Why focus on only ONE product built a $1B super-brand (on just $6,000) - Pete Maldonado [Chomps]

23:02Rashid Ali:And we know velocities are going to be second to none. We don't want to go in and be number two. We just won't do it. We want to go in and make sure we have a strategy to be number one. And it's got to happen very quickly.

23:14Pete Maldonado:What would you say was the best marketing action that you did to build such a strong brand awareness in the US?

23:24Rashid Ali:So early on, it was obviously the, it was the influencer thing. Right. And then, and then from there it was, it was honestly like social media for us was like such a game changer because it's free and I just needed to have like decent content. but I think spending the time to build a community and having that direct relationship. And so I'll give you a, for instance, so I personally answered every single customer service email that came in up until I think 2018, which I think we were probably doing like 30 or$40 million in revenue. And even when we started hiring a team, I was like, so, you know, hesitant to even pass that job off to anybody.

24:09Rashid Ali:And the reason being is, um, it was twofold. I mean, one, I loved having that direct relationship so I could hear directly from the consumers and get that feedback and understand what they're looking for. Um, so I have an incredible understanding and a very deep understanding of what our customers want and why they're our customers and how to keep them there. Um, but it was also, I think for me, it was, um, you know, at that direct relationship, I want them to understand, it's got to go both ways. So now they just, they understand that we're humanized. We're not just some brand. We're people that they're buying from and people buy from people, you know this, right?

24:43Rashid Ali:And so it's, you know, I wanted them to never forget that. So we had that personal touch every step of the way. So that for us was like, that was the foundation of how we built Chomps. And we haven't really lost that. Now we've been scaling the team. We have a lot more people to be able to reach out to people and keep those touch points open. it's really tough to do as we're getting we're getting so skilled now to have that direct relationship but um but that's why um it's actually funny i'll give you another story actually so we uh we had no money obviously i couldn't compete with any of these other snack brands on marketing or any of that stuff i couldn't really pay you know you know the social media influencers to to talk about us and give them some product and that was about it but i was like okay what could we do that costs us nothing that is like a service or an experience that these people will never, never expect?

25:35Rashid Ali:If you emailed to chomps, to our team at chomps.com, back then it was team at go chomps. We couldn't afford that, that URL yet. Um, but they, within seconds, you would have a response for me. And if I got somebody to say back to me, Oh my God, that is the fastest email I've ever had back from a brand in my life, I would actually save that and bookmark it and I put it in its own folder. And that's how I would grade myself. And so I'm telling you, man, like little things like that as a little brand, like people remembered that. And they're like, what a great service. What great service. And all the comments you would see in reviews were always like, oh my gosh, what great service.

26:15Rashid Ali:What great service. And so that to us was like really onto something here. Like we need to be able to scale that. How do you find that and scale it? Because I would compare our reviews to other brands' reviews. And this is like Amazon was already picking up. And so I could see all that. And it's all about service, quality, and mentioning people by name that worked for Chomps. And so it was like, let's never lose that.

26:39Pete Maldonado:What were people asking the most about in customer service?

26:45Rashid Ali:A lot of people were learning then about grass-fed, grass-finished beef, right? How were the animals raised? What farms are these coming from? And so I was like, so glad you asked. And like, I just rattled off and I'd had all the great answers. And then it was also about maybe specific ingredients in the product. It went on, it was like the list goes on. It's like people are now suddenly becoming really interested in not just the macros or the Nutrition Facts panel. It's also about the ingredients. But then seeing an ingredient isn't enough. People wanted to know how is it sourced. And so again, like that's, we thrived on this stuff.

