When we published "The Battle of Texas' Whiskey Makers and Fakers" in late 2013, everything was going well for Chip Tate. The craftsman behind the Balcones distillery jumped into a new copper still with a blow torch while cheerfully talking about revolutionizing Texas whiskey. And by all accounts, he has done it. Sales have grown exponentially at Balcones. As we reported at the beginning of this year, Tate planned for a significant expansion to handle ballooning demand.
But the expansion didn't go quite as Tate planned. A few news outlets have reported on Tate's withering relationship with his investors and subsequent dismissal from the company, but none has tied it up as succinctly as The New York Times did on Sunday. If you're a fan of the Balcones brand, it's a must read. Actually, it belongs on your reading list if you're a fan of craft anything, because it explains some of the difficulties faced by artisans seeking to expand their businesses.
Like most business deals, the paperwork for Balcones' expansion was inked with enthusiasm. Tate needed money to purchase larger stills and an expanded facility to grow his whiskey business. His current investors were tapped out so he sold more than half the company to a new investor, Gregory S. Allen. The money raised would be used for the expansion, to purchase additional materials and to pay down debt. Everything was as smooth as a 12-year-aged blue corn whiskey.
But the agreement unraveled fast. Tate's estimates for the cost of the expansion came up short by millions of dollars, he quit attending meetings and he fought with other employees. One time, he threatened to shoot Allen twice in the chest and torch the entire distillery. That's not good business, and after a buyout and a non-compete agreement, Tate was fired.
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The story is interesting because it illustrates why these altercations between investors and small business owners are common. Tate is an artisan. He welds metal, distills whiskey and makes his barrels for aging spirits by hand. Artisans focus on craftsmanship and care, even when some of those production steps aren't entirely rational from a business perspective. Artisans often don't know how to handle balance sheets, or the rules of conduct for board meetings.
Investors, on the other hand, are often clueless about their artisanal investments at a hands-on level. Tate may be badass for making his barrels himself, but if a barrel can be purchased from a supplier for less than it costs to build one, the smart business decision is obvious: Cut barrel production. But boiling everything down to dollar signs erodes the qualities that give an artisan business its unique character. Too efficient and you might as well churn out 1,000 barrels of Makers.
This is why you hear fans of local, artisanal businesses grumble when their favorite coffee supplier of carefully roasted beans (one bean at a time over a flickering candle flame) sells out to the man. There will always be a bit of streamlining, cost cutting and tailoring when a business gets ready for the big time. The art is in finding a balance -- in scaling a product to make it more available (and ideally more affordable), while retaining the unique character that originally made it popular.
Looking to scale your hand-made candle, honey and pollen-generating beekeeping business? You might want to find an investor who knows how to build a beehive by hand -- or at least understands your irrational love for bees. And if you've got a few million laying around that you're looking to invest in a small dairy, know that Sam the farmer won't give a damn about TPS reporting.