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

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

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 10 Jul 2011 @ 2:02 PM 

Episode two is here, in which we discuss festivals, growlers, and a multitude of other good things and finally come up with a name (thanks Luke!): Pint/Counterpint. We’ll let you decide which is which.

What do you think? Have comments about festivals or growlers, retail or otherwise? Comment below!

Find yourself saying Episode two? Wait! There’s an Episode One as well. This one has better lighting.

Any topics you’d like to hear us pontificate about? Let us know! We’ll probably take you up on it.

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I have this really basic problem with the craft beer industry. Well – it’s not really a problem, per se, so much as a difference of ideals.

For all that craft breweries talk about how different they are from the Big Boys, they really trend toward the same: a flagship beer with a few supporting brands. As brands expand the key word isn’t “flavor” it is “consistency.” Based on what I hear at the Craft Brewers Conference, from personal discussions and advice through panel topics, I’d say that everybody’s ultimate goal is consistency over anything else.

There’s a lot to be said for consistency.

I truly believe that every great brewery has its own character. It’s an over-arching flavor or terroir, for lack of a better term, that is infused into all of that brewery’s offerings. Maybe it’s due to the equipment, or something in the process, or even just a certain ingredient combination that they use a lot – it doesn’t matter. There needs to be consistency in that character. You also want consistent quality in a brewery. A brewery should always be striving to make great beer. Will you make one every once in a while that’s just good? Or that maybe needs some work? Sure. Absolutely. Shit happens. (Heh.) But you need to learn from those mistakes to make that beer better, or know when to cut your losses on a recipe. The goal should be “consistently great beer.”

But when you’re talking about what it tastes like? Consistency is just insane. Similar? Sure. But always consistently the exact same? You’re ripping the soul out of the beer. You’re talking about using a palette of constantly changing agricultural ingredients and an actual live organism to make the exact same product every time? You must be joking. That’s like saying that you’re going to go to the art store and buy completely different paints, canvases, and brushes every time you shop and paint exact replica pictures. Will you get close? Sure. But exactly the same? Not unless you take some of the “art” out of the art.

What if the wine industry valued consistency over variability? Would there be as much mystique about different years, vintages, and terroir? If the agricultural differences between each field and batch of grapes were all blended out of the wine, would people buy case after case for aging purposes?

In beer, why do people age special release beers if not for that variability? If all beer tasted the same after aging why would people bother to buy different years and compare them? What’s the point of a vertical if everything tastes the same?

Craft brewers see a constant stream of variable products. The alpha acid content in hops varies from year to year and even from field to field. You can adjust how many hops you’re including in your recipe to keep the bitterness the same, but that will invariably change the amount of essential oils you’re getting – and even those essential oils may change depending on those variables… or others, like when they’ve been picked.

Malt changes from year to year, from field to field, and from maltster to maltster. Can we work to blend away these changes and to reduce any character influence these agricultural changes have on the final product? Certainly. But isn’t that what we snobbishly accuse AB-InBev of doing all the time? I remember one of my instructors at Siebel saying that there is something like 60 batches of beer blended into every can of Bud. Why? Consistency. They know that each batch tastes slightly different, for a variety of reasons. They also know how to achieve consistency to an amazing degree.

And what’s the buzzword I hear around the craft industry? Consistency. Why are we working so hard to emulate those we work so hard to distance ourselves from?

I don’t want to fall for it.

This is why I like to tell people that at Mystery Brewing Company I’ll never make the same beer twice. It’s not completely accurate, of course. I’ll be making the same recipe over and over again, but rather than try to minimize every single variation between the batches, I’d like to celebrate them, tell people that they’re there, why they’re there, and why they should be enjoying them.

“We had to replace Hop X with a similar one, so in this batch you should tastes notes of A, B, and C instead of the normal X, Y, and Z you’re used to tasting.”

“It was really hot in the brewery while we were fermenting Batch 9 of Evangeline, and we think it is a little fruitier than previous batches.”

But don’t get me wrong – it’s not about having a lazy process or being transparent about having a lazy process. The plan is to work hard to make every batch of beer as good as it can possibly be, and then to give as much information as possible to the drinker to let them know what is going on. What’s the malt bill? What hops were used? What yeast? How is this different from other beers that we’ve made? How is it the same?

