According to yearly statistics published by the Brewer’s Association:“Growth of the craft brewing industry in 2010 was 11% by volume and 12% by dollars compared to growth in 2009 of 7.2% by volume and 10.3% by dollars.” If you are not able to manage growth your business may stall, and you might also fail. In this Orchestra Team blog, we’ll take a look at the issues around managing growth in a brewery in today’s economy. Orchestra makes software for breweries, so we know a thing or two about how they operate and where technology can help.
Is Your Brewery Growing?
Below are 6 key issues that a brewery needs to know about in a growing industry.
- Don’t Run Out of Beer
- Maintain Consistency
- Manage Your Cash Flow
- Don’t Micro manage
- Be Scalable
- Don’t Overexpand
When running a business, sometimes you face the problem of running out of inventory. You might tell yourself that “running out is a good problem to have,” but it is still a problem.
The reality is that running out means not being able to sell. More importantly you are creating inconsistency of availability and missing out on the potential sale. It might not be about the dollars that you missed out on, but it is certainly about the reputation that your brewery creates with distributors, vendors and the end consumer.
You, as the supplier, owe it to the distributors, vendors and, most importantly, the end consumer to supply them with your beer. Distributors will continue to carry your beer as long as the vendors put in orders for it. Likewise, the vendors will continue to order from the distributor as long as the end consumer demands your beer. But, will the end consumer continue to demand your beer if availability is limited? Will the end consumer substitute your beer for a competitor’s beer if yours in unavailable? The end consumer is the one that you don’t want to disappoint. The “trickle up” effect can result in not achieving your maximum potential for growth.
So what should you do? The answer is straight forward: control what you can; manage your inventory; and plan your production. But although straight forward, the tactical approach to managing your production and inventory is challenging.
The reason McDonald’s is successful is because they are consistent. No matter which McDonald’s you go to, you get the same burger. Consumers consistently have their expectations met. McDonald’s burgers may not be the best burgers, but you know exactly what you are getting. Consumers would rather be “safe than sorry.” That is why the majority of consumers will choose a McDonald’s burger over trying a “Mom and Pop” burger joint.
Obviously, no craft brewery wants to be the McDonald’s of beer. However it is important to note that the same lessons can be utilized to ensure that your loyal consumers expectations will be met. Keeping your quality and taste consistent will result in a consistent experience for your consumer.
On a larger note, consistency is important for more than just “quality and taste.” It is important that you set a consistent company culture amongst your brewery team. Having consistent customer service, employee expectations and team attitude will make it easier to achieve success.
Managing cash flow is not just important for those businesses that are “strapped for cash.” It is also important for those businesses that have an abundance of cash.
How do you balance your cash? If you don’t have enough cash in your bank account, you’re in a pickle. However, if you have too much cash in your bank account, then you’re not investing as much as you should be. Finding the ideal amount to have in your account and managing your cash flow is important to the success of your brewery. It is important you understand how much “cash on hand”you need to have versus how much cash you should be investing in the growth of your business. In addition, it is important that when you invest in growth you invest in your infrastructure. Investments should have long term value and provide a return.
Since you have so much going on in your brewery, sometimes it is hard to keep track of your incoming cash especially as your business is growing. Because you are so focused on meeting demand and managing your growth, certain areas of your business might be on the back burner. Make sure toprevent cash leaks by managing your accounts receivables and accounts payables. By not doing so, you might build up a large A/R and experience a growing A/P.
One of the top reasons why businesses fail is because of the mismanagement of cash flow. When managing your cash flow it is important to not underestimate your expenses. Those little expenses add up. It is important that you have an understanding of your expenses and align your cash flow to stay in the black.
Don’t Micro manage – even if you own a Micro-Brewery
“Just because you are a Micro-brewery, doesn’t mean you should Micro-manage!”
As a manager or owner, sometimes it is hard to delegate responsibility because it is just easier if you do it. The problem with doing everything yourself, is that you are not Superman or Superwoman. Just because you do it better, doesn’t mean that you should do it. It is important that you focus on being an owner and not a manager and likewise it is important that you focus on being a manager and not an employee.
