Notes From: Jim Koch. “Quench Your Own Thirst.” iBooks. (Chp. 4-9)

November 5, 2016 

“After figuring out the “better or cheaper” principle, I recognized an important corollary: The size of your business is defined by the number of customers who care about getting either the higher quality or the lower cost, as well as by how much these customers purchase.”

November 5, 2016 

“I INCORPORATED BOSTON BEER Company on July 2, 1984. My first important task, one that only took a few weeks, was to secure funding. I calculated that I needed $250,000 to start the company.”

November 5, 2016 

“I signed a one-year lease for $80 a month for warehouse space in the old Haffenreffer Brewery, which had been the last operating brewery in the city of Boston. Since the brewery’s closure in the mid-1960s, the building had fallen into disrepair and had been largely abandoned. ”

November 5, 2016 

“I had a warehouse, but with only $250,000 to work with, I knew I wouldn’t be able to build my own brewery. My dad came up with a great solution: “Jim,” he said, “there are plenty of good breweries out there with excellent quality control that aren’t working to their full capacity. Why don’t you rent time in one of them and brew your beer there? That will give you a foothold until you have the capital to build a brewery of your own.”

November 5, 2016 

“Contract brewing would make my start-up leaner, and it would also be better for the beer, since a quality established brewery would have a much better brewhouse, cellars, and laboratory that I could use. In addition, our recipe is complex, and my father and I knew we needed a traditional brewery with modern quality control to maintain consistency from brew to brew.”

November 5, 2016 

“Through a BCG contact, I arranged a meeting with Arthur F. F. Snyder, a vice president at U.S. Trust Company. Art was your classic, crusty old Yankee banker right down to the suspenders. ”

November 5, 2016 

“Before I could get very far, he stopped me and said, “Jim, I have some bad news. You can go to as many banks as you want, but nobody is going to lend you any money.”

November 5, 2016 

“Because we’re a bank, and we don’t get paid to take risks. ”

November 5, 2016 

“With banks out of the picture, I went to see whether a friend of mine at a venture capital firm would help. He looked at the business plan and proclaimed he wasn’t interested. When I asked why, he said, “Well, we need to invest in businesses that have at least a reasonable possibility of returning ten times what we put in it. We make ten investments a year, knowing we’ll lose our shirts on five of them. Four of them might break even or make double our money. We need one that will allow us to make a healthy return—say, ten times our money. ”

November 5, 2016 

“I had known from the outset I wanted a partner, since my father had always told me how good it was to have someone with whom to share the highs and lows. I also felt that a partner could contribute some of the skills I didn’t have and perhaps have a personality that complemented mine.”

November 5, 2016 

“ Then it hit me: The resumés accumulating on my assistant Rhonda’s desk weren’t the solution. Rhonda was the solution!”

November 5, 2016 

“Rhonda Kallman’s presence at BCG was a great testament to the way BCG cherished talent. Serving as admin assistant to not one, not two, but seven people, she was smart as a whip, a fast learner, and a good listener. She didn’t have a bachelor’s degree, but that didn’t matter; I had plenty of degrees. Rhonda had something I did not, something they don’t teach at Harvard Business School: Rhonda liked bars and she liked people. She was a very determined person—“force of nature” comes to mind. She understood people and what motivated them. She understood bartenders and servers. Plus, she was single and in her early twenties. Bars were her natural habitat.”

November 5, 2016 

“Confident and self-possessed, she knew how to handle the hyper-achieving, high-anxiety, Type-A business consultants at BCG. With her sharp sense of humor, she had a knack for making people feel comfortable so that they did what she needed them to do, often without even realizing it.”

November 5, 2016 

“Her skills aside, I knew it would be fun to go to battle with her on my team. I first broached the notion of a partnership to her during the spring of 1984, just before I incorporated the company. I had not yet worked out many of the specifics of our operations, so I suppose my offer came across to her as vague or overly idealistic or stupid. She didn’t definitively say no, but she made it clear that she was not interested; she valued the stability of her job with BCG and the fun of bartending on the side. She also had serious doubts about whether my idea of a richer, full-bodied, craft-brewed beer would fly. “Jim,” she said, “nobody drinks your kind of beer. They drink light beer. There’s no room for little guys in the beer industry. I doubt we’d even serve it in the bar where I work.”

