George Jagodzinski (00:00):

Today we learned that you can be mildly successful and still have a great time, and that the spirits world might be quietly teaching us something the tech world forgot. I'm joined by Mike Solow, co-founder of 99 Proof Partners and Cask Strength, his investment fund and his venture debt arm. Mike's been a mentor and advisor to over 500 entrepreneurs along the way, and I dig into what he's learned. We explore the prideful pull of the maker movement, don't everyone just quit your jobs and start a bourbon company, and we chat about different types of success and how to take some pressure off of yourself. 99 Proof is doing capital differently. They get in the boat with the founders instead of just writing checks and managing spreadsheets, a story of investing that puts the craftsperson first. If you want to taste what we're talking about, check out some other brands such as Still Austin Bourbon, Renais Gin, and Siempre Tequila. Please welcome, Mike.

(00:46):

Welcome to Evolving Industry, a no-BS podcast about business leaders who are successfully weaving technology into their company's DNA to forge a better path forward. If you're looking to actually move the ball forward, rather than spinning around in a tornado of buzzwords, you're in the right place. I'm your host, George Jagodzinski. Mike, thanks so much for being here.

Mike Solow (01:25):

Thanks for having me.

George Jagodzinski (01:26):

Last time we talked, I got really excited about the space that you're in because you get to interact with folks who are leaving their traditional day job, corporate world, to enter the world of spirits, which is, it's craftsmanship, right? It's craft and passion and all that. I'd love to understand this. What do those people look like and what are you learning from them?

Mike Solow (01:45):

It's a totally different room every time you walk into it, right? It's a different story each time. We see everything from, on one end, the familial experience. It's been passed down to them through maybe multiple generations, definitely in the tequila sector you see that. And then there's others that are just career-long. They've been a bourbon guy and they enjoy it. They know everything about it. They walked the bourbon trail 50 times and they want to try their hand at it. Maybe they've gotten a little pocket still for down in the basement or in the backyard or something and they're trying to take this thing to the next level, maybe circle some capital for it and make that their full time.

(02:33):

We definitely see it all. What's interesting to me really about it, when you get these people on the phone, there's always this very prideful mentality around the business they're building, the thing that they're making, the craft behind it. I spent a good deal of time in software and there was a little bit of that there, but it's nothing like this. It's nowhere near as pronounced. Every time you get to have the opportunity to hear these people tell their stories, it sucks you in even more. It's very cool.

George Jagodzinski (03:08):

What do you see in them commonly that tells you, this person's going to be successful? A lot of people have the idea that they want to start a spirit. Very few do. I don't know the stats, but I don't know that all that many are successful. Maybe you could tell me, but what do you see?

Mike Solow (03:25):

Yeah. Anybody will tell you the last couple of years there's been a market correction, and so that's made it harder for the smallest of the small businesses in this space as well. Maybe that's the straw that's breaking the camel's back, if you will. Many businesses, sector-agnostic, many businesses that are in alignment with the story that I just told you, where it's a crazy dream and maybe they know something about it and maybe they don't or they're going to learn it on the fly. Truthfully, not a ton of those businesses become wild success stories. Our advice is always to crawl before you walk, to do as much research, to partner with the smartest people that you can find, the people that have walked this path already, and maybe they don't have it in them to start the business. They're not going to be that person, but certainly they'll get once the train is already in motion, fine.

(04:18):

There's this kind of chasm at the very beginning that some of these people with the crazy passion, dream kind of scenario, they can satisfy that tranche, that growth period. There's not a ton of them in our sector or in many sectors that become this cover of Forbes success story, but there are plenty of them that become a serviceable, scalable business, and then it becomes an execution risk. Where do these people want to take it? Do they want to hold onto it forever and have their kids run it? Or if they want IPO or whatever the business plan looks like for them, then you branch off into a hundred different directions.

