David SenraBuilding One of the Fastest Growing CPG Companies in History | Peter Rahal of David Protein & RXBAR
EVERY SPOKEN WORD
85 min read · 16,682 words- 0:00 – 7:29
Life after selling RXBAR for $600 million
- DSDavid Senra
[typewriter clacking] [ding] Okay, I wanna start with the fact that you sold your previous company for six hundred million. You and your co-founder own ninety percent of it. You find yourself as a very young man with about a quarter billion dollars in cash. What happens next?
- PRPeter Rahal
The natural thing is to get into investing. Outside looking in, investing's, like, very appealing. It's like y- one, you think it's an intellectual exercise. The second real thing is, like, it gives you a great lifestyle 'cause you're not operating, so you can kind of... You have no organizational responsibility. I s- started studying investing and getting into it.
- DSDavid Senra
How did you study investing?
- PRPeter Rahal
Figuring out asset classes, how to build a portfolio, grow capital-
- DSDavid Senra
Are you-
- PRPeter Rahal
Underwriting deals.
- DSDavid Senra
Are you having conversations? You reading? Like-
- PRPeter Rahal
Reading, conversations, best books on it. And then where my time was spent was on where I had the, the best advantage, which was in consumer packaged good investing or, or, or just privates, so early startups. And stage-agnostic, seed to growth, didn't matter. And started doing that, and quickly realized that the most important skill set, like, is charisma or, like, with whale hunting, it's, like, finding the deal that is quite obvious and then trying to get an allocation. That's really, like, the game, and that's quite, quite gay.
- DSDavid Senra
[laughing]
- PRPeter Rahal
[laughing] Chasing men for allocations is something I didn't wanna do. My previous experience was like, I'm gonna sit back, I'm gonna spend my time building a product, and my product's gonna do the talking. Like, my product's gonna do the work. Where in investing, you're, you're, you're taking capital, and then you're trying to allocate it into the, into the thing that's gonna grow, behind the leader that's gonna... you're gonna bet behind. And that's just too hands-off for me. Like, I'm, I'm used to, like, fighting, I'm [laughs] being in knife fights, and it's just too passive. So investing is very tempting 'cause you can, like, make a decision, not, and not have to do anything, and it works. Like, it grows. The big problem I had with it is the feedback loop's super long. Like, in, in building and operating a business, you make a decision, whether it's a hire, whether it's a product decision, marketing, and you get the feedback right away. Like, the feedback loop's, it's, like, immediate. Where in investing it's like, uh, you can develop a thesis, develop this, underwrite this founder as really great, and then you, like, make a decision-
- DSDavid Senra
What-
- PRPeter Rahal
And like, all right, five years go by. Did it work or not?
- DSDavid Senra
So you're living where when you sell RXBAR?
- PRPeter Rahal
Chicago.
- DSDavid Senra
Okay. You have this huge acquisition. You have a bunch of cash. This is when you move to Miami?
- PRPeter Rahal
Yes.
- DSDavid Senra
Did you move to Miami before?
- PRPeter Rahal
No, after.
- DSDavid Senra
Okay, after. So now you have the money, and now you're like, "Okay, I'm gonna... I have a bunch of money." You start... You had this ridiculous idea. This is your own words, 'cause when we were hanging out a, a few weeks ago, you said, "I had a ridiculous idea of starting a family office."
- PRPeter Rahal
Yes.
- DSDavid Senra
So you moved to Miami, and you're like, "I'm gonna start a family office."
- PRPeter Rahal
Yes.
- DSDavid Senra
Okay. Explain that part.
- PRPeter Rahal
So I was in Chicago, and I, I just needed a change. I needed to, like, change environment. RX was my identity. I just got divorced. So I looked at the United States, and I was like, "Where's the best place to go?"
- DSDavid Senra
Wait, wait, the divorce part. The divorce happened after the acquisition?
- PRPeter Rahal
Yeah.
- DSDavid Senra
Was it anything related there where, like, you're under a lot of stress? Like-
- PRPeter Rahal
No. Just hubris.
- DSDavid Senra
Say more about that.
- PRPeter Rahal
I had success bias where everything I'd done has been successful, and so there's blurred lines between your personal and professional, and I just moved too fast. Thought it was gonna be easy. Yeah, 'cause my goal is to have a family. So, like, career success accomplished. Next thing's family.
- 7:29 – 11:48
Going all in and burning the boats
- DSDavid Senra
Okay, so then what's the next step after that? You're like, "Okay, this sucks. I don't wanna be an investor. I need to be an operator. I wanna get my own company."
- PRPeter Rahal
Yeah.
- DSDavid Senra
I'm way too young to be retired, by the way.
- PRPeter Rahal
Yeah, for sure. So I, I started... One of the good things about investing is you're, you're talking, you're getting through the deal flow process, you're t- you're ideating, you're talking to other movers and shakers, and that, that's a helpful process to like, all right, is that something interesting? Is that a problem I wanna solve? But basically, I've, I had several false starts. I looked at recycling garbage, I looked at synthetic biology, I looked at other consumer packaged stuff, and I would like start it and then I basically pulled out, um, committing to stuff. And the, the, the reason is like, if I go in, I'm like fucking all in, and that's like a really scary thing actually, 'cause then I like, my friends go away, like my health goes, all this stuff happens to me. So if I-
- DSDavid Senra
Hold on, we can't, we can't go on from that. Okay. Then, then you need to describe what all in means to you. What you just said, it's scary. My friends go away, my health goes away. So this is just the only way you can operate? Explain this to me.
- PRPeter Rahal
Yeah. My, like my leadership style is like, it's just like all in, um, burn the bridges, burn... So I can't go into something like half-ass, ever. So what I commit to is like very serious. And so all my false starts were like, uh, I'm not... Like moving in the direction of starting it and then just pull back. Moving in this direction of starting, pull back. The other thing that's there was like, I needed to start a family. So [laughs] my order of... Like during my hiatus of investing, I was like, I need to find a wife to go start a family.
- DSDavid Senra
I don't know if Miami is the place, [laughs] Miami Beach in particular, is the place you should be searching for a wife.
- PRPeter Rahal
I agree.
- DSDavid Senra
[laughs]
- PRPeter Rahal
And then I bought a place in New York and moved to New York.
- DSDavid Senra
[laughs]
- PRPeter Rahal
But in general, it's because like, all right, so if I find something and, and fall for it, there's a really high chance that I'm gonna go all in, I won't see my friends, lose my health, and I'll be 50 and single, and that's a version of my, the future I didn't, I didn't really want. So ultimately, I found my wife, and then all roads led back to like protein bars. It required some humility of being like, you know, that's like my schtick. Like if I die, on my gravestone it might say like, protein bar guy.
- DSDavid Senra
[laughs]
- PRPeter Rahal
Like I'm, and I'm comfortable with that. Uh, 'cause first I had some like influence of Elon, like, oh, I need to go into like, I'm not the food guy, I'm going over there. I, I'm not this, I need to like prove something. But then I realized like, I've been in, I've been in the food business since I was like 12. I like have an ins- deep intrinsic knowledge of it. And, and basically once, once my non-compete was like a year away, it just like naturally happened of like, oh, started connecting the dots, like this is what I should do.
- DSDavid Senra
So wait, you're in the food business since you were 12. How old are you at this point where you're like, I'm gonna be, I'm gonna start another protein bar?
- PRPeter Rahal
34.
- DSDavid Senra
Okay.
- PRPeter Rahal
Yeah.
- DSDavid Senra
So-
- PRPeter Rahal
34. Yeah, so my non-compete was 22, October 6th, '22.
- DSDavid Senra
How long that, getting over that dialogue, that inner monologue where it's like, oh, like, you know, I need to do something more impactful, or I have to do biology or create hardware or something, and you're just like, no, I'm gonna actually stick to what I actually know and may be the best in the world at?
- PRPeter Rahal
It was three years.
- DSDavid Senra
You had to convince yourself this?
- PRPeter Rahal
Yeah. Mm-hmm.
