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

I want to start with the fact that you sold your previous company for $600 million. You and your co-founder owned 90 percent 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. From the outside looking in, investing is very appealing. One, you think it's an intellectual exercise. The second real thing is that it gives you a great lifestyle, because you're not operating, so you have no organizational responsibility. So I started studying investing and getting into it.

How did you study investing?

Figuring out asset classes, how to build a portfolio, grow capital, underwrite deals.

Are you having conversations? Are you reading?

Reading, conversations, the best books on it. And then my time was spent where I had the best advantage, which was in consumer packaged goods investing, or just privates, so early startups. Stage agnostic, seed to growth, didn't matter. I started doing that and quickly realized that the most important skill set is charisma, or whale hunting. It's 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: 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. Whereas in investing, you're taking capital and trying to allocate it into the thing that's going to grow, behind the leader you're going to bet on. And that's just too hands-off for me. I'm used to fighting, 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 that the feedback loop is super long. In building and operating a business, you make a decision, whether it's a hire, a product decision, marketing, and you get the feedback right away. The feedback loop is immediate. Whereas in investing, you develop a thesis, you underwrite this founder as really great, and then you make the decision and, all right, five years go by. Did it work or not?

So where are you living when you sell RXBAR?

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. So now you have the money, and you're like, "Okay, I have a bunch of money." And you had this ridiculous idea. These are 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." So you moved to Miami and you're like, "I'm going to start a family office." Explain that part.

I was in Chicago and I just needed a change. I needed a change of environment. RX was my identity. I had just gotten divorced. So I looked at the United States and I was like, "Where's the best place to go?"

Wait, the divorce part. The divorce happened after the acquisition?

Yeah.

Was it related? Were you under a lot of stress?

No, just hubris.

Say more about that.

I had success bias, where everything I'd done had been successful, and there are blurred lines between your personal and professional life, and I just moved too fast. I thought it was going to be easy. My goal was to have a family: career success, accomplished; next thing, family.

And you tried to speedrun it?

Yeah, I went way too fast. And thinking I'm really good.

So, if I remember correctly: meet, marry, divorce, all in nine months?

Yeah. I beat Kim Kardashian.

The miserable investor

Okay, so you move to Miami: "I'm going to invest." And what I really want to get into is the fact that you are uniquely unsuited to invest. All the other founders I ask about you say, "This guy's just a relentless animal operator." The idea that he could think he could sit and be the guy behind the guy! Why do you think you made that mistake? This is very interesting to me, because you did the start, scale, sell, which is very celebrated. But I've talked to a bunch of founders that did that, and then they're fucking miserable. You're one of them. So I really want to hone in on what you were feeling and why you were so miserable in this situation.

My plan was to get out of Chicago and change environments, and I just looked at a map: "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 to wherever it was in my best interest to start my next thing. So I chose Miami as a place to reset and invest, and this is before COVID. I got there and started formalizing a family office.

And then I think what I underestimated with investing in different entrepreneurs, particularly in food and beverage, is that I just assumed they all had the same tenacity as me. I just thought that's what you did. I didn't really know anyone else who was a founder at the time. And then I quickly realized I'm probably actually a miserable investor, because I'm handcuffed, sitting in the back seat while someone else is driving, and they don't know where they're going. And that's a torturous position for someone who knows where to go.

So you didn't know how rare you were?

Yes. As not humble as that is, but yeah.

I was just sitting upstairs right before this with my friend Patrick, who does the best podcast. He's one of my closest friends, and we happened to run into Adam Foroughi from AppLovin. Again, there's a lot of overlap between you and Adam. We were talking about how Adam is running this cash-printing machine with very few employees. He hates entrepreneurs that optimize for vanity metrics; he says you should just focus on cash generation. It's very straightforward to him. It's obvious to him. And we were talking about the different hires he's had and the other founders he knows, and through a story he was telling, Patrick had a great line. He goes, "Man, it's crazy. In any domain, it's only two or three guys that are actually good." Just pick any category. There's a sea of shit, and two or three, maybe four people that are actually excellent.

Yeah. And I just assumed that anyone who was getting into entrepreneurship was willing to die before their company fails. That they're willing to sacrifice comfort to win. That they want to win. And I realized: no, that's actually not what a lot of people do or prioritize.

When you run into other entrepreneurs like this, the ones you made the mistake of investing in because they weren't like you, and you have conversations with them, what is their response to your extreme approach?

If I'm the one giving criticism to the company, that's a problem. The CEO should be the most critical. I shouldn't be the one going, "Hey, man, the car's on fire." In that relationship, if I'm the one spotting problems or saying go faster, that's usually not a good sign. And I kept falling into that pattern, and I don't want to be in a position of saying, "It's your company at the end of the day. I'm not an advisor. I'm just here to try to facilitate stuff."

What I'm really trying to get at is: what is going on inside of you? What is your inner monologue? Are you going, "Oh, I fucked up"? What is actually happening?

This is frustrating. I need to get back in the game. This sucks.

How long did it take you to figure this out?

Probably a year. Yeah, '20 to '21.

All in

Okay, so what's the next step? You're like, "Okay, this sucks. I don't want to be an investor. I need to be an operator. I want my own company. I'm way too young to be retired, by the way."

Yeah, for sure. One of the good things about investing is that you're going through the deal-flow process, you're ideating, you're talking to other movers and shakers, and that's a helpful process for asking: 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 packaged stuff. I'd start, and then I'd pull out of committing. And the reason is, if I go in, I'm fucking all in, and that's actually a really scary thing, because then my friends go away, my health goes, all this stuff happens to me.

Hold on, we can't go on from that. You need to describe what all in means to you. You just said, "It's scary. My friends go away, my health goes away." So this is the only way you can operate? Explain this to me.

Yeah. My leadership style is just all in, burn the bridges. I can't go into something half-assed, ever. So what I commit to is very serious. And all my false starts were like that: moving in the direction of starting it, and then pulling back. Moving in the direction of starting, pulling back.

The other thing that was there was that I needed to start a family. So during my hiatus of investing I was like, "I need to find a wife and go start a family."

I don't know if Miami, 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 was because, all right, if I find something and fall for it, there's a really high chance I'm going to go all in, I won't see my friends, I'll lose my health, and I'll be 50 and single. And that's a version of the future I didn't really want.

