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

Key Takeaway

When you face a recurring business bottleneck, do not merely work around it—map the dependency, secure protections, and decide whether you should own the constraint. Peter Rahal negotiated a supply agreement before his key ingredient became critical, then acquired the supplier when demand outgrew available capacity. Today, list one dependency that could stall your work—supplier, platform, person, or process—and create a concrete backup, agreement, or ownership plan.

Episode Overview

David Senra interviews Peter Rahal, RXBAR co-founder and founder of David Protein, on returning from investing to operating, building a durable CPG platform, and scaling through product mastery. Rahal explains his approach to brand identity, bottleneck removal, vertical integration, founder-led teams, and designing an organization for speed rather than bureaucracy.

Full Transcript

Transcript of Building One of the Fastest Growing CPG Companies in History | Peter Rahal of David Protein & RXBAR from David Senra. Auto-generated from episode audio; may contain minor errors.

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 in, 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, so you have no organizational responsibility. I started studying investing and getting into it.

How did you study investing? Figuring out asset classes, how to build a portfolio, grow capital, underwriting deals. Are you having conversations? Are you reading? Reading, conversations, best books on it. And then where my time was spent was on where I had the best advantage, which was in consumer packaged good investing or just privates, so early startups. Then stage agnostic, seed to growth, didn't matter, and started doing that and quickly realized that the most important skill set is charisma or whale hunting. It's like finding the deal that is quite obvious and then trying to get an allocation.

That's really 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's going to do the talking. My product's going to do the work, where in 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. That's just too hands-off for me. I'm used to being in knife fights, and it's just too passive.

Investing is very tempting because you can make a decision and not have to do anything, and it works. It grows. The big problem I had with it is the feedback loop's 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's immediate, where in investing it's like, you can develop a thesis, develop a business, underwrite this founder as really great, and then you make the decision, and like, all right, five years go by, did it work or not?

You're living where when you sell RxSpark? Chicago. Okay. You have this huge acquisition, you have a bunch of cash. This is when you moved to Miami? Yes. You moved to Miami before? No, after. Okay, after. Now you have the money, and now you're like, okay, I have a bunch of money. You had this ridiculous idea. This is your own words, because when we were hanging out a few weeks ago, you said, I had a ridiculous idea of starting a family office. Yes. So you moved to Miami, and 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 a 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'd 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. Yeah. Because my goal is to have a family. So like career, success, accomplished, next thing is family. And you try to speed run? Yeah. It went way too fast. I'm thinking I'm really good. So this is, if I remember correctly, meet, marry, divorce, all in like nine months? Yeah. Okay. I'm going to start dashing. 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.

All the other founders I know that I ask about you, it's 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, which is very celebrated. But I talked to a bunch of founders that did that, and then they're fucking miserable. You're one of them. Yeah.

So like, I really want to hone in on like what you were feeling and why you were so miserable in this situation. My plan was to get out of Chicago, change environments. And then I just looked at a map like, all right, where's the best place to go to reset a bit and invest, build my family office, get that right. And then my ultimate goal was to relocate where is in the best interest to start my next thing. So I chose 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 had the same tenacity as me. Like I just thought, like, that's what you did. And I didn't really know anyone else who were founders at this time. And then I quickly realized, like, I'm probably actually a miserable investor because I'm like, I'm handcuffed sitting in the backseat while someone else is driving and they don't know where they're going.

And that's like a torturous position to someone who knows where to go. So you didn't know how rare you were? Yes. Okay. As not humble as that is, but yeah. I was just sitting upstairs right before this. And I was with my friend Patrick, who does the Invest Like the Best podcast. He's one of my closest friends. And we just happened to run into Adam Farooqui from Apploven, 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 vanity metrics where you should just focus on cash generation. It's like very straightforward to him. It's like obvious to him. 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. Just pick any categories. Like there's like a sea of shit and like two or three, maybe four people that are actually excellent.

Yeah. And like what I just like assumed that anyone who's getting into entrepreneurship, they're like willing to die before their company fails. They are willing to sacrifice comfort to win. They want to win. And I 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. 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 don't want to be, 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. 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 to 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, for sure. So I started, one of the good things about investing is you're talking, you're getting through the deal for process, you're ideating, you're talking to other movers and shakers. And that's a helpful process of like, all right, is that 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 package stuff and I started and then I basically pulled out committing to stuff. And the reason is like, if I go in, I'm like fucking all in and that's like a really scary thing. Actually, because then I like my friends go away, like my health goes, all this stuff happens to me. So we can't, we can't go on from that. Okay. Then you need to describe what all in means to you, 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 the, so I can't go into something like half ass ever. So what I commit to is like very serious. And so all my false starts were like, uh, I'm not like moving in the direction of starting it and then just pull back, moving in this direction of 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 of investing, I was like, I need to find a wife to go start a family. I don't know if Miami is the place, Miami beach in particular is the place you should be searching for a wife. I agree. And then I bought a place in New York and moved to New York. But in general, it's cause 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, the future I didn't, I didn't really want. So ultimately I 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 on my gravestone, it might say like protein bar guy. And I'm comfortable 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. But then I really, I was like, I've been, I've been in the food business since I was like 12. I like have a deep, intrinsic knowledge of it. And basically once, once my non-compete was like a year away, it just like naturally happened of like, Oh, started 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 going to be, I'm going to start another protein bar.

