Beating the Odds: Founding a Craft Distillery in a Recession
Can you make it as a small business entrepreneur when you seemingly have three strikes against you when you’re just starting out?
Not long ago I talked to Catoctin Creek Distilling Company co-founder Scott Harris, and it seemed that when he and his wife Becky started their company, they were facing some very long odds. Here’s what they were up against:
- They started Catoctin Creek Distilling Company in 2009, the heart of “The Great Recession,”
- Small business loans had dried up because banks were under severe economic and regulatory pressures, and
- They were breaking new ground as the first distillery in the area since Prohibition.
However, Scott and Becky have defied the odds and achieved some remarkable growth in their business. When I talked to Scott he has some excellent, actionable tips on piloting a startup to small business success and beyond.
Funding
With banks holding tightly onto their purse strings, Scott and Becky had to go “all-in” themselves by personally guaranteeing their loans.
“We were personally securing everything that we had in our business and we were very lucky and had a very solid business plan that the bank really understood and stress tested, and still liked it. So they gave us a loan, SBA loan at the time and then we secured collateral with our own house and everything else,” Scott explained.
Here’s the lesson: You need to have a solid business plan – one that gives you enough confidence to bet your house on, and one that lets banks know that you know what you’re doing.
Realistic expectations and growth
It took Scott and Becky a while to realize that their original business plan was unrealistic.
“The first version of it (the business plan) was some $10 million wonderful distillery with gleaming stainless steel and all kinds of automation and we quickly realized we were not going to raise money from investors to build that business,” Scott told me. Further, today he says if they had built their initial vision it would have been a big mistake.
“We had to scale it back to make a small business that was operated by just me and just Becky, in the early days and then scale it and grow it as we have the capability,” he related.
In the longer term this had an additional benefit. Because they didn’t get investors and they personally guaranteed their loans, they kept full control of their business. When they did start to gain some notoriety and were ready to take on investors, they were dealing from a much stronger position.
Minimize overhead
You probably already have the sense that Scott and Becky run a lean and mean operation and a major part of that has been to keep expenses down. Early on they came up with a unique way to accomplish this.
“Becky and I could most of the work ourselves, but then you come to something like bottling and we had a big order and all of a sudden (we needed help) out of necessity. We put out a call on Facebook and say, ‘Hey, we’ve got to have some stuff bottled. Does anybody want to come in? I’ll give you free pizza.’ And people came in and it just turned out to be such a fun event,” Scott said.
Frankly, I don’t know how the Department of Labor would look at strategies such as these, but there are probably various trades you can do with family and friends to help get some things accomplished in your small business.
Generate buzz in creative ways
When Catoctin Creek brought in volunteer bottlers, they would sometimes let people sign bottles. These volunteers would often look for their bottles in stores. This creates an amazing buzz and promotes brand evangelism. Some of your most successful marketing campaigns can be no- to low-cost.
It’s a cliché to say, “Think outside the box,” but do it anyway.
Leverage trends
When I did a recent article on recession-proof businesses, I mentioned spirits, so Scott and Becky were starting out in an industry that had a better chance at success in a down economy than most others, although premium spirits aren’t quite as recession-proof as less expensive spirits.
On top of choosing a good industry, Catoctin Creek pulled in two other trends:
- Organic foods, and
- Craft beverages.
While the craft beer industry is well established, craft whiskeys and other craft spirits are beginning to take off. Scott and Becky timed their small business launch into this sector very nicely.
Be looking for the early signs of new products and services. The craft spirit industry started to take off when various state and local governments eased their laws regarding distilleries.
Make alliances
Scott pointed out some interesting facts about the competition that Catoctin Creek is up against. First, the major distilleries are competition. The small size and unique products of the craft distilleries set them apart from the big distilleries.
Second, as new craft distilleries pop up all around the country, especially in the Southeast, you might see them as competing against one another. This is certainly true on one level, but on a higher level they are working together to publicize and promote the entire craft distillery segment.
“I think the little guys all understand that we do better if we don’t trash each other and we stick together and collaborate and build the market for craft spirits together,” Scott said.
The lesson here is to not immediately think that another small business owner in your segment is your competitor. There are probably opportunities to cooperate as well, and lift all of your small businesses up together.
Work hard
I asked Scott for a final word of advice that he would give to anyone thinking about starting a small business or expanding a small business. Let’s end with what he offered:
“I always tell people, you’ve got to have something going for you. We have a lot of people come in who are either young, inexperienced, don’t have any savings and aren’t particularly interested in working hard, and you got to have at least one of those characteristics to make a small business work. So really the most important, I think is you’ve got to have a work ethic.”
Image: Scott & Becky Harris, in the tasting room of the distillery, even closer, by Kristen Dill.
