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Peter Rahal of RXBar

7 Simple Rules

To Get
From


Your Mom’s Basement

To A


$600 Million Payday

In


4 Years

The Improbable Success of RXBar’s Peter Rahal

 

Rule 1

Don’t drink the millennial Kool-Aid

On a Thursday afternoon in early October, Peter Rahal, the 31-year-old founder of the protein bar giant RXBar, sits alongside four other food industry entrepreneurs who are being fawned over by a group of Google ad sales reps in a conference room at the Ace Hotel, across the street from the tech giant’s Chicago headquarters. The Google folks have assembled the panel to learn about new trends in prepared foods. Rahal’s peers are young, attentive, and attractive and exude a millennial can-do spirit. One of them says something about “gluten-free and soy-forward omnichannel” products. Another warns of the dangers of “greenwashing,” the catchy term for pseudo-eco-friendly initiatives.

Rahal looks bored. He runs his hands through a mass of thick black hair and fights back a yawn. But when it’s his turn to speak, a switch gets flipped. He starts talking, in a rapid-fire cadence, about how he and his best friend from elementary school began pressing out homemade protein bars in Rahal’s parents’ Glen Ellyn basement four years ago, and how instead of, say, starting a crowdfunding campaign, they simply went door-to-door to sell a product they passionately believed in. He speaks with disarming, buzzword-free candor and freely salts his story with expletives.

“We started out by asking: Why are protein bars so full of shit?” He recounts how he and his partner realized that most protein bars were either “hippie non-GMO organic” ones with no real functionality or, at the other end of the spectrum, “meathead” energy bars that were all about performance. They began by selling their product specifically to CrossFit gyms, touting the bars’ nutritional wallop and all-natural ingredients, the minimalist list of which is emblazoned like a badge of honor across the wrappers: “3 Egg Whites, 6 Almonds, 4 Cashews, 2 Dates, No B.S.” Rahal never imagined he’d sell more than $100 million worth of product in a single year, he says, but that’s exactly what he did in 2017, through direct-to-consumer online sales, savvy partnerships with diet gurus, Instagram campaigns, and point-of-purchase displays at top retailers, like Target and Trader Joe’s, as well as at scores of hip coffee shops and cafés.

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About midway through the meeting, a Google rep asks the panel members how they’d react if approached by a major food manufacturer looking to buy their company. Rahal coyly replies, “It would be a values-based decision. We wouldn’t compromise our brand identity or product or our mission. But I think everyone here wants extra muscle.”

What the others don’t know is that by this time tomorrow the newswires will be singing with reports of the Kellogg Company’s $600 million purchase of RXBar, one of the biggest food industry deals in Chicago’s recent history. In the coming days, Rahal, who is RXBar’s CEO and will continue to run the company as a standalone unit, will be crowned by the business media as the new savior of Big Food. And while he won’t divulge how much money he’s personally pocketing in the buyout, by any measure he’s suddenly got a lot of that extra muscle.

 
Photo composite: Rahal with mother, with partner Jared Smith
From left: Rahal in 1988, at age 2, with his mother, Lynda; with business partner Jared Smith (right), manning a booth at a CrossFit event in St. Cloud, Minnesota, in 2013, a few months after they started their company in the Rahal family’s suburban basement. Rahal’s mom helped put the labels on the bars. Photos: Courtesy of Peter Rahal

Rule 2

Know what you suck at (and what you don’t)

“School was hell for me,” says Rahal. “I grew up thinking I was stupid.”

When his mother, Lynda, took Peter, the youngest of her three sons, to get tested for a learning disability in elementary school, she was told he had a pronounced case of dyslexia. (Rahal’s father, Norman, realized in his 50s that he was also on the dyslexia spectrum, though he was never tested.)

“It upset Peter that he didn’t feel like he was successful in school,” says Lynda. “But he was always good at sports and well-rounded.” Rahal, who went to Glenbard West High School, played various sports growing up and competitive rugby in his 20s. “The thing that was different about Peter, and maybe it had to do with his birth order, he was always a risk taker,” Lynda says. “He was fearless.”

