20 Jul 2011 @ 12:59 PM 
 

Mystery Brewing Company: The long winding path to startup.

 

When I started working on finally getting Mystery off the ground, I really wanted to try to keep things fairly transparent. I wanted to be able to share the startup experience with people via Top Fermented, because it’s really living every homebrewer’s dream.

I’ve been having a difficult time doing that, because when progress is slow or when there doesn’t feel like there’s progress you don’t really feel like you want to share that. One of my least favorite questions that people ask me on almost a daily basis is, “So, how’s the brewery coming along?” The reason that I hate it is that it’s such a complicated answer. Nobody wants to sit down and hear me pontificate for 45 minutes in response to that question, so my normal answer is, “Good!” and then they invariably ask, “So, when can I buy beer?” Which is just as complicated a question. It’s hard to share that nothing is moving, or that you’re waiting for phone calls or that you’re frustrated with a lack of response from a bank or something. You want to share good news and not seem like you’re complaining or – worse – like you don’t know what you’re doing. But I’m in a place now where I feel like there’s been a significant amount of movement and I’m happy to throw the curtain back a little.

So, now, here’s the story behind the startup of Mystery Brewing Company … so far. This is going to be a long post. This is by no means a “how to start a brewery” post. Hell, in a lot of ways it’s a “how not to start a brewery” post. But I think it’s interesting and worth reading.

So, let me start from the start and bring you to present day:

Like a lot of homebrewers I’ve entertained the thought of opening my own brewery for some time. I started brewing about 11 years ago, now. As I’ve said in many forums: my mother bought me a kit for Christmas one year. It was one of those crappy 2 bucket systems with an IPA kit. You know, a fermentation bucket and a bottling bucket that, if you’re some sort of wizard, you could make some decent beer with. I did not do that. I made some crappy – nay – intensely crappy beer with it. But a few reasonable successes kept me going until I could upgrade my equipment here and there and started having more good beer than bad. I’ve never won an award for homebrew. In fact, more often than not, homebrewing competitions kinda irritate me. They’re incredibly subjective, the feedback sucks more often than not (and if I’ve ever judged your homebrew, I’ll tell you now: my feedback sucks – sorry) and there are only a few that I’ve been involved in that I felt were really well organized. So, the decision to start a brewery wasn’t because I was rolling in gold medals or anything like that. The decision to start a brewery was really based on the fact that I find making beer to be fun – way more fun than anything else that I’ve spent days and days and days of my life focused on.

I think somewhere on some “about” page somewhere I talk about the heady mix of art and science that is making beer and I’ll stick to that. There’s this one thing that I’ve decided will live on everything that Mystery puts out:

Flavor : Art :: Quality : Science

Making a great recipe is an art. Making it over and over again for a consistently great product is a science, and the blend of those things are what I like about the brewing industry. My entire background is balanced between art – I have a degree in performance art – and science – I’ve been working in IT and programming, much of it in a Medical School, for the past 15 years. Brewing is the perfect synthesis of both sides of my personality. Plus, I get to be a nerd about business and finance and be my own boss. It’s a win-win-win-win-win.

So, anyway, that’s the why. I think it gives you a little bit of a background about where I’m coming from. Now, let’s get into the how and what.

As you might know, when I launched, I decided to use the website Kickstarter as a basis for seed money. If you want, you can watch the original video and read the whole idea there, but I’ll give you the quick and dirty, so I don’t have to think about somebody watching it again (I’ve only ever watched it once, I find it unbearably embarrassing to watch myself on video). After going to the Craft Brewers Conference for the second time in a row – the first as a beer-interested blogger, the second as a panelist talking about social media – I came home feeling ridiculously inspired (it’s hard not to at the CBC) and decided, with my lovely wife, that it was time to launch the brewery. At the time, my wife was still in graduate school so the idea was to launch using Alternate Proprietorship (AP) to create a mobile brand.

