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Learn from those who brew beer how to be a better financial advisor
Wherever large enclaves of European immigrants settled in America, it would not take long for a handful of breweries to open for business in the local community. These breweries distributed their fermented concoctions to the local taverns and clubs within close proximity to where the beer was produced. Unlike the Internet companies of today, brewing beer for most of the 19th century was not a scalable business model. Unpasteurized beer with active yeast has to be consumed within a short period of time after the fermentation process is completed. Otherwise, these liquid bread products become moldy and give off a rank odor. Nobody likes to drink stinky beer pumped out of vintage kegs that have been stored for who knows how long.
After a large wave of German immigrants settled into Saint Louis in the mid-1800s, brewing beer became a major local industry. Determined to expand his distribution base outside of the local community, Adolphus Busch in the 1870s incorporated several technological innovations at his Saint Louis brewing plant. Busch was the first American brewer to pasteurize beer, which enabled the suds to have a longer shelf life than did most of the local fare consumed within a short distance around the Saint Louis area. Busch also introduced refrigerated rail car technology. Temperature-controlled rail cars enabled beer to be transported over longer distances without sacrificing a significant loss in quality upon arriving at its final destination. Both the pasteurization and refrigeration technologies enabled Budweiser to grow into a national beer brand, giving Anheuser-Busch the right to call itself the “King of Beers.”
These disruptive technologies in the beer making industry would seem to be a force majeure for the smaller craft breweries forced to compete against it. It is counterintuitive to imagine a rinky-dink microbrewery remaining in business against a fermented tide of technological brewing innovation located wherever beer is produced in large quantities. Despite the increased efficiencies of a national brewery due to its economies of scale, microbreweries are opening at a faster rate than ever. Creative Biermeisters are experimenting with different flavors and hops, selling their fermented creations to evermore hipster patrons eager to escape the bland, watered-down alcohol products sold by evil multinational corporations. Fancy refrigeration and pasteurization technologies be damned. Brewing large quantities of beer in oversized Lauder Tubs and shipping the swill cross-country from a centralized location isn’t going to cut it for this finicky subset of hop-heads who frequent their local microbrew joint.
In the Internet era, where scalable business models disrupt entire industries, the gurus experimenting with different fermented potions in the dungeons of their local brewpubs have found a way to not only compete against but also thrive in the midst of scalable technology. These smaller establishments have found a niche, avoiding being tapped-out even if drones in the future can drop sanitized kegs of cheap corporate beer on the back porch of a college frat house at breakneck prices.
Those in the investment advisory business can learn a thing or two from these small microbrewers. With robo-advisors gaining a foothold in the investment advisory space, embracing a niche form of investing may be one route that financial advisors can embrace in order to compete against cloud-based scalable Internet technology. In a previous blog, I wrote about the challenges that a robo-advisor faces in an expensive stock market (see Benjamin Graham’s Value Investing versus the Robo-Advisor). One way in which a human f