GUY RAZ, HOST:
And one more quick thing before we start this episode - just a little warning that my interview with Peter Rahal has some salty language in it. Peter definitely drops a few, you know, F-bombs. So if you're listening with kids, just bear that in mind, and here it is.
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RAZ: You got this idea. You have a plan. Did you think, yeah, let's go raise money?
PETER RAHAL: So that was actually our initial plan. And I remember Jared and I, like, talking about like, all right, who are going to raise money from? Like, I'm harassing my dad, like, do you know any, you know, rich people I can, like...
RAHAL: ...You can connect me with...
RAZ: Give us money, yeah. Yeah.
RAHAL: ...Who'd give me - give us some money? And...
RAHAL: And my dad was like - he's old-school. He's, like, super traditional. And he's like, you need to shut the fuck up...
RAHAL: ...And sell a thousand bars.
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RAZ: From NPR, it's HOW I BUILT THIS, a show about innovators, entrepreneurs, idealists and the stories behind the movements they built.
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RAZ: I'm Guy Raz, and on today's show, how Peter Rahal turned egg whites, cashews and dates into a $600 million brand called RXBAR.
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RAZ: If you go to a website like Amazon, and you type in energy bars and you start counting all the different types of bars that come up - and I mean brands, not flavors - brands of energy bars - you will probably lose count at around 300. And the actual number is a lot higher, maybe as many as a thousand brands. No one really knows. The point is - is that energy bars - this is a really crowded sector. But six years ago, Peter Rahal walked into that extremely crowded space, and he said, you know what the world could really use? Another energy bar.
So Peter and his co-founder started RXBAR in Chicago with almost no money and no experience in the field. What they did have was an interesting idea - a way to market energy bars that few people had thought of before - kind of a side door into a very jampacked marketplace. And that side door was making energy bars for a very niche group of fitness freaks. Now, even though they started small, you can now find RXBARs in just about any major grocery chain in America. And you've probably seen them. They've got those distinctive packages with the ingredients listed right on the front of the label - three egg whites, four almonds, six cashews, et cetera, et cetera.
Now, that label and that approach sent Peter Rahal's little startup into the stratosphere. In 2017, less than five years after launching in Peter's parents' basement, RXBAR sold to Kellogg's for $600 million. It's an incredible story, and I was super excited to hear Peter tell it when I sat down with him in front of a live audience at the Athenaeum Theatre in Chicago.
RAZ: Peter, wow. You are - I think some of your friends are here.
RAZ: Amazing. Amazing. So Peter, tell me a little bit about your home life as a kid. You didn't grow up too far from here - about - what? - 20-minute drive or something.
RAHAL: Yeah. So it's about 16 miles from Chicago, so just a pretty picturesque suburb. And both sides of my family are Lebanese, and I attribute a lot of my strengths and weaknesses to that DNA.
RAZ: Right. Right. And so what did that mean? Like, did you guys eat, like, Lebanese food? Did you, like - I don't know - did - were there, like, cultural things that you did growing up?
RAHAL: Yeah. I think comfort and conflict, valuing trade and commerce.
RAZ: But, like, I mean, around the dinner table, was there comfort and conflict?
RAHAL: Yeah. Yeah.
RAHAL: It's just normal.
RAHAL: I mean, you know, you get in a fight, and the next thing you know, you're - nothing's wrong.
RAHAL: So it's unusual for, I think, American culture, but that's how our - some of our family was.
RAZ: Yeah. And what did your parents do? What was their business?
RAHAL: So my father works in - he's a broker, trader, agent for juice concentrate or different industrial fruit products. So they represent processors in Europe, South America, Asia. Like, for example, apple juice concentrate - they'll represent the processor in...
RAHAL: ...China and then sell it into the United States - so a global trading brokerage.
RAZ: So - and it's called Rahal Foods, right?
RAZ: So you kind of grew up a little bit in this world of the food industry.
RAHAL: Oh, totally. Like, I grew up listening to my dad all - at all hours talking about, you know, selling loads of apple juice and drums and all this language and jargon. And, like, for me, I just knew - the food is all I really know.
RAHAL: So he really introduced the business to the family. Like, business - his business was part of his life, and so I grew up - like, that was, like, normal.
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RAZ: What about school? Did - was school easy for you, or was it difficult?
RAHAL: Yeah, school was probably the first bit of adversity I faced in my life.
RAHAL: So I was miserable at school. I'm not meant to do anything linear. For example - and I remember specifically in, like, seventh grade where my friends were going to study hall. And I was pulled out of the normal study hall. And I was put into a special study hall. And so for me I've always just interpreted - like, oh, I'm not normal or I'm slow or I'm stupid. So I kind of always punted school and formal education.
RAZ: Yeah. Did you - I guess your mom had you tested - right? - for...
RAHAL: (Laughter) Yeah...
RAHAL: ...What's wrong with him?
RAZ: So you went through a battery of...
RAZ: ...Cognition tests, and it came out that you were dyslexic.
RAZ: How old were you when you knew that?
RAHAL: Well, I - they always knew something was, like, wrong when I just - I think I learned to read, like, way later or, like, speech therapy - all this shit.
RAZ: Were you embarrassed by...
