CEO Stories with Laura Swanton, Laura Michael Wines
Laura Swanton is the “accidental winemaker.” Fifteen years ago, Swanton, a high-tech exec, and her then-husband went looking for a vacation home in Napa Valley. Instead they bought a winery – and ultimately a career change for Laura.
She spoke with This Is Capitalism about founding and running LauraMichaelWines.com, what she brought with her from her high-tech career that was useful, and some of the counter-intuitive business lessons she’s learned.
WOMEN AND WINE
Though Swanton and her then-husband bought the winery and started it together, within a relatively short period of time, it was just Laura. She notes that there are still relatively few women owning or running wineries in Napa Valley, particularly self-funded ones. She didn’t know about making wine, so her first hire was a consulting winemaker.
Swanton’s 17-year high-tech career had taught her about product distribution, and how to make a sell a product, and her college degree in organizational management gave her the knowledge around how to run a company. She says that her lessons go back even further, to watching one of her grandfathers work as a farmer. She prefers to call herself a “farmer” rather than a “winemaker,” which she says helps keep her grounded.
SILICON VALLEY vs. NAPA VALLEY
The notion that a rising tide lifts all boats is one of the key tenets of capitalism, and that rings true for Swanton when talking about the wine industry. Where Silicon Valley is about competition, Napa Valley is about cooperation, she says. Less conventional ideas that she had to embrace as she embraced her new career were that growth isn’t always the goal – Swanton is content to produce just 1,600 cases a year – and that not having a distributor but instead selling directly was her path to profitability.
Read Full Transcript
“So a couple walks into a real estate office in Napa looking for a second home…”
If you guessed the next sentence would be “and instead they bought a winery,” you’d have the story of Laura Swanton, owner of LauraMichael wines.
Laura, a former high-tech exec, knew nothing about producing wines back in 1999. But she knew what it took to make and sell a product. And that’s what she’s been doing with her award-winning Cabernet and Zinfandel.
Laura spoke to This Is Capitalism about her journey from wine lover to wine producer.
I’m your podcast host, Patricia O’Connell.
POC: So Laura, thanks so much for joining us today on This Is Capitalism, the podcast where we tell extraordinary stories about extraordinary people.
LS: Thank you for having me. I appreciate the time.
POC: And Laura, one of the things that I think is extraordinary about your story, well, several things, is one, you’re a woman in the wine business, two, you came to it from a completely different background, you know, not someone who had studied wine, you’re not a sommelier. So tell us how you got started in the wine business and why.
LS: Well I was living in the Bay Area, deeply ensconced in my high-tech career. I was married to my second husband, and we were very frequent visitors to Napa Valley. By late ’98 we were actually looking for a second home here in the valley and we walked into this real estate agency in Yountville and the guy looked at us and before we could even introduce ourselves, he said to us, “So what do you want to do, buy a winery?” And my husband got this weird little cock in his head, and he went, “Uhhh…how much does a winery cost?” And before you know it, we’re looking at wineries to buy.
POC: And can I guess, Laura, that was the furthest thing from your mind, buying a winery?
LS: Yeah, exactly, exactly. I was thinking we were going to buy a vacation home. So we started looking at these properties and the very first one we looked at was right on Highway 29 just out in the outskirts of Calistoga. And it’s a lovely property and we ended up buying it.
And so by the middle of July of 1999, my second husband and I owned a winery. It was crazy. I was still working at my high-tech career, and he quit his job in the roofing industry to run the winery himself. He brought his brother into it; we bought a second property with plans to plant four acres of Cabernet. And after three harvests in 27 months, my second husband decided this actually wasn’t the business for him. He packed up his stuff and he left, and I bought him out. So I left my high-tech career and became a winery owner, full-time.
POC: A single winery owner, no less.
LS: Yes, a single woman winery owner, no less, which at the time was fairly unique because you didn’t see a lot of self-funded, female owners of wineries, you just didn’t find that very often at all.
POC: How much do we even find it now, Laura?
LS: Well there’s probably more. There’s lots of couples. I married a third time. So it’s us together now. But yeah, I mean, it’s a short list. Even now it’s a short list. Especially the self-funded piece of it as opposed to having it be a generational winery where you’re second or third generation so that’s not. …To me, that’s not self-funded.
