Want Some Financing With That Seasonal Brew?

 

Jim Koch, who started the Boston Beer Co. in 1984, found that banks did not want to lend money to his or other start-ups. The inherent aversion to risk in the banker DNA means that they prefer to deal with businesses that have positive cash flows today rather than the promise of rosy returns in the future. Koch decided to start his own program, Brewing the American Dream, to help food, beverage, and hospitality entrepreneurs in the Boston area launch their businesses.

Koch comes form a long line of brew masters–six generations and counting–but is not what one may think of as a beer drinker with little training for running a company that features such a powerful brand as Sam Adams. With a bachelor’s degree, a law degree, and an MBA from Harvard, he has been groomed for this moment. He now wants to make sure that others get the right combination of instruction, mentoring, and capital to be successful in their own rights.

An article on businessweek.com last spring by Nick Leiber tells the story. Launched in 2008, the initiative aims to go beyond traditional corporate philanthropy to “leverage” Boston Beer employees’ expertise, “rather than just giving away money or time or beer,” says Koch. “I wish I could’ve had some loan money instead of having to raise equity, and I would’ve loved to have advice about the nuts and bolts of growing a business.”

Now the program, Brewing the American Dream, which has advised nearly 3,000 business owners and financed more than $1 million in small loans for about 150 businesses, is going national. Boston Beer, the largest craft brewer in the U.S., plans to lend at least $1 million this year, hold monthly speed-coaching events in major cities across the country, and curate an online-networking and education site for participants. The coaching events, at which beer flows freely, are meant to be informal and are open to any business owner, not just loan recipients. 

Lieber continues on to write,

Koch isn’t seeking a financial return from Boston Beer’s investment in the program—a tiny fraction of the $157 million the company says it spent in 2011 on advertising, promotions, and selling expenses. “There is a huge amount of coaching, hand-holding, advice to get the repayment [rate] up to 95 percent,” says Koch. “I know from the economics of our program; you lose money on it. It has to be philanthropic.”

Supporting small businesses through donations to nonprofit lenders has been catching on among prominent companies, which have created programs such as Goldman Sachs’s (GS10,000 Small Businesses andStarbucks’s (SBUXCreate Jobs for USA. “But [Boston Beer’s] combination of employee engagement, capital resources, and mentoring feels new to me—and very much a response driven by what’s been happening in the economy in the U.S. over the last several years,” says Harman. “It was a right time in the economy because lending had all but come to a halt and small businesses were really struggling.”

Notice the elements that are mentioned as hallmarks and critical success factors of the program.

  • Access to capital at reasonable rates
  • Coaching/mentoring
  • Networking

Every entrepreneur would benefit from this favorable combination. Unfortunately, many incubators and accelerators make capital expensive by taking an equity position in the companies they “help.” Non-profit organizations established to provide the coaching and mentoring often put a cap on the number of hours an entrepreneur can access assistance. The networking component is equally important. Instead of events where the beer flows and superficial conversations seldom lead to business plan execution, what is needed is more one-on-one opportunities. When start-up companies are housed in settings where the participants can pass one another in the halls, serve as peer counsel, and make key introductions for one another, success is far more likely.

 

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