Chomps: Pete Maldonado and Rashid Ali

When steaks don’t sell you shift to sticks; that’s how Chomps was born. After several failed ventures—one of which left him bankrupt—Pete Maldonado decided to take another chance on launching a business. He partnered with Rashid Ali to start a mail-order service similar to Omaha Steaks, but with grass-fed meat that was more suited to the Paleo diet. When the partners couldn’t get that off the ground, they shifted to individually-wrapped meat sticks; one of the first in a long line of ‘healthier for you’ protein snacks. For several years, each co-founder tried to manage the business as a side-hustle, but the sausage hit the fan in 2016 when a surprise order from Trader Joe’s left them scrambling to produce a million sticks. Today, Chomps is available in major chains across the country and pulls in more than $100 million a year. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Guy Raz?

  Our presenting sponsor today is Anthropic, the team behind Claude. Every founder on this show started with a hard question. Not the marketing plan, the 2 a.m. kind. Is this idea any good? Am I the one to build it? Should I quit my job? Anthropic got built the same way. A public benefit corporation founded on one hard question. How do we make sure AI goes well for people? So they asked over 100,000 people their hopes and their fears and are publishing what they find, even the uncomfortable parts. Me? I've got my own hard question about AI. Here it is. If everyone has access to something that can help them write the business plan,

• 0:46Guy Raz?

  build the prototype, analyze the market, maybe even come up with the idea, what separates the people who actually build something from everyone else? I don't have a clean answer yet, so I've been sitting with it with Claude. There's hope in hard questions. Ask yours at claude.ai/hibt. We get support from U.S. Bank. A question I love asking founders. What's the one decision you almost didn't make? The one that changed everything? Because it's never the obvious stuff. It's never, I decided to start a company. It's the small, boring, Tuesday afternoon decision you barely remember making until you realize it's the reason everything after it either worked or didn't.

• 1:32Guy Raz?

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• 2:16Guy Raz?

  on gas and EV charging, office supply stores, cellphone service, and restaurants. You pick up an extra $750 cash back as a bonus. And you've got a low APR on purchases and balance transfers for 12 months while you're scaling. Same business, same expenses, two completely different outcomes based on one small decision. Visit usbank.com/business to learn more. The creditor and issuer of this card is US Bank National Association, pursuant to a license from Visa USA, Inc. Some restrictions apply. If you travel often, you'll want to hear about this unprecedented offer. For the first time ever,

• 3:00Guy Raz?

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• 3:45Guy Raz?

  or bring a guest to the Delta Sky Club. Make every trip feel more rewarding with the car that upgrades your travel. Apply today at delta.com/cardsocial. Offer ends November 4, 2026. Minimum spending requirements and terms apply. Flights are fulfilled as flight certificates valid for Delta Comfort or Delta Maine to select domestic destinations. Book 21-plus days in advance. Up to $80 per person and taxes and fees apply. Other restrictions apply. When I pull up to a gas pump to fill my car, I'm not thinking about chemistry or engineering. I'm thinking about getting in, filling up, and getting on with my day. And it reminds me a little bit of the founders I talked to on this show, because the best

• 4:27Guy Raz?

  ones obsess over things their customers will never see. Tiny details, invisible improvements, relentless iteration. And not because anyone's watching, but because it makes the product better. That's what the mobile brand does. It engineers fuel the same way great founders engineer their products. Mobile Supreme Plus Premium Gas helps keep engines three times cleaner, which can mean better performance and improved gas mileage. It's for people who care about what's under the hood, even if they never see it. Three times cleaner compared to mobile regular gas in port fuel-injected engines. Actual results may vary. Visit mobilefuels.com for details.

• 5:13Speaker 01

  What was your purchase order for? 1.1 million sticks. It was larger than the previous year altogether in a single PO. Wow.

• 5:23Speaker 02

  And I'm thinking, oh shit, like how, this is, this is not what we discussed. This is way more than what we had, we discussed. And so I was like, give me a second. So I like, I go in my room, I build my spreadsheet, I'm calculating the total, like what does it actually look like? So I'm like, Pete, we need, I don't know, it was like 1. something million to be able to fund this. And so we then had to figure out like, how are we going to get the money to even fill this PO?

• 5:55Guy Raz?

  Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.

• 6:07Guy Raz?

  I'm Guy Raz, and on the show today, how two partners who set out to sell steak wound up making sausage in the form of Chomps, a grass-fed meat stick that does $100 million a year.

• 6:27Guy Raz?

  Starting something that fails is one of the worst feelings in the world. You invest time, money, energy, passion, and for some reason, the idea you have just doesn't work. And then you're left to figure out what went wrong. And if you know what I'm talking about, that process is a little like physical therapy after an injury. It takes a long, long time to recover. But it's also critical, and without that reflection, you are less likely to land on a new idea that will work. Because if there's one thing about this show I want you to learn from, it's not the successes of the founders, but rather their failures.

• 7:09Guy Raz?

  And today's show is about two failures that would eventually lead to a success. One of those failures was so catastrophic that it left Pete Maldonado millions of dollars in debt and forced him to declare bankruptcy. After that, he had a hard time even finding an apartment he could rent. But he learned some very valuable lessons from those setbacks. And most importantly, it gave him the kind of perspective he needed to make tough but smart choices about his third idea, a brand of meat snacks called Chomps. Now, if you haven't heard of them, they look like Slim Jims, tubes of soft, chewy meat,

• 7:49Guy Raz?

  except unlike similar brands, Chomps made a point of appealing to a different type of consumer. For starters, the sticks are made with grass-fed beef, and they don't have any added sugars. And while I can't vouch for whether Chomps are considerably healthier than Slim Jims, millions of people swear by them as a clean source of protein. Anyway, Pete started the company in Chicago in 2012 with a partner named Rashid Ali. Neither Pete nor Rashid jumped into their meat snack business fully committed from day one. They took it slow and for several years, it was a side hustle for both of them. Pete worked in real estate.

• 8:30Guy Raz?

  Rashid was a consultant. But eventually, as chomps was discovered by paleo eaters and CrossFitters, the partners realized they were on to something big. Both Pete Maldonado and Rashid Ali came from immigrant families. We'll hear from Rashid a little later on in the interview. We'll start with Pete. His grandparents immigrated from Colombia and Pete grew up on Long Island in what he describes as an evangelical Christian household. And by high school, he was super into sports.

• 9:01Speaker 01

  So I played baseball and then I started wrestling. And then I started weightlifting because of my wrestling coach. He was a big weightlifter and he taught us a bunch of different, you know, weightlifting moves. And I just wanted to get as jacked as I could get. Like, that's just what you did. Growing up in Long Island and New York, it was, that's a very much part of the culture up there. Everyone was, looks like a, you know, if you went to a nightclub when you were a little older, you looked like a bodybuilding show. I mean, everyone was just huge. So that's, I got really, really into it, you know, and I would, I would learn every little thing about it. And then that's what I did. So I would help my friends all with their workouts and I would help them, you know, with their nutrition plans and all of that. And I did this, you know, in high school. So.

• 9:45Guy Raz?

  Wow. And so you, you basically, I guess eventually became a, even while you were in college, like a personal trainer for other people?

• 9:53Speaker 01

  Yeah. Yeah. For a college kid, it was big, big money. I would, you know, get up to a hundred bucks, a hundred, a hundred bucks an hour sometimes, up to 150 if I was visiting someone's house. So I'm like, that's a, it's a good amount of money for a young kid.

• 10:07Guy Raz?

  All right. So, so you graduate, I think around 2004. And, and then did you become a full-time personal trainer? Is that what happened?

• 10:17Speaker 01

  Yeah, yeah. Oh, I never graduated, actually. Funny story. So I was in this, uh, my business class. One of the classes, there was a, one of the professors, we leave the class, he was done teaching it, and he goes to go start his car up, and he starts driving to the parking lot. I see him driving, and he's got a flat tire. He's driving this little tiny, like hatchback car, and it was a real beater. But, you know, I felt bad for the guy, was freezing out. And so I went and changed his tire for him. Um, I was just like, talking about him, about his car, and he's like, this car is terrible. It breaks down on me all the time. And I just remember thinking to myself, like, how am I learning business from this guy? Like, this can't be, this can't be right. Like, like, there's no way he's a successful businessman.

• 10:58Speaker 01

  Um, like, I made that decision, really, as I was changing this guy's tire, that I was done with college.

• 11:06Guy Raz?

  Wow. So you dropped out?

• 11:08Speaker 01

  No, yeah, I just stopped, and I went, I was gonna go, I went personal training full-time.

• 11:12Guy Raz?

  All right. So you, you dropped out, and I guess you weren't there too much longer, because I think around 2004, you moved to Florida, when you were around 22. Is that right?

• 11:21Speaker 01

  Yep.

• 11:22Guy Raz?

  Why?

• 11:23Speaker 01

  So I loved, loved the weather. I had a buddy that I grew up with that lived here as well. And actually, he was, he was also very entrepreneurial, and we would always talk about business ideas. And he was on the, in the contractors. He actually got his certified contractor's license. He was building homes. And, and I was like, you know what? I'm gonna go down and start a business. And so that's what I did.

• 11:44Guy Raz?

  So you're in Florida, 2004. This is like, the heyday of no-money-down mortgages, and all that craziness that was going on all over the country. And Florida was like, a huge part of that. There was like, a real estate gold rush happening. And from, from what I understand, you kind of got into that a little bit, right? You're a young guy. Tell me about that. Did you, were you thinking, yeah, I could, like, you know, sort of get no-money-down loans, and buy places, and flip them? Were you doing some of that?

• 12:18Speaker 01

  Yeah. So when I moved down to Naples, I actually moved in with a buddy of mine who owned his house, and I rented a room from him. And he was in real estate. And then my other buddy was obviously the contractor, and I'm watching him just crushing it. He's building homes for, you know, some of the largest publicly traded home builders, and building a great business, and...

• 12:40Speaker 01

  And I was like, I'm missing out. I see the opportunity. Let me get in on this. So I had perfect credit and really, really high credit score, which was the, pretty much all you needed back then to get a loan.

• 12:52Speaker 01

  So I decided I was gonna start flipping houses. How'd it start? Tell me about the first place you got. Yeah, so first place was, I think it was 100% financed. And it was, I bought that in 2006 and then- It's like a fixer-upper? Yeah. So you'd basically get a loan, put no money down, fix it up, and then flip it? Yep. And so I partnered with my buddy who was the contractor. He would have his guys come in, help us, and we would split the profits, right? That was the, that was the concept. And this is 2006. This is when, now, this is like at the time, we now know was the height of the market. The absolute height. Like, if you look at a chart of like, real estate prices, you see it go up, up, up until like, right after we bought the first house. And then

• 13:35Speaker 01

  it was just tanks, right? And so it was a very weird time. How, how over-leveraged were you? Absolutely. To the gills. I mean, it was at my rock bottom.

