May 22, 2019
Driving Eureka! Podcast
Episode 31 - Overview
The Investment Decision
To Fund or Not to Fund
Talk to Investors on Your Product
Advice of Investors Invaluable
Business Plans are Worthless for New Products - A Better Way
Initial Investors - Series A - These are the Visionaries
Series B Help You Grow
Series C - Get Little Return - No Risk, No Reward
You are Fooling Yourself if You Think You are Going to Know All the Numbers
You Can Not Hire Someone to Do a Valuation
Set Up a Series A
Investment as a System
Shark Tank is Predatory and NOT Real
Find People Who Have Done It
Be Honest About the Investment
Selling to Investors
Triple What You Think You Need
Learn from the Conversations
Brand and Awards
Why Investors Invested
Ignore the Skeptics
Communicate with Investors
Tripp: [00:00:01] Welcome to the Driving Eureka! podcast. We share ideas and advice for helping you find filter and fast track big ideas.
Tripp: [00:00:14] Hi I'm Tripp Babbitt advisor to global organizations on the Deming philosophy and host of the Deming Institute podcast.
Doug: [00:00:22] And I'm Doug Hall inventor speaker teacher and whisk(e)y maker. I'm also the founder of the Eureka! Ranch and author of the Driving Eureka! book.
Tripp: [00:00:33] This is episode thirty one of the Driving Eureka! podcast and Doug and I are in the middle of a special series on how to start a business and in this case a whisk(e)y business and then the first part. We discussed a lot about the purpose what's going to sustain us or sustain me as I move forward and developing a whisk(e)y business. What are the motivators that I have that will sustain me through to building this business. And part two we talked about the storyline we talked up also about ways to develop a storyline. We talked about a local hero potentially for brand names and we also talked about doing the research in order to come up with ideas and Doug outlined some stimulus that we could use in order to develop our storyline.
Tripp: [00:01:36] So part 3 Doug is ideas and advice for how to build a craft distillery. We're going to get into the math. We're going to get to a number of other things that I'm really not familiar with so I'll let you kind of take the lead on this and share what is it that we need to do.
Doug: [00:01:55] Okay. So see you've got your purpose. We got that clear we've got our storyline for what our line of products is going to be. And so now you know we've got some prototypes maybe we've even got some math. We've done a little bit of testing work with somebody so we can show that we've got an idea. That's cool idea. Now you got to put the rest of it together because it costs money to do this to do anything like this. And you've got to make an investment decision. So in this segment we're going to talk about just a high level going to talk about your your plan for getting money whether it's you're going to sell fund etc. how to put together your game plan pitch and then selling investors so that you know now we've got a business. So we're gonna go from the theory to reality here and the starting place is in this investment decision you've got to decide are you going to sell fund it. Are you going to get a second mortgage on your house to fund it or are you going to bring in investors. And so this is a this is an experience that you've got to spend some time with.
Doug: [00:02:56] It's not like you can go and look at the chart and say Oh yeah well that's obviously what I'm going to do because there's a lot of emotional dimensions into this.
Doug: [00:03:04] In my case I've almost 40 years now I've had my own business doing different things and you know I've funded them myself you know use cash flow from one business to help fund the next one and do that. And on the whisk(e)y business I was doing it that way it starting and did that way for. For a number of years. And then I get to the point where I say well if I really want to take this bigger and in my case that meant not just the U.S. but global if I really wanted to be a global company then I'm I can't do a pay as you go thing where you make money and then you reinvest it you make some money and you reinvest and make money and reinvested which works by the way I need to go bigger.
Doug: [00:03:44] And that means I need investors. And I took about three months coming to the conclusion if I wanted to do it or not because this responsibilities when you have investors you know Tripp when it's your money you can be as dumb as you want to be doesn't matter. You know you could go go for it. It's like whatever it's my money if I'm stupid I'm stupid when it's other people's moneys. It's different. I mean and forget the legal ramifications. There's a there's a responsibility that you have to people. And so it was a long it took me some time. It took me some time to come to that conclusion.
Doug: [00:04:23] And in the end I decided to take investors and end even if you're going to fund it yourself my recommendation to you is follow the steps that we're talking about here and go out and have some conversations with investors not asking them for money. But saying not pitching them but just looking for ideas and advice on your plan because you can get really smart people.
Doug: [00:04:51] To give you free at his house you know cause you know rich people like to tell people what they think you know. And and it's just a wonderful way to learn.
Doug: [00:05:04] And even if at the end of the day you decide because I would around to them I say I don't know if I'm going to take investors not love to get your ideas and advice I might do it I might not but would you be willing to you know get together for lunch and look at what I'm talking about. And everybody was like yes loved you loved it. And then I got to a point where I had to make and my wife and I sat down and I said Okay we're gonna make this decision. And she was actually more bullish than I was she said yeah let's just do this. She says this will be a cool new adventure and it's something fun to do.
Doug: [00:05:32] You can get investors for money but the real win is when you get investors not only for money but they bring a skill set a knowledge base contacts they bring something other than just money. And so that's the choice that I made was to get the people.
Doug: [00:05:53] Yes for their money but also for their ideas and advice. And as it turned out it's been about nine months since we closed the deal. The advice has been worth as much as their money. I mean it's just been invaluable.
Tripp: [00:06:05] So Doug what is that. And I'm sure we'll get into some of this. And if it's something you want me to hold off on that's fine. But you know we talked about your model that you give to investors said the prototype. The the the math the patent that you know those types of things were kind of the primary things that you took to investors. Did you know most people are familiar with putting the you know plan together and kind of.
