Building a Healthy Foundation for your Startup Distillery

Undertaking any entrepreneurial endeavor can be a daunting task. It can get very complicated when doing so in a highly regulated environment, such as the one that governs the manufacture and sale of alcohol related products. And while every company founder will inevitably make some mistakes, I have some suggestions on how to build a healthy foundation for your startup distillery.

Build a Team

Going at it alone almost ensures failure. The overwhelming majority of success stories in the distilled spirits industry are those of teams, teams of founders that surround themselves with industry knowledgeable mentors and advisors. Getting the team right early in business life cycle is so critical because it increases the likelihood of success and sets the course of the company culture.

Steve Jobs said it best: “My model for business is The Beatles. They were four guys who kept each other kind of negative tendencies in check. They balanced each other and the total was greater than the sum of the parts. That's how I see business: great things in business are never done by one person, they're done by a team of people.”

Raise Capital Legally and in a Responsible Manner

Whether you are raising money through a crowdfunding platform, a convertible note, or selling equity to investors, startup distilleries should heed the rules that govern raising capital. Whichever method of raising capital is utilized, analysis of the applicable securities laws, as well as non-securities laws, is inevitable. The soundest strategy is to structure your distillery equity raise in a manner that complies with Regulation D and only offer securities to accredited investors.

Equally as important to raising capital in a legal manner is ensuring you attract investors with similarly aligned goals and objectives. Partnerships in business fall apart for a whole host of reasons, but avoid feeling compelled to take an investment from someone that could prove to be toxic. Keep in mind, all money is green, but it is not all the same.

Protect Your Intellectual Property Assets

There is so much value created in the brands and the story of a distillery, yet these are routinely the least protected assets. Appropriate measures should be taken to protect all forms of company intellectual property by developing a multi-faceted intellectual property strategy.

Founders, employees, and independent contractors should assign all of their rights in any distillery related intellectual property to the company and should execute non-disclosure and non-competition agreements. As brands and concepts are designed, the distillery should seek appropriate intellectual property protection through the registration of copyrights and trademarks and monitor infringement.

Managing People

Mismanaging people, misclassifying workers, and neglecting necessary written policies and procedures can lead to unnecessary risk and ultimately catastrophic consequences. Hiring workers and treating them as independent contractors or leasing labor may appear to be more cost effective than hiring W-2 employees, but doing so limits the amount of control a distillery has over those workers. It can also limit the ability of the distillery to obtain or enforce restrictive employment related covenants, such as non-disclosure, non-solicitation, and non-competition, with those workers.

Every distillery should have an alcohol manufacturing industry specific employee handbook. The handbook should not only address labor and employment related matters germane to any manufacturer, but should also address issues related to the handling, disposal, and consumption of alcohol. And finally, make sure you follow your handbook.

Licenses and Permits

The manufacture and sale of alcohol products is highly regulated in the United States. From filings with the Alcohol and Tobacco Trade Bureau, the Internal Revenue Service, and the Securities and Exchange Commission to all of the state and local specific applications, startup distilleries need to make sure that all federal, state, and local permits and licenses have been obtained prior to manufacturing and selling a product.

One of the first items on your distillery startup checklist should be the identification of a physical location. So, start with local zoning ordinances to make sure the property you have selected allows the manufacture and sale of alcohol products. From there, work your way through the other state and federal permits and make sure you are keeping thorough records.

There are countless other business and legal considerations when launching a distillery; but addressing these five areas will certainly help you build a solid foundation.