POC: So when you bought the winery, though it wasn’t necessarily your idea at the beginning, how involved did you get at the beginning? And if you weren’t involved at the beginning, at what point did you get really involved?
LS: Well, to be honest, I was still working in my high-tech career, based in San Francisco. So I had a boat that I was living aboard in the Bay, so I was only at the winery on the weekends. I worked in the tasting room a little bit, I didn’t really have anything to do with wine production, anything to do with grape growing until my family decided that they didn’t want to do this anymore. I left my high- tech career in August of 2002, and that’s when my first harvest was coming at me like a freight train, and I had to be here full time for that.
POC: And how much did you know about wine production, distribution, all those things that were probably very foreign to you? I’m going to guess you knew maybe about wine buying as a customer, you know, you go to a wine store, you maybe went to wine tastings, you said you would go on the weekends, but what did you know about distribution and production and all that?
LS: I didn’t know wine-industry specifics. But my high-tech career of 17 years had taught me about the distribution of product, how that works. I worked in a high- tech company that was manufacturing as well, so although that wasn’t the role that I played at that company at least I was familiar with how that all worked. My degree from school, my college degree, is organizational management, so, how to run a company.
So most companies, everybody has HR, has accounting, has all the different components of administration and is very similar from company to company. The big difference for me is that it was going to be wine so my very first hire was a consulting winemaker. He came to me through a relationship that we had formed with a couple of other, quickly formed actually, with a couple of other wineries here locally. And that is the person who taught me grape growing from the ground up and winemaking as well. So I have been on the job training for 20-plus years.
POC: How close are you to mastery, Laura?
LS: Well I think in the world of wine mastery is something that you probably hope to achieve but there is so much to it, there are so many different wines, they all behave differently in the crush pad and in the barrel room. We are always learning. And even though I have been making the same Cabernets from the same sources for over 10 years, it never ceases to amaze me that the plants are going to give me fruit and I am going to have to successfully turn it into wine.
And I can’t take anything for granted, there is no recipe to follow necessarily, you’ve got to actually be very mindful of the source of the fruit, how it’s grown. I walk a lot of vineyards.
All the contracts that we have for fruit that we buy; I am responsible for those relationships and for that fruit. So my husband takes care of the vineyard that we own, but I am managing the relationships and the farming practices to a certain degree of the places we purchase from.
POC: So you are both producing your own grapes and buying grapes?
LS: That’s correct.
POC: And then you’re also producing the wine and you’re selling the wine direct to consumers, correct?
LS: That’s correct. Yeah, we are not in distribution, so the wines are only available through the winery and here. Everybody has a wine club, so I have a subscription service as well.
POC: So you’re doing B to B, you’re doing B to C, you’re working with peers who on the one hand could also be considered competitors. I don’t know if the people who sell their grapes to you are selling to other producers as well.
LS: They are. There is only one location that I buy from that is 100 percent allocated to me. All the other places have enough vineyard that I don’t want all of their fruit, or I can’t, or I wouldn’t process all of their fruit.
But it’s an interesting thing, that is a huge difference between being in a high-tech competitive world and being in a wine-industry, competitive world. We collectively believe in Napa Valley specifically that if we all help each other and all maintain a high level of product quality that it benefits the entire valley.
POC: It’s interesting because as you know this podcast is attached to This Is Capitalism and one of the ideas about capitalism is a rising tide lifts all boats.
POC: And it sounds like the one industry at least in Napa is very cognizant of that and is working toward that goal that if you all help each other…you collaborate rather than compete, even though it’s not a collective, you’re all in it as a business, you’re all in it to make money, but there are ways you can help each other and work with each other and collaborate in a way that still allows for some healthy competition.
LS: Absolutely, absolutely. And as farmers, eight months out of the year I’m a farmer, and I share workers, soil, air, water, intelligence with everyone around me. We are not in a bubble. We can’t be in a bubble. So it behooves the entire industry, and not just here in Napa but. …Because if you’ve got some sort of blight or agricultural pest, it’s not going to just stay in Napa, it’s going to travel to the neighboring counties. So from an agricultural perspective, we need to be very cooperative with one another in order to maintain the health of the vines and the health of the industry.
