Not enough capital to start big

[travellers]

Hello all-

I was wondering if anyone started extremely small as a means to bring in investors? Recently we were on track to start a good sized distillery, by that I mean using a 150gallom still, but unfortunately some funding I was counting on fell through at pretty much the last minute despite a solid business plan. I have been working with a business mentor at my local small business office and he suggested starting with something that I would consider an experimental sized still, 10 to 15 gallons. Once I have a product and I have made a few sales then shop around to investors as an operational dsp. Has anyone done this? It's a complete 180 from the business plan that I spent the last year working on so I wanted to get some industry feedback on the viability of the idea. Any info is greatly appreciated. Also I am located in virginia which as many of you know is a control state that has it's own issues in terms of production requirements.

Thanks

[John McKee]

Good afternoon,

You might want to consider starting a brand and then using the revenue from sales of that brand to open a distillery of the size you originally intended.

The benefits to this approach are:

1. You get a chance to see if your brand can sell in your market, prior to massive CAPEX investments.
2. You get a chance to learn marketing and sales of beverage alcohol.
3. You can get a good brand underway for ~$50K. If the COGS is modeled properly and you are diligent about marketing expenses, you can turn that into a 4x kind of return.

I know that many people (perhaps including you) are initially leery of this idea, but distilling is really a very small part of the level of effort in having a successful micro-distillery. Proving to yourself and any potential investors that your brand has legs, prior to building your own facility, is an ok way to go too.

Cheers,

McKee

[schnit]

I think you need to define what you consider "extremely small" or any variant of the wording.

For some people, extremely small means a 55 gallon boiler converted to a still.

For some people extremely small means a 100 gallon custom made copper still

For some people extremely small means a pair of +100 gallon custom made stills.

I've been planning my operation for a few months, right now I'm hoping to get a ~$50k loan with about $30k funded by myself and various fund raising techniques for a total of (give or take) $75,000.

I consider myself "extremely small", but I know others who would consider them in the same boat with 2-3x the investment that I'm considering.

(note, not all of the funds I'm mentioning are being used to open. Part for startup, part to help pay for those dark days where I'm trying to sell the 2nd bottle, and the rest hopefully I don't need and can return to the bank)

I believe the costs of opening with a 10 gallon still are very similar to the costs of opening a distillery with a larger still--capable of some (albeit small) production numbers.

Edit: Also, one of your primary problems/costs is going to be the building your distillery goes in, unless you already own a suitable building it will probably be one of the larger costs for you. I'm really struggling to find something for under $1,000 per month near me (around 1,000 to 1500sq/ft, which puts me in the "extremely small" category). This adds up to $12,000 per year, which takes a lot of sold bottles just to break even on rent.

I think if you follow your idea of starting very very small you are going to have a hard time getting anyone to invest since you will likely be quite deep into the red and losing a lot of money without the means to earn any.

[tomdallen]

McKee,

In your reply what do u mean start your own brand?????

Also what does cogs mean?

thanks

[John McKee]

Tom,

By start a brand, I meant getting a distillery to co-produce and co-pack a spirit line for your company. For instance, I could call Flavor Man and say, I would like to have "McKee's Single Malt" created and packaged. We arrange a fee for that, they produce and ship to distributors and I brand ambassador the product around.

The concept of this model is giving you a chance to ensure the product will actually sell and if so, in turn creating a warchest of cash from sales to allow for investing in my own distillery.

COGS = Cost of Goods Sold. In spirits (at least the way I look at it) this is the total cost if takes to get a bottle into a customer's hands, which includes but is not limited to;

• Bottle
• Label
• Cork
• Juice
• Packaging
• Shipping
• Taxes (federal and state)
• Marketing & Distribution Expenses.

The total of those item is your COGS. Assuming you can do that for sub $10/bottle and you can market yourself as a "premium" +$30/bottle, then you're bringing in a good rate of return and in a Co-Packing model, you don't have debt service of other expenses. Use that to build a good balance in your savings, then finance and open a distillery.

Works for some, doesn't work for others. Just another way of approaching a business that is in an increasingly over-saturated industry.

Best,

McKee

[tomdallen]

Thanks John

[Artisan Still Design]

depending on where you are located, there may be distilleries willing to sell you time on their equipment under their licence, until you are ready to go out on your own.

banks like to see you've been in the business for 6 months or so.

[Roger]

This is of course my own personal opinion, and I only throw it out for thought to the OP, as it appears he has X dollars to risk/spend, and he should perhaps look at several operational paths to possible success. It has been posted on here that a way to possibly start, is to develop a "brand" and essentially use someone else's capacity to produce "your product."

I would argue that as the craft industry is now starting to take hold, potential customers know that craft primarily means "doing it yourself" . As such perhaps you would be better off directing your limited resources into actually "doing it yourself". Unless you have the latest greatest recipes for spirits and associated cuts and aging plan, which I doubt you do at this early stage, you instead have whatever everybody else has, except the actual craft distillery.

What's the marketing slogan, " Buy my product made by Bob's Distillery, bottled by Bob, labeled by Bob, etc... But it's more better from me because its "mine" ?. That would be fine if you already owned a well know bar or restaurant, or for that matter, handbag line. If not however, you will more than likely end up spending all your money on product and marketing, and when your done, you will have some bottles of booze, and a big box of posters,

I think you would be better off trying to become an actual distiller, and put your money into a small equipment setup, find yourself a small but visible place to operate out of, and learn the craft. Build your brand through what you make not through what someone else makes. If it crashes and burns, sell the equipment . But more than likely once you get operational you will attract some financing.

Best of luck

[johnrobben]

I'd like to just go back to the original question-

Yes you can start small, I am starting with a 26 gallon still, and what I would consider a small amount of money (around $30k).

I think it's possible, just go slow and know what you want. my thoughts are these:

1. start small due to limited resources.

2. Make a limited but quality product.

3 Work out the Kinks and mistakes, which will also be smaller.

4. While doing this you are slowly but surely getting the product out there, whether its in restaurants, bars, stores, on-site, but you are getting it out there.

5. Once the 'concept' is proven and you are slowly losing less money, maybe breaking even or even making money, then finding investors or loans won't be too hard.

I believe it's important to not try and do it all at once. To ensure success it doesn't have to be done fast, just right.

best of luck- John

[TetonDistillery]

If I lacked capital to start a full distillery, I would do a private label through another distillery to get going. My rough estimate is that you could get a private label brand off the ground for 1/4 of the cost compared to a full distillery. Then after a few years if your private label is selling at a reasonable rate, it would be relatively easy to find investors to build a distillery. Or you can just continue with the focus on sales and marketing of your brand and continue to outsource the production. Many of the top brands are outsourced these days.

For a private label, you need to plan for a minimum of 5,000 bottles initially. Purchasing bottles in smaller quantities than that is just not cost effective. I would advise stepping up to 20,000 bottles (full container from China) if you can. There are big savings on your cost per bottle at that quantity.

Depending on what you are producing and your target price point, there is plenty of profit margin available.

Also the government paperwork for a private label is a fraction compared to getting fully licensed as a distillery.

If you want more info, feel free to contact us.

http://www.tetonvodka.com/page/private-label

[NEPA-still-chillin]

Thought I would throw this in, not totally off topic but if you have connections this is another possible route.

http://adiforums.com/index.php?showtopic=4361