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So You Want to Start a Brewery?

The Lagunitas Story

Chicago Review Press Incorporated

THE FIRST DAYS

DON'T SWEAT THE SMALL STUFF

The best piece of seemingly useless advice I'd ever been given with respect to what it would take to start the brewery was this: "Imagine the largest amount of money you think it will require to get the brewery up and going, and then triple it." I can't exactly remember who said that to me, although I wish I could, because I'd like to call them and tell them that they were right. I wouldn't be calling to thank them, because that would be like calling to thank the guy that yelled "Stop!" right before you got creamed by a speeding bus. But right they were.

By 1992 my wife and I were slowly rising from the marital and economic ashes, a little worse for the wear and tear, while my younger brother was working for a big and famous brewpub chain in Oregon. He described the business and told me where I could get a kit to make a batch of home brew. Up until then I had never even considered the idea of making my own beer. I'd been digging getting drunk at the famous Marin Brewing Co. pub and I thought the gear for brewing was pretty sexy looking. For me, cool and functional stuff has always been sexy — like a nice reverb unit, a great speaker, or a vintage guitar — and brewing gear fit right in.

So I went down to the local home-brew supply shop my brother recommended and got the standard five-gallon plastic pail, a strainer, hop packets, yeast, malt syrup — everything you need to brew beer. I had my first brewing "stuff," and with it, I made a batch of a prefab recipe pack called "California Common Beer." It turned out pretty vile. I hardly knew why, but the instructions were simple enough, so I blamed myself and tried again. This time, I brewed a different prepackaged recipe of a California pale ale ... and it was transcendent. Again, I hardly knew why.

There is one basic truth to learning how to play a musical instrument: if you practice, you will get better. You may never be Itzhak Perlman (and maybe that's not really a bad thing), but you will eventually improve. I knew that the same had to be true for brewing, and so I set about discovering what it was that I didn't know.

In principle, brewing is a primitive process that Mother Nature was doing all by her omnipresent lonesome, eons before humans were imagined, with just a wad of starch, some heat, a little rain, and a random flock of yeast. Humans have evolved it into a very complex process filled with precision and control, but the essential operation is as simple as singing a major scale: do, re, mi, fa, so, la, ti, do. In its fullest expression, brewing approaches Stravinsky and even beyond. Learning is often less a system of affirmation than a process of elimination. As in: "I'll never let the dog lick the spoon again before I stir the pitching yeast."

As brewing awareness morphed into understanding, I developed small opinions about what I wanted to accomplish when I brewed a beer. This is another music-simile-laden moment. When you begin to really learn a melodic phrase, you ask yourself, What do I want to try to get these notes to say? After the first couple of brews, I remember asking the home-brew supply shop owner which yeast strain might convert the most sugars to alcohol (even then I only wanted to make stronger beers), and I remember him looking away from me and saying to the ceiling, "That is not a question a brewer would ask." I wasn't deterred, but in that moment I already knew I would be making unconventional and non–stylistically describable beers.

Up until just recently, I wrote all the recipes for the brewery myself. Now I art direct, which is just as much fun. Strict style has never really figured into our recipes. Because of that, we have never done well in the myriad brewing competitions that happen each year. "Not appropriate for style" is the most common comment. Styles are for home brewers and academics. For us, they are jumping-off points for further improvisation. As a student musician, I won plenty of medals and awards of special recognition, but in the end, that didn't mean that I would be a successful working musician. It is the work that matters. All of the awards are just fingers pointing at the moon, and you should never mistake the finger for the moon. There are maybe two judged events that we enter each year — the Great American Beer Festival (GABF), in particular — mostly because it is required in order to be part of the public tasting sessions that follow them.

But even if we were to accidentally win a medal at GABF, I wouldn't make a big deal out of it with posters or advertisements. Some beer companies will, and that's cool for them, but it's not important for us. I mean, if you win, it doesn't mean that you will succeed, and if you lose, it doesn't mean you will fail. So why not just avoid the background noise altogether and get back to work? But I digress.

Back in early 1993 I was reminded of something called the Florence Nightingale effect, where wounded soldiers routinely fall in love with their nurses during recovery. I think that brewing was like my nurse as I came out of an unusually hard period in my life, and by the third batch (after three weeks of brewing), I was already sitting on the living room floor making up a pretend income statement and intensely adding up columns of guesstimated production volumes and costs and overhead and everything I could think of to get some idea of how much beer I would have to make to break even. My wife and I were $38,000 behind on taxes by then, and at that point I aspired merely to break even. But before I had any idea what I was going to do or what it was going to take to get 'er done, I rented a space in a nearby building, applied for a license, bought and installed a three-tier home-brewing setup, and began plans to install a real commercial brewery ... while also still learning how to make beer. By December of that same year, all of these things actually happened.

