Friday, September 5, 2014

Balcones Distilling's Investors Threaten To Dump Founder, Genius Master Distiller, Chip Tate.

Left to right: Winston C. Edwards, Chip Tate, Patrick Donehue, and Noell Michaels
enjoying Balcones Vth Anniversary Crooked Bourbon at LeDu's in New York in better days.

The whisky blogosphere is abuzz with the news that a restraining order has been passed against Chip Tate, master distiller of Balcones, to keep him out of the new 65,000 square food distillery Tate was building in downtown Waco.

Mark Gillespie posted the news on WhiskyCast: http://whiskycast.com/management-standoff-reported-at-balcones/
Chuck Cowdery broke the news on Facebook.  And Clay Risen's Mash Notes put up a blog post too:  http://themashnotes.com/balcones-bust/

All of these notices are based on a piece by Tommy Witherspoon in the Waco Tribune, with colorful details taken out a court document, like Chip apparently wishing he had put a couple of caps into board chief Greg Allen: "'I should have put two in his chest,” referring to shooting Allen after their conversations about Tate’s actions"... A reason why is hinted at in this passage from the Waco Trib piece:Also in connection to the parties’ disputes, Tate has made statements pointing out how the distillery is full of combustible items and how easy it would be for the distillery to be destroyed by a fire and that it would be better for it to be destroyed than for anyone other than him to run it,” the petition states."
http://www.wacotrib.com/news/business/management-quarrel-threatens-waco-s-popular-balcones-whisky-distillery/article_73ad1ba7-f23a-51f4-8592-afb993e0a001.html

The latter threat strongly implies that Chip was angry that Greg Allen threatened to get rid of him at the helm of Balcones and replace him.  Balcones is Chip Tate's life's work.  The details of the argument may yet come out.  All we have so far is what the Waco Trib scraped from the court documents - and they only tell the board's side.  I would caution everyone not to believe these allegations without some skepticism.  They are part of a legal battle and just because an interested party alleged them doesn't make them necessarily true.  In any case, those are some very strong words, but as Clay Risen wrote yesterday:

"’ll say this: No one who has met him should be surprised that he would say such things, but equally so, no one would expect them to be anything but words. Some people are very passionate about what they do, and they don’t hold back when something gets in the way of their work. Tate is one of those guys."

Mike Rockafellow
Who is Greg Allen?  Greg Scott Allen is the former CEO of Advance Foods of Enid Oklahoma - which merged with Pierre Foods in 2010 to form AdvancePierre under new CEO William Toler.  Advance Foods was originally started by Greg's father, Paul Allen.  His partner in the business was David L. McLaughlin. According to this 2005 article:

"The Allen and McLaughlin families that owned Advance Foods now hold minority stakes in AdvancePierre."

So Greg Allen, Mark Allen, Paul Allen, and Rob McLaughlin were bought out of their large food processing company and found themselves with capital and spare time.  They picked up Chip Tate's Balcones distillery expansion project - an excellent opportunity.  It appears, however that they are trying to manage Chip Tate like an employee.  Anyone who knows Chip knows that he's an impresario of spirits production.  He's a perfectionist and an artist:  a rare genius prodigy in the field of American whiskey.  He clearly cannot be governed in the usual business way and it's a mistake to try.

Other people involved in the project mentioned in the Balcones' press release announcing the ground breaking of the new distillery (and one other - not mentioned - as found on Linkedin are:)

Mike Rockafellow  Owner, TBC Enterprises, Inc
Keith Bellenger - Chief Operating Officer Balcones
Noell Michaels - Charlottesville VA, formerly of Bold Rock Hard Cider,
Hawker Beechcraft Corporation,
The Maple Ridge Group
and 
Patrick Donehue Oklahoma city Tax Director First United Bank

On Chuck Cowdery's FaceBook post the reaction from the Craft distilling world and whiskey enthusiasts was predictably pro-Chip.  Jackie Summers, the creator of the hibiscus and spice tincture Sorel opened the comments simply with "NO CHIP = NO BALCONES."