27:27Rashid Ali:Cause I, we built the product for, it was something that we wanted for ourselves. Right. And so we knew like we checked the boxes and so we loved it when people would grill us and ask questions. I'm like, well, again, so glad you asked. So glad you asked. And just give them the info. And I'm like, wow, so rare to find this type of thing. Yeah. And so in the early days, like nothing has changed, by the way, we have not changed the product once, you know, same ingredients same everything and it's just now we're just making more of it so that's so cool

27:56Pete Maldonado:and uh what would you sell why is the biggest challenge growing to uh almost a billion dollar

28:02Rashid Ali:in sales um capacity and forecasting uh forecasting demand for us has been incredibly difficult let's put it that way um so we would we were basically doubling year over year um so we went from 10 to 20 to 40 to somewhere around 75 then we went to we had a weird year it was like coming out of covid um and then we got to about a little over 100 and then things like rent right back out that out of that then we went to 200 and went to 430 then we went to seven seven like 100 something like that and now we'll do like oh next close to a billion right like each year for us when we're putting these uh setting up the forecast and the annual contract for the year we look at ourselves and we're like how irresponsible of us to to like to think that we're going to add a hundred million 200 million of top line revenue in a single year when it took us 10 years to get to 100 million right like that doesn't make sense like how um but again like the the way that the these these are not trends anymore these are like cultural shifts that we're dealing with people everybody is eating protein now protein is in every product you could possibly imagine it's in your cereal it's in your pretzels it's in your it's like you name it it's in your it's in everywhere um i think where we win is that chomps is a natural source of protein it's where protein comes from It's like animal-based protein.

29:38Rashid Ali:So for us, I think that we're going to continue winning there. As people, I think there's going to be like this, what's the word? A little bit of like proteinification fatigue, right? There's just too much protein and everything. And people are just like, get it out of my cereal. I don't want it anymore. Like it's just, you know? So I don't know. I think when that happens, people aren't going to stop eating protein. I think they're going to be really selective on the sources. And so I think that's, uh, we will win there. But, um, but I would say, you know, understanding those dynamics and, and how incredibly powerful they are and how big these waves of demand are.

30:16Rashid Ali:We way undershot them for the couple of years in a row. And you've trying to be trying to get better about trying to guess where demand is going to be. It's still impossible, man. Still impossible. Last year, we undershot it by nine figures, which is a terrible feeling because we actually cut nine figures of POs. And that is terrible because it's not just the lost revenue. It's also how many customers have we lost too? Because now we're out of stock. We didn't build the production plan to support that type of demand. And so people are going to stores to find the product and it's not there. So where are they going?

30:58Rashid Ali:they're going to buy some other competitor and so that's um how much inventory can actually like

31:04Pete Maldonado:can you actually get ahead of time like uh or do you keep like because i'm wondering like how stressed is kind of like the whole supply chain from someone's ordering and is there a product

31:18Rashid Ali:in the background or not yeah there's well nowadays there's always a product in the background back in the day it was like i would take the orders and then produce against it and i'd be like sorry it's going to be like four weeks before you get your sticks like that just doesn't that's not going to fly anymore um so we we're our our operations team is incredibly sophisticated in terms of like building out the inventory and making sure they've got the right product mix too because obviously people are going to buy more of some flavor or skew than another um so that's um but yeah these people are so much smarter than me on that end i don't even i don't get involved uh um but i would say like you know we went from one production facility so one one co-man partner in one facility back in 2021 to now we have seven different facilities making our product and a couple few of those actually are dedicated to making just chomps product um and uh yeah again like you mentioned it earlier earlier we're making over two million sticks a day right now and um And it's not slowing down.

32:23Rashid Ali:We're just still trying to keep up. But I would say managing all of that, the seven different facilities and now these different SKUs, and now we have to have multiple warehouses packing out different types. It's just a lot of management. And the team is, again, super sophisticated around it. But despite how there is a lot of complexity at this stage that has gotten a little bit away from us because we scaled so fast, especially in the last three or four years. It's either you support the growth or you focus on keeping things simplified. And it's like, we need to support the growth right now and we'll come back later and kind of consolidate facilities and that type of thing.

33:05Rashid Ali:But it's, yeah, so that's kind of where we're at right now.