Doug: [00:06:37] No they're not they're not. No.
Tripp: [00:06:39] Oh really.
Doug: [00:06:40] Wrong plan. OK. I'm going to talk to you about how to put together a game plan. Don't write a frickin business plan. They're worthless. OK. OK. OK.
Doug: [00:06:49] I'm going to change that conversation because most of those plans you put together are mind numbingly boring to write and boring to read. There's no excitement there's no energy in the thing. OK so we're going to change that.
Tripp: [00:07:00] All right.
Doug: [00:07:01] OK because if you write the classic business plan one is it's like a root canal without no vacation there. They're horrible to write and they're in my mind useless. Okay. They just don't help you. So we're gonna change that.
Tripp: [00:07:15] So that was an A. That wasn't a barrier then for you where somebody says when you call them up on the phone or got in contact with somebody where they said we'll do some of your business plan over because that's what they expected. That didn't happen.
Doug: [00:07:27] No. And and by the way if somebody is that meticulous that that's what they want to know because they want to know the future down to the third cent you know in the second year or the fourth year then I've already got my answer you're not going to be helpful to me.
Tripp: [00:07:40] Got it.
Doug: [00:07:41] Ok there's different types of investors okay. There are investors that have vision and imagination. Who are these initial investors you're going to get. They're going to be your Series A people. They're the people that can see the vision they're buying in early. They're enabling this to go. OK then you've got your Series B people in the series B people are the ones that have to see the track record of the business and they're good for funding to expand even bigger. But there's a proven math. The first group does nothing. It's a dream and and a product. And that's why we're going to push product and prototypes. They can taste it with their own lips. They can see the business they can see the facility they can see the thing and these are the people the vision. Those are the only people you want. In the beginning you set series a group.
Doug: [00:08:29] The series B group are people who are ready to invest to scale up. OK I need this much money for another warehouse. I got to buy a million dollars worth whisk(e)y. I need to roll out into ten more states. And and they look at this as a transaction. OK revenue of this return of this and they don't get the same growth they buy in at a later state and the company is worth more so they don't see the top side but their risk has been reduced.
Doug: [00:08:56] And then the series C are the people who now the things wildly successful and they have the imagination of a gnat and they come in at that point and you know they're just throwing on the thing and they get a very tiny return. But they're now joining the thing as it's literally already done. So to me there's a b and c of investors and it has to do with their vision their risk tolerance and cause. And by the way. So what happens is is in this process I met with people in Chicago and Florida and different things like that because you get connected to p once you get this out it travels quickly and and a number of them were Series B or Series C and some of them were huge funds that had a lot of money and they were like the deal's too small for what I was looking for. But when you want to scale up big come to us because you know we can put in 20 million to 30 million 50 million to help you.
Doug: [00:09:52] So I kept relations with them. But you know it's a different conversation. It's a different conversation. And the mistake people make is they'll go through things trying to prove to Series B in Series C their cash flow numbers and all the stuff which are all garbage it's all garbage it's theory that we don't even know anything about we don't know anything about it. We just don't know anything about it. Okay. And if you try to get those people happy you can never get them happy. Never. Never gonna happen. You need the dreamers the doers the entrepreneurs the retired people that have a bunch of money and are bored with their investments and they want to have something more fun that they're part of. People that can lose everything and it just isn't going to impact their lifestyle. And with a whisk(e)y distillery you're the entertainment more fun. I'm just telling you straight up you're more fun. You know you can own all your blue chips and you can own all of your you know fast growth companies. They're boring. I mean you can't sit in the den and drink them. Oh and there is a cool factor that comes with investing in a craft distillery and being able to share with your buddies your cool whisk(e)y. I mean if there's a hip factor there's no way around it.
Tripp: [00:11:18] So Doug as just as you started into this and I kind of believe this plays out in Italy at least in your head and I know for sure that people are more like me that have not done something like this before with a product are of the mindset of geez you know if I get investors and and given up ownership and you know and again and I don't want to beat this to death but you know when you watch Shark Tank or the Prophet or you know different shows like that it's been kind of drummed into our head. OK. They're going to it's going to take you know 50 percent of my company. Those types of things. What's kind of the mindset.
Doug: [00:11:53] Well first up let's be clear those are fake right. I do right. I got that. Those shows are fake. I've got the shows. They're not reality. Most of those deals never go.
Doug: [00:12:02] It's just it's made for TV drama. It's like a fictional story. That's not the way real negotiations go. That's not how real stuff goes. Okay. So first off let's forget those that is not a class that's the entertainment division. Mm hmm.
Doug: [00:12:15] And and and so let's throw that aside the reality is is that when you're sitting there you have to make some decisions and the things that influence what terms you get because that's what we're talking about and it's possible to make these very complex. And so you'll get into things and I'm not an investor guru. So this is going to get beyond my scope. It Real quickly but you'll have things like I want to repayable loan and that they give you a loan and you're paying interest but you don't pay it but it stays in there and then they get in this. And I said no to all of those things I said no it's really simple. You put money in you're in. That's it. And we're in this together and that's the way it's gonna be.
Doug: [00:12:59] And if you want to do that then don't do it but that's how we can do it. And I set the terms and said these are the terms on what it is. Here's my valuation which I did three or four ways which is all just you know it's Fermi estimating because there's no way to do it. You can't hire someone. Let me be clear. You cannot hire someone to do evaluation of your thing. It's all worthless. I had three different high end valuations people come in and I sat with them at the bar at the ranch and I'm pouring whisk(e)y and I said and I showed them what I'd done. And one lady she's fessed up. She says I'm Doug. I said What would you do different than what I did here because I had done pretty decent math. She said I would do exactly what you did here charge you two hundred thousand dollars. And I won't stand behind my estimate because there's no way to really know. And I said you know that's why I thought you were tell me. And she says that's the truth. And I had another group that they say Oh yeah well we can do all this. I said Well how do you do this. How do you predict the future when it doesn't exist. And they could give me no answer except they would have their name on it and spend a lot of money. And so I just said I'm just going to use common sense.