RAZ: ...By your ability at school - even in junior high and high school?
RAHAL: Yes, for sure. I mean, from - I would say it's, like, from second grade to 22, I just thought I was, like, not successful because you think about today in our society, like, when you're 12 years old or 16 and even in high school and college, your performance or success is determined based on your marks at school.
RAHAL: I mean, I was a D student. Like - and I tried. I worked really hard. Like, I was - to get Ds I, like, had to climb a hill with an airplane on my back. So it was great conditioning for me to kind of go on and survive. And I think about some of the early days of RXBAR in particular. Like, with Jared it was, like, survival.
RAZ: Yeah. But you did get into the marijuana business.
RAZ: Is this...
RAHAL: It's an overstatement I think, but...
RAZ: You did...
RAZ: ...Sell - you started to sell marijuana to friends in high school. First of all, how did you know what to do?
RAHAL: So as a child, I was always fascinated by the cycle of life with gardening. So like...
RAHAL: I'm justifying it. So - but I think it's really fascinating that you can, like, plant a seed, you take care of it, you put it in a good spot, you nurture it, and then it grows into, say, a tomato. And then you can harvest it.
RAHAL: And so I - and for real, as a kid, I was into gardening. I had vegetable gardens. And then as a curious 16 or 17-year-old - this is when pot used to have seeds in it. Apparently, it doesn't have seeds in it anymore.
RAHAL: I got - had seeds. And I just innocently put it in my - yeah, I germinated it inside with a light. And then my parents - my parents have a beautiful house, and the roof is really flat.
RAHAL: And it's one of those houses that's in a forest, a little bit on a hill. And so I just put it on the roof. And, you know, and it grew beautifully. And...
RAHAL: And then it came to harvesting. And - now, I'm not a good salesperson. I was trying to sell it, but no one wanted to buy it, so we really - I really just gave it to all my friends. And it was just a fun process.
RAHAL: The next year, I grew it again. I got more sophisticated. But then the landscapers saw it, and my dad had enough and took it down. And then I planted it in the yard, but then they mowed it over.
RAHAL: And that was it.
RAZ: That was the end. All right, so it was time to go to college - right? - I guess. And you were - as you say, you had - you were not a good student. What did you - did you have a hard time getting into college?
RAHAL: Yeah. So my family's legacy was through Denison. And I applied, and I didn't get in.
RAHAL: So I went to school where I could get in.
RAHAL: And I - and, like, the whole process I just, like - I didn't want to - like, my mom filled out my paperwork.
RAZ: Well, I mean, it was probably challenging. I mean...
RAZ: Dyslexia is not a joke. I mean, this...
RAHAL: And it's hard to explain, but I just...
RAZ: Yeah, how do you explain to people when they say, well, what does it actually mean? Like, can you not read easily? Like, what does it mean?
RAHAL: I think the best way to describe it is any sort of sequential tasks - so tasks in a sequence - is really challenging. Paying the bills - when you think about, like, something as simple as that, dyslexics have a really hard time following those things. But I think it's important to understand what they're good at. And so what dyslexics are good at is pattern recognition - so, like, facial recognition, recognizing shapes...
RAHAL: ...Holistic thinking, things that are really good in strategies.
RAZ: Did you know that at the time when you were in college?
RAZ: You just thought, I cannot read. I can't do - it's - my brain just doesn't work that way.
RAHAL: Yeah. I just - like, I didn't know what I was good at. Honestly, I think a lot of entry-level jobs require sequential tasks and linear thinking, and I'm just not set up for it. And I think that's why you see a lot of entrepreneurs who are dyslexic.
RAZ: So you made it through. You graduated.
RAZ: You're done. You get your cap and gown. And what did you do? What was your first job out of college?
RAHAL: So my father was grooming me for - to work in the family business, and that was, like, my plan. So...
RAZ: Your plan was to go work at Rahal Foods. You'd been going there since you were in diapers.
RAZ: ...And clear - so what was the job that you did?
RAHAL: So I had a bunch of internships at different fruit processing plants. And so what they do is they take, like, say, apples, and then they will press them, and they turn it into, like, different product - so juice concentrate, industrial products so - like, juice companies like Mott's would buy and put into their products. And so my father was able to give me an opportunity at Mondi Foods, which was in Belgium. And they're a red fruit processor. So red fruits are strawberries, raspberries. And I wanted to learn the business - right? - just learn to prepare me for the family business. And so I graduated in May, and, like, I had one week off, and then the next Friday, I was on a plane with a suitcase to go to Belgium to go and move into an apartment to start Monday.
RAHAL: And I remember showing up my first day of work. I showed up in a suit that was, like, oversized and looked like shit.
RAHAL: And no one's wearing suits.
RAHAL: I didn't get the memo.
RAZ: And was there somebody there who was like, oh, Peter, I know your dad, and come on in?
RAZ: I mean - right?
RAZ: ...like, 'cause your dad had been in this industry his whole life, so naturally, he wanted you to get experience, you wanted that experience, and it made sense. So they were processing, like - what? - strawberries and - red fruits, right?
RAHAL: Yep. Absolutely.
RAZ: Yep. How long did you end up staying there in Belgium?
RAHAL: Like, 13 months.
