Essential Advice for Alcohol Entrepreneurs
By Tina Caputo
Shifting from working in beverage alcohol to owning a drinks business is a daunting step, whether the goal is to launch a winery, start a brewing operation, or open a retail store. Questions and considerations abound: Where will the funding come from? What kind of licenses and permits will you need? Is it better to go it alone or team up with a business partner? Seasoned operators and new entrepreneurs share their insights—and hindsight—about what prospective drinks business owners should know before taking the leap.
Reach Out to Others
Experienced business owners agree that one of the most useful steps before launching is to reach out to other business owners with questions. Often, they are eager to share information. “My experience has been that entrepreneurs are more than happy to talk to people who want to open their own businesses, because they know how hard it is,” says Damien Carney, the founder of Avinage in Petaluma, California.
Carney opened his shop in April after working for years as a sales director and portfolio manager for wine importers in New York and California. “I just asked people: How is your operation structured? Do you have investors? How much did your store buildout cost?”
Drew Fox, the founder and president at 18th Street Brewery in Gary, Indiana, began his career as the food and beverage manager at a Chicago hotel. While working in the hospitality business, he met Josh Deth, the founder of Chicago’s Revolution Brewing Company. “He kind of wrote my business plan in his brewery,” says Fox, “and he gave me some pointers on how to run a business.”
Fox also gathered insights from Beejay Olson and Gerrit Lewis, the founders of Pipeworks Brewing Co. Fox worked at the Chicago operation for two years before launching his brewery and taproom in 2013. “Beejay and Gerrit were awesome because they were just starting their business as well,” he says. “They shared knowledge with anyone who walked through the door.”
Do the Research
Though learning on the job can be a significant advantage for would-be business owners, it doesn’t provide all the answers. Filling in the gaps can be as simple as consulting “how-to” books or visiting the Small Business Administration (SBA) website for guides on everything from writing a business plan to choosing a company structure.
“A book I found at my local library, The Small Business Handbook, had all this information about the different ways you can do funding,” says Carney, “and it went over things like types of licenses and business entities. It really does a remarkable job of guiding you through a lot of the nuts and bolts.”
For winemaker Sashi Moorman, research took the form of extensive tasting. Moorman began his career at The Ojai Vineyard in Santa Barbara before becoming the winemaker at Stolpman Vineyards in Los Olivos, California. In 2009, he launched Provignage, a winemaking consulting business. He then partnered with sommelier Rajat Parr to found Sandhi Wines and Domaine de la Côte in Santa Barbara County, along with Evening Land Vineyards in Oregon’s Willamette Valley.
“The most important piece, for me, was the amount of time and investment I put into learning about and drinking fine wines,” says Moorman. “How are you supposed to know how to make great wines if you don’t know what great wines are?”
Fox admits that he didn’t do much formal research before opening his brewery, though he did read books on beer styles and brewing. In hindsight, he wishes he’d learned more about accounting and taxes. “I didn’t know enough outside of raising money,” says Fox. ““You’ve got to pay a multitude of taxes, from state excise to federal excise to employment tax. Early on, we made accounting mistakes. They didn’t jeopardize our business, but we were like, ‘holy shit, no one told us that we had to pay those taxes at this time and that time.’”
Make it Legal
With different liquor laws in place for each state, the beverage alcohol industry is a tangled web of licenses, permits, and compliance requirements. Engaging a legal advisor with specialized knowledge can help new entrepreneurs navigate the maze.
“At the very minimum, to apply for licenses, beverage entrepreneurs need to determine where they’re going to operate and under what business structure, whether it’s an LLC, corporation, or sole proprietorship,” says Rebecca Stamey- White, a partner at the alcoholic beverage law firm Hinman & Carmichael in San Francisco. “There are many ways to get into this business, so thinking through the right licenses for the desired route to market is essential.”
With the exception of retailers, which generally do not hold federal licenses, all other businesses typically must obtain both state and federal licenses. In some cases, there will be additional local permitting and registration requirements.
“Every state has a different offering, and not all business models are available in all states,” Stamey-White notes. For example, not all states offer “virtual licenses” (where a brick-and-mortar location is not required), and many do not grant retail sales privileges to producers such as distilleries. Information about licensing options is typically listed on the Alcohol Beverage Control (ABC) website for each state. Understanding the multitude of options and restrictions can be daunting without professional help.
That’s why Melinda Kearney turned to a team of experts when she set out to launch Lorenza Wine in California with her daughter Michèle Ouellet in 2008. “We started our LLC and hired a lawyer to apply for the basic permit and ABC licenses,” says Kearney, who worked in wine sales, production, and marketing for 30 years before opening her California winery. “I also hired a compliance person right away to do our out-of-state licensing and reporting.” As a winery without its own production facility or vineyards, Lorenza operates under an 02 Winegrower permit, which allows the company to make wine at another vintner’s facility.
