LAKE OSWEGO, Ore. — At first, Jon Turner was just a software guy who really liked to brew beer. He cooked up two batches a week in his kitchen and kept his hard-drinking friends well supplied. He once brewed one pale ale over and over for a year to get it just right. In 2011, at a national conference of home brewers, he fell under the spell of a panel called “Going Pro.”
This is how Turner came to cash out a large chunk of his retirement savings and launch a 16-tap brew pub on the shores of a private lake in a swanky suburb south of Portland. He and his co-owner, Tim Schoenheit, have kept their tech jobs and worked nights, weekends and assorted off hours to bring their 80-employee operation, Stickmen Brewing, to the brink of profitability.
Drive around the Portland area today and you’ll see dozens of stories just like Stickmen’s — small pubs and breweries that have sprung to life in the past half-decade and endured, in spite of fierce competition from rivals large and small.
In the past month, Portland has seen a similar proliferation of start-ups in the cannabis industry, ignited by a new state law that allows legal marijuana sales to the general public.
Microbreweries and pot dispensaries aren’t the major drivers of Portland’s economy, but they loom much larger here than in most U.S. cities. In both those industries, small start-ups are thriving.
That’s a sharp contrast to the American economy at large. Don’t let Silicon Valley fool you: The nation has long had a start-up problem. The rate at which new businesses are formed has fallen steadily since 1984, a trend that accelerated during and after the Great Recession, according to research by University of Maryland economist John Haltiwanger and several co-authors. Since the recession ended, more businesses have failed every year than have sprung to life.
Breweries and dispensaries offer lessons for how policymakers might nurture a small-business comeback in the United States. But they offer very different lessons, one focused on government intervention, the other on reducing hurdles for entrepreneurs to enter a market — and their ultimate lesson could prove to be, the big guys tend to win in the end.
In Oregon’s sin industries, “We’ve had a renaissance of start-ups, which is almost the exact opposite of what we’ve seen almost everywhere else in the economy,” said Joshua Lehner, a state economist in Oregon. “It’s going to be challenging to maintain this.”
America’s start-up slowdown began in the 1980s and ’90s, when much of the drop-off was concentrated in the retail trade and service sectors. A lot of new mom-and-pop groceries and bookstores were pushed out of business or were kept from starting up in the first place by the emergence of Wal-Mart, Barnes & Noble and other large chain retailers. In the 2000s, the trend spread to other industries, most notably high tech, which has seen its start-up rate decline over the past 15 years.
Economists can’t say for sure what’s driving that trend, but one theory has to do with market power. As big companies get bigger — in retail or tech or anything else — they find ways to shield themselves from competition, often by lobbying the government.
Here’s an Oregon example: Google and Facebook have each received tens of millions of dollars in property tax reductions from cities on the state’s rural eastern side, where those companies have built huge warehouses filled with servers to store user data. It’s unlikely that a small-time social-media rival could win the same deal, which means that small company would face higher costs than Facebook does to store its data — a powerful advantage for the large incumbent.
The beer industry is more dominated by big players than almost any other in the United States. Its four largest companies account for nearly 90 percent of all sales. That’s a function of a wave of brewery consolidation in recent years, culminating in an announcement last month that the world’s two largest beer companies, SAB Miller and Anheuser-Busch InBev, plan to merge.
And yet, for all that market power, the beer giants are acting scared of their smallest competitors — perhaps because there are more of them every day, especially in Oregon.
The number of breweries and brew pubs in Oregon has roughly quadrupled since 2001, to more than 200 today. Since the end of the recession, the state’s total beer production for consumption by Oregonians has grown from about 30,000 barrels a year to nearly 50,000. All but a few drops of that increase has come from start-up brewers, according to state statistics.
There are simple reasons why brewing is so friendly to start-ups, all of them on display at the
Stickmen facility in Lake Oswego. It doesn’t cost much to learn to brew — just $100 or so for a starter kit and a handbook, more for hops and grains when you begin to experiment, as Turner did when he returned to his native Oregon in the late 1990s after a stint in the Navy. It also doesn’t cost much to start a brewery, relatively speaking.