Dozens of others said similar things.  Late in the evening I amplified, writing:  "I, too, stand with Chip. Chip is the heart and soul of not just Balcones but everything that is right about Craft distilling. No one sweats every detail and works so hard to produce fine art in the mash, barrel, bottle and glass. I know Chip bent over backwards to arrange a deal where it was clear, up front, that things would be done HIS way. The investors need to get out of the way and let him lead. I told Noell Michaels and Pat Donahue as much last time I saw them. Get on board and let the Chip express run free. That's the only way the investors will reap their reward. Did the Pope lock Michelangelo out of the Sistine Chapel when the ceiling was half finished? Chip is making art. Let the Artist create!

...sorry if I'm over the top... I've been drinking excellent whisky tonight and the news is devastating. I've been counting on this project to bring sweet Balcones juice to my cabinet and America's. This isn't just about my pining desire for Rumble Cask Reserve, Brimstone, True Blue, and Texas Single Malt... but also about America's need to drink this true Texas nectar. This is about patriotism, Goddamnit!"

I remember when Chip was setting up the deal with the investors.  We had a couple of phone conversations.  Chip was very careful and didn't say much, but he emphasized that he was looking for a group who would let him lead the project with minimal interference.  Chip intensely valued his independence and ability to operate Balcones his way.  But, like other small businesses gripped with sudden success, he lacked the capital to adequately grow.  This is particularly true in whisky distilling because the capital needs of building a new distillery are so steep and the time to recoup so long.  Clearly there's been a breakdown in communication here and that's a shame.  I know this is a situation that Chip feared even before the deal was struck.

Chip talked personally with me about trying to find the "right group" of investors who wouldn't try to take over the company or push him into doing things in a way that he didn't think was best. Somewhere in this mess there was a difference of opinion about how Balcones was to be set up and Chip's worst fear was realized. Then his angry reaction ended up in court papers.  I KNOW this didn't stem from a lack of clarity on Chips part going in.

Chip Tate isn't just a distiller.  He's a genius who builds his own stills, develops completely new mash bills and ground breaking unique products.  As I once wrote: Chip Tate is a "Mad Geeky Genius".

No matter what the actual details of the legal proceeding and arguments actually are, it's crystal clear that Chip Tate is the heart and essence of Balcones and the investors would do well to put aside their pride and understand that Chip Tate, like Michaelangelo is a great artist that needs latitude.  Posterity will not remember Tate's business meeting attendance even if he has been hotheaded and tempermental.  It will remember whether America's top Craft whiskey's expansion project succeeds or fails.  This needs to get resolved and they need to patch it up with Chip because the project can't be done right by anyone else.


Previous articles about Chip Tate and Balcones whiskies on The Coopered Tot:

Chip Tate's Mad Geeky Genius   http://www.cooperedtot.com/2012/09/chip-tate-mad-geeky-genius.html

The Illuminating and Unsung Batch Evolution of Balcones Texas Single Malt   http://www.cooperedtot.com/2013/09/the-illuminating-and-unsung-batch.html

Tasting special unreleased casks of Balcones with Chip Tate and AllisonPatel at The Brandy Library   http://www.cooperedtot.com/2012/07/tasting-special-unreleased-casks-of.html

Balcones True Blue - a floral citrus blue corn eau-de-vie with kicking dusty Texas terroir.   http://www.cooperedtot.com/2012/05/balcones-true-blue-floral-citrus-blue.html

Smoked Whisky: Balcones Brimstone and Corsair Triple Smoke   http://www.cooperedtot.com/2012/03/smoked-whisky.html

Rumble Cask Reserve is a delicious rarity that defies categorization   http://www.cooperedtot.com/2012/07/rumble-cask-reserve-is-delicious-rarity.html


Update:  The court papers relating to the restraining order are posted and analyzed on the blog whisky-file.com here:

26 comments:

  1. Replies
    1. It's a metaphor, MAO. The truth is he's closer to Stradivarius.

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    2. The Michelangelo metaphor makes no sense. Michelangelo hated painting as opposed to his lovr of sculpting and explicitly stated that he disliked working on the Sistine, only doing it after he was refused funding for another sculpture. He once left the job unfinished after being harassed by the Pope to finish faster and only returned after being paid twice his original fee. After your masterful articles on the historical depiction of women and minorities in alcoholic advertising, this simple mistake comes as a let down.

