March 9, 2012

Competing to Compete: How to Avoid Kickstarting A Dead Horse.

Arizona Wilderness Kickstarter
This month brings the first 2 of 3 Kickstarter brewery start-up campaigns that I know of and I'd like us all to consider the ramifications. Kickstarter is an online service where creative projects can pitch an idea and folks that want to support that idea can contribute. The campaign has a goal amount and a time frame. If the goal is not met, the prospective donors are off the hook. There is no ownership of the enterprise. You support the idea with your dollars if you want to help make it happen.

Given the recent popularity of this concept for start-up breweries, the potential for over-saturation exists. I predict that we'll probably see as many as 8 campaigns this year. Even a modest contribution of say $20 here and $50 there begins to add up.
At the extreme worst, this could amount to a very expensive Girl Scout Cookie type of shakedown for the beer community. In this scenario, we're just asked to support indiscriminately because we support the concept of growing the overall beer community. It's a wrong-headed notion. No one of us is responsible for the success or failure of any one of these breweries or their campaign. We're going to have to say no to a few of these, by perhaps overlooking a few or in some cases an all out and explicit, "No".
Granite Mountain Kickstarter
We can all get a bit warm and fuzzy about helping as many breweries take off here in Arizona by spreading around our dollars like peanut butter, but that's not the right message either. Although we'd all like to see each brewery succeed, a successful Kickstarter campaign ensures... nothing.

I've personally sent money to 3, maybe 4 Kickstarter projects, Mystery Brewing was among the first. At the time, it was a unique idea and despite the geographic diversity of some of the breweries I supported, I had an online history with some of the people involved extending several years.

How do we make sure that we're not on the hook for every one of these? After all, we don't buy beer from every brewery.

We ask them to compete. After all, they are in a business and they will be in competition with other breweries and potentially each other. They've decided to ramp up their operation by putting out a product. That primary product is now their Kickstarter page, the merchandise they offer at various levels, their social media presentation, and their involvement in the beer community right now. Everything but the brewery and the beer that has yet to exist.

We owe that to ourselves and to everyone that  trying to scratch out an existence in the professional beer world.

Edit: Despite having the screencaps from these 2 Kickstarter pages, I have not yet viewed or reviewed the content. I just skipped to a shot with a person in it. I do know the folks at AZ Wilderness. I have not met the folks at Granite Mountain.

7 comments:

  1. Interesting concept but a failure in the beer world I would hope. Not that I am being negative or anything but my company went through a period of trying to raise capital WITH ownership options and it took much work, pain, tears resulting in a re-organization that had a "hiatus" of 5 months attached to it. We were an emerging company, with product, demonstrated passion, a pretty decent portfolio and most importantly, people involved who loved what they did and were willing to sacrifice everything to make this work. We were very fortunate that our hard work was recognized and resulted in a positive outcome. I tell you it would have been much easier to follow the path of least resistance and walk away with our tail between our legs.
    Now there is a concept to raise money from people who will not share in ownership thus not sharing their ideas of what beer should be brewed all before a brick and mortar facility and a product? Not sure I even would consider this as an option. Plus, wouldn’t there be a pretty hefty tax consequence? I know the popularity of a job in the craft beer industry is highly sought after but the reality of this highly scrutinized industry is - you need to cut your teeth and really prove yourself before contributions start flying in. I once thought "Hey, I'm only looking for 100K. That should be easy to secure". The reality is; if you aren't asking for over a million and willing to give up majority ownership, then you are dead in the water. This concept might fly with something with a quick turnaround of the investment but the craft beer industry is one full of people who love it more than making a quick buck. It is hard work, it is hand selling, it is passion and it is producing the best possible product. This does not happen over night, in two years, heck, in even 10 years in some instances. So by loving the craft beer industry so much and the willingness of someone to donate $50.00 to the cause before anything is produced is a road to disappointment I believe from both parties. Try pitching an idea to open a NEW BREWERY to the folks at the TV show the Shark Tank. They would laugh you off the stage. Investment money will only come with too many conditions. Investment money coming from The Kick Starter Program on the surface seems great, but why would someone in San Diego contribute to an AZ brewery? Is this even legal at the Federal Level with the TTB as they scrutinize where every dollar comes from. Plus, how would it look if I, the owner of a distribution company, decide to donate $1,000.00 dollars to a new brewery in AZ? Wouldn’t that look to be coercion? I cannot donate my jockey box to a bar to pour a beer from another brewery.
    To get back to the point, we are looking for quality with our local scene. I don’t see this to be the means to that end. The reason I went down the road to distribution instead of brewing was capital considerations. Now trying to grow, we need more. I can’t imagine the struggles regarding this on the brewing side. I could go out on the street and ask a million people for a dollar, then I would be a millionaire right? I bet I would spend that daily dollar grab faster than I could save it. There is always more money needed than you think and there is always someone with their hand out. This is not the easy way out and to Rob’s point: let’s move away from the same ol’ same ol’ when it comes to local AZ and let’s work on building AZ as a beer destination. Wouldn’t it be nice to host the annual Craft Brewers Conference and Expo?

