BiggerPockets Business Podcast

BiggerPockets Business Podcast 11: How to Build a World-Class Craft Brewing Company with Dave Thibodeau

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Ever dreamt about getting paid to sit back and drink delicious beer all day? Well, keep dreaming.

Yes, the beer industry is a lot of fun. But as you may have guessed, it’s hyper-competitive and demands a LOT of hard work!

In today’s episode, Dave Thibodeau traces Ska Brewing’s evolution from scrappy underdog to top-100 brewery, competing against international conglomerates (all while keeping its edgy sense of humor).

You’ll learn how Dave stumbled upon his passion in a book, how he and his partners bootstrapped the business by buying used equipment and sleeping in a Volkswagen bus, and how they marketed their brand’s “David vs. Goliath” attitude in a comic book.

You’ll also hear how Dave and his partners expanded internationally, built a distribution arm to help other brewers (“coopetition,” he calls it), eventually scaled to 70 employees, and embraced the pain of a bad hops contract by releasing a limited-run, very hoppy brew called Bad Hop Contract.

Don’t miss Dave’s advice for how to split up responsibilities among partners, and be sure to listen through to the end to hear him explain the big advantage smaller, more locally-minded businesses have when competing with international giants.

Dave is a laid-back guy, who has managed to build a massive business while still remaining true to himself—so check him out in this episode, and subscribe so you won’t miss the next one!

Click here to listen on iTunes.

Listen to the Podcast Here

Read the Transcript Here

Carol: Welcome to the show Dave Thibodeau, nice to have you here.

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Dave: Thanks for having me, I appreciate it.

Carol: Dave, I have so many questions I want to ask you. There is no lack of stuff I want to find out about how you got started, how you grew over the years and how you just became just a successful awesome business and have stayed so amazing over a whole 20 year span. But I’m going to let Jay take it from the top. Go, Jay, what’cha got?

J: Okay. Well, put the pressure on.

Carol: So much pressure. No lack of it.

J: Dave, okay. Unlike a lot of our guests, I think you started what ended up being your ultimate business. I think you started Ska Brewing back in the mid 90s and you were right out of college, you were really young and it’s a really cool business. Instead of starting with the back, back, back story I’d love to start just right from the time that you decided, I’m out of college, I’m looking for something to do, I’m going to start a beer brewing business. How did that come about? Tell us the story of how Ska Brewing got started.

Dave: It’s a pretty interesting story. We were definitely kind of punk ass kids. I still don’t feel like I’ve grown up much. Throughout high school, college, beer was kind of an important thing to us for all the wrong reasons. But we did discover a home brewing book on my dad’s bookshelves and we realized he had been home brewing since 1969. We started looking through it trying to figure out where he added the alcohol. Then we realized he was actually creating the alcohol and it was like a light bulb going off. We started brewing with my dad when we were in high school and that continued through college. In fact, most of my, I was a communications multi-major and most of my projects, whether it was a video or a speech or a technical writing paper were on brewing beer, bringing beer to school and handing it out to the class, which they all freaked out about. By the time we graduated college we were actually getting pretty good at brewing beer.

Dave: My partner, I have two partners, Bill Graham and Matt Vincent, didn’t know Matt at the time but Bill was going to school at CU in Denver and I was going to school at Metropolitan State College. By the time we both graduated in 93 we were, we knew that what we were going to school for was not what we wanted to do with our lives. We started talking about actually building a brewery. We moved to Durango and it took a couple of years of planning and obviously I’m dating everything but we didn’t have the internet so we couldn’t just look up how to start a brewery. It took a couple years to get through the licensing process and actually get to the point, of course finding funding, that was no easy. Everybody just laughed at us. I think a lot of the, go ahead.

J: I think I remember reading somewhere that you guys were literally living out of your cars, sleeping in airports, what was up with that?

Dave: Yeah, there was. We started, we went to, our original plan was we kind of drew it out. We drew out this comic book that kind of told our embellished comic book story of our existence on the back of a napkin and that was basically what we went to the bank and the FDA with as a business plan. They just laughed at us. It was, we decided we’ve got to make this happen out of spite if nothing else. Bill’s dad actually lent us $47,000 to start the business. We found some brewing equipment at an old brewery in Spokane, Washington.

J: Wait a second, did he lend you the 47,000 because he really believed in you guys or was it one of those, okay leave me alone, take the money and hopefully you don’t ask me for anything more for a couple of years?

Carol: I know right? I’m sitting here thinking about my kids are eight and nine. I’m like, got to be honest Dave, I’m not so sure I’d be throwing 47 grand at my little guy to go make beer. How did he say, “Okay this is cool. I can work with this”?

Dave: Yeah. If we were your kids you would have been absolutely, you would have drawn the line and said, “No.” That’s the kind of kids we were but it was, Bill’s dad really believed in it. He watched us from day one when we first started home brewing and he watched us get better and better. He was pretty into it. He actually really believed in the idea. That wasn’t very much money, there was a lot to do. The first brewing equipment we found, it was about $30,000 of that 47 and that’s, we didn’t even have a space yet. We were running out of money pretty quick but that was why we did interesting things like when we went up to Spokane to buy that equipment from this other brewery, we slept in the little foyer of the airport in Spokane.

Carol: What?

Dave: I woke up, I honestly woke up in the morning with, because they locked the inside doors of the foyer but not the doors to the outside. It was kind of like a little glass room that we actually threw our sleeping bags down in and slept there instead of a hotel.

Carol: That’s entirely resourceful, I give you lots of credit for resourcefulness. You’re in Spokane, you’re being all resourceful, you’ve got a little bit of seed money, $47,000, 30,000 of which is to buy some brewing equipment. How did you even figure out what you needed to buy this $30,000 equipment? It didn’t occur to me until before you said it, you’re right. We graduated the same year, there was no internet back then. How did you ever go down the path of exploring what you needed to do to start growing this into some type of real production?

Dave: Yeah, it’s unreal to think about because it’s hard to even know, to remember that there was a day like that, right?

Carol: Right.

