Jim Koch

Jim Koch was on the How I Built This podcast to talk about founding Sam Adams. HIBT is one of my favorite podcast series, with interviews around Instagram, Spanx, Clif Bar, Airbnb, and Dermalogica. Podcast fans should subscribe. Here’s what I learned from Koch.

1. Knowing things deeply.
2. “Can I bum a quarter?” (low overhead)
3. A sweet spot for work.
4. I saw it in a magazine. (see it to believe it)
5. Dangerous or scary?
6. The first Sam Adams employee.
7. “American Beer is like making love in a canoe – fucking close to water.”
8. Luck.

If you’re short on time skip to #5.

1/ A deep understanding. Though Koch was an MBA/JD and worked at Boston Consulting Group, he also came from a family of brewmasters. “My dad was a brewmaster and it was like being a chef in a kitchen,” Koch explained. He had his great grandfather’s recipe – one that had fell flat in previous decades – and hired someone to “adapt a 19th century recipe into a 20th century brewery.” Koch had a deep understanding of his niche.

A deep understanding is a pillar for a lot of industries. Bill Belichick has it for football, studying film and being around teams from an early age. John Boyd had it for ariel warfare, flying combat missions and then teaching pilots. Yvon Chouinard had it at Patagonia, testing and experimenting with the gear himself.

Each was in an industry; consumables, football, warfare, clothing where things change and each survived the changes because they had a deep understanding.

2/ A low overhead. “I learned that you don’t need that much to live on if you’re really enjoying what you’re doing.” “We rented space, brewed the beer, and they packaged it and I didn’t have to have my own brewery for several years. When I started we didn’t have things you think you need for business. We didn’t have an office. We didn’t have a telephone. I asked myself, ‘am I spending money on things that are going to make the beer better or am I spending money on things just because that’s what you’re supposed to spend it on?’” “We were profitable from the first full month. It was the ultimate lean startup. We had no office. We didn’t even have a telephone. We did all of our business from pay phone and I knew where all the good payphone were in Boston; the ones that were warm in the winter, the ones that had a shelf you could put stuff on. It was very clear to me when I started there were only two things we needed to do really well; make great beer consistently and work our butts off to sell.”

It was refreshing to hear someone talk about a tangible goods business this way. That kind of industry seems ripe for bloat. Not for Koch. Keeping a low overhead isn’t the end itself. Low overhead extends a runway and allows for more chances to get things right.

• Amazon was built on ‘door desks’ in a garage.
• CAA started with donated office supplies.
• Walt Disney used an alleyway to film.
• Nasty Gal started on eBay and at estate sales.

In The Outsiders, William Thorndike writes, “There’s an apparent inverse correlation between the construction of elaborate new headquarter buildings and investor returns.” The Instagram founders said:

“…so here are two guys with a prototype, a couple of computers, and no office, who raised a half a million dollars who are looking at each other like, we think we can make this last. We were living on peanut butter and jelly sandwiches.”

Paul Graham writes “When and if you get an infusion of real money from investors, what should you do with it? Not spend it, that’s what,” and to “encourage a culture of cheapness.”

Koch also noted the importance of making something great. The a16z podcast had a fantastic episode with David Oyelowo that echoed and elaborated on this point. Oyelowo said part of the reason The Queen of Katwe was made was because everyone involved had a strong resume of work.

3/ A sweet spot. “After six years (at BCG) I had this epiphany. I asked if I wanted to do this for the rest of my life and the answer came back, ‘no.’ The corollary to that was that if I don’t want to do this for the rest of my life, I probably don’t want to do this tomorrow.”

Mohnish Pabrai said much the same thing:

“I have a rule I’ve followed for my entire career: if on Monday morning I’m not fired up for work I do two things. Number one, I don’t go to work. Number two, I hit the reset button.”

In Tim Ferriss’s 2016 podcast with David Heinemeier Hansson the duo talked about the difficulty in defining this. It’s not happiness per se, but something closer to tranquility. It’s a feeling of flow. It’s challenge. It’s a nebulous brew of success and failure. It’s a sweet spot.