November 5, 2016 

“We like to think of America as a pure meritocracy, a place where the best talent always wins out. Yet in many cases, the best candidate doesn’t get hired; the candidate with the best education or the best resumé does. Many companies, beholden to what is essentially an education-based caste system, would never consider Rhonda, who had an associate’s degree in secretarial science, for the same job as a Stanford M.B.A. ”

November 5, 2016 

“PERSUADING RHONDA TO JOIN Boston Beer was my first sales call and, to this day, probably my most important one. Her value to the business became clear immediately, when we sat down together in a bar to sketch out our initial sales efforts.”

November 5, 2016 

“Among bars and restaurants, we would target places that sold significant quantities of imported beer and were the best at what they did. ”

November 5, 2016 

“ We wanted to be in a premium place like the Ritz-Carlton, but also in the best neighborhood pubs in Boston and the best dive bars—essentially, all the places that offered Bostonians the most authentic, high-quality drinking experiences.”

November 5, 2016 

“A START-UP ENTREPRENEUR has to juggle a lot of balls. You’re not really a chief executive officer, because there’s nobody but yourself to execute. The CEO title takes on a new meaning. You’re the chief everything officer. In my case, starting a beer company required I handle a dizzying array of tasks.”

November 5, 2016 

“My previous efforts at home brewing hadn’t produced anything memorable except my first wife’s dismay. Now that I had the recipe from my father, I got serious and started experimenting in our kitchen. ”

November 5, 2016 

“ Not every batch was successful. On one occasion, the beer exploded in our basement. When you home brew, the final step is to fill the bottles with fermented but flat beer, prime them with a precise amount of sugars, cap them, and let the carbonation build up as the yeast eats all the sugar. I was making an all-malt beer, so I was using maltose instead of sugar, and I miscalculated how much I needed. In a few days, the bottles started exploding: Pop! Pop! Pop! Pop! They sounded like muffled grenades. Oh, man, I thought. I went carefully downstairs and saw that only a few of the bottles had exploded.”

November 9, 2016 

“A lot of start-up stories talk about the lone genius founder toiling away in solitude until he has perfected his product and then emerging to dazzle the world. Those stories don’t ring true to me, and they weren’t my story. I wanted to make uncompromisingly great beer, and I knew it would be a better beer if I had the help of the best brewmaster in the world.”

November 9, 2016 

“Given all that Joe had accomplished, I felt he was the ideal person to help me re-create my unique beer. When starting a business, there is probably one thing in a hundred where you need to be the best in the world. The other ninety-nine things, you can be pretty good at. For that one thing, though, it’s vital that you get the very best person in the world to mentor you and help you achieve perfection. You know Yoda from The Empire Strikes Back? You need a Yoda.”

November 9, 2016 

“There’s a story about a ship whose boilers were not working right, and nobody knew how to fix them. They found a world-famous expert who came in, banged on a pipe with a hammer, and made the boiler come back to life. “That’ll be $10,000,” the expert said.

The ship’s captain was beside himself. “Ten grand? For banging on a pipe? That’s an outrage! Send me a bill that justifies the expense.”

So the expert sent a bill. He charged $1 for hitting the pipe, and $9,999 for knowing which pipe to hit.

Joe was like that. He knew which pipe to hit, and in exchange for that kind of knowledge and expertise, I paid him as much as I could muster ($7,500 for his services for all of 1984) and gave him 2 percent of the company. He more than earned his keep.”

Notes From: Jim Koch. “Quench Your Own Thirst.” iBooks. 

Check out this book on the iBooks Store: https://itun.es/dk/it2x-.l

Bill Gates Full Interview - The David Rubenstein Show - 17 Oct 16 | Gaz...

Notes From: Jim Koch. “Quench Your Own Thirst.” iBooks. (Chp. 1-4)

October 2, 2016 

“ Driven by further innovations like Angry Orchard hard cider, Boston Beer’s 2015 revenues have reached nearly $1 billion. That might be an impressive-sounding number, but Samuel Adams is still only about 1 percent of the overall U.S. beer market. That’s right; it took us thirty years to get to 1 percent. We started at invisible, grew to infinitesimal, got to minuscule, and moved to tiny. In 2015 we can proudly say, “We finally made it to small!”

