Ingredients play a crucial role in the creation of wine. They are also essential to the success of entrepreneurs. Fortunately for Judy Jordan, she had a background in geology, a familiarity with the wine business, the willingness to take risks and an unfaltering drive and determination – all of the most important ingredients to found and build a powerful and enduring wine business. Ms. Jordan started J Vineyards & Winery in 1986 from scratch and grew it into a well-known and nationally distributed brand over the course of nearly 30 years. This past spring, Ms. Jordan sold J Vineyards & Winery to Gallo Family Vineyards & Winery – one of the largest in the world.
BBH recently sat down with Judy Jordan in Northern California to discuss founding and growing J, managing through adversity, diversifying product lines and selling the business. The following is an excerpt of the conversation.
Brown Brothers Harriman: How did J Vineyards & Winery come to be? Did you always want to start a business?
Judy Jordan: After graduating from Stanford University with a degree in geology, I focused on finding a way to use my geology background in an entrepreneurial way. During that same period of time, my family had recently founded Jordan Vineyards & Winery. Having inherited their entrepreneurial spirit, my interest in building my own winery began.
I was always impassioned by the study of the Earth and its soils, and I traveled up and down the West Coast from Washington to Southern California searching for ideal soils to grow grapes. I also had an opportunity to go to France and spend quite a bit of time with the chef de cave for Moët, and he traveled the West Coast with me in search of the best vineyards to start J. He also became my mentor and taught me about the process for making champagne.
BBH: What kind of influence did your family have on the business? Did you already have a strong sense for what it entailed having been around your family’s winery?
JJ: My dad and grandfather were entrepreneurs, so I grew up in that environment. There were times when my family didn’t have many resources and times when they did, and it was like that because they were willing to take business risks. I grew up in an environment where we were taught to be willing to take chances and work hard to accomplish what you set out to do.
My dad also taught me some practical lessons about the business. I remember early in life he told me, “If you get into the wine business, and you want to build inventory with all of its costs, there are two four-letter words that you need to learn quickly: ‘cash’ and ‘flow.’”
BBH: How did you get J off the ground once you found the land for the first vineyard? Did you encounter any challenges?
JJ: I still didn’t have enough money for a winery when I purchased the land, so I rented an old prune processing plant in a flood plain, and we worked there for several years. I didn’t really understand cash flow early on, so I kept buying grapes and building inventory. Once the inventory was ready and bottled, I still hadn’t sold anything. My banks cut off funding, and I found myself in a challenging situation. I had to go back to the growers from whom I bought the grapes and make deals with them. I told them that I would pay them off with the inventory that would be created if they let me get through that time. One of the growers took me aside and said, “You’re going to learn that what goes around comes around. So, I’m going to let you off the hook, but down the road, I expect you to remember this.” Without his help, the business would have gone under. I still do business with him and his family, and he became one of my mentors. He’s had tough times, and I was able to give back and help him as he did for me in the early years. That’s one of the things I love the most about the wine business: so much of it is about relationships. If you work from a place of integrity, respect and community from the beginning and nurture relationships, it makes everyone stronger. It makes it fun to go to work too, because you enjoy the people you’re working with.
The business started in 1986, and I was 25 years old at the time. After years of rough patches, we launched J in 1991 when we finally had the inventory to do so.
BBH: It seems like relationships have been very important to you in your career. How have you been able to find and retain good people?
JJ: Business relationships and friendships have been the glue to hold my business together. I believe it is about respect, fairness and integrity. I am and always will be grateful to the wonderful people who worked with me over the years. Teamwork is so important. I’ve found that the most important thing is that in terms of compensation, both you and your employees need to feel it’s fair. Employing people was so much more than that though. It’s about the relationship, respect and opportunities to spend time together. Gratitude is so important.
When champagne sales were good, bonuses were good – like in the mid-1990s. When we hit a rough patch in 2001, I didn’t have money for bonuses, but I set up a trip to Petaluma, a town about 30 minutes away. I sent a meeting announcement to all employees to gather in our visitor center. They were told everyone would be tested on certain subjects relating to the business and that the test would be tough. Everyone was a nervous wreck. They arrived, and I had geologic maps and vineyard maps posted. It was quite formal. Then a huge chartered bus arrived, and everyone boarded. I changed into a Santa outfit and served small pours of champagne that were passed through the bus. Then I said, “Woo-hoo, it’s the holidays; we’re going to celebrate.” As the bus drove us to a shopping mall, we celebrated with J, and everyone received $200 gift cards to spend at the mall on whatever they wanted. I recently went to lunch with some former J employees, and they said that was the best holiday bonus they ever had. It was so unexpected. The most important things are respect, communication, believing in what you’re doing and having a lot of fun. Those make for passionate team members.
BBH: Marketing is a big component of the wine industry. How did you differentiate the product from the competition?
JJ: There is a lot of competition in the wine industry. There are at least 8,000 wineries currently in the U.S. alone. I think a focus on a particular style of wine was important to us from the beginning so that our customers would know they could count on balance and elegance.
The label design was also important. We hired a design firm, and I said, “I don’t know exactly how to do this, but I’d like to make this look like a little black dress with white pearls because it’s a timeless look.” They came up with the yellow J, and that was a big part of the marketing. People can identify it and know what to expect – simple, elegant and stunning.
BBH: To what extent did the broader economy affect the business?
