John Paul Rollert: Over the last 16 months, we’ve all dealt with unprecedented headwinds. And I know for myself, when I’m in moments like this, personally and professionally, sometimes you have to stop and look at the work you’re doing and ask yourself, do I need to pivot? It’s for that reason I wanted to speak with Alyssa Rapp. Alyssa is the founder and CEO of Bottlenotes Inc. and currently the CEO of Surgical Solutions. She’s an adjunct professor in entrepreneurship at Booth and the author of Leadership & Life Hacks. Alyssa, thank you so much for joining us.
Alyssa Rapp: John Paul, it’s a pleasure to be here, and I really appreciate the invitation.
John Paul Rollert: So I was hoping you would take us back to 2005 when you founded Bottlenotes and give us a sense of the original mission of this company that you put together right after you had finished Stanford Business School.
Alyssa Rapp: Right out of Stanford, I was expecting to be an entrepreneur. I can’t say I expected to be an entrepreneur in the e-commerce wine space. I had come from a real-estate family and health-and-fitness family, having created the East Bank Club. My stepfather created the East Bank Club in downtown Chicago, the largest one-stop-shop fitness center in the country still. And I thought I’d build East Banks on the West Coast, and when I decided that there were imperfect substitutes, but ample substitutes in the West Coast, and yet there was this new burgeoning passion of mine in wine. It would be something fun to look at.
But then through a supply-chain management class, I ended up discovering a really interesting backend logistics firm called New Vine Logistics that I later wrote a case on at Stanford Business School that was doing innovative things to enable the shipment, legal shipment and supply-chain management of wine to all 50 states. And there was an opportunity for that firm that was then doing those activities primarily for wineries to do that on behalf of, say, a “third-party marketing firm” the likes of Amazon.com at the time, and I said, what if I, instead of having to invest in products and invest in any backend logistics, just raise some seed capital—or what we’d now call Series Seed Series A—and build a tool online that helped match supply and demand, help take the next generation of wine enthusiasts that I was living with day-to-day as a Stanford Business School student and seeing in action as a co-chair of the Stanford GSB Wine Circle, what if the way that that Gen X consumer was learning about wine, through peer recommendations and through knowing what they liked and tasted and could remember it again—very different from the previous generations, who in fact read the “Wine Spectator,” or just looked at scores, et cetera. What if we could help educate and entertain that next generation wine enthusiast about their preferences in wine and just deliver them those boutique and estate wines from around the world, tailored to their personal tastes, and then help that long tail of supply, those boutique in-state producers and importers, get access to that next-generation consumer. And in the best-case scenario, do that on a subscription basis, where we were delivering two to 12 bottles of wine per or every quarter to those consumers in most of the 50 states, tailored to their personal tastes at varying budget sensitivity. So that was the original thesis. Think of it as the original Netflix for wine.
And I think what I learned the hard way, by the way, looking back, one of the many lessons I learned from the Bottlenotes era was being too early to a market sounds glamorous, but ending up being Friendster to Facebook or, in our case, a decade and change too soon to that market, really, really hard, and market timing being one of the many things that is nothing you can ever perfectly time, but can really have an outsize impact on your ultimate success or failure.
John Paul Rollert: And yet it seems like, notwithstanding these challenges pre-2008, you had some wonderful successes.
Alyssa Rapp: Ooh, thank you, John Paul, we did. What we did first and foremost was do something innovative: giving consumers what they wanted, demystifying wine, making it accessible, leveraging patent-pending matching technologies to ask you questions like: How do you take your coffee and tea? How much do you salt your food? Things that are easy to answer to intimate people’s bitterness sensitivity that helped us give a taste map of what their likes and dislikes were, and then the joy and fun of connecting with those boutique, in-state wineries from around the world who were willing to take a chance on a cutting-edge technology concept and liked the idea of getting access to that next generation consumer. Those things worked.
