Tom Bilyeu, Co-founder, Quest Nutrition
Tom Bilyeu On Building a Unicorn
In the startup world, there’s a legendary animal every entrepreneur aspires to discover.
For young entrepreneurs, it’s the stuff of dreams, also known as a billion-dollar-valued startup.
Tom Bilyeu found his unicorn in protein bars and powders, after a nutritious snack recipe snowballed into one of the largest food companies on the planet. Since these famously tasty treats emerged from under the rolling pins of Bilyeu and his co-founders Ron Penna and Mike Osborn in 2010, Quest Nutrition has become a prominent name in health and fitness. Inc. named it the second-fastest-growing private company in North America in 2014, due to its 57,000% three-year growth rate.
Now, with their growing range of products sold in 80 countries, the president and his co-founders are taking on one of society’s biggest obstacles, metabolic disease, and trying to reverse its impact on our collective health and wellbeing.
We went one-on-one with Tom Bilyeu to learn how their journey got started, and to talk tactics for surviving hypergrowth.
‘Man, are you crazy?!’
Health food distributors didn’t exactly roll out the red carpet for Quest’s founders in the early days. Many thought they were crazy, with one even suggesting he needed another protein bar like he needed “a hole in the head.”
Indeed, launching into a crowded marketplace that was on the decline might have been overly ambitious. But for Bilyeu, it was all part of a deeply personal mission to become a force for good in health and nutrition.
Having grown up in a morbidly obese family, Bilyeu was determined to help the people he loved lead healthier lives. Bilyeu, Penna, and Osborn also believed that the industry’s go-to mantra at the time—which essentially encouraged people to eat less and train more—was fundamentally wrong.
“We wanted to be in health and nutrition largely because we saw what was going on in the world, and that was a massive slide towards ill health. We were also looking at metabolic disease as kind of a grand challenge. We wanted to move people forward from a metabolic standpoint.”
As Bilyeu explains it, the whole idea of “eat less, train more,” which only works for a narrow percentage of the population, simply didn’t represent an appealing lifestyle choice. By taking foods people wanted to eat, like cookies and cakes, and making them healthy, Quest’s founders believed they could bridge the gap between what the industry was dictating and what the average person was prepared to do to lead a healthier life.
After a year spent running their technology company during the day and testing new recipes at night, the trio came up with a winning protein bar recipe, only to discover that the low sugar delight they had created was un-manufacturable. Once you strip the sugar out, packaged food becomes virtually impossible to create with off-the-shelf equipment—or so they were told.
“I’m sure many people had come to the same conclusion we did, when they went to the contract manufacturers who said it couldn’t be done. They compromised on the product just to produce. But we had promised ourselves we wouldn’t do that.”
Instead of balking at such a major roadblock, the team decided the only solution was to self-manufacture their product, and do the necessary research to make it shelf stable. After purchasing equipment, the trio embarked upon what Bilyeu now refers to as an “absurd journey.”
Winning Hearts & Minds
One of the Quest team’s initial strategies—to build direct relationships with customers—became a powerful proof point for their product, and one of the early calling cards of the brand. As a group of seasoned marketers compelled by a belief in the power of community, they built a groundswell of early momentum by deftly applying a mixture of modern and traditional marketing tactics.
“We understood, back in 2009-10, that social media was not what people were perceiving it as. At the time people thought, ‘Oh Facebook is just a big distraction at work, how are businesses ever really going to use this?’ Now it might be self-evident, but back then it was a much less obvious answer. Our thing was, it’s just a megaphone.”
Facebook became a loudspeaker that allowed Quest’s founders to sell people on their brand vision, and urge anyone with an interest in health and fitness to become part of their connected online community. As Bilyeu explains, they wanted to evangelize to customers about their brand ethos by offering them the tools they needed to live healthier lives, including diet plans, recipes, science on metabolic disease, and mountains of free product samples.
“We were literally giving away the product saying, ‘Tell us if you like it and tell us if you hate it. We want to know.’
We had a very different approach that got a lot of people excited. Not just about the product, but they felt good about the way we treated them.”
The trio also went old school, researching several hundred health and fitness influencers, then sending them handwritten letters and free samples. Bilyeu says this was all about showing an understanding of what others were trying to achieve, and that Quest was interested in helping them connect with their audience.