Doug: [00:14:12] Here's what it is. Here's our margin. Here's what we can make. Here's the advantages we've got in your case it might be I've got an old fire station I've got an option to the lease lease to buy this cool fire station and that'll be a cool venue to do it. You know it would be a thing that might happen or I've got this killer brand. We've run some testing it wins. I've got a major aircraft a chain of craft restaurants. They want to be part of it. They're going to take a share in it. They're going to help us push the staffers you know to the level that you can do that legally. You know here's my storyline of what I got is why I'm doing it in his words or it could even be you know this town really needs this. You know I've got a developer who wants to develop this old part of town. He's willing to give us some space just to bring us in there because it'll help drive it and it's going to help the town. So give us the money so you can help the town. That's a reasonable reason to invest you know. But that's part of that story. That's part of again the purpose and the storyline. Again go back to Episode 1 and 2 of this series because now you're gonna get to this point you're gonna have to go back to episodes 1 and 2 to adjust that until you make that line work because you're looking for people to invest if they want 20 percent everday growth blah blah blah blah blah. That ain't going to be a startup. You need people that are doing this as much for their head and you have to give them a rational story. But it's as much the emotional dream that they want to have fun. They want to have fun and only a whisk(e)y company is really fun.
Tripp: [00:15:46] So so Doug as you went through this and you were talking about at least when you went through and this was what I went to get some clarity on as you said we'll give you a repayable loan. And you said no if you give me the money then you're in. When you say that. Is that is that a recommendation for all people or is that or is that just for Doug an in his situation.
Doug: [00:16:09] Well to me you know I like the idea of everybody being treated the same. It's simplicity on it. And so you know we set aside I set aside at the beginning Series A funding for the initial funding. I gave them the benefit of when dividends are paid they get accelerated payment until they get their investment back. If there are ever dividends. I also gave them the guarantee and is gonna get a little complex for people but just walk me through this.
Doug: [00:16:42] One of the things that happens to those Series A is is as you bring in other investors they get deluded. So say they own 20 percent. You bring in more money olives than the 20 percent becomes 10 percent. Because this new shares issued. So so what I did is I said here's the deal. At the start I own 100 percent. I'm gonna bring you in for x percent. I'm going to set up. That Series A. I'm going to set up Series B at the start but not issue it. And I'm also going to set up stock appreciation rights for employees. And what I'm going to do for you is when you come in. The shares you get when I issue series B. And when I issue stock appreciation rights I will fund them from me.
Doug: [00:17:36] So no dilution. So. When I bring in extra money they don't get deluded. I protect them. When I give stock appreciation rights I pay for them. They don't get diluted. That's a huge deal for them. OK. Now if we do Series C then we all get diluted. But and that was very appealing to them because.
Doug: [00:18:03] And I said the reason I'm doing it is because when we're making a decision to give stock appreciation rights or I'm making a decision to take in more money I don't want I want your opinions on this where it doesn't influence you personally. Because your your ownership doesn't get diluted.
Doug: [00:18:24] And and so what's been great is we ended up doing a sort of a series A two we had because of just an opportunity that came up and it was a unique opportunity. And I was able to go to them and make changes but because I was funding all of it. They could have an open conversation about it and you didn't have one investor saying no I don't want to do that or I don't want to give that employee that because that's coming out of me.
Doug: [00:18:51] Do you understand what I'm saying.
Tripp: [00:18:52] I got it so so but.
Doug: [00:18:53] But but that's an Tripp that's looking at the investment as a complete system. Sure as opposed to a funding round and and and and the lawyers that you use which you got to use lawyers and it costs money is they wanted to do the Series A and then we'll figure out Series B and then we'll figure out stock reshapes rights.
Doug: [00:19:11] I said No I'm going to do the whole thing at one time and I was able to get better terms. They were happier with it and the company has been managed better because we didn't have them saying Well jeez you know I don't know if you know Freddy there is worth that. I don't want to give Freddie that there's none of that conversation because it's an allocation and I'm paying for it. So it's my money and they say I'll give you my advice Doug but at the end of the day it's your money.
Doug: [00:19:40] Is what they say and I go. Well actually it's all of ours because you know that's doing it but it's just a much more productive conversation. Interesting. Okay. Shark Tank. I got to get this shark tank. So the system is set up for obnoxious investors that are predatory that are one step up from a loan shark. OK that's not what you're going to do that that's funding of last resort. We're not going to do that. We're gonna do a friendly thing which is designed to win. And and and to work together where they're going to be engaged and it's going to be family friends friends of friends friends of friends of friends. It's gonna be a small network of people. You might have one big one and a bunch of small you might break it into a whole lot of smaller ones. These are all things you can think through but to me I want them as part of my team. I don't want an adversary relationship. I want a positive relationship and things like no dilution for Series A Series B and for employees created a very positive relationship.
Tripp: [00:20:40] That makes sense. Yeah now that makes perfect sense. For how you put that together. I see a lot of positives associated with that especially the getting employees involved in getting interest in the company too. That's one thing I think that's been missing for a long time from businesses is you know having skin in the game so to speak because you know just it's an intrinsic motivation thing a part of this company and I want to do right by it.
