David Favela, the founder and CEO of craft brewery Border X Brewing, speaks with Elian and Juleyka about crowd-funding for capital, using data to discover who his customers really are, and going against industry norms that often overlook Latinos and women. And our Latino Business Moment of Zen invites us to see what is possible when confronted with change.
Hello, and welcome to Scaled: The Latino Business Story. I'm Elian Savodivker, Director of Engagement at LBAN, the Latino Business Action Network. On this show, we talk to Latino business leaders who have grown their companies to one million dollars or more in annual gross revenue. They share their stories and business insights, and we unpack the world-class research coming out of LBAN and the state of Latino entrepreneurship. Joining me as co-host is the phenomenal Juleyka Lantigua, the founder and CEO of LWC Studios. Juleyka, how are you?
Thank you for that. Very nice of you. I'm so excited. I've been looking forward to these conversations and now I'm really looking forward to sharing them with the world.
Savodivker: I know, me too. Part of it is that what we do at LBAN, our research shows that Latino entrepreneurs are the fastest growing group within the small business sector here in the US. But what we know is that Latino business owners are innovating and transforming their industries, not simply expanding within them.
Lantigua: Of course, Latinos are not just doing things their old, regular way. Of course, they're expanding and innovating. And today's guest David Favela, who founded Border X Brewing, is such a great example of the type of Latino who goes into an industry and really shakes things up.
Savodivker: In our conversation with him, we get into the multiple instances in which he made decisions that on the surface went against what the craft beer industry was known for, but that really paid off for him in the end. He's an alumni of our SLEI-Ed program, which is the Stanford Latino Entrepreneurship Initiative Scaling Education program, a mouthful. So we go by SLEI-Ed, and that's a collaboration between LBAN and the Stanford Graduate School of business.
What I love about David and part of what we'll hear during his conversation is that he loves a good challenge. And so when the pandemic happened and the shutdowns happened, we gave him the challenge of joining our program, an intensive Stanford program on scale, and he did that. So he was a part of Cohort 9 in early 2020.
Lantigua: All right, I don't want to rub it in, but as you know, I'm also a SLEI-Ed alumni, Cohort 10. So I absolutely, I'm so proud of David. I've been to Border X and had such a remarkable experience.
Savodivker: Juleyka, not to one up you, but my job, I get to interact with all of these amazing Latino entrepreneurs. So I am extremely lucky, as well as you have been to Border X Brewery, and I cannot wait for our listeners to hear more on David's story. Here's our conversation with David.
Lantigua: David, welcome to the show.
David Favela: Thank you so much. I'm so happy to be here.
Lantigua: Good. We're happy to have you. You are one of the distinguished LBAN alums that we love to brag about. So tell the people why it is that we love to brag about you.
Favela: Well, I'm the CEO of Border X Brewing and Mujeres Brew House. We have three breweries, two in San Diego and one in Los Angeles. And I'd say we're one of the fastest growing and largest Latino and craft breweries in the United States.
Lantigua: That also sounds amazingly impressive, but you started with no financial backing and you decided to go into an industry that is pretty expensive. Why?
Favela: We originally started the brewery with the idea that it was me, my brother, my two nephews. And if we could make and sell enough beer to pay rent and pay for the ingredients, that was success. And so we all pitched in 5, $6,000. So we had a budget of about $25,000 and we started the brewery. I have an MBA, I would've put a business plan together. I would've thought through all the requirements of the business, but sometimes things happen for serendipity, for reasons beyond our control. And from the first day that we opened, we just blew up. The concept was ripe for the moment and people loved it.
Savodivker: When we talked the first time and throughout all of our conversations, capital has been such a big part of your work, and you've always been really scrappy trying to find different ways to secure capital. LBAN research has shown that Latino owned employer businesses are a lot less likely than white owned employer businesses to get loans from national banks. What has been your experience trying to secure funding from those national regional banks, and how has this changed since you started the business to where you are now?