RAZ: And I guess there was a period - like, sort of a four-year period after you graduated college where you did that job, and then you kind of tried different things. You went to Lebanon and - for a while. For - how long did you go to Lebanon for?
RAHAL: I was there for a year, two.
RAZ: And what did what did you do there?
RAHAL: So I was a student not working for a degree.
RAHAL: And so, for me, I have great pride in my family's origin, and, like, I had to be there.
RAHAL: You gain a lot of empathy when you are seeing how other people live.
RAHAL: So there was - really valuable experiences, and it really shaped me as a person.
RAZ: So when you came back to the U.S., did you, like, go to your dad and say, OK, Dad, I'm ready? I've done my internship, and where's my office at Rahal Foods?
RAHAL: No. I came back. Well, the origin of coming back - I was, like, sick of being a foreigner. But I came back because I felt like I was being selfish in pursuing these self-serving things and being away from my family, and I felt like my career wasn't getting anywhere. Like - and so I came back, and I kind of knew - I knew I needed other experience, so I wanted - and my dad was like, no, just go get a job somewhere else.
RAZ: He said, go get a job. So you wanted to go work at Rahal Foods?
RAHAL: I think if they wanted it, I would have said yes, for sure. But they didn't want me.
RAZ: Now, let's just pause here because had you gone to work for Rahal Foods, your life would've been totally different, and you might not be sitting here on the stage, telling this story. So - but at the time - did that sting at the time?
RAHAL: I was - well, if you look back in my history, I was used to eating shit.
RAZ: Because you were a bad student or...
RAHAL: Yeah, like...
RAZ: Yeah, right.
RAHAL: Failing was not something foreign to me.
RAZ: I've read that, at that time, in retrospect, you describe yourself as an angry young man. Angry - what were you - what did that mean?
RAHAL: I think a combination of, like, hunger and drive and then being lost and I think probably, honestly, a sense of entitlement. You know what I mean? Like, I should be going here. And I just was short-tempered, and I wear my emotions on my sleeve. I was unable to self-regulate. I hadn't softened my edges a little bit.
RAZ: Were you living with your folks, with your parents at that time?
RAZ: So you're, like, 24, no job. What did - so what did you do? Where did you go work?
RAHAL: So I worked for a transportation brokerage.
RAHAL: In Chicago.
RAHAL: And that was a great place to start. Those places hire like crazy. They're like mills, you know?
RAHAL: ...Like, people mills.
RAZ: What's transportation brokerage?
RAHAL: So you would get, like, moving something from A to B.
RAHAL: There is someone who needs something moved. And then there's, like, the person who's going to move it - so a middleman between the person who owns the truck...
RAHAL: ...And then the shipper.
RAZ: Right. How were you able to do that with dyslexia? Were you able to kind of navigate that job without having to look at spreadsheets and...
RAHAL: No. I mean, I wasn't good at the job.
RAHAL: I mean, I can, like, sell stuff sometimes. I'm easily distracted. And I think - I actually did OK, but at, like, nine months, I, like, left.
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RAZ: You're there for nine months. And obviously, we know you went to go start, but how did the idea for an energy bar even come about?
RAHAL: So the - I think two origins of that - so one is, I had a miserable job. I needed a new job.
RAZ: You needed - you just - necessity.
RAZ: You needed to find something that was going to get you excited about the world.
RAHAL: So I - there was that drive to go solve a problem - right? - or find an opportunity. I was a early adopter of CrossFit. I was introduced to it playing rugby, and I just really fell in love with it. It was painful. It worked. You gained results. It was a great community. They advocated for, like, a Paleolithic diet.
RAZ: Yeah, grain-free, dairy-free, sugar-free.
RAHAL: And so I started, you know, obviously being influenced by that. And a question was, like, why isn't there a good-tasting, like, bar that fits that? That was missing, right? And then working out at CrossFit gyms, you start to see, like, oh, my gosh, there's these group of people that all do the same activity that prescribe to the same nutrition values, and yet, they're selling water; they're selling T-shirts. And so, like, OK, can I see a retail landscape?
RAZ: And there was nothing like that. I mean, there was no energy bar that fulfilled the paleo, you know, criteria?
RAHAL: No. I mean, there - no. There...
RAZ: I mean, there was Larabars.
RAHAL: Yeah, Larabar...
RAZ: But they're not really a protein bar.
RAHAL: But from a protein perspective - there was one called AMRAP Nutrition, but it kind of sucked.
RAZ: And so you - so - OK.
RAZ: All right. So 2012, the wheels start to turn in your head. And when you first approached, let's say, your friends, and you were like, yeah, I want to quit my job and start an energy bar company in the most - possibly the most crowded sector in the food business - did - if I was your friend at the time, I'd be like, dude, you don't want to do that. That's like getting into the bottled water business.
RAHAL: Yeah. And I think a lot of people when - you know, I'd be very excited about or we'd talk about it - the look on their face was, like, that's a dumb fucking idea.
RAZ: And they weren't wrong, necessarily. I mean, of course, it...
RAHAL: No, I mean, it was.
RAZ: At the time, it was.
RAHAL: No one...
RAHAL: ...The market didn't need another protein bar. That's for sure.
