How I Built This with Guy Raz - Chomps: Pete Maldonado and Rashid Ali

Episode Date: January 30, 2023

When steaks don’t sell you shift to sticks; that’s how Chomps was born. After several failed ventures—one of which left him bankrupt—Pete Maldonado decided to take another chance on launching a business. He partnered with Rashid Ali to start a mail-order service similar to Omaha Steaks, but with grass-fed meat that was more suited to the Paleo diet. When the partners couldn’t get that off the ground, they shifted to individually-wrapped meat sticks; one of the first in a long line of ‘healthier for you’ protein snacks. For several years, each co-founder tried to manage the business as a side-hustle, but the sausage hit the fan in 2016 when a surprise order from Trader Joe’s left them scrambling to produce a million sticks. Today, Chomps is available in major chains across the country and pulls in more than $100 million a year. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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Airbnb.ca.ca. slash host. What was their purchase order for? 1.1 million sticks. It was larger than the previous year altogether in a single P.O. Wow. And I'm thinking, oh, shit, like how this is, this is not what we discussed. This is way more than what we had, we discussed. And so I was like, give me a second. So I go in my room, I build my spreadsheet. I'm calculating the total. Like, what does it actually look like? So I'm like, Pete, we need, I don't know, it's like one point something million to be able to fund this. And so we then had to figure out like how we were going to get the money to even fill this PO. Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz and on the show today, how two parts.

partners who set out to sell steak wound up making sausage in the form of chops, a grass-fed meat stick that does $100 million a year. Starting something that fails is one of the worst feelings in the world. You invest time, money, energy, passion, and for some reason, the idea you have just doesn't work. And then you're left to figure out what went wrong. And if you know what I'm talking about, that process is a little like physical therapy after an injury. It takes a long, long time to recover. But it's also critical, and without that reflection, you are less likely to land on a new idea that will work. Because if there's one thing about this show I want you to learn from, it's not the successes of the founders, but rather they're failures.

And today's show is about two failures that would eventually lead to a success. One of those failures was so catastrophic that it left Pete Maldonado millions of dollars in debt and forced him to declare bankruptcy. After that, he had a hard time even finding an apartment he could rent. But he learned some very valuable lessons from those setbacks. And most importantly, it gave him the kind of perspective he needed to make tough but smart choices about his third idea, a brand of meat snacks called chomps. Now, if you haven't heard of them, they look like slim jims, tubes of soft, chewy meat. Except unlike similar brands, chomps made a point of appealing to a different type of consumer.

For starters, the sticks are made with grass-fed beef, and they don't have any added sugars. And while I can't vouch for whether chomps are considerably healthier than slim jims, millions of people swear by them as a clean source of protein. Anyway, Pete started the company in Chicago in 2012 with a partner named Rashid Ali. Neither Pete nor Rashid jumped into their meat snack business fully committed from day one. They took it slow, and for several years, it was a side hustle for both of them. Pete worked in real estate, Rashid was a consultant. But eventually, as Choms was discovered by paleo eaters and crossfitters,

the partners realized they were onto something big. Both Pete Maldonado and Rashid Ali came from immigrant families. We'll hear from Rashid a little later on in the interview. We'll start with Pete. His grandparents immigrated from Columbia, and Pete grew up on Long Island in what he describes as an evangelical Christian household. And by high school, he was super into sports. So I played baseball, and then I started wrestling.

And then I started weightless. because of my wrestling coach, he was a big weightlifter. And he taught us a bunch of different weightlifting moves. And I just wanted to get, I just jacked as I could get, because that's just what you did. Growing up in Long Island in New York, that's a very much part of the culture up there. Everyone looks like a, you know, if you went to a nightclub when you were a little older,

he looked like a bodybuilding show. I mean, everyone was just huge. So that's, I got really, really into it. You know, and I would learn every little thing about it. And that's what I did. So I would help my friends all with their workouts. Then I would help them, you know, with their nutrition plans and all of that. And I did this, you know, in high school.

Wow. And so you basically, I guess eventually became a, even while you were in college, like a personal trainer for other people. Yeah. For a college kid, it was big, big money. I would, you know, get up to 100 bucks, 100 bucks an hour sometimes, up to 150 if I was visiting someone's house. Wow. I'm like, that's a good amount of money for a young kid. All right. So you graduate, I think, around 2004. And then did you become a full-time personal trainer? Is that what happened?

Yeah, yeah. Oh, I never graduated, actually. Funny story. So I was in this, my business class. One of the classes, it was one of the professors, we leave the class. He was done teaching it. And he goes to go start his car up and he starts driving to the parking lot. I see him driving and he's got a flat tire. He's driving this little tiny, like hatchback car. And it was a real beater. But, you know, I felt bad for the guy. It was freezing out. And so I went and changed his tire for him. I was just like talking about him about his car. And he's like, this car is terrible. breaks down on me all the time. And I remember thinking to myself, like, how am I learning business from this guy? Like, this can't be, this can't be right. Like, there's no way he's a successful businessman. Um, like, I made that decision literally as I was changing this guy's tire that yeah, I was done with college. Wow. So you dropped out? No, yeah. I just stopped and I went to, I was like, I'm going to go personal training full time. All right. So you, you dropped out. And I guess you weren't there too much longer because I think around 2004 you moved to Florida when you were around 22.

Is that right? Yep. Why? So I loved the weather at a buddy that I grew up with that lived here as well. And actually he was also very entrepreneurial and we would always talk about business ideas. And he was on the contractors. He actually got his certified contractor's license. He was building homes.

And I was like, you know what? I'm going to go down and start a business. And so that's what I did. So you're in Florida 2004. This is like the heyday of no money down mortgages and all that craziness that was going on all over the country. In Florida was like a huge part of that. There was like a real estate gold rush happening. And from what I understand, you kind of got into that a little bit, right?

You're a young guy. Tell me about that. Were you thinking, yeah, I could like, you know, sort of get no money down loan? and buy places and flip them, were you doing some of that? Yeah, so when I moved down to Naples, I actually moved in with a buddy of mine who owned his house, and I rented a room from him, and he was in real estate. And then my other buddy was obviously the contractor,

and I'm watching him just crushing it. He's building homes for some of the largest publicly traded home builders, and building a great business. And I was like, I'm missing out. I see the opportunity to let me get in on us. Had perfect credit and really, really high credit score, which was pretty much all you needed back then to get a loan. So I decided I was going to start flipping houses. How to start?

Tell me about the first place you got. Yeah. So first place was, I think it was 100% financed. And it was, I bought that in 2006. It was like a fixer-upper? Yeah. So you'd basically get a loan, put no money down, fix it up, and then flip it. Yep.

And so I would partner with my buddy who was the contractor. He would have his guys come in, help us, and we would split the profits, right? That was the concept. And this is 2006. This is when, now, this is like at the time, we now know it was the height of the market. The absolute height. Like, if you look at a chart of, like, real estate prices, you see it go up, up, up until, like, right after we bought the first house. And then it was just tanks, right?

And so it was a very weird time. How over leveraged were you? Absolutely to the gills. I mean, it was at my rock bottom, it was a couple million in loans that I ended up getting stuck with. How many places did you own? At the time, it was four houses, I believe, where it was like, there's no coming back from this. It's just getting worse and worse. Nobody's buying anything. And this was all, I mean, you were like 26, 25. Five. I mean, you were getting loans. It's kind of crazy, right? I mean, looking back at it, it's like the craziest thing. Like, I am like, did that really, like, what was, who was, what was anybody thinking? And I see pictures of myself now at that age, and I'm like, I would see this guy

and never lend him money. But yeah. All right. So, so you were, when the market crashed, right, starts really declining in 2006, but the crash really becomes apparent in 2008. You're stuck with all this debt and these properties that no one wants to buy. What did you do? Did you declare bankruptcy? Yeah, so this lasted for over a year. I ended up working with a local attorney here who was representing a bunch of other people in the same situation. And he introduced me to to a bankruptcy attorney. And that bankruptcy attorney was like, well, this is how you do it. You basically just filed bankruptcy.

You control it now. So in hindsight, it was, I felt like it was a bit premature still. And I also hated the idea that I walked into that courtroom to do the bankruptcy filing. And my credit was still just below 800. And then you file a bankruptcy and it's just done. Like it was like a 400 like within his weeks. And how old were you when that happened?

