A conversation with Michael Houlihan, founder of the Barefoot Wine brand
Michael Houlihan may represent one of the ultimate “pulled up by the bootstraps” stories of entrepreneurialism.
From humble beginnings in the laundry room of a rented farmhouse in the Sonoma County wine country, Houlihan, along with partner Bonnie Harvey, co-founded the Barefoot Wine brand in 1985.
Without much capital, industry knowledge or advertising budget, he built one of the most successful wine brands in the country – selling Barefoot to E&J Gallo 20 years later. He retells the story in a new book titled: “The Barefoot Spirit: How Hardship, Hustle, and Heart Built a Bestselling Wine.”
Dan Gershenson: First, what’s your relationship with Barefoot Wine today?
Michael Houlihan: After we sold the brand in 2005, we continued to work with Gallo for a year to keep the entrepreneurial spirit of the brand alive and well. This is important because you’re talking about a mindset of preserving a positive company culture that often gets lost in corporations due to large budgets.
DG: Large budgets, in what way?
MH: When you do have financing and plenty of money, that’s not necessarily as good as you might think because now you can just throw money at every problem – and think that’s going to fix everything. On the other hand, there’s something to be said for the creativity and passion of someone who burns with desire but doesn’t have as much money. You can’t lose that ability to think outside of the box even when success happens – if you lack creativity and don’t keep your customers as the top priority in amazing ways to make them feel like their #1, money won’t make up for that.
DG: I’m sure like many entrepreneurs, you made a mistake or two out of the gate. If it’s not too painful to share, what would say one of your big ones was?
MH: You start off with this idea that it’s all about the product and that you’re sure you have the very best product, price and quality. It’s a big mistake many entrepreneurs make. They overvalue the product itself over the distribution of the product. Excellent distribution trumps production every time. What’s more important is to get your product out there. This is hard for some folks to believe, I know. But when you think about it, if it’s not out there, they can’t buy it, can they?
DG: I’m sure some will be shocked to hear you say that about product quality. Especially since we’ve often believed quality is King.
MH: Of course, quality is ultimately king. And I’m not saying that just anything goes. But in our early stages, just because we believed we created the very best wine at the best price didn’t mean instant success. And we got tons of accolades at Barefoot Wine too. So guess what? We got overconfident about distribution. We thought distributors would now just have to present the product to retailers, sell it to them and the retailers would order it repeatedly when it ran out.
We smoked cigars in celebration the first time we sold to a distributor but we should have been working harder to help them sell into the retailers repeatedly. In businesses like ours, the first true buyers are not the general public but the distributor and then, if he picks you up, the retailer. We forgot that side of the equation and it could have been disastrous.
DG: Did you have a team in the field to self-police this better?
MH: We had to. The product can be technically “sold” and yet, the ball can be dropped in all kinds of ways – it’s not often due to the fact that it isn’t selling. It can get hung up in a warehouse. The store could program in the wrong SKU number. The clerk, manager or distributor salesperson just might forget to re-order it. So you need that “cop” who not only sees your product go to the store but checks to make sure it stays on the shelf each week.
DG: What other kind of challenges did you face?
MH: Many stores said they would never carry a wine with a foot on it. They said they would only carry it if we spent millions on advertising. Of course, we couldn’t. We barely had any money at all.
That’s when we decided to sponsor some worthy causes and nonprofits that were in the neighborhoods of where those same stores were. If they used our wine at fundraisers or silent auctions, they would announce our presence in thanks. They would put us in their newsletter. They would give us a story that we could use to promote their cause right on our brand.
Suddenly, those people paying $200-400 a plate were receiving a pitch from us – not a commercial pitch – but why we supported their group or cause. Social reasons can be more powerful than traditional advertising. In fact, even when we had the budget to advertise, we never went there.
I think that was the moment when we realized the Barefoot spirit was more important than the wine. We discovered that worthy cause marketing helps build community, so we found worthy causes to support that resonated with the logo and with us. Many companies forget that in today’s transparent market, they have to stand for more than just the product they sell.
DG: Yet, even when you excluded advertising as a cost and began to build your brand, you still had a lot of other expenses. How did you address those?
MH: We thought hard about who our true strategic allies were. You have to align yourself with people who benefit if you benefit. We realized we had to sell a ton of wine to make a break even early on – This meant more printing, foil, glass, etc. So I went to the glass company and said, “We stand to be your biggest client,” and I explained the volume at which we would sell our wine. We were willing to be honest with them about our sales and make them an exclusive supplier. We laid out a plan with them in advance and treated our strategic partner as if they were our banker. You’re not alone when you’re an entrepreneur – you have to find out who’s running down the street with you.
DG: As your team began to grow, how did your culture grow with it?
MH: Performance of the company plays a huge role and we made sure everybody knew it was how they were compensated, including our strategic allies and other vendors we negotiate with. There are only two divisions in every company whether they know it or not – Sales and Sales Support. Nobody is outside of those two divisions ultimately. I don’t care if you’re a receptionist or an accountant, everybody works for sales. It’s their job to keep the salespeople up to date with the information, supplies, marketing, and excellent products they need to succeed.
On Day 1 of their employment, we gave our people a “Money Map” that showed the money trail from the customer who bought our product from their local store, who bought it from the distributor in their city, who bought it from our company, and then all the people our company paid with that money and the portion that went to their check, benefits and bonuses. When they saw the big picture, they understand how they fit in and how they share in the cash flow. Without that early warning system, they may think the boss has a Big Rock Candy Mountain out behind his house where he can just grab more money any time he wants. Not so. All the money really does come from the customer. The more they appreciate that fact, the less they see their job as somehow isolated from the process.
In the Spring, Houlihan is releasing his new book on building Barefoot Wine and the lessons for entrepreneurs. He describes it as a “business adventure” story in how he and his partner faced failure in many ways but always found solutions in of a variety of surprising places – whether out of thin air, his allies, his own people or practically anybody else. You can go to Amazon and pre-order it if you like. But for readers of our blog, the CEO is giving us a special deal. Go to: http://www.barefootwinefounders.com/sample-tasting/
There, you can order the book from the Barefoot Wine Founders directly and download the book right now. Why? True to his philosophy of inviting feedback from every corner of his company, Houlihan wants to get people’s opinions on the book even before it gets formally reviewed. He’ll put several reviews online, with people sharing their opinions of the book ahead of time. It’s available right now at the link above for just $15.95. Go get it. I know I will.