Introducing Leif Magnuson, Co-Founder and CEO of TipHaus
Sara Lindquist:
I am Sara Lindquist from FUSE. We're an early stage venture firm based right here in the Pacific Northwest. And just like the founders in our portfolio, we are just getting started. We believe that founders deserve more, more urgency, more community, more expertise, more reliability, more of everything, and we aim to deliver. Join me as I introduce each of our portfolio companies in the FUSE family to date.
Today, I sit down with Leif Magnuson, co-founder and CEO of TipHaus. Tune in as Leif shares about his journey in the restaurant industry and learn about some key insights into the ever-increasing importance of proper tip management strategies. He'll also share why major restaurant brands are trusting TipHaus to improve their employee retention and satisfaction. Let's get started!
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Sara:
Leif, thank you so much for being here.
Leif:
Thanks for having me, Sara.
Sara:
Yeah. Well, it's Friday here, it's raining in Seattle. No surprises at all. But we're sitting down and going to have a fun conversation today, so I really appreciate you taking the time. To kick things off, it would actually be great if you could share a bit about what TipHaus is and how it serves customers today.
Leif:
I'd love to. Yeah, so we act as a back-of-office software application for restaurants and hospitality in general where we're taking sales data from the point of sale and we're taking labor data from any kind of scheduling software. We combine the two to figure out who should get what as far as tips go. It's something that a lot of people don't understand, but when you give your server a $100 tip, they're not keeping all that. On average, they're giving up 25, 40% of that to supporting staff. There's a lot that goes into creating the food that you enjoy. We create the mechanics behind that to make it extremely equitable for the employees. And then once we figure out who gets what, we create bank accounts for these employees and we send that money directly into those bank accounts, all for free. They can spend that money as soon as they get it and the restaurant doesn't have to worry about handing out cash. And then the employees don't have to wait for their paycheck.
Sara:
Yeah, it's such a cool tool. And it was so awesome when we were in the conversation of getting to know you, Leif, and talking to your customers, it was such an incredible aha moment for us understanding how much, even especially in recent years, the pressure has changed and people are speaking up. So I'd actually love for you to share a bit about that. What about recent litigation pressure, things in the market that people maybe haven't realized or learned, but the importance of having a really good equitable and highly-managed tip strategy?
Leif:
In the past, it's kind of been something that's been handled in the back office and spreadsheets, or the server collects $100 and then they just kind of willy-nilly hand it out to people at the end of the shift. There's not a lot of... For instance, if you're an employee of a restaurant and you know that you made $200 tonight and then the tip amounts go to a spreadsheet and your general manager comes back you the next day and says, "Hey, instead of 200, you get 100." No explanation. That can cause quite a bit of anxiety and tension for your staff. And we have seen if you don't create enough transparency with that process, a band of employees of larger institutions will band together, create a class action lawsuit, and once they create the class action, there's nothing really that you can do as an organization other than settle.
Your insurance company will force you to settle, in most cases. In most cases we've seen a million dollars plus settlement, which is obviously not ideal. So what we believe and where our core tenants rest is that it's our job to fit in the middle, create really fair outcomes, as fair as we can, and then more importantly, make it super-duper transparent for the employees so that at no point do they feel like they're getting screwed over. And by doing that effectively you minimize to a huge degree a band of employees getting together and going down the legal route.
Sara:
A hundred percent. And that's so compelling about it because, yes, you're obviously helping alleviate the pressure from a litigation perspective and these restaurants getting in trouble, but more than that, it's about employee retention and satisfaction. And even with the earned wage access tool, you're just going to get way more out of your staff and probably way more tips. So it's just a win-win all around.
Leif:
Yeah. Happy employees make a more profitable business in just about every case I've ever seen.
Sara:
That's right. That's right. Retweet on that quote right there. That's great. So you obviously have a ton of experience in this space. I would love for you to talk about your background and then also what was kind of the key aha moment for you when you said, "Okay, TipHaus is something I need to go build"?
