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Sunday, 16 March 2014 22:00

‘We’ve made some bad beer:’ Quick decisions, making messes and staying humble drive explosive growth for Founders Brewing Co.

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Mike Stevens, president of Founders Brewing Co. Mike Stevens, president of Founders Brewing Co. PHOTO: JEFF HAGE

Mike Stevens, president of Founders Brewing Co., can laugh now about some of the poor choices the Grand Rapids-based craft brewer made over the years.

He even cops to perhaps the worst sin of all for a craft brewery.

“We’ve made some bad beer,” Stevens said with a laugh.

It’s not the sentiment that one would expect to come from the brewer of one of the world’s top-rated stouts, but it was the company’s willingness to try new ideas and fail that marked the point at which Founders Brewing Co. transitioned from a small-scale, also-ran to an internationally renowned brewer of some of the boldest beers on the market.

In the mid-1990s, Founders Brewing was in trouble. In its small production and taproom space on Monroe Avenue just blocks from downtown Grand Rapids, co-founders Dave Engbers and Mike Stevens realized that going with what the industry demanded at the time was not leading them to success. Tossing out the accepted playbook, the duo instead opted to make the beers they were seeking: big, bold and unlike other offerings currently on the market.

As part of that shift, Founders’ taproom became a testing ground where the company released its new and experimental brews. Some flopped. A few grabbed drinkers’ attentions. Today, a handful of those beers are among Founders’ most popular brands: Dirty Bastard, Breakfast Stout (and its amped-up, barrel-aged brother, Kentucky Breakfast Stout) and Double Trouble. But back then, they were only experiments written in chalk on the daily specials board.

“We tried making a lager when we shouldn’t have. We’ve done some things with spices that didn’t turn out well,” Stevens said. “But if we didn’t do that, we wouldn’t have made KBS.”

In pockets across the U.S., on blogs and message boards, Founders’ beers began attracting the attention of a growing number of craft beer aficionados. As the company’s beers started winning awards, the American drinker began turning away from the pale, fizzy domestics in favor of bolder craft brews.

“The ‘uber’ beer geeks took notice. They shouted about us, and that allowed us to move in a positive direction. The attention put us in the limelight and made us the darlings of the industry,” Stevens explained. “The beer geeks are the reason this beautiful little disaster we call the craft beer industry exists.”

Yet, by the mid-1990s, the company was also butting up against a series of constraints: a small production space, a lease on a space that was too small for the growing business, and an organizational structure that had Engbers and Stevens handling too much of the day-to-day operations.

Make messes

To address those concerns, the late businessman Peter Cook, a mentor to Stevens, pressed the company to formalize its relationship with its board. Cook pushed them to focus on the core of their business and leave other concerns to their growing staff.

“He wasn’t into discussing finances — he didn’t really understand what we were doing,” Stevens said. “We were undercapitalized, he told us. ‘Don’t worry about the mess you’re creating, that’s what investors are for.’ When you have drive, when you have a product that is selling, don’t look back — let others clean up your mess.”

The effect was two-fold: Engbers and Stevens had to formalize their roles within the organization, and the company began to bring in experts to handle areas where there were deficiencies. Whereas the two frequently touched all aspects of their business, they were forced to step back. Their board had always included investors, but they now had a group with expertise that could help guide them forward.

“It held me accountable to shareholders and the people who have a stake in the business,” Stevens said. “It made me better. Dave and I had to be better.”

But the transition was at times difficult.

“Personally, I’ve had more roles here than anyone. When we started, there was just three of us. We all helped … brewing, spent hours on packaging lines, building boxes, six packs,” Engbers explained. “Mike did sales and realized, to his credit, [that he didn’t] enjoy this. It took me a while, but I really embraced being on the street meeting customers, working with wholesalers.

Pivot: Brewed for us, enjoyed by everyone

The transformation allowed the co-founders to step back and take a strategic look at their business. They poached talent from their board — bringing in expertise where needed. They solidified their values.

Then came their move to 235 Grandville Avenue in 2007. Then an expansion in 2010. And a $26 million expansion that recently wrapped up in 2013 that expanded the production area, added new capital equipment, expanded their offices and taproom, and added an outdoor beer garden. While the construction was still underway, Founders further built its sales bench over the last year, expanding its sales force from 12 to 30 people. The growth has meant a lot of frequent flyer miles as Founders sets its sights on distribution to 32 states and nearly a dozen countries.

