Beers From the Crowd

Scottish craft beer company Brewdog opened the world’s first beer hotel in the U.S. over the weekend. The DogHouse, located at the American site in Columbus, Ohio counts 32 rooms overlooking the brewery. The “hoppiest place on Earth”, as the project has been labelled by the co-founders of the company, also includes a museum, a media room, a fitness centre, and much more.

Crowdfunding champions

Brewdog have made a business case for representing one of the most successful crowdfunding stories. Back to 2007, Aberdeen-based friend James Watt and Martin Dickie, along with their dog, began their entrepreneurial journey with the aim of challenging the beer industry’s giants.

After one year, they become the second Scottish largest independent brewery employing 9 people and, in 2009, a real alternative beer brand. Meanwhile, Brewdog positioned themselves as the beer for punks.

People are tribal. They want to belong, James Watt reflected few years later in his book Business for Punk, adding: Don’t start a business, start a crusade.

Under this umbrella they launched Equity for Punks, a scheme to offer people the possibility to buy shares in the company online.  In 2015, they launched the biggest equity campaign at that time and then opened 17 new bars. The following year, they broke a new equity crowdfunding record to count, ten years later from the foundation, on more than 70,000 shareholders, 46 bars, more that 1000 employees, and still one dog.

The food and drinks trend

The company’s success is also part of a bigger trend within the food and drink industry. Interviewed by the Financial Times’s FT Money, Crowdcube’s Co-Founder and CMO Luke Lang claimed that food and drinks, along with fintech, has been the most popular start-up sector in 2018.

Like fintech, which seems to leverage crowdfunding as an open innovation tool in the context of financial services business model innovation (we will be back on this later in a different post), food and drinks market – that compared to fintech occupies the lowest end of the innovation spectrum – reports “a real explosion (…) this year,” Lang says. Why?

Brand, brand, and still brand

In arguing that there are different reasons for this, including the fact that entrepreneurs feel let down by governments and traditional financial suppliers, experts point out that 9 out of 10 start-ups in the sector fail as they struggle to compete with the cost of marketing and sales against larger brands.

Hence, crowdfunding joins the stage to help entrepreneurs building the brand. Entrepreneur Livio Bisterzo confirms this view:

A lot of first-time entrepreneurs make big mistakes in supply chain and cash flow management as well as underestimating the challenge of distribution. From my perspective, the biggest reason is that most natural food entrepreneurs try to sell a product and not build a brand.

Indeed, crowdfunding has confirmed to offer competitive advantage in helping new brands to thrive in an increasing over saturated industry, especially in view of the advent of Millennials as the most powerful consumer category.

The M factor

The author of Kids These Days. Human Capital and The Making of Millennials, Malcolm Harris, warns Millennials prefer local, organic and craft products because of their willingness of being part of a circle of production and consumption that is not centred on enriching the 1% of the richest people in the world.

The consequences of this are huge: for instance, Boston Consulting Group estimated that between 2011 and 2016, large US consumer groups lost $22 billion in sales because of the growth of smaller brands.

What big brands are doing

On the other side of the table, though, big brands began on the one hand to team up with start-ups to make the most of the open innovation potential of crowdfunding like in the case of Unilever which partnered with the leading crowdfunding platform Indiegogo to accelerate innovation; on the other, companies like Coca-Cola, Heineken and Procter and Gamble just to name but a few began to use crowdfunding to shorten the time to market of brand-new products while building from the ground up new brands and a tight customer base. Well, fans not customer would say Brewdog’s James Watt.

In conclusion, as the Financial Times reminds us, it has to be taken into proper consideration that crowdfunding is a high risk and illiquid environment. Therefore, whether it be a promising start-up or an established company, betting on the next big thing requires a wise approach: “success stories are rare.”