Building One of the Fastest Growing CPG Company in History | Peter Rahal of David Protein, Medici Brands & RXBAR
00:02Okay, I want to start with the fact that you sold your previous company for 600 million.You and your co-founder own 90% of it.You find yourself as a very young man with about a quarter billion dollars in cash.What happens next?The natural thing is to get into investing.Outside looking at investing is very appealing.It's like one, you think it's an intellectual exercise.The second real thing is like it gives you a great lifestyle because you're not operating.
00:27So you can kind of, you know organizational responsibility.I sort of studying investing and getting into it.How did you study investing?Figuring out asset classes, how to build a portfolio, grow capital, underwriting deals.Are you having conversations?You're reading?Reading conversations, best books on it.And then where my time was spent was on where I had the best advantage, which is consumer package good investing or just privates.
00:56So early startups.And stage agnostic, seed to growth.didn't matter and started doing that and quickly realized that the most important skills that'slike is charisma or like with whale hunting. It's like finding the deal that is quite obviousand then trying to get an allocation. That's really like the game. And that's quite,quite gay. Chasing men for allocations is something I didn't want to do. My previous experiencejust like, I'm going to sit back.I'm going to spend my time building a product,
01:33and my product's going to do the talking.Like, my product's going to do the work.We're investing, you're taking capital,and then you're trying to allocate it into the thingthat's going to grow, behind the leader that's going to,you're going to bet behind.And that's just two hands off for me.Like, I'm used to, like, fighting,
01:50being in knife fights, and it's just too passive.So investing is very tempting because you can, like,make a decision,and not have to do anything.And it works.Like it grows.The big problem I had with it is the feedback loop super long.Like in building and operating a business, you make a decision, whether it's a hire,
02:09whether it's a product decision, marketing, and you get the feedback right away.Like the feedback loops, it's like immediate.Where in investing, it's like, are you can develop a thesis, develop this,underwrite this founder as really great.And then you like make the decision and like, all right, five years ago.by, did it work or not?So you're living where when you sell Rx Bar?Chicago.
02:33Okay.You have this huge acquisition.You have a bunch of cash.This is when you moved to Miami?Yes.You moved to Miami before?No, after.Okay, after.
02:40So now you have the money and now you're like, okay, I'm going to, I have a bunch of money.You start, you had this ridiculous idea.This is your own words, because when we were hanging out a few weeks ago, you said,I had a ridiculous idea of starting a family office.Yes.So you moved to Miami and I'm going to start a family office.Yes.Okay.
02:54Explain that part.So I was in Chicago and I just needed a change.I needed a change environment.RX was my identity.I just got divorced.So I looked at the United Statesand I was like, where's the best place to go?Wait, wait, the divorce part.
03:06The divorce happened after the acquisition?Yeah.Was it anything related there?We're like you under a lot of stress?No.Just hubris.Say more about that.I had success bias
03:15for everything I had doneand has been successful.And so there's blurred linesbetween your personal and professionaland I just moved too fast.Thought it was going to be easy.Yeah, because my goal is that a familyof like career success, accomplished, next thing's family.
03:29And you try to speed run?Yeah, it went to way too fast.And thinking I'm really good.So this is, if I remember correctly,me, marry, divorce, all in like nine months?Yeah, okay.I beat Kim Kardashian.Okay, so you moved to Miami.
03:48I'm going to invest.And then what I really want to get intois the fact that you are uniquely unsuited to invest.Like, all the other founders I know that I ask about you is like, this guy is just like a relentless animal operator.Like the idea that he could think that he could sit and be like the guy behind the guy.Why do you think you made that mistake?This is very interesting to me because you did what you did to start, scale, sell, right?Which is very like celebrated.
04:12But I talked to a bunch of founders that did that and then they're fucking miserable.You're one of them.So like, I really want to hone in on like what you were feeling and why you were so miserable in this situation.My plan was to get out of Chicago.change environments, and then I just looked at a map like, all right, where's the best place to go to reset a bit and invest, build my family office, get that right.And then my ultimate goal was to relocate where is in the best interest to start my next thing.So chose Miami as a place to like reset and invest.And this is before COVID, got there, started like formalizing a family office.
04:46And then I think like what I underestimated with investing in different entrepreneurs, particularly in food and beverage.is that like, I just assume they all had the same tenacity as me.Like, I just thought, like, that's what you did.And I didn't really know anyone else who were founders at this time.And then I quickly realized, like, I'm probably actually a miserable investor because I'm, like,I'm a handcuffed sitting in the back seat while someone else is driving and they don't know where they're going.And that's like a torturous position to someone who knows where to go.So you didn't know how rare you were?
05:21Yes.Okay.As not humble as that is, but yeah.I was just sitting upstairs right before this,and I was just my friend Patrick,who does the best podcast.It's one of my closest friends,and we just happen to run into Adam Farooey
05:35from Apple Oven, which, again,there's a lot of, like, overlap between you and Adam.And we were talking about, essentially,you know, Adam's running this very,this cash printing machine with, like, very few employees.Like, he actually, he hates entrepreneursto optimize for vanity metrics,where he should just focus on cash generation.
05:52It's like very straightforward to him.It's like obvious to him.And we were talking about the different like different hiresy had and different other founders he knows.And then through a story that he was telling, Patrick had a great line.He goes, man, it's crazy.Like in any domain.It's only like two or three guys that are actually good.Yeah.
06:07Just pick any categories.Like there's like a sea of shit and like two or three, maybe four people that are actually excellent.Yeah.And like what I just like assumed that anyone who's getting into entrepreneurship,they're like willing to die before their company fails.They are willing to sacrifice comfort to win.They want to win.And I realize, like, no, some people, like, that's not.
06:29That's actually not what people, a lot of people do or prioritize.When you run into other entrepreneurs like this that you made the mistake of investing in because they weren't like you.When you have conversations with them, like, what is their response to your extreme approach?If I'm the one giving criticisms to the company, like, that's a problem.Like, the CEO should be the most critical.I shouldn't be like, hey, man, the car's on fire.That relationship, if I'm the one spotting out problems or saying go faster or saying like that's usually not a good sign.And I kept falling into that pattern.
07:00And I don't want to be in a position to be like, it's like your company at the end of the day.I don't want to, I'm not an advisor.I'm just here to try to facilitate stuff.But what I'm really trying to get is like what is going on inside of you?Like what is your inner monologue?You're like, oh, I fucked up.Like what is actually happening?This is frustrating.
07:18I need to get back in the game.Like this sucks.How long did it take for you to figure this out?Probably a year.Yeah, 20, 20, age of 21.Okay, so then what's the next step after that?You're like, okay, this sucks.I don't want to be an investor.
07:33I need to be an operator.I want to be my own company.I'm way too young to be retired, by the way.Yeah, for sure.So I started, one of the good things about investing is you're talking,you're getting through the deal for a process, you're ideating,you're talking to other movers and shakers.And that's a helpful process, sort of like, all right, that's something interesting, is that
07:50a problem I want to solve. But basically I had several false starts. I looked at recyclinggarbage. I looked at synthetic biology. I looked at other consumer package stuff. And I would likestarted and then I basically pulled out committing to stuff. And the reason is like if I go in,I'm like fucking all in. And that's like a really scary thing actually because then I like my friends goaway, like my health goes, all this stuff happens to me.So if we can't, we can't go on from that.Okay.Then you need to describe what all in means, what you just said.