- DSDavid Senra
Wow, okay.
- PRPeter Rahal
Yeah. And a little bit of like... 'Cause I always think like with a, this both as, with as an investor when I looked at companies and then a philosophy, um, for myself is like the leader of the company, if they have to pick up the phone to fix the product, they're fucked. Meaning like the, the leader has to be able to really deeply understand the product and be able to fix it. And then all those false starts were like, I kind of depended on something else, or I didn't have the time to learn the, the, get the deep enough understanding of the product to make that change. And so with food, I like deeply, I like know exactly what to do. So it just became really obvious. And, um, got my wife and then started. What is today, David?
- DSDavid Senra
When we talked the other... [laughs] Why do you laugh? Why do you laugh?
- PRPeter Rahal
[laughs] 'Cause it's just like that was my... It was a very clear process like, all right, check your personal life before, so you don't like ruin your personal life again, um, because you're gonna like go all in on something, and then like once that's done and then you, you-
- DSDavid Senra
It just so happens you got the family, the non-compete expires-
- PRPeter Rahal
Yeah
- 11:48 – 13:49
Building the most important food company of the 21st century
- DSDavid Senra
24. But now the scope of your ambition is like, David is not a, a bar company. That's like the first-
- PRPeter Rahal
No
- DSDavid Senra
... of the products, but how do you describe what you're working on now?
- PRPeter Rahal
We don't wanna tell people what not to eat. I think that's like a lot of the food business, like, "Don't eat this." It's like demonization and it's pseudoscience. We wanna make- Your favorite foods smarter. And so it's a really quiet approach, like they're there and they're just more intelligent, they're more effective, they're objectively better. So we're gonna do that across multiple categories. The protein bar is the wedge. I know it. That's what we use to get to scale. Um, and once you get to scale, you can build the platform from there. You have the organization, you have the route to market, you have the R&D capabilities. So the protein bar got us our platform, and now we're proliferating into categories that just make sense for us and our, our technology.
- DSDavid Senra
When you started David, you knew that you were not gonna stay, that you wanted to build a food company-
- PRPeter Rahal
Yeah
- DSDavid Senra
... not a protein bar company. So I'm gonna just answer the que- my que- my question that I asked you, the way you said it to me before, which I think was excellent, where you're like, "I have to be the best in the world at what I do in my category." And I was like, "What's your category?" And you're like, "CPG." I go, "What does that mean?" You go, "Anything that you can buy in a store." [laughs]
- PRPeter Rahal
Yeah.
- DSDavid Senra
That's the size and scope of your ambition.
- PRPeter Rahal
Yeah, like we're competing with Nestle. Like, I wanna build the most important food company in the 21st century.
- DSDavid Senra
And how big... What's the scale of some of these food companies?
- PRPeter Rahal
Nestle's 100-plus billion in revenue. Um, they're real, real global as well. Um, Pepsi's probably right around there. Real scale.
- DSDavid Senra
So a couple hundred billion dollar companies. Uh, how many different products?
- PRPeter Rahal
Well, they have these enormous portfolio of brands.
- DSDavid Senra
Yeah.
- PRPeter Rahal
And then, you know, hundreds of brands, and then those brands are different by cultures or geographies.
- DSDavid Senra
They grow up by acquisition or no?
- PRPeter Rahal
Yeah, mostly.
- DSDavid Senra
Okay.
- PRPeter Rahal
Mm-hmm.
- DSDavid Senra
Are you gonna do that, too?
- PRPeter Rahal
Probably it's on the table, but our core [laughs] competency is the ability to build brands. So, like I know how to create an identity and build a brand, so for the next four years, five years, we'll probably just create brands, but I wouldn't rule it out later
- 13:49 – 21:07
How a brand is like a human being
- PRPeter Rahal
on.
- DSDavid Senra
Okay, so tell me what you know about building brands and identities. This could be interesting.
- PRPeter Rahal
The analogy I think of, of as a brand, it's simply just a, a human being. So a brand has a name, it has mommy and daddy, it's the founders, its parents. Those parents have DNA. This brand, this individual has values. It has a vision, where it's going. It has, um, other traits, its tone of voice. Uh, has friends, who do you associate with?
- DSDavid Senra
Hold on. Ex- explain that part to me. Who do you associate with?
- PRPeter Rahal
So who, who are you gonna do partnerships with? Like, so David, for example, David Protein-
- DSDavid Senra
[laughs]
- PRPeter Rahal
... has a partnership with Huberman, like that's an alignment. Like we wouldn't do a partnership with, I don't know, Miss Rachel. It doesn't make sense. Not that she's great, but like-
- DSDavid Senra
Yeah
- PRPeter Rahal
... just like a human, the social circle matters. And so in creating a brand, that identity, both from tone of voice, visual, what clothes it wears, who's its friends, its values, vision, you define that clearly in that there's like a North Star to it. The most important factor in building a brand is it just takes time. So if you keep this identity, it can be dynamic in nature as it grows, but you are consistently doing that over time and with really great quality product and service. The time piece is critical. Like, you just have to be doing that over time. David's values are around intelligence, beauty, and, um, discipline, and that's rooted in the story of Michelangelo's masterpiece, the sculpture of David. Those values are rooted in the, the symbolism of, of that masterpiece, and then the tool, the chisel, which is like this crude nail. But the meaning of a chisel is intelligence, discipline, and if you apply those things, you get a masterpiece, something beautiful. So, so that's the logic for David's, uh, brand and brand identity. So, so, so if you have a crystal clear identity for a brand and, and its product offering and its position, the marketing actually becomes really easy. You just constantly hammer those points over and over and over again.
- DSDavid Senra
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- PRPeter Rahal
Six months, maybe.
- DSDavid Senra
Okay.
- PRPeter Rahal
Yeah.
- DSDavid Senra
So then once you have this clearly defined set of qualities for the brand, and then you're saying, "Okay, then we just extend this over, you know, decades-
- PRPeter Rahal
Yes
- DSDavid Senra
... is the plan."
- PRPeter Rahal
Yes. You just hammer it.
- DSDavid Senra
Okay.
- PRPeter Rahal
Like, keep going.
- DSDavid Senra
How did you learn the importance of maintaining the same brand identity over a long period of time?
- PRPeter Rahal
Uh, just studying, like in terms... Like, just studying brands. Like, if you look at the best brands, they're all old, and so time's a factor that's really, really important in the consistency of that. Um, and the thing is there's an asymmetry where like those brands are super fragile. So if you like fuck around on quality or, or something else, like, it's over really quickly.
- DSDavid Senra
The reason I ask that is because, uh, I was obsessed with this guy named David Ogilvy, and I've read every single one of his books. He built one of the greatest, uh, advertising agencies of all time, and he would hammer exactly what you j- y- you sounded exactly like him.
- PRPeter Rahal
Mm-hmm.
- DSDavid Senra
If you read his autobiography or if you read Ogilvy on Advertising, and his whole thing was just like people jump around too much. Like you pick-
- PRPeter Rahal
Yeah
- DSDavid Senra
... one brand identity-
- PRPeter Rahal
Yeah
- DSDavid Senra
... and you do it over and over and over again for decades.
- PRPeter Rahal
Yeah.
- DSDavid Senra
And you came to the exact same conclusion.
- 21:07 – 28:17
Why Peter always chooses the hard path
- DSDavid Senra
Well, I'm gonna get back to the masterpiece in a minute, so don't let me forget that part. But you said that, um, you're almost like attracted to suffering in like almost like an extreme, ridiculous way. What the hell does that mean?
- PRPeter Rahal
I always choose the hard path. Like, I like f- even when I exercise, I choose the most painful exercises. When I take my son out, I refuse to take a stroller. I just always carry him. I just like s- being strong and doing hard things, and I think there's something spiritual about like suffering that I find very gratifying once you get through it. And I think physical suffering is easy 'cause like y- you just get really hot, get really cold. It's like... But the, what's nice about building a company is it's like emotional suffering. It's, it's like a lot of tough conversations. Um, and so I just, I, I l- I think what I've learned early on is like, if you face those things, there's growth on the end of it. And so I found this relationship, the more you suffer, the stronger and the more growth you experience. And so when I see it and I feel it, I like lean into it.
