Peter Rahal is the cofounder and founding CEO of RXBAR. He bootstrapped the company from 0 to hundreds of millions in revenue and hundreds of employees only taking a loan from his father. Rahal sold the company five years later to Kellogg for $600 million.
In this episode you will learn:
- Bootstrapping from nothing to hundreds of millions
- Working with family
- Starting out of your basement
- Finding strength in cofounders
- The importance of packaging
- Running a successful M&A process
- Involving employees in the M&A process
About Peter Rahal:
RXBAR is a protein bar made with high-quality whole food ingredients that has taken the country by storm.
Peter Rahal is the Co-founder and CEO. Him and his Co-founder, Jared Smith, started with $10K and worked out of Peter’s parents basement.
In October 2007 they had a $600M exit to Kellogg…and that’s only after 4 years of being in business.
Rahal recently stepped down as CEO of RXBAR to focus on building other ventures.
Connect with Peter Rahal:
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FULL TRANSCRIPTION OF THE INTERVIEW:
Alejandro: Alrighty. Hello, everyone, and welcome to the DealMakers show. I’m excited about the guest today because we’re going to learn a thing or two about building and scaling and also exiting a business. So, without further ado, Peter Rahal, welcome onboard today.
Peter Rahal: Thank you, Alejandro. Thanks for having me.
Alejandro: During your high school years, Peter, you were diagnosed with dyslexia, I believe. I hear this also helped you with pattern recognition and deductive reasoning. Tell us about this a little bit.
Peter Rahal: Yeah. It was even before high school. Once literacy came into the picture, in grade school, I was diagnosed with it. In context, the diagnosis it’s more just like the way I process information and the way my brain’s wired. But I definitely struggled through school. There are like a ton of unattended benefits of it. One is tremendous self-awareness, and then two, the actual cognitive benefit of the way dyslexics process information. So, we’re terrible at like procedural or sequential tasks. So, linear thinking, dyslexics are terrible at. But the thing we’re really good at is typically like holistic thinking or pattern recognition, so interconnected like relationships, cause, and effect which is really great for solving problems and strategy in general.
Alejandro: Got it. It’s interesting because in many, many cases there are some of the most successful entrepreneurs had circumstances like this. So, in your case, talking now about entrepreneurship, when did you get the entrepreneurial bug?
Peter Rahal: I’ve always been pretty entrepreneurial or into commerce. I think it is kind of cultural. In my family, we didn’t even use the word entrepreneur. We are just all in business and kind of find ourselves being entrepreneurs on both sides of my family. So, I grew up in a world where our family and business are so intermingled. It was like work is part of our family, etc. I always grew up just creating things, building things, and selling them. So, I’ve always really been surrounded by that as an influence. I wanted to get a job at a school, and I went down those paths of getting simple entry-level jobs, and then it did not align with my strengths. Then I tried starting a couple of other ventures prior to RXBAR.
Alejandro: Got it. That was the donut and coffee shop and then other stuff as well. Right?
Peter Rahal: Exactly.
Alejandro: Okay, cool. You were talking about your family. Your family also had their own food business. Originally, you guys are from Lebanon. So, why didn’t you join them?
Peter Rahal: They still have a brokerage trading company or distribution company for industrial juice concentrate. It’s a great business. I think it was timing. My credentials weren’t good. You know, in family business there are politics at times, so just the timing didn’t work, and I’m so grateful for that to be honest. I mean, it forced me to start a company essentially.
Alejandro: Of course. Well, I’m sure that the credentials are different now. Before you actually started your own thing, you did some marketing for Mondi Foods over a year or so. What exactly were you doing there? Was it marketing?
Peter Rahal: Yeah, it was kind of a role with a lot of utilities. I really supported the sales of different regions, but really trying to focus on the different products we had, so concentrated purees, single-strength purees, juice concentrate, and then what are the different applications for those? Where is there demand for those products that we aren’t seeing, and under what regions and companies? For example, like in baking, they use a lot of fruit preparation. For other baking companies, how can we introduce our products to them? So, that’s like marketing on the B2B side.