08:28It's scary.My friends go away, my health goes away.So this is just the only way you can operate.Explain this to me.Yeah, like my leadership style is like, it's just like all in,burn the bridges, burn the, 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,
08:48moving in the direction of starting it and then just pull back.Moving in this direction of starting to pull back.The other thing there was like I needed to start a family.So my order of it, like during my hiatus of investing,I was like, I need to find a wife to go start a family.I don't know if Miami is the place,Miami Beach in particular is the place you should be searching for a wife.I agree.
09:09And then I bought a place in New York and moved to New York.But in general, it goes like, all right,so if I find something 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 the future I didn't really want.So ultimately I found my wife, and then all roads led back
09:32to like protein bars.It required some humility of being like, you know,that's like my stick.Like if I die on my gravestone, it might say like protein bar guy.Like I'm comfortable with that.Because first I had some like influence of Elon,like, oh, I need to go into like, I'm not the foodguy, I'm going over there, I'm not this, I need to like prove something.
09:51But then I really, I was like, I've been in the food business since I was like 12.I like have a deep insurance knowledge of it.And, and basically once my non-compete was like a year away, it just like naturally happenedof like, oh, started connecting the dots like, this is what I should do.So wait, you're in the food business since you're 12.How old are you at this point where you're like, I'm going to be, I'm going to start anotherprotein more?34.
10:17Okay.Yeah.So 24.Yes, my not compete was 22, October 6th, 22.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 just like, no, I'm going to actually stick to what I actually know and maybe the best in the world at.It was three years.You had to convince yourself this.Yeah. Wow.
10:38Okay.And a little bit of like, because I always think with a, this is both as an investor when I looked at companies and then a philosophy.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 leader has to be able to really deeply understand the productand be able to fix it.And then all those false starts were like,
11:02it's kind of dependent on something else.Or I didn't have the time to learn the,get the deep enough understanding of the product to make that change.And so with food, I like deeply know exactly what to do.So it just became really obvious.and got my wife and then started.What is today, David?When we talked the other, wide-jol-up.
11:25It was just like that was a very clear process.Like, all right, check your personal life before,so you don't ruin your personal life againbecause you're going to, like, go all in on something.And then, like, once that's done, and then...It just happens.You got the family, the non-competeen expires,and now you go back at this.
11:41Yeah.But maybe your ambition when you were younger,because you started Arxpar when you were how old,early 20 something like that?24.24.But now the scope of your ambition is like,David is not a bar company.
11:52That's like the first of the products.But how do you describe what you're working on now?We don't want to 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 want to make your favorite foods smarter.And so it's a really quiet approach.
12:10Like they're there and there's more intelligent,they're more effective.They're objectively better.So we're going to do that across multiple categories.It's the protein bar is the wedge.I know it.That's what we use to get to scale.And once you get to scale, you can build the platform for there.
12:24You 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 proliferting into categories that just makes sense for us and our technology.When you started David, you knew that you were not going to stay.You wanted to build a food company at that protein bar company.So I'm going to just answer my question that asked you, the way you said it to me before.which I think was excellent, where you're like,
12:48I 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.That's the size and scope of your ambition.Yeah, like we're competing with Nestle.Like, I want to build the most important food company in the 21st century.
13:06And how big, what's the scale of some of these food companies?Nestle's $100 plus billion in revenue.They're real global as well.Pepsi's probably around there.Real scale.So a couple hundred billion dollars companies.How many different products?Well, they have these enormous portfolio of brands.
13:25And then, you know, hundreds of brands.And then those brands are different by cultures or geographies.They grow up by acquisition or no?Yeah, mostly.Okay.Are you going to do that too?Probably it's on the table, but our core competency is the ability to build brands.So, like, I know how to create an identity and build a brand.
13:43So for the next four years, five years, we'll probably,we just create brands, but I wouldn't rule it out later on.Okay, so tell me what you know about building brands and identities.This could be interesting.The analogy I think of as a brand.It's simply just a human being.So a brand has a name.It is mommy and daddy.
14:01It'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 other traits, tone of voice.has friends, who do you associate with?Hold on, explain that part to me.Who do you associate with?
14:21So who are you going to do partnerships with?Like, so David, for example, David Protein,is a partnership with Huberman.Like, that's an alignment.Like, we wouldn't do a partnership with, I don't know,Miss Rachel doesn't make sense,or she's great, but like just like a human,the social circle matters.
14:38And so in creating a brand,that identity,both from tone of voice, visual,what clothes it wears, who is its friends, its values, vision.You define that clearly and that there's like a north star to it.The most important factor of building 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.
15:08The time piece is critical.Like you just have to be doing that over time.David's values are around intelligence, beauty.and discipline.And that's rooted in the story of Michelangelo'smasterpiece, the sculpture of David.Those values are rooted in the symbolism of that masterpieceand then the tool of the chisel,
15:28which 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 that's the logic for David's brand and brand identity.So if you have a crystal,clear identity for a brand and its product offering and its position, the marketingaction becomes really easy.
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18:01Deal is trusted by over 40,000 companies and growing fast.Learn how they can help your business by going to deal.com forward slash Senra.That is deal.com forward slash senra.How much time did you put into planning this brand identity for David?Six months maybe?Okay, so then once you have this clearly defined set of qualities for the brand,and then we just extend this over, you know, decades, is the plan.Yes.
18:26You just hammer it.Okay.Keep going.How did you learn the importance of maintaining the same brand identity over a long period of time?Just studying, 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 and the consistency of that.And the thing is there's an asymmetry where those brands are super fragile.
18:48So if you like fuck around on quality or something else, like it's over really quickly.The reason I asked that is because 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 advertising agencies of all time.And he would hammer exactly what you did.You sounded exactly like him if you read his autobiography or if you read Ogilvie onadvertising and his old thing was just like people jump around too much like you pick one brand identityand you do it over and over and over again for decades yeah you came to the exact same conclusionit's like the best brands are the best brands because they did this for decades after decades
19:21and it's fundamentally about the values of the brand like for david it's about intelligencebeauty and discipline why did you pick those three traits though they're close to mei love beauty i love intelligence and i love suffering and discipline to a negativepoint of view almost protein bars are our start so what do people come toprotein bars for they come to it for body composition like no one really eatsprotein bars is like oh I'm just like I can enjoy this treat it's like very veryfunctional like I'm gonna I need to transform my body either increased muscle ordecrease fat so the category and protein in general is very oriented around
20:01those values as well and so with David one of the things I wanted was likea weight loss companyor a body composition company without being one.So if you look at the great,because they're not really great,but the 90s brands in weight loss,like Atkins,weight watchers, Jenny Craig,
20:23like they're super tagging.But people went to them for body compositions, though.So the question was like, all right,well, how do I make that more refined?Really more European, like higher, better taste.And so did that.And then the other inside, like, I don't know, but when I turned 35 and just looked around my friends,I just realized, like, everyone I knew had some issue with, wait, wait, like everyone had struggled with weight loss.
20:51As you get older, everyone wanted more muscle, like everyone I've ever talked to.And it's whether it's a issue they're honest about or they're in the closet about it.So it's like a ubiquitous problem.So idea is like how to create a brand that really embodies that in a refined way.I'm going to get back to the masterpiece in a minute,so don't let me forget that part.But you said that you're almost like attracted to sufferingin like an extreme, ridiculous way.