JJ: Meaningfully. 2001 was a difficult time in the economy, and it was one of the times I got myself in a pickle. My daughter was in second grade; her birthday is in mid-March, and that year she wanted a leprechaun theme, so I dressed up like a leprechaun and brought green cupcakes into school for the party. J’s general manager was trying to reach me all day and couldn’t because I was at the party; eventually, he drove over and said the bank pulled our line of credit. We hadn’t hit our metrics for three consecutive quarters due to the market volatility. That was a Wednesday, and I wasn’t going to be able to make payroll on Friday. These particular bankers had been with me for 10 years, but agriculture businesses are capital intensive and cash flow challenged by nature.
I dragged my daughter to the bank in San Francisco, and we walked into the offices with our green cheeks. I met the head banker and said, “This is unfathomable. You cannot pull this line. I’ve been banking with you for 10 years. I know I’m not meeting my metrics, but I’ll get there.” He decided to change their decision and continue to back me. I thought it was because I was such a clever businessperson. It turns out he was just scared of the leprechaun lady coming in and threatening him.
2008 was another challenging time. It was so hard on our business because I was primarily selling sparkling wine, and you can imagine that sparkling wine and champagne are more volatile in hard times – people don’t want to be seen drinking bubbly. That year was horrible for all of us. I think we sold one-third of what I was accustomed to selling in that holiday season because of that precipitous drop in the fall.
BBH: At a certain point, you expanded and got into pinot noir and pinot gris. What made you decide to do that?
JJ: It comes back to the last response. I could start to see over 20 years that champagne and sparkling wine were very volatile relative to the other products and also very expensive to make. However, in the wine business, if you decide to harvest a new wine and make a new product, it takes four to eight years to implement. The cycles are big, and if you misjudge one, you’re sitting on a lot of inventory. One of the things I learned was that you need to mitigate your vulnerability, and I realized that all my eggs were in one basket. That’s why we decided to diversify after 2008.
After reading a lot of business books, I eventually set up J like a triangle, which is the strongest geometric formation. At the top is sparkling, where we built our image through that yellow J. Sparkling is low margin but great for marketing. On the right were our varietal wines – the pinot noirs and the chardonnays; those have long cycles of six to eight years but great margins. Then we created that third point, which was the pinot gris, and that allowed us to build cash flow because it was a shorter cycle. It’s a two-year, beautiful wine, but relative to those other wines, it was simple. I could also buy fruit, so on the books that would be a faster turn. It has a good – not great – margin, but you sell more of it. The pinot gris really became the cash flow baby, and in 2008, people were still drinking wine like that one.
BBH: What made you decide to sell the company?
JJ: 2008 took a lot out of me. As a more sophisticated businesswoman, I started to think about what that year meant for me, my children and my retirement. I decided to run my business as if I were going to sell it. It didn’t mean I was going to, but I started to think about my returns more and what those were relative to the stock market. I was taking a lot of risk, so I better be getting an acceptable return. I also thought about what my downside was. I focused a lot on financial planning during those years, and the pinot gris allowed for that. My children were young teenagers during that time too, and we started talking about legacy. Through those conversations, I knew that they were not interested in the business. By 2012, I knew what return I would need to sell and had a number in mind. I was approached about a year ago by Gallo.
I wished I had done more planning earlier. I’m an entrepreneur, so I’ve taken tons of risks, but it was further in my career before I really understood that I needed to talk to wealth planners and managers – that I needed to consider questions like, what does return mean from a banking perspective? What does it mean to have leverage? Can you manage through a crisis if another 2008 comes? You have to do a lot of analysis to really understand these questions, and for women starting businesses, that’s important to understand. It’s great to be an entrepreneur, but you need that business perspective too. If you’re just building to build, you’re not optimizing what you have, no matter how great a leader you are or how great your product is.
BBH: How did you get to a price?
JJ: With the help of some of my friends with finance backgrounds, I looked at what I invested on an annual basis since 1987 and what my draws were. It was a big exercise, but I had my books, so over that period of time I could look at revenues, taxes, capital expenditures and so forth and piece everything together. Then I said that by 2013, if I can get this price in the next couple of years, that would get me an acceptable return. I also knew I was going to take a tax hit because of the sale, so I looked at everything post-taxes to get an after-tax internal rate of return.
BBH: How did you value the brand?
JJ: The pinot gris drove the EBITDA. Without that program, I never would have had the EBITDA to support the price I wanted and would have instead had to rely solely on goodwill to make the sale at that price. I give so much credit to my COO, who is also a woman who worked her way through the industry. She was so brilliant and saw that in 2007 and 2008, we weren’t building the pinot gris fast enough to get the earnings to justify the multiples. We had two plans. One relied on goodwill, which is subjective. I think the value of that yellow J is worth something, but beauty is in the eye of the beholder. Plan two was to get the earnings there, and that took several years.
By the time Gallo approached, I felt like I had a couple of ways to go. If I only had goodwill, I might not have been able to do the deal. Given the circumstances though, I could say, “We can work with you on your purchase allocation. We feel the goodwill is worth this, and the earnings support it.” Talking to my friends in luxury goods, that is a big issue. The value of the brand can be perception.
BBH: Did you negotiate the deal yourself?
JJ: Yes, with my COO, and that was a great experience – though it nearly killed us too. We knew the deal was possible, but until you get a purchase agreement, you don’t know. Gallo is a huge company and was in the driver’s seat; they could have said after due diligence that they didn’t like something and wouldn’t pay. So we were busy on two tracks for almost a year: running the business as usual and then the negotiations with Gallo. I was working all night on the deal and all day running the company. Gallo was great though. I wouldn’t have done it if they weren't a family I knew and believed in, so I knew J was in good hands.
BBH: Judy, thank you for your time and insights.
Interview conducted by Seth Ward, Adrienne Penta and Jacob Turner and article written by Jacob Turner.
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