Building One of the Fastest Growing CPG Companies in History | Peter Rahal of David Protein, Medici Brands & RXBAR

Okay, I want to start with the fact that you sold your previous company for 600 million. You and your co-founder own 90% of it. You find yourself as a very young man with about a quarter billion dollars in cash. What happens next? The natural thing is to get into investing. Outside looking at investing is very appealing. It's like one, you think it's an intellectual exercise. The second real thing is it gives you a great lifestyle because you're not operating. You can no organizational responsibility, I want sort of studying investing and getting into it. How did you study investing? Figure out asset classes, how to build a portfolio, grow capital, underwriting deals. You have conversations, you're reading, like reading conversations, best books on it, and then where my time was spent was on where I had the best advantage, which is consumer package, good investing, or just privates, so early startups. From stage agnostic, seed to growth, thin matter, and started doing that and quickly realized that the most important skills that's like is charisma or like with whale hunting. It's like finding the deal that is quite obvious and then trying to get an allocation. That's really like the game, and that's quite gay. Chasing men for allocations is something I didn't want to do. My previous experience was like, I'm going to sit back, I'm going to spend my time building a product, and my product is going to do the talking. My product is going to do the work, or investing, you're taking capital and then you're trying to allocate it into the thing that's going to grow, behind the leader that you're going to bet behind, and that's just two hands off for me. I'm used to fighting, being in knife fights, and it's just too passive. It's very tempting because you can make a decision and not have to do anything, and it works, like it grows. The big problem I had with it is the feedback loop super long. In building and operating a business, you make a decision whether it's a hire, whether it's a product decision, marketing, and you get the feedback right away. The feedback loop is immediate. We're investing. It's like, are you can develop a thesis, develop this, underwrite this founder as really great, and then you make a decision and like, all right, five years go by, did it work or not. So you're living where when you sell Rxbar? Chicago. Okay. You check position, you have a bunch of cash. This is when you move to Miami. Yes. You moved to Miami before? No, after. Okay, after. So now you have the money, and now you're like, okay, I'm going to, I have a bunch of money. You start, you have this ridiculous idea, this is your own words, because when we were hanging out a few weeks ago, you said I had the ridiculous idea of starting a family office. Yes. You're like, I'm going to start a family office. Yes. Okay, explain that part. So I was in Chicago, and I just needed change. I needed like, change environment, Rx was my identity, I just got divorced. So I looked at the United States, and I was like, where's the best place to go? Wait, wait, the divorce part. The divorce happened after the acquisition? Yeah. Was it anything related there? Were you under a lot of stress? No. Just hubris. Say more about that. I had success bias where everything I've done has been successful, and so there's blurred lines between your personal and professional, and I just moved too fast. I thought it was going to be easy, because my goal is to have a family, so career, success, accomplished, next thing's family, and you try to speedrun. Yeah, it's good. It went too far too fast, and thinking I'm really good. So this is, if I remember correctly, me, Mary, divorce all in like nine months? Yeah. Okay. I beat Kim Kardashian. Okay, so you moved to Miami, I'm going to invest, and then what I really want to get into is the fact that you are uniquely unsuited to invest. Like, only the founders I know that I asked about you is like, this guy is just like a relentless animal operator. Like the idea that he could think that he could sit and be like the guy behind the guy. Why do you think you made that mistake? This is very interesting to me, because you did what you did to start, scale, sell, right, which is very like a celebrated, but I talked to a bunch of founders that did that, and then they're fucking miserable. You're one of them. Yeah. And then I'm like, what you were feeling and why you were so miserable in this situation. My plan was to get out of Chicago, change environments, and then I just looked at a map like, all right, where's the best place to go to? Reset a bit and invest, build my family office, get that right. And then ultimately, my ultimate goal was to relocate where is the best interest to start my next thing. So it shows Miami as a place to like reset and invest, and this is before COVID. Got there, started like formalizing a family office. And then I think like what I underestimated with investing in different entrepreneurs, particularly in food and beverage, is that like I just assume they all have the same tenacity as me. Like I just thought like, that's what you did, and I didn't really know anyone else who were founders at this time, and then I quickly realized like, I'm probably actually miserable investor because I'm like, I'm a handcuffed sitting in the back seat while someone else was driving and they don't know where they're going, and that's like a torturous position to someone who knows where to go. So you didn't know how rare you were? Yes. Okay. As not humble as that is, but yeah, I was just sitting upstairs right before this. And as just my friend Patrick, who does the invest like the best podcast is one of my closest friends. And we just happen to run into Adam Frui from Apple oven, which again, there's a lot of like overlap between you and you and Adam. And we were talking about essentially, you know, Adam's running this very, this cash printing machine with like very few employees, like he actually, he hates entrepreneurs optimized for fan any metrics, where you should just focus on cash generations, like very straightforward terms, like obvious to them. And we were talking about the different, like different hires he had and different other founders he knows. And then through a story that he was telling Patrick had a great line, he goes, man, it's crazy. Like in any domain, it's only like two or three guys that are actually good. Yeah. I mean, categories like there's like a sea of shit and like two or three, maybe four people, they're actually excellent. Yeah. And like what I, I just like assume that anyone is getting into entrepreneurship, they're like willing to die before their company fails. They are willing to sacrifice comfort to win. They want to win. And I realized like, no, some people like that's not that's actually not what people, a lot of people do, or prioritize when you run into other entrepreneurs like this that you made the mistake of investing in because they weren't like you when you have conversations with them. Like what is their response to your extreme approach? If I'm the one giving criticisms to the company, like that's a problem. Like the CEO should be the most critical. I shouldn't be like, hey man, the car's on fire. That relationship, if I'm the one spotting out problems or saying go faster or saying like, that's usually not a good sign. Um, and I kept falling into that pattern. And I don't want to be in a position to be like, it's like your company at the end of the day. I'm not an advisor, I'm just here to try to facilitate stuff. But what I'm really trying to get at is like, what is going on inside of you? Like what is your inner monologue? You're like, oh, I fucked up. Like what is actually happening? This is frustrating. Uh, I need to get back in the game like this sucks. How long did it take for you to figure this out? Probably a year. Yeah, 20, 20, age of 21. Okay. So then what's the next step after that? You're like, okay, this sucks. I don't want to be an investor. I need to be an operator. I want to be my own company. I'm way too young to be retired by the way. Yeah. Yeah, for sure. So I started one of the good things about investing is you're talking, you're getting through the deal full process, you're you're ideating, you're talking to other movers and shakers. And that's a helpful process. It's like, all right. That's something interesting is that a problem I want to solve. But basically I had several false starts. I looked at recycling garbage, I looked at synthetic biology. I looked at other consumer packaged stuff. And I would like started and then I basically pulled out, um, committing to stuff. And the reason is like, if I go in, I'm like, fucking all ed. And that's like a really scary thing actually because the night my friends go away, my health goes, all this stuff happens to me. So if we can't, we can't go on from that. Okay. Then you need to describe what all in mean see what you just said, it's scary. My friends go away, my health goes away. So this is just the only way you can operate, explain this to me. Yeah, my like, my leadership style is like, it's just like all in, um, burn the bridges burn. So I can't go into something like half ass ever. So what I commit to is like very serious. And so all my false starts were like, uh, I'm not like moving in the direction of starting it and then pull back, moving in this direction, starting pull back. The other thing that there was like, I needed to start a family. So my order of it, like during my hiatus and investing, I was like, I need to find a wife to go start a family. I don't know if Miami is the place for Miami Beach, a particular situation should be searching for a wife. I agree. And then I bought a place in New York and moved in here. But in general, it's like, all right, so if I find something and fall for it, there's a really high chance that I'm going to go all in. I won't see my friends lose my health and I'll be 50 and single. And that's a version of my future I didn't really want. So I also may have found my wife and then all roads led back to like protein bars. It required some humility of being like, you know, that's like my stick. Like if I die, I'm my grave stone, it might say like protein bar guy, like I'm uncomfortable with