21:14What the hell does that mean?I always choose the hard path.Like, 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 being strong and doing hard things.And I think there's something spiritual about, like,
21:36like suffering that I find very gratifying once you get through it.And I think physical suffering is easy because like you just get really hot, get really cold.It's like, but what's nice about building a company is it's like emotional suffering.It's like a lot of tough conversations.And so I just, 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 follow this relationship.The more you suffer, the stronger and the more growth you experience.
22:06And so when I see it and I feel it, I like lean into it.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 and entrepreneur is,I can take more pain than this guy and I'll prove it to you.Yeah.Do you agree with this?Yeah.
22:21It's fun.Yeah, I love it.Pain tolerance, yeah.I want everything that's in your head about pain tolerance and suffering.Let's just put it out here because I think this is very interesting.Look in your eyes.I don't know if we can get this on camera or not.I don't know.
22:36I just feels good and 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 a, well, there's nuance like suffering for like no benefit is not good, butI 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 is because, it starts to, I become a badperson or I start to not be happy. And so physical exertion, exercise, company building stuff is a wayfor me to channel all this spite and anger in a way that's really productive. What's the source of
23:23the resentment and anger in your life that you feel you have to channel? So like trauma's relative,but for me, when I grew up very beautiful parents, like I'm so I don't want to sound like I sufferedthat much but when I was a child I was just labeled disabled because of my dyslexia andthat I remember hearing conversations of teachers saying oh is Peter stupid like I couldn't read welland I remember that like those I've overheard those conversations with my parents and that just I thinkbroke me in a way that it's like my deep intrinsic motivation to prove that wrong and it's actually whyI have him so disagreeable with any sort of authority or disagreeable like orcontrarian by nature because like my survival strategy as a child was to say to have
24:13self-esteem really is like all you teachers are wrong this whole system is brokenfuck off so I think deep in my personality is that like proving that all wrongand then even to survive in school I had it was like took meIt's 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.But my resentment and anger is certainly rooted in that.You still feel this when you wake up today.Yeah, yeah.
24:48No, I think it's like tattooed.Psychedelics, therapy.It's like tattooed in me at this point.You've tried to get rid of it and you can't.Yeah.And so you feel the outlet is crushing your competitors?Yeah.Yeah, it's like, yeah, it's winning.
25:03It's like, and it's like, I'm not really proud.It's like, 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 thought when I was in, when I was a fake working as an investor, I was deeply unhappybecause I wasn't able to channel, I was like, I'm a sideline.I'm not a fucking cheerleader.Like, I'm on the sideline and I need to like channel all this.
25:34anger and like thing towards a result.And I like, you know, reporting on a portfolio is not doing that.I have a younger friend that, um, feel like I can kind of share like the,some of the experience I get to have with this person.And I was just like, as a general rule, the further you get away from the personactually has talent, the more cautious you have to be.So it's like the founder obviously has talent.You obviously have talent.
26:00You created something from nothing.And you've done it over and over again.and now building this.But you have to be carefulwith these agents.You have to be carefulthese bankers.You have to be careful
26:08with the investors.The further you get awayfrom the person with talent,they just are incentivizedto kind of like persuade,cajole, you know, act.In many cases, like, against your interests.Yeah.
26:24And I was like, just stay closeto the people to actually have talent.And if you don't need many friends in life,you can have five.And like, those are the kind of friend groupthat you should havewhere, like, you have all these other fakersout here that are playing politics. You can get ahead that way, which is like completely different
26:37than like how the entrepreneur thinks. Yeah, I agree with that. Yeah. There's another thing thatyou were saying, because I'm not going to leave this alone. Like I want to hear more about like yourresentment and this, like, attraction that you have to pain. So the founder of the four seasonsis getting busy sharp. He has this great line where, you know, he started, he's like kind of like embarrassinglyambitious and I mean that in a great way where he's like, I'm going to build the world's greatest high enda luxury hotel chain.He didn't know anything about it.He never built a single hotel
27:06before he had that goal.And so his autobiography is excellent.And in there, he says,one of my favorite maxims in his entrepreneurship,he says that excellence is the capacity to take pain.And this same thing.He had this very complex relationship with his father.He had a lot of people doubting him.
27:19This idea, like what you just said to memakes perfect sense because it's just, again,these biographies over and over again.A lot of people that have come on the show.I just mentioned Adam Farugie.Like one thing that he drove himselfwas like, I try to give raise money.I was giving, willing
27:32to sell 25% of my company for a million dollars, right?This is the company that's going to wind up being worth $100, 200 billion.They turned me down, these VCs turned me down,and then they funded some of my competitors,so we made it a company principle to put those competitors out of business.So when I hear you, I hear this guy, Josh Wolf has this great linewhere he says, chips on shoulders puts chips in pockets.It's like using that pain that you had when you were younger
27:57and channeling it to drive and achievement.Yeah.And I think it's the key is like you,if you have that, if you don't channel it and focus it, I think it's destructive.So, like, for me, it all gets channeled through the art, through the company building process,and that it's productive because it can be destructive if you don't channel it.Okay, so how are you channeling it into what you're building now, then?The company's output is really impressive.
28:24Just a lot of hours, butts in chairs in the office, just dedication.What do you think is impressive about the output that you're doing right now?What does that mean?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 running over 400 million this year.We'll do 300 million this year.We're in a frozen category.
28:46We're obviously in protein bars.We have an RTD.We've launched a confection with three different formats.We're launching another brand in November.You just don't, in my field, you don't see that sort of outplay.and it keeps getting better.All our products keep getting better.But I mean, we're the fastest growing food company,
29:07I think, no, I know in history.So it's really hard to scale it.And the pace in which we're doing it,like I think this would take normally 10 yearsand we've done it in two.Explain to me why it's so hard to scale.Why it's hard to scale is because it's inventory.So you need to go buy the raw materials,
29:24convert 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,or even closer every six months is really demanding on the supply chain.To take Travis, like this is all Adams.Like it's no, we're not a digital business at all.So, yeah, the inventory part is really, really challenging.
29:50So matching supply and demand has just been very difficult.So you've had times in the company where you ran out of supply, correct?Oh, constantly, yeah.Is this when you started, I saw, like, you know, Rob and everybody's been telling me about David Barr, and then I saw like an ad and you were like selling like cod or something.Yeah, yeah.Is that as a result of the fact that you ran out of supply?What happened there?The story of cod was we're creating our website and we're doing a comparison table.
30:19And 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 like, for me, my investor influence, anything where I see a chart where it's all number one, I'm like, it's bullshit.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 Boil of Cod number one and David number two.
30:51And just left it there as like a dorky sort of comparison.And why it worked is like the just position between our bar and a cup.It signals convenience, it signals value, and like, cod's pretty unappetizing.And then we're halfway through our first year, and I was like, you know, it's like, it's like, it's like deja vu for me.I'm like, this is super boring, like another, another flavor, another.I'm like, we need you 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 foiled cod campaign and everyone's like, and it was funny because it's like, like pain.
31:28Yeah, 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 center of the conversation aroundprotein to calorie ratio.So it did it in a way that wasn't sort of like approach, like right on the nose.There 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.
31:50But it functioned as a really great communication tool.They're creating a product for marketing benefits.Yeah.We call it product as market.I'm not giving up on it.Like, we're going to keep going.We're going to keep going on Cod until we get product market fit.I don't think you will.