POC: So many things are coming up for me right now, Laura, but one of them is on one hand “I’m a wine producer” sounds very glamorous. “I’m a farmer” maybe doesn’t sound quite so glamorous, Laura. So reconcile those two things for me.
LS: Yeah. I think it comes from me, from my background. My grandparents, both sets, were very humble people, very hard-working people. My grandfather on my father’s side was very much a farmer and, although he kept a very large garden so …I saw that as a child, and I knew where food came from, and I helped in that garden.
So I feel like maybe some of my background just keeps me a little bit humbler. And I think using the word farmer is a much humbler kind of descriptor for what we do.
POC: You are grounded, Laura, literally and figuratively.
LS: Yes, absolutely.
POC: You are so attached to the ground and so attached to the things that happen around the ground. And there’s so many of those things you can’t control, such as drought or if there is too much rain. How do you deal with those kinds of things?
LS: Right. The first thing I learned is to try not to worry about things I can’t control. When Mother Nature is tossing us a curve ball the idea is that we try to come alongside the plants and mitigate, if we can, any negativity that’s happening because of drought or because of wildfire or because of a bug, whatever it is that challenges us. Rainfall, lack thereof…the plants hopefully are resilient enough to get through it.
And it just…really what it does is it causes major fluctuations in your yield. So when we have rain at the wrong time or no rain, we’ve got heat or drought or whatever it is, it’s going to affect your yield size. And that can be a benefit – higher yields are typically seen as a good thing – or it can be lower yields. And lower yields are not necessarily a bad thing because now the plant has had less to concentrate on and so you typically get higher quality when you have a smaller yield.
POC: Talk to me about yield and your size, Laura, and how the size of your business compares to maybe other wineries without necessarily naming them. But do you aspire to be bigger? What is your output?
LS: We are currently…there’s legislation that defines how much any given winery can produce. And that is called…the production permit is called a use permit. So I have a use permit, it’s tied to the footprint of my facility and how much land I own. So I have a very small permit of 5,000 gallons.
POC: So two very separate measures, though. One is a physical facility, right? Where you actually process the wine. And the other is the land?
LS: That’s correct.
POC: And that doesn’t include the land that you buy from, does it?
LS: Well it does to the extent that my production facility is not like super huge, so they wouldn’t give me a let’s say 20,000-gallon permit because my physical footprint can’t manage that. So because the winery was built in 1980, a lot of rules changed in Napa County subsequent to that date. And you can’t actually build what I have today because the footprint now has to be ten acres, not three. And I only have three acres.
POC: Wow, so you’ve been grandfathered in?
LS: I’ve been grandfathered in, that’s correct. And so we are permitted to make 5,000 gallons. This is a very tiny winery. The big guys are doing like 15 million cases – 15 million cases a year. I’m doing 1,600. So the scope is fairly large as far as from the little, tiny guys like me. And there’s even producers that are smaller than I am that are doing 200, 300, 400 cases.
POC: It seems interesting to me though that the economics of the wine business must be such that it is flexible enough to accommodate winemakers of these different sizes. There’s only so long someone is going to do it if it’s not profitable unless it’s just a complete passion project.
LS: There’s a lot of that, Patricia. There is a lot of passion here. I, on the other hand, am making a living at it. And we did attempt to do distribution. So to go back to how my previous career folded into my winemaking career, when I came into the valley and started my winery in 1999, the conventional wisdom said you have to be in distribution because you can’t sell enough wine to your individual constituents to make a profit and distribution is how you do that.
POC: Laura, just to clarify, what does “in distribution” mean in the wine industry?
LS: I can’t sell my wine directly to wine stores, restaurants, grocery stores in other states, it’s not permitted. So you have to have a third party. You have to have a distributor. So the wine that I make would be sold to the distributor and that distributor would in turn sell the wine to wine stores, restaurants, and the like.
POC: So when you first started people were telling you that was the model that you had to follow.
