COMPETE WHILE YOU EAT WITH MOGL

San Diego startup cooks up a restaurant rewards program for the digital age.

Behind every great entrepreneur is a great journey. A winding, weaving obstacle course through the valleys of up and down. For Jon Carder, the 34-year-old CEO of MOGL, a San Diego based startup that has gamified the experience of eating out, his path features a menagerie of lost golf balls, swap meets, and lots and lots of diapers. Stepping stones that almost sound like they could also be a game. Which one doesn’t belong with the others? The short answer, of course, is none of the above. They all fit together perfectly, forever linked in a chain of determination.

But before I get to the specifics of Jon Carder’s entry into San Diego’s entrepreneurial ecosystem, I should set the table, so to speak. MOGL is not only the fastest-growing restaurant rewards program on the West Coast, but was also recently named the very first dining rewards partner for Virgin America. In other words, Sir Richard Branson believes in this company, even though MOGL won’t even begin to service restaurants outside of California until later this year. Not bad for a startup with just 70 employees that has only been in business since April 2011.

When I first heard about Carder’s quest to incorporate gaming mechanics into the $680-billion-a-year restaurant industry, I immediately envisioned a team of patrons stuffing tapas into their mouths between a timer and a referee at the table next to me. Not exactly the type of thing people want to see when they venture out for date night or a business dinner. But when I sat down with Carder at his company’s headquarters in the San Diego Tech Center, about 14 miles north of downtown, I began to see a very different picture of the concept. In some ways, it’s a little bit like those autostereograms, or 3-D photos, that requires viewers to relax their eyes to see the image within the image. Once a person sees it for the first time, it’s easier to see it every time after that. The same goes for MOGL. Its business model is right there on the website, but to truly understand it, it’s best to follow the example of the company’s CEO. Carder is not the kind of guy who sits there and says, “Come on, it’s right in front of you. How can you not see that?” In fact, he makes no effort to sell me anything during my various interviews with him over the course of a few weeks. He’s confident, yet self-deprecating. Laid-back, yet focused and fiercely driven. There is a surfer in his spine and no shoelaces in his shoes. When I ask him to summarize the concept that initially had me envisioning a tapas throwdown, he smiles and hesitates thoughtfully. “MOGL is a restaurant rewards program on a mission to solve hunger.”

See what I mean? It’s important to relax the eyes.

Here’s how it works: Let’s say I’m a MOGL customer and I spend $40 in a restaurant, which is about the average bill for their users. If I’m eating at a restaurant that hasn’t signed up with MOGL, that $40 is gone for good. But if I eat at one of the nearly 1,700 MOGL restaurants throughout California and I pay with a credit card or debit card that I’ve registered with MOGL, that restaurant turns around and pays MOGL 15 percent of my total bill, alcohol included. MOGL then returns 10 percent of that money to me for dining at that establishment, a sum that is credited back to my credit card. It keeps 3.5 percent for running the program. 1 percent goes into a monthly jackpot that is awarded to the three MOGL patrons who spend the most money at that restaurant during that particular month, hence the competition that makes this a game. And finally, MOGL donates 0.5 percent of all meals over $20 to Feeding America, an organization that can produce eight meals for every dollar contributed. “All of their food is donated,” says Carder, explaining the math that makes this possible. “So you’re just paying for their distribution costs.” To date, MOGL has donated over 350,000 meals.

Most of MOGL’s 125,000-plus users are between the ages of 20 and 40, and thrive on the connectivity of social media. For those in this group who are in it to win it, MOGL’s website and app provide the current standings at all of its participating restaurants. Meaning, if it’s the end of June, and I’m a gamer, and I see that I’m only $45 behind the leader at the Italian place down the street from me, MOGL is banking that I’m going to eat there the next time I go out, in hopes of winning that restaurant’s monthly jackpot. These jackpots currently run as high as $200 for first place and as low as $2 for third place, depending on the amount generated by the 1 percent.