32:08I don't think you will, man.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.And it's like, it's weird.It's weird.But, like, the whole food space is so funny.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 just like, we've got to have some fun with it.
32:37Okay. So that was not in response to supply issues because there was no demand for this frozencon. Yeah. Yeah. No. It happened to work at the same time. We're out of stock on some things,but no, it was independent. Okay. Let's go back to when I interrupted you, because you started talking aboutpain. You said talking about building a masterpiece.What were you going to say there?Oh, it requires tons of discipline and intelligence, and it's done over time.And that's really what the brand David's about is, like, finish your masterpiece.And everyone's happened to everyone's inner excellence.
33:11But how do you apply it to building your company, though?Well, I think I start with, like, the, what is the company?So our strategy is like two fundamental things in a company.People, it's all about people, as cliche as it is.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 a product, I think a brand and product is the same thing.
33:37Like the product is just the raw thing.And then the brand is like what it wears, like the exterior piece.If you try to look at the organization as a product,a company's just a group of people aligned towards the mission.So if that's the most important thing, like what actions is the company do to like make sure that it's done.It's done.So for us, I think mastery is like we have four processes in the company that ensure ourorganization is done right and culture is lived.
34:07So 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 rewarded and then how do you get theterminate 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 missioncritical and then promotion as well, rewarding the right behaviors and then firing.
34:44And those are all organized around our value system, which is the best way to align a groupof people to make sure the right behaviors are matching what we want.What are the behaviors that you want?You want truth seekers.People have courage to seek truth.That's mission critical.You don't want biases in place.Foundational would be humility, which is, I define as the freedom of pride and arrogance.
35:09So humility is really foundational.And it shows up, like, intellectually, 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.Say more about that.You'll get people from big corporate America come in,
35:27and then they will generate a bunch of data,surveys or whatever,to prove their experiment or cover their ass if the experiment goes wrong.Just like fake work.It's performative in a way of like,I'm just doing this to cover my assversus focusing on the experimentand not worrying about covering your ass.
35:50Entrepreneurship,is a very important value of the company as well.And that's, like, so anti-entreproper.Like, to any activity, like, any performing of activityand fearing of failure is, like, the opposite of entrepreneurship.You just can't have that as a company scales.And so you get a lot of people coming from different corporate environmentsthat have that, like, just to protect their job.
36:11Are you able to recruit from other food companies?Because, like, you're so different.Most of the, these companies haven't been founder-ledin, I don't know, half century.if not longer.Yeah, 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.
36:27So that's where the onboarding process is really critical.You baptize them?Yeah.What does that mean?You just have to teach them new beliefs, new values.If you just sort of throw them in, they're just going to take what they know and apply it.And so you really want to have them assimilate to the culture in a way.And so a very thoughtful onboarding process where you learn the values of the company.
36:49You learn entrepreneurship.You know, we pack boxes.You learn humility.You learn all these things.It's really critical.Are the most talented people in your company, the ones with no experience, though?The most talented people in a company are former founders.Say more about this.
37:06Convincing a founder to, like, not do their thing to join 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 things.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 raisingmoney, all the bureaucracy that comes with the different stakeholders.And I think you see this in AI where all the lot of founder talent goes to those platforms.Convincing them to join a founder-led company is without bureaucracy and for them to be ableto fill their vision is.
37:48Did you specifically target founders?Yeah, for sure.because 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.
38:06You're not thinking it's out of the box.You're following a playbook.Like there's no playbook in entrepreneurship.You just think from first principles.Understand the fundamentals and fucking just go.Yeah, we just had Luca Ferrari on this.And, you know, he started this crazy company called Bending Spins.He's doing it from Milan.
38:22not exactly like a startup hub.And he's talking about being isolated with super valuable to himbecause he just did the, he can't even copy this startup mantrabecause he doesn't know them.He's like immune to them.And his point was just like he doesn't,he prefers young graduates or even people that didn't graduate to over experience.He's just like, I don't want your bad experience.
38:42Like I know what we're doing.Let's just take high agency, young, smart people that want it really badly.And I think he said he got something like 800,000 applications last year for like 350positions because he's in markets where there's a lot of there's sport people everywhere.There's no great jobs for them. Their economy's terrible. Yeah. And he's just like, I'm justoptimizing for this and then all come in and indoctrinate them into how we're running thebusiness, which is completely different than school or a bad or a company that's like a mediocre company.Yeah. Yeah, because the thing with the experience is like really valuable, but there's a consequence
39:10to it where you'll naturally reason through your, through analogy or reason through your experience,which can be the right call, but you're not going to absolutely.the dumb question or naturally think through first principles because you've already done it,so you're just going to move faster through leaning on your experience.And like for me personally, I started a company with no experience, really.You know, I finally don't think it's that important if you're good reasoning skills and havethe right ability to learn.So the best is like some experience I find and then like some damage.
39:50Like, some chip on shoulder.Like, there are individuals in 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, do you want to organize around?Tell me more about them.And there's kind of like, it's all a child.They're getting something fucked up in their child's life.
40:12You can't, you know what I mean?Like, there's some, you know, there's one kid in our team.Like, I can't compete.I get, I, he just, he's going to die before he fails.and I didn't have a comfortable life.And it's like a really, really, like, 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 crazy chip on shoulder.
40:38You know, 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 the shoulder.high agency and more entrepreneurial.Was this person happen to be a former founder?Yeah.Mm-hmm.How long did it take you to recruit them?Well, when we bought EBG, he was a victim of us acquiring that.
41:05A victim?Yeah, because we bought up all the supply.So he was a customer of the Appalachee business.So recruited him to join us and do it here.Victim.I love that you just said that.Okay.So let's get into this, because this is one.
41:20One of the, again, I've been hearing stories about you for one time.And then this is the story that other founders repeat so much.That's very like Rockefeller-esque.Explain what that is.E, what is it?Apogee.Okay.So in March of 20.
41:36Don't go to the acquisition yet.Talk about the fact what this thing does.Why is it important to your business.And then we're going to go to the fact that you victimized everybody else.Apogee makes EPG.sterifiber proxylated colicolylacol.Basically, it's a modified triglyceride.So olive oils are triglyceride.
41:58So triglyceride has three fatty acids attached to a glycerol backbone.Your body can't digest this unless lipase comes and clips these 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 so what that means is you can have the taste and mouth feel of fat without thecaloric, the metabolic impact.Why that's a huge innovation is because most of the calories and food are coming from fat.They're twice as much as protein and carbohydrate.
42:35Technology was naturally misunderstood like most food technology.And so it was sitting there and it's like this, it's really amazing.You can like have your your cake and not have the chloric consequences.So think of it as like high-intensity sweeteners, like Stevieo Monkfruit.That's sort of level of innovation.So anyway, we were using it for David.And then we were buying, we were like 90% of the company's sales.And then like all paths led to like litigation.
43:05So you were, this is a patented technology.Yes.Correct.So you had one source where you could buy it from.Yes.You just said you're 90% of this company's overall sales.But there's a handful of other companiesthat saw that same opportunity
43:17when you use this into their product.Okay.Yeah.So we started, like, and the company was struggling,like a bunch of...Their company.Not your advocacy.Yeah, it was like a bunch of cats and dogs
43:27trying to, like, make it work.And it's hard to work with.It's not like it requiresa good product development skills.But we were 90% of their available supply.And you'd be in a bad positionif, for whatever reason, that company went underor they decided to cut you off.