Leif:
I bartended a little bit in college, like most people. Didn't think too much of it and then I did a bunch of other entrepreneurial type activities throughout my twenties. I got pulled back into the restaurant space as a consultant. My background was manufacturing, supply chain management. And so this particular restaurant group, Farrelli's Pizza, pulled me in to make their pizza production process faster. They opened a big location with Ruston Way, Tacoma. They're time to make a pizza was like 50 minutes.
Sara:
Oh my gosh. Incredible.
Leif:
It's like they had so many people there, everybody's ordering food, and they just could not keep up with the demand. It was far larger concept that they were used to dealing with. So I came in, got that to about the third at the time, shaved off about 30% of the cost as well. Just applying new principles, which is a huge win, which allowed me to kind of sell them on the idea of upgrading their entire technology stack. I got their trust that I was able to actually create results for them. And then I basically told them, "Hey, look, you're missing out on a lot of opportunities because you're utilizing an antiquated point of sales system. Your entire software stack is just so old, it reduces the amount of flexibility your operations has." This is before COVID, mind you. God forbid they hadn't upgraded it and COVID hit, they would've been out of business probably. So through that journey of upgrading their point of sale and all these other derivative technologies, tips came up. I had no idea it was even a thing, and I just figured that... I had no idea what happened with them, honestly. I just kind of figured the people figured it out automatically. I don't know.
So I started diving into that and looking at the big competitors in the market space. There was one called Gratuity Solutions at the time, and I onboarded it. It was a extremely painful experience. I'm like, "Man, there's one competitor out there that's not that good, isn't really looking at this like a real SaaS company, a modern day Silicon Valley based company looks at things." So to me that was enough to just build an MVP over six months. Very little cost to me. We built an MVP, got a first paying customer. And at that point the feedback was so good that we decided, "Hey, look, maybe we quit our jobs and try this full time."
Sara:
Yeah. Oh, that's awesome. And then I know since it has just taken off. You have some really renowned customers in the Seattle area, and I know beyond that, and so it's just really exciting to see. Yeah, just you're solving this really acute pain point and you're doing it in a way that no one has done yet. So it's exciting.
Leif:
Thank you. Yeah.
Sara:
Yeah. So Leif, my next question for you is about the team. So I know you've worked with some of your co-founders before, but I would love to hear in your words why you think your team is a team to go after this solution and also hear about how you're building the culture at TipHaus.
Leif:
My philosophy around building teams, especially in this space, is I don't like the concept of having big egos, big hotshots. I think it takes away from the organic success of a company in a lot of degrees. Where it's like the company can be doing really good and you hire some big hotshot and then are we going to apply the success to that big title that came over from Google or Uber or something like that? When in fact it's just everybody working together as a cohesive team. So we've really, I think, nailed that really well. One of our core tenants is no ego. And so I try my best to exemplify that from a leadership position. The team is ideal just because everybody in the entire company has worked for years and years in the restaurant space. I just hired an SDR that was a sushi chef for 15 years.
Sara:
That's awesome.
Leif:
Everybody knows it so, so well that when we have just organic interactions with people, we know the pain. And technology is not rocket science. It's talk to the customer, figure out what the issue is. The technology can solve the problem. We've got AI now for God's sakes. What we're solving is not the hardest thing, but a lot of companies don't really do the process of understanding the customer very well. And I think that by creating that low-ego environment, you're much more predisposed to seek out answers from other people. Admit to yourself that you don't have a clue what's right and what's wrong. And be a baby, I guess.
Sara:
No, I think that's so refreshing. I honestly do. You're an expert of the things you know, and that's why you hire amazing people around you to help fill in the gaps where you don't. And at the end of the day, having the ear of the customer and being able to speak their language, that's what wins.
Leif:
Oh, yeah, absolutely.
Sara:
So that's fantastic. Thank you for sharing that. So my next question for you is actually about the entrepreneurship journey at large. You jumped ship from the consulting business and said, "Hey, I'm going to take this on and see where it goes." So how has that experience been? It's obviously coming with ups and downs. Like you said, you don't know everything, which is, to a certain degree, all entrepreneurs probably feel that way, but you trudge on nonetheless. So what keeps you going? What inspires you most to keep going in this journey?
