Peter Rahal’s upcoming project
One time, Peter Rahal fired his mother for putting product labels on the wrong way. It was during the early stages of RXBAR, the company he co-founded in the suburban Chicago basement of his parents and which, less than five years later, he sold to Kellogg Co. for $600 million.
These days, the founder-turned-funder looks for such quality-obsession in other business owners. After the Kellogg acquisition, Mr. Rahal founded Litani Ventures, an investment firm, to support and grow creative product ideas and collaborate with start-ups in the food sector.
Mr. Rahal explained, “Litani (pronounced lit-TAWN-ee) means ‘humble lion.'” That’s a quality I seek in prosperous businesspeople. Because being a lion basically means being a killer, extremely motivated, hardworking, ambitious, and a leader, along with being emotionally and intellectually humble.
Over the past five years, investors have been captivated by emerging food and beverage businesses, leading to a rise in acquisitions. Agile start-ups that have no obstacles to entry have completely changed the consumer packaged products industry. The biggest packaged food corporations in the world, driven by a need for expansion, are starting venture capital funds to support the emerging and promising brands in the sector.
Mr. Rahal asserted, “Professional investors are very smart.” “They have the empathy of an entrepreneur, especially in the food industry, but they also take financial risks and consider the future.”
More than fifteen companies in a variety of product categories, such as snacks, drinks, and condiments, are part of Mr. Rahal’s investment portfolio through Litani Ventures. These companies all meet customer demand for convenience, health benefits, and nutrition. Investment-worthy goods have to meet two requirements: Is there a fresh or innovative aspect to it? Does the customer receive value from it?
A product could be unique yet not worthwhile. Mr. Rahal gave an illustration of a nutrition bar divided into three portions. Although it’s a new product on the market, will customers find those three bites worthwhile?
According to Mr. Rahal, “I believe that many businesspeople are attempting to create foods that address issues that don’t exist.” “Selecting what is genuine from fake is a challenging task for suppliers, retailers, investors, and other relevant parties.”
Establishing a high standard
RXBAR’s extraordinary success could be attributed to a trifecta of hustle, instinct, and timing. The company started in the midst of the growing clean eating trend, when consumers in general were beginning to read labels more closely and seek out products with basic ingredients and little processing.
In 2012, Mr. Rahal saw an opening in a crowded market for a protein bar that adhered to the popular paleo diet principles that the CrossFit fitness culture embraced: it had to be free of wheat, dairy, soy, and refined sugars. Using a red Kitchen Aid mixer, he and his friend Jared Smith started combining fruits and nuts. A recipe that roughly equates to three egg whites, six almonds, four cashews, and two dates was developed after more than a hundred attempts and variations. The two sold the handcrafted bars at local CrossFit facilities in Tupperware containers. Microsoft PowerPoint was used to design the temporary labeling.
The youthful founders were persuaded by Mr. Rahal’s father, an executive in the food sector, to sell hundreds of bars on the streets rather than seeking funding. For the start-up expenses, Mr. Smith and Mr. Rahal both contributed $5,000. Production eventually relocated to a commercial kitchen when the business outgrew the home basement.
The brand released new packaging with a basic design and a list of ingredients on the front panel accentuated by a witty motto — “no B.S.” after two years of mostly selling in gyms and online. It was a wise decision. After gaining nationwide retail distribution, the business quickly emerged as the nation’s fastest-growing nutrition bar brand.
When possible bidders started to surface by 2017, the company’s founders decided to assess the business’s future. It became evident that a sale would be the next stage of expansion. After months of discussions and planning, the Battle Creek, Michigan-based Kellogg Co.—makers of Pop-Tarts, Cheez-It, and Froot Loops—was announced as the buyer that October.
Shortly after the transaction concluded, John A. Bryant, who was Kellogg’s executive chairman at the time, stated, “This is a high-quality premium brand in a unique positioning at the intersection of simple, natural ingredients and high protein.” It is expanding quickly. Its revenues are expected to almost triple in 2017 and, unusually for this industry, it is already extremely profitable. RXBAR will continue to run on its own, maintaining its unique qualities, such as its strong workforce and entrepreneurial culture.
“Kellogg is here to support RXBAR during its next phase of expansion by leveraging our significant R&D resources and our capacity to increase its market share. This will provide us a brand-new, expanded platform for development. We’re thrilled about this unique opportunity and its potential for expansion.