So I ultimately found my wife, and then all roads led back to protein bars. It required some humility, to say: that's my shtick. When I die, my gravestone might say "Protein bar guy," and I'm comfortable with that. Because at first I had some influence of Elon: "Oh, I'm not the food guy. I need to go over there. I need to prove something." But then I realized I've been in the food business since I was 12. I have a deep intrinsic knowledge of it. And basically, once my non-compete was a year away, it just naturally happened. I started connecting the dots: this is what I should do.

So wait, you've been in the food business since you were 12. How old are you at the point where you're like, "I'm going to start another protein bar"?

Thirty-four. My non-compete ended October 6th, '22.

How long did it take to get over that inner monologue of "Oh, I need to do something more impactful, I have to do biology, or create hardware or something," and get to "No, I'm actually going to stick to what I know and may be the best in the world at"?

It was three years.

You had to convince yourself of this?

Yeah.

Wow.

Yeah. And there was a bit of this too: both as an investor looking at companies and as a philosophy for myself, I always think that if the leader of the company has to pick up the phone to fix the product, they're fucked. Meaning the leader has to be able to deeply understand the product and be able to fix it. And all those false starts were dependent on something else, or I didn't have the time to get a deep enough understanding of the product to make that change. With food, I know exactly what to do. So it just became really obvious. I got my wife, and then started what is today David.

Why did you laugh?

It was a very clear process. All right: check your personal life first, so you don't ruin your personal life again, because you're going to go all in on something. And then once that's done...

It just so happens you got the family, the non-compete expires, and now you're back at this.

Yeah.

The most important food company of the 21st century

But maybe your ambition was different when you were younger. You started RXBAR when you were how old? Early twenties, you said?

Twenty-four.

Twenty-four. But now the scope of your ambition is that David is not a bar company. That's the first of the products. 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 a lot of the food business: "Don't eat this." It's demonization, and it's pseudoscience. We want to make your favorite foods smarter. It's a really quiet approach. They're there, and they're just more intelligent, more effective, objectively better. And we're going to 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 build the platform from there. You have the organization, you have the route to market, you have the R&D capabilities. So the protein bar got us our platform, and now we're proliferating into categories that just make sense for us and our technology.

When you started David, you knew you were not going to stay a protein bar company, that you wanted to build a food company. So I'm going to answer the question I asked you the way you said it to me before, which I think was excellent. You said, "I have to be the best in the world at what I do in my category." And I said, "Well, what's your category?" And you said, "CPG." I go, "What does that mean?" And you go, "Anything that you can buy in a store." That's the size and scope of your ambition.

Yeah, we're competing with Nestlé. I want to build the most important food company of the 21st century.

And how big is that? What's the scale of some of these food companies?

Nestlé is 100-plus billion in revenue, and they're really global as well. Pepsi's probably right around there. Real scale.

So a couple of hundred-billion-dollar companies. How many different products?

Well, they have enormous portfolios of brands. Hundreds of brands. And then those brands are different by culture or geography.

Do they grow by acquisition?

Yeah, mostly.

Are you going to do that too?

It's probably on the table, but our core competency is the ability to build brands. I know how to create an identity and build a brand. So for the next four or five years we'll probably just create brands, but I wouldn't rule it out later on.

A brand is a human being

Okay, so tell me what you know about building brands and identities. This could be interesting.

The analogy I use is that a brand is simply a human being. A brand has a name. It has a mommy and daddy: the founders are its parents. Those parents have DNA. This brand, this individual, has values, it has a vision of where it's going, it has other traits, a tone of voice. It has friends. Who do you associate with?

Hold on. Explain that part. Who do you associate with?

Who are you going to do partnerships with? David Protein, for example, has a partnership with Huberman. That's an alignment. We wouldn't do a partnership with, I don't know, Ms. Rachel. It doesn't make sense. I'm sure she's great, but just like with a human, the social circle matters.

So in creating a brand, that identity, from the tone of voice, the visuals, what clothes it wears, who its friends are, its values, its vision, you define that clearly, so there's a North Star to it. And the most important factor in building brands is that it just takes time. If you keep this identity, it can be dynamic in nature as it grows, but you do it consistently over time, with really great quality product and service. The time piece is critical. You just have to be doing it over time.

David's values are intelligence, beauty, and discipline. 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 of the tool, the chisel, which is this crude nail. But the meaning of the chisel is intelligence and discipline: if you apply those things, you get a masterpiece, something beautiful. So that's the logic of David's brand and brand identity. If you have a crystal-clear identity for a brand and its product offering, its position, the marketing actually becomes really easy. You just hammer those points over and over and over again.

How much time did you put into planning this brand identity for David?

Six months, maybe.

So once you have this clearly defined set of qualities for the brand, the plan is: okay, then we just extend this over decades?

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 brands. If you look at the best brands, they're all old. So time is a factor that's really, really important, and the consistency of it. And there's an asymmetry, where those brands are super fragile. If you fuck around on quality or something else, it's over really quickly.

The reason I asked is that I was obsessed with a guy named David Ogilvy, and I've read every single one of his books. He built one of the greatest advertising agencies of all time, and he would hammer exactly what you're saying. You sounded exactly like him, if you read his autobiography or Ogilvy on Advertising. His whole thing was that people jump around too much. You pick one brand identity and you do it over and over and over again, for decades. And you came to the exact same conclusion: the best brands are the best brands because they did this decade after decade.

And it's fundamentally about the values of the brand. For David, it's intelligence, beauty, and discipline.

Why did you pick those three traits, though?

They're close to me. I love beauty, I love intelligence, and I love suffering and discipline, almost to a negative point. And protein bars are where I start. So what do people come to protein bars for? They come for body composition. No one really eats a protein bar thinking, "Oh, I'm just going to enjoy this treat." It's very, very functional: "I need to transform my body, either increase muscle or decrease fat." So the protein category in general is very oriented around those values as well.

With David, one of the things I wanted was a weight-loss company, or a body-composition company, without being one. If you look at the great, well, they're not really great, but the '90s brands in weight loss, like Atkins, Weight Watchers, Jenny Craig, they're super tacky. But people went to them for body composition. So the question was: all right, how do I make that more refined? More European, better taste. And we did that.

And on the other side, when I turned 35 and looked around at my friends, I realized everyone I knew had some issue with weight. Everyone had struggled with weight loss as they got older. Everyone wanted more muscle. Everyone I've ever talked to, whether it's an issue they're honest about or they're in the closet about. So it's a ubiquitous problem. The idea is: how do you create a brand that really embodies that in a refined way?