Dave: We were fortunate enough to have a really good friend, one of our best friends, where I went to school, high school in Wheat Ridge, which is a suburb of Denver. It was kind of at the time becoming, it was early on the craft brewing scene so a lot of the people that went to Wheat Ridge actually ended up in craft brewing. We were fortunate enough that our best friend was the head brewer, by this time, at the Wynkoop Brewing Company in Denver. We hired him basically, we gave him 5% of the business out of the gates to be our consultant and help us figure out just what you’re asking. Is it the right, what equipment do we need, how do we really go about this. Putting the business side together was really kind of difficult and that just kind of flowed but as far as what do we need, what’s our recipe, how do we actually brew on big equipment, we were fortunate enough to have resources in other people.

Carol: Great.

J: Do you remember back then, what was your plan? Were you brewing beer to sell to local bars, did you want to get it into stores? Did you want to start your own retail outlet and sell your own stuff in your own restaurant? What was the ultimate goal, if you had to imagine where you were going to be in 5 or 10 years as a successful person starting brewing this beer, what did success look like back then?

Dave: That’s a great question because I don’t think that we were really thinking that far in the future. I mean, in all honesty I don’t know that I ever realized it was going to succeed until just a couple year ago I looked back and I was like, wow. That actually worked. But it was out of the gates what we realized is we wanted to live in Durango. That was, we started working on the brewery but we both worked other full time jobs during the day. We would work all day at our other jobs and then about 5:00, 5:30 we’d get off and start working on the brewery. The whole first year we would work overnight at the brewery and go home and sleep for about two hours before we started our regular jobs again. It was, we didn’t have a lot of time to actually think about the vision and put a long term plan in place. All we wanted to do at first was make beer and sell it to a couple of draft accounts or we call them on premise accounts in Durango. Just have a couple bars and restaurants where people could go and get our beer.

Dave: That was really the original plan. There wasn’t a lot of, there weren’t nearly as many breweries. It was hard to follow somebody else’s model at the time because they’re just, it was only a few. Laws were just, we were learning how to navigate the rules, the laws. It was pretty complicated, alcohol from state to state and then dealing with the feds, it’s a complicated situation. Just weaving through all of that took up all of our time and naturally just the way we evolved, suddenly we were packaging beer, canning, well bottling beer and canning beer. Next thing you know it’s in multiple states and then even internationally. It just kind of happened organically for us for the first few years for sure.

Carol: Okay. You had this vision, you kind of had a little bit of a vision but then it grew organically and you’re in all these states and internationally but at some point you had to sell that, make the first sale to someone. What was that first sale and how’d you go about getting it?

Dave: That’s a really cool story. I’m glad you asked that. There’s another brew pub here in Durango called Carvers. They were, I think, behind the Wynkoop probably the second brew pub pouring beer in Colorado. Because they were brewers, we went in there with our friend that was the brewer at the Wynkoop. He knew Bill Carver, the owner of Carvers Brewery and we went in there to tell him our plan. I was really timid. I was super afraid to go talk to this guy because he’s been doing it for a few years now and I thought he’d look at us as competition. I was just nervous to talk to him because he knew what he was doing and I didn’t. The three of us went in there, Kyle our consultant for lack of a better term and Bill and I. We met with him and we told him what our plan was. The first words out of his mouth was, “I’ll put you guys on tap.” That was our first sale. It set a precedent too for how we would treat other brewers down the road because he just showed us that we called it coopitition.

Carol: I like that.

Dave: Cooperating with those that you compete with. It’s kind of that whole rising tide lifts all boats mentality. That, I think, is what really helped our industry flourish for a lot of years there was people were really shared a lot of information, helped each other out. It was really neat to have another brewer as our first account.

Carol: I love that coopitition term. I think that’s so powerful and I think that works in a lot of industries, right? Especially when there’s not a lot of information out there and I love that you were brave enough, frankly you guys were just brave. Here’s this big awesome guy who knows what the heck is going on, you’re the new kid on the block and you just sucked it up, you’re like let’s go ask him. He surprised you and said yes. Then you were able to kind of pay that forward throughout the years it sounds like and make sure that you can help other people move along. Does that sound about right?

Dave: Yes, that’s it on the button. It’s been neat, the camaraderie in the craft brewing industry is, it’s unlike anything you can really imagine in a lot of other businesses. I know a lot of other businesses and industries people will help each other out but there was almost nothing proprietary until five years ago in the brewing industry. It was like, people just shared everything.

Carol: Wow. Really transparent. That’s very cool. Very cool.

J: How did you get from, okay you make that first sale and then you mentioned that at some point more recently, I don’t know if was a year later or 10 years later you’re in 10 states, I think you’re international now. How did that whole thing evolve? How did you go from that first sale to what came next?

Dave: Well, we were fortunate enough in Durango, it’s a small enough community, community is everything to us, it’s one of our core values and whether that’s geographically or within our walls, community is really important. The community of Durango, Colorado, Southwestern United States, even our staff, our employees. I think we were fortunate enough that immediately out of the gates we saw, “Okay Durango is really starting to get behind this” and slowly, actually rather quickly, other accounts in town just started asking us for the beer because now there’s a local brewery that’s selling beer on tap and the beer is good. It was, I think the people here wanted to see us succeed. We probably appeared somewhat unlikely to succeed so people really wanted to see us succeed and by word of mouth we started selling more beer around Durango and then Telluride, we were delivering or self distributing everything, doing it all ourselves.

Dave: It started to grow and pretty soon we had most of the bars and restaurants in Durango. We didn’t have to sell too hard and I think a lot of it was because we saw Durango supporting us so we started to give back in any way possible, whether it was donating beer for nonprofits or fundraisers or volunteering our time. I think that reciprocal, that cycle that you get into with your community, them supporting us, us supporting them, it allowed us to really do well in our backyard out of the gates and then that built a strong enough foundation that we could build on from.

Carol: That’s really nice. It sounds like the community almost saw you as the underdog, right? It’s, I think it’s fun, I see a lot of correlations. It sounds like back in the very beginning you said, if for no other reason to make this succeed we’re going to do it out of spite. We’re just going to make it work. Then you started making it work but then the community almost saw you as, okay these guys are still new, they’re the underdog, they make a good product though. Let’s lift them up and see if we can help them succeed. Then you’re able to keep that a very symbiotic relationship. You’re giving, they’re giving back and it ultimately helps you grow, right? Another question in your growing path, it sounds like if I’m not mistaken, you had two partners? Two business partners that are all the leaders of the company, is that accurate?