One of the things that I’ve learned over the years as a homebrewer and a drinker is that the more I learn about a beer, the more probable it is that I’ll enjoy it and others like it because I can made educated and informed decisions about it. The craft industry lacks this as a whole – we strive for sameness and we don’t tell anybody what we don’t have to tell them, sometimes not even alcohol content.

I want to change that, and I feel like the only way to do it is to do it myself.

Consistent quality, but real beer has variability. That’s my motto.

À votre santé,
Erik

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 25 Jan 2011 @ 3:14 PM 

And before you ask me to never use the word “sluice” again, here’s a lovely picture of a sluice from Wikimedia Commons:

I would also like to relay that “sluice” is a surprising safe Google Image search.

We will now carry on with our regularly scheduled blog post.

So, what’s coming down the sluices!?

I’ve been conspicuously silent across both this blog and Mystery’s blog (where this, incidentally, is being cross-posted, if you’re reading this at Mystery’s blog, you may want to check out Top Fermented), for the past couple of weeks and that’s primarily because my days have been turned into a twisting mass of odd jobs, manual labor, staring at the wall waiting for inspiration, and alternately burying myself so deep into work that I forget to eat. A good chunk of this has been keeping me away from writing.

But it hasn’t been keeping me away from the computer. More on that in a sec.

I’m on a more regular schedule now, where I’m actually spending 3 days a week “at the office” so you should be seeing a few more blog posts popping up here and there.

Also popping up should be the fruits of (some of) my labor, so here’s a little preview of what to expect in the next couple of weeks:

Educational Opportunities

In case you haven’t heard, myself and a couple of excellent friends organized and hold a monthly beer Meetup here in the Triangle in NC called Taste Your Beer for lack of a better, more inspiring, name. It’s been received pretty well and people seem genuinely excited to learn more about beer – not how to make it, but how to enjoy it, and just more about beer in general. So when I heard that there were upcoming Cicerone exams coming to Raleigh, I had the idea to make a study group for it.

However, after thinking about it, I thought – why limit this to just people who want to become Cicerones? Lots of people want to learn about beer but don’t necessarily have the desire (or the work experience and wallet) to become Cicerones. That’s why, starting in February, I’ll be offering beer education classes at my location at Mystery Brewing. It’ll be an 8 week class meeting once a week (with a few exceptions) covering beer from ingredient cultivation to serving and food pairing including off-flavors and style samples. It will cover the Cicerone exam content thoroughly so if you, like me, want to take the Cicerone exam in April or June, then this should act as an excellent study guide. However, if you just want to learn about beer then that’s cool, too.

Look for more information about these classes popping up in the next few days. We need to get going soon to be ready for the Cicerone exam AND the World Beer Festival.

New Website

With a new brewing company comes a new website. The blog over at mysterybrewingco.com will soon be going away for a more robust website with some features that I think will be fairly interesting to people. Among them are the normal kind of website things: discussion boards, a news feed, info about the brewery, social media and that sort of crap. But here’s a little preview of some of the other things I’m working on (not all of which will be up and running immediately):

