Why I Started An Alcohol Delivery Company In A City With No Happy Hour…

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Most entrepreneurs like me looked at the world of alcohol in the past and thought one thing: Too difficult, too regulated, too fragmented. It’s not possible to play in that sandbox. For some reason, as a 22-year-old in mid-2012 the idea of bringing technology to a highly regulated industry was too good to pass up.

The idea was pure and incredibly simple: Alcohol delivery, connecting consumers to local retailers at the touch of a button to have alcohol delivered in just 20 to 40 minutes.

So, we took the plunge. Three happy go lucky co-founders taking on the world of beverage alcohol. In a few short months, we found ourselves in an overnight success, flooded with thousands of new of customers every day, and investment opportunities everywhere…

…if only it were that easy.

Over the past 15 years the world has shifted, consumers moved online, this thing called “e-commerce” appeared, and the proliferation of the mobile phone has transformed almost every industry. But the world of alcohol has stayed back in 1933, the year prohibition ended, with the experience remaining largely unchanged by technology. As we walked through liquor stores we marveled at the fact that large brands, sales of which total over $100 billion a year for liquor stores and supermarkets, had no idea who we were and no ability to access us as consumers. Mobile could change all of that.

delivery-1We started Drizly in Boston, MA, a city steeped in alcohol lore and one that is so tightly regulated that there are no happy hours. That’s right: No. Happy. Hours. Everyone we ran across told us that alcohol delivery was illegal: How could a state with no happy hours allow for alcohol delivery? Yet where most people saw barriers, we saw opportunity. Call it youthful naivety or perhaps ignorance. Either way, starting in Boston turned out to be pure serendipity. By forcing ourselves to work in a tightly regulated state, we were able to create a model that worked across the country. In other words: So long as delivery is legal in Boston, the Drizly model could work around the country, regardless of other regulations (we’re now live in over 18 US markets, with $17.8mm raised).

As we kept at it, we learned that Drizly could fit inside the current system of regulation.  Instead of acting as “the great disruptor” we could accelerate the existing industry. We started with the Mass. Liquor Code, the body of regulations that govern sales and licensing of alcohol, and dove into the law to expand our knowledge of how the system worked. It turned out that in many states the groundwork for our new consumer experience already existed, and mobile devices connected the pieces. By doing this we realized that what we were told was “too difficult” was actually quite attainable. But Drizly would have never happened if we started the business in a state like New York or California, where the laws are more relaxed for this type of operation. We had to answer the hardest questions about our business right out of the gate.

To get Drizly off the ground, my co-founder and I were employees of our first store in 2012 through 2013, doing the deliveries ourselves, shuttling orders around Boston for over a year. In doing so we learned about how to run a profitable small business and about seasonality and merchandising. We understood how technology fit into our stores and how business operators looked at opportunities and threats. We focused on the economics of the business at a micro level, over a single delivery, to make sure it was profitable. We became mini-experts in our area.What we formed was a cookie cutter model of adding supply to our network that now scales with minimal capital and human investment and has allowed us to expand to over 18 cities in as many months. It was a real education, the best we could have asked for.

Why do I say all of this?

deliver-3What was once a couple of friends stocking shelves and doing deliveries has now become something larger than the company itself, Drizly represents the shift of consumers from the physical world to the digital world for the first time in this massive industry. Less than 1% of alcohol sales happen on the Internet, and our model is paving the way for a move towards 10%+ of sales  to happen on mobile and desktop. The reason this shift took so long are the regulatory challenges that we answered at the very beginning of Drizly’s life. Before that, no company was able to scale across the country. Regulation had been the barrier, but mobile has changed that. Not in a way that deregulated the industry, but mobile devices now allow companies to co-exist with these complex regulations. Drizly has carved out a very defined, very focused, niche, one that is underserved and very big, in a way that many others can’t. Other types of delivery companies will be blocked from this business due to seemingly minute details in regulation, like the fact that it’s illegal for a 3rd party courier to deliver to consumer in many states, the Drizly model has stores using their own employees instead.

We’ve now built a company that enables delivery through only software. In the same way that Uber doesn’t own cars, SentientJet owns no planes, and Starwood doesn’t own hotels, we have an asset light business that can scale with incredible speed representing some of the biggest changes in our industry since prohibition. But under the hood Drizly hasn’t changed a thing. It’s rare that all participants of an industry can find value in new technology in a way that no one is disrupted, in a classic sense, but that’s just what we’ve done.

So ask the hard questions. Answer them upfront. Be truthful about your answers. There are reasons why great ideas won’t, or didn’t, work. We fight those every day. Some are insurmountable, others are not. Knowing which mountain to climb is as much of the challenge as the climb itself. But by not asking and answering the hard questions, for a new business or a new line in an existing one, we’re doomed to fail from the very beginning.

In the end, we asked ourselves why our business couldn’t exist, even in a state with laws so strict that there are no happy hours. All we ended up finding were reasons why it could.