Dave: Correct, there was Bill Graham and I started it and then a year later a friend of ours, Matt Vincent in Durango, who was brewing at Durango Brewing Company, he was really interested in what we were doing, starting this new company. He came on board after the first year as an equal partner. The three of us have been partners ever since.

Carol: Okay. How did you break up your tasks as you started growing?

Dave: That is a great question and I think that’s a big lesson learned for us that I think could be a takeaway for a lot of other entrepreneurs is, if you can determine that somewhat early because we didn’t. We all just did everything for too many years until it became a problem. It was eventually we started learning each other’s strengths. I was best at marketing and sales and Bill was our strong brewer, Matt was really good with money and finance and overall operations. It took us, you know, probably 12 years to recognize that. It was a mess. We were all doing everything. All that did was cause problems and it was really difficult for our employees to navigate. Who should they ask or they would maybe play the mom and pop game, go to whoever would give you the right answer.

Carol: Really?

Dave: That type of thing. Yeah. It was, I wish we had recognized that and defined our roles day one, really, to be honest with you.

Carol: Got it.

J: How far were you into this business where you hired that first employee? Who was that first employee? How did you grow from there?

Dave: After our first year, we brought on a brewer. That was great because we needed to actually start working on the business and keeping track of our books and not just doing the physical labor of the brewery. That brewer at the time, his name was Joel Tracy, he was fantastic. At the same time, there was another guy that we brought on that did most of our distribution stuff. He was delivering the beer, the other guy was brewing most of it but we all still shared in those tasks. But it really helped out. It enabled us to start to get some other things done. Then that first full year that we were in business, we didn’t have any employees. That was, you mentioned sleeping in my car, that first full year, for the entire year we didn’t pay ourselves a penny. I lived in a Volkswagen bus. I would plug my extension cord into Bill’s garage so I could use a space heater on the inside of my bus while I slept in the winter.

Carol: Wow.

Dave: We didn’t pay ourselves a dime for a whole year. Thank God we were young enough that we could do that. I can’t imagine pulling that off today but at the time it wasn’t really that unusual and it wasn’t, it was kind of just how we were.

J: Where did the name Ska Brewing come from? I know you and I and Carol are a little bit older than probably a lot of our listeners so I think I know the answer but I think a lot of our listeners probably have never heard the term ska.

Dave: Yeah. It’s a type of music. Originally, we were really into, when we were in high school we were really into punk rock and then ska music kind of, we figured out what that was. It originated in Jamaica in the late 50s. Bob Marley and the Whalers were originally a ska band. Reggae eventually evolved out of ska. Our ritual, when we were home brewing was that, the criteria was we had to absolutely listen to ska music. The two criteria, listen to ska music when we brewed and drink the previous batch of beer. If we didn’t do both of those things, this next batch of beer wasn’t going to turn out. We had to listen to ska when we did it. We started putting Ska Brewing on our little labels and we were giving beers away as gifts at Christmas or birthdays or whatever because it was pretty novel then. You didn’t know a lot of people who knew how to brew beer.

Dave: It kind of stuck once we moved to Durango, it’s kind of a rural town, a little bit of a cowboy town with a small liberal arts college. We decided to keep the name instead of naming it after a mountain or a dog. That’s what everybody else was doing at the time. We stuck with ska. In Durango, our first, one of our early accounts, not Carvers but another one of them was kind of off in the hills. It was a steakhouse, it was all cowboys up there. We told them it was an acronym for shit kicking ale.

Carol: That’s brilliant. I love that.

Dave: It stuck. You still hear that today but really it was a type of music. It’s kind of been the theme. It’s part of who we are and the culture here. We obviously listen to a lot of other stuff but it’s good, fun music and it’s good beer drinking music.

Carol: That’s cool.

J: I love-

Carol: Go ahead Jay.

J: I was going to say, I love the fact that you guys started out as just a couple friends, you started a business, you’re naming it after the music you love. You’re sleeping in your car, sleeping in the airport. You’re brewing small batches, you’re running out and getting accounts by hand, literally all three of you going together. Here you are today, 25 years later. What does your business look like? I’m going to go back and talk about in between but I want to give people an idea of where you’ve gotten to in that last 25 years starting from there to what does today look like? What does your business look like?

Dave: Sure. Well, we’ve kind of spun off. Right now Ska Brewing itself, we have a distribution company. We act as a wholesaler not only for our own brand but for about 10 other breweries in Southwestern Colorado. We sell beer wholesale here for other breweries. We self distribute our own beer, obviously, in this neck of the woods and then we have wholesalers in about 10 other states and we’re selling internationally Sweden is our big market oddly enough. That’s kind of a funny story, too but we sell a lot of beer in Sweden. In fact, it’s our second biggest market outside of Colorado. We’re brewing about, beer is measured in barrels so 31 barrels or if you think what a full size keg looks like, that’s a half a barrel. We’re brewing around 30,000 barrels of beer now.

J: Wow.

Carol: That’s substantial.

Dave: It’s not huge, you know, but we’re probably top 100 out of 8,000 breweries in the country, probably pretty close to that.

J: Wow. How do you go from, you’re picking the name of your company based on the music you like. I’ve seen some of the names of your beers, it’s just like, is there any science there? Are you guys just still flying by the seat of your pants? Are you now doing focus groups and you have marketing companies? I mean, how has that evolved?

Dave: It’s not the same as it was but to some extent it really is. It’s just the culture of the place that we started with. You mentioned it a couple times but we’re really into comic books and ska music and punk rock and beer. We didn’t really touch on this yet but we wrote a comic book kind of right out of the gates and it ties into that underdog story or the David versus Goliath kind of thing. We wrote the comic book and it was basically us, naively opening a little brewery in the heart of Rotgutson International Beverage Corporation’s territory. Rotgutson is any giant brewery conglomerate that you want to imagine but that whole story was just a David versus Goliath story and that kind of helped us through the years. It’s kind of held together what our culture is, what our story is. We’re fighting the big guy, we’re fighting the good fight and we’re still listening to that music and we’re still going to these punk rock shows.