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    3. Sorry to disappoint you, Daniel. It was a poor metaphor indeed because my reading of the history of Michelangelo was lacking. In my defense, I heard about the situation at Balcones at midnight and got this post up by 3am. I was rushing, granted.

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    4. peaking of rushing, I definitely overreacted there, not to mention missed the issue at hand. I am massively in support of the creative genius of Chip Tate and hope that he comes out of this on top.

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    5. No problem, Daniel. I appreciate it when people correct something I've got wrong. That's how you learn. I was using a stereotyped mental image of the Sistine Chapel ceiling story. I need to actually study this episode before spouting my mouth off. But I appreciate your feedback about the Balcones fiasco. It's a disaster for all involved. It's in the best interests of absolutely everybody (Chip, the investors, and the rest of us thirsty drinkers) if they all end up drinking in some room and end up with bear hugs.

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  2. Well said, Josh. I'm sure the truth will out (unless some sort of settlement happens) and when the smoke clears I just hope that Chip remains at the Balcones helm. Undoubtedly both parties have said and possibly done regrettable things leading up to this situation, but it's more than a shame that it has come to banning the artist from his own distillery...This kind of public dispute does no one any good.

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  3. I appear to a be lone voice, perhaps in part that my day job is being a "professional suit". You don't own something that you sold. I don't still own the stocks I sold at $35 that are now $75. I can't wish that away. His fears were realized - that he brought on an investor that did not align to his vision - but he signed the paper and sold the majority of the company. If he wanted to run his company he need to stay in control of it. He chose not to. History is littered with examples like this in every field and industry. As I have said before I feel Balcones (ie Chip) was obsessed with rapid expansion - fueled in part by being the darling of the whisky media - I ran into him at more events in Europe than in Texas and it is sad he seems to have paid a very heavy price. Poorly advised is my guess and too quick to take the money. Blame lies in both parties and this not going to be the last example either. I wrote a similar piece on my blog re: Bruichladdich.

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    1. Simon, thanks so much for your feedback. You are right about the consequences of signing away majority ownership rights in exchange for expansion capital. However I wouldn't characterize Chip's desire to expand as "obsession". He has a white hot product that is achieving cult status at the same time his production is pathetically tiny. This isn't just about Chip wanting to aggrandize or maximize business. It's about people wanting his spirits and not being able to find them. Chip puts a lot of love into those spirits and I know that he deeply wants everyone who wants them to be able to have them. He got investors because that's just good business. What's not good business is having the creative vision barred from the premises. Maybe the board is thinking they'll have an easier time without the loose cannon on deck. maybe Chip feels he is being pushed out. It's a mistake to believe that the different spirit which the new distillery produces will be able to be adapted into a recognizably brilliant Balcones product by anyone but Chip. It's a disaster for all involved. They need to find a way to reconcile. Maybe an arbitrator - or a retreat where they get massages and play drinking games - I don't know. But, as Roxy Music once sang... "The space between us... better close it up tonight".

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    2. "It's about people wanting his spirits and not being able to find them."

      Not even slightly. It's about ensuring that revenues exceed expenditures, year in, year out. This is how one stays in business.

      "I know that he deeply wants everyone who wants them to be able to have them."

      Sorry but that's not good business either. His obligation is to his bottom line, not to fawning internet fans looking to drink his whiskeys or store those whiskeys in their bunker.

      "He got investors because that's just good business."

      Not when you give away more than half the farm. That's called selling the company. You can't expect to do things your way after this, and you can't carry on without adding the word "accountability" to your vocabulary.

