From Beer To Eternity
By following family tradition, Jim Koch created one of America's most popular microbreweries.
Anheuser-Busch would probably be delighted if Jim Koch (pronounced "Cook") disappeared. Koch's rapidly growing Boston Beer Co., which he founded and runs, has put a tiny crimp in the giant brewery's sales. Boston Beer makes Samuel Adams beer, heralded by American beer cognoscenti as the finest specialty, or "microbrewed" (also called "craft-brewed"), beer on the market. The success of Samuel Adams beer has forced Anheuser-Busch--and every other major brewer across the country--to turn out high-quality brews that cater to America's growing army of sophisticated beer drinkers.
As far as 47-year-old Koch is concerned, it's manifest destiny--or justice for the millions of discerning consumers who have been hankering for a quality brew. Koch pulls no punches, saying he's the man who is qualified to deliver--and he's got the credentials to prove it.
Koch is a sixth-generation brewer, with family lines traceable to Bavaria. His great-great-grandfather once owned a tiny brewery in St. Louis. His father, Charles Joseph Koch, Jr., was brewmaster at several Cincinnati breweries.
Yet, as a child, Koch remembers his father warning him against becoming a brewer. "Fifty years ago, there were over 900 breweries in the United States," he says. "Anheuser-Busch put about 875 of them out of business." When the market shrunk, Koch's dad abandoned brewing and opened an industrial-chemical distributorship.
His father's career advice fell on deaf ears. As a teenager, Koch had no compelling career plans. But deep down he knew he'd follow in his dad's original footsteps. "Every eldest son in my family since the 1840s has been a brewmaster," he boasts. "I represent the longest unbroken brewing tradition in America."
Growing up, beer was more than just a topic of conversation in Koch's home--it was part of the family ritual. "Ever since I can remember, my father and I have been brewing beer in the basement," he says. "I never liked hard liquor and I never understood wine, but I always loved beer."
After getting his bachelor's degree in government from Harvard in 1971, Koch put in an additional year at its business school and another at its law school before quitting to become a mountaineering coach at Outward Bound, a wilderness education program. "At the time it made perfect sense," he explains. "I was 23 years old. I realized that I wasn't ready to make any serious career decisions. I said to myself, `Why should I finish school until I know a little more about what I want to do?' I realized that I would never have a chance to do this kind of thing again. As it turned out, it was a great decision. I had three incredible years."
Koch left Outward Bound in 1976 and returned to Harvard to get his combined law and MBA degree. In 1978, he took a job as a consultant with the Boston Consulting Group. By the end of 1983, he was ready to pick up the baton and continue his family's proud beer-making tradition. The idea was triggered by an article in a business magazine which described how Fritz Maytag revived San Francisco's steamed-beer tradition by opening Anchor Brewing Co. in the 1960s. "I read that story and I started seriously thinking about the beer business again," he says. "I thought to myself, `People are buying a lot of imported beer and they think they're getting good beer. Well, they're not.' I could make much better beer than Molson, Heineken or Beck's. I knew I could turn out really fresh beer."
When Koch confronted his father and told him he was abandoning his $250,000-a-year job to start a small brewery, the poor man nearly suffered a coronary. Recalls Koch, "He looked at me and said, `Jim, that's the dumbest thing I've ever heard. We've spent 20 years trying to get the smell of a brewery out of our clothes.' "
Yet his father must have liked the idea, because he became the new company's first investor. He gave his son $40,000 (in return for stock in the company, which is worth more than $12 million today). Koch plunked down $100,000 of his own savings and raised an additional $100,000 from a venture-capital firm.
Koch's moment of truth came in December 1984, when he launched the Boston Beer Co. Using a recipe scribbled on a yellowed piece of paper from his dad's attic, Koch whipped up a test batch in his kitchen. Then he rented a pilot laboratory at the University of California at Davis (where they have a fermentation sciences program specializing in wine and beer) to perfect the formula. It took six weeks to produce two cases of beer.
The reaction to his beer was unanimous. "Everyone said, `Wow, I didn't know beer could taste this good,' " he says, victoriously. Sometimes, obvious lessons are the most profound. Many entrepreneurs compulsively rush ahead just to get product out; Koch was careful from the start. "If you know what you are doing, you will not only produce something different, but also something better than other products on the market."
After this test, Koch needed to find a brewery to produce the first commercial batch of 500 barrels of beer. A small Pennsylvania brewery fit his needs.
He soon named his beer, Samuel Adams, after the rabble-rousing patriot who inspired the Boston Tea Party, who had later served as the Governor of Massachusetts--and who had also operated a brewery. Koch knew that the name would hit home with Bostonians--and with other Americans. Amid the popularity of foreign beers, here was a high-quality, distinctly American beer.