33:10Pete Maldonado:And I think like at some point, because you bootstrapped the business, I think at some point you took some cash out. Can you maybe like walk us through of how exactly did you decide to take some cash out? What was the reasoning behind it? And maybe also the expectation of a phone when they come in and what they expect in the future.

33:30Rashid Ali:Absolutely. So, okay, so we went through COVID. That was a scary time because we were kind of flying high all the way up into COVID. And just kind of, we didn't think we were invincible. We were smarter than that. But I think we were, we also, we thought we built a very, We always use this word durable. We thought we built a very durable company. And we can survive the highs and lows and all of that. And then COVID has kind of changed that. Who could have ever forecasted that? But I think for us, it was a tough one because we came out of the gates. And I don't know if you remember, in the early days of COVID, people were like, well, the store's getting shut down.

34:14Rashid Ali:There's a meat shortage. so now you've got everyone pantry loading so now velocities and demand went through the roof so this was not just on our website and amazon but it was in our retailers and so like a trader joe's they are doubling their po sizes are giving us more like so we had millions and millions and millions of sticks that we were making um against each of these channels and then for instance like a trader joe's they decided that they had a um corporate policy they're going to limit it the foot traffic in a store to 10 people per store. So it went from doors wide open product flying to 10 people in the store at a time.

34:53Rashid Ali:And then on top of it, we were always at the cash registers, but they also wanted to protect their cashiers. So now they put up a plexiglass wall. So chomps were behind the plexiglass wall. So it was like a, like the chomps museum, right? So even if you wanted the product, you couldn't get it. Um, so our sales there just went to next to zero overnight. And so the list lasted for a few weeks and they're trying to gauge to see how long this is going to last and all that. And finally they were like, this is going to be longer than we thought. We don't need that product anymore. So we're canceling all of those open POs.

35:28Rashid Ali:It's just what a gut punch. Oh my god, what are we going to do? Because we already produced so much to fill all the demand in every other channel. We had no home for that. But our team is so awesome that over time, it only took a few weeks actually, of them pounding the pavement and just getting super creative to figure out all these new channels of where to sell the product. So it was like Thrive Market. It was, there was like a few other ones that were, we started getting like leaning really heavily into e-commerce. And we still have, these are new channels for us that we were never in before.

36:04Rashid Ali:And so we were like, this is kind of awesome. So we moved all that product and then Trader Joe's opened the doors back up. So now suddenly demand is like picked back up. So, but during that period, there was this huge lull. We were out of cash and it was either like, we figure out like we've got to lay people off. Like, what are we going to do? Like, we couldn't lay people off. We took forever to build this little team that we have. And these people are superstars. So we decided we were like, we let the team know, like we are in a really bad position. We need to put our heads together and figure out how to fix this.

36:38Rashid Ali:We're not going to lay any of you guys off. we're not furloughing anybody you guys are all keeping your jobs we're going to pay you to the very last cent that we have but we all need to put the you put our heads together and fix this and so we did and um and it worked out man so we moved that product things opened back up and when things opened back up our velocities just went through the roof um and so it just hasn't slowed down since so again it was like that year was a bad year and we did almost 100 million but then we just continued doubling from there.

37:11Pete Maldonado:And this is when you decided that after that, it was time to take some cash out a little bit. I missed that point.

37:19Rashid Ali:So Rashid and I were always on the hook personally for personal guarantees on every bit. So we had some debt that we took out from banks. And then we were personally guaranteeing literally everything. And so to the point where during COVID, we literally thought...

37:34Pete Maldonado:Sorry to interrupt, but just for people to understand, whenever you like take a debt, it's on your business, but the bank was asking you to personally guarantee the cash, meaning that if you default the debt from the existing business, they can seize your property, your assets, et cetera, et cetera. Is that correct? Absolutely. Yeah. Okay. Okay. So that puts a lot of pressure.