that. Cause first I had some like influence of Elon, like, oh, I need to go into like, I'm not the food guy. I'm going over there. I'm not this. I need to like prove something. Really, I was like, I've been I've been in the food business that's like 12. I like to have a deep insurance knowledge of it. And basically, once my non-compete was like a year away, it just like naturally happened of like, oh, sort of connecting the dots like, this is what I should do. - So wait, you're in the food business since you were 12. How old are you at this point where you're like, I'm gonna start another protein bar. - 34. - Okay, yeah, so 34. Yes, my non-compete was 22, October 6, 22. - How long that getting over that dialogue, that inner monologue where it's like, oh, like, you know, I need to do something more impactful or I have to do biology or create hardware or something. And just like, no, I'm gonna actually stick to what I actually know and maybe the best in the world at. - It was three years. - You had to convince yourself this. - Yes. - Wow. Okay. - And a little bit of like, I always think with a, this is both as an investor where I looked at companies and then philosophy for myself is like, the leader of the company, if they have to pick up the phone to fix the product, they're fucked. Meaning like, the leader has to be able to really deeply understand the product and be able to fix it. And then all those false starts were like, I kind of depended on something else. Or I didn't have the time to learn the, I get the deep enough understanding of the product, make that change. And so with food, I like deeply, I like know exactly what to do. So it just became really obvious. And got my wife and then started, what is today, David? - When we talked the other, - Why do you talk about it? - Just like, that was my, it was a very clear process. Like, all right, check your personal life before you, so you don't like ruin your personal life again. And because you're gonna like go all in on something and then like, once that's done and then, - It doesn't happen. You got the family beyond competing expires and now you back at this. - Yeah. - But you're, maybe your ambition when you were younger, 'cause you started our expire when you were held early 20 somethings out, 24, 24. But now the scope of your ambition is like, David is not a bar company. That's like the first of the products, but how do you describe what you're working on now? We don't wanna tell people what not to eat. I think that's like a lot of the food business. Like, don't eat this, it's like demonization and it's pseudoscience. We wanna make your favorite foods smarter. And so it's a really quite approach like they're there and there's more intelligent, they're more effective, they're objectively better. So we're gonna do that across multiple categories. The protein bar is the wedge. I know it, that's what we use to get to scale. And once you get to scale, you can do the platform for there. You have the organization, you have the raw to market, you have the R&D capabilities. So the protein bar got our platform and now we're plumperting into categories that just makes sense for us and our technology. - When you started, David, you knew that you were not gonna stay. That you wanted a bit of food company and that protein bar company. So I'm gonna just answer the question that asked you, the way you said it to me before, which I think was excellent, where you're like, I have to be the best in the world at what I do in my category. And I was like, what's your category? And you're like, CPG, I go, what does that mean? And you go, anything that you combine and store. That's the size and scope of your ambition. - Yeah, like we're competing with Nestle. Like I wanna build the most important food company in the 21st century. - And how big, what's the scale of some of these food companies? - Nestle is 100 plus billion in revenue. They're real global as well. Perhaps he's probably around around their real scale. - So a couple hundred billion dollar companies. How many different products? Well, they have these enormous portfolio of brands. And then hundreds of brands. And then those brands are different by cultures or geographies. - They grow by acquisition or not? - Yeah, mostly. - Okay. - But you can do that too. - Probably it's on the table, but our core competencies, the ability to build brands. So I know how to create an identity and build a brand. So for the next four years, five years, we'll probably just create brands, but I wouldn't rule it out later on. - Okay, so tell me what you know about building brands and identities. This could be interesting. The analogy I think of as a brand, it's simply just a human being. So a brand has a name, that is mommy and daddy. It's the founders, it's parents. Those parents have DNA. This brand, this individual has values. It has a vision where it's going. It has other traits, tone of voice, has friends. Who do you associate with? - Hold on, explain that part to me. - So who are you going to do partnerships with? Like, so David, for example, David Protein, is a partnership with Huberman. Like, that's an alignment. Like, we wouldn't do a partnership with, I don't know, Miss Rachel doesn't make sense that she's great, but like, just like a human, the social circle matters. And so in creating a brand, that identity, both from tone of voice, visual, what clothes it wears, who is it's friends, it's values, vision, you define that clearly, and that there's like a North Star to it. The most important factor in building brand is that it just takes time. So if you keep this identity, it can be dynamic in nature as it grows, but you are consistently doing that over time, and with really great quality product and service. The time piece is critical. Like, you just have to be doing that over time. David's values are around intelligence, beauty, and discipline. And that's rooted in the story of Michelangelo's masterpiece, the sculpture of David. Those values are rooted in the symbolism of that masterpiece, and then the tool of the chisel, which is like this crude nail, but the meaning of a chisel's intelligence, discipline, and if you apply those things, you get a masterpiece, something beautiful. So that's the logic for David's brand and brand identity. So if you have a crystal clear identity for a brand and it's product offering and it's position, the marketing actually becomes really easy. You just constantly hammer those points over and over and over again. I want to tell you about the presenting sponsor of this podcast, Ramp. 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The founder of 11 Labs has a great description of the value Deal can give your company. He said we built 11 Labs to break down language and communication barriers with Deal enabling us to hire and support exceptional talent anywhere. We can accelerate our innovation and bring more voices, stories and ideas to every corner of the world. Deal is trusted by over 40,000 companies and growing fast. Learn how they can help your business by going to deal.com/centera. That is deal.com/centera. - How much time did you put into planning this brand identity for David? - Six months maybe. - Okay, so once you have this clearly defined set of qualities for the brand and then you're saying, "Then we just extend this over decades." This is a plan. - Yes. - You just hammer it, like keep going. - How did you learn the importance of maintaining the same brand identity over a long period of time? - Just studying, like just studying brands. Like if you look at the best brands, they're all old. And so times of factor that's really, really important and the consistency of that. And the thing is there's an asymmetry where those brands are super fragile. So if you like fuck around on quality or something else, like it's over really quickly. The reason I asked that is because I was obsessed with this guy named David Ogubian. I've read every single of his books. He built one of the greatest advertising agencies of all time and he would hammer exactly what you did. You sounded exactly like him. If you read his autobiography or if you read Ogubian advertising. And his old thing was just like people jump around too much. Like you pick one brand identity and you do it over and over and over again for decades. - Yeah. - And you came to the exact same conclusion. It's like the best brands are the best brands because they did this for decades after decades. - And it's fundamentally about the values of the brand. Like for David, it's about intelligence, beauty, and discipline. - Why did you pick those three shirts though? - They're close to me. I love beauty, I love intelligence, and I love suffering and discipline to a negative point of view almost. Protein bars are where I start. So what do people call me the protein bars for? They come to it for body composition. Like no one really eats protein bars. It's like, "Oh, I'm just gonna enjoy this treat." It's like very, very functional. Like I'm gonna, I need to transform my body. They're increased muscle or decreased fat. So the category and protein injection. general is very oriented around those values as well. And so what they had been one of the things I wanted was like a weight loss company or a body composition company without being one. So if you look at the great, they're not really great, but the 90s brands in weight loss, like Akins, Weight Watchers, Jenny Craig, they're super tacking, but people went to them for body composition stuff. So the question was like, all right, well, how do I make that more refined, really more European, like higher, better taste. And so did that. And in the other side, like, I don't know about when I turned 35 and just looked around my friends, I just realized like everyone I knew had some issue with weight weight. Like everyone had struggled with weight loss. As you get older, everyone wanted more muscle. Like everyone I've ever talked to and whether it's a issue they're honest about or they're in the closet about it. Like, so it's like a ubiquitous problem. So I do like how do I create a brand that really embodies that and they refine away. Well, I'm going to get back to the masterpiece in a minute, so don't let me forget that part. But you said that you're almost like attracted to suffering in like almost like an extreme ridiculous way. What the