My crude initial income statement predicted some break-even sales levels that were, well, wrong. These were the first of more than a dozen annual projections that I worked hard to perfect, and I was never even close. Over time we got better at knowing why the projections were so wrong, and I felt good about that ... sorta.

I didn't want to have a retail brewpub. Personally, I was in a deep bunker mentality following all the home and economic problems I'd experienced, most of which persisted. I was still a full year behind on all of our personal taxes. The thought of having to be Mr. Hospitality and host customers was a nonstarter. I would do it the way another great San Francisco brewery (Anchor Brewing) did it: with wholesale trade. The margins would be thin, but I would do all the work myself, and whatever crumbs were left over, I'd feast on them. I was not in a position to borrow; there was no home equity to tap, no savings, no rich relations. So I would take the money from our household income. But when I began looking for equipment, it seemed to be everywhere, and all of it was too expensive.

By 1993 the craft brewing industry was in the middle of a big burst of growth, which would eventually lead to the 1995 opening of one thousand new breweries ... and the later mess of closures. But that was a few years out, and as it is in any gold rush, the folks making money were the ones selling shovels and pancakes. Fourteen-barrel brew houses could cost upward of $100 million, and that was just one of many necessary components. I happened on a small classified ad in the back of the New Brewer magazine, and in short order I was talking with the ebullient John Cross. He not only wanted to tell me about equipment, but he wanted to discuss everything about the brewing process, including mash and fermentation temperatures. I really needed a guide to the gear and the process. I'd only brewed ten or twelve batches by that time and mostly knew only what I'd read. Noonan, Owens, Papazian, McCabe, and Burch were my constant reading companions. So after talking to John Cross, I drove to the tiny southern San Joaquin Valley mountain town of Springville to visit his shop and see what accidental opportunity might exist. Pay dirt was waiting.

John Cross was the guy who imported most of the thousands and thousands of 210-gallon European beer serving tanks they call Grundy Tanks. A little background: in much of Europe, breweries once outfitted pubs with 210-gallon stainless bulk-tanks instead of the 15.5-gallon kegs we use here in America. European brewers would send out tanker trucks full of beer to fill up these storage tanks at the pubs, sorta like a gas station. I guess it all worked out well for a while, and was certainly more efficient than transporting the long pipeline of expensive kegs that we use here in the States, but in the end, the beer suffered. I'm sure there were problems with sanitation and oxygen pickup, but John Cross told me that the biggest problem was that the "publicans" learned that they could remove the top of the tanks with the right tool, and from there it was a simple matter to top a tank off from time to time with a little tap water.

What was good for the publican wasn't good for the brewers, and at some point the brewers uniformly cut off the bulk deliveries and switched to fifty-liter kegs. That put thousands of used Grundy Tanks on the market, so John Cross and a couple of others bought them up, cheap. They brought them across the pond and got out their TIG welders. The versatile tanks were used in many different capacities, and they provided the raw material for hundreds and hundreds of US micro-breweries. The tanks have been used and modified to serve as kettles, mash tuns, fermenters, serving and bottling tanks, glycol tanks, CIP tanks, dry-hop dosing vessels, yeast brinks, you name it. I've used and modified seven of them myself, including using one as the boiler for a still. There is one now serving as decoration in our Beer Sanctuary, and another has a continuing career as a fermentation blow-off foam receiver in our brewery. But back to John Cross ...

After seeing his standard "works-in-process" three-vessel systems, I was starting to get discouraged by the true cost of my fantasy, and I said so. John grew quiet for a moment and then shot me a sideways glance and rubbed his chin. He had a cool dog, and it grew silent and laid down. The wind stopped and a cloud passed in front of the sun. This is the truth, and there have been a dozen moments like this in the course of events at the brewery.

John looked at me in silence, sizing me up for the opportunity he was thinking of presenting, and then he spoke. He told me he had a one-off brew house he'd built for delivery to Russia, where he was building brewery systems into forty-foot shipping containers for a plug-and-play sort of installation. This one had been cancelled and was incomplete. But he'd already been paid for the parts to build it. He took me into the back shed, where it sat. It was a twenty-five-foot-long rectangular stainless-steel box with a hot-water tank, a mash tun, a two-hundred-gallon kettle, and all the pumps and piping built in. It took three hundred amps of electricity. (Seems there isn't much natural gas available in rural Russia.)