RAZ: But you were like, no, this - I think this is going to work.
RAZ: Or did you just not talk about it to many people?
RAHAL: I don't have many friends.
RAHAL: And so there's advantage of not...
RAZ: I see. OK.
RAHAL: ...Having many friends. No, I mean, we were - I was kind of private about it. But we were just focusing. We would get some feedback, but, you know, if it's negative, you're kind of like, oh, fuck off, we're just going to do it anyway.
RAZ: Yeah. And did you - I guess, like, pretty early on, did you decide to call your friend Jared Smith to join you?
RAHAL: Yeah, absolutely, so...
RAZ: You called him, and you said what?
RAHAL: He - we said, yeah, let's look - let's - you know, it's not like - there's these moments where it's not like, oh, like, we're going to do it and commit. It's, like, a process. So first, like, let's go to the Whole Foods. We looked at it.
RAZ: You looked at the ingredients of other bars.
RAZ: ...Just to get a sense. Yeah.
RAHAL: Yeah, exactly. So we just kind of, like, did some preliminary market research and then started learning, really.
RAZ: And what did Jared bring to this that you didn't have?
RAHAL: So one of the main advantages of being dyslexic is you know very clearly early on in your life what you're not good at, so it was, like, I knew I couldn't do it by myself.
RAZ: That you couldn't, like, do the spreadsheets and the...
RAHAL: ...Just any - like, I couldn't do a lot. And I knew I needed someone to really balance me out. Jared's temperament in general, like, was perfect for mine. We have an amazing rapport. I've known him since first grade. It was a natural fit.
RAZ: And what did you guys do? Like, what was the first thing you did? Did, like - you bought a bunch of ingredients, and you, like, got a Vitamix, and you just threw it in there and blended it up? Like, how did you start to even make prototypes?
RAHAL: So first was, we went to Whole Foods and just toured the market. On that tour, we were like, let's start playing around with ingredients. And so we always had the vision for, like, what the product would be like. So, like, a real, like - the jargony (ph) term is, like, a minimal-ingredient, fruit-nut protein bar. And the general, like, principle or philosophy around the product was, like, we - whatever part of the, like, formula we needed, we wanted to make sure the ingredients were the best possible.
RAHAL: And so you think about, like, binders, like honey or tapioca syrup. Like, we wanted the best binder possible, and so we went with dates. It's a fruit. It's real food. And then when you think about protein, you can do soy or whey or these other things and...
RAZ: But they're not paleo.
RAHAL: No. And from our world, like, egg whites were a superior protein source - the highest bioavailability. And you think about Americans and our culture - like, people eat eggs every day, so they're so closely associated with health and breakfast and bodybuilding, even. Like, they eat a crazy amount of eggs. And so that's, like, the protein side, right? And then the other side is, like, inclusions or flavor components. So, like, we wanted almonds, the king of nuts. And then you think about chocolate. Like, we searched the U.S. to find a hundred percent chocolate.
RAZ: No sugar.
RAHAL: No sugar added.
RAZ: ...Because you can't eat sugar on a paleo diet.
RAHAL: No. So we found these, like, hundred percent chocolate, basically cacao. And so that was, like, how we approached the philosophy of the product.
RAZ: How much money did you put into this business?
RAHAL: To start was, like, 5,000 each.
RAZ: So you had $10,000.
RAHAL: And I borrowed the five.
RAZ: From your dad. OK.
RAZ: So he gave you the five (laughter). And what kind of equipment did you have - like, a Cuisinart? Like, I interviewed Lara Merriken, who created Larabars. And you may have heard this episode. I mean, she just took dates and nuts and put them in her Cuisinart, and then rolled it out and shaped it, and that was how she did it. How did you do it in your little, you know, kitchen?
RAHAL: So making protein bars is pretty similar to, like, making cookies or any sort of, like, dough. So we just used a Cuisinart. And the funny thing...
RAZ: So you used a Cuisinart.
RAZ: ...Just - anybody interested in starting an energy bar business, get a Cuisinart.
RAZ: You're going to need it.
RAHAL: Just, like, a little bowl mixer. They're really good machines.
RAHAL: And so the funny thing is, in our lab, where we do all product development today, we have the same red mixer that the first recipe was made in.
RAZ: Oh, it was a red Cuisinart.
RAHAL: Yep. And we have...
RAHAL: We have, like, four other ones that are silver, but there's this red one in our lab, still. That's the original one. It's still used today.
RAZ: So you guys would take dates and stick them in the Cuisinart, and you have cashews or...
RAHAL: Well, actually, cashews came later. We had - we used - so, like, we were so obsessed with being differentiated. We wanted to be differentiated from Larabar, so we actually used dates and figs early on.
RAHAL: So that was, like, our original formula.
RAZ: So who was testing them? Were you giving it to friends and asking for feedback?
RAHAL: Yeah. So, like, August 2012 to March 2013, you know, we'd have, like, logs of this RXBAR dough. And I remember showing up to the CrossFit gym that I was a member of. I was the weirdo with, like, Tupperware...
RAHAL: ...Of this stuff.
RAZ: And what was the first flavor that you made?
RAHAL: Coconut chocolate.
RAZ: So you would - you actually made the bars, put them in Tupperware and went to your CrossFit gym?
