Creative Distillation - Transcript for Episode 53: Ted Waldron (Texas Tech) on The Battle for Balcones Distilling
Stefani H 0:07
Welcome to another episode of Creative Distillation. Your hosts Jeff and Brad from the University of Colorado Boulder is Leeds School of Business discuss entrepreneurship research while enjoying fine craft beverages. Previously on Creative Distillation, Brad and Jeff conducted field research at Dry Land Distillers in downtown Longmont, Colorado, speaking with Nels Wroe, founder and president of Dry Land, they discuss the challenges and successes of running a distillery and what makes dry land unique among Colorado's many distillers. This time, we're still at Dry Land Distillers, with Brad and Jeff talking to the “whiskey academic,” Ted Waldron, Professor of Management and the Kent R. Hance Regents Chair in Entrepreneurship at Texas Tech University’s Rawls College of Business. They discuss a number of topics and go off on several tangents mostly related to Ted's recent paper, "Entrepreneur-investor rivalry over new venture control: The battle for Balcones Distilling," published in 2022 in the Journal of Business Venturing. Enjoy and cheers!
Jeff York 1:20
Welcome to Creative distillation wherever to steal entrepreneurship, research and actionable insights. I am your host, Jeff York, research director at the Deming Center for Entrepreneurship at the Leeds School of Business in lovely Boulder, Colorado, joined as always, by my co host,
Brad 1:35
Jeff, it's Brad Werner here I'm an entrepreneur.
Jeff York 1:38
You are yeah and did not know that. You
Brad 1:40
know what's really cool is we're still a dryland distillery,
Jeff York 1:43
I noticed that so we had an awesome previous episode with Nels wrote the founder and president here at Drs. He's gonna keep on list for an academic discussion. That's great, good on you knows me. If you get up and walk away at some point, we won't take it personally, we'll just assume you have like a major crisis to deal with.
Nels Wroe 2:01
I'm just gonna bring you whiskey back. Oh,
Jeff York 2:04
I actually think I do. We like no discussion about
Brad 2:07
partnerships actually might be really interesting for Nelson.
Jeff York 2:10
Yeah, no, I think so too. And I think this is gonna be fun, too. We still have official titles. The whiskey academic. Ted Waldron from Texas Tech University. Thank you for sticking around Ted. It was tough to get TED to stay. He was like I hate to say this. I'm uncomfortable in this environment.
Ted Waldron 2:26
How does one follow what Nels had to say?
Jeff York 2:29
Well, that's up to you my friend because you're I guess so now. So now we're gonna love to do a second part of this recording. This episode we're going to talk about Ted's recent paper entrepreneur investor rivalry over new venture control. The battle for Bakun is distilling. Now this is the Journal of Business mentoring, which as you know is a favorite journal of the podcast. And myself. Ted's co authors on this one, Jeffrey S. McMullen. Wow, that makes him sound like really like a steam gentleman. It's the ESET does Yes, it does it. Yeah. So Jeff. Jeff is a good friend of ours at the University of Indiana and an Oleg B but trinco What's that? Oh, producer Joel. It's not the University of Indiana. Oh, you're
Ted Waldron 3:14
being a buzzkill. Joe's such an academic snob. He's like, you know, sitting
Brad 3:19
back there with him. And he's like, Yeah, this is great.
Jeff York 3:25
Whatever, some code on school Bloomington, I don't know. I don't really have much of a footprint in the entrepreneurship space. Right? No, good. Yeah, we just Oh, like Deepa trinco, who's at the University of Arkansas. It's not Arkansas University. It is the University of Arkansas. I know this because I was just there. And then Laurie Tribble. I don't know where Lori Where's Lori?
Ted Waldron 3:46
Lori Tribble was a doctoral student at Texas Tech. And now she's at Clemson University. Oh, awesome.
Jeff York 3:50
Very cool. Very cool. And Olivia on the pot, who was also a doctoral student at Texas Tech University, also a co author. And Ted is one of my co authors, and she is now at the University of Richmond. So this is our journal business venture, you certainly will be available for you to download for the low low price of what does it cost you to get paper 4990 4995? Or if you have an academic login, you can get of course, or oh, probably don't tell anyone will probably post it for free.
Ted Waldron 4:17
Don't don't open access.
Jeff York 4:19
You can do it. Oh, you have access? Oh, Ted. Ted. Yes. Ted is that the whiskey academic is a man of the people. So read the people's chest. What about this title, entrepreneur investor rivalry over new venture control the battle for bhikkhunis distilling? Yeah. Yeah,
Ted Waldron 4:36
lots of words.
Brad 4:37
Yeah. I mean, I still can't figure out how you guys come up with these
Ted Waldron 4:42
words. That's true. There are words. They say what it's about. That's all
Brad 4:51
Yeah, I mean, is there is there an art to writing the titles for academic papers,
Ted Waldron 4:55
think about any while you could say and you put it and a few word searches. Yeah, pretty much the broadest base word you could use,
Jeff York 5:05
like start quoting Gene Simmons and like make that like, um, your love gun and I believe that's called Stanley.