I think it was 26 or 27. All right. So you're 27 bankrupt. Not a good place to be. But the one advantage you have is that you're 27, which means you have a whole lot of life ahead of you, which is probably what that lawyer said. Yeah.

That's exactly what you said. And the other thing he said was if you have something, you know, you're working on that you think is going to be successful, the time to do this is now where you have, like, you know, something that you're going to work on, that could be a bright future. That would be the time to clear things up and move on to that. So what was it that you decided to do? I mean, you've got no cash and no credit and no ability to borrow money.

And obviously you could make money as a personal trainer and through odd jobs. But did you try to get a job as a personal trainer right away? I did. Actually, I went to, I bounced around to a couple different gyms and I would just kind of train there and do their thing. But then I had this wild idea that I wanted to start a food company. You know, I think one of the, as a personal trainer, one of the things I noticed was that I would spend a lot of time and way too much time putting together meal plans for clients.

And they were always busy and it was very difficult for them. Yeah. And so I was like, man, there's got to be a better way. Like maybe I could bring something to the market that would solve the problem. At the time, it was like nutrises. was the big diet, was like a meal plan delivery. And I was like, I could create something better than that because their food is absolutely terrible.

And I thought I could compete. And I ended up calling it Frozen Fitness. And I ended up finding a co-packer to help me make the product. And what was it going to be different about it versus like Nutrisystem or any other frozen meal plan? Well, nowadays, there are a dime a dozen, but they weren't doing it back then. No one was doing it. Right.

And it was, right, because I guess if you did Nutrisystem, it was like a subscription, or Jenny Craig, right, they were sent to your home. Yep. And this was something that would be available where? At the grocery store, right? So originally, I had the idea I wanted to do it just like Nutri System. You could go to the website. You can order it.

You could call in and order it. But then I realized how expensive it was going to be to start to build the website and all of that. And so I realized one of the things I could do is sell it out of gyms, but gyms didn't have freezer space. So I found these really cool little glass top ice cream freezers that were coming in from China. I could get them for like 350 to 400 bucks a piece. And I bought five of them. And I saved up some cash and was able to buy those.

And I dropped them in some gyms. What was the value proposition? Were they healthier? Yeah, it was healthier, but I also had, they were macro-friendly. Macronutrients. Macro-nutrient-friendly and had the right amount, the ratio of protein, fat to carbs. Right, which bodybuilders are focused on.

So that was your target audience, bodybuilders are just fitness buffs or? Yeah, it was any fitness buff, and then we had two lines, one for people that wanted to lose weight, one for people that wanted to bulk up. And it's kind of really basic. And the meals were, describe what they were. I mean, what was a typical meal? Yeah, so it was a basic meal that you would have at home, but it was flash frozen. So it would have chicken, broccoli. There was some

sweet potatoes in one of them. That one was actually a balsamic chicken, which was one of the favorites. We had a pasta with meatballs. We had a tilapia for a little while, but I did not like the smell of microwaved tilapia. No one likes to smell of microwave fish. It's very controversial. Yeah. Now, I've got many questions about this, including how they were made. But first of all, this seems like a very like cash intensive process, like a business proposition. Like you can't just do this with a thousand bucks. And, you know, I guess if you were selling them yourself, but like you've got to get the food and it's got to be packaged and then frozen and then shipped and then the refrigerator. So where did you, how did you finance it? So thinking back, this is probably one of the more lucky instances of my life where one of my house, I ended up buying a house in Orlando was one of the four that I was left with. And that house, a guy reached out to me. He and his wife wanted to rent it.

And I asked him what he did for a living. And he tells me he works for a frozen food company. Wow. And he's on the opposite. He does that he handles the manufacturing. He was actually a really good guy. He kind of just took me under his wing and he taught me everything about the USDA, about copacking, about sourcing.

And so I let him live in my house for next to nothing. And then he helped me find a copacker. But still, you had to have money to do this. So how did you do it? Did you go out and find investors or did you take a bank loan? I guess you couldn't because you had no credit. Where'd you get the money? So I ended up putting a business plan together, started reaching out to various investors in town.

In Naples. In Naples. And there was a guy I met, and he put me in touch with an investor who was a real estate guy here who owned these RV parks. He was very interested in what we were doing. He owned a gym as well. And that guy wanted to invest. And so I formed a deal with him. And we went to town and started trying to make product.

Wow. How much did he put in? He agreed to putting in 250,000. He actually put in, I believe, 60,000. Right. And then the world really fell apart when the real estate market meltdown happened. And he got hit pretty hard. Then it became me begging,

him for more money and then him telling me that he actually is not going to give me any more money at all. He wants his initial investment back as well. Wow. How long between the time you raised the money from him until the time you realized you weren't going to get any more money from him? Oh man. It was probably six months and wow. Yeah. Because you were in, I mean, presumably in a few gyms. And I guess I read that you actually managed to get to up to like 50 or 60 gyms with your freezer. and the product, which sounds awesome, it's pretty impressive, but still, like, you've got to get people to open the freezer and to buy the thing. And if it's just sitting in a gym and no one's telling anybody about it, it's just a freezer in a gym.

Well, the one thing that I learned the hard way was that when you have no distribution, there's nowhere to replenish the freezers. So we would place the freezer. I would actually drive up with a pickup truck to, we had them from South Florida all the way up to Atlanta. I'm in Naples, Florida. I didn't really think about, like, how am I going to replenish these things? I thought that I could just pack them up and mail them. And then that proved to be incredibly expensive. And I wasn't going to be able to do that.

So, yeah, we realized that there was a major gap in the business model. But my big idea that I fixated on was really, okay, I'm going to build this website and compete with Nutrisystem. I've already proved out that there's a need. for the product. People were buying it when they would get it. But I went way too big on the website. I wanted it to be absolutely perfect. And I wanted to be the seamless, you know, experience for customers. When they went to there, they had all the options. And I was building out all the tools that I could, you know, think of that anybody would ever want, which was the absolute wrong thing to do. So I burnt through a good amount of cash trying to do all the customization.

and in the end never got to a fully functional website just because of that. I think it ended up lasting about 18 months in total from the time you launched to the time it it kind of fizzled out. What happened? Why did it fizzle? When my investor told me he wanted money back, I said, I can't give you your money back. It's all in frozen inventory. I'm like, I actually need more money to sell it. I have no way to tell anybody about this. And so the arguing went back and forth and it got ugly, to say the least, where I didn't like some of the threats that were coming my way. And so I packed it up. I actually ended up walking into his attorney's office and handed him a terribly written piece

of paper where I just signed over the business to him. And I said he could have all that inventory and the business because I don't want to do this with him anymore. And so that was that. Yeah. I was weighing over my head. I think it was a good idea at the time. Probably should have gone to raise money from a VC, some of it that could actually add value. Who had food experience. There you go. There you go. Because your guy was a real estate investor. You knew nothing about food. Yeah. Right. All right. All right. So that fizzles out, I guess around 2008, 2009-ish. And I guess at this point, you moved to Chicago to fall. your girlfriend who's now, I believe now your wife. Yep. And I guess in Chicago, you decided to get back into real estate and wind up making, you know, decent money doing apartment rentals and commercial deals.

And were you happy doing that? Did you enjoy that? So I enjoy deal making, especially big deals. I get very excited about that. But you finally get to a closing or you don't, right? So you don't and you get nothing. Or you get to a closing. You get a big check for it, which is great.

But then you start from scratch the next day. You're not building anything. There was no residual. And that always kind of ate at me. I hated that idea. So I was just thinking, like, what can I build that would have residual income for me, that I could build maybe on the side and continue doing my big deals. That would be maybe the bulk of my income.

but then this can be like the supporting, you know. So you were thinking, you were constantly thinking of what, what could I do? Mm-hmm. Oh, yeah. But never thinking, maybe I'll reconstitute the frozen food business idea. No, I was so heartbroken about that one that I just couldn't. But I would say that I loved food so much. And I real, that was one thing that I learned from that.