RAHAL: Unpacked just some Tupperware. And Jared would do the same at his - the gym he was a member of.
RAZ: And what did you do? Did you say, may I speak to the manager?
RAHAL: Well, I was pretty entrenched in that community.
RAHAL: So I knew the owners. I knew everyone.
RAZ: Got it.
RAHAL: I was, like, obsessed with working out. So - but it was like - it wasn't just once. It was all the time. You know, we collected tons of data of like, does this - do you like this? Do you not like this? What would you like? Would you pay this?
RAHAL: You just ask a ton of questions.
RAZ: Yeah. At what point did you say, OK, we got it; we can actually start to try and sell these?
RAHAL: So like, ideation was August 2012. And then the first time we, like, collected revenue or made some sales was March 13, 2013. And we moved pretty quick. So we were really small. Like, we started in my parent's basement. We didn't have much exposure. We were manufacturing ourselves. We were doing literally every part of the business from filling it to websites, ordering ingredients...
RAHAL: ...Like, literally designing, packaging, printing it, labeling it - all of it.
RAZ: How did it - what did it - what did the packaging look like?
RAHAL: I actually have some.
RAZ: All right.
RAHAL: It's not staged. Don't worry.
RAZ: For our podcast audience, I should describe this package 'cause it could've been the same package you sold marijuana in in high school.
RAZ: It's just a brown package. And there's just a sticker on the front with some coffee beans, says RXBAR, coffee count on the back. It says, you know, a bunch of stuff.
RAHAL: You know, we couldn't afford, like, proper packaging. So we just - we designed it on PowerPoint. And then we would send the...
RAZ: Well, there you go, PowerPoint.
RAHAL: We would send the file to, like, Staples. And I remember Jared going to Staples in Naperville and, like, negotiating with a guy to get better rates. And then...
RAHAL: ...We eventually developed a relationship with a guy. His name is Steven (ph).
RAZ: Here's the thing. How did you guys know that this was going to be safe, that it wouldn't go rotten, that it was going to be shelf stable? Like, did you - was there a point where you had to hire somebody to do that or...
RAHAL: So the hypothesis was all these ingredients by themselves are stable alone.
RAHAL: So you put them together, they'll be stable.
RAZ: Simple as that.
RAHAL: Yeah. And like, in early stage of a business, you can't break the law, but you kind of have to break the rules a little bit. And like...
RAHAL: ...We were eating it, and we were fine. And...
RAZ: Oh, my God.
RAZ: Oh, wow.
RAHAL: But, I mean, all the ingredients are stable and...
RAHAL: ...Food safe. So it really wasn't a concern with it. And, you know, you look at the market. Well, Larabar has - like, you know, you kind of connect the dots.
RAZ: And how did you come up with the name RXBAR?
RAHAL: So from the early days, like, the whole strategy was to make a product that is for CrossFit, like, that market and for the paleo consumer and build it online. We'd build a Web store and sell directly to gyms.
RAHAL: And then a byproduct of that would be, like, consumers coming directly to us. And we would scale that and then eventually cross the chasm and go to a co-packer and then go into more traditional retail.
RAZ: How was it that there was no energy bar that was directed toward the CrossFit community? How is it that no one thought about that?
RAHAL: Well, I think a lot of people look at niches and - or look at a small segment, and then it's not big enough for them.
RAZ: It was like a side entrance almost. It wasn't like, we'll start at Whole Foods. It was, let's just start with CrossFitters.
RAHAL: Yeah. And we were very disciplined with it. I remember being like, I rather - we rather have a CrossFit customer in California than a local Chicago independent grocery store just because in the grocery store, we're among the sea of competition. We had no awareness. The product didn't really make sense for everyone. Whereas in a CrossFit gym, we were by ourselves. It was literally engineered and designed for that occasion. So it was perfect. And so we really focused on that. And actually, back to the name, I remember sitting in Jared's apartment, which he still lives in.
RAHAL: And I remember a funny story. Like, so we had to, like, go get the domain, right?
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RAHAL: And this - the guy, some, you know, cyber squatter had the domain...
RAHAL: Yeah. And he wanted $10,000 for it.
RAZ: That was all your money.
RAHAL: And I was like, fuck. And Jared's like, well, let's offer a thousand dollars. I was like, all right, let's just do it. He offered a thousand. He gave it to us.
RAHAL: And I remember Jared - my...
RAHAL: ...This - I was like, we should've offered 500.
RAZ: Wow, a thousand bucks. So early on, did you think - and we've had a lot of people on the show who early on go out and seek funding. Did you - I mean, you get this idea. You have a plan. Did you think, yeah, let's go raise money?
RAHAL: Yeah. And that - so that was actually our initial plan. And I remember Jared and I, like, talking about - like, all right, who are we going to raise money from? Like, I remember asking my dad, like, do you know any, you know, rich people that can like...
RAHAL: ...You can connect me with who'd give me...
RAHAL: ...Give us some money?
RAHAL: And my dad was like - he's old-school. He's, like, super traditional. And he was like, you need shut the fuck up...
RAHAL: ...And sell a thousand bars.