  • A check-in point/badge system specifically for Mystery Brewing. Think FourSquare, or Untappd except you actually have the chance to get REAL REWARDS if you earn the right badges: Discounts on brewery merch, beer, private brewery tours, beer, t-shirts, beer, stickers, and probably, at some point, beer. This should launch with the new website, even if beer won’t.
  • A Mystery beer genealogy tree. I am quite proud of the fact that all of my beers started as homebrew recipes, and I am telling you now that they are all going to evolve over time. Recipes I have now may spawn other recipes in the future. This beer genealogy tree will be a way to find out how all Mystery beers are linked together, batch to batch over time. It will serve as a means as helping people find out both what they enjoyed about a beer and what new beers they might enjoy. Once all the equipment drops into place and Mystery beer starts hitting bars and restaurants, this will also serve as a way to track which batches of which beer are out in the public and where you can find them.
  • An ongoing art contest. I am a big fan of the arts in general. I went to an art school for my undergraduate experience and was, shall we say, intimate with the art school, even though I was only a performing artist, myself. I would like to take the opportunity to showcase art through Mystery. In specific, I will be announcing an ongoing art contest of sorts through which artists of any sort – professional, amateur, painters, web comics, whatever – can submit artwork for use to represent beer in our repertoire. The artist who’s work is chosen will receive money in return for the use of the art, as well as a royalty for every piece of (non-packaging) merchandise sold using the artwork. (Since we won’t be in bottles for a good long time, we’re talking posters, t-shirts, etc.) More details on this later in the spring, but artists, start thinking Evangeline.
  • Weekly updates on progress in the brewery. Things are starting to pick up speed and while anybody who is part of the classes up above will be able to see things starting to pop up around them, a lot of people don’t know what exactly is going on in there, so we’re going to get into some detailed updates on how we’re progressing toward getting beer on the market, even if that update is why progress isn’t being made. Back when I started Top Fermented, this is one of the things I really wanted to do is get into the nitty-gritty of what goes on behind the scenes when a brewery is opening. For the most, especially when it’s come to financing, I’ve felt like it was either a little boring or getting into detail would get into confidentiality issues with my partners. Now that we’re moving past getting money and into (*whimper*) spending it, I feel a little more like I can let people behind the curtain. Prepare yourselves to see week after week after week of.. ermm.. well… pictures of an empty cement box. Yaaay!
  • More from me about the industry in general. I’ll be folding Top Fermented into the new website. It’ll still exist on the original domain and function independently, but it will also be integrated into the new website as the brewer’s blog. It means no more separation of sites and it should mean a more rigorous update schedule. It might also mean that I piss more people off that I probably want to retain the respect of as I voice my opinions, but.. ermm.. well.. that sucks.

    Okay – this part isn’t nearly as exciting to you as it is to me. Still. I’m excited.

Kickstart-y Goodness

And no, that doesn’t mean that I’m starting another Kickstarter project (yet), but Kickstarter backers will remember that there are still homebrew recipes to go out, Irregulars memberships to revel in, beer dinners to eat, and video chats to watch. I haven’t forgotten, and there will be movement on a couple of these things soon.

And more.. much, much more.

If I’m running into any sort of problem, lately, it’s the fact that I have more ideas for things to do than I have resources and, frankly, spare neurons for processing. The important part that my next blog post should be a snark filled rant about some sort of craft beer segment piece and not one of these lame update sessions.

But! The future is bright and there’s beer there. Join me!

À votre santé,
Erik

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If I’m going to correctly cover all my startup bases, there’s one more startup option that I need to get into: contract brewing.

I’ve been a little dicey on contract brewing for a long time. There’s a stigma against it that I’ll discuss in a little while, but first, let’s start here:

There are two versions of contract brewing.

Version 1: Contract brewing. You come up with a recipe, a brand, and a wholesaler’s license, then you contract with somebody else to make the beer for you. They package it and sell it to you. You sell it.

Version 2: Alternating proprietorship. You rent a brewing facility and do your own brewing and packaging.

I’m going to talk about them separately, because they’re really completely different animals.

Some of the most recognizable names in craft beer have started (and continued for years and years) as contract breweries: Sam Adams, Brooklyn Brewery, and Terrapin come to mind. If you play your cards right, it can be a very profitable venture where you essentially act as a middleman as experts that you hire do their work on either side of you. You pay for the beer to be made, you manage the freight for the beer to be delivered to your distributor, then the distributor does all the sales and delivery for you. Aaaand scene.

Of course, that’s where the stigma comes into contract brewing. If you’re using that model – where does the brand really exist? You, as the middleman, carry the name of the brand on your organization, but your involvements exists on a purely organizational and managerial level. You didn’t make the product, you didn’t sell it, you’re just a money-collector in the middle with a good idea. It’s why people started getting bent out of shape when Sam Adams started winning medals at the GABF way back in the day. Sure – it’s great beer – but who deserves the credit for it? The guy who made it or the guy who marketed it? Tough call.