- DSDavid Senra
Travis Kalanick, the founder of Uber, was on this podcast, and he said something that resonated with a lot of people. And he's like, "The lifestyle of an entrepreneur is I can take more pain-
- PRPeter Rahal
Yeah
- DSDavid Senra
... than this guy, and I'll prove it to you."
- PRPeter Rahal
Yeah.
- DSDavid Senra
Do you agree with this?
- PRPeter Rahal
Yeah. It's fun. Yeah, I love it. Pain tolerance, yeah.
- DSDavid Senra
I want everything that's in your head about pain tolerance and suffering. Let's just put it out here 'cause I think this is very interesting. Look in, look in your eyes. I don't know if we can get this on camera or not. [laughs]
- PRPeter Rahal
I don't know. I, I th- it just feels good and I, I like... I don't know where, I don't know where it's from necessarily. I think it's rooted in competitive nature, but I think it makes you a better man. I think there's, well, there's nuance, like suffering for like no benefit is not good, but I think this is actually it. I have a lot of resentment and anger in my life, and if I do not harness that in a certain way, it has become... I, it starts to... I become a bad person or I, I start to not be happy. And so physical exertion, exercise, company building stuff is a way for me to channel all this spite and anger in a way that's really productive.
- DSDavid Senra
What's the source of the resentment and anger in your life that you feel-
- PRPeter Rahal
Uh
- DSDavid Senra
... like you have to channel?
- PRPeter Rahal
So like trauma is relative, but for me, um, when I, I grew up very, uh, beautiful parents. Like I, I... So I don't wanna sound like I suffered that much, but, um, when I was a child, I was just labeled disabled because of my dyslexia. Um, and that, I remember hearing conversations of teachers saying like, "Oh, is Peter stupid?" Like, I couldn't read well. And I remember that like tho- I've overheard those conversations with my parents and that just, I think broke me in a way that it's like my intr- deep intrinsic motivation to prove that wrong. And it's actually why I am so disagreeable with any sort of authority or disagree... Like, or contrarian by nature 'cause like my survival strategy as a child was to say, to have self-esteem really is like, "All you teachers are wrong. This whole system is broken." Fuck off. So I think deep in my personality is that like proving that all wrong. Um, and then even to survive in school, I had... It was like, took me just like 10X the effort to get like a C and D. So I think a lot of my pain tolerance came from some of that. Um, but my resentment and anger is certainly rooted in that.
- DSDavid Senra
You still feel this when you wake up today?
- PRPeter Rahal
Yeah. Yeah. No, I think it's like tattooed. I've t- I've, I've... Psychedelics, therapy, I, I, it's like tattooed in me at this point. I, I, I-
- DSDavid Senra
You've tried to get rid of it and you can't.
- PRPeter Rahal
Yeah.
- DSDavid Senra
And so your feel the outlet is crushing your competitors? [laughs]
- PRPeter Rahal
Yeah. Yeah, it's like it's... Yeah, it's winning. It's like it's... And it's like I'm not really proud. It's like, it's, uh... I'm just like, it is what it is. I didn't really choose it, but it's like to prove that I'm not that fundamentally. But I felt when I was in ve- when I was, uh, fake working as an investor, I, um, I was deeply unhappy because I wasn't able to channel... I was like on the sideline. I'm not, I'm not a fucking cheerleader.
- DSDavid Senra
I, I-
- PRPeter Rahal
Like, I'm on the sideline and I need to like channel all this anger and like thing towards the result and I like, you know, reporting on a portfolio is not doing that.
- DSDavid Senra
I have a younger friend that, um, feel like I can kinda share like the, some of the experience that I get to have with this person, and I was just like, as a general rule, the further you get away from the person that actually has talent, the more cautious you have to be. So it's like the founder obviously has talent, you obviously have talent. You, you created something from nothing and you've done it over and over again and now building this. But like you have to be careful of these agents, you have to be careful of these bankers-
- PRPeter Rahal
Yeah
- DSDavid Senra
... you have to be careful with these investors. The further you get away from the person with talent, the, it's, it, they, they, they just are incentivized to kind of like persuade, cajole-
- PRPeter Rahal
Mm-hmm
- DSDavid Senra
... you know, act like in many cases, like against your interests.
- PRPeter Rahal
Yeah.
- DSDavid Senra
And I was like, just stay close to the people that actually have talent. And if you're... You, you don't need many friends in life.
- PRPeter Rahal
No.
- 28:17 – 29:59
From zero to $300 million in two years
- PRPeter Rahal
channel it.
- DSDavid Senra
Okay, so how are you channeling it into what you're building now then?
- PRPeter Rahal
The company's output is really impressive. Just a lot of hours, butts in chairs in the office, just dedication.
- DSDavid Senra
What do you think is impressive about the output that you're doing right now? What does that mean?
- PRPeter Rahal
We're only two years old and it feels like five years. So our relationship with time is really bizarre. But in two years, I mean, we're run rating over 400 million this year. We'll do 300 million this year. We're in the frozen category. We're obviously in protein bars. We have an RTD. We've launched a confection with three different formats. Um, we're launching another brand in November. Um, I, you just don't s- in, not my field, you don't see that sort of output and it keeps getting better. Like all our products keep getting better. But I mean, we're the fastest growing food company I think, no, I know, in history. So it's really hard to scale it and, um, the pace in which we're doing it, like I think this would take normally 10 years and we've done it in two.
- DSDavid Senra
Explain to me why it's so hard to scale.
- PRPeter Rahal
Why it's hard to scale is 'cause it's inventory. So like you, you need to go buy the raw materials, convert it into finished product, and some of the raw materials take a long time and like for example, the dairy market was super tight. So if you don't... Like growing 300%, 400% a year is really, really, uh, or even closer every six months is really demanding on the supply chain. To take Travis, like this is all atoms. Like it's no... We're not a digital business at all.
- DSDavid Senra
Yeah.
- PRPeter Rahal
So, um, yeah, the inventory part is really, really challenging. So matching supply and demand has, it's just been a, it's very difficult and-
- DSDavid Senra
So you've had times in the company where you ran out of supply, correct?
- PRPeter Rahal
Oh, constantly, yeah.
- 29:59 – 32:51
Why Peter started selling frozen cod
- DSDavid Senra
Is this when you started? I saw like, you know, Rob and everybody's been telling me about David Bar and then I saw like an ad and you were like selling like cod or something.
- PRPeter Rahal
Yeah, yeah.
- DSDavid Senra
Is that as a result of the fact that you ran out of supply?
- PRPeter Rahal
Uh-
- DSDavid Senra
What happened there?
- PRPeter Rahal
The story of cod was we're creating our website and we're doing a comparison table, and the one metric we think is really important is how many of your calories are coming from protein. And on this chart, we were number one, and we were number one on everything. And, and like for me, my investor influence, anything where I see a chart where it's all number one, I'm like, "It's bullshit"
- DSDavid Senra
[laughs]
- PRPeter Rahal
So we were like, "All right. Well, we need to find something that's number one. What has a better protein-to-calorie ratio than our gold product?" And the only thing we found was boiled cod. And so in our comparison chart, we put boiled cod number one and David number two, and just left it there as like a dorky sort of comparison. Um, and why it worked is like the juxtaposition between a, our bar and the cod is like signals convenience, it signals value, and like cod's pretty unappetizing. And then we're halfway through the f- our first year, and I was like, "You know, it's like, it's like deja- deja vu for me." I'm like, "This is super boring, like another, another flavor, another..." I'm like, "We need to do something bold." And so we're like, "Let's actually sell cod, and not like a stunt, like actually seriously sell fish." And so we did this-
- DSDavid Senra
[laughs]
- PRPeter Rahal
... boiled cod campaign and, and it was like, and it was funny because it was like-
- DSDavid Senra
You're like, "Pain. Let me sell..." [laughs]
- PRPeter Rahal
Yeah. It's like got in the frozen business, and it's like back to our brand values. Like it was actually a very intelligent thing because it had... it centered the conversation around protein-to-calorie ratio. So but did it in a way that wasn't s- sort of like, "Hey, pro..." Like, like right on the nose. It was like a little bit of a riddle, and it's like $55 frozen cod online. Like no one really wants that. So we didn't have product market fit, but it functioned as a really great communication tool.