• 13:50Speaker 01

  It was a couple million in loans that I ended up getting stuck with. How many, how many places did you own? At the time, it was four houses, I believe, where it was like, there's no coming back from this. It's just getting worse and worse. Nobody's buying anything. And this was all, I mean, you were like 26, 25. I mean, you were getting loans. It's kinda crazy, right? I mean-

• 14:19Speaker 01

  Looking back at it, it's like, the craziest thing. Like, I, I'm like, did that really, like, what was, who was, what was anybody thinking? And I see pictures of myself now at that age, and I'm like, I would see this guy and never lend him money.

• 14:34Speaker 01

  But yeah.

• 14:35Guy Raz?

  All right, so you were, when the market crashed, right? Starts really declining in 2006, but the crash really becomes apparent in 2008. You're stuck with all this debt and these properties that no one wants to buy. What did you do? Did you declare bankruptcy?

• 14:55Speaker 01

  Yeah, so this lasted for, it was over a year. I ended up working with a local attorney here who was representing a bunch of other people in the same situation. And he introduced me to a bankruptcy attorney. And that bankruptcy attorney was like, well, this is how you do it. You basically just file bankruptcy. You control it now. So in hindsight, it was, I felt like it was a bit premature still. And I hate, and I also hated the idea that I walked into that courtroom to do the bankruptcy filing and my credit was still just below 800. And then you file bankruptcy and it's just done. Like it was like a 400, like within those weeks, so.

• 15:40Guy Raz?

  And how old were you when that happened?

• 15:42Speaker 01

  I think it was 26 or 27.

• 15:45Guy Raz?

  All right, so you're 27, bankrupt, not a good place to be. But the one advantage you have is that you're 27, which means you have a whole lot of life ahead of you, which is probably what that lawyer said.

• 15:58Speaker 01

  Yep, that's exactly what he said. And the other thing he said was, if you have something, you know, you're working on that you think is going to be successful, the time to do this is now, where you have like, you know, something that you're going to work on that could be a bright future, that would be the time to clear things up and move on to that.

• 16:17Guy Raz?

  So what was it that you decided to do? I mean, you've got no cash and no credit and no ability to borrow money. And obviously you could make money as a personal trainer and through odd jobs, but. Did you try to get a job as a personal trainer right away?

• 16:33Speaker 01

  I did, actually. I went to, I bounced around to a couple of different gyms and I would just kind of train there and do their, their thing.

• 16:41Speaker 01

  But then I had this wild idea that I wanted to start a food company. You know, I think one of the, as, as a personal trainer, one of the things I noticed was that I would spend a lot of time and way too much time putting together meal plans for clients. And they're always busy and it was very difficult for them.

• 17:01Guy Raz?

  Yeah.

• 17:01Speaker 01

  And so I was like, man, there's got to be a better way. Like, maybe I could bring something to the market that would solve the problem. At the time, it was like Nutrisystem was the big, you know, diet, was that the meal plan delivery? And I was like, I could create something better than that because their food is absolutely terrible. And I thought I could compete. And I ended up calling it Frozen Fitness. And I ended up finding a co-packer to help me make the product.

• 17:27Guy Raz?

  And what was, what was going to be different about it versus like Nutrisystem or any other frozen, like, meal plan?

• 17:34Speaker 01

  Well, nowadays, they're a dime a dozen, but they weren't doing it back then. No one was doing it.

• 17:38Guy Raz?

  Right. And, and it was, right, because I guess if you did Nutrisystem, you would, it was like a subscription you had to, or Jenny Craig, right? They were brought, sent to your home.

• 17:46Speaker 01

  Yep.

• 17:47Guy Raz?

  And this was something that would be available where? At the grocery store or at?

• 17:51Speaker 01

  So originally, I had the idea I wanted to do it just like Nutrisystem. You could go to the website, you can order it, you could call in and order it. And, um, but then I realized how expensive it was going to be to start, to build the website and all that. And so I realized, um, one of the things I could do is sell it out of gyms. But gyms didn't have freezer space. So I found these really cool little glass top ice cream freezers that were coming in from China. I could get them for like 350 to 400 bucks a piece. And I bought five of them and I saved up some cash and was able to buy those and I dropped them in some gyms.

• 18:33Guy Raz?

  What was the value proposition? Were they healthier?

• 18:37Speaker 01

  Yeah, it was healthier, but I also had, they were macro-friendly.

• 18:40Guy Raz?

  Macronutrients.

• 18:42Speaker 01

  Macronutrient-friendly and had the right amount, the ratio of protein, fat to carbs.

• 18:47Guy Raz?

  Right, which bodybuilders are focused on. So this was, that was your target audience? Bodybuilders or just fitness buffs?

• 18:54Speaker 01

  It was any fitness buff. And then we had two lines, one for people that wanted to lose weight, one for people that wanted to bulk up. And it's kind of really basic.

• 19:03Guy Raz?

  And the meals were, describe what they were. I mean, what was a typical meal?

• 19:09Speaker 01

  Yeah, so it was a basic meal that you would have at home, but it was flash frozen. So it would have chicken, broccoli, there were some sweet potatoes in one of them. That one was actually a balsamic chicken, which was one of the favorites. We had a pasta with meatballs. I had a tilapia for a little while, but I did not like the smell of microwaved tilapia.

• 19:32Guy Raz?

  No, no one likes to smell a microwaved fish. It's very controversial. Yeah. Now, I've got many questions about this, including how they were made, but first of all, this seems like a very cash-intensive process, like a business proposition. Like you can't just do this with a thousand bucks and, you know, I guess if you were selling them yourself, but like you've got to get the food and it's got to be packaged and then frozen and then shipped and then the refrigerator. So where did you, how did you finance it?

• 20:05Speaker 01

  So, thinking back, this is probably one of the, one of the more lucky instances of my life, where one of my houses, I ended up buying a house in Orlando, was one of the four that I was, I was left with. And that house, a guy reached out to me, he and his wife wanted to rent it. And I asked him what he did for a living and he tells me he works for a frozen food company.

• 20:29Guy Raz?

  Wow.

• 20:30Speaker 01

  And he managed, he's on the ops side. He does that, he handles the manufacturing. He was actually a really good guy. He wanted to, he kind of just took me under his wing and he taught me everything about the USDA, about co-packing, about sourcing. And, you know, and so I let him live in my house for next to nothing. And then he helped, helped me find a co-packer.

• 20:49Guy Raz?

  But still, you, you had to have money to do this. So how did you, how'd you do it? Where did you, did you go out and find investors? Or did you take a bank loan? Like, I guess you couldn't because you had no credit. Where'd you get the money?

• 21:04Speaker 01

  So I ended up putting a business plan together, started reaching out to various investors in town.

• 21:12Guy Raz?

  In Naples?

• 21:13Speaker 01

  In Naples. And there was a guy I met and he put me in touch with an investor who was a real estate guy here who owned these RV parks. He was very interested in what we were doing. He owned a gym as well. And that guy wanted to invest. And so I formed a deal with him and we went to town and started trying to make product.

• 21:38Guy Raz?

  Wow.

• 21:38Speaker 01

  Yeah.

• 21:39Guy Raz?

  How much did he put in?

• 21:40Speaker 01

  He agreed to putting in 250,000. He actually put in, I believe, 60,000.

• 21:48Guy Raz?

  Right.

• 21:49Speaker 01

  And then the world really fell apart when the real estate market meltdown happened. And he got hit pretty hard. Then it became me begging him for more money and then him telling me that he actually is not going to give me any more money at all. He wants his initial investment back as well.

• 22:08Guy Raz?

  Wow. How long between the time you raised the money from him until the time you realized you weren't going to get any more money from him?

• 22:16Speaker 01

  Oh, man. It was probably six months and...

• 22:19Guy Raz?

  Wow.

• 22:20Speaker 01

  Yeah.

• 22:21Guy Raz?

  Because you were in, I mean, presumably in a few gyms. And I, I guess I read that you actually managed to get to up to like 50 or 60 gyms with your freezers and the product, but, which sounds awesome. It's pretty impressive, but still, like, you gotta get people to open the freezer and to buy the thing. And if it's just sitting in a gym and no one's telling anybody about it... It's just a freezer in a gym.

• 22:46Speaker 01

  Well, the one thing that I learned the hard way was that when you have no distribution, there's no way to replenish the freezers. So we would place the freezer, I would actually drive up with a pickup truck to, we had them from South Florida all the way up to Atlanta. I'm in Naples, Florida. I didn't really think about like, how am I going to replenish these things? I thought that I could just pack them up and mail them. And then that proved to be incredibly expensive. I wasn't going to be able to do that. So, yeah, we realized that there was a major gap in the business model. You know, but my big idea that I fixated on was really, okay, I'm going to build this website and compete with Nutrisystem. I've

• 23:29Speaker 01

  already proved out that there's a need for the product. People were buying it when they would get it. But I went way too big on the website. Like, I wanted it to be absolutely perfect. And I wanted to be the seamless, you know, experience for customers when they went to there. They had all the options. And I was building out all the tools that I could, you know, think of that anybody would ever want, which was the absolute wrong thing to do. So I burnt through a good amount of cash trying to do all the customization and in the end, never got to a fully functional website just because of that.

• 24:05Guy Raz?

  I think it ended up lasting about 18 months in total, from the time you launched to the time it kind of fizzled out. What happened? Why did it fizzle?

• 24:16Speaker 01

  When my investor told me he wanted money back, I said, I can't give you your money back. It's all in frozen inventory. I'm like, I actually need more money to sell it. I have no way to tell anybody about this. And so the arguing went back and forth and it got ugly, to say the least, where I didn't like some of the threats that were coming my way. And so I packed it up. I actually ended up walking into his attorney's office and handed him a thoroughly written piece of paper where I just signed over the business to him. And I said, he can have all that inventory and the business because I don't want to do this with him anymore.

• 24:53Speaker 01

  And so that was that.

• 24:55Guy Raz?

  Yeah.

• 24:56Speaker 01

  I was weighing over my head. I think it was a good idea at the time. Probably should have gone to raise money from a VC, somebody that could actually add value.

• 25:08Guy Raz?

  Who had food experience.

• 25:10Speaker 01

  There you go. There you go.

• 25:11Guy Raz?

  Because your guy was a real estate investor. He knew nothing about food.

• 25:15Speaker 01

  Yeah.

• 25:16Guy Raz?

  Right. All right. All right. So that fizzles out, I guess, around 2008, 2009 ish. And I guess at this point, you you moved to Chicago to follow your girlfriend, who's now, I believe, now your wife.