RAZ: Coming up in just a minute, how Peter and Jared sold those first thousand bars and a whole lot more. I'm Guy Raz, and you're listening to a live episode of HOW I BUILT THIS from NPR.
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RAZ: Hey, welcome back to this live episode of HOW I BUILT THIS from Chicago.
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RAZ: So it's 2012, and Peter Rahal's dad has just told him, no, I'm not going to find some rich people to loan you money to start your energy bar company. You have to go out and prove yourselves first and sell some bars. So Peter and his partner, Jared - well, they listen.
RAHAL: And, you know, here Jared and I are just these entitled kids who think raising money will solve our problems. That message was really powerful because it allowed us to focus on what's important. And what was important was proving it. What was important is figuring it out. And so just, you know, instead of going to a kitchen, we, like, moved to my parent's basement. Instead of going to a designer, we went to PowerPoint. Like, instead of going to a printer, we went to Staples.
RAHAL: Instead of going to a third-party designer, like, website...
RAHAL: ...We, like, went to Shopify.
RAZ: You did what you could do, like, right? You had very limited resources.
RAHAL: Yeah, basically. So we both quit our jobs and started hustling, like, emailing, calling.
RAZ: And you would say, hey, we have these. Can we send you some to test out?
RAHAL: Well, first we would try to, like, sell in, like, hey, we're selling this. It's $2. You resell it for $3. You know, if they're reluctant or unwilling, we would give it on consignment. We'd do anything.
RAZ: And were the - I mean, if you're cold-calling a CrossFit gym, were they receptive? Did they blow you off? What was their response?
RAHAL: So it was an interesting time in CrossFit where, like, the idea of retail was just beginning. So a lot of CrossFit gyms were very principled in like, our job is to focus on training and physical fitness...
RAHAL: ...Not selling goods.
RAHAL: And then some were, like, more open to it. And then there was a little bit of education. Like, hey, you know, your customers are - you're training them. You're doing a great job. But they're going to buy - like, across the street to buy product. Don't think about it as, like, capitalizing and selling out. It's actually, like, delivering a great good and service to your customers. And so that's where the CrossFit world really shifted and became really explosive in popularity. And you'd see gym members, you know, becoming good operators and starting to build a retail in front of - like selling T-shirts and really...
RAHAL: ...Developing the retail side of their business.
RAZ: And how - I mean, with $10,000 how were you, you know, making enough bars and then bringing enough revenue back?
RAZ: It's definitely at the beginning, in the middle of 2013.
RAHAL: So one of the advantages of manufacturing ourselves - and, you know, to give you an idea from, like, 8 a.m. to noon every day, Jared and I would make, like, three to seven batches.
RAZ: Which produced how many bars?
RAHAL: It was, like, 440 bars a batch.
RAHAL: And then we had a team of girls that would pack them in the afternoon. And then we would go back. But that was our day. And so...
RAZ: Just, like, temp hires that you would...
RAHAL: They were - I don't know what their status was. But...
RAZ: Didn't you hire your mom at some point to help you pack bars, too?
RAHAL: Yeah. So when we were first launching in my parent's basement, Mrs. Smith and Mrs. Rahal volunteered. And, you know, putting labels on the front and back of this was the biggest pain in the ass. And it requires a lot of stamina and accuracy. My poor mother just couldn't label them correctly.
RAHAL: And Mrs. Smith was just nailing it. And she's...
RAHAL: And I was like, Mom, you got it - you can't put the front panel twice on the package.
RAHAL: And she's, like, in love with it. She's, like - you know, it's a romantic idea of her son starting in her basement. So she's in love with it.
RAHAL: And then after, like, two or three times, I'm like, this isn't working.
RAZ: So you had to fire your mom.
RAHAL: Yeah, basically.
RAZ: Wow. So - yeah. so, I mean, you guys are making about 440 bars or so a day.
RAHAL: No, no, no, a batch.
RAZ: A batch.
RAHAL: So we were up to - 10,000 was our capacity.
RAZ: You could make 10,000...
RAHAL: Oh, yeah.
RAZ: ...In how long?
RAHAL: A shift, so eight hours.
RAZ: You could make 10,000 bars a day just the two of you?
RAHAL: And like, some - like, 12 other people.
RAZ: Wait. Who were the 12 other people?
RAHAL: The temps.
RAZ: You would hire, like, people to help you make them.
RAZ: And you were - and did - you no longer were working in your parent's basement. This is - you went to work at, like, a professional kitchen, a place you could, like, rent out.
RAHAL: No, it was a place called Allison Flavors, which is a repacker of juice concentrate that used to be across from my father's. So we just got a thousand square feet there and then started operating. It was food safe. It was a great place.
RAZ: Month to month - and you would make the product there.
RAHAL: Yeah - make it, ship it, sell it, work out of it. It was actually, like, a really proud moment to, like, move out of your home. And like - it was like this is real.
RAHAL: So the advantages to manufacturing and doing it small-batch is you keep your inventory really low.
RAHAL: And so that's where your cash ultimately lays. And so we didn't really need to raise a lot of money because we made a hundred bars and then went online and sold it. When you think about selling it online, you're collecting that cash.
RAZ: But how did people know about it online, just word of mouth?