Leif:
Well, we went through some super difficult times. We started really hitting our stride about four months before COVID hit. And then COVID basically-
Sara:
Oh my gosh, that's right.
Leif:
... was 12 months of zero growth. You can't call a restaurant and be like, "Hey, you want to buy some tip distribution software?" They're like, "What's wrong with you? There's nobody in the restaurant right now." So we had to be very sensitive about that. We stopped charging everybody for like three months, which was terrible. But after 12 months, things started picking back up better than where they left off, which was great to see. We put in a lot of time and kind of put out our feelers during that 12 month period of time. That was a very hard time obviously. We didn't get to pay ourselves, everybody's going into their savings. And while it was, looking back on it, terrible from that perspective, but it's during COVID there wasn't a lot of expenses. And it was also super fun. We were trying to solve all the problems that didn't even really exist yet, trying to prepare. And I would say that that's kind of where we're at now still. We honestly have a great time just solving problems. Every day is a new problem. Every customer has a unique case that you have to solve, which is amazing.
And then we've been getting... And this is what got us to quit our jobs in the first place, the feedback we got from our first customer has kind of continued. Every customer we onboard the feedback is just amazing. They're telling us we're saving them all this time and X, Y, and Z. It's just amazing. It just helped propel us forward, I guess. And so as we released this digital banking product and helped these employees get their money quicker, we have started getting trickles of it in. But I firmly believe that as we kind of improve these employees financial wellness over time, we're going to get the same sort of feedback.
Sara:
Yeah. Well, let's talk a little bit more about that actually. Can you explain the Haus Bank earned wage access program that you're building within TipHaus?
Leif:
There's a lot of earned wage access, moving money around, those kind of products that are fairly ubiquitous at this point, fairly easy to spin up. What we're doing a little differently is instead of saying, "Hey, look, we're just going to charge you a fee and move your money from the restaurants bank account into your existing bank account," which we do support, we're going to say, "Hey, look," and instead of dropping it into a prepaid card, which is fairly common the last 10 years, five years, we're actually creating bank accounts. And so it's the same functionality as the prepaid in a lot of ways, but we're able to add a lot more functionality into the backend, i.e. 401(k)s sponsored by the restaurant, emergency savings accounts that we just work with a third party provides like a $300, $400 savings net. When you get a flat tire going to work what do you do? You don't have any money in your account. Things like that. So our goal with the whole product... And there's a bunch of financial wellness tools too, obviously, but the goal with the product is like you're a server bartender for your 20s, eventually you move out of it and you want to be well positioned for life after that. And so the goal is just make that as effective as possible at accomplishing the financial goals of these service workers.
Sara:
Oh, that's really cool. You're truly looking after every person in the restaurant. The restaurant owners and operators itself, but even down to the busboy and the host and hostess. I was a hostess at one point, by the way, I don't know if you know that.
Leif:
Oh, yeah.
Sara:
Anyway, I don't think I got very many tips. But anyway, I appreciate you sharing that. And going back to your comment about being in business for four months and COVID hitting, I just think it speaks to clearly what you portray as a leader, which is resilience. And it sounds like your whole team just has that in their bones. So it's exciting and you've got a great group around you to go tackle this opportunity.
Leif:
Thank you.
Sara:
My last question for you is just kind of a call to action for anyone listening in or watching our interview, how can anyone help and get involved?
Leif:
If you know of anybody that owns a restaurant, you own a restaurant, or you work at a restaurant, try it out. It's free to try. Just try it out. I guarantee we'll save you time and money and your employees will be way happier. If you are an employee, we've got a referral program on our website, check it out, reach out to me directly at leif@tiphaus.com. Get you some perks. But we're here to develop products for the service industry. And so if you come to us and we don't right now solve a problem that you have, happy to solve it.
Sara:
That's great. Well, Leif, thank you so much. This was a really fun conversation. So inspired by what you're building, and I can't wait to see you go tackle this huge opportunity.
Leif:
Thanks, Sara. Thanks for having me. It was fun.
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Sara:
If you or anyone you know has a connection to a restaurant owner or operator and they're looking for a solution for tip management, don't hesitate to reach out. We will get you connected with Leif. Thanks for joining us, and we'll see you next time.