Thirst Cruncher

Craft breweries, according to the Brewers Association, now have 12 percent of the American market. The largest craft brewer, by far, is Boston Beer, makers of the Samuel Adams brand. Boston Beer is not only the fifth-largest brewer in the United States, with two substantial breweries in Cincinnati and Breinigsville, Pa., and a smaller one in Boston, but is also the only one of the top five American breweries that was founded in the 20th century. Jim Koch isn’t as wealthy as the barons of Silicon Valley, but he has, by all accounts, cofounded a company that made him a billionaire. Moreover, he’s created over a thousand jobs, substantially more than most tech-based entrepreneurs, whose enterprises tend to employ relatively few people. Anyone interested in strengthening American industry should study Koch’s career closely.

Koch came to brewing from management consulting. He went to Harvard for both undergraduate and graduate work, and acquired a law degree and an MBA. In the early 1980s, Koch was working for Boston Consulting Group, where his colleagues included, at various times, Mitt Romney and Benjamin Netanyahu. But Koch’s family were brewers, and Koch inherited a recipe that his great-great-grandfather had used to make lager in the 19th century. So, in 1984, he decided to start his own company. He took with him to be cofounder Rhonda Kallman, a Boston Consulting Group administrative assistant who was brilliant at promotion and marketing. (Kallman left Boston Beer in 1998 after not being chosen to succeed Koch as CEO.)

Craft brewing in the United States began in 1965, when Fritz Maytag bought failing Anchor Brewing and modernized it. A few other craft breweries, most notably Sierra Nevada, had begun operations by the mid-1980s, but were largely based on the West Coast. The primary competitors to Anheuser-Busch, Miller, and Coors remained regional breweries, many with fading brands, aging plants, and excess capacity.

Jim Koch’s great insight was to realize that he could make his beer by making deals with older breweries to let him make his beers in their facilities. This process, known as “contract brewing,” is now commonplace but had never really been done in America until Koch made his deals with Pittsburgh Brewing and Cincinnati’s Hudepohl-Schoenling. The alliance was a virtuous cycle: The older breweries got a new income stream, and Koch could make his beers without having to sink scarce capital into equipment.

Contract brewing enabled Boston Beer to grow. Koch, with the assistance of renowned brewer Joseph Owades—who, among his achievements, created the first light beer—refined and adapted his family’s beer recipe. But what would his beer be called? Ad agencies pitched many names, including Sacred Cod Beer and New World Lager, but Koch decided to name his beer after the 18th-century patriot Samuel Adams, both as an indirect way of stressing heritage and because Adams had some connection with the brewing industry (by most accounts, he malted grain but did not actually make beer). Koch commissioned Gail Hutchinson to design the label and another artist (whom Koch does not name) to paint a portrait of Samuel Adams in the style of John Singleton Copley.

So Koch had a brand—Samuel Adams Boston Lager—and a beer. But his next task was getting bars to stock it. He had never taken any courses on selling at Harvard Business School and found only one volume in the school’s bookstore on the subject, Tom Hopkins’s How to Master the Art of Selling. Koch believes Hopkins’s book is quite valuable.

Look at salesmen in the movies, Koch argues, and you’ll see sleazy boiler rooms as in The Wolf of Wall Street or amoral con men such as the characters in Glengarry Glen Ross. But selling, Koch reminds us, is an honorable profession that deserves our respect. Koch and Kallman successfully sold Samuel Adams Boston Lager, first to Boston bars, then nationally. By the mid-1990s Koch was worth nine figures and Boston Beer began to buy breweries, ultimately acquiring Hudepohl-Schoenling and a Pennsylvania plant built by long-defunct Schaefer Brewing in 1972 that had gone through five owners between Schaefer’s collapse and Boston Beer’s purchase.

As Boston Beer grew, however, it went through three major crises. The first came in 1996, when Anheuser-Busch charged that Samuel Adams was deceiving the consumer by not telling them other brewers made their product under contract. Anheuser-Busch bought full-page ads in Massachusetts newspapers accusing Boston Beer of being deceptive and substantially assisted a Dateline NBC segment where, Koch recalls, the producers “put me in a darkened room and shined a spotlight on my face from below so that on camera I looked pretty evil.” Boston Beer appealed to the Better Business Bureau, who ruled that Anheuser-Busch’s claims were misleading and dishonest. And the company survived smaller crises: a massive recall involving traces of glass in a defective shipment of bottles, as well as a regrettable stunt on the Opie and Anthony radio show that convinced Koch that avoiding radio “shock jocks” was a good idea. In the past decade, Boston Beer has had steady, sustainable growth.

Koch candidly provides several lessons from his experience. He shows that American companies can successfully compete if they offer products that are better made and longer lasting than those offered by overseas rivals. American craft brewers are steadily increasing their market share because the beers they make are fresher and use higher-quality hops and malt than their larger domestic competitors or export-oriented European and Mexican companies.

Koch’s views on corporate philanthropy are worth noting as well. He recalls that, in 2007, employees at his firm’s Boston headquarters spent a day painting a nearby community center. But the day didn’t seem a productive one: “We had probably spent $10,000 worth of good management time to do $2,000 worth of mediocre painting. We could do better.” He didn’t think Boston Beer’s donating to charities was worthwhile because he was taking “someone else’s money—our shareholders—and giving it to a charity that we deemed worthy. I was better off just giving back the money to shareholders and letting them decide how to spend it.”

Instead of charity, Boston Beer promotes entrepreneurship by offering candidates capital and access to company employees who can offer expertise. In seven years, the Brewing the American Dream program has extended $7 million in credit to companies that created or retained 2,700 jobs. “Happily,” Koch writes, “more than 98 percent of the loans we made were repaid.” Koch concludes: “Done right, business is a noble pursuit well worth our energy and passion.”

Martin Morse Wooster writes for Mid-Atlantic Brewing News and American Brewer.