34. Okay. Yeah. So 24. Yeah. So my non-compete was 22, October 6th, 22. How long that getting over that dialogue, that inner monologue where it's like, Oh, like, you know, I need to do something more impactful or I have to do biology or create hardware or something. And just like, no, I'm going to actually stick to what I actually know. And maybe the best in the world at, it was three years. You had to convince yourself. Yeah. Wow. Okay. Yeah. And a little bit of like, cause I always think with a, this is both as, with, as an investor where I looked at companies and then a philosophy, um, 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, it's kind of dependent on something else. So I didn't have the time to learn the, the, get the deep enough understanding of the product to make that change. And so with food, I like deeply, I like know exactly what to do. So it just became really obvious and, um, got my wife and then started. What is today, David? When we talked the other, 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. Um, because you're going to like go all in on something and then like, once that's done and then it doesn't happen, you got the family, the non-compete expires and now you're back at this. Yeah. But your, maybe your ambition when you were younger, cause you started RX bar when you were how old? Early 20 something Todd? 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 want to tell people what not to eat. I think that's like a lot of the food business, like don't eat this. It's like demonization and it's pseudoscience. We want to make your favorite foods smarter. And so it's a really quiet approach. Like they're there and there's more intelligent, they're more effective, they're objectively better. So we're going to do that across multiple categories. Protein bar is the wedge. I know it.

That's what we use to get to scale. Um, and once you get to scale, you can build the platform for there. You have the organization, you have the route to market, you have the R and D capabilities. So the protein bar got us our platform and now we're proliferating into categories that just make sense for us and our technology. When you started, David, you knew that you were not going to stay, that you wanted to build a food company and a protein bar company. So I'm going to just answer my question that asked you the way you said it to me before, which I think was excellent, where you're like, 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? You go, anything that you can buy in a store. So that's the size and scope of your ambition. Yeah. Like we're competing with Nestle. Like I want to build the most important food company in the 21st century. And how big, what's the scale of some of these food companies? Nestle is a hundred plus billion in revenue. Um, they're real, real global as well. Um, Pepsi is probably right around there.

Real scale. So a couple hundred billion dollar companies, uh, how many different products? Well, they have these enormous portfolio of brands. And then, you know, hundreds of brands. And then those brands are different by cultures or geographies. They grow up by acquisition or no? Yeah. Mostly. Okay. Are you going to do that too? Probably it's on the table, but our core competency is the ability to build brands. So like I know how to create an identity and build a brand. 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, it has 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, um, other traits, tone of voice, uh, has friends. Who do you associate with? Hold on. Help explain that part to me. Who do you associate with?

So who are you going to do partnerships with? Like so David, for example, David Protein, there's 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. I don't know, 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's its friends, its values, vision, you define that clearly and that there's like a North star to it.

The most important factor of building brands, it just takes time. So if you keep this identity, it can be dynamic. and 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, the chisel, which is like this crude nail.

But the meaning of a chisel is intelligence, discipline. And if you apply those things, you get a masterpiece, something beautiful. So that's the logic for David's brand and brand identity. So if you have a crystal clear identity for a brand and its product offering and its position, the marketing actually becomes really easy. You just constantly hammer those points over and over and over again. I wanna tell you about the presenting sponsor of this podcast, RAMP. I have been reading a lot about SpaceX lately. SpaceX is one of the most valuable businesses in the world.

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Deal is trusted by over 40,000 companies and growing fast. Learn how they can help your business by going to deal.com forward slash senra. That is deal.com forward slash senra. How much time did you put into planning this brand identity for David? Six months maybe. Okay, so then once you have this clearly defined set of qualities for the brand, and then you're saying, then we just extend this over decades, this is the plan. Yes, you just hammer it, keep going. How did you learn the importance of maintaining the same brand identity over a long period of time?

Just studying, just studying brands. If you look at the best brands, they're all old. And so time's a factor that's really, really important and the consistency of that. And the thing is, there's an asymmetry where those brands are super fragile. So if you fuck around on quality or something else, it's over really quickly. The reason I asked that is because I was obsessed with this guy named David Ogilvie and I've read every single one of his books. He built one of the greatest advertising agencies of all time.

And he would hammer exactly what you did. You sounded exactly like him if you read his autobiography or if you read Ogilvie on advertising. And his whole thing was just like, people jump around too much. You pick one brand identity and you do it over and over and over again for decades. And he 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'd you pick those three traits 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 our start. So what do people come to protein bars for? They come to it for body composition. Like no one really eats protein bars as like, oh, I'm just gonna enjoy this treat. It's like very, very functional. Like I need to transform my body, either increase muscle or decrease fat. So the category in protein in general is very oriented around those values as well.

And so with David, 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, because they're not really great, but the 90s brands in weight loss, like Atkins, Weight Watchers, Jenny Craig, like they're super tacky, 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 then the other inside, like, I don't know, when I turned 35 and just looked around my friends, I just realized like everyone I knew had some issue with, wait, wait, like everyone had struggled with weight loss as you get older.