I love that business. It was like so cool to me. I loved watching the food get made. I love knowing that like, you're, you could package it up and just sell it to someone and then somebody's in some random part of the world can just be eating your product. Like to me, that was just like, you know, it's a really cool thing to think about. Meantime, you're still a fitness. Like, would you call yourself a fitness fanatic at that point still in like 2009, 10? Yeah, I mean, I, like personally, at that

point, I had already kind of got drifted away from the personal training. And I was kind of getting burnt out, I think, with a lot of my, you know, my regular routines. But then that's when I found CrossFit, actually, in Chicago. This was when CrossFit really started to kind of hit its stride. Oh, yeah. These gyms were blowing up everywhere, and you discovered CrossFit. Oh, yeah. I loved it. It was, it added this element of competition where now I'm, like, competing with the other people in the gym, and, oh, man, that was so addictive. And, uh, but, you know, it was, you know, I just realized then that if I can create something that would get any type of traction within the CrossFit community, it could blow up like wildfire. So I kind of had my target market in mind for the next venture.

But you just weren't sure what that was going to be? No, I mean, I had an idea. I wanted to be in food. And I learned this thing. Following Tim Ferriss, actually, he had a blog. And on this blog, he interviewed a guy. named Noah Kagan. And Noah did this interview talking about how to create a million-dollar business in over

a weekend. And essentially what he talks about is establishing like proof of concept and using free tools like Google Trends and then taking out some really cheap. Back then, they were really cheap Facebook ads to see if you get anybody to pay for the product. Even if you don't have the product yet, maybe you have no money to even produce it, create an ad, put it out there, see if someone will actually transact, and then just refund them back their money and tell them what you were doing. And then, you know, and then I was like, this is like the craziest thing ever, but such a good idea. So I started using these tools and

looking at grass fed, like the search terms for grass fed beef for grass fed beef delivered, any type of search term that was all related to that. So paleo, keto, all of those. And every single one of these search terms were just like an absolute like this like a trajectory is like a hockey stick trajectory and also crossfitters which you know for a variety of reasons tended to like adopt a what is typically called a paleo diet like no car no no no grains no basically food that a caveman would eat yeah and and grass fed meat is a part of that diet like that you're told you're sort of that's encouraged. That's it.

Absolutely. And seeing what I was seeing with this kind of cult-like community, the idea originally was going to be like, can I compete with Omaha steaks? They're not doing grass-fed beef. Maybe I could just do grass-fed ground beef and steaks and ship those to people, create my website and do it a much simpler website than I was originally trying to do with Frozen Fitness and get that off the ground. And what was it going to be called?

That was called Logic Meat Locker. Logic Meat Locker. But there was logic behind the name, actually. So the L-O-G-I, so Low-G-I, so Low-Glycemic Index, was one of the things that we were all talking about with part. All right, okay. Yeah. Low-glycemic Index, meat and meat. We know it's meat.

Mm-hmm. Yeah. As you probably may know, we had Butcher Box on this show, which started like three years later in 2015, which did work and is a great name, Butcherbox. But that was essentially the concept that you would, it would be like that. He would just have a subscription and you would get cuts of meat. Exact idea. Yep.

So that was my idea. Now it was like, how do you figure out how to get that going? Yeah. Then I go to a wedding, a good buddy of mine and his wife, my wife and I are friends with them. And they were getting married in Missouri. I met his brother-in-law. His brother-in-law happened to own the only facility in central Illinois

that was a certified organic and USDA plant. Meatpacking plant. Meatpacking plant. So he was already in this business packing all different types of meat. He was processing for hunters doing the deer, like the venison meat. And he had all types of relationships with these smaller grass-fed beef farmers and kind of a small network of produce. So I talked to him about my idea and he said, you should come out to the plant and meet me.

Yeah. When we get back, and so I did. And he was going to be almost as like a co-packer. So he was kind of the third party. He was going to allow me to, you know, textual process it. And then he was going to actually pack it and ship him out for us. He didn't really have a stake in the actual company. He was just more of a third party, a partner of ours or mine.

All right. Let's pause here for a moment because I want to. bring Rashid in, who's been patiently, quietly sitting there. Hey. Hello, Rashid. So, sorry, so you grew up in the Midwest in Iowa. Your dad was an immigrant from Pakistan. Yep.

And you studied business in college. And I guess around 2012, when you met Pete, I guess you were working as a consultant. How exactly did the two of you meet? Yeah. So some of my college friends, their wives, were friends. with Steph, Pete's wife. And I think, yeah, so there was a, Pete makes a joke. It's like, I think we went to a few like group dinners.

And me and him didn't really click. We were just like, you know, it was just the guy across the table. I don't think we interacted much. But then a couple months later, there was, there was a birthday party. We're at some friends and we were all playing poker. And ironically enough, me and Steph, his wife made it. It was down to the two of us because he was going to win the tournament. And at one point, I think she threatened to push me down the stairs if I beat her.

I don't recall exactly one. But Pete and I at some point were just kind of off to the side and we're chatting. And he was telling me about this business that he had started. And so what he was presenting was a more convenient solution to get grass-fed beef. Did you know about the grass-fed beef thing at all? Or was it the first time you were even hearing about it? Yeah, it was the first time. Like I wasn't into CrossFit or paleo.

So like Pete mentioned it, you know, but you plant a seed. I start doing the research. I get excited. So I talked to him about my background in operations and finance and numbers and like I love living in Excel. It's just how I was wired. And he was like, wait, that's the stuff that I hate. Like he was like and then from on the flip side, him really good on the sales and marketing the creative side.

And it's like something where I kind of struggled. Yeah. But I'm good with if you give me an idea. I can challenge it, right? I can, I'm wired to, to challenge and find opportunity and make it better. It's just the way I'm, I'm wired. And so it complimented our skill set. So I pinged him the next day. And we were like, he just, do you want a partner on this? And he was like, sure, we met for lunch. And I mentioned how much had he invested. And he was like, it was $3,250, I think is what Pete had put up. So I cut a check and match that. And my wife was a, was an attorney. She drafted the partnership agreement. Yeah, Pete moots very quickly. So I think it was signed within the next 24 hours. And that effectively was the start of the partnership. And that's it. Your 50-50 partners off to the races, essentially, right? Were you even looking to start a business at all? No. But I think what Pete effectively presented, it was a living case study. And so in my mind,

I was like, let's see if we can get this off the ground and see what it can be come. You know, he and I both had a full-time job that were bringing in money. This is just something on the side. To do on the side. Okay. And what did you like about this idea? I mean, because it's awesome. I mean, Butcherbox obviously has really done well. But, I mean, it's complicated. It involves shipping and it's heavy to ship things and that's expensive and there's weight and there's dry ice and there's meat. And what did you think, I mean, given your background, Rashid, in, you know, investigating and really digging into diligence, which, by the way, you didn't do it all in this case.

You made a decision in 24 hours. Like, this runs completely counter to what you were doing as a professional, which was spending weeks and months, like, learning about a business. Right, but the interesting thing was, like, so I was a Omaha Steaks customer. I actually, I liked the product. Okay, all right. So I was familiar with the business, and, I mean, who doesn't like steak? And then when he, and when he explains.

And then Pete kind of explained grass fed versus grain fed and the health benefits. Then I'm like, oh, I shouldn't have been eating that the whole time. And maybe that's why I'm gaining weight or whatnot. So I had a basic understanding of how the business worked. And I'm also like I knew I could figure it out. But what we figured out was shipping frozen without scale, there's no path to profitability. And because the business was like self-funded, we had to figure out a way to make it profitable. And so that's where like I couldn't, like, I couldn't solve the equation of like just buying enough and selling enough.

Because the butcher box is a fantastic brand. It's a great business. But they figured out a formula that worked. And it's being able to put the right things in the box to have it make sense from a margin perspective. We took the approach of, you know, you can buy ground, you can buy a filet, you can buy a ribby, you can buy a strip, whatever. But people were picking and choosing. And unless they picked the right combination, we couldn't make money. Because we also couldn't charge 25 bucks for shipping, right?

And so that's where we really struggled to get the economics to work. And did you start by just doing Facebook ads? Yeah. So Pete had built a WordPress site. We started doing Facebook ads. ads and a little bit of the paid search, like Google ads. Yeah. But our moms were our best customers.

