Courtesy of Evil Genius. Evil Genius: A brewer with no brewery.
Searching for Capital
A broker assesses the small-business lending market.
I wonder how many millions of small-business owners and entrepreneurs are sitting out there at this very moment, thinking about the money they need to finance their companies and ideas. The approach an owner chooses can make or break a business. It’s a decision that can change your life.
The first question owners need to ask — and challenge themselves on — is how much money they really need. My experience is that most entrepreneurs think they need much more money than they really do. There is almost always a cheaper way to get things done. And here’s the point a lot of entrepreneurs overlook: Every month that they are on the hunt for money instead of developing and marketing their product or service, they are wasting valuable time.
I recently met with Luke Bowen, founder of Evil Genius Beer Company, who has managed to finance his growing business without taking on debt or handing out equity. The following conversation, in which he explains how he’s done this, has been condensed and edited.
When did you start your business?
In late 2009 while my original partner and I were in graduate school at Villanova getting our M.B.A.’s.
Why did you choose to start a business instead of getting a job?
At the time, we saw a lot of businesses laying off people and our prospects for gainful employment as we graduated were pretty slim. We felt at that time — and we still do — that there are tremendous opportunities in recessions to start companies.
What did you do first?
We took a look at four or five different ideas based on our expertise and our experience as employees and we thought we could make a difference or start our own business. We did feasibility studies on all of them and really found that none of them had as much potential as the craft beer idea.
So once you decided on beer, what were your options?
Well, our option in the very beginning was to build a brewery, and that’s how most of the craft breweries of this country started. In the late ’80s, ’90s they started small nano breweries and kind of expanded from there, and when we ran the numbers on basically the amount of beer we were going to be able to produce and the profitability from that small amount of beer, we realized that wasn’t feasible.
Instead of raising all this capital in the middle of a recession for a company that had never sold a pint of beer, we decided to use our internally developed recipes and brands and basically outsource the production to a third-party manufacturer.
What were your start-up costs?
We started this business with less than $35,000.
Did you get any loans or take any equity from anyone?
No, we took no equity partners and the start-up capital for the business was contributed by the three owners.
What happened next?
We started selling in Philadelphia. That was our first market. We did a lot of things well and some things not so well but we were always striving to develop the best quality product that we could. Not only did we focus on product quality but we focused on innovative packages, innovative branding, innovative marketing.
How long did it take before you were generating cash flow?
Because we’re a contract brewery we were able to be cash-flow positive in a very short amount of time minus the initial outlay for packaging and ingredient costs, which were obviously funded by the start-up capital that we put in. We were able to really be cash-flow positive within the first six to eight weeks of operation and have been profitable on paper since our second or third batch of beer.
Where do you stand today?
We’ve now expanded to 10 wholesalers in three states. Every month we’re growing and selling more beer than the month before.
What are you thinking about doing next?
We’re coming up at a point where our demand is greater than our supply, so soon we’re going to have to raise the capital to build our own facility.
How big do you think you’ll get?
Ultimately, my goal is to be as big as Sam Adams.
Ami Kassar founded MultiFunding, which is based near Philadelphia and helps small businesses find the right sources of financing for their companies.
Article source: http://boss.blogs.nytimes.com/2012/11/08/the-genius-of-starting-a-company-without-outside-capital/?partner=rss&emc=rss