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Heavy liftingA few weeks ago, my friend Nick Nunns returned from the Craft Brewers Conference (which I’m going to next year, dammit!), and proceeded to rock my world. In a good way.

Nick told me about the idea of an Alternating Proprietorship, or an AltProp. It’s not a new idea. I’ve probably mentioned it in some post on here, or in the comments somewhere. I’ve almost always just brushed it aside. I think this was mostly due to not seeing the difference between contract brewing and an altprop. My biggest difficulty with the idea of a contract option was that I wouldn’t be brewing. I didn’t want to just give a recipe and instructors to another brewery and say “Here, make me beer.” And that idea just sort of stuck.

So when Nick got back and we talked about AltProps, that idea got rocked out of its place. Basically, and Alternating Proprietorship is an agreement with an existing brewery in which we go in and rent out excess capacity on their system. While we’re brewing, we technically own the equipment. It’s our own license and our own beer. It’s much more complicated than that, and the agreement can be a lot of different things, but that’s the basic idea.

Anda, one of the owners of Funkwerks in Fort Collins, and the author of LegalLibations.com and LegalBrewing.com, wrote an article about this idea in January: http://www.legallibations.com/2010/05/alternating-what.html. Check it out, it helps to clarify this whole thing.

The TTB defines an alternating proprietorship:

An “alternating proprietorship” is a term used to describe an arrangement in which two or more people take turns using the physical premises of a brewery.

Generally, the proprietor of an existing brewery, the “host brewery,” agrees to rent space and equipment to a new “tenant brewer.”  Alternating brewery proprietorships allow existing breweries to use excess capacity and give new entrants to the beer business an opportunity to begin on a small scale, without investing in premises and equipment.

http://www.ttb.gov/beer/alternating_prop.shtml

This idea could get us started much, much sooner, for much, much less money. If we work out an arrangement with a new brewery in town, where we buy a few tanks, rent out the time and space, and start making beer, we can be on tap this year. Depending on the arrangement, we could hopefully work something out where we buy 2 fermenting tanks, use the space for 6-12 months (or however short / long it takes), and then “leave” the tanks there, as payback. Or maybe we open at the same size, and take the tanks with us. Or maybe a brewery just doesn’t have the need for some of their tanks, and it’s a pure rental agreement.

I started talking to a few of the newer breweries in town about this. It’s a win-win situation for a brewery with excess capacity. Our presence lowers their liability, since we’re paying them for their time. And for us, it lets us start today, rather than tomorrow.

Part of the TTB’s rules on this scenario is that the business plan must include not only the altprop, but the exit into a full brewery. This is a temporary situation, where we can make sure the market likes our beer, make sure we know what the hell we’re doing, get a few accounts up and running, and have something solid (well, liquid) to show investors.

This is the current plan. We’re exploring our options and writing down the numbers. I’d love to know what you think of it!

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Last night we joined the Brewer’s Association as a 0-500 bbl brewery. There are a ton of benefits that come with this membership. A lot of the benefits will be great once we get started, but there are a few that are really going to help as we write the business plan. These benefits all fall under the “Member Education” category:

New Members-Only Area of BrewersAssociation.org

Features exclusive content available to BA members only, including extensive statistical data, presentation archives, technical information (covering hops, keg repatriation, and other topics), message boards and committee meeting minutes.

The New Brewer

Free multiple subscriptions to The New Brewer magazine for staff members.

Brewers Association Forum

Free multiple subscriptions to the Brewers Association Forum, a daily, moderated email digest connecting you to more than 4,400 participating members.

Industry Statistics

Annual Beer Industry Production Survey reports the growth of craft beer industry; featured in the May/June issue of The New Brewer.

Professional E-Conference Series: Power Hour

Power Hour is an online, interactive teleconference series on regulatory, marketing and other information six times per year.

Craft Brewers Conference & BrewExpo America®

Registration discounts of $220-$245 per person for the full conference rate at the Craft Brewers Conference & BrewExpo America.

Brewers Publications

Discounts on pre-publication releases, along with free additional copies of the current Brewers’ Resource Directory for brewery-level members.