Koch put together a business plan that didn't require selling a lot of beer. "I reasoned I didn't have to get very big to break even," he says, since he was using a commercial brewer at the time. "I had almost no fixed costs. I didn't maintain an office until the end of 1985. Before then, I worked out of my home, spending most of my time at the Pennsylvania brewery, making the beer, and working the streets of Boston, selling it."
In that critical first year, Koch worked hard at selling his unknown beer, yet no distributor would try it. "They all said the same thing," says Koch. "It went something like this: `Your beer is too expensive; no one has ever heard of you; you don't have any advertising; people don't drink American beer, they want foreign beer.' I realized I had a battle on my hands: Not only did I have to start a business, I had to create a new beer category."
Koch leased a warehouse, rented a truck, and hit the road selling his beer. Three weeks after launching his company he had 30 accounts, all of which were bars. "I couldn't afford to produce six-packs back then," says Koch, referring to his limited packaging capabilities. "All I had were cases, which were ideal for bars."
Getting bar owners to sample his beers, however, proved to be a true test of Koch's selling skills. "I knew I had a good product," he says. "The trick was getting people to try the beer. Bar owners, particularly, are a notoriously tough sell. If you don't tell your story in 30 seconds, you lose."
Koch's approach was "hand-crafted" to get people to taste the beer. If a bar owner asked him to leave a sample so it could be chilled and tasted later, Koch would open his attachÃ© case--in which were stowed two ice packs, six cold bottles of beer, and a set of cups. "Let's taste it right now," he'd say, at which point the bar owner's mouth would usually drop open. Once they tasted it, he knew he'd have a sale; it was just a question of how many cases would be purchased.
He soon discovered the size of his market. Six weeks after starting up, Koch submitted his beer as an entry in the Great American Beer Festival in Denver, which was attended by 4,000 brewers, and went from unknown brewer to budding superstar when he won first place in the Consumer Preference category. "I knew we had something that wasn't just good," says Koch, "but exceptional."
For the next four years, Samuel Adams won the Consumer Preference Award and, in 1990, captured a gold medal in the European Pilseners category, the Great American Beer Festival's most competitive category.
After winning his first Consumer-Preference prize, Koch amended his business plan, setting a 20-year goal: By the year 2005, Samuel Adams would be a bigger seller in the United States than Heineken.
Many business analysts are convinced he can do it. He completed 1985, his first full year in business, with sales of $1.5 million. The following year, sales leapt to $5 million. By then, Samuel Adams was available in six-packs throughout New England.
"In our first couple of years, sales grew largely due to word-of-mouth," Koch says. "It was real basic. People heard about the beer and asked for it."
In 1987, sales reached $7.5 million and the Boston Beer Co. was chalking up more than a 40 percent growth rate each year. In 1988, he opened his own brewery in Boston, where he has since turned out one or two new products every year.
Koch made himself Samuel Adams' official spokesperson, in print and radio ads--not through vanity, but common sense. "I couldn't afford to hire talent," he says. "Professional voices are expensive. There are also rules, royalties, and lots of paperwork. Also, nobody knows my beer better than I do, and no one has as much passion for the product."
Therein lies the key to Koch's success. He really loves making beer and coming up with great products. "It's what gets me up in the morning and fires my adrenaline all day long," he says. "Starting your own business is probably the best vehicle for personal growth. The continual challenge to be better makes every day exciting."
Even though Boston Beer's sales exceeded an estimated $200 million for 1996, Koch keeps a realistic perspective. "I can't ever let myself forget that Anheuser-Busch is the number-one brewer in the world. They control almost half of the U.S. beer market, and their stated objective is to reach 60 percent. That's a very formidable opponent," he says, noting that after 12 years in business, he has gone from "being invisible to being infinitesimal. Our mission is to be small. I think that is a realistic goal."
Koch says he'll succeed through a clear-sighted marketing plan that separates him from his competition. "My strategy is not to compete with the big guys, but to do something different by making beer that is fuller, richer and more flavorful," he explains. "The guy who drinks Bud Light doesn't want Sam Adams. The truth is, many people actually like light, watered-down beer. There is nothing wrong with it, either. The big beers are well-made beers. They're clean, consistent and, actually, difficult to brew, because they have so little flavor to hide from. If they make a mistake, you will taste it immediately. My goal has always been to make something different for consumers who want more flavorful beer than the mass-produced domestic beers."
Koch says the ultimate key to entrepreneurial success is focus. "Focus on the two or three things that are going to make you successful," he advises, inevitably coming back to the obsession of his life: making great beer. "And a wonderful obsession it is," he says, adding, "I don't know about you, but all this talking has made me thirsty. I think I'll pour myself a Sam Adams. Care to join me?"
New York City writer Bob Weinstein is the author of ten books; his latest is Who Says There Are No Jobs Out There?, from McGraw-Hill.
Boston Beer Co., 30 Germania St., Boston, MA 02130, (617) 368-5000.