On the other hand, for a startup brewery, this is a really smart way to go. You get to pay someone who already has equipment and licensing in place to get your product off the ground. It’s a shortcut to revenue generation and you don’t have to be the mindless drone middleman. There’s no reason you can’t be actively involved in the brewing process – go hang out while your beer is being made, make sure that recipe is being followed to a T. What’s more – you need to be set up as a wholesaler to be a contract brewer, so get out there and sell your beer and make the deliveries. You don’t have to be out of touch with the product, but you can be if that’s your cup of tea.

Alternating proprietorship is a horse of a different color. Here’s the idea behind alternating proprietorship: You are set up as a brewer in another brewery’s space. Every once in a while, on an agreement with the brewery, you take legal possession of their brewery for a certain amount of time. It’s essentially a really short term lease – like 24 – 48 hours. In that time, the brewery is legally yours. You (and your employees, if any) are the people who are in there managing the product, the equipment, and everything in between. Sounds awesome, right?

Sure, but you have to get someone to let you into their brewery.

Alternating proprietorship comes from the wine world. Wine, as I’m sure you know, has a much longer production period than beer. In a winery, you’re only ever spending a few weeks per year using the equipment to actually make wine. The rest of the time, the vintner’s job exists in the cellar managing the inventory and aging. That means that the equipment itself is free, and if someone else comes in and uses it for a few weeks it won’t interrupt the flow of business in the winery.

That doesn’t really work out the same way in the beer world. Since our long turnaround times are measured in weeks instead of years and our short turnaround times are measured in days instead of months it means that the amount of time when equipment is not actually in use in a brewery is much smaller, thus, the amount of time available for somebody to come in and rent that equipment is low.

However, if it can be done, it’s another great way to get going as a startup, and that’s exactly what it’s designed for. In addition, since you’re in ownership of the entire process (just not the equipment), you avoid the traditional stigma of the contract brewer.

For my own operations at Mystery Brewing, I had been hoping to participate in an Alternating Proprietorship but have had to change my plans and am now looking at a short-term contract and getting quotes for brewhouses. Why? It’s simple: finding a contractor is hard. The craft beer industry is doing well, and very few people have the space available to allow a contract. That means that even fewer people have space available AND feel comfortable renting their facility out on a regular basis. From my assessment, and others I’ve talked to in the industry, the feeling is that if a brewery has the ability to offer alternating proprietorship, then their business is probably failing and they’re using this to generate extra revenue. Not a bad way to go about staying afloat, but a little sad, and risky from the standpoint of the startup business. Of course, the alternative is that they’re just a really low volume brewery and doing fine, but it seems hard to believe that a brewery would exist right now with that much empty space around on a regular basis.

Still, I’d like to offer you this Pro/Con chart between the two methods of contracting. (I’ll probably update this over time as more items are either brought up to me or occur to me.)

Contracting
Pros Cons
  • Low startup cost
  • No need for brewing equipment.
  • You don’t actually need to know how to make beer.
  • No need to buy supplies, etc.
  • No brewer’s bond needed, just basic wholesaler’s permit.
  • Contract brewery handles the bulk of the paperwork, COLAs, etc.
  • Traditional stigma against contracting – hard to market to beer geeks (everyone else doesn’t care).
  • Space is a premium; it’s difficult to find a contractor, especially on a small scale.
  • It’s even more difficult to find a good contractor; you’re often required to use their base supplies instead of being able to specify your own.
  • Extra freight cost after manufacturing.
Alternating Proprietorship
Pros Cons
  • All the benefits of owning your own brewery, without the initial startup cost.
  • No need for brewing equipment.
  • You actually get to make the beer yourself, manage supplies, and manage your own brand.
  • No contracting stigma, if you can explain just what it is you’re doing.
  • Space is a premium; it’s extremely difficult to find someone who will let you use their space.
  • All paperwork falls into your hands, plus extra paperwork for the host brewery.
  • You lose control of your product while you’re not in possession of the brewery.
  • If something goes wrong while you’re brewing, the potential for incurring additional cost is high (it’s not just your equipment/beer/space, but somebody else’s.)

Read more from the TTB Industry Circular describing contract and alternating proprietorship breweries.

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Categories: brewery, industry, startup
Posted By: erik
Last Edit: 17 Sep 2010 @ 01 18 PM

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