Friday, July 15, 2011

Start-Up Wineries Prove There’s No Such Thing as a Typical Entrepreneur

The conventional saying goes something like, “If you want to make a million dollars making wine, start with ten million dollars.” Barriers to entry, including huge up-front capital investments and specialized knowledge required, are high. And yet, according to the Wine Institute, between 2000 and 2010, the number of bonded wineries licensed by the Alcohol and Tobacco Tax and Trade Bureau in the United States more than doubled, from 2,904, to 7,626. Certainly, some of these new wineries are the result of new brand concepts from large corporations operating in the industry, such as E&J Gallo and Constellation Brands, but plenty more are like HammerSky Vineyards in Paso Robles, California.

Lately, it seems like every time I learn of a new winery, it’s marketed as the long-held dream of an ex-Wall Street investment banker or lawyer or physician come to fruition. Not that I blame them. Seeing pictures of Napa or Sonoma Valley vineyards, with their rows of green vines surrounded by mountains, is enough to make anyone want to dump the briefcase in favor of grapes and oak barrels. There is even a new annual Wine Entrepreneur Conference held in Washington, DC, that began in 2010, which suggests to me that the number of entrepreneurs in this industry continues to grow. What is it about the wine industry that appeals so much to people’s entrepreneurial spirit?

The industries that first come to my mind as being dominated by entrepreneurs are software, medical devices, and other technology-based industries that grow and change through ideas of brand-new or improved products and services for an entrepreneur to provide to the marketplace. These are not the characteristics of the wine industry. In fact, producing wine could not be more traditional, having been invented literally thousands of years ago. The processes and technology related to winemaking have evolved over time and will continue to do so, but the wine itself is still just, well, wine.

Still, wine excites people. The idea of owning, running, or investing in a winery feels glamorous and romantic, whether or not it is financially successful. Given the same facts as to capital required, industry prospects, and projected margins and revenues, who wouldn’t choose to invest in a winery (or, for that matter, a Broadway Musical) instead of, say, a real estate investment trust or an oil company?

What is motivating entrepreneurs to take big financial risks with discouraging odds in the winemaking business? Given the differences in the industries, particularly in the pace of change within the industries, I think there must be some different qualities than those that motivate entrepreneurs in the technology space. Where a new invention in software could lead to explosive growth in sales or licensing and could change the way entire industries conduct their business in a matter of a year or two, a new winery will almost never have that kind of acute impact so quickly. Even a successful new winery’s growth in its production is highly dependent on the vineyard’s yield of grapes, costly oak barrels for aging, and other physical limitations.

Thus, a winemaking entrepreneur has to be looking for something other than overnight success and exerting influence on an industry, which is why winemaking looks to me like a personal endeavor that happens to also be a business. It must be fulfilling something in the people who do it other than (or at least in addition to) their financial goals.

While I assume that most new winemakers hope to at least be able to support their families with money earned from their businesses, I doubt they are planning on five years of start-up operations before being sold for millions of dollars to a larger competitor or a private equity firm in an M&A transaction. Instead, I think their aspirations tend to be more along the lines of long-term family operations and driven more by creating a product that they personally enjoy consuming (and making) than one that will sell the most.

This demonstrates that entrepreneurs are people first and their personal goals, interests, tastes, and sometimes unrealistic dreams are often far more motivating than financial projections and the latest scientific studies. Entrepreneurs cannot be studied or quantified, and this is why there is no such thing as a “typical” entrepreneur.

A Post by Alyssa Hirschfeld, Guest Blogger

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