43:44We'd be dead.Okay.And then eventually we became like 150% of their supply, meaning like they couldn't supply our needs.So anyway, as soon as I started the company and we were using the ingredient, my whole, like, just like, this is a nasty dependency.And on top of it, it was run by like older gentlemen, mostly lawyers.So you know how that is.Like lawyers running companies is not good.I'm sitting there like, all right, either they're going to kill us.
44:10This is going to end in litigation, extortion, or we're going to buy them.But I was like, all my attention was like making sure either we buy them or something.And then in February, basically six months into the company, they came to us like, hey, you guys are killing it.How about you take it over?And of course, I'm like, let me think about it for a second.But so negotiated, and it was an obvious deal.Like these food companies need to be vertically integrated.Like if you're out there making a food ingredient.
44:44and you're trying to sell to a big food company,it's this hell.Like, because the food company were like,well, you don't have enough supply to meet our demand.And then you're like, well, I don't have enough demandto generate supply.And then it's too expensive.And on top of it, you're gonna like, well,
45:01I need redundancy.I need two suppliers.Well, I have DIP.I can't do that.So vertical integration makes the most sense.So they could not vertically integrate.They didn't have a route to market.Yeah.
45:12So they essentially just bought this patentas a way to make money.Yes.not knocking a real cool. Well, they developed it. Yeah. They developed the process and invested in it.And the entrepreneur is amazing. It just, it required so much cash that he just eventually gotdiluted for the lawyers' sake over. And it just made sense for both parties to like merge andacquire. And so we did a half a deal where we bought half the company and then, well, we boughtthe whole company, but half equity, half cash. And then we got in a situation where it's like,
45:38all right, David's growing well above our forecast. And then so we were 150,percent of their supply. And at the end of day, there's all these, like, customers that had nosupply agreement. Honestly, their businesses weren't, like, going anywhere. And so if you didn'thave a supply agreement, you're just not going to get supply. And by the way, me with David,the first thing I did when we started was negotiating a supply agreement with them. Prior to theacquisition, we had a supply agreement that was good around change of control, that mostfavorite nations on price, most favorite nation on inventory. So any inventory that was available wasours. How did you know how to do that? When you have a dependency like that, you just got to make
46:19sure you're covered. Even if the deal didn't go through, we'd have all the supply anyway. Like we'rethe elephant in the room with a customer. If you didn't have a supply agreement, you're out of luck.So the way it was reported or talked about was there's this very important patentable ingredientthat he needed. He was using most of it. There was these other companies that also used itthat he was technically competing with. He buys the company and shuts off their supply.Yeah. But I didn't hear the second half of the story that I then I also recruited from thepeople that had just conquered. Yeah. You got a lawsuit or something over this, right?You got an antitrust claim in lawsuit. Yeah. Is that still ongoing? It's dismissed three times.
47:01Because like for that lawsuit, for that lawsuit to function or like for them to actually have any merit wouldI mean, like, it would be like a landmark case in an intellectual property.The big lesson in which I think you've had Lulu on, which if I had Lulu in my pocket,we would have managed the comms differently.Like, we didn't, we just like, one, we let Epigy managed the comms a little bit.And we just did a terrible job communicating.Did you communicate at all?There was a notice standing out of the acquisition in that if you don't have a supply agreement,
47:32there will be no supply.But like that calms, I could have done better.Like, I could have done it with more compassionand, like, called the entrepreneursor could have done it differently.In what way, though?Compassion doesn't seem to be one of your personal tricks.I think it is.
47:48I think compassion's important.Do you have it?Yeah, yeah, yeah, yeah.You have to be a good leader.Show it to me.Where are you hiding?I just, like, I just don't have sympathy for, like,I don't have sympathy for stupidity.
48:01I don't have sympathy for incompetence, really.it was so obvious that if you're going to get into it,if you're going to use an ingredient that has a single source,you better make sure you have a supply agreement.It's fundamental.This goes back to something that was like second nature to youthat you don't even feel special.Like remember at the beginning of conversation, you're like,
48:24okay, well, yeah, I'm going to, I got all this money,I'm going to chill, I'm going to find a wife, have some babies,and then I'll invest inside.Obviously, you're an entrepreneur, so it's like life and death for you.You'll take it very seriously.You start cutting checks into this company.He's like, what is this guy doing?Yeah.
48:36You didn't know how rare you were.Yeah, no, totally.So it's the same situation here.Yeah, a little bit.How many other companies are involved?We're buying the same ingredient?Three.Okay.
48:45So it's like, yeah.And their right response was like, well, I didn't know I couldn't.I didn't know I, there was an option.It's like, what the fuck?What are you doing all day?Like, honestly.I found one of my all-time favorite quotes when I was reading the book zero to one.The quote says,
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49:59That's apploven.com.Is this why you had to raise money?Because, yeah, yeah.So your first company, you did like a,ARXPAR was like a friends and family loan?What was the-My dad and my partner's momguaranteed a line of credit.
50:14A line of credit.Yeah.But no typical venture capital.No.Okay.What did you start Dave with?Did you raise money right away?Did you put your money in?
50:21What did you do?Yeah, I put $2 million in my own in.It's like whatever precede.And then that was enough to get us to launch.And then launch re-raise eight.For working capital.just to survive.Why not just put up to eat yourself
50:36since you already got it in your pocket?Yeah, because I wanted to bring insome people have been very good to me.So Valor Equity Partners,Antonio and John have just been really supportiveand I like how they operate.Like, their name's Valor.They're pretty intense.
50:53Outside of Valor, it wasn't like typical investors.No, no.Okay, so friends and things like that.Yeah, some small friends.Yeah.And then I was like, we're done.All right?Like, we don't.
51:03Why was that your initial reaction?Because I don't want to spend time talking to investors or fundraising.I think in consumer baggage goods, the P&L should work pretty quickly.Unine economics should make sense.So you should be really capital efficient.You should not be raising a lot of money until unless they're going to acquire a company or like do what we're doing.So that wasn't like on the table in the beginning.So I'm just focused on the business, not thinking about raising more money.
51:28So I thought that was like, that's it.That's the only capital in.And then we had product market fit, like crazy, and it got bigger.And then...And I need to raise money to find out how to sell fish online.Yeah, exactly.Well, that was funny.So we eventually raised around to finance the acquisition.
51:45And we turned out we didn't need more money on the balance sheet.Okay, hold on.Before we get there, you raised how much money to do the acquisition?We raised 85.And who'd you raise it from?Greenhawks and Ballard.Okay.We need to talk about...
51:57So, Neumeda, I'm friends with Neal.I talked to him on the phone all the time.I talked to him about youlike, I don't know, like two weeks ago.And he's got hilarious stories about youthat I'm going to bring up on the podcast too.But you need to explain, like,why did you choose him?
52:12Because you said,I'm not going to pay 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,and this is my own characterization,
52:23kind of like, not even rude.You're just like, leave me the fuck alone.I'm building my company.Go away.Yeah.But Neil's been,and Green Oaks was chasing you.Right? So explain how you wind up selecting Neal and Greenups.
52:33The 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've always reviewed 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.
52:55So I was like, I'll finance it.Fuck it.That's a great position to be in, by the way.I love it, right?Like, I don't need it anything.So anyway, my friend Chad Byers was like, hey, my buddy, Neil wants to reach out to you.And I'm like, for what?And he's like, oh, he's an investor.