October 2, 2016 

“ Never did I think I’d get to drink some 24,000 beers as part of my job. Never did I think my work days would be so diverse and engaging, and that they would include tasting experimental brews, presiding over weddings at our brewery”

October 2, 2016 

“Throughout my childhood, my dad’s mantra was: Every problem has a solution. This optimistic yet pragmatic perspective helped my dad overcome any fears he might have had as he started his own business—and, I might add, it helped him in the rest of his life, too. ”

October 2, 2016 

“As a kid, I watched my dad’s pragmatic optimism in action every day. But I didn’t just soak it in; I put it into practice myself. When the washing machine broke, Dad and I went down to the cellar with a toolbox, took the thing apart, and figured out what was wrong. ”

October 2, 2016 

“We enjoyed our share of family activities, but the ones I remember most growing up had to do with work, not play. No job was a “dirty” job; all work was worthwhile and valued as a craft. One year my family and I planted thousands of Christmas trees on our farm. Other times my brother and I went to my dad’s company and helped him fill drums of chemicals. ”

October 2, 2016 

“All these chores and jobs forced me to solve problems, and to rely on my own resources to do it. When obstacles arose, I thought, Okay, there’s a solution out there. Maybe I can’t see it, but it exists. I have everything I need inside me to find it. If I try hard and still don’t see the answer, then maybe I need to start fresh. Eventually, I will see it. Every problem has a solution.”

October 2, 2016 

“By the time I reached my mid-thirties, starting a company didn’t seem fundamentally different from any other practical task I’d attempted. I wasn’t terrified at the prospect of leaving stability and familiarity behind, because I knew things would work out.”

October 2, 2016 

“The year was 1973. I was twenty-four years old, and instead of working toward something I cared about, I had enrolled in graduate school, a dual J.D./M.B.A. program at Harvard. I had gone to Harvard as an undergraduate, and now I felt like I was in “nineteenth grade,” sequestered in what was essentially a womb with a view. ”

October 2, 2016 

“I felt trapped, like I was floating down a pounding river. If I continued on toward graduation, I would be routed onto a life stream I didn’t want. ”

October 2, 2016 

“I wrote letters to the deans of Harvard Law School and Harvard Business School, telling them I was dropping out. They urged me to reconsider, since I would have to reapply for admission if I wanted to return. But I had decided. I didn’t want to go where the river was taking me.”

October 2, 2016 

“Over the next three years, I was at Outward Bound schools in the mountains of Colorado, the desert in Texas, the mountains in Oregon, the lakes of Minnesota, and the rivers and mountains of British Columbia.”

October 2, 2016 

“In retrospect, that’s kind of what I was doing with my life—charting my own path. It may have seemed like I was a “dropout,” and in a literal sense I was. I was moving in no particular direction, toward no particular goal. ”

October 2, 2016 

“Should you change something big in your life? Should you switch departments or take on a new role? Should you quit your job and start a business? I can’t tell you that. What I do know is you shouldn’t settle when it comes to work and career. If you’re going to work hard, you should find it satisfying and meaningful. Work is too much a part of your life and identity not to. ”

October 2, 2016 

“BACK IN 1983, when I started thinking about starting my own business, I had no idea what it would be. It’s not like I had always been obsessed with beer. Sure, beer was a fairly strong presence in our family life when I was growing up; I visited breweries with my father on many occasions, and, in keeping with our German heritage, we kids were sometimes given a little beer with dinner. But that didn’t translate automatically into an irresistible business idea. ”

October 2, 2016 

“I loved the intellectual challenge of consulting, but the constant business travel had gotten to me. I wanted to see more of my family while doing something I enjoyed, something that was meaningful.”

October 2, 2016 

“I had been home brewing off and on for a few years, seeing it as a way to feel connected to my family’s heritage (President Jimmy Carter had only legalized home brewing in 1978 and it hadn’t yet become popular). I understood the basics and, having worked with manufacturing processes at the consulting company, I also thought I had a basic understanding of what was required to brew great beer consistently and on a commercial scale.”

