bottlecap

Business Lessons

Seminars and books are helpful, but nothing beats learning at the School of Hard Knocks. This constantly growing compendium was culled from our experiences and the experiences of other brewers and brewery owners. Feel free to contact us with your own contributions or questions.

Chapter 1: Start-up Lessons

Other Brewers Want To See You Succeed - For Now

Maybe it's because the industry's so young. Maybe it's because demand is outstripping supply. Or maybe it's because it's darn hard to be in cutthroat competition with somebody who offers you one of his or her beers, but by and large, the people in this industry are incredibly friendly, helpful, and interested in seeing other people succeed. Take advantage (in a good way) of the industry's openness to network, learn, and ask questions.

First They Look At The Purse

The number of phone calls you have returned is directly proportional to the percentage of financing you have locked up. Heck, by the time you have 99% of your money, even banks will want to talk to you! Vendors have to make a living, so don't expect VIP service unless you're ready to write a check. On the other hand, vendors are willing to cultivate potential future customers, if those customers don't always call demanding for information immediately.

Is "Anal-Retentive" Hyphenated?

In an industry where there are millions of details, you need to know a lot of the answers or how to get them. It all ties in to credibility. The more you can talk the talk or cogently explain your financial assumptions, the more seriously you'll be taken. As more people look to get into the industry, some of the folks you need to deal with are going to get tired of hearing about another "hare-brained microbrewery scheme," as one investment banker put it. Soooo, if you aren't the type to care whether the term "anal-retentive" is hyphenated or not, your partner better be.

The Race Isn't Always Won by the Swift, Or the Battle by The Strong … But That's the Way to Bet

Being too optimistic can get you in big, big trouble. Don't count on anything happening. If any of your business scenarios depend on two or more variables, things most likely won't happen the way you think. And besides, good luck has a bad habit of not happening when you really need it (that's why senior citizens always win those lifetime lottery payoffs).

Don't Make Your Buddy Your Lawyer, Banker, or Accountant

Or at least do so with your eyes open. It's extremely tempting to take advantage of professional resources you have at hand. You may get a better price and you won't have to look for someone else. The down side is that you can be lulled into picking the wrong person for your needs.

A friend recommended our first lawyer, a wonderful person who was extremely knowledgeable about real estate. Unfortunately, she didn't know diddley about financing and SEC regulations. We quickly realized that she was going to be earning while she was learning-on our dime. Our new lawyer is a partner in a larger firm with lots of specialists. Not only is his fee about the same, but he can work much more efficiently. And he's a pretty good guy, too.

If Somebody Is Really Nice To You, They Probably Want Something

And it's usually money. There may be days, weeks even, where you don't come across a sympathetic ear. So when you do, you're in a highly susceptible state. Just remember that while you're selling people on your business, other people are trying to sell you on their business, whether it's consulting or professional services.

You Have To A-S-K To G-E-T

Sure, it's a sales-y slogan and it came from a salesman. But it works. It's amazing the information and help people will give you just by asking them.

Lose Your Safety Net

Starting up a brewery is a full-time job. Unless you have a really sympathetic boss, you need to think about what your real goal, and hence, your real job, is. Of course, it's nice to be able to use someone else's copiers, fax machines, and phone lines.

FREE Is A Four-Letter Word

Brewing is a fun business and lots of people will want to help you. That's kinda the bad news. Just remember the old "you get what you pay for" adage. Everybody means well, but everybody also has his or her own life, so what's a priority to you won't be to other people. If you need something done quickly and professionally, pay somebody to do it. You'll keep your project moving and your friendships intact. It's hard to enforce a deadline or fire somebody when you're not paying them.

People Either Get It Or They Don't

When you start explaining your brewery concept to someone, you'll get one of two reactions: a blank stare or enthusiasm. Don't waste time trying to convince someone what a great industry/investment/project you're putting together if they don't get it, because they won't get it. On the other hand, it's always a rush to see somebody get that gleam in their eye and start nodding "yes" excitedly, because they've been bitten by the craft beer bug. Focus your efforts on these people.

Governments Don't Have Money Or Property They're Itching To Give Away

There's no "free" money, buildings or land. Various loan programs and development incentives exist, but lending requirements are almost as stringent as a bank's, which is reassuring if you're a taxpayer. A state development official pegged one aspiring brewer as a "knucklehead" when he wanted the state to rehab and turn over 50,000 square feet of space free. Also, don't ask for an old brewery building so you can "fix it up" a la "This Old House". For an obsolete manufacturing facility (which all abandoned breweries are), the environmental cleanup and construction-related costs alone would run into the multi-millions.

