How I Built This with Guy Raz - Sierra Nevada Brewing Company: Ken Grossman

Episode Date: March 30, 2020

Ken Grossman was experimenting with beer before he was old enough to buy it. As a high school student in the late 1960s, he bought his first home brewing kit and mixed the ingredients in a bucket, hiding his early batches from his mother. About ten years later, before most Americans knew what craft beer was, Ken decided to build a brewery in Chico, California. With $50,000, a few piles of scrap metal and some hand-me-down dairy tanks, Ken and his partner built Sierra Nevada Brewing Company, and crafted a beer with a distinctive, hoppy bitterness. Today, as the third largest craft brewer in the U.S., Sierra Nevada Brewing Company – like so many other businesses – faces unprecedented challenges due to the Coronavirus crisis. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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tall windows, beautiful old details, and plenty of space for all of us. And being in that home on Airbnb, right in the middle of Vienna, walking distance from so much of the city, made it feel less like a visit and more like we were actually living there. Plus, taking a trip is the perfect time to host your space on Airbnb. Your place with a place with a all of its personal touches and its amazing location could make someone else's vacation even better. Your home might be worth more than you think. Find out how much at Airbnb.ca.com slash host. Hey, really quick before we start the show, we're launching a regular video conversation every Friday at 12 noon Eastern time with a different founder to talk about creative ways to build resiliency in the midst of this crisis. This week, join me and Susan Griffin Black, co-founder of EO products.

She'll talk about all the hand sanitizer they've been making. You can join the conversation and ask questions by going to facebook.com slash how I built this. And you don't need a Facebook account to watch. Bring your questions for me and Susan this Friday, April 3rd at 12 noon Eastern Time, Facebook.com slash how I built this. We were out of money for, I don't know, the 10th time it had gone to, you know, family and said, you know, we just need another 5,000 or whatever, and we can get the doors open. We did that a bunch of times. And so we were at a point where it's like we can't go ask for money again. We've told them this was the last time, like five times ago.

And I just thought to myself, you know, if we're down to this desperate of a situation, we got no money, we're not going to make it. NPR, it's How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz, and on the show today, how Ken Grossman went from brewing batches of bitter beer in his closet to building America's third largest craft brewery, Sierra Nevada. So just a few days ago, Ken Grossman and I were supposed to be sitting side by side on stage at the Sydney Goldstein Theater in San Francisco for a live. how I built this show to hear how he built one of the biggest craft beer companies in the country. But instead, that event, like every other event, was canceled. But we didn't want to miss out on getting a chance to hear Ken's story because it is too good and too inspiring to wait until we can all go out again. So we asked Ken to record himself from his home just outside Chico, California.

And by the way, that's how it's going to be for a while. because our staff, our guests, me, probably, many of you, we're all at home now and starting to adjust to this very weird new reality. And I'm going to confess something here. I feel a little bit conflicted about doing a show that celebrates building and creating when so many businesses are in trouble now and so many people are worried. But I also think of this show as a place of hope and possibility. this is going to be a long, challenging journey for all of us.

And we're going to need stories of people who can inspire us with the challenges they've overcome and the battles they've waged and the odds they've defeated to build something truly special, like Sierra Nevada. Now, before we even get into Ken's story, we wanted to hear from him about how things are going with managing the crisis so far. And, of course, in one way, the company is in better shape than most

because lots of people are in need of a beer these days. So in places where they can get it, they are buying it. They're buying a lot of it. And when I spoke to Ken a few days ago, he told me his production facilities are still open, but he has no idea how long that might last. You know, a lot of the businesses that we depend on to sell our products are severely challenged right now.

And, you know, having this kind of financial disruption happen tens of thousands of small family owned and run, bars, restaurants, liquor stores across the nation is going to have a huge toll on the lives of those people and the economies and those communities. So it's been one of the most difficult and stressful weeks in our existence. I've had a lot of them over 40 years. It's been a lot of sleepless nights, but this is sort of at the pinnacle of things for us to have to work through and to make decisions about. And yes, over the course of building Sierra Nevada beer, Ken has had a lot of sleepless nights, starting with trying to build a craft brewing company in his 20s with barely any money when people didn't really know what craft beer was.

In fact, when Ken introduced his now legendary Sierra Nevada pale ale to his friends in 1980, most of them thought it was undrinkable. But today, his company is the third largest craft brewery in the U.S. after Boston Beer Company in Yenling. And Ken and his family own 100% of Sierra Nevada, but making money and becoming rich from beer was far from Ken's ambition. At his core, he is a beer brewer, not a businessman. Totally obsessed with the process with the hops and the barley and the malt and the strains of yeast.

And his interest in brewing and fermentation actually started when he was a kid growing up in L.A. San Fernando Valley. We had a small neighborhood group of boys growing up through elementary school. So I met my neighbor, I think it was second grade. And his father was a, even back then, was making homes. home beer and home wine and was a sort of a very progressive person for the time. He was into cooking and baking and fermenting and sort of the culinary arts as well as being a cyclist. So he was into bikes, which later I got into cycling and touring.

And also was a scientist. He was a metallurgist and worked for Rocket Dine. And so he sort of had all those passions of life. and I guess it really appealed to me. So I was around fermenting beer from probably the age of seven or eight or so and seeing things boiling on a stove every weekend when he would brew. And his son and I were best buddies for many, many years. I ended up to Chico when he attended Chico State.

What was your friends, what was his dad's name? What was his name? Cal Moeller. He since passed away, but Calvin Moeller. and he was, I say, a very early adopter of the science of browing. So most homebrowers back in that day, you know, were using English old sort of crude books on how to make cheap beer, but not necessarily, you know, how to make great beer and how to do it at home with sort of a science-based. Yeah.

