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Home Back Issues October 2008 Q&A: Irene Firmat, co-founder and CEO, Full Sail

Q&A: Irene Firmat, co-founder and CEO, Full Sail

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Archives - October 2008
Wednesday, October 01, 2008


IreneFirmat

You produced 287 barrels of beer your first year and grew to 120,000 last year. How many barrels of beer will you produce this year?

We will do 130,000 barrel this year. Our first year we did 287 and those 287 were the hardest ones. It was very manual. We had a steep learning curve. We have some photographs from the first bottling and it’s really only 30 cases. We only got through 30 cases. It took us like 16 hours. By that point I didn’t want anything to do with beer. You’re living it, smelling it; you’ve got it in your skin.

What made you decide to open a brewery?

I was a buyer for Meier & Frank, so I came into it from business experience. My partner came at it from a sales perspective. He worked for a wine and beer distributor. We had a brewer, and pretty early on his wife got pregnant with triplets and was on complete bed rest. We were working 80 hours a week at Full Sail and it wasn’t going to work for him any more. So I started looking at resumes and most of them were MBAs who wanted my job. I was looking for something completely different from that. Then I came across this resume that said, “My objective is to master the art and science of brewing,” and I said that’s my guy. That is perfect. That is just what you want. So I called him up. He had graduated from Siebel’s in Chicago (Siebel Institute of Technology) and he had a potential job in Indiana where he was from but I convinced him to come out to the Northwest. I was convinced that as a 25-year-old guy of course he would fall in love with the Northwest instead of Indiana. And it turned out he did, so we ended up having a really great technically skilled brewer, which was an enormous advantage for us. As we grew we had somebody who really understood the brewing process. That was a huge difference from someone who was a home brewer and had to learn how to ramp up. And just to be truthful, we ended up falling in love and getting married and he is now my husband. (She laughs.) It worked out great.

What was your original vision for Full Sail?

This was 1988 so things were just starting to happen with craft brewing. We saw Widmer and we saw Red Hook and we were so into it and we thought it was so extraordinary. We loved the beers and we loved the whole romance of it. But what we saw was it was all draft beer. Nobody was bottling. For us bottling made so much sense because you want to go to Fred Meyer and Safeway and take your six-pack to a party and bring it back home and share it at that different level. That was a whole huge part of the business that nobody was getting into, and because we were more comfortable with that side of the business, we really pursued it. We were the fourth brewery to start in Oregon, Portland Brewing snuck in just before us, and I remember thinking, O Jeez, we just made it. And when Gary Fish opened Deschutes, I thought, good luck to him, but I think he’s kind of behind the curve. And all of a sudden how many breweries are there in Oregon? I think it’s over 90.

But it really was a feeling of, it was new, it was delicate. It was so fragile. We were trying to convince people that it made sense to have a small, local brewery, and that we were doing a product that was different and deserved a place in the whole beer world.

Why Full Sail as a name? Why Hood River as a location?

One was logical and makes a lot of sense and makes us look really smart. The other has to do with luck. Hood River was because there were already three breweries, two and one coming, in Portland. We wanted an identity outside of all the Portland breweries and we looked at locations that made sense from a freight point of view, which Hood River certainly does, right off the interstate. We liked the romance of it. It was just on the cusp of the windsurfing and all the orchardists. But it was also a very depressed town. All of the timber money had withdrawn. So there was a lot of economic support for new business. We got an SBA loan that was specifically targeted towards depressed counties. So it made sense to choose Hood River and I am thrilled that we did. It has worked really well on all these different levels for us.