Everyone wanted more muscle, like everyone I've ever talked to, whether it's a issue they're honest about or they're in the closet about it. Like, so it was like a ubiquitous problem. So ideas like how to create a brand that really embodies that in a refined way. I'm gonna 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, 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. 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 found 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 Kalanick, the founder of Uber, was on this podcast and he said something that resonated with a lot of people. And he's like, the lifestyle of an entrepreneur is I can take more pain than this guy and I'll prove it to you.

Do you agree with this? 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 in your eyes. I don't know if we can get this on camera or not. I don't know, it just feels good. And I don't know where it's from necessarily. I think it's rooted in competitive nature, but I think it makes you a better man. I think there's a nuance, like suffering for 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 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 you have to channel? So like trauma is relative, but for me, when I grew up, very beautiful parents, so I don't wanna sound like I suffered that much, but when I was a child, I was just labeled disabled because of my dyslexia.

And that, I remember hearing conversations of teachers saying, oh, is Peter stupid? Like, I couldn't read well. And I remember that, like, I 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 am so disagreeable with any sort of authority or disagreeable, like we're contrarian by nature because like my survival strategy as a 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 then even to survive in school, it was like, took me just like 10x the effort to get to 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. Psychedelics, therapy, it's like tattooed in me at this point.

You've tried to get rid of it and you can't. Yeah. And so you feel the outlet is crushing your competitors? Yeah, yeah, it's like, yeah, it's winning. It's like, and it's like, I'm not really proud. It's like, I'm just like, it is what it is. I didn't really choose it, but it's like to prove that I'm not that, fundamentally. But I thought when I was 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.

I'm on the sideline and I need to channel all this anger and thing towards a result. Reporting on a portfolio is not doing that. I have a younger friend that feel like I can share 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 that 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 you have to be careful of these agents. You have to be careful of these bankers. You have to be careful of these investors. The further you get away from the person with talent, they just are incentivized to kind of like persuade, cajole, act, in many cases, against your interests. And I was like, just stay close to the people that actually have talent. And you don't need many friends in life. You can have five. And those are the kind of friend group that you should have, where you have all these other fakers out here that are playing politics.

You can get ahead that way, which is completely different than how the entrepreneur thinks. Yeah, I agree with that. Yeah. There's another thing that you were saying, because I'm not going to leave this alone. I want to hear more about your resentment and this attraction that you have to pain. So the founder of the Four Seasons, this guy named Izzy Sharp, he has this great line where he's kind of 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 it. He never built a single hotel before he had that goal. And so his autobiography is excellent. And in there, he says, one of my favorite maxims in his entrepreneurship, he says that excellence is the capacity to take pain. And this same thing, he had this very complex relationship with his father. He had a lot of people doubting him. This idea, like what you just said to me makes perfect sense, because I've seen these biographies over and over again. A lot of people that have come on the show.

I just mentioned Adam Faruqi. One thing that he drove himself was like, I tried to raise money. I was willing to sell 25% of my company for $1 million. This is a company that's going to wind up being worth $100, $200 billion. They turned me down, these VCs turned me down, and then they funded some of my competitors, so we made it a company principle to pit those competitors out of business. So when I hear you, I hear this guy, Josh Wolf has this great line where he says, chips on shoulders puts chips in pockets.

It's like using that pain that you had when you were younger and channeling it to drive an achievement. And I think the key is if you have that, if you don't channel it and focus it, I think it's destructive. So for me, it all gets channeled through the art, through the company building process, and then it's productive, because it can be destructive if you don't channel it. Okay, so how are you channeling it into what you're building now then? The company's output is really impressive. Just a lot of hours, butts in chairs in the office, just dedication.

What do you think is impressive about the output that you're doing right now? What does that mean? We're only two years old, and it feels like five years. So our relationship with time is really bizarre. But in two years, I mean, we're running over 400 million this year. We'll do 300 million this year. We're in 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 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 the 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 on the supply chain. To take Travis, like, this is all atoms. 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 very difficult. So you've had times in the company where you ran out of supply, correct?

Oh, constantly, yeah. Is this when you started? I saw like, you know, Rob and everybody's been telling me about David Barr, and then I saw like an ad and you were like selling like Cod or something. Is that as a result of the fact that you ran out of supply? What happened there? The story of Cod was, we're creating our website and we're doing a comparison table. 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.

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 to 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 it there as like a dorky sort of comparison. Why it worked is like the juxtaposition 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 our first year and I was like, yeah, it's like deja vu for me. I'm like, this is super boring. Like another flavor, another, I'm like, we need to do something bold. And so we're like, let's actually sell Cod. And not like a stunt, like actually seriously sell fish. And so we did this boiled Cod campaign and it was funny because it was like. You like pain, let me show. Yeah, it was like got in the frozen business and it's like back to our brand values.

Like it was actually a very intelligent thing because it had centered the conversation around protein to calorie ratio. So we did it in a way that wasn't sort of like, like right on the nose, it was like a little bit of a riddle. And it's like $55 frozen Cod online, like no one really wants that. So we didn't have product market fit, but it functioned as a really great communication tool. They're creating a product for marketing benefits. Yeah, we call it product as market. I'm not giving up on it.

Like we're going to keep going. We're going to keep going on Cod until we get product market fit. I don't think you will. I don't think you will, man. I know it's funny because if you look at our website, it's like protein bars, bronze and gold, Heinz frozen ice 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 to 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, no, it happened to work at the same time we were out of stock on some things, but no, it was independent. Okay, so let's go back to when I interrupted you because you started talking about pain. You said talking about building a masterpiece. What were you going to say there? Oh, it requires tons of discipline and intelligence and it's done over time.

