Balcones – Showdown In Waco

by Oliver Klimek on October 10, 2014

Waco, Texas; the name rings a bell. In my mind and that of many others it will always be connected to the terrible massacre that happened there in 1993. How happy was I when I read the news a few years ago that a whisky distillery has opened there. Finally some good news from this place. Founded and run by Chip Tate, Balcones has made a range of rather unique whiskies, the smoked Brimstone being my favourite. But now a different kind of tragedy is taking place in Waco, and sadly it is about the fate of the Balcones distillery.

Last week a court ruled that Chip Tate had violated a temporary restraining order that forbid him to enter the distillery among other restrictions. What has happened that things have come this far? Nobody outside the company knows exactly, but this article by Dave Broom on the Whisky Advocate blog gives a good round-up of the difficult situation that has evolved at Balcones.

In short, new investors were brought on board to be able to finance a big expansion of the distillery. Apparently there have been increasing differences between the new board and Chip Tate about the expansion plans and the future of Balcones in general that culminated in the restraining order initiated by the board. Allegedly Chip Tate had threatend the life of chairman Greg Allen as well as made allusions that he could burn down the distillery.

Shortly after the news broke, a wave of support for Chip Tate began to rush though social media. He has been held in high esteem in the whisky community because the way he had been building up the distillery and of course also because of his innovative whiskies. The “No Chip, no Balcones” movement especially focussed on the notion that Chip Tate’s work has been so essential for the distillery that Balcones without him is impossible to imagine. The overall notion of the supporters is that investors wanted to get rid of Chip Tate because he was seen as an obstacle for a financially successful expansion.

While it certainly is true that Balcones as it exists today is unthinkable without Chip Tate, I am reluctant to take Chip’s side unconditionally. Firstly the filed court documents to support Chip’s position are written in a polemic tone that in my opinion has no place in a discussion at court, no matter whose side you are on. I have the feeling that the fact that Chip surprisingly switched lawyers shortly before the documents were filed is not entirely unrelated to the charater of this response.

And then, any investor in the company must have been aware of how crucial Chip Tate is to the operation of the distillery. You don’t drop such an important person like a hot potato without an important reason. Chip’s supporters have rightly pointed out that without him the success of Balcones is very doubtful. Seen in this light, the phrase “to purloin the plump ripe peach that is Balcones from the founder Chip, who built it with his own two hands from scratch” from the court document makes little sense.

I rather have the impression that for some reason which we will probably never now for sure the mutual trust between Chip Tate and the board was destroyed in such a way that the investors felt the need to pull the emergency brake at all costs. This does not mean that I support Chip’s ousting by any means. But for me it looks more likely that both sides have made mistakes in this conflict. And I fear that it will be impossible to resolve this situation with Balcones surviving the way we have grown to love it.

No matter which side is guilty of what here, there is an important lesson to learn. As an enthusiatic person with a vision to start your own business, it is extremely risky to be a minority stakeholder. Everything is fine as long as the investors share your vision. But as soon as there are fundamental differences about the operation of the company things can become very difficult. The key problem is that you are working with other people’s money, and eventually those people will decide against you if they see their investment in danger of becoming a failure. In a finacial setup like this you are forced to have good relations with your investors, otherwise you risk losing the dream of your life.

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