Brad 5:13
Partnership issues a kiss.
Jeff York 5:14
Yeah, partnership. Yeah. Right. Because like just random kiss lyrics. And just make that the title your paper sounds like a great idea. Get down, everybody's gonna lose their seat. All right. So getting past the title, I thought it was a pretty clear it's the same title to tell us how this paper came to be. And what's going on with that?
Ted Waldron 5:37
So the project originated in 2011. Working at Baylor University 2011 smart way to right now. Yeah. 2011 2011. Okay. And
Brad 5:51
okay, we can just put in the entrepreneurial world, let's take 10 years to write a paper.
Ted Waldron 5:58
Like I said, smart, right.
Brad 6:04
That's insane.
Ted Waldron 6:05
Yeah, took 10 years. Yeah. Why? It started out as a side project where I was collecting data because I thought the mere existence of that organization that venture was interesting. Think about this. Okay. Well, Coneys distilling was the first whiskey distillery in the state of Texas since Prohibition ended in the early 90s. That's cool.
Brad 6:22
So you sat there every night for 10 years? Yeah, that's
Ted Waldron 6:25
exactly what I did for 10 years. Yeah. Right. And my daughter spontaneously during that time. So yeah, so I was working at Baylor, you know, anyone who's studying and drinking whiskey would they would work at at Baylor University, which, honestly, Baptist University is definitely a place for a colleague there said, Hey, there's this whiskey distillery that opened and heard of this beverage called Whiskey, looked into it and just found out that the prohibition thing that's cool, and it was founded in the most famously Baptist city in Texas, right, the founder, highly inexperienced. So there wasn't at the time, mentorship that went on. So he was doing internships with distilleries in Scotland. So he was over learning how to make scotch, that's cool, came back, experimented and found that this this venture, pretty much achieved the title of the founding father of the craft whiskey movement. At the time, at least some meat in the media dumped him as such. Oh, that's the reputation he got. And the media coverage sort of replicated that. The other thing that was interesting about it was he found about colonies in a shack under the 17th Street Bridge. So this beautiful facility that Mills has that we're in right now, think about the opposite of that. It was a literal shack, not this this beautiful facility that you have where you think a craft distillery would be right?
Brad 7:49
How big a town where are we talking to 1930?
Ted Waldron 7:51
In 1930. And Waco, yeah, I don't know, I wasn't even a twinkle in my parents eyes. Right. But it's hard to say.
Brad 7:59
I mean, I'm wondering, right, it's
Ted Waldron 8:00
in writing 30 or smaller. Yeah, it was about 125,000 people at the time that distillery was founded, I don't know what it is now. So it had grown a bit centrally located between Dallas and Austin. So there was more volume, but honestly, good question. No idea during Prohibition, you bet. But we can bet since that was the highest period of alcohol consumption per capita in US history. That waco is not immune to that. Yeah, right. Yeah, for sure. And we talked also off off you know, camera or mic or however we want to talk about this knows and I whiskey is known as a long term game, right? We think that the longer whiskey matures, the more valuable it is. So chip Tate, who was the founder about Coneys disprove that idea at the time in Texas being first distillery and a craft distiller achieved rapid success within four years of the founding of the venture, and was winning international tastes as competition's beating out renowned brands like Babine Glenfiddich, MacAllan wine taste test, and they were comparing it to the judgment of Paris, which was when I went to sleep. There it is. Yeah.
Brad 9:07
So there you go. That's really cool. Yeah.
Ted Waldron 9:09
So just a lot of innately fascinating things about the setting, right.
Brad 9:13
You paint a great picture.
Ted Waldron 9:14
Thank you. Thank you. Well, I've been drinking the delicious whiskey pictures for sure. So that's how I got started on it. And then just was patiently having GA's graduate assistants collect qualitative data to figure out if there ever be anything interesting about this particular whiskey distillery. And then in 2014, it happened. news broke of a life and death struggle between chip Tate and his recent investor group was an angel investor group out of Oklahoma City. That's not an exaggeration. There were alleged death threats, threats of arson, property damage, these are all in court documents. So it's public record. I'm making this up
Jeff York 9:50
actionable insight. You're looking for angel investment. Don't go to Oklahoma City.
Ted Waldron 9:56
Oh, no. Sorry, Oklahoma City. He didn't mean it.
Jeff York 10:01
Unless you want death threats just show more like a Chicago show like,
Ted Waldron 10:08
now these are allegations so okay. Just telling
Brad 10:12
the story. Yeah.
Jeff York 10:17
Okay, so they haven't this falling out having the falling out. We just had to, I'm sorry to interrupt you. But I think this is well, I think it's kind of, it's kind of a cool thing like you're going along and you see this interesting thing in your town. And you're like, Well, you know, I've got some extra money to pay graduate assistants, research assistants to go out and like, try to find data on this. And who knows, Villa mountain anything or not? Yeah, would you say that's like the way most research is conducted in our field? Nope.
