Big Sky

Big Sky

The BSBC was founded in Missoula, Montana, in 1993, by Neal Leathers and Bjorn Nabozney. BSBC quickly grew as a successful brewery. As the company's sales expanded, the owners asked the Montana Business Capital Corporation (MBCC) to assist them in trying to acquire capital for developing in-house bottling capabilities through the USDA Business and Industry Guaranteed Loan Program. Tom Swenson is the president of MBCC. BSBC's first USDA application was turned down, and it needed to reapply before new census data was approved and the company no longer would qualify for the USDA program. BSBC's four-page summary business plan that was submitted with the USDA application was not adequate, and the founders were trying to determine what should be included in the new one.Until March 1, 2000, BSBC only sold its beer in kegs, and it was projected that its expected bottled sales would account for up to 80% of its future earnings. In March, 2001, BSBC signed with Portland Brewing Company (PBC) to bottle its beer. BSBC's products are in high demand, and it had to start turning down orders from some largest retail chains such as Costco. BSBC's beer sales come from four brands: Moose Drool Brown Ale, Scape Goat Pale Ale, Powder Hound Winter Ale, and Slow Elk Oatmeal Stout. Moose Drool accounts for 80% of BSBC's total sales. BSBC also sells its beer-related merchandise. BSBC's main competitors are Bayern (Missoula, Montana), Deschutes (Bend, Oregon), and New Belgium (Boulder, Colorado). Others include Redhook, Pyramid, and Full Sail. New Belgium is the largest of the seven competitors. Among its competitors, BSBC is the only one that does not bottle in-house. BSBC's products are normally priced at a level similar to those of Deschutes and New Belgium (a six-pack retails for $6.49). In 2000, BSBC ranked 22nd in share of segment for craft breweries.

Neal Leathers, President and Founder, has been involved with the micro-brewery business for 15 years, and has a B.A. in Telecommunications from Michigan State University. Bjorn Nabozney, Vice President and Founder, wrote the original business plan for BSBC while attending the University of Montana, he received a B.S. in Finance. His primary responsibilities include beer sales and marketing, project implementation, equipment evaluation and purchasing and long-term planning. Kris Nabozney, Vice President, has been with BSBC since 1995. He is responsible for production operations, quality assurance, and long-term planning, and he holds a B.S. in Management from the University of Montana. Brad Robinson, founder, has been involved with brewing since 1985. His responsibilities include advertising, retail and wholesale merchandise purchasing and management, public relations, and long-term planning. He has a B.A. in Zoology from the University of Montana. Matt Long, head Brewer, has been with BSBC for about five years, and was named to his present post in 2000. He holds a B.A. in Microbiology from the University of Montana, and he graduated from the six-month brewing course offered by the American Brewers' Guild. During his tenure at BSBC, the company has won numerous awards for its handcrafted beers. Kevin Keeter, Bottling Line Manager, has been a professional brewer for over 10 years and is set to play a key role in the upcoming expansion of BSBC. Chad Hana, Regional Sales Manager, was experienced in this area before joining BSBC. Most of PBC's bottling capacity is devoted to its own portfolio beers, and BSBC's 18,000 barrel maximum production contract with PBC states that BSBC must place orders a minimum of six weeks in advance, allows access to its bottling line every third week, calls for minimum orders of 1.750 cases, and requires that one or more of BSBC's management team must visit Portland bi-weekly. One or two BSBC management team members would have to travel to the PBC every second week at a cost of $1,000 each, in addition to the lost work time. In addition, penalties must be paid for long-term storage. PBC's contract with the BSBC stipulates payment terms of net 20, and the one within-house brewer calls for payment terms of net 30. The in-house operation calls for constructing a 30,000-square-foot facility to complement the 8,000 square feet currently in use. Over $1.3 million dollars of brewing equipment would have to be purchased. Enough land would be purchased to allow BSBC to double its size. The new facility would allow BSBC to bottle every week, to produce smaller orders of 450 cases, and to reduce its lead time on orders from six to two weeks. Only one employee has left BSBC since its founding. BSBC estimated that the new facility would create an additional 22 jobs--an increase from the 14 currently employed. In the past, the Montana Business Capital Corporation has been successful in helping its clients use the USDA's Rural Business Cooperative Service Business Program (RBSBP), that often services business and credit needs in under-serviced areas. Tom Swenson, of MBCC, hopes to use RBSBP's Business and Industry Guaranteed Loan program for BSBC, because it guarantees up to 90 percent of the loan made by a commercial lender. BSBC's expansion project requires a total of $2.6 million, and it would come from the following sources: $350,000 from an equity infusion from current investors; $2.0 million from a USDA RBPBP Business and Industry Guaranteed Loan; $150,000 from a Missoula Area Economic Development Corporation Loan; and $100,000 from BSBC's cash reserves. The expansion project is expected to result in total company sales of $6.8 million and a net income of $581,000 by 2004. The projected interest rate for the loan would be 3.125 percent and, if BSBC did not get it, it would have to pay 10 percent. Currently, the owners think they should earn about 30 percent on equity investments. Swenson suggested a break-even analysis should be conducted to illustrate any increases in operating risk associated with in-house bottling. BSBC's depreciation, interest expense, and general administration expenses are predominately fixed costs in the near term. A large portion of manufacturing costs (rent, leases, salaries, maintenance, and some utilities) also are categorized as fixed. Swenson, Leathers, and Nabozney agreed they need to assess what components might be missing on the team, and they also indicated they needed to do a better job of analyzing the market.

Swenson, Leathers, and Nabozney must first address strategies for managing the company's risks and flaws. Outsourcing is a significant problem that BSBC must analyze first. In 2001, BSBC signed with Portland Brewing Company (PBC) to bottle its beer, giving BSBC an 18,000 barrel maximum production and a minimum order placement period time of six weeks for bottling. Marketing researchers for BSBC failed