“It feels like we’ve been building the plane while flying it. It’s really been like that since we moved — we left a 3,000-barrel facility and we’ll be at 200,000 barrels in seven years,” Stevens said. “In six years, we’ve turned into a business with big boy pants on. Now that construction is done, we can focus on executing, rather than tripping over contractors.”

The success they’re experiencing still surprises them after many years of struggling just to keep the doors open.

“We’ve been a product-driven company since day one. We focus every day on making our existing beers better,” Stevens said. “Our financial successes are the byproduct of our making great beer. We never set out with a goal of financial success.”

Managing the brand, managing the people

Today, Engbers and Stevens have established themselves as — first and foremost — the protectors of the Founders brand. As the company expands into 32 states, there is risk that the growth can dilute the brand, both in terms of who joins the organization and the product itself.

“[Growth] can be overwhelming, but at this point, it is all we really know. It does pose a number of challenges in itself, but it is so much better than the alternative,” Engbers explained. “We never compromise our product or processes. We will always believe that better ingredients make better beer; better beer makes better sales; better sales means happier employees.

“As a product-driven company, our product is first and foremost what we do. We will never compromise our product — it makes things pretty straightforward.”

Engber’s title, vice president of brand and education, highlights the importance the company is placing on its people. It takes into consideration that, as Founders has grown to more than 220 employees, there is a risk of diluting the brand.

“As we’ve grown … as we’ve expanded the number of folks who work here, we develop existing team members, and we bring in new folks with a skill set … we made sure they understood the philosophy of the company,” Engbers said. “We have an uncompromising approach to our product and we take the same approach to developing our people. If we stick to our values, the major issues are now how do we manage this accelerated growth rate. It comes down to hiring great people.”

There’s also a commitment to protecting the product side of the Founders brand — from how the executives vet wholesalers to how they manage quantities and pricing. You’ll be hard pressed to find a six-pack of Founders beer at a price point of less than $10, and that’s by design. Keep the quality up and customers will be willing to pay more for a superior product, they said. They refuse to get into battles over price.

“We don’t want to … have all this beer and give it a novel name and sell it,” Engbers said. “That has the potential to dilute our brand. When other brands do that, it dilutes the industry.”

Demand: Too much of a good thing?

The devotion of Founders’ customers still surprises the duo. The March 2013 release of the much-desired Kentucky Breakfast Stout had devotees standing in queues that stretched around the taproom and production facility — twice.

“It was hard. … We knew only about a third of those people would be able to get a bottle,” Stevens said. “People wouldn’t feel good about it. We knew we had to change things.”

The organization realized that ensuring customers have a positive experience with its products was key to continued success for Founders — and as a result, it revamped its release process for KBS. Instead of customers camping out for a rare bottle of the bourbon barrel-aged stout, Founders is turning the release into a city-wide party and sold tickets online in an effort to control crowds.

From survival to legacy

Stevens and Engbers make frequent allusions to their struggle just to keep the business afloat for much of Founders’ existence. Today, they are looking ahead to how to ensure that Founders lives on long after they’re out of the business. Moving from survival mode to ensuring that Founders remains a stalwart member of the Grand Rapids community has them taking a long view of their business.

“It allowed us to understand how to take care of our employees — when there was only 4, 6, or 8 of us, we were like brothers and sisters,” Stevens said. “Now that we’ve grown to several hundred, you realize that they have families and children. You make sure that what we’ve brought to their families doesn’t go away.”

Bootstrapping their business and taking some of their lessons from the business school of hard knocks has made them fiercely protective of their company. While they are surprised at those investors and industry insiders who occasionally call inquiring about investment opportunities, the duo have no plans to sell out.

“Our intention is to be a legacy brewery. We want Founders to be sold long after I’m dead and gone. The greatest road to success is when you’re backed into a corner. If there had been a good financial option out in those days, it would’ve been considered,” Stevens said of the early days of the company. “Why the hell did [we] do it? In our early- to mid-20s, we didn’t know any better. Neither one of us came from any sort of money — not knowing any better or being on the other side of the fence allowed us the ability to hone our craft.”

Engbers puts it more simply.

“We make great beer for a living, how great can that be? The bottom line is that we love what we do,” he said. “The fact that others like what we do keeps us employed.”

 

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