- DSDavid Senra
So creating a product for marketing benefits.
- PRPeter Rahal
Yeah. We call it product as market.
- DSDavid Senra
[laughs]
- PRPeter Rahal
I'm not giving up on it. Like we're gonna keep, we're gonna keep going. We're gonna keep going on cod until [laughs] we get product market fit. Um, but it's-
- DSDavid Senra
I don't think you will. [laughs]
- PRPeter Rahal
[laughs] Yeah.
- DSDavid Senra
I don't think you will, man.
- PRPeter Rahal
I know. It's funny because if you look at our website, it's like, oh, protein bars, browns and gold, pints, frozen ice cream, and then there's like RTDs, and there's like fucking fish. [laughs]
- DSDavid Senra
[laughs]
- PRPeter Rahal
And it's like... And it's weird. It's, uh, it's, it's weird. But like the whole food space is so fucking boring, to be honest. It's like they all say the same shit, they all do the same things. And so being a second time, I was like, "We gotta have some fun with it." [sighs]
- DSDavid Senra
Okay, so that was not in response to [laughs] to supply issues because there was no demand for this frozen cod so far?
- PRPeter Rahal
Yeah. Yeah. No. It was... It, it, it, it happened to work at the same time we were out of stock on some things, but no, it was
- 32:51 – 36:56
The organization is the product
- PRPeter Rahal
independent.
- DSDavid Senra
Okay. So let's go back to when I interrupted you because you started talking about pain. You said, talked about building a masterpiece. What were you gonna say there?
- PRPeter Rahal
Oh, it requires tons of discipline and intelligence, and it's done over time, and that's really what the brand Dave is about is like finish your masterpiece and every- tap into everyone's inner, inner excellence.
- DSDavid Senra
But how do you apply it to building your company though?
- PRPeter Rahal
Well, I think I start with like the fu- where what is a company? So our strategy is like two fundamental things in a company. People, it's all about people, as cliche as it is. And, and I think about the organization as a product. So my focus is all about that. And then the second piece is product and mastery of the product. And when I think of product, I think of brand and product as the same thing. Like the product is just the raw thing, and then the brand is like what it wears, like the exterior piece. But if you try to look at the organization as a product, a company's just a group of people aligned towards a mission. So if that's the most important thing, like what actions does the company do to like make sure that it's done? So for, for us, what I think mastery is like we have four processes in the company that ensure our organization is, is, is done right, um, and, and culture is lived. So if people are everything, who you select is the most important thing, who you select into the organization. How do you train and onboard them? Three, how do you select the ones to get promoted and, and, and r- and rewarded, and then how you get the... terminate the ones that shouldn't be there. So those four processes are really critical to building the organization and scaling it. And so we spend a lot of our time refining our hiring process. Training and onboarding is mission-critical, and then promotion as well, rewarding the right behaviors, and then firing. And then those are all organized around our value system, which is the best way to align a group of people to make sure the right behaviors are matching what we want.
- DSDavid Senra
What are the behaviors that you want?
- PRPeter Rahal
You want truth seekers. People are, have courage to seek truth. That's mission-critical. Uh, you don't want biases in place. Foundational would be humility, which is I define as the freedom of pride and arrogance. So humility is really foundational, and it, and it shows up like intellectually it'd be like, "I don't know what I'm doing. I need help." Like I don't want to cover your ass culture where people are like, "I have this data, therefore my decision's good." Like it's not really productive.
- DSDavid Senra
Say more about that.
- PRPeter Rahal
You'll get people from big corporate America come in, and then they will generate a bunch of data, surveys or whatever to prove their experiment or, um, cover their ass if the experiment goes wrong.
- DSDavid Senra
Just like fake work.
- PRPeter Rahal
It's performative in a way of like, "I'm just doing this to cover my ass," versus focusing on the experiment and, and not worrying about covering your ass. Entrepreneurship is a very important value of the company as well, and that's like so anti-entrepre- Like to any activity to like any performative activity and fearing a failure is like the opposite of ent- entrepreneurship. You just can't have that as a company scales. And so you get a lot of people coming from different c- corporate environments that have that like just to com- like protect their job.
- DSDavid Senra
Are you able to recruit from other food companies? 'Cause like you're so different. Most of th- these peop- these companies haven't been founder-led in, I don't know, half century if not longer.
- PRPeter Rahal
Yeah. Um, we can and we do. There's a lot of good experience they have. You just sort of have to baptize them when they come in. So that's where the onboarding process is really critical.
- DSDavid Senra
You baptize them?
- PRPeter Rahal
Yeah.
- DSDavid Senra
What does that mean? [laughs]
- PRPeter Rahal
You just have to teach them new beliefs, new values. Um, if you just sort of throw them in, they're just gonna take what they know and apply it. Um, and so you really wanna Have them assimilate to the culture in a way. And so a very thoughtful onboarding process where you learn the values of the company, you learn entrepreneurship, you know, we pack boxes, you learn humility, you learn all these things, um, is really critical
- 36:56 – 41:15
Why he recruits former founders
- DSDavid Senra
Are the most talented people in your company the ones with no experience, though?
- PRPeter Rahal
The most talented people in our company are former founders.
- DSDavid Senra
Say more about this.
- PRPeter Rahal
Convincing a founder to, like, not do their thing to join, um, a greater company is a really strong signal of the opportunity we have ahead. Basically, I would position it as like, this is a platform for you to go do your thing. You could do your thing with amazing technology, you can do your thing with resources, and you don't have to deal with the bullshit of raising money, all the bureaucracy that comes with the different stakeholders. And I think you see this in AI where all the... a lot of founder talent goes to those platforms. Convincing them to join a founder-led company is, um, how-- without bureaucracy and, and, and it... for them to be able to fulfill their, their vision is-
- DSDavid Senra
Did you specifically target founders?
- PRPeter Rahal
Yeah, for sure. 'Cause they have agency, they have courage, they have humility. Yeah. And they're not ruined by corporate America or school. School ruins you, too. You have to follow procedures. You're not thinking outside of the box. You're following a playbook. Like, there's no playbook in entrepreneurship. You just have to, like, think from first principles, understand the fundamentals, and fucking just go.
- DSDavid Senra
Yeah, we just had Luca Ferrari on this, and you know, he started this crazy company called Bending Spoons. He's doing it from Milan, not exactly like a startup hub, and he's talking about being isolated was super, um, valuable to him 'cause he just did-- he, he-- not-- he can't even copy the startup mantras 'cause he doesn't know them. He's, like-
- PRPeter Rahal
Yeah
- DSDavid Senra
... immune to them.
- PRPeter Rahal
Yeah.
- DSDavid Senra
And his, uh, point was just, like, he doesn't-- he prefers young graduates or even people that didn't graduate to over experienced.
- PRPeter Rahal
Yeah.
- DSDavid Senra
He's just like, "I don't want your bad experience."
- PRPeter Rahal
Yeah.
- DSDavid Senra
Like, I know what we're doing. Let's, let's just take high agency, young, smart people that want it really badly. And I think he said he got something like eight hundred thousand applications last year for like three hundred and fifty positions 'cause he's in markets where there's, there's a lot of... there's smart people everywhere. There's no great jobs for them. Their economy's terrible.
- PRPeter Rahal
Yeah.
- DSDavid Senra
And he's just like, "I'm just optimizing for this, and then I'll come in and indoctrinate them into how we're running the business-"
- PRPeter Rahal
Yeah.
- DSDavid Senra
"... which is completely different than school or a bad-- or a company that's like a mediocre company."