(05:02):

It is hard to run a profitable business in this sector. It's hard to run a profitable business in lots of sectors. I wouldn't necessarily just put that on beverage alcohol, but I would say a penny's worth of free advice to anybody that's thinking about jumping off and doing this is to really become a student of profitability and understand those risk factors. You can set yourself up to be sustainable for a while without having to go out and raise enormous amounts of capital in order to stay in business.

George Jagodzinski (05:36):

Yeah. Yeah, and be realistic. This industry's somewhat unique. Every founder has passion in what they're founding, right? But in this, I feel like there's this romance and a lot of love and passion and literally something that alters your mental state. As an investor, I'm assuming you love to see some of that passion, but can someone love it too much, and does that get in the way of it? How do you thread that needle?

Mike Solow (06:04):

Maybe the way that that proliferates is if anybody out there has ever been raising money and they get negative feedback and you have a "Don't talk negatively about my baby" kind of feeling, maybe that's what we see where we've seen some very competent, very well-regarded master distillers that have gone out and tried to start their own business versus being the master distiller of somebody else's enterprise. In that instance, there are maybe a few more working examples where maybe they're spending too much time, effort, money, cycles, building their equipment by hand. Hand forging still is a massive thing, and that's threatening to bottom out the business because it takes so long and so much capital and so on. Almost all of them will tell you like, "My liquid's the best liquid," or there's some version of that, right?

George Jagodzinski (07:03):

"My baby is the most beautiful baby." Of course.

Mike Solow (07:05):

Absolutely. But then they go out and maybe they get silver instead of gold medals at some award, San Francisco, whatever, and so they start to get their nose bloodied a little bit and they see, really, where they do fit in across all of the different products in their category. Our advice always is to lean into where you are. There's still somebody that is going to enjoy that. Not everybody is going to buy a 2 or $300 bottle of tequila or bottle of bourbon or bottle whatever. They're going to have a daily drinker. They're going to have something that's 40, 50 bucks and they're going to feel great about drinking that, and maybe they'll pour that for their buddies, too, a little bit and they'll get the special bottle out for the right kind of party that they're having, too, and so there's these drinking occasions.

(07:54):

So there's products that fit into all these different categories or occasionality. Being able to really take a step back and hear what the market is telling you and divorce "My baby's the most beautiful baby" piece, it's a hard lesson to learn sometimes, but the people that do it really fast, they figure out how to make money in their category and then they can go out and find something else or do something different that maybe gets their company and offering into that premium category, if that's where they want to play, or they can pivot in that way.

George Jagodzinski (08:31):

Yeah, that makes sense. What I'm hearing in there is you can have all the love and passion in the world, but you got to still remain grounded in reality, accept the critical feedback and the coaching and all that. Maybe to your medal example, maybe the more competitions, the better, because then that makes you realize where you truly stand. It's like, I have so many friends that were, they were the best football athlete in high school in their town and then they went to D1, and the first time they got hit, they're like, "Oh, there's a different level to this. Maybe I'll go to D2, D3 school at this point."

Mike Solow (09:03):

Right. Right, right, right. Yeah. There's lots of different places that people can take their products these days. It doesn't even really require getting medals. If you go out and at a very local level hit the concerts and the fairs and all that kind of stuff and get feedback that way, that can be valuable. Really, it's a liquor-to-lips game still. That's a very common phrase that you hear in beverage alcohol. Really it's just in alignment with getting your product out in front of enough people and seeing what happens to their face when they try your stuff or when they see your logoing or your branding, or do they buy the T-shirts? They want to interact with the brand. That is somewhat of an indicator in how your brand messaging is doing.

(09:57):

All of these community kind of things can help out just as much as getting metals. There's lots of folks that are willing to help out and put your stuff into an article somewhere and start to get it out there that way, talk about tasting notes and all that stuff. There's a lot of avenues for people to go and get some eyes on their product or their line of products besides just trying to get a medal or pay for a medal. I didn't mean to position that as the route to market, but all of it taken as a whole, it's helpful and it does help the business tell the consumers of that category what we are.