So he approached from a pretty scientific side. So here's what I'm wondering. in high school. And I guess from what I've read, you bought your first home brewing kit around that time, which I think a lot more high school juniors today would do it, but in the early 70s,

certainly not, or late 60s, certainly not common. Did you want to make beer because you just liked it and wanted to drink beer? What was the, what was the their thinking behind buying a home brew kit? You know, I was young, so I couldn't buy beer.

And so I just wanted experiment with making beer. That was it. Yeah. And today, if you want to brew beer, you just go on the Internet and order the hops, you come in pellets, and you know, whatever you need, and then you just do it. Was it a little more complicated in 1969? It was.

So there were actually some homebrew supply stores just getting started. And you could buy beer and wine making supplies. At that point, humpering was still illegal. But they did, nobody got arrested for buying malt or hops. But if you, I guess, think back to that era, there was still a bit of a carryover from Prohibition Brewing. And so you could buy malt extract even at hardware stores. And it was, you know, sold with a crock and a package of yeast

and a little block of some pretty lousy hops. But there were ingredients that were still available, I guess, from the Prohibition area. Again, no good information on how to make grape beer. at home. It was just, you know, for those people who wanted to, you know, brew a batch of homebrew. And how, how were your early batches? I mean, were they? Terrible. Terrible. Okay. Like, you put them in a closet in your house? Or like, where did you get? Well, I had to hide them from my mother. And I actually made a batch of wine first, which was pretty tragic, which was out of Welch's, can of Welch's grape juice and some bacon yeast.

A can of Welch's grape juice. I don't even make it in cans anymore, okay? Wow. And then I got some malt extract and, you know, botam yeast in a plastic bucket and, yeah, started brewing a little bit. How did you know not, how did you know you weren't like making like, you know, botulinium or anthrax or something? Well, I guess one of the things about beer making is that things like that don't grow in beer. I got you. fine, good to know.

The alcohol, the pH, and the hops are all inhibitory to toxins. Not that you can't make bad beer, but it's pretty impossible to make beer. To kill yourself. Those kind of toxins, yeah. All right. So you're, you know, doing home brewing, and I guess when you graduate high school in 1972, you decide that college isn't really going to be your thing, that you want to kind of just get out of L.A., move up to Northern California, and you go, you end up in Chico, California, a small town in the foothills of the Sierra Nevada.

The idea was that's where you wanted to be for a while? Yeah. So I got a job at a bicycle shop, which was a family-owned business with a father and two sons working there in a pretty frictional environment. The dynamic was not great. and after less than a couple of months, I sort of had to change your heart and said, well, maybe I should go to school. And so I applied at the junior college to study chemistry

and ended up eventually transferring to Chico State and continued to take science classes. I met my girlfriend and then later wife through a mutual friend about the same time. This is your wife, Katie, that you met her at Butte Community College. Well, I met her. She was going to Chico's. State and I was transferring to Chico State and we connected and been together ever since.

All right, Katie will factor back into this story later on and we should just mention here that she, when he met her and I think to this day, does not drink alcohol. She's a teetotler, right? Is that right? Okay. Okay. Important. Important point to know. The third largest craft brewery in America founder, his wife, doesn't drink. Okay. All right. So you meet Katie. 73. You're, gosh, you guys, you're a baby. You're like 18 years old. It's crazy. I mean, you were so young. Yep. And I guess you got a job in that area around Chico at a town called Oroville managing a bike shop for a while. Yeah, I had, you know, after my parents got divorced, you know, I didn't get a lot of support.

I think I got $100 a month go away to school. And so I had to keep working. So I kept a part-time job as I went to school. and then eventually I got the opportunity to go manage one of the bike shops that the owner in Chico had recently purchased in the town at Warville. And so the two of us got a dinky little one-room house sort of in the foothills of Orville, and I ran that shop for a few years. And our daughter was born, Sierra, and I'm born at that house at home. We had all of our kids' home birth. And then I had a neighbor who loved my homebrew and convinced me that I should open up a home brew supply store.

And this is your neighbor, Ron. And what was his name? Ron to Jesus. Ron to Jesus. Okay. So he's your neighbor. And I guess you should point this out. You are like 2021 still home brewing.

Yeah. Presumably you've gotten better over the five years, six years that you've been doing it. Oh, yeah. And you, because most people probably in 1976, 75, are drinking like mass-produced beer, right, in America. It's just like the big Budweiser, right? Is that what most people drank? Yeah, it was pretty much approaching the low point of the U.S. brewing industry. The breweries that had survived prohibition, you know, the family-owned regional breweries were in very difficult place with trying to compete.

with the national brands. And so the beer industry was consolidating very, very rapidly through the, well, really since prohibition, but 50, 60s, 70s, hundreds and hundreds of breweries went out of business. And it got down to right about the year we started in 1980 for the brewery, got down to the low point of 43 independent. In the U.S. It's amazing. Whole U.S., yeah.

And that included the biggest and the small amount of small brewers that hung on there. So, but going back to this time in like the mid-70s, right? Like when Ron to Jesus, when your neighbor, like when you met him, he would have, before he met you, he would have just normally been drinking like Budweiser probably or one of those beers? Probably not even anything that expensive. So, you know, again, we were young and didn't have a lot of money. So we were probably drinking, you know, buckhorn and the spring beer out of Meyerbring Company in Los Angeles. I mean, there were a handful of cheaper beers that were probably what our age group would be drinking. And these were not high-quality beers.

It's just like... They were certainly not interesting beers. I got you. Okay. Got you. I mean, the U.S. Brewing industry has had a history of making, you know, generating good quality products, but they're not necessarily products that have a lot of character.