“When people are building a community, they have a real sense of service to that community. … We would send them free product and just say, if you like it, tell people and if you hate it, tell people that too. Not trying to steer people’s comments gave us a pretty great recommendation. Some didn’t like it, and said so, but the vast majority loved it and were grateful we had showed an understanding of who they were, and what they were trying to do, so they spread the word.”
A little bit of leverage
In those early days, prioritizing relationship marketing over the might of major retailers allowed Quest to build enough ground-level momentum that the demand pulled through into stores.
Within 12 months, industry retailers were knocking down their door in response to the legions of loyal Quest fans asking for product, giving Bilyeu and his co-founders the leverage to negotiate favorable distribution contracts.
As Bilyeu explains, without this kind of negotiating power, retailers can make a ton of demands on an immature brand, including conditions on exclusivity and profit margins. Some larger retailers have also been known to demand product on consignment, forcing companies to take back unsold stock at a loss.
By saying no to the largest health and fitness retailers for over a year, Quest was able to negotiate balanced terms.
That’s a factor Bilyeu says was incredibly important to the success of the brand, as the early terms they would have received would not have been very profitable for them in the long term.
As Quest really started to explode, the company continued to give product away hand over fist—a strategy that Bilyeu, to this day, believes was the biggest gamechanger for the business. But it required a big picture mindset that considered the lifetime value of a customer, he says, and not the short-term idea that giving away excess product was sacrificing profit for growth.
“It was sacrificing profit if you think about the amount of money you make on each dollar. But think about the amount of money you’re putting in your bank account. I’d rather make 10% profit and put a billion dollars in my bank account, than make 90% profit and put a hundred dollars in my bank account.
“We thought, any company you can build by giving your product away, that’s a good business model, because it means it’s actually delivering enough value on that first exposure that people will come back and buy. So that became our motto, just give as much product away as possible, and be as supportive as possible.”
Buckling up for Hyper Growth
Quest Nutrition grew by an eye-watering 57,000% over their first three years in business, in what Bilyeu now describes as an intense “rocketship ride.” As he recalls, it was both thrilling and terrifying, on a number of different fronts, trying to manage that kind of explosive growth. Manufacturing challenges, in particular, caused more than a few headaches, with Bilyeu needing to estimate eight to 10 months down the road when pulling the trigger on new equipment.
The experience taught Bilyeu and his fellow co-founders a stack of valuable lessons, starting with the importance of having a fiscally shrewd founder on your team. While it’s necessary to have someone who can dream up a grand vision, he says, having someone with an eye for finance can be the difference between achieving modest growth and really turning the game on its head.
“I am a huge believer in partnerships. I would be nowhere without my two partners. And you need a mixture of different skill sets. … But if we hadn’t had my business partner, Mike (Osborn), who just focuses relentlessly on the finances, we would never have been able to get where we are now.”
Bilyeu goes even further to suggest Osborn’s knack for negotiating favorable contracts and terms was the reason Quest did not require outside capital during their high-growth phase.
“It really is a cash flow game you’re playing, so you’ve got to look at how much cash you have in the bank, how much is in accounts receivable and how much is going out. We were literally watching that by the day, and making very calculated bets on anything that required significant CapEx .”
Finding clever ways to stretch the dollar was also an important strategy for the close-knit team. In addition to drawing meager salaries during the first two years, Quest’s founders were extremely canny in the way they operated the business day to day. One tactic they adopted was to find businesses who held more real estate than they needed, and would allow Quest to take over part of their space for minimal rent. After a period spent working in the back of a popcorn factory, Bilyeu and the team built a relationship with the landlord of a local business park, who gave them a heads up on any unused space as it became available.
“We would take over another and then another. By the time we left we must have had 30% of the business park, spread out all around. It was a nightmare driving forklifts around the parking lot—everybody hated us. But was a hyper-tactical way to save money.”
If you find yourself in a position of hyper growth, Bilyeu says, as much as financial clout and cash flow management will help you, you also need to know your business well enough that you become adept at predicting the future.
“I had to plan for my growth every time I placed an order. Because I knew that by the time that pallet arrived, it would no longer be enough for the run rate we were at. So you just have to be in your business. You’ve gotta know more about your business than anybody else. You’ve gotta know every aspect of it.”
Beyond the Business
When it comes to the company’s legacy, Bilyeu, Penna, and Osborn’s aspirations extend far beyond protein bars.
