Founder Forum: Joel Alex of Blue Ox Malthouse

Today, Joel Alex operates the largest malthouse in New England and, he believes, the largest floor-malting operation in all of North America. But the path he took to get there was not always clear.

The story of how Alex opened Blue Ox Malthouse in the fall of 2015 in Lisbon Falls offers an archetypal story of a dogged entrepreneur willing to sacrifice pretty much anything to make his vision become reality.

Thankfully, Alex is comfortably removed enough from the grinding startup phase to take some time to reflect on his journey with Maine Startups Insider. Our conversation covers the sacrifices he made to see his business get off the ground; the challenges he faced of not only creating his business, but creating a market; and why he thinks it’s sometimes best to learn from one’s mistakes rather than take advice. This interview has been edited for length and clarity.

Maine Startups Insider: Where did your entrepreneurial journey begin?

Alex: In hindsight, I would say that even back in high school creating things was something I was really excited about. In high school I started a minicamp weekend for a chapter of an organization called CISV, which is an international youth leadership program that runs programs around the globe every summer. I was president of our local junior branch chapter and helped create the Maine minicamp, which runs every April and it’s now in its 12th year. I didn’t think of that being entrepreneurial at that time, but it was.

After college I worked in some really small, dynamic nonprofits. I worked a lot with conservation organizations around the state and on a project called Maine Trailfinder. I helped manage and coordinate that whole project, from when we got the grant money to do it through our first 517 trail systems. It was during that process I realized I wanted to create something that was my own. My initial thought before Blue Ox Malthouse got off the ground was to go to business school and look at rural economic development, maybe get an environmental studies/sustainable development co-degree or do some sort of joint program and then come and bring that back to agriculture and rural economic development in Maine. So that set the stage for me to start Blue Ox Malthouse. It seemed like a natural fit. I started researching social entrepreneurship. I was taking text books out of the library in preparation for business school. I was definitely on a business-school track and thinking that’s what I was going to do. I was trying to figure out what I wanted to get out of it and so started thinking about what are some businesses I’d like to work for and what are they doing, who’s out there. So I started doing that kind of research and applied for graduate school and then realized this was something I was really passionate about.

So I had early inklings in retrospect that were entrepreneurial but very nonprofit-based and volunteer-based. Then I slowly reflected and developed that in my 20s into a more solid idea and plan that I wanted to go out and bring more resources to these areas that I was really passionate about.

Do you remember specifically when the seed to open a malthouse was planted?

It was while I was thinking graduate school was my future. The seed was planted in July 2012 while talking to a craft brewer at a potluck on a farm in Cornville, Maine, right above Skowhegan.

What sacrifices have you made to get Blue Ox Malthouse off the ground?

Well, once I decided this is what I was going to do… I don’t think of it as a sacrifice, but I declined graduate school, I transitioned out of my job, and I left my apartment to save money. So for the next 18 months—through 2013 and the majority of 2014—I lived out of my car. I would say based out of my car rather than lived out of my car because in reality I was couchsurfing at family and friends all over the place and doing business trips. It wasn’t like I was homeless. I only slept in my car a few times. But it did get to a point where I never really knew where I was going to spend a night. That did create a level of uncertainty that got tiring. I think most people would consider that a sacrifice, but at the time I just thought of it as what I needed to do to in order to pursue this because I couldn’t afford to maintain an apartment and other stuff, but I was gung ho about this idea.

You definitely sacrifice your social life. You basically start working 24/7 on the business. So your world becomes very small and narrow, and that can be challenging. It certainly feels very isolating. It’s something that’s going to happen, but the trick is to pull yourself out of it before you get to what the Startup podcast by Gimlet called the ‘Trough of Despair.’ You have to recognize what’s going on and find balance before it gets to that. So that’s a sacrifice.

I saw this clever article in Entrepreneur magazine that said there are five things—work, family, friends, sleep, and fitness—and entrepreneurs have to pick three. You can’t have all five. Are you going to choose work, family, and friends? Are you going to chose work, fitness, and sleep? Are you going for work, sleep, and family? I mean whatever combination, you have to give two of those up at least because it’s impossible to have all of them while you’re going through the startup phase. I don’t know—it’s clever, but it feels like there’s truth in it.