And that's really what the brand David's about is like finish your masterpiece and it would happen to everyone's inner excellence. But how do you apply it to building your company though? Well, I think I start with like the fuck, what is a company? So our strategy is like two fundamental things in a company. People, it's all about people, as cliche as it is. And I think about the organization as a product. So my focus is all about that. And then the second piece is product and mastery of the product.

And when I think of product, I think of 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, a company is just a group of people aligned towards a mission. 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, I think mastery is like we have four processes in the company that ensure our organization is done right and culture is 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 to 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 is mission critical and then promotion as well, rewarding the right behaviors and then firing.

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 who have courage to seek truth. That's mission critical. You don't want biases in place. Foundational would be humility, which is I define as the freedom of pride and arrogance. So humility is really foundational and it shows up like intellectually, like I don't know what I'm doing, I need help.

Like I don't want to cover your ass culture where people are like, I have this data, therefore my decision's good. Like it's not really productive. Say more about that. You'll get people from big corporate America come in 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. It's 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 performative 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 to protect their job. Are you able to recruit from other food companies? Cause like you're so different. Most of these companies haven't been founder led in, I don't know, half century, if not longer.

Yeah, we can and we do. There's a lot of good experience to have. You just sort of have to baptize them when they come in. So that's where the onboarding process is really critical. You baptize them? Yeah. What does that mean? You just have to teach them new beliefs, new values. If you just sort of throw them in, they're just going to take what they know and apply it. And so you really want to have them assimilate to the culture in a way. And so a very thoughtful onboarding process where you learn the values of the company.

You learn entrepreneurship. We pack boxes, you learn humility, you learn all these things. It's really critical. Are the most talented people in your company the ones with no experience though? The most talented people in our company are former founders. Say more about this. Convincing a founder to like not do their thing to join a greater company is a really strong signal of the opportunity we have ahead. Basically, I would position it as like, this is a platform for you to go do your thing. You could do your thing with amazing technology.

You can do your thing with resources and you don't have to deal with the bullshit of raising money, all the bureaucracy that comes with the different stakeholders. And I think you see this in AI where a lot of founder talent goes to those platforms. Convincing them to join a founder-led company 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. They're not ruined by corporate America or school.

School ruins you too. You have to follow procedures. You're not thinking it's out of the box. You're following a playbook. There's no playbook in entrepreneurship. You just 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 Spoons. He's doing it from Milan, not exactly like a startup hub. And he's talking about being isolated was super valuable to him because he can't even copy the startup mantras because he doesn't know them.

He's like immune to them. And his point was just like, he prefers young graduates or even people that didn't graduate to over-experienced. 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 a lot of, there's smart people everywhere. There's no great jobs for them. Their economy's terrible.

And he's just like, I'm just optimizing for this. And then I'll come in and indoctrinate them into how we're running the business, which is completely different than school or a bad or a company that's like a mediocre company. Yeah. Yeah, because the thing with 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 leaning on your experience. And like, for me personally, I started a company with no experience, really. You know, I definitely don't think it's that important if you have good reasoning skills and have the right ability to learn. So the best is like some inexperience 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 like, those are the most powerful people to get to you want to organize around.

Tell me more about them. Now there's kind of like, it's all a child. They're getting some fucked up in their childhood. You can't, you know what I mean? Like I, there's some, you know, there's one kid in our team. Like I can't, could be, I get, I, he just, he's going to die before he fails. And I didn't have a comfortable life. And it's like a really, really, like, this is, this is different for him. So you want as many as 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 to balance out the team that are very rational and pragmatic and more conservative. Like you want a good team design, but the people driving the company are usually those maniacs that have a chip on their 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 EBG business. So recruited him to join us and do it here. Victim. I love that you just said that. Okay, so let's get, 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 what the story that other founders repeat so much. That's very like Rockefeller-esque. Explain what that is. You, what is it? Apogee.

Okay. So in March of 20... Don't go to the acquisition yet. Talk about the fact, what, what this thing does, why it was important to your business. Cool. And then we're going to go to the fact that you victimized everybody else. Apogee makes EBG, a sterified perboxylated cholesterol. It basically, it's a modified triglyceride. So olive oil is a triglyceride. So triglyceride has three fatty acids attached to a cholesterol backbone. Your body can't digest this unless lipase comes and clips these free, these fatty acids off. What the company did is they figured if they can lock these fatty acids in, lipase can't break it down.

And so what that means is you can have the taste and mouthfeel of fat without the caloric, the metabolic impact. Why that's a huge innovation is because most of the calories in 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 we were sitting there and it's like this, it's really amazing. You can like have your cake and not have the caloric consequences. So think of it as like high-intensity sweeteners like Stevia and monk 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. 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 the company was struggling, like a bunch of- Their company.

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. You'd be dead. Okay. And then eventually we became like 150% of their supply, meaning like they couldn't supply our needs. So anyway, as soon as I started the company and we were using the ingredient, my whole like, just like, this is a nasty dependency.