Dave: Even though the business is much more serious and you’re dealing with 70 people, employees that have families that are counting on you to make the right decisions and at the same time you obviously have to take things seriously because you’re talking millions of dollars. It feels the same but there is a little bit of extra weight there and things are certainly a lot more pro than they used to be. I think the bonus is, you hire the right people. As soon as we realized there’s a time to start hiring people that were smarter than us, that was a big change for us. By the time we built the building we’re in currently, which we built in 2008, that was when we were starting to make better decisions and peel ourselves out of the areas that we were not experts in. That’s, even though the decisions are bigger, we’ve got our own marketing department in house. Maybe most of it but we have some help from agencies on occasion depending on the project or the idea. Obviously there’s people keeping a close eye on the money now and it’s just, there’s a lot of people involved that are making better decisions than I could ever make on my own.

Carol: That’s really neat. I’m curious about one thing. I’m listening to this story, which I’m fascinated by. I absolutely love it. You mentioned something just a minute ago about you have to be kind of serious now. As I look through your branding, I listen to the names of your different brews. Still, like you said, you still go to your ska shows, just the way everything works. It sounds like one of the magic superpowers of your business is kind of not taking yourselves too seriously but taking the business seriously, right? You had also mentioned David and Goliath. I’m just wondering, do you ever wonder, now that you are in the top 100 brewers in the United States, do you ever start worrying that you might become the Goliath? Are you ever concerned that could possibly happen or how do you keep it from happening? Do you even want it to happen? Is that something that maybe you want to become that Goliath?

Dave: Gosh, that’s a great question. I don’t know that, we may have put those constraints on ourselves unknowingly. We’re just, I think we’re such a unique brewery it might be, there might be limits out there that are self imposed that we might not have realized that we were imposing on ourselves just because of the branding and who we are and the attitude that we have. It’s hard for me to imagine actually being a Goliath but it is weird because we do float right in this middle space. We’re not a tiny brewery and we can’t just do everything on a whim. But we’re not, we’re still a little bit nimble. We can move like a speedboat, not necessarily an aircraft carrier if we have to, which is obviously really important as things evolve in our industry. I mean, I can’t quite picture that. A little bigger. Maxing out this space would be great if we can get, it’s always fun when you’re growing. We had, the industry had some really good years leading up to, it started to peak out this past year. Some of those years, when you’re just going crazy it hides all the mistakes when you’re growing that fast.

Carol: Sure.

Dave: Suddenly, you slow down, you have to tighten things up. I’m not going to lie. It was really fun when we were easily growing double digits, you know?

Carol: Definitely.

Dave: It’s a blast actually. Go ahead.

J: You mentioned the industry a couple times. I know craft beer has gone through a lot of changes over the last 25 years. I mean, I guess 25 years ago you had a few big players and then craft beer became big and lots of small players. The industry is constantly changing. Where has the industry kind of gone over the last few years and how do you think you fit in? How has that affected your business?

Dave: That’s a great question. The model now, when we opened up and what we were really driving to do when we built this brewery, we built it from the ground up in 2008 and moved out of our old space. Our model at the time and still really to this day, it’s our bread and butter is wholesale sales outside of our walls. As more and more breweries opened up across the country and local and even hyper local has become such a big part of everything. Whereas most people at one point in time would go to a liquor store or a bar to have a craft beer, they now have the option of just walking down to the corner brewery and having a really fresh beer in the tasting room. That’s been the profitable model and where all the growth has gone in our industry in the last couple years, yeah the tasting room only model where they’re maybe not selling beer outside of their own walls. A lot smaller.

Dave: For us, it’s become difficult because some of those breweries are trying to get shelf space in say a liquor store. There’s obviously thousands more breweries than there were when we opened. But the shelf space itself isn’t necessarily expanding, right? There’s so many more options, they’ve got to sell what’s local in a liquor store or a bar because that’s what sells and that’s what people want. But then there’s a lot of options for those last couple shelf spaces or those last couple tap handles. The big brewers almost by default or the big craft brewers, they’re going to take a part of that almost automatically. That doesn’t leave much for a brewery like us that’s kind of what we call anybody over 15,000 barrels is considered a regional specialty brewer. For regional breweries like us, that aren’t necessarily nationwide but selling in their neck of the country, it’s kind of a difficult model to go ahead and keep getting new shelf space because it’s very competitive and you’re fighting hyper local. That’s really where the industry has gone. To stay relevant now you have to be nimble and you have to evolve and you have to be able to provide something that the consumer wants. Today’s consumer that’s drinking craft beer is not the same consumer that it was 15 years ago for us.

Carol: I think that’s a really important point and I’m wondering, throughout all these years you’re talking about how things have just changed. Maybe not necessarily rapidly but I guess they go through growth, go through different spurts of when it is a big change and then you move into the private tasting room and all the different things. How are you and your company able to stay relevant? How do you figure out what those trends are? Is it by talking to your customers? Is it by going to trade shows? I mean, what is it that makes you be at the forefront of what the market wants?

Dave: That’s obviously a difficult balance because at some point if you just follow every trend and you’ve built your brand on authenticity, you’re going to lose a little bit of that by not doing what is really you. We have a character here, we have certain beers we like. Obviously we do a lot, brew a lot of popular styles but if we just follow trends then I think we become more of a generic brewery with less character and one of our mottoes is it takes character to brew beers with character. The characters tie into all our label, our comic book, our staff, whatever. It’s kind of, we do what we want to do I guess, first and foremost. What feels good, what our brewers are into, what kind of beers do they want to brew, who do we want to work with, who are our wholesale partners. But then you do have to take that level, what actually sells. It doesn’t do any good if nobody wants it at all, right?

Carol: Right.

Dave: There are popular styles, there are always hot styles as far as beers go. Some of them we’ll brew because we love them. Some of them we won’t because they’re just not anybody’s favorite beer here and then we live in a little bubble in the Durango world. It’s its own little micro demographic and those, we don’t want to upset them because they’re the very foundation of our business.

Carol: Sure.

Dave: You kind of have to find a balance between all of those pieces.

