When Success Means Being Turned Down by the Bank
You’d think selling your wine brand to E&J Gallo would put you squarely on Easy Street. As accidental wine merchants Bonnie Harvey and Michael Houlihan found out, personal finance and entrepreneurship can make an awkward pair.
Before the mid-1980s, the married couple's main experience with wine was drinking it. Then, while working as a consultant on office management to a wine maker without a brand of his own, Harvey learned that a winery owed her client a lot of money. She brought in Houlihan, a business consultant, who discovered that the indebted winery couldn't pay cash -- but could repay the debt with bulk wine and bottling services.
The couple developed a plan for the client to use those resources to set up a brand. When the client passed on the idea, Harvey and Houlihan took over the debt and launched Barefoot Wine in 1986. They sold the company for an undisclosed sum in 2005. Their book about the 20 years spent building the brand, “The Barefoot Spirit: How Hardship, Hustle and Heart Built America's #1 Wine Brand,” will be published on May 21. Here are excerpts of their reflections on life and money.
Michael Houlihan: We like to say we fell backwards into the wine business. We didn’t know enough to realize what was involved.
Bonnie Harvey: Ignorance is bliss.
MH: So we took the bull by the horns and decided to ride it. And boy, it was a rough ride. At first we thought we’ll turn this around in three to four years. It took closer to 20.
BH: Our biggest mistake, though there were so many, was we thought if we gave the buyer and the public exactly what they said they wanted -- an award-winning wine for a great price, with a really cute catchy name and label -- that it would sell like hotcakes. And it didn’t. We had to learn, understand and manage the distribution system. That was a huge awakening.
MH: Our finances were incredibly impacted of course. We’re talking all your credit cards, your money and any money you can beg, borrow and steal. But being undercapitalized forces you to be resourceful. Our first office for two years was a laundry room so we didn’t have to pay rent.
Here’s a story about personal finances you’ll find laughable. When we’d been in business for eight years, we wanted to buy a house, because we were in a rental. Not a big house, a $350,000 house, which is small in California. And the bank says, “You don’t qualify. You’re self-employed and don’t have a stable job.” And we said, “Wait a minute, at least four of our employees obtained a mortgage from your bank.” And they said, “Well, that’s different, they have a good solid job.” So we had to incorporate our company, pay ourselves a salary and wait another three or four years.
BH: We started off intending to get enough purchase orders and shelf space to make it attractive to a big boy, which we succeeded in doing. When we sold, our acquirer hired us for a year. They said they wanted to keep the “Barefoot spirit” alive. When that ended, we missed the people we were working with. They were just a fabulous group.
MH: After selling a business, the first thing that happens is a lot of things that are covered by your business disappear. Things like your medical coverage. Instead of being covered no matter what, they want to do a physical. You don’t have dental coverage and you have to buy your own car and car insurance. There are no “business meals.” There are a huge amount of personal expenses no longer paid for by the business. That was a shocker.
Also, you don’t have cash flow. Even though you could have millions in the bank, you don’t qualify for a loan. We’re back to the problem we had before. You’re forced to pay for everything with cash.
BH: Suddenly, your business is managing your money. We didn’t have any experience in that, because we didn’t have any money to manage.
MH: Even when you have a balanced portfolio, it’s a wild ride. The market’s up one day, down the next. Real estate's up one day, down the next. The other problem is that the price of everyday things rises more quickly than the official inflation rate. The cost of fuel and medical care has gone up significantly since we sold our business.
You think you’re going to get to this level where you’ll be taken care of. That’s when you find out that’s just the beginning of vigilance. Money requires management. You’re going to be a slave to it. It’s a jealous mistress. You can never relax, I guess.
BH: No, not for long. You can take a weekend off.