“In a small business,” Charles Shaw says, “you have to examine yourself to see if you‘re tough enough.” | Tim Klein
Charles Shaw is the Pete Best of American winemaking.
He watched from the sidelines as the “super-value” wines marketed in his name — sold through an exclusive distribution deal with Trader Joe’s — became one of winemaking’s best-selling brands.
Just as Best got ousted from the Beatles right before the band hit it big, Shaw saw the award-winning California winery he started in 1979 slip from his control in a cascade of financial trouble, agricultural calamity, and divorce.
Trader Joe’s has since sold more than a billion bottles of “Two Buck Chuck,” as it’s known, and Shaw — a West Point undergrad — hasn’t seen a nickel from those sales. The company that bought the rights to his winery paid less than $27,000.
The father of five, now 75, moved east after his divorce, eventually settling in Chicago, where he now runs a database company. He still peppers his conversations with names such as Mondavi, Gallo, and Beringer, and he still longs to be a vintner. But he’s sanguine about his path, candidly sharing a few lessons from a career that to some might seem as tangled as a grapevine.
Four years in the military, then Stanford GSB. What then?
I wanted to go right into the wine industry, but my wife and I decided it wasn’t the right time. So in 1971, I took a job with a bank in Texas and joined their oil and gas department in Houston, with clients such as Halliburton. After a couple of years, the chairman asked me to go to the Paris branch. Steven Spurrier opened the Académie du Vin, France’s first private wine school, right behind my office. I signed up for his first class.
But you’d obviously been thinking a lot about wine before that.
At Stanford, I took all the small-business and venture classes. Professor Frank Shallenberger was so inspirational. He had us go out and choose companies in the neighborhood to get involved with, and I chose wineries. I did studies of Almaden, Paul Masson, and Ridge. Bank of America had done a report in 1969 that was bullish on the California wine business, so I pictured myself having my own winery.
When you finally made the leap in the mid-1970s, you gambled on gamay, a light-red wine variety that wasn’t particularly popular in the U.S. What was your thinking?
I didn’t see gamay [a variety from the Beaujolais region of France] as a risk. At that time, it was just unknown. From my time in France, I knew it was one of the most popular wines in the world. Now this goes back to Shallenberger. He’d told us back at Stanford, “Produce for the classes and live with the masses. Produce for the masses and live with the classes.” That’s so Frank. So I figure these Bordeaux guys, there’s a bunch of them — Beaulieu was in it, Inglenook was in it, Sterling was in it, Robert and Peter Mondavi were in it. In those days, there were only about 18 producers, and they were all big cabernet guys. A lot of them were also making gamay, but I was the only one using Beaujolais techniques. I figured I’d let ’em go after this fancy market, and then I’d come in with a light, popular-priced wine that everybody in France drinks every day. I thought I’d have a niche. Well, I was wrong, but it took me a while to realize that.
So you were producing good wines that didn’t sell particularly well. Is that how you got into financial trouble?
Actually, we were doing OK there for a while. We were in business for 20 years. We grew from 35 acres to 115 acres and were producing over 50,000 cases of premium Napa Valley wines annually. We had 220 distributors, selling in all 50 states and 20 international markets. But interest rates were around 20% at the time, and I was heavily leveraged at the winery. That made our cost of funds very high and necessitated strong growth to reach and maintain positive cash flow, which was risky. And that’s around the time my wife became unhappy in the marriage. She took over the winery and removed me as the general partner, but then lost her distribution deal and ended up in bankruptcy.
If you had to do it over again, what might you do differently?
I would be more collaborative. My wife was not as into wine as I was. She didn’t drink wine and didn’t even like to talk about wine. If you have partners, it’s really a good idea to have them buy in. I was collaborative with the industry people, our other partners, but neglected the most important partner of all: my business partner and partner in marriage.
Anything else?
I wouldn’t be as rigid in my thinking. My timing was terrific in terms of getting in there at the right time, but in the premium wine business, like in haute couture and perfume, it’s all about demand. What I should have done was throw things against the wall to see what would stick rather than just defining myself as a Beaujolais producer. I gambled on that niche. I wanted to be the light-red guy. But I should have made a chardonnay, a merlot, a sauvignon blanc, for example, and put them out there in small quantities, then watched to see if there was a demand pull. And when there was, I should have turned and run in that direction. That would have been so easy to do. But look at me. I was so rigid in my thinking, so damned clever.
Does the “what if” question keep you awake at night?
I continue to learn from my experience. My Stanford class had a reunion, and they asked me to speak in an entrepreneur forum. The subjects they wanted me to address were joy, surprises, and bumps on the road to retirement as they relate to resiliency. That gave me the chance to look at all the things I went through, and I really enjoyed it. I used to be upset about Fred Franzia [whose Bronco Wine Company bought the Charles Shaw name and cut the deal with Trader Joe’s] and Joe Coulombe [MBA ’54 and founder of Trader Joe’s]. But not anymore. I got a note from Joe last Christmas, from some fancy hotel in Florence. He’d sold Trader Joe’s to Aldi, the German guys, back in the ’70s, and he told me how many millions of cases of Charles Shaw wine they sold last year. I look at it this way: He’s out of it. I’m out of it. But Joe and Fred saved the brand, and the brand survives today.
Ever want to get back into the wine business?
I’m from Michigan, so I leased a winery there to produce rieslings. I wanted to create Oerther Vineyard and turn it into a destination winery. I made two vintages to see how it would turn out. I entered the world riesling championship in Australia, and it won second and third place in the museum-quality riesling category. We got beat by a German outfit that’s 700 years old. But financing is difficult, and I’ve been obstinate about not having partners and trying to do it on my own. So we haven’t done very well.
Any advice for entrepreneurs trying to get a small business off the ground?
Watch your expenses. I know I paid all my employees on the high end for businesses in Napa Valley. We had a Cadillac health plan. But in a small business, you have to examine yourself to see if you’re tough enough. I know my competitors were.
— Martin J. Smith
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