J: Talking about trends, that reminds me of a story I was reading. I was doing some research yesterday and I was reading a story about a trend that went bad and led you to create a new beer with an interesting name. Do you know what story I’m talking about?

Dave: It’s got to be BHZDIPA.

J: That’s it, that’s it. [crosstalk 00:33:06]Can you tell us about that story, how it all came about, what changed in the industry and how you basically overcame that obstacle in your business?

Dave: We did momentarily overcome that obstacle but the story has kind of a bad ending, but I’ll get to it. We thought it was really, one of our sales guys, his name is Arlo Grammatica, we call him our barroom hero. Longtime employee, he’s been here for 17 years. He had this idea and sometimes when we have funny ideas, it’s just like it’s funny enough that you have to run with it, whether you think it’s going to be successful or not but there’s a big dilemma kind of in the brewery world. A number of years ago there was a hops shortage and if, hops shot way up in price and breweries our size realized that, wow we need to kind of secure our future and we need to start signing five year contracts with our farmers so that we’re not out of hops if there’s a bad year or a bad couple years or if anything happens.

Dave: A lot of brewers went really long on their contracts and then it was the perfect storm. Brewers tastes started changing. It went from really bitter, piney, citrusy hops to fruitier, more tropical flavored hops and then also, you had the millennial demographic coming in at the same time who like diversity. Suddenly you’ve got five years contracts based on a beer that was growing really well and it’s kind of irrelevant suddenly. There was a glut of extra hops for sale on the internet and everywhere. People, some breweries were giving them away just to get them out, take the loss and get them out of their warehouse, they need the space. We didn’t really know what to do so we decided to brew a special beer with a number of these hops that we were really long on. We actually called it Bad Hop Contract because we thought it would be so funny. We were hoping we didn’t upset too many farmers but we figured, gosh everyone’s got this problem. Let’s just embrace the problem.

Carol: That’s hilarious.

Dave: Try to use it as a sales tool. We actually came out with Bad Hop Contract, double IPA. It was a really hoppy double IPA. We thought it was funny, we made a couple funny videos about it and it was a delicious beer but-

Carol: Everyone loved it? What was the reception afterward? People were like, this is awesome or how did that go down?

Dave: That’s kind of the bummer to this story.

Carol: Sorry.

Dave: Everyone did love it but it just didn’t sell.

Carol: Oh.

Dave: It satisfied one need I guess in that we did use some hops. It sold fairly well, we learned something. It’s one of those failures, you know, that you learn from.

Carol: There you go. [crosstalk 00:36:03]

J: Every failure, you learn from every failure. That’s awesome.

Dave: That’s right.

Carol: You really do. I think the beauty of that though is I think it’s just a really good example of something you mentioned earlier, that your company, just by the nature of it and by your culture, you’re able to be nimble, you’re able to be quick, you’re able to be resourceful, you’re able to experiment and take what you’ve got and turn lemons into lemonade right. That’s, I think, really important in any business. Do you have any other interesting examples of an experiment that you’ve done over the years that you are so glad you took the chance on and went ahead and did it?

Dave: Building what is our current brewery in 2008 was definitely a big move for us because we knew we were going to have to expand into a bunch of other markets to try and fill out the space and actually make it function efficiently. That took the course of a year. None of us were architects or really engineers even though my partner Matt has a very strong engineering mind. But we designed and built this facility based on an odd piece of property, odd shaped piece of property that we bought and we had to do a lot of odd design work to increase our efficiencies but to maximize the space at the same time. It’s four stories in some parts-

Carol: Whoa.

Dave: Yeah, it’s two stories in other parts. It’s built on a small triangular lot because everything kind of around us, surrounding us, they’re kind of one story steel warehouses. We’re kind of in, we’re kind of this little oasis that’s in this industrial park right on the edge of town. But it was nerve wracking because I’ll tell you guys this because you’re real estate people, this is kind of a bummer but it’s kind of funny at the same time. We actually had the opportunity to buy our old building that we were just occupying a small part of from the guy who owned it and was leasing it to us because he was building a new building for his business. He told us that whatever the bank wouldn’t lend us he would carry. We bought the building and then in 2008 we sold it, doubled our money. At that time, we’d been open for 13 years, all of our salaries from all of our employees and ourselves that had ever worked there combined didn’t even equal the amount of that one real estate transaction for us.

Carol: No way.

Dave: In terms of the money we made.

Carol: That is crazy talk. Crazy talk. It’s just amazing to me, I’m sitting here looking at this whole big picture thinking back, 1995. Here is you and a couple buddies in a Volkswagen bus in an airport borrowing some money from someone’s dad, brewing some beer and having a good old time to now owning this four story in some parts, two story in other parts building and distributing beer around the world. It’s just such an inspiring growth story, I love it.

Dave: It’s pretty funny. The cool thing about that was once we did that, we were able to use that as a down payment and then borrow every penny that we could on that money. For us it was a giant leap of faith but it played out. It was worth taking the risk. Unfortunately I’ve seen friends in the industry that maybe took a similar step but a few years too late, before kind of our industry started to slow down. It’s affecting a lot of brewers our size. It will be interesting, I think we’re in kind of a little bit of a shake out where we’re going to see more breweries closing as well as opening than ever before and hopefully none of our friends that are too over leveraged because they’re brewing such good beers will.

Carol: Right, right. I’m just curious, in that facility you’re talking about, is that where your tasting room is also?

Dave: It is. We’re kind of just right outside of Durango. We have a little tasting room, we have a restaurant too that we built out of shipping containers- [crosstalk 00:40:07]

Carol: No kidding.

Dave: Yeah, we’d always wanted to do that so there’s a restaurant here and then our tasting room and obviously all the manufacturing. It’s all in one location.

Carol: Are those components of the business, the tasting room and the restaurant, are those real money makers or are they more of a marketing thing where it’s kind of a wash but it gets your name more out there? What’s kind of the purpose of that?

Dave: They are money makers.

Carol: Cool.

Dave: What’s great about it, the tasting room, the closer you can be to home with craft beer, craft beer is perishable. It’s like food. It is food. The closer we are to home, the quicker we can make moves, the better control we have over the quality, for example and also the better margins. It’s better, best quality, best margins. Selling a beer by the pint in our tasting room right over the bar is obviously much better margin than selling it, shipping it first of all to a wholesaler that then marks it up and sells it to a retailer. That’s our bread and butter but it’s not nearly as profitable.