The financial sacrifice is super real as well. I haven’t received a steady paycheck since I left my job in early 2013 to work on this. I believe enough in the company that I’ve put everything I have, and more than I actually have financially into this company. I don’t know how many people are upfront about it, but I’ve put much more money into the company than I’ve taken out of the company. Now that we’re just a year into production that’s beginning to change, but that’s almost four years. That is a sacrifice and probably more than a lot people are willing to do or realistically can do because of where they are in their life. I mean if you have a kid or spouse who’s relying on you… Fortunately, I am a bachelor entrepreneur so I don’t have those restrictions on me. And that enabled me to make that sacrifice.

You know, before I started, I don’t think I thought, I’m going to sacrifice these things to start this business. In some ways it’s more naivete, which is probably an entrepreneur’s greatest asset, right? You don’t know how hard it’s going to be.

When you decided to start your own company, did you feel prepared?

In some ways I was prepared. I knew it was going to be hard, and probably harder than I thought. And I knew I had a steep learning curve to go, but I felt so strongly about the business and the idea that I felt I would be able to overcome that. I think of it this way: I’m on top of one mountain and I can see my destination in the distance. I don’t know exactly how I’m going to get there, but I’m confident there’s a way to get there through this forest in front of me if I just keep that direction in mind.

I think I benefitted from the preparation I had done for business school in that I had a long list of things I knew I didn’t know, but they all seemed fairly achievable because I had been chipping away at them. I also had confidence from having been on the nonprofit side, and working on Maine Trailfinder had built my confidence in my project management skills. I knew I could think through problems and plan for them and come up with decent solutions. Because you don’t have to make the right decision every time, you just have to make a good decision.

The other thing that emboldened me to pursue this and decline graduate school was that I had come across Top Gun, I had come across the Maine SBDC. Because in November 2012 when I made the decision to pursue Blue Ox Malthouse in earnest, or with more energy and intention, I started talking to craft brewers, to people in agriculture, to farmers. I talked to business owners, too. I started doing a survey of the resources available, and through the Maine SBDC I was encouraged to apply for the TechStart grant from MTI and then I got plugged into the really strong network of Blackstone Accelerates Growth, the Maine Center for Entrepreneurial Development and that whole community. The other resource I took advantage of, and which provided emotional support and served as a connector, was Slow Money Maine. I had one tremendously amazing early partner named Steve Culver, who I met through the Slow Money Maine network.

That network of people gave me the confidence in the idea and the confidence that there was a support network out there that could help me realize it. And that was tremendous. There was the Maine Grain Alliance that had just started. So there was all this energy and community building around not just this idea of starting a business, but this idea of rural economic development and food systems and having that community of peers and like-minded people to connect with about my business was instrumental in giving me the confidence and support I needed to do this. And one thing I’ve said from the beginning, and is critical to Blue Ox Malthouse being here four years later, is no one person has all the skills, knowledge and experience to get a startup off the ground. You have to rely on other people and other people’s experience and skills. I was able to come as far as I have in the past four years, from never even working at a business to owning one, bec of the people who have invested in me. They’ve invested their skills, their time, thier experience, their money. Without that support network and help you just can’t do it.

You built a manufacturing business from scratch, which requires a large amount of capital before you’re even close to bringing in any revenue. That’s very different than a software entrepreneur who needs only a small infusion of capital to build and commercialize a product. What specific challenges did that create?

To be honest, I think that’s one of the restrictions of our startup community in Maine. Everyone talks about wanting manufacturing jobs and manufacturing businesses and that being a tool for economic development, but investors are really spoiled frankly by these startup companies where you can give them $25,000, and most of them fail obviously, but with a promise potentially of a 10x return minimum on that. So investors would rather spread their money around and give $5,000 at a time among these companies hoping that one in 30 will succeed and get a return that pays off the rest and makes it all worthwhile. Every investor in Blue Ox Malthouse, whether a lender or an equity investor, had a motive that was about more than getting a return. Because if it’s not more than that, no one is going to invest when you need to raise nearly seven figures just to make your first product. Then you have to go through the burn period and you’re trying to plan the best you can but unforeseen circumstances come up. It was great going through the process of applying for a Development Loan through MTI. It is an excellent exercise. You should almost do it just because it forces you to put down your assumptions and your ideas and thoughts and map them out. Because when you’re doing a manufacturing business there’s just so much that can go wrong and you have to be ready for those types of challenges. It’s been really interesting for us because we’ve had to build an industry, not just a business. In 2012, when I got this idea, it wasn’t happening in Maine. No one was doing this in Maine. Every brewer in the state was importing their malts, their grains, into the state. They were working with malts you find and order in a catalogue, and here I was… this is unique to us, this isn’t necessarily unique to manufacturing businesses. But you have to educate your customers about what they need as much as you have to educate your suppliers about what you need.

