When investing in a craft brewer, the single biggest factor regarding whether the business makes money or loses money is the management team. Success is dependent upon the experience, ability and contacts of the individuals who lead the business.
Too often, a person who enjoys brewing beer at home decides to expand their hobby into a business without having any business skills or knowledge. Although they have made some tasty beers that receive accolades from their friends, knowing how to make beer is not enough. Craft brewing businesses fail. Despite their popularity, craft brewers do not get a free pass when it comes to achieving cash flow and profits.
To begin with, making beer in small quantities is not the same thing as making beer in large quantities. Anyone who has ever fixed their own dinner and then tried to fix a Thanksgiving dinner for 20 people understands that when making something in volume things get faster and many tasks must be performed at the same time. While tapping a barrel may be a one person task, while you are tapping the barrel someone must be pouring beer at the bar. Someone else may be engaged in marketing and sales and yet someone else may be doing the books and filing regulatory reports. With all these people, someone may be needed to coordinate (manage) how everyone works together as a team.
You can begin to see how operating even the smallest brewpub is getting complicated. If the craft brewer has not yet asked you to invest, they may be operating on the limited money in their own pocket and stretching the limits of their time and budget. Although all investors prefer that the businesses in which they invest expend their investment money efficiently, operating with too little money places a stress on the business and everyone working for it.
Before you get out your checkbook and make an investment, you need to give serious thought to whether this business is a business and the leaders are business people and not just brew masters. The craft brewer does need a brew master, but that is a topic for another post.
What qualifies a group of people to be the management team of a craft brewing business? The most important characteristic is experience. Although the investment advertisements on television state that ‘past results or no assurance of future results’, a person who has a proven track record of successful craft brewing businesses is more likely to succeed. Their experience places them in a better position to know, anticipate and overcome problems as they arise.
The second most important characteristic is integrity. You have to believe that the person who you entrust with your money will put your interests ahead of theirs. Not just on sunny days when everything is going well, but also on rainy days when everything is going wrong. Some people would not consider spending your money freely on themselves or wasting it on frivolous activities. They see holding your money as a privilege and a responsibility. They will do the best they can to honor your trust and make the craft brewing business successful.
You need both – capability and integrity. Unfortunately, one or the other is not enough. The integrity requirement speaks for itself. The capability requirement is not as obvious. However, I speak from deep and repeated painful experiences that good intentions will not always get the job done. I have had good friends and associates look me in the eye and tell me not to worry when I should have. They did their best within their ability, but it was not enough.
When someone you know asks you to invest in a craft brewing business, you must consider the offering objectively. Do they have what it takes to succeed? If they do not, you should have a frank conversation with them about filling the gaps in their management team. Someone new to the craft brewing business can hire a seasoned hand, fill their board of directors and advisors with experts and engage service providers to meet your needs for a business master.
Karl Dakin, Executive Director
Brewing Investors Guild