His competitors call him a heretic, but Tom Lix doesn’t care. He’s too busy winning gold medals at international spirits competitions, selling millions of dollars of his “aged in a day, not years” whiskey, and being one of the first entrepreneurs to raise six figures using equity crowdfunding.
Tom took some time out of his busy day to come on Episode 9 of the Krowdfund Pitch Podcast. In our 20 minute conversation, Tom told me all about Cleveland Whiskey and why he wants his biggest fans and best customers to become shareholders in his business.
I’ve already invested $200 in Cleveland Whiskey’s WeFunder offering and as I’ll be doing with all of my crowdfund investments, I’ve shared my personal investment analysis with readers. To see why I’m so bullish on the investment and rated Cleveland Whiskey an 85 out of 100, read my analysis here. Or listen to the show or read the interview transcript, and head to the company’s WeFunder page to decide if you want to invest.
Episode 9: Cleveland Whiskey Show Notes
Thomas Schroder: Welcome to the Krowdfund Pitch Podcast, the show where entrepreneurs looking for capital to launch or grow their business pitch you, a crowd of potential investors and early adopters in hopes that you’ll help fund their dreams. I’m your host, Thomas Schroder, creator and chief crowdfunding curator at Krowdfund.com, and yes that’s Krowdfund with a K .com. When guests come onto the show, they’re smack-dab in the middle of what they hope will be a successful crowdfunding campaign. After giving you their best 1 to 2 minute elevator pitch, I’ll follow up with a few questions for more details. If you like what you hear, you’ll then have the opportunity to either pre-purchase their product or, thanks to some groundbreaking new laws, become an actual shareholder in their business with an investment as low as $100.
Today’s guest is Tom Lix, an entrepreneur from Cleveland, Ohio, with a technology so disruptive, his competitors are calling it sacrilegious. Step into the batter’s box, open your ears and maybe your wallet, because here comes the pitch.
Tom Lix: Okay, so I’m not sure I really have an elevator pitch, even though I know that’s important. We’re whiskey 2.0, or at least that’s one way to talk about it. We have a very disruptive technology in an expanding industry, an industry that hasn’t changed in many, many generations, and yet demand is skyrocketing around the world. People are drinking whiskey in China, in India, in South America, in Africa, and of course in this country we’re moving back to brown spirits. With traditional processes, you can’t crank up production like we’re like some computer parts. It takes a long time. You take a clear distillate, and you put it in a barrel, and 80% of the flavor in a whiskey comes from the interaction of that distillate with the wood in the barrel, but it takes 6, 8, 10, or 12 years, and I’m not that patient a person, especially when demand is going through the roof.
We have a disruptive technology. We’re called heretics in the industry. There are people who certainly think that what we’re doing is sacrilege, but we’re getting a lot of attention and people are buying our product, and the bottom line is we can make it much, much faster, and even more importantly, we’re doing products now that nobody even imagined. We’re doing bourbons that are finished with black cherry wood and hickory and sugar maple and apple, winning gold medals and double gold medals around the world, and in Berlin we just won an award as the Whiskey Distillery Innovator of the Year. I suppose if there’s a pitch, that’s my pitch.
Thomas Schroder: Before we jump into the Q&A session, I want to mention that unlike previous guests on the show, Tom isn’t using a rewards-based crowdfunding platform like Kickstarter or Indiegogo to simply pre-sell his product to customers. Instead he is raising money under Title 3 of the Jobs Act, which allows him to offer an actual financial interest in his business to his crowdfunding backers. Since this new world of crowdfund investing is strictly regulated by the United States Securities and Exchange Commission, Tom can’t actually promote the terms of his investment offering on a public forum such as this podcast, but if you stick around till the end of the show, Tom will direct you to where you can earn more about his investment opportunity and ask him any questions you may have.
I’ve been waiting over 4 years for this new world of investment crowdfunding to open up to the masses, and I can’t begin to describe how excited I am to start interviewing and investing in entrepreneurs that are creating exciting new businesses. If you want to learn more about this new world of crowdfund investing, check out episode 1 of the Krowdfund Pitch Podcast or head to Krowdfund.com/invest, and again that’s Krowdfund with a K .com/invest. You can also e-mail me at firstname.lastname@example.org or tweet @krowdfund, and I can answer any specific questions you may have.