And on top of it, it was run by like older gentlemen, mostly lawyers. So you know how that is. Like lawyers running companies is not good. I'm sitting there like, all right, either they're going to kill us, or this is going to end in litigation, extortion, or we're going to buy them. But I was like, all my attention was like making sure either we buy them or something. And then in February, basically six months into the company, they came to us like, hey, you guys are killing it.

How about you take it over? And of course I'm like, let me think about it for a second. But so negotiated and it was an obvious deal. Like these food companies need to be vertically integrated. Like if you're out there making a food ingredient 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 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 makes the most sense. And 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. Yes. It's not like a real- Well, they developed it. Yeah. Okay. They developed the process and invested in it. And the entrepreneur, the founder is amazing. It required so much cash that it just eventually got diluted for the lawyers to take over.

And it just made sense for both parties to merge and acquire. And so we did 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 at the end of the day, there's all these customers that had no supply agreement. Honestly, their businesses weren't 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 favored nations on price, most favored 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're the elephant in the room with a customer. If you didn't have a supply agreement, you're out of luck. So the way it was reported or talked about was there's this very important patentable ingredient that 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 then I also recruited from the people that I just conned.

Yeah. You had a lawsuit or something over this, right? You got an antitrust claim and lawsuit. Yeah. Is that still ongoing? It was dismissed three times. Because for that lawsuit to function or for them to actually have any merit would mean it would be a landmark case in 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. One, we've let Apogee manage the comms a little bit. And we just did a terrible job communicating.

Did you communicate at all? There was a notice sending out of the acquisition and that if you don't have a supply agreement, there will be no supply. But that comms, I could have done better. I could have done it with more compassion and called the entrepreneurs or could have done it differently. In what way, though? Compassion doesn't seem to be one of your personal traits. 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 it? I just don't have sympathy for stupidity. I don't have sympathy for incompetence, really. It was so obvious that if you're going to get into it, if you're going to use an agreement that has a single source, you better make sure you have a supply agreement. It's fundamental. This goes back to something that was second nature to you that you don't even feel special. Remember at the beginning of the conversation, you're like, OK, well, yeah, I've got all this money.

I'm going to chill. I'm going to 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 at this company. It's like, what is this guy doing? You didn't know how rare you were. Yeah, no, totally. So it's the same situation here. How many other companies are involved? Were you buying the same ingredient? Three. And their response was like, well, I didn't know I couldn't.

I didn't know there was an option. It's like, what the fuck? What are you doing all day? 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 Applovin has done with their advertising platform. Applovin connects you with over a billion potential new customers in mobile games.

Applovin allows you to capture undivided attention. Applovin 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 Applovin in minutes. You set the goal and Applovin achieves it. No complex setup, no expertise needed. And Applovin 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 Applovin. And you can do that by going to Applovin.com. That's Applovin.com. Is this why you had to raise money? Because... Yeah. So your first company, you did like a... RxPro 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. But no typical venture capital. No. Okay. What did you start, Dave, with? Did you raise money right away? Did you put your own money in?

What did 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 we raised eight for working capital just to survive. Why not just put up the eight 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, Antonio and John have just been really supportive. And I like how they operate. Their name is Valor.

They're pretty intense. Outside of Valor, it wasn't like typical investors? No. No. Okay. So friends and things like that. Some small friends. Yeah. And then I was like, we're done. All right. 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 consumer packaged goods, the P&L should work pretty quickly. Union economics should make sense. So you should be really capital efficient. You should not be raising a lot of money until... Unless you're going to acquire a company or do what we're doing.

So that wasn't on the table in the beginning. So I'm just focused on the business, not thinking about raising more money. So 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... Hey, 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 did 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? Green Oaks and Ballard. Okay. We need to talk about... So Neil made a... I'm friends with Neil. I talked 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 did you choose him?

Because you said, I'm not going to put any more money in. You're a second time founder. You made a boatload of money before. You have all these other investors chasing you. You don't even like talking to them. You were kind of like, and this is my own characterization, kind of like, not even rude. You're just like, leave me the fuck alone. I'm building my company. Go away. But Neil's been... And Green Oaks was chasing you, right? So explain how you wind up selecting Neil and Green Oaks.

The investor class believes they're very, very high status. And they always reach out with an entitlement to like, take my time. And so I've always reviewed it as like, I'm not giving you my time. 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. I love it, right?

Like, I don't need anything. So anyway, my friend, Chad Byers, was like, hey, my buddy Neil wants to reach out to you. I'm like, for what? And he's like, oh, he's an investor. And I'm like, cool. I'm not taking investor calls right now with Alderstein. So I passed. And then two weeks later, Chad says, hey, I think you should take the 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, have profitable sales. Like, that's how we're going to grow is profitable sales and then like, line of credit. And they're like, great. Well, if there's any opportunity that comes along, let us know. I'm like, great, we'll do. So I think time goes on, we're just heads down. And then I start getting messages from former RxR 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 I haven't talked to in like five years, be like, hey, Peter, should I take the call? And I'm like, yeah, take the call. So basically what they're saying is, we'll pay you $1,000 if you get on the phone and tell us about your experience. Yes, with Peter. Like, what kind of leader was he? 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 Apogee deal happens, meaning the chairman of Apogee comes to me and we say, hey, let's figure out a deal. So then I reached back out to Neil. I'm like, hey, this is happening. You guys want to take a look? And of course, reach out to Valor, but hey, this is happening. We're going to need probably some money for this. This is why I respect Greeno so much. It's like, even me kind of being rude to them, they had like put resources to do diligence on me and in the best way possible, which was like diligencing my leadership, which is actually, I think, the most fundamental thing for this investment to work.