37:58Rashid Ali:A lot of pressure. And we both had kids, we both had families. And so we were coming into this and you know, during COVID, we thought we were not only losing the business, we thought we were losing our houses and, and all of our own personal everything. And realizing then, you know, it wasn't just us anymore. And I'm, by the way, I'm the risk taker. Rashid is less of a risk taker, but he actually went along with a lot of these things because I, with my pushing, I'm like, we got to do this. We got to do this. And so it was just like a bad, bad feeling, you know, that, you know, we, we put it all on the line.

38:29Rashid Ali:Our kids never signed up for this, you know, and it was like, we're putting their lives at stake. And I don't know. So we got through it and we're like, man, that was not a fun thing at all. Now the business is back on track. Let's do something where we find a financial partner because if something like this were to ever happen again, we need to make sure we've got some backing. And on top of that, we were also growing so quickly. And again, you're doubling from 5 million to 10 million or 10 to 20. Those are completely different business models, but you're doubling from a hundred to 200, like you are at a totally different level.

39:05Rashid Ali:And the, the infrastructure that you need is astronomical. It's crazy. It was just so much different infrastructure that we needed. We didn't even know what we needed. That was a thing. So we're kind of raising our hand. We're like, this has taken off. We need someone that's been there and done it. So who can we partner with? So it was kind of, you know, really checking off two boxes. It was de-risk our families, but then also bring somebody in that's been there and done it. I mean, learn from their scar tissue because we had enough scars at that point. But yeah. So, and by the way, I would just, on that raise that we did, it was a hundred percent secondary.

39:43Rashid Ali:It was no primary capital. In the life of our business, we've taken on less than a million of primary capital. So when we did our raise, it was purely to de-risk the families and then other shareholders and that type of thing.

39:59Pete Maldonado:No, it's nice. And personally, like when I cashed out in 2021, we sold like 20 % of the business for$30 million. And after that, you know, it kind of like changed my vision on the business and the risk that I was able to take. Can you share like how it impacted you and your co-founder after the secondary?

40:23Rashid Ali:That's that, that exact thing, right? So now we did enough to where it was like, okay, if we never made another dollar after this from Chomps, like the families are okay. We're not going to be homeless, right? Like that's what we need. And so that was -

40:37Pete Maldonado:Unless you go play poker too much, but -

40:40Rashid Ali:Yeah, exactly.

40:41Pete Maldonado:Or my wife goes shopping for purses or something like that.

40:43Rashid Ali:But yeah, that's - but no, I, I, that was the goal. And so again, like it was such a weight lifted off of our shoulders and we didn't really realize, I'll be honest, we didn't realize how much of a, of a relief it would be and how we can make decisions in such a different way. Thinking about, I'll give you an example. Like, so, so up until that point, everything was all about getting an immediate ROI. So if I was investing money, I needed to get paid immediately. so what does that mean i'm only serving the bottom of the funnel i'm missing all of my mid top of funnel so what's happening there brand awareness is suffering right and so we're not casting a wide enough net and this is actually something that so stride consumer partners is our our private equity partner that's one of the things that they actually like forced into our brain like what are you guys doing like you you you're you're too efficient here your row as is like multiples higher than it should be you need to bring that down you need to be spending for top of funnel and get the brand awareness out there so that's exactly what we started doing and there was a massive unlock um uh and again like we would not be scaled to the point where we are

41:54Pete Maldonado:right now without that investment and with uh the secondary fund like uh coming in what's kind of like their uh their view on uh on the path for liquidity for them like do they want to uh is it a fund that's gonna like take more and more of the business or eventually do they want to exit

42:12Rashid Ali:like uh yeah they will eventually look for a liquidity event of some some sort um but i would say they are incredibly uh patient um even like so we have like a contract obviously when they bought the thing but at some point we're supposed to have to deliver equity back to them and they are like verbalizing that like they have no interest in even, they'll stay in the next 10 years if they can. I would say that for all of us, we need to be thinking about what is the exit strategy because you should have something at some point. And at our scale right now, we're realizing the buyer pool for a strategic to be able to come and buy us, it's dwindling.