Applying for permits and licenses may not be the most glamorous part of starting a beverage alcohol business, but doing it early on and in the correct order is essential. When preparing to open Avinage,
Carney focused on the “fun” part—tasting and selecting wine—and put off involving local regulators in the build-out process for fear that it would lead to extra red tape and unnecessary permits. Now he feels that it’s better to know the requirements up front.
“That was the big thing that I screwed up on,” says Carney. “I thought I could do certain things [without permits], but I hadn’t really dug into investigating whether my assumptions were accurate.” After avoiding engaging with municipality officials for months, he discovered that he did need additional building permits. “As a result, my opening was pushed six months,” says Carney. “I was not making money, yet I had to pay rent and I was still spending on materials and contractors.”
For Fox, the difficulty was in getting the city of Gary—which had never before hosted a brewery—up to speed. “They didn’t understand what a brewery was or what the process was,” says Fox, “so there was a lot of red tape and it took longer than it should have.”
There are myriad approaches to funding, from getting a small business loan to taking on investors. Finding the right fit will depend on the business model and available resources.
“The wine business is incredibly capital intensive, and one of the most important things to understand is that it’s very difficult to be successful with any kind of debt service,” says Moorman, who funded his first business with a combination of private equity and angel investors. “It’s very hard to succeed when you are borrowing money and you have to pay interest. I’ve found that it generally takes 10 years for a winery to reach its maturity, and it’s very difficult to carry 10 years of debt before a business is successful.”
Carney calculated that he needed approximately $200,000 to get his small retail business off the ground. He initially considered investors, but ultimately decided to take out a loan. “Yes, it’s fun to get other people’s money, but then you are beholden to them financially and now those investors have a say,” says Carney. “Unless they are completely silent partners, and good luck getting that, you are handcuffed together as a business entity. If you want to separate from that setup, that’s a divorce.”
Fox launched his brewery by selling some of his assets and raising $35,000 through a Kickstarter campaign. “Later,” he says, “I brought on a few investors to help the business grow.” Kearney self-funded Lorenza for years, keeping operational costs low by not having to invest in a winery facility or vineyards. As the business expanded, she took out an SBA loan and opened a line of credit.
Find a Good Partner
Another approach is to team up with a partner, as Moorman has done with all of his wine businesses. Not only does it assist with financing, it can bring in complementary skills and perspectives.
“One of the things that I hear repeatedly in business is that it’s lonely at the top,” says Moorman. “I don’t think they mean that it’s lonely being at the top of the pile; it’s just lonely being responsible for everything by yourself. You have to make all the decisions and that’s enormously difficult.”
A great business partner, Moorman says, is someone who is completely aligned with your own strategic goals, and has skills that you appreciate and admire. “Partnerships fail because someone fundamentally has different values,” he says. “You have to communicate a lot.”
Due to financial limitations, many small business owners delay hiring employees when they are just starting out. Going it alone may be tempting, says Carney, who hired a part-time staffer about a month after launching, but it can be damaging to both your business and personal life.
“You need at least two people on the floor if you are even remotely busy,” says Carney. “If you’re ringing someone up and another person comes in and isn’t able to ask questions, they get frustrated and walk out, and you’re going to lose business.” Not only that, he adds, you will burn out quickly because your business requires your constant presence. “If you can’t walk away for more than a few hours or take a day off,” says Carney, “then what are you doing?”
Trusting employees with your “baby” may be difficult, notes Moorman, but it’s necessary. “What you learn when you are running a business is that eventually it’s impossible to control all the pieces,” he says. “You have to delegate and you have to hire great people. You have to empower them and give them responsibilities and accountability.” Fox kicked off his brewing business with a staff of five, and now employs 55 people across three locations. Along the way he has learned to hire for talent rather than for skill.
“Someone who comes in with talent is hungry,” says Fox. “They’re basically going to inject themselves into a business operation and run it as if it were their own. Those are the people who are really going to help you propel the business with creativity. Someone with skill is going to basically work their eight hours and go home.”
Spread the Word
The next challenge after starting a beverage alcohol business is getting the word out to potential customers in an increasingly competitive market. Lorenza Wine maintains an active Instagram account that often features Kearney’s daughter—an international model with connections in the beauty and fashion worlds. “Michèle is really visible,” says Kearney, “so that’s been fortunate.”
Though Fox has a robust presence on Instagram and Facebook, he emphasizes the importance of building business relationships in the real world. “Walking in to see someone [in person] is your opportunity to talk about what’s coming down the pike. It’s keeping those dialogues open,” he says.
Carney began marketing his wine shop long before it opened. Months prior to launching, he created an Instagram account and hung butcher paper on the storefront windows stenciled with the message: “Coming Soon: Avinage Wine Shop.”
When meeting people in his personal and professional lives, Carney never misses an opportunity to mention his business. “Be shameless about marketing yourself,” he says. “All the businesses that I go into in Petaluma, I tell them I just opened a wine shop around the corner and to come check me out.”