If you’re not familiar with AP, it’s sort of like contract brewing – you’re using somebody else’s facility to make your beer, but instead of hiring somebody to do this work for you, you do it all yourself. You are in legal possession of the brewery for, say, a day. You are technically renting the entire place and it is your brewery for that time span. It was originally designed for the wine industry. Since wine spends so much time aging, there is a lot of time in any given winery where equipment is not in use. AP allows multiple wineries to use the same space for startup, and allows a winery to capitalize its assets a little easier, since they can get money off of the equipment even while they are not using it themselves. The trick is that in order to be licensed for AP, you need to show the TTB a business plan that states that you are working toward creating a brick-and-mortar brewery at some point. Incidentally, the two most well-known AP breweries out there that you might have heard of: Pretty Things and Stillwater.

So, that was my plan. Knowing that my wife would soon be graduating with her Ph.D. and not knowing where the job market would lead her, I decided that starting an AP brewery would be a really interesting project. If it launched and did well, I could probably move myself and keep the brand with me while still staying in my current market because, at absolute worst, I could always make the beer somewhere else and ship the beer down OR I could just go back to my original location on a regular basis and brew some more. I spoke to a bunch of breweries in North Carolina and got a fairly good response that, yes, we might be able to make room for you, get everything put together and let’s talk. That’s when the Kickstarter campaign launched.

As you can see from the little widget above, the Kickstarter campaign was successful. Asking for $40,000 was a bit of a gamble – it was a pretty high goal for Kickstarter at the time (still is one of the higher ones) and there had not, at that point, ever been a brewery successfully funded on Kickstarter. A few had tried before me. One had failed well short of its goal and one never even got a pledge. Not one. I think that a lot of my success with Kickstarter was just being in the right place at the right time. I was able to market myself on the crest of a wave of social media interest in the craft beer world, and it worked really well to spread the idea wide. On top of that, I have incredibly generous friends and family who were able to help boost my dream to the edge of reality. That said, I personally know less than half of the 243 people that backed me (though I’ve met many since then, and they’re really awesome people).

On top of the Kickstarter campaign, as I was working up a business plan, it became increasingly obvious to me that $40,000 was not going to be anywhere near enough to start an AP brewery, or even a contract brand. $40,000 will probably buy kegs and a cold room. So, I also worked at putting together some larger investors. This is where generous friends really come in to play. I’ve been lucky enough to assemble a team of five investors that I’ve known for years. They are excellent friends from college, old roommates, and drinking buddies who, for some reason, believe in me enough to help me see this through to reality and allow me to retain creative control over the company. In return, I have given them one of the best pickup lines ever (“I own a brewery”) and will hopefully give them a return investment that will be worthy of their trust in my vision.

The Kickstarter campaign ended in July, and the investors were all wrapped up in September 2010. We had an Operating Agreement in place, we had a company formed, we had money in the bank, recipes, and a plan. I gave notice at my job so that I could focus on getting the company off the ground. That happened at the end of October 2010. The only thing we needed, then, was a brewery to brew in. And so I started going back to people that I had conversations with and that’s when I hit my first hurdle:

The craft beer industry in North Carolina is doing great. At first blush this doesn’t seem like it should be a problem, but that’s when I discovered the problem with AP in the brewing industry: it really requires a brewery that isn’t doing well or, at the very least, is not growing. By the time I put everything together, every brewery in North Carolina was operating at capacity. It stopped me in my tracks.

In retrospect, I really should have seen that coming. It seems like such an obvious problem and I can’t figure out why I didn’t realize that it would happen. We switched gears quickly and started looking at doing just regular contracting – the idea being that if I could just get some beer on the market and start making a little bit of income it would give me time to get AP going. Or, that by getting myself on the market and showing proof of concept, it might be easier to get a larger chunk of money together to get a brick-and-mortar brewery going. So, in November 2010, we officially switched gears to getting contracting off of the ground.

Let me take a moment with an aside to tell you that I’m not really a big fan of contract brewing. I’m a little bit of a control freak, and I want to be able to be in charge of every aspect of my product and company. To basically send my recipe off to someone else and trust them to make it right is a pretty big leap for me. I’ve always been a believer in “if you want something done right, do it yourself.” It’s probably the only-child in me. But, I wanted my company to work, so I started looking at contracting.

