CrossFit and paleo diets led to the creation of RX Bars. Starting with only $10K, they sold for over $600M.

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Dave Young:
Welcome to the Empire Builders Podcast. Dave young here, along with Steven Semple. And Steven, as our listeners may know, we record these in, well, I don’t know if they know it or not. We don’t sit down once a week and record, we’ll record three or four episodes in a row. And we just got done talking about cookies. And now we’re talking about another edible product called RXBars. And I’m starting to get hungry.

Stephen Semple:
So it’s going to be an early lunch for you. Is that what we’re saying?

Dave Young:
It might be an early lunch. Yeah. Yeah. So I’ve seen RXBars. I see them in stores. Wherever your favorite bars are sold, you’re going to find these RXBars. What is the story behind the RX brand of bars?

Stephen Semple:
Well, it’s a pretty interesting story. So RX, which is the letter R, the letter X, Bars, they’re..

Dave Young:
Prescription like.

Stephen Semple:
Yeah. Yeah, that’s interesting. I hadn’t even put that together. So yeah, like prescription, and they’re these little energy bars. The business was founded by Peter Rahal and Jared Smith in 2012 in Chicago, and they started with really no money. They invested a few thousand dollars each and no experience. They had no experience manufacturing food. And in 2017, five years after starting, they sold to Kellogg’s for $600 million.

Dave Young:
$600 million.

Stephen Semple:
$600 million five years after starting. Have I got your attention?

Dave Young:
What a happy day for those guys.

Stephen Semple:
Yeah. Yeah. When you look at energy bars, it’s also a crazy, crowded space. Go on Amazon.

Dave Young:
They’re everywhere.

Stephen Semple:
They are everywhere. It seems like there’s new ones all the time. So it wasn’t like energy bars was like this new thing where there were… No, it was a really, really crowded space. And again, they did this with little money and even less experience. And Peter is an interesting guy. He really struggled as a student and really struggled in business. He’s dyslexic, and he was a D student, And he talks about how he worked really hard to get a D. And he found work very hard. And what people don’t realize, especially people with severe dyslexia, linear activities are really hard to do. And basically, pretty much every entry-level job is hard. And I heard an interview with him talking about how hard it was to actually even fill out and handle a checkbook because it’s this linear activity and anything that’s linear is really, really hard. So he even had a really difficult time getting into college.

Now, his father was in the food business. They had a family wholesaling business, and the initial plan was for Peter to enter the family business. And he started off doing an internship at a food processing plant, Mondie Foods in Belgium. He did that for about a year, and it really didn’t work out all that well. And then he went to Lebanon for a time because that was the family heritage, and he wanted to learn more about the family heritage. And when he returned to the US, he learned that the family really didn’t want him working in the family business. He really was not cut out for it. Food wholesaling is a very linear business. As he describes it, failing was not foreign to him because of all the struggles he had through his entire life in terms of school and any work and things along that lines.

So he went out and he got a job working in transportation brokerage, and he absolutely hated it. It was a terrible job and he needed to do something. And at the time, he was really big into CrossFit. CrossFit was a new fitness craze. He was really big into it, and he was early to CrossFit, and he fell in love with it. And what he noticed was a great community. And a lot of that community was getting into the paleo diet. That was a really big thing in CrossFit. And what he found is it was really hard to find a good tasting bar that fit those dietary requirements. But working out at CrossFit, what he saw was a community. And he saw that the gym sold water and sold t-shirts, but didn’t sell any bars. So he called a buddy of his Jared, Jared Smith, who founded the business with him, who was also in the CrossFit, and he said, “Hey, we should make bars.”

And it’s interesting. Peter sees his dyslexia today as a benefit because he knows what he’s good at and is very clear where he struggles, and he knew he needed Jared. He knew he could not do this on his own. That wasn’t even a possibility in his mind. So they got to work. They went to stores and they researched the ingredients in all the bars in the stores today, and they started off investing $5,000 each. And initially, they planned on investing five grand each and raising money. So Peter went to his dad, his dad knew lots of people in the food business and said, “Hey dad, we want to raise some money. Do you want to help out?” And his dad basically looked at him and said, “Sell 1,000 bars.” In other words, sell some stuff before you try to raise some money, so they had to figure out how to sell bars. And they had this niche group in CrossFit and paleo, and it’s a great community, and it was underserved.

And if you think about this, this really parallels what Inov-8 did in episode 37 where they created a shoe focusing on trail runners, and eventually grew that into other communities. Well, that’s what these guys were doing, the same thing. Found this tribe, found this community.