We amassed, literally, early, low thousands of wine club members, which is pretty sexy when the LTV—lifetime value—was in the $800 to $2,000 per subscriber, depending on at what economic level they subscribed. We took, listened to our customers well. The Bottlenotes name came into play ’cause we also wanted to help people automatically store what they had tried and likes through us and have that online notes, journal or database, where they could continue to remember and archive what they tried and liked as a hopping-off point for other things they might try in restaurants or anywhere else or buy at a physical retail shop.
We had some of our earliest subscribers love us so much that they said, oh, we’re getting married, could you please help us create a starter cellar? So we ended up having that idea of an online storage of your notes marry with this idea of personal curation, and we’d built the Bottlenotes Wine Registry, the first in the nation, and beat out wine.com and others from exclusive partnership with weddingchannel.com. So we did a lot, right, and I think that had the regulatory winds not changed, we could have been one of those early major players in the e-commerce world as third-party marketing firms go.
John Paul Rollert: You already mentioned one of the two headwinds you faced in 2008, and I was hoping you could describe both of them and the challenges they presented to this young company that had already enjoyed some real successes.
Alyssa Rapp: They did and the first one, the most material headwind, was that there was this regulatory sea change that I alluded to earlier and the Amazon.com wine team, Jeff Bezos purportedly thought that wine could be a multibillion-dollar division, as big as books early in Amazon’s tenure and life cycle, and I still believe that’s true, by the way. And what happened was is that when Amazon got quite serious about entering the market, direct-to-consumer market on, for the second time in their life cycle, the first time being when they invested originally in wineshopper.com and the second time now, they were gonna be directly investing in New Vine Logistics to launch Amazon Wines as a third-party marketing firm, the distributors throughout the country were very, very, very concerned that it was a fixed buy, which it’s not, and that if Amazon entered, it would kill their market share, which it wouldn’t have. More consumers buying wine direct to consumer educates them on what their preferences are, and the No. 1 thing a consumer will buy is what they’ve tried and liked before. So ostensibly, Amazon would have been helping to grow the whole pie and still will, but in that moment, the distributors’ regulatory power was tremendous and still is.
And so, through political pressure, they got the California Alcohol Bureau of Control to issue an industry advisory calling into question—and putting wineries’ licenses at risk, I might add—if they chose to work with third-party marketing firms, and that came out and that was intended to keep Amazon out of the market or at bay for quite some time. That was the political motivation. They didn’t have their eye on taking us out, but in the end we were taken out because how could we, as a third-party marketer, think of it as a matching service where we really only made money when wineries chose to transact with us to consumers we had brought to the table as an agent of the consumer. Well, when Amazon was getting chased out, we ended up having to shut down as an e-commerce player ourselves or put our wineries’ licenses at risk, which is by no means a sustainable business model. So that was the put up the white flag, pivot versus quit, as you mentioned early in today’s conversation.
John Paul Rollert: Help us to better understand this regulatory headwind you were facing. I know the regulatory structure around wine and spirits is hopelessly complex, but what exactly changed at that period in time that made you think this business mission you had been on for three years might actually turn out to be untenable?
Alyssa Rapp: So this regulatory change that we were facing was, very simply put, the California Alcohol Bureau of Control was, after nine years of having approved this idea of third-party marketing firms existing in the US wine industry and allowing consumers to buy wine in most of the states through the legal channels and the legal process that’s set up by the 21st amendment, they started to question that because of the political pressure they were getting from distributors. So once they called into question the ability for third-party marketing firms like Bottlenotes.com or Amazon.com to enter the marketplace and threatened to fine wineries and importers that work with people like us and players like us, all of a sudden the market came to a great standstill, and our ability to operate no longer existed because we would then be putting our partners’ licenses at risk. And therefore, we had to make a choice to pivot or quit our original business model. Were we going to become a different type of Bottlenotes.com? And we pivoted, as you know now, to a media company. Or were we just gonna shut down our doors? ’Cause what we did originally, helping consumers get access to wine and actually shipping them that wine, was something we no longer were gonna be legally able to do.
John Paul Rollert: So tell us a little bit more about that. Here you are, this young entrepreneur. You’ve raised a lot of money, and in three years, you’ve enjoyed some real successes. Put us into your shoes. You face these headwinds. How precisely did you think through this particular moment and how you might get through it?