42:56Rashid Ali:There's only so many people that could actually acquire us at this stage. And so now it's like, okay. And we're always about having that optionality. I think optionality has so much value, right? Like, because you could do anything with the business. We could do another private equity raise. We can do a dividend recap because we're profitable. We can, you know, again, exit to a strategic or IPO. And so that the IPO discussion is becoming more and more real, the bigger that we get. And I think that, I think there's a massive opportunity for someone to come into the public markets with a better for you CPG company that's focused on food and beverage, that that's all they do.

43:40Rashid Ali:Right. And so you've got all of these, the, the stand, you know, the, the typical big CPGs that you have right now, their stocks are suffering right now because they're being pulled down by these portfolios that are made up of products that nobody wants anymore. It's ultra processed foods. It's just a bunch of crap loaded with sugar and preservatives and all that. And it's like, quite honestly, that's gone. That's not coming back. That's not, there's no cycle for that, right? Like this is like a cultural shift. People are too smart. They know what they're eating. And so we see that as a huge opportunity for somebody to build a portfolio of products that are only delivering on modern day, you know, dieting and food for the future.

44:20Rashid Ali:and so that's where I think we could accomplish that and starting with Chomps and with these neat sticks and I'm not sure yet if it would look like Chomps is now extending into other categories and it's building off of that brand or is it a portfolio of brands? Not sure yet, I have no idea. All I know is that the vision's there and I'm kind of refining it.

44:41Pete Maldonado:What would you say is missing right now for Chomps to do an IPO?

44:48Rashid Ali:um a few things i think you know i'd like to have more scale um from a profitability standpoint we're we're in a period of time right now where beef has never been more expensive we're at an all-time high um you know so it's very commodity driven um i think there's things within like the from like a supply chain perspective uh that we need to be able to fix and button up um i would say like just uh for instance we went from one to seven facilities we're actually green fielding another uh from from building it from ground up that'll be our eighth we need to be able to consolidate and simplify those things a bit um but what happens is from a continuous improvement standpoint there's a lot of low-hanging fruit yields are suffering which means margins are suffering so we need it's margin improvement over time so we need to be able to do that um and then i think also having like a second and third leg of the stool would be nice.

45:43Rashid Ali:I mean, we're very, it's simple, which I think public markets reward in a way, but I also think it's risky because if somebody, people were suddenly like, we're not eating meat sticks anymore, what happens? And so there's inherent risk there. So we need to be able to diversify and have just something else in the portfolio.

46:02Pete Maldonado:And more personal question, because I know we're almost like running out of time. As a CEO, how do you level up and scale a bit faster than your business?

46:15Rashid Ali:You're saying so I can keep up with the business? Well, I'm not. I bowed out, actually. So I bowed out a little over a year ago as CEO. So I was CEO for 10 years. Rashid was COO. After our private equity raised, we finally built a board. We never had a board before that. Our board decisions were made via text between the two of us. It was just like us two dudes. But then we brought in, her name's Liz Carter. She's amazing. She started off as a board member and then she's moved over. We hire a full time, brought her in as president and COO. When she came in as COO, me and Rashid and I just became co-CEOs, did that for about three years.

46:55Rashid Ali:And then I decided I was, I needed to take a step back from the CEO role. One, because like it was just naturally happening, honestly, like Rashid is a natural leader, but also in the point in time where the business was, we were inventory constrained. So it was all based on supply chain and operations. We needed to fix that side of the business. We needed the whole entire business from sales. Every function needed to understand where we were and having him deliver that message was super important. So what I was realizing is like doing a Gracie model. What decisions do I need to be involved with?

47:35Rashid Ali:Which ones do I own? What do I need to be informed of? And like our team is so stacked right now. We have so many experts that are better than not only me, but even Rashid. The two of us are just much less important. Well, it's less important to the business than we ever were. Right. And so I decided I'm going to bow out because there's everyone else is better at making these decisions. And I'm moving to a chairman role. So I'm able to still do like the setting the vision, you know, maintaining that vision or, you know, more high level strategic work and get out of the day to day. Nice.