George Jagodzinski (10:39):

Yeah. User feedback, it's direct input. One of probably a million examples why you just need to surround yourself with people who give it to you straight rather than candy-coating it, right? The one thing that I love that we talked about last time is you said that you can be mildly successful and have a great time, which from an investor was like, "Whoa, wait, we can't all just be George Clooney." So I'd love to hear maybe, elaborate on that a little bit more, and maybe some examples.

Mike Solow (11:08):

Yeah. I'll start with the latter part first and get back down to it. There's very few George Clooney exits. There's a solid argument that can be made that there still is going to be a ton of M&A in this category. Honestly, all of it's exciting, really. Is there a billion-dollar exit? Maybe not this year, but maybe we can get back to that. Six-figure millions exits, that's a thing. The scalable businesses that are built smart in a way that a strategic can come in and expand on it and catabolize the white space that hasn't already been eaten up by that smaller business, that makes sense. There's a lot of room for that in our sector to getting down into the mildly successful and having a lot of fun piece. They're not necessarily mutually exclusive.

(12:05):

We're lucky enough where some of our portfolio brands are getting into that sort of exciting phase where an exciting exit might be on the horizon here. At the end of the day, it's still a fun thing. It's still alcohol, it's still bourbon, wine, champagne, whatever. It's an experiential game that we're playing. You still can belly-up to the bar or go to a wine tasting and hear people's stories. You can see their faces when they're drinking this stuff that make it a fun, almost like a party kind of environment.

(12:41):

That certainly is true at the lower levels, getting into the, you don't have to be super successful in order to have a good time here. There's something that you can see as plainly as the smile on the business owner's face when they pour old-fashioned using their bourbon or maybe it's just a neat and the person's sitting there tasting it and they're like, "Wow, this is really good," and they start asking them like, "Tell me about what's your grain-to-glass protocol," or where's the supply come from or what makes this business unique, and they talk about all these other partnerships that they have with the farms nearby and what they do with their byproducts. You're still a small business and telling your story is vital to the market, understanding who we are and who we want to be when we grow up.

George Jagodzinski (13:31):

Yeah, and those are the lifebloods of the communities and the country more so than the George Clooney brands out there. That's what's really keeping things moving along.

Mike Solow (13:41):

100%. I would be remiss if I didn't say it's not all sunshine and roses out there, right? There's still a market correction that many would argue has to happen. There's a couple thousand bourbon brands out there in the US and maybe there's not room for that many. That's going to finish shaking itself out, I think, over the next 12, maybe 24 months. Competition pushes out some that are not as well-positioned to be competitive, but it also pushes those who are very competitive and selling will to be competitive, pushes them forward. Ours is an industry that's also seeing that happen today.

George Jagodzinski (14:20):

Yeah. I just always love to compare different industries. In software, you see a lot of serial founders, right? They exit, they do it again, do it again, rinse, wash, repeat. You mentioned just before someone in the spirits world doing a second exit, but my impression, and correct me if I'm wrong, I feel like there's much fewer serial founders within the spirits world. Is that correct?

Mike Solow (14:45):

It's all relative, right? It's relative. This is a smaller market. It's 80-plus billion. The entry-exit timeline and trajectory is faster in software than it is in alcohol. Some of the efficiencies that have drug that down historically, some of those are now able to be capitalized on. There's easier production partnerships to get, or depending on the spirit category, there's a lot of supply of this and that. There's some ease to market now that used to not exist as much. Being a newer founder or even a second founder, now you've been there, you've seen it, now you know exactly what the roadmap looks like, and so turning around and walking down it, a lot easier. In bev-alc, you're just leveraging the same partnerships almost. Just rinse, wash and repeat that and you're in the market.

(15:44):

What we don't see is a cross-pollination where somebody was making like Ukrainian vodka and then they come in and they're making Japanese whiskey next. That doesn't happen. They do stay in their lane more. In tech, it seems like there's a little bit more cross-pollination across different product types or product categories, and I would probably argue that that allows for more founders and more rapidly founding than in something where you're going to, maybe you're going to want to have your own distillery this time, so that's a pretty capital-intensive program to put together.