Ted Waldron 10:44
What do you think?
Jeff York 10:45
I don't think so at all. That's why I'm asking. I mean, I just think it's like, very weird that someone would do that. Why are
Ted Waldron 10:52
we gonna write it? It's kind of random. Yeah. But that's the way I work. I like finding things that are interesting and are happening,
Brad 10:57
and that's gonna hang with us anytime.
Jeff York 10:59
Oh, that's that's pretty high praise for the whiskey academic. Yeah. All right. So you don't say and also in this news breaks out of this? Because now how did that just become public knowledge or like, were you embedded? And so in this study, like a lot of times we're doing these things we do like an ethnography where we're like, hanging out at the distillery and like, we're annoying Nels by following him around all day. And like, how did you feel about that last meeting knows, but you didn't. There's none of that here. This is very different.
Ted Waldron 11:27
I started out with secondary data, media reports, press releases, right legal documentation from the court case that came about from from everything and the battle ended in court, and eventually ended up talking to the founder, Chip Tate, we spent three or four hours, maybe six, I can't remember right, talking about what happened. And then he was showing me how to do copper at his new distillery, because instead of distilling whiskey at that point, he had a non compete. Oh, he's working on putting together stills and selling them back overseas and other places in the US. Yeah. And then after the fact, later, on years later, I got to talk to Greg Allen, who was the lead of the angel investor group. And we talked for about two or three hours about this. Yeah. different stories, different perspectives on the same story, as you'd expect it
Brad 12:15
to make sense, though, when you kind of combined both of them. Did they? Did they jive with kind of what your expectations were?
Ted Waldron 12:22
They did? So what they said what the the media reports were saying there was even a New York Times article on this, you can find it online pretty easily. Yeah. The court documents, all of them basically came to the same points. Okay. Now,
Jeff York 12:36
so you're doing this thing, and like many people might say they look at this. I'm sure you've never heard this, Ted. Well, gosh, that sounds an awful lot like journalism. What's that doing in academic journal? Help us understand.
Ted Waldron 12:51
So you want me to comment on why this isn't journalism? Is that the question? Yeah, I
Jeff York 12:54
guess so. I mean, because you're talking about like, if I'm listening this podcast, and I'm not a researcher, and I'm like, Okay, this highfalutin Navy Diver type, this whiskey academic here. Ted's very fancy is talking about this stuff he did as research. It kind of sounds like you're just reporting a story a little bit here. You're going along, you're covering the sake of this interesting, and then these guys have falling out
Brad 13:16
for a second, because so so I think the story is really interesting, just because of our interests. I mean, all of us sitting here. But I also think it's interesting. As a founder, we talked about partnership issues, and people coming in with money, and we could talk about values and all of those types of things. I think this is really interesting. And where, for me, 100% anecdotally, there are partnership issues. Everyone, everywhere that has started the business. I don't know
Nels Wroe 13:44
if that's the same for you. Yeah. So sitting here listening to this conversation. I can relate to this. And I think we sometimes miss the point that, you know, business isn't just about products isn't just about finances. It is not rocket science. It's harder, because we're dealing with people. Yeah, personalities. Business is all about spreadsheet ego. So yeah, it's all about the community and the relationships. And oftentimes, when you look at investment capital, certain, you know, certain groups might come at it from the spreadsheet stamp. Right. And I think that can be friction,
Brad 14:23
perspective values. People are looking at different they're anticipating different outcomes. And there seems that this case, they weren't aligned.
Ted Waldron 14:32
So they started out where they were very strongly aligned. They had clear shared visions, they were embedded in their operating agreement agreement. And as things happened over time, and the collaboration that they had quickly gave way to conflict and the relationship fell apart. They started to focus on their individual roles, the things that they were individually passionate about doing and accomplishing, which if they had stayed focused on the things that brought them together in the first place. The fight probably wouldn't have happened or would have been as severe. So hey,
Brad 14:59
Ted, Was there an event that happened that kind of causes disruption between the partners?
Ted Waldron 15:05
The way the story goes? Would you mind if we jump back to Jeff's question real quick? Or do we want to keep whatever you want? Yeah. So this actually dovetails the question about journalism. Actually, the job of this kind of study is to tell the story and use that to offer some insights based on really rich data and analysis. So that's the difference between typical journalism. And what we do is multiple data sources collected over years that originally analyzed by a team of researchers, right,
Jeff York 15:32
but then you're trying to they're trying to I mean, well, it's always similar when we tried doing the podcast, it's like distill it down into like, Okay, here's the story, what happened? Now, here's some key things that emerged from that, right, that either contrast with or extend our current understanding of how these phenomenon workout, and then hopefully, you know, we get this something that is accepted by other academics as interesting, useful, worthy of publication. But even better, why like this kind of research is because you actually try to get something that's actually useful for an entrepreneur. Thank you. Well, yeah, I mean, you actually are trying to do that. That's the idea. Which not always the idea, believe it or not, if you're listening to this podcast, you'll be shocked.