LS: Right. And it’s a very expensive model to follow because you have to…in order to make the wine physically available, you’ve got to cut…I have to cut my price way down so that the distributor buys it at say like 50 percent off and then they mark it up slightly for the restaurant or the wine store, who then ultimately marks it up for the end consumer.
So it’s called a three-tier system and in that three-tier system, I bear most of the risk and I bear very little monetary benefit from that because I don’t have the volume at 1,600 cases to make up the loss of margin.
POC: How long did it take you to realize that was not going to be the right model for you?
LS: Ten years. Ten years, ten long, frustrating years. [Laughs.] And actually it was Michael that pointed out that I keep beating my head against this wall, it’s not working, and because of the work that he was doing before he joined the winery full time, he could see the 2008-2009 bubble burst coming. And that’s about the time I started to think, you know what, this isn’t working, I’m not winning the battle on distribution, and I need to pull back, be at home, be in my own tasting room and sell my wine directly. And that’s when I became profitable.
POC: Did you ever think of giving up?
LS: It became so ingrained in me that I wanted to be successful at this that failure wasn’t an option. I may not have made the best financial decisions for my winery at that time because distribution was. …You have to build inventory and building inventory is a very expensive process in the wine industry because it takes a couple years to make wine.
With wine, you pick the grapes, you make the wine, it sits in a barrel for the better part of a year and a half, you put it in a bottle, then it sits in the bottle for typically a year to a year and a half to two years, and then you sell it.
So there’s a lot of cash involved in making inventory happen that it ties your hands. And it took me years to figure that part out. That was probably the biggest challenge I faced as a business owner was managing cash flow from my own winery. Because there’s months where you need a whole lot of cash to buy grapes, to buy barrels, and then how do you fund that? And I self-funded it. So I was cash poor for a very, very, very long time.
And even today it’s not easy but we’ve gotten much better at it. And we’ve actually gotten a little bit smaller because we weren’t selling enough fast enough so why keep making it if you’re not selling it fast enough?
POC: So what does smaller mean to you in terms of both numbers of what you’re producing and a change in how you do business?
LS: We came down probably 25 percent in volume. And really concentrated on the relationship building with our wine club members, their extended families. So I have probably three or four sets of family members in my club. Brother brings brother and that one joins too and then brother brings sister and she joins too. So that grows your club.
And having been here for 20-plus years with a presence on Highway 29, it definitely has helped draw people to us. But I have made friends with every concierge, every limo driver, every hotel person that I can to help bring a light onto the winery so that they will send their customers to us.
POC: So a lot of your marketing then really is word of mouth?
LS: Yes. Yeah, we’re Chamber members. We’re members of a couple of other industry groups that help promote Napa Valley wines and help promote us, have programs that we can participate in that give us more visibility to a new buying group. So and that’s an important part of it too is being a community player and putting ourselves out there and making ourselves available to the community for their charitable concerns and that type of thing.
POC: The mantra of so many businesses and also so many industries is “grow, grow, grow.” It sounds like growth is not really what you’re looking for.
LS: We have found our sweet spot, I think. And in order to grow past the use permit I have would be a very expensive – very expensive – play. We would have to re-outfit our winemaking facility. And now you’re talking millions to do that because I’m in Napa Valley.
So we have come to a place where we can live comfortably, we are enjoying life.
And like you said, bigger is not necessarily better. And I also don’t want to have to take on a level of…if we were to grow, we would probably need to take on some third-party financing and that puts you in a more precarious position when you’ve got other people’s money.
POC: So what were the lessons that you knew from business before that were applicable to the business, you’re in now, and what did you have to learn along the way?
LS: The company that I worked for, I had a sales territory and the training that they gave us in this arena was not only about product and the specifics and technical aspects of the products that we were selling, but how to run your own sales territory.
So basically your own little profit center and how to run that profitably for the bigger picture but meeting your sales goals, meeting your profit goals, all those things, which totally laid right on top of what I needed to do in the wine industry.
The thing that was so vastly different, of course, is the actual product.
POC: What are the lessons you could share with someone who was thinking about starting a business that is based on passion and interest more than knowledge and experience?