George Jagodzinski (16:24):

Yeah, that makes sense. That makes sense. Yeah. Let's talk capital. You seem like you're holistic capital. You sound and feel different from a lot of other investors that I talk to. Curious to just hear from your mouth, what is the philosophy and the approach?

Mike Solow (16:40):

First off, myself, my founders, really in anything that I'm a co-founder of now, we've all been there before. I think it's an important distinction to make. If you're talking to the folks that own the fund, then regardless of the size of the fund, they do understand what it's like to own a business. Our guys are those people.

George Jagodzinski (17:05):

Not just spreadsheet guys.

Mike Solow (17:07):

No. I mean, you've got to be that or you can't do decently well in this industry, but first and foremost, we understand how rugged it can be to raise capital and what it is like when you're not raising it. We've had successful businesses, we've had total Fs. We've actually been there. Capital, it's always going to be important, but the execution risk is a key component to any firm's due diligence. It's also something that intrinsically it's hard to measure how successful these folks are going to be this time when they execute. Even if they've been a founder in the past, there's lots of founders that have become repeat founders that didn't make it the second time.

(17:57):

Did they learn enough the first time? Was that a lightning strike or is this really who they are? Are they the lightning-in-the-bottle folks that are just good at building? I think we're getting better at learning how to discern the difference between the lightning strike and the lightning in the bottle. Nonetheless, that's definitely something that keeps us up at night, and our compatriots, our folks that we do deals alongside echo that sentiment, at least when we talk to them. We help make introductions to other funds, to other sources of capitals, high-net-worth investors, importers, exporters, software providers, distributors, salespeople, teams of salespeople, brokers they're called in our sector, other brands that are currently going through the same thing and maybe they want to share salespeople, so they have a co-marketing strategy for a given sales geography, whatever. Whatever it takes in order for them to be successful.

(18:58):

I would say, if anybody that's listening to this is thinking like, wow, that's an interesting approach, the way that we look at it is we get to see into a lot of different silos. We talk to other sources of capital, we talk to our investors, we talk to each other, we talk to a lot of brands that are here in the US and internationally, folks that are conduits that go between any of these different businesses, and so we get to pick all of their brains and see what keeps them up at night. There are often partnerships that are at least potentially on the table and could be successful partnerships, and so we try to leverage those, get any of those balls onto the field of play, if you will, with any of the brands that we're making an investment in, definitely. But then really, even ones that we think could be a future investment, we'll do the same thing, pick the phone up and make an intro or whatever it takes.

George Jagodzinski (19:57):

Yeah, that's great. Through all of the brands that you work with and all these conversations that you're talking about, and even outside of that, your other mentoring activities, I don't know if you have a tally on the number of entrepreneurs that you've advised. It's probably a lot. Are there one or two common conversations that you find yourself always having or having a lot of with them?

Mike Solow (20:18):

I stopped counting at 800 companies, founders that I've had even just a one-on-one mentor style conversation. I used to be a mentor at some of the incubator startup kind of environments in Dallas and in Texas, and so a lot of the numbers came out of that. Once or twice a month, just having office hours for three, four hours a week, something like that. In the earlier stages where they're maybe pre-launch, into maybe seed round kind of companies, it's almost always around raising capital, the metrics that we need to accomplish in order to successfully raise capital the next time, and how do we talk to investors about us and what we're doing.

(21:07):

There's always a pitching component to the conversations that we have. Pitching is just an awkward thing. Some people are very good at it and they just get it, how to talk to people in this way that disarms them. They get out of the way between them and a check, going forward from the smaller piece into the more scalable businesses that are trying to then begin activating their exit strategies. In our sector, exit strategies aren't one-year things. You make the plan, you put the plan onto the field, and then you've got to prove numbers for at least a couple of years. There's these articles that come out that talk about the exits, whatever the exit is at the time, and they're written as if it was this flash-in-the-pan deal where, oh, strategic just found this company, and the company had only been around for six months and now it's a $400 million... No, there's 10 years before that where this business was building.