It's like, you got to make sure is Peter the right type of leader. They had already done that when there was no deal on the table. Not only there was no deal on the table, you already told them there won't be a deal. When I found out it was them, I was like, oh, wow. These guys are like, they're good. And I didn't do an auction. I want the right people on the cap table. And Greeno won just out of my respect for their approach. Kept it like with just friends I know.

And then Valor had a conflict of interest because they're in the deal. So they couldn't do M&A because the deal was to finance the other company. So Greeno let it. And yeah, they're amazing. Very lucky that Chad connected us. So before I tell you the story that he told me about you, you just said, I didn't do an auction. Why is it that important to not do an auction when you're fundraising? The reason why I didn't want to do an auction is one, we didn't need a lot of money.

So it's very important. If we needed a lot, a lot of money, I think it's different. But we only needed like one or two players. We were growing like crazy. And I did not want to consume the company's resources in a way that would harm our operating our business. So I'm very sensitive to the resources 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 constantly answer diligence questions. Like, it's a lot of time.

So your whole thing keeps going back to like, you're 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 goal is like also is 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 investors make money and they're good with the underwriting. So like you want to walk to the line where it's like rich, but not too 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 con of that is like, maybe we could have gotten an extra a hundred 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 really care. And I agree with this. I'm just, I want to get your thinking out. What's like 2%? It doesn't matter. It just doesn't matter. And like, I care about money, but I don't really care about that type of money. I really, I care about how the people on the team feel and are excited and aligned. And I've seen, I've seen on the other side of the table, and founders just prioritize enterprise value that early.

And it's 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 a mission. It's not about maximizing enterprise value at this stage. And if you're good, you're going to wind up with the money anyways. It's just going to take over. Yeah. And like, we got a good valuation. We just 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 were on the other side, you could underwrite it.

So essentially you want to do a deal where like, if you were Neil, you would take the, it's a good deal. You should make that investment. Yeah. And that's like, exactly. And that's how I underwrite it. Like, cause I'm, I'm, I'm operating as the CEO and I'm operating as an investor too. Cause I'm participating in all this stuff as well. Which is a conflict, but I'm generally trying to like bifurcate, like, all right, Peter's the CEO, but he's also an investor. You mean you're putting more of your own personal money into the company?

Why would that be a conflict? Well, because if I could like lower the valuation for me, like. Okay. Yeah. You would self-serve. You're trying to do what's best for the company, not just specific. 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. 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 if I remember correctly, 30 million for 30% of the company. Then he winds up buying that first like 10% slug back to them like 10 years later and whatever, it was like 200 million he paid for that. Right. And then he bought the other 20%, I think in 2008 for like 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 owning all of his company.

I think it was all of it or like 90%, something like that. And Merrill Lynch's point was like, well, we paid 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 are kind of like obsessed with control. Anybody who's obsessed with like quality and control and everything else is like tends to, I could see you wanting to like buy back the shares at one point? The opportunity percent of itself, for sure.

The governance is set up in a way where I have that. So as long as that's there. But yeah, like I don't. Governance is set up that you have control. Yeah, yeah. And I'm good with power, so I 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 of your own? Is that what you said? I should, yeah. Okay. Oh, yeah. Oh, yeah. Yeah, you gotta.

The fuck else am I gonna do? 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 that he likes to dive, which is you, I kind of like hinted at earlier, which is 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, trying to make your business stronger over time.

Again, very common in the history of entrepreneurship. So I guess he like came to visit you, and it was him and somebody else, and it was you and a bunch of people that work with you, and you were doing like taste tests or whatever, maybe new products or existing products. And like, what do you guys think? You're like, this is awesome. And you go, wrong, this is shit. And then he goes, he said, now he 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. As long as it's flowing, great. But if there's something blocking that flow, you need to fucking fix it. Like, if something's in the way, I ruminate on it to the point where I can't sleep, that I have to fix it so I can sleep. I ruminate on the problems. So they just like nag at me. This is actually a problem I have. A flaw of my leadership style is I don't acknowledge the wins or success. I'm only preoccupied about what's wrong.

So I'm working on that. But I've actually outsourced that to people internally to like, hey, make sure we're like saying, like our birthday's tomorrow. I fucking hate birthdays. But our birthday's tomorrow, so I'm like, please do something so we can acknowledge our birthday. But like, I don't do that. So I outsource it a bit internally. But yeah, it's, because if you just fix that, I don't know, the approach makes sense. Yeah, it's almost like what Elon does. So we just had Zach Dell on the podcast, and Antonio's on his board.

And he says the first, I think it's still to this day, like the first two years, every conversation that Zach Dell had with Antonio, is it Gracias? Yeah. Antonio Gracias is, hey, Zach, how's it going? Good. What's your bottleneck? Yeah, yeah. He wouldn't, he refused to talk about anything. Yeah. And he's like, what is the bottleneck? What is the in way or a critical path? And then we're just going to talk about this. The entire conversation is this. And then the next thing that is resolved, okay, what's the next bottleneck?