LS: I think the best thing you could do for yourself is to go find a job in that industry. I think if I had become a part of an administrative team in a winery or even a sales team in a winery, it would have taught me a lot more, faster, than me having to learn it on my own. So if someone is truly wanting to step out of their comfort zone and move into an area that they do not necessarily have expertise in, you need to study, you need to potentially immerse yourself in that not as an owner, necessarily but as an employee so that you can get to know how all this stuff works.
POC: Is there anything you would do differently?
LS: I don’t think I made the best financial decisions along the way, staying in distribution for as long as I did was a real sink hole, it was a real sink hole of money. And so I’m thankful that I was able to survive that lesson and get out of distribution.
And then the industry has changed quite a bit in the last 20 years. There’s been quite a bit of law change in most of the states of the United States that permit us to sell directly to consumers and ship directly to consumers. So those laws and rules have been changing and evolving over the last 10-15 years to the benefit of the tiny wineries like me, super tiny wineries that aren’t limited as to trying to find a distributor who doesn’t care about your 100 cases and doesn’t want to pay you on time and all those things that I experienced as a small winery in the distribution channel. I got away from that and that also helped us become profitable because then we could sell directly to consumers and not have to go through that three-tier system.
POC: Would it be fair to say, Laura, in the sense that regulation has been your friend?
LS: It has been, yeah, it absolutely has been. I mean the national recognition that premium wine can be shipped directly to homes has…it was a game changer for a big number of the industry players here. The assumption is that if you are 20,000 gallons, or whatever the number is in any given state, 20,000-50,000 gallons or bigger, you are going to have to be in distribution. So they don’t permit direct to consumer shipping for the larger concerns. So I don’t have to compete with that necessarily. So the laws are different for the bigger wineries than they are for the smaller wineries.
POC: May I ask you, Laura, if you’ve thought about succession planning?
LS: So the succession plan is not family. It will be a sale; we will end up having to sell the winery when we are ready to retire. And like I said before, you can’t build what I have today so it’s going to be a very interesting sale when it happens.
Because again, there’s a lot of crazy money out there and the valley is filled with all sorts of different levels of incomes and eventually I hope that we find someone who loves it as much as we do and wants to perpetuate the beauty here and not tear it all down and build something different. But you never know. It won’t be mine to make that decision when the time comes.
POC: And the business may be different though because it may be part of a bigger vineyard or a bigger winemaker?
LS: That’s correct. Yeah, there’s a lot of consolidation going on here so it’s possible that somebody would want to…a large company that’s got multiple properties would want to add us to their portfolio.
POC: Okay, Laura, other than LauraMichael Wines, what type of wine do you really like to drink? I’m not looking for brand here, I’m looking for your favorite varietal.
LS: I love sparkling wine. So whether it comes from France or it comes from down the road, I am a big fan of sparkling wine. So I drink a fair number of bubbles myself.
And because we…our portfolio is Pinot, Zinfandel, Cabernet Sauvignon, a little bit of Chardonnay, there’s a lot of other varietals out there that both Michael and I enjoy. So we love to visit the neighbors and see what they are making and potential take advantage of some different varietals that we don’t grow ourselves and have a bottle.
But I definitely have a California palate. I am trying to…and that is part of the ongoing mastery, if you will, is trying different wines from different locations, from different countries, from different hemispheres. The world of wine is massive, it’s a huge industry worldwide.
POC: Laura, I think that is a great note, if you will, to end on.
LS: [Laughs.] Well I certainly have appreciated the time with you today. And I hope that in your wine travels that you find some delicious things to add to your celebration of life.
POC: Well Laura, I’ll be sure to share them with you and I hope you do likewise. And thanks for joining us today on This Is Capitalism, Extraordinary People, Extraordinary Stories.
About the Series: Featured stories from the intersection of the free market and entrepreneurial success. Here we speak with leading CEOs, academics, philanthropists and up and comers on their contributions and perspectives on the American economy.
About Patricia O’Connell: Patricia O’Connell serves as Editor in Chief of “This Is Capitalism,” a content site sponsored by Stephens Inc., and is host of the site’s podcast series, “CEO Stories.” Patricia, a former editor at BusinessWeek and a New York Times best-selling author, brings her experience as a journalist and her passion for storytelling to “This Is Capitalism.”