Tripp: [00:21:12] And this just kind of solidifies that in an employee's mind. So I like the whole setup of what you said. I'm just not as familiar obviously as you are. I was familiar with series A you kind of gave me an operational definition for A B and C that I hadn't heard kind of in those terms before but understands certainly that it's a system and in doing that and being open and upfront about how you're gonna go about that gives clarity and it gives confidence in people and investing in it.
Doug: [00:21:43] Yeah. And so a couple of other things. A lot of these places that you can go to get help on business plans and his pitch competitions.
Doug: [00:21:53] I just shudder at them. I will participate with them I won't have any do it because you get people doing stuff we've never done it. And if you're talking to somebody ask them how many times did you raise money and start a company. How many times have you done that. And you ran it. And if they've never done it stop listening to them. Because unless you've been there done that. I mean the people who advised me were people who had done it and they gave me a lot of. And they become actually really good friends because the first thing I went around to a bunch of entrepreneurs you know and I said you know should I take funding and they all said no. I said OK I get that. But let me explain this and we went through it and they gave me advice on it and they were very helpful. But if you haven't been there and done that don't tell me the theory and investors can't help you. You need to talk to people that have been on the other side of this equation and the paperwork is very predatory against you. So you have to you have to you have to fight through that paperwork to make that paperwork so that it's reasonable so that you can win. And one of the things I set up is when you get into these things people will have expectations.
Doug: [00:22:56] They say OK. Going to make this saying and you're gonna be like High West selling for 170 million dollars and oh my God we're gonna be rich. It's gonna be great. And I told them I said let me just be clear I'm not promising you you're gonna make any money we might lose it all. That's so let's be clear. If you're not willing to accept that don't don't bother because I'm not going to tell you otherwise. I hope not to because I'm going to waste a whole lot of my time on this. But if that's the case but we're going on an adventure and I said and I'm going to tell you this I'm going to run the company like we're gonna run it for the rest of our lives forever and create an annuity. And if we do that then we will probably get opportunities to sell it but we're not going to run it to sell it. We're going to run it as smart as we can so that we can have a long term profitable business because that's what I've learned is when I've done this over the years with Acupoll and other things I ran it like a business and sure enough people showed up. There was a bidding war and I sold it. I said we may sell it we may not. I think probably it's a hot market. I think we can probably make it such that it's attractive and we'll think of that. But our primary focus is to make a profitable business. And that was so refreshing for investors.
Doug: [00:24:11] To not have somebody coming in and saying we're gonna make billions and billions of dollars and.
Tripp: [00:24:17] We only need 1 percent of the whole market in order to do that.
Doug: [00:24:20] Yeah yeah yeah. That's right. Yeah yeah. Yeah you get zero and it really helped. It really helped. Being honest about that and and just knowing the math and the beautiful thing about is art with our compression aging. This math works instantly instantly. Because if you do the math for mash tanks stills Rick houses you know a thousand barrels in the Rec House to get to any capacity that you're going to have. The math does not work. It does not work. It just doesn't work. And so this idea that I'm going to make gin and vodka while my whisk(e)y you're not going to put enough whiskey away remember that's all capitalized. You can't expense that. And so it just doesn't work. Where with compression aging you can make money in the first year. You know if you keep your overheads down it just it's a difference and by the way this is not something new. Pre prohibition. This is how all of the whisk(e)y was done. It was all done like this.
Doug: [00:25:23] There were blenders who were whisk(e)y makers as opposed to there was only a few distillers and everybody was a whiskey maker who used different woods and blending and stuff like that to do it. So This is not this is the majority of whisk(e)y over time has been done this way it's just we're coming back to it.
Tripp: [00:25:40] You get my my brain going in about 50 different directions with everything you said there but I that this is literally the thing where you need to sleep pocket square where you're kind of your brain.
Tripp: [00:25:49] Yeah. That's what it's like everything that you're you're you're sane. It makes perfect sense.
Doug: [00:25:55] Well I'm gonna go through that plan and yeah and I want to say one other thing for us before we go into it because what I'm going to ask you to do is to make a crappy plan just go talk to some people which is what we're gonna do. But the one thing I want to bring out aside is there is another thing called crowdfunding and crowdfunding is another option. It actually it costs quite a bit legally to set it up but it is a vehicle that is now legal that you can do.
Doug: [00:26:20] And the other legal thing I need to talk to you about is something called certified investors. So we're doing a you're doing a stock offering which to do a stock offering to anybody. You have to get registered and this whole lot of stuff because the government protects people from having being fleeced. But there is a thing called a certified investor who you can just look it up. You have to have a certain income or a certain amount of money. I mean there's some rules. Yep. And the only people you can sell this to a certified investor so you're on over there. Who wants to put in ten thousand dollars is not an option. They can't do it. I mean it's just it's. I mean she can give you a loan. You can do a personal loan but she can't be a shareholder unless they are a certified investor.
Doug: [00:27:06] You can meet the criteria. That's right. Unless you meet a certified investor so we're using the certified investor program to do this in the States at least.
Doug: [00:27:15] Or the other thing you can do where you can. You don't have to be that is where the crowdfunding and the some expenses associate with that. There's a company in the U.K. called BrewDog. They're now in Columbus Ohio. They've gotten masterful at raising lots of money with crowdfunding. We're thinking of it in the U.K. we might do it. It's kind of a little bit more advanced there than it is here. People are used to doing it. But you kind of got to have a brand and you got to be out there to do that. So it is an option. And if you are partnering with somebody that had a huge e-mail list and said now we're doing this or a celebrity or something you might be able to do crowdfunding but you're gonna need to have a whole bunch email lists to be able to do that. I think in my mind. And so. So what we're gonna do is this.