Dave Young:
In 2012, that was a big growing thing. It’s still big, but to latch onto an affinity group like that and have a product that fits their needs as they’re growing, what a great move.

Stephen Semple:
And paleo was about ingredients, so they wanted to make bars with these limited ingredients, but best ingredients. And they did something really interesting in their packaging. In the show notes, we’ll show a copy of one of their packages. And we’ve talked before about things being specific is far more powerful than things be in general. Right on the front, like I’ll read this one, three egg whites, three walnuts, six cashews, two dates, no BS. And this specific packaging, specific ingredients, that really spoke to that market and so I think that was very interesting what they did with the packaging. And on the front, you’re allowed to package the way you want. You still have to have the specific nutritional, ingredients, and all those other things on the back, which they have.

They started off making these bars in Peter’s parents’ basement using a Cuisinart. So basically they had a Cuisinart, they had mix up these ingredients, and they would chop them up. And Peter and Jared would show up at one of their gyms with a Tupperware full of this stuff and ask people to try it. They knew tons of people and they collected tons of data, asked a whole pile of questions. So basically in August 2012 was when they started doing this, creating the ideas. And then in March 2013, they made their first sale. So they went out and they started to sell it. And everything was being made in the basement of the parents’ house. And they did everything. They made the website. They did the manufacturing. They did the packaging. They did the design. Packaging was very, very basic. And they would work from 8:00 to noon. They could make the three to seven batches of bars in that time, and there was about 440 bars a batch. So they could make in the basement 3,000 bars a day. And they had people come in to pack it is what they did.

So they made the bars, they had people come into the house to pack. And at one point Peter’s mom was helping out with the packaging and she wasn’t very good at it. Peter had to fire his mom.

Dave Young:
He had to fire mom. Oh, dear.

Stephen Semple:
Had to fire mom, but the whole strategy was one of these strategies… Again, this is like inov-8, and we’ve seen other companies do this. Start small with a community and a tribe, which was CrossFit, paleo. And what they wanted to do is they wanted to sell online, and then sell directly to gyms, and then have consumers buy it from them, and then they would find a co-packer, and then do traditional retailing. But it’s that whole thing of, yes, that group was too small to make a big business, but it’s where you start, and then you roll up from there.

And what they saw was in the paleo CrossFit was a niche. And because it was small, it was being ignored. So they saw the small niche that was being ignored, and they said, “That’s where we can start. We can service that group,” and they even went so far as saying they would rather have a small CrossFit guy from across the country buy from them, than a grocer that was around the corner. Because what they knew was, “The more I got into that community, the more I got into that community.”

Dave Young:
I think you can even drill down on these groups, these tribes, affinity groups, if you want to call them that, in that, do you go out looking for them or do you just find yourself in one and fill a need? But CrossFit is one of those affinity groups where, when people identify themselves as being a CrossFit person, they’re one of those where… You know the joke, “How do you know if somebody’s in CrossFit? They’ll tell you.”

Stephen Semple:
Right?

Dave Young:
It’s like, how do you know if somebody has a rescue animal? They’ll tell you. If they’re a vegan, they’ll tell you.

Stephen Semple:
Right. Right.

Dave Young:
And so it’s one of those groups where it’s like, no, people identify so strongly with it that they feel the need to tell people unasked.

Stephen Semple:
Yeah. And it was also an interesting time in CrossFit because in the very early days, a lot of the people in the CrossFit community, in terms of the gyms, were very principled. You didn’t do it for the money, so they didn’t sell or promote things, and railed against the business side. As it grew, you would get more people coming in who were more open to the business side, so it opened up those opportunities for gyms to be open to selling things out of the gym.Q

Dave Young:
It was a movement, not a business.

Stephen Semple:
Right. It was right at that time when it was becoming a business that these guys were, or certainly some of them, it was becoming a business they were able to serve them. But even inside that, it was a real community and a real tribe, but it was also one, yes, they could email them and they could phone them, and they really hustled every day to make those sales. But one of the other things that was interesting in their business model is they were really able to bootstrap it because they could make small batches, they’re making it in their house using a Cuisinart. They could make small batches, inventory was very low, so little cash needed, but they made it, sold it, collected the money because many of the sales were online and then shipped it. So basically you had this really strong cash flow. You weren’t carrying a lot of receivables on this, so they were really able to bootstrap up that business.