• 25:28Speaker 01

  Yep.

• 25:29Guy Raz?

  And I guess in Chicago, you just had to get back into real estate and wind up making decent money, doing apartment rentals and commercial deals. And were you happy doing that? Did you did you enjoy that?

• 25:44Speaker 01

  So I enjoyed deal making, especially big deals. I get very excited about that. But you finally get to a closing, or you don't, right? And so you don't, and you get nothing. Or you get to a closing, you get a big check for it, which is great. But then you kind of you start from scratch the next day. You're not building anything. There was no residual. And that always kind of ate at me. I hated that idea. So I was just thinking, like, what can I build that would have residual income for me that I could build maybe on the side? And, you know, continue doing my big deals, that would be maybe my the bulk of my income. But then this can be like the supporting, you know.

• 26:27Guy Raz?

  So you were thinking, you were constantly thinking of what what could I do?

• 26:31Speaker 01

  Mm hmm. Oh, yeah.

• 26:33Guy Raz?

  But never thinking, maybe I'll reconstitute the frozen food business idea.

• 26:38Speaker 01

  No, I was so heartbroken about that one that I just couldn't. But I would say that I loved food so much, and I real that was one thing that I learned from that. I loved that business. It was like so cool to me. I loved watching the food get made. I love knowing that, like, you're you could package it up and just sell it to someone. And then somebody's in the some random part of the world can just be eating your product. Like, to me, that was just like, you know, it's a really cool thing to think about.

• 27:05Guy Raz?

  Meantime, you're still a fitness. Like, would you call yourself a fitness fanatic at that point, still in like 2009, 10?

• 27:13Speaker 01

  Yeah, I mean, I like personally, at that point, I had already kind of got drifted away from the personal training and I was kind of getting burnt out, I think, with a lot of my, you know, my regular routines. But then that's when I found CrossFit, actually, in Chicago.

• 27:29Guy Raz?

  This was when CrossFit really started to kind of hit its stride.

• 27:32Speaker 01

  Oh, yeah.

• 27:33Guy Raz?

  These gyms were blowing up everywhere and you discovered CrossFit.

• 27:36Speaker 01

  Oh, yeah. I loved it. It was, it added this element of competition where now I'm like competing with the other people in the gym and, oh, man, that was so addictive. And, uh, but, you know, I just realized then that if I can create something that would get any type of traction within the CrossFit community, it could blow up like wildfire. And so I kind of had my target market in mind.

• 28:04Guy Raz?

  Yeah.

• 28:04Speaker 01

  For the next venture.

• 28:05Guy Raz?

  But you just weren't sure what that was gonna be?

• 28:07Speaker 01

  No, I mean, I had, I had an idea and I wanted to be in food and I, I learned this thing, following Tim Ferriss, actually. He had a blog and in this, on this blog, he interviewed a guy named Noah Kagan. And Noah did this interview talking about how to create a million dollar business in over a weekend. And essentially what he talks about is establishing like proof of concept and using free tools like Google Trends and then taking out some really cheap, back then, they were really cheap Facebook ads to, to see if you could get anybody to pay for the product. Even if you don't have the product yet, maybe you have

• 28:48Speaker 01

  no money to even produce it, create an ad, put it out there, see if someone will actually transact and just refund them back their money and tell them what you were doing and then, you know, and then I was like, this is like the craziest thing ever, but such a good idea. So I started using these tools and looking at grass fed, like the search terms for grass fed beef, for grass fed beef delivered, any type of search term that was all related to that. So paleo, keto, all of those. And every single one of these search terms were just like an absolute, like it's like a trajectory, like a hockey sick trajectory.

• 29:24Guy Raz?

  And also CrossFitters, which, you know, for a variety of reasons, tended to like adopt a, what is typically called a paleo diet, like no car, no...

• 29:36Guy Raz?

  No grains, no, basically food that a caveman would eat.

• 29:40Speaker 01

  Mm hmm. Yeah.

• 29:42Guy Raz?

  And, and grass fed meat is a part of that diet like that you're told you're sort of that's encouraged.

• 29:48Speaker 01

  Mm hmm. That's it. Absolutely. And seeing what I was seeing with this kind of cult like community, the idea originally was going to be like, can I compete with Omaha Steaks? They're not doing grass fed beef. Maybe I could just do grass fed ground beef and steaks and ship those to people, create my website and do it a much simpler, do a much simpler website than I was originally trying to do with frozen fitness and get that off the ground.

• 30:17Guy Raz?

  And, and what was it going to be called?

• 30:19Speaker 01

  That was called Logic Meat Locker.

• 30:21Guy Raz?

  Logic Meat Locker.

• 30:23Speaker 01

  But there was logic behind the name, actually. So, so the L O G I. So low G I. So low glycemic index was one of the things that we were all talking about with.

• 30:34Guy Raz?

  All right. Okay.

• 30:35Speaker 01

  Yep.

• 30:36Guy Raz?

  Low glycemic index, meat and meat. We know it's meat.

• 30:39Speaker 01

  Mm hmm.

• 30:40Guy Raz?

  Yep. As you probably may know, we had Butcher Box on this show, which started like three years later in 2015, which did work and, and is a great name Butcher Box. But that was essentially the concept that you would, it would be like that. You would just have a subscription and you would get cuts of meat.

• 30:59Speaker 01

  Exact idea. Yep. So that was my idea. Now it was like, how do you figure out how to get that going?

• 31:06Guy Raz?

  Yeah.

• 31:07Speaker 01

  Then I go to a wedding, a good buddy of mine and his wife, my wife and I are friends with them and they were getting married in Missouri. I met his brother in law. His brother in law happened to own the only facility in central Illinois that was a certified organic and USDA plant.

• 31:24Guy Raz?

  Meat packing plant.

• 31:26Speaker 01

  Meat packing plant. So he was already in this business packing all different types of meat. He was processing for hunters, doing their, the deer, like the venison meat. And he had all types of relationships with these smaller grass fed beef farmers and kind of a small network of producers. So I talked to him about my idea and he said, you should come out to the plant and meet me when we get back. And so I did. And he was going to be almost like as like a co packer. So he was kind of the third party. He was going to allow me to, you know, to actual process it. And then he was going to actually pack it and ship them out for us. He didn't really have a stake in the actual company. He was just more of a third party, a partner of ours, of mine.

• 32:10Guy Raz?

  All right, let's pause here for a moment because I want to bring Rashida in who's been patiently, quietly sitting there.

• 32:19Speaker 02

  Hey.

• 32:20Guy Raz?

  Hello Rashid. So, all right. So you grew up in the Midwest, in Iowa. Your dad was an immigrant from Pakistan.

• 32:28Speaker 02

  Yep.

• 32:29Guy Raz?

  And you studied business in college. And I guess like around 2012, when you met Pete, I guess you were working as a, as a consultant. How, how exactly did the, did the two of you meet?

• 32:40Speaker 02

  Yeah. So some of my college friends, their wives were friends with Steph, Pete's wife. And I think, yeah. So there, there was a, Pete makes a joke. It's like, I think we went to a few like group dinners and me and him didn't really click. We're just like, you know, it was just the guy across the table. I don't think we interacted much. But then a couple of months later, there was, there was a birthday party where at some friends and that we were all playing poker. And ironically enough, me and Steph, his wife made it, it was down to the two of us to see who was going to win the tournament. And at one point, I think she threatened to push me down the stairs if I beat her. I don't recall exactly who won. But Pete and I at some point were just kind of off

• 33:24Speaker 02

  to the side and we're chatting. And he was telling me about this business that he had started. And, and so what he was presenting was a more convenient solution to get grass fed beef.

• 33:36Guy Raz?

  Did you know, yeah, did you know about the grass fed beef thing at all? Or was it the first time you were even hearing about it?

• 33:41Speaker 02

  Yeah, it was the first time. Like I wasn't into crossfritter paleo. So like Pete mentioned it, you know, but you plant a seed, I start doing the research, I get excited. So. I talked to him about my background in operations and finance and numbers and like, I love living in Excel. It's just how I was wired. And he was like, wait, that's the stuff that I hate. Like, he was like, and, and then from on the flip side, him really good on the sales and marketing, the creative side. And it's like, something where I kind of struggled. But I'm, I'm good with if you give me an idea, I can challenge it, right? I can, I'm wired to, to, to challenge and find opportunity and make it better. It's just the way I'm, I'm wired. And so it complemented our skill set. So I pinged him the next day and we were like, he goes,

• 34:26Speaker 02

  do you want to partner on this? And he was like, sure. We met for lunch and I mentioned how much had he invested? And he was like, it was, it was at 3250, $3,250, I think is what he had put up. So I cut a check and matched that. And my wife was a, was an attorney. She drafted the partnership agreement. Yeah, Pete moves very quickly. So I think it was signed within the next 24 hours. And that effectively was the start of the partnership.

• 34:53Guy Raz?

  And, and that's at your 50 50 partners off to the races, essentially, right? Were you even looking to start a business at all?

• 35:02Speaker 02

  No, but I think what Pete effectively presented, it was a living case study. And so in my mind, I was like, let's see if we can get this off the ground and see what it can become. You know, he and I both had a full time job that were, were bringing in money. And this is just something on the side.

• 35:19Guy Raz?

  To do on the side. Okay. And what did you like about this idea? I mean, because it's, it's awesome. I mean, ButcherBox obviously has really done well, but I mean, it's complicated. It involves shipping and it's heavy to ship things and that's expensive and there's weight and there's dry ice and there's meat. And what did you think? I mean, given your background, Rashid, in, you know, investigating and really digging into diligence, which by the way, you didn't do at all in this case. You made a decision in 24 hours. Like this runs completely counter to what you were doing as a professional, which was spending weeks and months, like, learning about a business.

• 35:56Speaker 02

  Right. But the interesting thing was like, so I was an Omaha Steaks customer. I actually, I liked the product.

• 36:01Guy Raz?

  Okay. All right.

• 36:02Speaker 02

  So I was familiar with

• 36:03Guy Raz?

  Right.

• 36:04Speaker 02

  the business. And I mean, who doesn't like steak?

• 36:09Guy Raz?

  Who doesn't?

