Everyone wants to start a brewery. No one wants to invest in one.
Lisa Morrison leads a conversation with Irene Firmat, Jamie Floyd and Charlie Devereux
While this statement may not be entirely true, the audience responses to the opening questions at last week's Oregon Entrepreneurs Network PubTalk suggested that it may not be far from the truth. The event was a panel discussion featuring Irene Firmat of Full Sail Brewing, Jamie Floyd of Ninkasi, and Charlie Devereux of Double Mountain talking about three points: 1.) What does it take to start a brewery, 2.) Should I invest in a craft beer startup? and 3.) What's the outlook for the industry?
The panel was moderated by Lisa Morrison, who opened the session with a question to the audience: "Who is here because they want to open a brewery?" The question was met with a sea of hands shooting into the air. The follow-up question was met with a much different response:"Who is here because they want to invest in a brewery?" Silence fell on the room as a few brave potential investors raised their hands.
I wasn't surprised by the responses, and don't think many of the 150+ attendees (my best estimate) were either. The thought of starting a brewery is attractive. Who wouldn't want to run a company that makes beer? On the other hand, opening a brewery is expensive. It's hard work. It's risky. Some forget or never consider that these are realities that come with the territory. And, it's these realities that prompted me to attend the session in the first place.
Some of the more interesting points arose from a conversation about the characteristics a potential brewery owner should look for in an investor. While her comments are applicable across industries, Irene suggested that the investors' values and visions must be aligned with those running the business, and that investors must be willing to take risks but parameters about risk must be established and understood. Jamie expanded on this with, "The goals may be the same [between the owners and the investors], but the means to reach those goals may differ. Flexibility is key."
The conversation continued with some words of caution for entrepreneurs looking to start a brewery. Jamie reminded the audience that the beer industry is one of the most regulated industries in the country - and that a brewery owner must be a political person, as politics will affect the bottom line. Referring to his partner, Nikos Ridge, Jamie also stressed the importance of money management, an issue that stems from his experience working with Nikos at Ninkasi, saying, "brewers are passionate, but who knows what to do with the money?" It was evident from the conversation (and from recent Ninkasi success stories) that Jamie and Nikos have struck a balance that allows their beer business thrive.
Charlie shared similar stories about his partnership with Matt Swihart at Double Mountain. After an unsuccessful attempt to open a brewery on the East Coast, Charlie returned to Oregon (after previously working alongside Matt at Full Sail Brewing) and later launched Double Mountian. One of the most interesting points that arose in this conversation was the fact that Matt viewed Charlie's previous unsuccessful venture as an asset - not a drawback. Charlie points to this as one of the biggest differences between his previous and current ventures, saying, "what I didn't have in the failed business was a partner."
All three brewery owners could have talked seemingly forever about their successes and failures along the way, but it was great to hear about the unique struggles faced by business owners in a risky, competitive, and highly-regulated industry. While Full Sail, Ninkasi, and Double Mountain are each Oregon-based breweries, the conversation reminded everyone that there isn't one path, recipe, or amount of money that will guarantee success. If anything, the most obvious shared characteristic of those on the panel was passion. Irene, Jamie and Charlie are passionate about beer, about the beer community, and about running their businesses. I think it's fair to say that without passion and their abilities to apply it to a business, they wouldn't have been able to secure the necessary investments to fund, launch, and grow successful businesses. Without passion, they wouldn't have been invited to share their stories, experiences and recommendations at this event. And without their passion, the Oregon beer community wouldn't be what it is today.
June 20th, 2010 - 20:18
I appreciate that investments are speculative, and that some ventures will end up better than others, but was there any discussion on the average return on investment? I can understand why an entrepreneur or amateur brewer might want to start a brewery, but why would a (presumably) passive investor put his or her money into a brewery rather than stock, mutual funds, CDs, real estate, or some other more traditional method of investment?
June 20th, 2010 - 20:50
There was not any discussion about return on investment, average or expected. Like many small food and beverage small businesses, it seems to me that most of those who do invest in startup breweries are friends or family of the brewers/owners. The investors are people with a strong personal interest and aren’t necessarily driven by money alone. In my mind, the relative few hands raised from investors during the session was further evidence of this.
