In Vino, Bootstrapping
At the end of my first day vacationing in Napa Valley I found myself at a dinner table discussion about the business side of the winery hosting us. In a way, I expected myself to be unarmed for this conversation, but as it turns out, the business model of this small winery is much closer to home than I'd expected. And in this discussion, I found a few explanations for bootstrapping principals that seem to elude many entrepreneurs.
Contract Growing vs Wine Production
The first distinction I learned was that there are two ends of the business spectrum: growing grapes and producing wine.
It would seem that these two specific steps are parts of a process, and while that's true, there's more than a single business opportunity in these grapes.
Contract growing allows a vineyard - which is chiefly an agricultural operation - to focus on the grape growing. Grape yields are finite but do provide an opportunity for the vineyard to get a substantial payday once or twice a year.
The problem, of course, is that if the winery stops producing grapes short term they also stop producing money short term.
The grapes, like the man-hours of consulting, are really great at producing low-risk short-term returns but are self-limiting in terms of the business of the vineyard. Cost-per-ton of grapes is variable based on supply and demand effects, much like consulting rates.
Wine production, on the other hand, doesn't stop with making the wine - it also includes bringing that wine to a market. The wine production process can take orders of magnitude more time (and more money) than the grapes take to grow on the vine, making for a higher risk delayed payday for what could be many years from the day the grapes are first crushed - and that's assuming the market is buying the wine you set out to make.
But the wine is made either way, and once to market there are a multitude of options for selling the final product.
Even though the a finite number of grapes only produces a finite amount of wine, people are paying for the product not the grapes. This gives your the ability to influence buying decisions based on the customer, the season, the experience, even the packaging and distribution choices. Two wines made from the same vineyard's grapes could easily be sold for extremely disparate prices.
While the agricultural business of growing grapes is relatively commoditized, wine production revenue potential is heavily influenced by its inputs - the grapes themselves, the winemaker, the marketing, and the market.
Contract Growing AND Wine Production
So back to my dinner time story. The GM of this winery was explaining that they currently sell ~80% of their grapes to other winemakers and retain the last 20% for their own wine production. Pareto principal aside, I was curious about the spread.
Effectively, the contract growing subsidizes the growing costs of the vinyard and some of the production costs of their winemaking program, ultimately helping them build a sustainable business while they're bringing their wines to market.
Dividing Your Fields
One advantage that the vineyard and winery has is a physical asset that they're dividing between their operations: the grapes.
Time, it seems, is a lot harder to consistently divide, I believe for two reasons. The first reason is that we are generally bad at valuing our time at any given time, so we make poor real-time decisions about how we spend our time. The second reason is that there are usually very few, if any, controls in place for the people we sell our time to. They don't see our time as a finite resource like a grape yield, partially because that's how we sell it. And though the heroin of the “quick consulting gig to pay the bills this month” might seem less potent, it has a nearly identical limiting effect as over-subscribing a crop to buyers and limiting your wine production yields.
In Vino Veritas
If you're serious about making the transition from selling your time-based services to selling a product, grab yourself a glass of wine and take a good, hard, and honest look at how you're selling your time and how much of the crop you could be setting aside to build something more sustainable.