Full Sail on the other hand is completely different – our original name was Sasquatch. And we got a letter from Ken Grossman at Sierra Nevada and his attorney, saying they thought it was an infringement because they do Bigfoot, a barley wine ale. We couldn’t launch a company with this cloud hanging over us. We’re starting the brewery and getting the financing, we quit all our jobs already, we’re going through the licensing process with the TTB (the Alcohol and Tobacco Tax and Trade Board) and we have no name. At a certain point, I need a name. We had gotten to know these guys at the TTB quite well by this point because they had not licensed a brewery in 40 years. We had conversations all the time. And one day this guy from the TTB Bernie calls me up and says we’ve been talking at the office about your name. And I thought, great. Federal bureaucrat. Great marketing service. And he said, I think we have a good one. I said okay, Bernie, what is it? He said, how about Full Sail? And I was like, Gee, that’s really quite good. So I went back and talked to my partners and they said, yeah, that’s really good. So we went ahead and had the artwork done around it and became Full Sail. And I loved it because it has resonance on a lot of levels, which is what you need in a name. There was a wonderful Shakespearean quote that a customer sent us when we opened the brewery and it’s all about full sail in the sense of living life to the fullest.

You also got a loan from the state. Was that for helping start up a new industry in brewing or reviving a depressed economy?

It was Oregon Lottery funds and it was called ORTDC, Oregon Research and Technology Development Corporation. We were the second company they funded. The idea was to be a venture capital fund to start up companies. They had a process where you borrow money to start up a company and you pay it back within three years. We paid ours back in two years. The state got its money back to reinvest in other companies and we were able to keep 100% equity. That was the final piece that we needed. We also had a private stock offering that was really just family and friends. But the banks were difficult. We had so many meetings with banks and investors and nobody would buy into the concept. It was just too radical, too strange. It became interesting later, how easily brewers were getting money. I don’t think we would have been ridiculed if we were opening a winery, but it was something about the brewery, it was still not in people’s consciousness.

What a change since then. How many employees do you have now?

Well, we had 47.

I know that. That’s a very clever marketing campaign by the way.

I’ll tell you the story of why we did it. We have 83 employees right now. But the whole thing about 47 came out of our work with Chris Riley, who is a brilliant, delightful guy who had his own brand imaging consulting company called Studio Riley. He does all the consumer communications for Apple. He is based in Portland. He’s a British guy who is just one of the most fun people in the world to talk to. He connected with us in 2002. We were looking to get some input as to how our brand was viewed and I didn’t want somebody to tell me the solution is radio ads or billboard ads, and by the way we sell them. Chris just does brand health, and normally he wouldn’t take on somebody our size, but he grew up in Boddington in England, and he saw the Boddington Brewery close, and he was very into the kind of company we are and the kind of things that we were trying to do. So he took us on. They did a lot of conversations with people; they talked to our employees, to our distributors, to our retail customers, to people in bars. In one of the conversations this woman said, ‘I really like Full Sail, it’s good quality beer, but I don’t buy products from big companies.’ The researcher said ‘What do you consider big?’ She said, anything over 500 employees. The researcher said, ‘What would you say if I told you Full Sail has less than 50?’ She was absolutely amazed. And that ended up being a continuous thing, people thinking we were much bigger than we are, because we have been around for a long time and because we have so much distribution in so many different places. Being a small, independent locally company is such a big deal to us, and it comes at a price, because we don’t have the resources big global companies have. We’re just us. And people didn’t know we were just us. So how do you communicate that without saying Hey we’re small! We’re small! So I told those guys that we had 50 or 49 employees. Finally, I decided to count them and double-check the number and I came in and told them I made a mistake. We only have 47. And he started laughing. I said no, it’s not funny, I really should know. And he said, no, you don’t get it. You don’t know what 47 is? I had no clue. And he started going on this thing about how there’s a cult around the number 47. If you Google it there’s a mathematician out of Oregon State who has done all this research on it. 47 is the most randomly used number in the world. It’s really weird. But anyhow, we went with 47, and it was a way to counteract the misconception that we were a big corporate company.

Also, you get to tap into the marketing power of being employee owned.

We had that in our packaging before but we weren’t communicating it well. We weren’t getting across that sense of independence, the whole job of living, that’s what connects it all. It’s not that it’s employee-owned; well, so is United Airlines. It’s just a pension fund. We weren’t connecting with what makes us special, that we’re independent, and we’re in the Gorge, and we make beer, and we’re really passionate about what we do. That’s where the employee ownership matters.

You became employee-owned after your original investors voted to sell the company. From what I understand, you were facing the prospect of having somebody buy the brand and shut the brewery down.