48:08Pete Maldonado:How do you feel about it? I did that a year ago. So I'm curious. Yeah.

48:12Rashid Ali:Oh my God. Like, you, you know, I was probably too, cause I'm super hands on and like, like, and, um, in the beginning, like I, I hated it first off. Like, it was like, I'm like, what do I do with my hands? Like I, like I wake up in the morning. I want to start like just going, working. I'm like talking to people, but like, I also, I had to control myself and I realized that me making this announcement, guys, team, I'm stepping down because of this, this, and this. and then they keep hearing from me every single day like directly to each employee like like who do I report to like I'm just creating my confusion is unnecessary I need to be able to just step back and truly let let Rashid lead and then he'll be my conduit and I can just basically you know work through him um and that's how how it's been and we start before I actually did the the stepping down we tested it a little bit where I was kind of like hey listen like I'm going to kind of cut off a lot of communication.

49:03Rashid Ali:I want you to deliver these messages. I want like, so he and I would, would align on what the messaging is and then he would deliver it. That's kind of how we're working now. Um, we're, we're still connected at the hip, the two of us. We talk all the time. Um, but it's just different and I'm getting more and more used to it. I'm seeing the value in it now because I'm able to do things or think through things and just look a little more further down the road than we ever did um because it was always about you know what's happening right now and being very reactive about things so i uh yeah and what about you what about you

49:39Pete Maldonado:what's it like for you uh to be honest i started like uh another business yeah yeah i'm eventually you know like after a year or so like i was uh at first i uh i felt like it was time for me to become I'm like a professional triathlete. So I did three Ironman. I trained a lot. Like I was spending my life doing this. And then I realized, okay, I'm too old for that shit and not good enough. So after that, I was like, yeah, I need to just do other things, like learn to invest my money. And I started working a bit more on the investment side and now like launching something. But yeah, it's a journey.

50:22Rashid Ali:Yeah, so same here. I started doing a bunch of the direct investing. I'm an LP in a couple of different private equity funds. I'll probably move into GP status on one of them. I'm getting my hands involved. You know, it's funny. The more companies that I touch and the more that I'm investing in and our boards that I sit on, I'm realizing just how special Chomps is. And I'm realizing like, oh my God, it's a true unicorn. I agree. And unicorn status now. It's wild. Yeah. Um, but I also, for me, it was one of the other things I have three kids, three small kids. Rashid has the same, like about the same ages.

50:58Rashid Ali:So it's minor nine, six, and three. And, um, I felt like, you know, I missed a lot, especially with my oldest son. And, um, and then I feel like I just wanted to, to be able to spend more time with them, just be more of a good dad. And like be, I want my kids to be able to look back and just be like, yeah, my dad was there all the time. And so, and like, I moved, I moved out of the, uh, and a separate office. I'm in my home office now. so the kids when they're hopefully they're not home yet because they're loud um but uh but yeah i'm just like i want them to see me all day every day it's just like that's the memories

51:30Pete Maldonado:i want for my kids so yeah it's uh must be a fantastic feeling yeah yeah that's good so good uh i know we're almost out of time so the final question would be like uh what what advice would you give like uh to someone who want to build like a business that can do a billion dollar himself

51:47Rashid Ali:yeah uh stay focused stay focused do one thing be the absolute best do not stop learning and be and you need to be as hard like hard on yourself like that's like you need to be your biggest critic and i think that's like one of those things that rashid and i do really well a little too well sometimes actually because we have a hard time actually celebrating wins um but it's uh i would just say like that's why we're here though um because the the pedals to the metal and i think that that's uh anybody that does that and keeps that mindset will be will be successful eventually

52:23Pete Maldonado:100 agree pete it was a great conversation i time flies so thanks a lot for your time and have an awesome day thank you brother

52:42you