Whether people are Gamers, Savers, Givers, or a combination of all three, MOGL believes its business model offers something for everyone, without any punch cards, coupons, or funny money that can only be redeemed at the restaurant of purchase. Instead, the company is simply persuading restaurants to stay competitive by offering MOGL users a discount on every appetizer, entrée, dessert and beverage. All day, every day. And in return, MOGL equips these restaurants with a dashboard interface that allows the owners to compare the spending habits of MOGL users with those who haven’t signed up with their rewards program. According to data sampled by MOGL at 206 of its venues in Q1, 2012, MOGL users spend, on average, 78 percent more than non-users. So for those restaurateurs who think that 15 percent is too steep to get in the game, Carder again references the math. Restaurants pay nothing to sign up and there is no monthly fee. All they have to do is deduct 15 percent from what MOGL’s customers bring to the table, and what’s left could be the margin of survival in an industry where over half of all restaurants fail within the first three years.

At age nine, Jon Carder moved from Michigan to Placentia, Calif., with his parents and three sisters. His mother was a school teacher and his father was a family counselor who came west to work for a Christian church. Because the Carders had migrated from a cold place to one where the weather was almost always nice, they settled next to a public golf course where their son soon realized that there was a dollar in every bad shot. Carder didn’t like school and had trouble focusing, so he spent his days in the back of the classroom, drawing and doodling, waiting for the bell to ring so he could scour the course for lost balls. He then cleaned up those balls and sold them back to the very golfers who were most likely to lose them again—a business model that educated the young boy on the ebb and flow of supply and demand, and the profitability of repeat customers.

But that wasn’t even Carder’s first outing as a California entrepreneur. Prior to establishing himself on the golf course, he tried to make it in the food service industry by selling hot dogs at the end of his driveway but the police shut him down for not having a food permit. Lemonade stands may have been perfectly fine at the time, but once that kid from Michigan crossed over into a gateway sausage like the frankfurter, it was curtains for Jon Carder’s very first start-up.

After high school, Carder headed south to San Diego and enrolled at Point Loma Nazarene University, a college of about 2,400 students, where he studied art, philosophy, and religion. He began this leg of his journey armed with the money he made growing up and a typewriter that his parents gave him. It was the fall of 1998 and pretty much everyone else in his dorm had a computer that didn’t “DING” whenever they hit the return tab. But that didn’t stop Carder. He soon found a job passing out flyers for a hamburger stand (much safer than selling hot dogs) at a swap meet near campus. There, he rekindled his passion for sales by watching the various vendors peddle their products to customers who were predominantly women. Pregnant women. Yet none of those vendors seemed to be targeting that demographic, so Carder used his very first credit card to buy inventory that might appeal to them.

“It was horrible. It was a disaster,” he recalls. “The first weekend I lost money, the $40 entrance fee, and wasted my whole weekend selling like $30 worth of baby products. So the next week I tried two swap meets. I tried expanding and that still didn’t work very well. I still lost money.”

It was at that point that a college buddy told Carder he should consider starting an e-commerce business, a somewhat daunting proposition considering that the typewriter that Carder’s parents gave him would never enable anyone to access the Internet, let alone power a small business in the dot-com boom. But Carder’s friend had a computer, so he paid him $300 to build a website and used the time to educate himself while the site was being built. He then named his company Baby’s Heaven, as in where babies went when the unthinkable happened.

The double entendre still makes Carder chuckle when he looks back at the oversight. “Yeah, it was actually a pretty morbid website. It was like the pearly gates of Heaven, you’d click on it, it opens, and you go into this website, and I guess, I don’t know, maybe you find dead babies, maybe you find baby products, who knows?”

In the end, the name did not hinder Carder’s ability to attract customers. In fact, traffic was the least of his problems once he persuaded Huggies to link to his site after he discovered that he could actually sell their diapers cheaper than other distributors by buying them in bulk at Costco. While other kids were off being college students, Carder was loading up flatbed carts with diapers and dodging looks from other shoppers, who stared at him like he had started a cult. He would then return to his dorm with his inventory in tow and sell the diapers online. Another friend turned him on to pay-per-click marketing and search engine optimization, which helped him reach even more customers. By the time Carder entered his junior year, Baby’s Heaven had become eHeaven, and he was now trying to compete with Amazon by selling everything from computers to clothing in a small one-bedroom apartment off-campus. So he promptly dropped out of college and moved the company to an equally cramped office where he continued to employ about a dozen of his friends.