• 36:10Speaker 02

  And when he explained, and then Pete kind of explained grass fed versus grain fed and the, and the health benefits. Then I'm like, oh. I shouldn't have been eating that the whole time and maybe that's why I'm gaining weight or whatnot. So I had a basic understanding of how the business worked and I'm also like, I knew I could figure it out, but what we figured out was shipping frozen without scale. There's no path to profitability and because the, the business was like self-funded, we had to figure out a way to make it profitable. And so that's where like I couldn't, like I couldn't

• 36:49Speaker 02

  solve the equation of like just buying enough and selling enough because the, the butcher box is a fantastic brand. They, it's a great business, but they figured out a formula that worked and it's being able to put the right things in the box to have it make sense from a margin perspective. We took the approach of, you know, you can buy ground, you can buy a fillet, you can buy a ribeye, you can buy a strip, whatever, but people were picking and choosing. And unless they picked the right combination, we couldn't make money because we also couldn't charge 25 bucks for shipping. Right? And so that's where we were, we really struggled to get the, the economics to work. And did you start by just doing Facebook ads?

• 37:31Speaker 02

  Yeah. So Pete had built a WordPress site. We started doing Facebook ads and a little bit of the paid search, like Google ads. Yeah. But our moms were our best customers the first couple, couple of months, but then also like to Pete's point, like he pivots hard and he pivots fast. So like I'm kind of, we're kind of working through it and I'm learning about meat processing and the yield loss. Like you'll buy a loin and cut as many fillets and you're, there's always loss. So like we were losing money every which way. Plus the shipping was tough to figure out. So. At the time, our co-packer was also making a multi-pack of meat sticks.

• 38:16Speaker 02

  It was, I think it was like Pete, like six or eight in that pack.

• 38:20Guy Raz?

  The same, the same co-packer that was, that was the processor that was processing and shipping the meat for you was also making like Slim Jims?

• 38:28Speaker 02

  Similar format, but it was, it was all packed in one, all lined up. Like if you think about, you buy a pack of pencils, they're all lined up Longway. And so he sold a multi-pack and, and we had branded it under the Logic name. And I think that's where the light went off with Pete was like, he ate a ton of Slim Jims when he was a kid. We were thinking about not wanting to ship frozen. And can we make a shelf-stable version and a healthy version of the Slim Jim? And that's where the kind of the light bulb went off.

• 39:00Guy Raz?

  When we come back in just a moment, where Rashid and Pete traveled to a tiny town in Missouri to find out how the sausage gets made and how a call from Trader Joe's leads to a deal that they can't afford to make. Stay with us. I'm Guy Raz and you're listening to How I Built This.

• 39:27Guy Raz?

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• 40:09Guy Raz?

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• 40:54Guy Raz?

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• 41:39Guy Raz?

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• 42:19Guy Raz?

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• 43:01Guy Raz?

  Hey, welcome back to How I Built This. I'm Guy Raz. So it's 2012 and Pete and Rashid have pooled together about $7,000 to start a grass-fed meat company. And their first idea, selling full cuts of meat, doesn't pan out. So instead of steaks, they lean into sticks.

• 43:22Speaker 01

  And so I'm like Rashid, like, why don't we do a healthy version of Slim Jims? Let's just do a single stick in a shelf-stable, and let's do that. And that's actually when I came up with that Chomps name and I created this pretty terrible logo. I think I was using like Microsoft Word art or something like that to create this logo. But I had the word Chomps on the package. And I looked at USPTO, so the Patent and Trademark Office's website, and I ran a search for trademarks and looked like I shouldn't have a problem getting Chomps snack sticks trademarked. And then also found a decent URL, which was gochomps.com. And I could get that

• 44:05Speaker 01

  for like 12 bucks. And so that was where I kind of latched on. And I remember just as a kid. You know, and I'm embarrassed to admit it today, but I mean, the number of Slim Jims I used to eat, I remember I used to ride my bike up to the 7-Eleven and get a bunch of them, have in my pocket. And by the time I got home, I'd eat them all.

• 44:26Guy Raz?

  Yeah. So, so this CoPacker, right? This meat processing plant, they had the ability to make these for you, essentially. They were already making something for you. So they, they could make it.

• 44:38Speaker 02

  Yeah, they were making sticks, but they had to be refrigerated.

• 44:42Guy Raz?

  Why?

• 44:43Speaker 02

  It's because of the license they had and they weren't familiar with, to be able to get it to be shelf-stable, you have to hit certain critical, critical control points. So your active water and your pH level. So we were selling a refrigerated version, but then we're like, we can, you know, there's Slim Jims out there, like they're, they're

• 45:00Guy Raz?

  We should figure this out.

• 45:02Speaker 02

  Exactly. And so we just started doing our research to find a partner that could make the version that we wanted to create.

• 45:10Speaker 01

  Yeah. And we started looking at all the different labels. And each one of these meat sticks has the USDA legend on there. So we had a whole list of people to contact. And then we found one specific one in Missouri, in this very small farm town called Green Top, Missouri.

• 45:30Guy Raz?

  You found a one, one what?

• 45:32Speaker 01

  A CoPacker.

• 45:33Guy Raz?

  A CoPacker, okay. A manufacturer, yeah.

• 45:35Speaker 01

  Manufacturer. And Green Top happens to be about two and a half hours south, if you're driving from Des Moines, where she grew up.

• 45:43Guy Raz?

  Right.

• 45:43Speaker 01

  And so we decided, well, here's a guy, let's go meet him. So he and I jumped in the car. And essentially, if you were driving down this main road and sneezed at the wrong time, you would have missed the town. Because it was so small. And the plant, quote unquote, plant, wasn't actually a manufacturing facility. It was a little corner store that had almost like a deli section. And in the back of the deli section, he had one little oven where he was cooking meat sticks.

• 46:17Guy Raz?

  And, and like, I'm trying to imagine how you make a Slim Jim. Like, it's got a casing and you gotta pack it in there. Like, how? How do you, did he have like a machine to do this?

• 46:29Speaker 01

  Yeah, so essentially what you need to do is there's a stuffer. So you need to actually get the ground beef, the beef has to be ground up already into hamburger meat.

• 46:37Guy Raz?

  Yep.

• 46:38Speaker 01

  And then it's stuffed into the casing. So there's an actual machine that has a little

• 46:43Speaker 01

  little nozzle on it and you put the casing over it and then that's where that shoots through there into the casing and it almost looks like a hose filling up with

• 46:52Guy Raz?

  Yeah, I got it.

• 46:53Speaker 01

  Yeah.

• 46:53Guy Raz?

  And then you cook it on low temperature to dry it?

• 46:55Speaker 01

  That's it. Yeah.

• 46:57Guy Raz?

  And, and is the casing sometimes made out of an animal intestine and sometimes made out of like a?

• 47:03Speaker 01

  It's collagen.

• 47:04Guy Raz?

  Beef, beef collagen.

• 47:05Speaker 01

  Collagen.

• 47:05Guy Raz?

  So it's actually sourced from a beef cowhide.

• 47:08Speaker 01

  Yeah.

• 47:08Speaker 02

  It is a bit of a manual process where you're

• 47:10Guy Raz?

  Right.

• 47:10Speaker 02

  filling up toads, dropping the meat in, doing all the process.

• 47:13Guy Raz?

  It's basically sausage making.

• 47:15Speaker 02

  Exactly. It is. It's exactly that.

• 47:17Guy Raz?

  So you meet with this guy, by the way, what's his name?

• 47:19Speaker 02

  Kevin.

• 47:20Guy Raz?

  Kevin. All right. You meet this guy Kevin and he's a small time

• 47:25Guy Raz?

  Slim Jim type, like he's a small time business. He's making this, but to make this, right, for CrossFitters, you couldn't use sugar. You can't use any grains or wheats or stabilizers or who knows? There's tons of things that a CrossFitter wouldn't be able to ingest. So how did you, you got there and you met with him? What'd you say? Did you say, hey, could you do something for us, but, but we want it with none of these things?

• 47:53Speaker 01

  That's exactly, yeah. We even talked about, you know, what, what would it take to, you know, to remove some of these ingredients that you're clearly using a lot of this for shelf stability? And like, do we need that? Do we absolutely need those things to, to keep the product shelf stable? And he's like, no, you don't, you don't. It just makes life easier from like a yield perspective or, you know, to get longer shelf life, you can do this, which is more of just a way to make more money as a small producer. But we decided, okay, we want to do this with the best ingredients, using the best beef. And none of the added stuff, the added ingredients that aren't necessary.

• 48:30Guy Raz?

  And he said, well, if you can get it to me, I'm happy to do it. Yeah.

• 48:33Speaker 01

  But it was different because we had talked to a few other co-packers and a lot of them would say, you have to have sugar. If you don't have sugar, I'm not going to make the product. And so Kevin was at least willing to say like, if this is what you want, I'll do it. Then I think that's when we knew, yeah, let's, let's bet on Kevin. And, and he also, the, you know, with any co-packer, you talk about the MOQ, the minimum order quantity.

• 48:53Guy Raz?

  Yeah.

• 48:54Speaker 01

  Like, we were able to go in low enough where it made sense, where we could produce just enough products, sell it online and go back.

• 48:59Guy Raz?

  Yeah. And this was his own brand?

• 49:01Speaker 01

  Yeah.

• 49:02Guy Raz?

  Yeah, it was under the Western Smokehouse brand. All right. So you got your guy and, and what's he gonna make, like a thousand sticks or 500 sticks?

• 49:11Speaker 01

  I think the first run was a thousand pounds, which would make about 9,000 sticks at the time.

• 49:16Guy Raz?

  Okay. And, and was he also gonna be the fulfillment center like, or were you gonna go back to, to pick him up and haul him to a warehouse in Chicago?

• 49:28Speaker 01

  Oh, no, there's no warehouse at that time. It was, it was Pete's condo.

• 49:33Guy Raz?

  Or Pete's condo, right, exactly.

• 49:35Speaker 01

  So he, he shipped him, he, he packed him up and shipped him in big, yeah, put him on a crate or a pallet. And it was actually the funniest thing. I used to have this, a truck with a lift gate, pull up to the, to my garage in my, uh, my condo I was living in, in Chicago, and unload an entire pallet of products. And I'd go out there with a luggage cart and I would pull all the case boxes off of the pallet, throw them onto this luggage cart because it had wheels on it, bring it into my condo. Uh, we had a spare, like a second bedroom and that was our fulfillment center.

• 50:12Guy Raz?

  That was your warehouse. So how, between the time you first met Kevin and the time you got your 9,000 sticks, I imagine that's a couple of months and probably you're, you gotta get the flavor right. So how was that working? Were you going back and forth? Was he shipped, was he sending you samples that you could try and then you would like say more, more paprika or like a little more salt?

• 50:34Speaker 01

  Exactly. It was just, yeah, we landed on that original stick recipe that is the same exact recipe we use today. And it only took us a few tries. It was kind of, when you think about it nowadays, we're like, man, like, big food companies spend millions and millions of dollars trying to zero in on the right flavor profile and we landed on it very quickly.

• 50:56Guy Raz?

  Yeah.