Be Nice, Very Nice, to Government Officials

Just like in the real world, people in government exhibit a range of work styles. It's your job to adapt and go with the flow. Do not, under any circumstances make waves. Otherwise, as one construction code official put it, "We'll go out of our way to bust your balls".

Go With Your Gut

Every mistake we've made so far came after ignoring what our guts told us to do. Listen to your internal voice. Well, except if it sounds like Homer Simpson, then maybe you should get another opinion.

Don't Be Afraid to Ask For References

And check them. Anybody who's good will be more than glad to give them to you. Remember, everybody puts the best spin on their abilities-think back to when you wrote your resume.

Time Moves Quickly-People Don't

You may move in nanoseconds, but people you need to work with move in geologic time. Plan for everything taking much longer than you can imagine. Even people who have their financing in place still find that it takes many more months to get everything together than their plans and checkbook indicated.


Chapter 2: Financing and Real Estate

Breweries Don't Grow On Trees or, Uhh, Something

The further we progress with this project, the more we realize the logistical, physical, mental, emotional and psychic demands starting a brewery requires. Even if you have all the cash up front (which we didn't), it's still a difficult process. It's really easy to criticize any brewery's product, but the founders went through a heck of a lot to get up and running and they deserve credit for that. So when you meet someone who has opened a brewery and makes great beer, bow down and kiss his/her feet. Well…maybe just offer a hearty handshake.

Everybody's A Liar-And That's the Truth

It may sound cold-hearted and cynical, but better to be pleasantly surprised than unpleasantly ripped off. When you live and breathe a project every day, it's a nice respite to find a soul who states that he or she has the building/money/investors you need. But you really have to train yourself to step back and ask what's in it for them. Very few people are going to help you out for the sake of basic human kindness. As long as you realize that they have their own agenda and are putting the best spin on what they're telling you (which is exactly what we're all doing, too), both of you can proceed to have a productive, professional relationship. Heed the words of B.B. King: “Nobody loves me but my mother and she might be jivin' too.”

A Handshake Isn't Worth the Paper It's Written On

Even the most skeptical among us don't like to be on guard all the time, but…always get everything in writing. We're fortunate that our landlord has a reputation of being a straight-arrow man-of-his-word type. So I was not about to nitpick a couple of slightly vague points of our lease, until our attorney in his "doom and gloom" mode, pointed out that if something happened to our landlord, his successor may not be so much on the level. Which would leave us locked into a vaguely worded long-term lease that would probably generate some precisely itemized legal fees. Get answers to all your questions up front and in writing. It's not fun, it's not comfortable, but it's business. This way, when a SCUD missile crashes into your parking lot, everyone knows who's responsible for what.

On the Other Hand…

Our same "gloom and doom" attorney said that there's no better situation than when people can resolve problems with a handshake agreement and that's how you should always approach things. It's a fine line between protecting your interests, yet keeping things somewhat casual. We solved it by blaming all the nitpicking on the lawyers and maintaining a friendly relationship with the landlord. It worked.

Do Your Homework or You'll Pay Your Lawyer to Teach You

Whether you're raising money or negotiating a lease, do your homework. Learn the basics of securities regulations and how they apply to your proposed offering. Learn what stuff you'll be putting down the drain so you'll be able to talk about the environmental portions of your lease. If your lawyer is a good one, he or she will be happy to explain it all to you in minute detail. Of course, nobody works for free (except fledgling entrepreneurs).

Money Isn't Everything, But It Sure Beats What Comes In Second

This is a capital-intensive business. The days of starting on a shoestring are pretty much gone. People are still doing it, but they'll be the first to feel the pressure in the event of any economic downturn. Don't underestimate your capital needs or you'll be playing a game of catch-up that might never end.

People Are Very Protective of Their Money

…and they will say all kinds of things to avoid giving some of it to you, gosh, even after they said they were very , maybe even extremely, interested. Some real life examples, all beginning with, "We'd love to, but": "you're asking for too much," "you're asking for too little," "my accountant said…," "there's risk!," "we're buying a house," "we're selling a house," "the kid/cat/car/other is sick." Think about it-for most people, investing in a mutual fund is downright daring and here you come, asking them to kick in for something that doesn't exist yet. The best success we've had is with other entrepreneurs who have made money starting a business, know the risks and know the rewards.

Money Talks, But Bullshit Talks Even Louder

A lot of people, enthused about your project, will generously offer to put you in touch with folks who may be potential investors. Some people will follow through, but be prepared for most people to get cold feet. For some folks, talking about money is like talking about sex, so they don't. Then there are those who like to brag about money and sex, but who come up zero in the action department. Be persistent and pursue these avenues, but just be aware where most of them lead.

If It's Such A Great Idea, How Come You Thought of It?