And it's just over and over and over again. 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. It's like constant confronting the problems. I think this is like almost all the elite entrepreneurs have this exact same mentality, where it's like, you can even go to like, Buffett and Munger were 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 because the good news- Yeah, exactly. It's like the river running. It's running. It's some of the bad news. Exactly. Tony Hsu from DoorDash, who I feel like I want to get him back on the show as soon as possible, because 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, he's like, he's not just in delivery business. That's not what this guy's doing.

He's like, gives you like young Jeff Bezos vibes. And like, he's chasing after something much larger that you can't, he sees what you can't really see at the moment. And he has, he said he has this problem too, where 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. Yeah. But in many cases, I don't even do that. And it's like, okay, what's, I'm onto the next day, the very next day.

Yeah. Say that. Like our export, I didn't do anything. That deal happened. I just, the next day. You bought a house in Miami, looked for a wife though. That was a 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 then we have Hall Pass, another BU.

So we have two, we're two BU's and we're about to have a third business unit, all operating semi-autonomously. And then we have at the Medici level, sort of shared services. Why name the company Medici? I love history. And it reflects how we operate organizationally. So the Medici's, they created the conditions for the Renaissance to happen. They weren't necessarily the doers. So they created the conditions, they identified Michelangelo, Donatello, Galileo. And it's a little bit of the analogy of what are the people that work at Medici at the company.

They create the conditions for the business units to thrive and flourish. And they're the artists and scientists. So Medici is like, it's like the money, the law, like the things that are agnostic live up 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 and our company creates the conditions for the business unit leaders and other operators to go execute what they need to. Say more about the structure. So you have all these businesses, you just said they operate semi-autonomously?

Yeah, semi-autonomously meaning 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. Because you look at it and you're like, all right, your payroll is too high. Like it's quite inefficient on a P&L basis because you have more, you're like double, you have double sales. Yeah, duplication of efforts. But to me, it's the main design objective is speed.

And so if you're designing for speed, you're going to pay extra people to do that. Me and Rob had this exact same conversation yesterday. Yeah, speed's important. It's always been important and it's really important, especially in our market we're in, where we're dealing with people with mega, mega scale. Our ability to bring product to market fastest is, I don't want to lose that. And honestly, if we lose that, I'm like, I'm done. What do you mean you're done? Like if we lose our entrepreneurial, and I say this to the company, like if we lose our values and the way we operate our culture, I'm fucking leaving.

Why don't you just grit your teeth? Grit my teeth? Because it makes me angry, because it makes me angry. I hate big, fat, stupid, I hate big, fat, stupid things. And I don't want to 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 even kind of stumbled upon, or maybe not even stumbled upon, 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, a lot of the ideas that we ascribe to Buffett and Munger were actually things they learned from him. And his whole thing is, I think at the time, the 70s, he owned like 130 businesses, 129 of them were profitable. And essentially, 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 going to leave you alone. Performance equals freedom. Yeah, exactly. And then you just send your cash and then I make the capital allocation decisions for us. So I don't think, and he didn't have a big, fat, stupid, ugly company. So it doesn't have to be that company. No, no, I know. But it's like the nature of these organizations, the more people they want, like nature pulls it in together. Like the more people, the more, like it almost wants to be that, a group of people.

I mean, Luca Ferrari just did the exact same thing. And he buys these, he acquires these companies, and in some cases, they have like hundreds of, these are software companies. So he's like, how do they make money? He's like, how are you unprofitable as a software company? That's the smartest business there is. And it's like, what are these 400 people doing? And in one case, he bought a company that had 400 people, he got it down to 20. And now went from losing money to it's a cash printing machine.

He's almost making every year in profit what the acquisition cost was originally. But there was this one thing, he's like, it's inhuman nature to add layers and complexity. And I think he said, the company value of his is like, anybody in the company can raise their hands, like, I don't want to add this complexity. And he goes, it's on the person wanting to add the complexity. He's like, you can just raise your hand, you don't have to say anything else. But the person who wants to add this has to be the one in the company to justify it.

Yeah, so you got to fight it. Okay, so you have the Medici level, you have all these semi-autonomous business units. How much power does the person running the individual business unit have? Quite a bit. 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, it's back to my like, they have to pick up the phone to 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 BU's, right? And then there's a lot of collaboration in general, we're all in the same office. There's a cross-functional team at each BU, so 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 with 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 a supply side, which is supply chain, which is end to end, so raw materials to fulfillment and warehousing, and then finance, which is forecasting, pricing. And so 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 inherently a tension between supply and demand, right?

Like 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 in my view. Explain the tension between supply and demand. Supply, people are really driven by accuracy and efficiency. Sales and marketing people are really more charismatic and want to generate demand, and maybe that requires less accuracy. 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 that the supply is there appropriately and accurately.

I'm still not understanding though. Say more about the accuracy. You're using the term accuracy. Why would someone be interested in supply chain? Generally like to know what you need, where is- You're talking about the personality types? Personality types, yes. Okay. And their function is like to make sure what do we have? Where is it? When do we need it? How much do we have? And then sales is like, I want to go win. And often they will outkick the coverage or there'll be issues and ultimately supply has to go fix those problems.