• 50:57Speaker 02

  But it was a very challenging process. There was a lot of times where we would receive product that we couldn't even sell.

• 51:05Guy Raz?

  You couldn't sell because why?

• 51:07Speaker 02

  One, one reason we had a significant issue, it's called delamination, where the, the packaging wasn't filled the right way and it was created, it allowed air to get into the package. They call it a channel. And so it was either the film issue or the packaging issue. But anyway, we have thousands and thousands of sticks that effectively are starting to discolor. So we clearly couldn't, couldn't do it. But we've already spent that. And at that time, we don't have contracts, right? It was like, he's blaming the film company, film company's blaming Kevin for packing it wrong. And so like, at the end of the day, we're stuck in the middle and we have thousands and thousands of sticks that we couldn't do. So we kind of had to take it on the chin. Other times, the meat would come out too fatty. So the product would have like, we called them cheetah spots, where it was very spotty. And we started

• 51:50Speaker 02

  learning more about the quality and consistency. And we started to get a lot smarter around the suppliers we were partnering with, right? We started realizing that not all grass fed beef was created equal.

• 52:01Guy Raz?

  And, and this was really gonna be the, the proving ground here. Cause you were Rashid, you were still a consultant and, and, and traveling a little bit. And Pete, you were still renting apartments to people.

• 52:15Speaker 01

  Yep, exactly.

• 52:16Guy Raz?

  So, all right. So you've got 9,000 beef sticks in your con, in spare bedroom in your apartment. Now you gotta sell them. So how did you guys start to do that?

• 52:26Speaker 01

  So I meant Rashid mentioned, I built a website on the WordPress platform, which, you know, obviously was a, it was, we got our first orders through that and realized it wasn't, wasn't the best process. And that was around when Shopify started getting big. And that's when I started taking a look at Shopify and I, I ended up building a second website over there, just kind of see what, how that would compare. And it was just, you know, so much better.

• 52:51Speaker 02

  Yeah. And I think the other thing was, we started, at the end of the day, we knew that the Chomps brand at the time, it didn't have a following. But in the paleo, in the CrossFit communities, we identified that there were these key influencers. And this was before what influencer marketing is now. But there were these folks that, you know, if they stood behind a product, people would follow.

• 53:14Guy Raz?

  And, and so you could do all of this, like build the website and make the product with the $7,000. It was. You didn't need more money to start it?

• 53:24Speaker 01

  We just had to be as scrappy as you could possibly imagine. But at that time, I was handling all customer service as well. So anybody that came to the website, like I would try to make it a very personal experience. That was one of the things that Rashid and I talked about like early on. It was, you know, we have no money. We have this product, you know, what can we do that's not going to cost us any money? Let's give good customer service. And one of the things that I would kind of, you know, grade myself on was on my response time. And you have no idea how many emails I've gotten back from people. They would email in. I would respond within seconds and they'd be like, that is the fastest email response I've ever gotten from a company.

• 54:05Speaker 01

  And I would say, I would actually save those emails as proof that like this is working and people are appreciative of it.

• 54:11Guy Raz?

  And Pete, you were presumably some days you were out showing potential clients apartments, but then you'd race back to the apartment and fulfill orders and pack them and ship them?

• 54:22Speaker 01

  Yeah, so I, well, at that time, like I was kind of slowly weaning out of real estate and doing more and more of the chomp stuff. And I just realized that this thing is taking off, you know, faster than I ever imagined. But we would, I had a Jeep Grand Cherokee at the time and we would pack all the orders, put the labels on there, stuff them inside my Jeep Grand Cherokee. Only one of us could fit in the car at the time. So I, because it was just like every seat was taken with boxes and I would drive up to the, to the post office and they would force, they would, I wasn't allowed to go to the front door. I had to go in the back and I would just load them up into one of their carts and deliver them at USPS and they would take them and ship them out.

• 55:05Guy Raz?

  And I guess it was pretty manageable in the first year or two because presumably the volume wasn't overwhelming, right? I mean, how many typical orders would you get a day?

• 55:14Speaker 01

  I mean, it was a handful, right? Like 10, 20.

• 55:19Speaker 02

  Yeah.

• 55:19Speaker 01

  And independent, you know, if we had something going on, which you always expected those things. If there was like an email blast going on and if it was some blogger we were working on that was going to go feature them, he would always get a flood of orders and then I would spend the next however many days packing them up. And then Rashid would fly in from wherever he's working and then he would, we would kind of tag team it and just get through them all.

• 55:40Speaker 02

  But I do think the, the, one of the big milestones where it kind of, it did a few things is there is this platform called Uncrate. I don't know, Guy, if you're familiar with Uncrate?

• 55:49Speaker 01

  No, what is it?

• 55:50Speaker 02

  So Uncrate is kind of like, you know, Max's Magazine where it's just like cool guy stuff, like tech cars. So it's, it's an online platform where they just feature cool stuff. And a guy I worked with, you know, knew the editors there, so we sent chomps to them and never heard back. And Pete, you're moving at this time, you're moving from Chicago to Naples and I'm on my honeymoon in Bali. And when you're using Shopify, every time you get an order, you get like a notification on your phone, almost like a text message. And I remember my phone was in my hotel room and I get back and I have like seven missed calls from Pete and I have, we have like thousands of orders and we're like, whoa, I'm like, what is, I call Pete and he's like, what is going on?

• 56:35Speaker 02

  Where are all these orders coming from? And Uncrate editor wrote about chomps and they didn't even tell us that they were going to do that. And so it was interesting because, you know, our consumer prior to that was primarily CrossFit, Paleo, Whole30, like very focused. And Uncrate is just like your general guy, right? Where it's like your 20 or 30 something that was just interested in, in it. And it showed, oh wow, the product has a lot more broader appeal and it just, I mean, it took us, I don't know, Pete, how long to fill all those orders? Like it was a lot.

• 57:09Speaker 01

  Weeks, it was weeks.

• 57:10Speaker 02

  And that was a, a big milestone of growth. And that's where like, at that point, it was a lot of work to get those orders out. We did it, but then that's where we're like, we need to find a fulfillment partner. Because it was just Pete and I putting sticks in a box and sticking a label was not driving value.

• 57:28Speaker 01

  But Rashid, as you, as you mentioned, Pete was moving, I think around this time, he was moving from Chicago back to Naples in Florida where, where his wife was from.

• 57:39Guy Raz?

  And so when he, when Pete said he wanted to do that, I mean, I guess this was still kind of just a side hustle for, for both of you, right? And so like you, Rashid, were still a consultant. And by the way, was it, I mean, was it profitable at that point? Was it? I can't imagine it was making that much money, but what was it?

• 57:58Speaker 02

  Well, yeah, I would say it was profitable. And I think one of the things as a consultant, what I realized was the value and understanding of cash flow. And so we got terms with our co-packer and with our protein supplier. And so effectively, the goal was all-

• 58:16Guy Raz?

  Protein suppliers is the meat company?

• 58:18Speaker 02

  Yeah, the beef company.

• 58:19Guy Raz?

  Yeah.

• 58:20Speaker 02

  And so, once we got the product, like the clock was on and we needed to make sure we sold through it to generate the cash, to pay off the invoice when it's, when it's due. And the other thing is the blessing, we only did e-commerce. It was direct to consumer and all of those transactions were credit cards. So we got the money upfront. That's why we liked e-commerce. I mean, first is because it was a side thing for P and I, so it didn't require you to be on nine to five. You could kind of do it on off hours. But also, we got paid upfront. The product itself, the Chomp Stick, it's, it's ideal for shipping. It's very-

• 58:55Guy Raz?

  Yeah.

• 58:55Speaker 02

  -dense. And it's like, we stumbled on a lot of these things where it's like, wow, it's, it's the perfect product. But it also, I think, the Uncrease situation put pressure on the business when we realized we had to solve this problem, that we couldn't fill it ourselves, right? And so that's where we, we kind of aligned with a third party to do the fulfillment that integrated with Shopify. And it kind of made the business, again, a bit more streamlined, where we realized that it was a problem we had to solve.

• 59:21Guy Raz?

  Right. At what point did you guys have to go to a bigger facility? Were you still, even in these first two years, was it all being done by this guy in, in Iowa?

• 59:32Speaker 02

  In Missouri, yeah. Yeah. I mean, they're still one of our, our manufacturing partners today.

• 59:39Guy Raz?

  It's in Missouri. Okay, Kevin is in Missouri. So Kevin still works with you today?

• 59:43Speaker 02

  Kevin has kind of rolled off. There's new owners there, but the facility itself-

• 59:47Guy Raz?

  I got you, okay. It's still possible. And grass-fed meat, especially domestic grass-fed meat, was still expensive, but there were fewer producers even then. Where were you sourcing it from? Anywhere you could get it in the US?

• 1:00:02Speaker 02

  Yeah, we had a few domestic partners, but we actually started having some quality challenges because I think the way that they process it and measure the lean point, they call it core drilling where they'll drill and measure and get an average versus all other places in the world, they actually will x-ray every single individual box and it's more automated. The other thing was, like you mentioned before, there wasn't a ton of supply. So that's where we started to figure out, are there other opportunities for grass-fed globally? And we ended up landing on a partner in Australia, in both Melbourne, Australia and Tasmania.

• 1:00:43Guy Raz?

  Yeah, because they produce a lot of grass-fed meat in Australia. And in 2014, do you guys, and you may remember this Rashid because you had the numbers, roughly what was your revenue that year? Was it like a few hundred thousand, tens of thousands?

• 1:00:59Speaker 02

  Probably, maybe that's when we broke a hundred thousand.

• 1:01:02Guy Raz?

  Yep. Yeah. And what's the margin, what were the margins on that? I mean, are these sticks pretty inexpensive to make? Because it's a premium product, grass-fed meat, and as you had mentioned earlier, Pete, CrossFitters and Paleo and people, they were used to paying higher prices for the food that they were consuming.

• 1:01:20Speaker 02

  I would say that the gross margin, it's an expensive product to make, but our business, like Pete and I weren't drawing a salary and we didn't really have any costs.

• 1:01:31Guy Raz?

  Expenses, right.

• 1:01:32Speaker 02

  So, right, but like this isn't, this isn't like the cosmetics space where it's these crazy, oh, 50, 60, 70, 80% gross margin product. It was kind of within that 30 to 40% level.

• 1:01:44Guy Raz?

  Right.

• 1:01:44Speaker 02

  So, right, so at the end of the day, like we were profitable because the business was very lean.

• 1:01:49Guy Raz?

