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December 27, 2013

Brewing Up Business Incubators

Posted by Mohit Joshi (View Profile | View All Posts) at 9:35 AM

Brewbound Session 2013 - Boston - Innovation Strategies with Jim Koch of Sam Adams [Source: http://www.youtube.com/watch?v=_SINQgYUDpo]

One of my favorite lighthearted quotations comes from Benjamin Franklin: "Beer is proof that God loves us and wants us to be happy."

Nobody ever said that profitably producing all that beer was an easy, stress-free process, however. Jim Koch should know. He's the founder of the Boston Beer Company, which produces the upscale Samuel Adams Lager. Before his beer became a runaway success and pretty much created the craft-brew market, Koch faced the struggles and challenges common to many owners of small businesses.

Besides being an aficionado of crafting beer on a relatively small scale, Koch is an advocate of providing small-scale loans to budding entrepreneurs. Koch says that he wishes he knew everything he knows now when he was starting his brewery some 30 years ago. In that spirit, he lends out anywhere between $500 and $25,000 to entrepreneurs in the hospitality sector.

To be sure, Muhammad Yunus has been a proponent of micro-lending for years now. The chairman of the Indonesia-based Grameen Bank won a Nobel Peace Prize for advancing the practice of loans in developing countries. The practice has shown itself to be very successful: When people get enough money to get their businesses started, they're more likely to develop the skills required to sustain those businesses, take care of themselves, and think about how they can help their neighbors become self-sufficient as well.

Of course, eradicating Third World poverty through micro-lending is a bit different from a Boston or Philadelphia businessman wanting to open a hip restaurant. Nevertheless, the Boston Beer Company's Koch knows his market. He also offers free business counseling services to would-be restaurateurs and the like. His reasoning is that although someone might have a recipe for success with a hotel, that person doesn't necessarily know how to tackle vital business processes. Why is Koch seemingly generous with his time and money? Isn't he concerned that he might help create the beer brand that disrupts the craft brew market and puts him out of business? I suspect it's because entrepreneurs know that competition is a healthy thing; there's always room in any market for more innovation.

I don't watch much television, but when I do, I enjoy "Shark Tank." The premise is that rising entrepreneurs get a couple minutes to present their ideas to a panel of eminently successful businessmen. When the business shows promise, the fun is seeing the rich men and women compete with each other to get the contestant to choose their offers. Generally, the contestant is left deciding between two options: either to give up a larger stake in the business but with more seed capital or allowing a smaller stake with less of an initial cash infusion from the mogul.

How the entrepreneur makes the decision says a lot about how innovative the product or idea is. If it's a groundbreaking item, then he can confidently assume that he'll make enough money on it someday such that he wouldn't mind the tycoon having a larger stake in the business. Getting it to market quickly is more important. But perhaps the innovation is a slow-and-steady proposition that requires less of an initial cash infusion. He'll want to own more of the company in the long term.

Of course, today's marketplace requires a lot more engineering rigor and is less tolerant of people who come equipped solely with big, sweeping ideas.

That's why when Jim Koch offers insights toward starting businesses, it's an economically healthy move. When entrepreneurs can openly operate and thrive in the marketplace, everyone tends to enjoy the fruits of their activities.

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