Yeah. The first couple months. But then also, like, to Pete's point, like, he pivot's hard and he pivot fast. So, like, I'm kind of working through it and I'm learning about meat processing and the yield loss. Like, you'll buy a loin and cut as many fillets. And there's always loss. So, like, we were losing money every which way.

Plus the shipping was tough to figure out. So at the time, our co-packer was also making a multi-pack of meat sticks. I think it was like six or eight in that pack. The same co-packer that was the processor that was processing and shipping the meat for you was also making like slim jims. Similar format, but it was all packed in one page, all lined up. Like if you think about you buy a pack of pencils, they're all lined up long way. And so he sold a multi-pack, and we had branded it under the logic name.

And I think that's where the light went off with Pete was like, he ate a ton of slim jims when he was a kid. We were thinking about not wanting to ship frozen, and can we make a shelf-sable version and a healthy version of the slim gym? And that's where the kind of the light bulb went off. When we come back in just a moment, where Rashid and Pete traveled to a tiny town in Missouri to find out how the sausage gets made. and how a call from Trader Joe's leads to a deal that they can't afford to make. Stay with us, I'm Guy Raz, and you're listening to How I Built This. Hey, welcome back to How I Built This. I'm Guy Raz. So it's 2012, and Pete and Rashid have pooled together about $7,000 to start a grass-fed meat company.

And their first idea, selling full cuts of meat, doesn't pan out. So instead of stakes, they lean into... sticks. And so I like Rashid, like, why don't we do a healthy version of slim jims? Let's just do a single stick and a, you know, shell stable. And let's do that. And that's actually when I came up with that, that chomps name and I created this pretty terrible logo. I think I was using like Microsoft Word art or something like that to create this logo. But I had the word chumps on the package. and I looked at the USPTO, so the Patent and Trademark Office's website, and I ran a search for trademarks, and it looked like I shouldn't have a problem getting Chomps Snacksticks trademarked.

And then also found a decent URL, which was gochamps.com. And I could get that for like $12. And so that was where I kind of latched on. And I remember just as a kid, you know, and I'm, I'm, um, I'm, um, embarrassed to admit it today, but I mean, the number of slim gems I used to eat. I remember I used to ride my bike up to the 7-Eleven and get a bunch of them have in my pocket. And by the time I got home, I'd eat them all. Yeah. So this copacker, right, this meat processing plant, they had the ability to make these for you, essentially. They were already making something for you. So they could make it.

Yeah, they were making sticks, but they had to be refrigerated. Why? Why? It's because of the license they had, and they weren't familiar with, to be able to get it to be shelf stable, you have to hit certain critical control point. So your active water and your pH level. So we were selling a refrigerated version, but then we're like, we can, you know, there's slim jims out there. Like they're making it. We should figure this out. Exactly. Yeah. And so we just started doing our research to find a partner that could make kind of the version that we wanted to create. Yeah. And we started looking at all the different labels. And each one of these meat sticks has the USDA legend on there. So we had a whole list of people to contact. And then we found one specific one in Missouri in this very small

farm town called Green Top Missouri. Which is about one one what? Co-packer. A co-packer. Okay. A manufacturer. A manufacturer. And Green Top happens to be about two and a half hours south if you're driving from Des Moines where she grew up. Right. And so we decided, well, here's a guy, let's go meet him. So he and I jumped in the car. And essentially, if you were driving down this main road and sneeze at the wrong time, you would have missed the town because it was so small. And the plant, quote-unquote plant, wasn't actually a manufacturing facility.

It was a little corner store that had almost like a deli section. and in the back of the deli section he had one little oven where he was cooking meat sticks. And like, I'm trying to imagine how you make a slim gym. Like, it's got a casing and you got to pack it in there. Like, how do you have like a machine to do this? Yeah, so essentially what you need to do is there's a stuffer. So you need to actually get the ground beef. The beef has to be ground up already into hamburger meat.

And then it's stuffed into the casing. So there's an action machine. that it has a little nozzle on it and you put the casing over it, and then that's where it shoots through there into the casing, and it almost looks like a hose filling up with meat. Yeah, I got it. And then you cook it on a low temperature to dry it? That's it, yeah.

And is the casing sometimes made out of an animal intestine and sometimes made out of like a... It's collagen. Beef collagen. So it's actually sourced from the beef cowhide. Yeah. It is a bit of a manual process where you're filling up. up toads dropping the meat in doing all the process.

It's basically sausage making. Exactly. It is. It's exactly that. So you meet with this guy. By the way, what's his name? Kevin. Kevin.

You meet this guy, Kevin. And he's a small-time slim-jim type. Like, he's a small-time business. He's making this. But to make this, right, for Crossfitters, you couldn't use sugar. You can't use any grains or weeds or stabilizers or, who knows? there's tons of things that a crossfitter wouldn't be able to ingest. So how did you, you got there and you met with him? What'd you say? Do you say, hey, could you do something for us, but we want it with none of these things? That's exactly. Yeah. We even talked about, you know, what would it take to, you know, to remove some of these ingredients that you're clearly using a lot of this for shelf stability and like, do we need that? Do we absolutely need those things to keep the product shelf stable? And he's like, no, you don't. You don't. It just makes life easier from like a yield, perspective or, you know, to get longer shelf life, you can do this, which is more of just a way

to make more money as a small producer. But we decided, okay, we want to do this with the best ingredients using the best beef and none of the added stuff, the added ingredients that aren't necessary. And he said, well, if you can get it to me, I'm happy to do it. Yeah. But it was different because we had talked to a few other copacters and a lot of them would say you have to have sugar. If you don't have sugar, I'm not going to make the product.

And so Kevin was at least willing to say, like, if this is what you want, I'll do it. Then I think that's when we knew, yeah, let's bet on Kevin. And he also, you know, with any copacquer, you talk about the MOQ, the minimum mortar quantity. Yeah. Like we were able to go in low enough where it made sense where we could produce just enough products, sell it online and go back. Yeah. And this was his own brand. Yeah.

Yeah. It was under the Western Smokehouse brand. All right. So you got your guy. And what's he going to make? Like a thousand sticks or 500. sticks? I think the first run was a thousand pounds, which would make about 9,000 sticks at the time. Okay. And was he also going to be the fulfillment center? Like, or were you going to go back to

pick him up and haul him to a warehouse in Chicago? Oh, no, there's no warehouse at that time. Okay. It was, it was a Pete's condo at the time. Or Pete's condo, right? Exactly. So he shipped him. He packed him up and shipped him in big. Yeah, put him on a crate or, or, a palette and it was actually the funniest thing I used to have is a truck with a lift gate pull up to my garage in my condo I was living in in Chicago and we'll unload up an entire palette of product and I'd go out there with a luggage cart and I would pull all the case boxes off of the palette throw them onto this luggage cart because it had wheels on it bring it into my condo Well, we had a spare, like a second bedroom, and that was our fulfillment center.

That was your warehouse. So between the time you first made Kevin and the time you got your 9,000-6, I imagine that's a couple of months. And probably you've got to get the flavor right. So how was that working? Were you going back and forth? Was he shipping you sending you samples that you could try? And then you would, like, say, more paprika or, like, a little more salt. Exactly.

It was just, yeah, we landed on that. original stick recipe that is the same exact recipe we use today and only took us a few tries. It was kind of, when you think about it nowadays, we're like, man, like big food companies spend millions and millions of dollars trying to zero in on the right flavor profile and we landed on it very quickly. Yeah. But it was a very challenging process. There was a lot of times where we would receive product that we couldn't even sell.

You couldn't sell because why? One reason we had a significant issue, it's called delamination, where the packaging wasn't filled the right way, and it allowed a air to get into the package. They call it a channel. And so it was either the film issue or the packaging issue, but anyway, we have thousands and thousands of sticks that effectively are starting to discolor. So we clearly couldn't do it, but we've already spent that. And at that time, we don't have contracts, right?

It was like he's blaming the film company. Film company's blaming Kevin for packing it wrong. And so, like, at the end of the day, we're stuck in the middle, and we have thousands and thousands of sticks that we couldn't do. So we kind of had to take it on the chin. Other times, the meat would come out too fatty. So the product would have, like, we called them cheetah spots where it was very spotty. And we started learning more about the quality and consistency. And we started to get a lot smarter around the suppliers we were partnering with, right?

