Keys To Microbrewer Profitability

Over a 12-month period, I became the sounding board for two start-up microbrewers. I told them they were wasting their time and that I was ignorant about this industry. I even joked that I was the all-time designated driver for friends and colleagues.

Both founders were hard of hearing. They kept calling me for advice on funding their start-ups, creating business models and plans, etc. I wish I possessed the magic elixir for microbrewer profitability. I did not. I still do not. We need a product that customers love and want to keep buying. That’s hard in a very crowded marketplace. Accordingly, the key to profits is figuring out marketing and sales once the product is nailed down.

Hitting Paydirt While Studying the Microbrewery Industry

I’m a reader. I probe and data mine when learning about a new industry. I was already following Dr. Jeff Cornwall’s video interviews on his blog, initially called The Entrepreneurial Mind. I got lucky. He interviewed the co-founder of a microbrewery, Jackalope, based in Nashville, Tennessee. Great insights.

Here is that interview.

More Questions for the Jackalope Co-Founder

I greatly respect Dr. Cornwall, but I needed more answers. Bailey was gracious enough to answer a few questions. Her responses are below.

G3CFO | The first two entrepreneurs who used me as a sounding board when thinking about starting a microbrewery, I tried to talk them out of it. I was amazed at the startup costs for equipment and leasehold improvements for water, plumbing, and electricity. I’ve worked with a large vineyard and winery, and scaling a new brand is challenging. What is your advice for aspiring owners wanting to succeed in their unproven business models?

Bailey Spaulding | I would advise people to take the money and time they think it will take and double them both.  I think that will save them a lot of stress. It is worthwhile to be patient initially, raise more money, and save yourself some headaches.  And if your heart is wholly set on it, don’t let people talk you out of it (haha)!

G3CFO | In the interview, you mentioned you created a business plan. Did you keep it? Have you ever gone back to it and laughed? Or are your sales numbers in the first 2 to 3 years close to your planned numbers?

Bailey Spaulding | We spent a lot of time creating a business plan. Our sales numbers are close but more significant than what we originally planned. We were doing excellently but were still in an awkward position of growing faster than we had planned. The core values we base our business plan on are still essential to running our business.

G3CFO | I roll my eyes when I hear someone say they have just added a new distributor, thinking that’s the key to more sales. I’ve reminded them, their advisors, and their bankers that distributors distribute. Entrepreneurs sell. Big difference. It seems like marketing IS THE HARDEST PART of getting to profitability. Do you agree?

Bailey Spaulding | To me, the critical part of marketing for a small business is letting people know who you are so that they can identify with you and want you to succeed. Our marketing success has been due to hard work, but it comes organically from us.

G3CFO | Key numbers? Do you have one or two?

Bailey Spaulding | Our key numbers are clearly in sales volume and in the percentage of our production capacity that we are selling.  We never want to sell more than 90% of what we can make for planning purposes. If our sales surpass our capacity, we will undoubtedly be making a lot of people, from our distributor to our accounts, very frustrated, which can potentially hurt our business.  Of course, our monthly P&L is vital and will be more so as we look to grow and scale up our business.

My Insights on the Microbrewing Industry

As I mentioned earlier, I knew nothing about this industry. If you find yourself in the same situation, here’s what I picked up:

1. Good luck finding used equipment. Buying new is probably the safest route. But be prepared—it’s expensive, including all setup costs.
2. Before finishing the bank package for financing, wait until you get equipment quotes. The equipment vendor can help you nail down your leasehold improvements.
3. Regarding the financial package, you don’t need many FTEs in the early going–just 2. Think front-stage and back-stage. The CEO should focus on front-stage activities such as marketing, while the brewmaster will handle all back-stage activities.
4. Packaging, wow!! It’s costly. Find a nearby brewer willing to share their numbers. You’ll be enlightened on these particular costs.
5. Some states prohibit brewers from distributing their beer. That means they need distributors. However, you still need your feet on the ground by marketing the beer to local restaurants. Don’t expect the distributor to do this work for you; they carry other brands.
6. Have a marketing plan? Yeah, right. Pitch it. Instead, find the breakeven point ASAP. Then, work like crazy to hit breakeven. Then, create a new sales milestone and repeat.
7. Like tasting rooms in the winery industry, most states allow brewers to sell their products on-site. Fleshing out a retail model should be studied and considered.

More on Bailey Spaulding

Title: CEO & Brewmaster, Jackalope Brewing Company
Degree: Biological Anthropology, Harvard University
Advanced Degree: J.D., Vanderbilt University Law School
Relevant Links: Bio | LinkedIn | Company Site