53:12And I'm like, and I'm like, cool.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.It's like, I'm just like really focused.So I'm like, hey, listen, like, this is not a tech company.
53:37Like the math should work really quickly.Like, we should be like profitable sales.Like that's how we're going to go.It's profitable sales and then 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, we'll do.So the time goes on, we're just heads down.And then I start getting messages from four.
54:00former RXFR employees where a firm was soliciting them for,like offering them to pay them for reviewing or reviewing me.And it's not just one, it's like 20 people haven't talked toin like five years, be like, hey, Peter, should I take the call?And I'm like, yeah, take the call.So basically what they're saying is,we'll pay you $1,000 if you get on the phoneand tell us about your experience.
54:20Yes, with Peter.Like, what kind of leader was he?Okay.And I'm like, yeah, take their money.I had no idea.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 as an investor.
54:32And then I'm like, all right.And then the epigy deal happens, meaning the chairman of epigy comes to me and we say, hey, let's figure out a deal.So then I reached back out to Neil.I'm like, hey, this is happening.You guys want to take a look?And, of course, reach out to Valor, like, hey, this is happening.We're going to need probably some money for this.Well, this is why I respect Greenough so much.
54:53It's like, even me kind of being rude to them, they had, like, put resources to do diligence on me.me, and in the best way possible, which is like,Dylan's just doing my leadership, which isactually the, I think, the most fundamentalthing for this investment to work.It's like, you've got to make sure he's pure the righttype of leader. They already done that.When there was no deal on the table, not only
55:13there's no deal on the table, you already told them there won't be a deal.When I found out it was then, I was like, oh, wow.These guys are like, they're good.And I didn't do an auction.I want the rightpeople on the cap table.And Green Oaks won just out of my respect for theirapproach, kept it like with just friends I know. And then Valor had a conflict of interest because
55:36they were in the deal so they couldn't do M&A because the deal was to finance the other company.So Green Oaks led it. And yeah, they're amazing. Very lucky that Chad connected us.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?The reason why I didn't want to 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 want to consume the company's resources in a way that would harm our operating our business. So I'm very sensitive that resources an auction would take. What are the resources in auction would take?Well, you got to like run tons of management meetings. You have to constantly answer diligence questions. Like it's a lot of time. So your whole thing keeps you.going back to like you're you're intolerant of wasting any time.
56:32Yeah.You've said this thing in like half a dozen ways, like in subtle ways since we've had thisconversation. Yeah. You're obsessed with time. Yeah. So if you think of it as like the analogyis like aerodynamic. I want to be super aerodynamic through things. And then like my goal islike also as like being on the other side as an investor. Like I want to maximize value,but not really. Like if you want to, if I want to maximize value, I would run an auction and I wouldn'tcare. But I don't really want, I want to make sure my, the investors make money and they're,good with the underwriting. So, like, you want to walk to the line where it's like rich, but not too
57:08rich, right? Like, you can actually, if I'm on the other side, I can underwrite it pretty, prettyeasily. I want to make sure all my stakeholders make money. And that's my approach. So the commonof that is like, maybe we could have gotten an extra $100 million valuation. I don't know, but I don'treally care. Like, I want to make sure that everyone feels good. And then I don't really care. And II agree with this. I want you to get your thinking out in the open.What's like 2%?It doesn't matter.It just doesn't matter.
57:36And like I care about money, but I don't really care about that type of money.I really care about how the people on the team feel and are excited and aligned.And I've seen, I've seen on the other side of the table,and fodders just prioritize enterprise value that early and just fucking gross.Why is it gross?Because it's not about that.Like, it's about, in this stage, it's about the right people and it's focusing on the mission.It's not about maximizing enterprise value at this stage.
58:07And if you're good, you're going to wind up with the money anyways.It's just going to take over.Yeah, and like, we got a good valuation.We've got fair.But I don't want an investor feeling like, fine, we'll do it, but I disagree.So you said if you were on the other side, you could underwrite it.So essentially you want to do a deal where, like, if you were Neil, you would take the,like, it's a good deal.
58:23You should make that investment.Yeah.And that's like, exactly.And that's how I underwrite it.Because I'm operating as the CEOand I'm operating as an investor toobecause I'm participating in all this stuff as well.Which is a conflict, but I'm generally trying to like bifurcate.
58:37Like, all right, Peter's the CEO,but he's also an investor.You mean you're putting more of your own personal moneyto the company?Why would that be a conflict?Well, because if I could, like, lower the valuation for me, like...Okay.You would self-serve.
58:49You'd try to do what's best for the company,not just business.Yeah.I read Michael Bloomberg's autobiographyfor the first time, like five years ago.And then I knew he had...has one of the most profitable private companies in the world.And I've heard crazy rumors that we don't even have to get into, which is like way richer
59:02than even everybody knows he's really rich, but I heard he's like orders of magnitudericher than you've been reported.And he raised, I think it was Merrill Lynch from remember correctly, 30 million for 30% of thecompany.Then he winds up buying that first like 10% slug back to them from them like 10 years later.And whatever, it was like 200 million.He paid for that, right?And then he bought the other 20% I think in 2%.
59:26thousand eight for like four point five billion. So if you look at it, it's like one of the bestinvestments he ever made was buying back his shares, right? And essentially now beingowning all of his company. I think it was all of it or like 90% something like that.And Marilyn Lynch's point was like, well, we paid, you know, 30 million in like1979 and by 2008 we made $4.7 billion on it or whatever the case is. Could you see anexample, a future? Because I do think you are kind of likeobsessed with control. Anybody's obsessed with like quality and control and everything elseis like, tends to, I could see you wanting to like buy back the shares at one point.
01:00:02The opportunity percent of itself, for sure, the governance is set up in a way where I havethat. So as long as that's there. But yeah, like I don't. It's a setup that you have controlled.Yeah, yeah. And I'm good with power, so I don't abuse it. Are you going to continue to raise money?I mean, if we have a need, but right now we don't.But in every round, you put in more money of your own? Is that usually? Yeah. Okay. Oh, yeah.Oh, yes.Yeah, you got to, the fuck else I'm going to do.All right, so I get on the, I'm on the phone with Neil.
01:00:34And he was, like, Peter's, like, one of my favorite kind of founders, like the founders he likes to die.But just you, you kind of, like, hinted it earlier.It's just 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.And all you see are the kind of flaws in your business.You kind of attack those flaws, trying to make your business stronger over time.Again, very common, the history of 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 worked with you and
01:00:59You were doing like taste tests or whatever for maybe new products or existing products and like what do you guys think?Like this is awesome and you go wrong. This is shit and then he goes he said not only you said it was wrong that everything was shit and then he listed all the deficiencies and the things that he wanted toYeah to fix running a business is likeIt's like a river as long as it's flowing greatbut 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
01:01:32that I have to fix it so I can sleep.I ruminate on the problems.So they just like nag at me.This is actually a problem I have.A flaw of my leadership tiles,I don't acknowledge the wins or success.I'm only preoccupied about what's wrong.So I'm working on that.
01:01:54But I actually outsource that people internally to like, hey, make sure we're like saying, you know, like our birthdays tomorrow.I fucking hate birthdays.But our birthday's tomorrow.So I'm like, please do something so we can acknowledge our birthday.But like, I don't do that.So I outsource it a bit internally.But yeah, it's because you just fix that.I don't know.