- PRPeter Rahal
Yeah. Yeah, 'cause the thing with e-experience is, like, really valuable, but there's a consequence to it where you'll, you'll naturally reason through your, through analogy or reason through your experience, which can be the right call, but you're not gonna ask the dumb question or naturally think through first principles because you've already done it, so you're just gonna move faster through, through, through leaning on your experience. And, like, for me personally, I started a company with no experience, really. You know, I fundamentally don't think it's that important if you're-- you have good reasoning skills and have the right ability to learn. Um, so the best is, like, some inexperience, I find, and then, like, some damage, [chuckles] like some chip on shoulder. Like, there are individuals at our company that you can't compete with them. They're not giving up. They have something to prove. And, like, those are the most powerful people to get-- to-- you wanna organize around.
- DSDavid Senra
Tell me more about them.
- PRPeter Rahal
Uh, there's kinda like... it's all childho- they had something fucked up in their childhood. [laughs] You can't... You know what I mean? Like, I-- there's someone, you know, there's one kid in our team, like, I can't compete... I can't... I... He's, he's gonna die before he fails. And, uh, he didn't have a comfortable life, and it's like a really, really... Like, this is, this is different for him. So you want many of those people, but, like, too many probably break things. So you're like, in general, you want like a balance of, like, those c-crazy chip on shoulder, you know, some, some people to balance out the team that are very rational and pragmatic and more conservative. Like, you want a good team design, but the people driving the company are usually those maniacs that have a chip on their shoulder, high agency, and more entrepreneurial.
- DSDavid Senra
Was this person happened to be a former founder?
- PRPeter Rahal
Yeah. Mm-hmm.
- DSDavid Senra
How long did it take you to recruit them?
- PRPeter Rahal
Well, when we bought EBG, he was a, a victim of us acquiring that, uh-
- DSDavid Senra
A victim?
- PRPeter Rahal
Yeah, because we bought up all the supply. So he was a customer of the, uh, the, the Apogee business, so recruited him to join us and
- 41:15 – 51:56
Buying his supplier and victimizing his competitors
- PRPeter Rahal
do it here.
- DSDavid Senra
Victim. I love that you just said that. Okay.
- PRPeter Rahal
[laughs]
- DSDavid Senra
So let's, let's get, let's get into this 'cause this is one of the, um... Again, I've been hearing stories about you for a long time, and then this is w- the story that other founders repeat so much that's very like Rockefeller-esque. Explain what that is. What i-i... What is it?
- PRPeter Rahal
Apogee.
- DSDavid Senra
Okay.
- PRPeter Rahal
So in, um, March of twenty-
- DSDavid Senra
Don't go to the acquisition yet. Talk about the fact what, what this thing does, why it was important-
- PRPeter Rahal
Okay
- DSDavid Senra
... to your business.
- PRPeter Rahal
Cool.
- DSDavid Senra
And then we're gonna go to the fact that you victimized [laughs] everybody else.
- PRPeter Rahal
Apogee makes EPG, um-
- DSDavid Senra
It's terrific
- PRPeter Rahal
... esterified propoxy etylglycerol. Uh, it basically, it's a modified triglyceride. So olive oil is a triglyceride. So triglyceride has three fatty acids attached to a glycerol backbone. Your body can't digest this unless lipase comes and clips these free, these, uh, fatty acids off. What the company did is they figured if they can lock these fatty acids in, lipase can't break it down. And, um, so what that means is you can have the taste and mouthfeel of fat without the caloric, metabolic impact. Why that's a huge innovation is because most of the calories in food are coming from fat. It's-- they're twice as much as protein and carbohydrate. This technology was naturally misunderstood like most food technology, and so it was sitting there and it's like this... it's a m- it's really amazing. You can like have your, your cake and, and, and, and not have the caloric consequences. So think of it as like high-intensity sweeteners, like stevia monk fruit. That sort of level of innovation. So anyway, we were using it for David, and then we were buying... We were like ninety percent of the company's, um, s-sales. And then, like [sighs] all paths led to, like, litigation-
- DSDavid Senra
Hold on. So you were... This is a patented technology?
- PRPeter Rahal
Yes. Yes.
- DSDavid Senra
Correct? So you had one source where you could buy it from.
- PRPeter Rahal
Yes.
- DSDavid Senra
You just said you were ninety percent of this company's overall sales.
- PRPeter Rahal
Yep.
- DSDavid Senra
There's a handful of other companies that saw that same opportunity and wanna use this into their product.
- PRPeter Rahal
Yeah.
- DSDavid Senra
Okay.
- PRPeter Rahal
Yeah. So there, we were... We started, like... And the company was struggling, like a bunch of-
- DSDavid Senra
Their company, not you.
- PRPeter Rahal
Yeah, Epogee. Yeah.
- DSDavid Senra
Yeah.
- PRPeter Rahal
Like a bunch of cats and dogs trying to, like, make it work, and it's-it's hard to work with. It's not like... It's, it takes, requires good product development skills. But we were ninety percent of the, um, of their available supply and-
- DSDavid Senra
And you'd be in a bad position if, for whatever reason, that company went under or they-
- 51:56 – 55:47
How Neil Mehta and Greenoaks earned a spot on the cap table
- DSDavid Senra
Okay, we need to talk about... So Neil Mehta, I've, I'm friends with Neil.
- PRPeter Rahal
Yeah.
- DSDavid Senra
I talk to him on the phone all the time. I talked to him about you like, I don't know, like two weeks ago, and he's got hilarious stories about you that I'm gonna bring up on the podcast too. But you need to explain at like why'd you choose him? Because-
- PRPeter Rahal
Right, yeah
- DSDavid Senra
... you said, "I'm not gonna put any more money in." You're a second-time founder. You made a boatload of money before. You have all these other investors chasing you. You don't even like talking to them. You were kind of like i- in, this is my own characterization, kinda like, not even rude. You're just like, "Leave me the fuck alone. I'm building my company. Go away."
- PRPeter Rahal
Yeah.
- DSDavid Senra
But Neil's been, and Greenoaks was chasing you, right?
- PRPeter Rahal
Yeah.
- DSDavid Senra
So explain how you wind up selecting Neil and Greenoaks.
- PRPeter Rahal
The investor class believes they're very, very high status, and they always reach out with an entitlement to, like, take my time, and so I, I, I've always viewed it as like I'm not giving you my time. We're not... I will be respectful, but, like, I don't just take investor calls. I just don't do it. I think it's a bad use of time. And plus, I have my own capital, so I was like, "I'll finance it. Fuck it." That's a great position to be in, by the way. And I, I love it, right? Like, I don't need anything. So anyway, my friend Chad Byers was like, "Hey, my buddy Neil wants to reach out to you." I'm like, "For what?" And he's like-
- DSDavid Senra
[laughs]
- PRPeter Rahal
He's like, "Oh, he's an investor." And I'm like, and I'm like, "Cool. I, I'm not, I'm not taking investor calls right now, with all due respect." So I passed. And then two weeks later, Chad says, "Hey, I think you should take their time." I'm like, "All right. For you, Chad, I'll do that." And then I got on the phone, and I was like, I'm just, like, really focused. So I'm like, "Hey, listen, like, this is not a tech company. Like, the math should work really quickly. Like, we should be, like, profitable sales. Like, that's how we're gonna grow, is profitable sales," and I'm like, "Line of credit." And they're like, "Great. Well, if there's any opportunity that comes along, let us know." I'm like, "Great. Will do." So then time goes on, we're just heads down, and then I start getting messages from former RXBAR employees where a firm was soliciting them for, like, offering to pay them for reviewing or reviewing me, and it's not just one. It's like twenty people I haven't talked to in like five years being like, "Hey, Peter, should I take the call?" And I'm like, "Yeah, take the call."
- DSDavid Senra
So basically, what they're saying is, "We'll pay you a thousand dollars if you get on the phone and tell us about your experience-"
- PRPeter Rahal
Yes, with Peter. Like, "What kind of leader was he?"