Doug: [00:28:04] We've got some things to do we don't even know what we don't know. We're gonna network to people that have raised money in the community because they'll give you some census kind of goods and bad and ugly of it. Ideally you've got some prototype product that's made so you sit with them and you have a drink while you do it but that's the nice thing about this business. You know we've worked with you we made a product legally allowed you to get it by law which we can do. And so you've got this and you can just share with this this prototype point with people and then you're gonna put together a pitch and we're gonna use this as a learning experience and we're going to basically follow the persuasive selling format that we teach in innovation engineering. It's outlined in the Driving Eureka! book. It's the way Xerox sells. It's a way Procter Gamble sells when they're selling something really new to the world.
Doug: [00:28:57] You summarize the situation. State the idea. Explain how it works. Reinforce the key benefits and then give them an easy next step. OK so let me go back through those. Summarizing the situation we're gonna give on just we're gonna do slides that you can print out and just flip through sitting at a table with somebody the background on the opportunity. As to what's there. And if you go to the craft spirit ACSA or HDI American craft spirits Association American Distilling Institute I think it is you can become a member of those. They've got tons of information that you can download API has a huge video portal that you can watch tons of stuff that you can get educated so you and you put together simple deal that says here's the opportunity here's the situation. You know craft beer is going like this craft spirits are going like this. They're behind it. They've got an opportunity blah blah blah. Then you state the idea. And what you're gonna do is you're gonna do one slide that basically defines that purpose that we talked about the blue card. What what what is it you're doing this and why are you doing this. And then one slide that gives a storyline. Here's some rough prototypes of what the product could be. We're going to do. And then whine on how we're gonna make money. You know we can sell these bottles for this and it's gonna sell to this and we're going do. Or however it is. If you're gonna be a retail thing we're gonna make a margin of this and you're just some rough numbers.
Doug: [00:30:38] And and then here's basically the kind of investment that we're looking for. And here's kind of what you'll get from it. And you just make up something and then. So that's given the idea. Now we explain how it works. Okay we're going to do this in three phases. The first phase is we're gonna get money for this to do these things and we're gonna take this to this point and ideally that's where you can show him some taste test results which we can do for you.
Doug: [00:31:06] You can work with local craft guy to get those done. Here's our concept and here's how it does. And here's what's gonna happen over this first 12 to 18 months. And here's kind of the key staff members. And then we put in about innovation and that we're going to be built around rapid cycles of learning and. And and that's it. That's all we've got.
Doug: [00:31:32] And then so then the benefits and the next step is as I'm talking to a bunch of people do you know any other people that I could talk to is this something of interest or what other advice do you have to make it better. And even in the investment thing I would put in I think we're gonna need about this amount of money.
Doug: [00:31:45] So whatever money you think you need triple it OK.
Doug: [00:31:50] Because that's where it's gonna be. I'm just just telling you. Figure out the math and then say times three this is what I want to raise and I'm going to give some percent for this. And I don't know what that is. You're getting put a question mark and this we're going to have conversations with people and you're going to change it. Change it. Change change change it every time we do it. It's wonderful to do. It was it's so much fun. I find it a lot of fun to do this because you've got these people listening and you know really successful people who will sit there and spend time and they'll connect you to the next person and the next person. And that's going to take you three or four months. Did you that.
Doug: [00:32:28] Realistically and then once you get that together now you've gone through these cycles. You've gotten it together. Then you turn around and you have to make the decision. You can take the money or not.
Doug: [00:32:41] And how much you can take. How much are you going to put in how much they're going to put in what's going to happen and that will evolve through that pitching process. And now you put together a what's usually called a term sheet where you say OK. This is what I've decided I'm going to give this for this and these things like when I said series A Series B Series C non diluted terms by Loverboy on a couple of pages I basically write his the terms I actually did it on like two slides and I said okay this week I'm I'm look now I've had loose conversations with probably a couple dozen people. I mean sometimes it was not really different groups it was like the husband and the wife together. But there's maybe a couple dozen people that are in conversation about this thing and I've kind of got a sense as to what people I don't really know how much they're going to come in for and I ended up getting surprised. I kind of knew I put a minimum that you had to have a minimum investment of one hundred thousand dollars. Just because I didn't want to do smaller.
Doug: [00:33:41] I've got a friend who's doing a brewery. He did as low as 5000 dollars. You know he's got a huge number of investors I've got a smaller pool. But it was just that was just the way we were thinking about it and in some cases what people did is I allowed them to come in as a company and they might have had like one person did three hundred thousand but they've got a couple of fifty thousand they created an LLC that invested in and I had to give them permission for doing that. But they all had to be certified investors in order to make it work. Again I'm probably going beyond on some people's heads but just don't stress about it. If you get into that far this people that can help you with this your call me and I'll help you with the. And so then I turn right I said OK I'm taking money and I set aside X amount of money and I don't want to give it the specifics because there's no need to but I set aside a certain amount of money and suddenly I had one hundred and fifty percent of the money. People wanted to put in.
Doug: [00:34:42] And now it's it's loose. They haven't signed a term sheet but but they're saying I'm thinking this I'm thinking this.
Doug: [00:34:49] And and I was like OK do I sell more and take more money. Do I need that amount of money and I went back and forth on it. In the end I took 10 percent more. So I took you know that extra 40 percent and I said I'm sorry we're out. We'll do another round. I'll talk to you about it and the people were cool about it because they understood and being overfunded is great.