We started realizing that not all grass-fed beef was created equal. And this was really going to be the proving ground here. you were, Rashid, you were still a consultant and traveling a little bit. And Pete, you were still renting apartments to people. Yep, exactly. So, all right, so you've got 9,000 beef sticks in your spare bedroom in your apartment. Now you've got to sell them. So how did you guys start to do that? So, I meant, uh, Rashid mentioned I, I built a website on the WordPress platform, which, you know, obviously was a, it was, we got our first orders through that. And, realized it wasn't the best process.

And that was around when Shopify started getting big. And that's when I started taking a look at Shopify. And I ended up building a second website over there, just kind of see how that would compare. And it was just so much better. Yeah, and I think the other thing was we started, at the end of the day, we knew that the Chomps brand at the time, it didn't have a following.

But in the paleo, in the CrossFit communities, we identified that there were these key influencers. And this was before what influencer marketing is now. But there were these folks that, you know, if they stood behind a product, people would follow. And so you could do all of this, like build the website and make the product with the $7,000. It was you didn't need more money to start it. We just had to be as scrappy as you could possibly, you know, imagine. But at that time, I was handling all customer service as well.

So anybody that came to the website, like I would try to make. make it a very personal experience. That was one of the things that Rashid and I talked about early on. It was, you know, we have no money. We have this product. You know, what can we do that's not going to cost us any money? Yeah. Let's give good customer service. And one of the things that I would kind of, you know, grade myself on was on my response time. And you have no idea how many emails I've gotten back from people. They would email in. I would respond within seconds. And they'd be like, that is the fastest email response I've ever gotten from a company. And I would say, I would actually save those emails as proof that like this is working and people

are appreciative of it. And Pete, you were presumably some days you were out showing potential clients' apartments, but then you'd race back to the apartment and fulfill orders and pack them and ship them. Yeah. So I, well, at that time, like I was kind of slowly weaning out of real estate and doing more and more of the chomps stuff. And I just realized that this thing is taken off, you know, faster than I ever imagined. But we would, I had a Jeep Grand Cherokee at the time, and we would pack all the orders, put the labels on there, stuff them inside my Jeep Grand Cherokee. Only one of us could fit in the car at the time. So I, because it was just like every seat was taken with boxes.

And I would drive up to the post office. And they would force, they would, I wasn't allowed to go to the front door. in the back and I would just load them up into one of their carts and deliver them at USPS and they would take them and ship them out. And I guess it was pretty manageable in the first year or two because presumably the volume wasn't overwhelming, right? I mean, how many typical orders would you get a day in the first year? It was a handful, right? Like 10, 20. Yeah. And it depended, you know, if we had something going on, which you always expected those things. If there was like an email blast going on and there was some blogger where we were working.

on that was going to go feature them. He would always get a flood of orders and then I would spend the next however many days packing him up and then Rashid would fly in from wherever he was working and then we would kind of tag team it and just get through him all. But I do think the one of the big milestones where it kind of it did a few things is there is this platform called uncrate. I don't know guy if you're familiar with uncrate. No, what is it? So uncrate's kind of like you know Maxa magazine where it's just like cool guy stuff like tech cars. So we're It's an online platform where they just feature cool stuff. And a guy I worked with, you know, knew the editors there.

So we sent chomps to them and never heard back. And Pete, you're moving at this time, you're moving from Chicago to Naples. And I'm on my honeymoon in Bali. And when you're using Shopify, every time you get an order, you get like a notification on your phone, almost like a text message. And I remember my phone was in my hotel room. And I get back and I have like seven miss calls from Pete. and we have like thousands of orders and we're like whoa i'm like what is i call p and he's like what is going on where are all these orders coming from and uncray editor wrote about chomps and they

didn't even tell us that they were going to do that and so it was interesting because you know our consumer prior to that was primarily cross-fet paleo whole 30 like very focused and uncrate is just like your general guy right where it's like you're your 20 or 30 something that was just interested in it. And it showed, oh, wow, the product has a lot more broader appeal. And it just material, I mean, it took us, I don't know, Pete, how long to fill all those orders? Like, it was a lot. It was weeks. And that was a big milestone of growth. And that's where like, at that point, it was a lot of work to get those orders out. We did it. But then that's where we're like, we need to find a fulfillment partner because it was just Pete and I putting

sticks in a box and sticking a label was not driving value. you. But, Rashid, as you mentioned, Pete was moving, I think around this time. He was moving from Chicago back to Naples in Florida where his wife was from. And so when Pete said he wanted to do that, I mean, I guess this is still kind of just a side hustle for both of you, right? And so like you, Rashid, were still a consultant. And by the way, was it, I mean, was it profitable at that point? I mean, was it, I can't imagine it was making that much money. But, But what was it? Well, yeah, I would say it was profitable. And I think one of the things as a consultant, what I realized was the value and understanding of cash flow. And so we got terms with our copacker and with our protein supplier. And so effectively the goal was all. Protein suppliers is the meat company.

Yeah, the beef company. Yeah. And so once we got the product, like the clock was on and we need to make sure we sold through it to generate the cash. to pay off the invoice when it's when it's due. And the other thing is the blessing, we only did e-commerce. It was direct to consumer. And all of those transactions were credit cards. So we got the money up front.

That's why we liked e-commerce. I mean, first is because it was a side thing for P&I, so it didn't require you to be on nine to five. You can kind of do it on off hours. But also, we got paid up front. The product itself, the chomp stick, it's ideal for shipping. It's very dense. And it's like,

We stumbled on a lot of these things where it's like, wow, it's the perfect product. But it also, I think the uncray situation put pressure on the business when we realized we had to solve this problem that we couldn't fill it ourselves. Right. And so that's where we kind of aligned with a third party to do the fulfillment that integrated with Shopify. And it kind of made the business, again, a bit more streamlined where we realized that it was a problem we had to solve. Right. at what point did you guys have to go to a bigger facility? Were you still, even in these first two years, was it all being done by this guy in Iowa? In Missouri, yeah.

I mean, they're still one of our manufacturing partners today. It's in Missouri. Okay, Kevin is in Missouri. So Kevin still works with you today. Kevin has kind of rolled off. There's new owners there, but the facility itself is still. And grass-fed meat, especially domestic grass-fed meat, was still expensive, but there were fewer producers even then.

Where were you sourcing it from anywhere you could get it in the U.S.? Yeah, we had a few domestic partners, but we actually started having some quality challenges because I think the way that they process it and measure the lean point, it's a, they call it core drilling where they'll drill and measure and get an average versus some, in all other places in the world, they actually will x-ray every single individual, box and it's more automated. The other thing was, like you mentioned before, there wasn't a ton of supply. So that's where we started to figure out, you know, are there other opportunities for

grass fed globally? And we ended up landing on a partner in Australia, in both Melbourne, Australia and Tasmania. Yeah, because they produce a lot of grass fed meat in Australia. And in 2014, do you guys, and you may remember this, Rashid, because you had the numbers, roughly what was your revenue that year? Was it like a few hundred thousand, tens of thousands? Probably maybe that's when we broke 100,000?

Yeah. Yeah. And what's the margin? What were the margins on that? I mean, are these sticks pretty inexpensive to make? Because it's a premium product, grass-fed meat. And as you had mentioned earlier, Pete, cross-fitters and paleo people,

they were used to paying higher prices for the food that they were consuming. I would say the gross margin. and it's an expensive product to make, but our business, like Pete and I weren't drawing a salary and we didn't really have any costs. Expenses, right? So, right, but like, this isn't, this isn't like the cosmetics pace where it's these crazy, you know, 50, 60, 70, 80% gross margin product.

It was kind of within that 30 to 40% level. Right. So, right? So at the end of the day, like, we were profitable because the business was very lean. Right. So really, I got you. Okay, so, all right, so you are essentially an e-commerce business, and really you're focusing on, I mean, it's interesting because we did a few years ago, RX bar, and RX bar was also started in Chicago, and, you know, this guy started by going to CrossFit gyms, taking the product to cross-it.