  Right. So, so really, I got you. Okay, so. All right. So you are essentially an e-commerce business and you're and really you're focusing on, I mean, it's interesting because we did a few years ago, RX Bar and RX Bar was also started in Chicago. And, you know, this guy started by going to CrossFit gyms, taking the product across it because there was no energy bar for CrossFitters. They all had grain, or they all had sugar, or they all, and there was nothing that was totally paleo. And that's really where you guys focused, right? I mean, you were, that's who you were targeting at the beginning.

• 1:02:24Speaker 01

  Yeah. And they had a little bit of a different go-to-market strategy despite that they started with e-comm as well. But they also went very hard in terms of CrossFit with like all the, attending a bunch of the shows. Rashid and I couldn't do that. This was a side gig for us. It's actually funny. We were buddies with Peter and Jared, the founders of RX Bar, and they would see us at various shows or wherever, or see us in Chicago.

• 1:02:48Guy Raz?

  Trade shows.

• 1:02:49Speaker 01

  Trade shows and see us, or see us in Chicago at the CrossFit, one of the CrossFit gyms. And we would, they just, every time they'd see us, they'd be like, you guys full-time yet? Are you full-time yet? And we would, they would kind of push us because they both dove in right away, going full-time and building the business. And we all know where that ended up, right?

• 1:03:05Guy Raz?

  Yeah. And you guys were doing this really slowly, slowly. It was like part-time because you needed, I mean, you both needed your income and you had good jobs. And Pete, you'd been through catastrophic failure already. So you were probably hedging your bets a little bit.

• 1:03:22Speaker 01

  I had to at that point. I realized that. I was like, all right, okay, I gotta be smart this time.

• 1:03:27Guy Raz?

  And Rashid, you too, you were, you were kind of hedging your bets?

• 1:03:30Speaker 02

  I was. And I like, I had my first kid in like 2015. And so my wife wasn't working. It was just me. So like, again, similar situation where it's like I had to have income. The business wasn't at a scale where we could draw anything. And we needed the cash to continue to grow it. So it just, it wasn't the right time.

• 1:03:48Guy Raz?

  Yeah.

• 1:03:48Speaker 02

  And we talked about like the dynamic of Pete and I, a lot of the tension was around when we both would go full-time.

• 1:03:54Guy Raz?

  Yeah.

• 1:03:55Speaker 01

  But I think at that point was where I was like, I'm in. I'm sold. I'm going all in. And so I was kind of just done. Like I saw that, you know, writing on the wall that this, this thing could get huge if we just dedicate our time to it. And

• 1:04:09Guy Raz?

  So by 2015, you were full-time on this?

• 1:04:11Speaker 01

  It was a year later. So 2016, yeah.

• 1:04:14Guy Raz?

  What happened that, that prompted you to go full-time?

• 1:04:19Speaker 01

  Trader Joe's, so our first major retail customer.

• 1:04:23Guy Raz?

  Wait, how did that happen?

• 1:04:25Speaker 01

  So I was down here in Florida, actually walking my English Bulldog, taking her for a walk. And I get a call on my cellphone one day and it's a very high up person at Trader Joe's. I had been there for a long time, told me that her daughter had been eating Chomps and started bringing the product home. And the family liked the product and they wanted to find out about putting the product into the stores.

• 1:04:50Guy Raz?

  Wow.

• 1:04:51Speaker 01

  Yeah, it was, I honestly, I thought I was being punked. And it must've been like, you know, prank call, but it turned out she was legit.

• 1:05:00Guy Raz?

  So Trader Joe's calls you and what's your, I'm assuming you're like, yeah, I'd love to talk more about this.

• 1:05:08Speaker 01

  Yeah, and you know, the obvious discussion is really going to be around, you know, private label.

• 1:05:14Guy Raz?

  Already at that point?

• 1:05:16Speaker 01

  Yeah, I mean, they wanted, they wanted to do, you know, that's, that's just how they work. I mean, essentially the conversation went, you know, we would love to bring in the product. It needs to be under the Trader Joe's label.

• 1:05:26Guy Raz?

  Right.

• 1:05:27Speaker 01

  We just weren't set up to do that at all. And being able to manage two different brands essentially through our co-packer, like he was, he was already having a hard time dealing with our, our scale. And then now running another separate brand and just to, not to get too into the weeds on how it works, but the USDA really makes it difficult when you're making any kind of changes to your packaging. So for us to start from scratch on creating all new packaging for Trader Joe's was not something that we could handle at the time.

• 1:05:58Guy Raz?

  This is an important point. Trader Joe's, which, this is where I first saw Chomps in 2016 because I was on a paleo diet and I was like, oh, cool. I can eat plantain chips and I can eat these things too. But what they do is they will bring in a product, oftentimes, you know, I don't know, whatever it is, a cookie brand. And then over, you know, over the next year or so, you won't see that cookie brand anymore, but you will see the exact same cookie product just under Trader Joe's label. It's the same product, it's same quality and maybe a little bit cheaper. And then it's a trade, it's like Trader Jose's or Trader Gioto's, whatever they call it, you know? And then the, the, the brand name you could still buy at like Whole Foods or whatever.

• 1:06:42Guy Raz?

  So this is their business model and they essentially said to you, hey, we'd love to sell your product under our label.

• 1:06:50Speaker 01

  Yeah. And so I basically kind of politely said, we just can't. And in hindsight, if I had known the type of volume that they could move, I probably would have been able to, you know, or tried a little harder to figure out how to make that work.

• 1:07:04Guy Raz?

  But you said no immediately. You said, we can't do that.

• 1:07:06Speaker 01

  We just couldn't. I mean, it was, it would have been a huge undertaking for us.

• 1:07:09Guy Raz?

  Right.

• 1:07:10Speaker 01

  So it was actually an interesting conversation because it ended up where she was able to bring in a certain percentage, like I think it was 5% of the SKUs that she brings in each year, she could do branded. And she said, I would, I would do this for you. But she wanted to make sure that we had all of our ducks in a row. We can handle the scale. We could finance it, all of those things. And so of course, you know, I'm a sales guy and I'm like, yeah, of course, we could do all of that. You know, and then when their actual first POs came in, that was game changer.

• 1:07:41Guy Raz?

  What was their purchase order for?

• 1:07:42Speaker 01

  It was 1.1 million sticks.

• 1:07:46Guy Raz?

  Oh my god.

• 1:07:47Speaker 01

  And, you know, when we saw that first PO, like that's where I was like, this is it. This is what's going to put us on the radar. It's going to change everything. And it was larger than the previous year altogether in a single PO.

• 1:08:00Guy Raz?

  Wow. One purchase order is bigger than your, all of the customers that you had in the previous year. You buy a lot, probably.

• 1:08:07Speaker 01

  Buy a lot. Buy a lot.

• 1:08:08Speaker 02

  To put it into perspective, we were running about 10,000 pounds a month, anywhere from five to 10,000 pounds a month.

• 1:08:15Guy Raz?

  And this is frozen meat just being shipped from Australia at this point?

• 1:08:20Speaker 02

  Yeah, that's the raw pounded. So 10 to 15 was our normal click. This required us to do about 150,000 pounds.

• 1:08:27Guy Raz?

  150,000 pounds of meat a month because of Trader Joe's?

• 1:08:31Speaker 02

  To fill this one PO. That's the scale.

• 1:08:32Guy Raz?

  Wow. But there was no way all this is being made by that single co-packer in Missouri.

• 1:08:39Speaker 02

  Well, it's funny. So first of all, like Kevin told us no.

• 1:08:46Speaker 02

  Probably a half a dozen times, but I just kept asking it in a different way where it's funny, like, once we got through it and got the model, like, I remember I was talking to him, and he's like, Rashid, I don't know how you convinced me to do this. Like, because it would just, it was a lot. But no, it's the same, the same partner was able to scale with us. So getting him to at least commit and getting the supply plan in place, like, that was a feat. But before we could even do that, we then had to figure out, like, how we were going to get the money to even fill this PO, right? Because this wasn't e-commerce, right? We didn't have that amount of cash. So I think we, we got the PO on a Friday. We're looking at this and we're like, I'm thinking, oh shit, like, how, this is, this is not what we discussed. This is way more than what, what we had, we

• 1:09:30Speaker 02

  discussed. And so my phone rings, it's Pete, and he's like, you seeing this? I was like, yep, Pete, this is a lot more than what, he's like, yeah. And so I was like, give me a second. So I like, I go in my room, I build my spreadsheet, I'm calculating the total, like, what does it actually look like? So I'm like, Pete, we need, I don't know, it was like, 1 point something million to be able to fund this. And so in this situation, we needed the cash.

• 1:09:56Guy Raz?

  When we come back in just a moment, how Pete and Rashid pulled together the cash they need in order to grow, and why they go through a very rocky period as partners. Stay with us. I'm Guy Raz, and you're listening to How I Built This.

• 1:10:26Guy Raz?

  Hey, welcome back to How I Built This. I'm Guy Raz. So it's 2016, and Pete and Rashid have just gotten their first big purchase order. Trader Joe's, 1 million sticks. And the question is, where are they going to find the money to make that happen?

• 1:10:44Speaker 01

  That's the fun part. So we were like, all right, well, what are we going to do here? Like, we have no time to go to some, you know, institutional investor or anybody else. Like, what are we going to do? So we both just decided, let's just call everybody we know. And so we actually thought of like, what the terms would look like that we would offer people. And we were going to do like a short term debt with a simple interest rate. I think it was a 10% interest rate. We would pay it back within, I want to say it was nine months, Rashid, is that what it was?

• 1:11:14Speaker 02

  I think the first one.

• 1:11:15Speaker 01

  Yeah. And we raised money from probably eight different investors that put up between 100 to 200s, a little more, some of them had a little more.

• 1:11:25Speaker 02

  And they were just bridge loans, they were not equity investments.

• 1:11:28Speaker 01

  Yeah, it was all, all friends and family. Rashid's family, his brother, his dad went hard. They actually helped us out big time. And then-

• 1:11:38Speaker 02

  The funny thing about like, my brother contributed a lot, but he actually made me do a personal guarantee on it. And I was like, Jimmy, what are you, what are you talking about?

• 1:11:46Speaker 01

  He's like, I want your house.

• 1:11:47Speaker 02

  Exactly.

• 1:11:48Speaker 01

  And your firstborn.

• 1:11:49Speaker 02

  I still remember like, we were negotiating the terms. He's like, no, no, I need to make sure you, you guys have a personal guarantee on this. I get it. So we, I mean, we, it was, it was a very smart decision when we look back, right? Given that we didn't have to give up equity, it was a debt only, but there was risk in it. So I like, we, we were always very transparent about the risk, but also say like, you got to trust in Pete and I, we can, we can execute it. And we did.