Business had grown to about $2 million in sales, but the company still wasn’t profitable and Carder had a lot of returned merchandise from unhappy customers, which caught the attention of his bank. He was awfully young to be processing over $200k a month, and if he wanted to continue, he was going to have to hold that amount in reserve to insure his transactions against future chargebacks. “All of a sudden we had no money coming into the company—all of it was going into this reserve as we were getting orders to build up the $200k. And that just killed us.”

Carder sold the business in 2002 to a company called BabyUniverse, which had better cash flow, its own merchant account, and a slightly more tangible name, albeit one that was also mysterious and very high in sky. Since Carder hadn’t made payroll in a while, what little money he received was used to pay his friends. But Carder’s payment came in the form of two valuable lessons. The demise of his first legitimate company taught him that diversification could be death. “We were really good at selling baby products, and all of a sudden we started selling all these different products. We really lost our focus.” The other lesson was the importance of customer service. “Every business since then, it’s been one of my top priorities. We only do one thing … and we take great care of our customers.”

When Carder saw that the end was near for eHeaven, he started building his next company at night about a month prior to the actual funeral. He knew he didn’t want a real job, and going back to school didn’t interest him either. He was hooked on e-commerce and eager to apply the Internet marketing tactics that he had learned through trial and error. LendingTree had started in 1998 and was already cashing in on the country’s rapidly inflating real estate market, but Carder recognized an opportunity for more competition in the field, so he rolled the dice once again and started a business called Client Shop.

“I wasn’t a broker,” he explains. “I wasn’t a lender. I didn’t have anything to do with the loan. I just simply had a website where people would say, ‘I’m looking for a loan,’ and then I would sell that lead out to lenders and brokers.”

Carder charged a little less than his competitors, and within 90 days he went from struggling just to survive to making over a $100k a month. Profit. Over the next four years, Client Shop grew to 60 employees in the U.S. with an additional 130 at a call center in India. In 2005, they were San Diego’s fastest growing privately-held company. In 2006, Carder sold the business to Internet Brands for low eight-figures just months prior to the real estate crash. His timing could not have been better. “We were bootstrapped. So it was incredibly stressful right up to the end of Client Shop. And truth be told, if we hadn’t sold, we may not have survived.”

And so, at the ripe old age of 26, Jon Carder basically retired and went to the islands of Indonesia to surf and hang out on the beach. After a few months, he grew bored by the pace of paradise. He missed his friends, his family, his life in San Diego. The adrenaline of being an entrepreneur was in his blood. And once it was in, it was hard to get it out. His first two companies were driven by a desire to make money so he wouldn’t wind up in the same position as his parents. But now he had everything he ever wanted and he was miserable. His life had no real purpose anymore. And that was the realization that would lead to Carder’s next big decision. If he was going to get back into entrepreneurship, he wanted to build companies that would make the world a better place.

Jon Carder is the first to say that he is just one of the many minds that power MOGL, a brain trust that includes his two co-founders Jeff Federman (President) and Jarrod Cuzens (CTO). But they all agree that the face of the company belongs to Carder’s dog, Mojo (AKA Mo T. Mogldog), a Boston Terrier who wanders through their headquarters, looking for belly rubs like he owns the place. And in a way, he kind of does. As the company spokesmodel, he is on nearly every piece of advertising.

The dog is named after Mojo Pages, the first company that Carder started after coming out of retirement. Mojo Pages rates the good and bad mojo of local businesses, as well as the mojo of those who review the businesses, a twist aimed at helping consumers separate trustworthy reviews from those written out of spite or self-promotion. But within just weeks of the company’s launch in 2006, Yelp, which had started a couple of years earlier in San Francisco, landed a new round of financing that would empower it to expand into other markets around the country. Suddenly, Carder was back at a familiar crossroad. He had succeeded in separating Client Shop from competitors like LendingTree, but that experience also taught him about the importance of timing. If Mojo Pages was going to make it, he needed a way to enter new markets as fast as possible. So Carder decided to co-brand his product and target large media companies like CBS, FOX, Hearst, and Clear Channel, with an eye toward powering their local search directories.