So he meets you and you're brewing this beer. And what was the style of the beer you were brewing at home? I was probably fairly advanced by that time, so I was doing a little bit of roasting my own grains in the oven and sprouting my own wheat to make wheat beer. And so I was pretty experimental. And at that point, my wife and I were sort of back to the landers. We had a small herd of goats. We had chickens. We were making cheese and bacon bread.

and so making beer sort of fit into our lifestyle. So your neighbor Ron says, hey, this beer's great. You should sell it. And I guess that's sort of what, from what I understand, it sort of inspired you to open up like a home brewing business, like a little shop where you could supply people, right? Is that, is it right? Yep.

So we found a little teeny building in what had been an old, downtown hotel in Chico, that was being converted into a bunch of little shops and studios. And so for, I don't think it was about $60 a month rent, we could rent this little room. And it was just a bare shell, which we ended up doing all the woodwork and finishing up and turning into just a little shop. You know, next to us was a potter and a used record shop and jewelry store and a little teeny antique store. door. So there were just a bunch of little artisan crafts and shops up there. Sounds so idyllic, especially from 2020. Well, we couldn't pay the rent some months, and so we worked out a deal where we'd be the

janitors for the place in lieu of rent. So Katie and I did that for a while. You couldn't sell 60 bucks worth of home brew supplies a month? We could sell $60 worth that would be a really big day, but out of the $60 you made maybe And then you had to pay the lights and a little bit of money to take home. And so, no, we didn't make a lot of money selling home brew supplies. And what were home brew supplies in 1976? So it was, you know, malt syrup primarily, although we were pushing and teaching classes and trying to get people to actually brew from grain, which is back to the beginning of the process.

You buy malted barley, which is barley that's been soaks sprouted and germinated and dried at a malmter. And that creates the base for then converting the malt into sugars. And then sugars are boiled with hops. And so we stocked hydrometers and crocs and tubs to brew in and glass carboyes. So which you could brew the beer in, I got you. I'm wondering, Ken, right? in the late 70s, right, this is still a subculture. Like craft brewing today, right?

Like half of half of the staff of how I built us goes to craft brewing festivals, right? Like it's just a very mainstream thing. Like every bar worth it salt has craft brews on tap or in bottles, right? In 1976, this is a subculture of people like like dungeons and dragons. Yeah. So I'm just trying to understand something because obviously you've proved everybody right. But when people said to you, when they're like, Ken, this is just like gross. I don't, what do you like about this?

What do you like the taste of this? What would you say? Well, yeah, there was no knowledge of craft beer. And home brew was, you know, not necessarily viewed in a positive light. And, you know, based sort of on what most people had tasted, if they ever tasted homebrew, it was highly alcoholic, acidic. And it looked murky. and which today is in again, but back then, you know, beer was supposed to be clear. And so most people were pretty put off by it.

But I made some pretty decent beer, and I started to have a following of friends who, you know, wanted my homebrough. Well, what did you like about it? Like, here's, that's what I want to know. Like, when I talk to somebody who was really into wine, right, there's just the complexity and the different flavors. and the, it's almost like, I don't know, it's like, it's like somebody who's really interested in, like, mysteries. They love the nuances. Is that what beer was like for you, like making it just? Yeah, I mean, part of it, I think, was the allure of the alchemy, you know, just the ability to take things such as disparate as, you know, a bitter leaf off of a plant, the hop, and the sweet malt from barley and yeast and sort of,

see that magic happen of converting those basic raw ingredients into something that has lots of nuances and character and flavor and can bring joy in a social setting. Yeah. So I think the process was as intriguing as the finished product. Because in the late 70s, it would have been an unusual taste, right? Like our taste buds were not attuned to, you know, multi-hoppy beer. No, they weren't. And, you know, I don't know what percentage of my friends actually liked the beer or the ones who told me they did. But I'm sure it was off-putting for the majority of people who were used to drinking, you know, regular logger beer.

And it was even that way when we first started the brewery. You'd go to a tasting, and 90% of the people were like, wow, this is way too better. I can't drink this or I don't like this. Yeah. But then you'd find somebody who's like, God, I just love that bitter character. And so the human palette certainly interprets those flavors differently. And I think as craft brewing and as beer culture evolved,

I think people became much more appreciated of beer styles that really have a lot of character. All right. So you've got this little storefront. At what point did you think, you know, Maybe I should actually make beer and sell beer. Was there like a conversation? Did somebody encourage you to do this?

Was there – because you've got the store, and presumably, like, you know, you could make that your career. Like, we could be talking today, and you could have started the, you know, a chain of home brew supply shops, right? But at what point did you think maybe I should just sell beer? Well, I actually went down to a conference in Oakland. And on that trip, we arranged a tour to go see Fritz-Maytag at Anchor Brewery. Fritz-Metag was the guy who found an anchor brewery, which makes Anchorstein. Well, he didn't find it. So he purchased it.

It's an old brewery. He purchased it. Yeah, it's an old, old brewery. But he kind of revamped it. It made it into what, yeah, revamped it, right. So he helped sort of create what is now the craft brewing industry by realizing that if you're going to be a small boutique brewery in this country, you better, one, produce a unique product and two, figure out how to charge enough of a price that you can survive as a small producer. So you meet him, you meet him at this conference. Well, I didn't meet him at the conference.

I actually went over to his brewery, and he gave me a tour, me and a small group of folks. pretty primitive at that time. It was no automation and not a lot of sophistication in the brewery. And I was fairly sophisticated as a homebrower, culturing some of our own yeast and doing things like that, and making 20-gallon batches. And I think at that point he was making maybe 50 barrel batches. And that sort of inspired me a bit that, you know, maybe you could do it as a startup as a home brewer. And then I went and visited New Albion, which was really the... In Sonoma, right? Yeah, Jack McCullough, who started that brewery.

And he had sort of gone pretty much homebrew and opened up a commercial brewery with all home-built, primitive, basic equipment, very small batches, about 45 gallons per batch. And after seeing his operation, realized that, you know, it was feasible to do as an independent. independent, glorified home brew set up and sell beer commercially. So you were actively kind of exploring the possibility of doing this. When you contacted, you know, Fritz or when you went to go visit New Albion, did you say, hey, I'm thinking about doing this myself. Can I come talk to you? Or did you just say, oh, I've got this shop where we sell equipment.