The hard path

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 attracted to suffering in almost an extreme, ridiculous way. What the hell does that mean?

I always choose the hard path. 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 like being strong and doing hard things, and I think there's something spiritual about suffering that I find very gratifying once you get through it. Physical suffering is easy, because you just get really hot or really cold. But what's nice about building a company is that it's emotional suffering. It's a lot of tough conversations. And what I learned early on is that if you face those things, there's growth at the end of it. So I found this relationship: the more you suffer, the stronger you get and the more growth you experience. So when I see it and I feel it, I lean into it.

Travis Kalanick, the founder of Uber, was on this podcast, and he said something that resonated with a lot of people. It was like: "I can take more pain than this guy, and I'll prove it to you." Do you agree with this?

Yeah. It's fun. 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. I don't know where it's from, necessarily. I think it's rooted in a competitive nature, but I think it makes you a better man. There's nuance. 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 don't harness that in a certain way, I become a bad person, or I start to not be happy. So physical exertion, exercise, company building, is a way for me to channel all this spite and anger in a way that's really productive.

Is Peter stupid?

What's the source of the resentment and anger in your life that you feel you have to channel?

Trauma's relative. I grew up with very beautiful parents, so I don't want to sound like I suffered that much. But as a child I was labeled disabled because of my dyslexia. I remember hearing teachers saying, "Oh, is Peter stupid?" I couldn't read well. I overheard those conversations with my parents, and that, I think, broke me in a way that became my deep intrinsic motivation to prove it wrong.

It's actually why I'm so disagreeable with any sort of authority, or contrarian by nature, because my survival strategy as a child, to have any self-esteem, was to say: "All you teachers are wrong. This whole system is broken. Fuck off." So I think deep in my personality is proving all that wrong. And even just to survive in school took me 10X the effort, to get a C or a 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.

Do you still feel this when you wake up today?

Yeah. I think it's tattooed. Psychedelics, therapy: it's 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. It's winning. And I'm not really proud of it. It is what it is. I didn't really choose it, but it's to prove that I'm not that, fundamentally. When I was fake working as an investor, I was deeply unhappy, because I wasn't able to channel it. I was on the sideline. I'm not a fucking cheerleader. I'm on the sideline and I need to channel all this anger towards a result, and reporting on a portfolio is not doing that.

I have a younger friend who I feel I can share some of my experience with, and I was telling him that as a general rule, the further you get away from the person that actually has talent, the more cautious you have to be. The founder obviously has talent. You obviously have talent: you created something from nothing, you've done it over and over again, and now you're 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 from the person with talent, the more they're incentivized to persuade, cajole, and in many cases act against your interests. So I told him: just stay close to the people who actually have talent. And you don't need many friends in life. You can have five. That's the kind of friend group you should have, whereas you have all these other fakers out there playing politics. You can get ahead that way, but it's completely different from how the entrepreneur thinks.

Yeah, I agree with that.

Chips on shoulders

There's another thing, because I'm not going to leave this alone. I want to hear more about your resentment and this attraction you have to pain. The founder of the Four Seasons, a guy named Issy Sharp, is embarrassingly ambitious, and I mean that in a great way. He said, "I'm going to build the world's greatest high-end luxury hotel chain." He didn't know anything about it. He'd never built a single hotel before he had that goal. His autobiography is excellent, and in it is one of my favorite maxims of entrepreneurship. He says that "excellence is the capacity to take pain." And he had a very complex relationship with his father. He had a lot of people doubting him.

What you just said to me makes perfect sense, because it shows up in these biographies over and over again, and with a lot of the people who have come on the show. I just mentioned Adam Foroughi. One thing that drove him was: "I tried to raise money. I was willing to sell 25 percent of my company for a million dollars." This is the company that's going to wind up being worth 100, 200 billion dollars. "These VCs turned me down, and then they funded some of my competitors, so we made it a company principle to put those competitors out of business." So when I hear you, I think of a guy named Josh Wolfe, who has this great line: "Chips on shoulders put chips in pockets." It's using the pain you had when you were younger and channeling it to drive achievement.

Yeah. And I think the key is that if you have that and you don't channel it and focus it, it's destructive. 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.

So how are you channeling it into what you're building now?

The company's output is really impressive. Just a lot of hours, butts in chairs in the office, dedication.

What do you think is impressive about the output? What does that mean?

We're only two years old, and it feels like five years. Our relationship with time is really bizarre. In two years we're run-rating 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 in three different formats. We're launching another brand in November. In my field you don't see that sort of output. And it keeps getting better: all our products keep getting better. We're the fastest-growing food company, I think, no, I know, in history. And it's really hard to scale. At the pace we're doing it, I think this would normally take ten years, and we've done it in two.

Explain to me why it's so hard to scale.

It's hard to scale because it's inventory. You need to go buy the raw materials and convert them into finished product, and some of the raw materials take a long time. For example, the dairy market was super tight. Growing 300, 400 percent a year, or even closer to every six months, is really demanding on the supply chain. To take Travis's line, this is all atoms. We're not a digital business at all. So the inventory part is really, really challenging. Matching supply and demand has just been very difficult.

So you've had times in the company where you ran out of supply?

Oh, constantly, yeah.

Boiled cod

Is this when you started... I saw, well, Rob and everybody have been telling me about the David bar, and then I saw an ad where you were selling cod or something. Is that a result of running out of supply? What happened there?

The story of cod was this. We were creating our website, and we were doing a comparison table. The one metric we think is really important is how many of your calories come from protein. On this chart we were number one, and we were number one on everything. And for me, with my investor influence, anytime I see a chart where it's all number one, I'm like, "It's bullshit." So we said, "All right, we need to find something that's number one." What has a better protein-to-calorie ratio than our Gold product? And the only thing we found was boiled cod. So in our comparison chart we put boiled cod number one and David number two, and just left it there as a dorky sort of comparison. And why it worked is that the juxtaposition between our bar and the cod signals convenience, it signals value, and cod's pretty unappetizing.

Then we were halfway through our first year, and it was déjà vu for me. I'm like, "This is super boring. Another flavor." I'm like, "We need to do something bold." So we said, "Let's actually sell cod." Not as a stunt: actually, seriously sell fish. So we did this boiled cod campaign, and it was funny because...

You like pain. Let me know.