(22:25):

Somewhere in that 10-year period, they started activating their exit strategy and that got them to year 10. That piece, we honestly love being involved in that. There are way different challenges there than there are at the earlier stage, and truthfully, they're very hard. Now you're talking about team building and expansion across the US. Maybe it's international. So efficiency's there and now you have logistics and supply chain issues and potential to extract additional value. There's inventory that factors into this, both how do you manage it, and then building it up enough so it has value to an acquirer.

(23:08):

There's all of these things that, at the beginning, you didn't really have to worry about them that much. On our end, we're involved in any of those things. From me personally, the advisory work that I do and sitting on the boards and that kind of stuff, those are totally fun, hard, challenging conversations to have, and research projects, if you will, that we have to put together as a team, monitoring them, the checkpoints that you institute to use along the way, and so all of the processes and tools that you have to have in order to successfully traverse that part of the business growth, it's the best problem to have.

George Jagodzinski (23:49):

Yeah. Yeah, it's exciting. I remember, I really underestimated the timelines in the spirits world. We started working with, on the supplier side, one of the oldest, biggest bourbon distillers, and it hit me like a brick. They're like, "Well, we think in terms of 40 to 50 years in our planning," and I was like, "Holy cow, is that different from software," you know?

Mike Solow (24:12):

Yeah, absolutely. Absolutely. Yeah. You see it in other spirits categories, too, where it's he granddaughter or grandson of the person who started the distillery is now the master distiller. Of course, now there's a 40-year bottle of whatever, scotch, that you can offer to the market, but also, this business has been around that long. There's instances where just somewhere along the way that distillery decided to sell and an argument could be made that there's always a strategic that would want a distillery that has proven their market worth for that length, that they would want them as part of their portfolio of assets.

(24:57):

There's tons of exit opportunities. There's mid-tier PE along the way, too, that if you start a business at a 10-mil valuation and you want to sell it for 150, there's hands full of shops that just do that, and they take that 150 and try to turn it into 250 and they get their big win out of it, too. There's a lot of that that goes on, and those numbers maybe are a little overblown, but that thesis is also currently at work in our sector. So you don't have to build a business for your grandkids if you don't want to.

George Jagodzinski (25:34):

Yeah, it's what we were talking about before, right? Success comes in many different flavors. The hard part is making sure you understand what you want your flavor or success to be and being realistic about getting there. Mike, I've got two advice questions for you to finish this off. The first one is, I guarantee there's plenty of SaaS executives listening to this right now. They're like, "Oh, man, AI is killing our industry. I love bourbon. I'm going to go start something tomorrow." What's the most honest advice you'd give to that person?

Mike Solow (26:08):

I would maybe give two pieces of advice. At first, if they come from SaaS or AI, maybe stay in your lane first. See if there's, depending on what it is that they're well versed in, which, in software that can get into the nitty-gritty details, so if it's something that's directly applicable to our sector, I feel like I would be remiss if I didn't say that in many ways beverage alcohol is still run from a technology standpoint. It's draconian. This could be realistically... definitely when you compare it to tech, this could feel like 1989, maybe 1990. There's just not a ton of exciting tech that's running our sector.

George Jagodzinski (27:00):

There's distributors out there with a literal clipboard and a pen and pencil, right?

Mike Solow (27:05):

100%, and there's tons of Excel spreadsheets that are at work on the field. That's going to go away per se, but there's big data lags, there's lots of opportunity to be more efficient with the software and the tech that runs our industry. That can be applied at the distillery level, that can be applied at the distributor level. It can be applied in the warehouses, like shipping and receiving, all the ordering, reordering from a sales management perspective, understanding what's going on within your sales territory. Sky's the limit, man. Go invent something. So there's that.