Here’s the thing about contracting: Most places that contract aren’t really interested in doing a lot of really creative brewing. Most of my recipes involve rye, unmalted grains, or some sort of weird spice addition or other. I really like balancing flavors from all different parts of agriculture, and I think I make some really great beer. But go to a contract brewery and say, “I want you to make a beer with 60% rye in the grist and throw 15 lbs. of hibiscus flowers in” and most of them reply with something along the lines of, “You can use this pilsener malt, or you can go home.” The really big contractors require you to use the ingredients that they have on hand. I have my own proprietary yeast for my saison and a lot of people don’t want to even consider that. The smaller ones will do it, but want to charge you extra for weird shit, even if you’re willing to provide said weird shit. But in the end I ran into a more familiar problem:

All the contractors I contacted were full. I actually came within a few hours of signing contracts with two separate brewpubs in different parts of the country that had some extra space to rent and interest in helping me do the wacky stuff, but both contacted me at the last minute to say that they couldn’t do it because they just closed on distribution contracts that would – you guessed it – require them to operate at capacity. The only contract brewery that I was able to get solid response with was Lion Brewery who does contract brews for a bunch of people. You can use their ingredients… all 6 of them, or something like that. You can use their lager yeast or their ale yeast, and the minimum order is 300 bbls. Basically, it meant that if I contracted with them not only would I have to throw out all of my recipes, but I would be stuck with 600 1/2 bbl kegs of this beer to move before it went stale. There was no way it would work.

It took a few months of getting turned down by contractors to get me to decide that starting a regular brick-and-mortar brewery would probably be the best way to go. I spoke with my investors about it and gambled a little that my wife would be able to find a job somewhere nearby post-Ph.D. (She didn’t – so begins The Commute.) and made the plunge. The business plan officially changed over around January of 2011 and I started working on securing enough money to get a small brewery off the ground. I got my first quotes on equipment in and applied for an SBA loan to get everything going.

Thus starts the section in which I will, against everything I would like to do, not name any names.

What happened from January through April of 2011 is that I got dicked around, and dicked around hard, by a financial organization that will remain anonymous, but about whom I have written long and detailed letters to the North Carolina Attorney General. The long and the short of it is that after months of receiving nary a phone call or e-mail response back from anyone after literally hundreds of e-mails and messages, and not wanting to start down another path for fear of mucking up the first one, I finally got turned down for my loan (in reality, I am positive that they never once even looked at the paperwork). During those months I was pushing in every way I could. I kept moving marketing forward, I was paying rent, me, utilities, supplies, test batches, and everything. Basically, I was shedding money and seeing no possibility of income and for a while I was really thinking that I was going to be looking at returning money to my investors, taking a huge personal loss, apologizing to everybody that funded me via Kickstarter and calling it a year.

In May, though, things started to turn around a little. First, enter the awesome North Carolina craft beer industry. In my time working the the Brewer’s Guild, I’ve ended up becoming good friends with people at a few local breweries. Namely, LoneRider, Fullsteam, and Natty Greene’s, among others (I really, REALLY, like the Roth brothers). After lamenting about my problems to them over a few beers, they graciously put me in touch with a lot of their personal contacts and, wonderfully, they put me back on the road to bank funding. Soon afterwards, I found some good deals on used kegs and a used cold room, and I started to feel the tepid breeze of progress again buffet my sails. I can’t say enough about how amazingly generous and helpful the local industry has been to help a potential competitor open its doors. It’s astounding and humbling to have peers like this.

At around the same time, I started looking for new space around Hillsborough, NC where I wanted the brewery to be based. The space that I had been renting was perfect as a storage space when I was going to be doing AP or contracting, but it was small and required an enormous amount of upfit to make it a reasonable space for a real brewery. On a whim one day, I walked into the renovated Eno River Cotton Mill (now the Hillsborough Business Center) and found.. well.. I found a brewery.