Because it was no energy bar for Crossfitters. They all had grain, or they all had sugar, or they all, there was nothing that was totally paleo. And that's really where you guys focused, right? I mean, you were, that's who you were targeting at the beginning. Yeah. And they had a little bit of a different go-to-market strategy, despite that they started with e-com as well. But they also went very hard in terms of CrossFit with like all the,

like attending a bunch of the shows. But Rashid and I couldn't do that. This was a side gig for us. It's actually funny. We were buddies with Peter and Jared, the founders of our X-Barr, and they would see us at various shows or wherever or see us in Chicago. Trade shows. Trade shows or see us.

Chicago at the CrossFit, one of the CrossFit gyms. And we would, every time they'd see us, they'd be like, you guys full time yet? Are you full time yet? And we would, they would kind of push us because they both dove in right away going full time and building the business. And we all know where that ended up, right? And you guys were doing this really slowly, slowly. It was like part-time, because you needed, I mean, you both needed your income and you had

good jobs. And Pete, you'd been through catastrophic failure already. So you were probably hedging your bets a little bit. I had to at that point. I realized that I was like, all right, I got to be smart this time. And Rashid, you too, you were kind of hedging your bets? I was and I had my first kid in like 2015. And so my wife wasn't working.

It was just me. So like, again, similar situation where it's like I had income. The business wasn't at a scale where we could draw anything and we needed the cash to continue to grow it. So it just wasn't the right time. And we talk about like the deck. dynamic of P&I, a lot of the tension was around when we both would go full-time. Yeah. But I think at that point was where I was like, I'm in.

I'm going all in. And so I was kind of just done. Like I saw that, you know, writing on the wall, this thing could get huge if we just dedicate our time to it. So by 2015, you were full-time on this? It was a year later. It's a 2016. What happened that prompted you to go full-time?

Trader Joe's. So our first major retail customer. Wait, how did that happen? So I was down here in Florida, actually walking my English bulldog, taking her for a walk. And I get a call on my cell phone one day. And it's a very high up person at Trader Joe's that had been there for a long time, told me that her daughter had been eating chomps and sort of bringing the product home. And the family liked the product. and they wanted to find out about putting the product into the stores.

Wow. Yeah, honestly, I thought I was being punked, and it must have been like a prank call, but it turned out she was legit. So Trader Joe's calls you, and I'm assuming you're like, yeah, I'd love to talk more about this. Yeah, and, you know, the obvious discussion is really going to be around, you know, private label. already at that point? Yeah, I mean, they wanted to do, you know, that's just how they work.

I mean, essentially the conversation went, you know, we would love to bring in the product. It needs to be under the Trader Joe's label. Right. We just weren't set up to do that at all. And being able to manage two different brands, essentially, through our co-packer. He was already having a hard time in dealing with our hour scale. Yeah. And then now running another separate brand.

and just to get too into the weeds on how it works, but the USDA really makes it difficult when you're making any kind of changes to your packaging. So for us to start from scratch on creating all new packaging for Trader Joe's was not something that we could handle at the time. This is an important point. Trader Joe's, which, this is where I first saw chops in 2016

because I was on a paleo diet and I was like, oh, cool, I can eat plantain chips and I can eat these things too. But what they do is they will bring it a product. Oftentimes, I don't know, whatever it is, a cookie brand. And then over the next year or so, you won't see that cookie brand anymore. But you will see the exact same cookie product just under Trader Joe's label. It's the same product.

It's same quality. And maybe a little bit cheaper. And then it's like Trader Jose's or Trader Giotos or whatever they call it. And then the brand name you could still buy at like Whole Foods or whatever. So this is their business model. And they essentially said to you, hey, we'd love to sell your product under our label. Yeah. And so I basically kind of politely said, we just can't.

And in hindsight, if I had known the type of volume that they could move, I probably would have been able to, you know, tried a little harder to figure out how to make that work. But you said no immediately. You said we can't do that. We just couldn't. I mean, it would have been a huge undertaking for us. Right. So it was actually an interesting conversation because it ended up where she was able to bring in a certain percentage.

Like I think it was 5% of the skews that she brings in each year. She could do branded. And she said, I would do this for you. But she wanted to make sure that we had all of our ducks in a row. We could handle the scale. We could finance it. All of those things. And so, of course, I'm a sales guy.

And I'm like, yeah, of course, we could do all of that. And then when their actual first POs came in, that was. Game changer. What was your purchase order for? It was 1.1 million sticks. Oh my God. And, you know, when we saw that first PO, like, that's where I was like, this is it. This is what's going to put us on the radar. It's going to change everything. And it was larger than the previous year altogether in a single PO. One purchase order is bigger than all the customers that you had in the previous year. By a lot, probably. By a lot, by a lot. To put it into perspective, We were running about 10,000 pounds a month, anywhere from 5 to 10,000 pounds a month.

And this is frozen meat just being shipped from Australia at this point. Yeah, that's the raw pounded. So 10 to 15 was our normal click. This required us to do about 150,000 pounds. 150,000 pounds of meat a month because of Trader Joe's... To fill this one PO, that's the scale. Wow. But there was no way all this is being made by that single copaccar in Missouri.

Well, it's funny. So first of all, like Kevin told us no, probably half a dozen times, but I just kept asking it in a different way where it's funny. Like once we got through it and got them all, like I remember where I was talking to him. He's like, Rashid, I don't know how you convinced me to do this. Like, because it was just, it was a lot. But no, it's the same, the same partner was able to scale with us. So getting him to at least commit and getting the supply plan in place, like that was a feat. but before we could even do that, we then had to figure out, like, how we were going to get the money to even fill this PO, right? Because this was an e-commerce, right? We didn't have that amount of cash. So I think we got the PO on a Friday. We're looking at this and we're like, I'm thinking, oh, shit, like how this is not what we discussed. This is way more than what we had, we discussed. And so my phone rings, it's Pete. And he's like, you see in this? I was like, yeah, Pete, this is a lot more than what he's like, yeah, yeah.

And so I was like, give me a second. So I like, I go in my room, I build my spreadsheet. I'm calculating the total. Like, what does it actually look like? So I'm like, Pete, we need, I don't know, it's like one point something million to be able to fund this. And so in this situation, we needed the cash. When we come back in just a moment, how Pete and Rashid pull together the cash they need in order to grow and why they go through a very rocky period as partners.

Stay with us. I'm Guy Raz and you're listening to how I built this. Hey, welcome back to how I built this. I'm Guy Raz. So it's 2016 and Pete and Rashid have just gotten their first big purchase order. Trader Joe's 1 million sticks. And the question is, where are they going to find the money to make that happen? That's the fun part. So we were like, all right, well, what are we going to do here? Like, we have no time to go to some, you know, institutional investor or anybody else. Like, what are we going to do? So we both. just decided let's just call everybody we know. And so we actually thought of like what the terms would look like that we would offer people. And we were going to do like a short term debt with a simple interest rate.

I think it was a 10% interest rate. We would pay it back within, I want to say it was nine months for sheet. Is that what it was? I think the first one. Yeah. And we raised money from probably eight different investors that put up between 100 to 200, a little more. Some of them had a little more.

And they were just bridge loans. They were not equity investments. Yeah, it was all friends and family. Rashid's family, his brother, his dad went hard. They actually helped us out big time. And then... But the funny thing about, like, my brother contributed a lot. But he actually made me do a personal guarantee on it.

And I was like, Jamil, what are you talking about? He's like, I want your house. Exactly. And you're firstborn. I still remember, like, we were negotiating the terms. He's like, no, no, I need to make sure you guys have a personal guarantee on this. I get it. So I mean, we, it was a, it was a very smart decision when we look back, right, given that we didn't have to give up equity.

It was a dead only. But there was risk in it. So like we, we were always very transparent about the risk, but also say like, you got to trust in Pete and I. We can, we can execute it. And we did. Yeah. And Trader Joe's, they gave us some projections. They thought that we were going to do.

And they kind of let us know their forecast. And we far exceeded the projections, I think, by five times. Wow. You know, when it was just validating for us and then the craziest thing was to think that there's just now millions of new people all over the country. Exposed to this brand. Yeah. I mean, we 10x the business from 2015 to 2016. And putting that in that perspective, like we launched August 8th of 2016.