Ted Waldron 16:21
The highest the highest praise someone with my mindset could get from this work. And that decade of agony that we were laughing, but it was a decade. No, no, no, you can laugh at me, I deserve. I've heard this story this paper for years. But the biggest compliment I can get is not other academic citing me, it's two entrepreneurs sitting here who could see the value of that story, right? In reality, because the academic literature does not speak to those things. So we don't,
Nels Wroe 16:45
I just cannot not chime in here. Because the academic data research, that's great. I can get that anywhere. But what I can't get is I can't get the application of that, or the knowledge from other people who have been through the process of working with that data in the real world. Yeah. So when I started my distillery, I didn't, you can get metrics until the cows come home. Yeah, right. I can, I can look at somebody else's business plan. But the richness and what was really educational for me that really helped my business is sitting down with founders who have been through some crap. And saying, Yeah, put that aside. And here's the reality of what happened, what can happen. So learning from that with the backing of good data, like isn't this paper? Yeah, that makes a huge difference. But it's the application of that that
Brad 17:36
needs to listen to our podcast.
Jeff York 17:39
So he knows he's to be the guest speaker. Well, I think I think you guys are I mean, you're all right now. I mean, you are, to me, the whole thing we're trying to do the Deming center and another Entrepreneurship Center, is it good schools, we know Stanford's almost as good as us, at least they're trying, they're trying, they're okay. But other than that, you know, clearly, but like, what we're trying to do is take the I mean, this is epitomized, I think, by Brad Knight becoming friends and saying together like we probably would not have ever met if not for the Deming center, right. And, you know, Brad has way, way, way, way more experience in doing entrepreneurial ventures as well as investing. I mean, I just really admit, he knows a lot more about that than I do. But I know all about the academic research. And what we can try to do in our classes is to give our students I think that's why we enjoy like co teaching and being together, it's like, we can give both sides of that to our students. And that's sort of a unique thing. And it to me, that's what entrepreneurship education should be doing. So well. Yeah, Brad had this experience. It's really valuable. But does it actually generalize to other entrepreneurs? Do we know that and I think that's where this kind of research, I started
Brad 18:43
outdoor shift when entrepreneurship was considered a disease. No one helping you there was no collaboration, your families thought you're
Nels Wroe 18:52
crazy. Yeah.
Brad 18:53
Right. So I understand the pain. And I understand. I mean, so many different parts of the journey. I understand partnership issues, I've lived all of that. And if we can help our listeners, and through your research, talking to researchers and the research you do, and talking to entrepreneurs, like you actually kind of break through and understand that they're not alone, that peep other people have shared these experiences. And this is a collaboration, we're all here to help them. I think that we're doing the world the service.
Jeff York 19:21
So Ted is one of my favorite writers and our sphere. Now I'm not saying he's I like Stephen King a lot better Ted, but
Ted Waldron 19:31
I really just I just said you're foolish. So just so you
Jeff York 19:36
know, Mark Twain, but you know, it's all right, though. But seriously, I what I really like is that you're very directed. So I think actually, I was really excited to have you here because I was watching you talk to doctoral students today. And you were actually saying and here's what we learned that actually we suggest is important for entrepreneurs. And the doctoral students were kind of like looking at each other. That's slightly nervous. But talk to us a little bit about what you learned this actually like the actionable things out entrepreneurs could take from their brains, I think they're there. And it's really cool.
Ted Waldron 20:03
There are so many, if you had to distill it down creative, Lee, there's a couple of things that are gonna sound like common sense that people kind of know. But the most profound things and pragmatic things are things that we know, we just don't honor when we know them, right? We don't live according to them. So one of them is if I were to advise folks getting into these relationships, and keep in mind, this was an entrepreneur in a craft industry. And it was an angel investor group, this is not professional private equity. This is not professional venture capital, where rules would change the dictate what the relationship was, like. First one is Think twice before sharing control. That was the crux of what happened here, because they were so passionate. It was like a honeymoon at the beginning of their relationship. So they decided we're going to just split into our spheres. And we're going to combine our strengths and contribute to this shared vision that we have, well, by sounds good, though, sounds great. But they actually set the stage and created conditions that were conducive for them to end up fighting to the alleged death. Investment, based on public information that the parties involved, were not telling me the details, it started out where the initial investment was gonna be 4 million to expand Falcone facility. And that's where this all started, then the projected amount and moved to 8 million, and then it moved to 12 million. And the investors wanted to do another round of outside investment. And of course, the founder didn't want that. And then they both blamed each other founder said, We, they wanted to bring in they wanted to do this cooling system, which was necessary in Waco, given its climate to be able to distill or make whiskey year round. Otherwise, they'd have to only operate six months out of the year. And the board said, Well, you should have told us that ahead of time. So there was complete disagreement. And that's pretty much to the point where the events are pretty clear perspectives on the meaning and who was right, who was wrong. And what went on. were different from each of the sides. So that that's how that started. I don't know what the hell your question was. What was your question? How
Brad 21:56
much from the original investment was? Yeah, 4 million
Ted Waldron 21:58
was 4 million, supposedly
Brad 21:59
they grew to 12? Because there's between
Jeff York 22:01
four and 12. Yeah.
