Cover Story: Lessons learned

COVER STORY :: LESSONS LEARNED

Real life

Three local business owners share tales and tips

by Sarah Brouillard

A KEYNOTE PANEL of local luminary business owners shared stories about how they built their companies ? and the lessons they?ve learned along the way, at the Upsize Small-Business Summit on April 21.

They are Mark Stutrud, founder and president of Summit Brewing in St. Paul; Laurie Brown, founder and president of Restore Products in Minneapolis; and Alberto Monserrate, founder and CEO of LCN Media in Minneapolis.

Mark Stutrud, founder and president of Summit Brewing, launched the St. Paul-based brewery 22 years ago in a 7,500-square-foot transmission shop on University Avenue, amid great skepticism in the neighboring business community.

Not only did people think they were ?deviants,? he says, but ?we found out later there was a pool going on down the street, wagering we wouldn?t last longer than six months.?

The company carved a niche by brewing and selling old-fashioned, traditional styles of beer that were around in the days before Prohibition.

Though it?s an expensive production model, brewing on a small scale ensures fresher beer, as inventories are turned more quickly. It?s also a more cost-effective approach to introduce new products into a marketplace, he says.

Back then, the upstart brewery had a capacity of 3,000 barrels per year, with an actual production of 1,500 barrels a year. That first year of business it grossed less than a half million dollars in sales.

Stutrud put his critics? doubts to rest by quickly expanding. He acquired the lease of a nearby building across the alley, tripling the brewery?s square footage, and boosting production up to a maximum of 34,000 barrels a year.

The brewery, however, became landlocked at its location. When it started running out of beer to meet demand, putting itself at risk of alienating customers, Stutrud launched plans to build a newer, larger facility.

The company?s current headquarters, located in the Highland Park neighborhood of St. Paul, was the first brewery to be designed, engineered and built from the ground up in Minnesota in 75 years.

The construction of the 58,000-square-foot state-of-the-art plant turned into a challenge. Built during a hot market in 1998, there was a dearth of qualified workers to handle the specialized work the project required.

?It got to be pretty drawn out,? says Stutrud. ?It led to being over budget and a bit more leveraged than we wanted to be by the time we moved in.?

To date, the building has been an investment of $22 million.

With a larger facility to support growth, Summit Brewing increased its capacity to 120,000 barrels and grew its workforce to 51 employees. Stutrud says he will sell at least 90,000 barrels this year, with 87 percent sold in Minnesota.

All along, his business plan has been to sell at home, ?to add to the quality of life.?

The company has also built and maintained strong relationships with distributors.

During the company?s first 10 months, it self-distributed. Today, all of Summit?s beer is delivered by distributors, who also sell competitors? products.

?These distributors are inundated by every other supplier and, particularly, the big boys, to make sure that their attention span is only directed to those suppliers,? he said.

Stutrud has distinguished itself from the crowd by boosting ? not diminishing ? distributors? margins.

?Distributors enjoy a pretty respectable margin on our beers,? he says. ?Although it may be a lower volume, it?s much more profitable.?

Summit also has a policy of not undercutting distributors with promotions, as is common in the industry.

When kicking off new brands or launching promotions, large brewers often expect distributors to co-op or share in quite a few of these costs.

In a crowded marketplace, Summit has resorted to employing 16 out of his 51 employees ? an unusually high ratio ? as sales representatives.

?We have to be very active, quite aggressive in terms of securing new business and maintaining existing business relationships.?

The company works at the retail level as well, connecting with customers operating liquor stores, taverns, restaurants and nightclubs.

Early on, the company relied on guerilla marketing as a tactic to capture consumers? attention.

Stutrud had friends go into bars that didn?t offer Summit ? and ask for it specifically. They?d often leave behind coasters and marketing collateral, ?anything that would generate word of mouth.?

?We did whatever we could do to make that call, create that order,? he says.

The company also took an innovative approach to garnering good public relations. During a summit held between President Ronald Reagan and former Soviet leader Mikhail Gorbachev, the company sent a case of Summit to the White House, delivered by former Senator Dave Durenberger.

A letter contained the message: ?Put away the nukes, drop your dukes and have a cold one on us.?

The current economy has been a challenge for the industry, which runs counter to most people?s notions, says Stutrud.

?People believe beer is recession-proof, but it is vulnerable, being at the upper end of the spending spectrum among consumers.? People watch their budgets. With the rise in fuel prices, the cost of Summit?s raw materials has doubled in the last 20 months.

There?s also been a significant consolidation of the distribution tier.

In the Twin Cities, ?it?s getting to the point where you?ve got basically three large distributors and then some smaller ones that are hanging in there.?

Stutrud urges business owners not to overthink their decisions.

?It?s important during this entrepreneurial experience to maintain a state of being na?ve ? not in personal relationships, but in taking risks,? he says. ?It?s just not possible for us to predict the future and we don?t know what?s around the corner.?

Laurie Brown founded Restore Products, a manufacturer of environmentally friendly cleaning products, in 2001. But the business actually emerged from a retail store called Restore the Earth she had founded 10 years earlier.

She had planned to franchise the predecessor company, but found the model wasn?t ?replicable,? she says.  ?It wasn?t keeping its market niche because environmental products were going mainstream so quickly.?

When the company closed in 1998, she got through the ordeal by making a contest out of the process of liquidating her wares.  The challenge that she posed for herself was, ?How much can I liquidate at this value, how much can I liquidate at that value, and try to get the biggest gain, and work hard, and take it a day at a time.?

