Compañía Cervecera Hércules- much more than a beer company

This is a story of culture and passion in order to succeed in a startup.

Our first investment out of our first fund was in Compañía Cervecera Hércules (Hercules): a craft beer company out of Querétaro. While craft beer might not have any technology, and back then we were still investing in more traditional businesses, the industry was being transformed and small beer companies were disrupting a gigantic industry. Hercules, in particular, had an extraordinary and passionate team led by a proven entrepreneur and was positioning a brand in the Mexican Bajío region. Their product, while still in very small production, was amazing and the early adopters were crazy about it. Craft beer had been booming in the US for many years and the Mexican market was craving a local product.

In 2013, the same year we invested in Hercules, the COFECE (Mexico’s Federal Economic Competition Commission) established new rules and conditions prohibiting large beer producers to have exclusivity contracts with restaurants, bars and consumption centers. This opened a market for entrepreneurs all across the country.

The beer market in Mexico is tremendous. In 2013, the production of beer in Mexico was estimated at 10 billion liters, positioning the country as the 4th largest beer producer in the world! Since 2010, Mexico is the world’s leader in beer exports.

So, we had an amazing team, a strong market demand for an initial product, in an absurdly large market that was ripe for disruption: we had to invest.

While everything I mentioned above was (and is) true, the business is very capital intensive and back in 2013 there wasn’t a lot of capital in the market for early stage companies. We were managing a very small fund and had limited resources to allocate to Hercules. In spite of this company being our largest investment in our first fund, we invested in the initial round and followed-on in several subsequent rounds, the net cash we were able to deploy was very small. Through the years, funding was an issue, this is a business where scale is tough: if you want to grow you need to buy more equipment to produce more. So, the lack of capital forced us to make certain decisions and the board decided to try to break even, and invest all of the proceeds in growth without raising more capital, at least in the short term. So, the company has grown at a slow rate, but it has grown constantly for the last 6 years. Because of limited growth, the team focused on one thing: their product. Their mission became to produce the best quality of beer and make sure the beer was always fresh. Making sure the quality of the beer was always extraordinary became their most important KPI. Their passion for their craft and their love for their beer was the ignition that drove them through the initial years.

It has been very inspiring and it fills me with pride to see how the company has evolved and grown to where it is today. This year, Hercules is producing 500,000 liters, operates a beer garden and is exporting their beer to the US. Hercules participated in beer festivals all around the world, including Brewskival in Sweden. The company participated in the Latin American World Cup, where its “Lanzallamas”, a Russian Imperial Stout, won a gold price in its category and won 2nd place in Best of Show, the “Macanuda”, Hercules’ brown ale also won a gold prize in its category and Hercules was awarded the best craft beer company in Mexico, where it competed with more than 30 other companies.

This weekend, Hercules hosted the first edition of “Suena el Rio”, a festival dedicated to the environment. It was a weekend of concerts, documentaries, conferences, workshops and, of course, beer. I am writing this post from the Hercules beer garden now because I want to try to transmit the feeling of this magical place. The passion and attention to detail that the Hercules team has put into their product is something you can see and feel in every corner of their facilities: in their brew house, in their beer garden, in the service and in their products. This inexplicable vibe was transmitted to all of the people that attended the festival this weekend. It really is hard to explain but when in Hercules you get a feeling in your stomach as you look around and everything seems perfect: good vibrations.

These vibrations are the best way to understand the culture embedded in the Compañía Cervecera Hercules. Their culture is the most important thing. They have methodologically created a culture that started in the way they made beer that has now become the way of everything in Hercules.

I just read Ben Horowitz new book and I truly believe that Hercules is the perfect example of a company that has succeeded because of its culture:

“Culture is not like a mission statement; you can’t just set it up and have it last forever. There’s a saying in the military that if you see something below standard and do nothing, then you’ve set a new standard. This is also true of culture — if you see something off-culture and ignore it, you’ve created a new culture. Meanwhile, as business conditions shift and your strategy evolves, you have to keep changing your culture accordingly. The target is always moving.

Your culture is not the values you list on the wall. It’s not what you say at an all-hands. It’s not even what you believe. It’s what you do. What you do is who you are.”

Hercules is an ecosystem of hardcore brewers with hardcore standards. I am privileged to be a part of their story and very excited about the company’s future.

Alejandro Diez Barroso. General Partner @ DILA Capital, a venture capital firm focused on Latin American and Hispanic startups.