Doug: [00:35:12] You know. You know but I had sold more people than I needed money. And you really want to do that because then when you're putting to the terms people know if somebody really has a problem with it you know you've got a backup you can go to.
Doug: [00:35:27] And I know this is not the shit they don't teach you this stuff.
Tripp: [00:35:30] Yeah. No no no. This is this is I mean this is really really good good stuff here with some of the questions Doug if I can interject at this point that I have is in a lot of it still goes back to kind of the ownership piece how you know you said you've funded know one hundred and forty percent over 110 percent from what you thought that maybe you needed that was offered to you and you actually had to turn down investor efforts obviously is a very good thing.
Doug: [00:36:00] You know week on week one really all came together because because I'd nurtured it along. And I said OK here's the deal. And within five days we had 150 percent.
Tripp: [00:36:11] That's amazing. OK. Yeah. So now I look at your situation and I sitting there saying OK you've got you check all the boxes because I know you you did the concept prototype of functional prototype. You went through the math plan as best you could you know with the estimating that you do and then the third thing that you have is kind of the question that I have which is the patent you're part patent is for this you know methodology that you have in order to make whisk(e)y faster an age it or replicate how how whisk(e)y is age. What's my patent. What would be my patent for.
Doug: [00:36:53] It's going to be a trademark. I'm going to be the venue that you've got. It's going to be if you're a local. Again remember that sun set boundaries. Yep. We're gonna be local. I set up to be an international company. Yes. So my valuation is probably 10x yours maybe 20 x. I'm just I'm just being guess. Yeah. No thanks I'm not throwing stones but I was setting up a vision of being an international company. OK. So as an international company the standards that I and so I had double gold medals. I mean I had I went for a big valuation and was able to get it. But I was going in. Remember I've been doing this for a long time and and so I went in. Going in to be big. OK. If you're a local craft person you don't have that same standards against what you've got. And that's where the name the trademarks the if you're gonna be local the venue the cool firehouse or this cool space or we're gonna be in this like the guys doing the breweries is going into a space where behind it there's gonna be a whole pile of condominiums are about to be built. And those people are going to be able to stumble. I mean walk down the hill you know and then walk back. And so he's got a ready customer base.
Doug: [00:38:10] That means he's just gonna make money fine because all those condos are gonna be right beside it. And so I get it. He's got it. He's gonna have a captive audience right there that he can do. And so there is you know on that scale it's trademark its product it's they can taste it and it's good. It's getting medals you know submitting to competitions.
Doug: [00:38:35] I mean you could do a funding of a series A that the Series A is an exploratory thing that for a year we're going to work on the brand and we're gonna submit to competitions to get awards.
Doug: [00:38:44] And with us just using our permit to file awards. Right. You know it would be a thing to do but. And then you can go bigger. So I mean it really it depends upon what it is. But it's generally going to be something around product packaging trademarks venue storyline something of that nature.
Tripp: [00:39:07] Ok. But that gets me a better ision associated with that. And if I can can ask what what is the. When you got to these investors in this kind of series A scenario is at least what I've got in my head maybe with something a little bit more. Beyond that from from the start. But if it was a Series A and it's a certified investor Am I getting the deal. How much ownership are you giving up at that point that's still in my head.
Doug: [00:39:40] No you can't you can't. You can't even have that conversation until you can answer the other questions. Show me the product show me the cards right. Show me the business and then figure out that OK you can't even have this conversation. I mean people go into these conversation I'm yourself. That's ridiculous. You got to show me the rest of your pitch. Show me the situation state the idea and explain how it works and then I can tell you what's reasonable and what's reasonable.
Doug: [00:40:07] Ok but there's a lot of latitude on that. There's a lot of latitude on that. And I mean I've seen it all over it's all over the map. I mean you start to ask around to people they'll tell you that it really depends on how good you put the rest of it together. OK. I mean in my case you know I have this deal with Edrington to manufacture a product that we don't own a large percentage but we own a percentage of it that added to my valuation.
Doug: [00:40:32] You know having a product that's very successful in the marketplace Edrington dramatically improved my valuation. Having patents dramatically improves my valuation. Just that's just the nature. But until you have that whole package together it's an arbitrary conversation.
Tripp: [00:40:50] Okay. All right starting. The picture is becoming clearer for me as far as how you.
Doug: [00:40:57] Can tell you go back to not worry about is how much I'm selling. Just don't even worry about that right now. Figure out again go back to Episode 1 of this here. Hey what is the purpose. What's the purpose of this why are we doing this we're doing it to revise this town. We're doing this to make a difference. We're doing this to create an inspiration we're doing this to bring cocktails to people with whatever it is we're doing it to raise money for the piping plover I don't care. And then what's the storyline of our idea. What's this thing that we're doing.
Doug: [00:41:27] And and what is it. Now let me taste it. OK. In my case what happened is I talked to the investors afterwards you know and I said OK. So. So you gave me money. And I boy I appreciate it. And I'm a good steward of it. I mean you think about it.
Doug: [00:41:43] I said why. And they all said first and foremost you have outstanding outstanding product. And while an outstanding product doesn't guarantee success. Without one guarantees failure. And so the good news for you is you come down to the distillery here will make an outstanding product. Right. You know take some wood from Indiana. We'll use that Woods. We are local you know tell our story and we'll make a cool product. Having an outstanding product is what's the first and foremost reason. The second reason that they did it was they were buying into to to the whole model that we had which was to accelerate this stuff and to do this thing that we would approaching it differently. Rather than building in fact I talked to some investors they said if you were telling me that you were gonna get the money to buy it still and to go do that. He says I'm sure you three cases where the companies were 20 percent of what it was upon the release just because that math doesn't work. It just doesn't work. So the economic model worked. And then the third thing they did which makes you feel bad but it is reality is I'm betting on you. You know I'm just betting on you.