Your point about other investment vehicles is a good one. I’m not sure what kind of ROI a brewery could or should be expected to generate. Charlie from Double Mountain stressed the fact that a brewery is a capital-intensive business. He reminded the audience that you have to spend money to grow – and that spending may require that you double down or triple down. There’s a ceiling to how much a brewery can make; among other things, that ceiling is dependent on the amount of beer the brewery can make.
Other than to simply support an entrepreneur, I’d say that people (other than friends or family) invest in breweries for the perks – free beer, free food, access, an association to a ‘cool’ kind of company, bragging rights, etc. I’d be curious to talk with some of outside investors who have invested in breweries (both successful and not) to see what their motivators are/were.
June 21st, 2010 - 17:39
My answer to the above question is similar to yours, most people that I know that have poured their hard earned money into this business, either have a tremendous passion for beer or will soon be diasppointed.
whether you are starting a $10,000 business in a garage, or a $10,000,000 business in the high rent district, money simply cannot be the ultimate determining factor.
if you are a stock market or mutual fund investor, and the bottom line is all that matters, then this can be a difficult, costly road and learning experience for you and your partner.
naturally the idea is to make a profit, and I for one want to make as much as I can without sacrificing quality for quantity. thats where I think the lesson is for many aspiring investors and brewers alike. if the brewer and investor understand a clear vision of the concept of quality first, the transition will be much clearer.
I personally have known many of these brewers and their (partners) that never really got together, and when the vision changed, or someone didnt live up to the expectation, it led to their ultimate demise.
I will list my personal priorities in order of importance from the brewer/owners perspective to a potential investor:
1. clearly define what is needed in terms of capital (5 years worth minumum) including your personal salary. (dont leave that out)(also have an exit strategy)
2. clearly define how much the potential investor will have to do with the day to day running of the brewery. (clearly)
3. NEVER, under any circumstances, exaggerate your potential brewing capabilities. (you will suffer with that if you do!)
4. since you really dont know the ROI, dont try to convince someone that you do.
5. Lastly- NO SURPRISES……NO SURPRISES……..NO SURPRISES, if you cant tell the truth, and dont have the integrity to take the blame when its your fault, DONT TAKE ANYONE ELSES MONEY FOR YOUR OWN JOY RIDE INTO THE FUTURE.
June 21st, 2010 - 20:45
Wanna invest in a brewery, eh?
….hmmmmm
well, when I worked at a brewpub years ago, I asked my boss if he’d try to open the biz again, knowing what he knew now. He didn’t hesitate a beat.
“No.” he answered.
This was on the heels of my giving my two-weeks notice. Notice that was coupled with the fact that I was off to Montana to start my own brewery.
His advice wasn’t based on sour grapes but rather “learned-in-the-trenches” business experience.
The craft brewing world is a very expensive (money, time, spirit), intensely competitive world to do business in. Keep in mind that as the smallest brewery, you are competing DIRECTLY with the giants of the beer world! ABInbev, CoorsMolson, Boston Beer, etc. How many car companies do you know that make craft vehicles in their garage to compete directly against Toyota, Aston Martin, Rolls Royce? Not too many. Yet, this is exactly what all of us craft brewers are doing.
If you are bound and determined to start a craft brewery, do a few things first:
(1) put in the time to know this business front, back, upside, and downside. Work in a brewery until you can do everything from washing the kegs to making the beer to billing the accounts.
(2) develop you beer recipes to perfection, then work on them some more. Also, spend twice that time on the marketing and branding.
(3) Write your business plan. Rewrite the business plan. Shove it under every professionals nose you can find. Then rewrite it again.
(4) Gather your capital. Now, double it! You should have enough to get through the first five quarters.
You are about to enter the rarefied atmosphere of the “brewery founder”. Welcome to the club.
Here’s your mug.
Now, get to work!
(5) Keep you passion. Then, KEEP YOUR PASSION!
June 22nd, 2010 - 09:41
Derrell and David, thanks for your comments. I appreciate both of you sharing your perspectives – they obviously stem from your experience running breweries. You’ve both touched on points that, unfortunately, some new brewery owners neglect to address. While initial capital may be enough to sustain business in the short term, there’s got to be a plan (and the ability) to make money. There has to also be a plan for the long-term.