Can I come check you out? Like, what was your approach? Well, you know, thinking back then with Fritz, I don't think I yet. had the notion that I wanted to try to go commercial. When I went and visited Jack, it was starting to gel that, yeah, this is maybe something I can do. And I got together with one of my home brew shop customers, Paul Camusie, and he was buying home brew supplies for me and from other home brew suppliers. And, you know, we decided, let's see if we can raise some money and open a brewery.

Wow. So basically you thought, all right, this guy seems to know what he's doing and you knew what you were doing. Because you were like, I don't know, 23, 22, 23 at this point. And I read that you guys sat down, you wrote a business plan, like a pretty detailed business plan. And you figured that you need $50,000 to actually start a beer company, a brewing company. So you went to the banks, right? And what did the banks say when you showed them the plan? Well, I mean, I guess in hindsight it was not a pretty detailed business plan after seeing, you know, more formal business plans.

It was what we thought was a good business plan. So we had, you know, printed off articles of sort of the trends that were happening in beer, you know, one on Fritz Maytag and one on sort of what was happening in the import space starting to grow in the U.S. and the demise of sort of much choice in the beer industry we thought would give us a small slice of the pie that was rapidly being cut up. So I think we wrote several drafts of that business plan. The original one, I think, called for $50,000 total and went to banks. And we actually started. So we started to pool our money. I started to buy equipment.

I started to build equipment. I enrolled back at the junior college at Butte in welding classes, machine shops, anything that gave me access to use forklifts and drill presses and welders and everything else. I needed to weld all the pieces together. Took some business classes, took refrigeration repair. I took a couple semesters of that. Started just to build skills and started to build the equipment as we were trying to raise money. the banks pretty much said there's no way. And if you were a banker of any sort back then and you researched the U.S.

brewing industry, you would have seen that it was pretty rapidly declining, at least small brewers were. You would not have given a loan, not only to a craft brewing company, but to like two guys in their 20s trying to start a craft brewing company. Yeah, who had no experience, no experience in the brewing industry. You know, we'd never work today for a brewery or a beard distributor or anything like that. So, yeah, not a very likely investment to make from a banker standpoint. Got it. So you need 50K. How much money did you and Paul have between you?

So we had assembled $17,000. Between the two. Between the two of us. I had sold my home brew shop for $3,000 or $4,000. dollars and I had some savings and my grandfather had given me some bonds to go to college. I cashed all those in and Paul had somewhere sort of all his savings. Not a lot of money. So how did you get the rest of the 50K?

You still need like 35K. Well, so we went to all of our family and eventually some friends and got $5,000, $10,000 investments and thought we had enough money several times, but kept running out of money. And we were so low on cash that we did not hire pretty much anything out. So we did the framing, the sheet rocking. I did the plumbing. I did all the electrical.

I did all the refrigeration. Yeah, where was the location? Where was the site that you found? We found a little metal warehouse building, 3,000 square feet, empty shell, had been like a sheet rock. warehouse in Chico. In Chico. Right. And so we came in and in order to keep sanitation and quality in a brewing world, you need floor grains and you need separation between the brewing rooms and the fermenting rooms. And so we went in and unbeknownst to the landlord, we jackhammered through

the floor, sawed and put in drainage and then poured slope floors on top of that. But we did all that ourselves and it took a really long time. I was taking my 57 Chevy and driving up and down the Sacramento Valley up into Oregon and Washington and looking for old pumps and pipe and tanks and things that we could scrounge for basically pennies on the dollar to use to build the brewing equipment out of. And I got pretty lucky. The dairy industry was also sort of at a tough point where these little family dairies were closing, and there were hundreds of them scattered throughout that would have one milk tank, and it was sort of a side job.

I'd get a lead that, you know, go down this road, and you might find so-and-sold dairy. So knock on the door, and ask them if they had any old equipment, and they'd take me up the barn, and there'd be a dusty pile of pipe and maybe a pump, and occasionally I'd get a tank and 300 bucks or 500 bucks I'd buy it all from them. All right, this is an important point. And I want you to explain this to me because I think that people are going to be confused and think that, I hope they're not, that you just kind of figure it out as you went along, which is partially true, but you actually did a lot of research.

Like you actually went to UC Davis, which has a huge agricultural department. And you, like, met with a professor there and went to the research library to learn about brewing. What did, like, what did you do there? So, yeah, we were fortunate. So UC Davis had one of the only university brewing schools in the nation. It was started. You know, they have a big wine program there as well, but they started a beer program quite a few years back. And we availed ourselves of both their library.

and I would go down with stacks of quarters. I would either read there or photocopy everything I could get my hands on. Like scientific journals? Like scientific academic papers? And I've still got boxes of them today. And there were a couple really important scientific brewing texts available. And they weren't homebrewing texts. They were, if you're a brewing scientist, you know, four or five hundred page tomes on, you know,

every aspect of being a professional brewer. And I read them cover to cover. And so I was a fairly learned brewer from at least the literature side as we went into brewing commercially. And it also sounds like in this two-year period because it was like really two years, right? 70 to 80 when you were kind of working on ramping up Sierra Nevada and really going public, I mean selling it public to the public, that the other guy. Like the other folks in the craft brewing industry were really collegial, like Fritz-Maytag at Anchor's Team. And like, you went to these folks for advice and they were really, they were like, yeah. I mean, I'm just wondering, were they just good people?

Like, because you were, you know, in your early 20s. I mean, they could have just, I don't know, looked at you and thought, who is this kid? Like, why are we taking this guy seriously? But what explains? Because they were, right? There was a lot of, like, you go and ask them for tips and stuff, right? Yeah, and I think that, you know, Fritz was probably the first one I leaned on a bit. And he had the same experience.