October 2, 2016 

“I realized that I would face several challenges in getting this business off the ground. First, I would have to persuade drinkers to pay a premium for a beer that was richer and more flavorful than the pale, bland beers that were then as ubiquitous as Coke and Pepsi.”

October 2, 2016 

“Next, I would need to demonstrate something far more difficult: that an American brewer could brew beer that was as good as or better than the pricey European brews.”

October 2, 2016 

“If I could overcome all of these hurdles in educating drinkers, then the real Beer 101 would start. I would need to teach drinkers about the importance of brown bottles over green (to protect the beer from the damaging effects of light), about the reliable freshness of our product, and about quality ingredients and brewing practices. If I could teach drinkers all that, then, I thought, they would seek out a beer brewed in America using the world’s best ingredients and packaged to protect the integrity of the beer.

My idea boiled down (no pun intended) to three basic phases: Make great beer. Give it to people fresh. Find customers.”

October 2, 2016 

“We build all these frameworks, models, and modes of understanding to organize and explain what we experience. But there are always discrepancies or inexplicable truths, if you will, that fall outside our models. Our knee-jerk response? Either ignore these inexplicable truths or explain them away inelegantly.”

October 30, 2016 

“ Most commercial activity operates within the accepted paradigms of how the world works, with companies making incremental improvements in cost or quality. Entire industries are built around expanding and tweaking the accepted paradigm, and attempts to challenge the accepted paradigm are almost always frowned upon or marginalized, dismissed as impractical or wrongheaded. The truth is that most of the value in an industry is created precisely by people who venture outside of conventional wisdom. You know the people I’m talking about—the ones who embrace those wondrously creative, “holy shit” moments and who go on to do what most people didn’t expect or even think was possible.”

October 30, 2016 

“As a management consultant, I always took a special interest in the outliers in any industry. We would draw graphs to prove general rules, like the bigger the company, the larger the profits, or the faster the equipment ran, the lower the cost—stuff like that. But in processing the data, we always had certain data points that were off the line. Most people looked at the graph and saw the general rule, but I liked to observe and wonder at the weirdness of the outliers. Everybody already knew the general rule—that’s why it was the general rule. For me, the real opportunity lay in understanding the outliers, since these phenomena reflected activity that people usually ignored.”

October 30, 2016 

“As you tune in to listen for your great business idea, don’t get too influenced by what most people in an industry or a field say you “need to do.” Go your own way. A new business is built on a different and better approach than what’s already out there. And it’s okay to enter a field you know only a little about, because that little bit that you know can be key.”

October 30, 2016 

“You’ll of course want to look for skeptics who can help you test your idea. Some entrepreneurs fall so in love with their genius concept that they think they can’t lose. I get worried when I hear “all my friends love it.”

October 30, 2016 

“NOT LONG AGO, Harvard Business Review published an article on a two-decade-long study of thousands of businesses. The research revealed that there were precisely two rules of successful companies. The first rule: You succeed by adding value rather than reducing cost. The second: There are no other rules. I would add a third: If you can do both, you have a home run.”

October 30, 2016 

“ Price is important, but if that’s all you have to offer customers, then eventually you’re just a commodity and you hit a dead end in the market. You’re stuck always trying to be the lowest-price provider, cutting corners to reduce your costs. Somebody can always underprice you by cutting more corners.”

October 30, 2016 

“As I began to think about starting my own company, I was determined that any enterprise I created would clear a place for itself in the market by doing something better than its competition. That’s where all the passion and excitement in business was. We wouldn’t just ask customers to pay more; we would give them a good reason for doing so. In crafting your business plan, be brutally honest: Are you really providing a better product or service than what’s out there? Does anyone truly care? If so, can you do it at a price point that enough customers will find palatable?”

Notes From: Jim Koch. “Quench Your Own Thirst.” iBooks. 

