How Jim Koch Started Boston Beer Company

From Guy Raz at the How I Built This podcast:

I listened to this podcast today and came away with lots of notes. It features Jim Koch, the founder of Boston Beer Company. Their flagship beer is Samuel Adams Boston Lager. My notes are below:

His dad had been a brewmaster since 1948, as had the previous four generations of Kochs before that. Jim started his company in 1984. His dad told him brewing was a miserable way to make a living.

He learned after college you don’t need to earn that much money if you really enjoy what you’re doing.

He worked as a consultant for a bit after leaving college and the businesses that fascinated him were the outliers. The outliers are where you learn the most. They are the niche businesses that find a market they can tap into. The beer example that fit this outlier philosophy for Jim was Anchor Steam out of San Francisco. That told him it could be possible to be a craft brewer.

There is a difference between something that is scary and something that is dangerous. Some are one but not the other, and vice versa. Scary but not dangerous: Repelling backwards off a cliff is scary, but a rope that could hold a car secures you. Dangerous but not scary: walking at a 35-degree angle across a snowfield on a beautiful sunny day in May. It seems pleasant but those are conditions ripe for an avalanche. For Jim, staying at his consulting firm: dangerous but not scary. The danger was continuing to do something that did not fulfill him, and then reaching 65 years old and realizing he wasted his life. That is risk in his mind.

Jim’s differentiator with his beer business was he would not be competing directly with Bud, Miller or Coors. In addition, he knew the beers people considered the best in the world (Beck’s, Heineken, etc.) were not the best beers in the world either. He could create a better flavor structure for a beer and it would be fresher for US consumers than the more stale beer being shipped from overseas.

First thing he had to do: find the best brewmaster in America to help him. The man he found combined practical experience with scientific know-how. He turned Jim’s offer down at first, knowing Jim could not pay him enough. He got him on board by giving him 2% of the company.

They knew there were breweries out there already, so they would rent that space, brew their beer, and package it. They did this for several years before getting a brewery of their own. They did not have an office or a telephone starting out.

His calculus: am I spending money on something that will make the beer better? If not, do not spend it.

He got the first recipe right after tweaking it for several months.

His father told him that starting a business is lonely and to look for a partner to work with. He wanted to find someone that had the skills he did not have, and he realized he already had that person in his 23-year old secretary, Rhonda. She had no college degree but could do everything he could not.

All five beer distributors in Boston turned him down the first time he went to them. They only wanted light beers. They also scoffed at the lack of professionalism of his operation: no marketing plan, no advertising budget (because they had no money), and only two employees.

The only way he got business was putting 7 cold beer bottles in his briefcase with 2 cool packs and cold calling bar after bar serving samples to try and convince owners to pick up his beer. He had never sold anything in his life prior to that. The key to getting trial from bar managers was 1) the beer was already cold, and 2) after quickly opening one, it needed to be consumed by someone. That got managers to try the beer on the spot before they could kick Jim out.

Launched in 1985. 6 weeks after Sam Adams came out, it got named the best beer in America at the Great American Beer Festival.

They were profitable from the first full month. It was the ultimate lean startup. Did all their phone calls from pay phones. Had no office.

There were only two things he knew they needed to do: 1) make great beer consistently, and 2) work their butts off to sell it.

Initially he grew it one bar at a time with a rejection rate from bars of 95% (1 new account for every 20 calls). Being named best beer in the country gave a jolt to demand.

His goal at the start was $1 million in sales within 5 years. Instead, it took him 5 months.

He realized early on that the potential of this was a lot larger than he originally thought. He knew they were climbing a mountain, and nobody climbs a mountain to get to the middle. If they were going to do this, they were going to climb it to get to the top. The top for him was to become the largest, most respected of the high-end beers in the United States. That could be a 30 or 50-year journey. He still does not believe they are there.

If you are right about something important, push it. He did this when he attacked the import beer brands in the 1990s for not being as high quality as drinkers perceived.

They have 1,400 employees today at an average W-2 compensation of $70,000 per year. He is proud to be supplying good jobs.

He admits a lot of it was luck. A lot of things didn’t go wrong that could have.

He never imagined the success they would have and that there would be 4,500 craft brewers in the country today. The United States has gone from the laughingstock of the beer world thirty years ago to being the best in the world today.