hell does that mean? I always choose the hard path, like, like for even when I exercise, I choose the most painful exercises. When I take my son out, I refuse to take a stroller. I just always carry him. I just like being strong and doing hard things. And I think there's something spiritual about like suffering that I find very gratifying once you get through it. And I think physical suffering is easy because like you just get really hot, get really cold. It's like, but what's nice about building a company is it's like emotional suffering. It's like a lot of tough conversations. And so I just, I think what I've learned early on is like if you face those things, there's growth on the end of it. And so I follow this relationship, the more you suffer, the stronger and the more growth you experience. And so when I see it and I feel it, I like lean into it. Travis Kalinick, the founder of Uber was on this podcast and he says something that resonates with a lot of people and he's like the life self and entrepreneurist. I can take more pain in this guy and I'll prove it to you. Yeah. Do you agree with us? Yeah. It's fun. Yeah. I love it. Pain tolerance. Yeah. I want everything that's in your head about pain tolerance and suffering. Let's just put it out here. Because I think this is very interesting. Look at your eyes. I don't know if we can get this on camera or not. I don't know. I just feel good and I like, I don't know where it's from necessarily. I think it's rooted in competitive nature, but I think it makes you a better man. I think there's the bull. There's nuance. Like suffering for like no benefit is not good. But I think this is actually it. I have a lot of resentment and anger in my life. And if I do not harness that in a certain way, it is because I, it starts to, I become a bad person or I start to not be happy. And so physical exertion, exercise, company building stuff is a way for me to channel all this spite and anger in a way that's really productive. What's the source of the resentment and anger in your life that you feel I have to channel? So like trauma is relative. But for me, when I grew up very beautiful parents, so I don't want to sound like I suffered that much. When I was a child, I was just labeled disabled because of my dyslexia and that. I remember hearing conversations of teachers saying, I thought, oh, it was Peter stupid. Like, I couldn't re-well. And I remember that, like, I've overheard those conversations with my parents and that just, I think, broke me in a way that it's like my deep intrinsic motivation to prove that wrong. And it's actually why I hadn't so disagreeable with any sort of authority or disagreeable, like, we're controlling my nature because like, my survival strategy, the child was to say, to have self-esteem really is like, all you teachers are wrong. This whole system is broken, fuck off. So I think deep in my personality is that, like, proving that all wrong and the need to survive in school, I had, it was like, took me, it was like 10x the effort to get it like a C, D. So I think a lot of my pain tolerance came from some of that, but my resentment and anger is certainly rooted in that. You still feel this when you wake up today? Yeah, yeah. No, I think it's like tattooed, I've got psychedelics therapy, it's like tattooed in me at this point. You've tried to get rid of it and you can't. Yeah. So the outlet is crushing your competitors, like, yeah, yeah, it's like, it's, yeah, it's winning. It's like, it's, and it's like, I'm not really proud, it's like, I mean, it's like, it is what it is. I didn't really choose it, but it's like, to prove that I'm not that fundamentally. But I felt when I was in, when I was a fake working as an investor, I was deeply unhappy because I wasn't able to channel. I was like, I'm a sideline, I'm not a fucking cheerleader. Like, I'm on the sideline and I need like channel all this anger and like thing towards the result that I like, you know, reporting on a portfolio is not doing that. I have a younger friend that, um, feel like I can kind of share like the, some of the experience I get to have with this person. And I was just like, as a general rule, the further you get away from the person actually has talent, the more cautious you have to be. So it's like, the founder obviously has talent. You obviously have talent. You created something from nothing and you've done it over and over again and now building this. But like, you have to be careful with these agents, you have to be careful with these bankers, you have to be careful with the investors. The further you get away from the person with talent, they just are incentivized to kind of like persuade, control, you know, act, in many cases like against your interests. I was like, just stay close to the people that actually have talent. And if you don't need many friends in life, you can have five. And like those are the kind of friend group that you should have where like you have all these other fakers out here that are playing politics, they can get ahead that way, which is like completely different than like how the entrepreneur thinks. Yeah. I agree with that. Yeah. There's another thing that you were saying, um, because I, I'm not going to leave this alone. Like I want to hear more about like your resentment and this, this like attraction that you have to paint. So the founder of the four seasons is getting busy sharp. He has a great line where, you know, he started, he's like kind of like embarrassingly ambitious. And I mean that in a great way where he's like, I'm going to build the world's greatest high end luxury hotel chain. He didn't know anything about, he never built up a single hotel before he had that goal. And so he's autobiography is excellent. And in there he says one of my favorite maximists in the history of entrepreneurship, he says that excellence is a capacity to paint. Yeah. And this same thing, he had this very complex relationship with his father, he had a lot of people doubting him. And this idea like what you just said to me makes perfect sense because it's just getting these biographies over and over again. A lot of people that have come on the show, I just mentioned Adam Varougi, like one thing that he drove, drove himself. This is like, I try to give raise money. I was giving willing to sell 25% of my company for a million dollars, right? This is the company that's going to wind up being worth a hundred, 200 billion dollars. They turn me down. The VCs turn me down and then they funded some of the, uh, my competitors. So we made it a company principle to pit those competitors out of business. Yeah. I hear this guy, Josh Wolf has this green line where he says chips on shoulders, puts chips in pockets. Yeah. It's like using that pain that you had when you were younger as draw and channeling and you drive an achievement. Yeah. And I think it's the key is that you, if you have that, if you don't channel it and focus it, I think it's destructive. So like for me, it all gets channeled through the art, through the company building process and that is productive because it can be destructive if you don't channel it. Okay. So how are you channeling it into what you're building now that the company's output is really impressive. Just a lot of hours, but some chairs in the office, just dedication. What do you think is impressive about the output that you're doing right now? What does that mean? We're only two years old and it feels like five years. So our relationship with time is really bizarre. But in two years, I mean, we're running over 400 million this year, we'll do 300 million this year, we're in the frozen category, we're obviously in protein bars. We have an RTD, we've launched a confection with three different formats. We're launching another brand in November. You just don't, in my field, you don't see that sort of output and it keeps getting better. Like all our products keep getting better. But I mean, we're the fastest growing food company, I think, no, I know in history. So it's really hard to scale it. And the pace in which we're doing it, like I think this would take a normally 10 years and we've done it in two. Explain to me why it's so hard to scale. Why it's hard to scale is because it's inventory. So you need to go buy raw materials, convert it into finished product, and some of the raw materials take a long time. And like, for example, the dairy market was super tight. So if you don't, like growing 300%, 400% a year is really, really, or even closer every six months is really demanding in a supply chain to take Travis, like this is all Adam's, like it's no, we're not a digital business at all. So yeah, the inventory part is really, really challenging. So matching supply and demand has just been a very difficult and so you've had times in the company where you ran out of supply, correct? Oh, constantly. Yeah. [BLANK_AUDIO] I saw, like, you know, Rob and everybody's been telling me about a David Bar, and then I saw like an ad and you were like selling like Cod or something. Yeah, yeah. Is that as a result of the fact that you ran out of supply? What happened there? The sort of Cod was we're creating our website and we're doing comparison table. And the one metric we think is really important is how many of your calories are coming from protein. And on this chart, we were number one, and we were number one on everything, and, like, for me, my investor influence, anything where I see a chart where it's all number one, I'm like, it's bullshit. So we were like, all right, well, we need to find something that's number one. What is a better protein calorie ratio than our gold product, and the only thing we found was boiled Cod. And so in our comparison chart, we put boiled Cod number one and David number two. And just left that there's like a dorky sort of comparison. Why I worked is like the just position between our bar and the Cod is like signals convenience, it signals value, and like Cod's pretty unappetizing. And then we're halfway through the first year and I was like, yeah, it's like, it's like déjà vu for me. I'm like, this is super boring, like another flavor, another, I'm like, we need you something bold. And so we're like, what's actually so Cod? And now like it's done, like actually seriously selfish. And so we did this boiled Cod campaign and it was funny because it was like, we're