Favela: Well, you're absolutely right. It's a very capital intense industry. A decent brewing system is a quarter of a million dollars. The overhead, all the requirements and labor, it is a significant endeavor. And when we first started, we really didn't know what we were going to do, so we never had a capital plan, which I strongly recommend you put together. But we opened on 2013 and it wasn't until 2016 when we were nominated and won Best Brewery Startup on the West Coast by Industry Magazine that my brothers and I looked at each other and we were like, you know what? I think this has great potential. And I think it gave us the confidence, but the trouble was when we started speaking with banks, we had three years under our belt, but we were still brewing on a very tiny system, so we had never been able to break out in those economies of scale.
We were chronically running short of beer. And so when you look at our financial story, you see good revenue growth, but the profitability wasn't there, because we were still kind of in that growth mode. And when you speak to most banks, that's the first thing they look at, even the SBA. And we had a strong recommendation from another state institute for an SBA loan and we still couldn't qualify for one of those. So you have this conundrum where you're like, well, I have to grow my company in order to have more profit, yet I can't get the capital to do that. And so we looked at alternative methods of financing, what's called crowdsource equity. We raised $200,000 to open our LA brewery by offering equity in Border X to our fans.
They took us up on that. We raised the money necessary to build that big, beautiful brewery in the city of Bell. So we've been scrappy, we've made it one way or the other. 2020 was going to be our breakout year. We were nominated for a James Beard award. Our financials were finally starting to look really healthy. That was the year we were going to get the loans and lines of credit, and then of course we all know the pandemic hit and it's been a street fight for the last two years.
Lantigua: So how did you adjust? You had these plans, you were looking ahead of your projections and then boom, COVID.
Favela: Yeah. It's interesting. I think for the first two or three weeks, we were kind of in shock. And my wife finally said, "You know what? We're not just going to sit around anymore. We're going to create an online store." And to her credit, she jumped in there, got the online store going. We started promoting it and we became a beer delivery service.
So I got to know all the neighborhoods of San Diego and Los Angeles, because I personally drove the delivery truck during those months that we were shut down. You know, it was a way of handling the stress and I think it was a service our fans appreciate. I remember driving into a neighborhood in San Diego and there was a couple that had been ordering every week, like a hundred dollars worth of beer. And I remember I pulled up to their house in our van and they came out like kids to an ice cream truck. They were so excited. The Border X beer had arrived and that really made it for a great day.
Savodivker: I think that's a great sort of for you David, something that you're really great at is this community aspect. When you look at crowdfunding and when you look at that aspect of alternative lending, why is it so important to build that community and also to have the community be a part of the Border X experience?
Favela: I always saw this as the best opportunity to raise capital. I still think for our community that lacks access to capital, this is a super innovative tool that can help anyone from taking a step in their landscaping business to get another truck or equipment, all the way to businesses that our community wants to see in our community. Like we actually have a voice I think really democratization of the investment in capital flows from our own communities to our own businesses. And when they succeed, we all succeed.
That's what it felt like with Border X, is our biggest investors were our fans, were the people who had been there who had experienced the Border X brand and the experience that we provide and they got it. It wasn't a theoretical slide deck where I had to convince them about hey, we're going to make Latino, Mexican-American beers and we're going to invest in our barrios. It's like, yeah, I went there. I know what you do. So that was the greatest investment group to pull from. So it's made a huge difference.
Lantigua: Well, kudos to you for thinking of the approach as an experience. That was really revolutionary even five years ago. Now it's very common for people to use the notion of “we're going to give you an experience”. So with no examples in your industry or really with that concept not being as mainstream as it is now, how did you initially envision what would become the Border X experience? What were the elements you wanted to make sure were there?