I didn't have any idea what I was looking at from a technical standpoint, but I figured that John knew more about brewing and brewing equipment than I did, so I blinked and asked him how much he would want in order to complete it for me. He was quiet for a long time, and I figured he was rethinking the whole deal. But then he looked up at me and said the unthinkable: $5,000. A few weeks later, I excitedly told Brendan Moylan of Marin Brewing Co. that I was building a brewery and that I'd bought a brew house for $5,000. He looked at me blankly and asked if it was made of stainless steel.

In theory it was impossible, but I saw that I could get a real brewery going for about $30,000 in gear and rent, which seemed doable. I was by that point about $42,000 behind in my income taxes, and the revenuers of the world were no less impatient than they were before, but I figured that if I were going to be a slave, I would at least choose my own work. I wanted out of printing very badly. Although I'd found a little new business to replace what I'd lost, I could see that the boom-and-bust cycle of printing would be eternal. This was (and still is) why all those old-pro printing guys were getting loaded every afternoon in the bars of downtown San Francisco. No, I would pay Uncle Sam and his cousin Governor Pete Wilson soon enough, but first I'd change careers.

I didn't really ask my spouse if this was a good idea or not; I knew what the answer would be. I read one time how the entrepreneurial urge is, in it purest incarnation, a sort of seizure — nearly involuntary, like speaking in tongues or getting married in Vegas. It was like that for me, and this was the moment where reality and finance parted ways.

Later I was talking with an erstwhile and well-known equipment supplier about an overpriced little keg machine, and he told me that if I was going to be in the wholesale brewing biz, then my kettle needed to be at least thirty barrels or I was doomed. A little later I bought a small keg machine for $5,000 and was subsequently told by a famous brewing educator that I should have spent at least $15,000, and that if I didn't do so I was "doomed to failure, and this industry does not need any more failures." Word. In any case, the more I was told that it would never work, the more determined I became. Sort of like the drunk hotel partygoer who climbs out onto the fourth-floor balcony, determined to jump into the pool, while everybody yells, "You'll never make it!"

I would eventually find out that all the naysayers were correct. But by using the shoestring at hand, I cobbled together a brewery that could produce about one thousand barrels per year with two John Cross–built Grundy Tanks as fermenters, and the weird little electric Russian brew house. At the time, I was only planning to produce unfiltered draft beer and to market it as a private-label product to twenty or so bars and restaurants in San Francisco and tourism-heavy West Marin County, where I lived. I would brew, filter, keg, sell, deliver, and service it all solo, while still maintaining the nice chunk of printing work that I had rebuilt. If worst came to worst, I could even live in the 750square-foot brewery space. Eventually those worries ended, but it took a while.

Six months into the business, the summer of 1994 had gotten very busy. I'd already bought one additional fermentation tank and needed a fourth one to keep up. My days went something like this: I would mill grain around 9:00 PM the night before a brew, wake up at 3:00 AM, mash in at 3:30, knock out the kettle at 7:30, clean up by 10:00, and then do printing work all day — sometimes even while I'd be making keg deliveries — after which I'd often have to fly to L.A. overnight to meet my printing customers at the plants to approve press runs, while still doing the brewery business from there too.

At some point in June 1994 it all got to be too much, and while the little brewery was just beginning to carry its own weight financially by selling only the private-label draft beer, I needed to hire some help. This single decision to increase the brewery's daily cash "burn rate" — and the resultant need for increased sales volume to support the first payroll position — was the beginning of many crazy years of what I can only describe as being chased down the street by a pack of wild dogs.

When I began, I thought that the brewery would be like a custom cabinet shop. I'd do everything, and I'd keep all the winnings, however meager. But this was unrealistic. Adding that first employee was like the first punch thrown in a crowd. The consequences were complicated, like trying to describe what happens while falling down a flight of stairs. It went something like this; try to hang with me ... There is too much work and too many good customers for you to do a good job all by yourself. You go from being an A student in five things to being a C+ student in thirty things. So you hire one new guy, and consequently your daily cost of operation goes up. Then you need to sell more beer to pay for the change, which you can, so you do. To make the extra-tasty brew you need to buy more ingredients, which you can, so you do. But unless you sell the beer COD, you will probably need to pay for the ingredients before you get to collect for the beer the ingredients will become, which means you need a little more cash up front.

It's all about the "time of arrival" of the money to your checking account. Your little brewery is a little bit profitable, but you are growing quickly, and the "time of arrival" thing is getting tighter and tighter, because you seem to need more than the little bit of money that you are generating in profits if you are going to pay your bills on time. Checks are clearing your account faster and faster. Since you have another day job, you just put your paychecks from that directly in the brewery because things seem to be going so well, and you feel confident.

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Excerpted from So You Want to Start a Brewery? by Tony Magee. Copyright © 2014 Tony Magee. Excerpted by permission of Chicago Review Press Incorporated.
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