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When it came time for college, he was rejected by Ohio’s prestigious Denison University, even though he was a legacy. So he attended Wittenberg, a less selective liberal arts college in the same state. In 2008, a week after graduation, he hopped a plane for Belgium to work at a fruit-processing plant, hoping to gain the experience he’d need to eventually join his family’s Oak Brook–based company, Rahal Foods, which distributes fruit and vegetable concentrates. But when Rahal returned home after a stint in Lebanon, where he took business classes and explored his cultural roots (his great-grandparents were Lebanese immigrants), he found he wasn’t wanted at Rahal Foods, despite his last name. All he will say about that particular episode is this: “There are a lot of politics at the family business. The timing wasn’t right.” He adds, somewhat cryptically, that at the time he was known in his family for being “angry.”

Forced to make it on his own, Rahal found that his dyslexia actually gave him some advantages. At the top of the list, he says, is self-awareness: “From very early in life, I knew exactly what I should and should not be doing.” For example, he says, he struggles with performing “sequential tasks,” like paying bills, but he’s good at pattern recognition and deductive reasoning.

Those qualities translated into a flair for sniffing out demand in the market. In high school, he started growing marijuana on the flat roof of his parents’ Prairie-style house and selling it to classmates. “It wasn’t a pothead thing—it was a supply issue,” he says. Later, he tried launching a high-end doughnut and coffee shop. It never took off, but it prefigured today’s gourmet doughnut boom by several years.

In 2013, when it came to finding the right business partner for RXBar, one crucial thing Rahal recognized was the need for a yin to his yang. Namely, someone good at the things he’s bad at. Like accounting. And making sure details don’t fall through the cracks. “I knew I wouldn’t be able to do this on my own,” he says. “It’s like running a relay race. You have to pass the baton.”

Jared Smith, the childhood friend Rahal tapped as a partner to launch RXBar, has a degree in finance and economics from DePaul University and worked as an operations analyst before joining up with his former classmate. Theirs is a “perfect partnership,” says Smith, who became the company’s chief risk officer. And it’s not just about complimentary skills: “Because we are best friends,” Smith says, “there is an inherent layer of trust that really helps. We know we both have the best intentions for our business. ”

Adds Rahal, “Who you get in bed with, your partner, is everything.”

 
Exponential increase in RXBar revenue from 2013 to 2017

High-Protein Bars, High-Octane Surge

Dramatic revenue gains made RXBar the country’s fastest-growing nutrition bar company—and attracted Kellogg as a suitor.

Source: RXBar

Rule 3

Shut up and sell

RXBar’s initial marketing model was to become “the protein bar of CrossFit.” And based on the enthusiastic response he received when cold-calling CrossFit gyms, Rahal knew pretty quickly he and Smith were onto something.

“For that community, it was definitely a fit,” says Colin Manning, former owner of a CrossFit in Las Vegas, one of the first locations in the country to carry the bars. “There was a need for a clean protein bar that tasted good. And someone was smart enough to do it right.”

After six months, Rahal and Smith were able to move out of the basement and start making the bars at a small product development facility on Western Avenue. Knowing they had a hit with the CrossFit crowd, they decided it was time for a big leap. “We were like, What’s next?” says Rahal. “We need packaging. We need graphic designers. We need to raise money.”

Then he remembered a piece of advice his father, who ran Rahal Foods and was fond of reminding his son that food giants like Sara Lee got their start in home kitchens, had given him at the very beginning. “I can’t remember the exact messaging,” says the younger Rahal, “but my dad said something like ‘Peter, shut the fuck up and sell 1,000 bars first.’ For us, it was like, Holy shit, he’s right. You need to prove the product before you take someone’s money.”

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Doing that went against the prevailing startup model. “In this world of Shark Tank and [tech] incubators and all this crap, the status quo is you go out and get an investor,” says Rahal, who ultimately resisted the urge to seek venture capital dollars. Instead, he and Smith ramped up production and started focusing on online sales. For the first two years, their business plan was basically to make a batch of product, sell it on Amazon, get paid, and make another batch. By managing their own inventory, they also managed their own fate.

“The secret was we didn’t have any resources,” says Rahal. “Instead of going to investors and taking a bunch of risk and making 100,000 bars, we went straight to consumers. There’s less pressure and you can pivot a lot easier. Some people start a business and they want revenue right away. We were crawling for a while.”

Rahal (right) with partner Jared Smith
Smith and Rahal in March 2017, seven months before they agreed to sell their company to Kellogg for $600 million. Rahal will continue to run the business.
 