Lastly, I want to mention that after coming across the Cleveland Whiskey investment offering on Wefunder, reviewing the information that they provided to potential investors, and asking Tom a few diligent questions I had myself, I chose to invest $100. This was my first crowdfund investment I’ve made to date, but it definitely won’t be the last. If you want to read my assessment on the potential risks and rewards involved in investing in Cleveland Whiskey and follow along on my crowdfund investing journey going forward, head to Krowdfund.com/portfolio. Each week, I’ll be sharing my most recent crowdfunding investment and my rationale for why I chose to invest. Then each month, I’ll provide an update on my entire portfolio and how it has performed to date. All right, that was a lot to go over, but let’s get on with the show and jump into the interview with Tom Lix, CEO of Cleveland Whiskey.
Thanks so much, Tom. Thanks for coming on the show. Before we really jump too much into more about Cleveland Whiskey and kind of how that business has grown, can you tell us a little bit more about your background? What were you doing before you decided to launch a whiskey distillery?
Tom Lix: I’ve done a lot of things actually. I learned distilling back when I was in the Navy 40-some years ago. I was lucky enough to be stationed on an old destroyer that was about to be decommissioned. It was a reserve destroyer. I don’t think any of the officers were really there. This was a long time ago. I remember the first day on that ship, I came onboard, and the chief petty officer comes up to me and he says, “Kid, you’re going to be my apprentice here on this ship.” I didn’t know what he was talking about, but I had just gotten out of distilling school, but it was for distilling freshwater out of saltwater on those old ships. That’s how you made your water. When I got there, he took me down into a space, opened up a hatch, and inside he was fermenting fruit juice from the galley, sort of sugared Kool-Aid. He attached into the steam lines for a heating source and the seawater lines that went through all the spaces for a cooling source, and he was making what he called hooch, not only for our ship but all the surrounding ships.
I was a college dropout at the time. When I got out of the Navy, I went back to school. I got a doctorate in marketing of all things. I worked for and I’ve started some software companies, but always wanted to go back to making something like a whiskey, and now just seemed to be the perfect time.
Thomas Schroder: Great, so you come from a little bit of a nontraditional distilling background, and you’re definitely going the nontraditional route for that industry. I’m a little bit of a whiskey drinker myself, and I remember a few years ago hearing about how Maker’s Mark was having to dilute their whiskey because they were running out of supply, and the entire whiskey drinking population cried in an uproar. They decided to instead of doing that, they were like, “All right, we’re just going to raise our prices.” Your product really solves that problem. How quickly can you turn around a batch of whiskey?
Tom Lix: We’re really sort of a just-in-time manufacturer. We’re the only one in the world, even though we’re a small company. Let me put it this way. We have a 100-proof traditional bourbon that we make. It’s our Cleveland Black Reserve. It is 100-proof, so we’ve done over 3,600 bind taste tests against Knob Creek. Knob Creek is a great small batch brand from the Jim Beam who are now the Suntory Beam Company. They had won virtually every gold medal in the book over the last 2 decades, but in those 3,600 blind taste tests, we win on average about 54% of the time. The big difference though is that Knob Creek takes 9 years to make in a barrel. Our product takes about 24 hours.
Thomas Schroder: Wow.
Tom Lix: Yeah, 24 hours. Again, that’s a great advantage from a production point of view, but from a consumer point of view, it’s really just about the taste. Age is irrelevant. I’ve still got to make a really good product. The bourbons that we’re now finishing with what we call these transformative woods, woods that you could never make a barrel out of. If you made a barrel out of black cherry for instance, black cherry wood or hickory, they would most likely leak like a sieve, they’d be hard to make, they’d be expensive to make. Nobody does that. We’ve used oak for well over 1,000 years in our barrels simply because they hold liquid. It wasn’t as though somebody was prescient enough to say, “Hey, let’s leave it in a barrel for a long time, an oak barrel, because it’s going to taste good.” It turns out the oak does help the taste, it helps it significantly, but there are other woods out there that have these beautiful, wonderful, subtle tastes. We don’t add sugar or syrup or artificial flavors or colors. It all comes from the wood, and they’re pretty unique products.
Thomas Schroder: I saw on your Wefunder page you could even dial down the alcohol content of a bottle. Do you envision in the future creating one-off batches for maybe a wedding or a restaurant that wants to have a 82-proof pistachio wood whiskey?
