Founders taps into the business of beer
Executive team culled from outside the industry instrumental in brewery’s explosive growth.
Ten years ago, the idea Founders Brewing Co. could be among the top 15 breweries in the nation was a pipe dream, even for its leadership.
Mike Stevens and Dave Engbers established a brand with a reputation for great beer, but the first 10 years of their business had left them extremely hamstrung by financial liabilities and physical limitations. It was a little more than a decade ago when the pair saw the opportunity to ride the wave of craft beer and grow, so they went out to fix the past and right the ship for future growth.
“Essentially, our industry is built out of a cottage industry, home brewers and hobbyists, and I saw that within our industry, not that that’s a fault, but I saw a potential positive route to professionalize it from the business side,” said Stevens, now the company’s CEO. “Most of the folks who get involved are hobbyists, not that there’s anything wrong with it, but it’s not looked at too seriously, and I saw that’s an avenue we could concentrate on and excel within the industry.”
In 2007, Founders brewed less than 10,000 barrels — a barrel is approximately 31 gallons — and was outside the top 50 breweries in the nation looking in. This year, Founders likely will brew more than 450,000 barrels, as sales continue to grow at 40-plus percent despite the overall industry flattening significantly, including many of their key competitors.
Stevens and Engbers knew their capabilities alone wouldn’t be enough to grow their company, especially after the hole they found themselves in after the first decade. While everyone at Founders attributes the growth of the brand to the liquid in the bottle, the brewery likely wouldn’t be where it is today without the executive team that’s been built the past 10 years, with Stevens as CEO, Engbers as president, John Green as chairman, Brad Stevenson as chief production officer, Andy Winkel as chief financial officer, Chase Kushak as chief operations officer and Tony Barnes as chief corporate counsel.
“I’ve worked for hundreds of clients, over 20 years of legal practice; I’ve not encountered a work environment that is this pleasant to work in and this effective,” said Barnes, whose experience includes being a partner at Law Weathers and of counsel at Varnum. “And I haven’t encountered an executive team that works as well together as this one.”
The creation of the executive team goes back to 2006, when Stevens and Engbers approached Green to help find a space of their own. Green was a partner at Locus Development but had gotten to know the Founders guys as a partner at Brass Works Building — where Founders originally was located — chasing Stevens around for rent.
The beer’s reputation led to an inability to keep up with orders and the only way to keep up was to expand, but there wasn’t money. Often, there wasn’t enough money to buy glue to seal cases or crowns to cap bottles, let alone add production capabilities.
“This is about the time, I’m going home at lunch to check mail to see if I could get a credit card,” Engbers said. “We didn’t have money to pay bills and make payroll. We were bleeding all over the place.”
A line from a business consultant stuck with Engbers, “You guys have a really expensive hobby.” And it was time to turn it into a business. When they approached Green, a third partner dropped out and he bought in, only after declining a few times first — the brewery did have $150,000 in payables.
“There was an understanding of the beer side and realizing they had developed a strong product but needed the match on the business side,” Green said. “I thought it could be a fun challenge. It was a huge gamble for me to invest, but sometimes the most logical decisions don’t get you to where you want to go.”
From there, they began to build their strategic plan and a board of directors; Green and Winkel, a partner at Locus, had just completed Hopson Flats across from the abandoned truck depot in which Founders is located today. The move seemed to make sense.
Winkel, described as a math whiz by his executive peers, turned the real estate move into a package that allowed the brewery to finally have a positive cash flow through debt consolidation, incentives, subsidies and credits, or as he call it his “real estate bag of tricks” for creative financing.
Winkel wasn’t a beer fan, but as he got involved, he said there was something special at Founders.
“I really came without knowing much about it,” he said. “When I look back, I’m happy I came from the outside and asked a question that’s maybe silly, but it makes other people think about not looking at it that way. After meeting them, I went home and did research and really got a sense of these guys are on to something. Cash (was) strapped but had a great, not just a business approach, but a passion for the beer and a combination of those two things that are pretty rare.”
Green and Winkel joined full time in January 2012, but Stevenson was the first board member to make the transition to full time in 2011. With 18 years of furniture manufacturing experience, including two startup-to-acquisition phases, Stevenson was tasked with establishing systems and processes to scale Founders’ beer production.
“There’s a lot of glamour around the brew kettle, but the brewing is four hours of a six- to 10-week cycle,” Stevenson said. “There’s a lot of work outside the beer making. When I joined Founders, it was on the focus of, ‘Are you willing to talk about scaling up and talking about volume?’ They didn’t need to make it better, but they needed to make it consistently without losing quality.”
Improving the systems in place, from manufacturing to packaging to order fulfillment, were all key to Stevenson’s role, but so too was the way he looked at relationships with suppliers. Scaling up volume required more amounts of raw materials, such as malt and hops, so without strong relationships with suppliers, quality could easily suffer, Engbers said.