So when he was starting out, when he bought acre, he didn't know anything about brewing or the brewing industry. And he would go and visit other brewers. And he was shocked at how open and supportive they were. But we did have a really, I guess, open relationship with pretty much anybody in the brewing industry. I joined the Master Brewer's Association, which was really the big browers technical group very early on. But you could call up a technical person at another brewery, whether it was Coors or Anheuser-Busch

and Moore Miller and asked a question, and they would talk to you. Wow. Wow. You know, the commercial guys, the guys who were selling beer on the streets, they didn't have the same relationship. but the technical side of brewing, brewers tend to stick together and to help solve problems. So in this two-year period when you're ramping up, right, what does Katie think?

I mean, you've got a daughter, a baby girl at home. Was she like, I don't know, was Katie ever like, can't, like, this is nuts. What are you doing? It was tough. And we made a lot of sacrifices. She made a lot of sacrifices. You know, we didn't have any money.

And I was working all the time. And so if I wasn't studying, if I wasn't welding, if I wasn't working, because I was still having to work another job, if I wasn't building at the brewery, I mean, it was seven days a week, 12 hours a day. And I had the, I guess, the early opportunity right when I was committing to build the brewery to actually buy one of the bike shops I had worked in. The owner was getting out of the business, and he would have sold it to me probably. preferentially if I said I wanted to do that. And there was a point where I thought, you know, I could buy this bike shop and probably make a decent living. And it's a sure thing.

But I was, you know, in my mind thinking, you know, am I going to then question could I ever really pulled off building a brewery and being a brewer for my livelihood instead of a bike mechanic? And so we had a thoughtful discussion, Katie and I, about what should we do? What should I do? And came down to, you know, I think you've got to follow your passion and, you know, see if that's what you want to do. You should do that. I read that you, and you've written a book about these early days, and you wrote that by September 1980, you're running out of money quickly.

And this is a quote from your book. Psychologically, we, you and Paul, were starting to break down. What do you mean? And just from the stress of watching, you know, nothing had the money going out? Like, what was the breakdown? Well, there were a few points of desperation, and we were getting there. We were out of money for, I don't know, the 10th time and had gone to, you know, family and said, you know, we just need another 5,000 or 2,000 or whatever, and we can get the doors open.

We did that a bunch of times. And so we were at a point where it's like we can't go ask for money again. And we've told them this was the last time, like five times ago. You know, we'd spent everything we had. And I said we'd borrowed enough that, you know, not going forward would have certainly been a big failure. So it was like, no, we've got to do this. And we just, you know, didn't have everything together to start brewing. And I needed a cold box refrigeration system for where we were going to age the beer.

And I remember a friend of mine said, well, I know of this backyard butcher shop that the county shut down that's got an old refrigeration system with a coil on it. And you can probably have it or get it for a few bucks. So I went over there and in his backyard he would butcher chickens and hogs and things for neighbors illegally. And there was a little cold box there. So I took it to the brewery and started to clean it up. and it was covered in blood and feathers and it was just completely corroded.

And I'm sitting there cleaning it up, and I just thought to myself, you know, if we're down to this desperate of a situation, we got no money, making beer still a few weeks off, we're not going to make it. When we come back, how Ken finally brewed his first batch of beer to sell to the public and how people began to buy it, not by the keg, not even by the six-pack, but bottle by bottle by bottle.

Stay with us, I'm Guy Raz, and you're listening to How I Built This from NPR. Hey, welcome back to How I Built This. I'm Guy Raz. So it's the fall of 1980, and Ken and his partner Paul Camusie have basically jerry-rigged an entire brewery out of hand-me-down dairy tanks and random pieces of scrap metal. They're almost out of money, and they're totally stressed out, but they're also almost ready to make beer. Except Ken needs one more thing. I needed a hop strainer, and I'd been trying to find a suitable,

used tank or container to use for a hop strainer, and wasn't able to find one, and didn't really have the money for it. And I had a few pieces of scrap metal, stainless steel left over from something else, and I said, okay, this is it. I'm going to go weld up a hop strainer, and we're going to brew beer tomorrow. And so sort of the last piece or two we just sort of made due

and made five barrels of stout November 15, 1980, and learned a few things, but it went okay. It took, I don't know, 12 or 13 hours to make 150 gallons of beer and more hours to clean up than that, but at least we were sort of on our way. And then started brewing pale. the two days later and started to realize we were not able to make batch after batch taste the same they weren't bad they were just pale ale 3 was actually pretty good I

remember and we were bottling a little bit and sharing it with friends saying I think we're there we're really close and we brewed pale ale 4 and it wasn't quite right and then we brewed pale ale 5 and it was different and we ended up dumping all those beers but can I just can I just pause in it because this This is your most famous beer, right? Sierra Nevada, Pale Ale is, and I think it's still accounts for like most of your sales today, the majority of your sales, over half. This beer has got four things in it. Water, malt, yeast, and hops, right?

Is it, I got, okay, I got the recipe. Yep. For people who don't know anything about beer, right, like, what was it about, I mean, you're saying, you're going through a bunch of batches of that beer, right? what were you looking for? Because you said the first wasn't quite right, the second wasn't right, the third is okay, the fourth wasn't right? Like what were the criteria you were using in your mind? Well, one, we knew we needed to be consistent. And I think that's probably as big of an issue as anything.

It's just that they didn't taste the same. So some of them fermented faster, some fermented slower, so they had different nuances in the aromas and character. So I think our concern was we couldn't make the same beer batch after batch, and we better figure that out first. So here's now another question about this, right, which is if you go to Germany, right, they've got this law where all German beers or certain kind of German beer has to have water malt. Yeah, water malt hops and yeast. Right. So it's, yeah, German purity law. The German purity law, right.