Tom Lix: Yeah. That’s a great question because we’re actually doing that on a retail level now. We’ve done it for a number of different retail stores, where we go in. Instead of saying you can pick a barrel out of the thousands of barrels that we have in this warehouse, granted they’re all oak barrels, they’re all similar products. With us, we’ll go in with a kit and we’ll say, look, we’ve got a couple different intensities of oak here. We’ve got bourbons that we’ve finished with a whole range of different woods. Let’s work together on blending them together, proofing it to the level you want. We can do that with the management of the store, or sometimes we’ve had stores actually bring in 10 of their top customers, and we actually make something right there in front of them, and then we come back here and we’ll produce it. In a couple of weeks, we can, whether it’s 100 bottles or 200 bottles or 20,000 bottles, we can make something custom for somebody. We are doing that. We call it our uncommon barrel program.
Thomas Schroder: Since you don’t have to have these massive warehouses filled with oak barrels aging 8 to 10 to 12 years, is your facility that you’re doing this all out of pretty small?
Tom Lix: It is. It actually is very small. People are surprised when they come here. They’re amazed how much we crank out. What we don’t have, if you go on the Kentucky Bourbon Trail or over to Scotland or Ireland, you see these big warehouses, they call them rickhouses, where they store thousands of barrels of whiskey. In fact, in Kentucky, they say there’s 6 million barrels of bourbon sitting in warehouses just slowly patiently waiting until they have the right birthday so they can bring them to market. With us, we really move things here pretty quickly. We don’t have to have warehouse space. Half of our space is production, the other half is simply storage of bottles and boxes and things like that, where we’ve got to have them in supply.
We bottle just about every day. We ship just about every day. We’re now in 13 states. Last year, we started exporting. We’re in Germany, France, Belgium, Switzerland, and just recently we shipped our first order to Japan.
Thomas Schroder: Which is a pretty competitive market, I hear.
Tom Lix: It is. It is, definitely.
Thomas Schroder: You guys launched your first product in 2013, is that right?
Tom Lix: That’s correct. March 1 of 2013.
Thomas Schroder: Okay, and last year, you all eclipsed a million dollars in sales. That’s a great start. I saw in the business plan that you hope to hit 10 million in annual sales in the next 5 or so years. How do you really plan on reaching that scale?
Tom Lix: Some of it frankly is from investments. We’re investing in scaling up our technology, we’re investing in terms of putting people out there and expanding our distribution and our marketing footprints. We’re seeing increasing demand. I think the export markets are huge for us. I’m hoping that by the end of this year, we’ll actually be in China. Demand is high right now with bourbon, so it’s a big deal for us. Of course, our technology, we can apply it in other spaces as well, anything that gets aged in a barrel, whether it’s rum or brandy or wine. There’s a lot of other places we can go with this. I think there’s some tremendous opportunity.
Thomas Schroder: Have you been approached by many larger distillers or wine producers about possibly licensing your technology?
Tom Lix: Yeah, we’ve had people approach us about licensing. We’ve decided that really wasn’t an approach we wanted to take, at least not today. I think right now we’re just building our brands and proving that even though the generally accepted practice is that you need to put bourbon in a barrel and wait patiently, we’re disrupting that. We’re changing that, and there are a lot of people who are resistant to that change, but by going to market, we’re proving that people are willing to try it, and when they try it, a lot of people really like it.
Not only that, the beauty of our process is that we can keep making improvements. What we make today is far different and better than what we made a year ago, and that was better than what we made the year before that. I love the R&D process. I like us making new products. We have a small system we use just for R&D. I know it’s running behind me now. I have to close some doors so you can hear me on the phone, but it’s running behind me and it’s running some coffee beans, some specially processed coffee beans now to see how that turns out, so we’re doing a lot of different things.
Thomas Schroder: I would definitely try a coffee whiskey. That sounds interesting.
Tom Lix: Yeah. We’ll see how it turns out. Last week, we did something with mesquite, and that turned out really very nice. We’ll probably release that at some point.
Thomas Schroder: You’ve beaten out Knob Creek in taste tests, and you’ve won a bunch of gold medals at competitions. Is it frustrating for the old guard and the whiskey industry to call you quote-unquote “heretics”?