Yeah. It got us in the frozen business, and it goes back to our brand values. It was actually a very intelligent thing, because it centered the conversation on the protein-to-calorie ratio, but it did it in a way that wasn't right on the nose. It was a bit of a riddle. And it's $55 of frozen cod online. No one really wants that. So we didn't have product-market fit, but it functioned as a really great communication tool.

So creating a product for marketing benefits.

Yeah, we call it product as marketing. But I'm not giving up on it. 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 protein bars, Bronze and Gold, pints, frozen ice cream, then RTDs, and then there's fucking fish. It's weird, but the whole food space is so fucking boring, to be honest. They all say the same shit, they all do the same things. So being a second-timer, I was like, "We've got to have some fun with it."

So that was not a response to supply issues, because there was no demand for this frozen cod so far.

No. It happened to work at the same time we were out of stock on some things, but it was independent.

The organization is the product

Okay, let's go back to where I interrupted you, because you started talking about pain. You were 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. That's really what the brand David is about: finish your masterpiece, and tap into everyone's inner excellence.

But how do you apply it to building your company?

I start with: what is a company? Our strategy is two fundamental things. First, people. It's all about people, as cliché as it is, and I think about the organization as a product. So my focus is all about that. The second piece is product, and mastery of the product. And when I think of product, I think of brand and product as the same thing. The product is the raw thing, and the brand is what it wears, the exterior piece.

But if you look at the organization as a product: a company is just a group of people aligned towards a mission. If that's the most important thing, what actions does a company take to make sure it's done right? For us, when I think of mastery, we have four processes in the company that ensure the organization is done right and the culture is lived. If people are everything, then who you select into the organization is the most important thing. Two, how do you train and onboard them? Three, how do you select the ones who get promoted and rewarded? And four, how do you terminate the ones who shouldn't be there? Those four processes are really critical to building the organization and scaling it. So we spend a lot of our time refining our hiring process. Training and onboarding is mission critical, then promotion, rewarding the right behaviors, and then firing. And those are all organized around our value system, which is the best way to align a group of people and make sure the behaviors match what we want.

What are the behaviors that you want?

We want truth seekers. People who have the courage to seek truth. That's mission critical. You don't want biases in place. Foundational would be humility, which I define as freedom from pride and arrogance. Humility is really foundational, and it shows up intellectually, as being able to say, "I don't know what I'm doing. I need help." I don't want a cover-your-ass culture, where people say, "I have this data, therefore my decision's good." That's not really productive.

Say more about that.

You see people from big corporate America come in, and they'll generate a bunch of data, surveys or whatever, to prove their experiment, or to cover their ass if the experiment goes wrong.

It's like fake work.

It's performative: "I'm just doing this to cover my ass," versus focusing on the experiment and not worrying about covering yourself. Entrepreneurship is a very important value of the company as well, and that's the opposite of it. Any performative activity, any fear of failure, is the opposite of entrepreneurship, and you just can't have that as a company scales. You get a lot of people coming from corporate environments who have that: just protect their job.

Are you able to recruit from other food companies? Because you're so different. Most of these companies haven't been founder-led in, I don't know, half a century, if not longer.

We can, and we do. They have a lot of good experience. You just have to baptize them when they come in. That's where the onboarding process is really critical.

You baptize them? What does that mean?

You have to teach them new beliefs, new values. If you just throw them in, they're going to take what they know and apply it. So you really want them to assimilate to the culture, and that means 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.

Former founders

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 not to do their own thing and to join a greater company is a really strong signal of the opportunity we have ahead. I position it as: this is a platform for you to go do your thing. You can do your thing with amazing technology, you can do it with resources, and you don't have to deal with the bullshit of raising money and all the bureaucracy that comes with the different stakeholders. 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, where they can fulfill their vision, is...

Do you specifically target founders?

Yeah, for sure. Because they have agency, they have courage, they have humility. And they're not ruined by corporate America or school. School ruins you too. You have to follow procedures. You're not thinking outside the box. You're following a playbook. There's no playbook in entrepreneurship. You have to think from first principles, understand the fundamentals, and fucking just go.

We just had Luca Ferrari on, and he started this crazy company called Bending Spoons. He's doing it from Milan, not exactly a startup hub, and he talked about how being isolated was super valuable to him, because he can't even copy the startup mantras. He doesn't know them. He's immune to them. And his point was that he prefers young graduates, or even people who didn't graduate, to over-experienced people. He's like, "I don't want your bad experience. I know what we're doing. Let's just take high-agency, young, smart people that want it really badly." I think he said he got something like 800,000 applications last year for 350 positions, because he's in markets where there are smart people everywhere but no great jobs for them. Their economies are terrible. And he's like, "I'm just optimizing for this, and then I'll indoctrinate them into how we run the business," which is completely different from school, or from a mediocre company.

Yeah. The thing with experience is that it's really valuable, but there's a consequence to it: you'll naturally reason by 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. You'll just move faster by leaning on your experience. For me personally, I started a company with no experience, really. I fundamentally don't think it's that important if you have good reasoning skills and the ability to learn. So the best is some inexperience, I find, and then some damage, some chip on the shoulder. There are individuals in our company you can't compete with. They're not giving up. They have something to prove. And those are the most powerful people to organize around.

Tell me more about them.

It's all childhood. They got something fucked up in their childhood, you know what I mean? There's one kid on our team who is going to die before he fails. He didn't have a comfortable life, and this is different for him. You want many of those people, but too many probably breaks things. In general you want a balance: those crazy chip-on-the-shoulder people, and some people who balance out the team, who are very rational and pragmatic and more conservative. You want good team design. But the people driving the company are usually those maniacs who have a chip on their shoulder, high agency, and are more entrepreneurial.

Did this person happen to be a former founder?

Yeah.

How long did it take you to recruit them?

Well, when we bought Epogee, he was a victim of us acquiring it.

A victim?

Yeah, because we bought up all the supply. He was a customer of the Epogee business, so we recruited him to join us and do it here.

Epogee

Victim. I love that you just said that. So let's get into this, because, again, I've been hearing stories about you for a long time, and this is the story other founders repeat so much. It's very Rockefeller-esque. Explain what it is.

Epogee.

Okay.

So in March of '20...

Don't go to the acquisition yet. Talk about what this thing does, why it was such a picture of a business. And then we're going to go to the fact that you victimized everybody else.