Check out this book on the iBooks Store: https://itun.es/dk/it2x-.l

Ben Graham vs. Northern pipeline: Notes from 'Dear Chairman'

The year was 1926, and Benjamin Graham was sitting in the Interstate Commerce Commission (ICC) reading room in Washington, D.C., studying Northern Pipeline Company’s balance sheet. Nobody on Wall Street—not even the brokerage houses that had followed Northern Pipeline for years—had bothered to look up the company’s public ICC report.Read more at location 260

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At a time when the stock market was little more than a betting pool, Benjamin Graham developed a value investing style based on rigorous analysis of company fundamentals. By focusing on companies’ intrinsic values, Graham and his followers were hugely successful at capitalizing on market inefficiencies created by the more speculative investing public.Read more at location 266

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Why was shareholder activism so rare in the early twentieth century? First of all, ownership at public companies was concentrated into very few hands—usually founders, family owners, or entrepreneurial financiers. This made it hard for outside shareholders to have any influence.5 Second, public companies shared very little financial information with shareholders. This limited investors’ ability to value companies objectively.Read more at location 278

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Graham saw both of these forces at play at Northern Pipeline. None of the other shareholders knew the company was hoarding so much capital, and the Rockefeller Foundation effectively controlled Northern Pipeline’s management through a 23% equity stake.Read more at location 280

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As for etiquette? When real money is at stake, etiquette goes out the window.Read more at location 285

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Graham was also one of the first professional investors to regularly employ shareholder activism as part of his investing strategy. Northern Pipeline was his first attempt at actively engaging a company’s management.Read more at location 292

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Almost forty years after his death, Benjamin Graham remains a towering figure in the investment world. While his investment partnership made him famous—Graham-Newman beat the market significantly over its twenty-one years of operation—Graham’s writings about investing and the tremendous success of his former students are his legacy.Read more at location 305

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Security Analysis (written with David Dodd) is a dense seven-hundred-page textbook with outdated accounting discussions and mind-numbing railroad bond analyses. But for some value investors, choosing between the 1934, 1940, 1951, and 1962 editions of Security Analysis is an act of self-expression in the same way music geeks identify with their favorite Velvet Underground record.Read more at location 313

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more than anything else, volatile markets are the downfall of aspiring investors. It’s easy to learn how to value companies, but you’re in trouble if you don’t understand markets and risk.Read more at location 319

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Mr. Market, lets you know every day what he thinks your share is worth. Sometimes he puts a sensible value on your share, but often he gets carried away by greed or fear and offers you a price that is far too high or far too low. Two things are certain: He is always willing to buy your stake or to sell you his at the price he quotes, and he never gets offended if you say, “No thanks!” Mr. Market will be ready with a new quote the next day.Read more at location 323

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There’s no reason that Mr. Market’s prices should influence your own view of what your share is worth. Yet in the real world, investors often buy and sell at the wrong times, because the market’s fluctuations affect their judgment. In rising markets, we are easily seduced into speculative buying. In falling markets, we risk losing our conviction to the prevailing pessimism of the moment.11 Graham wrote, “[P]rice fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies.”Read more at location 328

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This notion of a stock having an “intrinsic value” might seem trivial today, but in Benjamin Graham’s time it was a revolutionary idea.Read more at location 339

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WHEN GRAHAM ARRIVED on Wall Street in 1914, markets for corporate bonds and preferred stocks dwarfed trading in common stocks. TheRead more at location 340

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Instead, as Graham wrote in his memoirs, “this mass of financial information was largely going to waste in the area of common-stock analysis.”16 What really drove markets were rumors and inside information. A company’s stock might shoot up on speculation about an anticipated large customer order.Read more at location 349

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“To old Wall Street hands it seemed silly to pore over dry statistics when the determiners of price change were thought to be an entirely different set of factors—all of them very human.”Read more at location 352

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And before he decided to pursue a career in business, he weighed separate offers for teaching posts at Columbia University’s departments of philosophy, mathematics, and English.Read more at location 361

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Graham hadn’t known that pipeline companies submitted financial information to the ICC, and he assumed none of his peers on Wall Street knew, either. He quickly boarded a train for Washington, D.C.Read more at location 376

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They were horrified at the idea of just giving away their cash hoard to shareholders. After dismissing all of Graham’s arguments, they told him, “Running a pipeline is a complex and specialized business, about which you can know very little, but which we have done for a lifetime. You must give us credit for knowing better than you what is best for the company and its stockholders. If you don’t approve of our policies, may we suggest that you do what sound investors do under such circumstances, and sell your shares?”Read more at location 389

