OWNER to OWNER Sipping on Success: JUDY , JORDAN’S

Home , Gallo family, My Family (series 6)

1 / OWNER to OWNER Sipping on Success: JUDY , JORDAN’S

Story of Creating, Growing and Selling J VINEYARDS & WINERY

Ingredients play a crucial role in the cre- BBH recently sat down with Judy Jordan had recently founded Jordan Vineyards & ation of wine. They are also essential to in Northern California to discuss founding Winery. Having inherited their entrepre- the success of entrepreneurs. Fortunately and growing J, managing through adver- neurial spirit, my interest in building my for Judy Jordan, she had a background in sity, diversifying product lines and selling own winery began. geology, a familiarity with the wine busi- the business. The following is an excerpt ness, the willingness to take risks and an of the conversation. I was always impassioned by the study of unfaltering drive and determination – all of the Earth and its soils, and I traveled up and the most important ingredients to found Brown Brothers Harriman: How did down the West Coast from Washington to and build a powerful and enduring wine J Vineyards & Winery come to be? Did you Southern California searching for ideal soils business. Ms. Jordan started J Vineyards always want to start a business? to grow grapes. I also had an opportunity to & Winery in 1986 from scratch and grew it go to France and spend quite a bit of time into a well-known and nationally distributed Judy Jordan: After graduating from Stan- with the chef de cave for Moët, and he brand over the course of nearly 30 years. ford University with a degree in geology, I traveled the West Coast with me in search This past spring, Ms. Jordan sold J Vine- focused on finding a way to use my geol- of the best vineyards to start J. He also yards & Winery to Gallo Family Vineyards ogy background in an entrepreneurial way. became my mentor and taught me about & Winery – one of the largest in the world. During that same period of time, my family the process for making champagne.

Quarter 4 / 2015 2 BBH: What kind of influence did your family have on the The business started in 1986, and I was 25 years old business? Did you already have a strong sense for what at the time. After years of rough patches, we launched it entailed having been around your family’s winery? J in 1991 when we finally had the inventory to do so.

JJ: My dad and grandfather were entrepreneurs, so I BBH: It seems like relationships have been very import- grew up in that environment. There were times when ant to you in your career. How have you been able to my family didn’t have many resources and times when find and retain good people? they did, and it was like that because they were willing to take business risks. I grew up in an environment JJ: Business relationships and friendships have been where we were taught to be willing to take chances the glue to hold my business together. I believe it is and work hard to accomplish what you set out to do. about respect, fairness and integrity. I am and always will be grateful to the wonderful people who worked My dad also taught me some practical lessons about with me over the years. Teamwork is so important. I’ve the business. I remember early in life he told me, “If found that the most important thing is that in terms you get into the wine business, and you want to build of compensation, both you and your employees need inventory with all of its costs, there are two four-letter to feel it’s fair. Employing people was so much more words that you need to learn quickly: ‘cash’ and ‘flow.’” than that though. It’s about the relationship, respect and opportunities to spend time together. Gratitude is BBH: How did you get J off the ground once you found so important. the land for the first vineyard? Did you encounter any challenges? When champagne sales were good, bonuses were good – like in the mid-1990s. When we hit a rough patch in JJ: I still didn’t have enough money for a winery when I 2001, I didn’t have money for bonuses, but I set up a purchased the land, so I rented an old prune processing trip to Petaluma, a town about 30 minutes away. I sent plant in a flood plain, and we worked there for several a meeting announcement to all employees to gather in years. I didn’t really understand cash flow early on, so our visitor center. They were told everyone would be I kept buying grapes and building inventory. Once the tested on certain subjects relating to the business and inventory was ready and bottled, I still hadn’t sold any- that the test would be tough. Everyone was a nervous thing. My banks cut off funding, and I found myself in wreck. They arrived, and I had geologic maps and vine- a challenging situation. I had to go back to the growers yard maps posted. It was quite formal. Then a huge char- from whom I bought the grapes and make deals with tered bus arrived, and everyone boarded. I changed into them. I told them that I would pay them off with the in- a Santa outfit and served small pours of champagne that ventory that would be created if they let me get through were passed through the bus. Then I said, “Woo-hoo, that time. One of the growers took me aside and said, it’s the holidays; we’re going to celebrate.” As the bus “You’re going to learn that what goes around comes drove us to a shopping mall, we celebrated with J, and around. So, I’m going to let you off the hook, but down everyone received $200 gift cards to spend at the mall the road, I expect you to remember this.” Without his on whatever they wanted. I recently went to lunch with help, the business would have gone under. I still do some former J employees, and they said that was the business with him and his family, and he became one best holiday bonus they ever had. It was so unexpected. of my mentors. He’s had tough times, and I was able The most important things are respect, communication, to give back and help him as he did for me in the early believing in what you’re doing and having a lot of fun. years. That’s one of the things I love the most about the Those make for passionate team members. wine business: so much of it is about relationships. If you work from a place of integrity, respect and com- BBH: Marketing is a big component of the wine munity from the beginning and nurture relationships, it industry. How did you differentiate the product from makes everyone stronger. It makes it fun to go to work the competition? too, because you enjoy the people you’re working with.

3 / OWNER to OWNER 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.”

