How Tequila Fortaleza Overcame Obstacles to Scale Its Brand

Guillermo Erickson Sauza (00:04) Morning to everybody. How many of you are actually building a brand right now? Okay. I’m going to take this more from an operations standpoint—the kind of stuff that happened to us when we were building our brand. Thanks to Park Street for having us; we’ve been with Park Street for about sixteen or seventeen years now, and we’re very fortunate. We started our brand a little bit over twenty years ago.

Guillermo Erickson Sauza (00:33) I was born into the business. My great-great-grandfather started in the distilled spirits business in 1873. Unfortunately, my grandfather decided to sell that business, so I didn’t have anything to do with it. And no, I didn’t get the money from that sale either! But we had to start from scratch again with another brand. Obviously, we couldn’t use my grandfather’s brand name.

Guillermo Erickson Sauza (01:03) We needed this beautiful property we had, so we got the property back. With that extra time, I was able to finance out my uncle and pay him off. We officially started our business in 1999. If you’re building a brand, you need great attorneys—probably two attorneys who can look over every document and ensure your paperwork protects you in almost every aspect. That includes all steps of the process. In 2005, we started distilling and selling our first bottles in Mexico, and then in 2006, we went into the United States. We immediately ran into a large trademark problem.

Guillermo Erickson Sauza (01:58) Trademark problems are a bottomless pit of money. It really behooves you to do your trademark research as thoroughly as possible in any markets you think you’re going to enter. You might think it’s expensive when you’re doing the research and filing for the names, but it gets a lot more expensive once you get into a legal dispute over it. So, really do your trademark research.

Guillermo Erickson Sauza (02:27) We were very fortunate as a small brand. As you know, it’s very difficult for small brands to get on the shelf. As Charlie said earlier, we are a bar-developed brand; our brand was built with bartenders pouring it.

Guillermo Erickson Sauza (02:45) In 2010, we ran into a distribution problem with a major company targeting us, literally pulling us off the shelf and replacing our orders. That can happen. In your distribution agreements, you have to go over everything with a fine-tooth comb.

Guillermo Erickson Sauza (03:11) Especially in the United States, you have to have an “out” in your agreement if there’s no performance. If you don’t feel that distributor is performing for you, you must have a clear out based on performance metrics. Do your homework on your distribution setups.

Guillermo Erickson Sauza (03:34) The other thing regarding distributors: it sounds great to go with the largest distributor, especially in the US. It sounds appealing to go with the one guy who covers all 48 or 52 states. But that’s a double-edged sword because that one guy can cut you off. If you have a fight with him—which can happen with shouting and all those kinds of things—he can just cut you off and send your product back. You can sue him, but he’s so big that you’ll be tied up in court for three years. That’s another operational aspect you should look at.

Guillermo Erickson Sauza (04:01) We also ran into an issue with our importer going bankrupt. Our original importer went bankrupt, and we lost product with him—the product was stolen, and we never recovered the money. As you know, in a startup company, you need cash. It’s not hanging on the walls; it’s not everywhere. You really have to be careful with this and do your due diligence on your distributors and importers.

Guillermo Erickson Sauza (04:57) I’m going to give Park Street a plug here because we’ve been with them for more than 15 years now, and we haven’t lost a single dollar with them. It has been a great experience. Just recently—and that’s not a lot of problems by the way, in 20 years, just a few—we faced the agave shortage, where our raw material costs went up 300% and stayed there for two years.

Guillermo Erickson Sauza (05:26) One of the things you have to look at is your key product supply costs. Always assess how exposed you are to fluctuations in materials like cardboard or glass. If you have a raw material you depend on and the price goes through the roof, your business model might not work anymore depending on your price range.

Guillermo Erickson Sauza (05:56) We were okay. A lot of my friends weren’t making money during this time, but because we are in the super-premium or ultra-premium sector—does everybody know us by the way, Fortaleza? Everybody’s seen us around? I know it’s hard to find, but we’re in the ultra-premium category, so we still made money during this period. But since many others didn’t, you must have a plan to get over those kinds of supply issues. Always analyze your products, where your raw materials are coming from, and what the baseline risk is.

There is always a solution to every problem; you just have to find it. If you were doing business 200 years ago, imagine the shipping issues you would have had. There were no diesel engines—you had to ship by sailboat and transport liquid in amphoras! It was a lot worse 200 years ago.

Guillermo Erickson Sauza (06:54) There’s a solution to every problem. In summary, you have to really look at your cash flow. If you don’t have cash, your business is not going to make it. Otherwise, you’ll have to keep going back to investors saying, “I need more money,” and pretty soon they’re going to ask, “What’s going on with this?”

Do the planning. The more planning you do, the better off you are. And of course, implement auditing. Always include auditors because people steal out there. You have to start your auditing procedures. Fortunately, we’ve had some theft, but nothing of major consequence.

Guillermo Erickson Sauza (07:24) Even in the distillery, guys were taking tequila out in thermoses! Those kinds of things happen, but it’s more dangerous when it comes to the money. For example, we had an instance where a guy made an insurance policy out to himself instead of making it out to us in case the truck got stolen. Those are the kinds of procedures you need to audit so you don’t fall into these traps.

With your cash flow, keep your debt to a minimum if you can. We never had to raise outside capital, so we are very, very fortunate. We have nobody breathing down my back, but I can tell you friends who have had to raise money have investors breathing down their necks.

Guillermo Erickson Sauza (08:22) Many people think that you put out a brand and instantly make money. But you eventually get to the point like us, where it requires additional massive investment. We are 20 years in, and now we have to invest $20 million just to get to the next volume level. You always have to remember that if you want your brand to survive, you’ll either need to fund it or sell it, because you won’t be able to bump it to that next level without capital.

Guillermo Erickson Sauza (08:51) Everybody is going to face problems, but there is always a solution out there. I’m just going to tell you: this is the best industry to be in. I used to work in the consulting industry and the aerospace industry—they actually gave me a top-secret clearance at one point—but this is by far the best sector. The people are the best, and it’s just an honor for me to be here 20 years down the road.

Guillermo Erickson Sauza (09:18) We just love this industry. Our team is here, too, and our friends from Tequila Ocho are here. It takes determination to stay in here and solve the problems, but it’s worth it. Thank you all very much.

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