You've put a lot of work into your brewery project. You did your research, laid out the financial projections, thought about financing, marketing and distribution. In short, you have your act together. So why then, when you present to potential investors do they wonder (aloud), "There really seems to be an opportunity here, (pause) so why hasn't anyone else done it?"

The best comeback is to say, "Well, when I founded Boston Chicken/Starbucks Coffee/Snapple Ice Tea, yadda, yadda yadda." Of course, if you didn't found any of those companies, it's slightly more difficult. Just smile and graciously and patiently explain, that this is exactly why there's an opportunity. At the same time you need to throw sand in the wheels that start turning in the prospect's head as he/she thinks "Hmmm, if this character can do it, why can't I and keep all the profits."

So you say, "Of course because it takes so long to get one of these projects started we have the advantage of having a several-month head start on anybody who today may be thinking of jumping into the industry."

After that, you're on your own. This question doesn't make or break a deal, but it is certainly one that will keep your life interesting-and your stomach churning.


Chapter 3: A Very Special Warning

Do Not…

…under any circumstances, start cutting "disconnected" telephone wires without personally checking where each and every wire goes. Otherwise, you might find you've sheared off a wire that activates the alarm for the entire building's sprinkler system. Not that we, ahh, umm, did anything like that of course.


Chapter 4: Buying Brewery Equipment

Be Afraid, Be Very Afraid

Buying brewing equipment shouldn't be taken lightly. For most people, it may be the single largest purchase they'll ever make. Know what you're buying. Know exactly what is included in the purchase price. Know what the equipment can–and can't–do. If you don't have the experience to do this, find someone who does. A little money spent up front can save you a bunch down the line.

A Fool and His/Her Money Dept.

The huge turnout at the recent Boston Craft Brewers conference demonstrated that people now see a lot of money to be made from craft brewers. All kinds of manufacturers want a piece of the action and at least a few don't have your best interests at heart. One tale from an extremely reliable source tells of someone who made a $17,000 payment for a fermenter which was never received–the money was used as a down payment on a Porsche! I personally know of two breweries who lost close to $20,000 for bottling lines that were never built. Another 'manufacturer' is attempting to build fermenters in his garage! Don't be taken in by glossy magazine ads, rock-bottom prices, or even claims of companies serving the industry for decades.

No Question Is Too Dumb

Some of this may seem painfully obvious, but again and again, I've seen that people are just too trusting or don't take the time to get all the information. Don't be afraid to feel like an idiot. You're easily spending over $100,000. Spend it wisely.

When buying equipment, a brewer's wet dream could be an owner's nightmare–and vice versa. When selecting a manufacturer, talk to both brewers and brewery owners to get a full picture of the quality, service and follow-up.

Buy the Most Quality You Can Afford

In evaluating our equipment bids, the price spread between the highest and the lowest was only about 10%. This equipment has a useful life of decades, so don't buy crap. A bright beer tank with rust spots or a kettle too small to get a full rolling boil is going to make your life miserable–and detract from the equipment's resale value.

Get It In Writing

Good fences make good neighbors. Good contracts make good professional relationships. We've been asked to write checks for $25,000 based on a one line invoice. Unh, unh. Both vendor and buyer 'know' what the product is, the terms, the warranty, etc., but it benefits everybody to have it spelled out.

Oversize

Ever try to merge onto an Interstate in a slug of a rental car? You can do it, but it ain't fun. Where possible, and technically feasible, oversize you chiller and boiler. It doesn't cost that much more initially and productivity gains will offset the cost pretty quickly.

Economize

Items like hot and cold liquor tanks and cold boxes are prime candidates for picking up as used equipment. They won't be pretty and new, but the extra dollars can go to buying a better quality kegger or filler.

Experiment With Sex, Not Brewery Equipment

Unless you're really, really rich or really, really brave, don't be the first on the block to buy a new kind of anything.

4 Magic Words Salespeople Love to Hear

"I'm ready to buy." Say those words (and mean them) and you'll get your phone calls returned, things Fed-Exed and answers within an hour. Ask the people who are bidding to sharpen their pencils and give you their best price by a specific date that you set. Then it's up to you to honor that timeline as well.

Everything's Negotiable

Payment and down payment terms, help with installation are definite negotiating points. Even delivery dates may be flexible. You don't know until you ask. Also, don't push for something if it's not important to you. If you just enjoy haggling for haggling's sake, head to a flea market.

Don't Squeeze the Last Nickel

Companies need to make a profit, and a good profit to keep good employees. Manufacturers may cut a little off the price, but with increased competition, margins are pretty tight. If you look hard, you'll always find a better price, but what are you getting for it? If you're really cost conscious, think in terms of quality construction and ease of operation–they're the factors that will have big financial paybacks over the years.