Doug: [00:43:00] And that that that's why I'm doing it. And that will you know and it pretty much you know those early investors that the dreamers the people with a vision. They're buying into a product they're buying into a different approach to doing the business. In other words if you have to explain well I don't know this does not seem proper a need. Old barrels. It just doesn't seem right to do this. We'll just move on.
Tripp: [00:43:25] You're right. There's other investors that are interested in something forward looking.
Doug: [00:43:29] My folks love the rebel nature of what we're doing. I mean they like the fact that we're messin with the industry. They think it's hilarious. OK. And so you're either into that or you're not. And then the third thing is is that they think you're a reasonable person and that they believe in you. And you know what you can sell is the same thing we saw which is a different mindset. We're gonna approach this with a different mindset.
Tripp: [00:43:54] This has helped bring a lot of clarity to questions I have. I'm sure there's a lot of gray area still in there for me. But I at least have got an outline to kind of work on and ask additional questions too. So what's the so. So we've gone through kind of the investor plan we've gone through the pitch we've gone through a little bit as far as the the distillery game plan. And then you've got in your outline here getting the permits and building the distillery what what have I missed here as far.
Doug: [00:44:27] Yes. Okay. So just in a big picture we've we've put together a game plan.
Doug: [00:44:32] We've had some learning conversations. We then make a decision what we're gonna do. We close the investors and you spend a bunch of money on lawyers to get the legal documents done. Okay. And now once you've got that. Now get excited about the joy of waiting because now you've got to get you know you've got to apply to the TDB the stay and blah blah blah blah blah blah blah blah blah. And so it's the grind. And what I do with my investors and so that's a process and that's a whole journey which we cover separately what I've done did with my investors which has been epically helpful is every single Saturday except for Christmas. The only time they get a note from me every single weekend on what what what I've learned and what's happening. Every single week I write every single Saturday. Saturday morning I get up and I write them a newsletter and they know coming they know what's going on. What we're going through The Good The Bad And The Ugly we're having troubles with this. We've got things with this.
Doug: [00:45:44] Usually they don't comment because it just they're so blown away because it's like we actually know stuff. But they love it. They absolutely love reading them. And every now and then somebody'll say geez I got an idea for you what if you go to this. What if you try this. I mean they've got a thought or something for me and I just keep a very good conversation. They're part of my team. They're part of my team and I set up at the beginning you're part of my team and we're here to learn together and and I what I always will say to them is I said you know they see the ups and the downs. I mean it and it gets you have good days and you have crappy times and I mean stuff happens and. And I always were forced I say haven't fun yet. All of them said they did this in large part because they wanted something that was a fun investment. And they say yeah I'm having a ball. They said this is so much fun.
Tripp: [00:46:31] That's cool. So how often do you physically meet with them. Are they spread out so far so much of the world that is simple.
Doug: [00:46:38] I do. I set up a I don't. Under Ohio law. You can have what's called a close corporation which means there is no board of directors I'm the board of directors. OK. Which was a negotiated point. Some will like it some or not. I was able to sell it to them because it was the right thing and I truly believe it's the right thing for us in our situation the. So I have an advisory board that I meet with four times a year which is not every investor but it was basically investors over a certain size plus a couple that I added for my purpose and in fact we just had just a couple days ago we had our quarterly meeting where I take them through kind of what we're doing and where we're going. They generally want to know a couple of things they want to know first. What have you done with my money. So you know and so I'm very clear at the front. We've taken your capital and we've invested it in these things you know. And I took them out to the distillery and said See this Your money's in this. See that right there. See those barrels. That's your money is and I joke about it but I think they like the fact that we're doing that. And so I tell them where the money's gone and what we're going to do with it which is respectful. And then the second thing is as I get them focused on the future where are we going. And basically not looking in the rearview mirror. I don't spend a lot of time on that I'm focusing on where we're going. Longer term and short medium and long. And so that's what I'm talking about. So at this meeting I talked about Kate. This is our focus for the next twelve months.
Doug: [00:48:20] We're doing now as Tripp has gotten a much more complex. We're opening up in England. We basically making an acquisition over there we're bringing in additional investors to do it. I mean we've got you know it's it's become a pretty complex business pretty quickly. And so my job was just to keep that complexity in the big picture but simplify down and say okay. This is the short term things we're doing we're doing these things right now. And with these things done. We're now going to then move to this medium term and this longer term so that they can see where we're going because as long as I got them looking towards the future.
Doug: [00:49:02] They're happy because you know they know where we're going. That's all so.
Tripp: [00:49:08] So as you've gone through this Doug and because you pitch off the Blue Card as one of your slides is as I go through some of things that you just talked about how much if you change that blue card since you started since since they actually put the money out has it changed much or is it pretty much stayed the same constantly.
Doug: [00:49:28] The aim of this has not changed. I admit this has not changed. I mean part of it is is we have a slogan some call us The Crazy Ones and we're OK with that. Yeah which is a riff off the Jobs the Apple commercial. And at the end of the day that's still what we're doing is we're nut cases making whisk(e)y really fast by replicating seasons of barrel aging and now we're doing ultra luxury products made ridiculously high end luxury product.