Alejandro: Got it. At what point do you start to incubate the idea of RXBAR?
Peter Rahal: It actually started in Belgium. So, in the Belgium market, and I think the broader market in Europe, and where I was working in Mondi Foods, there was no protein bar. Nutrition bars didn’t really exist. You can understand because, in Belgium, it’s hard to compete with a baguette. You know what I mean? So, the market didn’t really exist. I remember just experimenting in my kitchen with different protein balls or protein bars, making what didn’t exist in that market. So, that’s when it started, and I’ve always loved and found great value in bars in the form of a food because it’s super portable and requires no preparation really. When you think about that, that saves you time. So, for example, you just go, and in the morning, you can grab it, and you’re good. Eating it is fast. It just saves you time, and it’s nutritious. So, there’s a lot of utility in bars. I was always attracted to it, so my first thrill like with experimentation with making bars was in Belgium because it didn’t exist.
Alejandro: Then at what point were you like it makes sense to build something around this?
Peter Rahal: I came back to the United States and two stimuli. One, I didn’t have a good job, and I wanted to be a part of a good company and be a part of a great organization. I always wanted that: a good career. That’s one. I didn’t have that. Then two, I’ve always been into nutrition as well, and just health and wellness, and started experimenting with different nutrition trends, and understanding the nutrition culture in the United States, and be a part of it. I quickly realized that there isn’t a bar that is whole real foods. There isn’t a clean label protein bar. Most of them are all covered in either some chocolate compounds or use some cheap filler protein, or some binding system. So, despite the fact that the market’s really competitive broadly, and there are a lot of different bars coming and going, I connected the dots and saw a pretty big hole in the market. There was a hole in the product that I was looking for as a consumer. So, I just began experimenting with this idea of a fruit-nut protein bar essentially. So, date-based, simple ingredients. The position you see today is RX. Started doing it on the weekends in my kitchen, etc.
Alejandro: Really cool. At what point would you say that Jared, your co-founder, comes into the picture?
Peter Rahal: He comes in. Again, in context, I know exactly what I’m good at, and I know more about what I’m bad at. I always knew I needed someone to help me, and I needed a good yin to my yang so to speak. So, Jared’s a childhood friend, best friend. He’s a brother at this point, and he has very different skills. I mean, we’re very much opposites. The most important thing is I’ve got to trust him with my life completely. So, I had this idea. I knew I needed someone to do this with. It was like I cannot do detailed work. I just really struggle with it, and I knew I needed someone to balance me out. So, after my two previous experiences trying to start something with other partners, I learned a ton of like what kind of partner fits best with me, and Jared was the perfect fit for this. So, Jared and I got connected really early on. It was basically like August 2012 for some context on time. Then November 2013, we formalized the company, and we launched the product March 2013.
Alejandro: You launched this from your parent’s basement. Is that right?
Peter Rahal: Yeah, correct. Developed it in their kitchen, and in my kitchen in Chicago, a little apartment. Then commercialized it in their basement and operated from there.
Alejandro: I have to ask you something. Is it right that you fired your Mother because she wouldn’t put the label straight?
Peter Rahal: Yeah. We’d buy pouches from China, and then we would go to PowerPoint for our labels and design them there. We went to Staples to get them printed, and they were on these terrible stickers. It was a really hard job. The products and everything, I just did not want the labels not on right, and my mom couldn’t cut it.
Alejandro: Got it. And you had even your cellphone number printed on the back of the packaging. Is this right?