You launched in Trader Joe's in August of 2016. Yeah. And so the bulk of that year's revenue came into the back half of the year, you know, since August. All right. So you are in Trader Joe's and it is just, and this is 2016, and you are full time on this, Pete. And Rashid, you are still, you've got this. I'm still part time. I'm traveling. Yeah, you got a good job going. Was, did there start to become some, I don't know, tension or pressure between the two of you? Because now it's a real business. It's like, you know, you got a million dollar order. Yeah, I would say it was, that was probably. the source of most of our, any contention back then. I think the way I felt about it was that I was over here working on things and then he would come and his consult, he's a consultant. So what he does, you walks in and he spots issues and points them out to people and tells you what to do to fix them, right? And so I'm over here like, what the hell? Like I'm over here busting my butt and

you come in and you're picking apart my work. Why don't you quit your job and work with me? It would be so much more efficient so I don't go down some path and have to like unravel everything I just did. And so like that was this like ongoing. And by the way, the things he would point out were like, I would get so mad because I'm like, he's freaking right. And I get mad at myself and mad at him. And it was just like super frustrating. But yeah. Yeah. And I would say like I don't think Pete and I communicated. We were both super competitive even with each other and we always wanted to win. So even if it was like our idea versus his idea. And so I think fast forward, we now know how we're wired, how we tip, we know kind of how to work to me. I think right now we're working together better than we ever have.

But it doesn't mean like it's all kumbaya that we still will. We need the tension because I think that's what makes the business special because we have such differing perspectives when it comes to how things should be. And it allows us to challenge each other the right way. But it was very, I mean, it just created a lot of stress. And but in my mind, too, like all the things from an operations perspective accounting finance, I still was managing all that, right? It's like I was doing it behind the scenes and sometimes Pete didn't fully understand all the work that went into it.

And I think unless you live in the world of operations, like there's just a lot of stuff that needs to happen for it to run the right way. And not hearing anything means you're doing a good job, right? But it was just, there was tension, there was stress. And it put a lot of pressure on our relationship. So what does it take for you, Rashid, to leap into this full-time? What was the catalyst? I didn't go full-time until January 2018.

Wow. Yeah. And by that point, you guys were probably already... Ten million. Ten million dollars in revenue. Yeah, that was the right time. How much convincing does it take for you to go full-time? Are you trying to, like, bring up whole stuff now?

I'm sorry. I'm not trying to... Thank you, guy. I don't want to bring trauma up again. I'm sorry. No, I mean, you are a cautious person, obviously, super cautious. So what was the catalyst that made you feel comfortable enough to do that? No, I mean, like, from my perspective, again, like we were profitable, but we were profitable because the business was lean, right? Pete and I weren't really drawing. We didn't really have infrastructure. So when we got Trader Joe's, Pete and I made the decision that we were going to be the best Trader Joe's partner. We weren't going to leverage all those folks seeing it to try to get into the other. retailers. By the way, that is, it was totally contrary into what all of the, like, other people in the industry, even advisors that were working with us, they were pushing us to do the exact same thing and saying, use this as a springboard. This is your chance. Use this momentum. To get into Walmart and tariff. Exactly. Because Trader Joe's alone is not, you can't really, you can only hit

a ceiling. You can't get beyond that ceiling, which is true. But that's what they were saying to you. Yeah. And we just, it didn't. intuitively felt wrong. It felt like what we should be doing is treat Trader Joe's the absolute best that we ever could be the best possible vendor that we could. And that's exactly what we did. And in hindsight, it was the absolute right thing to do. But we were we were still growing e-commerce, right? So that's where it's like we were focusing on e-commerce, Amazon, and Trader Joe's. And both were just, I mean, Trader Joe's every time we launched another skew, the business would almost double. Wow. So you're now in.

this full time and it was obviously related to the growth of this thing. Yeah. So January 2018, Pete and I come to an agreement. We're like, okay, she's coming full time. We open an office in Chicago. We hire two folks. To do what? Marketing and then kind of an operations support role, just to be it from... But up to this point, you really didn't have any marketing budget. Now you've got cash in the bank. And so we hire this marketing. person to kind of really professionalize the brand. I think one of the big things we did in 2018 was we had a packaging refresh where the brand chomps as you see the brand today, that's what kind of came out of that process. And I think that was a big milestone in our growth because it allowed

Choms to stand out on the shelf compared to kind of all the other brands out there that are kind of the, we say, the see a sameness. Here's what I don't understand. I'm starting to see a little bit of it now. in like Whole Foods and I bought some of them just to test them out competing brands. But but at the time like 2017, you're crushing it at Trader Joe's. I'm surprised that the company that makes Slim Jims or that does jackslinks or something wasn't like, hey, we got to get on this grass-fed Slim Jim thing. They all tried. Really?

Yeah. And did that worry you at least initially? Yeah, for sure. It did. But I think what happens is like the customers that were buying those products, they know those brands and they're not interested in those brands. This doesn't matter if they're selling something that's, you know, comparable. They know what that, it's more of a, it would almost be like selling out, right?

So even when those big brands came out with grass-fed organic jerky products like yours, competing products, it would be like, I don't know if I don't know, Coca-Cola came out with a kombucha. people be like, I'm going to stick with my kombucha brand. Well, first off, I think a lot of it is people are seeing through some of that greenwashing, too. So they're going for specific claims, right, just to check boxes. But the customers are so educated nowadays. They know how to read labels. They know how to read ingredients list.

And so you might have something on there trying to claim certain things. So, for instance, there was a product out there that was, this is how it read, 100% beef grass fed, right? So you change the order. So our label says 100% grass-fed beef. That's the right way to say it. They said a 100% beef grass-fed. Yeah, I have no idea what that means or like why it would be that way. But it was something straight, something a little shady going on.

And I think, you know, I think customers caught onto that. And I feel like that's, and we're very selective too. Like we will go through 10 different flavor profiles before we actually launch something. And even today, we only have nine flavors. So you got to imagine those types of bigger companies, you know, they over-innovate. They throw, you know, as many different skews out there. They test and see what's going to work. But they do it when it's out in the marketplace.

And, you know, anytime we ever launch a product now, we spend a lot more time and there's a lot more feedback coming in. Yeah, I'm curious about price point, right? Because this is not the same price of slim gyms, right? But I guess did it not matter? Were you just not even worried about that because you were going after a different consumer willing to spend more money on this, this beef stick versus a slim gym or a competing bee stick? Well, so like if you look at the category in general, right, you have slim gyms, you have jacklings. But the majority of the jerky category is in C store convenience, right, gas station and chomps, we're not playing in that space right now. And so a lot of the times, like we're not necessarily going head to head with them.

You're not going up against Jack's Links or whatever the other brands are. Like we're starting it to a little bit more as we get into broader retail exposure. But like our core, you know, Jack Links and Slim, they're not in Trader Joe's, right? They're not in Whole Foods. They're not in Sprouts. And so that's where it's like, you know, we wanted to make sure we're priced right. So the consumer will not like bulk on it. But like we're priced, we're line priced with all the other competitors in the space.

Once you were, you're in Trader Joe's and you're really, and hit $10 million in revenue, presumably people are saying to you, hey, you got to have more products, got to have a larger product line, more skews. And really, the kind of beauty of the business was it's elegance, its simplicity. It's really, it's one product. It's beef sticks. But there was probably pressure on you to, like, diversify beyond that to go into, like, I don't know, puffed beef crunchies or stuff like that. Did you get people saying that? Like, you cannot build a business on beef sticks alone.

Well, we would get comments like that, but then we would just be like, have you looked at our growth? I mean, you can't argue with numbers, right? And that's just the, our growth was very strong. And it was all very concentrated within this core product line. We get comments every so often, but it's like, you know, I think we've kind of proved that wrong at this point. We're going to be exceeding the, we have exceeded that nine figure range of revenue. So over $100 million. Mm-hmm.

And beef sticks. It's incredible. Well, I would say we do have turkey as well. Sorry. In meat sticks and venison and venison, right? It really is amazing. I mean, it shows you, there was zero market for that. Well, there were slim gyms, but it just shows you just consumer habits have changed so much.

Because I would imagine most people eating this are probably into nutrition. So this is like a protein kick for them. It's probably somebody who's not choosing to eat a Snickers bar, even though they're great, right? it's a different kind of consumer. Well, yeah, very different. And here's a fun fact, actually. So our core consumer is over 70% female. So if you think about that jerky or meat snacks category, how it's so...