like pain. Yeah, it's like gotten the frozen business and it's back to our brand values. Like it was actually a very intelligent thing because it had center of the conversation around protein calorie ratio. So did it in a way that wasn't sort of like approach, like it like right on the nose, it was like a little bit of a brittle. And it's like $55 frozen Cod online, like no one really wants that. So we didn't have product market fit. But it function as a really great communication tool. They're creating a product for marketing benefits. Yeah. We call it product as market. I'm not giving up on it. Like we're going to keep going, we're going to keep going on Cod until we get product market fit. I don't think you will, man. I know it's funny because if you look at our website, it's like protein bars, rounds and gold, hides, throws a nice cream and then there's like RTDs and there's like fucking fish. And it's like, it's weird, but like the whole food space is so fucking boring, to be honest. It's like they all say the same shit, they all do the same things. And so being a second time, I was like, we got it, they have some fun with it. Okay. So that was not in response to supply issues because there was no demand for this frozen Cod. Yeah. Yeah, no. It happened to work at the same time when we were out of stock on some things, but now it was independent. Okay. So let's go back to when I interrupt you because you started talking about pain. You said, talk about building a masterpiece, what are you going to say there? Oh, it requires tons of discipline and intelligence and it's done over time. And that's really what the brand Dave is about, it's like finish your masterpiece and never tap into everyone's inner, inner excellence. But how do you play it to building your company though? I think I started with like the fun, what is the company? So our strategy is like two fundamental things in a company. People, it's all about people, it's cliches it is. And I think about the organization as a product. So my focus is all about that. And then the second piece is product and mastery of the product. And then I think a product, I think a brand and product is the same thing. Like the product is just the raw thing. And then the brand is like what it wears, like the exterior piece. If you try to look at the organization as a product, the company is just a group of people. A lot of different missions. So if that's the most important thing, like what actions does the company do to like make sure that it's done. So for us, what I think mastery is like we have four processes in the company that ensure our organization is done right and cultures lived. So if people are everything, who you select is the most important thing. Who you select into the organization. How do you train and onboard them? Three, how do you select the ones to get promoted and rewarded and then how do you get the terminate the ones that shouldn't be there. So those four processes are really critical to building the organization and scaling it. And so we spend a lot of our time refining our hiring process, training and onboarding mission critical and then promotion as well, rewarding the right behaviors and then firing. And then those are all organized around our value system, which is the best way to align a group of people to make sure the right behaviors are matching what we want. What are the behaviors that you want? You want truth seekers. People have courage to seek truth. It's mission critical, you don't want biases in place. Fundational would be humility, which is, I define as the freedom of pride and arrogance. So humility is really foundational and it shows up like intellectually, be like I don't know what I'm doing. I need help. Like I don't want to cover your ass culture where people are like I have this data there for my decisions. Good. Like it's not really productive. Say more about that. You look at people from big corporate America come in and then they will generate a bunch of data, surveys or whatever to prove their experiment or cover their ass if the experiment goes wrong. Just like fake work. It's performative in a way of like I'm just doing this to cover my ass versus focusing on the experiment and not worrying about covering your ass. Entrepreneurship is a very important value of the company as well and that's like so anti like to any activity like any performance activity and fearing a failure is like the opposite of entrepreneurship. You just can't have that as a company scales and so you get a lot of people coming from different corporate environments that have that like just like protect their job. Are you able to recruit from other food companies because like you're so different. Most of these companies haven't been found or led in I don't know half century if not longer. Yeah. And we can and we do there's a lot of experience to have you just sort of the baptize them when they come in. So that's where the onboarding process is really critical. You baptize them? Yeah. What is that mean? You just have to teach them new beliefs, new values. You just sort of throw them in. They're just going to take what they know and apply it and so you really want to have them assimilate to the culture in a way and so a very thoughtful onboarding process where you learn the values of the company. You learn entrepreneurship. You pack boxes, you learn humility, you learn all these things, it's really critical. Are the most talented people in your company the ones with no experience though? The most talented people are a company or a former founder. Same more about this. Convincing a founder like not do their thing to join a greater company is a really strong signal of the opportunity we have ahead basically I would position it as like this is a platform for you to go do your thing. You can do your thing with amazing technology, you can do your thing with resources and you don't have to deal with the bullshit of raising money, all the bureaucracy that comes with the different stakeholders. And I think you see this in AI where all the lot of founder talent goes to those platforms. Convincing that to join a founder led company is how without bureaucracy and for them to be able to fill their vision is. Did you specifically target founders? Yeah, for sure. Because they have agency, they have courage, they have humility, yeah, and they're not ruined by corporate America or school. School runs you too. You have to follow procedures, you're not thinking it's out of the box, you're following a playbook, like there's no playbook in entrepreneurship, you have to think from first principles, understand the fundamentals and fucking just go. Yeah, we just had Luca Ferrari on this and he started this crazy company called Bending Spins. He's doing it from Milan, not exactly like a startup hub and he's talking about being isolated with super valuable to him because he just, he can't even copy this startup mantra because he doesn't know them, he's like immune to them. And his point was just like, he doesn't, he prefers young graduates or even people that didn't graduate to overexperience. He's just like, I don't want your bad experience, like I know what we're doing, let's just take high agency, young, smart people that want it really badly. And I think he said he got something like 800,000 applications last year for like 350 positions because he's in markets where there's, there's a lot of, there's a lot of people everywhere. There's no great jobs for them. There are economies terrible. Yeah. And he's just like, I'm just optimizing for this and then all come in and indoctrinate them into how we're running the business. Yeah. Which is completely different than school or a bad or a company that's like a, be your company. Yeah. Yeah, because the thing with the experience is like really valuable, but there's a consequence to it where you'll naturally reason through your, through analogy or reason through your experience, which can be the right call. But you're not going to ask the dumb question or naturally think through first principles because you've already done it. So you're just going to move faster through, through, through leaning on your experience. And like for me personally, I started a company with no experience really. You know, I funnily don't think it's that important. If you're good reasoning skills and have the right ability to learn. So the best is like, some an experience I find and then like some damage, like some chip on shoulder. Like there are individuals in our company that you can't compete with them. They're not giving up. they have something to prove. And those are the most powerful people to get, do you want to organize around? Tell me more about them. Now they're just kind of like, it's all a child. There's some fucked up in their child's life. You can't, you know what I mean? Like I get, there's some, you know, there's one kid in our team, like I can't be, I get, I, he's gonna die before he fails. And I didn't have a comfortable life. And it's like a really, really, like this is different for him. So you want many of those people, but like too many probably break things. So you're like, in general, you want like a balance of like those crazy chip on shoulder, you know, some, some people balance out the team that are very rational and pragmatic and more conservative. Like you want a good team design, but the people driving the company are usually those maniacs that have a chip on the shoulder, high agency and more entrepreneurial. - Was this person having to be a former founder? - Yeah. - How long did it take you to recruit them? - Well, when we bought ebg, he was a victim of us acquiring that. - A victim? - Yeah, because we bought up all the supply. So he was a customer of the, the, the epitome business. So recruited him to join us and do it here. - Victim. I love that you just said that. Okay, so let's get into this. Cause this is one of the, again, I've been hearing stories about you for a long time. And then this is with the story that other founders repeat so much. It was very like a Rockefeller ask. Explain what that is. You know, what is it? - Apigee. - Okay, so in March of 20, don't go to the acquisition yet. Talk about the fact, what, what this thing does? Why was it going to your business? And then we're going to go to the fact that you victimize everything else. - Apigee