You entered an industry that’s traditionally provided a commodity product. How do you be innovative in that context? Have you done anything innovative that you believe gives you a competitive edge?

Malting is as old as beer itself and the process is largely unchanged. It’s steeping grain and water, letting it germinate and then drying it. That’s a thousands-of-years-old process. So how do you be innovative?

We’re creating a product that no one else has created before on the local scale. We’re trying to connect a regional scale grain and agriculture economy to local markets. But agriculture markets are not set up for that. They’re set up for commodity markets. So there’s innovation in just trying to figure out how much malt is actually being used by brewers in the region, how much grain is actually being grown. What’s the right system to do it. You can take existing technology, but you have to scale it and in that scaling process you’re doing something different. There’s innovation in that you’re having to basically take two pieces of a puzzle that should fit together and find the connecting piece because there’s a picture there, but you have to find the pieces that are the right size and fit to connect them.

We also have to balance innovation with client expectations. Do we match what people are using now so they’ll convert over because the innovation of doing it locally is enough? Or should we be doing crazy things that they’ve never seen before to be innovative and have a value proposition? It’s a tough call, but it has to be both. Our core product lines that we got off the ground with was just to prove that we could produce something that’s comparable—though it is uniquely our own because we have a custom system and we‘re floor malting.

We’re out there selling against a commodity. So we have to talk about local, we have to talk about method, talk about the economic impact, and those are all value-based. In a business-to-business business, or wholesale, you’re making people money, you’re saving people money. So depending on the sophistication of our clients they may or may not be able to take advantage of those intangible values of using our malt and turning that into additional income. It depends on how they incorporate it in their brand, so we have to support them in ways traditional malt houses don’t in getting that message out there about what Blue Ox Malthouse provides as a brand. That’s where there’s a conversion from a commodity. What is our unique value proposition? We’re floor malting—that is something not a lot of people are doing. Even malthouses coming up behind us that are floor malting dont have the same system as us, so our process is unique to us

But I think once we’ve established connections between local agriculture and the market, we think about innovation going forward as, what’s the the malt that no one’s ever had before? Or, what style of malt will match what we have in agriculture and what the trends in brewing are supporting? Is it like a special rye or a malted oats or smoked malts that are custom. It’s about finding that value proposition because ultimately we have to help our customers achieve their objectives. And so that’s something that’s innovative in that we can custom malt for craft brewers that are too small for any of the big guys to care about. For example, Rising Tide definitely is too small for a large malthouse, a commercial industrial malthouse, to do any kind of custom thing for them. Those malthouses will custom malt for Budweiser all day long because Budweiser could probably do a quarter of their volume for them. Rising Tide probably doesn’t even use enough malt to take an entire production run from some of these larger malt houses. That’s one of the innovations and values we can add. So then the question is how do we help them make money by achieving their goals? Do they want to stand out from a mission point of view. A product point of view? That’s where we have to find space to be innovative.

You use a process known as floor malting, which is an age-old malting process that the industrial malthouses abandoned long ago. Would you say you’re being innovative by tossing out a century’s worth of modernization in the malting industry in favor of reverting back to a traditional process?

I would absolutely say no. I’m a very firm believer that the way forward is not backward. And the reason I say that is because one of the things we’ve had to do to distinguish ourselves in order to even get customers is in quality and consistency. And you can’t get the consistency and quality that the market is demanding right now without modern technology. I like to say we’re combining traditional methods with modern technology to create high-quality, high-value, unique, consistent malts. We are floor malting and getting the complexity and depth of that process into our malts, but we’re using modern technology. Our gemination floor is climate controlled. Before they’d just not produce in the summer and open and close windows to help monitor the temperature. We don’t do that. Our system gives us the same climatic conditions every single time during the germination process. Same thing with the steeping temperatures. We put in a tempering tank so we have the same water temperatures that we’re steeping in all year round.

If you were able to travel back to 2012 and give your younger self advice, what would you tell him?

I’m definitely in the camp that you should have no regrets if you made the best decision you could at the time. People tell you advice, but sometimes the best way to realize it is to make the mistake and hopefully make it small enough so you learn from it without it being fatal.

I mean, certainly I needed more money, but if I told myself I needed more money four years ago maybe I’d pass this threshold where people would just say that’s too expensive to get off the ground. By putting a smaller price tag on it, maybe I got enough nibbles to hook the financing. So there’s nothing I would tell myself to necessarily change because even in failing or doing something wrong you’re going to learn something, and often by doing something wrong you learn a lot more than when you do it right.