

My business worked... until I found out it was illegal - contacternst

My name is Max, and I'm 26.<p>I currently work as a teacher’s aid in Special Education and am a counselor for a special needs summer camp. I met the girl of my dreams two Summers at this same camp (http://www.partnersinadventure.org/) and have been with her ever since. However, I’m worried about an inability to provide for our future family.<p>I’ve had one successful business venture previously. I began selling Heady Topper online, an internet-famous beer made in the Vermont area. First I started doing it on Ebay. Eventually I made a website called headytopper.com with Magento (it’s down now for reasons I will soon reveal).<p>Sales were going great and I had made an extra thousand dollars or so after a couple months. However, during my Christmas break, I got a call from Jen Kimmich, the wife of the brewer John Kimmich. She advised that I stop doing what I was doing as it was illegal in the state of Vermont and “Heady Topper” was trademarked. It was a huge shock I’m lucky to have not gotten sued. I had had a successful but illegal business.<p>-I really want to start one that is successful LEGAL! I want your help: 
-My strengths:
-I’m very frugal
-I am resourceful in that I take a lot of advantage of all that the internet has to offer in the form of software to increase efficiency
-I live in Vermont, state a lot of people want to go to or be a part of
-I am competent at selling
-I have a car
-I have saved about $5K for startup funds
-I am willing to learn
-Thank you very much, any advice would be greatly appreciated<p>- Max
======
MJR
Regardless of what idea you pick, if you're going to start any business you
need to do it the right way.

First - research your business idea. A google search for "selling beer online"
would have quickly lead you to many articles like this:
<http://billybrew.com/the-ins-and-outs-of-shipping-beer> which detail where
and why shippping beer is illegal.

Second, if you're selling someone else's product it's a good idea not to
register a domain with their exact product_name.com. You're extremely lucky
that you weren't sued. Find out if they put any restrictions on letting you
re-sell or being an affiliate.

Third, research the method you intend to use to sell your product. In the
future depending on your product you may choose to go a payment processor or a
complete solution. Do your research and see what other people with similar
business models are using. You also got extremely lucky with ebay, because
selling alcohol is against their terms of service too:
<http://pages.ebay.com/help/policies/alcohol.html>

So, I think in part, the reason your business was successful was because you
were doing several things that are completely illegal, out in the open. You
were the only choice for that audience because going the legal route to sell
that beer online isn't easy and is probably costlier.

Fourth, you will be running a business. That means taxes, registering your
business, managing the income and expenses, etc. Find a book on setting up
your business or google for any of the thousands of blog posts on that topic
and you will find lots of step by step guides that tell you exactly what you
need to do and what specifics you need to know for your state.

That's the easy stuff. The hard part will be finding a worthwhile idea,
digging in, testing the idea and then sticking with it. You've got your work
ahead of you. Good luck.

~~~
contacternst
"the reason your business was successful was because you were doing several
things that are completely illegal, out in the open."

Absolutely true. There's a huge demand on the product and I was one of the
only choices outside of Ebay (in which it is also against policy and risky in
that you may lose your account if selling persists)

------
tptacek
Take heart: if it was lawful to send Heady Topper (or Pliny or Dreadnaught)
across state lines, there'd be no market for your service anyways; there is so
much demand for those beers even in their home markets that the interstate
distribution problem would be saturated with offerings.

(If you're wondering, most people get their out-of-state beers by 1:1
exchanges. There's probably a market for solutions that make those swaps
easier!)

~~~
contacternst
I'm not a developer, but I do have a pretty long list of people that trust me
to do fair business and would be interested in such a solution.

I wouldn't be able to develop a platform like this, but I'd be more than able
to help launch it.

~~~
brzed
no one says it has to be software. The problem you are detailing is much more
of a legal compliance problem than software.

~~~
tptacek
The matchmaking problem for 1:1 beer exchanges probably doesn't have a whole
lot of legal risk attached; the shippers should bear the legal risk (they're
breaking the law, but in a jaywalking sort of way until they try to make money
at it).

------
davidw
This book has a lot of great advice for how to find and develop a niche
business: <http://www.amazon.com/dp/B003YH9MMI/?tag=dedasys-20> \- it's very
much written for people starting with a minimal budget, wanting to do
something small/niche.

I think the important thing is to keep trying stuff until something sticks.
Good luck!

~~~
contacternst
How much of this book is aimed at software developers?

~~~
davidw
A lot of it - that's why it's subtitled "a developer's guide to launching a
startup". There's some good advice that's applicable to non-developers, but
the book revolves around creating an on-line business, and is definitely aimed
at people with programming skills. That said, it's probably still worth a
look, as it's got a lot of concrete advice in it.