Ted Waldron 22:03
Yeah, it was four. And then the the budget kept increasing for the expansion project is Roy Kony said seen that success, right. And over four years, there was no way they could meet the demand that they had in a shack under a bridge in Waco. So that's why they had to bring in investors like so many entrepreneurs do so.
Brad 22:19
So let's talk about that, though. If you're in a business, and you in a sense, have reached capacity, what's the decision making process? They are about expanding? or raising prices? Or different quality? How do you, Nels as a person who's actually living this? How do you? How do you balance all those things?
Nels Wroe 22:36
super tricky. I can completely relate to this story, right? We have a shared control situation here. It's tricky. It's a delicate balance. And so with a distillery distilleries are somewhat unique. Because you're looking at a very long term cycle. Typically, you're looking at aging cycles, three to five years, depending on product. And therefore, patients tends to run out for investors. So best intentions, when you move into the years, three and four people are like, When am I going to see a return here? And so there's always there's a fight between debt and equity. Right? But
Brad 23:18
isn't that bad expectations to be getting? Hey, guys, you're not gonna see anything for whatever that timeframe is?
Nels Wroe 23:24
So yes, memories fade.
Ted Waldron 23:29
It's almost like we're human. How about that? Yeah, nice change,
Nels Wroe 23:32
memories fade. And in a craft world, particularly, when you think about one of the first to enter a new field. Guys, founders don't know everything, right? They just don't, I mean, I would love to be able to say I predicted everything in our forecasting is great. But the number of times we've had to change direction, realizing that I didn't even think we needed that. Right. So it can be difficult. And, you know, we do have investment capital on our side, where we have small hints of this, whereas Well, what do you mean you're gonna have to go raise more money? I thought it was going to be always a 5% shareholder, raise more money, it's gonna prompt me to poor person
Brad 24:14
might. So is this a difference between money and smart money?
Nels Wroe 24:19
I don't know if I know the definition of smart money.
Brad 24:21
Right. So I would I would say someone that understands the industry maybe has a thesis that we're investing in this type of business, because we have expertise in the in these businesses would understand that it takes five years from one of these casts to storefronts.
Nels Wroe 24:37
So I agree in a way, but I come back to it's actually about human to human interaction and understanding who you can work with and vetting the individual and vetting the people as opposed to looking for smart money. We're not smart, but I'm
Brad 24:52
gonna tell you from experience that's possible. You do the best you can, but there's no way that you really understand somebody be Someone may come up and say, Wow, I really love what you're doing here, and you go out to dinner with them and get to know him even over a year, you still don't know them. And I will tell you from personal experience, weird habits,
Nels Wroe 25:12
I can tell you that for that as well. It is still a better path to make sure you understand and believe you have the same values with the individuals that are coming in knowing that you're going to have problems. And then also make sure you understand how to have those tough conversations and have those tough conversations honestly and openly and as soon as you possibly can. Because communication is key, right? Doesn't matter. I mean, this is what we have learned. Money can change everything time can change things. Communication is absolutely key. And keeping my perspective and listening to the story. Humanity got lost in this equation. It did, right.
Ted Waldron 25:49
It happens when things go south, right?
Nels Wroe 25:50
And it does. And we've had a few tense situations as well with a couple of investors. And even I get, I get myself caught in the fact that, okay, I can't believe this guy thinks that way. And then I have to take a step back, I had to take a step and say, You know what, I believe there's something else going on in this person's life. And I need to figure out, I need to connect with this individual and find out what is going on is causing this behavior. And when I've done that, we've been able to de escalate. And we've been able to come back to insurance because it's oftentimes not about the day to day business, it's oftentimes about the inability to communicate, and the inability to connect. And if you can do that, and focus on that, usually we can get out of these types of situations. That's been my experience, but it is not easy to do. But that's not
Ted Waldron 26:33
actually hearing some complementarities. And what you both are saying, can start with the best intentions. But unless certain things are done during the course of the relationship, it's going to fall apart and those shared values, visions goals, just go by the wayside as people go into their individual corners. And that happened in this case, where communication became a problem. They Greg Allen, who was the lead of the investor group, when we talked, one of the things that he said was he wished that they had communicated better, and felt that that could have actually kept them on the same, same path. And other thing was, they actually, both from my perspective, founder and investor were trying to, as things were going south, they were trying their best admitted to minimize the conflict mitigate the conflict. But in doing so they actually worsened it.
Jeff York 27:21
Yeah, same reason, confrontation avoidance kind of thing, where it's like, Hey, we're just not gonna sort this out. We just, they stay away from each other.