RAHAL: Yeah, it was word of mouth. And, you know, we had a really clear early adopter. Like, we didn't have his ambitions of, like, going national or, like - we were solving a problem for CrossFit.
RAHAL: The CrossFit gym owners - like, we wanted to serve them.
RAZ: Because when you're done with CrossFit, you want quick protein.
RAHAL: Oh, yeah. It's perfect.
RAZ: And it's convenient. It's right there.
RAHAL: Or in the morning if you want to, like, do a workout, have a protein shake and then grab a bar to go for later. Like, it was the perfect fit. So that's how the awareness was really, like, organic in that community. And like, it was - you talk about, like, product-market fit. It just fit really well. And that's where a lot of the organic word-of-mouth traction came from.
RAZ: Within nine months of launching this company, you guys did $600,000 in sales.
RAHAL: Yeah. So April 2013 to end of year we did 600,000.
RAZ: It's unbelievable, right? I mean...
RAHAL: It was a clear sign of, like, real traction early on. There was just a lot of demand for what we were making. And so we knew it was special. We didn't realize how special it had ultimately become.
RAZ: So by the time you hit $600,000 in revenue in Year 1, that - all that money's coming back into the business. You're using it to buy more supplies. And were you able to keep up with demand?
RAZ: So how long was the wait time if, like - were there CrossFit gyms that had to wait, like, weeks or months?
RAHAL: So like, our capacity was based around our mixer and our people. And so, like, we couldn't send an email, for example, or, like, promote too much because it would stimulate demand. And then we wouldn't be able to fulfill it, which was actually a good constraint. It was healthy we didn't grow too fast. And we - the most important thing is we had great empathy for the whole business.
RAZ: I guess production or demand became so intense that by the middle of 2014 you just hired an outside manufacturer to make it. You guys decided - concluded you could not make this yourselves anymore.
RAHAL: Yeah. And so the whole plan was to manufacture ourselves, scale it to a point and then commercialize.
RAHAL: So find a good partner to...
RAZ: And the partner was in - here in Illinois?
RAHAL: No. Originally it was upstate New York.
RAZ: And good to go, right?
RAHAL: No, it was quite a disaster.
RAHAL: And I'm sure - so, like, manufacturing food's really hard. So I went to go oversee production. Jared's at home base making sure we're filling orders.
RAZ: You were going to New York, upstate New York?
RAHAL: Yeah, to oversee production. We were there for a week. And, you know, this is like my baby. And so I'm like a lunatic. Like...
RAHAL: ...Walking around making sure the bars are made right and, like...
RAHAL: ...Overseeing everything. And so we come back home. And I'm, like, Jared, this is - they're not the right partner for us.
RAZ: You just didn't feel it when you were there.
RAHAL: Yeah. I mean, their leadership - like, I - for example, I was posted up in an office for four days. Next to me was the president. And I - we were the only customer there. He didn't even acknowledge my presence. He just hid in his office. And so if you think about what that says about the company and the leadership there and...
RAHAL: It just wasn't a good vibe. And two weeks later, after that production run, Jared gets an email from the president, who - I never even, like, shook his hand. He was next to me.
RAZ: And what'd he say?
RAHAL: Just basically, like, Peter's not allowed at the plant anymore.
RAHAL: He was disrespectful to our employees. Your pricing is going to go from 16 cents or, like, whatever double. So Jerry and I are, like, fuck.
RAHAL: Remember I talked about retains?
RAHAL: So our product - like, we never did shelf-life studies. We were just too busy, like, playing offense I guess. And there was some stability issues with it.
RAZ: And why was that?
RAHAL: Well, we only learned because, you know, we used to make batch to sale. And so the first time we commercialized, we made, like, a hundred-plus-thousand bars.
RAHAL: And so here we are sending all this inventory and selling it through. And then basically we had customers saying, like, hey, it's tasting funny or whatever. And so we had shelf-life issues on some of our product.
RAHAL: And so, you know, I think one of the things we did that I'm really proud of is we took an insurance claim on all that inventory. I think most brands...
RAZ: You mean, you just got rid of it. You dumped it because it was not up to your standards.
RAHAL: No. And I can reflection most brands I'm pretty confident would've sold through it. And it was a really dark period.
RAZ: Well, how much was that inventory worth at retail?
RAHAL: Three hundred thousand dollars, $400,000. And I think about - so in May we did, like, $500,000 in sales.
RAHAL: By the end of that, like, process, we were out of stock for two to three months while we, like, found a new partner.
RAHAL: Then by, like, August, we did a 120,000 a month.
RAZ: But the end of that year, 2 million in revenue.
RAHAL: Yeah, I know, exactly. Even despite not being able sell stuff...
RAZ: Still primarily CrossFit gyms and people buying online through word of mouth.
RAHAL: Yeah. Yes.
RAZ: OK. I remember first seeing these in 2016 in Trader Joe's. And I go off and on paleo - sometimes easier, sometimes harder. But I saw - I was in a paleo phase. And I saw them. And I was like, oh, my God, I can eat this. How did you get into Trader Joe's?
RAHAL: Yeah. So Trader Joe's was a huge milestone for us because you think about it, for the first time - when someone asked the company, like, where can I buy an RXBAR, for the first time our answer wasn't, like, well, where do you live?