Carol: Got it.

J: Since you opened the door to the numbers side of the business and your margins, I’d love to dig into this just a little bit. I imagine that a large portion of the business expenses goes into capital expenses, you have to buy the building, you have to buy the equipment, the machinery, the tools. Then you have the employees but from a product standpoint, is it a real high margin business? I mean, are you basically buying a lot of low cost ingredients, putting them together and then marking it up tremendously or are the ingredients and the process you use, is that a significant portion of what you end up reselling for? What do your margins look like?

Dave: That’s a great question. I think it’s a pretty often understood, it’s kind of a myth that beer is that profitable, right? It is profitable by the pint over the bar but once again, that’s not the model that we have. That’s not the bulk of our sales. Bulk of our sales is what we’re distributing around Colorado and those other states and countries. The margins are so slim on, because of the raw materials involved, obviously, you have to have your package to put it in, the labor involved with all of that but then shipping, shipping the raw materials here that then you have to ship back out and they weigh a lot more when they go out obviously full of beer. Then everyone’s got to take a margin, their margin along the way. You add a couple middle men. By the time the beer is getting into the hands of the consumer, in fact we have a couple products that because of fluctuations in raw materials product costs and just cost of goods in general, at times lose money for us when we sell them. That’s hard to stomach but it comes and goes, you always have to be working on that but it’s profitable in the tasting room but that’s just a tiny portion of our business. Most of our beer is sold wholesale and that is not very profitable at all.

J: I guess from a margins and profitability standpoint, you’re kind of at a disadvantage in two places. First because you don’t have the scale of some of the big international breweries you don’t get those economies of scale but secondly as a craft brewer, people expect and you want your product to differentiate itself. You want quality not just scale, not just brand, not just name. But you want the top notch product and obviously as everybody knows, a great product is going to cost more to make than a lesser product. You’re also at somewhat of a disadvantage there compared to some of your big competitors.

Dave: Yeah, you know, the consumer doesn’t see that we’ve got a really expansive lab with a couple of full time chemists on the staff monitoring that. Those are some of those costs. That’s expensive to have a full functioning lab to stay on top of your quality and to hire people to do that. That’s not something you think about on the consumer end. Once you start adding those, all of those little components into it, it really does by the time you’re selling beer in Sweden, you know you’re not making that much. Then when you get to a country like that, you’re dealing with a whole nother set of issues like they’re taxed on the amount of alcohol that’s in a beer. Over here, when it’s really exciting to brew big alcohol beers, over there you end up selling beer at $7, $8, $9 a can in the liquor store.

Carol: Wow.

Dave: All of those, everybody, like anything, everybody has got to make a little bit of money along the way. It makes it really hard. You really have to be efficient in this space.

Carol: Right. I’m just fascinated. I never really, I’ve got to be honest, I’ve never really thought about all the different intricacies along the way, along the chain of after you brew it in all the different distributors and all the different channels. Like you said, when you’re dealing internationally and all the different taxes in Sweden and so on. Yet, like you said, even you’re not only making a profit in your tasting room but clearly you’ve grown exponentially, you continue to grow. You have a secret sauce somewhere. What is that? What is that one thing that you attribute the success of your business to? Is it a quality product? Is it marketing? Is it your internal culture? What is that thing that sets you apart because you hear stories all the time of people trying to do what you’re doing and they fall by the wayside but you guys have risen so far above that. What is it? What are you doing?

Dave: Yeah. I think about this a lot and it’s hard for me to nail down the one thing but I think if you, I’m trying to think if there’s some term that could encompass everything that you just mentioned, I think authenticity is a huge thing. If you’ve got a story to tell and you adhere to that story and it’s the consumer can feel it and they can feel like they’re a part of the story along with you, I think that’s something that we have that is really hard to replicate if you’re somebody, I’ll just use the term Rotgutson. They can’t really do that as well. You’re never truly part of that story. It’s not authentic. When they just, whether it’s the bikini clad Swedish swimsuit team or whatever it is, they’re just doing any crazy thing they can to sell more of a giant, mass produced kind of lame product. You know?

Carol: Sure.

Dave: Whereas if you’ve got a great story and people can really feel that it’s real, then I think that’s, to me it feels like we’ve never crossed that boundary. I feel like we’re the same people today that we’ve always been and that it shows. At the same time, that wouldn’t matter if we didn’t have a quality product.

Carol: Right. [crosstalk 00:47:23]

Dave: It does take everything else at the same time.

J: That’s great. I want to jump into the last segment of the show but before I do that, I want to hear a little bit about what’s next for you guys. You teased us with you have a separate business I think earlier that you spun off, tell us a little bit more about that and where does Ska Brewing and the other business go from here?

Dave: It’s a great question. We were just talking about that this morning. Bill and I started a distillery in Colorado in 2005. It’s called Peach Street Distillers. Then my partner Matt spun off, Matt was not part of Peach Street, my partner Matt spun off and started Ska Fabricating a few years ago. He manufacturers conveyance and depalletizing systems basically for canning and bottling lines. Most-

J: Those are some big words right there.

Dave: Yeah. Part of your canning or bottling line is the machine that actually puts the cans or the bottles onto the line. When we first, we were the second craft brewery in the country to start canning beer. We had to invent a lot of our own equipment because it was all made for giant brewers. Matt started kind of inventing stuff and eventually it spun off into its own thing because there was a big need for that size of equipment. Right now these last few years, Bill’s actually been living in Palisade, Colorado kind of running the show at Peach Street Distillers. Matt’s here in Durango but just down the road running Ska Fabricating. He actually bought back our old building that we made all that money selling. He’s back in there with his business along with a couple other businesses that are associated with that and then I’m the day to day guy that’s still here at Ska.

