The long break I needed after chatting with Dan Petroski

Was it eye surgery, a vulnerability hangover or sheer overwhelm that kept me silent for eight weeks?

Allow me to pull out one of my old childhood-in-Minnesota expressions: OOOOOF DA.

That is how I have felt since the afternoon of April 18 when I finished my long chat with Dan Petroski of Massican. Not only did I feel that way because of the mind-bending insights Dan offered me in the context of resilient wine, but I also felt that way because right after, I got eye surgery, which I totally ignorantly thought was going to be a quick two- to three-day recovery. Except, it turned out to be a nearly two month recovery.

I am fine. I can officially see again, and the highly disconcerting double vision situation I encountered for six weeks post-op has almost entirely receded. I can spend more than five minutes at a time on the computer without needing to lie down and close my eyes for the equivalent to recuperate before stabbing again at steadily growing piles and piles of work.

It’s been a doozy! It did not help that, just before I plunged into my figurative darkness, I dropped this bomb and somewhat double dog dared winemakers to hit me up and spill all their darkest, dirtiest money secrets.

While a really solid handful of people replied saying, “Yes, I’ll share!” and I was excited and hopeful that we were going to really push some big, important progress for our industry… those leads soon dried up. Part of it, I’m sure, was my blindness. I mean that both literally as well as figuratively, me being blind—or at least naive—about the fear and shame these kinds of vulnerable talks would necessarily conjure up. I was also blind to the depths of this topic. Oof-da, indeed. I had dipped my toe into the waters of financial solvency and quickly realized it wasn’t a small pond but a dark, brooding, frigid Arctic Circle ocean of global-scale, late-stage capitalism economic crises we were looking at diving into.

I closed my eyes and lay back down. And I stayed down. For, like… months. It was all too much.

But my eyes are slowly readjusting, and my tenacity and conviction are warily perking back up (I am nothing if not tenacious!)—that this is the work that must be done; these are the conversations that must be had if the wine industry is going to build resiliency. I can also see, now, that these conversations must all be kept anonymous unless a party explicitly expresses their willingness to share their name (thank you, Dan Petroski, for your candor below).

So, for now, I’ll call us back to this convo. If you’re open to being in it, hit me up. I’ll look forward to weaving some chats about financial resiliency into this Stack.

Meanwhile! The moment you’ve all been waiting for… drumroll, please! Tam ta da dam tam tam tam…

Let’s welcome Dan Petroski to the stage!

If you’re new-ish around these wine industry parts, a quick background on and recap around Dan: Dan is THE MAN! Truly, Dan is one of the smartest, most thoughtful and forward-thinking and innovative and mad-genius minded people I know. Period. You can Google around and read scads of wonderful articles (or listen to podcasts) about Dan’s background, so I’ll try to keep it concise here. He worked in publishing in NYC, got really geeked about wine, then decided to take a sabbatical and work in an Italian vineyard for a year. A few crucial winery stints after that (DuMOL and Larkmead), Dan launched his own Napa-based label focused entirely on Mediterranean climate, coastal Italian-inspired, white wines grown in Napa, Sonoma and Lodi. THIS WAS A WEIRD THING THEN AND IS STILL A WEIRD THING NOW. It’s “weird” because Napa isn’t home to much white wine, never mind fresh, mineral-driven, high-acid, low alcohol white wine. (Recollect, I told you he was a forward-thinking, innovative, mad genius.)

And that is why everyone who is anyone in the wine industry fell in love with Dan and his exclusively white wine label, Massican. What do wine people want to drink, especially when it’s hot out (as it often is in Napa!)? Fresh, mineral-driven, high-acid, low alcohol white wine. Have you heard people call someone “the darling” of an industry? Far as I can tell, Dan is The Darling of the wine industry. It also helps that Dan is wildly convivial and eloquent yet also humble and zero BS AF. Beyond his silly-delicious Massican wines, he grew Massican into a brand that really embodies the coastal Italian lifestyle. His thoughtfulness in developing the aesthetic and the vibe of Massican are unparalleled in wine, to my mind. Does he have a proprietary color of blue that sits in the Forbes Pigment Collection? YES. Does he release wines with NFTs? YES. Does he partner with the celebrated creative arts publisher, Phaidon Press, on a Massican Magazine? YES. Does he have an entire section of his website branded La Dolce Vita that shows you how to live exactly that—all ideally with a glass of Massican in tow? YES. Is there a digital Bar Massican in the metaverse coming?! Apparently YES! And—wait for this next part...

Did Dan Petroski sell his small-but-mightly white wine only label with zero vineyards or physical winery to its name to the global wine conglomerate of E&J Gallo for an undisclosed (but purportedly big) amount late last August????? YES.

You guys, I’m telling you, this guy. Getting to be anywhere in his presence makes me feel like some of his innovation and genius will rub off on me, so it was an outlandish honor to get to sit with him for 90 juicy and thought-provoking minutes and talk about resiliency in wine.

