GRAND RAPIDS, MICH. — A pair of yellow bolt cutters rests on a windowsill in Dave Engbers’s office at Founders Brewing Company, a symbol of the brewery’s never-say-die attitude. Engbers purchased the bolt cutters in 2001 during what might’ve been Founders’s final week of business, after the bank threatened to lock the doors if it didn’t receive a payment.
But these days, it’s hard to tell that this craft-brewing giant was once an anemic business on the verge of bankruptcy. Its taproom pulsates with patrons, its main brew room has rows of massive tanks that each hold hundreds of barrels of beer and its operations are so efficient that some workers are finished before lunchtime.
Yet it seems Founders, located in Grand Rapids, Mich., shouldn’t still be around. Craft brewing started as a hobby for Engbers, co-founder, vice president and director of marketing, and Mike Stevens, co-founder and president of Founders Brewing Company. The hobby became their passion, turned into their business and for a time, dissolved into a nightmare.
With little time and even less money, Stevens threw up the business equivalent of a Hail Mary, and the company survived its darkest hour. But it would take more than a single miraculous event to right the ship at Founders, a business with nearly two decades of highs, lows, soul-searching and risk-taking.
According to Engbers, Founders “started out well before ’97.” The partners met during their undergraduate years at Hope College in Holland, Mich. Engbers had been homebrewing since he was 19, and Stevens started soon after he graduated from college. Stevens became consumed with homebrewing, and he drew up a business plan with the goal of eventually opening a brewery. But he ran into some problems securing financing, so he worked at his family’s business in the interim. Stevens bided his time, waiting for his chance “to turn this hobby into a career.”
A few years later, in 1994, that chance came. Engbers — who graduated from Hope two years after Stevens — was working as an elementary school teacher. But during his first summer off from work, he quickly realized that having that much free time every summer just wasn’t for him. Engbers’s then-girlfriend knew he wanted to get into the craft brewing business and pushed him to act.
Soon afterward, Stevens received a phone call from his old college buddy. They had a brief conversation about starting the business and became partners. Founders was unofficially born.
“It was maybe a three-minute conversation,” Engbers said. “I said, ‘Look, we’re young enough, and I never want to say what if. If we’re going to do this, let’s do it right, let’s get people to check our numbers, let’s get accountants and let’s get attorneys.’ ”
From mid-1994 to October 1997, they took the steps to get the brewery started: talking to investors, finding a location, buying equipment and creating their labeling. Meanwhile, they continued to work at their old jobs, and the reality of their undertaking had not yet set in.
They gathered investments from friends and family. Their personal stakes were high: they raised $350,000 of their total funds through debt financing, an early sign of financial troubles, which would haunt the business throughout the next decade.
“But when your dream is right there in front of you, you can either start your business and not have anything to pull from, or you can say, ‘Well, we gave it a go, but we didn’t really make it,’ ” Engbers said.
In October 1997, Founders started brewing. Stevens and Engbers quit their jobs and started to log 60 to 70 hours a week at their new company.
Reality sets in
The business’s first few years were less comfortable than Stevens’s original business plan had anticipated, and the business lost a staggering amount of money annually.
The plan’s biggest flaw, according to Engbers, was that sales were always “fairly good,” but “projections were just way off.”
“So out of the gates we thought we were going to be brewing a lot more beer than what we were,” he said.
Though the partners knew the brewery was producing quality beer in its early years, they had competition. In a state where Larry Bell and craft-brewing powerhouse Bell’s Brewery pioneered the industry, Founders was producing beer that Stevens described as “uneventful,” which prevented them from making an impact on the market.
“Larry set the bar really high,” Stevens said. “He started in the mid-80s, so when a lot of us started in the mid-90s, you kind of had to jump into the game and be at least as good as Larry, if not try and achieve to be better.”
The company was brewing generic beer, which didn’t sell as well since the market was inundated with similar products. After about four years of business, Founders’s financial difficulties started to strain its relations with its suppliers and creditors. For six months, neither Stevens nor Engbers were able to take a paycheck.
“There were times that we just couldn’t afford to pay (suppliers). And that’s very uneasy,” Engbers said. “When business is not good, our sales weren’t where we thought they were going to be … we had to term some folks out. Some would do it, and other folks wouldn’t.”
“When you’ve got nothing, you’ve got nothing to lose”
The company opened its doors in 1997, and creditors came close to locking them out for good in 2001. Throughout the early 2000s, the company came close to bankruptcy on more than one occasion, but a combination of fortune and fortitude allowed the business to survive.
They sold all the superfluous equipment that they had, including their filter, and ever since that sale Founders has prided itself on producing unfiltered beer. Engbers recalled occasions during their six-month drought when he would get credit cards in the mail, max them out and use the cash to appease suppliers or buy brewing ingredients.
Stevens became a professional fundraiser, making “crazy personal guarantees” and approaching local business owners for investments.