On top of all this, we also now have access to the wonderful staff at BA for the various specific and unique questions we’ll have along the way. I’ve had beers with a bunch of people who work there, and they’re awesome. It’ll be great to work with them in a professional capacity as well.

We’re really excited to start diving in to these resources. The business plan writing and other key planning stages are under way, thanks to the help of two recent DU MBA students and one current one. This membership should help with that planning. I’ll be sure to share as we go.

If you’re a brewer and read this blog, what are your thoughts on BA, the membership, and the services they provide?

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As I said we would, Kell and I have been pumping away at the business plan in hopes of having a rough draft out this weekend. Granted, I don’t think we will. But, we’re working on it pretty hard!

Everything is coming along pretty smoothly. Suppliers and other brewers alike are very generous with information. The City of Denver has been responding to questions about tax and property issues, incentives etc. All is well.

One thing that has sort of stopped us, while we get ready to gear up for the issue, is what size we want to be. Our two options are small or big. Granted, our version of “big” is still tiny in the world of brewing, but that’s besides the point. We’re looking at either a 1/2 bbl (bbl = barrel = 31 gallons = 2 kegs) system or a 3-5 bbl (either 3 or 5, that decision comes later) system.

Both systems have a lot of inherit risk. Just by opening a brewery, we are taking a massive risk. But, the beer is amazing. So, there’s that.

The 1/2 bbl system has a lot of merits. It’s inexpensive, comes pretty much ready to use in a nice little package, and doesn’t come with nearly as much initial risk. The idea with this system would be to ferment the batches in kegs or small plastic conical fermenters. All beer would be sold on premise, with maybe, just maybe an account or two. The labor to beer ratio would be ridiculously high, but the cost would be super low.

On premise sales are enormously profitable in relation to off premise sales. The revenue from a keg of pints sold in the brewery at normal costs is a few hundred percent more than selling a keg outright to an off premise account.

Of course, if the beer is as good as it is, and demand picks up like we think it will, the risk in this plan comes from the inability to grow. Growth is easy on a batch to batch premise. We buy another keg, we can brew another batch. But, for every new fermenter – aka keg – it’s another batch someone has to brew. It’s a linear growth that’s not sustainable in the long run.

The thought here is that it would be easier to get the investment for this lowered capital, prove our worth, spread the word, and then ask for more money and more equipment when we feel we need to. The downside of that is when we’re trying to save up money to grow to that next level, we won’t be able to satisfy demand. Customers get pissed. We go out of business. Or fall apart from being overworked.

The larger system, a 3 to 5 bbl system, loads a lot more of the financial risk up front. The initial investment is much more. Though, at 6-10 times the volume, the investment is not 6-10 times as much. At this level we can calm down a little on the brewing, focussing more on customer service and sales. There is more equipment required, like keg washers and fillers, for example. And we’ll need to go out and sell the beer to accounts like Falling Rock and Rackhouse Pub, rather than market to get people to come inside the brewery. So it’s just as much work, just allocated in a different way.

If we are able to secure the investment for this bigger system, the growth potential is much better. With any system, we have the ability to “double brew”, or brew more than one batch into a double-sized fermenter. This saves on yeast and time and tank resources. At the 1/2 bbl level, a double batch fills a 1 bbl tank. At the 5 bbl level, a double batch fills a 10 bbl tank. While the ratios are the same, 5 extra barrels of beer is a lot of extra beer.

Just writing this post is helping to push me toward the larger system. I think Kell said it best. It’s better to ask for a larger investment now, when we have the time, than to it is to spend an initial investment so we can ask for the same larger investment in a year or two.

So, assuming we can find a rich uncle or some other form of investor, it looks like we’re going “big”. From pico to nano!

What do you think?

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May Day! May Day!

May 1, 2010.

This is an important date.

Last night, Kell and I, over glasses of Caol Ila, set a deadline for the business plan. It might not be perfect, and it might not be pretty, but we will have a first draft ready to rock on May 1, 2010.

Hold us to it.

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Market Research

Creepiness index

Data!