JJ: There is a lot of competition in the wine industry. You cannot pull this line. I’ve been banking with you There are at least 8,000 wineries currently in the U.S. for 10 years. I know I’m not meeting my metrics, but alone. I think a focus on a particular style of wine I’ll get there.” He decided to change their decision was important to us from the beginning so that our and continue to back me. I thought it was because customers would know they could count on balance I was such a clever businessperson. It turns out he and elegance. was just scared of the leprechaun lady coming in and threatening him. The label design was also important. We hired a design firm, and I said, “I don’t know exactly how to do this, 2008 was another challenging time. It was so hard on but I’d like to make this look like a little black dress our business because I was primarily selling sparkling with white pearls because it’s a timeless look.” They wine, and you can imagine that sparkling wine and came up with the yellow J, and that was a big part of champagne are more volatile in hard times – people the marketing. People can identify it and know what don’t want to be seen drinking bubbly. That year was to expect – simple, elegant and stunning. horrible for all of us. I think we sold one-third of what I was accustomed to selling in that holiday season BBH: To what extent did the broader economy affect because of that precipitous drop in the fall. the business? BBH: At a certain point, you expanded and got into JJ: Meaningfully. 2001 was a difficult time in the econ- pinot noir and pinot gris. What made you decide to omy, and it was one of the times I got myself in a pick- do that? le. My daughter was in second grade; her birthday is in mid-March, and that year she wanted a leprechaun JJ: It comes back to the last response. I could start theme, so I dressed up like a leprechaun and brought to see over 20 years that champagne and sparkling green cupcakes into school for the party. J’s general wine were very volatile relative to the other products manager was trying to reach me all day and couldn’t and also very expensive to make. However, in the because I was at the party; eventually, he drove over wine business, if you decide to harvest a new wine and said the bank pulled our line of credit. We hadn’t and make a new product, it takes four to eight years hit our metrics for three consecutive quarters due to implement. The cycles are big, and if you misjudge to the market volatility. That was a Wednesday, and one, you’re sitting on a lot of inventory. One of the I wasn’t going to be able to make payroll on Friday. things I learned was that you need to mitigate your These particular bankers had been with me for 10 vulnerability, and I realized that all my eggs were in one years, but agriculture businesses are capital intensive basket. That’s why we decided to diversify after 2008. 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.

Quarter 4 / 2015 4 After reading a lot of business books, I eventually set starting businesses, that’s important to understand. It’s up J like a triangle, which is the strongest geometric great to be an entrepreneur, but you need that business formation. At the top is sparkling, where we built our perspective too. If you’re just building to build, you’re image through that yellow J. Sparkling is low margin not optimizing what you have, no matter how great a but great for marketing. On the right were our va- leader you are or how great your product is. rietal wines – the pinot noirs and the chardonnays; those have long cycles of six to eight years but great BBH: How did you get to a price? margins. Then we created that third point, which was the pinot gris, and that allowed us to build cash flow JJ: With the help of some of my friends with finance because it was a shorter cycle. It’s a two-year, beautiful backgrounds, I looked at what I invested on an annual wine, but relative to those other wines, it was simple. basis since 1987 and what my draws were. It was a I could also buy fruit, so on the books that would be big exercise, but I had my books, so over that period a faster turn. It has a good – not great – margin, but of time I could look at revenues, taxes, capital expen- you sell more of it. The pinot gris really became the ditures and so forth and piece everything together. cash flow baby, and in 2008, people were still drinking Then I said that by 2013, if I can get this price in the wine like that one. next couple of years, that would get me an acceptable return. I also knew I was going to take a tax hit because BBH: What made you decide to sell the company? of the sale, so I looked at everything post-taxes to get an after-tax internal rate of return. JJ: 2008 took a lot out of me. As a more sophisticated businesswoman, I started to think about what that BBH: How did you value the brand? year meant for me, my children and my retirement. I decided to run my business as if I were going to sell JJ: The pinot gris drove the EBITDA. Without that it. It didn’t mean I was going to, but I started to think program, I never would have had the EBITDA to sup- about my returns more and what those were relative to port the price I wanted and would have instead had to the stock market. I was taking a lot of risk, so I better rely solely on goodwill to make the sale at that price. 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

5 / OWNER to OWNER I give so much credit to my COO, who is also a woman BBH: Did you negotiate the deal yourself? who worked her way through the industry. She was so brilliant and saw that in 2007 and 2008, we weren’t JJ: Yes, with my COO, and that was a great experience building the pinot gris fast enough to get the earnings – though it nearly killed us too. We knew the deal was to justify the multiples. We had two plans. One relied possible, but until you get a purchase agreement, you on goodwill, which is subjective. I think the value of don’t know. Gallo is a huge company and was in the that yellow J is worth something, but beauty is in the driver’s seat; they could have said after due diligence eye of the beholder. Plan two was to get the earnings that they didn’t like something and wouldn’t pay. So we there, and that took several years. were busy on two tracks for almost a year: running the business as usual and then the negotiations with Gallo. By the time Gallo approached, I felt like I had a couple I was working all night on the deal and all day running of ways to go. If I only had goodwill, I might not have the company. Gallo was great though. I wouldn’t have been able to do the deal. Given the circumstances done it if they weren't a family I knew and believed in, though, I could say, “We can work with you on your so I knew J was in good hands. purchase allocation. We feel the goodwill is worth this, and the earnings support it.” Talking to my friends in BBH: Judy, thank you for your time and insights. luxury goods, that is a big issue. The value of the brand can be perception. Interview conducted by Seth Ward, Adrienne Penta and Jacob Turner and article written by Jacob Turner.

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.”

Quarter 4 / 2015 6 Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries. This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.

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