Boston Beer's Jim Koch: Portrait of the CEO as Salesman (1988 Story)
Editor's Note: To celebrate Inc.'s 35th anniversary, Inc.com is showcasing highlights of our coverage of incredible innovators, risk takers, company builders, and thought leaders since 1979. Here, an article from our archives.
Years ago, when The Boston Beer Co. was just getting up and running, I received a phone call from my uncle, a partner at Goldman, Sachs and one of my initial financial backers. He asked me how things were going. Fine, I replied; the first batch of Samuel Adams beer was in the aging tanks and would be ready for delivery in about five weeks.
"So," my uncle continued, "what did you do today?"
I told him I'd spent the day shopping for a computer system. When he asked me why, I explained that I figured I'd need a computer to keep track of sales, payables, and the like.
"Oh yeah," he said, "sales. By the way, have you got any?" I admitted that I did not.
"So what the hell are you doing buying a computer?" he demanded. "You know, Jim, I've seen a lot more businesses go broke because they didn't have enough sales than I've seen go under from lack of computers. Why don't you work on first things first?"
That shook me up. My uncle went on to describe his early days at the investment firm--how frightened he had been then to have to make cold calls on potential customers, how he had forced himself to set a quota of at least one new account a week, no matter how many calls it took. Listening to him, I realized that somehow I had gotten the whole process backward. To make my business viable, the first thing I needed was not a computer. It wasn't even an office or a desk. What I needed was a customer.
That call really galvanized me. Up until then, I'd never sold anything in my life, and selling is a scary thing--particularly if you're a chief executive officer and your whole life's work is on the line. Imagine going out tomorrow and having to make cold calls on bars, trying to convince some guy who's never heard of your beer--and handing him a bottle that isn't even labeled--to carry it. The only thing standing between you and that customer's scorn is the integrity of your product. You're not talking to some demographic group. You're talking to an individual who is either going to buy your beer because he likes it or tell you to get lost.
And that frightened me. I was determined to follow my uncle's example and go for one account a week--we needed only about 30 to get started--but when the morning came to go out and do it, I didn't want to get out of bed. Finally I picked out a bar near my office at The Boston Consulting Group, where I was winding up my tenure as a management consultant. Wearing my usual dark pin-striped suit, I walked into the bar with six cold bottles of Samuel Adams beer in my briefcase and a lump in my throat.
There was a guy behind the bar whom I assumed was the bartender. As it turned out, not only was he merely the bar back (the guy who stacks glasses, keeps the shelves filled, and so on), but he didn't speak English. He looked at me as if I had two heads. While I stood there talking about my beer, the manager walked over and eyed me suspiciously--he probably thought I was from the IRS or something. Anyway, I went through my story one more time and asked if I could pour him a glassful. He looked at my beer, sniffed it, drank it--and immediately gave me an order for 25 cases. It was an amazing feeling. In the space of 10 minutes I went from sheer terror to ecstasy. My first thought as I walked out was, that's it for today--I've got my one account! (continued)
When I got home that evening, the vision in my head was that it's really selling that drives most businesses: the direct interface between the product and customer, the crucial feedback loop. And if more CEOs had to go out and sell their products, day in and day out, they'd pay a lot more attention to what they were making. The more unwilling they are to put themselves in the middle of that transaction, the better chance they have of missing out on a critical element of their business. When you're out there selling, face-to-face with your customer, there's no place to hide. It's the acid test.
Given where I was coming from, my initial aversion to selling was pretty predictable. For seven years, I'd been a consultant with The Boston Consulting Group, specializing in production. My clients were such companies as General Electric and International Paper--companies with which I had long-term, project-based relationships in which selling either wasn't an issue for me, or was something I did my best to avoid. After all, who wanted to risk that kind of rejection on a regular basis?
Before that, I'd gone through Harvard College and both its law and business schools. There, anybody who became a salesperson was considered a failure. Most graduates head into professions--law, medicine, business management--whose status gives them a kind of shield: the ability to say to others, consciously or unconsciously, I'm better than you are. They certainly don't want to be on the other person's level and risk having their egos crushed. So not only did I not value selling as a profession, but I also came from a culture in which it was implicitly--and explicitly--devalued, particularly compared with marketing.
Nowhere was this attitude more obvious than at Harvard Business School. I took the one required marketing course. It treated selling as some sort of given: that there's this "sales force" out there whose job it is to sell the product, period. The assumption was that the sales force pushes the product from the warehouse to the customer in the same way, say, that truckers take it from the factory to the warehouse. There must have been a dozen courses on marketing, and not a single one on selling. To me, that's appalling--and it should be to any businessperson.
Selling is a devalued skill. It's considered beneath anyone with an M.B.A.'s training. Marketing, on the other hand, is somehow "clean," something professional businesspeople aspire to. If you go to a cocktail party and you're asked what you do for a living, and you reply, "I'm a salesman," people look at you like you've got crumbs on your shirt. Tell them you're a marketing director, however, and they say "How interesting." One has become a high-status occupation and the other something most people don't want to get their hands dirty doing.
In my view, this is one of the worst hoaxes ever pulled on American business. Manufacturers perceive marketing as a magic solution that takes away their responsibility for making good products. Their idea is, we'll make a product that's just as good as anything else out there--not better, mind you, but just as good--and marketing it well will make us rich. And that's a lot of crap.
I think just the opposite is true. Marketing is all about creating, in the customer's mind, a value that does not exist: a way of differentiating a basically undifferentiated product and charging the consumer more money for it. Selling is fundamental. It is impossible to go out and sell a product you don't believe in, particularly if, as CEO, you're directly responsible for the quality of the product. Again and again, American business breaks that direct-feedback loop by divorcing responsibility for making the product from the responsibility for selling it.