(27:54):

If you do want to start your own company, I'm just going to use bourbon as the working example because it's been the working example for a lot of this, if you want to be your own bourbon distiller, that's a very expensive thing. You've got to make sure that, first off, you are all in on this thing and you've got enough money for your family to live for a while and you have to be good at raising money. Pure and simple. If you're not good at raising money or closing people makes the hair on the back of your neck stand up, which it should by the way, but if that is a hard stop for you, then maybe do something else, because 100% you will raise money in this industry multiple times and you're going to have to be good at it to get the business to a point where it's self-sustaining. It's not impossible to get to the business to be self-sustaining, but you've got to have a very realistic roadmap in order to get there.

(28:55):

Now, there are also ways to build businesses where you're just securing product from a contract manufacturer, and that's a less capital-intensive way to start this thing up. There's some kind of a plan for anybody. I'm just saying, you got to have the stomach for it because it can be rugged. And then you have to be able to build a good team, maybe is the third thing that you really have to consider, because if you're going to be the product guy, so whatever goes inside the bottle, that's me. It's my palette, my taste preferences, the things that I think are quality, then great. Hopefully there's a lot of people out there that would agree with you, but you're going to have to have people that go out there and evangelize this stuff and sell it and understand how to...

(29:42):

In today's world, you have to be able to build a brand. You have to be able to have the consumer identify with your company somehow. You've got to be like the Apple or Patagonia of this industry. That's where people are very successful at that local area level we were talking before about having people come in and sit around their bar at the tasting room and then they get to tell them who they are and they can road-test that stuff. But at some point you've got to have somebody that can use a much larger megaphone to get that message out there, because at some point you're going to stop selling it in Dallas and you start selling it in Texas, so people in Austin, San Antonio, wherever you are, insert your state here, they'll have never heard of you. It's important to have a very clear-eyed vision of how to grow this thing and to get a team put together that are killers.

George Jagodzinski (30:34):

Yeah, that's good advice. The last one for you, advice that you've received in your life or career that you've personally received and implemented. What's the best advice you've received?

Mike Solow (30:44):

Most recently, I was reminded by somebody who has long since been one of my mentors to protect my time. In this line of work, it's really easy to get sucked down into a rabbit hole where something, it hasn't proven it deserves to live yet. I mean that in the nicest possible way. There are just so many opportunities to partner or work together or fund something or get involved in a business, and you have to be able to distill down the opportunities that are a good fit for you, that are a good use of your time, and are going to do the things you want them to do for your family, for your legacy. Not every business is ready for that yet. It's not a referendum on that business. It's just where that business is today.

(31:37):

It was nice to be reminded of that because, I'm a guy, for me, how that applies to me is I see these partnerships. If I see something, I'm already on the moon. It's easy to devote too much time to something that maybe somebody better than me for that should be doing that thing, and then come back to me and I'll do the things that I'm good at. That was a nice reminder to stay on the rails and stay focused on the things that are going to contribute to the legacy that I'm trying to leave and the type of person that I'm trying to be and the type of businesses that I'm trying to work on. In today's world where things move really fast, I think it's important to just take a beat and evaluate it, just make sure, should I be doing this now, or maybe there's somebody more in alignment for this business than me?

George Jagodzinski (32:29):

Yeah. Yeah, fantastic advice, and a great reminder for me, so thank you for reminding me, Mike, to protect my time. Also, I really appreciate you being here. Thank you.

Mike Solow (32:38):

Thanks, George. Yeah, this is fun.

George Jagodzinski (32:41):

Thanks for listening to Evolving Industry. For more, subscribe and follow us on your favorite podcast platform, and pretty please, drop us a review. We'd really appreciate it. If you're watching or listening on YouTube, hit that subscribe button and smash the bell button for notifications.

(32:54):

If you know someone who's pushing the limits to evolve their business, reach out to the show at evolvingindustry@intevity.com. Reach out to me, George Jagodzinski, on LinkedIn. I love speaking with people getting the hard work done. The business environment's always changing, and you're either keeping up or going extinct. We'll catch you next time, and until then, keep evolving.