Rule 4

Be radically transparent

In 2015, hoping to boost sales and visibility, Rahal and Smith decided to change their packaging. (An indication of how grassroots their early efforts had been: Initially Rahal had his personal cell phone number printed on the back of the wrapper.) They ditched the beige label they’d created themselves using PowerPoint. Scott & Victor, the design firm they hired, reduced the size of the logo, introduced bright colors, and, most significant, added the now-signature list of ingredients loud and proud on the front of the wrapper.

It was a cheeky move that helped capture major retailers’ attention. In January 2015, Whole Foods began carrying the bars in select markets. A year and a half later, the grocery chain Trader Joe’s started selling them nationwide. Kroger and Target eventually followed. Mass distribution, combined with the “clean label” bona fides they’d established early on by getting the product in the hands of influencers—like the nutritionist and author Melissa Hartwig, who touted it on social media—soon helped the bars go from niche success to monster hit. The young company needed a lot more cash flow. Again, the partners eschewed investment from traditional capital markets, which typically come with strings attached, and borrowed $500,000 from Rahal’s father (which has since been paid back).

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“Our timing with Instagram and social media and e-­commerce was perfect,” says Rahal. “I’ll be the first to admit it’s another bar [in a crowded market]. I think that’s why Chicago is so surprised. We were so under the radar.”

Rahal’s embrace of transparency extends beyond labeling to work practices. At RXBar’s River North headquarters, his desk is smack in the middle of the wide-open office space. “Everyone can see what I’m doing,” he says.

In a departure from corporate convention, Rahal told his employees about the impending Kellogg deal some six months before it would be publicly announced, trusting that they would keep it under wraps. He felt he owed them that much. “In most companies, they would have found out the day it was signed,” he says. “People don’t do that because it’s an uncomfortable conversation to have. But we didn’t massage it. We were like, ‘We’re selling the company, this is what it means, and this is why we’re doing it.’ ”

 

Rule 5

Run your company like a cult

In 2016, Rahal enlisted an executive coach to help him and the RXBar leadership team. She suggested they take the DISC personality test, which uses a series of questions to determine people’s motivations and stress points based on their personality type. (“DISC” stands for dominance, influence, steadiness, and conscientiousness—the four basic types of self-conceptualization identified by the behavior model.)

Rahal liked DISC so much, he implemented it company-wide. On the wall near one of the RXBar conference rooms is a large multicolored wheel divided into quadrants representing the four personality types, with photos of employees affixed to their quadrants.

“It’s important to know there’s no wrong positioning,” says Rahal, who says his type is DI, which means he prioritizes results and action. “It’s really a tool to get teams to optimally work together, so I know how to engage you respectfully and vice versa. For example, instead of having a problem with me for being aggressive, [a coworker will know] that it’s not me, it’s just my style.”

Rahal is unabashed about his faith in this system. “We all say, ‘Hey, what’s your DISC?’ So it aligns everyone. It’s like we’re a cult.”

It’s a cult that more and more people want to join. At the time of the Kellogg purchase, RXBar employed 78 people, up from 27 the year before, and the company is planning to hire around 60 more by early 2018. All new hires spend two hours with Rahal on their first day, learning about the company culture, which he describes as a “servant mindset.”

To wit, all new employees, regardless of job description or seniority level, work two weeks in customer service, responding to requests, reacting to complaints, placing orders, and the like.

“We’ve identified a pattern,” says Rahal. “If you are self-aware and you are humble—emotionally and intellectually—you will flourish here.”

One interesting outcome of the corporate philosophy Rahal espouses is that roughly 70 percent of RXBar’s employees are women. Though he says that’s not by design, Rahal acknowledges, “In general, men have larger egos and less humility, which gives freedom to pride and arrogance. We have filters for that.”

Those who have made it through the filters seem to be true believers. Jessica Dembs, a senior sales support specialist hired in 2016, says of Rahal, “He really gets in there. He is the most open and honest person I think I’ve ever met.”

 

Rule 6

Ditch the Ping-Pong tables

Rahal typically wakes up between 5 and 7 a.m., gets to the office around 8, and works until 5 or 6. He comes home, lies down for a bit, has a bite to eat, then works until he goes to bed. He reads at night, but only as it pertains to work. “Being dyslexic, reading hurts. It’s not fun.”

What is fun for Rahal? “I get all my social exposure and entertainment through work. I might be naive, but for me, work’s fun. My Monday is fun. I actually get excited Sunday night.”

