For eVineyard.com CEO Larry Gerhard, Slow and Steady Wins - Brief Article

Chief Executive, The, Oct, 2001

SOMETIMES executive conservatism pays--even in the roller coaster world of Web business. Case in point: Two years ago when Larry Gerhard, CEO of online wineseller eVineyard decided to cooperate with, rather than buck, the wine industry's complex distribution laws, prospective venture capitalists and fast-moving rivals like Wine.com and WineShopper.com might have laughed at his slowgrowth approach.

Since then, Wine.com and Wine S hopper. Com merged to survive--and eVineyard scooped up Wine.com, the combined company, in April 2001. How? eVineyard concentrated on slowly building "logistics centers" that comply with state wine distribution laws Meanwhile, rivals Wine.com and WineShopper.com together burned through more than $240 million in advertising and lobbying costs focused on changing wine-selling regulations. By late 2000, Gerhard knew his company would win. "One of the turning points came when we saw rival wine retailers having trouble [during third and fourth quarter] raising their next rounds of money," he said.

"Very early on, we spent a substantial amount of time learning the statutes in each state," Gerhard said. "Our business plan leveraged building a logistical infrastructure that was legal." At times, remaining patient during the slow build-out of that infrastructure was exhausting. By late 1999, the company had spent its initial capital as it went through the slow motions of establishing legal logistics centers in states like New York and Texas. "The process was a lot more painful than anyone would believe," he said, noting that it took 13 months to attain a license to sell in New York. What can other CEOs learn from Gerhard? Build slowly and locally, rather than rapidly and nationally. Other tips: Set up a logistics network that works with distributors, but don't hold product in house if it hasn't been sold yet. eVineyard paid wholesale prices on wine and wine-related products, but never stocked inventory unless the products had already been purchased online. (Wine.com, Gerhard notes, had $8 million in invent ory sitting on its warehouse shelves before closing.) And consider the impacts of distribution on shipping costs: Because eVineyard has physical facilities in states that require them by law, shipping costs were lower than those of its rivals, which often had to ship wine over significant distances.