01:02:14The approach makes sense.Yeah, it's almost like what Elon does.So we just had Zach Dell on the podcast.And Antonio's on his board.And he says,first, I think it's still to this day, like the first two years, every conversation that ZachDel had with Antonio, is it Gracius? Yeah. Antonio Gracius is, hey, Zach, how's it going? Good.What's your bottleneck? Yeah, yeah. He wouldn't, you refuse to talk about anything. Yeah.
01:02:37And it's like, what is the bottleneck? What is the in way of a critical path? And then we're justgoing to talk about this. The entire conversation is this. And then the next thing that is resolved.Okay, what's the next bottleneck? And it's just over and over and over again. It's just relentlessfocus on the bottleneck.Yeah.Yeah, I think it's like, all right, my job is to scan the holistic picture of the businessand react to the problems and then go fix them.And it gets a fuck out of the way.
01:03:04She's like constant confronting the problems.I think this is almost all the elite entrepreneurs have this exact same mentalitywhere it's like you can even go to like Buffett and a Munger were talking about thiswhen 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.It's like the river running.I don't think it's hair of itself.It's some of the bad news.
01:03:23Exactly.Tony Shue from DoorDash, who, like, I want to get him back on the show as soon as possiblebecause I can't explain why, but like you talk to him.I think it's like 41, 42.And you just sit there and, you know, if you actually look, it's not like, he's notjust a delivery business.That's not what this guy's doing.He's like gives you like young Jeff Bezos vibes.
01:03:40And like, he's chasing after something much larger that you can't, he sees, but you can'treally see it at the moment.And he has, he said he has this problem too, or it's like, you know, they cana milestone, they do some kind of revenue or whatever the case is. And he's like, I might go outto dinner. Yeah. But in many cases, I don't even do that. And it's like, okay, I'm onto the next day,the very next day. Yeah, say that. Like, our X bar, I didn't do anything. That deal happened.I just, the next day. You bought a house in Miami, looked for a wife, though. That was theyear and a half later. Yeah, I did do that at some point. So what is the thing that you're
01:04:14trying to unlock right now that you see blocking you? So we've reorganized the group to bea hybrid organization where we have David as a business unit,which has its sales, marketing, supply, finance,and we have Hall Pass, another BU.So 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.Why name the company Medici?
01:04:45I love history.And it reflects how we operate organization.So the Medici's, 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 are the people that work at Medici at the company.They create the conditions for the business units to thrive and flourish.
01:05:12And they're the artists and scientists.So at Medici is like, it's like the money, the law, like the things that are.agnostic live it there. And then the artists and scientists, the people actually doing the workare at the business unit level. So the name suited how we operate. Medici and our company createsthe conditions for the business unit leaders and all the operators to go execute what they need to.Say more about the structure. So you have all these businesses. You just said they operate semi-autonomously.Yeah. So many autotos meaning there are some centralized services, but they more or less are theirown business unit that have agency and autonomy, run their own P&L and go do. Versus like a large
01:05:48CPG are typically centralized.So it's a decentralized approach because speed and agility is the main objective.Because you look at it and you're like, all right, 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.Yeah, duplication of efforts.But to me, it's the main design objective is speed.And so if it's speed, you're designing for speed, you're going to pay extra people to do that.
01:06:14Me and Rob had this exact same conversation yesterday.Yeah.Speed's important.It's always been important, and it's really important.Especially in our market we're in,we're dealing with people with mega-meccat scale.Our ability to bring product to market fast is, I don't want to lose that.And honestly, if we lose that, I'm like, I'm done.
01:06:33What do you mean you're done?Like, if we lose our entrepreneurial, and I say it's the company,like if we lose our values in a way we operate, our culture, I'm fucking leaving.Why you just screw your teeth?Great my teeth?Because it makes me angry.Because it makes me angry.I hate big, fat, stupid.
01:06:49I hate big, fat, stupid things,and I don't want to be a big, fat, stupid company.The problem is it's actually inevitableas you get bigger.Like, my job is to fight bureaucracism.Fight the bullshit.It doesn't have to be.I mean, you even kind of stumbled upon,
01:07:03or maybe, you were probably very intentionalabout the way you operated this.I just did this episode of my other podcast foundersabout Henry Singleton.And he led one of the most successfulconglomers of all time.In many cases,is a lot of the ideas that we ascribe to Buffett and Munger
01:07:17were actually things they learned from him.And his whole thing is, I think at the time,the 70s, he owned like 130 businesses,129 of them were profitable.And essentially, like, same thing.They just ran, they ran their own operations.The only thing he centralized was compensation and capital allocation.So you're on your own, you're making cash.
01:07:35I'm going to leave you alone.Performance equals freedom.Yeah, exactly.And then you just send your cash,and then I make the capital allocation decisions for us.Yeah.So I don't think, and he didn't have a big, fat, stupid,ugly company. So it doesn't have to be the outcome. No, no, I know. But it's like the nature of
01:07:49these organizations, 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. I mean, Luca Ferrari just did theexact same thing. And, you know, he buys these, he acquires these companies. In some case,they have like hundreds of, these are software companies. So he's like, how are they going toto make money? It's like, how are you unprofitable? The best for as much as your business there is.And it's like, what are these 400 people doing?And in one case, he bought a company that had 400 people, he got it down to 20.And now went from losing money to it's a cash printing machine.
01:08:20He's almost making every year in profit what the acquisition cost was originally.But there was this one thing.He's like, it's in human nature to add layers and complexity.And I think he said the company value of his is like, anybody in the company can raise their hands.Like, I don't want to add this complexity.And he goes, it's on the person wanting to add the complexity.He's like, you can just raise your hand.You don't have to say anything else.
01:08:40But the person wants to add this has to be the one.in the company to justify it.Yep.So you've got to fight it.Okay, so you have the Medici level.You have all these semi-autonomous business units.How much power does the person running the individual business unit have?Quite a bit.
01:08:55These are typically former founders?Yeah.Okay.Either former founders or they have to be product leaders.That's like a credential, meaning they have to, back to my, like, they have to pick up the phone and fix the product.They're the wrong guy.So they have to be product first.ideally a founder or someone who has
01:09:13that experience, but not necessarily.But product leaders.Okay, tell me more about the organization now.So at Medici's product,cash, people,law,regulatory. So like that sits there.I sit there and we serve the BUs, right?
01:09:37And then there's a lot of collaboration in general.We're all in the same office.There's a cross-functional team at each BU.So supply and demand.So demand is sales and marketing.Demand is finance and supply.And CPG is very cross-functional.So the typical business units are organized around sales,
01:09:58which is working with retailers, marketing.And that's really demand, right?They generate demand.Marketing can be mostly e-commerce,but it's also social digital.And then there's a supply.side, which is supply chain, which is end-to-end, so raw materials to fulfillment and warehousing,and then finance, which is forecasting, pricing. And so finances the referee. So that makes,
01:10:21that cross-functional team runs the business. Wait, what do you mean finances the referee?Meaning they define the framework for pricing. They define the budget. They're sort of the ones,because there's inherently tension between supply and demand, right? Like, there's always a healthytension there. The finance is the referee in terms of they define the rules of thegame and they ultimately run the P&L in my view.Explain the tension between supply and demand.Supply people are really driven by accuracy and efficiency.Sales and marketing people are really more charismatic and want to generate demand and maybe that requires less accuracy.