Cut to an investment meeting in 2008, at Maverick Angels in Ventura County, where Jeff Federman, who was running seven CBS radio stations in Los Angeles, was in attendance. “I saw two entrepreneurs give their pitch, but I had to leave and go speak at a school,” Federman recalls. “And Jon happened to be the third guy [who spoke that day]. My buddy called me and said you missed the guy that you were supposed to meet. He needs contacts with media companies. I called Jon that week and we’ve been together ever since.” With Federman’s guidance, Carder was able to land the companies he was targeting, which was enough to persuade Austin Ventures (based in Austin, TX) to put up the money he needed to compete nationally.

Enter Jarrod Cuzens, a friend of a friend who was working at Veoh Networks at the time of Carder’s expansion. Mojo Pages was experiencing some growing pains trying to manage its new media clients, and Carder needed a CTO who could rebuild the company’s website and alleviate their scaling issues. Carder and Cuzens clicked. Mojo Pages continued to grow. And the company remains profitable to this day. “It’s a good business,” says Carder. “But at that point, once we kind of changed directions it wasn’t what I was wanting to do.” It wasn’t what he envisioned for himself when he rewrote his personal mission statement following his epiphany on that beach in Indonesia.

With the addition of Federman and Cuzens, Carder was able to step back and continue his search. He became fascinated with gaming mechanics, and how other companies were using them, including Foursquare, Zynga, and Groupon. He analyzed the psychology behind games. The reasons people played them. The design of their reward structures. As he was studying this, he began to realize that no one had really applied those mechanics to the things that people did frequently, like eating out. And if there was a way to somehow do that while tying in an element of social entrepreneurism, “you could make the world’s most powerful loyalty program.”

Meanwhile, Federman and Cuzens were looking for new ways to generate revenue at Mojo Pages, a pursuit that would soon provide the missing piece to Carder’s puzzle. If they could find a way to step ahead of transactions, and get involved from a merchant’s perspective, they could actually help merchants track and market the data, something that most small businesses neither have the time nor resources to do themselves. In May 2010, Federman found the technology they needed to track credit card transactions.

“And that’s when the light bulb really went off,” recalls Federman. “So we started to talk about it. Then we were in the car together, the three of us, coming back from a Mojo Pages meeting, and Jarrod goes, ‘Foursquare is cool, but you’re just a mayor. With MOGL you could actually check in and earn cash back.’ And right there, the three of us were, like, wait a second.”

Now that they had what they needed to monetize such a game, they decided to focus solely on restaurants and bars, which have notoriously high failure rates—a good reason for the establishments to participate in a new loyalty program run by people who were willing to do the work on their behalf. So they returned to Mojo Pages and, with the help of their team members, brought MOGL to life over the course of 2010. Prior to the company’s launch in the San Diego market in April 2011, they raised $2.4 million from Avalon Ventures (La Jolla, Calif.) and Austin Ventures, the group that invested in Mojo Pages.

MOGL took off immediately. During its first nine months they raised another $10 million through a series B round of financing led by Sigma Partners, with additional participation from the original investors. Carder and his VCs knew he couldn’t run both companies, so MOGL president Jeff Federman became the new CEO of Mojo Pages in order to give Carder more time to focus on his new baby.

I’m in the back seat of a Honda Pilot, driving around downtown Los Angeles with Nick Newell, who, by definition, is a Hunter—MOGL’s term for its salespeople in charge of signing up new restaurants in the field.

Of the nearly 1 million restaurants in the U.S., about 25,000 of those are in the L.A. area, a region where the city alone is 44 miles wide. This is Nick Newell’s Monopoly board. The company plans to hire more feet-on-the-street after its next round of financing, but until then, Nick is just one of three hunters here. This might explain why MOGL isn’t as ubiquitous in L.A. as it is in San Diego. According to the company’s website (at the time this was written), there are 671 venues in the San Diego area and only 246 in L.A.. Granted, MOGL didn’t enter the market until six months after it started in San Diego, but since it’s getting ready to expand into 15 other cities around the country later this year, including New York and Chicago, I want to get a better understanding of the process.

