Risks Specific to Texas Beer Co
The founders will transition from political grassroots marketing to managing, operating and leading a business. The strategy to mitigate this risk is to engage an appropriate group of successful and experienced advisors to assist the founders during the launch of Texas Beer Company (the “Company”).
This will require experienced brew masters, successful business executives, legal experts and marketing/branding specialists.
2. The City of Taylor, Texas, and its Economic Development Commission (the “EDC”), will be providing forgivable loans to the Company to help finance completion of the brewery. If the city or the EDC choose not to follow through on their commitment, it could adversely impact our business. Additionally, if we breach any of our obligations to the city or the EDC, we could lose a portion of our equipment, and potentially need to be evicted. The city could change its local regulations to prevent, or hinder, or ability to do business in the city, and moving to another location could materially and adversely impact our business.
The financials in the business plan reflect the founders’ best estimation of what is required to successfully launch the Company. The intention of the initial raise is to begin with enough capital that additional raises are not needed, but there are yet many unknowns and assumptions that may make this unfeasible.
Achieving positive cash flow as early as possible is critical. Without sufficient capital to handle unexpected challenges, the Company could fail even if sales are growing.
The competition in the Texas alcohol industry is growing quickly, and the window to enter the market before saturation may be closing. The craft brewing market in Texas is highly competitive with over two dozen breweries in central Texas alone. The Company’s current or new competitors may have better resources or spend more on marketing which may adversely impact the Company. Increased competition could result in a reduction in revenue or the loss of existing taps and stores, or market share.
Many of our potential competitors enjoy substantial competitive advantages, such as greater name recognition and larger marketing budgets, as well as substantially greater financial, technical and other resources, along with more experienced personnel. As a result, these competitors may be able to respond more quickly and effectively than the Company can to new or changing opportunities, technologies, laws, standards or customer requirements. For all of these reasons, the Company may not be able to compete successfully against its current and future competitors.
5. Texas’ 3-tier alcohol laws require us to hire a distributor once we reach 75k barrels per year, and even before that annual barrel production, the Company will probably need to hire a distributor to help scale up. The Company will be dependent on the distributor’s success in creating retail placement for the Texas Beer Company brand. Picking the wrong distributor could have long-lasting consequences. Additionally, the Company may not find a distributor willing to agree on terms acceptable to the Company.
6. The craft brew market could plateau, and the increasing competition will create an oversupply of craft brewed products. It may be impossible for our business to thrive if the customer base does not continue to expand.
7. Given that brewing costs heavily derive from natural ingredients, spikes in agricultural prices could slow production and materially and adversely affect our working capital and our ability to meet our budget. There is also an ever-present risk of product spoilage, requiring destruction of the beer product.
We have already secured its Texas Alcoholic Beverage Commission and Alcohol and Tobacco Tax and Trade Bureau permits for the pilot brew house on Main Street and is in the process of making the same permit applications for the expansion brew house at 1331 W 2nd St. If permits are delayed, additional costs could be incurred.
Furthermore, construction costs beyond expectation and budget may require additional fundraising or debt. Fire or other weather extreme could also destroy the property and our equipment.
9. Texas Beer Company has little to no evidence of market demand for the product outside of its tap room. We have not begun distribution and may not be able to obtain the number of taps and storefronts that the business plan anticipates, which could adversely affect our business.
We could experience difficulty in retaining management staff. The costs of hiring and training new employees may also prove a burden to the Company.
Though all staff will be required to sign non-disclosure and non-compete agreements, terminated employees could still steal trade secrets and the resulting legal fees could be substantial.
11. The Company’s brewing process involves a high amount of copper material, something which is often the target of theft.
12. Serving alcohol on the premises of Texas Beer Co property means we are at an increased risk of customer complaint or injury lawsuit. It is also a risk that a customer may leave the our premises intoxicated and be involved in a crime or accident.
13. As we develop additional products and trademarks, the we may face claims of infringement of various trademarks and intellectual property rights by third parties. In the event of a third-party claim against us, we may be required to pay substantial damages, to stop marketing the infringing product, to develop non-infringing technology, and to obtain licenses, which could result in us paying substantial royalties. We may not be able to obtain licenses from other parties at a reasonable cost, or at all, which could cause us to expend substantial resources, or result in delays in, or the cancellation of, new kinds of beer products.
14. Local, state or federal laws, especially Texas’ state alcohol laws, may change in a manner that adversely impacts the Company’s business. As a result, we may be required to spend additional capital to change our business to be compliant with such changed legislation. This could adversely impact our working capital and our business plan, and even require us to cease operations.