In the first year of Kellogg’s ownership, RXBAR’s sales exceeded $200 million. It now provides a platform for other products like RX Nut Butters, which are made of a combination of dates, almonds, or peanuts, and egg whites, and RX A.M. Oats, which are single-serve cups with egg white protein, almonds, dates, and oats.
After the acquisition, Mr. Rahal stayed on as RXBAR’s CEO for just over a year. He took on a founder’s position last spring, giving up day-to-day management to concentrate on strategy and innovation.
“The RXBAR story is quite grim,” Mr. Rahal remarked. “I started out designing labels in my parents’ basement, working with agencies, scaling online to build an e-commerce business, growing distribution to go to the U.K. and Canada, selling to Kellogg, and then managing that as a chief executive officer at a public company.”
“Therefore, because of my special experience, I can help entrepreneurs see opportunities and look around corners to avoid mistakes.”
From entrepreneur to venture financier
Mr. Rahal, who was diagnosed with dyslexia, faced difficulties and hardships in both school and at entry-level professions. Nonetheless, the condition’s strengths—strong pattern identification, deductive reasoning, and creative thinking—combine to provide an aptitude for problem-solving and seeing business prospects. Many of the most successful businesspeople in history, such as Henry Ford and Thomas Edison, struggled with dyslexia.
According to his business partners, these innate abilities and his first-hand knowledge of creating a successful food business bring a great deal of value to the deal.
According to Alison Cayne, the creator of Haven’s Kitchen in New York, “operating experience is incredibly hard to come by, but money isn’t that hard either.” “More than money, what I really needed were investors who understood what it takes to start something from scratch and that it wouldn’t be wise or practical to open too many doors too quickly.”
Haven’s Kitchen is a casual culinary school, cafe, and event venue. Early in 2018, the business introduced a range of chilled sauces with a worldwide influence that are available in 300 retail locations throughout 22 states. According to Ms. Cayne, expanding distribution across the country would require funding, guidance on operations and supply chains, and some moral support.
“When I first met Peter and Jared, they didn’t make me feel defensive when they asked me questions about my business,” the woman remarked. “The question wasn’t how quickly you could reach $10 million in revenue. They see the complexity of what I’m building and its distinctiveness. From our very first chat, they leveled the playing field and never made me feel fortunate to have them. Before a crucial meeting or phone conversation, Peter would send me a text to help me stay calm and gather my thoughts.
The creator of Mush Foods, a line of chilled overnight oats that is ready to eat, Ashley Thompson, called Mr. Rahal “an incredibly kind mentor.”
She explained, “I’ve always had a strong aversion to outside capital because I don’t like to spend other peoples’ money.” “When I had enough confidence to carry out what I knew to be a workable business from a product, margin, and brand standpoint, I knew our business was ready for a true partner.” I had to be assured that I was emotionally developed enough to take on the risk of using other people’s money to further my goals.
Mush Overnight Oats, which are sold in more than 3,500 stores, have a creamy texture and include oats, almonds, and fruit among seven or fewer plant-based ingredients. To maintain flavor and shelf life, the product is processed using high-pressure technology and is packaged with a spoon for convenient consumption on-the-go.
When Ms. Thompson founded the business in 2015, she had given up a promising Wall Street career at Goldman Sachs. A few years later, she and co-founder Kat Thomas went on the TV program “Shark Tank” to present a portion of their company to the panel of potential investors. $300,000 was Mark Cuban’s bid for a 10% share.
Ms. Thompson stated, “It was quite evident to me that we share a similar value system and temperaments” after meeting Mr. Rahal. He can relate to almost anything I say since we speak the same language. What more could you want for in a companion on the solitary path of entrepreneurship?
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She added that Mr. Rahal’s financial attitude was a crucial component of their partnership.
Ms. Thompson stated, “He doesn’t care about the money in the same way that venture capital/private equity does.” “Investors who are professionals are precisely that—professional. To make money with money, they get paid. Peter is a business owner. His motivations are more in line with my own since they are more oriented toward long-term profits. For me, this was really important.
Mr. Rahal views himself more as a resource and supporter of start-ups than as an investment. Founders ask him questions all the time. He is anxious to help individuals who are like himself—humble yet gritted—regardless of whether he is ready to make a trade.
“In the long run, I want to launch another company,” he stated. “This is a good thing in the interim, as I like to help and I need time.”