makes epigee, it's a terrifying box on a close role. It basically, it's a modified triglyceride. So olive oils will triglyceride. So triglyceride has three fatty acids attached to a close role backbone. Your body can't digest this unless light paste comes and clips these, these fatty acids off. What the company did is they figured if they can lock these fatty acids in, light paste can't break it down. And so what that means is you can have the taste and mouth feel of fat without the chloric metabolic impact. Why that's a huge innovation is because most of the calories and food are coming from fat. They're twice as much as protein and carbohydrate. This technology was naturally misunderstood like most food technology. And so it was sitting there. And it's like, it's really amazing. You can like have your cake and not have the chloric consequences. So think of it as like high intensity sweetener, it's like a stadium on fruit that's sort of level of innovation. So anyway, we were using it for David and then we were buying, we were like 90% of the company's sales and then like all paths led to like litigation. So you were, this is a patented technology. Correct. So you had one source where you could buy it from. Yes. You just said you're 90% of this company's overall sales. But there's a handful of other companies that saw that same opportunity when you use this into their product. Okay. Yeah. So we started like in the company was struggling like a bunch of their company. Yeah. Yeah. Like a bunch of cats and dogs trying to like make it work. And it's hard to work with. It's not like it takes requires a good product development skills. But we were 90% of their available supply. And you'd be in a bad position if for whatever reason that company went under or they decided to cut you off. Would be dead. Okay. But actually we became like 150% of their supply. Meaning like they couldn't supply our needs. So anyway, as soon as I started the company and we were using the ingredient, my whole mic just like this is a nasty dependency. And on top of it, it was run by like older gentlemen, mostly lawyers. So you know how that is. Like lawyers running companies is not good. I'm sitting there like, all right. Either they're going to kill us. We're just going to end in litigation, extortion, or we're going to buy them. But I was like, all my attention was like making sure either we buy them or something. And then in February, basically six months into the company, they came to us by like, hey, you guys are killing it. How do you take it over? And of course, I'm like, we think about it for a second. (laughing) But so negotiated and it was an obvious deal. Like these food companies need to be vertically integrated. Like if you're out there making a food ingredient and you're trying to sell to a big food company, it's this hell. Like because the food company were like, well, you don't have enough supply to meet our demand. And then you're like, well, I don't have enough demand to generate supply. And then it's too expensive. And then on top of it, you're going to like, well, I need redundancy. I need two suppliers. Well, I have the IP. I can't do that. So vertical integration, it makes the most sense. So they could not vertically integrate. They didn't have a relative market. Yeah. So they essentially just bought this patent as a way to make money. No, I can't. Well, they developed it. Yeah. They developed the process and invested it. And the entrepreneur's the founder is amazing. It just, it required so much cash. They just eventually got deluded for the lawyers to take over. And it just made sense for both parties to like merge and acquire. And so we did a half a deal where we bought half the company and then, or we bought the whole company, but half equity, half cash. And then we got in a situation where it was like, all right, David's going well above our forecast. And then, so we are 150% of their supply. And the end of the day, there's all these like customers that had no supply agreement. Honestly, their businesses weren't like going anywhere. And so if you didn't have a supply agreement, you're just not going to get supply. And by the way, me with David, the first thing I did when we started was negotiating a supply agreement with them. Prior to acquisition, we had a supply agreement that was good around change of control. That most favorite nations on price, most favorite nation on inventory. So any inventory that was available was ours. How did you know to do that? When you have a dependency like that, you just got to make sure you're covered. Even if the deal didn't go through, we'd have all the supply anyway. Like we were the elephant in the room with the customer. If you didn't have a supply agreement, you're out of luck. So the way it was reported or talked about was, there's this very important patentable ingredient he needed, he was using most of it. There was these other companies that also used it, that he was technically competing with. He buys the company and shuts off their supply. - Yeah. - But I didn't hear the second half of the story that I then I also recruited from the people that I just counted. - Yeah, yeah. You got a lawsuit or something over this, right? - You got an antitrust claim in lawsuit, yeah. - Is that still ongoing? - It's dismissed three times. 'Cause like for that lawsuit to function or like for them to actually have any merit would mean like, it would be like a landmark case in an intellectual property. The big lesson in which I think you've had Lulu on, which if I had Lulu in my pocket, we would have managed the comms differently. Like we didn't, we just like, one, we let Apigee manage the comms a little bit and we just did a terrible job communicating. Did you communicate it all? There was a notice sending out of the acquisition and that if you don't have a supply agreement, your, there will be no supply. Like that comms I could have done better. Like I could have done it with a more compassionate and like called the entrepreneurs or could have done it differently. - In what way though? Compassion doesn't seem to be one of your personal choices. - I think it is. I think compassion is important. - Do you have it? - Yeah, yeah, yeah. - Yeah. - You have to be a good leader. - Show it to me. - Where are you hiding? - I just like, I just don't have to simply, we're like, I don't have sympathy for stupidity. I don't have sympathy for incompetence, really. Like, it was so obvious that if you're gonna get into it, if you're gonna use an ingredient that has a single source, you better make sure you have a supply agreement. It's like fundamental. This goes back to something that was like second nature to you that you don't even feel special. Like, remember at the beginning of conversation, you're like, okay, well yeah, I'm gonna, I got all this money, I'm gonna chill, I'm gonna find a wife, have some babies, and I'll invest in the side. Obviously you're an entrepreneur. So it's like life and death for you. You'll take it very seriously. You start cutting checks into this company. Like what is this guy doing? - Yeah. - You didn't know how rare you were. - Yeah, no, totally. - So it's the same situation here. - Yeah, a little bit. - How many other companies are involved were buying the same ingredients? - Three. - So it's like, yeah. - And their response was like, well, I didn't know, I couldn't, I didn't know that was an option. It's like, what the fuck? What are you doing all day? (laughs) Like honestly, I found one of my all time favorite quotes when I was reading the book Zero to One. The quote says, "The single most powerful pattern I have noticed is that successful people find value in unexpected places." And they do this by thinking about business from first principles instead of formulas. That is exactly what Apple oven has done with their advertising platform. Apple oven connects you with over a billion potential new customers in mobile games. Apple oven allows you to capture undivided attention. Apple oven ads are full screen videos that are watched for an average of 35 seconds. That is retention that blows other ad platforms out of the water. And you can launch on Apple oven in minutes. You set the goal and Apple oven achieves it. No complex setup, no expertise needed. And Apple oven scales quickly. They can put your ads in front of over a billion potential customers. Other businesses have seen immediate results. Scale to hundreds of thousands of dollars of spend per day and increase their revenue by millions. So you want to get started quickly before all of your competitors are on Apple oven. And you can do that by going to apploven.com. That's apploven.com. dot com. Is this why you had to raise money because yeah, so your first company you did like a our expert was like a friends and family loan. What was the my dad and my partner's mom guaranteed a line of credit a line of credit. Yeah, but no typical venture capital. No, okay. What did you start David? Did you raise money right away? Did you put your money in? What'd you do? Yeah, I put two million in my own and it's like whatever precede and then that was enough to get us to launch and then launch re raise eight for working capital just to survive. Why not just put up to eat yourself since you already got it in your pocket? Yeah, because I wanted to bring in some people have been very good to me. So valor equity partners in Tonyo and John have just been really supportive and I like how they like their names valor it take you like they're pretty intense outside of valor wasn't like typical. No, no, okay, so friends and things like that some small friends. Yeah, and then and then I was like we're done. All right, like we don't why was that your initial reaction? Because I don't want to spend time talking to investors or fundraising. I think in see in consumer backage goods the PNL should work pretty quickly. You know the economics should make sense. So you should be really capital efficient. You should not be raising a lot of money until you're going to acquire a company or like do what we're doing. So that wasn't like on the table in the beginning. So I'm just focused on the business not thinking about raising more money. So I did I thought that was like that's it. That's the only capital in and then we had product market fit like crazy and it got bigger and then I need