How I Built My Business: Samuel Adams

When Jim Koch brewed his first Samuel Adams Boston Lager nearly 30 years ago, few were willing to take on the giants of the beer industry.

Now, though Anheuser-Busch and MillerCoors still dominate the overall U.S. beer market, Koch's Boston Beer Company commands 1 percent of the industry and has helped lead the renaissance in American craft beer.

The Boston Beer Company produced almost 2.5 million barrels of beer last year, in more than 50 styles, and drew close to $560 million in revenues.

It has grown from a company of just Koch to 840 employees, including a 300-person strong sales team. It's also one of nearly 2,000 U.S. craft breweries, according to the Brewers Association.

Koch's Boston Beer Company began with a family recipe in the attic and a full-bodied entrepreneurial spirit. Read ahead to learn about how Koch built his company.

By Ellen Lee, Special to CNBC.com
Posted 11 July 2012

No distributors were willing to help Koch sell his beer when he introduced the first Samuel Adams Boston Lager in 1984. Undeterred, the Harvard-educated Koch read a book on the art of selling, packed a briefcase full of beer and started going from bar to bar.

"I'm just going to do it with old-fashioned shoe leather," Koch recalled about his plan. "I'm going to walk the streets of Boston with cold beer in my briefcase and go into every bar."

He had a sales routine: It included telling the bar owners about how he had left his lucrative job as a consultant to start a craft beer company using an old family recipe that was found in his family's attic. Then he'd pour a cup of beer and invite them to taste it. He ended the pitch with the question, "Do you think it's good enough to offer to your customers?"

"My ambitions were very modest. All I needed was 30 bars in the entire city of Boston to say yes, and I was able to grow from there," Koch said. "I had a goal: I wanted to get one new customer a day."

Koch hired a horse and carriage to help deliver the first cases of Sam Adams on Patriots' Day in 1984.

But for the most part, he kept his costs low during the early days. "It was started on a shoe string," said Koch, who raised about $240,000 from friends, family and personal savings to launch the business.

The company didn't have an office for the first six to seven months. Nor did it have a computer. Koch made calls from pay phones and held meetings at bars. For the first year, he stored and kept track of his customers' invoices in shoe boxes.

He didn't want to get ahead of himself.

"People tend to get hung up on the details of what I call 'playing company,'" Koch said. "A lot of businesses have gone broke and they had plenty of computers and accountants and nice offices, but they didn't have a product that people wanted to buy and they didn't have enough sales."

One of the company's earliest milestones was the “Best Beer in America” award at the Great American Beer Festival in Denver in 1985. That award helped put Sam Adams on the map, sparking interest from beer lovers who hadn't heard of it before.

But the accolades had a downside: Demand increased and the company ran out of beer for its Boston area customers. It was an early lesson in understanding supply and demand. The company lost a few accounts and some customers were forced to wait a week until the next batch was ready.

In 1986, through a former colleague at the Boston Consulting Group, Koch was introduced to the head of the food service company for the White House. Evidently, then President Reagan liked the idea of stocking the refrigerators with an American beer. No doubt it helped that the beer was named after an American Revolution patriot who also happened to be a brewer.

The company received a first order for 25 cases. Sam Adams was stocked not just at the White House, but also aboard Air Force One, Camp David and the Kennedy Center. The Secret Service selected and picked up the beer themselves to be sure it was safe to consume, Koch said.

From the start, Koch made the point that Sam Adams was a better quality beer than the current fare. In 1988, frustrated with how hard it was for consumers to tell if they were purchasing fresh beer, the company introduced "freshness dating" on its labels to show the beer's expiration date.

In a stunt to promote it, Koch was dunked into a tank of stale beer. "We were making the point that Sam Adams would rather put people in stale beer than stale beer in people," he said.

Up until then, consumers had no way to decipher the codes on beer packaging to figure out how long their beer had been sitting on the shelf.

"Everyone wanted to ignore whether the beer was fresh or not, but to me that is a big part of the quality of the beer," said Koch, who estimates that 50 percent of breweries now have freshness dating on their packaging. "I want them to have fresh beer and to have a good experience."

The Boston Beer Company, under the ticker "SAM," went public in November 1995.

In a bold move, the company offered the stock to its customers, inviting them on packages of beer to purchase a stake in the company before the initial public offering. The price was better than the one for institutional investors.

"My drinkers were important to my success," Koch said. "The pension funds and institutions and investment vehicles that buy the shares, they drink wine anyway."

Many of their customers have remained loyal, holding onto the stock instead of selling it, Koch said. It's proven to be a sound investment: It cost $15 per share at the IPO. Almost 20 years later, shares of the Boston Beer Company now trade at around $115 per share.

The Boston Beer Company faced a public stumble in 2002, when it sponsored a New York City radio contest that rewarded couples for having sex in public places. One couple was arrested for public lewdness at St. Patrick's Cathedral, which led to a national outcry, with some consumers and bars vowing to boycott Sam Adams beer.

It was a difficult moment for the company. Koch, who played a peripheral role in the stunt, publicly apologized several times after the incident. Since then, the company said it has been more careful about reviewing everything it does publicly and no longer gets involved with radio station contests that it doesn't control.

Koch and the Boston Beer Company have continued to innovate over the years. Starting in the mid-1990s, Koch began experimenting with new kinds of beer that contained a higher percentage of alcohol. He called these products "extreme beer," borrowing from the 1990s trend in extreme sports.

The result was the Samuel Adams Triple Bock in 1994, followed by the Samuel Adams Millennium in 1999 and the latest, Samuel Adams Utopias, which has up to 27 percent alcohol by volume.

Though some critics have chided him for "coloring outside the lines," Koch sees it as a way to keep pushing the boundaries of craft beer. "I always had this desire to push the envelope with brewing," Koch said. "It's like a chef who wants to make new dishes."

Recalling how difficult it was to start his company nearly 30 years ago, Koch founded the "Brewing the American Dream" program to help the next generation of entrepreneurs.

In partnership with Accion-a global non-profit group-the program offers coaching and small business loans from $500 to $25,000 to food and beverage small business owners to help them get established.

The inspiration for the program stemmed from Koch’s experience with starting a new business. Because craft brewing was on the wane at the time he launched Samuel Adams, Koch was forced to find new solutions, from locating the right equipment and ingredients to figuring out how to get the beer in front of drinkers.

Just the same, he pushed forward. With a little help from a microloan, he hopes other budding entrepreneurs will, too.

"I've always felt that every problem has a solution," he said. "It just takes time and imagination and creativity to find it. You just have to make sure your thinking isn't limited by what has already been done."

Pictured (L-R): David Warner of City Feed and Supply; Jim Koch; Erika Eurkus senior director of Accion USA.