But when you go to Germany and you drink a lot of their beers, like a coal shore. or like a certain brands like Worshtiner or Bitburg, they're loggers, right? They're very clean, clear, light lagers. You're using the same four ingredients, but you were introducing or you were, you were bringing into your beer a, like the hoppiness was like, that was going to be really intense. Like this was for some people, the flavor was even going to be slightly, or not more, more than slightly bitter, right? Like, was that something that, I don't know, most beers at the time just weren't focusing on the hoppiness of the beer? Well, if you go actually back to Germany in that era, there were places in Germany making really hoppy beers. And what is it about the hops that makes the beer taste more bitter?

Well, hops are added to beer for their alpha acids, which are the bittering component or a major part of the bittering component. of the hop, and that's something that is variety-specific as far as those levels. So hops are a spice, essentially, in the brewing process. Right. And I guess you could think of them like chilies. And they're basically leaves. They're like miniature leaves that grow like, look like a berry. Well, it's like a flower.

Flower, okay, I got you. And the alpha acids, the bitter acids, and those aromatic oils are geographic in some cases. So a variety that's growing in Oregon, maybe different, same variety than it tastes in Yakima or Idaho, or if it's growing in France or in Australia. In this country, there wasn't really a aroma signature from the U.S. hop industry until us and a few other brewers started to focus on a new variety called Cascade, which was bred up in Oregon State. And it was piney and citrusy and had some real distinct character, but it wasn't what the German brewers who worked at big breweries were used to using.

And so it really didn't find favor in the U.S. brewing industry until sort of our wave of craft brewers started to punch things up with aromas and characters that were way different than what beer had been before. at least beer-brewed in America. All right. So you get this beer down, this pale ale beer down. And how do people respond to it when they try it? I mean, obviously, I'm sure there are some people who sort of were sophisticated. But were there other people who were not just super sophisticated and they tried it and they thought,

yeah, most. Like really? Yeah. Yeah. Oh, really? Most people. Most people didn't like it. No.

Again, if you're used to drinking an American light logger style and you're hit with a very aromatically hoppy and bitter balance in your beer. And, you know, just for a reference point and the numbers are sort of going to be meaningless, but just as a relative number, today domestic logger beers might be in the 8 to 10 bitterness units. And there's outliers to that, but that's about the range. Our pale ale when it came out and still is, is at 38 bitterness units. And so, you know, if you again equate that to sort of chilies, it's, you know, it's quite a bit more than what people are used to drinking. And again, we were trying to feature very aromatic hops, you know, pine and citrus and all these other

nuanced romas that come out of hops. So, you know, we were producing a beer that was polarizing, to say the least. Yeah. I mean, but it's interesting because we've had founders on the show who say, who've said in the past, you know, if the thing you're producing is polarizing, then it might just, you might just be on the right track, right? Which obviously you were. But, I mean, this was going to be the backbone of your business. And lots of people or most people were saying, ooh, this is a, this is a.

I don't know about this. So how did you start to sell it? Like, what was your first? I mean, did you go to bars? Did you, were you going to sell it on tap? Were you going to sell it to shops? How are you going to get people to buy it? Well, you know, we looked at, you know, how we were going to go to market?

We couldn't afford six-pack carriers. That was sort of out of our budget. So we had individual bottles. And we started out in all returnable bar bottles that we would charge a nickel deposit on. So we would buy used bar bottles at 85 cents a case from bigger breweries who had surplus bottles. They were willing to sell us. And we would charge a nickel a bottle, so $1.20 a case when we sold the beer and we give them a nickel back when we got the empties back. And we pretty much loaded our van up.

We bought an old van from a friend of ours. Took the seats out, and that was our delivery van. I hired an old high school friend of mine, Steve Harrison, to be our first employee and salesperson. He would help bottle during bottle days, and he would drive the van around and tried to sell beer. If you go back to that era, there wasn't a lot of options for draft beer. So if you went into a normal bar, they might have one or two or maybe three taps, but it was normal just for one or two beer taps. So we actually did not go into the bar trade at all initially.

We, at least not on draft, we just said there's not enough money there and not enough tabs. So we priced ourselves at the highest price we thought we could get by with. We did no market research. What was the price? 85 cents a bottle. And that was at that time in 1980, 81, that was expensive for a bottle of year? That was what the higher priced imports were selling for on the shelf. So we thought, well, we're going to price ourselves and stylistically try to be like a unique import beer.

And you were just going, like, how were you distributing this? I mean, it was presumably it was just you guys, right? Yeah, our man. We would just drive around and go knock on bars, restaurants, supermarkets, wherever, and try to see if we could convince them to buy a case of 24 loose bottles. And were most of them dismissive? or were most of them, like, interested? Or what was the reception you got?

In our hometown, we got at least quite a few of the bars and restaurants to take a case. So in the hometown, since we, you know, had been in the press a couple of times about this little brewery opening up, we were able to get some placements. Once we started leaving Kiko and went to the Bay Area, it was a real slog. You know, there was no craft knowledge, no Internet. You know, there was not a way for a business that didn't have any money to get much notoriety. We couldn't pay for any of it, but we were, you know, really fortunate that there were a few writers who were intrigued by the whole startup of this craft beer scene and started to write stories. Including in the, what, like the San Francisco Chronicle?

Yeah, San Francisco Examiner. Actually, there was a, I think it was a five-page color spread. on the brewery, the little brewery in Chico. Oh, wow. And that was just an amazing shot in the arm. We got this, you know, huge amount of publicity. And we were also very fortunate there was a beer buyer for one of the large grocery store chains whose daughter was going to Chico State.