to raise money to find out how to sell fish online. Yeah, exactly. Well, that was funny. So we eventually raised around to finance the acquisition and we turned out we didn't need more money on the balance sheet. Okay, hold on. Before we get there, you raised how much money to do the acquisition? We raised 85 and who'd you raise it from? Greenox and Valor. Okay, we need to talk about so new meta. I'm friends with Neil. Talk to him on the phone all the time. I talked to him about you like I don't know like two weeks ago and he's got hilarious stories about you that I'm going to bring up on the podcast too. But you need to explain like why'd you choose hemp? Because you said I'm not going to pay any more money in. You're a second time founder. You made a boatload of money before you have all these other investors chasing you. You don't even like talking to them. You were kind of like in this is my own career tradition, kind of like not even root. You're just like leave me the fuck alone. I'm building my company. Go away. Yeah, but Neil's been and Greenox was chasing you, right? So explain how you wind up selecting Neil and Greenox. The investor class believes the very high status and they always reach out with an entitlement to like take my time. And so I I've always abused it is like I'm not giving you my time or not. I will be respectful, but like I don't just take investor calls. I just don't do it. I think it's a bad use of time. And plus I have my own capital. So I was like I'll finance it. Fuck it. That's a great position to be in by the way. And I love it, right? Like I don't need it anything. So anyway, my friend Chad Buyers was like, Hey, my buddy Neil wants to reach out to you. Am I for one? And he's like, it's like, Oh, you've used an investor and I'm like, am I cool? I'm not I'm not taking investor calls right now with all the rest time. So I passed. And then two weeks later, Chad says, Hey, I think you should take their time. I'm like, All right, for you, Chad, I'll do that. And then I got on the phone and I was like, I'm just like really focused. So I'm like, Hey, listen, like this is not a tech company. Like the math should work really quickly. Like we should be like a profitable sales. Like that's how we're going to grow as profitable sales. And then like line of credit. And they're like, great. Well, if there's any opportunity that comes along, let us know. And like, great. We'll do. So things time goes on. We're just heads down. And then I start getting messages from former RX of our employees where a firm was soliciting them for like offering them to pay them for reviewing or reviewing me. And it's not just one. It's like 20 people haven't talked to it like five years ago. Hey, Peter, should I take the call? And I'm like, yeah, take the call. Basically, what they're saying is we'll pay you $1,000. If you get on the phone and tell us about your experience with Peter, we'll kind of leave. Okay. And I'm like, yeah, take their money. I had no idea. And I thought I was going through like the litigation. So I was like, Oh, they're just like trying to fucking find dirt. So I had no idea it was an investor. And then I'm like, All right. And then the epigenial happens, meaning the chairman of epigenial comes to me and we say, Hey, let's figure out a deal. So then I reach back out to Neil. I'm like, Hey, this is happening. You guys want to take a look? And of course, reach out to Valar, but hey, this is happening. We're going to need probably some money for this. Well, this is why I respect greeno so much is like, even me kind of being rude to them, they had like put resources to do diligence on me. And then the best way possible, which is like diligent in my leadership, which is actually the, I think the most fundamental thing for this investment to work is like you have to make sure he's pure the right, right type of leader. Very done that when there was no deal on the table. Not only there's no deal on the table, you already told them there won't be a deal. But I thought out as then I was like, Oh, wow, these guys are like, they're good. And I didn't do an auction. I, I, I want the right people on the cap table. Um, so it was, and greenoaks one just thought of my respect for their approach, kept it like with just friends I know. Um, and then Valar had a conflict of interest because they're in the deal. So they couldn't do M&A because the deal is a finance, the other company. So greenoaks let it and, um, yeah, they're amazing. Um, very lucky that Chad connected us. So before I tell you the story that he told me about you, you just said, I didn't do an auction. Why is it that important to not do an auction when you're friend racing? The reason why I didn't want to do an auction is one, we didn't need a lot of money. So it's very important. If we needed a lot, a lot of money, I think it's different. But we only needed like one or two players. We were growing like crazy and I did not want to consume the company's resources in a way that would harm our, our operating our business. So I'm very sensitive to resources that an auction would take. What are the resources an auction would take? Well, you got to like run tons of management meetings. You have to cancel ads, answer diligence questions. Like it's a lot of time. So your, your whole thing keeps going back to like your, your, your intolerant of wasting any time. Yeah. You've said this thing in like half a dozen ways, like in subtle ways since we've had this conversation. Yeah. You're obsessed with time. Yeah. So if you think of it as like the analogy is like aerodynamic. I want to be super aerodynamic through things. And then like my goals and like also as like being on the other side as an investor, like I want to maximize value, but not really. Like if you want to, if I want to maximize value, I would run an auction and I wouldn't care. But I don't really want, I want to make sure my the investors make money and they're, they're good with the underwriting. So like you want to walk to the line where it's like rich, but not too rich, right? Like you can, you can actually, if I'm on the other side, I can underwrite it pretty, pretty easily. I want to make sure all my stakeholders make money. And that's my approach. So the column of that is like, maybe we could have gotten an extra 100 million valuation. I don't know, but I don't really care. Like I want to make sure that everyone feels good. And then I, you know, I really care. And I agree with this. I'm just, I want you to get your thinking out what's like any open to percent. It doesn't matter. It doesn't matter. And I got care about money, but I don't really care about that about money. I really, I care about how the people on the team feel and are excited and aligned. And I've seen, I, I've seen on the other side of the table and fathers just prioritize enterprise value that early and just fucking gross. Why is it gross? Because it's not about that. Like it's about, in this stage, it's, it's about the right people and it's focusing on the mission. It's not about maximizing enterprise value at this stage. And if you're good, you're going to want to put the money anyways. It's just going to take over. Yeah. And like, we got a good valuation. We got fair. And, but I, I don't want an investor feeling like fine, we'll do it, but I disagree. So you said, if you're on the other side, you could underwrite it. So essentially, you want to do a deal where like if you were Neil, you would take the, yeah, it's a good deal. You should make that investment. Yeah. And that's like, exactly. And that's how I underwrite it. Because I'm, I'm operating as a CEO and I'm operating as an investor too, because I'm participating in all this stuff as well. Well, it's a conflict, but I'm generally trying to like bifurcate like, all right, Peter's the CEO, but he's also an investor. Even you're putting more of your own person money to the company. Why would that be a conflict? Well, because if I could like lower the valuation for me, like, okay, yeah, you itself serve. Yeah. You're trying to do its best for the company, not just best. Yeah. I read Michael Bloomberg's autobiography for the first time, like five years ago. And then I knew he has one of the most profitable private companies in the world. Yeah. And I've heard crazy rumors that we don't even have to get into, which is like way richer than even everybody knows he's really rich. But I heard he's like orders of magnitude richer than you've been reported. And he raised, I think it was Merrill Lynch from Merrill Crackley, 30 million for 30% of the company. Then he winds up buying that first like 10% slot back to them from, from like 10 years later. And whatever, it was like 200 million. He paid for that, right? And then he bought the other 20% I think in 2004, $4.5 billion. So if you look at it, it's like one of the best investments he ever made was buying back his shares, right? And essentially now being company, owning all this company. I think it was all of it or like 90% something like that. And Merrill and Merrill Lynch's point was like, well, we paid, you know, 30 million in like 1979. And by 2008, we made $4.7 billion on it or whatever the case is. Could you see an example, a future? Because I do think you're kind of like obsessed with control. Anybody's obsessed with quality and control on everything else is like tends to, I could see you wanting to like buy back the shares. shares at one point. The opportunity presented itself for sure. The governance has set up in a way where I have that. So as long as that's there, but yeah, like I don't-- - Don't have to set up that you have control. - Yeah, yeah, and I'm good with power, so don't abuse it. - Are you gonna continue to raise money? - I mean, if we have a need, but right now we don't. - But in every round, you put in more money your own. - I should, yeah. - Okay, oh yeah. - Okay, so yeah, you gotta, the fuck else am I gonna do? (laughing) - All right, so I get on the, I'm on the phone with Neil. - And he was like, Peter's like one of my favorite kind of founders, like the founders, he likes to die, which is you, you kind of like hinted at it earlier. It's like, nothing's that you wake up and it's like, you don't focus on what's good. It's like, everything's just not good enough. And all you see are the kind of flaws in your business. You kind of