Ted Waldron 27:29
They thought they were trying to help fix the problem in their own way. Right, which created misunderstandings on the other side, that I would describe his unfortunate misunderstandings, and led to equally self focused efforts to repair the relationship on their side. And the communication broke down. And what was probably going to be a beautiful relationship. And by the way, they'll Coneys is still in existence. Right. Right. Right. So this is not saying they failed. I mean,
Jeff York 27:56
I suspect there's very few high growth, successful ventures, that you wouldn't have a similar story. I mean, the outcome might have been different or the same or but, but people not having conflict with some set of investors would be pretty darn amazing human nature, right? And this
Brad 28:15
is gonna happen. So what's an actual insight here?
Jeff York 28:18
Oh, you're asking me? What's actionable insight?
Ted Waldron 28:22
Well, the first one was Think twice before sharing control because these kinds of things happen between people. And unless you have really high level.
Jeff York 28:32
We have to do that because our poor poor, executive director Eric Mueller is laid up in the bed trying to recover from we never got to that story. Speaking of basketball, he claims he was beating his son, like 15 He claims or claims, I was dominating my son at basketball 72, I made a crossover move. And then it was like, a bullet shot my leg. It's a great story when he tells it. I think Eric just needs to stop trying to beat 15 year olds at basketball. Maybe he should take his dogs for a while. But there's an actual insight. Hope you feel better, Eric. He can't tell the actual insight. So once we have that sound, it helps us
Ted Waldron 29:12
actually use this asana of use for my alarm to wake up.
Jeff York 29:18
Exactly, exactly. That's exactly what he's in for Eric, listen to the podcast. We know he sleeps through most of them. So we have that sound. About me. Sorry, Ted
Ted Waldron 29:28
was good. Sure. And another one might be that we often assume that operating agreements because their legal document, or vice the state for organization can stop these fights from happening. They can repair her feelings, right, right. Of course that doesn't have one of those points. That's obvious, but nobody really pays attention to. It's not going to happen to us or to me.
Jeff York 29:50
Oh, right. Right happen in this case. Now that's a huge part of what we do in our accelerator class. Yeah, I mean, I the first class, I don't know what you're doing this year. It's your teaching, but first class I'm like, hi, everybody. bring their operating agreement, though. I'm like, No, we have to have an operating agreement. It's not to your point, Ted like and then and then here's the thing, once I get them walking, somebody explain what an operating agreement is, for our listeners who may not be familiar with just read Ted.
Brad 30:20
Bottom line is it lays out people's responsibilities for new venture in a very, very simple time.
Jeff York 30:26
Right. So and a big part of it ideally is to well, especially in our setting, academic setting is to make clear, you know, Ted has an idea for a venture, he's worked on it for a year, he comes and takes a class with Brad, Brad's like, we're going to take the class here. And now Brad goes, you know, five years later, when Ted is like raising his first friend says, Oh, I'm half over that, because we did my class.
Brad 30:45
So I've had students Sue students. Yep. Or you have as well, to walk in the door, they had to already have an operating Exactly. They couldn't
Jeff York 30:53
walk. And it's not.
Ted Waldron 30:54
But did you say you had students that have
Jeff York 30:57
sued each other? Oh, yeah, we have a lot of entrepreneurship happening at CU Boulder. It's just gonna happen at some point. Because yeah, somebody wins $100,000. And everything's great till like, you know, all of a sudden, things are going well, we just see it all the time. So what I was gonna say is, I think you're dead on about this, though. I've seen it happen, because we do those operating agreements insist on that, because we're trying to help mitigate some of that conflict. And really, I'm doing it to try to protect the founder. So they have a legal paper trail to go back to and just say, Well, no, I mean, we'd signed this, my professor saws negotiate, everyone signed it, this is something to neglected, then our students are like, well, everything's fine, then we don't need an attorney anymore. And I'm just like, Oh, my God, guys. No, no, no, no, no. Yeah.
Brad 31:36
There's two different types of attorneys. There's one for your business and one for you.
Nels Wroe 31:40
Careful, yeah.
Jeff York 31:42
And so I think you're right, like our students often assume, well, we wrote this thing. It's great. We don't ever worry about this. And then they start to actually like, try to raise money, or I'm like, Oh, my God, you guys don't have an attorney like, well, we'll get one for you. Because you must have, you must be careful. You must have legal representation on your side, because you don't know what you're doing.
Brad 31:58
And foundationally if these if these businesses are stronger, they're more valuable. Absolutely.
Jeff York 32:02
For sure. So so the pressures for this kind of thing to happen build up over time, because the beginning everybody's Joe's give me an I won't do it. I could talk about the history of Dungeons and Dragons and how that's played out. Yeah. I will, though. Thank you. There's another podcast we're gonna do. We're gonna do the breads game company. Man, by the way. Yeah. Yes. He's amazing. Amazing. All right. So two actionable insights. You know, we got we got one more, I think, at least at this paper.
Ted Waldron 32:32
Two more, if you want to, what would you like that? It's like, Can you handle it?