Dudes. It's all dudes. All dudes. Just look at that set. I mean, it's all like, even the colors of their packaging. It's the blacks. Jacks, links. All of it.

All of it. And we've got mommies. We've got, you know, it's pretty wild. And we didn't really set out to build the business that way, but I feel like the way that we started within these niche diet tribes very early on, those were all very heavily female focus, but then also as an e-commerce brand in general, like we built the brand on social media. It was all free for us back, you know, back when we did it.

That was the way to do it. And so females were really driving that. And I think also there's one stat, like with one of our retailers, we were bringing 40% new folks to the jerky set. So people eat chomps not because it's a jerky product. It's just a better for you snacking option. So I imagine during the pandemic, like many snack brands, like Cliff bars and others, you just saw a massive surge because everybody was like stockpiling shelf stable stuff for a while. But then probably like a lot of those products you saw a dip because, well, people were going to, weren't going to the gym.

And maybe people had a chomp stick in their bag and their gym bag. And people weren't, you know, they were in their house and their pajamas. Right. And I think you did see a dip in 2020 in sales, right? Yeah, so we saw that massive spike that you mentioned. Then the rug got pulled out from underneath us, you know, because we're very, we're an impulse. We're an impulse purchase, right?

Like, you're at, we're at all these registers at all these different retailers. And if you suddenly see a huge drop 90% overnight and foot traffic, that hurts. And so your product's going to stop moving. In top of that, not being an essential item or not the paper towel was told. of paper or whatever, you know, other items, we're just a snack. The distributors themselves were not even saving room on the trucks for products like ours. So they were either just sitting in their warehouses, not making it to the store, or they just stopped ordering. And I think as soon as everything came back online in terms of like distributors having more of that

capacity and other retailers opening this doors back up, allowing more people to come in the stores, we saw all of that. demand come back and then some. And things just blew off. The brand just kept getting bigger and bigger and faster than we ever imagine. And we hit a production capacity with our co-packer.

How did you solve it? Did it just kind of work itself out? No, I mean, we have now three separate manufacturing facilities and three packaging lines running simultaneously. And we went ahead and ordered six more. So next year, we may have up to five facilities running jobs to be able to keep up with demand.

It just took time, right? At the end of the day, like, we didn't want to flip a switch and not have faith in the new manufacturing partners to be able to produce the exact same product. And so it just took time to get them to stand up. But now we're in a lot better shape. And this is a kind of a mind-blowing thing. You've a tiny staff for a company that does over $100 million. How many employees do you have, full-time employees? We're just under 40 right now. It's unbelievable. Yeah.

We need a lot more people. like we're yeah you need more people yeah we'll have we'll have 70 the HR roadmap is built out to 70 through the end of end of 23 but I think the other thing is like Pete and I see so many other companies where they surge employment and you see these layoffs and yes Pete and I were like we're so aware that we we want to grow the team the right way and we never want a situation where we kind of grew too fast and I think it's also the tension between Pete and I as far as like our measured risk on how we want to do. And I think we found a happy meeting. But like people is one thing where we're very deliberate about who we bring in. We want to make sure that they meet our core values. But also that there's

longevity. And it's not something where it would require us to pull back. Is, is, in your view, Pete the one always wanted to race forward and you're the one kind of restraining him just a little bit? I would say Pete describes it as we're a truck barreling down the road. I'm the guy with my foot pinned on the gas. Rashid's actually steering the truck, and he set up the guardrails to make sure we don't fly off the highway. And we're just going faster and faster and faster right now. But I do think, like, I would say, like, my approach isn't to slow things down,

but I think I can refine sometimes Pete's ideas. But I think collectively, we both are able to pour fuel on the fire, right? Like, if we want to get something done, we can execute and move quickly, but also do so diligently. Like, it's tough to do both. All right. And up until 2022, this 10 years in, totally bootstrapped. You just taken a couple of loans, all repaid. 2022, you decide to take your first outside investment, $80 million from minority stake.

I think the company is valued it to $300 million, roughly. Am I right about that valuation? Yeah. About $200. Okay. And it's awesome because now you can take some money off the table. you've been bootstrapping this for so long. What does that investment allow you to do now?

Because you're everywhere. You're in all the big box stores and where does the growth now come from? How do you get bigger? So I would say more importantly than the cash, because we didn't do the raise because the company needed cash, right? We needed what we were doing is we were trying to align ourselves with very, very smart people. We were interviewing investors to see who's going to bring the most value. I'm sure with your cash flow and your margins and your low cost, I'm sure there was tons of people wanted to invest.

Yeah. I mean, we had we had opportunities for, you know, minority stakes, majority stakes, or we could have sold the whole company. And we were not excited about that whatsoever. Like we have so much work to do and things that we know that we can accomplish on our own. But we do also realize and we recognize that we've never built a company this big before. We'll be the first ones to raise our hands and kind of say we need help. And at this scale, it's, you know, we have something significant to lose.

And so what we wanted to be able to do is learn from somebody else's scar tissue. And I think that is so valuable. That's worth more than any amount of money. So it has been an absolute, just a game changer and they totally leveled up the business since they joined. So when a private equity firm makes a minority stake usually down the road, it means they want to outright own the whole business. And that may happen here that down the road, you know, this private equity firm will buy out, you know, or maybe you all sell to a larger company or something. I mean, I'm assuming that, you know, you both love what you're doing. You've been at it for 10 years and full time, really only for about five or six. But what do you think? I mean, you know, you already have built this massive brand. And clearly at some point, you know, there's going to have to be some kind of exit. because you do have an investor here. Yeah, I mean, I think we'll have a feeling when we may need help and raise our hands

and that may drive it. But I think, you know, we've got a good five to seven years to continue to build towards that billion dollars. Like at the end of the innovation go two ways, right? It can either be really bad or be really good. And that's why we're patient about what we bring to market. There's a lot of stuff that we're working on right now. And we have a lot of good things underway.

But we can grow with our existing line. We don't need to launch more products to grow, at least in the next. next two years. When you reflect on this story, obviously a lot of really great strategic thoughts gone into this. And the fact that the two of you partnered on a, you know, really, you got married quickly, right? Overnight.

It was a Vegas shotgun wedding. How much of what happened do you, do you have a thing has to do with the work? And how much do you chalk it up to lock? First, do you, Rashid? I would say it's a little bit of both, but I think what I think Pete and I are really good at is taking luck and capitalizing on it, right? There's kind of a burden hand opportunity and there's a few different approaches you could take. And I think, you know, we were fortunate to get that call from Trader Joe's, but we were also, we were able to leverage our skill in what we thought the one of the business to do to capitalize on that opportunity. Yeah.

What I would say is, you know, both Rashid and I come from immigrant families. And, you know, just growing up, watching my grandmother working two to three different jobs, raising six kids on her own, unable to speak English really well. But it was just, she just did it. And then my dad had that exact same mentality. It's just the mindset that he has always always had and really instilled in me. That's what I've seen growing up. Rashid comes from a very similar background.

I think the two of us just really have this scrappy, resourceful mentality. and extremely resilient. Like it does not matter if you tell, if we set our minds to something, we will make it happen. And that's just how we've always been. That's Pete Maldonado and Rashid Ali, co-founders of Choms.

By the way, if you look at the Choms website, you will find all kinds of interesting recipes for how to use the snack sticks in a bunch of different ways. There's Choms Kish, Choms Cababs, Choms Casadias, choms, Choms Chili, even a Valentine's Day dinner for two. Pasta Carbonara with, yes, chomps. Hey, thanks so much for listening to the show this week.

If you want to contact our team, our email address is hibt at ID.wondery.com. If you want to follow us on Twitter, our account is at How I Built This, and mine is at Guy Raz. And on Instagram, we're at How I Built This, and I'm at guy.org. This episode was produced by J.C. Howard with music composed by Routteen Arablewe. It was edited by Neva Grant with research help from Susanna Brown. Our production staff also includes Casey Herman, Elaine Coates, John Isabella, Liz Metzger, Catherine Seifer, Carrie Thompson, Alex Chung, Chris Messini, Carla Estevez, Sam Paulson, and Lauren Einhorn. I'm Guy Raz, and you've been listening to How I Built This.