“This was my real first job out of college, and I think what happens when you start a company like this and get beat up to the extent that we got beat up, it’s kind of all you know,” Stevens said of dealing with the mental and emotional toll of their bankruptcy period. “Living on the edge like that, financially, and flirting with that disaster, was just part of our daily routine.”
Though these strategies allowed the company to limp forward, the pair had some serious discussions about bankruptcy and met with lawyers to that effect. At one of these meetings, a lawyer recommended that Founders “come out swinging,” and the pair left that meeting with the conviction that bankruptcy was not an option they would entertain.
But a conviction doesn’t mean much to an unpaid creditor. Founders hadn’t paid its bank, souring the relationship. After six months, the bank’s leniency wore out and it delivered the brewery an ultimatum.
The owners got their first memorable call from the bank that week. The banker told them, “You can either pay us in seven days, or we’re shutting your business down.” Short on investors and without any available funds, Founders had no means to pay the bank the more than $150,000 it owed.
Stevens scheduled a meeting with a respected local businessman and told him about Founders’s situation. He left the meeting unsure of what was next. Apparently, something he said resonated with the businessman. The next day, the owners got their second memorable call from the bank that week: the businessman had guaranteed Founders’s loan, and they were able to keep their doors open. The immediate danger had passed.
A product-driven company
But Founders still had serious problems. It would soon solve its biggest one and permanently change the course of their business. Engbers recalled the moment, another important event for the company in 2001, when their attitude toward the beer they were producing shifted drastically.
“We were brewing an amber ale at the time, which was our number three seller, and we were sitting around the table, and we said, ‘What does everyone think of this beer?’ And no one liked it. It was a good beer, but none of us drank it, so we were like ‘why are we brewing this?’ ”
Soon after, the collective realization led Founders to revise its beer portfolio. Stevens and Engbers parted with their head brewer and shifted their focus away from popular beers, like wheat, amber and pale ales, which they brewed following the suggestions of their retailers and wholesalers.
Instead, their guiding principle became their company tagline: “We brew beer we want to drink.” Even if it meant the beers were less popular or harder to brew successfully.
“There are lots of books that tell you how to run a business,” Engbers said. “(But) you have to be true to yourself is what it boils down to. You have to create your own path. Instead of just doing what other people were doing, we just did it our own way. And it worked. And that gave us the drive and the confidence to move forward and make some fairly aggressive moves.”
With a new beer lineup, the company’s fortunes began rising steadily. But the rise was slow and awkward. Founders was stuck in a lease at the Brass Works Building in downtown Grand Rapids, a facility with an annual production capacity of 5,000 barrels. With this ceiling on production, the company — which now had trouble meeting the demand for its product — continued to struggle even though sales picked up dramatically.
Between 2002 and late 2007, Founders was becoming more widely known. One of the mainstays of Founders’s new portfolio, the scotch ale known as Dirty Bastard, was well-received in competitions and its success generated much needed name-recognition as the company inched away from its bankruptcy scare.
With the help of word-of-mouth and websites like Beeradvocate.com, the brewery became even more popular, and its products were lauded at various events like the World Beer Cup and Great American Beer Festival. A particular point of pride for Stevens is the diversity of Founders’s revised beer portfolio: six different Founders beers have won six different accolades.
“We don’t have all our beer-eggs, so to speak, in one basket,” he said.
The brewery’s accomplishments were crowned earlier this year, when it was ranked the number two brewery in the world by Ratebeer.com, a renowned consumer-run beer rating website.
Founders’s financial struggles and problems meeting demand largely ended in late 2007 after the company moved to its new facility on Grandville Avenue in Grand Rapids.
“I can definitively say that the turning point for us was the move to our new location,” Stevens said.
The new facility is the clearest sign that Founders has arrived. The building houses company offices, a taproom and two different brew houses. But getting to the point of brewing 50,000 barrels — their projected production for 2011 — was made possible because of Stevens and Engbers’ business partnership.
Their skill sets balance out well — Stevens handles the business and Engbers makes the sales. And their partnership made it possible for the company to push through its financial losses and bankruptcy scares.
“We kind of went through this together,” Engbers said. “If we didn’t do it right, we could lean on each other and learn fairly quickly. We made a lot of mistakes, but we typically don’t make mistakes twice.”
Today, Founders’s production is increasing at a rate of 75 percent per year, according to Stevens. And
Engbers indicated that their eye-popping production increases will continue again in 2012, which he said “will be a banner year for us.” They sell beer in 17 states — they added Alabama and Vermont in the last few months.
Founders has been a boon to Michigan, hiring 37 new employees this year alone. The new building’s constant expansion has created economic trickle-down to local companies, as well.
With a bit of luck and a rededication to their product’s quality, these two friends and business partners were able to turn their company from another struggling Michigan business into an established name in the industry. And that’s how they brewed a business.