Dave: As far as moving forward and what does the future look like, we’ve done a couple neat things recently with our distillery. We’re sharing some resources, our reps in Colorado we share now and it’s kind of neat because craft distilling is a number of years behind craft brewing but the industry itself, the distilling industry, the spirits side has learned a lot from what craft beer has done. Their trajectory is a lot steeper. They are learning faster, they learned a lot watching brewers and so it’s growing really well right now. There’s a lot of synergies there whether it’s us using our old bourbon barrels to age beers in or, or sharing street reps. I think we’re going to keep kind of sharing those resources in moving forward and trying to become a brewery and a distillery that can better serve our customers and our fans needs and I think working together at this point, it’s the right point in time to be doing that and it’s kind of neat. Even though we’re not owners of Ska Fabricating, we share the name because that’s beneficial to both companies. He’s got the word out there from being part of Ska Brewing as people keep hearing Ska Fabricating I think it just resonates more and more and more. People can hear the word Ska.

Carol: That’s so cool. I’ve got to tell you Dave, I’m really thrilled that I can now say that I talked to the guy who was on the cutting edge of craft distilling. I mean, that’s really cool in all seriousness. It’s a big trend right now obviously. I never really, I didn’t think of it in those terms because whenever Jay and I go out, we marvel at all these craft cocktails that are so big right now and all of these different super fancy schmancy ingredients that are in everything that, when we were back in school they weren’t even a thing. It’s jus this cool new trend and to know that I just talked to the guy who was on the forefront of figuring out how to make those things and make the super special ingredients, I’m really darn proud of that right now so thank you for being that guy.

Dave: I appreciate that.

J: Dave, I think I read somewhere that you guys were doing this cool, I don’t want to call it a marketing thing, it was a product where you are now selling bourbon and beer that is made in the same barrels.

Dave: Oh yeah.

J: Can you tell us, I thought that was really, really cool both from a marketing and a product standpoint. Can you tell us a little bit about that?

Dave: Yeah, you brought up earlier relevance and the need to be nimble. At this day and age and at this stage in our industry, this is a good example of, I think a good example of what that is and what that can mean and what you need to do to actually stay relevant. We call it the boomerang barrel program. Some of our suppliers, maybe the bigger liquor stores for example can come to the distillery now and actually taste a number of single barrels of our bourbon. We blend the bourbon so that the end product, after a number of years of aging, we blend certain barrels to keep our consistency but before we blend, there’s little subtle differences from barrel to barrel to barrel. The owners of a number of establishments in Colorado anyway have come now and this is something that we offer, they can come to the distillery, taste a number of barrels and pick their own barrel. Then we’ll bottle it and it will be their own bourbon where we’ll add a special label to it that actually has their establishment on the label.

Carol: So cool.

Dave: Yeah, we’ll bottle one barrel specifically for one account and they get the entire contents of that barrel. Then what we’ve done is then we take that barrel, send it to Ska and the couple beers we’ve done now are 17% imperial stouts so really big beers.

Carol: 17, 1 7, for real?

Dave: Yes, 1 7. Yes.

Carol: Oh my gosh, do not let me near that honey. That’s dangerous. I love it.

Dave: Then we age it in that same barrel. Then the beer, the bourbon and the barrel all end up as a display in that store. You can actually keep working that barrel back and forth depending on how-

Carol: So cool.

Dave: … far you want to take it. There’s a lot of things you can do with used spirits barrels. It’s really super fun. The synergies between the two companies make it, it’s just a blast.

Carol: It sounds like it.

Dave: That’s a cool, it’s a great sales program. It’s a good marketing tool. It’s a good story to tell and it’s a lot of fun to do. I think people really appreciate that at the retail level.

Carol: Absolutely. Everything you’re talking about, it’s just so clear that your heart and soul is completely poured into this business. I think that goes back to the authenticity that you were talking about earlier. Every single thing you talk about, you’ve stayed true to yourself, you stayed true to loving the work and it really shines through in all the innovations that you’re bringing forward. It’s just great, great stuff. Love it. Really cool. Okay, so cool. Dave, let’s move to the part of the show we call four more. Okay, we’re going to start with four questions that we ask all of our guests and then we’re going to jump into the more, which is where we can find out more about you, all right? Are you ready for the four questions?

Dave: Four questions. Let’s have them.

Carol: Let’s do it. Jay, you’re up my friend. Jay you’re on mute. Okay, we’ll do that again.

J: I can just take it, we’re good.

Carol: Okay, take it from here. Go.

J: Okay Dave. What was your worst job ever and what lessons did you learn from that that you took into your ultimate business at Ska Brewing?

Dave: My worst job. That was probably one of the really early jobs I had. I was a dishwasher for a catering company.

Carol: That’s a rough one.

Dave: I was pretty young. To me it was great to have the job but the couple that owned the company, I’ll give you an example, I don’t know why this stuck in my head but there was a number of these. I remember one time someone was in there, in the back where I was washing dishes and the owner was there with a friend and I think they had just had lunch there in the front or something and the guy asked where the garbage was. The owner just pointed to me and said, “He’s right there.”

Carol: Whoa.

Dave: I actually made it through the day but then I started crying at the end of the day. I told my mom about it. It was a relatively new job for me, I’d only been there for maybe a week. I think, I mean it stuck in my head and that was just one example. She’d make comments like that pretty often, mostly to me.

Carol: Wow.

Dave: But she would treat everybody else that worked there quite a bit differently. It instilled in me, I still physically I can feel it in my stomach talking to you right now how I felt that day. It instilled in me that everybody that’s related to the organization is equally important.

Carol: That’s right.

Dave: I think, we have to do that as managers and as leaders. I’m not the best at it but you have to let everybody know that they’re important to you and what they mean to you and you wouldn’t be here without them no matter what role they play in your company.

J: Love that.

Carol: That’s great. Okay, so Dave, what is the first moment that you realized you had the entrepreneurial itch? Was there some time way back when that you just knew you’ve got to do your own thing?

Dave: Yeah. There was, that’s an easy question for me. I’ve thought about that in the past. When I was a little kid, the different elementary schools had their own neighborhoods and there was, I was probably eight or nine years old and there was a school or a candy store that was kind of in the next neighborhood away. They had all these weird, exotic candies that you could not find anywhere around my house. It was really only a half an hour bike ride. I would ride every once a week down to this place, originally just because I wanted the weird candy that they had but once I got back and I’d show up in the neighborhood and my friends or whoever would be like, “Where did you get that? Where did you get that?” I just realized oh my God, there’s a need for this candy in the neighborhood. I actually set up shelves in my closet and had this secret candy store.