And that has dire consequences. We're all consumers. We don't buy products because they happen to be better marketed. We look for better-made products. And if we--you and I--feel that way as consumers, why do we seem to believe that there's some undefined mass that wants to buy better-marketed products?
Consumers are not idiots. They want detergents that get their clothes cleaner, not detergents with slicker advertising campaigns. They want cars that are cheaper and more reliable, not cars with marketing images built around the quality hype. Japanese manufacturers have taken over whole segments of the American marketplace, but if you go back 20 years or so, you'll remember that Japanese cars were considered jokes, "little tin boxes" that nobody wanted--except that they were reasonably well made and represented value for the money. Their marketing campaigns ranged from mediocre to terrible--if the cars hadn't been good values, the Japanese could have spent their entire gross national product on marketing their cars and it wouldn't have made any difference--but their products succeeded. And they succeeded because the inherent quality of the product itself will inevitably overwhelm all the marketing expertise in the world.
Why have we ignored this? Because, sad to say, it's a lot easier to differentiate your product through the quality of the marketing than through the quality of the product. To go back to the automobile industry, it's easier to change your advertising campaign than it is to build a better car--as General Motors well knows. Changing your ads to focus on quality is a snap. Just give your agency a new set of instructions, and it can do the job for you in a week.
I happen to be in a business that almost everyone thinks of as being primarily market driven. And that's no surprise. Most of the major brands of beer out there are virtually indistinguishable--at least when it comes to taste. After a couple of bottles, even I can't tell the difference between a Budweiser, a Miller, or a Coors. To a great extent these products are differentiated to the consumer solely through marketing. Thus the principal task in selling them is to make the consumer think that there's something implicitly good about becoming, say, a Bud drinker. The beer itself is often the least important element in the equation. You even hear it in the vocabulary. Beer people talk in terms of "users" and "moving product," not drinkers and selling beer. It's not the beer in the bottle that matters, it's what the marketing people lay on top of it.
Today, there are other ways besides advertising to communicate with consumers. Impartial third parties rate everything from cars to chocolate bars. Take beer. The only competition in American brewing is the Great American Beer Festival. Once a year, the Association of Brewers gathers more than a hundred of the best beers from virtually every brewery in the country for a comparative tasting by 4,000 brewers, beer writers, and beer lovers. For three years in a row, Samuel Adams has been picked as the best beer in America. And this has been reported widely in the national press. That has impact. The S & S Pocket Guide to Beer, World Beer Review, and The Wine Advocate all gave Samuel Adams the highest rating for any American lager. Superior products can build a consumer franchise that way. It's getting harder and harder to distract the consumer with mere advertising about quality.
Now I'm a big fan of beer ads myself. They're extremely clever and entertaining; I love the jingles. They make me feel good, make me proud to be an American. I could watch beer ads all night. Just don't ask me to drink the beer, too.
And I'm not knocking marketing people as individuals, either. Many of them are warm, intelligent, and creative. They're some of the business world's best and brightest. I only wish they'd get out and try to sell some of the product they're hyping. It's sort of the same way I feel about lawyers: they may be wonderful people individually, but what value do they really add to the customer?
See, to the consumer--I'm talking about the person sitting at the bar choosing a beer--markets don't exist. Market niches don't exist. These are concepts that exist only in the minds of people with a vested interest in promoting them. To me the only reality is beer and people drinking beer. And to that guy sitting at the bar, the bartender's word is more powerful than all the advertising he's ever seen. If the bartender says, "Want my advice? Try a Sam Adams--it's a helluva good beer," that's more powerful than $500 millions worth of advertising. And when people read that Samuel Adams had been picked as the best beer in America, that's credible. Maybe relying on word of mouth means you can't grow too fast, or go national in a yaer, but believe me, you can build a viable business that way. My company will never be a threat to Anheuser-Busch--we make as much beer in a week as it makes every 50 seconds--but that's not why I got into this business in the first place.
A year after I started The Boston Beer Co., I was asked to address the new-ventures club at Harvard Business School. I began by telling my audience that our biggest challenge as a start-up was creating in the customer's mind an image of quality. OK, I said, what do you think we should have done first? Hands went up all over the room. "The first thing you do is get some good market research," one said. "Hire an ad agency," said another. "Find a good public relations firm," offered a third. One person actually said something about convening foucs groups so we could "locate the hot buttons for the quality vector." The hot buttons for the quality vector? What the hell is that supposed to mean? As if quality were something that existed independent of the beer itself.
Nobody--not one of them--said something on the order of, "If you're trying to create an image in consumers' minds of a better beer, the first thing you do is brew a better beer." Then it was my turn to get riled. I told them this was a perfect example of where American business is today: looking to sell me-too products through better marketing. And I also said, look, in business you have only two ways of surviving: either your product is better than your competitors', or it's cheaper. There's simply no other foundation on which to build a successful business. None. Better or cheaper, take your pick. It's also why I'm convinced that--right now, anyway--I have a business and General Motors doesn't. Furthermore, unless GM gets its act together, in 20 years The Boston Beer Co. will be bigger than GM. And it won't be because we've grown, either.
The other great benefit of CEO selling is letting the rest of your organization know what your priorities are. My cofounder, Rhonda Kallman, and I were the only two peoplpe in a $3 million buisness before we had an office or a telephone. When I finally bought that computer, it was because we had the sales volume to support it. Even today, running a $7 million company with 28 employees, I spend about two-thirds of my time selling beer. Most of my meetings are held in bars, and most of my phone work gets done in the care. When people ask me why I don't have an office, I tell them it's really very simple: I can't sell beer to a desk. Not everyone understands what I'm talking about. But you can bet my uncle does.