As the next post in the series on a Perfect Business, Financially Speaking, I think an anecdote told by Donald Keough in his book “The Ten Commandments of Business Failure” conveys the advantages of having a good business financial model versus the alternative.
Mr. Keough relates how they are trying to decide what to do with a wine business owned by Coca-Cola and how the long run president and board member of Coca-Cola, Robert Woodruff, then in his eighties was reporting back on a trip he had made to visit the wine business.
“Well, the wine business is interesting. I went out to California to see the vineyards.
It seems that it takes five or six years for a vine to be mature enough before you can start harvesting grapes. During those years you’ve got quite a few people tending to the vines and praying for the right kind of weather so they yield a good crop. Finally, though, if everything works out, they pick the grapes and they take them to the plant where they squeeze them and put them into these great, hugely expensive stainless steel tanks where they ferment. From these expensive tanks the wine goes into many small casks made out of equally expensive French oak. The casks cost fifty-five dollars each. The wine then ages for some time in the many small expensive casks. Meanwhile, about 15 percent of the wine is lost through evaporation.
Soon, however, after aging quite awhile, the wine goes into bottles. They pay a tax at that time on each bottle and then put the bottles away for more aging. You keep the bottles for years, and if you have a reasonably good vintage, then you finally send the bottles into retail stores where there are hundreds of different kinds of wines on the shelves. At that point, you hope to God that out of that whole array of similar bottles someone is going to buy yours.
Now I grew up in a business where you bottle it in the morning and sell it in the afternoon and in a lot of places there is no other competition. Seems to me that’s the kind of business we want to be in!”