We drive by a place called Five Star Bar, a cool little joint in the Old Bank District. To close a deal, Nick needs to hook the owner, and that’s where he says things can get a little tricky. “It’s kind of like being a P.I.—walking around, doing interviews, trying to figure out who the person is to talk to, when that person is usually around. And then just staking it out.” He doesn’t want to force a “no” for reasons that have nothing to do with him or his company, so he’s going to wait and come back this afternoon when the owner is supposed to be in. Restaurant owners are constantly barraged by people walking in the front door trying to sell them something, due to the simple fact that they are in the business of greeting those who enter their establishments. Add that to all the intangibles they have to deal with on a daily basis—like impatient customers, tardy wait staffs, and things literally catching on fire in the kitchen—and the result is often an extremely short attention span. Which, ironically, is the very reason that Nick is there in the first place. MOGL specializes in mom-and-pop establishments that don’t typically have the means to compete with the big chain restaurants that are putting them out of business.

Then there are proprietors like Joseph Tahanian, the owner of Seven Restaurant and Bar, where we meet up with Leia Feazel, Tahanian’s Farmer—MOGL’s term for those who cultivate the relationships with their clients. Tahanian’s restaurant is popular on weekends and certain weeknights, but he’s having trouble attracting the corporate lunch crowd, even though the food he serves is quite good. He’s located on a busy corner in the heart of downtown, directly across the street from one of the most successful restaurants in the city. The problem is that restaurant is packed right now and Tahanian’s is completely empty, except for us.

Tahanian tried using a service called Rewards Network, but never saw a noticeable increase in business. He’s now hoping that the MOGL brand will introduce him to other customers in its network so he doesn’t have to close down during the day. Although he’s only been with the company a couple of months, he already feels like he has a better partnership based on the connectivity of MOGL’s dashboard interface. Tahanian says, “Now, if people come in and spend money, I can send them an email and say how was your meal? Come back, I’d like to meet you, buy you a glass of wine.”

Micah Goldfarb, president and CEO of Green Spot Salad Company in San Diego, a popular lunch spot frequented by the same demographic that Tahanian seeks, can relate with the process. “We started out very skeptical. I was nervous about anything where you registered a credit card … and I was protective of my merchant ID numbers. I wasn’t sure if I wanted to give someone the keys to the castle.” But after Goldfarb looked into MOGL, and saw it can’t do anything with his information other than track the transactions of MOGL customers, he joined eight months ago. Prior to this, he tried to increase traffic by buying Yelp ads, but canceled his one-year contract halfway through. “I’ve spent 50 percent less money through MOGL as I did with Yelp ads, and I’ve gotten more than twice back from it.”

Whether or not the owner of the Five Star Bar will follow suit is anyone’s guess when Nick returns to the bar and starts his pitch, using an iPad to explain how MOGL works. I hang back to give him space, and that’s when I notice the big sign over the bar that reads: CASH ONLY. A deal breaker if there ever was one. How did Nick not see that? He’s been doing this for a year and a half. Then I remember something that he mentioned earlier, something that Jon Carder and his collaborators also talked about. MOGL has developed strategic partnerships with companies like Sysco—the largest food service distributor in North America and a recent investor in MOGL—and First Data, which processes a good portion of the world’s credit card payments. These partnerships are now producing sales calls that have a much better success rate than cold calls. Sysco and First Data reps introduce MOGL to restaurants they service, and in return, MOGL introduces them to ones they don’t. A win/win for everyone involved, and a crucial component to MOGL’s expansion plans. No wonder Nick is smiling when he makes his way back over to me. The bar owner is interested. They have an appointment to meet again next week.

Ultimately, MOGL’s fate will be determined by its expansion, but Jon Carder is prepared for the challenge. MOGL is developing additional partnerships with banks, other airlines, credit unions, and colleges like San Diego State. One West Bank has already started auto-enrolling their card holders into MOGL’s loyalty program, and Hawaiian Airlines is expected to do the same when it joins at the end of May. MOGL is also putting kiosks in many of their venues at no expense to the restaurateur. These kiosks— iPads that can be mounted anywhere—allow new customers to sign up right there on the spot and get 10 percent back on the meal they are about to purchase. Couple that with the new app that MOGL is developing, one that will function in real time without a processing delay, and Carder expects to see all their numbers increase beyond their current growth rate of 15 to 25 percent a month. And while he won’t divulge their revenue for 2012, he says it rose 800 percent from 2011.