I’ve started writing the plan. Plans, actually, but that’s for another post.

Thanks for your applause.

I had a question recently that has no straight answer. There are just too many variables. How fast does a bar go through kegs? Some variables:

  • The bar
  • The beer
  • The bartender
  • The week
  • The weather
  • Relative humidity in Antarctica

You know, variables.

Anyway, I thought it could be fun to gather some market research, and what better way to gather lots of data than through the internet! It’s ok though, this research requires people to go to bars.

Here’s the plan. Whenever you’re out, be it a bar, brewpub, restaurant with good beer, whatever, if it’s not too busy, ask the bartender how fast they go through kegs. Ask for as many different taps as you can, or as they know. Obviously Fat Tire will sell faster than 1554, for instance.

Once you have the information, give it to me. Two options: Twitter, or a form.

If you’re using Twitter, use the following format:

BREWERY - BEER - BAR - CITY - STATE - KEGS PER WEEK #bcrp

The hashtag #bcrp stands for Beer Consumption Research Project. Creative, no?

So, an example tweet:

Stone - Arrogant Bastard - Park Tavern - Denver - CO - 3 #bcrp

Or, fill out the form here: http://bit.ly/5c3lnZ

I’ll report the results after I have enough data.

Go! Spread forth and collect beer data!

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The Ball is Rolling

This is a ball, rolling

This is a ball, rolling

I started writing this post entitled “We Have Liftoff”, but I figured I’d save that one for something special. Like, say, opening day.

Tuesday night, Kell, Andrew and I met at Vine Street for some good beer, good food, and our first official meeting as partners in this whole brewing thing. Things I learned: Tempeh is a real word, not just the name for a Reuben, and it is not Corned Beef.

Also, we decided to name the business Mad Haven Brewing Company, LLC. It’s official! I registered it with the state yesterday:

Articles of Organization

Articles of Organization

We have a lot of work ahead of us, but this was a great launching point. We can now talk as a business, sign up for things (like a bank account) as a business, and, well, do business.

Other things for you to chew on: It looks like we’re going to change course a bit and start this as a brew pub. This will allow for a lot of things that a straight distribution brewery doesn’t. It gives us time to really knock out some amazing beers that customers like; it creates a revenue stream separate from distribution, so if things aren’t selling quickly, there’s still some cash flow; and it allows us to really create an environment and culture around the brand.

Hopefully I’ll have some more exciting news soon. I can’t spill too many details just yet, but if you have any input or suggestions or ideas or whatever, let me know!

Welcome to Mad Haven.

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Just a quick update on the actual business stuff.

Um, Yeah... Im Gonna need you to come in on Saturday...

Um, Yeah... I'm Gonna need you to come in on Saturday...

  • Started working on the business plan. It’s scary. I’m going to seek help.
  • Lucas said he’d give me his books, software, and knowledge to help with aforementioned help seeking.
  • Meeting with the Director of Fun at New Belgium Brewery on Monday to talk shop. Pretty excited about that.
  • Talking with Taa Dixon at 720Media about startups and all that. She’s a Colorado College alum as well. CC Love.
  • Waiting for an email back from a realtor to go check out a possible location for the brewery. It’s a bit big (30,000 sqft), but it’s PERFECT. Perfect location, used to house a VERY successful brewery, etc.

That’s all next week. If you have any leads for me on business ops, locations, funding, suppliers, or just want to try a homebrew, let me know.

[edit] Also, we just made a quick partial-mash kit for a friend’s birthday in 2 weeks. Beer on tap for “public” consumption! Woo!

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Starting a brewery… Turns out, not an easy process. Who knew?

I think were doing better than Sisyphus...

I think we're doing better than Sisyphus...

Over the past few weeks and months, we’ve gotten the ball rolling, so to speak. Relative to where we were when the decision was made to do this, we’ve come a ways. Relative to where we’ll be opening day, we have yet to begin working.