Peter Rahal: Yeah. I’m kind of proud about this. Just in general, customers, customer feedback, service in general. If someone wants to order some product, someone has a problem with their product, someone has a question about their almonds, whatever it is, as a company, we have to be available. A frictionless experience between the customer and us. Early on we were like, “What do we do. We just put an email.” For me, it was not even a decision. It was like, “Yeah, we’re putting my cellphone on the package, website, LinkedIn, Facebook, everywhere.” So, we ran the whole business through my cellphone essentially up for like two years. The great thing about that, in reflection, that’s where all the insight came, primarily from much of the decisions we’ve made in our business. These people would call, and there’s gold in the information they’re giving you.
Alejandro: Right. What did, for example, selling door-to-door teach you?
Peter Rahal: I think staying close to customers and users of your product. Then learning how to position and pitch the product because when you’re selling and talking to customers, you’re experimenting with messaging ultimately, and the communication of why your brand, business product should even exist. So, you do that. One, it’s high-quality data, and then two, if you do it at some scale, which is like a lot of interactions, you will find a pattern between all that, and you’ll find great insight. That insight is what we used to position the brand, the product, and adapt. When you’re small, the only advantage small companies have is agility, the ability to move fast, the ability to make decisions quickly and stay close to the fundamentals of the business. So, for us, it’s everything. We definitely had our pulse on our customers, the product, and everything, and about the business.
Alejandro: Got it. And you had the marketing background, so I’m sure that was helpful. Did you have any kind of marketing hacks to get some early traction?
Peter Rahal: I would say I don’t have a conventional or traditional marketing background which I honestly think is a huge advantage because I approach things with a beginner’s mindset and not through some over-engineered framework or conventional process. So, I just learn on the go. But it was really helpful. To be honest, the more beneficial thing about my experience was understanding supply chain, manufacturing, the raw material side, the business because when you’re making food, scaling that part of the business is really, really hard. You’ve got to make a product. You’ve got to make sure your supply’s—willing to support demand, and the thing is demand is the hard part to predict or forecast, but when it’s there, the supply side can be very, very challenging. It’s how a lot of businesses derail.
Alejandro: When you thought about raising capital because obviously, you guys were wrapping up the sales, the operation was scaling. So, when you thought about raising capital to really support this growth, what made you push back and continue focusing on wrapping up sales?
Peter Rahal: Early on, I think in this startup, entrepreneurial culture of the United States, there’s this misconception like, “You need investors for everything. It’s like the status quo is like, “Okay, you have an idea. You’re going to get investors.” I felt, we both felt like early on. I call it like the SharkTank influence. I remember going to my dad. “We have the idea. We’re working on it.” My thinking was I need a designer. I need packaging, so I need a designer. I need a manufacturer. I need all these things, and therefore, I need to raise money to go get those things and orchestrate the business. My old man was like, “You need to shut the **** up and sell a thousand bars.” The point—that’s rough language, but I needed to hear it. Jared and I needed to hear it because what it was, he was basically saying you need to prioritize and mitigate your risk. You need to do what’s important and not chase something that you think is going to solve your problems. Like money doesn’t solve your problems, and you can mitigate your risk. Don’t take it out of your money, just make 10 bars, 1,000 bars, and then go sell it; take that profit and go invest it, and it’s like a normal business. You know, all great things start small, and I think most entrepreneurs want something big right away, etc. So, we took that. My dad was really influential in our approach toward raising capital. He, honestly, helped finance most of the company early on with personal guaranteed lines of credit. Our business strategy helped finance the company. We sold direct to the consumer. I mean, we got paid before we even shipped, and we manufactured the product, so we controlled inventory. So, we never had too much cash tied up in our inventory. We were more able to keep days on hand pretty low. We were able to just design a business that was more human-capital intensive than capital intensive.
Alejandro: Got it. So, how did revenue scale over time before the acquisition happened?
Peter Rahal: The first year was 2 million, basically. Second year was 6.5. The third year was 31—well, that’s net. So, 36 gross. Then the fourth year was 161 gross, and that’s the year we sold at the end of the year, Q4.
Alejandro: What made you guys go from 6 to 36. It seems that something happened right there.