Cool. Epogee makes EPG, esterified propoxylated glycerol. Basically, it's a modified triglyceride. Olive oil is a triglyceride. A triglyceride has three fatty acids attached to a glycerol backbone, and your body can't digest it unless lipase comes and clips those fatty acids off. What the company figured out is that if they can lock those fatty acids in, lipase can't break it down. And what that means is that you can have the taste and mouthfeel of fat without the caloric, metabolic impact.

Why that's a huge innovation is that most of the calories in food come from fat. Fat has twice as many as protein and carbohydrate. This technology was naturally misunderstood, like most food technology, so it was just sitting there, and it's really amazing. You can have your cake and not have the caloric consequences. Think of it like high-intensity sweeteners, stevia, monk fruit: that level of innovation. So anyway, we were using it for David, and we were buying it. We were something like 90 percent of the company's sales. And then all paths led to litigation.

Hold on. So this is a patented technology? You had one source you could buy it from?

Yes.

You just said you were 90 percent of this company's overall sales. But there was a handful of other companies that saw the same opportunity and wanted to use it in their products.

Yeah. So we started, and the company was struggling. It was a bunch of cats and dogs trying to make it work. It's hard to work with; it requires good product development skills. But we were 90 percent of their available supply.

And you'd be in a bad position if, for whatever reason, that company went under or decided to cut you off.

We'd be dead. And eventually we became something like 150 percent of their supply, meaning they couldn't supply our needs.

So as soon as I started the company and we were using the ingredient, my whole thing was: "This is a nasty dependency." On top of that, it was run by older gentlemen, mostly lawyers, and you know how that is. Lawyers running companies is not good. I'm sitting there thinking, "All right, either they're going to kill us, this is going to end in litigation or extortion, or we're going to buy them." All my attention was on making sure that either we'd buy them or something. And then in February, basically six months into the company, they came to us: "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."

So we negotiated, and it was an obvious deal. These food companies need to be vertically integrated. If you're out there making a food ingredient and trying to sell to a big food company, it's hell. The food company says, "Well, you don't have enough supply to meet our demand." And you say, "Well, I don't have enough demand to generate supply, and then it's too expensive." And on top of that, they say, "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 route to market, yeah.

So they essentially just bought this patent as a way to make money. It's not actually a real company.

Well, they developed it. They developed the process and invested in it. And the entrepreneur, the founder, is amazing. It required so much cash that he eventually got diluted, and the lawyers took over. It just made sense for both parties to merge. So we did a deal where we bought the whole company, half equity, half cash.

And then we got into a situation where David was growing well above our forecast, so we were 150 percent of their supply, and at the end of the day there were all these customers that had no supply agreement. Honestly, their businesses weren't going anywhere. If you didn't have a supply agreement, you just weren't going to get supply. And by the way, the first thing I did with David when we started was negotiate a supply agreement with them. Prior to the acquisition, we had a supply agreement that was good around change of control, with most-favored nation on price and 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 have to make sure you're covered. Even if the deal hadn't gone through, we didn't have all the supply anyway. We were the elephant in the room as the customer. If you didn't have a supply agreement, you were out of luck.

So the way it was reported, or talked about, was that there's this very important patented ingredient he needed. He was using most of it. There were these other companies that also used it, that he was technically competing with. He buys the company and shuts off their supply. But I didn't hear the second half of the story, where you then also recruited from the people you cut off. You had a lawsuit or something over this, right?

We had an antitrust claim and a lawsuit, yeah.

Is that still ongoing?

It was dismissed three times. For that lawsuit to function, for it to have any merit, it would have to be a landmark case in intellectual property. The big lesson, and I think you've had Lulu on: if I'd had Lulu in my pocket, we would have managed the comms differently. One, we let Epogee manage the comms a little bit, and we just did a terrible job communicating.

Did you communicate at all?

There was a notice sent out about the acquisition, saying that if you don't have a supply agreement, there will be no supply. But I could have done those comms better. I could have done it with more compassion, called the entrepreneurs, or 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. 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: if you're going to use an ingredient that has a single source, you'd 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 is special. Remember at the beginning of the conversation you were like, "Okay, well, I've got all this money. I'm going to chill. I'm going to find a wife, have some babies, and then I'll invest on the side." Obviously, you're an entrepreneur, so it's life and death for you. You take it very seriously. You start cutting checks into these companies, and it's like, "What is this guy doing?" You didn't know how rare you were. Same situation here.

Yeah, a little bit.

How many other companies were involved, buying the same ingredient?

Three, four. And their response was, "Well, I didn't know that was an option." It's like, what the fuck? What are you doing all day? Honestly.

Raising money

Is this why you had to raise money? Because your first company, RXBAR, was, what, a friends and family loan?

My dad and my partner's mom guaranteed a line of credit.

A line of credit. But no typical venture capital?

No.

What did you start David with? Did you raise money right away? Did you put your own money in?

I put 2 million of my own in as, whatever, pre-seed, and that was enough to get us to launch. And then at launch we raised eight for working capital, just to survive.

Why not just put up the eight yourself, since you've already got it in your pocket?

Because I wanted to bring in some people who have been very good to me. Valor Equity Partners: Antonio and Jon have just been really supportive, and I like how they operate. Their name's Valor. They're pretty intense.

Outside of Valor, it wasn't typical investors? Friends and things like that?

Yeah, some small friends. And then I was like, "We're done."

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. Unit economics should make sense. You should be really capital-efficient. You should not be raising a lot of money unless you're going to acquire a company, or do what we're doing. That wasn't on the table in the beginning, so I was just focused on the business, not thinking about raising more money. I thought, "That's it. That's the only capital in." And then we had product-market fit like crazy, and it got bigger, and then...

And you're like, "I need to raise money to find out how to sell fish online."

Yeah, exactly. Well, that was funny. We eventually raised a round to finance the acquisition, and it turned out we did need more money on the balance sheet.

Hold on. Before we get there: how much did you raise to do the acquisition?

We raised 85.

And who did you raise it from?

Greenoaks and Valor.

Neil and Greenoaks

We need to talk about this. Neil Mehta, I'm friends with Neil. I talk to him on the phone all the time. I talked to him about you, I don't know, 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 why you chose him. You said, "I'm not putting 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, and you don't even like talking to them. You were kind of, and this is my own characterization, not even rude, just: "Leave me the fuck alone. I'm building my company. Go away." But Neil and Greenoaks were chasing you, right? So explain how you wound up selecting Neil and Greenoaks.