RAHAL: So it was really amazing to have that, like, whole footprint.
RAZ: How did they even - how - did you get in touch with them? Did you pitch them? Did they come to you?
RAHAL: So it was at a trade show. They expressed some interest. And then our...
RAZ: Like, a buyer had come by your booth?
RAHAL: Yeah, like, a product scavenger or, like, a product...
RAZ: And did you guys have a big booth, very expensive?
RAHAL: No, a shitty 10-by-10...
RAHAL: ...That was under-resourced probably.
RAZ: And you just had, like, a tablecloth and just piles of RXBARS.
RAZ: So you get in. And how long does it take you between the trade show and the time that these bars are in Trader Joe's? It is a long...
RAHAL: So it was, like, January to June.
RAZ: And was that an instant game-changer for you guys?
RAHAL: Yeah. Yeah. It was kind of, like, all right, we're in the big leagues now because, like, Trader Joe's - it's a hard place to get into. You think about it. Like, if you go to that set, it's only, like, the top brands. They don't carry local or little ones. Like, that was like a oh-shit-this-is-really-working moment. And then our performance there just continued to grow and...
RAZ: And that year, 2016, you did $36 million in revenue.
RAHAL: And our aggressive forecast was, like, 16 to 18 - aggressive.
RAZ: But, I mean, did you even have time to sit back with Jared and say, whoa, this is crazy?
RAHAL: No. I think we were just too focused on, like, what's next and, like, growing it. And I think in reflection now we always think about the fond memories. But in the moment, we were...
RAZ: It was the grind.
RAHAL: Yeah. We would just keep going and keep going and....
RAZ: So there was just a huge bombshell announcement in I think November of 2017. Kellogg's buys the company outright - $600 million. This is a company that was started in 2013 in your parents' kitchen, in your basement.
RAHAL: Yeah. The number - you know, we never dreamed of any sort of outcome like that. I think that number reflects - like, Kellogg didn't just buy a brand. That valuation which everyone looks at is a really - it's way more than just the bar.
RAHAL: I mean, we have a ton under the hood. We have really special people. So if you're a great company, you're going to get great value.
RAZ: Yeah. So you are now a Kellogg's employee.
RAZ: You are the CEO of the company as you've always been. And you are 32?
RAZ: You've got all of this money. Is it weird? I mean, does it even - do you even process it? Does it change anything practically? Does it change anything about the way you live your life or how you feel about it?
RAHAL: No, it doesn't change me. I mean, I still dress like shit...
RAHAL: ...And have the same shitty shoes that people make fun of me. Like, the only thing that changes is, like, where you sleep and how you - the opportunities to where you can travel. And I think the biggest thing is just freedom, like, financial freedom. You don't have to worry about, like, providing for your future. And that's - I think that's a burden that is really hard. And so I think - you know, I mean, Jared still lives in his 400-square-foot apartment. Think about that.
RAZ: Oh, my God.
RAHAL: I mean, that just shows the type, you know...
RAZ: God bless you, Jared.
RAHAL: Yeah. It's amazing.
RAZ: Do you think that you're going to give away most of it over the course of your life?
RAHAL: Probably in some capacity for sure...
RAHAL: Like, I want to do good. I think it's a responsibility to...
RAZ: I mean, you've got...
RAHAL: I think it's a responsibility to society. Like, I've had some success. And I think you owe it back at some - in some way, so...
RAZ: So you've heard the podcast before. I know some folks in the audience have. I always ask one question at the very end, which is, how much of what happened to you do you attribute to your skill, your hard work, your intelligence, how much to luck?
RAHAL: You know, I think I'm very lucky to be born in the United States. I think I'm very lucky to have the family - and, you know, if I didn't have my father and mother raise me the way I did, I would be drunk at a bar and miserable. You know what I mean? Like - so I'm very lucky for those things. I'm very lucky that I met Jared and had a humble partner to do this with. I'm very lucky to be dyslexic and the attributes and strengths and weaknesses with that. I'm very lucky this is the golden age of entrepreneurship and food. So I think a lot of it is luck, but talent has to play a variable in it. But it doesn't happen without good timing and luck.
RAZ: Peter Rahal, founder of RXBAR, thank you so much.
RAHAL: Thank you.
RAZ: It's been amazing.
RAHAL: Thank you, everyone.
RAZ: Incredible story, absolutely amazing.
I spoke to Peter at the Athenaeum Theatre in Chicago. And Peter sat down with me even though it was kind of a crazy time for him. I spoke to him just a few days before he was set to get married. And he told me that by Lebanese standards, the wedding was a pretty intimate affair - just 150 or so guests. And, no, the menu was not paleo. Peter and his wife served lots of fattoush salad, hummus and mountains of pita bread.
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RAZ: Hey, thanks so much for listening to this live episode of HOW I BUILT THIS from Chicago. Our show is produced by Ramtin Arablouei, who also composed the music. Our live team in Chicago was Kelly Prescott (ph) and Elle Mannion (ph). Thanks also to Neva Grant, Sanaz Meshkinpour, Jeff Rogers and Benjamin Klempay. Our intern is J.C. Howard. I'm Guy Raz, and you've been listening to HOW I BUILT THIS from NPR.
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