After setting themselves a lofty goal—to wipe metabolic disease off the face of the planet—the company has invested millions in cancer research, aiming to prove a hypothesis that cancer is a metabolic disease.
If they can prove it, Bilyeu says, this opens the door for a food company to create the solution, rather than a drug company.
“We’re doing some of the studies that other people don’t want to do, because there’s no drug at the end of the rainbow. There’s nothing we can patent. We just want to know, metabolically speaking, is it true or not?”
The company is also now coaching people with cancer on health and nutrition, which Bilyeu says gives them even greater motivation to push the research envelope. Spending time with people who are, and have been, affected by cancer makes the fight truly worthwhile, he says.
Bilyeu further identifies this philanthropic effort as one of the key reasons he and his co-founders have found it easy to reject the many suitors lining up to buy their company. Had they simply been motivated by money, they would have retired long ago and bought themselves an island in the Caribbean, he jokes.
“We just really wanted to go after one of the most major problems in society, and say, that’s our problem to solve, it’s not anybody else’s. We’re going after it, and give ourselves over to it completely. If you’ve got something you believe in that much, you’ll stay hungry. But if you’re just after the money, and you’re thinking ‘What is the least I can do today to get what I want?’, you will fade away.”
He considers this extra spark to be the secret sauce for up and coming founders. But getting started is critical, he says, referencing a popular sentiment by author and TV personality Marie Forleo:
“Clarity comes from engagement, not thought. If you want to start a business, just do it. It doesn’t mean you have to leave your job, it just means start the company. … You don’t have to gamble everything, but you do have to act.
“On the other side of that, it’s not about asking, ‘What opportunity can I exploit to make money?’, but ‘What is that thing I believe in enough, to have enough passion to learn more about than anyone else in the world, and that I will fight my ass off for when it gets really hard?’ If you can align your business around that one thing, man, you will be unstoppable.”
Key Takeaways Of Our Interview With Tom Bilyeu
- The challenges of managing a hyper-growth company and how to overcome them
- How to navigate the classic entrepreneurial debate of profit vs. growth
- Why you need to evangelize to your customer whenever you can
- How to build brand loyalty and have your audience believe in your vision
- How to crack the notoriously difficult and crowded health and nutrition market
Full Transcript of Podcast with Tom Bilyeu
Nathan: Hey guys? Welcome to another episode of the Foundr podcast, my name is Nathan Chan, CEO and publisher of Foundr magazine. Coming to you live from Melbourne Australia. So I just wanted to say thank you so much for taking the time and sharing your xxxxxx with me. If you are enjoying this podcast please do tell your friends. It helps more than you can imagine and I hope you’re enjoying the show. So let’s talk about today’s guest. His name is Tom Bilyeu and he is the founder of Quest Nutrition. And these guys absolutely crushing it. If you wanna talk about growth, you wanna talk about strategies and marketing, these guys have taken Quest to become a billion dollar startup. They’re considered a unicorn startup and the kinda companies that are considered unicorns are like Airbnb and Uber. And this is what Tom has done with his co-founders, with Quest Nutrition. They have 1300 employees. They’ve been around for I think six years and they’ve grown so fast they’re in the number two of Inc. 500. They grew over 50,000% which is insane how far they grew this company. And Tom is just an absolute masterful entrepreneur and what he’s achieved is so extremely inspiring.
Nathan: I know you guys are gonna learn a turn around marketing, growth, even around physical products the logistics behind it all and how they’ve manged to build this amazing company. And I was even lucky enough to actually catch up with Tom for dinner and I can’t just say how much he’s just an amazingly humble entrepreneur and it’s just so incredible to see someone that’s had this much success how down to earth he is and how sharing he is with all things he knows and has learnt as being a super successful entrepreneur. So guys if you are enjoying this please do share this with your friends, please do take the time to leave us a review and now let’s jump into the show. So the first question that I ask everyone that comes on is how did you get your job?
Tom: Well, this is a job that I made with my partners and I. We had a company before this one which was a technology company we had also built that. They actually hired me for that one as a copywriter. So when I met them they were just building this technology company and they said you know we need somebody to help us build this. We have an opening as a copywriter but don’t think of yourself as a copywriter look at the problems that we have, that we face and help us overcome them. And the sky is the limit. And I remember they used to say this really cool quote and I ended up adopting it later which was, “We look for partners we settle for employees. ” So they had just a really really cool mentality that allowed me to plug in and learn my way to the top if you will. So that’s how we became partners and then this was Quest was a reaction to like you we had built a company but we hated our jobs. And we really wanted to find a passion that love you know, something that we can really believe in and enjoy everyday even if we were failing.