Peter Rahal: Again, self-awareness and humility. Jared and I designed the front pack of our brand to start because we didn’t want to pay for designers. We wanted to mitigate a risk. We knew the brand, and the product in the position didn’t—like, it’s time to invest in it, and we knew that it didn’t reflect what we were about. So, we knew we needed to reposition, rebrand our RXBAR. So, we started interviewing designers and knew the brand wasn’t ready for retail, and some other insight we learned too. Then we rebranded the product, and we wanted to focus. It was really a criterion approach. We knew we had to be different. It was a super competitive market that we were getting into. We knew why customers liked the product. We had that insight from being close to customers, and so I hired Scott and Victor, went through the process, and yeah, we rebranded. Then once we rebranded, that’s when we triggered, and we were ready for retail. So, we started getting to retail, and then there’s heaps of demand in the market. The great thing about food is like there’s a really existing retail infostructure that takes place. There are all these grocery stores. There’s distribution, distributor setup. So, we were able to plugin and really scale the business from being an e-commerce niche market to in the natural foods and broader market.
Alejandro: You were talking about scaling the revenues earlier. So, I wanted to ask you as well as a follow-up here, how did you scale as well the team?
Peter Rahal: The first year in the company is like your survival, it’s your identity figured out. What business are you in? Then after that, you’re in the people business 100%. Any company is just a group of humans. They work in teams that solve problems, and so culture becomes really important, and we define culture as how you work and how you live as a group of people. People are everything. Actually, it’s funny. Jared and I went to high school together, and then we hired Sam McBride and Jesse Stuart who both went to high school with us, and a couple of other people too early on. That was our early team and then grew the organization from 5 people, 12 people. That 5 to 12 is a huge change because it’s really organizational and like also figuring out meetings, functions, and job titles, descriptions all really, really matter.
Peter Rahal: Then we scaled the company people wise really, really well. In our third year, we were up to like 50 people. Then when we sold, we sold it around 85 to 100 people. Today, we’re about 205 people.
Alejandro: Talking about the acquisition, were you always planning to sell the business since you got started?
Peter Rahal: No, that outcome was never in my mind. Jared and I, we never designed it for sale. We wanted to focus on building the best company possible. We wanted to focus on building the best company, best products, the best culture, etc. But to be honest, once we knew we were surviving after our first year, like, “Okay. We’re doing good.” It was just Jared and I. There’s no one in the company, and we started in the back of our minds, “Okay, we built something valuable. We could sell this.” But we never talked about it too much because we felt it was a distraction like there was too much work ahead. In reality, if someone wants to buy your company—when anyone buys a company, they want to buy a great business. So, if you focus on building a great business and great products, you’ll get a good outcome. There will be a market for it.
Alejandro: And you were talking about survival. Was there a point where you knew “We’re going to survive.”
Peter Rahal: Yeah, in the early days there were multiple times of near-death, but I think that’s pretty normal. But to be honest, as an entrepreneur, the first week we sold product, I knew it was going to work. I was fully convicted that this was going to work. It was just a matter of time and making the right decisions. So, I never really had any—I don’t know if the question was that, having doubt?
Peter Rahal: There were some dark days, but it was going to be a successful business no matter what.
Alejandro: Got it. So, tell us about the acquisition. How did the acquisition or thinking that that was a possibility happen?
Peter Rahal: Jared and I were sitting around. We did informal board meetings quarterly. We were sitting around, and it was like 2017 of Q1, and we were like, “What are you thinking?” We talked about the future. We wanted to get on the same page in terms of vision from a shareholder’s perspective. We realized, “Let’s see what this could be like if we were to go see if we could sell the company.” The real decision was: do we want to keep this a private family company, or do we want to make this—go join a greater company and roll it into a public company? We both decided, “We definitely don’t want to keep going and keep as a family business.” So, we just went down the process of essentially like interview, get a sense of what these strategic companies are like, these public companies, and then go out from there. That was our thought process as shareholders of the company what we wanted to do. We hired a banker in March to get us some meetings and test the waters. Once we tested the waters, we realized, “Oh, my gosh” because there’s this big misconception like big food is evil or whatever, and it’s actually totally not. It’s just false. They’re big companies, but their intention is to grow and serve too. So, they’re just very complex environments.