Brown salvaged her main assets ? 24 formulas and 14 cleaning products, made primarily of plant-based and bio-based materials, such as corn, soy, coconut and orange ? and started anew.

This time, she focused on the concept of the ?refill station,? a patented machine that automatically refills plastic bottles of soap, detergent and cleaning fluid, and Restore Products? delivery system for grocery stores.

“You could say I have a little store within a store now.”

Customers can refill their empty bottles at any of 25 Restore Refill Stations in six states, rather than purchase brand-new bottles that often end up in landfills.

Brown developed the machine after years of experience with pumping bulk fluids from messy, awkward tanks.

She?s hired a retired Honeywell patent attorney on a contract basis to safeguard all the company?s intellectual property, which includes three patents and several pending for the technology, and trade-secrets for all the recipes.

Hiring one man, instead of a law firm, not only saved her company money, but it ?really helped us to fly kind of under the radar from the bigger companies, since most Minneapolis firms do work with some of our major potential competitors.?

With hers being the only company offering such a delivery system, Brown says she plans to take the concept to her competitors' brands, essentially turning them into customers. Her hope is to sign the company's first licensing agreement by mid-year.

Today, eco-friendly products are all the rage. ?Sustainability is really at a high point right now,? she says.

Years ago, consumers assumed the term ?plant-based? referred to some industrial plant in New Jersey; now they naturally assume it means nature-based.

Since Brown opened her original store in 1991, corporate America has also gotten on board. She?s witnessed the proliferation of well-shopped 200-plus Whole Foods Market stores; aisles at Home Depot reserved for compact fluorescent light bulbs; and the creation of the LEED (Leadership in Energy and Environmental Design) certification for the construction of so-called green buildings, among other changes.

The watershed moment, she says,  was Walmart?s decision in 2007 to put in place environmental initiatives that should reduce packaging by 25 percent within three years.

?That declaration was kind of the domino that probably caused the next domino to fall,? which was large companies ?primarily manufacturers ? taking a vested interest in eliminating waste and taking a conservational approach to their business practices, she says.

?We?ve been a little bit ahead of our time,? says Brown. ?But entrepreneurs are so often ahead of their time.

?It doesn?t feel that way to us because we live a little bit in the future ? that?s what makes us think of new ideas. So sometimes we feel like we are in time, and then the world is giving us feedback, ?No you?re not.??

It?s easy to get discouraged, but when timing finally catches up with us, ?you realize, thank goodness you stuck with it.?

Alberto Monserrate, president and CEO of Latino Communications Network Media, worked as a financial adviser early in his career.

Over time he noticed his client profile was increasingly Latino. The statistics, he says, back up his anecdotal evidence: Between 1990 and today, the Twin Cities has grown from 67,000 to more than 250,000 Latinos.

Recognizing a significant business opportunity, Monserrate founded Latino Communications Network Media in March 2000, starting with three employees, two founders, a part-time assistant, and a focus on knowing the Latino audience and readers better than any other media company, he says.

By the end of 2000 the company had $60,000 in revenue and one monthly Spanish entertainment magazine with a circulation of about 5,000.

?Our persistence,? and having a banking and business partner in Milestone Growth Fund in Minneapolis, which provides equity-type financing to minority-owned companies, have been two key factors to the company?s success, he says.

 Before getting funding, he was instructed to build a more solid company ? a process which took a year and a half.

?Esperanza Guerrero-Anderson believed in our business when no one else did,? he says, referring to the founder of Milestone Growth Fund, now retired.  ?We learned from her that cash is king, how to grow by acquisition, and how to add events promoted by our media. These have been the keys to our success.?

Through acquisition and other means he has added several titles to his growing stable of publications. Altogether, he has two radio stations, AM 1400 and AM 1470; three weekly publications with a weekly distribution of 15,000 each; four Web sites with a combined monthly audience of over 50,000; and an events division that owns two major Latino festivals, a series of Latino networking events and several Latin music concerts a year.

But things haven?t always gone according to plan, he says. At first the company wanted to start with radio in 2000. When it couldn't find a station, the focus was shifted to print. Eventually a foray was made into radio in 2005.

Despite an original goal to expand across the region, the company has chosen to stay in Minnesota. ?It?s easier to manage,? said Monserrate.

The turning point was right after September 11, 2001, when the company hit a rough patch, and found itself teetering close to bankruptcy ? only a year and half after the company was founded.

He encountered such dire financial straits that he was forced to make mortgage payments with credit card checks, and lay off all employees except one who took equity to work for free.

Still, Monsserate went forward with steps to buy 100 percent of Latino Yellow Pages directory, ?which later became our cash cow.?

He also bought 100 percent of Vida y Sabor (previously the company had owned 60 percent), and 100 percent of a weekly Spanish newspaper.

?All this ? and Esperanza?s advice ? helped turn our company around,? he says.

By the end of 2008 the company will have 30 employees working in two countries (the United States and El Salvador) with close to $2 million in projected revenue.

?My biggest surprise,? says Monserrate, ?is how hard yet fulfilling it was to start and grow a business.?

[contact] Laurie Brown, Restore Products: 612.331.5977; la****@*************ts.com; www.restoreproducts.com. Alberto Monserrate, Latino Communications Network Media: 612.729.5900; al*****@******ia.com; www.lcnmedia.com. Mark Stutrud, Summit Brewing: 651.265.7811; ms******@***********ng.com; www.summitbrewing.com