Rules for Starting a Brewery

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A couple years ago I wrote a post on rules for starting a nanobrewery.  Since then, I’ve learned a lot and progressed past a nano into a successful full-size brewery.  I’d like to share a list of rules for success for anyone that is interested in opening a brewery.

  1. Offer something good to the craft beer scene.  Don’t be a “me too” brewery.  If you’re going to go through all of the trouble to open a brewery, you need to have a good reason to.  In this day and age, there are thousands of breweries.  If you’re just going to offer an IPA, a kolsch, a porter, and some other seasonal beer, they’d better be really, really, really good.  Because there are already a hundred other true-to-style good beers out there, and chances are, someone does it better than you.  If you put out mediocre beer, you may still be able to stay in business, but all you’re doing is making a crowded market more crowded and doing nothing for the scene.
  2. Do not think you are going to make a lot of money.  Since we opened, our tasting room has become one of the busiest in a busy region, and our beers are moving well in distribution.  But guess what?  There are a lot of expenses.  We’ve written two successful business plans (the first one for the nanobrewery) and, surprise, expenses are higher than we thought, again.  Opening a small, regional brewery is not a path to riches.  My colleagues do not drive around in Ferraris.  I am not being arrogant, just stating simple truth: our expansion was one of the most well-executed plans I have seen, and we are profitable.  But this is something you do for love–if you do it well, you’ll be able to live in reasonable comfort.  If you have a family to support, consider what you are risking to follow your dream.  This is really important.  How long can you go without taking a salary?  Most entrepreneurs prepare themselves for the idea that they could go down in flames, but don’t really consider a more likely reality–they struggle to make money, and finally, after years of very hard work for no reward, they sell the business and move on.  During the nano years, I lived with my mom on a shoestring budget, and Lee worked in his very little spare time for free.  Most people are not willing to make those kinds of sacrifices, and sometimes I wonder if I would do it all again.
  3. Learn about construction.  My partner’s background was construction, so he handled the vast majority of our project.  We opened on time, saving thousands of dollars in rent and lost revenue.  However, most people aren’t as lucky.  You would not believe the conversations I have had with people who are pretty far into opening a brewery (i.e. about to sign a lease/release equipment) who have a fraction of the money they need budgeted for construction.  Newsflash: the brewhouse is less than half the startup cost.  The big ticket item is construction, and delays will at worst sink you, and at best drain your money so you spend the next year recouping costs instead of buying more tanks.
  4. Have realistic expectations for distribution.  No, you are not going to sell 120 BBLs of draught beer per month from day one.  Three years ago, we did some contract brewing.  Being stretched too thin, we barely had any time to get out and sell, but that didn’t matter, because local beer was in demand and there was barely any of it.  Now, we are back in the market again, but this time I have devoted considerable time and energy to sales.  And I had to.  Because beer does not sell itself anymore.  The era of limitless growth is over, and even as a 10 BBL brewery with two busy taprooms, we can’t just drop even a small amount of beer on the market, dust our hands, and walk away.
  5. Learn how to retain staff.  Hiring and training new staff is not only expensive, but it can hamstring your brewery if the guy or gal that makes your beer decides to leave.  One of our greatest strengths is that we’ve never had anyone in four years quit on us.  The starter here is an obvious one: pay your employees a fair wage.  I have seen crazy turnovers on the brew side that probably could be avoided by a dollar or two more an hour.  What’s worse, spending more on payroll, or having your production grind to a halt or the quality of your beer suffer due to staff leaving?  The other obvious way to retain staff is to create a positive environment.  Treat people with respect.
  6. Choose your brewer wisely.  Brewers don’t necessarily know how to create recipes.  A shift brewer may have about as much skill in that area as a fry cook does.  A head brewer with years of experience may have just been hiding out at an older brewpub, making mediocre beers for years.  In fact, someone with experience might just be a liability–more likely to insist on his or her way, leading to problems and an eventual exit.  Data has shown that in some fields such as medicine, more experience actually produces inferior results, since some professionals tend to either phone it in or are very rigid and unwilling to break rules.  I can believe that this applies to brewing.  Fortunately, I do not have to worry about losing our head brewer, which is greatly reassuring.  On that note, if you are under a 15 BBL brewery, it may be tough to pay for a full-time brewer and be very profitable.