Kushak joined in 2014, as a former fraternity brother of Stevenson. All of the executive team is tied together in one form or another, many dating back to old family friendships.
Kushak has a long line of industry experience, including packaged goods at Kraft, consultancy at Ernst & Young, start up operations at auto startup Covisint, tier one supplier at Johnson Controls and, most recently, home building.
“It’s been fun jumping from one to another, finding new challenges, applying stuff from one thing to another,” Kushak said, who largely runs sales operations and sees an opportunity to more than triple Founders’ output while filling white space currently occupied by larger competitors.
“This is as unique and special a thing as I’ve ever seen,” he said. “For Mike and Dave, the first filter was culture. It’s, ‘Can we bring in people from the outside who are smart and have business acumen, but most importantly, can they preserve our culture?’ That’s the real risk in doing what they did. That’s tough to bring in someone from the outside into an existing business and not have that culture be screwed up.”
The whole team iterated the fact there are no egos and everyone listens and respects opinions, always setting aside personal interests for the betterment of the brewery.
It’s a culture that’s been so important to Founders’ growth, between the trust and camaraderie among employees, not just the executive team, to the passion and business being led by what’s in the bottle — or can. At any point during the growth Founders has experienced in the past 10 years, an apple cart could have been upended. Instead, the brewery still is on a rapid ascent to the top 10 largest breweries in the U.S.
When Barnes started working with Founders in 2006, there were 20 employees and it was brewing approximately 10,000 barrels with distribution in 10 states. Now, the brewery has more than 450 employees and is in 46 states, not to mention international distribution. He came on full time in 2016, only after 10 years of becoming increasingly involved in day-to-day activities at the brewery.
He said he’s unsure of how many breweries have in-house counsel, but said it, along with a more refined executive team, could benefit many.
“A lot of people who get into brewing, they have that adventurer’s spirit, flying by the seat of their pants,” he said, “But you know, it’s one of the most heavily regulated industries that there is, outside of nuclear armaments. It’s amazing how much I have to do everyday, to catch up, every state is different, federal government, local, all the varieties of contracts for supply, distribution, countries, trademarks.
“I’ve been busy as all get out from Day 1.”
The entire Founders executive team is busier with each passing day, and growth aspirations continue to move forward — strengthened by the 2015 partnership with 125-year-old, family-owned Spanish brewer Mahou San Miguel, which bought 30 percent of Founders. While the backend business acumen from an array of diverse industry backgrounds is essential, it’s still the beer that drives the ship, Stevens said.
“I still go back to, fundamentally, we’re a product-driven company over all things,” he said. “I’ve always looked at if you do right by the product, the byproduct is the creation of value.
“When you focus too much on earnings and the bottom line, you forget what you’re all about. When you stay focused on what you’re all about, the end result is success on the bottom line.”
U.S. BEER SALES BY BARRELS IN 2016
1. AB InBev 94,200,000
2. MillerCoors 54,200,000
3. Constellation* 15,975,000
4. Heineken USA 8,475,000
5. Pabst 5,515,000
6. D.G. Yuengling & Son Inc. 2,747,836
7. North American Breweries 2,420,000
8. Boston Beer Co. 2,315,000
9. Diageo/Guinness 2,300,000
10. Sierra Nevada Brewing Co. 1,136,969
11. New Belgium Brewing Co. 957,696
12. Lagunitas Brewing Co.^ 921,000
13. Craft Brew Alliance 760,000
14. Gambrinus Company 604,200
15. Duvel Moortgat~ 595.929
16. Bell’s Brewery Inc. 421,529
17. Deschutes Brewery 374,914
18. Founders Brewing Co. 347,914
19. Stone Brewing Co. 346,000
20. Oskar Blues Brewing Holding Co.% 343,000
Source: Brewers Association and Beer Marketers Insight
Notes: *Includes Ballast Point Brewing Co.; ^Owned by Heineken Global; ~ Includes Ommegang, Firestone Walker and Boulevard brands; % Includes Oskar Blues, Perrin, Cigar City and Utah Brewers Cooperative brands.
2016 TOP 12 “CRAFT BREWERIES”
1. D.G. Yuengling & Son Inc.
2. Boston Beer Co.
3. Sierra Nevada Brewing Co.
4. New Belgium Brewing Co.
5. Lagunitas Brewing Co.
6. Craft Brew Alliance
8. Duvel Moortgat
9. Ballast Point Brewing Co.
10. Bell's Brewery
11. Deschutes Brewery
12. Founders Brewing Co.
Source: Brewers Association, condensed by the Business Journal for breweries traditionally thought of as craft, excluding AB InBev and MillerCoors brands, outside of the BA definiteion, which would not include Founders Brewing Co.
FOUNDERS’ ANNUAL PRODUCTION BY BARREL
2017: 460,000 (projected)
Source: Founders Brewing Co