Back in 1998, some of the shareholders wanted liquidity, so the decision was made to put the company up for sale. We had six people on the board, and Jamie, my husband, (Brewmaster Jamie Emmerson) and I voted against it but we were outvoted. It was sad. They had a right to get their liquidity, but for us it was a real educational process about how small independent companies need to create an exit strategy that works for everyone. The company was put up for sale and Jamie and I had been working side by side with our employees from day one. It was a lot of sweat equity, and we were looking at this brewery being closed. People buy brands; they don’t buy breweries. For us to look people in the eye who helped build the company: they would end up with nothing. So we sat with our managers and said, We think we can borrow money from the bank to buy the shares and set up an employee stock fund, but that would mean taking on a lot of debt. Is everybody up to it? Everyone at the table said they were up for it. At the end of the day Jamie and I had to personally guarantee all these loans. So we did it, and then the bidding process started, and Vijay Mallya (United Breweries Ltd.), who bought Mendocino and NorWester and all that, just bid higher. He had till noon on a day in April to put the earnest money down and then the deal was done. He had done all the due diligence. And on 11 o’clock of that day, I got a call that he had backed out because we had a brewery and our sales were too good in California so we would compete with Mendocino. I think those were the facts before we started this whole process, but anyhow he pulled out and nobody else was still in except us.

It was an incredibly emotional time for us. We needed to believe that we could absorb this debt, because what good would it do to encumber the company with so much debt that it was crippled? It would be a long slow death. But I am forever grateful to our bank. They were wonderful.

Who was your bank?

It was Bank of the West. They loaned us over $3 million dollars. At that point our sales weren’t great. We had been struggling. But they financed it very quickly and the board approved it, and Jamie and I called and everybody was waiting in the pub to hear, and when we called and said it was a go, you could hear this scream rise up in the pub. It was incredible.

The process was difficult, but the outcome was good. We paid off the loan ahead of schedule. We had a 10-year amortization, and we ended up paying it off in our seventh year.

How does being employee owned change the operation of the business?

We have open book management so people know our financials. We have quarterly meetings with our managers and supervisors and then company meetings where we distill the meetings and there’s a lot of back and forth. In the beginning one of our forklift drivers said, OK now we can decide when we get raises. I said, no, you do not. You still have to compete in the same world as before, and it’s even harder now. You have to have financial discipline and you have to have plans.

My understanding is that when workers have equity in the company they treat their jobs differently.

Only if you do a good job communicating that idea, and that’s an ongoing challenge. It’s a constant discussion of how we’re doing, what the employee’s part is, and frankly not everyone wants it. There are people who don’t care. But it is a powerful engine for people who really care. Their performance goes up to another level, and so does their level of commitment. Now these people who did so much to build the company have some serious money in their account balances. It was basically like a start-up. They bought at the bottom. And now they own Full Sail. That’s a huge deal.

There was a slowdown with craft beer sales in the early 2000s.

It was in the late 1990s and the early 2000s, and we were in the teeth of it. The market got totally flooded. There was chili pepper beer and what was the beer where you peel the label and the woman’s clothes came off. It got so bad. People just got an idea and stuck a label on it and it really cluttered the market and it really did not help quality.

For us the timing was very tough because we were having our internal issues. We became a stronger company because of what we went through. We are more rigorous about how we run our business because we went through some pretty challenging times. The current Renaissance for craft brewing has a lot more roots this time because the companies are more mature and the customer is more mature. There is a level of sophistication about palate now that didn’t exist 20 years ago. That helps us. Customers aren’t drinking craft beer because it’s a fad and it’s cool They’re drinking it out of respect for what the product is.

There are still a lot of new brew pubs in Oregon and new companies coming out all the time.

I heard a phrase at one point that it was getting so cluttered that it was a Snapple-ization of the brewing process. And I thought, Ouch. But now, a lot of the growth you’re seeing is coming from brewers who are passionate about what they do. It’s not just a gimmick. It’s something real.

The last few years have been just great for the industry, haven’t they?