Alejandro: Got it. You were speaking with multiple suiters. How did you manage the process so it did not become a distraction from really building the business?
Peter Rahal: It was a distraction, for sure. I mean, it’s a huge organizational commitment to go through a sale process. However, that being said, we have an amazing team, and we were fully transparent to the team. So, there were no secrets that we were selling the company. I remember I announced it in front of the whole company and as soon as we realized we were going to move forward, all the company in a town hall, which is the best decision we made. So, we aligned the whole company and updated everyone to the process. With that being said, it was definitely like a big time. It took a lot of the organization’s resources. So, yeah. I think we managed pretty well.
Alejandro: How long did it take the process from start to finish?
Peter Rahal: I would say like March to signing was October 6. The closing of the deal was end of October.
Alejandro: At what point were you guys like, “This makes sense to do it. Let’s go ahead.”
Peter Rahal: Jared and I did these fireside chats. Basically, we wanted to understand strategically how does an acquirer think about this? What’s their vision? It was very different than ours. That would be a different conversation, but we quickly realized like Kellogg, in particular, is very aligned with how we think about business, values, and what’s important. So, early on it was like, “This is a good thing. It’s not a bad thing if we do this for the organization, for people, for shareholders, for everyone.” So, we moved forward.
Alejandro: What were the terms of the acquisition, Peter? What was the transaction value?
Peter Rahal: It was 600 million.
Alejandro: 600 million. For you, you’ve stayed as part of the business. For you, obviously continuing now being under a bigger umbrella, how have things changed for you as the leader of the business?
Peter Rahal: It’s been good. I stayed on as CEO. I actually just stepped down last week, last Friday. So, it’s been amazing. I think, to be honest, the changes that happened for us were more like affected when the business got really big. Our revenue doubled, and then our organization doubled, so we went from 100 people to essentially 220 people. When your leadership and operating a business organization, at those two different points are very, very different. So, it’s a good stimulus, but the changes that existed were really heavy with the size of the business we were managing. The way our operation model works today with Kellogg is that we’re a sustainable business. We plugin from an accounting perspective and some other legal and quality oversights which make a lot of sense. So, it’s been amazing from the operational perspective.
Alejandro: Now that you’ve stepped down, what’s next for you?
Peter Rahal: I’m here still to support and serve the business, and Jim Murray, our president now, to support him as a leader and help him. As a founder, I will always have a relationship with the business. But for me, I’m an entrepreneur. I like to build and create things. I love business, and I need to go build another business essentially. My job here as the CEO is done, and for me, I’ve got to figure out some other problem I want to solve.
Alejandro: This is a question I always ask our guests. Especially as you’re thinking about what’s next for you and some of the lessons learned if you could go back to the past and give yourself one piece of advice before launching a business, what would that be and why, Peter?
Peter Rahal: Oh, man. One piece. So, prior to launching?
Peter Rahal: I would say—there are so many beautiful lessons I’ve learned, but I think from a pure business standpoint, I always say this, and I think it’s really important: make sure you’re solving the right problem and defining the right problem. Defining things is very important. Make sure you’re solving a right problem that exists or frustration that exists, and define it well, and spend a lot of time doing that. I think just from a strategic like I want to start a company. I think how you define a problem, and how you think about it is really, really important.
Alejandro: Got it. Peter, what is the best way for folks that are listening to reach out and say hi?
Peter Rahal: They can email me at firstname.lastname@example.org. I’m always available.
Alejandro: Fantastic. Well, Peter, it has been a pleasure to have you on the DealMakers today.
Peter Rahal: Thank you for having me.