Alyssa Rapp: Really hard, John Paul, it was really hard. There were a lot of moments where you’re looking at the mirror, staring at yourself, saying, do I have what it takes to pivot this thing? ’Cause staying on the course was just jumping off a cliff that was no longer viable. The question is, what do we do with it? Do we sell this technology, put up the white flag, and move on? And I had investors, seed-stage investors who were amazing, and they said, you did nothing wrong here. This is an exogenous factor. You’ve killed it. We’ll back you again. Just move on. And I seriously thought about it. I’m not gonna lie to you. It was tempting.
On the other hand, I knew we were creating value in the ecosystem and I knew we were creating value in specifically that way of helping educate and entertain the next-generation enthusiasts and helping brands get access to that next-generation enthusiast. So by conversations, particularly with one of my mentors and close friends, Marissa Mayer of technology, Silicon Valley fame, at one time we were talking about this and I said, I know we’re adding value here and I’ve thought about inverting the model, but I’m trepidatious. And she said, why not go for it? And if you instead really do think of yourself as that inverted model, where instead of making money when consumers choose to transact with you on a subscription basis for this boutique, long tail of supply exclusively, what if instead you think of yourself as a platform on which consumers can get educated that are entertained by wine, and brands will then pay you for access to that audience, and things like your newsletter and large-scale events that were formerly cost centers become profit centers and the business model, and then any sales generated and all sales generated are then owned by the brands themselves, like in any digital advertising concept?
And it was her encouragement and many other people’s that ultimately said to me, let’s do this thing and let’s pivot this strategy. Let’s keep adding value in the ecosystem, and as time marched on and national partnerships with the likes of media greats such as Condé Nast were forged, it certainly became clear that that strategy had and that pivot had paid off. But it wasn’t quite that easy. It wasn’t: You face this massive regulatory hurdle. You have an idea and a strategy, and then you decide to go for it. There was the other headwind you mentioned previously, which it was also 2008, and the greatest economic meltdown that I had thus seen in my lifetime. So it was not the easiest time to pivot strategies and kinda do a restart to the startup.
John Paul Rollert: So what you’re describing here is really a fundamental change from the original vision of your company. And I’m curious, how did you explain the need for this change to the people you’d worked with, the people who put their faith in you, and how did you describe to them what needed to be done so that Bottlenotes could continue?
Alyssa Rapp: First of all, I had to get comfortable and clear and have the conviction myself that it was the right thing to do ’cause you can’t sell something you don’t believe in. Certainly I can’t as a founder of companies. And so I ended up having conversations with advisors and directors and investors and then of course my cofounder at the time, Ken Donaldson, and we got clear that it was something we believed in. It would make sense. So, and then in order of priority, we knew we needed to refresh the capital base and bring in media investors, probably New York media investors, which we ultimately did, to broaden out that new strategy, ’cause again, it was really a restart. I also didn’t wanna completely wipe out the early capital investors ’cause there was some value they had created in terms of the brand and the audience and the platforms that we were gonna be leveraging, ’cause the thought was also: shut it down, start anew—didn’t wanna do that either, wanted to honor and fight for the people who have been good to us early on as those Series Seed and Series A investors.
So we ended up getting conviction about the strategy, brought in a new independent director with digital content-generation experience seen recent success, Heather, who was amazing, I, Heather Stephenson. She had been the cofounder of Ideal Bite, which had sold to Disney and was awesome. And then we also brought in new investors over time, but you asked the question about the team.
In my book, Leadership & Life Hacks, I described this as sort of a Saint Crispin’s Day moment, but when I realized this was what we were gonna have to do in that fall of ‘18 and brought everyone into the room with light blue walls and built-in bookshelves, not dissimilar from my home office, but much bigger and a little bit more bright, I looked at everyone and I said the truth, which is, listen, this regulatory headwind has hit us. It hadn’t hit us at that point. We knew it was gonna be coming down the pike in the next three to four months. Our business model will be temporarily, not permanently, but temporarily obsolete. We have two choices: to pivot versus quit, and I believe that we can tack the boat and sail toward this new island and horizon of being in the leading next-gen interactive media company in alcohol bev, and starting in wine.
