Before You Crowdfund Your Craft Brewery Startup, Consider This Model Instead

By Tara Nurin

This piece was originally published by Forbes


Here’s an admission that’s going to offend some of you: financial crowd-sourcing campaigns for business ventures—a la Kickstarter and Crowdbrewed—piss me off. Sure, I support your ambition to open a craft brewery (provided you’re going to make quality beer). But since when is it my responsibility to fund it? I’d like to buy anAudi A5 convertible but you don’t see me groveling, do you? 

Arguments over the legacy of barn-raising aside, this isn’t what was originally meant by the term “sharing economy.” Fortunately for aspiring entrepreneurs, there is a disciplined way to get others to pay toward your dream of developing a brewery, and though it’s an old European concept, craft brewers are only truly discovering it now.

“It’s a social and fun and viable business model and people see it as building community,” says Matthew Cropp, board president at the Full Barrel brewery and taproom in Burlington, VT.

The “it” Cropp describes is a cooperative, or “co-op,” model, by which workers and/or community investors own, and in many cases manage, the business. The U.S. Small Business Administration defines a cooperative as “a business or organization owned by and operated for the benefit of those using its services.”

Sixteen hundred beer lovers launched Black Star Pub & Brewery Co-op, the world’s first cooperative brewery, in Austin, Texas in 2010, and Cropp and thousands of others have followed suit.

“Our first meeting was in a field in Austin,” says Johnny Livesay, co-founder of Black Star.

In 2006, Livesay’s friend put up flyers around town inviting people to come talk about starting a beer bar owned by members. But over the four years it took Livesay and his colleagues to open for business, the idea morphed from bar to consumer cooperative brewpub – one that has 3500 member-owners, a nine-member board of directors and nearly 30 workers. Lifetime membership costs $150 per person and can be paid off over time. Other than a direct one-to-one vote to elect directors and the ability to help set long-term policy, member owners get perks like weekly discounts, invitations to private events, a free beer on their annual co-op join date, volunteer opportunities, and so on.

According to Black Star’s website, the co-op’s structure arose from “the conviction that workers have a right to democratic management of their workplaces, but that their work is undertaken as part of a larger effort to meet the needs and aspirations of the community.”

Co-ops can choose to follow different governance protocols and each state has different laws to regulate them. At Black Star, the ownership group, called the “Members Assembly,” elects directors to three-year terms to guide the overall direction of the business. Professional employees comprise the self-governing “Workers Assembly,” which handles operations and appoints a liaison to the board and team leaders to oversee the kitchen, brewery, pub and back office. Recently, the board has added a worker leadership track for those who want to invest themselves long-term.

Leadership track workers have to buy a membership while the others can decide.  All of them earn a fair living wage, more than three weeks of paid time off, enviable benefits and the right to be called “workers” responsible to one another instead of “employees” beholden to a boss. One potential downside? Workers can’t accept tips because the board doesn’t want to double charge customers, many of whom are current or future member-owners.

There are more than a dozen brewery co-ops operating in the U.S. out of 90,000 total co-ops around the world. In the U.S., 100 million people belong to a co-op that might specialize in anything from produce to electricity. Judy Ziewacz, CEO of the National Cooperative Business Association (NCBA), says the idea behind them, other than sourcing a start-up, is that, “We’re businesses built on principle. We’re democratic institutions, and that empowers people.”

American co-ops really gained ground in 2011 when some activists, frustrated with the behavior of banks during the recession, planned Bank Transfer Day to encourage people to transfer their money from banks to non-profit credit unions, which are simply financial co-ops with a special name. According to the organizers, credit unions gained 2.2 million new net customers in the 12 months before and after transfer day—four times as many people who joined a credit union during the same period the prior year.

The difference for many comes down to trust. An NCBA survey found that while familiarity with co-ops remains at a low level, more than 77% of respondents agreed that co-ops have the best interest of the consumer in mind; run the business in a trustworthy manner; are committed to their communities; are committed to the highest quality of service; and offer fair, competitive prices. Conversely, only between 56% and 69% of respondents felt the same way about for-profit entities.

In the case of a brewery, Cropp says, “It’s community ownership of a social space. What are the sorts of things that people will put their time and energy into? Beer.”

While, like Black Star, Cropp and his partners chose the consumer co-op model, where customers fund the endeavor and can join at any time and a pro brewer is typically hired to perform the daily work, other breweries take the worker cooperative route. Fourth Tap Brewing Cooperative in Austin is a rare example of a worker co-op brewery, where workers collectively own the business and share equally in responsibilities like staffing the taproom.

Like the Employee Stock Ownership Plans (ESOPs) that are spreading through breweries such as New Belgium and Harpoon, worker co-ops may grow in popularity as a way to leverage against future buyouts by mega-brewers and equity firms. But worker co-ops differ from ESOPs in that co-ops award each worker an equal share and an equal vote while in an ESOP situation, a trust usually holds an employee’s shares until s/he leaves the company, at which point the employee collects an unequal benefit determined by a formula. Usually, a company hierarchy remains in place and employees don’t necessarily get an equal say in how the business is run.

Some breweries are run as collectives, which are similar to but not the same as co-ops. According to the Cultivate.coop website, members of a collective adhere to a flat organizational structure, where individuals or committees may have authority to make decisions but no managers or people wield any greater official influence than anyone else.

Both models could work in what some observers forecast will be the next type of co-op or collective in the brewing world: purchasing. Cropp says there’s “some chatter” among small brewery owners to form groups to either share equipment or to aggregate to accumulate greater purchasing power when buying supplies, ingredients or machinery. Already, key figures in the world of large-scale purchasing cooperatives—Howard Brodsky of the carpet industry, for one – are coaching brewing co-ops on how to set up their own.

“Raw materials do very well, as do distribution trucks and there’s a huge benefit in co-op’ing information and analytics,” says Guy Amisano, CEO of New York-based Salient Management Co.
But if all of these structures sound tricky to manage, they are. Amisano says a good co-op requires a good constitution, and Cropp cautions that it’s critical to do the trust-building work before collecting a cent in membership fees.

But if all of these structures sound tricky to manage, they are. Amisano says a good co-op requires a good constitution, and Cropp cautions that it’s critical to do the trust-building work before collecting a cent in membership fees.

“You can’t put the money before the community building effort,” he says. “It undermines the community buy-in and long-term support.”

As it is, six years in, Livesay and the board president have finished rewriting Black Star’s policies to incorporate what they’ve learned so far as the pioneers of co-op brewery ownership.

“Some of those things sound really good on paper,” he says. “But sometimes the reality is a little different.”

Tara Nurin is a Forbes contributor who covers the business of beer and alcohol, mixed with a little politics.