The main things we’ve done:

  • Met with an officer about licenses
  • Met with a banker
  • Amassed a collection of ideas and plans to differentiate ourselves
  • Met with some SBA people
  • Spoke with some real estate agents
  • Told everyone we know we’re going to ask them for money (if we know you and we haven’t asked yet, consider yourselves warned)
  • Started a blog (very important step in the process)
  • Started the business plan (I have an outline…)
  • Lots of other little stuff

Things we still need to do. And mind you, this list is very, very, very incomplete:

  • Actually write the business plan
  • Write it again
  • Go over it a few times with various consultants, and then rewrite it again
  • Come up with the name
  • Research suppliers for the hardware and the supplies (like tanks, grains, hops, kegs, etc.)
  • Find the perfect location
  • Get the money
  • Buy all that stuff
  • Get licensed
  • Open
  • Find people to drink our delicious beer

It’s more complex than that, but that’s where I see us as of today. The immediate next step is the business plan. We need to do a lot more research, write it, rinse, and repeat. Part of that involves talking to suppliers, just to get an idea of what our costs will be. Things like overall overhead, cost per batch, pricing, gross per batch, etc.

Picture of a random IPA. Just because.

Picture of a random IPA. Just because.

The more I find out about this process, the bigger the challenge becomes. I don’t say that in a negative way, just an honest one. I had this date of August 2010 in my head. I’d love if we could open by then. When we first started talking about doing this, 8/10 seemed so far away! And now… It’s starting to seem like tomorrow. So August of next year might not work. We’ll see though. No hard deadlines to meet just yet, and a lot of work between now and then either way, but, that’s where we stand.

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Starting a new business costs money. Obviously. There’s the loss of a secure salary if you quit your job to run the new company, the increased taxes from being self-employed, and the slew of costs, from overhead to supplies to payroll. Starting a small consulting business, or shirt designing firm, or a new social networking website, are all expensive in their own regards. But what we’re attempting to do here is an entirely different level of expensive. Give me $20k, I can quit my job, find a few friends, and start a web development company. It would fail, because I’m not interested in it, but I could start it.

While we haven’t run the numbers yet, our current guesstimate is in the $500k range. That’s a big number. It’s hard to swallow. And it’s going to be hard to get. I could ask 10 of my friends to take their paychecks every two weeks for a year and deposit them right into an account, taking nothing out, and it wouldn’t be $500k (gotta love entry level positions…).

Why so much, you might ask? A brewery is in the business of making beer. Manufacturing it. Basically, it’s a beer factory. We need an industrial zoned warehouse in a good location (because we’re manufacturing a product that can be used on premise, location matters), with lots of big shiny tanks and vessels. Each batch of beer contains hundreds if not thousands of pounds of grains, pounds of hops, and swimming pools of water. There’s a lot more than that as well, but that’s the big stuff.

There are a variety of sources we’re considering for funding. A bank loan backed by the SBA is going to be one of them. We’re working on an airtight business plan right now, in the hopes that a banker won’t look at us, look at the number with all those zeroes, and laugh us out of the bank. Other sources will hopefully include friends and family. I wish we could stop right there, but I don’t think it’ll be enough. So we might need to get investors. People who will give us money, but take some control of the business, at least until they’re paid back with interest. I’d prefer to keep control of the company, but this is definitely an option we might have to take.

I suppose the dream situation would be for an angel investor (any reading this? hint hint..) to give me a call, offer a half million dollars at a low interest rate payable over the next [insert long period of time here], and request no control, just a beer whenever he or she comes by the brewery. So to any and all people of this nature who might be reading this, Hello, My name is PJ, I’d like to meet you.

Anyway, this is just a preliminary posting on finances. Like I said, we haven’t run the numbers yet. I’ve met with a banker to talk about this dream, but haven’t gotten into the nitty gritty of what it’s going to take. I haven’t even asked friends and family for the pledge of money yet, let alone a check. Except for a few comments about costs here and there, we really haven’t even begun to tackle the issue. So the pessimistic tone isn’t meant to be so.. pessimistic. But this is part of how I feel right now.

On the brighter side, even with the economy not doing to great and all that, things aren’t as bad as they seem. The liquor industry as a whole is somewhat safer in a recession than some other industries. Beer sales, and specifically craft beer sales are on the rise.

