. But really, it's been very difficult to find good ideas.

Yeah.

It's very difficult to find good ideas that I, that I'm like, okay, this is gonna work. And really what you want to find is something that's both different and better. You don't want to find something that's just different because if you're not better, you don't matter. And you don't want to find something that's just better because if you're just better, You're not defensible. It's better to be better than different, but it's better to be both. Now, even if you're a little bit different and you're a little bit better, you're still vulnerable. It's not good enough. So what you need to do is you need to have layers and levels of better. So a lot better and a lot more different, even though the better is more important. You got to find those ideas that sit at the intersection of that. And the issue is in general is that unlike tech, it's hard to make a burger, and I'm just picking on burger as an example, it could be anything, 10 times better, right? Like tech, you can make 10 times better, 20 times better, 30 times better. That's a breakthrough, that's innovation. Whereas in food and beverage, it's all incremental, and a lot of it's about the brand, and it's really an art. It's really an art, and it's still curious to me how brands are the power of the brand. So yeah, a burger, you know, you can't make 10 times better. Maybe you can make it 1.5 times better or 2 times better, but even then it's not— I don't know that that's good enough. So it's a very, uh, it's multifaceted, it's multi-dimensional, there's a lot of elements to it, but that's exactly— that complexity is what I love. I love that complexity because it's, you know, it's situational, it's bespoke, and every single experience and concept has its own canvas that needs to be painted. So I'm always trying to look for good white paper, if that makes sense.

I know we've talked— I know we talked about it before. It does make sense. I know you talked about this before, I think. So Ground Floor is an example. They're one of your investments. Yeah. Tell people, like, what is Ground Floor? Why did you invest in them? Because you said community is one part of the investments you would make. Because I'm trying to get entrepreneurs to be like, Oh, I want to raise from Jacob. What would it take to raise from Jacob? I'm building brick and mortar. What's an example? I want to go your thought process on Groundfloor as an example to start with that company.

Yep. So, Groundfloor does 2 things. It's a workspace, coworking space for people, and it's building community through events, through social connections, digitally, online, offline. And the way they do both of those things is they create spaces, not too big, not too small, but not too big. You know, it's just, you know, 4,000, 5,000 square feet, and they put them in neighborhoods. And it's a very accessible, community-oriented way for a brand to connect with people. You know, so if you think about workspaces, they're kind of a commodity these days. You know, yeah, there's so many workspaces, but some of the workspaces are, you know, like WeWork is in these tall, cold, and, you know, corporate buildings, and it looks nice, you know. And I just felt like there is a need for— people desire connection and community, you know. People are definitely more lonely and want to be alone.

Yeah.

But that's because it's inconvenient to make new connections. You know, there is an inconvenience. It takes some effort. It's like the drive-through. That's why drive-throughs work so well, because you can get in your pajamas and you can just go in the drive-through and you don't need to get out of the damn car. That's why Americans love drive-throughs. So this is the same thing. It's how do you create that psychological convenience and accessibility to connecting with others? So I would not characterize Ground Floor as a workspace and a place for events. I would characterize it as a service that makes it a little bit easier and exciting to connect with people, and it's been amazing. So really what I'm investing in is the culture and the ethos, and do you believe that there is a place, a neighborhood hub like Ground Floor, a third space that can be in 50 or 100 communities? And I think the answer is 100%. And, you know, look at SoHo House, right?

It's—

I don't love the way that's done, but, you know, it's a club and it's working. So, but Ground Floor isn't elitist. It isn't overly virtuous. It isn't— it's accessible. It's just right.

Mm-hmm. It's welcoming.

Hospitality matters a lot. You know, it's not a club that people are unwelcome to. So I just think there's a need for places and services and products that do community, real-world community, really well. And the bet is, do I think Ground Floor can be a dominant brand over the next decade or two? I think the answer is yes.

To end this, I know we're almost out of time. I'm just curious, given your experience, your background and everything, If you had to create another brick-and-mortar company today, what would you create and why?

I definitely have a few ideas, but I'll tell you how I would think about it. So the way I would think about it is, okay, there's an intersection and multiple things need to line up, and you have to wait at the intersection until those things could line up perfectly harmoniously. One of the things that needs to line up is that you want to be in a category that's becoming increasingly popular, you know, that's going to be a lot bigger over the next 10 years, 20 years, so you have market organic tailwinds behind you. Always a benefit. So be part of a category that's real, that's sustainable, growing. So that's one. The other thing is you want to do something that you are uniquely the best in the world at, you know, that lines up with that category in some way. So that's another one. Another line is you want to be excited and interested and curious about that. Uh, space. Um, and then the fourth one, the last one, is you want to have the right ideas for the product and/or service that you feel could be different and better. So all those things, when they all line up, it usually means that you might have something. Even then, it's not easy, but that's how I would think about it. Because you don't want to— it's so competitive. It's a terrible place to— you want to play a different game than everybody else. And the only way to play a different game is for all those 4 things to line up. Because then you're not— you don't want to— you're on another level. That's what you want. You want to do something that no one else can do. It's very hard to accomplish.

Do you think you'll start something? Is that why you're not saying? The exact idea.

Like I said, I love partnering with entrepreneurs, you know, but no, I definitely have played around with a few ideas. There's no question about it. And if I do, I will let you know. Yeah, there's— yeah, I'm happy to let you know if I do. But it's hard. I will tell you, it's very difficult and you can't force it. It's a bad idea to force For something. But I think brick and mortar, particularly with the rise of AI, brick and motor is one of the— I think it's going to be increasingly important to create the next wave of experiences, consumer experiences for people. And people want that. You know, pandemic has taught us people just want to get out and connect. So, and that's not going away. That's only going to grow.

So for the entrepreneurs out there who want to connect with you, whether to partner in some way or get investment, what's the best way for them to contact you?

You could just go to X, you know, X is good. That's fine. X, LinkedIn, you know, X is probably the best. I like X a lot. It's addicting.

It is addicting.

Yeah, that's how we connected, right?

So many people. It is. That's how I met a ton of people through that platform. It's just kind of insane how much value for very little money I've spent, whatever, $8 a month, whatever it is. But, uh, Jacob, this has been great. So much we could also talk about in the future, maybe do a round 2 at some point, but thank you so much for coming on the show.

Thanks for having me.