How This Entrepreneur Reworked His Business Idea in the Face of Financial Armageddon

The financial crisis of 2008 changed everything. Michael Dorf, who founded legendary New York City rock venue the Knitting Factory in 1986, was just three months away from opening a combined winery and music club in Manhattan that would feature visible steel fermenting tanks and a refined dining experience. Dorf anticipated bankers buying wines by the barrel.

But the subprime mortgage crisis doused those expectations. “We were not only in financial Armageddon, but there was such a reversal in big spending and ostentatious behavior,” Dorf says. “It became taboo.”

He had to find an alternative concept. “I came to an internal phrase, something I call being ‘vessel-agnostic,’ which meant that I realized that it didn’t matter if I sold wine by the barrel or by the glass.”

He kept the steel tanks but shifted his business plan from barrel sales to a by-the-glass tap wine service.

“When I conceptualized City Winery,” Dorf recalls, “I was getting older, I had young kids, and going out was rare. I wanted to build a place where I could eat a lot, drink a lot and consume a lot of culture.”

The City Winery in New York was followed by locations in Chicago, Nashville and Napa, Calif. The company now has a total of 500 employees and plans to open establishments in Atlanta, Boston and Toronto by the end of 2016.

“We are focusing on larger urban environments that have sophisticated cultural and culinary audiences,” says Dorf, who serves as CEO. “We’ll open in cities that are experiencing robust and strong hospitality markets.” Dorf projects gross revenue to exceed $40 million in 2015.

Staying true to his rock-club roots, Dorf made music a major draw at the venues, with performances by iconic rock, country and bluegrass artists such as Elvis Costello, Sinead O’Connor, Steve Earle and Tim O’Brien. Tickets are priced from $35 for bar stools to $125 for seats up front. Each City Winery venue has a capacity of about 300.

“That number has become magical for us,” Dorf says. “I use the words ‘intimate concert experience’ to define our events. The definition of intimacy is when an artist or someone on the stage can look into the eyes of every person in the room. Once you can’t have eye contact, you can’t have intimacy.”

But while the concerts are central to the overall City Winery experience, the business focus is on the wine list and Mediterranean menu.

“We don’t make money at all on ticket sales,” says Dorf, explaining that 80 percent of the box-office take goes to the artists. “Our focus is on making our profits from food and beverage, just like any restaurant.”

Much of that comes from the wines produced in-house. City Winery has contracts with vineyards in California, Oregon, Washington, New York and Argentina; 60 percent of the wine produced at the four locations goes into an eco-friendly, on-tap system before it’s served, which lowers packaging costs for higher margins.

“By making wine in our facilities, we’re not just selling it and offering a good wine list,” Dorf says. “Customers can smell the fermentation and see the tanks, which gives an authentic statement to what we do.”

The company also offers a wine club and barrel membership, in which individuals or companies have the opportunity to join in during the winemaking process, from the selection of grapes to crushing, aging, blending, bottling and labeling.

That was part of Dorf’s plan from the beginning: “My goal was and remains to move wine, to show that you could make it in an authentic manner in the middle of a city and to offer a luxury concert experience.”

---

Long-distance leadership

Every year since founding City Winery, Michael Dorf has brought 15 people from each of the company’s U.S. locations, including managers and up-and-coming staffers, to what he calls “base camps.” (The most recent was in Puerto Rico.)

“These should never be called ‘retreats,’” Dorf says. “A retreat is just the opposite of what you want to be
doing—the idea is to go forward, and a base camp is a great spot where you’re close to your goal but you still have a ways to go.” Here, Dorf explains his rules for fostering a sense of togetherness among far-flung colleagues.

1. Connect with your managers. “As a CEO, you can’t be everywhere at once,” Dorf says. “And if it wasn’t for a bunch of our managers, there’s no way we could have gotten to where we are today. These events give us time to really think through what we do, how we do it and how we can improve, as well as focusing on our best practices in terms of our styles of management and how to create some scale but not get too ‘McDonald’s’ about what we’re doing.”

2. Help your managers think like owners. “This is one of the biggest challenges for businesses, and a week away can help managers think like owners, to feel like every bottle of wine, every customer is really important.”

3. Focus on specific goals. “During our first Base Camp, we distilled our mission statement and talked about office politics. At the top of a hill, I had hidden a whiteboard and some flash cards to get the conversation going.”

4. Look at the business through a new lens. “When Steve Jobs died, I had everyone think about us as an Apple product and focused on how Jobs would have approached serving wine and putting on a show. This year I had a rock ’n’ roll photographer as our guest, and together we looked at City Winery through the lens of a photographer. That helped us talk about how we capture the most focused experience for our customers in the short time frame we have to indulge their senses.”