My first question for Dan was: Before you sold, was Massican financially solvent? Dan’s answer was, “The business was technically profitable, but I never paid myself.” Here are some of Dan’s comments—from just our first few minutes of chatting:

Everybody who makes cool “new California” wine has to have a day job—something else that is actually paying the bills and fronting some of the cost of their smaller, “cool” label. This style of wine will continue to exist only as long as everyone can keep those day jobs. With the day job comes a salary as well as (if your day job is at a bigger winery) operational benefits such as a place to make wine and equipment to borrow “for free.”

For years, Massican was making $1 a bottle. If Massican was making 60,000 bottles, Massican was making $60,0000 profit… BUT, that’s not profit I (Dan) was paying myself. My most successful year, on paper, I made just over $100,000 “net profit” on my Profit & Loss (P&L) statement. But that wasn’t how much I paid myself, and that wasn’t pure cash in the bank, and I had to pay taxes on that.

In addition, there are cash flow issues. The so-called “bottom line” on a P&L, or your net profit, does not equal actual cash in the bank. Consider this: In order to make 5,000 cases, I’m buying 75-80 tons, and I’m paying $3,000/ton, so I’m paying $240,000 between the months of December and January, and then I’m bottling in February-March, so I’ve got to pay another $250K. Now I’m down a half a million dollars that goes out the door before I can sell the wine.

I was able to front this money at first, while I was full-time at Larkmead, because they weren’t charging me for anything and I was taking a healthy salary from them. If that wasn’t the case—if I hadn’t had that well-paying job at Larkmead that allowed me to save up and front this cash—the only way I would have been able deal with this cash flow situation would have been to not grow. But… I needed to grow in order to make money.

I also kept raising my prices ever so slightly, so I could grow a bit more, but as Massican started to grow—from 400 to 4,000 cases—so did the cost of things. In fact, that cost growth was outpacing my income growth. And I was still a one-man show. And I still didn’t pay myself anything. From 400-4000 cases, there is no Cost of Goods Sold (COGS) efficiency or savings. My cost for corks, for example, didn’t go down as I grew. To say that a growing wine label could “take advantage of economies of sale,” you really need to get to over 10,000 cases. Otherwise, the savings are negligible. And to really see a cost savings, you need to be talking about 100,000 cases. That’s where the efficiency actually comes into play.

Consider also that scaling means more wine is available and must be sold, so I wasn’t able to sell it all DTC (direct to consumer) through my own website, where I make a bigger margin by cutting out middle men. Instead, I was selling more wholesale—or through distributors. This “wholesale scaling” meant I wasn’t scaling at $0.99 on the dollar as I would DTC; I was scaling at now $0.60 on the dollar (my wholesale price)… and then once you wholesale scale, you also have a new market you have to introduce yourself to, so you’re spending money to go work that new market (hotel, flight, dining out, etc.). For every new market I tried to tap into, I did the math and realized I needed to sell a pallet and a half of wine (or, about 84 cases) in two days of market work just to cover my expenses for the trip.

While I was doing that math, I was also making spreadsheets to calculate how to take my $100,000 profit year and grow that into a $200,000 year. The answer was to make—and sell—more wine. I needed to go from 5,000 cases a year to 13,000 cases a year. And while I wasn’t concerned about selling that much wine, I did know we had to sell a lot more wine. I had to have to have extremely difficult conversations with every single distributor telling them, “If you can’t sell one pallet of my wine now, two pallets tomorrow, and three pallets of my wine the next day, we have to break up.” Every distributor says they’re going to help “build your brand,” but they don’t build brands, they take orders for whatever from their couch. And I didn’t want them to build my brand—I just wanted them to sell a ton of my product.

It became easy for me to say “no” to opening new markets because of my financial constraints and knowing that the math showed I needed to sell 13,000 cases of wine. I knew that if a market couldn’t take on several pallets of my wine—Not several cases, like many of them wanted! Several pallets!—then I couldn’t afford to do business in that market. The problem comes when you don’t say “no” to opening new markets that can only take a few cases, and you’re spread too thin, and you have to hire more people to work all those markets, and that costs more money. I knew I needed to be bigger in fewer markets to make the math work. The way I knew this was thinking about the game Monopoly. How do you win at Monopoly? You put four houses on a property, then put in a hotel, and only then should you buy another property because you can’t grow anymore in the one you have. In wine, then: Work the state until you cannot grow anymore. Then, either switch distributors to someone who can help you grow more there, or only at that point should you consider opening a new market.

Did I ever consider hiring anyone to help? No. Even at 13,000 cases, that workload was possible for me because I enjoy the work and don’t find it stressful. Also, I don’t have kids, so I can work all the time. Was Massican profitable, and did that enable me to have a decent lifestyle? Yes. My profits paid for certain things that helped my lifestyle because they were also part of my brand (i.e. Massican paid for my car, which I used for work, and a portion of my home that was used as my office, and dining out to build clientele), but it never paid me any actual salary. Never in 15 years of Massican did I pay myself a salary. Now that I’ve been hired as a consultant with Gallo via the sale to them, I’m making a salary for the first time, ever.