But not everyone thinks MOGL is a sure thing. Take Darren Tristano, Executive Vice President of Technomic, Inc., a fact-based consulting and research firm in Chicago that has served the food industry for the last 45 years. For MOGL to prosper, Tristano believes the company will need to broaden its demographic beyond users between the ages of 20 and 40. “The Millennial consumer dines with the greatest frequency, but doesn’t spend more than Gen X or Boomers,” he says. “So it means they’re going out to Chipotle and spending $10 on average. They’re not spending more dollars, because they don’t have it.” That’s why Tristano questions the claim that MOGL users spend 78 percent more than non-users, since many of the non-users are from the demographic that spends more. “I think party size has to be an element of their analysis. The Millennial generation is known for socialization. They look for social occasions, large groups. They spend less, but as groups, their checks are higher. To think you can increase your customer spending by 78 percent —every restaurant would be on board with that.”

Tristano also doubts that MOGL’s meal-for-a meal program is enough of a catalyst to get patrons through the door and spending more, at least from the perspective of proprietors, who, on top of MOGL’s 15 percent, pay an additional 3 to 5 percent on all credit card charges. “And the problem right there is 20 percent is a great, great margin for a restaurant.”

Aaron Allen, a global industry analyst based in Orlando, Fla., sees it a little differently. He believes that MOGL’s meal-for-a-meal program is a major benefit and should be an even bigger presence in the company’s branding message. “It looks like that’s how they hooked [Richard] Branson,” he says. But Allen doesn’t think the company’s website plays to that strength, which could hurt its courtship of those Gen X-ers and Boomers who could broaden its base. “It [the website] has a little bit of a bling-bling look and feel to it with a lot of dollar signs. It feels more youthfully orientated, versus the type of customer and clientele that we normally define with fine dining establishments.”

Tristano and Allen, however, both agree that there are many obstacles that MOGL will have to overcome if it is going to succeed. First, it will be hard for MOGL to sign up chain restaurants, which often have their own loyalty programs and already fork over about 8 percent to the parent company for marketing costs. MOGL will also compete with loyalty programs like Open Table and Belly, which work by accumulating points that can be used to redeem a reward. In the case of Belly, that reward could be an opportunity to throw eggs at a food truck or arm wrestle the owner of a sandwich shop. Rewards that, to some, may sound more like a ridiculous obligation or punishment. And yet Belly already has more than 1 million users in many of the same markets that MOGL is about to enter.

There’s also the decline of companies like Restaurant.com and Groupon, both of which were weakened by replication. Allen says, “If you look at Groupon, a lot of people made a lot of money, and a lot of consumers got great deals and it worked for quite a while, but what’s the longer term business model for it?” He pauses to equate his question to MOGL’s future. “Is this a business that will be around in 10, 15, 20 years, and be indispensable in the restaurant industry?”

Jon Carder knows that only time will answer that question, just as he knows that there will always be those who bet against him. This is the same man who walked away from a group of venture capitalists who said they’d invest in MOGL if he moved the company to Silicon Valley. Carder stayed in San Diego not because he was banking on the strength of its entrepreneurial ecosystem. In fact, he readily admits that the city lacks legitimate funding options, and many entrepreneurs in the area don’t possess the drive that it takes to compete with their competitors to the north.

“I think San Diego is a great place to be,” says Carder. “But a lot of the people here don’t understand the amount of speed it takes to win.”

No, Jon Carder stayed in San Diego because it feels like a family to him.

This is why he mentors at EvoNexus, which bills itself as the city’s only community-supported, fully pro-bono technology incubator, in hopes that a new wave of startups will take San Diego to the next level. This is the city where he chose to tackle hunger by cutting into MOGL’s revenue during its formative years, instead of playing it safe and waiting until the company became more established. And this is where that company will remain as Carder embarks on his expansion. People can question MOGL’s math all they want, but at the end of the day, Carder knows that if restaurant owners weren’t seeing results they would simply drop out of the program. Yet, he says, it has a 98 percent retention rate.

He also knows that he can’t keep other companies from trying to copy his business model. That’s just the nature of the game. But the one thing that no one will ever be able to replicate, in business or in life, is another man’s journey.

And that journey is just getting started.

 

Photographs by Curt Walheim

 

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