Turner practiced his art on the side from his software job until he was hosting annual beer bashes with 30 varieties on tap. When he decided to go pro, he tried to get a government small-business loan. When it fell through, he and Schoenheit borrowed close to $200,000 from a company called Brewery Finance, which paid for steel tanks and other brewing supplies they needed.
The other reason it’s easier to start a brewery in Oregon is that Oregonians really love beer, and they’re willing to pay a premium for new and interesting varieties or for better beer closer to home. Stickmen chose Lake Oswego because there weren’t many brew pubs in town. He also had a stock answer for the people who asked whether he was worried the area was being saturated by beer start-ups.
“Does anybody ever ask,” Turner said, “if there’s too many muffler shops in Portland?”
Stickmen struggled through its first winter, when foot traffic slowed and the restaurant, which did up to $15,000 a day in business during the summer, was lucky to bring in $600 some days. Some weeks Turner had to ask employees to wait to cash their paychecks.
But the beer was good enough to get noticed around town, and it eventually won its way into some of the city’s hottest spots for beer nerds. Stickmen hired a distributor and a full-time brewer. Next year, it’s on track to produce 1,000 barrels of beer, largely IPA; this year should be the first it clears a profit.
Turner says government regulations of his brewery are minimal and that other small producers help one another out — all advantages in a start-up culture. “It’s not like we’re competing with each other,” he said, “as much as we’re competing with the big guys.”
Some beer bloggers, though, have begun to worry that lax government oversight could endanger start-up brewers, whom the large players are targeting on multiple fronts. AB InBev has bought a string of craft brewers across the country, including one called 10 Barrel in Oregon.
It’s also buying beer distributors, a move that could eventually choke off smaller brewers’ ability to grow by shipping to cities just beginning to warm to microbrews. So far, according to published reports, only California officials are investigating potential anti-competitive implications of those purchases.
In the early days of Oregon’s legal marijuana industry, state officials are already taking steps to keep any big guys out of the game. They have proposed limits on the size of growing operations, along with mandating that they be majority-owned by Oregon residents — a move widely expected to limit outside investment in the industry. They’ve also approved annual licensing fees, from $4,000 to $6,000, for growers and retail vendors.
Many of the rules won’t be final until next year, but the uncertainty hasn’t stopped hundreds of cannabis entrepreneurs from setting up storefronts around the state. Portland-area billboards are plastered with ads for dispensaries whose names run heavily toward puns. (A few of the pun-ier ones in the area: La Cannaisseur, Yer Best Bud and The New Amsterdam.)
Some of the industry’s more established players — veterans of the state’s smaller medical-marijuana trade, which has been legal for nearly two decades — warn that the mom-and-pop newcomers will struggle to survive once the market matures, and they say state regulators will inevitably loosen size and ownership restrictions.
“You’re going to see some consolidation, and you’re going to see the small players either get out of the market or learn to operate at a higher level,” said Shane McKee, the co-founder of Shango, which runs four commercial growing operations and three dispensaries in the state.
Shango employs 47 people in Oregon, McKee said. Seven of them work on licensing and compliance: “The barriers are pretty high to do it right. You start looking at regulations, you look at legal fees, you look at licensing — they’re pretty intense.”
In that way, the pot industry’s approach to start-up cultivation is the opposite of the beer industry — higher barriers to entry, coupled with strict regulations. And yet, some cannabis entrepreneurs think they can copy a (quintessentially Portland) secret of microbrewers’ success: artisanal differentiation.
In Oregon, said William Simpson, the president and founder of Chalice Farms, which operates four dispensaries that are decked out like Pinot Noir tasting rooms, “People didn’t understand there could be so many varieties of beer, cannabis or wine.”
“There is a market for your large corporate product as well,” he said, “but I don’t think it’s going to be that big in the Northwest.”
In other words, consumers don’t want a Miller High Life of marijuana. They want the equivalent of a fresh-hop IPA.