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    1. ...and a quick follow up to the above post - not trying to destroy anyone's dreams, but in some cases, too good to be true is the reality. What if you were looking to raise 100K, put everything in line prior to actually realizing this goal and it fell short? Disappointment. Let's say you and 100 of your closest friends contributed, got the brewery up and running and the beer styles were nothing that you would enjoy? Disappointment. I have experienced much joy in this business but I have also endured many struggles, most of them game ending struggles for the faint of heart. I have kept at it but the one thing I learned, if you do not have the proper capital, don't start. Ask yourself if you are willing to sacrifice your lifestyle, give up earning a paycheck for years, and are willing to piss off your family and friends before embarking on this journey. Raising 100k for a startup brewery doesn't seem sufficient so the point I would like to stress in the above is: get ready for disappointment before achieving your goals. A wise business man once told me there are three stages to starting your business: 1) At first, everyone will question you and think you are crazy 2) Friends and family will start to get really angry with you as you put more effort into the success of the business over them and 3) if you succeed, then everyone you know will say "I always knew he/she could do it.” Step one and two are the longest and most painful so if you are faint of heart, then you will never get to step 3. We are currently in step 2 and all I can say, it is a bitch. Being able to brew doesn't = being able to run a business and the "if you build it, they will come" mentality is not the reality. Be prepared for the worst before you see the best.

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  2. Anon, in most cases I am aware of, the Kickstarter potion represents sometimes a very small portion of the overall budget. I'm not aware of any tax or legal ramifications as the brewery doesn't yet exist as a liquor entity.

    In any case there are perhaps dozens of these campaigns that have been completed.

    What I think Kickstarter does very well is capture a long tail of people that will part with $20 for a $4 T-shirt. It may also prove to actual investors as to whether the people behind the company can put together a fund-raising operation, tell a story, mobilize a base and master some social media skills.

    I appreciate where your opinion is coming from and I hope to see your comments on other trade and industry posts.

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    1. Thanks Rob - this is Tony at Nectar BTW - couldn't remember my profile so I didn't log in as me. I agree and appreciate all that this site is trying to accomplish. I actually was thinking of a similar concept in my search for funding - a co-op type distribution environment where people would donate money, service and plan events for their own few accounts and own a small percentage of the company. My thing is - no ownership? Why not show support after the completion of the brewery by throwing $20.00 three times a week to purchasing that brand? That to me shown more support than hoping the $20.00 ends up with a successful outcome. I truly hope that this idea does some good. It truly is about the beer however and if the beer sucks, word gets out and failure is just a matter of time.

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  3. Thank you, Rob for clearing up some misconceptions about the use of KS. I agree that one shouldn't indiscriminately support every brewery project on the site. Many are asking too much for a nebulous dream. However, I believe KS is an innovative and exciting way to create a sense of community investment in a friendly, neighborhood nanobrewery (establishments that, I believe, are the future of craft brewing). And while backers won't be attending board meetings and receiving dividends, there is a sense of ownership when you've got your bit of swag, your name on the wall and the knowledge that, in a small way, you helped this place get going. I'm saying all of this as the man in the second screenshot you posted. As you can see by our funding goal, it's clearly not fully funding the operation (a goal that ought to be outside the scope of KS). We've spent a year and a half building this business, and the local support and enthusiasm we've received made KS a great way to get some breathing room in our working capital, and give the community (which includes the many Phoenicians that come to Prescott on a regular basis) an opportunity to be a part of something they're already excited about. KS is a creative marketplace where you'll find some subpar products, but this shouldn't be a reason to deride the entire concept. It's here to stay, and I find that an overall good thing.
    Michael Stanger
    Granite Mountain Brewing
    www.granitemountainbrewing.com

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  4. Michael. I am curious about the tax and legal federal compliance you had to go through after all, it is free money, not a loan and what the Ttb requirements are. On two separate occasions, I have had to provide written documentation on where the money for my company has come from. I think it would be a bit unclear to the Ttb in where this KS money came from. I could be mistaken but all my dealings with loans and investment dollar have been highly scrutinized. I would also caution not knowing exactly who has donated as I know that both the state and feds frown upon money received by distributon companies or their ownership. I guess I am very surprised that this fund raising concept is considered acceptable in this highly regulated industry. Hopefully I am making this into a bigger deal than it is and I am able to explore this option as I grow my small distribution company. I am over cautious only because for such a small company, I have been under close watch. The feds are always behind in investigating and I have worked way to hard time build what I have to not understand every aspect of the biz. Hopefully you have some knowledge that you could share with me. Thanks Rob for bringing this to my attention and creating a forum for debate.

    Tony Piccini
    Pitcher of Nectar Distributing

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  5. As far as tax ramifications, it falls under similar rules as ebay sellers: no tax until you break $20K AND have over 200 transactions. As far as the TTB, I'm sure they scrutinize the numbers, but I imagine only large pledges would raise any red flags. Most successful KS campaigns are made up of hundreds of small contributions. I can't say I know their exact rules on the matter, but what I do know is that successful brewery campaigns have gone on to receive TTB approval. You'll need to familiarize yourself with KS guidelines if you're thinking of using it. I'm not sure how you would word a project proposal for a distribution company to fit one of their creative categories (beer fits in with food).

    Michael Stanger
    Granite Mountain Brewing

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