Carol: That’s so cool.

Dave: Yeah, I’d bring, I’d have people line up at certain times of the day in front of the house and bring them all in at once. I’d have all the candy with prices. I just doubled the price on everything and have everyone come in and buy candy from me. Then I’d take all that money, take a little portion out to reinvest and head back down to the, ride my bike to that next elementary school’s neighborhood and buy their weird candy.

Dave: It was kind of, I don’t know that I realized it then but I was thinking about it, you guys were talking on one of your podcasts, I think the one with Brent Underwood about everybody, early jobs being at a golf course. I remember doing another thing, that was one of my early jobs, working in the clubhouse of a golf course. We were allowed to play for free and nobody at this country club would take their golf balls out of the pond. If it hit the pond, even if it was only a foot or two feet in. You’d play and you’d walk by these ponds and you’d see all these golf balls that these rich guys just can live without. We just used our ball retrievers and scoop them up and then go to the city golf course and set up on the ninth hole and sell them for 50 cents.

Carol: Awesome.

Dave: I’ve always just had that, it’s just part of who I am. I don’t know why or how it got instilled in me but maybe just that first candy thing. I don’t know.

Carol: Awesome.

J: Love it. Okay. What is the worst advice you’ve been given either in your persona life or in your industry and how would you go about changing that bad advice into good advice?

Dave: You know, I think, I might have touched on this in a way earlier but one piece of bad advice, you hear it all the time is if you want something done right you’ve got to do it yourself. I think for me, that was the problem was I was going by that advice for too many years when there was so many people we could have brought in early that could have done a better job than me. It took a lot of years to learn that. Now it’s, we understand that. It’s how we hire. Hire the best. Hire people that are really good and don’t worry about, I don’t know if it was an insecurity thing or an ego thing but not learning that lesson early on, that no. If you want something done right, have someone else do it is the real advice, right?

Carol: That’s a great mindset shift. [crosstalk 01:01:08]

J: I love it. I love it.

Carol: I could not agree more, could not agree more. Okay, the last and fourth question is, so Dave when it comes to spending money, whether in your business life or your personal life, what’s something that you’ve splurged on that was totally worth it?

Dave: I mean, that’s kind of easy for me. It’s my mountain bike. In Durango, Durango is a big, outdoorsy Colorado town. There’s a lot of mountain biking here but I kind of, two years ago I actually, I’ve always had a mountain bike that I somehow got a deal on or traded some beer for or whatever, just being a local business person I had some ins and outs. I finally decided to buy the bike I wanted, that fit me right, regardless of the cost. I did it and I don’t regret it at all. It is so fun. I’ve always, that’s kind of, my physical and mental and physical health are really important to me personally. We try and instill those values in our employees as well and really focus on health. Personally in my family, we don’t have a problem spending money on something if it keeps you healthy. Something that’s as fun as mountain biking, I’m never going to have a bad mountain bike again. It’s like priority number one.

Carol: That’s great.

J: That’s awesome. Okay. Dave, tell us a little bit, let’s jump into the more, tell us a little bit about where people can find out more about you, how they can get in touch with you and most importantly for those of us who want to try either Ska Brewing beer or Peach Street Distiller spirits, who of us are lucky enough to be able to do that and how do we do it?

Dave: Okay. The states around Colorado are pretty easy and then most of the Midwest has the Ska Brewing products. Peach Street Distillers is really just Colorado but you can find it at a lot of the liquor stores and bars and restaurants, especially in the foodie places, Denver, Boulder are good with the spirits but you can also find more information on the spirits at PeachStreetDistillers.com and then more information on the brewery at SkaBrewing.com and then on Instagram and Twitter I’m Ska Brew Dave and you can email me directly too just at [email protected] Easy way to reach me.

J: Awesome. Favorite ska band?

Dave: Oh gosh, man it’s like choosing your favorite kid at this point. I don’t know if I can do that-

Carol: I can do that. I can do that at any time.

Dave: I did just see a really well known band live in Phoenix last week and they’re the Mighty Mighty Bosstones. I’ve got to say the show was so fun, I’m just going to say that’s my most recent show and it was a blast.

Carol: So fun.

J: Awesome. Cool. Well, Dave, thank you of much for this.

Carol: Thank you, thank you, thank you.

J: This was great talking to you and like every episode, I want to go out and start my own brewery.

Carol: I know, right?

J: I don’t think I’m going to do it but let me tell you something, it sounds awesome.

Dave: Yeah, thank you guys. I bet that’s something you have to deal with all the time every time you get off the podcast with somebody you want to start a similar business, right?

Carol: Totally, we’re so inspired and so motivated, we’re like, “Well we’re going to go do that too.” It’s amazing.

Dave: I love it. Thank you guys very much for having me on. I appreciate it.

Carol: Thank you Dave.

J: Awesome. Talk to you soon.

Watch the Podcast Here

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In This Episode We Cover:

  • Why Dave looks at other craft brewers as “coopetition”
  • How Ska Brewing expanded into overseas markets (They’re big in Sweden!)
  • How a real estate investment made the company a ton of money
  • What the “mom-and-pop” game is, and how to avoid it in your business
  • Why Dave tries to hire people smarter than him
  • Why he doesn’t blindly follow trends
  • Why doing business locally helps his profit margins
  • How diversifying into other products made his business stronger
  • Why it’s so vital to make each employee feel important
  • And SO much more!

Links from the Show

Tweetable Topics:

  • “You learn from every failure.” (Tweet This!)
  • “You don’t have to sell too hard.” (Tweet This!)
  • “Move more like a speedboat than their aircraft carrier.” (Tweet This!)

Connect with Dave

What does it take to start, scale, and sell your own business? Every Tuesday, J and Carol Scott ask this question to entrepreneurs of all stripes and delve into stories that go beyond the launch. From hiring and firing to marketing and raising capital, this podcast takes an honest look at the triumphs and stumbles of entrepreneurship. Whether you’re looking to sustain a startup or bring an idea to life, you’ll come away inspired. Tune in—and learn how to treat your business like a business.