      I should add that all of this is a crying shame, he was a beacon of craft distilling, there's no question about it. But he should have had the foresight to get proper counsel in this matter, as it's clear he had no experience in raising capital. It sucks for him and everyone who appreciates well made whiskey, but it doesn't take an MBA to see how this went so very wrong.

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    3. Clearly the proof is in the pudding. But the story is not yet all told.

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  4. Like Simon said. Seriously, anyone who ever ran into Chip surely remembers him banging on and on and on about how he could sell all his juice in Texas alone. Business was booming so why the need to triple capacity? Ego and ambition, and unfortunately this is the price you pay when they get in the way of sustainable growth at a sensible pace. Diageo can go ahead and triple output at their distilleries; craft distillers in business for 5 years cannot.

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    1. Tim, your comment is absurd. The original Balcones distillery is tiny. It was already producing at maximum capacity. There was no "sustainable growth" possible with that facility. As Chip said, the production of his maxed out tiny distillery could be soaked up by Texas alone. But people all over America wanted Balcones. Chip HAD to build a new distillery to have any hope of meeting rising demand. Building any new distillery is capital intensive. Chip's need to build a new bigger distillery has zero to do with ego or ambition, and his need for investors is hardly unusual in any business in that awkward straddle moment between having a potential market but not the productive capacity to meet it without capital investment. You can only increase production capability at a given site if there is enough room for more mash tuns, washbacks, stills and storage for aging whisky. Otherwise you must build a new distillery. That's true for Diageo and it's true for tiny Craft distillers like Chip Tate. Personally, I enjoy Balcones whiskies and I wanted to be able to get them. I have NEVER found Rumble Cask Reserve in the wild. The half dozen times I've ever tasted it it came either from Chip's hands or from enthusiasts who had visited the distillery at lucky moments. That's not right. I want to be able to find Balcones products. It's not ego and ambition to want a good product to be able to be available for the people who love it. It's just good business.

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  5. But it's NOT good business! This sad end result clearly illustrates that! Just because all of America wants Balcones means he has to double production capacity? How does that logic follow? And what would have happened if he had continued at his current production for another 3 years, or added one still a year: would America have really suffered? I don't see the country going to hell in a hand basket because there's not enough Pappy to go around. And neither do I see Julian Van Winkle losing sleep because there's a Pappy shortage. Hint: that's not necessary a bad thing in business.

    Balcones didn't have the capital nor the production capacity to make their whiskey available for all of America; so what? Good business sense would have been to grow within his means, expanding gradually through small capital investments that didn't require him to give away more than half the farm. That was shortsighted and now he's paying the piper. There is nothing in this story that speaks to good business practices. Nothing at all.

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    1. Pretty tough for me to argue with this, Tim.

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  6. It's good business to sell more than half the farm to outside investors, crossing your fingers in hopes that they share your vision of how the business should grow, all the while leaving you up to your own devices with THEIR millions of dollars? Sorry, that's called wishful thinking, not good business.

    There's never enough Pappy to go around and I doubt Julian Van Winkle loses sleep over this. What exactly would have happened to America if Balcones had continued production at the status quo for the next 3 years, or just added a still a year as small capital investments permitted? That's good business, not feeding into the social media hysteria that turns on a whim when it finds the next shiny object to blog about.

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    1. The Pappy example is more problematic. The Van Winkle family hasn't actually made any juice since 1972. Currently they have a deal with Sazerac to make the whiskey. I'm not sure of the terms, but Julian III isn't really independent. Also, the Pappy mania make profits for flippers. Far less, I suspect for Van Winkle. The "Good Business" angle for Balcones would be meeting consumer demand by upping production. Granted it's the "how" that's the issue. The devil is in the details and clearly the devil is all over this situation.

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  7. The Pros...

    1. Chip Tate is a boy genius, a true artist (this reflects his self-description as a "composer at the junction of art and science".

    2. His products are amazing, earning sixty awards.

    3. He's a master distiller who needs to be left alone.

    4. The bad old Board of Directors is trying to move him out before the new distillery is even built.

    5. Yes, he's tempermental but when he threatened to shoot the chairman of the board, and implied he'd rather burn down the distillery than give up his control, it was just words, simply his style. Whew!