Favela: Yeah. I spent 22 years at Hewlett Packard and in the last 10 years I was all about new product development, new business development. And one of the best pieces of advice my mentor, the senior vice president of technology gave me was, "David, when you think about these business strategies, make sure you put together first the MVP." And I was like, "Most valuable player. What do you mean?" Minimum viable product. Don't sit in a room debating these grandiose visions of where your product is or where it can go. Assemble it, test it in a real life scenario and then continue to modify it. And it's such a simple idea, but I put it in practice in the way that we develop Border X. So we originally opened in 2013 in an industrial park in Otay Mesa, right near the border.
And the first decision that we made, and this was actually influenced by The Blue Ocean Strategy, a great book out there for those of you who'd like to read it. And basically the gist of that book is don't compete, redefine the game. Redefine your product, redefine your experience. And so we said, you know what? We're not Czech, we're not German, we're not English. We're not any of these things. We're Mexican American. So why would we make beers that have nothing to do with our culture? Let's make Mexican inspired craft beers. And that was the first major idea. And that was our MVP. So we said, okay, we have a brewery. We're going to make Mexican craft beer and we'll see if people come, and boy did they come.
Lantigua: So talk to the people who haven't been to your wonderful establishment. They walk in Saturday afternoon, ready to unwind. What's the experience like today?
Favela: Well, today I'd have to say there's a second layer to our product evolution when we moved and opened a tap room in Barrio Logan. So Barrio Logan's one of the oldest Latino neighborhoods in San Diego. There's a very vibrant art music and scene. And I didn't know that. I went down there to a warehouse, to an art show and it was full of people of color, Latinos, African-Americans, Asians, Filipinos, and they were all making great art.
That really turned me on to Barrio Logan and added a layer of what I call the Border X experience in our brewery. So when we opened, I asked all the artists to come in and fill it with the local culture. So if you come into Border X, you'll see artwork everywhere. You'll see the history of Barrio Logan. The musicians that we bring in are usually from that area who have roots in Barrio Logan.
I think what happens, and this is really the product evolving, it isn't just the glass of beer that you're tasting, which is wonderful and unique and different. But you look around and you see, what I'm trying to do is reflect the contemporary Latino experience in artwork, in music. And it's really what I tell people is I'm holding a mirror up to themselves so that they can see themselves inside the building, inside our experience. And it's a very profound thing because when you suddenly walk into a space that was designed specifically for you, you feel it.
Lantigua: Okay. So David, all of that sounds amazing, but is it making money for you?
Favela: Well, as I mentioned, 2020 was supposed to be our breakout year. We had sacrificed profitability for growth. We've built two large breweries and yeah, 2020 was supposed to be of the profitable year, but it was anything but that, and now here we are in 2022 and we're really all about profitability this year. So as long as we're open, allowed to open and serve our customers, I think we'll be quite profitable. Our team is built. We have two great brewers at two different breweries right now. So I feel like yes, this year we'll actually be able to generate a very decent profit.
Savodivker: And David, I know for you, innovation is key and you're always testing those boundaries of what's next and where to go next. Can you talk to us a little bit more about this expansion to the Women's Brewhouse and why you did that, why that's important, and how that affects the community?
Favela: You know, I think Women's Brewhouse is also following that very organic approach to business development. Back in 2019, we've done some deep research into our analytics and we found that women represented 60% of our customer base. And it was incredible, it opened our eyes to the fact that we had done something, I think very unique for a brewery. Most breweries don't even get 5 to 10% women attendance to their ... And again, it's really are we serving the needs of the community? And I think the craft beer industry was inviting women to come as long as you adjusted to our taste preferences and our culture. You know what I mean? There was, again, no example of any brewery going out of its way to bring in a female demographic.
I think what made ours different is our beers are very approachable. They're embedded in a context of culture. So we discovered women were our core demographic and my wife was brilliant enough to say: “You know what, we need to do something for them? We can't just sit back and enjoy their patronage.” So she decided to come up with a Mujeres Brew Club. And the idea behind that was to provide an educational opportunity for women to learn more about craft beer, initially just for enjoying the craft beer more, but it became an educational series where they learned about how to brew beer, how to serve beer, what the ingredients are, what the styles are. And once a month we would bring in experts from the industry who were delighted to come and speak to this crowd of enthusiastic women. We initially thought maybe 20 women would be interested and it turned out that we had to cap it at 60.