Jeff York 32:37
I don't know, that can handle this mini action. Eric Miller is gonna fall out of his bed and reinjure himself. All right,
Brad 32:44
I say let's loaded up with actual so just bear for all the other times that we didn't have.
Jeff York 32:52
You mean, like, surely you don't refer to the pumpkin beer episode, we had actionable insights,
Brad 32:57
to add two more insights
Ted Waldron 32:58
to more? Sure. Sure. Sure. Okay. So we've been kind of talking about this concept of shared vision, individual roles. So academic research, and entrepreneurship tells us that passion matters. And it drives a lot of the behavior and relationships, right. So when it's things are good. And in this relationship, it did really start out well. And it was pretty clear, they liked each other. And there was a lot of good faith on both sides. Hence, the ability to craft this shared vision, like they really believed in each other and where they wanted to go, creating a legacy, a lasting tradition, I think you've heard the term 100 year tradition, something that can be passed on to their kids. So this was some pretty heady stuff, not just we're gonna make some good whiskey and make some money off it, which of course, is great, too, right? We mean, your capitalist society, we don't have to do that. But anyway, that started out well, but once these communication breakdowns happen, and they tried to fix it, in maybe misinformed ways, created misunderstandings, and got worse and worse and worse, communication broke down, they started focusing on the things that they cared about most. So for CHIP Tate, it was I want to control this because I created all of this, I was the distiller, I even hand built these stills to some extent. So I want to control this. And for the for the investors, they just saw the cost of the expansion project that was at the heart of all this, getting an artist I admire. Yeah, right. And they're just thinking we just signed on for 4 million now it's 12 million, we're gonna go to an external fundraise, we don't want to pay for this out of our pocket. Right. And so that that's, that's where that that focus on the things that they individually cared about, and the shared things that actually that they brought them together got lost in the mix. Yeah, it's a big deal. So I think if folks can stay focused on that, whether it's reasonable or not, is,
Brad 34:34
that's pretty cool. That's amazing.
Jeff York 34:36
Right? It's cool story. I mean, I think this is true in life, but certainly in entrepreneurship, when people are so passionate, and they have so much of their identity and frankly, their wealth and their family's future on the line. It's super easy to lose track of the thing that brought you together those stakeholders and just go into me and what I care about and my passion, I mean, especially, I mean, that's just what we naturally do as human beings. And that just leads to us. destructive spiral. I mean, I mean, we see this every single semester even on these are less advanced student teams that do not have a lot of skin in the game, simply being them in that class together. From their perspective, it becomes a really intense thing. I mean, barely. Yeah. Well beyond that, obviously. But I'm just saying even in like that kind of, frankly, silly level of involvement like, right, we've been working. Oh, my God, Ted, we've been working on this document for over a month and a half together. And the professor says, we have to do something different. You
I'm not kidding. Oh, I'm smart. Now it's time to get dumb. So do you think that's actually a good actionable insight? Open communication
Brad 35:49
is the bottom line, I think values being aligned. And I think expectations being set and sticking to those expectations, under promise over perform all those types of things. Talk about every day, I think that they're all valuable. And all lessons, actually sub lessons out of what Ted's research has shown. Awesome.
Jeff York 36:06
Those thoughts?
Nels Wroe 36:08
Yeah, I mean, that's spot on. I mean, even at a small scale, we deal with those types of things every day.
Jeff York 36:13
Sure. So yeah, with individual employees, I mean, that happens. Sure.
Nels Wroe 36:17
And again, communication for me is communication. And also making sure that you take time and to avoid going into those corners, avoid going and get comfort zone, out of your shoes and step in thinking about it from the other perspective. And that can be quite powerful to help defuse the situation, and then get back to being a partner. And that dementia, creating, like actual innovations that say, Well, okay, now I don't see it quite this way. How do we get together? I mean, that culture, so. And there's one of the piece that I think sometimes that is often overlooked. And it's something that several of our we have internships here, folks want to start distilleries. And I always say, make sure you as a founder, understand what you want, right? Because it's easy to get caught in the founder trap to say, I just want to do what I'm doing here. But you need to think broadly, you need to think about what do I want the outcome to be? When I leave? What is that going to look like? Right? And then you have to have your, you have to understand yourself to know that 10 years from now, do I want to be doing this. Because if you think that through and you understand what you want, you might find suddenly that the other side is going to you may not agree that the this is immediately what you think you want. But it might be taking you towards a goal, that is actually what you want. And so it's very easy to get caught in the short term thinking and you always have to have that long term. So rule number one for me is I have to understand what I want.
Brad 37:46
And you have to you have to also shut the excitements. Everyone's excited when things first start, right. This is really exciting. We're doing something new. We're gonna do all those things that you just showed about this podcast at one point, you need to think with your head and not your heart.