The investor class believes it's very, very high status, and they always reach out with an entitlement to take my time. I've always viewed it as: I'm not giving you my time. I'll be respectful, but 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. I don't need anything.

So anyway, my friend Chad Byers says, "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 all due respect." So I passed. 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." So I got on the phone, and I'm just really focused. I'm like, "Hey, listen. This is not a tech company. The math should work really quickly. We should have profitable sales. That's how we're going to grow: profitable sales and then a line of credit." And they're like, "Great. Well, if any opportunity comes along, let us know." I'm like, "Great. Will do."

So time goes on. We're just heads down. And then I start getting messages from former RXBAR employees saying a firm is soliciting them, offering to pay them to review me. And it's not just one. It's like 20 people I haven't talked to in five years, saying, "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 a thousand dollars if you get on the phone and tell us about your experience with..."

Yes, with Peter. What kind of leader was he? And I'm like, "Yeah, take their money." I had no idea. I was going through the litigation, so I thought, "Oh, they're just trying to fucking find dirt." I had no idea it was an investor.

And then the Epogee deal happens, meaning the chairman of Epogee comes to me and says, "Hey, let's figure out a deal." So then I reach back out to Neil: "Hey, this is happening. Do you guys want to take a look?" And of course I reach out to Valor: "Hey, this is happening. We're probably going to need some money for this." And this is why I respect Greenoaks so much. Even with me being kind of rude to them, they had put resources into doing diligence on me, in the best way possible, which was diligencing my leadership. I think that's the most fundamental thing for this investment to work: you have to make sure Peter is the right type of leader. They had already done that when there was no deal on the table.

Not only was there no deal on the table, you'd already told them there wouldn't be a deal.

When I found out it was them, I was like, "Oh, wow. These guys are good." And I didn't do an auction. I want the right people on the cap table, and Greenoaks won just out of my respect for their approach. I kept it with friends I know. Valor had a conflict of interest, because they were in the deal: they couldn't do the M&A, because the deal was to finance the other company. So Greenoaks led it, and they're amazing. I'm very lucky that Chad connected us.

No auction

Before I tell you the story he told me about you: you just said, "I didn't do an auction." Why is it so important not to do an auction when you're fundraising?

The reason I didn't want to do an auction is, one, we didn't need a lot of money. That's very important. If we needed a lot of money, I think it's different. But we only needed 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 the operation of our business. So I'm very sensitive to the resources an auction would take.

What are the resources an auction would take?

You have to run tons of management meetings. You have to constantly answer diligence questions. It's a lot of time.

So your whole thing keeps going back to being intolerant of wasting any time. You've said this in half a dozen subtle ways since we started this conversation. You're obsessed with time.

Yeah. The analogy is aerodynamics. I want to be super aerodynamic through things.

And my goal also, having been on the other side as an investor, is: I want to maximize value, but not really. If I wanted to maximize value, I'd run an auction and I wouldn't care. But I don't really want that. I want to make sure the investors make money and are good with the underwriting. You want to walk up to the line where it's rich, but not too rich. If I were on the other side, I could underwrite it pretty easily. I want to make sure all my stakeholders make money; that's my approach. The con is that maybe we could have gotten an extra 100 million of valuation, I don't know, but I don't really care. I want to make sure everyone feels good.

Why do you not really care? I agree with this, but I want to get your thinking out in the open.

What's 2 percent? It doesn't matter. It just doesn't matter. I care about money, but I don't really care about that type of money. I care about how the people on the team feel, whether they're excited and aligned. And I've seen, from the other side of the table, founders prioritize enterprise value that early, and it's just fucking gross.

Why is it gross?

Because it's not about that. At this stage it's about the right people, and focusing on the mission. It's not about maximizing enterprise value.

And if you're good, you're going to wind up with the money anyway.

Yeah. And we got a good valuation, which is fair. But I don't want an investor feeling like, "Fine, we'll do it, but I disagree."

So you said that if you were on the other side, you could underwrite it. You want to do a deal where, if you were Neil, you'd say, "That's a good deal. You should make that investment."

Exactly. That's how I underwrite it. Because I'm operating as a CEO, and I'm operating as an investor too, because I'm participating in all this as well. Which is a conflict, but I'm trying to bifurcate: 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 lower the valuation for me...

You would self-serve.

Yes.

You're trying to do what's best for the company.

Yeah.

I read Michael Bloomberg's autobiography for the first time maybe five years ago, and I knew he has one of the most profitable private companies in the world. I've heard crazy rumors that we don't even have to get into: everybody knows he's really rich, but I heard he's orders of magnitude richer than has been reported. And he raised, I think it was from Merrill Lynch, if I remember correctly, 30 million for 30 percent of the company. Then he winds up buying the first 10 percent slug back from them, ten years later or whatever, and I think he paid something like 200 million for that. And then he bought the other 20 percent, I think in 2008, for about 4.5 billion. So if you look at it, one of the best investments he ever made was buying back his shares and essentially owning all of his company. I think it was all of it, or 90 percent, something like that. And Merrill Lynch's point was, "Well, we paid 30 million in 1979, and by 2008 we'd made 4.7 billion on it," or whatever the case is.

Could you see a future like that? Because I do think you're kind of obsessed with control. Anybody who's obsessed with quality and control and everything else tends to... I could see you wanting to buy back the shares at some point.

If the opportunity presented itself, for sure. The governance is set up in a way where I have that. As long as that's there.

The governance is set up so you have control.

Yeah. And I'm good with power, so I don't abuse it.

Are you going to continue to raise money?

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. What the fuck else am I going to do?

A river

All right, so I'm on the phone with Neil, and he says Peter's one of his favorite kinds of founders, the kind he likes to back. I hinted at it earlier: you wake up and you don't focus on what's good. Everything is just not good enough. All you see are the flaws in your business, and you attack those flaws to make the business stronger over time. Again, very common in the history of entrepreneurship. So I guess he came to visit you, him and somebody else, and it was you and a bunch of people who work with you, and you were doing taste tests of maybe new products or existing products. "What do you guys think of it?" "This is awesome." And you go, "Wrong. This is shit." And he said that not only did you say it was wrong, that everything was shit, but then you listed all the deficiencies and the things you wanted to fix.