• 1:12:10Speaker 01

  Yeah. And Trader Joe's, they gave us some projections. They thought that we were going to do, and they, they kind of let us know their forecast. And we far exceeded the projections, I think by five times.

• 1:12:23Speaker 02

  Wow.

• 1:12:24Speaker 01

  You know, and it was just validating for us. And then the craziest thing was to think that there's just now millions of new people all over the country.

• 1:12:32Speaker 02

  Exposed to this brand.

• 1:12:34Speaker 01

  Yeah. I mean, we, we 10x the business from 2015 to 2016. And then putting that in perspective, like, we launched August 8th of 2016.

• 1:12:44Speaker 02

  You launched in Trader Joe's in August of 2016?

• 1:12:47Speaker 01

  Yeah. And so the bulk of that year's revenue came into the back half of the year, you know, since August.

• 1:12:54Speaker 02

  All right. So you were in Trader Joe's and it is just-

• 1:12:57Guy Raz?

  And this is 2016 and you are full time on this Pete and Rashid you are still you've got this.

• 1:13:05Speaker 02

  I'm still part time, I'm traveling.

• 1:13:07Guy Raz?

  Yeah, you got a good job going. Was, did there start to become some, I don't know, tension or pressure between the two of you? Cause now it's a real business. It's like, you know, you got a million dollar order.

• 1:13:21Speaker 01

  Yeah, I would say it was, that was probably the source of most of our, any contention back then.

• 1:13:28Guy Raz?

  Yeah.

• 1:13:28Speaker 01

  I think the way I felt about it was that I was over here working on things and then he would come and his consult, he's a consultant. So what he does, you walks in and he spots issues and points them out to people and tells you what to do to fix them, right?

• 1:13:41Guy Raz?

  Yeah.

• 1:13:41Speaker 01

  And so I'm over here like, what the hell? Like I'm over here busting my butt and then you come in and you're picking apart my work. Why don't you quit your job and work with me? It would be so much more efficient. So I don't go down some path and have to like unravel everything I just did. And so like that was this like ongoing, and by the way, the things he would point out were like, I would get so mad because I'm like, he's freaking right.

• 1:14:04Guy Raz?

  Yeah.

• 1:14:04Speaker 01

  And I get mad at myself and mad at him and it was just like super frustrating, but.

• 1:14:08Guy Raz?

  Yeah.

• 1:14:09Speaker 02

  Yeah. And I would say like, I don't think Pete and I communicated, we were both super competitive even with each other and we always wanted to win. So even if it was like our idea versus his idea. And so I think fast forward, we now know how we're wired, how we tick. We know kind of how to work to me. Well, I think right now we're working together better than we ever have, but it doesn't mean like it's all kumbaya. That we still, we still will, we need the tension because I think that's what makes the business special. Because we have such differing perspectives when it comes to how things should be and it allows us to challenge each other the right way. But it was, I mean, it just created a lot of stress and, but in my mind too, like all the things from an operations perspective, accounting, finance.

• 1:14:53Speaker 02

  I still was managing all that, right? It's like I was doing it behind the scenes and. Sometimes Pete didn't fully understand all the work that went into it. And I think unless you live in the world of operations, like there's just a lot of stuff that needs to happen for it to run the right way. And not hearing anything means you're doing a good job. Right? But it was just, there was tension, there was stress and it put a lot of pressure on our relationship.

• 1:15:17Guy Raz?

  So what does it take for you, Rashid, to leap into this full time? What was the catalyst?

• 1:15:23Speaker 02

  I didn't go full time until January 2018.

• 1:15:27Guy Raz?

  Wow.

• 1:15:27Speaker 02

  Yeah.

• 1:15:28Guy Raz?

  And by that point, you guys were probably already...

• 1:15:32Speaker 02

  10 million.

• 1:15:32Guy Raz?

  $10 million in revenue.

• 1:15:35Speaker 02

  Yeah, that was, that was the right time.

• 1:15:37Guy Raz?

  How much convincing does it take for you to go full time?

• 1:15:42Speaker 02

  Are you trying to like bring up all the stuff now?

• 1:15:44Guy Raz?

  I'm sorry. Thank you, guy. I don't want to bring trauma up again. I'm sorry. No, I mean, you're, you are a cautious person, obviously, super cautious. But what, so what was the catalyst that made you feel comfortable enough to do that?

• 1:15:56Speaker 02

  No, I mean, like from my perspective, again, like we were profitable, but we were profitable because the business was lean, right? Pete and I weren't really drawing. We didn't really have infrastructure. So when we got Trader Joe's, Pete and I made the decision that we were going to be the best Trader Joe's partner. We weren't going to leverage all those folks seeing it to try to get into the other retailers.

• 1:16:17Speaker 01

  Yeah. By the way, that is, it was totally contrarian to what all of the like other people in the industry, even advisors that were working with us, they were pushing us to do the exact same thing and saying, use this as a springboard. This is your chance. Use this momentum.

• 1:16:32Guy Raz?

  To get into Walmart and Target because Trader Joe's alone is not, you can't really, you can only hit a ceiling. You can't get beyond that ceiling, which is true. But that's what they were saying to you.

• 1:16:43Speaker 01

  Yeah. And, and we just, it didn't intuitively felt wrong. It felt like what we should be doing is treat Trader Joe's the absolute best that we ever could, be the best possible vendor that we could. And that's exactly what we did. And in hindsight, it was the absolute right thing to do.

• 1:17:00Speaker 02

  But we were, we were still growing e-commerce, right? So that's where it's like, we were focusing on e-commerce, Amazon and Trader Joe's. And both were just, I mean, Trader Joe's, every time we launched another SKU, the business would, would almost double.

• 1:17:13Guy Raz?

  Wow. So you're now in this full-time and that, and it was obviously related to the growth of this thing.

• 1:17:20Speaker 02

  Yep. Yeah. So January 2018, Pete and I come to an agreement, like, okay, where she's coming full-time. We open an office in Chicago. We hire two folks.

• 1:17:30Guy Raz?

  To do what?

• 1:17:31Speaker 02

  Marketing and then kind of an operations support role, just to be.

• 1:17:37Guy Raz?

  Cause you were, yeah, cause but by up to this point, you weren't really, didn't have any marketing budget. Now you've got cash in the bank.

• 1:17:44Speaker 02

  And so we hired this marketing person to kind of really professionalize the brand. And I think one of the big things we did in 2018 was we had a packaging refresh where the brand, Chomps, as you see the brand today, that's what kind of came out of that process. And I think that was a, a big milestone in, in our growth because it allowed Chomps to stand out on the shelf compared to kind of all the other brands out there that are kind of the, we say the sea of sameness.

• 1:18:12Guy Raz?

  Here's what I don't understand. I'm starting to see a little bit of it now in, in like Whole Foods and I've, I bought some of them just to test them out, competing brands. But, but at the time, like 2017, you're crushing it at Trader Joe's. I'm surprised that the company that makes Slim Jims or that does Jack's Links or something wasn't like, hey, we gotta get on this grass-fed Slim Jim thing.

• 1:18:38Speaker 01

  They, they all tried.

• 1:18:40Guy Raz?

  Really?

• 1:18:41Speaker 01

  Yeah.

• 1:18:41Guy Raz?

  And did that, did that worry you at least initially?

• 1:18:44Speaker 01

  Yeah, for sure. It did. But I think what, what happens is like the customers that were buying those, those products, they know those brands and they're not interested in those brands. It doesn't matter if they're selling something that's, you know, comparable. They know what that, what that, it's, it's more of a, it's almost like selling out, right?

• 1:19:03Guy Raz?

  So even when those big brands came out with grass-fed organic. Jerky products like yours, competing products, it would be like, I don't know if Coca-Cola came out with a kombucha, people would be like, ah, I'm gonna stick with my kombucha brand.

• 1:19:18Speaker 01

  Well, first off, I think a lot of it is people are seeing through some of that greenwashing too. So they're going for specific claims, right? Just to check boxes, but the customers are so educated nowadays. They know how to read labels, they know how to read ingredients list. And so you might have something on there trying to claim certain things. So for instance, there was a product out there that was, this is how it read, 100% beef, grass fed, right? So you change the order. So our label says 100% grass fed beef. That's the right way to say it. They said a 100% beef, grass fed. Yeah, I have no idea what that means or like why it would be that way.

• 1:19:59Speaker 01

  But they, it was something strict, something a little shady going on. And I think, you know, I think customers caught on to that. And I feel like that's, and we're very selective too. Like we will go through 10 different flavor profiles before we actually launch something. And even today, we only have nine flavors. So you gotta imagine those types of bigger companies, you know, they over innovate. They throw, you know, as many different SKUs out there. They test and see what's gonna work, but they do it when it's out in the marketplace. And, you know, anytime we ever launch a product now, we spend a lot more time and there's a lot more feedback coming in.

• 1:20:34Guy Raz?

  Yeah, I'm curious about price point, right? Because this is not the same price as Slim Jims, right? But I guess, did it not matter? Were you just not even worried about that? Because you were going after a different consumer willing to spend more money on this? This beef stick versus a Slim Jim or a competing beef stick?

• 1:20:53Speaker 01

  Well, so like if you look at the category in general, right? You have Slim Jims, you have Jack Lings. But they're, the majority of the jerky category is in C store, convenience, right? Gas station and Chomps, we're not playing in that space right now. And so a lot of the times, like, we're not necessarily going head to head with them.

• 1:21:10Guy Raz?

  You're not going up against Jack's Links or whatever the other brands are.

• 1:21:13Speaker 01

  Like, we're starting to a little bit more as we get into broader retail exposure. But like our core, you know, Jack Lings and Slim Jims, they're not in Trader Joe's, right? They're not in Whole Foods, they're not in Sprouts. And so that's where it's like, you know, we wanted to make sure we're priced right. So the consumer will not like balk on it. But like, we're priced, we're lying priced with all the other competitors in the space.

• 1:21:32Guy Raz?

  Once you were, you're in Trader Joe's and you're really in hit. $10 million in revenue. Presumably, people are saying to you, hey, you've got to have more products, got to have a larger product line, more SKUs. And really, the kind of beauty of the business was its elegance, its simplicity. It's really, it's one product. It's beef sticks. But there was probably pressure on you to like diversify beyond that, to go into like, I don't know, puffed beef crunchies or stuff like that. Did you get people saying that? Like, you cannot build a business on beef sticks alone.

• 1:22:09Speaker 01

  Well, we would get comments like that, but then we would just be like, have you looked at our growth? I mean, you can't, you can't argue with numbers, right? And that's just the, our growth was very strong. And it was all very concentrated within this core product line. We get comments every so often, but it's like, you know, I think we've kind of proved that wrong at this point. We're going to be exceeding the, we have exceeded that nine-figure range of revenue. So.