Tom Lix: It’s not for me. We’ve embraced the controversy. It was funny. We had President Obama come and visit the distillery last year, and it got a lot of people upset, especially the folks in Kentucky I think. He had never come to a distillery before, but he came here, and he spent about half an hour with us. He was fascinated by the technology. We had just started exporting, so that was good news. We spent some time with him. Then it was interesting. We had one writer who wrote about it, and he thought it was interesting that the president, who had never been to a distillery before would come to Cleveland Whiskey, the number 1 hated bourbon distillery among old-school whiskey drinkers. I just thought that was great. I had to call him up and say, “Hey, thanks for calling us number 1. I love it. We’ve never been called number 1 before.
We just roll with it. We’ve had some people say some pretty nasty things, but we’ve embraced the controversy. We know we’re doing things that are different. Not that I was around then, but I think back to some of the pieces I read about when the automobile was being introduced and how people were ranting and raving and saying that the only way to get from point A to point B faster, at least to do it in a moral, ethical, and proper way, was to focus on breeding faster horses. They were very anti-automobile. I think any time you change an industry, especially an industry that’s a $25 billion industry with some really entrenched players, you’re going to have a lot of people who are upset. Hey, that’s the nature of the game.
Thomas Schroder: Yeah, you’re really disrupting an old industry. In the last few years, you’ve seen cinnamon getting added to whiskey and honey, but what you’re doing is really changing the game, so it’ll be really interesting to watch your progress in the coming years.
Tom Lix: Yeah. For sure.
Thomas Schroder: Could you tell us a little bit more about the team that you have working with you at Cleveland Whiskey?
Tom Lix: Sure. It’s a small team. There’s only 8 of us full-time people, and we come from all walks of life. We don’t have people really from the industry per se. I’ve found that I wanted new and original people. I wanted people to think differently, to think outside the box. Everybody does. Everything we do is very different. A lot of the equipment we use are things that we had to fabricate ourselves or have built for us. It’s a group of people who I think are thinkers, who are explorers, who are interested in defying the status quo and doing things that are different. Whether it’s our sales and marketing people or our production people, I got a great group of people.
Thomas Schroder: Great. Tom, I would really like to talk more about your current equity crowdfunding offering, but due to SEC regulations we really can’t do that, but could you tell my listeners where they can go to learn more about that and where they can ask you questions about the potential to invest?
Tom Lix: Sure. We’re at Wefunder.com. It’s Wefunder, W-E-F-U-N-D-E-R.com/ClevelandWhiskey, one word. Wefunder.com/ClevelandWhiskey. I would say one thing about it is that the beauty of this is that we’ve raised money outside before. We’ve raised from larger investors and small investment groups and things like that, but the beauty here is I want our customers to come in and be part owners of the company. I think that would just be phenomenal and a good thing for us to really have our customers be part owners of the company, and that’s what I’m hoping for.
Thomas Schroder: Definitely. Especially as you roll out into new states and you get that distribution out there. Your investors will be your biggest evangelists for sure.
Tom Lix: They’re already great evangelists, so I’m pretty happy.
Thomas Schroder: Yeah, I’m sure. Tom, thanks a lot for the time today, and I look forward to following Cleveland Whiskey’s progress in the years the come.
Tom Lix: All right, sounds good. Thanks for the interview. I appreciate it.
Thomas Schroder: As Tom mentioned, if you’re interested in joining me as an investor in Cleveland Whiskey, head to Wefunder.com/ClevelandWhiskey. Wefunder is spelled W-E-F-U-N-D-E-R, and here’s a quick bit of whiskey knowledge for you. Scotch and Japanese whiskey is spelled without an E, but all other whiskey varieties, such as bourbon and Canadian whiskey, are spelled W-H-I-S-K-E-Y, including Tom’s Cleveland Whiskey. You can also find a link to Tom’s investment crowdfunding offering and other show notes from today’s episode on Krowdfund.com/ClevelandWhiskey.
If you enjoyed today’s episode, please subscribe to the Krowdfund Pitch Podcast on iTunes or Stitcher, and do me a huge favor by leaving a review. You should also head to Krowdfund.com/subscribe to sign up for my free Crowded Creations newsletter. Every weekday, my subscribers wake up to the day’s best early bird and all-star Kickstarter projects in their inbox, and they’re the first to hear about my new crowdfund investing picks and other Krowdfund related content I publish to the blog. Also, if you or someone you know are interested in launching your own crowdfunding campaign, check out Krowdfund.com/launch. From there, you can read about the best tips and tricks other crowdfunders have used to successfully launch and fund their crowdfunding project. That’s it for this time. Thanks again to Tom Lix of Cleveland Whiskey for coming on the show.