4/ See it to believe it. “My dad had given me a copy of Inc magazine and there was an article in there about Anchor Steam, this small brewery in California owned by this great guy named Fritz Maytag and Fritz had a viable small brewery. It was an outlier. When I was a consultant, what always fascinated me were the outliers because that’s where the real learning was.”

There was nothing about American beer culture that suggested a beer like Sam Adams would succeed. So no one pursued it. It wasn’t until Koch saw an example where it was like, yeah, this can work.

For Judd Apatow this moment was when he saw Steve Martin. “Steve Martin was a revelation when I was a kid,” Apatow said. He tells a great story about meeting Martin, negotiating (unsuccessfully) for an autograph, and then sending him an angry letter. The key part though was just seeing Martin. “Unconsciously it put a lot of gas in my tank,” Apatow says, “and it showed me he exists, all these people exist.” It showed him what was possible.

5/ Is it dangerous or is it scary? “There are plenty of things that are scary but aren’t dangerous and there are things that are dangerous but not scary, and those are the things that get you. I’ll give you an example from climbing. Rappelling is a very scary thing to do, but you’re held by a belay rope and that rope will hold a car. Walking off the cliff backwards is scary, but not dangerous. Walking across a thirty-five degree snowfield on a beautiful late May afternoon with a bright blue sky is not scary at all, but it is very dangerous because the snow is melting, and eventually there will be an avalanche. My staying at BCG was dangerous but not scary. The danger there was continuing to do something that didn’t make me happy and looking back when I was 65 and going ‘oh my god, I wasted my life.’”

I loved this idea. Not scary yet dangerous things are the ones that get us. Part of the problem is a misdiagnosis. We aren’t scared enough or we think a danger is too small.  Morgan Housel wrote:

“The most useful lesson from the 2008 financial crisis is that big risks hide under your nose and cause more havoc than you imagined, so having more room for error in your finances than you think you need is a smart idea. Less reliance on forecasts, more time to wait things out, a greater willingness to accept lower returns than you’d prefer.”

Nassim Taleb writes a lot about this. So too does  Greg Ip in Foolproof.

6/ Teamwork. “My dad has told me, if you’re going to have a business Jim it’s lonely, it’s going to have its ups and downs, see if you can find a partner. So I looked around BCG. It was full of the best and brightest from the top business schools, but somehow I couldn’t see them being my partner because they had all the same skills I had. Then I realized there is a person here who is energetic, talented, resourceful, a great people person, has all the skills I don’t really have – and she was my secretary…we were the perfect compliment.”

Good partnerships, I suggested in the Jeff Bezos post, have people aligned on the ends but not the means.

For Koch that meant someone that had a different set of skills (means/ways). No one person can do it all.

In episode 44 of his podcast, Jocko Willink said about one of his favorite guys in the SEAL teams, “when I started to get a little off the reservation about something…he’d look at me and be like ‘hey Jocko, come back to the light, it’s gonna be okay…When I would start to get negative he would pull me back and the same thing me with him.”

7/ Be Different. “All the Boston beer distributors turned me down because this was the heyday of light beer.”

Being different and being right is great advice but challenging IRL. It’s the idea of finding an idea that’s stupid now but could be brilliant.

In The Everything Store, Brad Stone quotes someone saying that Bill Gates was “flabbergasted” when he heard the plans for Amazon.com. Chew on that.

Phil Knight founded (what would become) Nike when running was different. “To go out for a 3 mile run was something weirdos did, presumably to burn off manic energy.”

Ben Horowitz wrote, “The trouble with innovation is that truly innovative ideas often look like bad ideas at the time.”

8/ Luck. “In all humility, a lot of it was luck. I look back and a lot of things could have gone wrong…a lot of things didn’t go wrong that could have.”

Control what you can, and understand the roll/role of luck.

Thanks for reading, I’m @mikedariano on Twitter. If you liked this post, I sometimes write long posts as short books. Here’s one on Bill Belichick and red teams.