And so he would come up to visit his daughter and he was into beer. And so he'd come by the brewery and have a beer with us. And so he started to run some promotions for us. without us really being involved or knowing about it. All of a sudden we'd get a bunch of calls from distributors with wanting beer. And then the Grateful Dead, actually. They somehow early on got hooked into the beer. And so when the Dad would travel around, we'd have to watch where their concert series were.

And we'd get all these orders for beer ahead of them hit in town. And how are you able to produce enough beer? I mean, if the demand was starting to go up. Well, so my business plan called for us to brew hopefully 2,500 barrels a beer a year. I was able to brew 12, 10 barrel batches a month, so three brews a week. That was sort of our phase one. And we had planned in an expansion to go up to 3,500 barrels a year, doing some more modifications of the facility.

So we did that pretty quick. And our business model was so flawed that we couldn't survive at 3,500 barrels of beer year. It just was not enough. Things cost more. And there was always some financial need we hadn't planned on. So we pretty quickly realized we've got to grow. We've got to figure this out quick. And so I went over to Germany, I think in end of 82, 83, and I bought a defunct brewery over there.

It was just like a shutdown brewery. You just bottle their equipment out? I bought their whole brewing side, so didn't get their packaging equipment, but bought the brewhouse and paid basically the scrap value, $15,000 to buy all the equipment. And we spent more than that, crating it and shipping it back to the U.S. I went over with the high school buddy, and we spent three weeks in Europe helping dismantle the equipment and getting it out of the building. and brought another business plan and could not borrow money still. So we had this equipment sitting there in a crate, but we needed what we thought at the time was like a million dollars to sort of move into a new facility and to equip it with enough equipment to use that bigger brewhouse.

So it actually sat there for years, I think almost four years in a crate. And we just came up. with every way possible to expand production. So we knocked out walls. We took over other metal buildings in the little street and put tanks outside and brewed around the clock. So we eventually got the production up to about 12,000 barrels or a little less than 12,000 barrels in 87.

Were you just between 1980 and 1987 or maybe even longer, were you just working like it? Because you were the beer brewer, right? you were actually the guy making the beer. Yeah, I did all the brewing and all the packaging in the beginning. So I would brew three days a week and I'd package two days a week. And then as we got a little bit bigger, I was starting to focus on how to grow on expansion.

So I was building tanks and welding pipes and adding things. So I started to hire some brewers and then hired somebody to run packaging. So I could free myself up to do all the expansion side of the business. Was your day like, I don't know, what time did your day start in the early days? Oh, boy. Four to five. Wow. You had to start brewing that early?

Yeah. Start in the dark because particularly as we grew, we needed to brew as much as we could. And so it was almost 24 hours a day. I mean, we typically have operated 24 hours a day. So something that we haven't to discuss. yet, but there was, I guess, probably from a fairly early point, quite a bit of tension between you and Paul, Camusie, your co-founder. From what I understand, like, there was tension over work commitment. Like, you felt like you were working 10, 15 hours a day and that he was working

fewer hours. And that tension seemed to kind of continue what happened? between the two of you? Well, there was certainly what I felt, and I think everybody around us who were involved in the business saw as well that there was a disproportionate amount of effort being put in. I mean, my days were always longer than his and more physical. And so at one point it became a critical issue between us, and we did end up adjusting compensation. so I was making, I don't know, double what he was making.

And so we did try to address it. But, you know, as the business grew and the value of the business grew, and, you know, we were 50-50 partners. It started to feel that I was doing a disproportionate amount of building value in the company. And so we started to have discussions in the late 80s of this is something I'm not going to continue doing for much longer and we've got to come to some resolution. So as we moved into the new brewery in the late 80s and in the 90s, it became a bigger and bigger sticking point.

Were the two of you, was it uncomfortable at times? I mean, I imagine it was. Yeah, it grew uncomfortable at times. Yeah. I mean, early on, he lived in our house. I mean, he was just to save money. He was a roommate. Yeah.

But then as, yeah, as things went on, it became a bigger and bigger friction point. You would go on to buy him out in the late 90s. And I think you had to really take a bunch of loans to do that because by that point, the business was worth a lot of money. Yep. So how did you do it? Well, initially I didn't think that was a possibility. You know, I didn't have any money. and the thought of going into debt at the kind of dollars that we were starting to have the company valued at was just, you know,

it wasn't in my thought process that, you know, I could figure out how to do it. What were they valuing in the company at the time in the 90s, late 90s? The valuations across the industry were sort of all over the place, but also were going up pretty steadily. and, you know, 30 million, 40 million, 50 million. And this, you know, me buying Paul out took years to work through with attorneys. And so, you know, as that time went on, we were still growing. And so the value of the business was growing. And, you know, I had a really tough decision.

Do I, you know, hamper the growth of the company in order to not have the number get bigger and bigger so I could potentially afford it? or do I do what I think is right for the business and continue to grow it? So, yeah, it was a really challenging time for me personally. You know, we were in a market that was sort of exploding from some of our competitors were making big moves, and we were becoming hampered by our facility. Why? What was going on with that? Well, the brewery that I had designed in 87 and 88 when we moved into the new facility,

I had designed for 60,000 barrels worth of annual capacity. You know, if I think back to that time, you know, that was more than Anchor was producing, and they were the oldest of the sort of winters in the craft world. And we had produced a little over, I know, 11,000 or 12,000 barrels or so in 87. and so I thought, you know, geez, if we could grow four times that big or more than that, that would be an amazing achievement. And so 60,000 barrels seemed like a pretty lofty projection. And so our first year in the new facility, I think we brewed about 20,000 barrels,

or next year 30,000 barrels or next year, 45,000 barrels, and next year we were out of capacity again. And so we started doing whatever we could. We put tanks outside. We added brewing equipment. We started brewing multiple times around the clock. And I think we got to a point, I think it was 1997. We brewed 363 days, 24 hours a day.