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Pennsylvania, a small town located ninety miles north of Pittsburgh. Not surprisingly, Benjamin Graham was the only company outsider to attend.Read more at location 401

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After the meeting’s regular business was completed, Graham stood up and asked the chairman if he could read a memorandum about Northern Pipeline’s finances. The chairman responded, “Mr. Graham, will you please put your request in the form of a motion?” Graham then made a motion that he be allowed to give his presentation.Read more at location 402

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The chairman asked the room, “Is there any second to this motion?” Graham had come alone via an overnight train to Pittsburgh and then via an uncomfortable local train to Oil City. Nobody in the room seconded his motion. Graham recounted their reply: “I’m very sorry, but no one seems willing to second your motion. Do I hear a motion to adjourn?” In a few seconds the meeting was over and Graham was sent packing to New York City.Read more at location 405

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Over the next year he would personally meet with every stockholder who owned more than 100 shares to discuss Northern Pipeline’s finances. If Graham could win the proxies of enough shareholders, he would control two board seats and would have a clear mandate in favor of distributing the company’s excess capital. His primary target was the company’s largest shareholder, the Rockefeller Foundation.Read more at location 410

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Graham said that he was not trying to interfere with Northern Pipeline’s operations, and that this was merely a question of allocating surplus capital. Cutler listened politely to Graham’s points but did not waver.Read more at location 426

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In proxy fights, shareholders can vote multiple ballots, but only the most recent one counts. Graham later described the scene: “The management group was surprised and discomfited to see how many of their own proxies had been superseded by later-dated ones given to us.Read more at location 431

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At the 1928 Northern Pipeline shareholder meeting, Graham and his lawyer won two of the company’s five board seats. They were the first outsiders ever elected to the board of a Standard Oil affiliate.26 Still, they held only a minority position on the board. Despite the strong message from shareholders in support of returning capital, Graham prepared for a hard fight with the other three board members about the company’s finances. No such fight materialized. Within weeks of the annual meeting, Northern Pipeline’s management presented a plan to distribute cash to shareholders.Read more at location 437

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In 2006, the Home Depot’s board of directors skipped the annual meeting altogether. On top of that, the company’s embattled CEO, Robert Nardelli, limited shareholders to one question each, with a sixty-second time limit enforced by goons in Home Depot aprons.27Read more at location 447

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Northern Pipeline featured a classic breakdown in the checks and balances of corporate power: a disinterested shareholder base combined with a board of directors dominated by key members of the management team. The company’s five-person board consisted of three members of senior management, including the president, plus two directors who were directly affiliated with the Standard Oil system.Read more at location 461

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Until Benjamin Graham started sniffing around, Northern Pipeline’s management was accountable to nobody. The company’s pile of cash and securities gave its managers a huge cushion that protected their jobs, and the income and status that came with them.Read more at location 474

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Northern Pipeline’s response to Graham was straightforward. A letter to shareholders signed by the board of directors stated, “We believe the whole position may be summed up in one question to stockholders—for the promise of an immediate distribution of cash assets, do you wish to place your Company’s management in the hands of those who have had no experience whatever in the management of such a technical business?”Read more at location 483

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Managers will be biased toward self-preservation, while shareholders are easily persuaded by short-term profits. In an ideal world, the board of directors is able to negate these biases, but, in reality, it often just defers to one side. The results can be ugly.Read more at location 491

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After he retired, Graham read Bernard Baruch’s memoirs, in which the famous financier describes his decision to quit his job and focus solely on investing his own capital. Graham wrote, “I recall smiling somewhat disdainfully in reading what I considered a lame and egoistical conclusion. How discreditable, I thought, for a highly gifted and enormously wealthy young man to dedicate himself totally to making a lot more money, all for himself.”Read more at location 553

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Benjamin Graham lived twenty full years after his retirement from the investment business. He traveled the world, testified before Congress on a variety of issues, served on the board of GEICO, and gave lectures about investing. He updated Security Analysis once, The Intelligent Investor three times, and published a translation of a Uruguayan novel. Graham even invented a slide rule and a clever system for memorizing Morse code. He kept in close touch with Warren Buffett, who helped organize regular retreats for Graham and his former students. In his later years, Graham lived part-time in France, where he died in 1976.Read more at location 565