Yeah, we couldn't fit anymore in comfortably. So this was an incredibly successful program. We had tapped into something that we didn't realize, but again, it's very organic and these are cycles of experimentation and improving. And we had the opportunity during the pandemic back in 2020, this was like August. And my wife said, "You know what? I feel bad. I haven't been able to do anything for the Women's Brew Club." And she was talking to a friend and I overheard and they joked, "Well, we should buy a brewery and just start a women's brewery," and something clicked in my mind. And I go, "I know exactly-
Lantigua: Yeah, you didn't want to compete with your wife.
Favela: And you're right. They actually beat us in revenue in July of 2021. So I joke with my wife that Border X is going to be chopped liver. It's all about Mujeres Brew House. And just so you know, the owner of the building had a turnkey brewery that had been empty. And when they heard the idea, he gave me the keys. I hadn't even signed the lease. He's like, "I'm locking you in." And I was signing the lease literally days after just thinking of the idea. That's how strongly we believed in the concept. I knew it would succeed. And we're really excited about it. We have a female brewer, very talented and qualified, and it's done a couple things. One, our customers love it, but two, we see ourselves as a training business where we expect and encourage our employees to train and get high-paying jobs in the industry so that they can then influence the industry as well.
I don't tell the Mujeres what to brew. They are their own R and D, they know their palate better than anyone else, and I'm going to encourage them to brew whatever they think a female palate would like. And what we're finding is the fruit infused beers have been the most popular. We have a blonde ale with grapefruit, we have a Hola Naranja, which is a goza, which has a little bit of salt in it, but it has a lot of orange juice and orange zest. So it tastes delicious.
They also brew the strongest beer that we've ever made. It's a 12% amber ale. And what they love to do though, is they love to make what are called beer cocktails. So it's really interesting though. They're really branching off into areas that that Border X wouldn't have on their own. And I think that's the importance of having a woman led kind of operation, is they're not having to conform to the craft industry, the craft industry's going to conform to them.
Savodivker: Absolutely phenomenal. When we look at the research on the Stanford side, we look at Latinos in the pandemic, how they're innovating, adapting and growing. And David, you're the perfect example of that. You're adapting your business. You're innovating. You're trying to grow it out. I'm the fruity drink guy. So I'm glad that you're adapting to my palate, but I absolutely love it. The food, the drinks, the artwork, the community that's there, it's such a great time. So absolutely the place to be is Border X Brewing.
Lantigua: All right, David, I want to ask you a broader question because LBAN's research has shown that 13% of Latino owned businesses are in the food and accommodation sector. That's a huge chunk. You're in the sector, you are thriving, you're innovating. So what is your advice to other Latino entrepreneurs in the sector about how to grow their businesses, how to push themselves beyond the standard offerings that we've been able to achieve in the industry?
Favela: Yeah. I go back to redefining the industry competitive parameters. So whether you're making tortillas or craft beer or any kind of food or any kind of hospitality, the more you can step out and differentiate yourself, the more profitability you can obtain. And it really is about understanding fundamentally what your product is. For us, we initially started as a craft brewery, but what we really are is an experience-based business, where people come to be immersed in a cultural context that they can't obtain anywhere else. That authenticity, that legitimacy of being in Barrio Logan, seeing the low riders cruise by, the music, the art, the beer, the food. You're transported. And that took a lot of courage because we're not marketing to the mainstream per se, either in our beers or in our experience. But what we found is Latinos loved it. So that was our core demographic.