But if we do that, I need everyone to tighten their belt for three months. I need everyone to be willing and able to go down to minimum wage. I will bring enough, we will have just enough capital to fight through it to that point, and I’ll personally put in anything in my checking account as needed to keep us going for that time. I had already been a meaningful investor in the company. But at the end of the day, I need time. I need 90–120 days to get this pivot or tacking of the ship done, and in that time, I am gonna have too few resources, too little water, too little food to both get us there and worry about if people are in or out. So if you can’t do this, this is not what you signed up for, I completely understand. No harm, no foul. Take a day, think it through, and then let us know. If you can’t, my Rolodex is your Rolodex, and anything you need in order for us to go ahead and complete the pivot and you jump the ship, I get. But if you can hang with us, I promise we’ll refresh your equity, pay you back the forgone wages with interest when we get the new capital raise done, and I think you’ll have the opportunity to have been part of one of the great entrepreneurial stories of Silicon Valley.
There are lots of stories like this, not just mine, at Bottlenotes, whereby people have to do these pivots that are not that glamorous and not that often discussed. But it requires universally, universally requires the strength and conviction of people to join you in that change. So we did successfully keep everyone except one woman, who ended up starting her own graphic-design firm, whom we later utilized as a service provider to us. We had—. It was incredibly generous and gracious for those folks to hang with us in making that change. We had to bring in new team members, such as a different type of CTO. We had to bring in an editor-in-chief in the wonderful and extraordinary Karen MacNeil, the author of the Wine Bible, the most published book of all time. We had to, as I mentioned previously, new board, new independent directors, and then of course, new capital partners who had media investing experience, venture investing experience out of Manhattan.
And so the most satisfying day to me, for that company, honestly, one of the most satisfying days of my entire career at Bottlenotes was the day that the money came in and we back paid the team for their forgone wages. Far more satisfying than our largest advertising client, and we’re hitting certain user milestone metrics. It was that moment of seeing the look in my team’s eyes that they knew that they had bet on themselves and they had made the right bet. That moment is when I knew that we had all together, not just me, not just us, we together had successfully pivoted, and that was satisfying.
John Paul Rollert: So I’m curious, insofar as we’re talking about an experience that is now almost 13 years old, when you reflect on this time, is there a kind of central lesson that you took away from this experience? One that you maybe have applied in your continuing business endeavors, but also that you’ve tried to communicate in the classroom at places like Booth and Stanford, but also in your book, Leadership & Life Hacks?
Alyssa Rapp: I think there are several lessons, but the central lesson I have learned over and over and over again in my life, John Paul, is to keep swinging. This idea that until it’s the ninth inning and the last out, to borrow one of my husband’s great metaphors, you, it ain’t over, and you will never, nothing worthwhile is ever easy. Luck is by no means as gratifying as grit, but luck is luck and cannot be counted upon. Dedication, hard work, and fighting through challenge is the only thing you can control. You can control your effort and your attitude, and that is it. And that is necessary and not sufficient for success.
I’ve been on the wrong side of market timing and too early. I have, through Surgical Solutions, sailed to a global strategic partner, been on the perfect side of timing when we got a transaction done four weeks before COVID-19. We did everything right. We worked our tails off. We had done, set the stage for that moment, but if the timing had shifted six weeks, the entire deal might’ve been scuttled. So I have seen and learned the hard way that timing is outside of your control. Regulatory changes can be outside of your control. Your effort, your passion, your vision, and your commitment to excellence and to your team, that you can control, and I believe it’s necessary and not sufficient in any, candidly, in any phase of life.
John Paul Rollert: Well, of course, all of us have been dealing with forces far outside of our control for the last year and a half. And insofar as that’s the case, this lesson in persistence that, to use another famous baseball maxim from the great Yogi Berra, that it ain’t over until it’s over, is one that is important, indeed, and I’m so glad that you shared it. Alyssa Rapp, thank you so much for joining us.
Alyssa Rapp: My great pleasure.
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