Running a business is like a river. As long as it's flowing, great. But if there's something blocking that flow, you need to fucking fix it. If something's in the way, I ruminate on it to the point where I can't sleep, and I have to fix it so I can sleep. I ruminate on the problems. They just nag at me.

This is actually a problem I have. A flaw of my leadership style is that I don't acknowledge the wins or successes. I'm only preoccupied with what's wrong. I'm working on that. But I actually outsource it to people internally: "Hey, make sure we..." Our birthday is tomorrow, say. I fucking hate birthdays. But our birthday's tomorrow, so I'm like, "Please do something so we can acknowledge our birthday." I don't do that myself, so I outsource it a bit internally. But if you just fix the problems, I don't know, the approach makes sense.

It's almost like what Elon does. We just had Zach Dell on the podcast, and Antonio is on his board. He says that for the first two years, and I think it's still like this to this day, every conversation Zach Dell had with Antonio, is it Gracias?

Yeah.

Antonio Gracias: "Hey, Zach, how's it going?" "Good." "What's your bottleneck?" He refused to talk about anything else. "What is the bottleneck? What's in the way, what's the critical path? We're just going to talk about that. The entire conversation is that. And once it's resolved: okay, what's the next bottleneck?" Over and over and over again. Just relentless focus on the bottleneck.

Yeah. My job is to scan the holistic picture of the business, react to the problems, go fix them, and get the fuck out of the way. Just constantly confronting the problems.

I think almost all elite entrepreneurs have this exact same mentality. Buffett and Munger would talk about this with the people operating all the subsidiaries of Berkshire: just tell us the bad news, because the good news is...

Yeah, exactly. It's the river running. I don't care.

Just tell me the bad news.

Exactly.

Tony Xu from DoorDash, who I want to get back on the show as soon as possible, because, I can't explain why, but you talk to him, I think he's 41, 42, and if you actually look, it's not just a delivery business. That's not what this guy's doing. He gives you young Jeff Bezos vibes, and he's chasing after something much larger that he sees but you can't really see at the moment. And he said he has this problem too. They hit a milestone, they do some kind of revenue number 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." It's, "Okay, I'm on to the next thing the very next day."

Same with me. With RXBAR, I didn't do anything. That deal happened, and the next day...

You bought a house in Miami and looked for a wife, though.

That was a year and a half later. Yeah, I did do that at some point.

Medici

So what is the thing you're trying to unlock right now, that you see blocking you?

We've reorganized the group into a hybrid organization, where David is a business unit with its own sales, marketing, supply, and finance, and HallPass is another BU. So we have two BUs, and we're about to have a third business unit, all operating semi-autonomously. And then at the Medici level we have shared services.

Why name the company Medici?

I love history, and it reflects how we operate organizationally. The Medicis created the conditions for the Renaissance to happen. They weren't necessarily the doers. They created the conditions. They identified Michelangelo, Donatello, Galileo. And that's a bit of the analogy for the people who work at Medici, the company: they create the conditions for the business units to thrive and flourish, and the business units are the artists and scientists. So at Medici it's the money, the law, the things that are agnostic, and the artists and scientists, the people actually doing the work, are at the business-unit level. So the name suits how we operate. Medici, 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. You just said the business units operate semi-autonomously?

Semi-autonomously, meaning there are some centralized services, but more or less they're their own business units that have agency and autonomy, run their own P&L, and go do. Versus a large CPG, which is typically centralized. It's a decentralized approach, because speed and agility is the main objective. You look at it and say, all right, your payroll's too high. It's quite inefficient on a P&L basis, because you have double sales teams.

Yeah, duplication of effort.

But to me the main design objective is speed. And if you're designing for speed, you're going to pay extra people to get it.

Rob and I had this exact same conversation yesterday.

Speed's important. It's always been important, and it's really important especially in our market, where we're dealing with people with mega, mega scale. Our ability to bring product to market fast: I don't want to lose that. And honestly, if we lose that, I'm done.

What do you mean you're done?

If we lose our entrepreneurial spirit, and I say this to the company, if we lose our values and the way we operate, our culture, I'm fucking leaving.

Why did you just grit your teeth?

Grit my teeth? Because it makes me angry. I hate big, fat, stupid...

"I'm fucking leaving."

I hate big, fat, stupid things, and I don't want to be a big, fat, stupid company. The problem is that it's actually inevitable as you get bigger. My job is to fight bureaucracy, fight the bullshit.

Bureaucracy is not inevitable

It doesn't have to be. You've even kind of stumbled upon, or maybe not stumbled upon, you were probably very intentional about the way you set this up. I just did an episode of my other podcast, Founders, about Henry Singleton, who led one of the most successful conglomerates of all time. In many cases, a lot of the ideas we ascribe to Buffett and Munger were actually things they learned from him. And I think at the time, in the '70s, he owned something like 130 businesses, and 129 of them were profitable.

Jesus.

And essentially the same thing: they ran their own operations. The only things he centralized were compensation and capital allocation. So: you're on your own, you're making cash, I'm going to leave you alone.

Yeah. Performance equals freedom.

Exactly. And then you send me your cash, and I make the capital allocation decisions for us. And he didn't have a big, fat, stupid, ugly company. So it doesn't have to be the outcome.

No, I know. But it's the nature of these organizations. The more people there are, nature pulls it that way. A group of people almost wants to become that.

Luca Ferrari just did the exact same thing. He acquires these companies, and in some cases they have hundreds of people. These are software companies, so he's like, "How are they not all making money? How are you unprofitable as a software company?"

The best gross-margin business there is.

"What are these 400 people doing?" In one case he bought a company that had 400 people, and he got it down to 20. It went from losing money to being a cash-printing machine. He's almost making in profit every year what the acquisition cost originally.

Wow.

But that was his whole point: it's in human nature to add layers and complexity. And I think he said one of the company's values is that anybody in the company can raise their hand and say, "I don't want to add this complexity." You can just raise your hand; you don't have to say anything else. The burden is on the person who wants to add the complexity. They're the one who has to justify it.

Yep. So you have to fight it.

Twenty-five direct reports

So you have the Medici level, and you have all these semi-autonomous business units. How much power does the person running an individual business unit have?

Quite a bit.

These are typically former founders?

Either former founders, or they have to be product leaders. That's the credential. Back to my point: if 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 with that experience, but not necessarily. But product leaders.

Tell me more about the organization now.