Okay, so how many business units do you currently have at DG? One, two, three, four. You said 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, just like efficiency and simplicity. I think the best design is the simplest design and just my, I think my nature. So how does that manifest your nature manifest in the way you're building this business? Cause it looks super complicated. It is complicated, but well, one, it's a very flat organization.

So there's not a lot of depth. Like I have like 25 direct reports. What's interesting is I read this book on Jensen and Jensen has famously like 60 direct reports. And a lot of people, when that came out in the book and I think he's talked about this in some interviews too. They're like, that's way too many. Like, how could he do it? And I was like, well, this guy's running the most valuable company in the world. Seems to be 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 like give the right attention to like develop the best leaders possible. Now, I think the value of having so many reports is that it allows you to see a lot and it keeps me closer to the problems. And what I tell people if they're reporting to me is like, I'm not gonna manage or tell you what to do. We're gonna work together to set priorities. But like, I'm gonna expect you to like bring things to me.

You need to bring the problems to me and we're gonna figure it out together. But like, I'm not gonna be like managing your to-do list. Like that's, so it takes a certain type of leader like report to me, like I'm not gonna manage them. I'm gonna lead them. Yeah, so 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 direct 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 no longer at 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 usually is not the same group of people. So that's a true observation I've had. The observation you had is the founding team that says there's two, three, four co-founders usually is actually one.

It just takes time to reveal who the one is. That's the same exact thing. I talked about Adam Faruqi earlier in Apple Open and I think he even said this on the podcast. 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 the one driving it, but he was just like, you see what's going on.

So like, do you want what's best for your health care or do you want to have this fight? And in many cases, if you just frame it like, this is obviously best for the company, you see what's going on and it's somewhat amicable. Yeah, and I don't like the co-founder's titles because it implies some privilege. It's inherently anti-merocratic. What do you mean you don't like the co-founder's titles? A founder isn't 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 who abuse its power. And I don't think it should get special treatment. So I don't use it. I think it's an abuse of power. Everyone has a role. Everyone has duties. 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 Ferrari earlier. Adam Ferugia I mentioned a few times. They both said the same thing.

Luca Ferrari, we don't even like the term founder in the company. And he was like four founders of Benesmith. He's like, we all have the same job. And that job is to do whatever's best for the company. They don't use the title at all. Yeah, it's not on my signature. So you define your role as what? Chief executive. And how do you think about that in terms? You wake up every day. Yeah, my kind of forever job description is the management team, making sure they're performing, make sure we get product market fit, and continually get product market fit.

Organizational health. So just like how is the culture? Are people scared? Are people free and creative? Are we living the values? Can people recite the values? So culture. And then four would be alignment of strategy. Are we organizationally aligned? Not in decisions, but does everyone understand where we're going, why we're going, and is everyone incentivized to go there? Is the group of people moving in the right direction? And then fifth would be cash or fundraising. So those are like my forever. And then I have one of the, what I like to call, this is like founder mode, but what I've always done, it's like I call it, my main job is reactionary leadership support.

So reactionary in the sense, I literally react to it. So fires or problems, I get information. It's very reactionary, which is generally viewed as negative. My job is to react to the problems. So reactionary leadership support. So the leadership support, I either have to drop what I'm doing or prioritize or reshuffle and then go in and assess, figure it out, fix it, whether that's directly, indirectly, or whatever, provide resources, just shine a flashlight on it, and then get the fuck out of the way. And I expect that on all leaders in the company, called reactionary leadership support.

I want to go back to this, I think one of the most fascinating things about you is this divine discontent. 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 this discontent of where you are and this constant desire to improve things every day. When Travis from Uber came on, he had a warning. Because how old are you? 40. OK, so he's about 10 years older, right? And he's like, what you have to worry about is that you get so, he's like, the act of entrepreneuring is just dealing with problems constantly.

And he said something like, when a warrior fights too long, he might be too zen. So he's kind of like zen on the outside, but he's so used to adversity, and it doesn't bother him anymore. And he's worried that. Yeah, he's numb. Exactly, numb is a great way to put it. And the point that he's making is you want to wake up being bothered and not being used to adversity. Not being, doesn't prevent you from acting, but you want to essentially react to it. This is what your reactionary leadership, where you just said, there, made me think of this.

So how do you think about 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 not a fair analogy, but I love the fight. So I seek it, but I don't think I'm good at tapping into my emotions on the spot. I think that building the pain tolerance is very good, though, to be able to handle it over long periods of time. Because if you are too sensitive, and you react to it in an affectionate sleep, then you will break.

So I do think it's important to be able to have that zen, be able to get punched in the stomach, and you're chill with it. But yeah, you definitely can't lose the emotional response. Things don't bother me like they used to. I'm getting better at it, but I still have that response if things aren't right. But I imagine with Uber, he just got really, really thick skinned about it to the point where everything was, I don't know. I don't know what he experienced, but I could see how that happened.

So what keeps you in it is you'd like to fight. Yeah, I love conflict, healthy conflict, but. Thanks for taking the time. This was awesome, man. Appreciate it. I hope you enjoyed this episode. Please remember to subscribe wherever you're listening, and leave a review. And make sure you listen to my other podcast founders. For almost a decade, I've obsessively read over 400 biographies of history's 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.

And I'm a big believer in that. So thank you for watching. I'll see you in the next one. Bye. Bye. Bye. Bye.