- DSDavid Senra
Okay.
- PRPeter Rahal
And I'm like, "Yeah, take their money." I had no idea. Um, and I thought I was going through, like, the litigation, so I was like, "Oh, they're just, like, trying to fucking find dirt." So I had no idea it was an investor, and then I'm like, "All right," um, and then the Epogee deal happens, meaning I, the chairman of Epogee comes to me, and we, we say, "Hey, let's figure out a deal." So then I reach back out to Neil. I'm like, "Hey, this is happening. You guys wanna take a look?" And of course, reach out to Valor, be like, "Hey, this is happening. We're gonna need probably some money for this." Well, this is why I respect Greenoaks so much is, like, even me kinda being rude to them, they had to, like, put resources to due diligence on me and in the best way possible, which was like diligence doing my leadership, which is actually the f- I think the most fundamental thing for this investment to work is like you gotta make sure is Peter the right, right type of leader? They've already done that when there was no deal on the table
- DSDavid Senra
Not only there's no deal on the table, you already told them there won't be a deal.
- PRPeter Rahal
When I found out it was them, I was like, "Oh, wow, these guys are like... They're good." And I didn't do an auction. I, I, I want the right people on the cap table. Um, so it was... And Greenoaks won just out of my respect for their approach. Kept it like with just friends I know. Um, and then Valor had a conflict of interest because they're in the deal, so they couldn't do M&A 'cause the deal was to finance the other company. So, uh, Greenoaks led it and, um, yeah, they're, they're amazing. I'm very lucky that Chad connected
- 55:47 – 1:00:31
How Peter fundraises
- PRPeter Rahal
us.
- DSDavid Senra
So before I tell you the story that he told me about you, you just said, "I didn't do an auction." Why is it that important to not do an auction when you're fundraising?
- PRPeter Rahal
The reason why I didn't wanna do an auction is, one, we didn't need a lot of money. So it's very important. If we needed a lot, a lot of money, I think it's different. But we only needed like one or two players. We were growing like crazy, and I did not wanna consume the company's resources in a way that would harm our, our operating our business. So I'm very sensitive to resources an auction would take.
- DSDavid Senra
What are the resources an auction would take?
- PRPeter Rahal
Well, you gotta like r-run tons of management meetings. You have to constantly ans- an-answer diligence questions. Like, it's a lot of time. So-
- DSDavid Senra
Your, your whole thing keeps going back to like you're, you're, you're intolerant of wasting any time.
- PRPeter Rahal
Yeah.
- DSDavid Senra
You've said this thing in like half a dozen ways, like in subtle ways since we've had this conversation.
- PRPeter Rahal
Yeah.
- DSDavid Senra
You're obsessed with time.
- PRPeter Rahal
Yeah. So if you think of it as like the analogy is like aerodynamic. I wanna be super aerodynamic through things, um, and then like my goal is, and like also as like being on the other side as an investor, like I wanna maximize value, but not really. Like, if you wanna... If I wanna maximize value, I would run an auction and I wouldn't care. But I, I don't really want... I wanna make sure my, the investors make money, and they're, they're good with the underwriting. So like you wanna walk to the line where it's like rich, but not too rich, right? Like, you can, you can actually, if I'm on the other side, I can underwrite it pretty, pretty easily. I wanna make sure all my stakeholders make money, and that's my approach. So the con of that is like, uh, maybe we could've gotten an extra hundred million valuation. I don't know. But I don't really care. Like, I wanna make sure that everyone feels good. And then I-
- DSDavid Senra
Why do you not really care? And I agree with this, I'm just, I want you to-
- PRPeter Rahal
It's like what's-
- DSDavid Senra
I wanna get your thinking out-
- PRPeter Rahal
What's like-
- DSDavid Senra
... in the open
- PRPeter Rahal
... two percent del-- I, it doesn't matter. It just doesn't matter. And like I care about money, but I don't really care about that type of money. I rather... I care about how the people on the team feel and are excited and, and aligned. And I've seen, I, I've seen on the other side of the table founders just prioritize enterprise value that early, and it's just fucking gross.
- DSDavid Senra
Why is it gross?
- PRPeter Rahal
'Cause it's not about that. Like it's about, in this stage, it's, it's about the right people, and it's focusing on the mission. It's not about maximizing enterprise value at this stage.
- DSDavid Senra
And if you're good, you're gonna wind up with the money anyways. It's just gonna take over, over time.
- PRPeter Rahal
Yeah. And like we got a good valuation.
- DSDavid Senra
Yeah.
- PRPeter Rahal
It was fair and... But I'm, I, I don't want an investor feeling like, "Fine, we'll do it, but I disagree."
- DSDavid Senra
So you said if you're on the other side you could underwrite it. So essentially you wanna do a deal where like if you were Neil, you would take the-
- PRPeter Rahal
Yeah
- DSDavid Senra
... like, "It's a good deal. You should make that investment."
- PRPeter Rahal
Yeah. And that's like exactly, and that's how I underwrite it. 'Cause I'm, I'm, I'm operating as a CEO, and I'm operating as an investor too 'cause I'm participating in all this stuff as well.
- DSDavid Senra
So-
- PRPeter Rahal
Which is a conflict, but I'm generally trying to like bifurcate like, all right, Peter's the CEO, but he's also an investor.
- DSDavid Senra
You mean you're putting more of your own personal money-
- 1:00:31 – 1:04:16
Running a business is like a river
- DSDavid Senra
All right, so I get on the, um, I'm on the phone with Neil, and, uh, he was like, "Peter's like one of my favorite kind of founders," like the founders he likes to back, which is you, you, you, um, I kinda like hinted at it earlier, which is like nothing's that you wake up and just like you don't focus on what's good. It's like everything is just not good enough.
- PRPeter Rahal
Yeah.
- DSDavid Senra
And all you see are the kind of flaws in your business, and you kinda attack those flaws, trying to make your business stronger over time. Uh, again, very common in history entrepreneurship. So I guess he like came to visit you, and it was him and somebody else, and it was you and a bunch of people that work with you, and you were doing like taste tests or whatever of maybe new products or existing products. And like, "What do you guys think?" They're like, "This is awesome." And you go, "Wrong. This is shit." [laughs] And then he goes, he said, "Now that you said it was wrong, that everything was shit," and then he listed all the deficiencies-
- PRPeter Rahal
Yeah
- DSDavid Senra
... and the things that he wanted to-
- PRPeter Rahal
Yeah
- DSDavid Senra
... to, to fix.
- PRPeter Rahal
Running a business is like, it's like a river. As long as it's flowing, great, but if there's something blocking that flow, you need to fucking fix it. Like, if something's in the way, I ruminate on it to the point where I can't sleep, that I have to fix it so I can sleep. I ruminate on the problems. So they just like nag at me. This is a, actually a problem I have. The flaw, flaw of my leadership style is I don't acknowledge the wins or success. I'm only preoccupied about what's wrong. So I'm working on that. But I actually, I outsource that to people internally to like, "Hey, make sure we're like saying, you know ... " Like our birthday's tomorrow. I fucking hate birthdays. But our birthday's tomorrow, so I'm like, "Please do something so we can acknowledge our birthday." They're like, "I don't do that." So I outsource it a bit internally, but yeah, it's ... Because if you just fix that, I don't know, the approach makes sense.
- DSDavid Senra
Yeah, it's almost like what, yeah, Elon does.
- PRPeter Rahal
Yeah.
- DSDavid Senra
So we just had Zach Dell on the podcast, and Antonio's on his board, and he says the first, I think it's still to this day, like the first two years, every conversation that Zach Dell had with Antonio, is it Gracias?
- PRPeter Rahal
Yeah.
- DSDavid Senra
Uh, Antonio Gracias, is, "Hey, Zach, how's it going?" "Good." "What's your bottleneck?"
- PRPeter Rahal
Yeah.
- DSDavid Senra
He wouldn't, he refused to talk about anything.
- PRPeter Rahal
Yeah.