(He doesn’t drink, and he says his only vice is luxury cars. He owns two Mercedes-Benzes, and he recently gave his father a sparkling white Bentley. “I knew he would never buy it for himself,” Rahal says.)

When pressed to describe what he considers a perfect night, he says he enjoys having dinner with friends and family or spending time with his girlfriend, a Syrian-born doctor he’s been dating for a few months. What about when she wants to go out to a movie or a concert? “I would do that for her,” he says. “But she doesn’t really like going to concerts, either.”

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Rahal attributes his self-described workaholism to his upbringing. Though the family was well off, Norman liked to remind his sons that their great-grandparents “didn’t have a pot to piss in,” and the boys were expected to earn their keep. That meant weekends filled with chores. Smith remembers one of the first times he went to the Rahal house, when he and Peter were in grade school. Norman met him at the door and said Peter couldn’t come out to play until he’d finished his yard work. Smith says he waited for more than an hour.

Rahal may like to describe work as his primary source of enjoyment, but the RXBar headquarters, while full of youthful energy (the median age is 28), hardly feels like a playground. Indeed, the offices, with mismatched furniture and crates of protein bars stacked everywhere, feel more old-school than modern. There are no Airstream trailer conference rooms, no happy hour DJ sets, no hoverboards, no dogs. “We’re entrepreneurial; we’re not a startup,” Rahal says. “ ‘Startup’ implies you’re broke, venture backed. That’s why you won’t see all that bullshit here: Ping-Pong tables are escapism from a miserable job.”

The one constant at RXBar has been the work ethic, he says, and that’s come with a downside. “Our culture is not for everyone. The problem we have is probably one of burnout. Our growth has been so intensive, and we’ve been holding on so tight. At some point, it has to be OK for everyone to take an hour lunch and not feel like we’re falling behind.”

 

Rule 7

Don’t be afraid to fire your mother

On the wall near the sink in Rahal’s parents’ basement, there’s still a sign that says “Employees Must Wash Their Hands.” From the very beginning, Rahal and Smith insisted on treating RXBar like a real company, albeit a tiny one. That translated into a near-maniacal focus on quality control. They wore hairnets and shaved their arms to guard against contamination. Family members helped out, but there were no free rides. “My mom couldn’t put labels on straight, so I fired her,” Rahal says with a laugh.

The basic recipe they came up with used dates, a staple of Lebanese cuisine, as a binding ingredient and included egg whites as the principal source of protein, plus nuts, dried fruits, and—for RXBar’s debut flavor—dried coconut and chocolate. The ingredients were of the highest quality, bought at attractive wholesale prices thanks to Rahal’s family connections in the food distribution industry.

Today product development takes place in a glass-walled food lab at RXBar’s headquarters, which will soon be moving to a larger space where the lab will take up an entire floor. Rahal says the experimentation and painstaking trial and error that defined RXBar’s beginnings remain the order of the day. He describes his job as a never-ending search for ways to make the bars taste better. “A lot of it the consumer wouldn’t even notice,” he says. “We are constantly tweaking the ratios. We’re incrementally moving the product 0.01 percent better. [With other products,] corn syrup is the same every time. Almonds and dates change batch to batch, so you need to figure out how to make it consistent. As simple as it seems, making all-natural food is extremely complicated.”

As if to reinforce the sense of continuity with the company’s earnest origins, the woman who runs RXBar’s food testing was one of Rahal and Smith’s first hires. She started out packaging bars by hand not long after production development moved to the facility on Western Avenue.

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It’s when he’s talking about R&D that Rahal looks like he’s having fun. Strolling through the lab, he animatedly describes new limited-edition bars, like pumpkin spice and gingerbread, that have become popular on Instagram, and he spouts ideas that could become products down the road: a nut butter, various powdered and liquid beverages, possibly even a totally new line of bars. As he considers ways to expand the company, Rahal has looked not so much to the tech vanguard as to Starbucks and other companies that have conventional underpinnings but can adapt to an ever-evolving marketplace no matter how big they get.

Rahal’s aspirations for RXBar are almost unbelievably grand. Not only does he want the company to keep up with consumer whims by offering a wider variety of products, he wants to actually change how food is made and marketed. That kind of change is something he’s talked about with Kellogg. “Big food companies are struggling,” he says. “I want to help.”

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