But the big surprise was people who aren't Latino loved it too, because for them, this was an experience that they couldn't get anywhere else, so they were walking into something that was new, that was innovative, that was creative and delicious. You have to take chances. You have to be brave. An example for us is we'd never made an IPA for the first three or four years. We got criticized. Are you even a craft brewery? You're making these kind of gimmicky Latino beers. No one in the industry is doing that. Oh, why are you investing in Barrio Logan? That's a scary neighborhood, no one's ever going to go there. Time after time after time, you still have to take your chances and roll the dice, but it can always be an informed opinion. And for me, every step I took in that MVP and in that organic experience was a very logical step.
Lantigua: Wonderful. Congratulations, and much success to you and your crew.
Savodivker:: I have goosebumps, I have goosebumps. You're absolutely phenomenal, David. And the work that you do is tremendous, so much success to you and what you're doing.
Favela: Thank you. I appreciate you guys.
Savodivker:: Juleyka, that was an amazing interview. David is such an interesting and innovative guy. I love how during the pandemic, his company took hit after hit and he continued to innovate, adapt and grow. I want to hear your thoughts about it because I'm absolutely in love with Border X Brewing.
Lantigua: Well, I'm so glad that I got to go before I talked to him and before I got the inside scoop on it, because the experience was exactly like he described it. And now as a fellow entrepreneur, listening to what it took to get to this point, to have the vision and then to have the patience, to be poised for success, and then to have a global pandemic basically kneecap you and still get to 2022 where they are now. It's just really impressive.
Savodivker: One of the things that I absolutely love about our interview and David is he's using research to make his decisions. 60% of his customers being women, that's a data point that is incredible and super useful as he innovates. We love seeing that research that he's doing to not just make a blind decision, but make an educated decision that people are against, but he's got the data to back it up. And with the work that we do at LBAN, that's what we're trying to do. Hey, what's that data that is going to help us make those decisions to innovate and to grow Latino and Latina businesses?
Lantigua: Agreed. I was actually going to make the point about how much I admire the creativity to say “let's open an eCommerce business, boom!” To then say “hey, let's open a brew house, dedicated to women,” to say “let's open up an education component to a brewery.” This is all highly creative. And I love that because I want Latino businesses to push the envelope. We definitely need the restaurants. We definitely need all of the traditional ways that we feed the economy. But I think that we should be pushing even further. I think that he's an example of how a little Latino pizazz really, really adds to an existing quote unquote “standard way” of doing things.
Savodivker: Absolutely. And I think this goal of building a community for Latinos and Latinas, when we stepped into this Barrio Logan location, I was like, this is it, right? The music, the food, the people, and the way that his employees treated all of us, it wasn't like we were going to a brewery. It was like we were going to a house, like a friend's house.
Lantigua: Yeah, we were not customers. We were guests.
Lantigua: All right. Well, I'm so excited to keep having these conversations with our fellow, with my fellow LBAN alum.
Savodivker: Oh, wow! Throwing shade at me!
Lantigua: Always. Always.
Savodivker: All right. So before we leave you, here's a Latino business moment of Zen.
When asked about the reasons for seeking capital in 2021, 30% of Latino-owned businesses said they plan to expand their businesses or pursue more opportunities, compared to 21% of white-owned businesses. Latino owned businesses appear to be more frequently using the pandemic as an opportunity to innovate, adapt, and grow while their white counterparts appear to focus more on dealing with current operations.
Now close your eyes, take a deep breath and repeat after me:
Change is good. Uncertainty fuels innovation. Change means growth, and Latinos are leading that growth.
You may now open your eyes.
This podcast is produced by LWC Studios for LBAN. Virginia Lora is our producer, Kojin Tashiro is our sound designer and mixer. Paulina Velasco is managing producer. To learn more about the work and research LBAN is doing in our SLEI-Ed program, please visit lban.us. That's L-B-A-N dot US. Thanks for listening. I'm Elian Savodivker.
Lantigua, Juleyka and Elian Savodivker:, hosts. “To Find Your Champions, Dig Into Your Culture, Roots.”
Scaled: The Latino Business Story,
LWC Studios., September 12, 2022. LBAN.us/scaled.