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Risk and Reward and Risk and Reward

 

I’m not sure exactly what I was thinking, but somehow I had this idea in my head that I’d take all my risk up front in getting Heretic off the ground and once it was past a certain point, there would be a lot less risk. Ah, poor, simple fool.

We started out sharing a building and some brewing equipment with another brewery, so our costs were lower, but we still had to come up with a considerable sum to fund the fermenters, kegs, delivery vehicle, malt, hops, yeast, employee wages and more. Once the beer started flowing out and cash started flowing in, I thought the bulk of the risk was past.

The problem comes with every little step in brewery growth. If you want to grow at all, there are surges of capital that are required. When the need is relatively small, like buying another couple of pallets of kegs or more coasters, then it is not a big deal. Your revenue model should allow for a few thousands of dollars in these kinds of purchases, but it gets a lot trickier when you want to do a major expansion.

Purchasing a fermenter is not a small a small expense for a new brewery. And don’t think the cost is just the price of the fermenter. You need other pieces and parts to get it set up and fermenting. Valves, controls, hose, shipping, and even the down time while messing with installation add quite a bit to the costs. The good news is that fermenter starts paying for itself pretty darn quickly once it is installed, so you can recover the cost fairly fast. Still, you need to come up with the money in advance and it can take quite awhile before a fermenter can be built and delivered.

It gets even worse when you are looking at making a big move, as we are now. We have reached maximum production capacity in our current location, so we are on the hunt for a new building, a brand new brew plant, more fermenters, and more of everything. It is a large sum of money and a lot of risk. I suppose the risk is a little more tolerable, since we are already selling beer, but the amounts involved are not repaid quickly like a single fermenter. The way the world is now, nobody loans money to a small brewery without the people involved making personal guarantees with things like the house they live in, so the potential for a crushing personal financial loss looms large when attempting an expansion of this size.

Of course, one thing I learned quickly is that this isn’t an industry for the faint of heart. There are risks at every turn. If you don’t have the nerve to take on those risks, then you don’t get to experience the rewards. You want bigger rewards? Then you need to figure out how to fund bigger risks.

6 Comments

  1. Dan Stilwell says:

    Congrats on the medal at the GABF. I have no doubt with the quality of your beer you will have no problem making it a success. Now you need to start shipping to Washington.

  2. Nick Corona says:

    Excellent points & great fodder for aspiring brewers. Thanks Jamil.

  3. David Guzman says:

    Thanks for all the information you give us. you been such a inspirational person to me. really thanks

  4. Andrew Johnson says:

    I don’t know if a brewery has ever enjoyed such a strong base of moral support from the greater home brewing community. We wish you all the best and will continue to buy your damn fine beers.

  5. Johnny MAX says:

    This post is so true!
    And the work and time involved consumes your whole life, but the rewards are so worth it 🙂

  6. Brendan says:

    This place just opened near my house. I’ll be making regular appearances here for sure. Great beer, love their Red!

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