attack those flaws, try to make your business stronger over time. Again, very common in history of entrepreneurship. So I guess he like came to visit you. And it was him and somebody else and it was you and a bunch of people that worked with you. And you were doing like taste tests or whatever, maybe new products or existing products. And like, what do you guys think of it? This is awesome. And you go, wrong. This is shit. And then he goes, he said, now you said it was wrong that everything was shit. And then he listed all the deficiencies and the things that he wanted to fix. - Running a business is like, it's like a river. It's long since it's flowing, great. But if there's something blocking that flow, you need to fucking fix it. Like if something is in the way, I ruminate on it to the point where I can't sleep that I have to fix it so I can sleep. I ruminate on the problems. So they're just like nag at me. This is actually a problem I have. The flaw of my leadership titles, I don't acknowledge the wins or success. I'm only preoccupied about what's wrong. So I'm working on that. But I actually outsource that people internally like, hey, make sure we're like saying, like our birthdays tomorrow, I fucking hate birthdays. But our birthdays tomorrow, so I'm like, please do something so we can acknowledge our birthday. I felt like I don't do that. So I outsource it a bit internally, but yeah, it's, 'cause you just fix that. I don't know, they approach me, it's sense. - Yeah, it's almost like what Elon does. So we just had Zach Dal in the podcast and Antonio's on his board. And he says the first, I think it's still to this day, like the first two years, every conversation that Zach Dal had with Antonio is a grossiest. - Yeah. - Antonio grossiest is, hey Zach, how's it going? Good, what's your bottleneck? - Yeah, yeah. - He refused to talk about anything. And he's like, what is the bottleneck? What is the in-way or a critical path? And then we're just gonna talk about this. The entire conversation is this. And then the next thing, that is resolved. Okay, what's the next bottleneck? And then he's just over and over and over again. So just relentless focus on the bottleneck. - Yeah. - Yeah, I think it's like, all right. My job is to scan the holistic picture of the business and react to the problems and then go fix them. And then get the fuck out of the way. Just like constant confronting the problems. - I think this is like, almost all the lead entrepreneurs have this exact same mentality. Where it's like, you can even go to like, both of them longer, we're talking about this when they were talking about people operating all the subsidiaries of Berkshire. It's just like, just tell us the bad news 'cause the good news is good. - Yeah, exactly. It's like the river running. I don't, good news. It's funny. It's not a bad news. - Exactly. Tony Schu from DoorDash, who I wanna get him back on the show as soon as possible 'cause I can't explain why, but like you talked to him. I think it's like 41-42. And you just sit there and, you know, if you actually look, sometimes he's like, he's not just in delivery business. That's not what that guy's doing. He's like, give you like young Jeff Bezos vibes and like, he's chasing after something much larger that you can't cut. He sees what you can't really see at the moment. And he has this problem too. Or it's like, you know, they hit a milestone. They do some kind of revenue or whatever the case is. And he's like, I might go out to dinner. But in many cases, I don't even do that. And he's like, okay, I'm on to the next day. The very next day. - Yeah, to save that. Like our extra, I didn't do anything. That deal happened. I just, the next day. - You bought a house in Miami and looked for a wife though. - That was the year and a half later. - Yeah, I did do that at some point. - So what is the thing that you're trying to unlock right now that you see blocking you? - So we've reorganized the group to be a hybrid organization where we have David as a business unit, which has its sales, marketing, supply, finance. And we have hall pass, another BU. So we have two BUs and we're about to have a third business unit, all operating semi-tonomously. And then we have at the Medici level, sort of shared services. - Why name the company Medici? - I love history. And it reflects how we operate organization. So the Medici's, they created the conditions for the Renaissance to happen. They weren't necessarily the doers. So they created the conditions that identified Michelangelo, Donatello, Galileo. And it's a little bit of the analogy of what are the people that work at Medici at the company. They create the conditions for the business units to thrive and flourish. And they're the artists and scientists. So at Medici, it's like the money, the law, like the things that are agnostic live at there. And then the artists and scientists, the people actually doing the work are at the business unit level. So the name suited how we operate. Medici in our company creates the conditions for the business unit leaders and all the operators to go execute what they need to. - Say more about the structure. So you have all these business units that you just said they operate semi-autonomously? - Yeah. - So we have tells me there are some centralized services, but they more or less are their own business unit that have agency and autonomy run their own P&L and go do. Versus like a large CPG are typically centralized. So it's a decentralized approach because speed and agility is the main objective. 'Cause you look at it and you're like, "All right, your payroll's too high." Like it's quite inefficient on a P&L basis because you have more, you're like double sales. - Yeah, duplication of efforts. - But to me, that's the main design objective is speed. And so if you're designing for speed, you're gonna pay extra people to do that. - Man, Rob had this exact same conversation yesterday. - Yeah, speed's important. It's always been important and it's really important. Especially in our market, we're in, we're dealing with people with mega, mega scale, our ability to bring product to market fast is I don't wanna lose that. And honestly, if we lose that, I'm like, I'm done. - What do you mean you're done? - If we lose our entrepreneurial, and I say it's the company, if we lose our values in a way we operate our culture, I'm fucking leaving. You're just great, you're teased. - Great, my teased? - You're just great. - 'Cause it makes me angry. 'Cause it makes me angry. I hate big fat stupid, I hate big fat stupid things and I don't wanna be a big fat stupid company. The problem is it's actually inevitable as you get bigger. Like my job is to fight bureaucracy and fight the bullshit. - It doesn't have to be. I mean, you've been kind of stumbled upon or maybe some of you were probably very intentional about the way you operated this. I just did this episode of my other podcast founders about Henry Singleton. And he led one of the most successful conglomerates of all time. In many cases, it's a lot of the ideas that we described to Buffett and Munger, where actually things they learned from him. And his whole thing is thick at the time. The 70s, he owned like 130 businesses, 129, none of them were profitable. And essentially, the same thing, they just ran, they ran their own operations. The only thing he centralized was compensation and capital allocation. So, you're on your own, you're making cash. I'm gonna leave you alone. - Yeah, performance equals freedom. - Yeah, exactly. And then you just send your cash and then I make the capital allocation decisions for us. - Yeah. - So, I don't think, and he didn't have a big fat, stupid, ugly company. So, does it have to be that common? - No, no, I know. But it's like the nature of his organization, the more people they want, like nature pulls it in together, like the more people, the more, like it almost wants to be that, a group of people. - I mean, Luca Ferrari just did the exact same thing, 'cause he, you know, he buys these, he acquires these companies in some cases, they have like hundreds of, these are software companies. So, he's like, how many months, how are you on profitable? - That's the first margin business there is. - And it's like, what are these 400 people doing? And in one case, he bought a company, he had 400 people, he got it under 20. And now, when from losing money to, it's a cash printing machine, he's almost making every year in profit, what the acquisition cost was. - Well, originally. - But there was this one thing, he's like, it's in human nature to add layers and complexity. And I think he said the company value of his is like, anybody in the company can raise their hands, like, I don't wanna add this complexity. And he says, it's on the person wanting to add the complexity. He's like, you can just raise your hand, you don't have to say anything else. But the person wants to add this, has to be the one in the company to justify it. - Yep, so you have to fight it. - Okay, so, you have the Medici level, you have all these semi-autonomous business units. How much power does the person running the individual business unit have? - Quite a bit. These are typically former founders. - Yeah, okay. - They're former founders, or they have to be product leaders. That's like a credential, meaning they have to back somebody like, they have to pick up the phone and fix the product, they're the wrong guy. So they have to be product first, ideally a founder or someone who has that experience, but not necessarily the product leaders. Okay, tell me more about the organization now. So, at Medici's product cash, people, law, regulatory. So like that sits there, I sit there, and we serve the BUs, right? And then there's a lot of collaboration in general, all the same office. There's a cross-functional team at each BU. So it's a supply and demand. So demand is sales and marketing, demand is finance and supply. And CPG, it's very cross-functional. So the typical business units are organized around sales, which is working out the retailers, marketing, and that's really demand, right? They generate demand. Marketing can be mostly e-commerce, but it's also all social digital. And then there's the supply side, which is supply chain, which is end-to-end, so raw materials to fulfillment and warehousing, and then finance, which