  7. Strive to be better–disrupt the status quo.  We were the first brewery in the state to partner with a restaurant as a separate entity, and it has been enormously successful.  We worked very hard to create a taproom that went far beyond the unfinished warehouse look that is the norm.  Since opening two months ago, we have already done a can release and a bottle release next week, all at a scale when neither is normally feasible. We’re going to have a mobile taco and beer trailer up and running within a month.  At the end of the year, we’ll release our first spontaneously-fermented beer, and the first of it’s kind in the county.  We are already working on a third location.  What I am saying is that we are not content to just sit there resting on laurels.  The market is crowded, but I believe that a brewery that makes good beer and goes steps beyond is going to be very successful.
  8. Know who you are, and be it.  What identity do you want to be known for?  For us, we want to offer a great taproom experience with a wide variety of styles, all made very well.  We want to offer non-traditional styles that are unique but still good–never weird for the sake of weird.  If you go back through the archives in this blog post, you can see the idea I had for our place has never deviated in six years.  We have changed beers and concepts many times, but the idea of what we wanted to be was always there.  In the past three years, I have seen two local breweries go under because they didn’t have a clear idea of their identity.  One rebranded and added bourbon and steaks as well as beer.  The other tried to be a live music venue and butcher shop as well as a brewery.  Keeping your core business model simple is never a bad idea–you can branch out as time goes on, but you first need to create a working identity.
  9. You are not going to reinvent the beer market.  When I first opened, I wanted a Belgian single to be our year-round beer.  We made beers like English bitters, dry stouts, and other styles that aren’t very common.  I remember thinking that we would make styles no one else was making, and that would be part of our appeal.  Guess what?  No one makes those styles because they perform really poorly.  At the nano scale, this was fine because we controlled our taproom and didn’t have to worry about distribution.  You may want to make more obscure or traditional styles, and your taproom is your own kingdom, but outside of that, most bars want to make money, and that means moving beer.  Over time, 2/3 of what we brewed became IPA, and with our bigger system, it is still 50% of what we make.  Our NE DIPA, Verdant Force, is our top-selling beer and pretty much all I ever get asked about.  In distribution, our Vienna lager lingers around the warehouse, while our IPAs are in and gone.  If your revenue depends heavily on distribution, you are making everything way harder by trying to push something that is a hard sell.  Give people what they want.  I am happy to be on a 10 BBL system because we can still make single batches of beers like our black tripel or English bitter for just the taproom.  If you’re on a larger system, you need to think really hard about each beer you make–will it sell in the market?
  10. Retain ownership.  Ownership is your most precious thing as a brewery operator.  It should be given up only when you must, and you definitely never want to give up any voting power to owners who are not also operators.  We took a really difficult path by going the nano route, but by operating on a very tight budget, we were able to show profit and get an SBA loan.  To secure the loan, we did seek outside investment, but since we were only required to put up a 15% equity injection, we did not have to give up nearly as much ownership as someone opening a brewery with private equity or a traditional loan.  Now, Lee and I each own 37.5% of the business.  I’m not going to ask any other owners how much they own, but outside of people who were already very wealthy, this percentage of ownership is rare.  When talking to investors, you need to research and perform a valuation of your company so you have a place to start negotiating.  This may sound obvious, but if you have no idea what you should be asking for, you may make a very bad decision.  In fact, the business owners I received counseling from through our local SBA told me I was going to have to give up 80-90% ownership for our expansion.  Guess they were wrong!
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About crookedrunbrewing

Brewmaster
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