Doug: [00:49:53] Hundred dollar two hundred dollar products we're making. Okay. That's crazy. Okay. And and so that fundamental dimension of disrupting this industry and really doing amazing products so that consumers are able to get We're democratizing it. So you pay thirty five dollars for our product you getting 75 dollar product for 35 bucks you pay 75 you're getting 150 dollar product for 75 bucks. You know it's Tito's. That's all we're doing okay. Much better product at a lower price. That's what we're doing. We're disrupting it because we have a whole different way working just like Tito's does. OK. That basic premise is still there and having a lot of fun while we're doing it. OK. That's still there. The yellow cards how those ideas have changed regularly. OK they've changed regularly now. They are however after about nine months. We are now at a point where I just said at this meeting I said I think now we are ready to lock and load. This is what cause we've experimented with things I said.
Doug: [00:50:56] I'm feeling really good that this is exactly what we're going to go do in his he is our exact plans and for the first time I said and this is what we want to sell in this thing. This is how we're doing this and it's a very clear vision of what we're doing.
Doug: [00:51:07] And so they're starting to get locked down for the short term longer term. There's about a half dozen things out there that may or may not become something we just don't know. We just don't know. But I forced them to think about those and I say but we're not working on them the team's not working on them.
Doug: [00:51:25] I call them my after school projects. I've got some little experiments here and there. I did a call yesterday on one of them. We could get five million dollars to do this thing. Which would be wicked. But it's a long shot. It's pushing the technology maybe maybe not. Don't need the team distracted but me as the leader I should be looking at those deals. Looking at those joint ventures looking at those partnerships you know that's my job is to be the leader's job is to look forward to lead. And you can't lead by looking backwards.
Tripp: [00:51:59] Got it. OK. What. What other things do we need to cover off for this part 3.
Doug: [00:52:08] Well there is one little point that I want to make to you.
Doug: [00:52:14] Pricing.
Doug: [00:52:17] The decision you make I can Masaki the famous mac evangelist and author I interviewed him for one of my books early on. We've interviewed each other back and forth is he said pricing makes a statement if you price at the same price as other people that says you're just as good if you price higher that means you think you're better.
Doug: [00:52:38] You may may not be. In the whisk(e)y business you've gotta kind of. Twenty dollars twenty five dollar twenty nine dollar you got a super premium in the thirty to thirty nine. Then you start to move into ultra luxury and luxury. We can make products profitably and all of those price points. Okay. A real decision that you have to make in the beginning is where you're gonna be on price and that's related to how great your product is and what's the storyline of your product is your storyline. A luxury storyline is that working man storyline you know where you're going. And so the price is not just some people take the writing and so I guess this is what it sells for. I like to start with the price is gonna be this. And now how do I make that a WOW. And in our case what we're looking for is a big wow from our price. But that price is a major strategic decision of what kind of company you gonna be in the problem in most craft companies right now is they're selling at 50 dollars a product that should sell for 30 dollars. And that's not going to get repeat. It's too high. It's just too high. And so you got to think about and Tripp even worked with us. You know you told me I want a sixty five dollar product or a fifty dollar product I can give you that I can make that quality of a product that's worth more than that. You want to be a super premium thirty five. I can do that. You want to be at the twenty fives. It's tougher but I can do that too. But you're gonna have restrictions on what you can have restrictions on Nashville because we're going to keep the cost down. You know we can hit any of those price points all of those price points are doable with this technology. So that is a thing that you need to think about. OK so what year.
Tripp: [00:54:29] Yeah so. So I mean a lot of questions that come out associate with that. So you wouldn't necessarily have a would say a whisk(e)y at a 20. You know it could the vision be all five. You know could it be. I want to be I have a low price one and I want to have a you know a higher higher priced one and a premium one and those types things for you can do that brand.
Doug: [00:54:54] Now you got to make sure now you have the sales capacity. And the cash capacity to buy the bottles the labels the inventory.
Tripp: [00:55:03] Ah OK.
Doug: [00:55:04] And the complexity that happens. To do that. Okay. But the answer is yes you can. Right. But then if you're gonna turn around and have three items in premium three and super premium three and ultra I got nine SKUs use. You damn well better show me a team.
Doug: [00:55:23] And a distribution team in that they can manage that. I see him saying Yep. I mean it's it's it is whack a mole. You just because you can doesn't mean you should. And so you've got to just figure out what you can put together. All right.
Tripp: [00:55:42] All right. Any parting other parting comments for this third part.
Doug: [00:55:47] No just in summary on this thing folks. Those first two episodes when you start to get into this math stuff you're going to want to go back to those and you're gonna make changes and when I was doing my rough pitches I went back and kept changing those. OK so after I took the money the Blue Card hasn't changed but before it took the money the book had changed. The purpose of why we're there. But when you get your purpose right and you get your storyline right. Then the business plan comes out of that. Don't start from the business plan and go backwards. Start with your purpose. Move to the storyline and then write the others. That is the progression and end if you have to do this three or four times. That's OK if you find it's not working. Go back to the beginning and start again. OK.
Doug: [00:56:36] That that's that's that's my advice to you. And I will tell you enjoy this journey and be really thoughtful as you go through it because you're going to end up living with this for a long time. You're going to end up living with some long time. Make it so that you love it. You absolutely love it. And if you love it This is so worthwhile. It's ridiculous. This is so much fun. I am having more fun. It's amazing how much fun this is to do this. It's worth it. But you got to love it. Our riverboat series. I frickin love that riverboat series so much. It is so cool. I know below product is ridiculously cool relativity with the funky flask. I just love it. We don't set ship crappy products. I love them. That's the problem is is we have to go through a lot of pivots because I won't put them out unless I love them right.
Tripp: [00:57:33] Ok. Cool. All right. Well we've gone through quite a bit and three sessions will keep people updated on our progress as we go.
Doug: [00:57:43] Excellent.