<http://www.startupbook.net/>

------
tibbon
Which part was illegal? Selling beer online? Or the trademark issue?

If its just the trademark issue, then just change the name and carry on.

~~~
alexvr
I'm also curious to see what makes it illegal. Do you need a specific license
to sell alcohol?

~~~
tptacek
* There are states such as Utah that forbid shipping alcohol directly to their residents.

* There are states such as Texas that forbid the unlicensed shipping of alcohol from outside the state to residents.

* There are states (I think IL is one of them) for which large classes of alcoholic beverages are controlled by distributorships, which are licensed monopolies for shipping.

* Both UPS and FedEx require a special license to ship alcohol through them.

* It's illegal to ship alcohol using the USPS.

A lot of these issues are in flux (and are tending to be resolved the "right"
way), but there is still a _lot_ of prohibition baggage in our liquor laws.

~~~
twilde
distributorships arent a state based thing. It's all legally encoded into ATF
regs; there are different classes of licensing; Manufacturer, Farm/Small
Manufacturer (less than 10,000 gallons per year), Distributor/Wholsale Sales;
and Retail Sales. None of these licenses are allowed to overlap.

The problem with startup breweries/wineries is that they have to make thier
sales exclusively to distributors, then market to retailers (get demand for
the distros to carry). However, as a retailer, you're only allowed to purchase
from the distributors. If the distro doesnt carry a product you want to sell,
you legally cannot sell it.

------
twilde
Max, I looked into this as a meadmaker several years back. I've been brewing
mead for about 20 years now, and wine and beer for about 8 years. Everyone
who's sampled my brews really wants to be able to just buy it anytime they
want. After much prodding I looked into it.

Your mileage may vary as I've kind of given up on these ventures because they
are very cost prohibitive to get going. So take the advice for what it's
worth.

First, you want to be a retailer; you must be licensed. This is VERY expensive
and you have to purchase 100% of your product from a licensed Distributor. If
your local distributor doesnt carry the beer you want to sell, you're SOL. You
can request it, but Distributors need a LOT of demand to get new products on
their list. Distributors arent monopolies by nature, usually most markets will
have multiple distributors so you might be able to shop around, but smaller
markets will be limited.

As a manufacturer, if you were to brew your product to sell it's easier but
much much more expensive. When I priced everything out to just have required
equipment it was over $200,000 and that was shopping around for used equipment
(over $500 for all new equipment). But even then, you need to get special
licensing to sell your product across state lines. Up until I think 2004 or
2005, all mail order sales required in-person orders (visiting a winery for
example) This has thankfully changed but other issues still remain.

Many states will not allow alcohol to be shipped in under any circumstances.
Some states have requirements on alcohol percentages.

Beer tends to ship one of 2 ways; either you're visiting the breweries website
and ordering direct from the brewery Or beer of the month clubs. Again, even
the BoM clubs tend to be one of 2 categories; either a single bottle of beer
as a "sample" which is covered by different regulations and is easier to do.
Or as a "middle man" type operation where the "club" is connected to multiple
breweries that are already licensed to sell. At which point they just operate
as order takers and have no licensing requirements to perform this service.

However, there's a few caveats. If a brewery went through the expense and
hassle to get the shipping licenses; they dont need you. Those that havent
been licensed for shipping either cant because of costs involved, or have been
denied for whatever reasons (horror stories abound when it comes to BATF
licensing and license maintenance).

With the budget you're talking, I'd have to say you'd need to double it just
to get a lawyer involved so you dont suffer ATF raids or even jailtime for
breaking rules.

Bottom line: you were successful because you completely bypassed city, county,
state, and federal regulations. You were the only provider so you had zero
competition. You are incredibly lucky that you got tapped on the shoulder by a
brewer that said knock it off rather than face an ATF raid and prison
sentence.

For $5k I doubt you'll get very far in the licensing business (most of them
locally sell for $50,000 or more for retail licenses)

------
brzed
Well, to some extent you already proved that there is a market for extending
the reach of micro breweries which I would agree is a significant problem.
Have you considered starting over using a different (non trademark infringing)
website? Then you could even expand and sell other hard to find craft brews.

That being said...I would be very careful about the legalities of what you are
doing. A trademark lawsuit sucks, but a visit from the ATF would be far worse.

~~~
tptacek
As a counterpoint, I think this is a bad business idea. Legal compliance is
going to be expensive (you're going to need to involve pro legal from day one
on this, or else forfeit your right to a sob story about the [state]
government[s] shutting you down). Even after you shell out for that, there
will be large classes of customers who you won't be able to service because of
idiosyncratic state laws. Customers will always be uncertain about whether
they can use your site.