- DSDavid Senra
And he's like, "What is the bottleneck? What is the, the in way or critical path? And then we're just gonna talk about this."
- PRPeter Rahal
Yeah.
- DSDavid Senra
"The entire conversation is this, and then the next thing that is resolved, okay,"
- PRPeter Rahal
Yeah
- DSDavid Senra
... "what's the next bottleneck?" And it's just over and over and over again. So just relentless focus on the bottleneck.
- PRPeter Rahal
Yeah. Yeah, I think it's like, all right, my job is to scan the holistic picture of the business and react to the problems and then go fix them and then get the fuck out of the way. Just like constant confronting the problems.
- DSDavid Senra
I, I think this is, uh, like almost all the elite entrepreneurs have this exact same mentality, where it's like you can even go to like Buffett and Munger would talk about this when they were talking about people operating all the subsidiaries of Berkshire. It's just like, "Just tell us the bad news because the good news is terrible."
- PRPeter Rahal
Yeah, exactly. That's why it's like the river running. I don't-
- DSDavid Senra
Good news takes care of itself. Just tell me the bad news.
- PRPeter Rahal
Exactly.
- DSDavid Senra
Um, Tony Xu from DoorDash, who I, like I, I want to get him back on the show as soon as possible because I can't explain why, but like you talk to him, I think he's like 41, 42, and you just sit there and, you know, if you actually look, it's not, he's like, it's not just a delivery business. It's like that's not what this guy's doing. He like gives you like young Jeff Bezos vibes-
- PRPeter Rahal
Mm
- DSDavid Senra
... and like he's chasing after something much larger that you can't c- He sees, but you can't really see-
- PRPeter Rahal
Yeah
- 1:04:16 – 1:06:28
Why the company is named Medici
- DSDavid Senra
blocking you?
- PRPeter Rahal
So we've reorganized the group to be a, a hybrid organization where we have David as a business unit, which has its sales, marketing, supply, finance, and we have Hallpass, another BU. So we have two, we have two BUs and we're about to have a third business unit all operating semi-autonomously. And then we have at the Medici level sort of shared services.
- DSDavid Senra
Why, why name the company Medici?
- PRPeter Rahal
I love history and it reflects how we operate organizationally. So the Medicis, they created the conditions for the Renaissance to happen. They weren't necessarily the doers. So they created the conditions, they identified Michelangelo, Donatello, Galileo, and it's a little bit of the analogy of what m- our, the people that work at Medici at the company, they create the conditions for the business units to thrive and flourish, and they're the artists and scientists. So at Medici, it's like, it's like the money, the law, like the things that are agnostic live at there. And then the artists and scientists, the people actually doing the work, are at the business unit level. So the name suited how we operate. Medici in our company creates the conditions for the business unit leaders and all the operators to go execute what they need to.
- DSDavid Senra
Say more about the structure. So you have all these business... You just said they operate semi-autonomously?
- PRPeter Rahal
Yeah. Semi-autonomously meaning there are some centralized services, but they more or less are their own business unit that have agency and autonomy, run their own P&L, and go do. Versus like a large CPG are typically centralized. So we're, it's a decentralized approach because speed and agility is the main objective. Because you'd look at it and you'd be like, all right, on the, your payroll's too high. Like it's quite inefficient on a P&L basis because you have more, you're like double, you have double sales people-
- DSDavid Senra
Yeah, duplication of efforts
- PRPeter Rahal
... but to me, that's the main design objective is speed. And so if it's speed, you're d- designing for speed, you're gonna pay ex- extra people to do that.
- DSDavid Senra
Me and Rob had this exact same conversation yesterday. [laughs]
- PRPeter Rahal
Yeah. Speed's important. Like it's always been important, and it's really important, especially in our market we're in, where we're dealing with people with mega, mega scale. Our ability to bring product to market fast is, is...
- 1:06:28 – 1:11:48
Bureaucracy is not inevitable
- PRPeter Rahal
I don't want to lose that. And honestly, if we lose that, I'm, I'm like, I'm done.
- DSDavid Senra
What do you mean you're done?
- PRPeter Rahal
Like if we lose our entrepreneurial, and I say this to the company, like if we lose our values and the way we operate, our culture, I'm fucking leaving.
- DSDavid Senra
Why don't you just grit your teeth?
- PRPeter Rahal
Grit my teeth?
- DSDavid Senra
You just grit your... [laughs]
- PRPeter Rahal
Because it makes me angry. Just like, because it makes me angry. I hate big, fat, stupid-
- DSDavid Senra
I'm fucking, I'm fucking leaving
- PRPeter Rahal
... I hate big, fat, stupid things, and I don't want to be a big, fat, stupid company. The problem is it's actually inevitable as you get bigger. Like the bu- like my, my job is to fight bureaucracy-
- DSDavid Senra
It doesn't have-
- PRPeter Rahal
... fight the bullshit.
- DSDavid Senra
It doesn't have to be. I mean, I, you even kind of stumbled upon or maybe not even stumbled upon, you were, uh, probably very intentional about the way you operated this. I just did this episode of, uh, my other podcast, Founders, about Henry Singleton, and he read, he, he led one of the most successful conglomerates of all time. In many cases, a lot of the ideas that we ascribe to Buffett and Munger were actually things they learned from him, and his whole thing is, uh, I think at the time The '70s, he owned like a hundred and thirty businesses. A hundred and twenty-nine of them were profitable.
- PRPeter Rahal
Jesus.
- DSDavid Senra
And essentially like they, same thing, they just ran, they ran their own operations. The only thing he centralized was, um, compensation and, and, uh, capital allocation.
- PRPeter Rahal
Yeah.
- DSDavid Senra
So-
- PRPeter Rahal
Yeah.
- DSDavid Senra
You're on your own, you're making cash, I'm gonna leave you alone.
- PRPeter Rahal
Yeah. Performance equals freedom.
- DSDavid Senra
Yeah, exactly. And then you just send your cash and then I make the capital allocation decisions for us.
- PRPeter Rahal
Yeah.
- DSDavid Senra
So I don't think ... And he didn't have a big, fat, stupid, ugly, uh-
- PRPeter Rahal
Yeah
- DSDavid Senra
... company. So you, that doesn't have to be the outcome.
- PRPeter Rahal
No, no, I know. But it's like the nature of these organiz- if you, the more people they want ... Like, nature pulls it in together. Like, the more people, the more ... Like, it almost wants to be that, a group of people.
- DSDavid Senra
I mean, Luca Ferrari just did the exact same thing-
- PRPeter Rahal
Yeah
- DSDavid Senra
... 'cause he, he ... And, you know, he, he buys these, he acquires these companies, and in some cases they have like hundreds of ... These are software companies, so he's like, "How do they make money?"
- PRPeter Rahal
Yeah, yeah.
- DSDavid Senra
He's like, "How are you unprofitable?"
- 1:11:48 – 1:16:06
Why Peter has 25 direct reports
- DSDavid Senra
uh, that I, like, I wanted you to expand on too. You said, "It's very important for me to be aerodynamic as I go through things."
- PRPeter Rahal
Yeah, just like efficiency and simplicity. Like, um, I think the best design is the simplest design and just my, my, I think my nature.
- DSDavid Senra
So how does that manifest, your nature manifest in the way you're building this business? 'Cause it looks super complicated.
- PRPeter Rahal
Um, it is complicated, but ... Well, one, it's a very flat organization, so there's not a lot of depth. Like, I have like twenty-five direct reports.
- DSDavid Senra
What's interesting is I read this book on Jensen, and Jensen has, uh, famously like sixty direct reports. And a lot of people when that came out in the book, and he, I think he's talked about this in some interviews too, they're like, "That's way too many. Like, how could he do it?" And it's like, well, this guy's running the most valuable company in the world. It's easy working for him. How many direct reports is too many?