    The "pros" seem to be long time followers and fans. To them he is a true boy genius/artist can do no wrong and blame the situation on what they'd present as a hostile takeover.


    The Cons...

    Trust me there are just as many cons as pros, and I am one of them. After viewing Tate's own videos (nearly an hour of his blather) and significant other research, a number of descriptors beckoned. Words like blather and blarney, micro-management, thin skinned, testy, condescending and the like. In elementary school the kind of student whose report card includes comments like "...does not work well with others". Ergo the consensus of cons...

    1. Is Tate the artist and master the pro's put forth? No. What he is, like Thomas Edison, is a great experimenter. Tate is willing to tinker and try new things. He gets an "A" for uniqueness. But he is not even close to being a master distiller/blender - skills that take decades and mentorship.

    2. Around here, few of us have any respect for the near unending paid-for awards handed out by the "fests" and "competitions". Spare me. The real story is that there's a real division among true experts. Murray, Pacult and Ralfy gave great reviews, although Ralfy's score was not exceptional. Dave Broom, an number of Whisky Magazine reviewers and Serge? Not so much, rather average.

    The former are recognizing the uniqueness, and newness. They want the new kid to succeed. But the experts who gave only average ratings reflected that in consideration of all issues these spirits were average.

    The point: the truly great spirits - think Lavagulin 16 – are almost universally praised.

    3. As far as being left alone, it is well to keep in mind that Tate selected the investors and - read this - sold them the company. His reward? A minority interest. When investors put up $10M dollars they insist on control, and will use it to protect and enhance their investment. If he failed to specify his control, shame on him and his cowboy attorney. Tate picked the investors, negotiated the deal, and signed it.

    4. The idea that the bad old board intended to buy the company and then dump him - before the distillery was even built - is silly. Tate is far from the first inventive small business to sell out. But no buyer is going to dump the inventor before they even start up. Even if intended, they'd make sure that everything was up and running, that they'd extracted every bit of knowledge and usefulness before - very slowly - easing the guy out. This is especially important when your guy is very well known with a rabid following. You'd have to a fool to toss your founder/inventor/hero out suddenly and in mere months and before you made a drop of product.

    5. This one is just stupid. Lots of people are tempermental, ego maniacal control freaks. But they don't make stupid and serious life-threatening and damaging threats. Those that do can end up in both civil and criminal court. The only reason the company has not made criminal charges? Smart businessmen, the company hopse that Tate's 90 day "time-out" suspension will cool him off.


    There you have it...

    Both sides presented. The "pro" side was easy to present, the "con" side requires analysis from a distance.

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    1. Very interesting take on the topic, Cap'n Jimbo. Until more information comes out there's not a whole lot more to say about what's actually happening between the Board and Chip. But as far as whether Balcones products are good or not, there's a topic we can chew. First of all, I agree 100% that most awards don't mean a thing. Period. I judge on the International Chocolate Awards and we taste blind and the tallying operation is very scientific, thorough, and objective. I've seen a little of the Malt Maniacs process and I can concur that that particular awards is based on how a particular group of experts scores (blind) the submitted whiskies. Granted that the pool of submitted whiskies is a big factor - and the tastes of the panel are a big factor. The Malt Maniacs are a very august group of malt whisky epicures who have tasted VERY widely. But would I want them to judge BIB bourbons under $20? Maybe not. Context counts. This is true of bloggers and professional reviewers. Balcones Texas Single malt isn't like any other single malt. It's wood-managed like a Bourbon and is super duper young. Part of the wow factor with Chip's work is that he gets very good flavors out of extremely young whisky. This is a "conditional achievement", like Oscar Pistorious getting global fame for only getting as far as the quarter finals. Objectively, not astonishing, but for a guy with no feet utterly unbelievable. Some of Chip's work is fully objectively astonishing. I'll specify Rumble Cask Reserve, and Brimstone Resurrection (I could name more, but I'd have to ponder). Brimstone Resurrection is one of the most amazing liquor experiences I've ever had. Out of a Craft distillery that's only been here 5 years, that's EPIC. Chip's roster of massive hits and very near massive hits (things like his Crooked Vth anniversary Bourbon, French Oak finished Texas Single Malt, True Blue cask strength, and the rum) show that these massive hits aren't flukes. Given that Chip is self taught and hasn't been around that long, the fact that he is able to achieve stuff like this in 18 month old to 5 year old spirits shows that he's a prodigy if not an outright genius. That's the consensus of a lot of people and it''s pretty easy to empirically support.

