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

https://news.ycombinator.com/item?id=5582513

by contacternst • 13 years ago

36 57 13 years ago

news.ycombinator.com

My name is Max, and I'm 26.

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.

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).

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.

-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

- Max

smartwater• 13 years ago

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.

cheriot• 13 years ago

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.

contacternst13• 13 years ago

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?

cm2012• 13 years ago

You can always persuade a manufacturer to dropship for you. As a jewelry manufacturer, we dropship for retailers all the time. As for thr second concern, its valid and I dont have a solution.

tptacek10• 13 years ago

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.

greenyoda• 13 years ago

A quick search for "Vermont maple syrup" on Amazon.com will show you that you'd have a big competitor in the field of on-line syrup sales.

davidw2• 13 years ago

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!

contacternst13• 13 years ago

How much of this book is aimed at software developers?

davidw2• 13 years ago

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• 13 years ago

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• 13 years ago

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

contacternst13• 13 years ago

Selling beer online CAN be legal if you are selling from a state in which it is legal and have gone through the appropriate licensing necessary. For example, it is legal in New York, a state in which Vermont shares many laws.

However, selling beer online in Vermont is never legal.

Interestingly, it is possible to sell a certain amount wine online in Vermont. Just not beer. Now I know.

It is always illegal to ship beer beer via USPS. It is not against policy to ship beer via Fedex of UPS if you take the necessary steps. I believe you have to show them proof of proper license and pay a fee. Of course, if you do not take these extra steps... I don't think there's a problem. Fedex has destroyed plenty of my orders, but always let me ship more. No refund to speak of though.

defen• 13 years ago

Note: I'm not a lawyer, so don't take this as legal advice if you're planning on selling alcohol online :)

The 21st amendment lets each state set the rules for the transportation of and importation of intoxicating liquors into that state. So the problem is not so much that it's prima facie illegal, as that each state has its own set of rules/taxes/requirements that you must comply with. I suppose a state could make it illegal to sell alcohol online.

tptacek10• 13 years ago

* 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.

thaumaturgy• 13 years ago

I did some work a few years back for a company whose entire business model was managing the rules, licensing, payments, and paperwork for interstate alcoholic beverage distributors.

It was an eye-opener. The code itself was a horrifying pile of special cases, largely because each state had its own form, which required its own set of information, and its own rules regarding shipments, and its own license fees ...

I wouldn't be surprised if 20% of the retail cost of alcoholic beverages is due to the headaches associated with moving them across state lines.

Mitchella• 13 years ago

The beer online is the part that's most likely to be illegal. Even if legal it's risky. If someone underage faked their ID and you sold to them anyways and something were to happen that could come back very negatively in many different ways (IE: lose of licenses, lawsuits, potential criminal charges).

rdouble• 13 years ago

You can't really sell alcohol across state lines.

I helped build one of the first online wine sales sites and they imploded due to spending tons of money trying to establish a complicated system of warehouses in every state in order to comply with the regulations.

graeme• 13 years ago

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?

contacternst13• 13 years ago

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.

obviouslygreen• 13 years ago

You're very, very lucky. Hopefully you've learned the entire applicable lesson; there are licenses for reselling in addition to limitations on selling some things in some ways.

As has been said, you definitely need to be careful about the legality of your business; more importantly, though, you need to step back and get a much more informed idea of intellectual property and how you can and (mostly) can't use other people's products.

tptacek10• 13 years ago

You'll also find that some breweries, like Three Floyds in Indiana, would not sell more beer over a wider area even if it were lawful, because they're already straining against the definition of "microbrewery" and are exploiting product scarcity as part of their product strategy.

This is just another reason why selling beer online is not a great business.

notahacker• 13 years ago

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.

helen842000• 13 years ago

You would have thought they would own the .com domain for their own trademark! Ask them if they want to buy it to stop others trying it.

MJR• 13 years ago

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.

contacternst13• 13 years ago

"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)

kmfrk• 13 years ago

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. :)

contacternst13• 13 years ago

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 :)

brzed3• 13 years ago

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.

tptacek10• 13 years ago

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.

brzed3• 13 years ago

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.

tptacek10• 13 years ago

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!)

contacternst13• 13 years ago

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.

brzed3• 13 years ago

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

phamilton• 13 years ago

Contact me please. I want to talk about this a bit more. (email in my profile)

mschuster914• 13 years ago

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.

LaurensBER• 13 years ago

This is not an USA only problem.

mschuster914• 13 years ago

You are right, but the US are the country which whines the most about "ooh we have no jobs" etc. Get rid of the puritans, the outdated laws and let innovation create jobs, please.

Only when you (as a country) can claim "We did everything in our power to help innovators and businessmen to create jobs" you're allowed to whine.

tptacek10• 13 years ago

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

contacternst13• 13 years ago

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 ;)

jacoblyles• 13 years ago

Try opening a beer business in Kuwait :)

bayesianhorse• 13 years ago

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.

contacternst13• 13 years ago

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.

auctiontheory• 13 years ago

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.

twilde2• 13 years ago

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)

austengary• 13 years ago

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.

contacternst13• 13 years ago

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.

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

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