Small independent craft brewers are gaining alcohol market share due to a shift toward full flavor beer and increased support for local breweries. From 2007 to 2008, estimated sales by craft brewers were up 5.8% by volume and 10.5% in dollars. Overall share of the beer category from craft brewers was 4.0% of production and 6.3% of retail sales. More than 1 million new barrels of beer were sold in 2008, and close to half of those barrels were beer from craft brewers.

http://www.beertown.org/email/BA/pressreleases/growthrelease2009.htm

Denver

Denver

We’ve got some serious passion working in our favor. I sort of only talk about beer, brewing, and the brewing business these days. We’ve got youth working in our favor as well. When I’m 40 or 50 I probably won’t be excited to work 80 hour weeks on the brewery. Today, at 25, I cannot wait. And we’ve got the support of our friends and family. Yes, people suggest we keep our jobs in these current economic times. But the overall momentum of support is in favor of getting this brewery open and pouring. Lastly, we’ve got Denver. Denver is primed for beer. There are already breweries here. People like good beer. We don’t need to convince people that our beer tastes better than the macro breweries. The already know it. And let’s not forget about that little annual event called the Great American Beer Fest. It’s a good town to make beer.

Personally, I can’t wait.

As usual, we have open ears and open minds for any and all ideas. If you know someone who has money burning a hole in a nice pair of pants, just waiting to fund a start up, I’d love to buy him or her some lunch. Likewise, if you have an idea or contact or anything you’d like to share with us, we’re all ears.

Maybe I’ll win the lotto. I should probably start playing first…

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Rising unemployment, massive credit crunch, rising commodity prices, out of control state and federal budgets, DJIA plummeting, and that’s only here in the US.  Wow, I need a beer.  A lot of Americans have been saying the same thing, and somewhat amazingly, they are looking for craft beers, not just Key-Light and PBR (not that there is anything wrong with these two fine examples of American Lagers).  But don’t take it from me, check out some of the news I have found from just the last few months.

“Americans love beer — one of the world’s oldest alcoholic beverages. According to the Beer Institute, if you average it out, every American over 21 drinks more than 30 gallons of beer annually, and the beer industry is one of the few sectors not having its worst year since the Great Depression.”

“The Boulder-based Brewers Association reports that craft beer sales grew almost 6 percent in 2008 – the only area of noticeable growth in the beer biz.”

“The craft brewing industry generates $6.3 billion each year, according to the Brewers Association. The volume of beer produced through craft brewing, which includes brewpubs and microbreweries, grew by 5.8 percent in 2008.”

Yes, we know this is former German chancellor Gerhard Schroeder drinking a beer. But its the only appropriate image we came up with when we Googled businessman drunk.

Yes, we know this is former German chancellor Gerhard Schroeder drinking a beer. But it's the only appropriate image we came up with when we Googled "businessman drunk".

Not only is it a brewer’s market right now, it is also a good time to venture out on your own (in many industries), according to numerous experts.  It might sound risky to a lot of people, but I attended an entrepreneur panel last week at Colorado College and left with a renewed belief in the drive of American entrepreneurs.  During that discussion I also learned that 3 of the 5 panelists started their businesses in a recession, and they have made it work.

“Regardless of what people around you (including the media) may say, right now is the best time to get into business. Just go back and look at the economic slowdowns throughout history. Most recessions in the post-World War II era last an average of 10 months, followed by growth cycles that last an average of 50 months.”

“We’re Americans. Entrepreneurship is in our DNA. You’re right that when the economy tightens, fewer people are likely to start businesses. But what that means is that you can do a competitive regional analysis and know that your niche is protected, for a while at least. Grand openings, ribbon cuttings, and groundbreakings are likely to get a lot more media and general attention in your community.”

While the future is certainly uncertain, I am fairly confident that the economy will begin to recover by the time we get all of our ducks in a row and we will be able to launch at an opportune time.  Now finding funding could be the tough part.  As one of the esteemed CC alum entrepreneur panelists put it, “Without funding your vision is just a hallucination.”

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