Your time is valuable. You need to prioritize your time and make sure it is spent on growing your brewery. Although it may be hard to delegate responsibility, it is important that you do so. Make sure to “monitor and control.” Monitor and control is an important issue in project management. In order to properly manage a project (project being your brewery operation), you need to have checks and balances placed in your breweries operations. Make sure that the delegated responsibility is being done properly by monitoring it consistently and controlling it when necessary. As you build trust in your subordinates, you can monitor and control less. However, you will need to continue monitoring and controlling. You might also consider delegating the responsibility of monitoring and controlling as well. Building a hierarchical structure is important to growth.
Outsourcing vs insourcing is a decision that you have faced or will have to face. Do you outsource your marketing, accounting, distribution or sales? When making a decision on outsourcing it is important to understand your core competency as a business. Are you in the business of accounting? Are you in the business of marketing? Or are you in the business of making good beer? By spreading your internal resources across too many areas, you might find yourself with too many “irons in the fire.” When making this decision consider your core competencies as a company and realize that by outsourcing certain responsibilities, you can focus on what you do best. Also keep in mind that the company you may outsource to, also does what they do best.
The other thing to consider is the cost of outsourcing. Is it cheaper to keep the responsibility in house or outsource? When making this decision, make sure to factor in time and opportunity cost. It might be cheaper to pick up your ingredients from a supplier than having it delivered. However, after you factor in the time and opportunity cost of not doing something more valuable, you might realize that outsourcing is actually cheaper. The same example may hold true for your decision to outsource marketing or accounting. I have seen many business owners take the cheap way out and end up with a poor result and a waste of time.
Read our other blogs on outsourcing your IT: “5 Reasons to Oursource Your IT”.
“Scalability – The ability of a system to handle increased volume or complexity”
What does it mean to be scalable? The definition of scalability is quoted above. Scalability involves putting systems in place in order to handle increase volume or complexity (in other words growth). If you don’t have systems in place, you will simply not be able to manage growth. You will find yourself in a stressful environment and miss out on the opportunity of achieving your maximum growth potential. Growth is a trend and if you are not prepared for growth, then you will miss that wave. Surfers consistently prepare to ride that wave of a lifetime. They have been waiting their whole life for this moment. They have multiple surfboards with them and spend all week waxing their boards in preparation for the legendary wave.
Make sure that you have your systems in place and are prepared for that moment that distinguishes you as a successful brewery. These systems are how you manage your brewery operations. How youdelegate responsibilities, manage cash flow, maintain consistency and manage production. Make sure these systems are scalable systems in a hierarchical structure with as many processes automated.
“Overexpand – To expand to an excessive or unwise degree”
Another top reason why businesses fail is over-expansion. As quoted above, over-expansion is expanding to an excessive or unwise degree. The “$64,000 question” is… What is excessive or unwise? The answer is “it depends”. It is important that you know what is excessive or unwise rather than guessing. Many business owners don’t really know facts about their business.
They might have an accurate idea of their top selling product, but do they know what is their fastest growing product?
They might have an idea of how much cash they need on hand, but do they really have hard numbers to back up what they are saying?
They might think they are in a position to grow, but are they really?
Business intelligence is the fastest growing technology sector today because business owners and executives realize that they need hard facts to support their decisions. Make sure to have sufficient reports to support your decisions.
How Orchestra can Help
Orchestra is a leading provider of enterprise level business systems for small and midsize breweries. We have put together a series of very helpful and learning oriented online webinars to educate and inform brewery owners about managing their breweries.
Below is a link to the first webinar in the series, which is all about managing growth in a brewery. This isn’t a sales pitch, it’s an opportunity to see a presentation on business operations side of the product and industry we all love so much.
Download this great short webinar and see how any brewery can become a Best Run Business.
Software for Craft Breweries – OrchestratedBEER
Orchestra Team has designed business management accounting software specifically for Craft Breweries, called OrchestratedBEER. OrchestratedBEER is built on SAP Business One and is affordable for the smallest of breweries. Although SAP is the same software that companies such as Molson Coors use, the SAP Business One solution is designed for small and midsized companies like yours.
OrchestratedBEER helps you manage all of the brewery processes in a single centralized system in order to get accurate reports and help you make the right decisions