I found a space three times larger than the one I was currently in. It already had trench drains, a loading dock, office space, ventilation, and a 3″ water main. Above all, it had a landlord who was excited at the prospect of a brewery moving in. We have been working together for a few months to make it work and I am happy to say that I signed a lease to move in this week. He’s giving me a great deal and in return, I’m hoping to help revitalize that corner of Hillsborough and make his business center a new center of commerce.

Within the past week, I have received great news from the bank that my good friends in the NC beer industry put me in touch with, and I hope to sign paperwork next week that will make it all a reality. I have met with manufacturers to talk about custom-building a brewhouse for me. I will be moving in to my final space as soon as the previous tenant finishes getting all of their stuff out, and I feel generally more positive about the state of Mystery Brewing Company than I have since I originally put the project together last year. I feel, with confidence, that I will be operating this year.

There’s still a long way to go. the equipment has to be built, shipped, and installed, there’s a lot of TTB licensing and processing to get through and that can take months (and months and months), and there will probably be another one of these book-length posts explicating all of the things that have been happening along the way, but it’s all moving forward.

So that’s “how the brewery is going.” It’s a long and complicated path to startup, but in the end I feel like it’s been worth it as everything has started to come together, and I can finally say that I look forward to sharing a pint of Mystery Brewing Company’s beer with you soon.

À votre santé,
Erik

Tags Tags: , ,
Categories: brewery, history, industry, Mystery Brewing Company, startup
Posted By: erik
Last Edit: 24 Jul 2011 @ 09 47 AM

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Responses to this post » (14 Total)

 
  1. So interesting to read about the process, Erik! But, at the end of the day, I see progress and I, too, can’t wait to enjoy a pint of Mystery Brewing beer with you (though maybe not the banana-y sour we tried in class, at least not until it’s done!)

  2. jweaks says:

    Good luck. Given the success, so far, of the other new businesses at that location, I think you will do well.

  3. Adam says:

    First, a big congratulations! Second, thanks for sharing your experiences. As someone with similar dreams, it’s inspiring while being a good dose of reality.

  4. Great read. Good to see things have turned around. Always enjoy the beer at the Exit Events and I will definitely have to take a trip to Hillsborough when you are up and running.

  5. Jon says:

    Great news Erik and a fantastic update; from one long-winded beer geek to another.

  6. Great post, Erik. You really convey all of the emotion that goes into the process, good and bad. It was great to chat with you last week and I look forward to hearing about your continued progress. As I said, don’t hesitate to ask if you ever need a hand around the brewery, helping install equipment or anything like that. I would love the experience.

    • Ayu says:

      Casey -Your faith and tender heart are woerndful comforts. I recently had a baby boy who is fortunately healthy. Your situation has reminded me of how important it is to thank GOD daily for your family. I have been struggling with the fact that I could not stay home with my son every day -but had to return to work. I have been selfish and feeling sorry for myself. When I learned of your Asher I was convicted to be thankful and rejoice that my little one is with me. While it may not be much of a comfort to you your situation is not for nothing. The LORD is using you and your rock solid faith as a lesson and encouragement to others. Your Asher has affected so many lives all ready -know that his life has impacted many and that Jesus is holding him on his lap while he waits for you to come home!

  7. Russ says:

    Yet again, I read something and start twitching to move to NC. Thanks for the update on the struggles and the successes, Erik. Beer always tastes better after you’ve put in a hard day’s work; with everything you’ve put into Mystery, I imagine every sip of forward progress must taste pretty divine.

  8. Scott says:

    Excellent news, Erik. As you’d probably agree, anyone starting any business is usually a parade of mistakes, delays, and small wins. The trick is always to keep persevering, and you’ve been fantastic at that. Congratulations on the progress so far!!

  9. erik says:

    I think I am now ready for some big wins or, at the very least, some income. :)

  10. [...] end this week by linking to an excellent blog post from Erik at Mystery Brewing, the first brewery to be successfully funded through Kickstarter. He details what he’s been [...]

  11. [...] article is a followup to The Long Winding Path to Startup, call it part of the Mystery Brewing startup series, if you [...]

  12. [...] brewery. I won’t go through that whole story right now, because I already have. Read it here. We’re not a nano, but we’re not huge. We are, however, having a [...]

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