Tom:And that concept of finding something that you would enjoy even if you were failing really became a powerful macho for us. So for three very different reasons we decided to found Quest Nutrition which at the time that we founded it was you know literally a crazy idea people thought we were out of our minds. We were launching a protein bar into a crowded market that had been declining for years. We actually had won distributor xxxx we made another protein bar xxxxx another hole in the head, so it was not exactly a warm reception. But we believed in what we doing and we persevered and here we are.
Nathan: Wow, so when did you start?
Tom: We started conceptualizing of the company about 2009 an we launched in 2010.
Nathan: Gotcha. So you’ve been around for about six years?
Nathan: Gotcha. Because you guys are crashing it. Like you know Quest Bars are massive even here in Australia. So the first question I have to ask is how did it all start? Like you said that you had this concept just yeah I’m really curious. You know people said that this is a massive crowd of market how did it all start? Why Bars?
Tom: We really wanted to be in health and nutrition largely because we see you know what’s going on in the world and there’s just a massive slide towards ill health and we were looking at metabolic disease as a challenge and seeing it really is a grand challenge. It’s one of the biggest challenge that we face as a human society and wanted to tackle that felt that we could make a meaningful contribution because we had the believe that until you solve the problem by making food that people choose based on taste and it happens to be good for them you’re never gonna get anywhere. And when we were looking to launch the company the refrain and all of nutrition was eat less exercise more. And we just knew man that works for a really narrow band of people sounds like yourself right? You’re gonna finish this interview and go to the gym, but for most people that’s just not a lifestyle they wanna live. And quite frankly if you not eating a terrible diet you don’t have to live like that.
to a business when you’re going that fast right?
Tom: Yeah. Growth is the most dangerous thing that any company can endure now. Without it it’s even worse when you are a hyper-growth company it’s incredibly crazy. So here the tactics if you wanna survive hyper-growth one I am a huge believer in partnerships and I would be nowhere without my two partners. And you need a mixture of different skill sets. You need somebody who can dream, you need somebody who can paint visions no question. But you also need somebody that can watch your financials and execute on that incredibly well. And if we hadn’t had our business partner Mike who focuses just relentlessly on the finances we never would have been able to get where we’ve got We did not take any outside capital atleast not during the growth phase of our company. and we were able to do that because literally we’re negotiating contract and terms that allow us to pay things at advantageous times so that we’re able to manage our cashflow. And it really is a cashflow game that you’re playing and so you’ve got to look at, “Okay. How much cash do I have in the bank? How much cash do I have on accounts receivable? and then how much do I have going out? ” And we were literally watching that by the day and making very calculated bets on anything that required significant capax. So we had to invest on new equipment for instance to have long lead times which it may be eight months before I get that and then another two-four months after that before I start collecting revenue.
Tom: So you’re a year sometimes further out so you have to place very very calculated bets putting is as little capital as possible. I’ll give you some examples of ways we really stretched a dollar. So first and foremost obviously as founders we were taking virtually nothing in terms of pay so we were I mean for almost two years my wife and I almost didn’t leave the house. We sold one of our cars only had one car which we needed together and it was like this beat up old car and obviously cut your expenses to the quick and then on top of that when we were growing we didn’t want to take on a big lease or we certainly didn’t wanna buy which while better from an investment standpoint is terrible from a cashflow perspective because you have to put 20% down. Could be in millions of dollars so that was out. So we went and we found businesses that had more real estate than they needed and we said, “Hey, let us come in and essentially work out of the back.” So for a while we were operating out of a popcorn factory and you just segment off the space and put essentially plastic wall was essentially what we put down it’s our health cody stuff. You put this wall in between and partition it out and so now for that cheap bread you’re able to start building your business and then we happened to be lucky and we were in a business park ad so first we would take over one building and then we would let the landlord know, “Hey, anything else comes up we want it.” And then we would take over another and another by the time we left we must have had 30% of this business part spread all around it was a total nightmare, we’re driving through the parking lot everybody hated us but you find these hyper-tactical ways to save money and if you find yourself in this position one like I said you gotta have somebody in your the partnership there that really understands finances but also understanding that you’re in a cashflow management game and that you’re also in the sort of crystal ball predictive game
Tom: Because we were growing so fast that when I would have ordered let’s say I was ordering a powder the protein powder I knew just in a four week leap time before that ingredient arrived I would have grown substantially enough, that I had the plan for my growth when placing the order. Because by the time that powder would arrive it would no longer be enough for the run rate that we were at four week later. So you just have to be in your business. You’ve gotta know more about your business than anybody else. You have to know every aspect of it.