• 1:22:37Guy Raz?

  Over $100 million in beef sticks. It's incredible.

• 1:22:40Speaker 02

  Well, I would say we do have turkey as well.

• 1:22:42Guy Raz?

  Sorry. In meat sticks and venison, and venison, right? It really is amazing. I mean, it shows you, there was zero market for that. Well, there were Slim Jims, but it just shows you, just consumer habits have changed so much. Because I would imagine, most people eating this are probably into nutrition. So this is like a protein kick for them.

• 1:23:05Speaker 01

  Yep.

• 1:23:06Guy Raz?

  It's probably somebody who's not choosing to eat a Snickers bar, even though they're great, right? It's, it's a different kind of consumer.

• 1:23:11Speaker 01

  Well, yeah, very different. And here's, here's a fun fact, actually. So, our core consumer is over 70% female. So if you think about that jerky or meat snacks category, how it's so.

• 1:23:22Guy Raz?

  Dudes, it's truck drivers.

• 1:23:23Speaker 01

  It's all dudes, all dudes. Just look at that set. I mean, it's all like, even the colors of their packaging, it's the blacks.

• 1:23:28Guy Raz?

  Jack's Links.

• 1:23:29Speaker 01

  All of it, all of it. And we've got mommies, we've got, you know, it's just, it's pretty wild. And we didn't really set out to build the business that way, but I feel like the way that we started within these niche diet tribes very early on, those were all very heavily female-focused, but then also as an e-commerce brand in general. Like, we built the brand on social media. That's, it was all free for us back, you know, back when we did it. That's, that was the way to do it. And so, females were really driving that.

• 1:23:55Speaker 02

  And I think also, there's one stat, like with one of our retailers, we were bringing 40%.

• 1:24:01Speaker 02

  New folks to the jerky set. So people eat Chomps not because it's a jerky product. It's just a better for you snacking option.

• 1:24:08Guy Raz?

  So I imagine during the pandemic, like many snack brands like Cliff Bars and others, you just saw a massive surge because everybody was like stockpiling shelf-stable stuff for a while. But then probably like a lot of those products, you saw a dip because well, people weren't going to the gym. And maybe people had a Chomps stick in their bag, in their gym bag, and people weren't, they were in their house in their pajamas, right? And I think you did see a dip in 2020 in sales, right?

• 1:24:37Speaker 01

  Yeah, so we saw that massive spike that you mentioned. Then the rug got pulled out from underneath us, you know, because we're very, we're impulse. We're an impulse purchase, right? Like you're at, we're at all these registers, at all these different retailers. And if you suddenly see a huge drop 90% overnight in foot traffic, that hurts. And so your product's going to stop moving.

• 1:25:03Speaker 01

  On top of that, not being an essential item, we're not the paper towels, toilet paper, whatever, you know, other items. We're just a snack. The distributors themselves were not even saving room in the trucks for products like ours. So they were either just sitting in their warehouses, not making it to the store, or they just stopped ordering. And I think as soon as everything came back online in terms of like distributors having more of that, that capacity and other retailers opening those doors back up, allowing more people to come into the stores. We saw all of that demand come back and then some. And it, things just blew up. Like the brand just kept getting bigger and bigger and faster than we ever imagined.

• 1:25:46Speaker 01

  And we hit a production capacity with our co-packer.

• 1:25:50Guy Raz?

  How did you solve it? Did it just kind of work itself out?

• 1:25:52Speaker 02

  No, I mean, we have now three separate manufacturing facilities and three packaging lines running simultaneously. And we went ahead and ordered six more. So we, next year, we may have up to five facilities running Chomps to be able to keep up with demand. It just took time, right? At the end of the day, like, we didn't want to flip a switch and not have faith in the new manufacturing partners to be able to produce the exact same product. And so it just, it took time to get them to stand up. But now we're in a lot better shape.

• 1:26:24Guy Raz?

  And this is a kind of a mind blowing thing. You have a tiny staff for a company that does over a hundred million dollars. How many employees do you have? Full time employees?

• 1:26:32Speaker 02

  We're just under forty right now.

• 1:26:34Guy Raz?

  It's unbelievable.

• 1:26:36Speaker 01

  Yeah.

• 1:26:36Speaker 02

  We need a lot more people at work.

• 1:26:40Guy Raz?

  You need more people, yeah.

• 1:26:41Speaker 01

  We'll have, we'll have seventy. The HR roadmap is built out to seventy through the end of, end of twenty three.

• 1:26:47Speaker 02

  But I think the other thing is like Pete and I see so many other companies where they surge employment and you see these layoffs. And

• 1:26:54Guy Raz?

  Yes.

• 1:26:55Speaker 02

  Pete and I were like, we're so aware that we, we want to grow the team the right way and we never want a situation where we kind of grew too fast. And I think it's also the tension between Pete and I as far as like our measured risk on how we want to do it. I think we found a happy meeting, but like people is one thing where we're very deliberate about who we bring in, where we want to make sure that they meet our core values, but also that there's longevity and it's not something where it would require us to pull back.

• 1:27:21Guy Raz?

  Is, is Rashid, is in your view, Pete the one always wanted to race forward and you're the one kind of restraining him just a little bit?

• 1:27:29Speaker 02

  I would say Pete describes it as

• 1:27:31Speaker 01

  We're a truck barreling down the road. I'm the guy with my foot pinned on the gas. Rashid's actually steering the truck and he set up the guardrails to make sure we don't fly off the highway. And we're just going faster and faster and faster right now.

• 1:27:43Speaker 02

  But I do think like it, I would say like my approach isn't to slow things down, but I think I can, I can refine sometimes Pete's ideas, but I think collectively we both are able to pour fuel on the fire, right? Like if we want to get something done, we can execute and move quickly, but also do so diligently. Like it's, it's tough to do both.

• 1:28:04Guy Raz?

  All right. And the, up until 2022 is ten years in, totally bootstrapped. You'd just taken a couple of loans, all repaid. 2022, you take, decide to take your first outside investment, eighty million dollars for minority stake. I think the company has valued it. Two to $300 million roughly. Am I right about that valuation?

• 1:28:26Speaker 01

  About 200.

• 1:28:28Guy Raz?

  Okay. And it's awesome because now you can take some money off the table. You've been bootstrapping this for so long. What does that investment allow you to do now? I mean, because you're everywhere. You're in all the big box stores. Where does the growth now come from? How do you get bigger?

• 1:28:45Speaker 01

  So I would say more importantly than than the cash, because we didn't do the raise because the company needed cash. Right? We needed what we were doing is we were trying to align ourselves with very, very smart people. We were interviewing investors to see who's going to bring the most value.

• 1:29:01Guy Raz?

  I'm sure with your cash flow and your margins and your low costs, I'm sure there was tons of people wanting to invest.

• 1:29:07Speaker 01

  Yeah, I mean, we had we had opportunities for minority stakes, majority stakes, or we could have sold the whole company. And we were not excited about that whatsoever. Like, we have so much work to do and things that we know that we can accomplish on our own. But we do also realize and we recognize that we've never built a company this big before. We'll be the first ones to raise our hands and kind of say, we need help. And at this scale, it's, you know, we have something significant to lose. And so what we wanted to be able to do is learn from somebody else's scar tissue. And I think that is so valuable. That's worth more than any amount of money. So it's just been an absolute, I guess, just a game changer. And they totally leveled up the business since they joined.

• 1:29:50Guy Raz?

  So when a private equity firm makes a minority stake, usually down the road, it means they want to outright own the whole business. And that may happen here, that down the road, you know, this this private equity firm will buy out, or maybe you all sell to a larger company or something. I mean, I'm assuming that you both love what you're doing. You've been at it for 10 years and full time, really only for about five or six. But what do you think? I mean, you know, you already have built this massive brand. And clearly, at some point, you know, there's going to have to be some kind of exit because you do have an investor here.

• 1:30:32Speaker 02

  Yeah, I mean, I think we'll have a feeling when we may need help and raise our hands and that may drive it. But I think, you know, we've got a good five to seven years to continue to build towards that billion dollars. Like, at the end of the day, innovation can go two ways, right? It can either be really bad or be really good. And that's why we're patient about what we bring to market. There's a lot of stuff that we're working on right now, and we have a lot of good things underway. But we can grow with our existing line. We don't need to launch more products to grow, at least in the next two years.

• 1:31:01Guy Raz?

  When you reflect on this story, obviously, a lot of really great strategic thoughts gone into this. And the fact that the two of you partnered on a, you know, really, you got married quickly, right? Overnight. It was a Vegas shotgun wedding. How much of what happened do you think has to do with the work? And how much do you chalk up to luck? First to you, Rashid.

• 1:31:28Speaker 02

  I would say it's a little bit of both. But I think what I think Pete and I are really good at is taking luck and capitalizing on it, right? There's a kind of a bird in hand opportunity, and there's a few different approaches you could take. And I think, you know, we were fortunate to get that call from Trader Joe's. But we were also, we were able to leverage our skill and what we thought the one in the business to do to capitalize on that opportunity.

• 1:31:52Speaker 01

  Yeah. What I would say is, you know, both Rashid and I come from immigrant families. And, you know, just growing up, watching my grandmother working two to three different jobs, raising six kids on her own, unable to speak English really well. But it was just, she just did it. And then my dad had that exact same mentality. It's just the mindset that he has always, always had and really instilled in me. That's what I've seen growing up. Rashid comes from a very similar background. I think the two of us really have this scrappy, resourceful mentality and extremely resilient. Like, it does not matter if you tell, if we set our minds to something, we will make it happen. And that's just how we've always been.

• 1:32:40Guy Raz?

  That's Pete Maldonado and Rashid Ali, co-founders of Chomps. By the way, if you look at the Chomps website, you will find all kinds of interesting recipes for how to use the snack sticks in a bunch of different ways. There's Chomps quiche, Chomps kebabs, Chomps quesadillas, Chomps chili, even a Valentine's Day dinner for two. Pasta carbonara with, yes, Chomps. Hey, thanks so much for listening to the show this week. If you want to contact our team, our email address is [email protected]. If you want to follow us on Twitter, our account is @howibuiltthis and mine is @guyraz. And on Instagram, we're @howibuiltthis and I'm at guy dot raz.

• 1:33:24Guy Raz?

  This episode was produced by J.C. Howard with music composed by Runtine Arab Bluey. It was edited by Neva Grant with research help from Susannah Brown. Our production staff also includes Casey Herman, Elaine Coats, John Isabella, Liz Metzger, Catherine Seifer, Kerry Thompson, Alex Chung, Chris Messini, Carla Estevez, Sam Paulson, and Lauren Einhorn. I'm Guy Raz and you've been listening to How I Built This.