Jeff York 38:00
Primarily. Yeah, you can do both. I used to say, Man, that was really well said, and very insightful. Thank you. I don't want to cheapen it with a sound effect, because I think that was one of the most actionable insights I've ever heard on this thing. That was, that was nice. Okay. I'm dealing with right now. Yeah. All right, Ted, you got one more
Ted Waldron 38:20
for us. One more. And this is the one that actually kind of pisses me off. Awesome. Really, you know, we think that researchers are objective and divorce from the things that they study, this kind of work. We're not we're part of the things that we study. And we're talking about founder, we're talking about a group of investors. We haven't mentioned anybody else.
Brad 38:40
We're talking about booze and stakeholders and all these other things that we haven't mentioned the employees about consumers.
Ted Waldron 38:48
The legal system that dealt with the fight,
Jeff York 38:50
right. A big deal in Waco, right. I mean, like this, as far as I'm like, you know, big guys in the town. I mean, needed to the New York Times. Yeah, I mean, you got chip, chip and Joe, Joe, Joe. Yes, silos? Yeah, I got my picture, the cardboard cut out of them,
Ted Waldron 39:04
my property value increase before I left, because Thank you.
Jeff York 39:07
Here's your chip and pretty value. I'm done with
Ted Waldron 39:10
my delicious whiskey. thing that really just resonates on this point is that these fights actually have negative externalities. They have negative effects on the stakeholders of the venture. Yep. And there were things that actually harmed people. Not intentionally, right. But the people worked at balgonie. Consumers. If you look at public comments of people who are only fires, yes, some they were divided, some were supportive, some some were not of each side. And that actually fed back and had an impact on why chip Tate decided to leave our colonies based on our inferences from the data, so we never talked about it, but the bottom line was a thought they went to court, Chip Tate won a milestone victory in court. Both sides disagreed whether or not that decision would have held but he did win and was scheduled to come back after he had an injunction filed against him. To the outside of Falcone who wasn't allowed to go to adventure, this was all washed out who was scheduled to come back to work and he left so he wins his court victory and leaves two weeks later, we infer that one of the reasons was the well had been poisoned because people inside the venture are just turned off to the whole situation. But opportunities outside of the the venture folks who were supportive of what Chip could bring to the table provided a more attractive place for him to go. Interesting. So who knows if it's true, this is just inference based on what we saw. Nobody told us this.
Brad 40:31
But that's a great story.
Jeff York 40:33
Yeah. Well, I mean, I feel like we have had an episode chock full of actionable insights.
Brad 40:39
Yeah, I mean, we've covered for the last four episodes that we didn't have any
Jeff York 40:45
new season that's true. This is the new the new standard all
Ted Waldron 40:47
seasons don't exist. podcast
Brad 40:51
for for future episodes.
Jeff York 40:53
podcast is like a whichever just like keep beating stuff into
Ted Waldron 40:59
three, usually the best in television, the podcasting podcast.
Brad 41:03
Sure. That sounds like post hoc rationalization. Yeah, terrible analysis.
Jeff York 41:07
Ted, it's awesome to have you join us. Thank you for sharing the story. It's a really interesting paper, entrepreneur investor rivalry over new venture control the battle for the Kunis distilling, it's in the journal business mentoring, it's open access. So Ted is one of the people in academia that understand your complaint.
Brad 41:23
I want my 4995
Jeff York 41:25
getting your 49 nature.
Ted Waldron 41:26
One other thing, please, of course, this article has actually been translated for broader public and business consumption, entrepreneur consumption. Oh, and it's published in entrepreneur and innovation exchange, we can share the link.
Jeff York 41:39
Absolutely. Just check that link in the wherever you are accessing this fine Podcast Producer Joel, make sure it's there for you. And yeah, check it out. Knows, man, you are a heck of a host. This has been fantastic. It's been so great. Like, I mean, it's really meant a lot to us to come see you in person. Remember sitting on Zoom tasting these wonderful things you've created celebrating his success. It's fantastic. And Brad, as always great to see you. You too, my friend. So I'm Jeff York, research director at the Deming Center for
Brad 42:08
Entrepreneurship. And I am Brad Warner and we will talk to you soon. Cheers. Here's the chip and JoJo property value.
Stefani H 42:14
We hope you enjoyed this episode of Creative Distillation recorded on location at Dry Land Distillers in Longmont, Colorado. Learn more and order merch at drylanddistillers.com. Learn more about Ted Waldron on his faculty page at the Rawls College of Business. Check the show notes for a link. We'd love to hear your feedback and ideas email us at CDpodcast@colorado.edu. And please be sure to subscribe to Creative distillation wherever you get your podcasts. The Creative Distillation podcast is made possible by the Deming Center for Entrepreneurship at the University of Colorado Boulder's Leeds School of Business. For more information, please visit deming.colorado.edu. That's D-E-M-ING and click the Creative Distillation link. Creative Distillation is produced by Joel Davis at Analog Digital Arts. Our theme music is "Whiskey Before Breakfast" performed by your humble host, Brad and Jeff. Thanks for listening. We'll see you back here for another episode of Creative Distillation.