Meanwhile, you're selling a product with a well-established price point. Your
overhead is substantial (it's expensive to ship beverages). Heady Topper
happens to come in cans, but most of the high-demand brews (besides Surly) are
bottles, so you'll have breakage to deal with.

There is a reason that there aren't a lot of good ways to click a button to
get Pliny The Elder: the market conditions for it suck.

~~~
brzed
I didn't say it was a good idea, just that there was a market lol. There is
actually a pretty significant market for hard to find or out of production
sodas.

That being said, everything you noted about legal compliance is likely
completely accurate and is the differentiator between existing market and
feasible business idea.

------
cheriot
Are there Vermont syrups or cheeses that have far flung demand? Perhaps a
Vermont of the Month club if interest in Vermont itself is high enough.

~~~
contacternst
There is a demand certainly for Vermont maple syrup. I believe it commands a
higher price than maple syrup from other regions.

I was considering a business of this sort, but was a bit intimidated by having
to keep a large amount of products in-stock and the price that would come with
that kind of thing.

I was also turned off by the lack of apparent success of a similar website:
<http://www.bestofvermont.com/>

Any thoughts on these two concerns?

~~~
tptacek
I like maple syrup and I like cheese, at a level that puts me in perhaps the
top quintile of HN syrup-and-cheese- likers, and I've never thought "you know
what I need right now? Some Vermont."

If you're serious about capitalizing on Vermont craft industries, something to
consider is creating a brand. Don't sell "Vermont cheese" or "Vermont syrup";
sell "Awesome Craft Syrup (a product of Vermont)".

Look at Zingerman's in Ann Arbor, MI for an example of this business executed
at its highest levels.

------
smartwater
Great job finding a niche in the beer industry, sorry it didn't work out this
time. Do what you already did: find a product or service that you think people
want, test your theory, and build a business around it. Sell something you
have an interest in and your enthusiasm will shine through, thus increasing
your odds of success.

------
kmfrk
Max,

This is a tiny niggle, but your list items need an empty line between them;
otherwise they all end up on the same line like your list of admirable traits.
:)

~~~
contacternst
haha, thanks for that. I'm really impressed with the amount of support a first
time poster is getting from this community. Something I only dared hope fore
before my post :)

------
bayesianhorse
I really hate saying this, because I find it offensive in general, but: Google
is your friend.

Any kind of research would have turned up these problems. If you live in
Vermont you probably should already have an inkling that the state laws can be
touchy about alcohol.

Before starting a commercial website, one should be moderately current in
copyright and trademark law. You very likely broke both.

~~~
contacternst
Trust me to not make the same mistake twice. However, if I hadn't gotten my
foot wet at in the first place, I may never have learned at all.

------
graeme
Were they interested in a partnership? Sounds like you were increasing their
sales. I'm guessing you were paying retail price to resell it, too?

~~~
contacternst
That was what I was hoping for. Unfortunately, Jen mainly just scolded me,
said I should have done my homework better, and that if it was legal to sell
her beer online, she would do it herself.

~~~
notahacker
I think (and quite possibly you agree with me) it shows a lot of class on the
part of the brewers that you got a phone call from one of their family and not
a snotty letter from their lawyers or visit from a tipped-off member of law
enforcement.

~~~
contacternst
I certainly agree. I believe her request was phrased "Our lawyer is quite
expensive. Please don't make me use him again."

------
austengary
I'm not sure why the intelligence of your girlfriend was necessary for an
introduction. It's having my question whether or not I should have been
perhaps announcing the same of my own introductions, with that of a similar
degree in my wife.

~~~
contacternst
Wow, really? I didn't think this was necessary, but I guess I will have to
specify: My girlfriend is not developmentally delayed. She was a counselor at
the camp like me and is in the "normal" intelligence category.

------
auctiontheory
A couple of great resources for information and inspiration about
entrepreneurship: \- Inc. magazine. \- "Mixergy" podcasts - free on iTunes,
and $25/month for access to the entire collection.

Good luck.

------
mschuster91
Oh god, US bigotry and puritanism is the worst I ever encountered. I wonder
how many jobs could have been created with a more relaxed and less religious-
fascist look on life.

~~~
tptacek
We Illinoisans, hailing from the land of Three Floyds and Half Acre, surely
are bigoted against the unclean Vermonters and their "ethnic" Alchemist beers.

~~~
contacternst
Well I'm originally from Ohio and quite familiar with the midwest.

I'd say you need to come out and visit Vermont and it's beer scene. You might
never leave ;)

~~~
tptacek
Ohioans are not to be trusted.

~~~
contacternst
I suppose I've illustrated that point quite well...