01:11:00So they have a conflict of interest sometimes because one just wants to grow as fast as possible,the other one wants to make sure if the supply is there appropriately and actually.accurately.I'm still not understanding, though.Say more about the accuracy.You're using the term accuracy.Why would someone be interested in supply chain?Generally, like to know what you need, where is...
01:11:20You're talking about the personality types.Personality types, yes.Okay.And their function is like to make sure what do we have, where is it, when do we need it,how much do we have?Like, and then sales is like, I want to go win.And often they will, I'll kick their coverage or there will be issues and ultimatelysupply has to go fix those problems.
01:11:39Okay, so how many business units do you currently have at a DG?One, two, three, four.You said there's something earlier that, like, I wanted to expand on two.You said it's very important for me to be aerodynamic as I go through things.Yeah, just like efficiency and simplicity.Like, I think the best design is the simplest design and just my, I think my nature.So how does that manifest, your nature manifest in the way you're building this business because it looks super complicated?It is complicated, but, well, one, it's a very flat organization.
01:12:19So there's not a lot of depth.Like, I have like 25 direct reports.What's interesting is I read this book on Jensen, and Jensen has famously like 60 direct reports.And a lot of people, when that came out in the book, and I think he's talked about 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.Seems to be working for him.
01:12:36How many direct reports is too many?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 bestleaders possible now I think the value of having somebody right reports is that it allows you tosee a lot and it keeps the organization um it keeps me closer to the problems and what I tell peoplewhen I if they if they're reporting to me is like I'm not going to manage or tell you what to dowe're going to work together to set priorities but like I'mI'm going to expect you to like bring things to me.
01:13:14I'm going to, you need to bring the problems to me.And we're going to figure out together.But like I'm not going to be like managing your to do list.Like that's so it takes a certain time of leader like report to me.Like I'm not going to manage them.But I'm going to lead them.Yeah.So it requires like this leaders to have just better agency and autonomy if they're working with me.
01:13:31Versus a conventional organization which is like, oh, I only have eight direct reports.Then you usually get this very, very stacked thing that like the hierarchy, the hierarchy getstoo stacked and information doesn't flow as well.Do you have a co-founder?Yeah.Are you still working together?No.He's the longer at the company.
01:13:51What happened?He was really helpful in the beginning,but most founding teamsnever really scaleto the promised land.Like, it's always pretty...Like, the hardest thing in leadership is that the teamthat gets you started in the different life cycles,
01:14:09usually not the same group of people.So that's that's true observation that I've had.The observation you had is the founding team that says there's two, three, four co-founders.Usually it's actually one.Yeah.It just takes time to reveal who the one is.Yeah.I've noticed the same exact thing.
01:14:27Yeah.Yeah.I talked about Adam Faroogee earlier in Apple,and I think he even said this on the podcast.You know, he wants to run a very strict and ruthless meritocracy.Yeah, same way.Yeah.And his whole thing was like, well, the co-founder that maybe,
01:14:41had the skills to be the CTO at the beginning, couldn't hang.So we had to literally, like, and in many cases,they had a conversation, Adam was one driving it,but he was just like, you see what's going on.So like, do you want to what's best for the companyor do you want to have like this fight?And in many cases, if you just frame it's like,this is obviously the best for the company,
01:14:56you see what's going on.And like, it's somewhat amicable.Yeah, and I don't like, I don't like the founder,co-founder's titles because it implies some privilege.It's inherently anti-mericratic.What do you mean you don't like the founder co-founder?I just don't like, like a founder isn't a role.It's not a job.
01:15:18You never hire it.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 should get special treatment.So I don't use it.I think it's an abuse of power.Everyone has a role.Everyone has duties.
01:15:36And either you do them well or you don't.This is what's getting more and more interesting.about me having more of these conversationsis to start seeing the same similaritiesbetween the people because I mentioned Luca Ferrari earlier,Adam Ferruge, I mentioned a few times.They both said the same thing.Like, Luca Ferrari, she's like,
01:15:52we don't even like the term founder in the company.And if it was like four founders of Bennings Smith,it's like, we all have the same job.And that job is to do whatever's best for the company.They don't use the title at all.Yeah.It's not on my signature.So you define your role as what?
01:16:08Chief executive.And how do you think about that?like terms, you wake up every day?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 there, are people scared?Are people like free and creative?
01:16:32Are we living the values?Can people recite the values?So culture.And then four would be alignment of like strategy.Like are we organizationally aligned?Not in decisions, but like just every understand where we're going,where we're going, and is everyone incentivized to go there?Is the group of people moving in the right direction?
01:16:52And then fifth would be cash or fundraising.So those are like my forever.And then I have one of the, what I like to call,this is like funder mode, but what I've always done,it's like I call it my main job is like reaction.leadership support. So reactionary in the sense, I literally react to it. So fires or problems,I get information. It's a very reactionary, which is generally due to negative, but like my job is toreact to the problems. So reactionary leadership support. So the leadership support is I either
01:17:25have 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 to shine a flashlight on it.and then get the fuck out of the way.And I expect that on all leaders in the company.I call it reactionary leadership support.I want to go back to this, I think,one of the most fascinating things about you is this,like, divine discontent,
01:17:51this you wake up with this fierce competitive drive,but also, I'm not going to call it unhappinessbecause I don't think that's the right word,but like this discontent of where you areand just constant desire to improve things every day.When Travis from Uber came on,he had like a warning because how old are you?40.
01:18:09Okay, so he's about 10 years older, right?And he's like, what you have to worry about is that you get so, he's like,the act of entrepreneurial is just dealing with problems.Yeah.And he's like, he says something like, when a warrior fights too long, he might be too zen.So he's like kind of like Zen on the outside, but he's like so used to adversity andit doesn't bother him anymore, right?And he's like worried that.
01:18:34Yeah, it's not.Exactly. Numb is a great way to put it. And the point that he's making is like you want to wake up being bothered and not being used to adversity.Not being, not, doesn't prevent you from acting, but you want to essentially react to it. This is what you're a reactionary leadership where you just said there made me think of this. So how do you think about like what's actually going on inside of you?Emotionally? Yeah. I do have a sensitivity and getting,but I harness it in the work, which is good.I love the, it's like, it's not a fair analogy,but I love like the, I love the fight,so I seek it.
01:19:14Um,but I don't think I'm good at tappinginto my emotions on the spot.I think that building the pain toleranceis very good though to be able to handle itover long periods of time.Because if it, if you are too sensitiveand you react to it,
01:19:31and you're in effecting your sleep,then you're all,break. So I do think it's important to be able to have that zen ability, like, get punchedin the stomach and you're just chill with it. But yeah, you definitely can't lose the emotionalresponse. Like, things don't bother me like they used to. I'm getting better at it, but I stillhave that response if things aren't right. But I imagine with Uber, he just got really, reallythick-skinned about it to the point where everything was...I don't know. I don't know what was experienced, but I could see how that happened.
01:20:08So what keeps you in it is you'd like to fight?Yeah, I love conflict.Healthy conflict, but...Thanks for taking the time. This is awesome, man. 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 400 biographies of history's-graced entrepreneurs,searching for ideas that you can use in your work.
01:20:33Most of the guests you hear on this show, first found.me through founders.
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