We took Christmas and Thanksgiving off, I think, and just other than that, just kept going. Wow. And that's right when I was trying to figure out how to buy Paul out. So very challenging period. Did you have to go into serious debt to make that happen? Well, so we explored, again, I didn't think it was possible for me to buy him out. And so we met with every group, you can imagine, you know, venture, lots of venture funds. And I had lots of dinners with groups that, you know, told me they were going to be my best friend.

but I got caution from other people saying, watch out, you know, if things go south, you'll be in trouble. And so I started having real angst about, okay, so I'm going to have an investment group in as my partner. They're going to have some really tough metrics that I've got to meet to give them the returns they're looking for. And then they're going to want out in five or seven years. And I'm going to be right back where I am today,

but in a worst place. So I really got cold feet about doing a venture deal. So what did you decide to do instead? So I had a really great attorney in San Francisco, and we started looking at alternatives, and he brought in a friend of his who was very experienced with working with banks and structuring deals. And it was at a time when money was relatively easy to get compared to how it had been. And we got a couple proposals from some banks and put together a deal that it was as much leverage as I would ever want to have on myself and the company. And sort of just rolled the dice and said, you know, if this goes well, it'll work.

If it doesn't, you know, I gave it a good try. And that was right when, if you look at a graph of the trajectory of craft brewing in America, It was that year that we did the deal that the bottom fell out and the growth rate had been slowing, but it essentially went down, I think, to 1% growth across the industry the next year. Wow. In 99? Yeah, 98, I think 98, 99. Why? What explains that?

I mean, we're sort of there today again, and who knows how we'll come out of our current situation, what the industry will look like. But, you know, there was starting to be a saturation of craft players. but the imports really probably sort of reasserted their place in the market. And so craft had been somewhat the darlings during the late 80s and mid-90s. But then I think the imported beers started to realize that they, you know, had a place in the market and pushed. And I guess the craft industry also lost a little bit of credibility. some of the bigger players back then were contract brewing,

meaning they weren't brewing their own beer. They were going to one of the big brewers and having their beer made. And there was sort of an expose from some of the big brewers saying, you know, here's who's really brewing your special craft beer. It's being brewed at a, you know, at a Stros brewery or whatever. So there was some negative industry PR that also probably hurt the industry a bit. So you're super leveraged and then beer sales kind of fall flat. We actually came out of that in a pretty good place compared to a lot of our peers.

And the reason was, you know, as we were brewing 363 days that year, we were starting to ration and not ship to all of our markets and not chip all of our brands. And we had some pent up demand. And so when we came out of that, I did do a big expansion right during that period of buying Paul-out, which also added stress and debt to the picture. But we pretty much double capacity that year, 97. And we were able to sort of immediately go into some of that pent-up demand. So we grew, I think, double digits when the rest of the industry was flat. Wow.

So we know what happened, right? Because today Sierra Nevada is the number three craft brewery after Sam's Boston Lager, Boston Beer Company that makes Sam Adams and Yenling based in Pennsylvania. Yeah. were motivated and you you were learning about different things, chemistry and machining and brewing. You were learning these things all, you know, in a very deliberate way. You were talking to people. You were finding mentors.

You were going to visit, you know, other breweries and reading technical journals. But still, to me, I don't know. If I met you in 1980 when you were 25 working on Sierra Nevada, I don't know. I would have thought, I don't know. I don't know about this guy. I don't know if I would give him. I would know if I part with my money to invest in his company. But you built the third largest craft brewery in the United States, a company, which has an enormous valuation.

And, I mean, do you, I know, do you think that this happened because of all those things I mentioned because of your work ethic and your commitment to the craft? Or do you think a lot of it just had to do with luck? The hard work part, I think, was a good component. When I opened, I mentioned I think there were six of us, and the five other craft brewers that opened in that same era have all failed. Today, I'm the last man standing. So we all sort of had an equal shot at it, I guess. Yeah, timing, I think we were, you know, at the right time in a sort of American culture.

when people were looking for better, unique, different, distinctive. You know, there were coffee roasters popping up and bakeries and, you know, the restaurant scene was starting to grow. But it, you know, the work part of it, it's been a lot. And, you know, it was a lot for me, but a lot for my family. I mean, my kids grew up in the brewing industry. I have two children still active in the brewing industry. My son's out in North Carolina and my daughter, Sierra, is here in Chico.

So it's been a family business, but it's not an easy business. And even though a lot of people think being a brewer is romantic, it's been hard and it's going to stay hard. And I think we're still around because we're passionate about beer and passionate about having a great company. That's Ken Grossman. founder of Sierra Nevada Brewing Company. The ongoing pandemic won't be the first crisis that's impacted the company and the community. At the end of 2018, the campfire destroyed the town of

Paradise, California, which is the next town over from Chico, and about 60 employees of Sierra Nevada lost their homes. Ken responded with a relief fund, and Sierra Nevada brewed a special beer called the Resilience IPA. All proceeds from that beer were donated to the long-term relief effort. And thanks so much for listening to the show this week. You can subscribe wherever you get your podcasts. And by the way, if you've got a business that's working on ways to tackle the global economic and health crisis, please let us know.

We may feature it on our How You Built That segment. Go to build.npr.org to tell us your story. You can also write us at hibt at npr.org. And if you want to send a tweet, it's at how I built this or at got you. Guy Raz. Our show this week was produced by Neva Grant and Rachel Fockner with original music composed by Rumtina Raublui. Thanks also to Candice Lim, Julia Carney, Casey Herman, and Jeff Rogers. Our intern is Rainey Toll. I'm Guy Raz, and you've been listening to How I Built This. This is NPR. We all have moments where our limits are tested. What I want to talk about is how we define those limits. And what it means to exceed.

them. I'm Jay Williams. Check out my show The Limits, where I talk to people who have overcome theirs and achieved great things in business, sports, and culture. Listen to The Limits from NPR.