Nathan: I see. You know one thing when you are growing sometimes it’s hard to maintain that growth and staying on top of it. So what are you guys to stay at the top of your game and you still feel like growth?
Tom: I think people have to have a very clear vision of what they’re trying to accomplish. And for us we feel like we are in our infancy because we judge everything, everything by whether or not we’ve ended metabolic disease. And the truth is we haven’t. We haven’t even come close. Have we taken maybe the smallest of baby steps? Maybe. But we know that there’s just a huge chasm between where w are today and where we need to get to in order to accomplish our goals. So staying hungry from that perspective is easy. Now if you’re money motivated then we might be in trouble. We got of with a billion dollars for the company, we could have retired, bought island and just been done with the whole thing but the truth is money isn’t a primary motivator so we’re so focused on really going after one of the largest problem that we face as a society and say, “That’s our problem to solve. That’s not anybody elses. We’re not going to wait for anybody else. We’re gonna go after that. That’s gonna be something that we’re gonna try to do in our lifetime. We’re gonna give ourselves to it completely. We’re gonna go after it all out.” And if you’ve got something in you that you believe in that much you’ll stay hungry man, but if you’re just in it for the money and you’re asking yourself, “What’s the least I can do today to get what I want?” you’ll fade away.
Nathan: I love that. Awesome. Well look a couple last questions Tom before we wrap up. If someone wanted to start a physical product business right now today what’s the best piece of advice you would give them?
Tom: There is nothing stopping you but you. WE live in a world where you can 3D print virtually anything you want. print 12 different materials simultaneously it’s nuts. The magnetization of even manufacturing is so unbelievable this is the most exciting time to be alive. It is the most free time to be an entrepreneur you just need to get out and do it. And you need to find something hat brings value. And I cannot stress this enough if you have a product that people value they’ll pay for that. If people aren’t willing to pay for it you’re not delivering a product that adds value. There’s an amazing episode I think it created live with was was with xxxxxxxxx and Miller xxxxx from xxxxxxxxx and Miler xxxxxxx gives the most brilliant elucidation of how most people have some romantic idea of the thing that they wanna sell verses selling what people actually want. Gotta watch that episode it blew me away, it stopped me my tracks. It was absolutely incredible. It takes this guy that has a wooden toothbrush and he help him get a sale live on the air it was absolutely incredible and is I think from most beginning entrepreneur who are selling something physical just a breakthrough in a way that he is able to explain how to give your customers the value that they are willing to pay for.
Nathan: That’s good. Awesome. Well, look that was amazing. A couple last questions Tom. Before we wrap up was there any final words that you want to say and last question is where’s the best place people can find you?
Tom: Yeah. So I know the people that are listening to this podcast they’re me 20 years ago. They have a sense that their life could be better, could be more. Thy believe in their heart that they’ve got that entrepreneurial spirit and they just haven’t yet taken that step and I wanna quote Marie Forleo who hopefully your guest know but if they don’t well immediately go out and look her up. And she says, ” Clarity comes from engagement not thought.” And I think that is so powerful. If you wanna start a business just do it. That doesn’t mean leave your job, it doesn’t mean put everything at risk, it means start the company. So just like for us we started Quest Nutrition at night while we were running another business and it wasn’t even xxxxxxxx We were only trying to build that thing and yet at night we still got time to make these protein bars by hand and start giving them away and just s s this something that we can really build a business. You don’t have o gamble everything but you have to act and then on the other side of that if you’re not asking, “Hey, what opportunity can I exploit to get money?” but you’re saying, “What is that thing that I believe in enough that I have passion to learn more about than anyone else in the world ans I will fight my ass off even when it gets really hard?” If you can align your business around that thing man you will be unstoppable
Key Resources From Our Interview With Tom Bilyeu
- Connect with Tom Bilyeu on Linkedin
- Follow Tom Bilyeu on Twitter
- Like Tom Bilyeu on Facebook
- Follow Tom Bilyeu on Instagram
- Checkout Quest Nutrition