is forecasting pricing, and so the finance is the referee. So that makes that cross-functional team runs the business. Wait, what do you mean finance is the referee? Meaning they define the framework for pricing. They define the budget. They're sort of the ones, because there's a hairlate tension between supply and demand, right? There's always a healthy tension there. The finance is the referee in terms of they define the rules of the game, and they ultimately run the P&L on my view. Explain the tension between supply and demand. Supply people are really driven by accuracy and efficiency. Sales and marketing people are really more charismatic and want to generate demand, and it requires less accuracy. So they have a conflict of interest sometimes, because one just wants to grow as fast as possible. The other one wants to make sure the supply is there appropriately and accurately. I'm so not understanding the same more about the accuracy. You're using term accuracy. Why would someone be interested in supply chain? Generally, to know what you need, where is it? You tell them what the personality is, and their function is like to make sure what we have, where is it, when do we need it, how much do we have? And then sales is like, I want to go win, and often they will, I'll kick their coverage, or there will be issues, and ultimately supply has to go fix those problems. Okay, so how many business units do you currently have on the DG? One, two, three, four. You said there's something earlier that I wanted you to expand on too. You said it's very important for me to be aerodynamic as I go through things. Yeah, it's like efficiency and simplicity. I think the best design is a simplest design, and it's just my nature. So how does that manifest your nature manifest in the way you're building this business because it looks super complicated? It is complicated, but well, one, it's a very flat organization. There's not a lot of depth. I have like 25 direct reports. What's interesting is I read this book on Jensen, and Jensen has famously like 60 direct reports, and a lot of people when that came out when the book, and I think he's talking about some interviews too, like that's way too many, like how could he do it? It's like, well, it's guys are in the most valuable company in the world. It's easy working for him. How many direct reports is too many? Well, I used to think that like seven or eight was the most you could have to really like develop, and I give the right attention to like develop the best leaders possible. Now, I think the value of having somebody read reports is that it allows you to see a lot, and it keeps the organization, it keeps me closer to the problems, and what I tell people when I, if they're reporting to me is like, I'm not going to manage or tell you what to do, we're going to work together to set priorities, but like I'm going to expect you to like bring things to me, you need to bring the problems to me, and we're going to figure out together, but like I'm not going to be like managing your two list. So it takes a certain time of a leader like report to me, like I'm not going to manage them, but I'm going to lead them. Yes, it requires like this leaders to have just better agency and autonomy if they're working with me versus a conventional organization, which is like, oh, I only have eight to record reports, then you just get this very, very stacked thing that like the hierarchy gets too stacked, and information doesn't flow as well. Do you have a co-founder? Yeah. Are you still working together? No. He's the longer out of the company. What happened? He was really helpful in the beginning, but most founding teams never really scale to the promised land, like it's always pretty. Like the hardest thing in leadership is that the team that gets you started in the different life cycles is usually not the same group of people. So that's that's a true observation that I've had. The observation you had is the founding team that says two, three, four co-founders usually is actually one. Yeah. It just takes time to reveal who the one is. Yeah. That's the same exact thing. Yeah. Yeah. Yeah. I talked about Adam Fruge earlier in Apple and in Leia. I think he said it's on the podcast. Yeah. He wants to run a very strict and ruthless meritocracy. Yeah, the same way. Yeah. And his whole thing was like, well, the co-founder that maybe had the skills to be the CTO at the beginning couldn't hang. So we had to literally like, and in many cases, they had a conversation. Adam was one driving it, but he was like, you see what's going on. So like, do you want to what's best for you? Yeah. How clear do you want to have like this fight? And in many cases, if you just frame it's like, this is obviously the best for the company you see what's going on. And like, it's somewhat amicable. Yeah. And I don't like the co-founder. I don't like the founder co-founder's titles because it implies some privilege. It's inherently anti-marocratic. What do you mean you don't like the founder co-founder's title? I just don't like the founder is in a role. It's not a job. You never hire it. So it doesn't have a role in the company. So I think it's actually people abuse its power. And I don't think it gets you get special treatment. So I don't use it. I think it's an abuse of power ever and as a role ever and as duties. And either you do them well or you don't. This is what's getting more and more interesting about me having more of these conversations is to start seeing the same similarities between the people because I mentioned Luca Farr earlier. Adam Farroui mentioned a few times. They both said the same thing. Like Luca Farroui, she's like, we don't even like the term founder in the company. And there's like four founders of Benny Smith. It's like, we all have the same job. And that job is to do whatever's best for the company. They don't use the title at all. Yeah. It's on my signature. So you define your role as what? Chief executive. And how do you think about that? Like, terms, you wake up every day? Yeah. My kind of forever job description is the management team making sure they're performing. Make sure we get product market fit. And I continually get product market fit. Organizational health. So just like how is the culture? Is there people scared? Are people like free and creative? Are we living in the values? Can people recite the values? So culture and then four would be alignment of like strategy? Like, are we organization aligned? Not in a decision, but like just every understand where we're going, where we're going, and is everyone incentivized to go there? Is the group of people moving in the right direction? And then fifth will be cash or fundraising? So those are like my forever. And then I have one of the what I like to call this is like thunder mode. But then what I've always done is like I call it my main job is like reactionary leadership support. So reactionary in the sense, I literally react to it. So fires or problems, I get information. It's a very reactionary, which is generally viewed as negative. But like my job is to react to the problems. So reactionary leadership support. So the leadership is already that I either have to drop what I'm doing or prioritize a reshuffle and then go in and assess, figure out, fix it, whether that's directly indirectly or whatever. Provide resources to shine a flashlight on it. And then get the phone out of the way. And I expect that on all leaders in the company, like react call reactionary leadership support. I want to go back to this. I think one of the most fascinating things about you is this like divine discontent. This you wake up with this fierce competitive drive. But also, I'm not going to call it unhappiness because I don't think that's the right word. But like this discontent of where you are in this constant desire to improve things every day. When Travis from Uber came on, he had like a warning because how old are you? 40. Okay, so he's about 10 years older, right? And he's like, what you have to worry, worry about is that you get so, he's like the act of entrepreneur ring is just dealing with problems. Yeah. And he's like, he says something like, when a warrior fights too long, he might be Tuesday. So he's like kind of like Zen on the outside. He's like so used to adversity. And it's like, it doesn't bother him anymore. Right? And he's like worried that. Yeah, it's none. Exactly. No, it's a great way to put it. And the point that he's making is like, you want to wake up being bothered and not being used to adversity. Not being not isn't preventing you from acting. But you want to essentially react to it. This is what your reactionary leadership, where you just said they're maybe think of this. So how do you think about like what's actually going on inside of you emotionally? Yeah. I do have a sensitivity and get angry, but I harness it in the work, which is good. I love the, it's like, it's not a fair analogy, but I love like the fight. So I seek it. But I don't think I'm good at tapping into my emotions on the spot. I think the building, the pants tolerance is very good, though, to be able to handle it over long periods of time. Because if if you are too sensitive and you react to it, and you're in an affectionate sleep, then you'll break. So I do think it's important to be able to like have that zen, be able to be able to get punched in the stomach and you're just chill with it. But yeah, you definitely can't lose the emotional response. Like things don't bother me like they used to. I'm getting better at it, but I still have that response if things are right. But I imagine with Uber, he just got really, really. Fixed skinned about it to the point where everything was, I don't know, I don't know I was experienced, but I could see how that happened. So what keeps you in as you'd like to fight? Yeah, I love the conflict. Healthy conflict, but. Thanks for checking the time. This was awesome. Thank you. Appreciate it. I hope you enjoyed this episode. Please remember to subscribe wherever you're listening and leave a review and make sure you listen to my other podcast founders for almost a decade. I've obsessively read over 400 biographies of history's greatest entrepreneurs searching for ideas that you can use in your work. Most of the guests you hear on this show first found me through founders.