- PRPeter Rahal
Well, I used to think that like seven or eight was the most you could have to really like develop and like give the right attention to like develop the best leaders possible. Now, I think the value of having so many direct reports is that it allows you to see a lot, and it keeps the organization, um, it keeps me closer to the problems. And what I tell people when my ... If they, if they're reporting to me is like, "I c- I'm not gonna manage or tell you what to do. We're gonna work together to set priorities, but like I am gonna expect you to like bring things to me. I'm gonna ... You need to bring the problems to me, and we're gonna figure it out together. But like, I'm not gonna be like managing your to-do list." Like, that's ... So it t- takes a certain type of leader, like, p- report to me, like I'm not gonna manage them. But I'm gonna lead them. Yeah, so it requires like these leaders to have just better agency and autonomy if they're working with me versus a conventional organization, which is like, "Oh, I only have eight direct reports." Then you just get this very, very stacked thing that like the hier- the hierarchy gets too stacked and the information doesn't flow as well.
- DSDavid Senra
Do you have a co-founder?
- PRPeter Rahal
Yeah.
- DSDavid Senra
Are you still working together?
- PRPeter Rahal
No. He's no longer at the company.
- DSDavid Senra
What happened?
- PRPeter Rahal
He was really helpful in the beginning, but most founding teams never really scale to the, to the promised land. Like, it's always pretty... Like the hardest thing in leadership is that the team that gets you started in the different life cycles usually is not the same group of people. [chuckles] Um, so that's, that's a true observation that I've had.
- DSDavid Senra
The observation you had is the founding team, let's say there's two, three, four co-founders, usually there's actually one.
- PRPeter Rahal
Yeah.
- DSDavid Senra
It just takes time to reveal who the one is.
- PRPeter Rahal
Yeah.
- DSDavid Senra
I've noticed the same exact thing.
- PRPeter Rahal
Yeah. Yeah.
- DSDavid Senra
We, I talked about Adam Foroughi earlier in AppLovin, and like I think he even said this on the podcast. You know, he wants to run a very strict and ruthless meritocracy.
- PRPeter Rahal
Yeah, same way.
- DSDavid Senra
Yeah, and his whole thing was like, well, the, the co-founder that maybe had the skills to be the CTO at the beginning couldn't hang-
- PRPeter Rahal
Yeah
- DSDavid Senra
... so we had to literally like... And in many cases, they had a conversation. Adam was the one driving it, but he was just like, "You see what's going on, so like do you want what's best for the company-
- PRPeter Rahal
Yeah, exactly
- DSDavid Senra
... or do you wanna have like this fight?" And in many cases, if you just frame this like, "This is obviously best for the company, you see what's going on," and like it's somewhat amicable.
- PRPeter Rahal
Mm-hmm. Yeah, and I don't like, I don't like the co... I don't like the founder, co-founder's titles because it, it implies some privilege. Um, it's inherently anti, um, mer- meritocratic.
- DSDavid Senra
What do you mean you don't like the founder co- the co-founder titles?
- PRPeter Rahal
I just feel like what it... Like a founder is in a role. It's not a job. You never hire it, s- so it doesn't have a role in the company. So I think it's actually people abuse its power, and I don't think it, it should get special treatment. So like I don't use it. I think it's an abuse of power. Everyone has a role, everyone has duties, and either you do them well or you don't.
- DSDavid Senra
This is what's getting more and more interesting about me having more of these conversations, is to start seeing the same similarities between the people because I mentioned Luca Ferrari earlier, uh, Adam Foroughi I've mentioned a few times. They both said the same thing. Like Luca Ferrari's just like, "We don't even like the w- the term founder in the company."
- PRPeter Rahal
Yeah.
- 1:16:06 – 1:17:45
Peter's principle of reactionary leadership support
- DSDavid Senra
So you define your role as what?
- PRPeter Rahal
Chief executive.
- DSDavid Senra
And how do you think about that in like terms? You wake up every day?
- PRPeter Rahal
Yeah, my kind of forever job description is the management team, making sure they're performing, make sure we get product market fit and continually get product market fit, organizational health, so just like how is the culture? Is, are people scared? Are people like free and creative? Are we living the values? Can people recite the values? So culture, and then four would be, uh, alignment of like strategy. Like are, are we organizationally aligned? Not on decisions, but like does everyone understand where we're going, why we're going, and is everyone incentivized to go there? Is the group of people moving in the right direction? And then fifth would be cash or fundraising. So those are like my forever, and then I have one, uh, the, what I like to call, this is like founder mode, but what I've always done, it's like I call it my main job is like reactionary leadership support. So reactionary in the sense I literally react to it. So fires or problems, I get information. It's very reactionary, which is generally viewed as negative, but like my job is to react to the problems. So reactionary leadership support. So the leadership support would be that I either have to drop what I'm doing or prioritize or reshuffle and then go in and assess, figure out, fix it, whether that's directly, indirectly, or whatever, provide resources, just shine a flashlight on it, and then get the fuck out of the way. And I expect that on all leaders in the company. Like re- I call it reactionary leadership support.
- 1:17:45 – 1:20:41
On divine discontent and loving the fight
- DSDavid Senra
I wanna go back to this, I think one of the most fascinating things about you is this, uh, like divine discontent, this you wake up with this fierce competitive drive, but also, I'm not gonna call it unhappiness 'cause I don't think that's the right word, but like this discontent-
- PRPeter Rahal
Yeah
- DSDavid Senra
... of where you are and this constant desire to improve things every day. When Travis from Uber came on, uh, he, he had like a warning because how old are you?
- PRPeter Rahal
Forty.
- DSDavid Senra
Okay, so he's about ten years older, right? And he's like, "What you have to worry, worry about is that you get so..." He's like, "The a- the act of entrepreneuring is just dealing with problems constantly."
- PRPeter Rahal
Yeah.
- DSDavid Senra
And he's like, he said something like, "When a warrior fights too long, he might be too zen."
- PRPeter Rahal
Yeah. [chuckles]
- DSDavid Senra
So he's like kind of like zen on the outside, but he's like so used to adversity and, and like it doesn't bother him anymore, right? And he's like worried that-
- PRPeter Rahal
Yeah, he's numb.
- DSDavid Senra
The... Exactly. Numb is a great way to put it. And the, the point that he's making is like you want to wake up being bothered and not being used to adversity.
- PRPeter Rahal
Yeah.
- DSDavid Senra
Not being, not, it doesn't prevent you from acting, but you wanna essentially react to it. This is what-
- PRPeter Rahal
Mm-hmm
- DSDavid Senra
... your reactionary leadership, what you just said there made me think of this. So how do you think about like what's actually going on inside of you?
- PRPeter Rahal
Emotionally?
- DSDavid Senra
Yeah.
- PRPeter Rahal
I do have a sensitivity, um, and get angry, but I harness it in the work, which is good. I love the, it's like a, it's not a fair analogy, but I love like the f- I love the fight, so I seek it. Um, [chuckles] but I, I don't think I'm good at tapping into my emotions on the spot. I think that building the pain tolerance is very good though to being able to handle it over long periods of time, 'cause if it, if you are too sensitive and you react to it, it, and you, and it affects your sleep, then you will break. So I do think it's important to be able to like have that zen, be ab- build, be ability to like get punched in the stomach and you're just chill with it. But you, yeah, you definitely can't lose the emotional response. Like, things don't bother me like they used to. I'm getting better at it, but I still have that response if things aren't right. But I imagine with Uber, he's just got really, really thick-skinned about it to the point where everything was, I don't know. I don't know his experience, but I could see how that'd happen.
- DSDavid Senra
So what keeps you in it is you like to fight.
- PRPeter Rahal
Yeah, yeah. I love conflict. Healthy conflict, but...
- DSDavid Senra
Thanks for taking the time. This was awesome, man.
- PRPeter Rahal
Thank you.
- DSDavid Senra
Appreciate it. I hope you enjoyed this episode. Please remember to subscribe wherever you're listening and leave a review, and make sure you listen to my other podcast, Founders. For almost a decade, I've obsessively read over four hundred biographies of history's greatest entrepreneurs, searching for ideas that you can use in your work. Most of the guests you hear on this show first found me through Founders. [upbeat music]
Episode duration: 1:20:41
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