      Look, Bruichladdich sold to Remy and Jim McEwan went away. But Bruichladdich was established in a way that the fledgling Balcones is not. Balcones needs Chip now. Maybe not forever, but if Balcones is orphaned from it's creative birther now it will never develop into what it seems destined to become. Anyone who has met Chip and tasted the weird experiments from his road case knows what I'm talking about here.

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    2. What happened to Jim McEwan? I seem to be very good at ignoring the matter at hand, but how exactly has he "went away"? I actually saw him two nights ago at a tasting class in Edmonton and asked him about the sale to Remy, and he said that he was glad to have the capital and distribution from Remy to run the business properly, while still being able to work "as I always have", his words. I can find no news online of him ever being forced out of the company or distillery by Remy, and while I apoligize for again derailing the discussion, where did Jim McEwan go?

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    3. Daniel, when Remy bought Bruichladdich there were wide reports from reputable sources that Jim McEwan planned to retire. I'm delighted to hear that he has not done so. Here are some of the sources that led me to the erroneous conclusion that McEwan was choosing to leave Bruichladdich at the time Reynier departed:

      "Jim McEwan is retiring next year ~ retiring from Bruichladdich that is. McEwan has plans of his own ~ he is on the next stage of his life journey with whisky. He is planning to travel the world..."
      http://www.whiskyforgirls.com/?p=1337 (Whisky For Girls blog, is Rachel MacNeil - a good friend of Jim's who resides on Islay).

      There were similar pieces around at the time - coming from stray comments from McEwan himself. Indeed, even the Bruichladdich web site acknowledges them but (and I missed this) puts them to rest:

      "Everyone at Bruichladdich and Laddiefans all around the world were mightily relieved when he announced that rumours of his retirement on this auspicious date were exaggerated and that he is staying with us for another few years."
      http://www.bruichladdich.com/news/laddie-news/jim-mcewan-50-years-in-the-whisky-business

      This is a great example of the problem with rumor.

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    4. Jimbo has been trolling literally everything dealing with the Balcones thing. One has to wonder if he isn't somehow connected to the Allens.

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  8. I think Josh is hitting the nail on the head here in the actual article. Sure, selling away majority ownership of your business makes you vulnerable. But by the same token, what business sense does it make to push out the innovator who makes your brand valuable (which seems to be what Chip Tate thinks happened)? Beyond the questions of who's right or wrong or who caused the conflict in the first place, it's clear that investing in Balcones means investing in Tate. Keeping him happy was necessary to protect their investment. Having said that, sounds like he might have been difficult to work with.

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    1. Exactly, Roque Planas. The question is whether the investors are trying to discipline Chip, as Cap'n Jimbo seems to to suggest, or whether they are burning him with an intention to make a cheaper more generic product and use up the brand glamour Chip created by being brilliant. Either situation is plausible and until we know more we just can't say.

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  9. Fraud by, not of, investors is the key issue. "PE Investors, an Oklahoma limited liability company with 29 members that were not disclosed to Tate or Balcones until after the “fraudulently induced June 2013 transaction admitting it as a member to Balcones.” http://www.wacotrib.com/news/business/waco-whisky-distiller-fires-back-in-ongoing-balcones-dispute/article_aa7dd794-c095-53eb-b3dc-155cad40ea91.html Goldman Sachs & Onex Corp, Toronto based frequent front for Carlyle Group, snuck the vulture's beak of international predatory capital under the tent via the already bankrupted Hawker Beechcraft. Cf. Wiki

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