Yeah, they’ve been great for the industry and they’ve been great for Full Sail. And it’s been a lot more fun this time around. It feels more comfortable. We know how to do this. We’re older.

What has growth been like for Full Sail these past few years?

We’ve had over 20 percent increases over the past three years. Last year we moved into some select markets in the East Coast. We’ve gotten increases out of our core brands and our new brands have done very well. Session has been a great success. And our LTD series has been successful as well.

Tell me more about the Session Lager.

The biggest thing is not compromising on quality at all. But there are other tastes that appeal to other people. Session is an all-malt beer, completely hand-crafted. It won the world’s best lager, beating Budvar in a blind tasting. This is real, serious beer. Session is hip and it’s retro and all of that, but it’s also continuing a great American brewing heritage.

You’re always walking a fine line, aren’t you? As far as how big you can get and hold onto your roots?

We are so little. Full Sail could grow 10 times and still be a speck. And that’s tough. We are competing with huge global companies with amazing resources. When people say we’re getting too big it hurts. I really resent it because it took a lot of guts to start a craft brewing company 20 years ago and we have invested everything back into this company. We make decisions on a daily basis where quality comes first. And if that’s not authentic I don’t know what is. Our brewers are the most passionate people you’ll ever meet. I really dislike that sense that because you’ve reaches a certain barrelage you’re not real any more. It’s holier than thou, and I don’t think it helps the industry at all.

What about your contract with MillerCoors to brew Henry’s? Is that going to be renewed?

We are very happy with them. That was another authenticity purity issue, but we got an email message one day from a customer who said I just want to tell you I’m so glad you got the contract with Henry’s because now you’ll have more resources to devote to Full Sail. And I said thank you. What is it about making your company financially stronger with a good contract that somehow diminishes you or your independence? It makes us stronger. It gives our employees more job security.

Miller’s executive brewmaster passed away six months ago and I cried. He was a salt of the earth guy. Here he is a super-executive master brewer at SAB Miller, and the day he died, you had a lot of people at the Full Sail pub toasting Ray. Ray was the one who started with us and he was the one who set the tone. It was and is a very respectful relationship and they have been incredibly generous with their expertise and their time.

When you are tiny, the trend is always towards consolidation. Have you had offers? How committed are you to staying independent?

I’m an intensely paranoid person. One of the things I keep telling my employees is, there are no guarantees. All there is is what you do every day to give you security. Anybody who had bet money five years ago that InBev would buy Anheuser Busch would have made a ton of money. All we can control is what we do. We’re really proud of what we’ve accomplished. We’ve been profitable every year. But when you’re small, one bad decision can end it. We love running our company the way we run it. Our preference would be to continue the way we are. And there have been no offers. One time I was in our pub and this guy came up to me and said, You know, you’ve just been bought by Miller. And I said No we haven’t. He said, You guys are always the last to know. I said, Wait a minute, I’m not just an employee, I started the company. I’m the CEO. If somebody was buying the company I think I would know. I probably would have had to sign something.

But for us it’s not something that we’re pursuing and it’s not something that’s happened. And we have a plan.

Now that the Widmer merger is complete, there is a Craft Brewers Alliance. Which leads me to wonder whether the alliance will grow through acquisitions. Do you see that as a possibility, a large alliance of craft brewers? How would that change the industry?

I have a ton of respect for Kurt Widmer. The challenge is, every time you coalesce brands, you lose voice. We have a meeting with Safeway and we get an hour, and all we talk about is Full Sail. If you’re in an alliance, you may get two hours, but then you talk about totally different brands.

You may cut some costs, but it’s very challenging and it’s not appealing to us. Widmer has made it work because they are doing very well. But it’s not for us.

Oregon’s craft brewing sector has grown into a major industry with real economic clout. What trends do you see ahead for the industry, and what are some potential pitfalls?

The opportunities are still there because there is a level of interest. It’s a huge opportunity. We live in a place where people’s expectations of flavor and freshness and buying local are deeply embedded. We take this for granted. But on the East Coast it is cutting edge. The thing we always talked about when we started the brewery was, this is not a fad. This is a core trend on how people drink.

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