At Medici it's product, cash, people, law, regulatory. That sits there, I sit there, and we serve the BUs. And there's a lot of collaboration in general. We're all in the same office. There's a cross-functional team at each BU: supply and demand. Demand is sales and marketing, and then there's finance and supply. CPG is very cross-functional. The typical business unit is organized around sales, which is working with the retailers, and marketing, and that's demand. They generate demand. Marketing can be mostly e-commerce, but it's also all of social and digital. Then there's the supply side, which is supply chain, end to end, from raw materials to fulfillment and warehousing. And then finance, which is forecasting and pricing. Finance is the referee. 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. There's inherently tension between supply and demand; there's always a healthy tension there. Finance is the referee in that they define the rules of the game, and in my view they ultimately run the P&L.

Explain the tension between supply and demand.

Supply people are driven by accuracy and efficiency. Sales and marketing people are more charismatic and want to generate demand, and maybe that requires less accuracy. So they sometimes have a conflict of interest, because one just wants to grow as fast as possible, and the other wants to make sure the supply is there, appropriately and accurately.

I'm still not understanding. Say more about the accuracy. You're using the term accuracy.

Why would someone be interested in supply chain? Generally, you like to know what you need, where it is...

You're talking about personality types.

Personality types, yes. And their function is to know what we have, where it is, when we need it, how much we have. And sales is like, "I want to go win." Often they'll outkick their coverage, or there will be issues, and ultimately supply has to go fix those problems.

How many business units do you currently have at Medici?

One, two, three, four.

You said something earlier that I wanted you to expand on. You said, "It's very important for me to be aerodynamic as I go through things."

Efficiency and simplicity. I think the best design is the simplest design, and I think it's just my nature.

So how does your nature manifest in the way you're building this business? Because it looks super complicated.

It is complicated. But one, it's a very flat organization, so there's not a lot of depth. I have something like 25 direct reports.

What's interesting is that I read this book on Jensen, and Jensen famously has something like 60 direct reports. When that came out in the book, and I think he's talked about it in interviews too, a lot of people said, "That's way too many. How could he do it?" Well, this guy's running the most valuable company in the world. It seems to be working for him. How many direct reports is too many?

I used to think seven or eight was the most you could have while really giving people the right attention to develop the best leaders possible. Now I think the value of having so many direct reports is that it allows you to see a lot, and it keeps me closer to the problems. What I tell people who report to me is: "I'm not going to manage you or tell you what to do. We're going to work together to set priorities. But I'm going to expect you to bring things to me. You need to bring the problems to me, and we're going to figure them out together. But I'm not going to manage your to-do list." So it takes a certain type of leader to report to me. I'm not going to manage them, but I'm going to lead them. It requires these leaders to have more agency and autonomy if they're working with me, versus a conventional organization where it's, "Oh, I only have eight direct reports." Then the hierarchy gets too stacked, and information doesn't flow as well.

No founder titles

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. The hardest thing in leadership is that the team that gets you started is usually not the same group of people through the different life cycles. That's a true observation I've had.

The observation I've had is that when a founding team says there are two, three, four co-founders, usually it's actually one. It just takes time to reveal who the one is.

Yeah.

I talked about Adam Foroughi and AppLovin earlier, and I think he even said this on the podcast: he wants to run a very strict and ruthless meritocracy.

Same way.

And his whole thing was: well, the co-founder who maybe had the skills to be CTO at the beginning couldn't hang. And in many cases they had a conversation. Adam was the one driving it, but it was, "You see what's going on. So do you want what's best for the company, or do you want to have this fight?" In many cases, if you just frame it as, "This is obviously best for the company; you see what's going on," it's somewhat amicable.

Yeah. And I don't like the founder and co-founder titles, because they imply some privilege. It's inherently anti-meritocratic.

What do you mean you don't like the founder and co-founder titles?

I just don't like it. Founder isn't a role. It's not a job. You never hire for it, so it doesn't have a role in the company. I think people actually 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 having more of these conversations: I start seeing the same similarities between people. I mentioned Luca Ferrari earlier, and I've mentioned Adam Foroughi a few times. They both said the same thing. Luca Ferrari said, "We don't even like the term founder in the company." I think there were four founders of Bending Spoons, and he said, "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.

Reactionary leadership support

So how do you define your role?

Chief executive.

And how do you think about that, when you wake up every day?

My forever job description is, one, the management team: making sure they're performing. Two, making sure we get product-market fit, and continually get product-market fit. Three, organizational health: how is the culture? Are people scared? Are people free and creative? Are we living the values? Can people recite the values? So, culture. Four would be alignment on strategy. Are we organizationally aligned? Not in decisions, but does everyone understand where we're going and why we're going there, and is everyone incentivized to go there? Is the group of people moving in the right direction? And fifth would be cash, or fundraising. Those are my forever jobs.

And then I have one more. This is like founder mode, but it's what I've always done. I call my main job reactionary leadership support. Reactionary in the sense that I literally react. Fires or problems: I get the information. It's very reactionary, which is generally viewed as negative, but my job is to react to the problems. And for the leadership support, I either drop what I'm doing, or prioritize and reshuffle, and then go in and assess, figure it out, fix it, whether that's directly or indirectly, provide resources, or just shine a flashlight on it, and then get the fuck out of the way. And I expect that of all the leaders in the company. I call it reactionary leadership support.

Divine discontent

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 with where you are, and this constant desire to improve things every day. When Travis from Uber came on, he had a warning. How old are you?

Forty.

So he's about ten years older. And he said, "What you have to worry about is that you get so..." He said the act of entrepreneuring is just dealing with problems constantly. And he said something like, "When a warrior fights too long, he might become too zen." He's kind of zen on the outside, but he's so used to adversity that 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 he's making is that you want to wake up being bothered, not used to adversity. It doesn't prevent you from acting, but you want to react to it. Your reactionary leadership 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 I get angry, but I harness it in the work, which is good. 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 building the pain tolerance is very good, though, for being able to handle it over long periods of time. Because if you're too sensitive, and you react to it, and it affects you in your sleep, then you will break. So I do think it's important to be able to have that zen, to be able to get punched in the stomach and just be chill with it. But 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. I imagine that with Uber, he just got really, really thick-skinned, to the point where everything was... I don't know. I don't know his experience, but I could see how that happened.

So what keeps you in it is that you like to fight.

Yeah. I love conflict. Healthy conflict.

Thanks for taking the time. This was awesome, man.

Thank you.