So nine months from launch, they’re doing $600,000 in sales. They really got out of the gate very strong. The next year they did $2 million in revenue, and they just absolutely couldn’t keep up with demand. So in mid 2014, they hired an outside manufacturer. And the first one that they did was an absolute disaster, and it actually really set their business back. They had to write off a half a million dollars worth of inventory. They went out of stock for a period of time and had to find a new partner. They managed their way through that. Then in 2016, they’re now in Trader Joe’s, and that year they did $36 million in sales. And then in 2017, Kellogg’s came along and wrote the big $600 million check for the business.

Dave Young:
I guess he didn’t ever need to go back to dad for some money, huh?

Stephen Semple:
Guess that never happened. And he’s today an executive with Kellogg’s running one of their divisions. What this really teaches us, and we’ve talked about this before, is this whole power of tribe. There’s a real power of tribe. And Dave, I can’t tell you the number of times we’ve put together strategies for startups and we find this little tribe that’s very connected and very tight. And we say to them, “Start with this tribe,” and they go, “Yeah, but I want this to become a $400 million business and that tribe isn’t big enough,” and they choose not to implement the plan. It always drives me crazy because it’s like, “Yes, it’s not big enough, but that’s where you start. You’re not selling $400 million in the first year. You’re hopefully selling $400,000, and we can sell $400,000 to this little tribe,” and that’s where you start.

Dave Young:
Guess what the people in those little tribes, what else they are? They’re members of other tribes.

Stephen Semple:
Well, exactly. Exactly.

Dave Young:
We’re not all just one dimensional people. You might be CrossFit, and you might be vegan, and you might have a rescue animal, and…

Stephen Semple:
And you work in an office with a bunch of other people.

Dave Young:
Exactly.

Stephen Semple:
So there’s this power of tribe that is often, often overlooked, and we talk about a marketing as niches, but I prefer to think about it as being tribes, and there’s also a power to… One of the things I liked is they went very quickly to the direct to consumer market. So even though they were wanting to sell through gyms, what they really wanted to do is sell direct to the consumer. The gym was going to expose them to it, but they wanted to sell direct to consumer, which meant they own their destiny and were able also to learn. They were able to learn directly what people liked and what people didn’t like. And their simple packaging really made them stand out. And this whole idea of being specific rather than general, I thought was really, really cool.

So this packaging that stands out, this power of being specific, and direct to consumer, and the power of tribe, I think there’s a whole bunch of lessons to learn from these guys. And they blew the doors off and became really very wealthy, very successful business people who started with a couple of thousand bucks each and no experience, making things in the parents’ basement using a Cuisinart.

Dave Young:
It’s just a matter of getting started, isn’t it? Just having the guts to say, “Yeah, well let’s just do this and see where it goes.”

Stephen Semple:
Absolutely. And they found the tribe first and then made the product fit the tribe.

Dave Young:
I think that’s a key, isn’t it? But even if you identify a tribe, an affinity group, you should probably become one of them. You might find one that you think needs what you have, but you’re not going to know until you’re one of them.

Stephen Semple:
And that’s like Inov-8. Inov-8 was the same thing. Inov-8, they even have their new office location in an area which is known for trail running. So that basically the people who work there can go out before, after work, or on one of their breaks, and go run trails.

Dave Young:
Yeah, there you go. Well, what a great story and a great product. We actually put these out on the snack table at the Wizard Academy and people love them.

Stephen Semple:
There you go, and not everyone there is Crossfit.

Dave Young:
No, they’re not, but what’s really cool about it is you can, you can look right at the front of it and go, “Oh three egg white, six almonds, four cashews, two dates, no BS.” There’s probably more in it than that that’s binding it all together, but I’m not putting a bunch of junk in me.

Stephen Semple:
Right. Well, in fact, the binding agent, FYI, is dates.

Dave Young:
Okay. Yeah.

Stephen Semple:
That’s what they’ve actually used as the binding agent.

Dave Young:
And some egg white. Yeah.

Stephen Semple:
Yep, that’s it is the dates and the egg white. Yep.

Dave Young:
Good stuff. Thank you for bringing RXBars to the table, Stephen.

Stephen Semple:
The next time I’m down at the academy, I’m going to look forward to sampling them on your dime.

Dave Young:
I’ll make sure we keep them on there.

Stephen Semple:
All right. Thanks man.

Dave Young:
Thanks for listening to the podcast. Please share us. Subscribe on your favorite podcast app and leave us a big, fat, juicy five star rating and review. And if you have any questions about this or any other podcast episode, email to questions@theempirebuilderspodcast.com

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