Is it a bubble or is this just expansion? Either way, whatever craft beer is doing, it’s doing it right. 3,500 breweries with 2,000 more planned to be built. At this rate, the US will sky rocket well past it’s heyday of the 1880’s.
Some breweries are worried it’s a bubble, but most are just enjoying the ride. New Belgium, the 8th largest brewer in the US, has some lofty plans, including expanding to the East Coast. But the employee owned company is not worried about this being a bubble. In her interview with Forbes Magazine, New Belgium’s Co-Owner Kim Jordan, discusses New Belgium’s expansion, being an employee owned business and women in the craft beer industry.
Darren Dahl: New Belgium has adopted some cutting-edge business practices. Where did they come from?
Kim Jordan: I grew up in a liberal family where there was lot of unfamiliarity and perhaps skepticism about business and the notion of making money. I also studied social work in school and worked as a social worker for many years before we started New Belgium. I guess it came naturally to me therefore to think differently about how to run a business. I saw an opportunity to use New Belgium as a learning lab where we could experiment with choices about sharing equity broadly, making collaborations inside our industry and using profits to promote learning about the environment.
Dahl: Were there any role models you looked to?
Jordan: We had been in business about three or four years when I quite serendipitously read The Great Game of Business by Jack Stack. We had loosely been practicing open-book management and high-involvement culture at that time, mostly out of necessity since we were so small. And when I read the book, I wasn’t sure that I wanted to show people our books. But we had been doing a company retreat every year since we started and that year we did a quick exercise from the book with our coworkers. We asked everyone if the company brought in $100 in sales, how much would be left after we paid all of our expenses. The average answer was $60. This proved to me that people make up stories that are far grander than reality. We knew we didn’t have to be afraid to share.
Dahl: What was the right answer to your question?
Jordan: While we don’t generally reveal our profitability, let me say that it was a more typical net profit for a brewery, somewhere between 10 percent and 20 percent.
Dahl: So you wanted your employees to understand how the company really works. Did that happen? And did it pay off?
Jordan: Oh, my gosh yes. In spades. There are so many upsides to a culture where there is a high degree of trust, where alignment is powerful, and where people’s good ideas are implemented regularly and we trust their understanding of the business. Knowledge is power.
Dahl: You also decided to share ownership in the company.
Jordan: We have had a form of coworker ownership in place from the beginning. When we got started, the laws wouldn’t allow an S Corporation to have an employee stock ownership plan, so we created a phantom stock plan with 10% of the company as a way to create a deferred compensation plan. When the laws changed a few years later, we sold 32% of the company to our coworkers through the ESOP. In 2009, Jeff sold his shares back to the company, which we retired. That dilution bumped up the ESOP’s share of the company to 41%.
Dahl: And then more recently you decided to sell your own shares to the ESOP, giving it 100% ownership of the company. Why did you do that?
Jordan: I believe that one of the biggest threats we face in our world is the widening gap between the wealthiest part of the population and everyone else. It’s a big challenge. We’ve been interested in using our ESOP to see how employee ownership can change that equation. I also like to quote Corey Rosen, the former head of the National Center for Employee Ownership, who says that opening the books to people without offering ownership is like giving someone the chance to smell a freshly cooked meal without inviting them to eat it. When we made the announcement two years ago about who we sold the company to, we gave each of our coworkers an envelope. And inside that envelope was a mirror. That was our way of saying that we sold the business to them.
Dahl: Was there a reason you wanted to take your own money off the table?
Jordan: No. Other than that this kind of a transaction is inevitable. The advice that I got from my board of directors was that it was important to have the time to research a plan and also time to contemplate the company’s legacy.
Dahl: Did the company have to take on debt to buy your shares?
Jordan: Yes, we had to put debt on the balance sheet. The truth is that everyone could have also made more money if we had sold the company to a strategic buyer. But then, in about a year, the layoffs would begin. Or they would begin to question some of the environmental work we do or the sabbaticals we send our coworkers on because it affects the bottom line. We saw it as a choice that involved tradeoffs. But one of the reasons we have been able to do this is because we have the ability to grow. And by expanding into Asheville, we are increasing the value of the shares in our company while continuing to run the business the way we want to.
Dahl: Are you concerned that that debt could be a burden to the company and your former employees if the bubble bursts?
Jordan: We don’t see craft brewing as a bubble. We are poised to open a second facility in Asheville, and we still have a great deal of new territory to add for distribution. There are risks and rewards with every option. Had we taken a strategic deal, our coworkers might lose their jobs. Sell to a private equity firm? They eventually sell the company after they “clean it up” to ready it for sale. I also think it’s good for my coworkers to have to feel the real-life ramifications of being owners. And yes there is debt. The selling shareholders chose to stage the transaction to keep it manageable over time.
Dahl: Do you worry about the risk of over-expanding?
Jordan: I think there is a dynamic that every brewer is forced to ask himself or herself: Do we grow or not grow? We have had that conversation hundreds of times over the years. And growing for the sake of growing isn’t inspiring to me. It wasn’t important that we get bigger than someone else or have a certain amount of revenue. What turned the corner for us was realizing that growing allows us to create new opportunities for our coworkers. If we don’t grow, everyone sits in the same place they were last year. But we want to work with people who are vibrant and intellectually curious and growing helps us create the kind of energy that keeps people engaged and inspired.
Dahl: It would seem that the beer industry is largely made up of men. Has your gender ever been a barrier to you?
Jordan: Yes, it probably has. But my thinking has evolved over time. Broadly speaking, I think gender bias is subtle and pervasive and we often don’t see it until later on.
Dahl: New Belgium boasts a high number of women in senior and executive positions. Was that an intentional strategy?
Jordan: It just happened that way. We picked the best people for the job and they happened to be women. I think the people we look for have attributes that are both masculine and feminine. I think that people who have a good balance of those tend to be good leaders. We’re looking for people who like to collaborate and to listen to others. Sharing credit for a job well done is also important. We also want people who like to win.